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Chase v. First Federal Bank of Kansas City

United States District Court, W.D. Missouri, Western Division

March 12, 2018

STEVEN CHASE and SHAWN PENNER, individually and on behalf of others similarly situated, Plaintiffs,



         Plaintiffs Steven Chase and Shawn Penner were two member-depositors of Inter-State Federal Savings & Loan Association of Kansas City ("Liter-State"), a mutual savings association chartered under federal law. In 2015, Inter-State's Board of Directors approved a merger with another federal mutual savings association, First Federal Bank of Kansas City ("First Federal"). Plaintiffs have brought a putative class action suit against First Federal and five of Liter-State's former directors. The First Amended Complaint ("the Complaint") (Doc. 6) alleges the directors breached their fiduciary duties to Inter-State's member-depositors by not distributing Inter-State's accumulated capital and earnings, and by approving the merger. It also claims First Federal unjustly enriched itself in the merger.

         Now before the Court is Defendants' Motion to Dismiss First Amended Class Action Complaint (Doc. 21). Holding that the Complaint rests on a faulty legal premise, namely, that the member-depositors had fiduciary rights in Inter-State comparable to those of shareholders in a stock bank, Defendants' motion is GRANTED.

         Standard of Review

         A complaint may be dismissed if it fails "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). To avoid dismissal, a complaint must include "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Plaintiff need not demonstrate the claim is probable, only that it is more than just possible. Id.

         In reviewing the complaint, the court construes it liberally and draws all reasonable inferences from the facts in the Plaintiffs favor. Monson v. Drug Enforcement Admin., 589 F.3d 952, 961 (8th Cir. 2009). The court generally ignores materials outside the pleadings but may consider materials that are part of the public record or materials that are necessarily embraced by the pleadings. Miller v. Toxicology Lab. Inc., 688 F.3d 928, 931 (8th Cir. 2012).


         Inter-State is a federal mutual savings association which has served the Kansas City, Missouri, market since 1939. Plaintiffs Steven Chase and Shawn Penner were member-depositors of Inter-State at the time it merged with First Federal. Defendants are First Federal and five former directors of Inter-State: Richard T. Merker, Helen Skradski, Benjamin J. Fries, William W. Hutton, and James R Jarrett. With the exception of Mr. Jarrett, all of the former directors named as defendants are now directors of First Federal.

         In April 2015, Inter-State's board approved the merger into First Federal. Mr. Chase objected to the merger and expressed his concerns to Inter-State's board in May 2015. He argued the merger was inequitable because of an alleged $25 million "capital disparity" between the two institutions. He believed Inter-State was overcapitalized by $25 million, and he sought a distribution of that "excess capital" to Inter-State's then-current depositors. Inter-State's board considered Mr. Chase's position and rejected it.

         After receiving merger approval from the primary regulator of both institutions, the Office of the Comptroller of the Currency ("OCC"), Inter-State and First Federal completed their merger in March of 2016.

         Inter-State's Charter

         Section 10 of Inter-State's charter ("the Charter") speaks to two types of potential distributions to members: (1) periodic "net earnings" and (2) "surplus funds." In relevant part, Section 10 of the Charter (titled "Reserves, surplus, and distribution of earnings"), states:

As of June 30 and December 31 of each year, after payment or provision for payment of all expenses, credits to general reserves and such credits to surplus as the board of directors may determine, and provision for bonus on savings accounts as authorized by regulations made by the Federal Home Loan Bank Board, the board of directors of the association shall cause the remainder of the net earnings of the association for the 6 months' period to be distributed promptly on its savings accounts, ratably, as declared by the board of directors, to the withdrawal value thereof; in lieu of or in addition to such net earnings, any of the association's surplus funds may be likewise distributed. . . . Notwithstanding any other provision of its charter, the association may distribute net earnings on its savings accounts on such other basis and in accordance with such other terms and conditions as may from time to time be authorized by regulations made by the Federal Home Loan Bank Board. All holders of savings accounts of the association shall be entitled to equal distribution of assets, pro rata to the value of their savings accounts, in the event of voluntary or involuntary liquidation, dissolution, or winding up of the association.

Doc. 22-2 at 3-4 (emphasis added).[1]

         Section 11 states: "No amendment, addition, alteration, change, or repeal of this charter shall be made" unless made by the board and approved by the Federal Home Loan Bank Board and the members. Id. at 4.

         The Complaint asserts three claims. Count I alleges the former directors breached their fiduciary duties to the members in numerous ways, including by:

(a) failing to ratably distribute excess capital and earnings, as required by the Charter;
(b) failing to call for a member vote on the Inter-State-First Federal merger;
(c) failing to properly notify Plaintiffs and the Class of the merger's terms and consequences;
(d) failing to make capital distributions in advance of the merger and the dilution members would suffer because of the known ...

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