Merritt Savings & Loan, Inc. v. Board of Building, Savings & Loan Ass'n Commissioners

Lowe, J., delivered the opinion of the Court. “The savings and loan business ... has so expanded in recent years and has become so integrated with the financial institutions of this State and is so important as a method of promoting home ownership and thrift, that such business is affected with a public interest and shall be supervised as a business affecting the economic security and general welfare of the people of this State;”. Md. Code, Art. 23, § 161 A (a). “The Director shall have general supervision over all associations which are subject to the provisions of this article.. . .” Md. Code, Art. 23, § 161 G (c). As prologue we note the distinction between mutual savings and loan associations and stock savings and loan associations. In mutual associations there is but one class of shareholder known as free shareholders (depositors) who receive equal dividends and, along with borrowing members, elect the directors.

In contrast, a stock association has, in addition to free shareholders, a class of guaranty stock which constitutes a secondary reserve assessable against the holder. Dividends may not be paid to holders of guaranty stock unless they have been paid on free share accounts and may not be withdrawn until all liabilities have been satisfied and free share accounts paid out. Md. Code, Art. 23, § 161 P (c). The quid pro quo for holders of guaranty stock, however, is their exclusive authority to elect the directors and thus control the association.

The case at bar involves Merritt Savings & Loan, Inc., a stock association. Md. Code, Art. 23, § 161 P (e) authorizes a stock association to issue additional guarantee stock provided “that any such issue shall be made in accordance with a plan which shall have been filed with and approved by the Director.” [Emphasis added]. Assuming compliance with subsection (d) of § 161 P which is not questioned here, the sole criterion of determination prerequisite to approval by the Director is that “the plan is fair.” The relevant phraseology reads: “The Director shall approve any such plan filed with him if he finds that.. . the plan is fair.” ⁶⁹⁶ The question before us narrows itself to an interpretation of that test. The Facts Merritt Savings and Loan, Inc. filed a plan for offering additional stock in proportion to its guaranty stockholders on a preemptive basis although preemptive rights were not provided for in the charter.

After Merritt had conformed to all procedural prerequisites, the Director by letter denied the request to issue additional shares. The essence of the denial was: “Since the prime purpose of issuing additional shares of Guaranty Stock is to raise operating capital and enhance the earnings capacity of an association, and the proposal submitted will not accomplish these objectives, permission to issue the additional shares is denied.” The Board of Building, Savings and Loan Commissioners upheld the Director and Merritt appealed to the Circuit Court of Baltimore City. Judge James W. Murphy heard the appeal and properly agreed that the procedure of determination should include “not only the new evidence presented to [the Circuit Court] but also the contents of the record before the Board.” County Fed. S & L Assoc. v. Equitable S & L Assoc., Inc., 261 Md. 246, 258 . In a written opinion reviewing all of the evidence before him Judge Murphy concluded: “The Court finds that both the Director and the Board have acted within the proper bounds of discretion and have not acted unreasonably, arbitrarily nor capriciously.

The Court further finds that the criteria applied by the Director and affirmed by the Board are fair, proper, and within the parameters of the legislative intent as well as being within the authority of statute and the general laws of Maryland insofar as the promulgation of rules and criteria are concerned.” ⁶⁹⁷ It is from the order signed pursuant to that opinion that appellant appeals to us. Merritt argues the appeal to the Circuit Court of Baltimore City was governed by the Administrative Procedure Act, Md. Code, Art. 41, primarily § 255 (g), and that the basis of the Director’s disapproval was not in accordance with the statutory criterion of whether the issue was “fair.” Scope of the