Miami Beach Federal Savings & Loan Ass'n v. Callander

• Decision Date: 11 August 1958
• Docket Number: No. 17133.,17133.
• Citation: 256 F.2d 410
• Parties: MIAMI BEACH FEDERAL SAVINGS AND LOAN ASSOCIATION et al., Appellants and Cross-Appellees, v. Ralph M. CALLANDER et al., Appellees and Cross-Appellants. Ralph M. CALLANDER et al., Appellants and Cross-Appellees, v. MIAMI BEACH FEDERAL SAVINGS AND LOAN ASSOCIATION et al., Appellees and Cross-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

256 F.2d 410 (1958)

MIAMI BEACH FEDERAL SAVINGS AND LOAN ASSOCIATION et al., Appellants and Cross-Appellees, v. Ralph M. CALLANDER et al., Appellees and Cross-Appellants.

Ralph M. CALLANDER et al., Appellants and Cross-Appellees, v. MIAMI BEACH FEDERAL SAVINGS AND LOAN ASSOCIATION et al., Appellees and Cross-Appellants.

No. 17133.

United States Court of Appeals Fifth Circuit.

June 17, 1958.

Rehearing Denied August 11, 1958.

David W. Dyer, Miami, Fla., Ray E. Dougherty, Washington, D. C., Samuel A. Brodnax, Jr., Miami, Fla., for appellants.

J. Edward Worton, Miami, Fla., for appellees.

Before HUTCHESON, Chief Judge, and TUTTLE and WISDOM, Circuit Judges.

TUTTLE, Circuit Judge.

This is an appeal from an order and judgment of the district court, inter alia, directing that a special meeting of the shareholders of the Miami Beach Federal Savings and Loan Association be held for the purpose of electing directors to replace resigned directors and to fill the vacancies caused by an increase in the number of the directorate.

The suit was brought in the nature of a stockholders derivative action for a declaratory judgment as well as for temporary and permanent injunctions. The defendant Federal Home Loan Bank Board (hereinafter, the Board), is an agency of the United States Government, created and existing pursuant to the provisions of the Home Owners' Loan Act of 1933, 12 U.S.C.A. § 1461 et seq., charged by law with the examination, supervision and regulation of federal savings and loan associations. 12 U.S. C.A. § 1464(a). It does not question its suability in this district. The defendant, Miami Beach Federal Savings and Loan Association (hereinafter, the Association), is a federal savings and loan association, organized, incorporated and chartered by the Board. Individual defendants, Mitchell Wolfson, Henry D. Williams, John E. Shuey, Carl Weinkle and Claude A. Renshaw are presently serving as directors of the Association, having been elected by the board of directors on February 11, 1958.¹ Jurisdiction is asserted on a provision of the Home Owners' Loan Act. 12 U.S.C.A. § 1464(d) (1).

The complaint alleges in substance that upon demand by representatives of the Board, the board of directors of the Association on January 24, 1958, amended the by-laws of the Association so as to increase the directorate from eight to ten in number and certain members of the board of directors thereafter submitted their resignations. Upon further demand by representatives of the Board the individual defendants in this suit were elected to fill vacancies in the directorate resulting from the increase in number of directors and from the resignations.² It is alleged that the election was in complete and utter disregard of the charter and by-laws of the Association and of the rights of the members to be afforded the privilege of electing directors and that the actions of the representatives of the Board were arbitrary and capricious and in some vague and generalized way denied to the Association and its members due process of law as guaranteed by the Fifth Amendment of the United States Constitution.

The plaintiffs cite the following, which is Section 5 of the Charter of the Association as well as a regulation of the Board, as granting the power of election of directors to the stockholders:

"The association shall be under the direction of a board of directors of not less than 5 nor more than 15, as fixed in the association\'s by-laws or, in the absence of any such bylaw provision, as from time to time expressly determined by resolution of the association\'s members. Each director of the association shall be a member of the association, and a director shall cease to be a director when he ceases to be a member. Directors of the association shall be elected by its members by ballot: Provided, That in the event of a vacancy in the directorate, including vacancies created by an increase in the number of directors, the board of directors may fill such vacancy, if the members of the association fail so to do, by electing a director to serve until the next annual meeting of the members * * *."³

The complaint further alleges that one of the plaintiffs on behalf of other shareholders requested the president of the Association in writing to comply with Article 2⁴ of the by-laws in calling a special meeting of the shareholders upon the request of members holding 10% of the capital of the Association. Plaintiffs admitted at the hearing in the district court and during oral argument before this Court that they did not, at present or when they submitted the request, have the requisite 10% and that at least 30 days would be required to obtain the approval of sufficient shareholders to comply with the requirement, if their construction of the by-law is correct.

The prayer of the complaint is that pending final determination a preliminary injunction be issued restraining the Board and its representatives from supervising, conducting or otherwise interfering with the members of the Association in their right to elect directors and restraining the newly elected members of the board of directors from taking any further action with respect to the affairs of the Association. It asked that the preliminary injunction provide that the Association operate under the directorship of the four remaining "old" directors until final determination. The complaint prayed that the Board and its representatives be permanently enjoined from threatening to bring, without proper administrative procedure, any action against the Association. It asked that the court decree that members of the Association be accorded the right to elect members to fill any vacancies on the board of directors caused by the resolution increasing the number of directors or by the resignations of existing directors and that the election of the "new" directors was contrary to the charter and by-laws of the Association.

The defendants moved to dismiss the complaint for failure to state a claim upon which relief may be granted and to strike portions of the complaint alleging activities on the part of the Board which they claimed failed to assert a claim upon which relief may be granted as well as being immaterial and irrelevant.

On March 7, 1958, the district court heard arguments upon the motions for preliminary injunction by the plaintiff and motions to dismiss and strike by the defendants. No answers were filed by the defendants by that date, as their time to do so had not yet expired. No evidence was presented at the hearing as none was offered to or requested by the court.

The district court's order of March 11, 1958 directed that a special meeting of shareholders of the Association be held on March 27, 1958, for the purpose of electing directors to replace the directors elected by the board of directors on February 11. The court thus construed the charter as contended for by the plaintiffs, but gave them even more than they contended for by not even requiring the petition of 10 percent of the shareholders for the calling of the meeting. The judgment directed that the board of directors as presently constituted without the new members continue to function pending the special election. It enjoined the "directors and former directors of the Association who are presently under indictment in this Court"⁵ from exercising any proxies which they may hold and from soliciting votes from others. It enjoined the newly elected directors from using funds or personnel of the Association in the solicitation of votes; enjoined the Board and its representatives from interfering with or supervising the special election; and it ordered that plaintiffs shall have the right to examine the shareholder records of the Association, at their own expense, for the purpose of the special election.⁶

In viewing the allegations of the complaint concerning the Federal Home Loan Bank Board and aided by the determination by the district court, which heard elaborations on them by the plaintiffs' attorney,⁷ we are not really told that representatives of the Board did any more than they were authorized to do under the statute. The claimed fraud and duress are not averred with the particularity required by Rule 9(b), F.R. C.P., 28 U.S.C.A. See Texas Water Supply Corp. v. Reconstruction Finance Corp., 5 Cir., 204 F.2d 190.

Congress has provided the Board with authority to make policy, including rules and regulations for the organization, incorporation, examination, operation, supervision and regulation of the associations. See 12 U.S.C.A. Sec. 1464 (a) set out in the margin.⁸ Fahey v. Mallonee, 332 U.S. 245, 67 S.Ct. 1552, 91 L.Ed. 2030; Home Loan Bank Board v. Mallonee, 9 Cir., 196 F.2d 336. Further, are provided powers for the Board to enforce its rules and regulations.⁹ According to the statute the Board can submit a written notice of a violation to an association, conduct a full hearing, decide the issue, and then appeals lie as provided by the Administrative Procedure Act, 5 U.S.C.A. § 1001 et seq. Pursuant to its statutory grant the Board has adopted comprehensive rules and regulations concerning the powers and operations of every federal savings and loan association from its inception to its dissolution. Title 24, Code of Federal Regulations, 1949 Ed.Supp. Ch. I, subchapter C. When a governmental agency holds such great powers over its offspring, even to the point of appointing a conservator or receiver to replace the management, 12 U.S.C.A. Sec. 1464(d) (2), it is difficult to hold that an informal request, even demand, to clean house would amount to an abuse of the statutory powers and discretion of the agency.

Construing the vague allegations of the complaint most favorably to the plaintiffs, at the utmost there was a...