NoDak Bancorporation v. Clarkson, 900396

Decision Date03 June 1991
Docket NumberNo. 900396,900396
PartiesNoDAK BANCORPORATION, a North Dakota corporation, Plaintiff and Appellant, v. F.L. CLARKSON, Ralph Roshau, Kenneth Mann, James Tracy, Robert D. Tracy, Alan Hann, Liberty National Bank and Trust Company and Dickinson Bancorporation, Defendants and Appellees. Civ.
CourtNorth Dakota Supreme Court

Lamb, McNair, Larson & Carlson, Ltd., Fargo, for plaintiff and appellant; argued by Bruce H. Carlson. Appearance by David J. Hauff.

Mackoff, Kellogg, Kirby & Kloster, P.C., Dickinson, for defendants and appellees; argued by Paul G. Kloster. Appearance by Timothy A. Priebe.

LEVINE, Justice.

NoDak Bancorporation (NoDak) appeals from a district court judgment dismissing its action against F.L. Clarkson, Ralph Roshau, Kenneth Mann, James Tracy, Robert D. Tracy, Alan Hann, Liberty National Bank and Trust Company (Liberty), and Dickinson Bancorporation (Dickinson Bancorp). We agree with the district court's determination that the subject matter of NoDak's action is preempted by the National Banking Act, 12 U.S.C. Sec. 215a, and we affirm the judgment of dismissal.

Liberty is a national bank chartered by the Comptroller of the Currency. Liberty's principal offices are in Dickinson, North Dakota. Dickinson Bancorp holds approximately 73% of the shares of Liberty; NoDak holds approximately 21% of the shares of Liberty; and the remaining shares are held by a number of individuals. NoDak's chairman, Franklin Larson, holds a seat on Liberty's board of directors.

After Larson left the January 25, 1990, meeting of Liberty's board of directors, the remaining directors unanimously approved a Plan of Reorganization and Merger providing for the formation of a new bank, which would be merged with the existing bank, and providing for the forced sale of all minority shares. The price specified for NoDak stock is $1,644 per share. 1 Under the reorganization plan, Dickinson Bancorp is entitled to exchange its shares of stock in Liberty for shares in the new bank but no similar privilege is granted to minority shareholders.

On February 12, 1990, Liberty initiated a proceeding in the Office of the Comptroller of the Currency for approval of the proposed reorganization and merger. On March 14, 1990, NoDak filed this action in state district court alleging that the defendants had adopted a plan of reorganization and merger which would prevent minority shareholders from exchanging their stock in Liberty for shares in the new bank or in Dickinson Bancorp, which would own all the stock in the new bank, and that the defendants would offer to purchase minority shares for substantially less than the value of the shares. In count one of the complaint, NoDak alleged in part that "[d]efendants conduct toward Plaintiffs with regard to the phantom bank merger constitutes a breach of fiduciary obligations" resulting in damages to NoDak. In count two of the complaint, NoDak sought "a permanent and final injunction preventing the Board of Directors or shareholders from implementing the Plan of Reorganization and Merger." In count three of the complaint, NoDak alleged that Liberty was "significantly overcapitalized" and sought court-ordered dividends. Also, on March 14, 1990, NoDak secured from the state district court an ex parte order, temporarily restraining the defendants "from further pursuing a Plan of Reorganization and Merger of the Liberty National Bank and Trust Company of Dickinson" and ordering the defendants to show cause on April 9, 1990, "why a preliminary injunction should not be issued."

On March 26, 1990, the defendants removed the action to the United States District Court. On April 5, 1990, the defendants filed their answer in federal district court. On April 13, 1990, NoDak moved the federal district court for an order remanding the action to state district court. On June 7, 1990, the federal district court determined that it lacked jurisdiction because the Comptroller had not yet ruled on the proposed reorganization and merger and ordered the action remanded to state district court.

While NoDak's lawsuit challenging the defendants' proposed reorganization and merger was pending in the state and federal district courts, NoDak was also actively participating in the federal administrative proceedings in an attempt to persuade the Comptroller to deny the request for approval of the proposed reorganization and merger. On March 8, 1990, NoDak requested a hearing on the defendants' application for Comptroller approval of the proposed reorganization and merger. On April 2, 1990, NoDak submitted written materials supporting its request that the Comptroller deny the request for approval of the application for reorganization and merger, asserting in part:

"Regardless of the fact that the Plan of Reorganization, in accordance with the requirements of the Federal law, provides a procedure for an appraisal, the minority shareholders do not wish to sell their stock, especially where the sale will prevent them from sharing in future profits, receiving dividends to which they are entitled and, receiving a fair value for their shares of stock. If shares of stock in the Liberty National Bank are to be purchased and sold, the shares should be sold in an open transaction dealing with a willing buyer and willing seller. The Application for Reorganization and Merger should be denied as not supported by valid business purposes and in violation of the fiduciary responsibilities owed by the majority shareholders to minority shareholders."

Thus, NoDak was simultaneously challenging the proposed reorganization and merger in both administrative and judicial proceedings.

On September 13, 1990, the state district court ruled that "this State Court proceeding is at best premature by reason of federal preemption of the subject matter pursuant to provisions of the National Banking Act, 12 U.S.C. Section 215a" and granted the defendants' motion to dismiss. Judgment was entered accordingly and NoDak appealed. The dispositive issue on appeal is whether NoDak's state-based claims for breach of fiduciary duties have been preempted by the federal administrative procedures provided in 12 U.S.C. Sec. 215a for challenging a proposed reorganization and merger.

Federal preemption of state law may occur if: (1) Congress explicitly preempts state law; (2) Congress impliedly preempts state law by indicating an intent to occupy an entire field of regulation; or (3) state law actually conflicts with federal law. State v. Liberty Nat'l Bank & Trust Co., 427 N.W.2d 307 (N.D.1988), cert. denied, 488 U.S. 956 (1989). The defendants do not contend that, in enacting Sec. 215a, Congress explicitly preempted state law and they abandoned their field preemption claim at oral argument. Thus, we need only determine if judicial resolution of NoDak's state-based claims for breach of the defendants' fiduciary duties actually conflicts with the administrative procedure in Sec. 215a. "Conflict pre-emption occurs where compliance with both federal and state laws is a physical impossibility or where state law 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.' " (Citations omitted). State v. Liberty Nat'l Bank & Trust Co., supra, 427 N.W.2d at 309-10.

12 U.S.C. Sec. 215a authorizes national and state banks to merge into a national banking association, with the approval of the Comptroller, upon the affirmative vote of the shareholders of each participating bank owning at least two-thirds of its capital stock outstanding. 12 U.S.C. Sec. 215a also provides that dissenting shareholders may require that they be paid cash for their shares if they wish to surrender their shares 2 and provides procedures for a three-member committee or the Comptroller to appraise the value of their shares. It also provides for the sale at public auction of the surrendered shares of dissenting shareholders and for payment to them of any amount received at the auction above what they had been paid for their shares. In Bloomington Nat'l Bank v. Telfer, 916 F.2d 1305, 1308 (7th Cir.1990), the court noted that Sec. 215a provides "protection to minority shareholders when their bank is merged or consolidated with another association.... Congress has provided appraisal rights to those stockholders when attempts are made to eliminate them."

The validity of a merger under 12 U.S.C. Sec. 215a must be determined, in the first instance, by the Comptroller, rather than a district court. Nehring v. First DeKalb Bancshares, Inc., 692 F.2d 1138 (7th Cir.1982). As the court explained in Nehring, supra, 692 F.2d at 1142:

"[C]onflict and confusion would inevitably result if parties who oppose mergers of national banks were permitted to eschew Comptroller proceedings in favor of district court actions. See Whitney National Bank v. Bank of New Orleans and Trust Co., 379 U.S. 411, 422, 85 S.Ct. 551, 558, 13 L.Ed.2d 386 (1965). Some merger opponents might bring their objections to the Comptroller while others might seek declaratory or injunctive relief in district courts. The possibilities of different standards, records, and results all lead us to conclude that the district court correctly declined to pass on the propriety of the merger agreement before the Comptroller had acted in this case."

The Comptroller's decisions under 12 U.S.C. Sec. 215a are subject to judicial review in the federal courts. Beerly v. Department of Treasury, 768 F.2d 942 (7th Cir.1985), cert. denied, 475 U.S. 1010, 106 S.Ct. 1184, 89 L.Ed.2d 301 (1986). The standard of review is whether the Comptroller's decision was arbitrary, capricious, or unreasonable. Lewis v. Clark, 911 F.2d 1558 (11th Cir.1990); Beerly, supra.

NoDak mistakenly relies on Fisher v. Steelville Community Banc-shares, Inc., 713 S.W.2d 850 (Mo.App.1986), to support its cause of action in state court. In Fisher, the court held that the plaintiff's claims for damages for...

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