United States Court of Appeals

For the Eighth Circuit

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No. 18-1764

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Steven Chase, On Behalf of Himself and All Others; Shawn Penner, On Behalf of

Himself and All Others

lllllllllllllllllllllPlaintiffs - Appellants

v.

First Federal Bank of Kansas City; Richard T. Merker; Helen Skradski; Benjamin

J. Fries; William W. Hutton; James R. Jarrett

lllllllllllllllllllllDefendants - Appellees

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Office of the Comptroller of the Currency; American Bankers Association;

Missouri Bankers Association

lllllllllllllllllllllAmici on Behalf of Appellee(s)

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Appeal from United States District Court 

for the Western District of Missouri - Kansas City

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Submitted: June 12, 2019

Filed: August 7, 2019

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Before GRUENDER, STRAS, and KOBES, Circuit Judges.

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GRUENDER, Circuit Judge.

Plaintiffs StevenChase and Shawn Penner appeal the district court’s dismissal

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of their putative class action lawsuit against First Federal Bank of Kansas City (“First

Federal”) and former directors of Inter-State Federal Savings and Loan Association

of Kansas City (“Inter-State”). We affirm.

First Federal is a federally chartered mutual savings and loan association that

merged with and then absorbed Inter-State, another mutual savings and loan

association, in 2016. Federally chartered mutual savings and loan associations

provide their members(i.e., depositors) with a federally insured rate of interest. York

v. Fed. Home Loan Bank Bd., 624 F.2d 495, 500 (4th Cir. 1980). Though members

“are the legal ‘owners’ of a mutual savings and loan association, their interest is

essentially that of creditors of the association and only secondarily as equity owners.” 

Id. at 499-500. “They cannot sell what they ‘own’, and if they withdraw savings they

receive only the nominal value of the account rather than a portion of the mutual’s net

worth, which is valuable to them only to the extent it permits the bank to pay higher

interest.” Ordower v. Office of Thrift Supervision, 999 F.2d 1183, 1185 (7th Cir.

1993).

Chase and Penner were members of Inter-State and seek to represent InterState’s other pre-merger members in their putative class action lawsuit. They claim

that Inter-State’s merger with First Federal was inequitable because Inter-State had

$25 million more than First Federal in excess capital. That $25 million surplus, they

allege, should have been distributed to Inter-State’s members instead of becoming

part of the merged entity. They also claim that Inter-State’s decision to merge with

The Honorable David Gregory Kays, United States District Judge for the

1

Western District of Missouri.

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First Federalshould have been decided by a vote of Inter-State’s members and not by

its directors. 

Chase and Penner’s Amended Complaint has three counts. Count I alleges that

the defendant directors breached their fiduciary dutiesto Inter-State’s members by not

fully evaluating the merger, not ensuring that the $25 million surplus was distributed

to Inter-State’s members, not calling for a vote of all Inter-State’s members to

approve the merger, not adhering to Inter-State’s charter, and approving the merger. 

Count II alleges that First Federal was unjustly enriched when itretained Inter-State’s

$25 million surplus. Likewise, Count III alleges conversion against First Federal for

taking control of Inter-State’s surplus. 

The district court determined that Chase and Penner failed to plead a claim for

breach of fiduciary duty. It reasoned that Inter-State’s members had no ownership

interest in the surplus and therefore that (1) the directors had no duty to distribute the

surplus, and (2) memberslost nothing of value when the associations merged, thereby

suffering no damages. It also concluded that Inter-State’s charter did not give the

members a right to vote on the merger. Finally, the district court held that because

Inter-State’s members had no ownership interest in its $25 million surplus, they could

not state claims against First Federal for unjust enrichment and conversion. For these

reasons, the district court granted the defendants’ motion to dismiss. See Fed. R. Civ.

P. 12(b)(6). Chase and Penner appealed. 

We review de novo the grant of a motion to dismiss for failure to state a claim.

Hughes v. City of Cedar Rapids, 840 F.3d 987, 994 (8th Cir. 2016). The district court

performed a choice-of-law analysis and determined that Kansas law applies, which

the parties do not dispute. Under Kansas law, “[t]he nature, construction, and legal

effect of a written instrument are questions of law.” State ex rel. Sec’y of Soc. &

Rehab. Servs. v. Jackson, 822 P.2d 1033, 1037 (Kan. 1991). Thus, to determine

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whether Chase and Penner stated a claim, we will interpret and apply Inter-State’s

charter.

The district court correctly concluded that Inter-State’s members did not have

an ownership interest in its surplus. This conclusion is consistent with long-standing

Supreme Court precedent and the language of Inter-State’s charter. In Society for

Savings v. Bowers, for example, the Supreme Court explained that the surplus of a

mutual association is “primarily a reserve against losses and secondarily a repository

of undivided earnings.” 349 U.S. 143, 150 (1955). When the association is solvent,

members receive a return on the surplus “as an element of the interest paid on their

deposits.” Id. Members also may have the opportunity to realize a gain in the

“unlikely event of a solvent liquidation,” but that possibility “hardly risesto the level

of an expectancy.” Id. “It stretches the imagination very far to attribute any real

value to such a remote contingency, and when coupled with the fact that it represents

nothing which the depositor can readily transfer, any theoretical value reduces almost

to the vanishing point.” Id. 

The Supreme Court later relied on Bowers in Paulsen v. Commissioner, 469

U.S. 131, 139 (1985), and its reasoning has been followed by federal and state courts

ever since, see, e.g., Reschini v. First Fed. Sav. & Loan Ass’n of Ind., 46 F.3d 246,

257 (3d Cir. 1995) (noting the “insubstantial nature of the ownership interests held

by depositor-members of a mutual savings association”); Ordower, 999 F.2d at 1187

(“A depositor’s interest in a mutual [savings and loan] is a liquidation preference, not

a transferable property right.”); Lovell v. One Bancorp, 614 A.2d 56, 67 (Me. 1992)

(“The depositors in a mutual institution have no legal title to the surplus of the

institution and do not share in any risk of loss since their deposits are insured.”). The

law is therefore well-settled that members of a mutual association do not have an

ownership interest in its surplus. 

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But Chase and Penner claim that Inter-State’s charter is unique and that its

language conveys to its members an interest in its $25 million surplus. They rely on

the following provision of Inter-State’s charter:

As ofJune 30 and December 31 of each year, after payment or provision for

payment of all expenses, credits to general reserves and such credits to

surplus asthe board of directors may determine, and provision for bonus on

savings accounts as authorized by regulations made by the Federal Home

Loan Bank Board, the board of directors of the association shall cause the

remainder of the net earnings of the association for the 6 months’ period to

be distributed promptly on its savings accounts, ratably, as declared by the

board of directors, to the withdrawal value thereof; in lieu of or in addition

to such net earnings, any of the association’s surplus funds may be likewise

distributed. Such net earningsshall be credited to savings accounts or paid,

as directed by the owner. 

(emphasis added). This provision and Inter-State’s charter as a whole, however, are

not unique. Inter-State’s charter, “Charter K (Rev.),” was one of two standard mutual

charters adopted by the Federal Home Loan Bank Board in 1953. See 18 Fed. Reg.

8715, 8727-28 (Dec. 25, 1953) (requiring the issuance of either “Charter N” or

Charter K (Rev.)). Both of those charters—Charter N and Charter K

(Rev.)—included the above provision, and both remained standard charter forms until

1984. Id. at 8728-29; 23 Fed. Reg. 9878, 9893-94 (Dec. 23, 1958); Charters and

Bylaws Available to Federal Associations and SavingsBanks, 48 Fed. Reg. 44174-01

(Sept. 28, 1983) (establishing a “single charter requirement for federal mutual

institutions”); 12 C.F.R. § 544.1 (1984). The charters of all federally chartered

mutual associations formed between 1953 and 1983 therefore contain the provision

at issue. See 18 Fed. Reg. at 8727-28 (stating that Charter N would be issued upon

application for a charter for a mutual association unless Charter K (Rev.) was

requested). And yet despite the prevalence of these charters, which include the

provision that Chase and Penner rely on, no court has concluded that members of a

mutual association have an ownership interest in its surplus. Indeed, in Paulsen, the

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Supreme Court considered the formation of mutual association “organized pursuant

to Charter K (Rev.),” noted that “[p]otential depositors are motivated only by the rate

ofreturn on their accounts and the security of their deposits,” and then quoted Bowers

for the proposition that members’ interest in the net proceeds of a solvent liquidation

lacked “any real value.” 469 U.S. at 138-39.

But even assuming that the provision is unique and that this is a case of first

impression, Inter-State’s members would not have an ownership interest in the $25

million surplus based on the provision’s plain language. The provision states that

Inter-State’s board “may” distribute Inter-State’s surplus to its members in certain

situations. Inter-State’s board wastherefore permitted, but not required, to distribute

its surplus to its members. See Hill v. Kan. Dept. of Labor, 248 P.3d 1287, 1290

(Kan. 2011) (distinguishing “directory language such as ‘shall’ or ‘must’” from “the

permissive word ‘may’”); State v. Engelhardt, 119 P.3d 1148, 1158 (Kan. 2005)

(characterizing the use of “may” as “plainly permissive”). Such permissive language

does not convey an ownership right. See, e.g., Engelhardt, 119 P.3d at 1158 (holding

that statutory language stating that jurors “may be” accompanied by the defendant

when viewing a crime scene provided “no absolute right” to the defendant to be

present for the viewing); Dotson v. Atchison, T. & S. F. Ry. Co., 106 P. 1045, 1047

(Kan. 1910) (holding that “[i]f the use of a way over one’s land be shown to be

permissive only, no right to use it is conferred”). This interpretation is consistent

with the Supreme Court’s decision in Bowers and confirms our conclusion that InterState’s members did not have an ownership interest in its surplus.

Without an ownership interest in the $25 million surplus, Chase and Penner

have not stated a claim against First Federal or Inter-State’s directors. They

acknowledge that “[e]ach claim was premised on the theory that Plaintiffs had an

ownership interest in Inter-State’s [s]urplus or a right to vote on and approve the

merger.” Thus, the district court properly dismissed their claims expressly premised

on an ownership interest in the surplus. 

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Their claim for breach of fiduciary duty premised on a right to vote on the

merger was also properly dismissed because, absent a right to receive surplus

distributions when the associations merged, they pleaded no damages. See Schneider

v. Kansas Sec. Comm’r, 397 P.3d 1227, 1247 (Kan. Ct. App. 2017) (“The

requirements of a claim of breach of fiduciary duty are existence of a duty, breach of

that duty, and damages resulting from the breach.” (emphasis added)). The breach

of fiduciary duty section of Chase and Penner’s Amended Complaint merely states

that “[a]s a direct and proximate result of Defendants’ breaches, Plaintiffs and the

Class have suffered damages in an amount to be determined at trial.” Before the

district court, they clarified that they were damaged because (1) “they did not receive

distributions of capital at any time” and (2) their interest in Inter-State’s surplus was

diluted upon the merger. Similarly, Chase and Penner claim on appeal that

“[d]eprived of their equity interest without compensation, [they] suffered damages.” 

They claim no other damages arising from their right-to-vote claim. And when

pressed on this issue during oral argument, their counsel referred back to the surplus. 

Thus, because all alleged damages arising from Chase and Penner’s right-to-vote

claim rest on the incorrect assumption that Inter-State’s members had an ownership

interest in the $25 million surplus, the district court properly determined that they did

not state a valid claim.

For these reasons, we affirm. 

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