Mueller v. Savings & Loan Commissioner
| Decision Date | 26 May 1976 |
| Citation | 58 Cal.App.3d 667,130 Cal.Rptr. 216 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Addison MUELLER, Plaintiff and Appellant, v. The SAVING 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, for plaintiff and appellant.
Evelle J. Younger, Atty. Gen., Mervin R. Samuel, Deputy Atty. Gen., San Francisco, for defendant and respondent.
Lyman G. Lea, Andrew H. Field, Angell, Adams & Holmes, San Francisco, 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'). We have concluded that the trial court should have issued a writ of mandate ordering the Commissioner to determine that petitioner may bring the derivative action.
Section 7616 provides as follows: 'No action may be instituted or maintained in the right of any association by any shareholder or certificate holder, as such. Such action may not be instituted or maintained by a stockholder of any association, unless all of the following conditions exist:
'(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 it 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 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.
The pertinent facts, as disclosed by the administrative record, are as follows:
Petitioner is the owner of 2,100 shares of Fidelity Financial, a savings and loan company owning 99.9 percent of the outstanding stock of Association. Real parties Meyer, Angell and Kerr are directors of both Fidelity Financial and Association. Meyer has been president of Association since 1963 and was its president at the time of the instant proceedings. Angell has been secretary of Association since 1965. Petitioner seeks, by 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, which stock was issued to them in exchange for their stock in Peninsula Savings and Loan Association (hereinafter referred to as 'Peninsula'). The thrust of the proposed action is that the exchange of the Peninsula stock for Association's stock was illegal and that Meyer, Angell and Kerr made 'insider profits' as a result of the merger of Peninsula into Association.
In 1965 shareholders of First Peninsula California Corporation (hereinafter referred to as 'California Corporation'), the parent company of Peninsula which was wholly owned by California Corporation, offered to sell Peninsula to Association. The negotiations continued intermittently until July 1968. The shareholders of California Corporation desired a cash transaction. However, at that time regulations and statutes did not permit one savings and loan association to invest cash in another savings and loan association. On July 24, 1968, Meyer entered into an agreement on behalf of himself and 'Associates' for the purchase of a minimum of 80 percent (400,000 shares) of the stock of California Corporation at the price of $6.20 per share. Meyer's associates were Angell, Kerr and Guaranty. Guaranty's stock was owned 60 percent by Meyer, 20 percent by Angell, and 20 percent by one Robinson who was also a director of Association.
On September 13, 1968, the July 24 agreement was modified to provide that Meyer and his associates would be jointly and severally liable with California Corporation for the payment of any liabilities of California Corporation for the liquidation, dissolution and winding up of California Corporation and, in liquidation of California Corporation, for the delivery, assignment and distribution to Meyer and his associates of California Corporation's shares in Peninsula. 2 In order to consummate this transaction Meyer and Angell borrowed $7,000,000 from the United California Bank.
On September 26, 1968, it was resolved by the board of directors of Association that the officers of Association were authorized to negotiate a merger of Peninsula with Association. At a board of directors' meeting of Association held on October 24, 1968, it was determined that the stock of Association had a book value of $20.38 per share and that the merger of Peninsula and Association be approved on the basis that 500 shares of Association would be exchanged for each share of Peninsula stock. The merger ratio was determined on the 'hard book value' of each corporation. 3 At the same meeting the directors also approved the merger of General Savings and Loan Association (hereinafter ') with Association. Meyer and Angell abstained from voting. Kerr did not attend the October 24 meeting.
In December of 1968 Association sent to its stockholders a copy of a proxy statement ('Statement of General Terms of Proposed Merger') and a notice of a meeting to be held on December 30, 1968, to consider the merger. Petitioner voted against the merger. On December 30, 1968, the stockholders of Association approved the merger. The proxy statement did not disclose the purchase price Meyer, Angell, Kerr and Guaranty had paid for their stock in Peninsula. The statement revealed that Meyer owned 397.65 shares of Peninsula, representing 71.52 percent of its stock, and that Angell owned 132.55 shares of Peninsula, representing 23.84 percent of its stock.
On December 31, 1968, there was filed with the Commissioner an application for the approval of the merger of Association with Peninsula and General. On January 27, 1969, a hearing was held before the Commissioner on the application for the merger, and on March 7, 1969, the Commissioner issued an order approving the merger. Petitioner did not attend the hearing before the Commissioner as he was out of the country.
On July 2, 1969, Fidelity Financial filed an application with the Commissioner seeking approval to exchange seven shares of its stock for each share of Association. Fidelity Financial also sought the approval of the Commissioner to assume the indebtedness to which the shares of Peninsula were subject, up to an aggregate of $7.1 million, and to sell and issue its shares in an amount reduced by the equivalent of one share for each $17.143 of such indebtedness assumed, which would equal one share of Association stock for each $120 of indebtedness assumed. Stockholders of Association were notified of the hearing. Said hearing was held before the Commissioner on July 24, 29 and 30, 1969. The Commissioner approved the exchange ratio whereby Fidelity Financial was to acquire the stock of Association and was to assume the indebtedness of Meyer and Angell.
In September and October of 1968 the stock of Fidelity Financial was selling for a price in excess of $40 per share. The actual merger of Peninsula and General with Association was consummated as of December 26, 1969. As of October 1, 1969, the low bid price for Association's stock was $101 per share and the high asking price was $108.
Adverting to the issues presented we observe, initially, that petitioner contends that the function of the Commissioner under subdivision 3 of section 7616 is not to decide all disputed issues of fact and law, but merely to screen proposed actions and to determine if the proposed action has any merit. He contends in the instant proceedings that the Commissioner undertook to make ultimate findings on all issues of law and fact. Association and Fidelity Financial assert that the function of the Commissioner is to 'determine whether or not litigable issues existed' and that the Commissioner performed his duties properly in the instant proceeding. Meyer, Angell, Kerr and Guaranty contend that the role of the Commissioner includes 'screening away actions that are clearly frivolous,' and that 'The Commissioner here did precisely that.'
There are no cases delineating the duties of the commissioner under section 7616, the allocation of the burden of proof in the...
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