NoDak Bancorporation v. Clarke, s. 92-2502
| Decision Date | 07 July 1993 |
| Docket Number | Nos. 92-2502,92-2505,92-2508 and 92-2509,s. 92-2502 |
| Citation | 998 F.2d 1416 |
| Parties | NoDAK BANCORPORATION, a North Dakota Corporation, Appellee, v. Robert L. CLARKE, Comptroller of the Currency of the United States, Defendant, Liberty National Bank and Trust Company; Dickinson Bancorporation, Appellants (Two Cases). NoDAK BANCORPORATION, a North Dakota Corporation, Appellee, v. Robert L. CLARKE, Comptroller of the Currency of the United States, Appellant, Liberty National Bank and Trust Company; Dickinson Bancorporation, Defendants (Two Cases). |
| Court | U.S. Court of Appeals — Eighth Circuit |
Mark B. Stern, U.S. Dept. of Justice, Washington, DC, argued (Stuart M. Gerson and Barbara C. Biddle, U.S. Dept. of Justice, Washington, DC and Stephen D. Easton, U.S. Atty., Fargo, ND, on the brief), for appellant Robert Clarke.
Laurence R. Waldoch, Minneapolis, MN, argued (Timothy A. Priebe and Paul G. Kloster, Dickinson, ND, on the brief), for appellants Liberty Nat., et al.
Edward F. Fox, St. Paul, MN, argued (Mark W. Haigh, St. Paul, MN and Bruce H. Carlson, Fargo, ND, on the brief), for appellee.
Before MAGILL, Circuit Judge, HEANEY, Senior Circuit Judge, and HANSEN, Circuit Judge.
This is an appeal from a district court decision granting summary judgment in favor of NoDak Bancorporation. The district court reversed the Office of the Comptroller of the Currency's approval of a proposed merger between two national banks in North Dakota. This case requires us to resolve one distinct legal issue of first impression for this court. The issue is whether a merger in which the minority shareholders of the acquired bank are forced to accept only cash in exchange for their acquired shares is inconsistent with the National Bank Act. 1 We hold that such a merger is not inconsistent with the National Bank Act, and we reverse the decision of the district court and remand for further proceedings.
Liberty National Bank and Trust Company of Dickinson (Liberty) has been operating as a national bank in the State of North Dakota since 1916. Prior to the merger at issue, Dickinson Bancorporation, Inc. (Dickinson), a bank holding company, owned 73% of Liberty's outstanding shares. NoDak Bancorporation (NoDak), also a bank holding company, owned 21% of Liberty's outstanding shares. Private individuals owned the remaining 6%.
On January 25, 1990, Liberty's board of directors voted to approve a plan of reorganization and merger. Under the plan, the existing Liberty bank would merge with an interim bank called the New Liberty National Bank (New Liberty), which was a wholly-owned subsidiary of Dickinson, created for the sole purpose of facilitating the merger. The resulting bank would then operate under the existing name of Liberty National Bank and Trust Company and would assume all the operations of the original Liberty. The resulting bank would also be a wholly-owned subsidiary of Dickinson because the minority shareholders in the original Liberty would be entitled to exchange their shares only for cash, leaving Dickinson as the sole shareholder of Liberty bank after the merger. NoDak objected to this plan because it did not wish to have its interest cashed out.
In compliance with 12 U.S.C. § 215a of the National Bank Act, Liberty initiated action to seek approval of the proposed merger before the Office of the Comptroller of the Currency (Comptroller) in March of 1990. NoDak filed written objections to the plan with the Comptroller. Specifically, NoDak argued that (1) the proposed merger lacked a legitimate business purpose, (2) Liberty's majority shareholders had breached their fiduciary duties to the minority shareholders, and (3) the plan would result in a squeeze out of the minority shareholders for less than fair value. 2
The Comptroller considered NoDak's objections and responded to them in a memorandum dated July 13, 1990. The Comptroller applied the business judgment rule in rejecting NoDak's argument that the merger lacked a legitimate business purpose. Also, the Comptroller found that all the proper evaluative factors required by the National Bank Act had been addressed and the decision of the directors was made with a valid business purpose. With respect to NoDak's breach of fiduciary duties contention, the Comptroller found that the merger plan met all the procedural requirements of the National Bank Act, 12 U.S.C. § 215a(a) and (b), and the Comptroller would not impose additional requirements. As to NoDak's claim that its interest was being squeezed out for insufficient value, the Comptroller noted that 12 U.S.C. § 215a(c) provides a comprehensive process to appraise the value of shares and that NoDak would be amply protected.
On August 10, 1990, the Comptroller granted preliminary approval to Liberty's proposed plan. On October 26, 1990, NoDak asked the Comptroller to reconsider its decision in light of a recently decided case, Lewis v. Clark, 911 F.2d 1558 (11th Cir.1990) (per curiam). On March 5, 1991, the Comptroller rejected NoDak's request for reconsideration explaining that the approval of the merger was proper in light of the substantive and procedural provisions of the National Bank Act and the Lewis decision did not change that conclusion. The merger ultimately took place in January of 1991.
This action was commenced in June 1991. NoDak alleged that the Comptroller's approval of the merger was arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with the law. Specifically, NoDak contends that the merger violated 12 U.S.C. § 215a because it did not grant the minority shareholders of the old Liberty any possibility of receiving shares in New Liberty or Dickinson. NoDak contends that this was an abuse of the minority shareholders' statutory rights.
The district court granted summary judgment in favor of NoDak. In a brief opinion, the district court adopted the rationale and holding of Lewis v. Clark, 911 F.2d 1558. It held that the Comptroller lacked authority to approve the merger and reorganization plan because it froze out the minority shareholders. The Comptroller, the resulting Liberty bank, and Dickinson (collectively appellants) appeal.
We review a grant of summary judgment de novo. United States ex rel Glass v. Medtronic, Inc., 957 F.2d 605, 607 (8th Cir.1992). The well-known standard in this case is whether the Comptroller's decision was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A); Camp v. Pitts, 411 U.S. 138, 142, 93 S.Ct. 1241, 1244, 36 L.Ed.2d 106 (1973). Although we owe no deference to the district court's legal conclusions about the National Bank Act, see First Nat'l Bank of Fayetteville v. Smith, 508 F.2d 1371, 1374 (8th Cir.1974), cert. denied, 421 U.S. 930, 95 S.Ct. 1655, 44 L.Ed.2d 86 (1975), we note that " '[t]he Comptroller of the Currency's interpretation of the National Bank Act is entitled to great deference.' " Independent Bankers Ass'n of Am. v. Clarke, 917 F.2d 1126, 1129 (8th Cir.1990) (quoting Arkansas State Bank Comm'r v. Resolution Trust Corp., 911 F.2d 161, 174 (8th Cir.1990)).
After examining the statute itself, the federal regulations, the legislative history, and the case law interpreting this statute, we hold that the statute should be read to permit the merger in question here and the Comptroller therefore had the authority to approve it.
Our point of departure is the National Bank Act section governing mergers of national banks, 12 U.S.C. § 215a. This section states: "One or more national banking associations or one or more State banks, with the approval of the Comptroller, under an agreement not inconsistent with this subchapter, may merge into a national banking association located within the same State, under the charter of the receiving association." 12 U.S.C. § 215a(a). It is significant that the statutory language uses a double negative, allowing any type of merger agreement "not inconsistent with this subchapter." The specific plan of merger seeking to be approved therefore need not be explicitly allowed by this section; it simply must not be inconsistent with the provisions of the statute.
The statute requires the merger agreement to specify "the amount of stock (if any) to be allocated, and cash (if any) to be paid, to the shareholders of the association or State bank being merged into the receiving association." 12 U.S.C. § 215a(a)(3). Section 215a(b) provides that if a shareholder of the acquired bank dissents from a proposed merger, the shareholder shall be entitled to receive the cash value of the shares held. Section 215a(c) provides for a detailed method of appraisal for the dissenting shareholders' interest. 3 Section 215a(d) provides that the receiving association shall promptly pay the dissenting shareholders the ascertained value of their shares. This section also states: "The shares of stock of the receiving association which would have been delivered to such dissenting shareholders had they not requested payment shall be sold by the receiving association at an advertised public auction...." 12 U.S.C. § 215a(d). Further, this section provides that any excess of the auction sale price versus the appraisal amount paid to the dissenting shareholders shall be paid over to the dissenting shareholders. Id.
Appellants contend that 12 U.S.C. § 215a(a)(3), which specifically mentions both stock and cash as acceptable methods of compensation, compels the conclusion that minority freeze out mergers are acceptable under the National Bank Act. If cash can be given in exchange for the acquired bank's stock, appellants argue, then the statute clearly anticipates freeze out merger scenarios. NoDak counters that this subsection does not specifically allow an acquiring bank to give stock in exchange for some of the acquired bank's shares and at the same time give cash to...
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