Mueller v. Macban
| Decision Date | 12 August 1976 |
| Citation | 132 Cal.Rptr. 222,62 Cal.App.3d 258 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Addison MUELLER, Plaintiff and Appellant, v. Michael F. B. MacBAN, as Savings and Loan Commissioner, of the State of California, Defendant and Respondent; A. C. MEYER, Jr., and Philip H. Angell, Jr., et al., Real Parties in Interest and Respondents. Civ. 34185. |
Munger, Tolles, Hills & Rickershauser, Allan Jay Moscov, Los Angeles, Arata, Misuraca & Clement, Clayton E. Clement, Santa Rosa, Kenneth E. Scott, Stanford Law School, Standford Univ., Stanford, for appellant.
Evelle J. Younger, Atty. Gen., Melvin R. Samuel, Deputy Atty. Gen., San Francisco, for respondent.
Lyman G. Lea, Andrew H. Field, Angell, Adams & Holmes, San Francisco, Hahn, Cazier, Hoegh & Leff, Los Angeles, for real parties in interest.
This is an appeal by petitioner from a judgment denying his petition for a writ of mandate under section 1094.5 of the Code of Civil Procedure. The judgment sustained a determination made pursuant to section 7616 of the Financial Code 1 by respondent, The Savings and Loan Commissioner of the State of California (hereinafter referred to as 'Commissioner') that petitioner could not bring a derivative action on behalf of Fidelity Financial Corporation (hereinafter referred to as 'Fidelity Financial'), and Fidelity Savings and Loan Association (hereinafter referred to as 'Association').
The real parties in interest are Association, Fidelity Financial, Guaranty Services Corporation (hereinafter referred to as 'Guaranty'), A. C. Meyer, Jr., Philip H. Angell, Jr., and Thomas Kerr.
Pursuant to the provisions of section 7616 petitioner filed an application with the Commissioner for permission to institute and maintain a stockholder's derivative suit on behalf of Fidelity Financial and Association against Fidelity Financial, Association, Meyer, Angell, Kerr and Guaranty.
Section 7616 provides as follows:
'(1) The plaintiff alleges in the complaint that he was a registered stockholder at the time of the transaction or any part thereof of which he complains or that his stock thereafter devolved upon him by operation of law from a holder who was a holder at the time of the transaction or any part thereof complained of.
'(2) The plaintiff alleges in the complaint with particularity his efforts to secure from the board of directors such action as he desires and alleges further that he has either informed the association or such board of directors in writing of the ultimate facts of each cause of action against each defendant director or delivered to the association or such board of directors a true copy of the complaint which he proposes to file, and the reasons for his failure to obtain such action or the reasons for not making such effort.
'(3) The commissioner shall have determined, after a hearing upon at least 20 days' written notice to such association and each of its directors, that such action (a) is proposed in good faith and (b) there is reasonable possibility that the prosecution of such action will benefit the association and its stockholders.
'Subdivisions (b) and (c) of Section 834 of the Corporations Code shall be applicable in the case of any such action.'
The gist of the proposed action is that Meyer and Angell acquired stock in Association, a savings and loan association, as the result of an exchange of their stock in Peninsula Savings and Loan Association (hereinafter referred to as 'Peninsula') upon the merger of Peninsula into Association; that such exchange was illegal; and that Meyer, Angell, and Kerr made 'insider profits' as a result of the merger. Petitioner, as a shareholder in Fidelity Financial, a savings and loan holding company owning 99.9 percent of the outstanding stock of Association, seeks by the derivative action to compel Meyer and Angell to return to Fidelity Financial stock of Fidelity Financial issued to them in exchange for their shares of stock in Association.
Following a hearing the Commissioner determined that petitioner had met the conditions specified in subdivisions (1) and (2) of section 7616 but that he did not meet the conditions specified in subdivision (3) of the statute. Accordingly, the Commissioner denied petitioner's application on the grounds that petitioner's proposed action is not proposed in good faith and there is no reasonable possibility that the prosecution of such action will benefit Association and its stockholders. The Commissioner made no specific determination with respect to Fidelity Financial.
1] It is asserted by Meyer, Angell, Kerr and Guaranty that the applicability of section 7616 was not a contested issue in the case. This assertion appears to have merit in view of the Commissioner's failure to make any specific determination with respect to Fidelity Financial. In any event, all of the real parties contend that section 7616 is inapplicable to Fidelity Financial because it is not a savings and loan association but a savings and loan holding company. We are persuaded that there is merit to this contention.
Section 7616 specifically states that (Emphasis added.) Section 7616 refers to 'association' six times and it makes no reference to holding companies. The savings and loan association statutes are contained in division 2 of the Financial Code of which section 7616 is a part. The definitions applicable to savings and loan associations are also contained in this division (art. 2, ch. 1, pt. 1) and are set forth in sections 5050 to 5075. Section 5050 provides that: 'Unless the context otherwise requires, the definitions set forth in this article govern the construction of this division.' Section 5055, in pertinent part, provides: "Association' means a savings and loan association, as defined in this article, . . .' A savings and loan association is defined in section 5057 as follows: "Savings and loan association' means any institution incorporated to conduct, or conducting, the business of receiving and lending money in accordance with the provisions of this part, except federal savings and loan associations.' It is undisputed that Association is a savings and loan association as defined in section 5057.
A 'savings and loan holding company' is defined in section 11500 and means any person or company which directly or indirectly owns, controls or has the power to exercise a controlling influence over the management of a savings and loan association in the manner and as provided for in the statute. It is undisputed that Fidelity Financial is a savings and loan holding company as defined in the statute.
Section 7616 was enacted in 1953. (Stats.1953, ch. 1454.) The statutes dealing with savings and loan holding companies were added as part 4 of division 2 of the Financial Code (§ 11500 et seq.) in 1964. (Stats.1st Ex.Sess.1964, ch. 103, § 5.) These statutes give the commissioner limited jurisdiction over such holding companies. They provide for registration with the commissioner, for reports to be made to the commissioner, and for examination by the commissioner.
When the holding company law was enacted in 1964 it made no reference to section 7616 or to derivative suits against holding companies. Section 7616 remained and still remains unchanged in its terminology. It appears, therefore, that it was the legislative intent to retain section 7616 in the form in which it was originally enacted and to restrict its applicability to savings and loan associations. We apprehend that savings and loan holding companies as general corporations are under the sole jurisdiction of the Corporations Commissioner and are subject to the provisions of the Corporations Code. The 1964 enactments in the Financial Code (§ 11500 et seq.) merely gave limited jurisdiction over the activities of holding companies and then only to the extent therein provided.
In view of the foregoing we are satisfied that a shareholder of a savings and loan holding company who desires to bring a derivative suit is relegated to the provisions of Corporations Code section 834 rather than section 7616. Under section 834 of the Corporations Code when a shareholder of a corporation brings a derivative suit, the corporation may move for an order that the plaintiff furnish security for reasonable litigation expense and attorney's fees on the following grounds: '(b) (1) That there is no reasonable possibility' that the suit will benefit the corporation or its security holders; or (2) 'That the moving party, if other than the corporation, did not participate in the transaction complained of in any capacity.'
2] Petitioner is entitled to bring a derivative action on behalf of Association provided he complies with the conditions specified in section 7616 and obtains a determination by the Commissioner that the proposed action is proposed in good faith, and there is a reasonable possibility that the prosecution of such action will benefit Association and its stockholders.
Pursuant to the provisions of section 7616 the privilege of instituting and maintaining a derivative action is given to a 'stockholder' of a savings and loan association. Petitioner is not a stockholder of Association nor was he such a stockholder at the time he filed the application...
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