First American Bank v. Shivers

HARRELL, Judge. This appeal presents a statutory interpretation question of first impression in Maryland: In what manner must a bank provide notice of the effective date of its merger with another bank to a shareholder who has objected to that merger, so ⁴⁰⁷ that the shareholder may timely exercise his statutory right to receive the fair market value of his shares? I The Financial Institutions Article of the Annotated Code of Maryland contains specific provisions governing mergers of banks. Section 3-719 of the article sets forth the procedures that a stockholder who objects to an approved merger must follow to perfect his right to fair value of his shares: § 3-719.

Right to fair value. (a) General rule. — The owner of shares of stock that were voted against a consolidation, merger, or transfer of assets is entitled to receive the fair value of those shares, in cash, if the transaction becomes effective. (b) Procedure by stockholder. — A stockholder who desires to receive payment of the fair value for shares under this section, within 30 days after the transaction becomes effective, shall: (1) Make a written demand on the successor for payment; and (2) Surrender the stock certificates. Md.Fin.Inst.Code Ann. § 3-719 (1992). 1 The Financial Institutions Article is silent on the questions of who is to give bank shareholders notice of a merger’s effective date and in what manner such notice is to be given.

The Maryland General Corporation Law, 2 on the other hand, not only imposes specific duties on objecting stockholders with regard to exercising their statutory rights generally, but also provides clear directions to a successor corporation with regard to providing notice of the event that triggers the ⁴⁰⁸ time period within which the stockholders may exercise those rights. The relevant sections provide as follows: § 3-203. Procedure by stockholder. (a) Specific duties. — A stockholder of a corporation who desires to receive payment of the fair value of his stock under this subtitle: (3) Within 20 days after the [State Department of Assessments and Taxation] accepts the [articles of merger] for record, shall make a written demand on the successor for payment for his stock, stating the number and class of shares for which he demands payment. § 3-207.

Notice and offer to stockholders. (a) Duty of successor. — (1) The successor promptly shall notify each objecting stockholder in writing of the date the articles are accepted for record by the Department. (2) The successor may also send a written offer to pay the objecting stockholder what it considers to be the fair value of his stock____ (b) Manner of sending notice. — The successor shall deliver the notice and offer to each objecting stockholder personally or mail them to him by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, at the address he gives the successor in writing, or, if none, at his address as it appears on the records of the corporation which issued the stock. CA §§ 3-203 & -207.

With these statutes in mind, we turn to the case sub judice. II The material facts are not in dispute. On or about 29 March 1988, First American Bank of Maryland (First American or the Bank), appellant, entered into a merger agreement with FABM Acquisition Bank. The proposal was constructed with First American as the surviving, or successor, bank.

On ⁴⁰⁹ 25 May 1988, Rufus W. Shivers (the Shareholder), appellee, voted by proxy his 1178 shares of First American common stock against the proposed merger. His objection was to no avail, however, as he and his fellow dissentients comprised less than the number of the Bank’s shareholders needed to defeat the proposal. The merger was approved on 14 June 1988. Some time in August 1988 the Bank sent, by regular mail, a “Notice of Effective Date of Merger” to its shareholders.

The notiee was dated 8 August 1988 but there is no evidence as to when the notice was actually mailed. The notice informed the shareholders that the merger was approved on 14 June and became effective on 8 August. The notice also stated that objecting shareholders who did not perfect their “dissenter’s rights” would be entitled to receive only the amount offered by the Bank for each share of First American stock. Finally, the notice directed shareholders who had voted against the merger and desired to perfect their dissenter’s rights to follow the procedures set forth in FI § 3-719.

By perfecting dissenter’s rights within the thirty-day time frame indicated in that section, an objecting shareholder can elect to receive the appraised fair value of the shares rather than accept the dollar amount per share offered by the successor bank. The offered price per share was $42.00. The fair market value of the Bank’s shares was eventually determined to be $55.00 per share. The thirty-day period in the instant case began on 8 August 1988 and ended on 7 September 1988.

The Shareholder, however, was away from his Alexandria, Virginia home on out-of-town trips for over half of those thirty days. On 11 August, he embarked on a thirteen-day business trip to several locations around the country; he returned home on 23 August. He left again on 2 September to oversee rental property that he owned in Delaware. He returned home from that trip on 6 September.

He opened and read the 8 August 1988 Notice of Effective Date of Merger on 8 September, one day after the statutory time period ended. In his answers to the Bank’s interrogatories in this litigation, the Shareholder explained that his two out-of-town trips and the large quantity of mail ⁴¹⁰ that accumulated during those trips contributed to the delay in discovering the 8 August 1988 notice. His answers further explained the circumstances surrounding his receipt of the merger notice: I was out of town from the morning of August 11, 1988 until the night of August 23, 1988 and again from the afternoon of September 2 to the evening of September 6, 1988, for a total of 18 days. I get a tremendous amount of mail____ In fact, due to the volume of mail I receive, when I return from a trip, especially a 13 day trip, it takes 4 or 5 days for the mail carrier to deposit all of this mail into a 3" by 4" mail box in the apartment house.

In the meantime, more mail is being received. In August 19911 was on a 5 day trip returning August 13, 1991. I kept track of the mail I received over the next 12 days including one Sunday. I received 129 pieces of mail including 61 pieces of first class mail.

This gives an idea of the volume of mail that was on hand over the days immediately after arriving on August 23,1988, then leaving again on September 2 and returning September 6, 1988. After returning September 6, I went through the remaining mail on hand and the new mail received, and on September 8th I opened the First American letter advising me of the merger. On September 9th I called First American to advise the bank I had just received the merger notice and wrote a follow up letter dated September 9th advising the bank of this fact. I have a savings and checking account with First American.

In 1988 I also had a Master Charge with First American. I receive a voluminous amount of mail from First American. ⁴¹¹ The merger notice was in a plain white envelope with a plain white label address and had no significant marks to indicate it contained important or time limited data inside. The Shareholder read the notice on the evening of 8 September. The next morning, he called the office of the Bank’s corporate secretary, Nancy R. Lewis, whose name and number appeared on the notice.

Because Ms. Lewis was not in her office, the Shareholder spoke to an unidentified woman. He explained to this person the circumstances surrounding his discovery of the merger notice, his status as a dissenting shareholder, and his desire to inform Ms. Lewis of these facts. Later that day, the Shareholder sent a letter addressed to Ms. Lewis, explaining the events leading to his discovery of the notice and expressing his desire to maintain his dissenter’s rights. He added that his stock certificates were then being used as security for a loan, but that he would immediately take action to obtain them.

One week later, the Shareholder spoke to Ms. Lewis by telephone to restate his position as a dissenting shareholder and explain again the reason for his delay in perfecting his dissenter’s rights. On 21 and 26 September 1988, however, the Shareholder received letters from the Bank’s president, Paul G. Adams, III, denying his requests for fair value for his shares. The Shareholder filed a complaint against the Bank in the Circuit Court for Montgomery County on 8 August 1991. He sought to be included among the Bank’s list of objecting stockholders who had perfected their dissenter’s rights and to receive the fair value for his shares.

The Shareholder based his claim on the Bank’s failure to send the merger notice via certified mail pursuant to CA § 3-207(b), which, he asserted, applied to bank mergers by way of FI § 1-201. The latter section provides: ⁴¹² § 1-201. Applicability of Maryland General Corporation Law. Except as expressly provided by this article, the Maryland General Corporation Law applies to a financial institution and to all of its corporate acts.

The parties filed cross-motions for summary judgment. In its motion, the Bank relied on, among other things, CA § 1-102(d)(1), which provides: § 1-102. Applicability and construction of article. (d) Inconsistency between article and provisions relating to particular classes of corporations; exception. — (1) To the extent that any provision of the Code which relates to a specific class of corporations conflicts with a general provision of this article, the specific provision governs.

The Bank argued that the Financial Institutions Article contained specific provisions that prevailed over the Corporations and Associations Article, rendering CA § 3-207 inapplicable. The case came on for hearing on 7 October 1992. After taking the matter under advisement, the circuit court (Harrington, J.) issued its written decision on 8 October 1992. Observing that §§ 3-718 to -721 of the Financial Institutions Article govern the rights of objecting bank stockholders, the court identified two elements that it believed were critical to the exercise of dissenter’s rights.

First, it recognized that FI § 3-719(b) sets forth the procedure that a dissenting shareholder must follow to perfect his or her rights and emphasized that the thirty-day period in which a shareholder must act does not begin until the merger becomes effective. Second, the court opined that “[d]ue process would dictate that the bank would provide” the notice of the merger’s effective date. In the court’s view, without knowledge of the effective date, “a shareholder would be unaware that the clock had begun to run on the time available to exercise rights.” The circuit court then proceeded to determine the manner in which a bank must notify shareholders of the merger’s effective date. Rejecting the Bank’s contention that the absence in the Financial Institutions Article of specific procedures for the manner of giving notice to objecting sharehold ⁴¹³ ers permits a bank to use any means to give such notice, the court found the answer to its question in FI § 1-201.

The court then noted that CA § 3-207(b) sets forth the manner of notice that a corporation must use to notify dissenting stockholders of the date of the event that triggers the statutory period within which such stockholders must take action to perfect their rights. 3 Applying this section by way of FI § 1-201, the lower court held: ... [T]he Plaintiff did not receive notice consistent with the Code. The requirement for notice by certified mail is designed to prevent a shareholder’s inadvertent waiver of rights. It is common sense that an individual would take special notice of a communication that required his signature upon receipt. The Court recognizes the valid interest of the State in protecting shareholders while refraining from unduly burdening business.

Adhering to the Md.Fin.Inst. Code Ann. while harmonizing the Md.Corps. and Assoc.Code Ann. when necessary achieves this purpose. By order dated 27 October 1992, the court granted the Shareholder’s motion for summary judgment, denied the Bank’s motion for summary judgment, and awarded the Shareholder $64,790.00 plus prejudgment interest from 14 June 1988 and post-judgment interest. 4 The Bank appealed on 16 November Both parties agree that the question before us is one of law and that the dispute between them is appropriate for summary judgment. We agree.

In support of its contention ⁴¹⁴ that the circuit court erred in applying CA § 3-207 to a bank merger governed generally by the Financial Institutions Article, the Bank presents several arguments. We address each one in turn. A The Bank’s first argument is simple: There is no certified mail requirement in the merger provisions of the Financial Institutions Article, §§ 3-701 to -721. In the Bank’s view, these provisions set forth a statutory scheme that is self-contained and completely separate from that found in the Corporations and Associations Article (sometimes hereinafter referred to as the Corporations Article).

As support for that assertion, the Bank refers not to the Financial Institutions Article itself, but rather to a provision of the Corporations Article. As indicated earlier, CA § l-102(d)(l) directs that when a provision relating to a specific class of corporations conflicts with a general provision of the Corporations Article, the specific provision will govern. According to the Bank, FI § 3-719, which relates specifically to bank mergers, conflicts with CA § 3-207, which is part of the general corporation law. Thus, the Bank asserts, § 3-719 governs and, because it is silent on what manner of notice a bank must use to notify shareholders, it does not require a bank to use certified mail.

The Bank also refers us to several other sections that it contends demonstrate that the merger provisions of the Corporations Article are not intended to apply automatically to bank mergers and that the bank merger laws are self-contained. For example, FI § 3-713 governs the effect of a transfer of assets, and states, “Consummation of a transfer of assets has the effects provided in § 3-115 of the Corporations and Associations Article.” The Bank posits that if the provisions of the Corporations Article automatically applied to bank mergers then § 3-713’s specific incorporation of CA 3-115 would be unnecessary. As an additional example, the Bank points to FI § 3-708(c), which states that a merger must be approved by the affirmative vote of two-thirds of the stockholders. CA § 3-105 contains the exact same requirement. ⁴¹⁵ If, the Bank inquires, the provisions of the Corporations Article “are to be construed as instant gap-fillers” in the Financial Institutions Article, why did the identical requirement need to be stated in both articles?

Although we agree with the Bank’s assertion that the bank merger provisions of the Financial Institutions Article represent the General Assembly’s separate treatment of this particular class of corporations, we disagree that these provisions are self-contained and not governed in any respect by the general corporation law. We believe, as did the circuit court, that the plain language of FI § 1-201 compels the conclusion that CA § 3-207(b) requires a bank to use personal delivery or certified mail as the manner of sending notice of the effective date of a merger to the bank’s shareholders. Both this Court and the Court of Appeals have frequently stated that the cardinal rule of statutory construction is to ascertain and effectuate legislative intent. Abramson v. Montgomery County, Md., 328 Md. 721, 736 , 616 A.2d 894 (1992); Baker, Watts & Co. v. Miles & Stockbridge, 95 Md. App. 145, 165 , 620 A.2d 356 (1993).

In this endeavor, “the key is the purpose of the legislation, determined in the light of the statute’s language and context.” Leppo v. State Highway Admin., 330 Md. 416, 422 , 624 A.2d 539 (1993). Thus, our beginning point is the plain language of the statute itself, for this language is the legislature’s final expression of its intended goal. Morris v. Prince George’s County, 319 Md. 597, 603 , 573 A.2d 1346 (1990); Yost v. Early, 87 Md.App. 364, 379 , 589 A.2d 1291 , cert. denied, 324 Md. 123 , 596 A.2d 628 (1991). If the statutory language sufficiently expresses the legislative purpose, we need look no further.

Yost, 87 Md.App. at 379-80 , 589 A.2d 1291 . The plain language of FI § 1-201 undermines the Bank’s arguments. The import of the section’s words is clear: The Maryland General Corporation Law, CA §§ 1-101 to 3-709, applies to all of a financial institution’s corporate acts unless some provision in the Financial Institution Article expressly provides otherwise. The Bank concedes that the Financial ⁴¹⁶ Institutions Article is silent regarding the manner of notice that a bank must use to notify a dissenting stockholder.

(In fact, that article, unlike the Corporations Article, see § 3-207(a), is also silent on the question of who has the duty to notify objecting stockholders of the event that triggers the statutory period for exercising their rights; however, no one, including the Bank, has disputed that a merging bank or the successor bank has that duty in the context of bank mergers.) Such silence on an issue does not equate to a conclusion that the provision expressly addresses that issue. In addition, the Bank does not dispute that a bank’s sending of notice of the effective date of a merger to dissenting shareholders is a “corporate act” by a financial institution. It follows from these premises, then, that, because the Financial Institutions Article does not expressly provide the manner of notice with which a bank must notify objecting shareholders of a merger’s effective date, one must look to the Corporations Article for the acceptable or required manner of notice. CA § 3-207(b), via FI § 1-201, offers two options: personal delivery and certified mail.

In the instant case, the Bank employed neither of those methods. B Interestingly, the Bank constructed its analysis of the present issue around CA § 1 — 102(d)(1) despite observing in its brief that this provision “mirrors” FI § 1-201. Nevertheless, whether the issue is viewed through the spectacles of FI. § 1201 or the contact lens of CA § 1 — 102(d)(1), the