Opinion ID: 1120784
Heading Depth: 2
Heading Rank: 3

Heading: Delegation Powers of the Bank's Board of Directors

Text: (4a) Section 24 grants Wells Fargo the power [t]o elect or appoint directors, and by its board of directors, to appoint a president, vice president, cashier, and other officers, define their duties, require bonds of them and fix the penalty thereof, dismiss such officers or any of them at pleasure, and appoint others to fill their places. (12 U.S.C. § 24, Fifth, italics added.) It is undisputed that Wells Fargo's board of directors did not make or approve the decisions to discharge any of the plaintiffs in this case. Wells Fargo contends it is nevertheless entitled to rely on section 24's at-pleasure provision because plaintiffs' terminations were made or approved by other officers (senior to plaintiffs) to whom the board had properly delegated authority to make such terminations. Plaintiffs contend section 24 does not permit such delegation or, alternatively, that the chain of delegation was itself defective under Wells Fargo's internal rules and procedures. As we shall explain, section 24 does not allow delegation of the dismissal power. We therefore do not decide whether the purported delegations in this case (and the terminations pursuant thereto) were proper under Wells Fargo's own rules.
(5) We begin with the fundamental rule that our primary task is to determine the lawmaker's intent. ( Brown v. Kelly Broadcasting Co. (1989) 48 Cal.3d 711, 724 [257 Cal. Rptr. 708, 771 P.2d 406].) In doing so, we turn first to the words themselves. ( Ibid. ) Section 24, Fifth (hereafter Paragraph Fifth), refers to a national bank's other officers who are appointed and discharged  by its board of directors.  (Italics added.) The statute does not purport to authorize a board's delegation of its authority to discharge officers at pleasure. Wells Fargo does not contend otherwise. (6) As a matter of general corporate law, a board of directors has no power to delegate the performance of its basic powers and functions, particularly its statutory prerogatives, in the absence of express statutory authority. (2 Fletcher, Cyclopedia of the Law of Private Corporations (1990) § 497, p. 591 [The board of directors cannot delegate to subordinate officers or agents the exercise of discretionary powers which by the charter, general laws, bylaws, vote of the stockholders or usage is vested exclusively in the board.].) California follows the general rule. ( Compton College Federation of Teachers v. Compton Community College Dist. (1982) 132 Cal. App.3d 704, 714-715 [183 Cal. Rptr. 341] [[A] board of directors of a private corporation cannot delegate away its responsibility to govern the corporation, unless permitted to do so by statute.... The Legislature can grant this power to delegate, as it has done, by allowing powers to be delegated to committees of the board of directors, i.e., Corporations Code, sections 212, subdivision (b)(5), and 311.].) The no-delegation rule is well established. For example, in a corporate law text published in 1882, the author restates the rule as follows: Those powers of the directors of a corporation which it is intended they should exercise personally can in no case be delegated. (Morawetz, A Treatise on the Law of Private Corporations (1882) § 248, p. 242.) The rule applies with equal force to banks. The statutory duties of a bank's board of directors cannot generally be delegated to subordinate agents, officers, or employees. (Magee, A Treatise on the Law of National and State Banks (3d ed. 1921) § 87, p. 106 [A duty imposed upon the board of directors by the statute to be personally performed cannot be delegated to a committee or agent of the bank.]; see also id., § 89, at p. 108 [The directors cannot delegate to agents any statutory duties imposed upon them by law to perform.].) To be sure, in the evolution of modern corporate law, boards of directors are authorized to and do in fact delegate many of their powers and functions to others, both inside and outside the corporation. But this change in the law has generally come about through enactment of specific statutory provisions that allow delegation. (See, e.g., Corp. Code, §§ 300, 309, 311 [specifically authorizing board of directors to delegate management of day-to-day operations, to rely on information supplied by others, and to form committees to carry out functions with specified exceptions which must be carried out by the full board].) No such provision appears in the National Bank Act. (4b) In apparent recognition of the no-delegation rule, Wells Fargo contends that a provision of the National Bank Act supplies express authority allowing the board of directors to delegate its function of dismissing bank officers. It relies on section 24, Sixth (hereafter Paragraph Sixth), which grants a national bank the power, To prescribe, by its board of directors, bylaws not inconsistent with law, regulating the manner in which its stock shall be transferred, its directors elected or appointed, its officers appointed, its property transferred, its general business conducted, and the privileges granted to it by law exercised and enjoyed.  (Italics added.) Wells Fargo points to the provisions in Paragraph Sixth that bylaws can regulate the manner in which: (1) officers can be appointed, and (2) the privileges granted to it by law exercised and enjoyed. Article III, section 1 of Wells Fargo's bylaws enumerates those officers that must be elected by its board of directors and then states: Other officers may be appointed by the Chief Executive Officer or by any officer or committee whom he may authorize to perform this duty. All officers shall hold office at will, at the pleasure of the Board of Directors, the Chief Executive Officer, the officer or committee having the authority to appoint such officers, and the officer or committee authorized by the Chief Executive Officer to remove such officers, and may be removed at any time, with or without notice and with or without cause. The bank's reliance on its bylaws is unavailing. Paragraph Sixth allows bylaws to regulate the manner in which officers [are] appointed.  (Italics added.) Conspicuously absent from Paragraph Sixth is any reference to the manner in which officers can be dismissed. This omission is in sharp contrast to Paragraph Fifth, which explicitly refers to both the appointment and dismissal of officers serving at pleasure, placing those functions in the hands of the board of directors. (7) It is hornbook law that where Congress has carefully employed a term in one place and excluded it in another, it should not be implied where excluded. ( Russello v. United States (1983) 464 U.S. 16, 23 [78 L.Ed.2d 17, 24, 104 S.Ct. 296]; Federal Trade Comm'n v. Sun Oil Co. (1963) 371 U.S. 505, 515 [9 L.Ed.2d 466, 476, 83 S.Ct. 358].) To accept Wells Fargo's argument, we would have to insert words into Paragraph Sixth so that it would extend to bylaws regarding officers appointed [or dismissed]. (8) Doing so would violate the cardinal rule that a statute ... is to be interpreted by the language in which it is written, and courts are no more at liberty to add provisions to what is therein declared in definite language than they are to disregard any of its express provisions. ( People v. Campbell (1902) 138 Cal. 11, 15 [70 P. 918].) Thus, Paragraph Sixth's reference to bylaws regulating a bank's exercise of its appointment powers offers no support for Wells Fargo's argument that it can delegate its board of directors' discharge powers. To the contrary, the language on which Wells Fargo relies strongly suggests that Congress either did not consider, or rejected, the view that a board can delegate its power to discharge officers at pleasure. Wells Fargo also relies on the provision in Paragraph Sixth that a national bank's bylaws, not inconsistent with law, may regulate  the privileges granted to it [the bank] by law exercised and enjoyed. (Italics added.) But the general language in Paragraph Sixth is qualified by the more specific, restrictive language in Paragraph Fifth, that officers be dismissed by the board of directors. Within the text of the Act, the restriction is conspicuous. Congress did not include a requirement for board action in other provisions of section 24 that enumerate the powers of national banks. For example, no references to a bank's board of directors are contained in the provisions granting the power: To adopt and use a corporate seal. (par. First); To have succession.... (par. Second); To make contracts. (par. Third); To sue and be sued.... (par. Fourth); To issue and sell securities.... (par. Ninth); and To invest in tangible personal property.... (par. Tenth). To construe Paragraph Sixth as allowing a board of directors to delegate those powers creates no inconsistency between Paragraph Sixth and those provisions of section 24. Paragraph Fifth, however, unlike these other provisions, refers to powers of the board of directors. To construe Paragraph Sixth as allowing delegation of all the powers enumerated in section 24 would render meaningless the language in those provisions  like Paragraph Fifth  that are explicitly conferred on the board rather than on the bank as an entity. Wells Fargo's reliance on Paragraph Sixth is unpersuasive for another reason. Paragraph Sixth refers only to bylaws regulating the manner  in which a bank may exercise the powers enumerated in that paragraph. The power at issue in this case is the power to discharge officers serving at pleasure. Paragraph Fifth vests that power in the board of directors. Paragraph Sixth thus allows bylaws that regulate how that power is exercised by the board. We cannot reasonably extrapolate from Paragraph Sixth a further power to delegate the exercise of that power. A bylaw that regulates a board's exercise of its power is one thing. A bylaw that delegates the power to others is quite another thing  different in degree and in kind. We decline to read into Paragraph Sixth a sweeping power of a board of directors to delegate its power to discharge officers at pleasure absent clear and unmistakable language that Congress intended such result. This reading of Paragraph Sixth is also supported by its caveat that bylaws not be inconsistent with law. A bylaw purporting to vest authority to discharge officers serving at the board's pleasure in some person or body other than the bank's board of directors is inconsistent with law, i.e., with the express provisions of Paragraph Fifth. In summary, we decline to depart from the plain meaning of Paragraph Fifth, which restricts to the board of directors the power to discharge officers at pleasure. Considered against the background of general corporate and banking law, Paragraph Fifth is unambiguous in its reservation of authority to discharge officers serving at pleasure in the board. As Justice Mosk has explained: We have declined to follow the plain meaning of a statute only when it would inevitably have frustrated the manifest purposes of the legislation as a whole or led to absurd results. ( People v. Belleci (1979) 24 Cal.3d 879, 884 [157 Cal. Rptr. 503, 598 P.2d 473].) No frustration of purpose or absurdity in result obtains here.
Wells Fargo contends sound public policy, as reflected in general corporation law, weighs in favor of allowing the board of directors of a large, modern-day corporation to delegate its powers. This argument misses the mark in three important respects. First, the question before us can be answered by adherence to the plain language of section 24. We therefore need not  indeed, should not  decide this case based on public policy, as we might do when dealing with the common law. ( Brown v. Kelly Broadcasting Co., supra, 48 Cal.3d 711, 739.) Wells Fargo implies that application of section 24 according to its terms is unduly cumbersome and inefficient in modern-day banking. This, however, is an argument against the statute itself, not one that seeks to advance (or is even consistent with) its underlying policies. (9) Our function is not to judge the wisdom of statutes. ( Delaney v. Superior Court (1990) 50 Cal.3d 785, 805 [268 Cal. Rptr. 753, 789 P.2d 934].) Nor are we empowered to insert what a legislative body has omitted from its enactments. ( Security Pacific National Bank v. Wozab (1990) 51 Cal.3d 991, 998 [275 Cal. Rptr. 201, 800 P.2d 557].) In a case arising under section 24, another state's high court properly observed, We need not agree with the philosophy of, nor the power delegated by, the Congressional enactment, but are nevertheless bound thereby. ( Alegria v. Idaho First Nat. Bank, supra, 723 P.2d 858, 860.) As Justice Traynor stated: [W]ords ... stand in immobilized sentry, reminders that whether their arrangement was wisdom or folly, it was wittingly undertaken and not to be disregarded. ( People v. Knowles (1950) 35 Cal.2d 175, 182 [217 P.2d 1].) We concur in the Court of Appeal's observation that, If evolving federal banking policy requires an expansion of the `at will' provision, Congress should say so. Congress, unlike the courts ... would hold hearings and take testimony on the subject before announcing federal policy. Unless and until Congress acts to adjust the wording of the statute to meet the changed conditions in the banking industry, we look to the words of Paragraph Fifth [of section 24] for federal policy. We apply the statute strictly, according to its terms. Second, Wells Fargo's policy argument in favor of delegation reflects a misperception of the issue before us. We do not hold or suggest that section 24 prohibits or even restricts a national bank's power to delegate as it sees fit the responsibility for personnel matters, including the power to discharge officers. The narrow question before us is whether by delegating that power the bank loses the broad protection it would have if the discharge were by the board of directors itself. On that question, public policy is contrary to the bank's position. A national bank is granted a broad and unique exemption from state wrongful discharge law by section 24. It is not unfair to require a bank seeking such a benefit to bear the burden of following scrupulously the letter of the statute. ( Mahoney v. Crocker Nat. Bank (N.D.Cal. 1983) 571 F. Supp. 287, 291 [rejecting section 24 defense because bank failed to follow proper discharge procedures].) Third and most important, Wells Fargo's public policy argument is largely based on the notion that, in an era of large banks with perhaps hundreds of branches and thousands of officers, to require the appointment and discharge of all officers by the bank's board of directors will be burdensome and thereby somehow conflict with the purposes of the Act. To the contrary, the record indicates that only about 13 Wells Fargo branch managers were discharged or induced to resign during the 2-year period of 1984 and 1985. Due consideration of 13 dismissals by the Wells Fargo board would not impose an unwieldy burden on corporate government. Finally, Wells Fargo contends board action discharging officers would be a meaningless rubber stamp of actions recommended by its senior officers. Board action of many kinds is often a ratification of recommendations by senior management. But the board remains responsible for performing its statutory and other functions. We will not presume it will undertake those duties lightly. Moreover, as noted above, if section 24 unreasonably requires such a function to be carried out by a bank's board, the remedy lies with Congress, not with this court.
Wells Fargo contends all applicable precedent permits the delegation of the power of a national bank's board of directors under section 24 to discharge officers at pleasure. To the contrary, the few relevant decisions are either less compelling than Wells Fargo contends or contrary to its position. In Wiskotoni v. Michigan Nat. Bank-West, supra, 716 F.2d 378, the court rejected a national bank's preemption defense under section 24 in a wrongful discharge action by a former branch manager. The bank relied on a provision in its bylaws that characterized branch managers as officers. The court found this not to be dispositive because of the requirement in section 24 that officers be appointed and discharged by the bank's board of directors. The plaintiff in Wiskotoni had been neither appointed nor discharged by his bank's board. He had been hired by the bank's president and discharged by a subsequent president. The evidence further showed this was the bank's usual practice, i.e., the president, not the board of directors, appointed and terminated branch managers. The court held the branch manager was not an officer under section 24. (716 F.2d at p. 387.) Unlike our case, the bank in Wiskotoni did not argue that its bylaws delegated the board's at-pleasure discharge power to the banks' president. As a matter of practice, however, the board had apparently delegated (or attempted to delegate) this power. The court found that to be insufficient under section 24. Because a purported delegation in a bank's bylaws was not at issue, Wiskotoni is not entirely apposite to this case. But to the extent it dealt with discharge by a senior officer rather than a board of directors, the case undermines Wells Fargo's argument that delegation is permitted. In Mackey, supra, 867 F.2d 520, the court affirmed judgment in favor of a national bank in a wrongful discharge action by a former branch manager. In doing so, the court stated that a national bank's board of directors may assign the performance of their duties to an executive committee.  ( Id., at p. 525, italics added.) The board of directors, by means of a resolution, had delegated its discharge power to an executive committee of the board of directors itself. That committee of directors decided to terminate the plaintiff, and its decision was subsequently ratified by the full board. In contrast, here the Wells Fargo board was in no way involved in plaintiffs' terminations. The Mackey court was not confronted with and did not purport to uphold terminations like those in this case, which were carried out through an elaborate chain of delegations and subdelegations and which were never subjected to board approval or ratification. In McWhorter v. First Interstate Bank (1984) 67 Ore.App. 435 [678 P.2d 766] ( McWhorter I ), the Oregon appellate court reversed the dismissal of a discharged vice-president and branch manager's contract claims for wrongful discharge. The court made clear that section 24 does not apply unless a discharge is by a bank's board of directors. (678 P.2d at p. 768.) The bank contended this requirement was met if the board properly delegated its authority to senior officers. The case was before the court on a motion to dismiss (the equivalent of a demurrer in California), and the court avoided the issue by relying on the plaintiff's allegation in his complaint that he had not been discharged by the bank's board. The decision, therefore, provides no guidance on the precise issue before us, but it did stress the importance of discharge by a board of directors. After McWhorter I, supra, 678 P.2d 766, the defendant bank obtained summary judgment based on a purported delegation from the bank's board to its president. As in McWhorter I, the Oregon appellate court reversed the judgment. The court again avoided the question of whether the board could delegate its discharge power but concluded that, if the power could be delegated, the purported delegation before the court was insufficient. ( McWhorter v. First Interstate Bank (1986) 81 Ore.App. 132 [724 P.2d 877, 879] ( McWhorter II ).) Because the court again avoided deciding the delegation issue, the decision provides no support for Wells Fargo's argument or direct guidance to us. Wells Fargo also points to two federal trial court decisions. In Mahoney v. Crocker Nat. Bank, supra, 571 F. Supp. 287 ( Mahoney ), the court also rejected a national bank's defense under section 24. As in the present case, the defendant bank's bylaws delegated to specified personnel the board of directors' power to discharge officers. The bank failed to establish, however, that discharge powers had been delegated to the persons who actually effected the plaintiffs' terminations. Because this failure defeated the bank's argument, Mahoney does not support Wells Fargo's position. In reaching its conclusion, however, the Mahoney court, supra, 571 F. Supp. 287, expressly declined to read section 24 as meaning that the dismissal at pleasure defense can be asserted only when the board of directors itself makes the dismissal. (571 F. Supp. at p. 290, original italics.) We are not persuaded by this trial court dictum. The court relied on Paragraph Sixth but did not analyze that provision, and its conclusion was ipse dixit. As explained above, we find any reliance on Paragraph Sixth unpersuasive. We also note that Mahoney was decided before Wiskotoni v. Michigan Nat. Bank-West, supra, 716 F.2d 378, and Mackey, supra, 867 F.2d 520, the two federal appellate decisions addressing the issue, both of which suggest that delegation of dismissal authority to officers (rather than to a committee of the board) is not permitted. The Mahoney court, supra, 571 F. Supp. 287, noted a conclusion by the Comptroller of the Currency that: The board of directors of a national bank may not delegate responsibility for its duties but may assign the performance thereof. (12 C.F.R. § 7.4425 (1987).) Wells Fargo also points to this statement as support for its view. Initially, this conclusion is characterized by the comptroller himself as a mere Interpretive Ruling. ( Batterton v. United States (1977) 432 U.S. 416, 425, fn. 9 [53 L.Ed.2d 448, 456, 97 S.Ct. 2399] ([A] court is not required to give effect to an interpretive regulation.).) Moreover, any attempt to discern Congress's intent in 1864 from an administrative interpretation issued more than a century later is inevitably an exercise in speculation. ( General Electric Co. v. Gilbert (1976) 429 U.S. 125, 142 [50 L.Ed.2d 343, 358, 97 S.Ct. 401] [emphasizing importance of contemporaneous interpretation and declining to give weight to agency interpretation issued only eight years after the statute was enacted].) Finally, the comptroller's general statement is beside the point. As we have explained, the power of a national bank's board of directors to delegate its powers is not the issue. We are concerned only with the effect of such delegation on the discharge-at-pleasure defense under section 24. As to that question, there is no indication the comptroller has expressed any view. Nor do we find guidance in the trial court's decision in Holland v. Bank of America (S.D.Cal. 1987) 673 F. Supp. 1511, in which the court relied on section 24 to reject a branch manager's claim of wrongful demotion. The court noted the bank's alternative contentions that it could unilaterally decide whom to appoint as an officer and that it could delegate the power of dismissal. With no discussion of either section 24 or prior decisions, the court stated merely that, The bank's position is meritorious. (673 F. Supp. at p. 1516.) The Court of Appeal in the present case correctly recognized Holland to be a very loose analysis of the issue. Holland is not only unpersuasive; it is inapposite. The plaintiff there had been demoted, not discharged. Section 24 contains no provision restricting to directors the power to demote. Demotion is certainly a different, and arguably a less significant management decision, than discharge. In short, we find no compelling authority in the cases on the issue of delegation. On balance, however, the cases, especially those decided by the federal appellate courts, suggest that delegation of the power to discharge officers at pleasure is either not permitted or is permitted only to a committee of the board itself. (See, e.g., Mackey, supra, 867 F.2d 520, 525.) No court has approved under section 24 a procedure similar to the one adopted by Wells Fargo in this case  a long and complex chain of purported delegations.
(4c) Our conclusion on the issue of delegation is supported by considerations of sound judicial policy. If Wells Fargo's arguments were adopted, courts would be required to consider difficult issues of delegation in each wrongful discharge case brought by a bank officer. As this case illustrates, the consideration of these issues can be both byzantine and labyrinthine, as the judge is forced to wade through bylaws, resolutions, and internal bank documents that are regrettably less than clear or precise. Yet all of this can be avoided if the board of directors of the bank simply discharges bank officers. Because the board of directors has the ability to remove uncertainty and confusion from the discharge process by acting in the manner specified by statute, it should be required to do so. We hold that section 24 does not preempt state law causes of action for wrongful discharge by a former national bank officer unless the officer was dismissed by the bank's board of directors itself or the discharge was approved or ratified by the board. Initial approval of a discharge may take place by action of a committee of board members who have been specifically authorized by the entire board to take such action, but, in this event, the initial approval must nonetheless be ratified by prompt and proper action of the entire board. If full-board action is not taken, the bank may not rely on the at-pleasure provisions of section 24 as a defense to a wrongful discharge action. We emphasize the narrowness of our holding. We are dealing with a single, unique statutory scheme that specifically assigns the power to terminate bank officers to the board of directors and does not allow delegation of that power to any other person or entity. In addition, we are not called upon to address the general legal effects of the bank's decisions to dismiss its officers, but only the bank's assertion of the extraordinary dismissal privilege as accorded in the National Bank Act. As we have stated, if the bank desires to invoke the privilege, it should, in fairness, be prepared to fufill the statutory conditions incident to its exercise, including the express condition of the board of directors' action. We intimate no view as to the validity of delegations of corporate power in any other context. (See, e.g., Corp. Code, § 300, subd. (a) [The board [of directors] may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.].)