Bank v. Guar. Financial, No. 2010AP729.

CourtCourt of Appeals of Wisconsin
Writing for the CourtBefore VERGERONT, P.J., SHERMAN and BLANCHARD, JJ.
Citation334 Wis.2d 173,2011 WI App 82,800 N.W.2d 476
PartiesM & I MARSHALL & ILSLEY BANK, Plaintiff–Appellant,v.GUARANTY FINANCIAL, MHC, Guaranty Bank, GBRC Holding Company and GB REIT Corporation, Defendants–Respondents.
Decision Date05 May 2011
Docket NumberNo. 2010AP729.

334 Wis.2d 173
800 N.W.2d 476
2011 WI App 82

M & I MARSHALL & ILSLEY BANK, Plaintiff–Appellant,
v.
GUARANTY FINANCIAL, MHC, Guaranty Bank, GBRC Holding Company and GB REIT Corporation, Defendants–Respondents.

No. 2010AP729.

Court of Appeals of Wisconsin.

Oral Argument Dec. 14, 2010.Opinion Filed May 5, 2011.


[800 N.W.2d 479]

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Daniel J. Vaccaro and Joseph Louis Olson of Michael Best & Friedrich LLP, Milwaukee. There was oral argument by Daniel J. Vaccaro.On behalf of the defendants-respondents, the cause was submitted on the brief of Kevin L. Keeler and Mathew S. Vignali of Beck, Chaet, Bamberger & Polsky, S.C., Milwaukee. There was oral argument by Kevin L. Keeler.Before VERGERONT, P.J., SHERMAN and BLANCHARD, JJ.BLANCHARD, J.

[334 Wis.2d 179] M & I Marshall & Ilsley Bank appeals a circuit court order dismissing M & I's state law claims on federal preemption grounds. M & I's state law claims sought to reverse an exchange of shares of stock between defendant Guaranty Bank and defendant GB REIT on the grounds that the stock exchange amounted to fraudulent transfer and conversion of M & I assets pledged as collateral for a loan made by M & I to the defendant entities.1 The collateral for the loan was the GB REIT preferred shares, which were more valuable than the Guaranty Bank preferred shares.

¶ 2 Preemption became an issue because a federal regulatory agency directed the exchange of stock that M & I challenges in this action. The federal directives required the defendants to make the exchange for the purpose of increasing the capitalization of Guaranty Bank. The circuit court concluded that this law suit, in which M & I seeks to reverse the exchange, is preempted by the directives.

¶ 3 M & I acknowledges that relief it seeks, including an order that would void the stock exchange, would [334 Wis.2d 180] directly conflict

[800 N.W.2d 480]

with the federal agency directives. However, M & I contends that conflict preemption does not apply for three reasons: (1) the agency directives purporting to trigger the stock exchange were not valid, because the exchange was not permitted under the REIT's certificate of incorporation, due to an unfulfilled alleged condition precedent in the certificate; (2) the only federal regulation on which the agency could base its preemptive authority creates preemptive power solely for actions of the agency related to savings association “operations” not at issue in this case; and (3) even if the federal regulation provided preemptive authority, the directives lacked preemptive effect because they were not enforceable orders.

¶ 4 We conclude that the agency directives were not invalid due to the alleged condition precedent in the REIT's certificate of incorporation, that the federal regulation at issue created preemptive authority for the directives, and that the directives carried the force of federal law relevant for preemption purposes. Accordingly, we affirm the circuit court's order dismissing the complaint on preemption grounds, and do not reach additional arguments made by the defendants for dismissal of M & I's complaint.

STANDARD OF REVIEW

¶ 5 “A motion to dismiss a complaint for failure to state a claim tests the legal sufficiency of the complaint.” Watts v. Watts, 137 Wis.2d 506, 512, 405 N.W.2d 303 (1987). This presents a question of law for our independent review. Wausau Tile, Inc. v. County Concrete Corp., 226 Wis.2d 235, 245, 593 N.W.2d 445 (1999). We accept facts alleged in the complaint as true, drawing from those facts all reasonable inferences favoring[334 Wis.2d 181] a claim. Meyer v. Laser Vision Inst., LLC, 2006 WI App 70, ¶ 3, 290 Wis.2d 764, 714 N.W.2d 223. “A complaint should not be dismissed for failure to state a claim unless it appears certain that no relief can be granted under any set of facts that a plaintiff can prove in support of [the] allegations.” Watts, 137 Wis.2d at 512, 405 N.W.2d 303.

¶ 6 The following rule regarding attachments to complaints is also relevant:

When a document is attached to the complaint and made a part thereof, it must be considered a part of the pleading, and may be resorted to in determining the sufficiency of the pleadings. When the allegations of a pleading are inconsistent with the terms of a document attached as an exhibit, the terms of the document fairly construed, prevail over averments differing in the complaint.

Friends of Kenwood v. Green, 2000 WI App 217, ¶ 11, 239 Wis.2d 78, 619 N.W.2d 271 (citations omitted).

¶ 7 Thus, our factual summary and the discussion that follows are limited to consideration of: (1) allegations of fact contained in M & I's complaint; (2) allegations of fact reflected in exhibits attached to the complaint; and (3) all reasonable inferences arising from these allegations supporting M & I's claims, so long as an allegation in the complaint is not contradicted by the terms of an exhibit attached to the complaint.

BACKGROUND
M & I Loan to MHC Secured by REIT Stock

¶ 8 Under a March 30, 1998, loan agreement and its subsequent amendments, M & I loaned, over time, a total of $50 million to Guaranty Financial, MHC (MHC), then a Wisconsin mutual savings bank. As collateral security for its obligations under the loan agreement, [334 Wis.2d 182] MHC pledged 50,000 shares of preferred stock of the GB

[800 N.W.2d 481]

REIT Corporation. The REIT 2 was a wholly owned subsidiary of GBRC Holding Company, which was in turn a wholly owned subsidiary of Guaranty Bank. Guaranty Bank, in turn, was a wholly owned subsidiary of Guaranty Financial Corp., which was owned 52 percent by MHC.

¶ 9 As M & I provided loan proceeds under the agreement, the defendants used the proceeds to purchase the REIT preferred stock, and then pledged to M & I as collateral this REIT stock, transferring certificates for one share of the REIT stock for each $1,000 of principal loan balance, because the liquidation value of each share of REIT stock was $1,000. In this way, the defendants granted to M & I a lien on the pledged REIT preferred shares having a total liquidation value of $50 million.

Automatic Exchange Provisions

¶ 10 The REIT preferred shares purchased with the loan proceeds that served as collateral, as described above, were subject to a potential “automatic exchange” of shares. Pursuant to provisions of the REIT certificate of incorporation filed with the State of Delaware,3 the REIT shares would be automatically exchanged for [334 Wis.2d 183] Guaranty Bank preferred shares under specified circumstances. Those circumstances would trigger an “Exchange Event,” which would occur whenever the “appropriate regulatory agency directs in writing (a ‘Directive’)” that there be an exchange because of any of three events:

1. Guaranty Bank “becomes ‘undercapitalized’ under prompt corrective action regulations”;

2. Guaranty Bank “is placed into conservatorship or receivership”; or

3. “[T]he appropriate regulatory agency, in its sole discretion, anticipates” Guaranty Bank “becoming ‘undercapitalized’ in the near term (the ‘Exchange Event’).”

The Exchange Event would occur in the following manner. Each holder of the REIT preferred stock would be obligated to surrender to Guaranty Bank the certificates representing each share of the holder's REIT preferred stock, and Guaranty Bank would be obligated to issue in exchange, on a one-to-one ratio, shares of Guaranty Bank's preferred stock.

Guaranty Bank Converts to Federal Savings Bank Status

¶ 11 Federal preemption arises as an issue in this case because in 2002, MHC and Guaranty Bank converted to federal charters, although details of the conversions are not a focus of this appeal. M & I consented [334 Wis.2d 184] to these conversions in an amendment to the loan agreement. Guaranty Bank became a federal “thrift institution” by surrendering its Wisconsin charter in exchange for a federal stock saving bank charter, and MHC, as a federal mutual holding company, became the parent company of Guaranty Financial Corp., which was the parent of Guaranty Bank.

[800 N.W.2d 482]

OTS Issues Cease and Desist Orders; M & I Demand

¶ 12 On March 11, 2009, the Office of Thrift Supervision (OTS), the federal agency with regulatory authority over federal savings banks, issued orders directing MHC, Guaranty Financial Corp., and Guaranty Bank to cease and desist from certain actions and to undertake other actions to address “diminished capital levels, poor earnings, [a] high level of classified assets, and inadequate policies and procedures.”

¶ 13 These cease and desist orders constituted default events under the M & I loan agreement. In a separate default event under the loan agreement, MHC failed to make its March 31, 2009, quarterly interest payment on the loan to M & I. Citing these defaults, on April 6, 2009, M & I demanded repayment of the $50 million in loan proceeds that it was owed, and informed MHC that it intended to sell, in one or more private sales, the 50,000 shares of GB REIT preferred stock pledged as security under the loan.

OTS Issues Directive for Automatic Exchange

¶ 14 On April 24, 2009, OTS issued two similarly worded directives, one to Guaranty Bank and the other to the REIT. The texts of the directives are recited in full in the discussion below in ¶¶ 56, 57. They directed [334 Wis.2d 185] the defendants to make the automatic exchange of the REIT preferred shares for Guaranty Bank preferred shares, because OTS “anticipates the Bank becoming ‘undercapitalized’ under Prompt Corrective Action regulations, 12 C.F.R. Part 565, in the near term.” OTS directed: “The Automatic Exchange shall be effective at 8:00 a.m. Milwaukee time on Tuesday, April 28, 2009.”

¶ 15 The defendants made the exchange on April 28, 2009, and Guaranty Bank notified M & I that, pursuant to direction from OTS, Guaranty Bank was dissolving and liquidating both the REIT and GBRC Holding Company, so that all assets of the REIT and GBRC were...

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7 practice notes
  • Moran v. Wis. Dep't of Justice, Appeal No. 2018AP563
    • United States
    • Court of Appeals of Wisconsin
    • June 11, 2019
    ...––– U.S. ––––, 135 S. Ct. 1591, 1595, 191 L.Ed.2d 511 (2015) ; M & I Marshall & Ilsley Bank v. Guaranty Fin., MHC , 2011 WI App 82, ¶23, 334 Wis. 2d 173, 800 N.W.2d 476. We begin with a presumption that Congress did not intend to supplant state law. See M & I , 334 Wis. 2d 173, ¶22, 800 N.W......
  • People v. Fuentes-Espinoza, No. 08CA1231.
    • United States
    • Colorado Court of Appeals of Colorado
    • January 17, 2013
    ...and the competence of the court to reach the merits of the claims raised); M & I Marshall & Ilsley Bank v. Guaranty Fin., MHC, 334 Wis.2d 173, 800 N.W.2d 476, 483 (Wis.Ct.App.2011) ("Federal preemption of a matter deprives a state court of subject matter jurisdiction." (quoting Dykema v. Vo......
  • Milwaukee City Hous. Auth. v. Cobb, No. 2013AP2207.
    • United States
    • Court of Appeals of Wisconsin
    • May 28, 2014
    ...agreed. Our review of this legal issue is de novo. See M & I Marshall & Ilsley Bank v. Guaranty Financial, MHC, 2011 WI App 82, ¶ 21, 334 Wis.2d 173, 188, 800 N.W.2d 476, 483. We disagree.II. ¶ 4 “Federal preemption is based on Article VI of the United States Constitution, which makes feder......
  • State Ex Rel. Stupar River Llc v. Town of Linwood Portage County Bd. of Review, No. 2009AP191.
    • United States
    • United States State Supreme Court of Wisconsin
    • July 22, 2011
    ...217 (internal quotations and citations omitted). As such, the burden rests upon Stupar River to prove that the Board lacked sufficient [800 N.W.2d 476] evidence to uphold the 2005 assessment. ¶ 26 During the November 16, 2005 evidentiary hearing, the Board heard lengthy sworn testimony from......
  • Request a trial to view additional results
7 cases
  • Moran v. Wis. Dep't of Justice, Appeal No. 2018AP563
    • United States
    • Court of Appeals of Wisconsin
    • June 11, 2019
    ...––– U.S. ––––, 135 S. Ct. 1591, 1595, 191 L.Ed.2d 511 (2015) ; M & I Marshall & Ilsley Bank v. Guaranty Fin., MHC , 2011 WI App 82, ¶23, 334 Wis. 2d 173, 800 N.W.2d 476. We begin with a presumption that Congress did not intend to supplant state law. See M & I , 334 Wis. 2d 173, ¶22, 800 N.W......
  • People v. Fuentes-Espinoza, No. 08CA1231.
    • United States
    • Colorado Court of Appeals of Colorado
    • January 17, 2013
    ...and the competence of the court to reach the merits of the claims raised); M & I Marshall & Ilsley Bank v. Guaranty Fin., MHC, 334 Wis.2d 173, 800 N.W.2d 476, 483 (Wis.Ct.App.2011) ("Federal preemption of a matter deprives a state court of subject matter jurisdiction." (quoting Dykema v. Vo......
  • Milwaukee City Hous. Auth. v. Cobb, No. 2013AP2207.
    • United States
    • Court of Appeals of Wisconsin
    • May 28, 2014
    ...agreed. Our review of this legal issue is de novo. See M & I Marshall & Ilsley Bank v. Guaranty Financial, MHC, 2011 WI App 82, ¶ 21, 334 Wis.2d 173, 188, 800 N.W.2d 476, 483. We disagree.II. ¶ 4 “Federal preemption is based on Article VI of the United States Constitution, which makes feder......
  • State Ex Rel. Stupar River Llc v. Town of Linwood Portage County Bd. of Review, No. 2009AP191.
    • United States
    • United States State Supreme Court of Wisconsin
    • July 22, 2011
    ...217 (internal quotations and citations omitted). As such, the burden rests upon Stupar River to prove that the Board lacked sufficient [800 N.W.2d 476] evidence to uphold the 2005 assessment. ¶ 26 During the November 16, 2005 evidentiary hearing, the Board heard lengthy sworn testimony from......
  • Request a trial to view additional results

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