Holmberg et al. v. Armbrecht et al.
327 U.S. 392 (1946)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The equitable doctrine of laches, not a state statute of limitations, governs the timeliness of a suit in federal court to enforce a federally created right for which the sole remedy is in equity. This federal doctrine incorporates the principle that the time for filing suit does not begin to run until a fraud has been discovered.
Facts:
- The Federal Farm Loan Act made shareholders of joint stock land banks liable for the bank's debts up to the par value of their stock.
- The Southern Minnesota Joint Stock Land Bank was organized under this act.
- Jules S. Bache concealed his ownership of 100 shares of the bank's stock under the name of Charles Armbrecht.
- In May 1932, the bank failed, with its debts exceeding its assets by more than the total value of its outstanding stock.
- Creditors of the bank did not discover Bache's concealed ownership of the stock until 1942.
- In November 1943, the creditors (petitioners) initiated a suit to enforce the shareholder liability against Armbrecht and Bache.
Procedural Posture:
- Creditors of the Southern Minnesota Joint Stock Land Bank first brought a suit in the U.S. District Court for the District of Minnesota to enforce shareholder liability, but this suit was dismissed without prejudice on procedural grounds.
- The creditors (petitioners) then filed the present suit in equity in the U.S. District Court for the Southern District of New York against Charles Armbrecht and the executors of Jules S. Bache (respondents).
- The District Court rejected the defendants' defenses of the statute of limitations and laches, entering judgment for the creditors.
- The respondents appealed to the U.S. Court of Appeals for the Second Circuit.
- The Circuit Court of Appeals reversed the District Court's judgment, holding that New York's ten-year statute of limitations barred the action.
- The U.S. Supreme Court granted certiorari to review the decision of the Circuit Court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a state statute of limitations bar a suit in federal court to enforce a federally created right for which the sole remedy is in equity, or does the federal equitable doctrine of laches apply?
Opinions:
Majority - Mr. Justice Frankfurter
No, a state statute of limitations does not bar a suit to enforce a federally-created right for which the sole remedy is in equity; the federal doctrine of laches applies. The court distinguished this case from Guaranty Trust Co. v. York, which involved a state-created right in a diversity suit where a federal court acts as 'only another court of the State.' Here, the right is created by Congress and the sole remedy is in equity, obligating federal courts, as national courts, to apply their own principles. While federal courts often adopt local statutes of limitation for actions at law where Congress is silent, the traditional rule for equitable remedies is the doctrine of laches. Laches is a flexible doctrine focused not on mere lapse of time but on whether a plaintiff has inexcusably delayed in a way that is unfair to the defendant. Crucially, a long-standing principle of federal equity, articulated in Bailey v. Glover, is that when a plaintiff has been injured by fraud, the time to bring suit does not begin to run until the fraud is discovered. This equitable tolling doctrine is read into every federal statute of limitation and must apply here to prevent the incongruous result of a state statute providing less relief than a federal one would.
Concurring - Mr. Justice Rutledge
Yes, I agree with the result and the majority opinion. I write separately to reserve judgment on the full scope of the Guaranty Trust Co. v. York doctrine. While York's rule may be accepted for most diversity cases, some of the equitable flexibility principles discussed today might be applicable even in diversity jurisdiction. However, I agree that the York doctrine should not be extended to cases like this, which involve the enforcement of federally created rights.
Analysis:
This case establishes a critical limitation on the doctrine from Guaranty Trust Co. v. York, creating a clear distinction between diversity cases involving state-law claims and federal question cases. By holding that federal equitable principles (laches) govern the timeliness of federally created equitable rights, the decision ensures national uniformity in the enforcement of federal law. It prevents a defendant from benefiting from fraud simply because a suit is brought in a state with a short statute of limitations. The decision reinforces the power of federal courts to apply their own historic equitable doctrines, particularly fraud-based tolling, to vindicate rights created by Congress.
Unlock the full brief for Holmberg et al. v. Armbrecht et al.