Lewis v. Clark

• Decision Date: 20 September 1990
• Docket Number: No. 89-3467,89-3467
• Parties: George E. LEWIS, II, as Personal Representative of the Estate of Sarah D. Lewis, Deceased, and Mary Ann G. Lewis, Plaintiffs-Appellants, v. Robert L. CLARK, as Comptroller of the Currency of the United States, and First Florida Bank, N.A., a national banking corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1558

911 F.2d 1558

59 USLW 2226

George E. LEWIS, II, as Personal Representative of the

Estate of Sarah D. Lewis, Deceased, and Mary Ann

G. Lewis, Plaintiffs-Appellants, v. Robert L. CLARK, as Comptroller of the Currency of the

United States, and First Florida Bank, N.A., a

national banking corporation,

Defendants-Appellees.

No. 89-3467.

United States Court of Appeals, Eleventh Circuit.

Sept. 20, 1990.

George E. Lewis, II, Tallahassee, Fla., for plaintiffs-appellants.

Ken Sukhia, Asst. U.S. Atty., Tallahassee, Fla., Yvonne D. McIntire, Office of the Comptroller of the Currency, Washington, D.C., for Clark.

Howell L. Ferguson, Landers & Parsons, Tallahassee, Fla., for First Florida Bank.

Appeal from the United States District Court for the Northern District of Florida.

Before FAY, Circuit Judge, RONEY ^*, Senior Circuit Judge, and PITTMAN ^**, Senior District Judge.

PER CURIAM:

Lewis State Bank, founded in 1856, was Florida's oldest bank in continuous operation. First Florida Banks, Inc., a registered bank holding company, owned 99.34% of Lewis State's stock. The plaintiffs owned 384 shares, which amounted to nine one-hundredths of one percent. The Comptroller of the Currency of the United States approved a merger of Lewis State Bank into the closely held First Florida Bank, N.A. Under the terms of the merger, Lewis State Bank's minority shareholders were to receive cash for their shares, while the majority would receive stock in the merged bank.

In this suit to review the agency action, the district court upheld the Comptroller's approval of the merger. We reverse. We can find no authority that permits a majority of the stockholders to freeze out minority shareholders by requiring them to take cash over their objection thus permitting the majority to become 100% owners of the merged corporation. If minority stockholders object to taking stock in the merged corporation, they can be required to take cash, but when they want stock in the merged corporation, they are entitled to even treatment with all other holders of like stock.

In 1985, First Florida Banks, Inc., a registered bank holding company, together with the boards of directors of its subsidiary banks, decided to merge the subsidiary banks into the company's lead bank, First Florida Bank, N.A. (which at the time was known as First National Bank of Florida). Lewis State Bank was one of the 12 subsidiaries to be merged into First Florida. Since First Florida owned virtually all of the stock, substantially more than the required two-thirds of Lewis State Bank's outstanding common stock voted in favor of the merger in July 1985. See 12 U.S.C.A. Sec. 215a. Plaintiffs, however, voted their Lewis State Bank shares against the merger. Subsequently, plaintiffs perfected their rights as dissenting shareholders under 12 U.S.C.A. Sec. 215a(b).

The cash that First Florida offered to minority shareholders in the merger agreement was $21 per share, based on the $20.78 book value per Lewis State Bank common share outstanding as of March 31, 1985. The stock to be given the holding company as majority shareholder was .4303 shares in the merged bank for each share of Lewis State Bank stock it held.

By dissenting, the plaintiffs rejected First Florida's $21-per-share offer. Subsequently, the plaintiffs and First Florida failed to appoint a three-person appraisal committee pursuant to 12 U.S.C.A. Sec. 215a(c) because they were unable to secure a mutually acceptable third appraiser. Accordingly, in June 1986, First Florida asked the Comptroller to appraise the dissenters' shares. The Comptroller allowed each party to submit materials for use in conducting the appraisal. Ultimately, relying principally upon the investment value method and data from a "peer group" of six banks, the Comptroller appraised the stock at $17.23 per share.

In June 1987, the plaintiffs instituted this action in the district court seeking judicial review of the Comptroller's (1) approval of the merger and (2) appraisal of their Lewis State Bank stock. See 28 U.S.C.A. Sec. 1331 and 5 U.S.C.A. Sec. 702. On April 4, 1989, the district court entered a final order affirming the Comptroller's actions. This appeal followed.

The Take-Out Merger

In sustaining the merger, the district court relied upon Beloff v. Consolidated Edison Co. of New York, 300 N.Y. 11, 87 N.E.2d 561 (1949) and Grimes v. Donaldson, Lufkin & Jenrette, Inc., 392 F.Supp. 1393 (N.D.Fla.1974), aff'd, 521 F.2d 812 (5th Cir.1975). Those cases are inapplicable, however, since both involved corporations that were publicly traded. The Grimes decision specifically distinguished Bryan v. Brock & Blevins Co., Inc., 343 F.Supp. 1062 (N.D.Ga.1972), aff'd, 490 F.2d 563 (5th Cir.1974), on this ground. "[A]s the district court emphasized, the company involved was a close corporation. This certainly is not the case here." Grimes, 392 F.Supp. at 1402.

The Comptroller and First Florida cite federal and state statutes that permit cash to be used as consideration in mergers. E.g., 12 U.S.C.A. Sec. 215a; Delaware Code Annotated, Title 8, Secs. 251, 253; Fla.Stat.Ann. Sec. 607.227 (predecessor to Sec. 607.1104, effective July 1, 1990). Nothing in these statutes expressly permits stockholders of the same class of stock to be differently treated. The statutes cited merely authorize the use of cash as consideration for stock in mergers; they do not say that the minority can be required to accept cash where not all stockholders are required to accept cash. It is argued that there is nothing in the federal banking statutes, the Florida Banking Statutes or Florida General Corporation Act which prohibits cash-out mergers. This, however, overlooks the basic thesis that if owners of the same class of stock are to be treated differently, there should be some specific decision to that effect by Congress.

The district court's statement that because plaintiffs were minority shareholders they were not similarly situated with the holding company and therefore not entitled to equal treatment seems to fly in the face of well settled equality-of-treatment principles. There is a longstanding equity tradition of protection of minority shareholders in American jurisprudence. See, e.g., Southern Pacific Co. v. Bogert, 250 U.S. 483, 487-88, 39 S.Ct. 533, 535-36, 63 L.Ed. 1099 (1919). In the absence of a legislative history rejecting that tradition, we are not satisfied that the legislatures which enacted the statutes cited intended to depart from that tradition. See Aaron v. SEC, 446 U.S. 680, 709-12, 100 S.Ct. 1945, 1962-64, 64 L.Ed.2d 611 (1980) (Blackmun, J. concurring in part and dissenting in part). We do not discern the permissive and explicit authority from Congress that is necessary to support the Comptroller's approval of the take out merger in this banking case. See Bloomington National Bank v. Telfer, 699 F.Supp. 190 (S.D.Ind.1988).

It is well settled that when the Comptroller acts in excess of its statutory grant of power or contrary to constitutional right, as here, it is subject to restraint by the courts. 5 U.S.C.A. Sec. 706(2)(A)-(C); First Union Bank & Trust Co. v. Heimann, 600 F.2d 91, 95 (7th Cir.), cert. denied, 444 U.S. 950, 100 S.Ct. 423, 62 L.Ed.2d 320 (1979); Webster Groves Trust Co. v. Saxon, 370 F.2d 381, 387 (8th Cir.1966).

We hold that without express statutory authority, the Comptroller has no authority to approve a merger which requires holders of stock of equal standing to take different forms of consideration.

The Appraisal

As a second point on appeal, the plaintiffs question the appraisal process. Our decision that the plaintiffs are entitled to shares of common stock of First Florida Bank N.A. in the same ratio as was received by the majority stockholder of Lewis State Bank effectively moots this issue. In order to dispose of the case as far as this panel is concerned, however, even if the basic decision is not upheld, we would affirm the district court's refusal to invalidate the Comptroller's appraisal of the minority's shares of Lewis State Bank stock.

In conducting the appraisal, the Comptroller selected a "peer group" of six Florida banking organizations and, relying on data from those banks as well as from Lewis State Bank, utilized varieties of the adjusted book value ¹ and investment value ² methods. See Note, Valuation of a Dissenter's Stock Under Appraisal Statutes, 79 Harv.L.Rev. 1453 (1966). The Comptroller explained its reasons for rejecting other valuation methods as follows:

1. Unadjusted Book Value was based on historical costs and did not reliably reflect investors' perceptions of the value of Lewis State Bank as a going concern;

2. Net Asset Valuation (as a means of adjusting Lewis State Bank's book value) posed a danger of distortion because (a) while some of Lewis State Bank's assets and liabilities could be readily adjusted based on available market data, others could not; and (b) such valuation failed to take into account the interrelated values among Lewis State Bank's assets, liabilities, customer relationships and staff expertise;

3. Market Value rested on infirm ground because Lewis State Bank's stock was not actively traded.

The Comptroller assigned greater weight to the figure it derived from the investment value method, noting that this method was income-based while the adjusted book value method was asset-based, and reasoning that more relative importance has been attributed to the income statement in recent years. The Comptroller arrived at an appraisal of $17.23 per share.

The Comptroller declined to accord weight to some of the material submitted by plaintiffs, stating that:

1. Lewis State Bank's being the oldest bank in continuous operation in Florida was of no use in the appraisal, because it was a trait that could not be valued;

2. The terms under which the holding company acquired a majority interest in Lewis State Bank in 1974, as well as the performance of the bank, though...