Could Connecticut banks and credit unions limit director liability under Public Act 89-322?

Plain-English summary

Connecticut's Commissioner of Banking asked whether a 1989 law permitting certain corporations to limit their directors' personal monetary liability also applied to banks and credit unions. The Attorney General concluded that it did not apply to banking institutions or credit unions organized or regulated under the state's Banking Law.

The act amended certificate-of-incorporation provisions for stock corporations formed under chapter 599 and nonstock corporations formed under chapter 600. State-chartered banking institutions were formed under separate banking statutes, so they fell outside those amendments. Credit unions presented a harder question because they were organized under nonstock corporation law. The opinion nevertheless concluded that their specific Banking Law duties prevailed over the general corporate amendment.

The opinion relied on Conn. Gen. Stat. e 36-9, which made board members and officers of institutions subject to banking law liable for losses caused by violations of that law. Reading the corporate act to permit a credit union to limit that liability would conflict with the specific banking provision. The Attorney General read the statutes together by leaving the corporate act in place for its general subjects while applying the specific banking rule to credit unions.

Currency note

This opinion was issued in 1990. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

For state-chartered banking institutions: The opinion said the director-liability amendment to general corporate law did not cover institutions formed under separate banking statutes. It identified the Banking Law as the source of their directors' liability.

For credit unions: Though organized under nonstock corporation law, they were subject to the specific banking provision imposing liability for losses resulting from banking-law violations. The general corporate amendment could not displace that rule.

For banking regulators: The opinion gave separate reasons for the same answer: the act's limited organizational scope for banks and the priority of a specific liability rule for credit unions.

Common questions

Did the 1989 corporate law let Connecticut banks limit director liability?

The Attorney General said no for state-chartered banking institutions. The relevant amendments applied to corporations formed under chapters 599 and 600, whereas these institutions were formed under banking statutes.

Why did credit unions get the same answer if they were nonstock corporations?

The opinion said the Banking Law's specific liability rule governed credit unions. The corporate amendment was more general and could be read alongside that banking rule without replacing it.

What liability did the opinion identify for banking officers and directors?

It quoted the Banking Law as making an officer or governing-board member liable to the institution for losses resulting from a violation of that law. The opinion did not decide liability in a particular case.

Did the opinion address national banks?

A footnote said the act did not apply to national banks either, citing federal law on director liability. The Commissioner's main question concerned institutions organized under Connecticut law.

Background and statutory framework

The 1989 act amended Conn. Gen. Stat. e 33-290 for stock corporations and Conn. Gen. Stat. e 33-427 for nonstock corporations, allowing qualifying corporations to include a director-liability limit in their certificates of incorporation. Another section addressed mutual insurance companies. The opinion emphasized that those amendments referred to corporations formed under the relevant general-corporation chapters.

Credit unions were organized under the nonstock corporation chapter, but Conn. Gen. Stat. e 36-l96(a) made that law subordinate where it conflicted with the credit-union chapter. The opinion read the Banking Law's specific liability command in Conn. Gen. Stat. e 36-9 as controlling. This avoided an implied repeal of the existing banking rule.

Citations and references

The opinion discusses Conn. Gen. Stat. e 33-290, e 33-427, e 36-9, and e 36-l96(a), as the official HTML renders them. It invokes State v. Ellis, l97 Conn. 436, 445, 497 A.2d 974 (l985), on statutory text and Norwalk v. Daniele, l43 Conn. 85, 87, ll9 A.2d 732 (l955), on reading new legislation with existing law. The original text below preserves the source's apparent numeral-one rendering errors.

Source

• Landing page: https://portal.ct.gov/AG/Opinions
• Opinion page: https://portal.ct.gov/ag/opinions/1990-formal-opinions/hon-howard-b-brown-commissioner-of-banking-1990004-formal-opinion-attorney-general-of-connecticut

Original opinion text

Hon. Howard B. Brown, Commissioner of Banking, 1990-004 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

January 20, 1990

Hon. Howard B. Brown

Commissioner of Banking

44 Capitol Avenue

Hartford, CT 06l06

Dear Commissioner Brown:

You have asked us whether l989 Conn. Pub. Acts No. 89-322, "An Act Concerning Liability of Corporate Directors" (hereinafter referred to as the "Act"), applies to banking institutions and credit unions organized under Title 36 of the General Statutes, "The Banking Law of Connecticut." It is our opinion based upon the analysis which follows that the Act does not apply to banking institutions and credit unions organized under Title 36 of the General Statutes.

The Act is composed of three sections. The first section, which amends Conn. Gen. Stat. e 33-290, addresses the provisions, both mandatory and discretionary, of a certificate of incorporation of a stock corporation formed under chapter 599 of the General Statutes. The second section, which amends Conn. Gen. Stat. e 33-427, addresses the provisions, both mandatory and discretionary, of a nonstock corporation formed under chapter 600 of the General Statutes. Both of these sections permit such corporations to limit the personal liability of a director for monetary damages for breach of his duty as a director. Such liability may not be limited to an amount less than the compensation received by such director in the year in which the breach occurred. Such limitation on liability may be accomplished through adoption of an appropriate provision in the corporation's certificate of incorporation. The third section of the Act is a new provision which permits the imposition of a similar limitation on personal liability of directors of mutual insurance companies.1

Your agency regulates various financial institutions which are organized, not under chapters 599 or 600, but under specific provisions of the Banking Law of Connectcut, e.g., state banks and trust companies (section 36-53); capital stock savings banks (section 36-142l); and capital stock savings and loan associations (section 36-193j). You also regulate credit unions which are organized under chapter 600. See Conn. Gen. Stat. e 36-l96(a).

I

Banking Institutions

"The purpose of statutory construction is to ascertain the intent of the legislature." State v. Ellis, l97 Conn. 436, 445, 497 A.2d 974 (l985). The intent of the legislature is expressed in the language it uses so the proper place to begin in construing a statute is with the language of the statute itself. Id. at 445; Baston v. Ricci, 174 Conn. 522, 528, 391 A.2d 161 (1978).

As stated above, section l of the Act amends section 33-290. Subsection (a) of section 33-290 sets forth the scope of the entire statute and states: "(a) The certificate of incorporation of a corporation formed under this chapter shall set forth: . . ." (Emphasis added). Section 33-290 is within chapter 599 (Stock Corporations). Likewise, section 2 of the Act amends section 33-427. Subsection (a) of section 33-427 sets forth the scope of the entire statute and states: "(a) The certificate of incorporation of a corporation formed under this chapter shall set forth: . . ." (Emphasis added). Section 33-427 is within chapter 600 (Nonstock Corporations).

With the exception of section 3 concerning mutual insurance companies which are irrelevant to your question, it is clear that the Act is applicable only to stock and non-stock corporations formed under chapters 599 and 600, respectively, of the General Statutes. The Act, therefore, does not apply to state-chartered banking institutions because they are not formed under those chapters of the General Statutes.2 Liability of directors of state chartered banking institutions is controlled by Conn. Gen. Stat. e 36-9.

II

Credit Unions

Credit unions are regulated by the Commissioner of Banking under chapter 646, Conn. Gen. Stat. ee 36-l94 to 36-224, inclusive.

A credit union shall be organized under and subject to the provisions of the laws of this state governing corporations without capital stock [chapter 600 of the General Statutes] provided in the event of any conflict between the provisions of those laws and this chapter the provisions of this chapter shall control.

Conn. Gen. Stat. e 36-l96(a).

It is a fundamental rule of statutory construction that "the legislature is presumed to know the prevailing law and enacts a statute with the existing relevant legislation in mind, intending the statute enacted to be interpreted in the light of pertinent legislation already in being." Norwalk v. Daniele, l43 Conn. 85, 87, ll9 A.2d 732 (l955).

At the time that the Act was enacted, Conn. Gen. Stat. e 36-9 was in effect. Section 36-9, which is contained in the Banking Law of Connecticut, provides that "[a]ny person who, being a member of the governing board or an officer of an institution subject to the banking law, violates or assents to a violation thereof shall be liable to the institution concerned for any loss resulting therefrom." Unlike the Act, section 36-9 specifically applies to institutions subject to the banking law, including credit unions,3 and explicitly makes board members and officers of such institutions civilly liable for violations of the banking laws, without any exceptions or qualifications. Moreover, the phrase "shall be liable" indicates that the requirement of liability is mandatory rather than permissive. Hossan v. Hudiakoff, l78 Conn. 38l, 383, 423 A.2d l08 (l979). Thus, an officer or director who fails to carry out his responsibilities in accordance with state banking law is subject to civil liability under section 36-9 "for any loss resulting therefrom."

If section 2 of the Act were interpreted broadly to permit any nonstock corporation to limit the liability of its officers and directors, then it would conflict with the specific language of section 36-9 as it pertains to credit unions. Conflicting statutes must be constured so as to give effect to both. State v. Murtha, l79 Conn. 463, 427 A.2d 807 (l980). Any construction of the Act which would effectively repeal section 36-9 by implication would not be favored because the conflict between the two laws can be reconciled with both given concurrent operation. Waterbury Teachers Assn. v. Furlong, l62 Conn. 390, 404-05, 249 A.2d 546 (l972). It is a well-settled principle of statutory construction that "specific terms covering the given subject matter will prevail over general language of the same or another statute which might otherwise prove controlling." Charlton Press, Inc. v. Sullivan, l53 Conn. l03, ll0, 2l4 A.2d 354 (l965). Thus, given the specific language of section 36-9, we conclude that it must prevail over the more general language of the Act with respect to credit unions. This conclusion resolves any possible conflict while giving effect to both statutes.

In summary, we think it clear that Public Act 89-322 does not apply to either banking institutions organized under the Banking Law of Connecticut or credit unions regulated under the Banking Law.

Very truly yours,

CLARINE NARDI RIDDLE

ATTORNEY GENERAL

William J. Prensky

Assistant Attorney General

CNR/WJP/bjg

1 Mutual insurance companies include insurance companies without capital stock. See Conn. Gen. Stat. e 38-l(e). The formation, under chapter 600, of a nonstock corporation which transacts, or shall have power to transact, in this state the business of an insurance company or a surety or indemnity company is prohibited. Conn. Gen. Stat. e 33-423(b). Thus, a mutual insurance company cannot be organized under either chapter 599 (stock corporations) or chapter 600 (nonstock corporations). Therefore, mutual insurance companies had to be addressed separately in the Act. Also Conn. Gen. Stat. e 33-286(c) authorizes the formation of corporations whose purpose it is to transact the business of an insurance company, surety or indemnity company under chapter 599 as long as such corporation "is an affiliate of an insurance company chartered by, incorporated, organized or constituted within or under the laws of this state" and as long as "there is also filed a certificate issued by the insurance commissioner pursuant to section 33-286a authorizing the formation of the corporation." Insurance companies formed in this state by any special charter are governed by Part XI, Specially Chartered Corporations, of Chapter 599 and thus considered stock corporations.

2 While the issue was not raised in your question, it is equally clear that the Act does not apply to national banks. See e.g. section 93 of the National Bank Act, l2 U.S.C. e 93, regarding the liability of directors.

3 See Conn. Gen. Stat. e 36-1.