Berens v. Ludwig

• Decision Date: 13 February 1997
• Docket Number: No. 96 C 3534.,96 C 3534.
• Parties: Mark H. BERENS, Plaintiff, v. Eugene LUDWIG, Comptroller of the Currency, and Marquette Bank, N.A., as Successor in interest to Marquette Bank Shakopee, N.A., Defendants.
• Court: U.S. District Court — Northern District of Illinois

953 F.Supp. 249

Mark H. BERENS, Plaintiff, v. Eugene LUDWIG, Comptroller of the Currency, and Marquette Bank, N.A., as Successor in interest to Marquette Bank Shakopee, N.A., Defendants.

No. 96 C 3534.

United States District Court, N.D. Illinois, Eastern Division.

February 13, 1997.

Mark H. Berens, Richard M. Carbonara, Altheimer & Gray, Chicago, IL, for Plaintiff.

James Michael Kuhn, U.S. Attorneys Office, Chicago, IL, Kenneth J. Lennon, Office of the Comptroller of Currency, Washington, DC, for Defendants.

MEMORANDUM OPINION AND ORDER

ALESIA, District Judge.

Before the court is defendant Comptroller of the Currency's motion to dismiss plaintiff Mark H. Berens' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), or in the alternative, motion for summary judgment pursuant to Federal Rule of Civil Procedure 56(b). For the reasons that follow, the court denies the motion to dismiss, but grants the motion for summary judgment.

I. BACKGROUND

Plaintiff Mark H. Berens ("Berens") owned 33 shares of stock in Marquette Bank Shakopee, N.A. ("bank"), making him a minority shareholder in the bank. Marquette Bancshares, Inc. ("MBI"), was the bank's majority shareholder. Some time prior to January 1, 1995, MBI decided to consolidate the bank with 10 other banks. Berens voted against the consolidation, to no avail. On January 1, 1995, MBI consolidated the banks, receiving 100 percent of the consolidated institution's stock. MBI gave Berens $12,071 per share of stock that he owned, but Berens felt that this price was too low.

Accordingly, Berens sought an appraisal of his stock by the Comptroller of the Currency ("Comptroller") pursuant to 12 U.S.C. § 215(d), which allows any interested party in a bank consolidation to request that the Comptroller appraise a dissenting shareholder's stock. The Comptroller's appraisal is final and binding on all parties.

Both Berens and MBI submitted information in support of their positions with respect to the value of the stock. The Comptroller considered the parties' materials, and conducted his own analysis. In his appraisal, the Comptroller considered the stock's market value, adjusted book value, and investment value. He gave no weight to the market value, finding that the bank's stock traded too infrequently and sporadically for a true and accurate market value to exist. He gave greater weight to the investment value than the adjusted book value, such that his final appraisal reflected a three-to-one weighting of investment value to adjusted book value. That is, the appraised value equalled 75 percent of the investment value plus 25 percent of the adjusted book value.

Using this methodology, the Comptroller determined that Berens' stock was worth $13,034 per share as of January 1, 1995. However, Berens' believes his stock is worth about $16,700 per share. Consequently, Berens filed this lawsuit against the Comptroller pursuant to the Administrative Procedure Act, 5 U.S.C. § 702, alleging that the Comptroller's appraisal was conducted in an arbitrary and capricious manner, and asking the court to set aside the appraisal. The Comptroller has moved to dismiss Berens' cause of action against the Comptroller, or alternatively, has moved for summary judgment on Berens' cause of action.¹

II. DISCUSSION

Berens has two primary quarrels with the Comptroller's appraisal of his stock. He contends that the Comptroller failed to adjust its calculations to account for about $5,000,000 in excess capital that the bank carried. He also contends that the Comptroller should have used a discounted cash flow analysis to estimate the bank's value. Berens asserts that these errors by the Comptroller resulted in an arbitrary and capricious appraisal that undervalued his stock.

The Comptroller moves to dismiss Berens' action for failure to state a claim. He argues that because the Comptroller was not required to use any particular methodology in appraising the stock's value, Berens cannot bring a claim based on the Comptroller's decision not to follow Berens' suggested approaches. In the alternative, the Comptroller argues that even if Berens could bring a cause of action based on the Comptroller's failure to use a specific appraisal methodology, the Comptroller's methodology was not arbitrary and capricious. Therefore, the Comptroller contends he is entitled to summary judgment on Berens' cause of action.

A. Motion to dismiss

When deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Cromley v. Board of Educ. of Lockport, 699 F.Supp. 1283, 1285 (N.D.Ill. 1988). If, when viewed in the light most favorable to the plaintiff, the complaint fails to state a claim upon which relief can be granted, the court must dismiss the case. See FED. R. CIV. P. 12(b)(6); Gomez v. Illinois State Board of Educ., 811 F.2d 1030, 1039 (7th Cir.1987). However, the court may dismiss the complaint only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

The Comptroller contends that under Beerly v. Department of the Treasury, 768 F.2d 942 (7th Cir.1985), cert. denied, 475 U.S. 1010, 106 S.Ct. 1184, 89 L.Ed.2d 301 (1986), this court cannot tell the Comptroller what methodology he should have used in conducting his appraisal of Berens' stock. According to the Comptroller, the essence of Berens' complaint is that the Comptroller should have used valuation methods other than the one he chose to use. Thus, the Comptroller argues, Berens' complaint asks the court to dictate the Comptroller's choice of appraisal methodology, which neither Berens nor the court can do. Therefore, Berens' cause of action should be dismissed.

Beerly is the preeminent case on the Comptroller's choice of appraisal methodology. In Beerly, the Comptroller considered four measures of a stock's value: book value, adjusted book value, market value, and investment value. Beerly, 768 F.2d at 945. The Comptroller gave no weight to book value or market value, finding neither to be a reliable indicator of the value of the stock. He averaged adjusted book value and investment value to arrive at his appraised value of the stock. Id.² The plaintiff challenged the method, arguing that it led to a price that was too low. Beerly, 768 F.2d at 944. The district court rejected the plaintiff's challenge, so he appealed. Id.

The Seventh Circuit noted that the methodology used by the Comptroller had been frequently criticized. Id. at 945. However, it found that this was not a reason to reject the methodology, stating that "the fact that the Comptroller was following a conventional approach goes far to shield his results from judicial invalidation. It is not for a reviewing court to tell an administrative agency to defy the conventional wisdom, to innovate, to be daring." Id. at 945-46.

After examining the comptroller's appraisal methodology, the court rejected the plaintiff's argument that the Comptroller should have used market value in his appraisal, finding that the Comptroller's procedure using an average of adjusted book value and investment value was "defensible." Id. at 947. The court also held that the Comptroller was not required to give any weight to the appraisal made by the plaintiff's appraiser. Id.

The Comptroller contends that Beerly precludes this court from deciding whether the Comptroller should have used a particular methodology instead of the one that he used. This court does not read Beerly as so absolute. The Beerly court stated that the fact that the Comptroller used a conventional appraisal went far in shielding his results from review, not that it precluded review. Moreover, the court then proceeded to evaluate the merits of the Comptroller's appraisal, rather than simply ceasing its review after finding that the Comptroller used a conventional method of appraisal. In fact, the court questioned one aspect of the Comptroller's valuation, but ultimately found that if the Comptroller had made an error, it was trifling. Id. at 948.

In short, the Seventh Circuit went beyond deciding whether the Comptroller had used a particular appraisal methodology, and determined whether the Comptroller's appraisal methodology was reasonable. The reasonableness of the Comptroller's appraisal methodology is not a question to be decided on a motion to dismiss, but is more appropriately a question for summary judgment. See, e.g., Simonds v. Guaranty Bank & Trust Co., 492 F.Supp. 1079, 1080 (D.Mass.1979); Yabsley v. Conover, 644 F.Supp. 689, 691 (N.D.Ill.1986); Keeffe, 808 F.2d at 248 (all deciding whether the Comptroller's appraisal was reasonable on motions for summary judgment).

Accordingly, the court denies the Comptroller's motion to dismiss, and will address the merits of the Comptroller's appraisal in the context of the Comptroller's motion for summary judgment.

B. Motion for summary Judgment

A motion for summary judgment must be granted if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). The burden is on the moving party to show that no genuine issues of material fact exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).

Once the moving party presents a prima facie showing that it is entitled to judgment as a matter of law, the party opposing the motion may not rest upon the mere allegations or denials in its pleadings but must set forth specific facts showing that a...