Opinion ID: 1816952
Heading Depth: 1
Heading Rank: 15

Heading: authority of department

Text: The appellants' last assignment of error concerns the authority of the Department to approve or deny a merger application when the merger is unfair to the minority shareholders. According to the appellants, Given the Department's expertise in the area of evaluating financial institutions, the district court should not be permitted to second guess the Department's Order with respect to the value of the Plaintiffs' shares. Brief for appellants at 19. Apparently, the appellants are contending that the Department's decision to approve or deny a merger is not subject to judicial review on the basis of the merger's fairness to the minority shareholders. The appellee minority shareholders, however, argue that the Department's determination in that regard is not only subject to judicial review, but must be reversed by the district court if the merger is unfair to the minority shareholders. Essentially, the appellee minority shareholders' contention is that the Department is the minority shareholders' sole forum in which to seek relief. We disagree with both parties' positions. What then is the extent of the Department's authority to review the merger's fairness? Insofar as the appellants' argument is concerned, we have already concluded that the district court properly had jurisdiction pursuant to the APA. Under the APA, the district court has the authority to review an administrative agency's decision without a jury, de novo on the record of the agency. Wolgamott v. Abramson, 253 Neb. 350, 570 N.W.2d 818 (1997). Thus, the Department's authority to approve or deny a merger is subject to judicial review, regardless of the grounds upon which the merger is approved or denied. The appellee minority shareholders' argument is based on our conclusion in Schmid v. Clarke, Inc., 245 Neb. 856, 515 N.W.2d 665 (1994), where we held that the minority shareholders must make an objection to the Department to preserve their rights. The appellee minority shareholders' contention that the Department is the sole forum is not, however, supported by a careful analysis of Schmid. First, if the Department were the sole avenue of relief, the district court would not have had subject matter jurisdiction, because the action would have been brought in the wrong forum. Without subject matter jurisdiction, the court would have been powerless to conduct an appellate review of the lower court's decision. See Kuhlmann v. City of Omaha, 251 Neb. 176, 556 N.W.2d 15 (1996). Rather, the court would simply have held that it did not have jurisdiction to decide the matter. Second, as we have already stated, the Schmid court considered the appellants' claims in equity. Had the Department been the sole forum of relief for the appellee minority shareholders, the appellee minority shareholders would have had an adequate remedy at law, which would have precluded resort to equitable remedies and defenses. See Pilot Investment Group v. Hofarth, 250 Neb. 475, 550 N.W.2d 27 (1996). Although we have not directly addressed the scope of the Department's authority to review a merger application, we have previously addressed the scope of an agency director's authority to deny or approve a bulk reinsurance contract, which is closely analogous to a cash-out merger. See Doyle v. Union Ins. Co., 202 Neb. 599, 277 N.W.2d 36 (1979). In Doyle, a mutual insurance company ceded its business to another company by a contract of bulk reinsurance, pursuant to Neb.Rev.Stat. [s]ection 44-224.05, R.R.S.1943. Doyle v. Union Ins. Co., 202 Neb. at 604, 277 N.W.2d at 39. The transaction required the approval of a majority of the policyholders and the Director of Insurance, who was to ensure that the contract was `fair and equitable to the policyholders of each insurer....' (Emphasis omitted.) Id. The contract was indeed approved by the director and a majority of the policyholders, which resulted in the policyholders' receiving a distribution of their equity in the surplus funds of the company, as required by the statute. The policyholders then brought a class action in the district court, alleging that the directors of the company had breached their fiduciary duties by, inter alia, selling the company for less than its fair value, which action the court considered in equity. As a threshold matter, the court addressed the effect of the approval of the contract by the Director of Insurance. The court stated: Nowhere does this statute or the related statutes impliedly or expressly demonstrate an intent to abridge or limit the common law rights of policyholders, who are, in the case of a mutual company, its owners. Rather, the statutes indicate that review and approval by the Director of Insurance is intended to be an initial screening process by means of which obviously inequitable arrangements may be avoided without the necessity of possible expensive and protracted litigation by policyholders. Neither does the language of the statute demonstrate any intention that mere approval by the Director of Insurance absolves (assuming that this is a legislative prerogative) the corporate directors from liability for violation of their fiduciary duties. (Emphasis supplied.) Id. at 605, 277 N.W.2d at 40. Likewise, the statute at issue in the instant case, § 8-157(3), merely states that bank mergers are authorized [w]ith the approval of the director. The statute does not indicate that the director's approval absolves the bank of any obligations it may owe to the minority shareholders. The Department, as an administrative agency, has only that power which has been granted to it by the Legislature. Wagoner v. Central Platte Nat. Resources Dist., 247 Neb. 233, 526 N.W.2d 422 (1995); Ventura v. State, 246 Neb. 116, 517 N.W.2d 368 (1994). Furthermore, as a general rule, administrative agencies have no general judicial powers, notwithstanding that they may perform some quasijudicial duties. Ventura v. State, supra . Only a judicial tribunal, and not an administrative agency acting as a quasi-judicial tribunal, can provide relief that is within the general power of the court to provide. Ventura v. State, supra . Section 8-157(3)'s plain language authorizes the Department to either approve or deny a bank merger; nowhere does the statute indicate that the Department is required to disapprove a merger that is unfair to the minority shareholders, nor does it indicate that the Department is empowered to require a bank to pay the fair value of a dissenter's shares, which is a historically equitable remedy. As we stated in Doyle when discussing the effect of the Director of Insurance's approval of an insurance application: It is true he may disapprove a control transaction when he finds it unfair or unreasonable to policyholders. Thus, as an incident of his powers he may provide a preventive administrative remedy for the wrongs alleged in this case. However, the statutory power to disapprove a control transaction is a limited power. It is not a legislative delegation to the insurance commissioner of jurisdiction over corporate insider torts, even though the commissioner is granted administrative authority to disapprove control transactions when such wrongs appear. Doyle v. Union Ins. Co., 202 Neb. 599, 607, 277 N.W.2d 36, 41 (1979), quoting Rowen v. LeMars Mut. Ins. Co. of Iowa, 230 N.W.2d 905 (Iowa 1975). Finally, we note that Neb.Rev.Stat. § 8-102 (Reissue 1997), the Legislature's declaration of public purpose, states that banks... are hereby declared to be quasi-public in nature and subject to regulation and control by the state. We have long held that the banking laws were intended to protect the health of the banking industry for the benefit of the entire public. See, e.g., In re Invol. Dissolution of Battle Creek State Bank, 254 Neb. 120, 575 N.W.2d 356 (1998). Thus, the Department has a duty to consider the potential effects of a particular merger on the entire banking industry, which may override whatever concerns the Department may have about the fairness of the merger to the minority shareholders. For example, in the instant case, the Department approved the merger even though one minority shareholder, Stuckey, received more for his shares of LSB & T than the remaining minority shareholders. Therefore, the Department did not ensure that LSB & T's minority shareholders were treated with fundamental fairness, since as a matter of law, fundamental fairness requires that all minority shareholders receive the same treatment. This is not to say that the Department erred in approving the merger as a matter of law. It only points out that the inherent conflict of interest between the needs of the banking industry and the needs of minority shareholders is properly resolved by the district courts in a separate equity proceeding, and not by the Department's approval proceeding. In sum, the Department of Banking and Finance has the authority to consider the fairness of a merger to minority shareholders. (Emphasis supplied.) Schmid v. Clarke, Inc., 245 Neb. 856, 860-61, 515 N.W.2d 665, 669 (1994). Nevertheless, that authority does not require the Department to deny a merger application merely because the minority shareholders will receive less than fair value for their shares, see IRA ex rel. Oppenheimer v. Brenner Companies Inc., 107 N.C.App. 16, 419 S.E.2d 354 (1992), nor does it empower the Department to compel payment of fair value to the shareholders. The shareholders in Schmid were not estopped because the Department was the sole forum for their claim; rather, they were estopped because, had they made a timely objection to the Department, they may have prevented the merger entirely, obviating the need for a remedy.