NoDak Bancorporation v. Clarke and Lewisv. Clark: Squeezing Out "Squeeze-Out"Mergers Under the National Bank Act

I. IntroductionThe United States Court of Appeals for the Eighth Circuit recently held in NoDak Bancorporation v. Clarke(1) that a merger in which the majority shareholders forced the minority shareholders of an acquired bank to accept only cash in exchange for their shares was permissible under the National Bank Act.(2) The Eighth Circuit's NoDak opinion directly conflicts with the decision of the United States Court of Appeals for the Eleventh Circuit in Lewis v. Clark.(3) In Lewis, the Eleventh Circuit held that without express statutory authority, the Comptroller of the Currency (Comptroller) had no authority to approve a merger that required shareholders holding stock of equal standing to take different forms of consideration.(4) At present, the Eighth and Eleventh Circuits are the only courts that have addressed whether the National Bank Act grants the Comptroller authority to approve these "squeeze-out" mergers involving national banks.(5) The Office of the Comptroller of the Currency has indicated that the Comptroller will continue to approve squeeze-out mergers outside the Eleventh Circuit.(6) Consequently, the issue of squeeze-out mergers under the National Bank Act may confront other courts in the future.The Lewis and NoDak courts approached the question of whether squeeze-out mergers(7) are permissible as a matter of statutory interpretation of the National Bank Act.(8) By framing the issue as a question of the Comptroller's authority under the statute to approve such a merger, the courts avoided the significant policy issues underlying the question of whether the government should permit such mergers in the context of national banks. This Note analyzes the policy considerations behind allowing majority shareholders in national banks to employ squeeze-out mergers to divest minority shareholders of their equity. The Note begins with a review of the treatment of squeeze-out mergers in the general corporate context under state law, with a focus on the different New York and Delaware approaches.(9) The Note then discusses current and traditional justifications and criticisms regarding squeeze-out mergers involving nonbank corporations.(10)After exploring these general issues, the Note turns to squeeze-out mergers that involve national banks, beginning with an analysis of the reasoning in the NoDak and Lewis opinions.(11) A review of the conflict between the Eighth and Eleventh Circuits follows.(12) The Note then analyzes the scope of the National Bank Act, focusing on the legislative history and the legal context in which Congress originally enacted and subsequently amended the provisions governing national bank consolidations.(13) The Note concludes that the legislative history and the prevailing legal assumptions concerning the rights of minority shareholders indicate that Congress did not intend to authorize squeeze-out mergers under the National Bank Act.(14) In addition, the Note argues that the Comptroller's endorsement of squeeze-out mergers is not only inconsistent with the National Bank Act, but also fails to promote the federal policy of encouraging beneficial consolidations in the banking industry.(15) Finally, the Note recommends that if Congress does decide to authorize squeeze-out mergers under the National Bank Act, Congress should require that such transactions satisfy a business purpose test defined by the regulatory objectives that the consolidation policy seeks to promote.(16)II. Squeeze-Out Mergers in the General Corporate ContextState courts have long struggled with the propriety of squeeze-out mergers.(17) Because of the significance of Delaware's corporate law, many state courts and legislatures have followed Delaware's example in the development of their laws governing squeeze-out mergers.(18) A notable exception to this pattern is New York, which takes a very different approach to squeeze-out mergers.(19)A. Squeeze-Out Mergers Under Delaware Corporate LawThe treatment of squeeze-out mergers under Delaware law has varied over time. …