# U ni te d S ta te s Co ur t of A pp ea ls For the Eig hth Circu it

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No. 1 8- 17 64

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St ev en Ch as e, On Be ha lf o f Him se lf a nd All Oth ers ; Sh awn Pen ne r, On Be ha lf o f Him se lf a nd All Oth ers

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff s - Ap pe ll an ts

v.

Fi rs t Fe de ral Ban k o f Kan sa s C it y ; Ri ch ard T. Merk er; Hele n S kr ad sk i; Ben jam in J. Fr ie s; W il li am

W . Hut to n; James R. Ja rret t

ll ll ll ll ll ll ll ll ll ll l Defe nd

an ts - App el le es

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Offi ce o f th e Co m

pt ro ll er o f th e Cu rren cy ; Am eri can Ban ke rs Ass oc ia ti on ; Mi ss ou ri B an ke rs Ass oc ia ti on

ll ll ll ll ll ll ll ll ll ll l

Amici on Beha lf

of App el le e(s

)

__ __ __ __ __ __ App eal fro m

Uni te d S ta te s Di st ric t Co ur t fo r th e Weste rn Dis tri ct of M is so ur i - Kan sa s C it y

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Su bm it te d: Ju ne 12 , 20 19 Fi le d: Aug us t 7 , 20 19

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Befo re GRUENDER, STRAS, an d KOBES, Ci rcu it Ju dg es

.

__ __ __ __ __ __GRUENDER, Circ ui t J ud ge

.

Pl ai nti ffs St ev en Ch as e an d Sh awn Pen ne r ap pe al th e di st ric t co ur t’s di sm is sa l 1
of th ei r pu ta ti ve cl as s act io n la wsu it ag ai ns t Fi rs t Fed eral Ban k of Kan sa s Ci ty (“ Fi rs t Fed eral ”) an d fo rm er dir ect or s of In te r-St at e Fed eral Sav in gs an d Loa n Ass oc ia ti on of Kans as Cit y

(“ In te r-St at e”). We affi rm

.

Fi rs t Fed eral is a fed eral ly ch art ered m ut ua l sa vi ng s an d lo an as so ci at io n th at

m erg ed wit h an d th en ab so rb ed In te r-S t a te , an ot he r m ut ua l sa vi ng s an d lo an

as so ci at io n, in 20 1 6

. F e d eral ly ch art ered m ut ua l sa vi ng s an d lo an as so ci at io ns
pr ov id e th ei r m em

be rs ( i.e.
, de po si to rs ) wit h a fed eral ly in su red rat e of in te res t. Y or k
v. Fed

. Home Loa n Ban k Bd.
, 62 4 F.2d 49 5, 50 0 (4t h Cir. 19 80 ). Tho ug h m em be rs

“ are th e le ga l ‘owne rs ’ of a m ut ua l sa vi ng s an d lo an as so ci at io n, th ei r in te res t is

es se nt ia ll y th at of cred it or s of th e as so ci at io n an d on ly se co nd ari ly as eq ui ty own ers .”
Id

. at 49 9- 50 0. “ The y can no t se ll wha t th ey ‘own’, an d if th ey wit hd raw sa vi ng s th ey

rece iv e on ly th e no m in al va lu e of th e acco un t rat he r th an a po rti on of th e m ut ua l’s ne t

wor th
, whi ch is va lu ab le to th em on ly to th e ex te nt it pe rm it s th e ba nk to pa y hi gh er in te res t.” Ord

ow er v. Off

ic e of Th ri

ft Su p e r v i si on , 99 9 F.2 d 11 83
, 11 85 (7 th Ci r. 19 93 ).

Ch as e an d Pen ne r were m em be rs of In te r-St at e an d se ek to rep res en t In te rSt at e’s ot he r pr e-m erg er m em be rs in th ei r pu ta ti ve cl as s act io n la wsu it

. The y cl ai m th at Int er-S ta te ’s m erg er wit h Fi rs t Fe de ral was i ne qu it ab le be cau se Int er-S ta te ha d $2 5 m il li on m or e th an Fi rs t Fed eral in ex ces s cap it al

. Tha t $2 5 m il li on su rp lu s, th ey al le ge , sh ou ld ha ve be en di st rib ut ed to In te r-St at e’s m em be rs in st ead of be co mi n g
pa rt o f th e m erg ed en ti ty. The y al so cl ai m th at Int er-S ta te ’s dec is io n t o m erg e wit h

The H o n o rab le Dav id Greg or y Kay s, Uni te d St at es Dis tri ct Ju dg e fo r th e 1 W es te rn Dis tri ct of M is so ur i.

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-Fi rs t Fed eral sh ou ld ha ve be en de ci de d by a vo te of In te r-St at e’s m em be rs an d no t by
it s d ire ct or s.

Ch as e an d Pen ne r’s Am en de d Co m pl ai nt ha s th ree co un ts

. Co un t I al le ge s th at the de fe nda

nt dir ect or s br each ed th ei r fid uc ia ry du ti es to In te r-St at e’s m em be rs by not fu ll y ev al ua ti ng th e m erg er, no t en su rin g th at th e $2 5 m il li on su rp lu s was di st rib ut ed

to In te r-St at e’s m emb e r s , no t cal li ng fo r a vo te of al l In te r-St at e’s m em be rs to

ap pr ov e th e m erg er, no t ad he rin g to In te r-St at e’s ch art er, an d ap pr ov in g th e m erg er. Co un t II al le ge s th at Fi rs t Fed eral was un jus tl y en ric he d whe n it ret ai ne d In te r-St at e’s $2 5 m il li on su rp lu s. Lik ewis e, Co un t III al le ge s co nv ers io n ag ai ns t Fi rs t Fed eral fo r
ta ki ng co nt ro l o f In te r-St at e’s su rp lu s.

The di st ric t co ur t de te rm in ed th at Ch as e an d Pen ne r fai le d to pl ead a cl ai m fo r br each of f

i d u c i ary du ty. It reas on ed th at In te r-St at e’s m em be rs ha d no own ers hi p in te res t in th e su rp lu s an d th eref or e th at (1 ) th e di rect or s ha d no du ty to di st rib ut e th e

su rp lu s, an d (2 ) m em

be rs lo st no th in g of va lu e whe n th e as so ci at io ns m erg ed
, th ereb y

su ffer in g no da m ag e s

. I t a l s o co nc lu de d th at In te r-St at e’s ch art er di d no t gi ve th e

m em be rs a rig ht to vo te on th e m erg er. Fi na ll y , t he di s t r i c t co ur t he ld th at be cau se In te r-St at e’s m em

be rs ha d no own ers hi p in te res t in it s $2 5 m il li on su rp lu s, th ey co ul d

no t st at e cl ai m s ag ai ns t Fi rs t Fed eral fo r un jus t en ric hm en t an d co nv ers io n. Fo r th es e

reas on s, th e di st ric t co ur t gr an te d th e de fen da nt s’ m ot io n to di sm is s. Se e Fed

. R. Ci v. P. 12 (b )(6 ). Ch as e an d P en ne r ap pe al ed

.

W e rev ie w de no vo th e gr an t of a m ot io n to di sm is s fo r fai lu re to st at e a cl ai m

. Hug he s v. Ci ty of Ced

ar Rap id s , 84 0 F.3 d 98 7, 99 4 (8 th Ci r. 20 16 ). The di st ric t co ur t

pe rfo rm ed a ch oi ce-o f-l aw an al y si s an d de te rm in ed th at Kan sa s la w a pp li es , wh ic h
th e pa rti es do no t di sp ut e. Und er Kans as law, “ [t]he na tu re, co ns tru ct io n, and le ga l
effe ct of a writ te n in st ru m en t are qu es ti on s of la w.” St at e ex r el

. Se c’y of So c. &
Reh ab

. Se rv s. v. Ja cks on , 82 2 P

. 2 d 1 0 3 3
, 10 37 (Kan

. 19 91 ). Thu s, to de te rm in e

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-whe th er Ch as e an d Pen ne r st at ed a cl ai m , we wil l in te rp ret an d ap pl y In te r-St at e’s

ch art er.

The di st ric t co ur t co rrec tl y co nc lu de d th at In te r-St at e’s m em be rs di d no t ha ve

an own ers hi p in te res t in it s su rp lu s. Thi s co nc lu si on is co ns is te nt wit h lo ng -s ta nd in g Su pr em e Co ur t pr eced en t an d th e l a n g ua ge of In te r-St at e’s ch art er. In So ci et y fo r Sa vi ng s v. Bow er

s , fo r ex am

pl e, th e Su pr em e Co ur t ex pl ai ne d th at th e s u r p l u s of a

m ut ua l as so ci at io n is “ pr im ari ly a res erv e ag ai ns t lo ss es an d se co nd ari ly a rep os it or y of un di vi de d earn in gs .” 34 9 U.S. 14 3, 15 0 (1 95 5)

. W he n th e as so ci at io n is so lv en t,

m em be rs rece iv e a ret ur n on th e su rp lu s “ as an ele m en t o f th e in te res t p ai d on th ei r de po si ts .” Id

. M e mb e rs al so m ay ha ve th e op po rtu ni ty to real iz e a ga in in th e

“ un li ke ly ev en t of a so lv en t li qu id at io n,” bu t th at po ss ib il it y “ ha rd ly ris es to th e le ve l
of an ex pe ct an cy .” Id

. “ It st ret ch es th e im ag i n a t i o n v e ry far to at tri bu te an y real

va lu e to su ch a rem ot e co nt in ge nc y , an d whe n co up le d wit h th e fact th at it rep res en ts

no th in g whi ch th e de po si to r can read il y tra ns fer, an y th eo ret ic al va lu e red uc es al m os t

to th e v an is hi ng po in t.” Id

.

The Su pr em e Co ur t la te r rel ie d on Bow er s i n Pa u l s e n v. Co mmis si on er , 46 9
U.S. 13 1, 13 9 (1 98 5)
, an d it s reas on in g ha s be en fo ll owe d by fed eral an d st at e co ur ts

ev er si nc e, se e, e.g

. , Resc hi ni v. Fir st Fed . S av . & L o a n As s ’ n o

f In d. , 4 6 F.3 d 24 6,
25 7 (3 d C ir. 19 95 ) (n ot in g th e “ in su bs ta nt ia l na tu re of th e own ers hi p in te res ts he ld by de po si to r-m em

be rs of a m

ut ua l sa vi ng s as so ci at io n” ); Ord ow er , 99 9 F.2 d at 11 87 (“ A de po si to r’s in te res t in a m ut ua l [s av in gs an d lo an ] is a li qu id at io n pr efer en ce, no t

a tra ns fera bl e pr op ert y rig ht .”); Lo vel l v. One Ban co rp , 61 4 A.2d 56
, 67 (Me

. 19 92 ) (“ Th e d e p os it or s in a m ut ua l in st it ut io n ha ve no le ga l ti tl e to th e su rp lu s of th e in st it ut io n an d do no t sh are in an y ris k of lo ss si nc e th ei r de po si ts are in su red .”). The
la w is t h e r e fo re well -s et tl ed th at m em be rs of a m

ut ua l as so ci at io n do no t ha ve an

own ers hi p i nt eres t i n i ts su rp lu s.

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-Bu t Ch as e an d Pen n e r cl ai m th at In te r-St at e’s ch art er is un iq ue an d th at it s

la ng ua ge co nv ey s to it s m em be rs an in te res t in it s $2 5 m il li on su rp lu s. The y rel y on th e fo ll owi ng pro vi si on of I nt er-S ta te ’s cha rte r:

As of Ju ne 30 an d Decem

be r 31 of each y ear, aft er pa y m en t or pr ov is io n fo r pa y m en t of al l ex pe ns e s , c r e d i ts to ge ne ral res erv es an d su ch cred it s to

su rp lu s as th e bo ard of di rect or s m ay de te rm in e, an d pr ov is io n fo r bo nu s on

sa vi ng s acc ou nt s as au th or iz ed by re gu la ti on s m ad e by t he Fed eral Hom e Loa n Ban k Bo ard
, th e bo ard of di rect or s of the as so ci at io n sh al l caus e th e

rem ai nd er of th e ne t earn in gs of th e as so ci at io n fo r th e 6 m on th s’ pe rio d to be di st rib ut ed pr om

pt ly on it s sa vi ng s acco un ts , rat ab ly, as de cl ared by th e bo ard of di rect or s, to th e wit hd rawal va lu e th ereo f; in li eu of or in ad di ti on to su ch ne t ea rn in gs , an

y of th e as so ci at io n’

s su rp lu s fu nd s may be li kew is e di st ri bu te d

. Su ch ne t earn in gs sh al l be cred it ed to sa vi ng s acco un ts or pa id
, as di rect ed by the own er.

(em ph as is ad de d)

. Thi s pr ov is io n an d In te r-St at e’s ch art er as a who le
, ho wev er, are

no t un iq ue

. In te r-St at e’s ch art er, “ Ch art er K (Rev .),” was on e of two st an da rd m ut ua l
ch art ers ad op te d by

th e Fed eral Hom e Loa n Ban k Boa rd in 19 53

. Se e 18 Fed

. Reg

. 87 15
, 87 27 -2 8 (De c

. 2 5
, 19 53 ) (req ui rin g th e is su an ce of ei th er “ Ch art er N” or Ch art er K (Rev .)). Bo th of th os e ch art ers —Ch art er N an d Ch art er K (Rev .)—i nc lud ed the ab ove pr ovi si on , an d bo th rem ai ne d st an da rd ch art er fo rm s un ti l
19 8 4. Id

. at 87 28 -2 9; 23 Fed

. Reg

. 98 78
, 98 93 -9 4 (Dec. 23
, 19 58 ); Ch art ers an d By la ws Ava il ab le to Fed eral Ass oc ia ti on s an d Sav in gs Ban ks
, 48 Fed

. Reg

. 44 17 4- 01 (Sep t. 28
, 19 83 ) (es ta bl is hi n g a “ si ng le ch art er req ui rem en t fo r fed eral m ut ua l
in st it ut io n s ” ) ; 12 C.F.R. § 54 4.1 (1 98 4)

. The ch art ers of al l fed eral ly ch art ered

m ut ua l as so ci at io ns fo rm ed be twee n 19 53 an d 19 83 th eref or e co nt ai n th e pr ov is io n
at is su e. Se e 18 Fed . Reg . at 8 72 7- 28 (st at in g t ha t Ch art er N wou ld be is su ed up on
ap pl ic at io n fo r a ch art er fo r a m ut ua l as so ci at io n un le ss Ch art er K (Rev .) was
req ue st ed ). And y et d e sp it e th e pr ev al en ce of th es e ch art ers , whi ch in cl ud e th e
pr ov is io n th at Ch as e an d P en ne r rel y on , no co ur t h as co nc lu de d t ha t m em be rs of a

m ut ua l as so ci at io n ha ve an own ers hi p in te res t in it s su rp lu s. In de ed
, in Pau ls en , th e

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-Su pr em e Co ur t co ns id ered th e fo rm at io n of m ut ua l as so ci at io n “ or ga ni zed pu rs ua nt

to Ch art er K (Rev .),” no te d th at “ [p ]ote nt ia l de po si to rs are m ot iv at ed on ly by th e rat e of ret ur n on th ei r acco un ts an d th e se cu rit y of th ei r de po si ts ,” an d th en qu ot ed Bow er s fo r th e pr op os it io n th at m em be rs ’ in te res t in th e ne t pr oc eed s of a so lv en t li qu id at io n la ck ed “ an y

real va lu e.” 4 69 U.S. at 1 38 -3 9.

Bu t ev en as su m in g th at th e pr ov is io n is un iq u e a n d t h at th is is a cas e of fir st im pr es si on , I nt er-S ta te ’s m em be rs wou ld no t h av e an own ers hi p i nt eres t i n th e $2 5

m il li on su rp lu s ba se d o n t h e pr ov is io n’s pl ai n la ng ua ge

. The pr ov is io n st at es th at
In te r-St at e’s bo ard “ m ay ” di st rib ut e In te r-St at e’s su rp lu s to it s m em be rs in c e rta in
si tu at io ns

. In te r-St at e’s bo ard was th eref or e pe rm it te d, bu t no t req ui red
, to di st rib ut e it s su rp lu s to it s m em

be rs

. Se e H

i ll v. Ka n. Dep t. of La bo r , 24 8 P.3 d 12 87
, 12 90 (Kan

. 20 11 ) (d is ti ng ui sh in g “ di rect or y la ng ua ge su ch as ‘sha ll ’ or ‘m us t’” fro m “ th e
pe rm is si ve wor d ‘m ay ’”); St at e v. Eng el ha rd t , 11 9 P.3 d 11 48
, 11 58 (K a n

. 2 0 0 5 ) (ch arac te riz in g th e us e of “ m ay ” as “ pl ai nl y pe rm is si ve ”). Su ch pe rm is si ve la ng ua ge do es no t co nv ey an own ers hi p rig ht

. Se e, e.g

. , Eng el ha rd t , 11 9 P.3 d at 11 58 (h ol di ng
t ha t st at ut or y la ng ua ge st at in g th at juro rs “ m ay be ” acco m pa ni ed by th e de fen d a n t whe n v i e w i n g a cri m e sc en e pr ov id ed “ no ab so lu te rig ht ” to th e de fen da nt to be

pr es en t fo r th e v ie win g) ; Dot so n v. Atch is on , T

. & S. F. Ry. Co

. , 1 06 P. 10 45 , 1 04 7 (Kan

. 19 10 ) (h ol di ng th at “ [i]f th e us e of a way ov er on e ’s l a n d b e s h own to be

pe rm is si ve on ly, no rig ht to us e it is co nf erre d” ). Thi s in te rp ret at io n is co ns is te nt wit h th e Su pr em e Co ur t’s de ci si on in Bow er s an d co nf

irms ou r co nc lu si on th at In te rSt at e’s m em

be rs di d n ot ha ve an own ers hi p i nt eres t i n i ts su rp lu s.

W it ho ut an o w n e r s h i p in te res t in th e $2 5 m il li on su rp lu s, Ch as e an d Pen ne r ha ve no t st at ed a cl ai m ag ai ns t Fi rs t Fed eral or In te r- S t a t e ’s di rect or s. The y

a c k n owl ed ge th at “ [e]ach cl ai m was pr em is ed on th e th eo ry th at Pl ai nt iff s ha d a n

own ers hi p in te res t in In te r-St at e’s [s ]urp lu s or a rig ht to vo te on an d ap pr ov e th e

m erg er.” Thu s, th e di st ric t co ur t pr op erl y di sm is se d th ei r cl ai m s ex pr es sl y pr em is ed

on an own ers hi p i nt eres t i n t he su rp lu s.

-6

-The ir cl ai m fo r br each of fid uc ia ry d u t y p r e mise d on a rig ht to vo te on th e

m erg er was al so pr o p e r l y di sm is se d be cau se , ab se nt a rig ht to rece iv e su rp lu s di st rib ut io ns whe n th e as so ci at io ns m erg ed
, th ey pl ead ed no da m ag es

. Se e Sc hn ei de r

v. Ka ns as Se c. Co mm’r
, 39 7 P. 3 d 1 2 2 7
, 1 24 7 (Kan

. Ct

. App

. 20 17 ) (“ The

req ui rem en ts of a cl ai m of br each of fid uc ia ry du ty are ex is te nc e of a du ty, br each of
th at du ty, an d da mag es res ul ti ng fr om th e b re ac h .” (em ph as is ad de d) ). The b reac h
of fid uc ia ry du ty s ect io n of Ch as e an d Pen ne r ’s A men d ed Co m pl ai nt m erel y st at es th at “ [a]s a di rect an d pr ox im at e res ul t of Defen da nt s’ br each es , Pl ai n t i f f s an d th e Cl as s ha ve su ffer ed da m ag es in an am ou nt t o b e d et erm in ed at tri al .” Befo re th e di st ric t co ur t, th ey cl ari fie d th at th ey were da m ag ed be cau se (1 ) “ th ey di d no t rece iv e di st rib ut io ns of cap it al at an y ti m e” an d (2 ) th ei r in te res t in In te r-St at e’s su rp lu s was di lu te d up on th e mer g er. Si m il arl y , Ch as e an d Pen ne r cl ai m on ap pe al th at

“ [d ]epri ve d of th ei r eq ui ty in te res t wit ho ut co m pe ns at io n, [th ey ] su ffer ed da m ag es .”
Th ey cl ai m no ot he r da m ag es ari si ng fro m th ei r rig ht -to -v ot e cl ai m

. And whe n
pr es se d on th is is su e du rin g or al arg um en t, th ei r co un se l refe rred ba ck to th e su rp lu s. Thu s, be cau s e a l l al le ge d da m ag es ari si ng fro m Ch as e an d Pen ne r’s rig ht -to -v ot e cl ai m res t on th e in co rrec t ass um pt io n th at In te r-St at e’s m em be rs ha d an own ers hi p in te res t in th e $2 5 m il li on su rp lu s, th e di st ric t co ur t pr op erl y de te rm in ed th at th ey di d

no t s ta te a va li d c la im

.

Fo r th es e rea so ns , we affi rm

.

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