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Seidman v. Spencer Savings Bank

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


November 9, 2009

LAWRENCE B. SEIDMAN, PLAINTIFF-RESPONDENT,
v.
SPENCER SAVINGS BANK, S.L.A.; RAYMOND BAUMKIRCHNER; GERALD M. BEDRIN; JOSEPH C. D'AUTORIO; MILDRED P. DAMIANO; JOSE B. GUERRERO; PETER J. HAYES; EVERETT E. KUNKEL; NICHOLAS LORUSSO AND ROBERT MOTTA, DEFENDANTS-APPELLANTS.
IN RE APPLICATION PURSUANT TO N.J.S.A. 17:12B-38, ET SEQ. FOR APPROVAL OF AMENDMENTS TO SPENCER SAVINGS BANK, S.L.A.'S BYLAWS IN SECTIONS 31 AND 46
LAWRENCE B. SEIDMAN, PLAINTIFF-APPELLANT,
v.
SPENCER SAVINGS BANK, S.L.A.; RAYMOND BAUMKIRCHNER; GERALD M. BEDRIN; JOSEPH C. D'AUTORIO; MILDRED P. DAMIANO; JOSE B. GUERRERO; PETER J. HAYES; EVERETT E. KUNKEL; NICHOLAS LORUSSO AND ROBERT MOTTA, DEFENDANTS-RESPONDENTS.

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).

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 21, 2009

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.

I.

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

Dated: August 5, 2004

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. Seidman alleged that the costs of these mailings, if the 20% requirement (or even the 10% requirement) were enforced, would be prohibitive.

Daunted by these requirements and related events, Seidman filed a complaint in the Chancery Division on October 29, 2004. He named as defendants Spencer, Guerrero, and various other officers and directors of the Board.

In Count I of his complaint, Seidman claimed subversion and abuse of the Board members' control over the democratic election process. He demanded an injunction, compelling defendants to mail his election materials to members. In Count II, Seidman asserted that after he had contacted Guerrero, the Board members improperly amended By-Law 31, increasing the percentage of eligible members required to authorize a Board nomination from 10% to 20%. Seidman alleged that defendants did this in their own self-interest "to entrench themselves," and that defendants were purposefully interfering with members' voting rights. Seidman demanded a declaration that the Board members had breached their fiduciary duties. In Count III, Seidman complained about alleged corporate waste within Spencer, illustrated by Guerrero's generous compensation package and by a trip to Spain for the directors, and selected managers and their families. He demanded an accounting and an injunction to prevent further waste. In Count IV, Seidman sought counsel fees.

Defendants opposed the order to show cause, arguing that Seidman's claims were without merit. The defense contended that Guerrero had properly rejected Seidman's proposed mailing to members because it was misleading, as it failed to disclose Seidman's apparent plans to effectuate a "mutual-to-stock conversion" of Spencer, for which Seidman would receive a fee or a seat on the Board for brokering the transaction. Defendants also sought to dismiss the complaint for lack of jurisdiction, or, alternatively, to transfer the matter to the Appellate Division.

On December 7, 2004, the Chancery Division entered an order denying an injunction. However, the court retained jurisdiction to decide whether Seidman was entitled to communicate with members, and whether the contested by-law was valid.

In a subsequent amended and supplemental complaint, Seidman alleged that he had requested that the Commissioner direct defendants to mail his materials to members. Seidman further advised that he had withdrawn as a proposed Board nominee and that Vanaria would replace him.

After oral argument on defendants' motion to dismiss and/or transfer, the Chancery judge issued a written decision on January 14, 2005, and a corresponding order on January 19, 2005. The order dismissed Count I of the complaint regarding Seidman's entitlement to have his mailing sent to members. However, the court retained jurisdiction over the Board election issues, pending the Commissioner's decision on Seidman's proposed mailing. The court also declined to dismiss the other counts of the complaint.

On April 18, 2005, the Acting Commissioner, in a detailed written decision, denied Seidman's request to have a communication distributed to Spencer's members. The denial was based upon the fact that Seidman had not followed required procedures for applying to communicate with the members and the fact that the proposed communication he had submitted to the Department was materially different from the proposed communication that he had submitted to Spencer.

Defendants obtained leave to appeal the trial court's January 19, 2005 interlocutory order. We affirmed the trial court in an unpublished opinion. See Seidman v. Spencer Sav. Bank, S.L.A., No. A-3899-04T5 (App. Div. March 23, 2006). With respect to Seidman's assertion that By-Law 31 was invalid under the SLA, we held that the Commissioner had exclusive jurisdiction on that issue. We noted that the Commissioner "must approve the by-laws unless the proposed by-law or change in by-law conflicts with [the] SLA." We also noted that the Commissioner's approval of the amended by-law "constitutes a final determination by an administrative agency," reviewable by this court pursuant to Rule 2:2-3(a)(2). We did not read Seidman's complaint as one seeking review of the Commissioner's final agency decision to approve the by-law amendment but as a claim for breach of fiduciary duty and waste. As to those claims,*fn3 we held that each was cognizable in the trial court.

The Chancery action was tried on two days in January 2007.*fn4

On April 13, 2007, the Chancery judge issued a written decision and an order denying Seidman's claim of corporate waste (the trip to Spain), but finding that the Board had breached its fiduciary duty to members "on the basis of member disenfranchisement[.]" The judge ordered the Board to "revisit By[-]Law 31, examine the need to amend the 10% requirement previously in place and set forth reasons for any changes[.]" The judge initially denied Seidman's request for attorneys' fees.

Seidman filed a motion with the Chancery judge for reconsideration, requesting the appointment of a committee to recommend a nomination procedure, and counsel fees. After hearing oral argument, the judge issued another written decision and order on June 28, 2007. The judge directed that the Board reconsider By-Law 31 within thirty days, and that the Commissioner review any replacement by-law. The judge also indicated that the court would award attorneys' fees upon Seidman's ensuing submission of an affidavit or certification of services.

Seidman submitted a certification of services the next day. On July 26, 2007, the trial court awarded him counsel fees of $55,722.24, and on August 29, 2007, the court awarded him costs and expenses of $7,286.60.

The Board met again on July 19 and 26, 2007. It issued another resolution on July 27, 2007, amending By-Law 31 to require members representing at least 15% of the eligible votes to nominate a board candidate.*fn5 The Board resolved to submit the new by-laws to the Commissioner for approval.

On August 3, 2007, Seidman applied to the Chancery judge for an order to show cause in aid of litigant's rights, contending that the amended By-Law 31, reducing the 20% requirement to 15%, continued to disenfranchise members. Again, he requested the appointment of a committee to propose a replacement by-law.

On September 10, 2007, defendants filed a notice of appeal from the Chancery Division's orders of April 13 (finding that the 20% requirement in By-Law 31 had wrongfully disenfranchised members), June 28 (requiring the Board to develop another by-law and for the Commissioner to review that new proposal) and August 29, 2007 (awarding counsel fees and costs).

Meanwhile, on September 11, 2007, the Commissioner approved the newly-amended by-laws, including the reduction of the nominating requirement in By-Law 31 from 20% to 15%. In his one-page certificate of approval, the Commissioner stated his conclusion, without any further substantive commentary, that "the amendments presented have been made for a proper purpose." The Commissioner also concluded that "the Board of Directors has appropriately researched and recorded the reasons for such changes." The full text of the Commissioner's September 11, 2007 approval document reads as follows:

CERTIFICATE OF APPROVAL

Application has been made to the New Jersey Department of Banking and Insurance by Spencer Savings Bank, S.L.A., in accordance with the provisions at N.J.S.A. 17:12B-38 et seq., for approval of amendments to the Association's by-laws in sections 31 and 46. My review of this application finds that the amendments presented have been made for a proper purpose, and the Board of Directors has appropriately researched and recorded the reasons for such changes.

Therefore, pursuant to the authority vested in me by N.J.S.A. 17:12B-39, I, Steven M. Goldman, Commissioner of the Department of Banking and Insurance, do hereby approve the amendments to the bylaws of:

SPENCER SAVINGS BANK, S.L.A. with its principal office in Garfield, which was adopted by the Associations' Board of Directors on July 26, 2007.

Steven M. Goldman Commissioner

Dated: 9/11/07

[(Emphasis added.)]

The Chancery judge issued a written decision and a companion order on October 16, 2007, denying Seidman's application for relief in aid of litigant's rights. In her letter opinion, the Chancery judge found that, unlike the 20% voting requirement that the court had previously struck down, the revised 15% requirement was valid. The judge noted that she was satisfied that the Board had duly considered "all [of] the circumstances and reasons behind the 15% requirement[.]" The judge contrasted that to the earlier 20% requirement, as to which "[t]here was not a single witness who could convey the appropriateness of [that] requirement." The judge further noted that Spencer had since "conducted a thorough investigation as to the percentage of depositors necessary to nominate an individual to the Board of Directors."

Given these circumstances, the trial judge found that the defendant's adoption of the reduced 15% nomination requirement was protected from attack by the principle of the business judgment rule. The judge's letter opinion makes no reference to the "member disenfranchisement" factor, which had been a key basis for invalidating the 20% requirement in her April 2007 opinion.

The Chancery judge concluded her October 16, 2007 opinion by deferring all other disputes concerning the company's by-laws to the Commissioner. In particular, the judge stated:

The [c]court finds that it is now within the province of the Commissioner of Banking [and Insurance] to review the By-Laws and resolutions adopted by the Spencer Savings Bank's Board of Directors at their last corporate meeting to determine whether those By[-]Laws conform to the regulations governing the operation and governance of Spencer Savings Bank[.] Any of the objections raised by Mr. Seidman in his counsel's correspondence to this [c]court are objections that should be properly directed to the Commissioner of Banking [and Insurance]. This [c]court's review was simply to determine whether Spencer Savings Bank had complied with the [c]court's previous [o]rders. Specifically, that Spencer Savings Bank conducted a factual study into the number of depositors within the Bank and percentage of depositors' approval needed to nominate individuals to the Board of Directors. This [c]court is satisfied that Spencer Savings Bank has complied with the [c]court's [o]rders and will deny the [o]rder to [s]how [c]ause and any other relief requested therein by Mr. Seidman.

[(Emphasis added).]

Seidman separately appealed (in A-1036-07T2) the Commissioner's September 2007 approval of revised By-Law 31, as well as (in A-1343-07T2) the trial court's October 2007 dismissal of his Chancery action. Those two appeals by Seidman were consolidated with defendants' pending appeal (A-176-07T2) of the trial court's prior orders invalidating the 20% by-law, finding that defendants had breached their fiduciary duties and awarding counsel fees.

II.

On appeal, defendants contend, among other things, that the 20% by-law amendment was improperly struck down by the trial court. They argue that the 20% provision bore a rational relationship to legitimate principles for the governance of a mutual savings-and-loan association, as contrasted with a banking institution having investing stockholders. Defendants further argue that the trial court improperly gave short shift to the Department's 2004 approval of the 20% by-law, given the Department's regulatory authority over director eligibility qualifications and the methods for voting outlined in N.J.S.A. 17:12B-62 and -63. Defendants contend that they breached no fiduciary duties in adopting and implementing such a by-law.

They further contend that Seidman lacked standing to pursue derivative claims on behalf of the association members, and that the court also erroneously awarded him counsel fees.

With respect to the Chancery litigation, Seidman argues in his own appeal that the trial court correctly struck down the 20% by-law, but that it thereafter erred in leaving the ensuing 15% by-law intact. Seidman contends that the 15% provision portends the same evils of member disenfranchisement that had led the trial court to invalidate the earlier 20% provision. Seidman also disputes defendants' claims that he lacks standing and that the award of counsel fees was improper.

In his direct appeal of the September 11, 2007 final agency decision approving the amended by-laws containing the 15% requirement, Seidman argues that the Commissioner's determination was arbitrary and capricious. He complains that the agency's cursory discussion of these significant issues of corporate governance was deficient, and it only presented uninformative conclusory recitations. Seidman further contends that the Commissioner should have granted him an administrative hearing about the by-law's adoption as a contested case, to enable a factual record to be developed.

In that same vein, Seidman argues that the trial court gave unwarranted deference to the Commissioner in its October 2007 ruling. He asserts that the court should not have delegated to the Department questions pertinent to the lawful procedures for elections of directors at New Jersey savings-and-loan associations.

Seidman also points out that the OTS recently issued two decisions, both involving part-mutual, part-stock New Jersey savings-and-loan associations, rejecting proposed by-laws*fn6 that would attempt to restrict the ability to nominate members of their boards of directors, as a means to preserve existing management and fend off potential takeover. See In re Clifton MHC, OTS Order No. 2008-47 (Dep't of Treasury December 5, 2008) and In re Columbia Bank, OTS Order No. 2008-34 (Dep't of Treasury September 26, 2008). Both institutions in Clifton and Columbia Bank had attempted to adopt an optional model by-law that the OTS had originally endorsed, see 71 Fed. Reg. 7695 (proposed Feb. 14, 2006), but later withdrew. See 72 Fed. Reg. 72264 (Dec. 20, 2007).

III.

At oral argument before us and in their appellate briefs, the parties advanced competing arguments of public policy. Defendants emphasize what they contend is the distinctive nature of mutual associations, which they say are aimed at serving the local community rather than at turning a profit for investing stockholders. They maintain that the nominating restrictions in By-Law 31 legitimately provide the stability and continuity of such community-oriented enterprises, and protect them from outside corporate raiders.

Defendants rely in this regard upon a July 23, 2007 memorandum from Spencer's outside counsel, Lord, Bissell and Brook ("LBB"). The LBB memorandum, which was presented to both the Spencer Board and thereafter to the Commissioner, describes the national decline in thrifts and mutuals since the 1980s, and the rise of "depositor activism." The memorandum highlights the need, consistent with national banking policy, "to preserve the ability of the [mutual's] board [of directors] to manage the [loan] institution in a manner consistent with its community focus and without the outside influence of certain members who are attempting to control the board for their own individual benefit." In furtherance of that policy, the LBB memorandum asserts, Spencer's percentage-based nominating procedure in By- Law 31 helps preserve its mutuality. Moreover, according to LBB, there are other "counter-balancing" provisions in Spencer's corporate governance procedures that minimize the by-law's anti-democratic impact.

Seidman counters that the community-based themes presented by defendants are exaggerated. He argues that restrictive bylaws of the kind at issue in this case have the unwholesome effect of entrenching bank management and perpetrating corporate waste and cronyism, to the disadvantage of the mutual's depositors.

These are interesting and complex public policy arguments. Unfortunately, the present record provides us with little insight from the Commissioner, in his role in reviewing by-laws, on exactly how those public policy considerations bear upon Spencer's proposed by-law amendments, and upon the statutory objectives for savings-and-loan associations established by the Legislature in the SLA.

The Commissioner has been delegated substantial responsibility for the protection of the public in the regulation of savings-and-loan associations established in our State. See, e.g., N.J.S.A. 17:12B-20 (establishing the Commissioner's authority to approve or reject, "in the public interest," the creation of a new savings-and-loan association under State law); N.J.S.A. 17:12B-172 (authorizing the Department to conduct bank inspections, examinations and supervision); N.J.S.A. 17:12B-177 to -197 (enumerating the Commissioner's additional supervisory powers). See also Essential Sav. & Loan Ass'n v. Howell, 105 N.J. Super. 424, 432-33 (App. Div. 1969).

Part of this State regulatory oversight is the Commissioner's exclusive authority to act on by-law proposals where they are not subject to federal approval by the OTS. N.J.S.A. 17:12B-39. The Commissioner is empowered to reject a proposed by-law if he or she finds it "in conflict with the provisions of [the SLA]." Ibid. As part of that determination, the Commissioner, as agency head, may need to consider the interstices of the statutory scheme, where the codified provisions may have gaps in their express language but nonetheless require administrative interpretation. T.H. v. Div. of Developmental Disabilities, 189 N.J. 478, 494-95 (2007) (noting that, at times, an administrative agency may need to fill in the interstices of a statute); see also In re Appeal of Certain Sections of the Unif. Admin. Procedure Rules, 90 N.J. 85, 92 (1982).*fn7

In reviewing the Commissioner's final decision, we are mindful that the Department has substantial expertise to ensure that our State's banking statutes are construed and applied in a manner that serves the public interest. We generally will not disturb an administrative agency's final decision unless it: is shown to violate a legislative policy; lacks fair support in the record; or is demonstrably arbitrary and capricious. See Campbell v. N.J. Racing Comm'n, 169 N.J. 579, 587-88 (2001); In re Howard Savings Institution of Newark, 32 N.J. 29, 52 (1960).

In approving Spencer's most recent amendments to its bylaws in September 2007, the Commissioner explicitly found that the amendments had been made for "a proper purpose." We cannot tell from that conclusory statement exactly what standards of "propriety" the Commissioner applied in reaching that conclusion. For instance, we do not know if the Commissioner simply looked to the literal words of the SLA to see if anything in the by-laws directly contravened the statutory text. We doubt that the Commissioner's review was so confined, recognizing that the Department had previously disapproved Spencer's proposed change to By-Law 9 regarding the number of directors in August 2004, without citing a specific prohibition within the SLA. We instead suspect that, in approving By-Law 31, the Commissioner considered substantive public policy factors under the SLA affecting the State banking industry. The problem is that the Commissioner's bare-bones written approval does not explain what, if any, those policy and regulatory considerations were to support his finding that the amendments were for "a proper purpose."*fn8

Similarly uninformative is the Commissioner's observation that Spencer's Board of Directors "has appropriately researched and recorded the reasons for such changes" in the by-laws. We cannot discern exactly what made the Board's research appear "appropriate" to the Commissioner, and whether, for example, the Commissioner was implicitly endorsing the regulatory analysis contained in the LBB memorandum. We simply cannot tell.

The dearth of a detailed explanation of the Commissioner's reasoning not only hinders our review in A-1036-07T2 of his final decision on September 11, 2007 approving the 15% provision, but also affects our ability to sort out the competing policy arguments under the SLA that are implicated in the two related appeals. We do not know why the Department likewise approved the earlier 10% and 20% requirements in 1995 and 2004, respectively. For example, it is unclear whether the Department has concluded, from a regulatory perspective, that any percentage-based nomination requirements pass muster under the SLA, or whether there are numerical limits of acceptability to such a requirement. We also cannot discern whether the Commissioner's conclusions of propriety are affected by the size of the particular savings-and-loan association, or by the number of its members.

As a general principle of sound administrative practice and judicial review, agencies must articulate in their final decisions the specific reasons they relied upon in reaching their determinations. "[N]o matter how great a deference the court is obliged to accord the administrative determination which it is being called upon to review, it has no capacity to review at all unless... the agency has stated its reasons grounded in [the] record for its action." State v. Atley, 157 N.J. Super. 157, 163 (App. Div. 1978); see also In re Authorization for Freshwater Wetlands Gen. Permits, 372 N.J. Super. 578, 594 (App. Div. 2004) (invoking this principle in remanding a final agency decision by the DEP for additional analysis and findings). The agency must provide an "expression of [its] reasoning which... led to the conclusion below[.]" Lister v. J.B. Eurell Co., 234 N.J. Super. 64, 73 (App. Div. 1989). We likewise insist upon such specificity of reasoning when reviewing orders from trial courts. See R. 1:7-4 (requiring a statement of reasons); Pressler, Current N.J. Court Rules, comment 1 on R. 1:7-4 (2010) at 97-98 (underscoring the "critical importance" of such findings).

Defendants suggest that the Commissioner's allusion in his September 2007 approval to the Board having "appropriately researched" the by-laws reflects that the Commissioner agreed with the substantive analysis presented in the LBB memorandum. We do not make that speculative inference on the present record. Moreover, an agency cannot adequately discharge its decision-making functions by simply adopting the contents of a legal memorandum presented to it by an advocate. Stevens v. Bd. of Trustees, 294 N.J. Super. 643, 655 (App. Div. 1996).

We are cognizant that it may be administratively burdensome for the Department to generate a detailed statement of reasons in passing upon every proposed by-law amendment presented to it, many of which may well be routine in nature. However, in this particular context, the Department was surely aware that By-Law 31 of Spencer was a subject of ongoing controversy and litigation.

The one-page decision ultimately issued by the Department in September 2007 is simply too conclusory and cryptic to ascertain why the Department chose to approve By-Law 31 and the 15% provision. Rather than guess at why the Department did so and why the by-law was deemed by the regulator to be for a "proper purpose," we instead remand the matter to the Commissioner to obtain a detailed statement of reasons. Although we recognize that this task will impose some burden on the agency, we note that the Department, by comparison, did generate a detailed seven-page statement of reasons in April 2005 when it denied Seidman's request to communicate with the bank's depositors. The Commissioner's amplified analysis should also aid in our consideration of the level of deference owed to the agency's approval of the by-laws and the related issues that are before us with respect to the appeals from the Chancery Division. We further note that, when we raised the concept at oral argument, counsel for defendants and Seidman did not oppose a temporary remand for this purpose.

For these reasons, the matter is temporarily remanded to the Commissioner for the issuance of a detailed statement of reasons underlying the Department's September 11, 2007 approval of the proposed 15% nominating provision in By-Law 31. In doing so, we invite the Commissioner to explain how the 15% requirement compares with Spencer's earlier 20% requirement from a regulatory perspective under the SLA, and whether he considers both valid for the same reasons.

We further invite the Commissioner to comment upon the statutory and regulatory analysis set forth in the LBB memorandum. It also would be helpful if the Commissioner addressed the significance, if any, of the recent OTS decisions and regulations concerning by-laws that affect board governance and director nomination requirements.

As part of his consideration of these matters on remand, the Commissioner remains free to reconsider the conclusions set forth in his September 11, 2007 decision if he deems it appropriate. We do not, however, require the Commissioner to solicit further written submissions from the parties, although he may request them in his discretion. Nor is the Commissioner obligated to refer this matter for an administrative fact-finding hearing, unless he decides to do so in the exercise of his discretion.

The Commissioner's amplified statement of reasons shall be filed and served by December 31, 2009. The parties thereafter shall concurrently have until January 15, 2010 to submit supplemental letter-briefs to this court with their substantive comments regarding the statement of reasons. The parties shall also advise us in their supplemental briefs as to whether any further proceedings, including a potential remand to the trial court or further argument before us, may be warranted in light of the Commissioner's amplified analysis.

Temporarily remanded to the Commissioner of Banking and Insurance, consistent with the terms of this opinion. We retain jurisdiction over the consolidated appeals.


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