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Minichello v. Saxon

: September 18, 1964.

ALBERT J. MINICHELLO, NICHOLAS MAURIELLO AND YGNATZ YUCHNIS, ON A DERIVATIVE ACTION ON BEHALF OF THEMSELVES AND ON BEHALF OF OTHER STOCKHOLDERS OF THE FIRST NATIONAL BANK OF EXETER SIMILARLY SITUATED, INCORRECTLY DESCRIBED IN THE SUMMONS AND COMPLAINT AS ALBERT J. MINICHE-LO, NICHOLAS MAURIELLO AND YGNATZ YUCHNIS, APPELLANTS,
v.
JAMES J. SAXON, COMPTROLLER OF CURRENCY FOR THE UNITED STATES OF AMERICA, FIRST NATIONAL BANK OF EXETER, WYOMING NATIONAL BANK OF WILKES-BARRE, AUGUST J. LIPPI, ETTORE LIPPI, JOHN LIPPI, JOHN B. CAMPBELL, GEORGE MAFFEI AND HAROLD REICH.



Author: Biggs

Before BIGGS, Chief Judge, HASTIE, Circuit Judge, and KIRKPATRICK, District Judge.

BIGGS, Chief Judge.

This is a derivative shareholders' action to invalidate a sale of assets of the First National Bank of Exeter ("Exeter bank") to the Wyoming National Bank of Wilkes-Barre ("Wyoming bank"). Plaintiffs are minority shareholders of the Exeter bank. Defendants are the Exeter bank and various members of its board of directors, the Wyoming bank and the Comptroller of the Currency. The plaintiffs have appealed from an order of the court below entered on July 2, 1962 dismissing the action as against the Comptroller and an order of dismissal as against all other defendants entered on July 12, 1963.

The case was tried to the court below without a jury. The essential facts are not in dispute. On or about January 29, 1962 a defalcation of approximately $200,000 was discovered at the Exeter bank. As an audit of the bank progressed the shortage was found to exceed $400,000. Between January 29, 1962 and February 19, 1962, the Comptroller urged that there be a reorganization or a sale of the bank. No progress having been made in respect to either, on February 19, 1962, pursuant to Section 203, 12 U.S.C.A., the Comptroller appointed a conservator for the Exeter bank.

On the morning of February 26, 1962 the Wyoming bank offered to assume all the liabilities of the Exeter bank, except its liabilities to its shareholders, accept all its assets and pay a premium of $120,000. plus 40% of any recovery on its excess bond.Outstanding at this time, among other offers which need not be detailed, was a purchase offer submitted by the First National Bank of Pittston ("Pittston bank"). This offer was to assume stated liabilities, purchase acceptable assets to cover those liabilities, and pay a premium of $186,500. The Pittston bank proposal was subject to the condition that "the net value of assets over liabilities, plus the premium, will be held in escrow for a period of six months, out of which losses not covered by * * * [Exeter's] primary and excess bonds and claims against undisclosed shortages may be charged."

At a special meeting of the board of directors of the Exeter bank on the morning of February 26, 1962, the offer of the Wyoming bank was accepted by six directors voting in favor and three not voting*fn1 At a special meeting of the board of directors of the Wyoming bank on the afternoon of the same day, the action of the officers of the Wyoming bank in making the stated offer was approved unanimously. The nine directors of the Exeter bank who had held their own meeting that morning, attended the directors' meeting of the Wyoming bank and none of them expressed any disagreement with the action taken.

On February 26, 1962 the following telegram dated 6:14 P.M., E.S.T., was sent by the Comptroller to the Exeter bank: "I am now satisfied that it would be in the public interest to terminate the conservatorship of the First National Bank of Exeter and that it may safely be done. Therefore I do hereby terminate the * * * conservatorship, effective February 26 1962, at which time the assets of the bank and the control of its affairs will be returned to its Board of Directors for the purpose of executing a sale of all of the assets of the bank to the Wyoming National Bank of Wilkes-Barre. Pursuant to Section 5220 United States Revised Statutes [12 U.S.C.A. § 181], I have determined that an emergency exists and hereby waive the requirement for shareholder approval of the purchase and sale agreement."

The purchase and sale agreement was executed by the proper officers of both banks late on the afternoon of February 26, 1962. It is not clear from the record at what time the contract was executed and whether the execution was accomplished before or after receipt of the Comptroller's telegram. The agreement was subsequently approved by the Comptroller pursuant to 12 U.S.C.A. § 1828(c).

At a meeting of the board of directors of the Exeter bank held on March 26, 1962, the purchase and sale agreement dated February 26, 1962 was confirmed by six directors voting in favor of the confirming resolution. Three directors voted against it.

In the court below the appellants challenged the validity of the contract of purchase and sale between the Exeter and Wyoming banks*fn2 The appellants attempted to support their position on several grounds the most basic of which were that the Wyoming offer was not the best offer received by the Exeter bank and that the Exeter board of directors breached their fiduciary duty in accepting it, that in any event the Exeter directors did not have authority to accept the Wyoming offer on February 26, 1962 because a conservator was in charge of the affairs of the Exeter bank at that time, that the contract was not executed in compliance with national banking law, and that the Comptroller abused his discretion and acted contrary to law in several respects all of which served to invalidate the contract.

The court below granted the Comptroller's motion to dismiss the complaint as to him because the court was of the view that the Comptroller's discretion was exclusive and non-reviewable as to all questions raised in the complaint relating to him.An appeal was taken by the present appellants from the order of dismissal, but that appeal was properly dismissed on the ground that the appeal was not from a reviewable or appealable judgment under 28 U.S.C. Section 1291*fn3 After the trial of the case against the remaining defendants the court below concluded that the Wyoming offer was the best offer received by the Exeter bank, that the defendant Exeter directors had breached no fiduciary duty in voting to accept the Wyoming offer, and that the agreement entered into between the Exeter and Wyoming banks was a valid contract.

The appellants have now appealed from the orders dismissing the complaint as to the Comptroller and also as to all the other defendants. The appellants challenge all the findings of the court below. They first assert that the Pittston rather than the Wyoming proposal was the best offer received by the Exeter bank for the sale of its assets. We see no valid basis for disturbing the court below's finding on this point. Our conclusion in this regard disposes a fortiori of the appellants' contention respecting the alleged breach of a fiduciary duty on the part of the Exeter directors.

In view of the indefinite nature of some of its terms, it is questionable whether the Pittston offer was capable of a binding acceptance. In any event, the conditioning clause of the Pittston offer contemplated that "claims against undisclosed shortages" were to be charged against the escrow amount. It was well within the realm of possibility that subsequently disclosed shortages could serve to exhaust or at least substantially minimize the amount due the Exeter bank. On the other hand the Wyoming offer was definite and guaranteed the Exeter bank a minimum consideration. Under these circumstances it certainly cannot be flatly stated that the Pittston offer was preferable to that of the Wyoming bank. The decision as to which offer was the more satisfactory lay within the sound business discretion of the Exeter directors*fn4

The appellants next challenge the court below's conclusion respecting the validity of the contract entered into between the Exeter and Wyoming banks. Their attack is based on several grounds. It is first contended that the Exeter directors did not have the power or authority to accept the Wyoming offer on the morning of February 26, 1962 because at that time a conservator was officially in charge of the affairs of the Exeter bank. In our view even assuming the ...


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