On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. C-190-04 (A-0167-07T2 and A-1343-07T2) and the New Jersey Department of Banking and Insurance (A-1036-07T2).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Stern, Sabatino and J. N. Harris.
These three consolidated appeals raise complex legal and regulatory issues involving the governance of a New Jersey savings-and-loan association. Because we are directing a temporary remand to the Department of Banking and Insurance ("the Department") to obtain an amplified statement of reasons explaining the Department's regulatory approval of the savings-and-loan's by-laws that are at the core of these appeals, we do not resolve at this time the merits of the many issues raised on appeal.
The lending institution involved in this case is Spencer Savings Bank, S.L.A. ("Spencer" or "the association"). Spencer is a mutual savings-and-loan association chartered pursuant to the New Jersey Savings and Loan Act, N.J.S.A. 17:12B-1 to -319 ("the SLA"). Its principal offices are now in Elmwood Park. As of November 2004, Spencer had sixteen branches, located in Bergen, Passaic, Essex and Union Counties. At that time, Spencer had deposits of $1.3 billion and a loan portfolio of $810 million. According to an estimate of the association's President and Chief Executive Officer ("CEO"), Jose B. Guerrero,*fn1 it maintains about 80,000 accounts, corresponding to roughly 28,000 to 36,000 individual borrowers and depositors (also known as "members"). As a mutual association, Spencer has no shareholders. Its depositor accounts are insured by the Federal Deposit Insurance Corporation ("FDIC").
Spencer is governed by a Board of Directors, consisting of nine persons elected by the members to three-year terms. The directors' terms are staggered, so that in any given year only three directors stand for election. A director must be a current member of the association. The Board annually appoints an Executive Committee, composed of at least three directors, one of whom shall be the President and CEO. The overall business and affairs of the association are managed and directed by the Board.
Lawrence B. Seidman ("Seidman") is an attorney and money manager. Seidman has frequently bought and sold publicly-traded bank stocks. He became a depositor of Spencer in 1990, and has maintained an account with Spencer since that time.
The record indicates that Seidman has discussed on several occasions pursuing the conversion of Spencer to a publicly-traded stock corporation. Seidman has been similarly involved in efforts to gain control of several other banking institutions and to effectuate their sale, merger, or other transactions.
Seidman has served as the chairman of at least one other savings-and-loan institution.*fn2
In 1995, the Acting Commissioner of the New Jersey Department of Banking (later renamed the Department of Banking and Insurance) approved a package of various amendments to Spencer's by-laws, which had been adopted at a meeting of the association's Board. One of those amendments included the adoption of a provision, By-Law 31, requiring that a candidate for the Board must be nominated "in writing by a majority of the Board or by members representing ten percent (10%) or more of the votes entitled to be cast by members[.]" The present record is uninformative about the particular genesis of that 10% requirement. There is no indication in the record that anyone urged the Department to reject the 10% provision. The Acting Commissioner approved the proposed amendments to the by-laws on December 19, 1995, in a one-page, seven-line document with no substantive commentary.
Thereafter, in 2004, Spencer's Board of Directors adopted, subject to the Department's approval, further amendments to the association's by-laws. As part of those 2004 amendments, the Board revised By-Law 31, raising from 10% to 20% the percentage of members needed to nominate a director. Guerrero testified that he had advocated this change because he was concerned that the institution needed protection from investors such as Seidman, who might seek to take the association "public." Concerns were also raised because Seidman had been the subject of a cease-and-desist order and a monetary penalty imposed by the Federal Office of Thrift Supervision ("OTS"). The OTS enforcement action arose out of Seidman's involvement in allegedly-unsound banking practices while serving as the chair and CEO of another savings-and-loan. See In re Seidman, OTS Order No. AP-95-35 (Dep't of Treasury November 8, 1995).
The 2004 proposed amendment to By-Law 31 provided: "No Director shall be eligible for election unless he shall have been nominated in writing by a majority of the Board or by members representing twenty percent (20%) or more of the votes entitled to be cast by members.. [.]" Members were defined as "those in whose names, accounts are established either as savings members or borrowing members" in accordance with N.J.S.A. 17:12B-74. Each member sixteen years old or older was entitled to one vote, and joint accounts were allowed only one vote, in accordance with N.J.S.A. 17:12B-126. The Board also proposed amending Section 9 of the By-laws to change the number of directors.
On August 5, 2004, the Assistant Director of the Division of Banking within the Department issued a one-page certificate approving, with one exception, Spencer's proposed changes to its by-laws. The approval included the amendment to By-Law 31 raising the member percentage in the nomination requirement from 10% to 20%. The Department only rejected the proposed change to Section 9 regarding the number of directors.
The Department's August 2004 certificate of approval does not explain its reasons for adopting the nomination percentage change from 10% to 20%. It merely states:
CERTIFICATE OF APPROVAL Pursuant to the authority vested in me by N.J.S.A. 17:12B-39, I, William B. Waits, Assistant Director of the Division of Banking, do hereby approve the amendments to the bylaws of:
SPENCER SAVINGS BANK, SLA, with principal office in Elmwood Park, which was adopted by the Association's Board of Directors on June 24, 2004. This approval does not include the proposed changes to Section 9 regarding the number of directors.
William B. Waits Assistant Director
On October 4, 2004, Seidman wrote to Guerrero, with a copy to each Board member, that he intended to nominate Frank Russomanno and himself for election to the Board at Spencer's annual meeting scheduled in January 2005. Russomanno was a Spencer depositor and chief financial officer of a company of which Seidman was president. Seidman inquired how many members Spencer had, so that he could satisfy what he then perceived to be the requirement for nomination by members representing 10% of the votes. Seidman apparently was not yet aware of the amendment to By-Law 31 that had increased the minimum percentage to 20%.
Seidman went to Spencer's branch in Garfield with a petition for his nomination and an explanatory letter. After about forty-five minutes, two officers of Spencer requested him to leave. Nonetheless, Seidman submitted sixty-eight signatures petitioning for his and Russomanno's nominations.
On October 20, 2004, Seidman wrote to Guerrero, asking that his enclosed nominating petition be mailed to all Spencer members. On November 16 and December 7, 2004, Seidman again wrote to Guerrero, providing information about proposed candidates Russomanno and Raymond Vanaria (the latter having replaced Seidman as a candidate). Seidman then was provided with a copy of amended By-Law 31, fixing the nominating threshold at 20%.
Seidman claimed that it was "just about impossible" to be nominated under Spencer's 10% or 20% provisions, because the bank cannot disclose the names of its depositors under applicable law. Consequently, according to Seidman, depositors receive no information about the election process, the candidates or "what's been happening at the institution." He asserted that a "blind mailing" was the only way to communicate with members. Another mailing would have to go out after the nomination, with the candidates' platform. ...