Lovell v. One Bancorp

• Decision Date: 20 August 1992
• Citation: 614 A.2d 56
• Parties: Ann B. LOVELL, et al. v. The ONE BANCORP, et al.
• Court: Maine Supreme Court

Page 56

614 A.2d 56

Ann B. LOVELL, et al. v. The ONE BANCORP, et al.

Supreme Judicial Court of Maine.

Argued March 19, 1992.

Decided Aug. 20, 1992.

Richard E. Poulos (orally), John S. Campbell, Poulos, Campbell & Zendzian, P.A., Portland, for plaintiffs.

Robert S. Frank (orally), Roger Putnam, Verrill & Dana, Portland for One Bancorp.

Thomas D. Warren (orally), Deputy Atty. Gen., Augusta, for Superintendent of Banking.

Gerald F. Petruccelli, Petruccelli & Martin, Portland, James D. St. Clair, P.C., John F. Batter, III, J. Kent Wicker, Hale and Dorr, Boston, Mass., for defendants.

Mark L. Haley, James E. Kaplan, Diana M. Quinlan, Conley, Haley, O'Neil & Kaplan, Bath, Richard J. Wertheimer, David F. Freeman, Jr., Arnold & Porter, Washington, D.C., for amicus curiae.

Before WATHEN, C.J., and ROBERTS, GLASSMAN, CLIFFORD and COLLINS, JJ.

CLIFFORD, Justice.

Pursuant to 4 M.R.S.A. § 57 (1989) and M.R.Civ.P. 76B, ¹ the United States District Court for the District of Maine has certified to this court five questions of state law. Because there is no dispute as to the material facts in this federal case and our answers to the questions will, in at least one alternative, be determinative of it, the requirements of our acceptance of the questions have been met and our exercise of jurisdiction is proper. See Hiram Ricker & Sons v. Students Int'l Meditation Soc'y, 342 A.2d 262, 264 (Me.1975); White v. Edgar, 320 A.2d 668, 674 (Me.1974); In re Richards, 223 A.2d 827, 828-833 (Me.1966); see generally 2 Field, McKusick & Wroth, Maine Civil Practice § 76B.1-2 (2d ed. 1970 & Supp.1981). To the extent that we are required to do so, we answer question one in the affirmative. We need not, for reasons stated herein, make any pronouncement on question two. We answer question three in the negative and, because we do so, we do not address the remaining questions.

BACKGROUND

The United States District Court (Carter, C.J.) has prepared a statement of facts, see M.R.Civ.P. 76B(b), from the material and undisputed facts presented by the parties in connection with their pending motions for summary judgment in that court. The following summary is based on that statement of facts. On October 2, 1987, the plaintiffs, Ann Lovell, individually and as personal representative of her late husband, John M. Lovell, Sr., and Mary Campbell filed an action in the United States District Court for the District of Maine challenging the lawfulness of Maine Savings Bank's 1984 conversion from a mutual association to a stock corporation. ² The plaintiffs, depositors in Maine Savings Bank prior to and at the time of the conversion, claim that the conversion, the process by which it was approved, and the statutes and regulations that authorized it violated numerous state and federal constitutional rights. The plaintiffs' claims arise chiefly from their assertion that as depositors in a preconversion mutual association, ³ they owned a portion of the association proportionate to their funds on deposit and, thus, had certain protected property interests that were required to be recognized in the form of an asset or free stock distribution upon the bank's conversion from a mutual association to a stock bank.

A. General Statutory and Regulatory Scheme Governing

Mutual-to-Stock Bank Conversions in Maine

The conversion of mutual savings banks to stock form was first authorized in 1975 when the legislature enacted 9-B M.R.S.A. § 344 as part of a complete revision of the law governing Maine's financial institutions, sometimes referred to as the Maine Banking Code. P.L.1975, ch. 500. Section 344 provides that the procedure for the conversion of a mutual savings bank begins with the adoption of a plan of conversion by the bank's board of directors. 9-B In August 1983 (four months before Maine Savings Bank adopted its plan of conversion), the Superintendent issued Bureau of Banking Bulletin No. 41, regarding mutual to stock conversions. That bulletin provided that the procedures and criteria contained in the Federal Home Loan Bank Board (FHLBB) regulations governing mutual to stock conversions for federally-chartered institutions ⁶ would be used as guidelines for the contents of a plan of conversion in connection with a mutual to stock conversion of a Maine state-chartered institution. ⁷ The FHLBB regulations authorize the converting institution to issue stock and require that the conversion plan give depositors in the converting mutual bank nontransferable subscription rights to purchase stock in the new institution before any offering is made to the public, but at the same pro forma price per share. 12 C.F.R. § 563b.3(c)(1) (1983). The federal regulations also require that depositors' accounts in the new bank equal their accounts in the converted bank, 12 C.F.R. § 563b.3(c)(12), and that the depositors' interest

                M.R.S.A. § 344(1) (1980 & Supp.1991).  The plan of conversion must then be forwarded to the Superintendent of the Bureau of Banking who must approve the plan after notice to depositors and the public of the proposed conversion, and an opportunity for comment.  9-B M.R.S.A. §§ 252, 344(2). 4  If, after considering the bank's conversion plan and any written comments or other evidence presented, the Superintendent finds the proposed conversion equitable to the depositors and to the bank, and that the relevant statutory criteria have been fulfilled, the Superintendent must issue a preliminary order of approval.  The plan of conversion must then be submitted to the eligible account holders of the converting institution for their approval.  9-B M.R.S.A. § 344(3).  Such approval requires a two-thirds vote of the eligible account holders. 5  If the account holders approve the plan of conversion, the bank then submits an executed plan to the Superintendent.  9-B M.R.S.A. §§ 343(4)(A), 344(4).  If the Superintendent is satisfied that the conversion plan is equitable and complies with all applicable state and federal laws, the Superintendent must then issue a certificate of conversion that serves as "conclusive evidence of the conversion, and of the correctness of all proceedings relating thereto, in all courts and places."  9-B M.R.S.A. § 343(4)(B);  see section 344(4).  Parties aggrieved by the Superintendent's final approval of the conversion may request judicial review in the Superior Court by filing, within forty days, a petition for review.  See 9-B M.R.S.A. § 256 (1980);  5 M.R.S.A. §§ 11001-11002 (1989);  M.R.Civ.P. 80C
                in the converted bank's net worth be protected by the creation of a liquidation account.  12 C.F.R. § 563b.3(c)(13).  Depositors have an inchoate interest in the liquidation account equal to their deposits at the converted bank that vests only if the new stock institution completely liquidates after converting.  12 C.F.R. § 563b.3(f).  The FHLBB regulations prohibit a plan providing for the distribution of the converting institution's surplus to existing account holders in the form of cash or free stock.  12 C.F.R. § 563b.3(a)(2)
                

B. The Maine Savings Bank Conversion

On December 30, 1983, Maine Savings Bank filed an application with the Maine Bureau of Banking to convert to stock form under 9-B M.R.S.A. § 344. The plan provided that Maine Savings Bank would convert to stock form and issue all of its stock to The One Bancorp, a holding company formed for the purpose of acquiring and holding the newly issued stock of Maine Savings Bank. All of the stock of The One Bancorp would be offered for sale first to eligible account holders ⁸ in a subscription offering at a price equal to the fair market value of the stock, based upon an independent appraisal. Shares not subscribed for by eligible account holders would be offered, at that same price and in descending order of priority, to other account holders, bank personnel, and the public, at the same fair market value. The plan did not provide for the distribution of any cash, or any free or discounted stock, to account holders of the Bank. ⁹ In connection with the transfer of Maine Savings Bank stock to The One Bancorp, the plan also provided that The One Bancorp would allocate to Maine Savings Bank a portion of the conversion proceeds from the sale of stock of The One Bancorp sufficient to maintain the Bank's existing capital-to-asset ratio.

The plan provided for the creation of a liquidation account, setting forth the priorities for the distribution of any net surplus of Maine Savings Bank in the event that Maine Savings Bank liquidated while solvent within ten years following the conversion. The liquidation account was not a separate pool of funds, but an accounting memo entry of a contingent liability against the Bank. Each eligible account holder's interest in the liquidation account (the account holder's sub-account balance) would decline as withdrawals were made from his or her deposit account. The liquidation account would terminate in any event ten years after the conversion. The plan also imposed restrictions on the dividends that could be paid by Maine Savings Bank to The One Bancorp. Dividends were limited for three years following the conversion to 50% of Maine Savings Bank's earnings, and further limited so as to prohibit dividends that would reduce the stated net worth of Maine Savings Bank to an amount below the balance of the liquidation account. The substantive terms of Maine Savings Bank's plan were essentially the same as those required by the FHLBB regulations governing the mutual-to-stock conversion of FHLBB-regulated savings and loan associations and federally chartered mutual savings banks, see 12 C.F.R. § 563b, with the exception that the liquidation account established by Maine Savings Bank's plan of conversion was limited to a term of ten years.

No written comments or requests for hearing on the application were ever received by the Bureau of Banking, and no hearing on the application was held. On April 2, 1984, the Bureau of Banking issued an order...