Court Opinion

ID: 8050224
Source: CourtListenerOpinion
Date Created: 2022-09-09 04:11:07.30147+00
Date Added: 2024-06-11T16:37:40.284296
License: Public Domain

Brock, C.J.,
dissenting: I dissent from the majority’s opinion in this case. While I agree with the majority’s conclusions on standing and jurisdiction, the approval by the board of trust company incorporation (board) of the conversion-acquisition plan was, in my view, neither unreasonable nor unlawful for the reasons set forth below.
Twelve corporators of the Portsmouth Savings Bank (Bank) challenge the fairness of the proposed conversion-acquisition on several grounds. They argue that the depositors will be unfairly divested of *210their vested ownership interest in the surplus of the Bank, thus rendering unto Amoskeag Bank Shares, Inc. (Amoskeag) a windfall and thereby violating the Bank’s charter; that the board erroneously failed to examine whether Portsmouth’s trustees had fulfilled their fiduciary obligations to depositors; and that the lack of information on the alternative of a stand-alone conversion prevented the board from adequately considering the plan.
It is well-settled that this court will set aside the board’s decision only if it is “clearly unreasonable or unlawful[.]” RSA 541:13. See also Appeal of Incorp’s of Manchester Sav’s Bank, 120 N.H. 129, 133, 412 A.2d 421, 423 (1980). We do not sit as a fact-finder or substitute our policy judgment for that of the board. Further, all findings of fact by the board are “deemed to be prima facie lawful and reasonable[.]” RSA 541:13. See also Appeal of Portsmouth Savings Bank, 123 N.H. 1, 6, 455 A.2d 1023, 1026 (1983). Keeping these standards in mind, I proceed to a substantive examination of the board’s order.
The board stated in its decision that the ownership interests of depositors in a mutual savings bank are quite limited, consisting of creditors’ rights and rights to distribution of accumulated surplus in the event of liquidation of the bank. The board ruled that the creation of a liquidation account under N.H. Admin. Code Tru 502.05 protects the depositors’ rights to a “distribution of surplus upon liquidation[.]” In addition, the depositors’ rights as creditors are protected, according to the board, in that “the plan . . . [preserves] the value of [the depositors’] accounts.” The board also noted that the depositors will receive the right to purchase stock of Amoskeag and found that the failure to provide subscription rights in Portsmouth stock did not render the plan unfair.
Section 2 of Portsmouth’s charter provides in part that “the net income and profits of all deposits of money received by [Portsmouth] shall be paid out and distributed in just proportions, among the several persons by or for whom the said deposits shall have been made, . ..” Laws 1823, 27:2. In order to comprehend what is at stake here, one must understand the conceptual battleground upon which the parties contend in this case, to wit: different views of the nature and source of the depositors’ rights to a distribution of the Bank’s surplus. The dissident corporators claim that the present depositors of the Bank own the Bank, citing Paulsen v. Commissioner, 469 U.S. 131 (1985), and that they are therefore entitled to protection of their property interest. They argue that the trustees’ conversion-acquisition plan does not adequately protect the depositors’ vested property rights and gives Amoskeag a windfall.
Portsmouth and Amoskeag, relying upon the decision of this court *211in In re City Sav. Bank, 113 N.H. 378, 309 A.2d 31 (1973), contend that the interest of the depositors in the surplus or net worth of the Bank is inchoate, or a “‘technical fiction.’” Id. at 381, 309 A.2d at 32. They further argue that, whatever interest the depositors may have in the Bank, that interest is preserved by the plan’s provision for a liquidation account under Tru 502.05.
In its decision, the board concluded that the ownership interest of depositors in mutual savings banks is, in general, theoretical, relying upon, inter alia, In re City Sav. Bank, supra at 381, 309 A.2d at 32; Society for Savings v. Bowers, 349 U.S. 143, 150 (1955); and York v. Federal Home Loan Bank Bd., 624 F.2d 495, 499-500 (4th Cir.), cert. denied, 449 U.S. 1043 (1980). Further, depositors in such institutions retain, in addition to creditors’ rights, rights to distribution only upon the Bank’s liquidation. Thus, the board concluded that the proprietary interest the depositors have in the Bank or its surplus is adequately protected by the creation of a liquidation account pursuant to the board’s rules and the extension of an opportunity to eligible depositors to purchase stock of Amoskeag through the provision of priority subscription rights to them.
In Society for Savings v. Bowers supra, the United States Supreme Court characterized the interest of depositors in the surplus of mutual savings banks generally as an interest in
“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.”
Bowers, supra at 150; see also In re City Sav. Bank, supra at 381, 309 A.2d at 32.
I would hold that this general characterization of the interest of depositors in mutual savings banks applies to the depositors of Portsmouth except to the extent that the Bank’s charter might be *212interpreted as giving them a different or greater interest. The charter provision relied on by the petitioners to establish that they have a greater interest is section 2, wherein it is stated that “the net income and profits of all deposits of money received by said corporation shall be paid out and distributed in just proportions, among the several persons by or for whom the said deposits shall have been made,...”
The issue, then, is whether provision for a liquidation account in the trustees’ plan satisfies, or is in conflict with, the language of the Bank’s charter. If not inconsistent with the charter language, no more need be said. If, on the other hand, a conflict exists, petitioners allege that an issue of fairness to Portsmouth’s depositors arises. It should be noted that the petitioners’ argument rests solely on their claim that such a violation of the charter as they believe will occur renders the plan not “fair” to the Bank’s depositors within the meaning of Tru 505.03.
The charter provision does not state when distributions are to be made and is at least ambiguous in its usage of the term “shall” as to whether net income and profits earned on deposits of others must be distributed to depositors of record at any given time. The only change in interest of the depositors through the creation of a liquidation account is that no distribution of Portsmouth’s surplus can be made except in the event of a liquidation. I do not believe that such a limitation upon the rights of depositors, particularly in view of the general recent background of depositor ownership interests in mutual savings banks, is of such clarity as to render the transaction unfair within the meaning of Tru 505.03, nor do I believe that it violates the language of the charter.
I am also mindful of the fact that, at present, insurance by the Federal Deposit Insurance Corporation (FDIC) largely protects depositors against losses of their deposits. The modern depositor in a mutual savings bank thus risks virtually no loss of his or her deposit, unlike the depositor in its nineteenth-century counterpart. By statute at that time, deposits could be reduced if the value of the assets of the bank dropped below the total amount of deposits. See Laws 1874, 71:10. Thus, the danger of loss that existed in the nineteenth century has no relevance today.
Taking all of these factors into account, I would hold that the language in the Portsmouth charter does not give the institution’s present depositors vested property rights in the Bank’s surplus.' Because the rights of depositors to Portsmouth’s surplus are not vested, but rather inchoate, subject to the exercise of discretion by the trustees, I conclúde that depositor rights in the surplus are fully *213protected by the liquidation account established pursuant to regulations promulgated by the board and the priority subscription rights described in the majority’s opinion. This determination, however, does not end my inquiry.
The corporators’ next claim is that the board erred when it ruled that the existence or not of a fiduciary duty on the part of the trustees to the Bank’s depositors was irrelevant to its application of the review criteria set forth in Tru chapter 500. Tru 505.03, titled “Review by the Board,” provides that
“[t]he board shall review each materially complete application and issue an order of approval if it finds that the plan of conversion is fair to the depositors of the mutual savings bank and that insurance of accounts will remain in full force and effect subsequent to the conversion. In connection with its review, the board may require such changes in the materials submitted in support of the application as are necessary to insure full and adequate disclosure of all material factors relating to the conversion prior to issuance of the board’s order of approval. Such order of approval shall also encompass the applicant’s proposed amended stock articles of agreement or legislative charter.”
The board’s rules do not define the term “fair.” Thus, the question becomes whether the failure of the board to consider the fiduciary duty, if any, owed by Portsmouth’s trustees to the depositors was erroneous.
I would hold that the board was correct as a matter of law in ruling that the existence or non-existence of a fiduciary relationship was irrelevant to the review criteria established in Tru chapter 500. Under its rules, the board had only to determine whether the proposed conversion-acquisition was fair to the Bank’s depositors. The board so found, and I find no basis for disturbing its finding. The plan as proposed complied with all applicable rules, and the trustees presented sufficient evidence from which the board could make the requisite fairness determination, including evidence that the trustees had considered other alternatives and had rejected them. As implied by board member Thomas in her special concurrence, issues related to the alleged breach of such a fiduciary duty as may exist are more appropriately addressed in another forum. Claims for the breach of a fiduciary duty are traditionally cognizable in equity, and beneficiaries in the normal trust situation look to courts to protect their rights and redress infringements thereof. Such remedies *214“are equitable in origin and depend upon the application of equitable principles.” G. Bogert, The Law of Trusts and Trustees § 870, at 97 (2d ed. rev. 1982). Thus, given the responsibility of the board to determine only the fairness of the plan to depositors, and given the existence of a remedy in damages for alleged breaches of fiduciary duty in the superior court, I would hold that the board did not err in its refusal to examine the fiduciary relationship issue in this context.
The petitioners further argue that since the board did not have adequate information on the merits of a stand-alone conversion (i.e., a conversion from a mutual to a guaranty bank alone with no subsequent acquisition), the hearing process was rendered unfair. In addition, they allege that the failure of the trustees to obtain information on such a transaction, and the board’s failure to require it, represent a breach of fiduciary duty and an abuse of discretion, respectively. I disagree. Disregarding the fact that the petitioners presented no evidence below on either the feasibility or preferability of a stand-alone conversion, the failure to consider such an option does not render the proposed transaction or process unfair. The rules of the board do not require it to evaluate transformative options available to banks such as Portsmouth, but rather require it to evaluate the fairness of a proposed plan put before it. In other words, the statute and rules require not that the board compare a given plan to the universe of available alternatives, but rather that it evaluate the merits of the plan submitted to it. Thus, determining fairness in a given case requires a finding that the plan presented is itself fair to depositors, not that it is the best among a clutch of theoretical or potentially practical alternatives.
As to the asserted duty of the trustees to consider alternatives to conversion-acquisition prior to the presentation of any plan to the board, there was evidence before the board that the trustees had considered and rejected such options, such as the affidavit of Maurice J. Murphy, Jr., Chairman of the Board of Directors of the Bank, in which he stated that “a straight conversion probably was not feasible or desireable [sic] because even in the stock form the Bank would still be too small to effectively compete with the larger institutions in the ever changing marketplace.” The affidavit of William S. Bushnell, Chairman, President and Chief Executive Officer of Amoskeag, stated that “Portsmouth is worth more as a subsidiary of Amoskeag than it is by itself[,]” and enumerated the benefits which will accrue to Portsmouth through its affiliation with Amoskeag in terms of “new services and programs made possible by the affiliation.” The affidavit of Thomas P. Duke, managing director of Tri*215dent Financial Corporation, ah investment banking and consulting firm hired by Portsmouth and Amoskeag to make an appraisal in connection with the proposed plan, supported the claims made by Mr. Bushnell.
Many of these same points were raised at the hearing held by the board. Moreover, the hearing itself provided a meaningful opportunity for the dissident corporators to create a record and to cross-examine the Bank’s representatives and others as to what options had been considered and why they were rejected. See Appeal of Portsmouth Savings Bank, 123 N.H. at 4, 455 A.2d at 1025. Thus, in my view, there was sufficient evidence before the board that the trustees’ consideration and choice of the particular plan submitted to the board was both reasonable and fair, especially in view of the fact that the Bank’s depositors have no vested rights in the Bank’s surplus.
In summary, then, I would hold that the board’s determination that the proposed plan was fair to depositors is supported by the record before it. I therefore respectfully dissent.