Opinion ID: 2373765
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Heading Rank: 5

Heading: The Maine Savings Bank Charter

Text: The plaintiffs assert that the charter of the Portland Five Cents Savings Institution (the predecessor to Maine Savings Bank) provides that they are the beneficial owners of the bank and, therefore, entitled to a distribution of the institution's net worth. The relevant portion of the original 1859 charter is: hereby incorporated into a company by the name of Portland Five Cents Savings Institution, to be located in the City of Portland, with all the powers and privileges conferred upon similar institutions by the laws of this state, and subject to all the liabilities and restrictions thereof. P. & S.L. 1859, ch. 328. Typical of those charters existing in 1859 whose terms are incorporated into the Portland Five charter is the charter of the Saco & Biddeford Savings Institution, created in 1827. The Saco & Biddeford Savings charter stated that all deposits ... shall be used and improved to the best advantages, and the net income of profit thereof shall be by them applied and divided among the persons making such deposits. P. & S.L. 1827, ch. 446. Plaintiffs contend that a right to distribution on conversion is necessarily implied by the depositors' sole beneficial interest in all profits during the life of the association. [19] We disagree. The Maine Banking Code, and not the 1859 Portland Five charter, controls the process and subject of depositors' rights on conversion to stock form. [20] 9-B M.R.S.A. § 511(1) (1980) provides: 1. Subject to corporation laws and this Title. Each savings bank, lawfully organized, shall be subject to the laws of Maine regulating corporations in general, except as otherwise provided in this Title. The powers, privileges, duties and restrictions conferred and imposed upon any savings bank, by whatever name known, in its charter or act of incorporation, are so far abridged, enlarged or modified, that every such charter or act shall conform to this Title. Every such corporation possesses the powers, rights and privileges, and is subject to the duties, restrictions and liabilities conferred and imposed by this Title, anything in their respective charters or acts of incorporation to the contrary notwithstanding. Such a law regulating corporations in general was P.L.1831, ch. 503, existing at the time of the creation of the Portland Five, that reserved to the state the right to alter, repeal, or override corporate charters at the pleasure of the Legislature, in the same manner as if an express provision to that effect was contained in the charter. P.L.1831, ch. 503. See State v. Bohemier, 96 Me. 257, 258-59, 52 A. 643 (1902); see also Maine Unemployment Compensation Comm'n v. Maine Savings Bank, 136 Me. 136, 139, 3 A.2d 897 (1939) (Maine Savings Bank, chartered in 1859, subject to general corporation laws then in force). In 1923, the legislature exercised its reserved powers and eliminated any vested rights to distributions during the solvency of the bank, making dividends and interest a purely discretionary decision by the board of directors. P.L.1923, ch. 144, § 34. Distribution of dividends is still a matter of discretion today. 9-B M.R.S.A. § 523 (1980). If any right to solvent distribution existed in the Portland Five (Maine Savings Bank) charter, it was taken away in 1923 and further, to the extent that the charter is in any way at odds with the Banking Code, the Banking Code controls, pursuant to 9-B M.R.S.A. § 511. Plaintiffs' assertion of a right to distribution based on the bank's charter must fail.
Plaintiffs cite numerous cases from this and other jurisdictions that state that depositors of a mutual savings bank hold a beneficial interest in the institution. We are unpersuaded by plaintiffs' argument that because they, as depositors, are owners of Maine Savings Bank, they are entitled to a distribution of the bank's surplus upon conversion, and conclude that depositors do not have an enforceable right to a distribution when the bank converts to stock form. Courts have held consistently that the concept of ownership in the mutual savings context is quite different from our common understanding of equity ownership. York v. Federal Home Loan Bank Bd., 624 F.2d 495, 499-500 (4th Cir.1980), cert. denied 449 U.S. 1043, 101 S.Ct. 621, 66 L.Ed.2d 504 (1980) (depositors interest is essentially that of creditor and only secondarily that of equity owner); In re New York Sav. Bank, 547 N.Y.S.2d at 500 (depositors' ownership interest is severely limited and not commensurate with equity ownership); see Appeal of Concerned Corporators of the Portsmouth Sav. Bank, 129 N.H. 183, 525 A.2d 671, 695 (1987) ( Souter, J., dissenting) (to speak of depositors' ownership in surplus invites confusion); see also A. Teck, Mutual Savings Banks and Savings and Loan Associations: Aspects of Growth, 13-14 (1968) (term owner should not be applied to depositors in any structural or functional sense). The United States Supreme Court has described the nature of a mutual savings depositor's ownership interest. In Society for Sav. of Cleveland v. Bowers, 349 U.S. 143, 75 S.Ct. 607, 99 L.Ed. 950 (1955), the Supreme Court held that depositors have only a nebulous and contingent interest such that the earnings of an operating mutual institution could not be attributed to the depositors for tax purposes: The asserted interest of the depositors is in the surplus of the bank, which is primarily a reserve against losses and secondarily a repository of undivided earnings. So long as the bank remains solvent, depositors receive a return on this fund only as an element of the interest paid on their deposits. To maintain their intangible ownership interest, they must maintain their deposits. If a depositor withdraws from the bank, he receives only his deposits and interest. If he continues, his only chance of getting anything more would be in the unlikely event of a solvent liquidation, a possibility that hardly rises to the level of an expectancy. 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. at 150, 75 S.Ct. at 611. Significant characteristics of ownership are missing in the mutual context. 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 only vested interest a depositor has in the mutual institution is in the depositor's funds on account. These rights or interests remain unchanged in a conversion. See York, 624 F.2d at 500. A depositor's interest in a pro rata distribution of the bank's surplus is a mere contingency and cannot be realized unless the bank liquidates while solvent; an unlikely event. Plaintiffs are not entitled to receive cash or free stock for an interest that hardly rises to the level of an expectancy. Bowers, 349 U.S. at 150, 75 S.Ct. at 611. The depositors' contingent claims to a distribution of surplus were adequately protected and preserved by the liquidation account set up as part of the Maine Savings Bank conversion. Plaintiffs' attempts to equate a conversion with solvent liquidation (thereby triggering their contingent interests) are unavailing. The conversion of Maine Savings Bank from mutual to stock form cannot be considered a solvent liquidation. Plaintiffs' deposits remained the same after conversion, their deposits continued to be federally insured, and the bank still existed and provided the same (even expanded) services. Further, the Banking Code expressly distinguishes conversions from liquidations. Compare 9-B M.R.S.A. §§ 364 and 365 with §§ 344 and 357. 9-B M.R.S.A. § 357 provides that even though the charter of any participating or converting institution has been terminated, the resulting institution shall be deemed to be a continuation of the entity of the participating or converting institution. It is clear that a conversion is something apart from a solvent liquidation, and does not trigger distribution rights. [21] A review of the Banking Code and its legislative history, the Maine Savings Bank charter (in light of subsequent legislation), and the pertinent case law requires us to answer question three in the negative. [22] Because we do so, we are not required to address certified questions four and five. In conclusion, we answer the certified questions as follows: 1. Plaintiffs' claims for relief asserted under Maine common law are barred by the certificate of conversion issued by the Superintendent of Banking on June 7, 1984 and the time limits for obtaining Judicial review of final agency action, 5 M.R.S.A. § 11002. We decline to answer question 1 as it relates to plaintiffs' claims asserted under Maine statutory law. 2. We decline to answer question 2. 3. In the absence of a charter provision providing any more than that set forth in chapter 328 of P. & S.L. of 1859, depositors in a mutual savings bank do not have the enforceable right to a distribution of the surplus of any bank when it converts to stock form pursuant to 9-B M.R.S.A. § 344. 4. We decline to answer question 4. 5. We decline to answer question 5. All concurring.