First American Bank of Maryland v. Shivers

• Decision Date: 01 September 1992
• Docket Number: No. 1903,1903
• Citation: 629 A.2d 1334,97 Md.App. 405
• Parties: FIRST AMERICAN BANK OF MARYLAND v. Rufus W. SHIVERS. ,
• Court: Court of Special Appeals of Maryland

Page 405

97 Md.App. 405

629 A.2d 1334

FIRST AMERICAN BANK OF MARYLAND v. Rufus W. SHIVERS.

No. 1903, Sept. Term, 1992.

Court of Special Appeals of Maryland.

Sept. 3, 1993.

J. Mark Coulson (Mark D. Gately, David M. Feitel and Miles & Stockbridge, on the brief), Baltimore, for appellant.

Edgar T. Bellinger (Yvonne Ramos Neitz and Zuckert, Scoutt & Rasenberger, on the brief), Washington, DC, for appellee.

Argued before MOYLAN and HARRELL, JJ., and ROSALYN B. BELL, ^* Judge (Retired), Specially Assigned.

HARRELL, Judge.

This appeal presents a statutory interpretation question of first impression in Maryland: In what manner must a bank provide notice of the effective date of its merger with another bank to a shareholder who has objected to that merger, so that the shareholder may timely exercise his statutory right to receive the fair market value of his shares?

I

The Financial Institutions Article of the Annotated Code of Maryland contains specific provisions governing mergers of banks. Section 3-719 of the article sets forth the procedures that a stockholder who objects to an approved merger must follow to perfect his right to fair value of his shares:

§ 3-719. Right to fair value.

(a) General rule.--The owner of shares of stock that were voted against a consolidation, merger, or transfer of assets is entitled to receive the fair value of those shares, in cash, if the transaction becomes effective.

(b) Procedure by stockholder.--A stockholder who desires to receive payment of the fair value for shares under this section, within 30 days after the transaction becomes effective, shall:

(1) Make a written demand on the successor for payment; and

(2) Surrender the stock certificates.

Md.Fin.Inst.Code Ann. § 3-719 (1992). ¹ The Financial Institutions Article is silent on the questions of who is to give bank shareholders notice of a merger's effective date and in what manner such notice is to be given.

The Maryland General Corporation Law, ² on the other hand, not only imposes specific duties on objecting stockholders with regard to exercising their statutory rights generally, but also provides clear directions to a successor corporation with regard to providing notice of the event that triggers the time period within which the stockholders may exercise those rights. The relevant sections provide as follows:

§ 3-203. Procedure by stockholder.

(a) Specific duties.--A stockholder of a corporation who desires to receive payment of the fair value of his stock under this subtitle:

. . . . .

(3) Within 20 days after the [State Department of Assessments and Taxation] accepts the [articles of merger] for record, shall make a written demand on the successor for payment for his stock, stating the number and class of shares for which he demands payment.

. . . . .

§ 3-207. Notice and offer to stockholders.

(a) Duty of successor.--(1) The successor promptly shall notify each objecting stockholder in writing of the date the articles are accepted for record by the Department.

(2) The successor may also send a written offer to pay the objecting stockholder what it considers to be the fair value of his stock....

(b) Manner of sending notice.--The successor shall deliver the notice and offer to each objecting stockholder personally or mail them to him by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, at the address he gives the successor in writing, or, if none, at his address as it appears on the records of the corporation which issued the stock.

CA §§ 3-203 & -207. With these statutes in mind, we turn to the case sub judice.

II

The material facts are not in dispute. On or about 29 March 1988, First American Bank of Maryland (First American or the Bank), appellant, entered into a merger agreement with FABM Acquisition Bank. The proposal was constructed with First American as the surviving, or successor, bank. On 25 May 1988, Rufus W. Shivers (the Shareholder), appellee, voted by proxy his 1178 shares of First American common stock against the proposed merger. His objection was to no avail, however, as he and his fellow dissentients comprised less than the number of the Bank's shareholders needed to defeat the proposal. The merger was approved on 14 June 1988.

Some time in August 1988 the Bank sent, by regular mail, a "Notice of Effective Date of Merger" to its shareholders. The notice was dated 8 August 1988 but there is no evidence as to when the notice was actually mailed. The notice informed the shareholders that the merger was approved on 14 June and became effective on 8 August. The notice also stated that objecting shareholders who did not perfect their "dissenter's rights" would be entitled to receive only the amount offered by the Bank for each share of First American stock. Finally, the notice directed shareholders who had voted against the merger and desired to perfect their dissenter's rights to follow the procedures set forth in FI § 3-719. By perfecting dissenter's rights within the thirty-day time frame indicated in that section, an objecting shareholder can elect to receive the appraised fair value of the shares rather than accept the dollar amount per share offered by the successor bank. The offered price per share was $42.00. The fair market value of the Bank's shares was eventually determined to be $55.00 per share.

The thirty-day period in the instant case began on 8 August 1988 and ended on 7 September 1988. The Shareholder, however, was away from his Alexandria, Virginia home on out-of-town trips for over half of those thirty days. On 11 August, he embarked on a thirteen-day business trip to several locations around the country; he returned home on 23 August. He left again on 2 September to oversee rental property that he owned in Delaware. He returned home from that trip on 6 September. He opened and read the 8 August 1988 Notice of Effective Date of Merger on 8 September, one day after the statutory time period ended. In his answers to the Bank's interrogatories in this litigation, the Shareholder explained that his two out-of-town trips and the large quantity of mail that accumulated during those trips contributed to the delay in discovering the 8 August 1988 notice. His answers further explained the circumstances surrounding his receipt of the merger notice:

I was out of town from the morning of August 11, 1988 until the night of August 23, 1988 and again from the afternoon of September 2 to the evening of September 6, 1988, for a total of 18 days.

I get a tremendous amount of mail.... In fact, due to the volume of mail I receive, when I return from a trip, especially a 13 day trip, it takes 4 or 5 days for the mail carrier to deposit all of this mail into a 3" by 4" mail box in the apartment house. In the meantime, more mail is being received.

. . . . .

In August 1991 I was on a 5 day trip returning August 13, 1991. I kept track of the mail I received over the next 12 days including one Sunday. I received 129 pieces of mail including 61 pieces of first class mail.

This gives an idea of the volume of mail that was on hand over the days immediately after arriving on August 23, 1988, then leaving again on September 2 and returning September 6, 1988.

. . . . .

After returning September 6, I went through the remaining mail on hand and the new mail received, and on September 8th I opened the First American letter advising me of the merger. On September 9th I called First American to advise the bank I had just received the merger notice and wrote a follow up letter dated September 9th advising the bank of this fact.

I have a savings and checking account with First American. In 1988 I also had a Master Charge with First American. I receive a voluminous amount of mail from First American.

The merger notice was in a plain white envelope with a plain white label address and had no significant marks to indicate it contained important or time limited data inside.

The Shareholder read the notice on the evening of 8 September. The next morning, he called the office of the Bank's corporate secretary, Nancy R. Lewis, whose name and number appeared on the notice. Because Ms. Lewis was not in her office, the Shareholder spoke to an unidentified woman. He explained to this person the circumstances surrounding his discovery of the merger notice, his status as a dissenting shareholder, and his desire to inform Ms. Lewis of these facts. Later that day, the Shareholder sent a letter addressed to Ms. Lewis, explaining the events leading to his discovery of the notice and expressing his desire to maintain his dissenter's rights. He added that his stock certificates were then being used as security for a loan, but that he would immediately take action to obtain them.

One week later, the Shareholder spoke to Ms. Lewis by telephone to restate his position as a dissenting shareholder and explain again the reason for his delay in perfecting his dissenter's rights. On 21 and 26 September 1988, however, the Shareholder received letters from the Bank's president, Paul G. Adams, III, denying his requests for fair value for his shares.

The Shareholder filed a complaint against the Bank in the Circuit Court for Montgomery County on 8 August 1991. He sought to be included among the Bank's list of objecting stockholders who had perfected their dissenter's rights and to receive the fair value for his shares. The Shareholder based his claim on the Bank's failure to send the merger notice via certified mail pursuant to CA § 3-207(b), which, he asserted, applied to bank mergers by way of FI § 1-201. The latter section provides:

*412s 1-201. Applicability of Maryland General Corporation Law.

Except as expressly provided by this article, the Maryland General Corporation Law applies to a financial institution and to all of its corporate acts.

The parties filed cross-motions for summary judgment. In its motion, the Bank relied on, among other things, CA §...