Opinion ID: 589636
Heading Depth: 3
Heading Rank: 4

Heading: The Comptroller's Appraisal

Text: 36 Plaintiffs assert numerous failings in the methodology employed by the Comptroller in appraising their stock. We hold, however, that the district court properly granted summary judgment for the Comptroller on plaintiffs' claim that the appraisal was unreasonable, arbitrary, and capricious. 37 As noted by the district court, § 215 contains no guidance for the Comptroller's appraisal. Thus, a court's inquiry is restricted to whether the appraisal was based on a consideration of the relevant factors and whether there has been a clear error of judgment. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 824, 28 L.Ed.2d 136 (1971); Yabsley, 644 F.Supp. at 693; see also Administrative Procedure Act, 5 U.S.C. § 706(2)(A) (APA). 38 For the same reasons stated by the district court, we agree that the Comptroller's appraisal was neither unreasonable nor arbitrary and capricious. The Comptroller conceded that there are several methods of estimating the value of a bank's shares. I R. (Pleadings) Doc. 1, Ex. A, Report of Appraisal of Dissenting Shareholders' Stock at 1 (Comptroller's Appraisal). Nevertheless, its decision to choose the Delaware Block Methodology cannot be faulted. 4 Although the plaintiffs correctly indicate that this methodology has been criticized, see, e.g., Weinberger v. UOP, Inc., 457 A.2d 701, 712 (Del.1983) (describing method as outmoded), nevertheless, the fact that the Comptroller was following a conventional approach goes far to shield his results from judicial invalidation. It is not for a reviewing court to tell an administrative agency to defy the conventional wisdom, to innovate, to be daring. Beerly v. Department of the Treasury, 768 F.2d 942, 945-46 (7th Cir.1985). Mere use of the Delaware Block Method does not render the appraisal arbitrary and capricious. 39 In appraising plaintiffs' CNB stock, the Comptroller assigned no weight to the market value of the stock because the stock was thinly traded during the three years preceding the merger and because most of the trades of CNB stock took place between insiders and/or control groups. The Comptroller determined the investment value of CNB stock by analyzing CNB's historical earnings data and comparing the same with a peer group of banks for which market data was readily available. The adjusted book value of CNB stock was determined by multiplying the book value of CNB's assets per share times the median ratio of market priced book value for the peer group. The Comptroller determined the investment value to be $42.89 per share and the adjusted book value to be $33.09 per share, which it then weighted at 75% and 25%, respectively. The resulting appraised value for the dissenting stock was $40.44 per share. See Comptroller's Appraisal at 2-7. 40 Plaintiffs argue that the peer banks selected were inappropriate because they were not New Mexico banks; that they had not themselves been individually appraised using the same market standards applied to reject the New Mexico banks for comparison; and that instead a simulated market value for their shares had been developed from merely arithmetical calculations. Plaintiffs also complain that the Comptroller's weight values between investment value and adjusted book value are unsupported by the record. 41 We believe that the Comptroller's application of its chosen methodology was reasonable. The Comptroller assigned no weight to either market or book value. This decision accords with views frequently expressed by courts that market value should not be taken into account when the stock is too thinly traded, ..., or where the market for stock is not dependable. Keeffe, 808 F.2d at 250 (citations omitted). 5 Moreover, [t]here is nearly complete agreement that book value does not accurately represent the fair value of corporate assets. Note, Valuation of Dissenters' Stock Under Appraisal Statutes, 79 Harv.L.Rev 1453, 1457 (1966). Thus, the Comptroller's rejection of these measures was within reasonable bounds. 42 As indicated by the district court, the Comptroller employed many of the factors for selecting peer banks which plaintiffs submitted to the agency through their appraiser Wood. The Comptroller identified the criteria used for selecting the peer banks, see Comptroller's Appraisal at 4 (listing factors), and specifically explained the absence of peer New Mexico banks as attributable to the lack of published data relevant to these criteria. Id. We agree with the district court that the [s]election of a peer group is a discretionary act because the term is not statutorily defined and it involves familiarity with factors particularly within the Comptroller's expertise. See Yabsley, 644 F.Supp. at 695. 43 As to the decision to weight the investment value more heavily than the adjusted book value, we find the Comptroller's explanation adequate: the weights assigned reflect the relative importance [that] has been attributed to the income statement in recent years. Comptroller's Appraisal at 7. As the district court correctly noted, this reasoning properly favored the anticipated earnings of the bank over the adjusted value of its assets. XI R. (Pleadings) Doc. 245, at 10 (footnote omitted). The Comptroller has articulated rational explanations for the decisions made and has further explained why the recommendations of plaintiffs' expert were rejected. See Comptroller's Appraisal at 5-6. We will inquire no further. 44 We also reject plaintiffs' argument that the price paid for their stock should have been the same as the price paid for the Controlling Shareholders' stock. As noted in Beerly, federal law contains no such requirement, and such an argument fails to appreciate the big difference between the value of a minority shareholder's interest and the value of a controlling interest. Id. at 946-47. Thus, we affirm the district court's § 215 rulings. 6