Eighth Circuit Court Sides with Mutual Institutions in M&A Lawsuit

The Eighth Circuit this week delivered a win to mutual institutions when it dismissed a Missouri case in which two mutual thrift depositors claimed that they were entitled to a distribution of their thrift’s capital at the time the bank merged into another institution. The case was previously dismissed by a lower court.

The dispute arose when Inter-State Federal Savings and Loan Association in Kansas City, Mo., merged with First Federal Bank of Kansas City, another mutual thrift. Two Inter-State depositors filed a lawsuit arguing that their “ownership interest” in the bank’s $25 million surplus was “significantly diluted” by the merger. The American Bankers Association and the Missouri Bankers Association previously filed a friend-of-the-court brief supporting First Federal, emphasizing that the lawsuit stretches the imagination of depositor activism to the point where mutual banks would be starved of capital and, as a result, could not operate in a safe and sound manner.

Relying on long-standing precedent defining the rights of federal mutual savings associations, the Eighth Circuit concluded that the lower court properly dismissed the case. The depositors did not have an ownership interest in the surplus because Inter-State’s charter was not unique, the court said.

The Eighth Circuit also concurred with a friend-of-the court brief previously submitted by the OCC—which rarely intervenes in court cases involving banks. The OCC argued that the plaintiffs misstated the law applicable to federal mutual banks and explained that under judicial authorities and OCC interpretations, mutual bank depositors have no individualized equity interest in the bank’s retained earnings and that the depositors were not entitled to a vote as a condition of the merger.

“The court’s decision is a victory for all mutual institutions ensuring we can continue to operate in a safe and sound manner serving the best interest of our customers and the communities we serve,” said J.R. Buckner, First Federal’s President & CEO.