Title: GATE CITY v PITTS

State: montana

Issuer: Montana Supreme Court

Document:

No. 12766 I N THE SUPREME C O U R T O F THE STATE O F M O N T A N A G A T E CITY SAVINGS AND L O A N ASSOC. , et a 1. , P l a i n t i f f s and Respondents, -vs - H A R O L D PITTS , DIRECTOR, DEPARTMENT O F BUSINESS REGULATION O F T H E STATE O F M O N T A N A , e t a l . , Defendants, M O N T A N A SAVINGS & L O A N LEAGUE, G R E A T FALLS FEDERAL SAVINGS & L O A N ASSOC. e t a l . , Defendant i n Intervention and Appellants. Appeal from: D i s t r i c t Court of t h e F i r s t J u d i c i a l D i s t r i c t , Honorable Peter G. Meloy, Judge presiding. Counsel of Record: For Appellants : Hon. Robert L. Woodahl, Attorney General, Helena, Montana Lon J. Maxwell, Assistant Attorney General, argued, Helena, Montana Church, Harris, Johnson & Williams, Great F a l l s , Montana Charles C. Love11 argued, Great F a l l s , Montana For Respondents: Loble, P i c o t t e , Loble, Helena, Montana Peter C. Pauly argued, and Henry Loble argued, Helena, Montana Submitted: March 3 , 1975 Decided: APR - 8 1 9 7 5 Filed: fiPR - 8 1 9 7 5 M r . J u s t i c e Wesley C a s t l e s d e l i v e r e d t h e Opinion of t h e Court. T h i s i s an appeal by defendant Harold P i t t s , D i r e c t o r of t h e Department of Business Regulation of t h e s t a t e of Montana ( h e r e i n a f t e r r e f e r r e d t o a s D i r e c t o r ) , and i n t e r v e n i n g defend- a n t s , Nontana Savings & Loan League, Great F a l l s F e d e r a l Savings & Loan Association and F i r s t F e d e r a l Savings and Loan A s s o c i a t i o n , from a judgment and d e c r e e o f t h e d i s t r i c t c o u r t , Lewis and Clark County, i n f a v o r of p l a i n t i f f s Gate C i t y Savings and Loan Associa- t i o n ( h e r e i n a f t e r r e f e r r e d t o a s G a t e C i t y ) , F i d e l i t y Savings and Loan A s s o c i a t i o n ( h e r e i n a f t e r r e f e r r e d t o a s F i d e l i t y ) and Glen- d i v e Building and Loan A s s o c i a t i o n ( h e r e i n a f t e r r e f e r r e d t o a s Glendive). Gate C i t y commenced t h i s a c t i o n a g a i n s t John A. Dowdall, t h e n D i r e c t o r of t h e S t a t e Department of Business Regulation, under t h e p r o v i s i o n s of t h e Uniform D e c l a r a t o r y Judgments Act, s e c t i o n s 93-5901-93-8916, R.C.M. 1947, seeking t o have t h e d i s - t r i c t c o u r t c o n s t r u e t h e p r o v i s i o n s of T i t l e 7, R.C.Y. 1947, governing t h e o p e r a t i o n s and a c t i v i t i e s o f b u i l d i n g and l o a n a s s o c i a t i o n s i n t h e s t a t e of Montana and t o o v e r r u l e two o f f i c i a l o p i n i o n s of the Montana a t t o r n e y g e n e r a l . On motion, Montana Savings and Loan League, Great F a l l s F e d e r a l Savings & Loan A s s o c i a t i o n , and F i r s t Federal Savings and Loan A s s o c i a t i o n were granted l e a v e t o i n t e r v e n e . The d i s - t r i c t c o u r t ordered Harold P i t t s , successor i n o f f i c e t o John A. Dowdall, s u b s t i t u t e d a s defendant. F i d e l i t y and Glendive w e r e ordered joined a s i n d i s p e n s a b l e p a r t i e s p l a i n t i f f , pursuant t o Rule 1 9 , M.K.Civ.P. The cause w a s submitted t o t h e d i s t r i c t c o u r t on an agreed statement of f a c t s . The d i s t r i c t c o u r t r u l e d , i n s u b s t a n c e , t h a t t h e D i r e c t o r was a u t h o r i z e d t o c o n s i d e r Gate C i t y ' s a p p l i c a t i o n t o do b u s i n e s s i n Montana and t o merge w i t h F i d e l i t y and Glendive; and, t h e laws of Montana permit t h e establishment, maintenance and operation of branch o f f i c e s i n Montana by foreign o r domestic building and loan associations. The Director and intervenors appeal. Gate City is a savings and loan a s s o c i a t i o n incorporated under t h e laws of the s t a t e of North Dakota. Its p r i n c i p a l place of business i s Fargo, North Dakota, with e i g h t branch o f f i c e s i n North Dakota. F i d e l i t y and Glendive a r e savings and loan asso- c i a t i o n s incorporated under t h e laws of t h e s t a t e of Montana. Their o f f i c e s a r e located respectively a t Great F a l l s and Glen- dive, Montana. O n May 1 0 , 1972, Gate City entered i n t o two separate agreements of merger with F i d e l i t y and Glendive with t h e i n t e n t t o continue t o operate t h e e x i s t i n g o f f i c e s a t Great F a l l s and Glendive, i f and when t h e mergers became e f f e c t i v e . O n June 8, 1972, Gate City f i l e d an application, with supporting documents, with t h e Director seeking permission t o conduct savings and loan a c t i v i t i e s i n the s t a t e of Nontana and permission t o merge w i t h F i d e l i t y and Glendive. The application t o merge was conditioned upon t h e consent of t h e members and shareholders of t h e i n s t i t u - t i o n s involved; t h e consent of t h e Director; t h e approval of t h e Federal Home Loan Bank Board (hereinafter r e f e r r e d t o a s FHLBB); and issuance of insurance of accounts by t h e Federal Savings and Loan Insurance Corporation. O n J u l y 1 0 , 1972, Director Dowdall requested an attorney g e n e r a l ' s opinion concerning Gate C i t y ' s a p p l i c a t i o n . Attorney General Woodahl ruled t h a t Gate C i t y ' s proposed merger was con- t r a r y t o Montana law, 3 4 Opinions of t h e Attorney General, No. 5 3 . The opinion ruled t h e application was d e f i c i e n t i n t h a t t h e pro- posed merger had not been r a t i f i e d by two-thirds of t h e members of each of t n e t h r e e associations involved p r i o r t o t h e submis- s i o n of t h e a p p l i c a t i o n t o t h e Director f o r h i s approval. It r e l i e d upon a formal opinion issued by Attorney General Anderson which held t h a t branch savings and loan a s s o c i a t i o n s a r e prohib- i t e d by Montana law, 29 Opinions of t h e Attorney General, No. 2. O n October 12, 1972, on t h e b a s i s of Attorney General Woodahl's opinion, Director Dowdall denied Gate C i t y ' s applica- t i o n . This a c t i o n followed. The i s s u e s involved on appeal a r e : (1) Whether t h e d i s t r i c t c o u r t had j u r i s d i c t i o n of t h e s u b j e c t matter of t h e case? ( 2 ) Whether Gate C i t y ' s a p p l i c a t i o n was d e f i c i e n t i n t h a t t h e proposed merger had not been r a t i f i e d by t h e members of each of t h e a s s o c i a t i o n s involved, p r i o r t o its submission t o t h e D i r - e c t o r ? (3) Whether a North Dakota c h a r t e r e d savings and loan a s s o c i a t i o n may merge with two Montana chartered savings and loan a s s o c i a t i o n s and maintain t h e i r s e p a r a t e e x i s t i n g f a c i l i t i e s ? I s s u e 1, whether t h e d i s t r i c t c o u r t had j u r i s d i c t i o n ; w e hold it d i d . The D i r e c t o r ' s contention i s t h a t Gate C i t y sought merely an advisory opinion from t h e d i s t r i c t c o u r t and t h e only way Gate City could present a j u s t i c i a b l e controversy t o t h a t c o u r t would be i f it had f i r s t secured t h e approval of t h e merger by FHLBB. Relying upon 1 2 U.S.C. S1730a and 1 2 C.F.R. S S 556.5(b) (2) and 563.22, t h e Director then argues t h e r e i s a b s o l u t e l y no possi- b i l i t y t h e FHLBB would approve t h i s merger a c r o s s s t a t e boundaries. The s h o r t answer t o t h e D i r e c t o r ' s contention i s t h a t w e a r e l i v i n g i n a f e d e r a l system. Gate C i t y ' s proposed merger is governed by f e d e r a l and s t a t e law. Pursuant t o s e c t i o n 7-113(22), R.C.M. 1947, t h e proposed merger must be approved by t h e Director. It a l s o must be approved by t h e FHLBB, a t l e a s t i n s o f a r a s it involved an i n c r e a s e i n insurance of accounts. ( F i d e l i t y i s an uninsured a s s o c i a t i o n ) . Gate City had t o s t a r t somewhere i n seeking approval of its proposed merger, whether it be t h e Director o r t h e FHLBB. That Gate C i t y s t a r t e d with t h e D i r e c t o r , r a t h e r than t h e FHLBB, does not render t h i s an advisory, n o n j u s t i c i a b l e controversy. In 1 2 C.F.R. § 5 7 1 . 5 ( b ) ( l ) , t h e FHLBB s t a t e s i t s general p o l i c y concerning merger proposals: "The l e g a l i t y of a proposed merger i s a precon- d i t i o n t o f u r t h e r consideration by t h e Board." I n making t h a t d e c i s i o n , t h e Board looks t o "applicable law". I n l i g h t of 1 2 C.E.R. § 571.5 and t h e two a t t o r n e y general opinions heretofore mentioned, Gate C i t y ' s d e c i s i o n t o f i r s t pur- sue its s t a t e remedies appears t o be reasonable. I t is not necessary t o i n q u i r e i n t o , nor decide, whether Gate C i t y w i l l succeed i n obtaining FHLBB approval of t h e Pro- posed merger. That decision w i l l be made i n any event by t h e FHLBB, with p o s s i b l e appeal t o t h e f e d e r a l c o u r t s . W e s h a l l not prematurely f o r e c l o s e Gate C i t y ' s f e d e r a l remedies. I s s u e 2 , i s t n e D i r e c t o r ' s contention t h a t s e c t i o n 7-113(22), R.C.M. 1947, mandates t h a t t h e merger agreements be r a t i f i e d by two-thirds of t h e members of each of t h e t h r e e a s s o c i a t i o n s i n - volved before the a p p l i c a t i o n of merger may be f i l e d and acted upon by t h e Director. That s e c t i o n reads: "Any two ( 2 ) o r more building and loan associa- t i o n s , by and with t h e consent and approval of t h e superintendent of banks, [now t h e Director] , may consolidate and u n i t e and become incorpor- a t e d i n one (1) body, with o r without any d i s - s o l u t i o n o r d i v i s i o n of t h e funds o r property of any such a s s o c i a t i o n , o r any such a s s o c i a t i o n may t r a n s f e r i t s engagements, funds and property t o any l i k e a s s o c i a t i o n upon such terms a s may be agreed upon by a majority v o t e of t h e respec- t i v e board of d i r e c t o r s , and r a t i f i e d by a two- t h i r d s (2/3) v o t e of t h e shares p r e s e n t and voting i n person o r by proxy a t a s p e c i a l meeting o r meetings of t h e stockholders of t h e r e s p e c t i v e a s s o c i a t i o n s convened f o r t h a t purpose, upon n o t i c e given as provided by law, s a i d n o t i c e t o s t a t e t h e o b j e c t of t h e meeting. N o such t r a n s f e r s h a l l prejudice any r i g h t of any c r e d i t o r of such a s s o c i a t i o n . " There i s nothing i n s e c t i o n 7-113(22), R.C.X. 1947, t o i n d i c a t e t h a t t h e two-thirds v o t e of t h e shareholders must precede t h e consent of t h e Director, nor a l t e r n a t i v e l y , t h a t t h e D i r e c t o r ' s consent must precede t h e shareholders' vote. E i t h e r may precede t h e o t h e r . In a sense a p p e l l a n t ' s i s s u e 2 i s moot, s i n c e t h e merger agreements have s i n c e been r a t i f i e d by two-thirds of t h e members of each of t h e t h r e e a s s o c i a t i o n s . Gate City has complied with t h e requirements of s e c t i o n s 7-131 and 7-137, R.C.M. 1947. Gate C i t y ' s a p p l i c a t i o n shows t h a t it was applying f o r a c e r t i f i c a t e of a u t h o r i t y t o conduct savings and loan a c t i v i t i e s i n t h e s t a t e of Montana, a precon- d i t i o n t o both doing business i n Montana and any a c t i o n by t h e Director on t h e merger. Intervenors r a i s e t h e i s s u e t h a t F i d e l i t y and Glendive should have joined i n t h e a p p l i c a t i o n f o r merger. W e agree. Gate C i t y ' s a p p l i c a t i o n asked f o r two t h i n g s , permission t o do business i n t h e s t a t e of Montana and permission t o merge with F i d e l i t y and Glendive. I n f u r t h e r proceedings, t h i s joinder should be made. The h e a r t of t h e controversy i s a p p e l l a n t ' s i s s u e 3: Whether a North Dakota chartered savings and loan a s s o c i a t i o n may merge with two Montana c h a r t e r e d savings and loan associa- t i o n s and maintain t h e i r s e p a r a t e e x i s t i n g f a c i l i t i e s ? W e hold t h a t a North Dakota chartered savings and loan a s s o c i a t i o n may merge with two Montana chartered savings and loan a s s o c i a t i o n s and maintain t h e i r separate e x i s t i n g f a c i l i t i e s . Section 7-130, R.C.M. 1947, reads i n p e r t i n e n t p a r t : "The provisions of t h i s a c t s h a l l apply t o and be enforceable a g a i n s t a l l corporations, persons, firms, p a r t n e r s h i p s , a s s o c i a t i o n s , t r u s t e e s o r combinations of persons whatsoever, whether f o r e i g n o r domestic * * *". (Emphasis supplied. ) Although s e c t i o n 7-113(22), R.C.M. 1947, was not a p a r t of " t h i s a c t " r e f e r r e d t o i n s e c t i o n 7-130, t h e g r e a t bulk of T i t l e 7, R.C.M. 1947, was. The obvious l e g i s l a t i v e i n t e n t was t h a t foreign and domestic savings and loan a s s o c i a t i o n s be t r e a t e d a l i k e . Thus, t h e f a c t Gate C i t y is organized under t h e laws of North Dakota, r a t h e r than t h e laws of Montana, is immaterial. S e c t i o n 7-113(22), R.C.M. 1947, r e a d s i n p e r t i n e n t p a r t : "Any two (2) o r more b u i l d i n g and l o a n asso- c i a t i o n s * * * may c o n s o l i d a t e and u n i t e and be- come incorporated i n one (1) body * * * without any d i s s o l u t i o n o r d i v i s i o n of t h e funds o r p r o p e r t y of any such a s s o c i a t i o n * * *." This is e x a c t l y what Gate C i t y , F i d e l i t y , and Glendive seek t o do. The s t a t u t e p e r m i t s them t o do it. The a p p e l l a n t D i r e c t o r ' s r e l i a n c e on s e c t i o n 7-102, R.C.M. 1947, f o r t h e p r o p o s i t i o n t h a t Gate C i t y ' s p r i n c i p a l p l a c e of b u s i n e s s must be i n Montana is n i s p l a c e d . That s e c t i o n r e l a t e s t o what must be included i n a r t i c l e s of i n c o r p o r a t i o n of p r o s p e c t i v e c o r p o r a t i o n s seeking t o be i n c o r p o r a t e d under t h e laws of Montana. Gate C i t y i s a l r e a d y i n c o r p o r a t e d under t h e laws of North Dakota. S e c t i o n 7-131, R.C.M. 1947, c l e a r l y provides t h a t a f o r e i g n a s s o c i a t i o n may have a p r i n c i p a l p l a c e of b u s i n e s s b o t h w i t h i n and without Montana. This opinion s h a l l c o n s t i t u t e a d e c l a r a t o r y judgment. Each p a r t y s h a l l bear its own c o s t s . ................................. J u s t i c e Chief J u s t i c e