Peoples Sav. Bank v. Stoddard
| Decision Date | 11 April 1960 |
| Docket Number | 38,Nos. 37,s. 37 |
| Citation | 359 Mich. 297,102 N.W.2d 777 |
| Parties | , 83 A.L.R.2d 344 PEOPLES SAVINGS BANK, a Michigan banking corporation, Plaintiff, Appellant, and Cross-Appellee, v. Howard J. STODDARD, Eugene M. Wanger, Russell Fairles, Miles D. Grant, Frank J. McCabe, Glenn O. Hoffhines, Fred A. Lavery, Waldo J. Stoddard, J. D. Wright, James M. Shackleton, Leonard O. Zick, Michigan National Bank, a national banking association, and Michigan National Bank Employees' Profit Sharing Trust, an association, Defendants, Appellees, and Cross-Appellants, Paul L. Adams, Attorney General of the State of Michigan, Intervenor, Appellant, and Cross-Appellee. Paul L. ADAMS, Attorney General of the State of Michigan, in and for the People of the State of Michigan, Plaintiff, v. MICHIGAN NATIONAL BANK, a national banking association, a Michigan National Bank Employees' Profit Sharing Trust, an association, Howard J. Stoddard, Eugene M. Wanger, Miles D. Grant, Russell Fairles, Frank J. McCabe, Glenn O. Hoffhines, Fred A. Lavery, Waldo J. Stoddard, J. D. Wright, James M. Shackleton, Leonard O. Zick, individually and as co-trustees of the Michigan National Bank Employees' Profit Sharing Trust, Defendants. |
| Court | Michigan Supreme Court |
Covington, Davidson and Osborn, Port Huron, for plaintiff, appellant and cross-appellee.
Butzel, Eaman, Long, Gust & Kennedy, Detroit, Walsh, O'Sullivan, Stommel & Sharp, Port Huron, for defendants, appellees and cross-appellants (except Zick), Frank D. Eaman, Thomas G. Long, Rockwell T. Gust, Victor W. Klein, Detroit, Kenneth J. Stommel, Port Huron, Harold A. Ruemenapp, Detroit, of counsel.
Peter E. Bradt, Port Huron, for defendant, appellee and cross-appellant, Leonard O. Zick.
Paul L. Adams, Atty. Gen., Samuel J. Torina, Sol. Gen., Lansing, Maurice M. Moule, Asst. Atty. Gen., for plaintiff.
Before the Entire Bench, except BLACK and KAVANAGH, JJ.
We deal here with a story of high finance and less lofty subterfuge. By this latter means the defendant Michigan National Bank sought to accomplish indirectly that which State and Federal law prohibited it to do directly. It secured the purchase of 2/3 of the capital stock of the Peoples Savings Bank of Port Huron for the purpose of having that stock voted for dissolution. The net effect of the plan, if carried to completion, would be to leave Michigan National's Port Huron branch the only bank in Port Huron authorized to carry on a general banking business.
In seeking to accomplish this result, the defendants employed a pension trust fund established to provide pensions for Michigan National Bank's employees to make the stock purchase. The members of the executive committee of the board of directors of Michigan National Bank constituted the board of trustees of the trust which was pledged by its trust agreement not to use trust funds 'for any purpose whatsoever other than the exclusive benefit of the eligible staff members [of the Michigan National Bank] or their estates.' These trustees authorized the purchase, by the trust, of Peoples Savings Bank stock admittedly for the purpose of dissolution of Peoples Savings Bank for the benefit of Mighigan National's Port Huron branch.
Further, in pursuance of the plan described, defendants occasioned a businessman of good reputation to assume the presidency of the Peoples Savings Bank when he was not legally qualified to do so, on the false representation that he was in his own right the majority stockholder, and to violate the fiduciary obligations of his newly assumed office by seeking actively, though secretly, the destruction of the bank by purchasing the balance of the 2/3 of the stock necessary to vote dissolution.
The plan, the concealment, the purpose, and the result are all conceded on this record. The defense is that the plan, including its means of execution, was legal, that the concealment was good business, that the State law against monopoly is not applicable to banking, that monopoly in banking is consistent with Federal and State banking law, and that anyhow the Michigan National Bank and the employees' trust fund are a national bank and a national bank 'affiliate,' respectively, and hence State law, whether common or statutory, cannot interfere with their described actions because of Federal pre-emption of the field.
As we will make clear, we do not think this State and its courts are so powerless.
This opinion deals with 2 cases consolidated for hearing.
The first, Peoples Savings Bank v. Stoddard, is a chancery action, brought in the name of the bank by its directors (who owned 7% of the stock of Peoples Savings Bank of Port Huron), seeking injunctive relief and damages against defendants on the grounds that defendants had by illegal conspiracy gained possession and control of the 2/3 majority of the stock required to vote dissolution, and actually were in process of dissolving Peoples Savings Bank. In this case, a motion to dismiss was previously granted and, on appeal, the trial judge's dismissal was reversed and the case remanded for hearing. Peoples Savings Bank v. Stoddard, 351 Mich. 342, 88 N.W.2d 462.
The second case, Attorney General v. Michigan National Bank, is an original proceeding in quo warranto before this Court, brought by the attorney general on behalf of the people of the State of Michigan, alleging the same illegal conspiracy and seeking the same injunctive relief.
Both actions presented the same allegations of facts and raised basically the same issues, except as to the claim for damages presented in the chancery action. The quo warranto petition was, therefore, referred by this Court to the circuit judge to whom the chancery action was assigned for consolidated hearing of both matters.
Defendants in both cases are 1) the Michigan National Bank, a large bank chartered under national bank laws, with a home office in Lansing and a branch in Port Huron; 2) the Michigan National Bank Employees' Profit Sharing Trust, 1 an employee pension trust established for the benefit of Michigan National's employees; 3) a group of individuals who are both directors and members of the executive committee of the bank and trustees of the trust fund; and 4) an individual, Leonard O. Zick, who executed the purchases of the Peoples Savings stock.
The circuit judge who heard both matters entered an extended finding of fact and opinion in both cases, along with a decree in the chancery matter and a referee's report in the quo warranto action. He found as a legal proposition that the State anti-monopoly statutes did not apply to banking. But he found that a conspiracy on the part of defendants to accomplish the liquidation of Peoples Savings Bank by illegal means had been established, namely, violation of the 'voluntary' dissolution provision and the qualification of directors provision of the Michigan financial institutions act (C.L.1948, §§ 487.99, 487.112 [Stat.Ann.1957 Rev. §§ 23.852, 23.865] and C.L.1948 §§ 487.63, 487.64 [Stat.Ann.1957 Rev. §§ 23.803, 23.804]). His decree, therefore, enjoined defendants from proceeding with the proposed dissolution, and ordered divestiture of the stock, which he held defendant trust fund had illegally acquired, by turning same over to a receiver for public sale. He found that plaintiff in the chancery case had proved no damages, but awarded to plaintiff both salary and fees acquired by defendant Zick. The decree, however, provided that defendant trust fund, once divested of the stock, could be a bidder at the public sale. His report, as referee in the quo warranto matter, contained the same findings of fact and conclusions of law as described in the chancery case.
All parties in the chancery case appeal. The important contentions of plaintiffs, Peoples Savings Bank and the Attorney General, are that the State anti-monopoly laws do apply to banking, and that defendant trust fund, on these facts, is not empowered to purchase, and should be restrained from bidding for, the Peoples Savings Bank stock at the public sale proposed. Defendants, on the other hand, urge Federal pre-emption and State court lack of jurisdiction. They contend that no violation of any Federal or State statute is shown on this record, hence that the finding of illegal conspiracy is erroneous.
A review of the lengthy record compiled at trial convinces us that the findings of fact of the trial judge are well supported by the weight of the evidence and we adopt them in toto. It should be noted that the findings were prepared in the chancery matter, 2 and hence the parties referred to are those in Peoples Savings Bank v. Stoddard:
'1. In the spring of 1956, Myron E. Ogden was president of plaintiff and he had been its president since it was established in the early 1930's as a result of reorganizing United Savings Bank. Ogden owned or represented the owners of 51% of the capital stock of plaintiff; he and those he represented desired to sell this stock and it was listed with Roberts for sale. Ogden advised the board of directors and officers of plaintiff of his desire to sell and of his dealings with Roberts. There were some negotiations between Ogden and the directors and officers of plaintiff for part of this stock, but no agreement was ever reached.
'2. Through mutual acquaintances in Detroit, defendant Zick learned of the interest in plaintiff that Roberts had for sale. Negotiations between Roberts and Zick for the possible purchase by the latter from the former of the Ogden interest in plaintiff commenced late in May, 1956, and continued through June 30, 1956, when Zick agreed to purchase this interest (plaintiff's exhibit 7). The acceptance by all concerned of exhibit 7 as the culmination of this transaction obviates the necessity of any reference to plaintiff's exhibit 6. June 29, 1956, on the way from Kalamazoo to Detroit for what developed to be the final meeting between Roberts and Zick, the latter stopped in Lansing to see defendant ...
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