Alert January 15, 2008

Federal District Court Holds That Savings and Loan Holding Company Act Does Not Provide for Private Right of Action; Dismisses Suit Brought by State-Chartered Mutual Savings Association Alleging Unlawful Takeover Tactics

The United States District Court for the District of New Jersey (the “District Court”) held that the Savings and Loan Holding Company Act, 12 U.S.C. § 1467a (the “Act”) does not contain an implied private right of action, and dismissed a complaint brought by a state-chartered mutual savings association alleging violations of the Act.  Spencer Bank, S.L.A. (the “Bank”) brought suit claiming that the defendants, Lawrence B. Seidman and his associates, unlawfully attempted to influence the Bank’s board of directors and gain a position on the Bank’s board to force a mutual to stock conversion and later sale or merger, in violation of the Act.  The Bank also alleged that the defendants engaged in an unlawful pattern of aggressive tactics to take over targeted financial institutions, and consisted of a “company” within the meaning of the Act because together they held beneficial ownership of at least ten percent of the voting shares and were one of the two largest shareholders of the targeted institutions.

After determining that the Act did not expressly provide a private right of action, the District Court explained that congressional intent was the key for determining whether there was an implied private right of action that would grant the Bank a federal right to bring suit.  The District Court first determined that while the Act did benefit mutual savings associations, it was not enacted for their “especial benefit” such that it created a federal right of action in favor of a mutual savings association.  The District Court then determined that the language of the statute and its legislative history clearly demonstrate a “singular” purpose to provide a framework for regulation of savings and loan holding companies, which framework granted enforcement powers to the OTS and provided for civil and criminal penalties “to enable the [OTS] to enforce the provisions” of the Act. 

Five banking associations submitted position papers or memoranda in support of the plaintiff’s argument for a private right of action.  The District Court also received a letter from the OTS stating that, “OTS believes strongly in the mutual form of organization and is a proponent of mutuality,” but declining to express any further opinions on the issues on the grounds that the agency was not fully informed as to the underlying facts of the case.  Spencer Bank, S.L.A. v. Seidman, Civ. No. 07-1337 (D.N.J., January 3, 2008).