Appeal of Corporators of Portsmouth Sav. Bank
| Decision Date | 30 March 1987 |
| Docket Number | No. 86-199,86-199 |
| Citation | 525 A.2d 671,129 N.H. 183 |
| Parties | Appeal of Concerned CORPORATORS OF the PORTSMOUTH SAVINGS BANK. (New Hampshire Board of Trust Company Incorporation). |
| Court | New Hampshire Supreme Court |
Shaines & McEachern P.A., Portsmouth (Paul McEachern (orally) and Matthew T. Brock, on brief), for petitioners.
Upton, Sanders & Smith, Concord (Frederic K. Upton (orally) and Robert W. Upton, II, on brief), for Amoskeag Bank Shares, Inc.
Brown and Nixon P.A., Manchester (David L. Nixon (orally) and Leslie C. Nixon, on brief), for Portsmouth Sav. Bank.
This appeal is brought by twelve corporators of the Portsmouth Savings Bank (Portsmouth or Bank) pursuant to RSA chapter 541. They seek an order vacating a decision of the board of trust company incorporation (board or BTCI) granting Portsmouth's application for conversion from a mutual savings bank to a guaranty (stock) form of organization and for its simultaneous acquisition by Amoskeag Bank Shares, Inc. (Amoskeag), a bank holding company. We hold that, as a matter of law, the Bank trustees' plan of conversion-acquisition is unfair to the depositors of the Bank. Accordingly, we vacate the board's order.
Because this case is complex, it will be helpful to discuss its development in some detail.
The Bank is at present a mutual savings bank and, as such, has no capital stock. It is not a member of the Federal Reserve System, but its deposits are insured by the Federal Deposit Insurance Corporation (FDIC). Upon conversion to a guaranty form of organization, it will issue one class of capital stock; that is, common stock with a par value of one dollar per share. In total, 100,000 shares will be issued. All of these shares ultimately will be purchased by Amoskeag. Further, Amoskeag will offer shares of its common stock in a two-phased offering: first, a subscription offering to eligible depositors of the Bank and to its corporators, trustees, officers and employees; and second, a public offering. Eighty percent of the proceeds of the sale of Amoskeag stock will then be used to purchase all of the authorized capital stock of the Bank. The rest of the proceeds will be retained by Amoskeag for its general corporate purposes. The resulting corporate relationship will be that of a wholly-owned subsidiary and its holding company parent.
In its opinion issued on March 31, 1986, the board found that the application complied with all applicable statutes and regulations, and further specifically found that the conversion plan was fair to Portsmouth's depositors, see N.H.Admin. Code Tru 505.03 (hereafter the board's regulations will be styled Tru ----), in that it complied with the following legal requirements: "[I]t protects depositors' accounts, establishes a liquidation account, and provides priority subscription rights in the stock of the acquiring holding company." One member of the board, the State treasurer, agreed that the plan conformed to the regulations. However, in a separate concurrence, she expressed concern regarding whether the plan was substantively fair to Portsmouth's depositors.
The chairman of the board, Bank Commissioner A. Roland Roberge, dissented from the majority's position, expressing his belief that the board had erred in a number of ways in finding that the plan of conversion was fair to the depositors. The central thesis of Chairman Roberge's dissent was that the majority "limit[ed] the concept of fairness to merely the rigid application of the technical and legal requirements of the regulations." According to the chairman, "[t]hat is a mechanical interpretation of fairness that can only be applied without an analysis of the facts and knowledge of the banking industry." The dissent then pointed out four areas of unfairness the majority had overlooked. Stated briefly, Chairman Roberge believed the majority erred by: (1) "refusing to find that trustees of a mutual savings bank owe a fiduciary duty to the depositors[;]" (2) not considering the feasibility of a simple "stand-alone" conversion, without subsequent acquisition by Amoskeag; (3) allowing a conversion-acquisition which did not satisfy statutory obligations to depositors by "issuing voting trust certificates, shares of common stock, or any other value equivalent to their respective share of the Portsmouth surplus and net worth[;]" and (4) approving a conversion of the depositors' interest in the Bank's surplus into an interest in a liquidation account, which, according to the chairman, was a diminution of the depositors' rights. The chairman also pointed out that the Bank is now empowered to pay a percentage of profits to its depositors and that the conversion-acquisition frustrates the depositors' reasonable anticipation of such payments.
Pursuant to the provisions of RSA 541:3, the dissident corporators filed a motion for rehearing which was denied by order dated April 22, 1986. See RSA 541:5. In denying the corporators' motion for rehearing, the board made the following points, inter alia: (1) Nothing in the charter requires the trustees to distribute profits. The discretion of the trustees to distribute profits has been limited by RSA 386:9, RSA 386-A:23, and Tru 502.06; and (2) the board's rules do not require it to inquire into the existence of a fiduciary duty.
On appeal, the petitioners raise two general issues. First, they argue that the board does not have jurisdiction to approve the proposed conversion-acquisition transaction. Second, they contend that the proposed plan is not fair to Portsmouth's depositors. This general contention is then broken down into several separate arguments, more or less echoing the points discussed by Chairman Roberge's dissent. In addition, they argue that implementation of the plan would result in a violation of the Bank's charter. Put most simply, the thrust of the appellants' argument is that, if the Bank is to convert, it should transact a stand-alone conversion.
In response, Amoskeag and Portsmouth collectively argue that, because the petitioners have no concrete interest in the outcome of this litigation, they lack standing to maintain the action at all. On the merits, they argue that the board acted within the scope of its jurisdiction in approving the plan, that the board could not evaluate fiduciary obligations of the trustees, and that the plan is substantively fair to depositors because it preserves, through the setting up of a liquidation account, the interests of the depositors in Portsmouth's net worth. They further contend that Portsmouth's charter would not be violated by implementation of the plan and that failure to provide Portsmouth's depositors with subscription rights in the pre-acquisition issuance of stock by Portsmouth does not render the proposed transaction unfair. The defendants argue also that, in any event, the charter has been superseded by modern statutory and regulatory law.
We will consider each of these issues in the following order: first, whether the corporators have standing to conduct this litigation; second, whether the board had jurisdiction to approve the proposed transaction; and, finally, if the board properly exercised jurisdiction over the matter, whether the plan is fair to depositors.
Portsmouth and Amoskeag maintain as a procedural matter that the corporators lack standing to conduct this litigation because they have no stake in its outcome, citing Blanchard v. Railroad, 86 N.H. 263, 167 A. 158 (1933). Counsel for Portsmouth purported to waive the issue at oral argument, stating that he preferred that the court not decide this case on that basis, as he believed that the petitioners would simply commence suit again with depositors as parties. However, we observe that the transcript of the October 1, 1985 hearing before the board reveals that at least two of the corporators who testified at that hearing were also depositors of the Bank. Thus, at least some of the dissident corporators have a concrete interest in the outcome of this litigation within the meaning of RSA chapter 541, and therefore have standing to appeal.
The petitioners argue that the board had no jurisdiction to approve this proposed transaction because RSA 386:10, II limits the board's authority to the evaluation of conversions only. Thus, authority to approve a conversion-acquisition is outside the scope of the board's power. Further, it is argued, since the board can adopt rules regarding conversions only to the same extent as conversions are permitted by federal law, and since federal law requires bank members, including depositors, to approve a conversion-acquisition, then Portsmouth's depositors must approve this plan also. The petitioners accordingly argue that because Tru 506.02 purports to allow conversion-acquisitions without depositor approval, it is in conflict with federal law and therefore invalid. The final jurisdictional argument raised by the petitioners involves RSA chapter 388, which deals with bank unions and consolidations. Under that statutory scheme, the board is excluded from reviewing such unions, and jurisdiction over them is vested in the banking commissioner and the superior court. Petitioners, therefore, argue that RSA chapter 388 governs this transaction.
Portsmouth and Amoskeag argue, to the contrary, that the corporators' reading of RSA 386:10, II is both too narrow and inconsistent with the legislative intent expressed in RSA 394-A:1 to avoid disadvantaging State-chartered banks vis-a-vis their federal counterparts. They further argue that RSA chapter 388 applies only to mergers and consolidations, not acquisitions, and is therefore irrelevant to this transaction. In addition, they argue that the board's rules need not track the Federal Home Loan Bank Board's (FHLBB) rules,...
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