Henley v. Birmingham Trust Nat. Bank

• Court: Alabama Supreme Court
• Writing for the Court: JONES; SHORES; HEFLIN, C.J., and MADDOZ; MADDOX; HEFLIN; JONES; SHORES; HEFLIN, C.J., and MADDOX
• Citation: Henley v. Birmingham Trust Nat. Bank, 322 So.2d 688, 295 Ala. 38 (Ala. 1975)
• Decision Date: 21 August 1975
• Parties: John C. HENLEY, III v. BIRMINGHAM TRUST NATIONAL BANK. SC 780.

Page 688

322 So.2d 688

295 Ala. 38

John C. HENLEY, III v. BIRMINGHAM TRUST NATIONAL BANK.

SC 780.

Supreme Court of Alabama.

Aug. 21, 1975.

As Corrected on Denial of Rehearing Nov. 6, 1975.

Crenshaw & Minor, Montgomery, for appellant.

Macbeth Wagnon, Jr., Birmingham, for appellee.

JONES, Justice.

This is an appeal from a decree of the Circuit Court of Jefferson County entered on a petition filed by Birmingham Trust National Bank (appellee) which prayed for instructions and for ratification of previous acts by BTNB, as co-trustee of a charitable trust. John C. Henley, III (appellant), the other co-trustee, whose cross bill seeking removal of BTNB as co-trustee and other relief was denied, now appeals the order of instructions and ratification given BTNB.

The Trust involved is the Linn-Henley Charitable Trust which was established by the will of Walter E. Henley, the uncle of appellant Henley. Walter Henley was a member of the Board of Directors of BTNB for a period in excess of 50 years and President and Chairman of the Board of the Birmingham Realty Company. The trust corpus consisted almost entirely of stock, one-half of which was BTNB stock. The beneficiaries of the Trust, selected by the co-trustees, are limited to:

'. . . any corporation or organization organized and operated exclusively for religious, charitable, scientific, literary or educational purposes . . . whose activities are exclusively within the geographical limits of Jefferson County, Alabama or . . . which maintain branch operations within Jefferson County . . . (but any amounts distributed to the latter) must be expended . . . within Jefferson County . . .'

In the fall of 1968, the management of BTNB decided that it would be advantageous to change its corporate structure from a National Banking Association to that of a 'holding company.' When this merger was completed, the new structure would consist of a national bank known as the Alabama National Bank, and a Delaware business corporation known as the BTNB Corporation which would own all of the stock of the 'new' national bank.

The plan of merger, as governed by the National Banking Act, 12 U.S.C. § 215a, was that the existing bank would be merged into the 'new' bank. The 'new' bank would not issue stock in the National Banking Association to the shareholders of the 'old' bank, but instead would issue one share of stock of the 'new' bank directly to the Delaware business corporation in exchange for stock of the existing bank. The Delaware corporation would then issue one share of stock of that corporation for each share of stock in Birmingham Trust National Bank turned in for conversion. When these various steps were completed, each former shareholder of Birmingham Trust National Bank would hold stock of the Delaware business corporation known as BTNB Corporation.

Although over 80% Of the stockholders were in favor of this merger, Henley was opposed to it since he felt that from an investment viewpoint the stock of 'old' BTNB was more desirable. Thereupon, under authority of 12 U.S.C. § 61(3), which states that in a situation where a national bank and one or more individuals are co-trustees of a trust containing stock of the national bank, the shares of the bank stock may be voted by the individual co-trustee as though he were sole trustee, Henley voted both his personal stock and the Trust's 27,460 shares against the merger, and made extensive remarks in support of his position at the stockholders' meeting. The merger was approved by the Comptroller and became effective on December 31, 1968.

On January 30, 1969, Henley informed BTNB that the Trust was dissenting from the merger. BTNB, to state it mildly, was quite incensed at this course of action pursued by Henley and unsuccessfully attempted to persuade him not to continue with his planned avenue of dissent.

The President of BTNB even arranged a meeting between Henley and one J. Craig Smith, a director of BTNB and Chairman of the Board of Avondale Mills, in the hope that Smith could persuade Henley not to dissent from the merger. It seems that Henley's company, Birmingham Publishing Company, had for some years been responsible for printing the annual reports of Avondale Mills. In fact, one year earlier Birmingham Publishing Company performed over $30,000 worth of services for Avondale Mills. Conspicuously, however, after this meeting with Smith, wherein Henley refused to alter his stand, Birmingham Publishing's business with Avondale Mills dwindled to $640 two years later.

The statutory procedure for dissent by a stockholder in the present situation is outlined in 12 U.S.C. § 215a(b), (c) and (d). In substance, that procedure is as follows: Those shareholders who are opposed to the merger, as was the Trust, shall be entitled to receive the value of the shares they hold after the merger is approved by giving the receiving association (the 'new' bank) notice of such intent at any time before thirty days after the date of consummation of the merger, and by surrendering the stock certificates.

The value of the shares of any dissenting shareholder shall be ascertained by an appraisal made by a committee of three persons, composed of (1) one selected by the vote of the holders of the stock who are dissenting (2) one selected by the directors of the 'new' bank; and (3) one selected by the two so selected.

If, within 90 days of the consummation of the merger, for any reason one or more of the appraisers are not selected, or they fail to determine the value of the shares, the Comptroller, upon written request of any interested party, shall determine the value of the shares which shall be final and binding on all parties. This amount shall be promptly paid to the dissenting shareholders by the 'new' bank. Then those shares of the 'new' bank which would have gone to the shareholders in exchange for their shares of 'old' bank stock, had they not dissented, shall be sold at an advertised public auction. The 'new' bank has the right to bid on the 'new' stock, and if the price paid at this auction is greater than that paid to the dissenting shareholders, the difference shall be paid to the dissenting shareholders. If the 'new' bank is the highest bidder at this auction, it shall resell these shares within 30 days thereafter to such person or persons as it shall desire.

Henley, in compliance with the statute, gave BTNB notice of his intent to dissent and surrendered the shares held by the Trust. Henley appointed one appraiser, though no notice was given to BTNB of such appointment, and BTNB did not appoint anyone to appraise the value of the stock. Neither Henley nor BTNB complied with the 90-day requirement of notifying the Comptroller should the appraisers not be appointed or be unable to agree as to the value of the stock. In fact, Henley never gave notice to the Comptroller and BTNB did not do so until September 23, almost eight months after the merger.

The Comptroller finally did determine the value of the shares of $32.80 a share, for a total of $900,688. Neither co-trustee submitted any pertinent information to the Comptroller which might have aided him in reaching his decision as to the value of the shares.

As required by the statute, BTNB then offered for sale at auction the holding company stock, i.e., the equivalent of the stock of the old bank. The only bid was by BTNB Corporation--the holding company--for $26 per share. Since this bid did not exceed the $32.80 per share previously paid by the dissenting shareholders, no further payment was made by BTNB to the Trust.

In addition to the foregoing transaction, Henley also wished to persuade BTNB to allow the Trust to purchase stock in Birmingham Realty Company. The company, of which Walter Henley was a substantial stocholder, originally owned about 2700 acres where the City of Birmingham is located. It still owns in excess of 200 parcels of real estate in the area.

Henley's argument in favor of purchasing more stock in Birmingham Realty was based on his contention that Walter Henley had in the past discussed with him his desire to bring control of the company to Birmingham from New York. In 1970, about 5% Of the outstanding stock in Birmingham Realty came up for sale. If the stock could be acquired, the New York holdings in the company would be reduced below 20% And control would then be centered in Birmingham. Henley began negotiations and was told that the stock, with a book value of $900 per share, could be purchased for $650 per share. BTNB refused to agree to the purchase. It was stipulated that the last trade of Birmingham Realty stock before the trial was 5 shares at $1800 per share on May 14, 1973, and that less than 10 shares were offered by the Montgomery office of Sterne, Agee and Leach at a price of $2050 per share.

In April, 1970, Henley demanded further payment by BTNB to the Trust. (Prior to this, BTNB had mistakenly paid $32,952 as dividends on stock of the Delaware Corporation since the Trust no longer owned the stock, and had offered to pay the Trust $28,211 or approximately 6 1/2% Interest on the appraised value of the BTNB stock which it had had the use of for more than a year.) After an extended period of unfruitful negotiations between the two cotrustees, BTNB petitioned the circuit court for instructions and ratification of previous acts.

The issue presented, then, is whether either or both BTNB and Henley, as cotrustees of a charitable trust, are guilty of a breach of their fiduciary duty owed to the Trust as trustees. We find that both are guilty of such a breach.

Initially, we would point out, irrespective of Henley's contentions, that we are not here to decide the propriety vel non of BTNB's decision to merge itself from a national banking association to that of a 'holding company.' This is a decision solely within the discretion of the directors and shareholders of BTNB. As previously noted, the option of dissent was readily...