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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Remanded Re-argued April 28, 2010
Before Judges Stern, Sabatino, and J. N. Harris.
These three consolidated proceedings involve the corporate governance--specifically, the nomination of directors--of a vanishing species among New Jersey's thrift financial institutions: a mutual savings and loan association. The litigation includes journeys to both the Chancery Division and the New Jersey Department of Banking and Insurance. This appeal constitutes the third review of the main parties' dispute by this court. See Seidman v. Spencer Sav. Bank, S.L.A., No. A-3899-04T5 (App. Div. March 23, 2006) (Seidman 1); Seidman v. Spencer Sav. Bank, S.L.A., No. A-0167-07T2, A-1036-07T2, and A-1343-07T2 (App. Div. Nov. 9, 2009) (Seidman 2).*fn1 Because we fully explained the procedural backdrop and detailed the factual landscape of these appeals in Seidman 2, we will not repeat them again here, except in a summary fashion to the extent necessary in order to explain our rulings. After a thorough appraisal of the entire record--particularly with the beneficial assistance of the thoughtful and comprehensive arguments put forth by the parties--we affirm in all respects.
Distilled to its essence, plaintiff Lawrence B. Seidman challenges as anti-democratic the adoption and implementation of several by-law amendments put into effect by defendant Spencer Savings Bank, S.L.A. (Spencer) and its board of directors in 2004 and 2007.*fn2 These amendments were all approved by the Commissioner of the New Jersey Department of Banking and Insurance (DOBI) as required by N.J.S.A. 17:12B-39. Nevertheless, plaintiff asserts that the effect of the amendments works to dilute and disenfranchise the voting rights of Spencer's members.
Prior to these amendments, Spencer's By-Law 31--relating to nominations for a director's position--commanded that no individual shall be eligible for election unless he or she shall have been nominated in writing either by a majority of the board or by ten percent or more of the votes entitled to be cast by Spencer's members. Members were defined as "those in whose names accounts are established either as savings members or borrowing members." N.J.S.A. 17:12B-74. Each member enjoyed one vote, regardless of the number of accounts owned, the amount on deposit, or the total indebtedness of the individual to the association. The 2004 amendment to By-Law 31 changed the grass-roots alternative by increasing the minimum threshold for directorate nominations from ten percent to twenty percent of the votes entitled to be cast by Spencer's members.
Plaintiff challenged the adoption of this 2004 amendment in a putative derivative action in the Chancery Division, where-- after an interlocutory appeal to this court and a subsequent two-day trial--he succeeded in persuading the court to undo the amendment.*fn3 The trial judge jettisoned the twenty percent threshold after finding that many Spencer board members were unaware of the amendment's underlying rationale or even its gate-keeping effect. The court was rightfully troubled that board members had no idea as to how many votes were necessary to surmount the twenty percent threshold. The trial judge declared:
This amendment bears absolutely no rational relationship to any of the issues involving bank governance or operation. While it is touted as a way to keep out unwelcomed wealthy outsiders, this amendment has a deleterious [e]ffect on the efforts of the common every day depositor to gain a seat for themselves on the Board of Directors if they are unknown to the current nominating committee.
As a result, the court found that "Board [members have] breached their fiduciary duty to their depositors in their paternalistic attempt to keep 'outside investors' from gaining participation on the Board of Directors in order to maintain their own positions." The board was then ordered to "revisit ByLaw 31, examine the need to amend the [ten percent] requirement previously in place and set forth reasons for any changes recommended or passed." It does not appear that the court expressly retained jurisdiction over the parties, implicitly permitting Spencer to later address its By-Law 31 in whatever appropriate and lawful manner it chose. Lastly, the court reallocated reasonable counsel fees in plaintiff's favor because Seidman's "litigation provided a benefit not only to him but also to other members of the Spencer Savings Bank interested in obtaining nominations to the Board of Directors."*fn4
Defendants filed a notice of appeal from the trial court's orders that (1) concluded that the amendment to By-Law 31 had wrongfully disenfranchised the institution's members; (2) required the board to develop another by-law and for the DOBI to review that new proposal; and (3) awarded counsel fees and expenses. Seidman v. Spencer Sav. Bank, S.L.A., No. A-0167-07T2.
Meanwhile, the board went ahead and enlisted outside advisors to help its reconsideration of the nomination process for directors. It thereupon formulated a slightly different approach that itself engendered additional litigation. Clinging to its view that Spencer needed protection from plaintiff's corporate acquisitiveness, the board's solution was to adopt a new amendment to By-Law 31, which adjusted the minimum percentage of members who had to acquiesce in a director's nomination to fifteen percent. The Commissioner approved the amended by-law as not inconsistent with Spencer's enabling legislation, and plaintiff appealed that administrative determination to this court. In re Application Pursuant to N.J.S.A. 17:12B-38, et seq., No. A-1036-07T2.*fn5
We ordered a remand in November 2009 for an agency proceeding that ultimately produced an eighteen-page written Decision on Remand from the DOBI. It focused upon the new fifteen percent requirement, but commented as well (at our invitation) upon the initial 2004 by-law amendment that had increased the nomination threshold to twenty percent. In both instances, the DOBI concluded that "from a regulatory perspective both the [fifteen] and [twenty] percent standards were deemed acceptable." The stated rationale for this conclusion was that "[e]ach amendment was found to be 'not in conflict with the Act [the SLA].'" The Decision on Remand commented favorably upon Spencer's use of outside advisors before deciding to adopt the 2007 amendment and expressly noted- -without the benefit of an evidentiary hearing--that "the [fifteen percent] nomination requirement is achievable and not unduly burdensome . . . [and is] not consider[ed] . . . an attempt at disenfranchisement."
After the board adopted the 2007 amendment containing the fifteen percent requirement, plaintiff next sought the immediate intervention of the Chancery Division. He invoked the court's jurisdiction, not by commencing a new action, but instead through the prosecution of an application in aid of litigant's rights.*fn6 He claimed that the new amendment continued to disenfranchise Spencer's members' right to vote. He sought the court's assistance in obtaining independent oversight over the board's by-law amendment process by requesting the appointment of a committee to propose a more suitable replacement by-law.
Plaintiff came away empty-handed from his Rule 1:10-3 application. The Chancery Division judge--also without an evidentiary hearing but "[u]pon review of the minutes of various meetings and opinion letters from [c]orporate counsel"--held that, because the fifteen percent requirement was the product of a "thorough investigation," and "Spencer Savings Bank has complied with the Court's [o]rders," no further relief was needed or appropriate. The court did not address--to the extent the issue was even before it at that time--a claim that the fifteen percent requirement was the result of a new or continued breach of fiduciary duty. Significantly, the court explained, "unless the Board's action is so frivolous or clearly arbitrary, a Court should defer to the Board and the Commissioner of Banking [and Insurance]." Plaintiff appeals from this determination of the Chancery Division. Seidman v. Spencer Sav. Bank, S.L.A., No. A-1343-07T2. The three appeals have been consolidated for purposes of consideration and disposition of the issues before us.
Prior to addressing our appellate scope of review, it is appropriate to comment briefly upon the respective roles of the executive and judicial branches regarding the corporate governance of mutual savings and loan associations in New Jersey. Even before the country's economic dislocation commenced in 2008, the primary governmental branch tasked for the complex oversight of financial institutions in our state was the executive department through the DOBI, not the judiciary. See N.J.S.A. 17:1-25 to -28. Nationally, recently-enacted comprehensive financial sector legislation continues this division of responsibility. See generally, Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010).
We see neither a dilution of that hierarchy nor an erosion in the court's equitable jurisdiction by recognizing the primary role of the DOBI in the hands-on supervision of a mutual savings and loan association. See Swan v. Boardwalk Regency Corp., 407 N.J. Super. 108, 116 (App. Div. 2009) (citing Campione v. Adamar, Inc., 155 N.J. 245, 263 (1998)). Because the safety and soundness of a thrift is of utmost concern to its members and the public in general, the expertise of the regulatory agency-- not the dispute resolution proficiency of the courts--is best applied by analyzing the interaction of a particular mutual savings and loan association's by-law amendment with the SLA.
Conversely, the Chancery Division's open-door jurisdiction for resolution of disputes arising from claims of breach of fiduciary duties--even for actions found by the Commissioner to be not inconsistent with the SLA--remains fully intact. The stewardship role of the judiciary over such traditional causes of action, including resolving the effect of a given instance of corporate governance (such as the challenged amendment to ...