Lovell v. One Bancorp

• Decision Date: 14 July 1988
• Docket Number: Civ. No. 87-0296-P.
• Parties: Ann LOVELL, as Personal Representative of the Estate of John M. Lovell, Sr., Plaintiff, v. The ONE BANCORP, Maine Savings Bank, Frederick W. Pape, Jr., and Nancy Masterton, as Personal Representative of the Estate of Robert R. Masterton, Defendants.
• Court: U.S. District Court — District of Maine

690 F. Supp. 1090

Ann LOVELL, as Personal Representative of the Estate of John M. Lovell, Sr., Plaintiff, v. The ONE BANCORP, Maine Savings Bank, Frederick W. Pape, Jr., and Nancy Masterton, as Personal Representative of the Estate of Robert R. Masterton, Defendants.

Civ. No. 87-0296-P.

United States District Court, D. Maine.

July 14, 1988.

Richard E. Poulos, John S. Campbell, Portland, Me., for plaintiff.

Roger A. Putnam, Verrill & Dana, Portland, Me., for One Bancorp and Maine Sav. Bank.

Harold E. Woodsum, Jr., Jay S. Blumenkopf, Drummond, Woodsum, Portland, Me., for Frederick W. Pape, Jr.

Gerald F. Petruccelli, Portland, Me., James D. St. Clair, John F. Batter, Hale and Dorr, Boston, Mass., for Robert R. Masterton.

MEMORANDUM OF DECISION AND ORDER DENYING DEFENDANTS' MOTIONS FOR JUDGMENT ON THE PLEADINGS

GENE CARTER, District Judge.

I. INTRODUCTION

Plaintiff filed this action to challenge Defendant Maine Savings Bank's 1984 conversion from a mutual association to a stock corporation.¹ Plaintiff, a depositor in Maine Savings Bank ("Bank"), brings the action under Title 42 U.S.C. § 1983, claiming that the conversion, the process by which it was approved, and the Maine statutes and regulations that authorized it violated numerous state and federal constitutional rights and state statutory provisions. He has asked that the Court nullify the conversion. In the alternative, he seeks compensatory damages of $150 million and punitive damages of $50 million.

Plaintiff has named as Defendants Bank (the converting institution), The One Bancorp (the holding company formed to hold Bank's capital stock after conversion), Robert Masterton (chief executive officer and director of Bank and Bancorp), and Frederick Paper (chairman of the executive committee of Bank's and Bancorp's boards of directors).²

Defendants have moved for judgment on the pleadings, claiming that Plaintiff is precluded from bringing this action, and that abstention is warranted under the principles of Burford v. Sun Oil, 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). They claim, in the alternative, that the conversion was legitimately approved and legally executed, that the statutes authorizing it are lawful, and that it did not impinge upon any rights Plaintiff had in Bank before or after conversion.

For reasons set forth in this opinion, the Court denies Defendants' motion.

II. MAINE'S MUTUAL-TO-STOCK CONVERSION STATUTES

In 1975, the Maine legislature enacted legislation that authorizes mutual financial institutions to convert to stock ownership, and prescribes the procedure by which they must do so. Title 9-B M.R.S.A. § 344 authorizes a mutual-to-stock conversion if:

1. The converting bank adopts a conversion plan that provides equitably for the bank's depositors;³

2. The Superintendent of Maine's Bureau of Banking approves the plan as fiscally prudent and equitable to depositors; and

3. Two-thirds of the bank's depositors approve the plan.

The provisions of the bank's conversion plan are prescribed by the Federal Home Loan Bank Board's regulations on mutual-to-stock conversions, 12 C.F.R. § 563b, which the Superintendent has adopted to govern in-state conversions.⁴ Section 563b.3 requires that the conversion plan give depositors nontransferable subscription rights to buy stock in the new bank, 12 C.F.R. § 563b.3(c)(2); assure depositors accounts in the new bank equal to their accounts in the converted bank, 12 C.F.R. § 563b.3(c)(12); and protect depositors' interests in the converted bank's net worth by creating a liquidation account, 12 C.F.R. § 563b3(c)(13).

The liquidation account is created for the benefit of depositors and establishes a priority for liquidation. Depositors have an inchoate interest in the account, equal to their deposits at the converted bank, that vests if the new bank completely liquidates after converting. To establish a liquidation account, the new bank must segregate funds equal to its net worth at the time of conversion. 12 C.F.R. § 563b.3(f).

After the converting bank adopts a conversion plan with the requisite provisions, the Superintendent must pass on and approve it before it becomes effective. Before doing so, the Superintendent must instruct the converting bank to notify depositors and the public of the proposed conversion and of their right to request a hearing and submit written comments, including objections. 9-B M.R.S.A. § 252(2)(B); 12 C.F.R. § 563b.4(a)(v). The timing, type and content of the notice are strictly prescribed by Title 5 M.R.S.A. § 9052 and 12 C.F.R. § 563b.4.

If a hearing is requested, the Superintendent must conduct it. Whether or not a hearing is requested, the Superintendent must invite written comments, including objections, from interested parties. 9-B M.R.S.A. § 252(4); 12 C.F.R. § 563b.4. If, after considering the bank's conversion plan, written comments and hearing evidence, the Superintendent finds the proposed conversion equitable to the depositors and to the bank, the Superintendent must issue a preliminary approval order.⁵

The conversion plan must then be submitted to depositors for their approval. 9-B M.R.S.A. § 344(3). The converting bank must convene an annual or special meeting at which depositors may vote upon the proposed conversion. Depositors must be notified at least 15 days before the voting meeting of the proposed conversion and of their right to vote for or against it. 9-B M.R.S.A. § 353(3)(A). They must be informed, in addition, that all persons not personally casting votes at the meeting will be considered to have voted in favor of conversion, in accordance with Title 9-B M.R.S.A. § 353(3)(B).⁶

If the depositors approve the plan, the converting bank must submit to the Superintendent an "opinion of counsel" certifying that the depositor voting meeting complied with all state and federal laws and regulations. 12 C.F.R. § 563b.8(c)(2). The bank must then submit the executed conversion plan, certifying that the conversion complies with all applicable state laws and regulations. 9-B M.R.S.A. § 343(4)(A).

The Superintendent must then determine "as a condition precedent to issuing a conversion certificate that all applicable requirements of Federal law, if any, have been complied with by the converting institution." 9-B M.R.S.A. § 344(4). If the Superintendent is satisfied that the conversion plan complies with all applicable state and federal laws, that the converting bank has complied with all applicable federal law, and that the conversion is equitable to all parties, the Superintendent must then issue a certificate declaring the conversion final. By state law, the certificate is "conclusive evidence of the conversion, and of the correctness of all proceedings relating thereto, in all courts and places." 9-B M.R.S.A. § 343(4)(B).

Parties aggrieved by the Superintendent's final approval of the conversion may request judicial review in Superior Court by filing, within forty days of the Superintendent's approval, a petition for review. The Superior Court may also review "preliminary, procedural, intermediate and other non-final agency action" if review of the Superintendent's final approval would not provide an adequate remedy. 5 M.R.S.A. § 11001 (made applicable by 9-B M.R.S.A. § 256).

The Superior Court is authorized to reverse or modify the Superintendent's approval if that approval violates constitutional or statutory provisions, exceeds the Superintendent's statutory authority, is based upon unlawful procedure, is affected by bias or error of law, is unsupported by substantial evidence, or is arbitrary, capricious or an abuse of the Superintendent's discretion. 5 M.R.S.A. § 11007(4). Superior Court decisions on the propriety of the Superintendent's actions may be appealed to the Supreme Judicial Court. 5 M.R.S.A. § 11008(1).

III. MAINE SAVINGS BANK CONVERSION

On December 15, 1983, Bank's Board of Trustees adopted a Plan of Conversion ("Plan") providing that a holding company be created to hold Bank's newly created capital stock; that the holding company, Bancorp, raise capital through two stock offerings, one to subscription holders and one to the public; and that Bank grant subscription stock rights and create a liquidation account.

Bank submitted the Plan to the Superintendent of Maine's Bureau of Banking for approval. The Superintendent set a one-month comment period. Bank simultaneously filed the Plan with the Federal Reserve Board, asking the Board to approve the creation of Bancorp. Bank published notices of both applications.

On March 28, 1984, the Federal Reserve Board approved the formation of Bancorp. On April 2, 1984, Maine's Superintendent conditionally approved Bank's conversion, finding that the Plan "will promote the convenience and needs of the public and will be conducted in a fair and equitable manner."⁷ Notice of the Superintendent's conditional approval order was published.

Eligible depositors were notified by mail of the conversion and of their right to vote for or against it at a forthcoming meeting. The notice informed depositors of the principal effects of the conversion, of the operation of Maine's presumptive voting law (see footnote 2), and of their right to seek judicial review of the Superintendent's approval, if granted.

At a special voting meeting on May 11, 1984, eligible depositors approved the conversion.⁸ Proof of the depositors approval was forwarded to the Superintendent.

Bancorp conducted the requisite two stock offerings, raising $43.7 million. Bancorp transferred $5.8 million to Bank as working capital. Proof of the stock issue was sent to the Superintendent who, on June 12, 1984, issued a certificate declaring the conversion final.

IV. PLAINTIFF'S CHALLENGE

Plaintiff filed this action on October 2, 1987, alleging that Bank's conversion, the process by which it was approved, and the Maine statutes that authorized it were unconstitutional. His claims arise chiefly from his assertion that as...