After the NC Savings Institutions Division Administrator approved a mutual savings institution's plan to convert from mutual to stock form and merge into a bank holding company (and the conversions were consummated), can the Administrator now order the former directors to refund the benefits they received from the transactions and distribute those benefits to depositors?
Plain-English summary
Stephen E. Eubanks, the Administrator of NC's Savings Institutions Division (SID, within the Department of Commerce), asked the AG whether he had the authority to order directors of mutual savings institutions, which had since converted to stock form and merged into a bank holding company, to refund the "insider" benefits they received from those transactions and to distribute the refunds to the depositors. The AG's answer was no.
The legal frame. SID is an administrative agency under Chapter 54B, Article 4. It exercises quasi-judicial functions and is subject to the Administrative Procedures Act (APA) under G.S. § 150B-39(a)(3). The Administrator approves applications by mutual savings institutions to convert to stock form, after making the findings prescribed in G.S. § 54B-33(c)(1) through (9), including that the conversion is fair and equitable to the members and that no employees, members, or other persons "receive any inequitable gain or advantage by reason of the conversion." Once the Administrator approves, the conversion terms are disclosed to the members for an approve/reject vote. G.S. § 54B-53(g) gives the Savings Institution Commission (not the same as the Administrator) authority to review, approve, disapprove, or modify the Administrator's decision; in the conversions at issue, the Commission took no action, so the Administrator's approval became final agency action.
The merger/conversions were then completed. The applicants printed and distributed proxy materials, secured member approval, and consummated the transactions. The Administrator now wanted to retract approval of the directors' compensation benefits as "insider" gain.
Chief Deputy AG Andrew A. Vanore, Jr., and Assistant AG L. McNeil Chestnut said the Administrator did not have the statutory authority to do that. The general principle: "While the power of reconsideration is inherit in the power to decide, most agencies rely on an express or implied statutory grant of authority." 2 Am. Jur. 2d, Administrative Law, § 392. The AG examined Chapter 54B and Chapter 150B and found no statutory grant of authority to the Administrator (or to the Deputy Administrator under G.S. § 54B-54(a)) to revise a final agency decision. The AG also could not locate any NC decisions on point.
The opinion then surveyed the rule across other jurisdictions, drawing on the annotation at 73 A.L.R. 2d 942. The conclusion was that no general rule governs all administrative agencies in all situations, but the majority of appellate courts deny an agency the power to reconsider absent express statutory authority. The Georgia Supreme Court in Murdock v. Perkins, 219 Ga. 756, 135 S.E.2d 869 (1964), and the Illinois Court of Appeals in Board of Education v. Illinois Educational Labor Relations Board, 179 Ill. App. 3d 696 (1989), both took that majority view. The Illinois court's reasoning was crisp: an agency is a creature of statute, has only the powers conferred on it, and has no inherent authority to amend a decision it has made.
The AG also flagged the reliance interests. Even courts that allow reopening absent statutory authority typically require that the agency retain jurisdiction and act with reasonable diligence, and look to whether a party obtained a vested right or expended money in reliance on the order. Here the applicants had relied on the SID approvals to solicit member votes, consummate the transactions, and reorganize as stock companies merged into a bank holding company. Those reliance interests weighed heavily against any inherent power to revisit the decisions.
Finally, the AG raised collateral estoppel and res judicata. Administrative decisions are presumed valid; the burden of demonstrating error rests on those who seek review. "An agency is bound by its own decision or order." Once an administrative order becomes final, the administrative decision binds the parties and precludes subsequent judicial proceedings on the matters litigated. Although the SID approvals were not the product of administrative litigation in the contested-case sense, the Administrator's decisions were final, the Commission had elected not to hear the matters, and significant legal precedent supported the conclusion that the agency was estopped to revise the approvals, and that res judicata could bar an action to recover the previously approved benefits.
Bottom line: absent statutory authority and absent fraud, illegality, or failure of an applicant to disclose material information, the Administrator could not order former mutual savings institutions' officers and directors to refund benefits received in the conversion and merger.
Currency note
This opinion was issued in 1994. 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.
NC's savings institution and banking regulatory framework has been substantially reorganized since 1994 (including subsequent consolidation of bank, savings institution, and credit union supervision in the Office of the Commissioner of Banks and changes to the underlying APA). The Savings Institutions Division as a standalone unit no longer exists in its 1994 form. The general administrative-law principle that an agency cannot reopen a final decision absent express statutory authority remains a widely followed rule, but its specific application to NC savings institution conversion approvals would need to be checked against current Chapter 53C, the current APA, and any later AG opinions or court decisions.
Common questions
Q: What is a mutual-to-stock conversion?
A: A mutual savings institution is owned by its depositors (members). In a conversion, the mutual reorganizes as a stock corporation, sells stock to investors, and the proceeds become the institution's capital. Members often have priority subscription rights. The directors and officers of the converting institution typically receive stock awards, stock options, or other compensation as part of the conversion. The "insider benefits" question in this opinion is about whether those officer/director awards were reviewable after the fact.
Q: What was the Administrator worried about?
A: That the directors of the converting mutual institutions had received "inequitable gain or advantage" from the conversion within the meaning of G.S. § 54B-33(c)(3), and that this should be unwound after the fact by ordering refunds to depositors. The statute requires the Administrator to find, before approval, that no person receives inequitable gain. The question was whether the Administrator could re-make that finding after approving the conversion.
Q: Why does "final agency action" matter?
A: An administrative order is final when nothing further is left for the agency to do (2 Am. Jur. 2d, Administrative Law, § 382). Once final, the order is presumed valid; the parties to it are bound; and reopening generally requires statutory authority. The Administrator's approvals here became final when the Savings Institution Commission did not exercise its G.S. § 54B-53(g) review authority. After that, the applicants were entitled to rely on the approvals.
Q: What is the difference between the SID Administrator and the Savings Institution Commission?
A: The Administrator (and the Deputy Administrator under G.S. § 54B-54(a)) runs the agency day to day and makes the approval/denial decisions on applications. The Commission is the governing body and has review authority under G.S. § 54B-53(g): it may review, approve, disapprove, or modify the Administrator's decisions. In this case the Commission elected not to act on the conversion approvals, so the Administrator's decisions became the final agency action.
Q: What would unlock the Administrator's authority to reopen?
A: The AG identifies several scenarios. (1) An express or implied statutory grant of reopening authority. (2) Fraud, illegality, or failure of an applicant to disclose material information. (3) If the agency had retained jurisdiction over the matter and acted with reasonable diligence to reconsider. None of these conditions were present here.
Q: What is the practical effect of res judicata in administrative law?
A: Once an administrative order becomes final and binds the parties to the proceeding, the doctrine prevents a later proceeding between the same parties on the same matters that were litigated. The AG flagged that even if the Administrator had some power to revisit the approvals, the agency would face a substantial res judicata bar to an action to recover benefits the approvals had already authorized.
Background and statutory framework
NC's savings institutions law is in Chapter 54B, with the SID established in Article 4. The SID supervises state-chartered savings institutions (formerly known as building-and-loans or savings and loans), oversees applications including conversions to stock form, and acts through the Administrator under the policy direction of the Savings Institution Commission. Conversions are a particularly fraught process because they redistribute ownership from depositor-members to stockholders and typically involve significant compensation events for directors and officers.
G.S. § 54B-33 requires applications for mutual-to-stock conversion to include a plan of conversion; the Administrator must make nine specific findings before approving, including a fairness finding and the no-inequitable-gain finding. After approval, the plan goes to the members for an approve/reject vote. The Commission has secondary review authority under G.S. § 54B-53(g).
The 1994 opinion is a textbook administrative-law application of finality, reliance, and the limits of agency self-correction. The AG's analysis is grounded in two structural principles: agencies are creatures of statute with only delegated powers, and parties are entitled to rely on final orders once issued. Both principles cut against an after-the-fact unwind of a completed conversion.
Citations
- N.C. Gen. Stat. Chapter 54B, Article 4 (NC savings institutions law; SID)
- N.C. Gen. Stat. § 54B-33 (Application for mutual-to-stock conversion; required findings by the Administrator)
- N.C. Gen. Stat. § 54B-33(c)(3) (no inequitable gain or advantage to members, employees, or other persons by reason of conversion)
- N.C. Gen. Stat. § 54B-53(g) (Savings Institution Commission authority to review, approve, disapprove, or modify Administrator's decision)
- N.C. Gen. Stat. § 54B-54(a) (Deputy Administrator authority to act in absence of Administrator)
- N.C. Gen. Stat. Chapter 150B (Administrative Procedures Act)
- N.C. Gen. Stat. § 150B-39(a)(3) (SID subject to APA)
- Murdock v. Perkins, 219 Ga. 756, 135 S.E.2d 869 (1964) (absent specific authority, administrative agency cannot reverse own judicial-type decision)
- Board of Education v. Illinois Educational Labor Relations Board, 179 Ill. App. 3d 696, 128 Ill. Dec. 577, 534 N.E.2d 1022 (1989) (agency, being creature of statute, has no inherent authority to amend or change a decision)
- 2 Am. Jur. 2d, Administrative Law, §§ 380-392 (1994) (general administrative-law principles)
- 73 A.L.R. 2d 938 (annotation: power of agency to reopen final decision absent statutory authority)
Source
Original opinion text
July 11, 1994
Mr. Stephen E. Eubanks
Administrator
Savings Institutions Division
North Carolina Department of Commerce
1110 Navaho, Suite 301
Raleigh, NC 27609
Re: Advisory Opinion — Authority to Reverse Administrative Decision under Chapter 54B
Dear Mr. Eubanks:
You asked our opinion whether the Administrator or Deputy Administrator of the Savings Institution Division (SID) has the authority to order directors of mutual savings institutions, which have since converted to stock organizations and merged into a bank holding company, to refund the benefits they received from these transactions and to distribute those benefits to the depositors. For the reasons set forth below, we are of the opinion that North Carolina statutory law does not provide such authority.
DISCUSSION OF THE LEGAL ISSUE
The legal issue is whether an administrative agency, in the absence of a specific statutory grant of authority, and in the absence of fraud, illegality or failure by a party to disclose material information, has the power to rehear, reopen, and reconsider a matter previously determined by a final decision.
A. Savings Institution Division Administrative Action
The SID, under Chapter 54B, Article 4 of the North Carolina General Statutes, is clearly an administrative agency which, through its officers, the Administrator and Deputy Administrator, and its governing body, the Savings Institution Commission ("Commission"), administers the North Carolina savings institutions laws and supervises those institutions which operate under such laws. It exercises quasi-judicial functions and, pursuant to N. C. Gen. Stat. § 150B-39(a)(3), is subject to the Administrative Procedures Act ("APA"), Chapter 150B of the General Statutes.
Before a savings institution may convert from a mutual to a stock form of organization, N. C. Gen. Stat. § 54B-33 requires the mutual to apply to the Administrator for authority to do so. As part of the application process, the mutual must submit a plan of conversion. The Administrator may approve the application, with or without amendment, after making certain findings prescribed at subsections (c)(1) through (9). These requirements include, among other things, a finding that the conversion is fair and equitable to the members and that neither employees, members or any other persons "… receive any inequitable gain or advantage by reason of the conversion." N. C. Gen. Stat. § 54B-33(c)(3). If the plan of conversion is approved by the Administrator, the terms of the proposed conversion must be fully disclosed to the members who then have a right to approve or reject the transaction.
It is our understanding that the merger/conversions to which you refer were each approved by the Administrator and, although pursuant to N.C. Gen. Stat. § 54B-53(g), the Commission had the authority to review, approve, disapprove, or modify the decision by the Administrator, it took no action on these matters. The Administrator's decision, therefore, became final agency action. Generally, "… to be final, an administrative order must leave nothing further for the agency to do." 2 Am. Jur. 2d, Administrative Law, §382 (1994).
Finally, we also understand that the applicants, in reliance on the Administrator's decision, solicited and obtained the approval of the respective memberships and thereafter consummated the transactions.
The question you now ask is whether you may in effect reverse that part of the approval which included the payment of certain benefits to officers and directors — those to whom you refer as insiders.
B. Power to Reverse Administrative Orders
It has been said that so long as an agency retains jurisdiction over a controversy, it may reverse its orders. "While the power of reconsideration is inherit in the power to decide, most agencies rely on an express or implied statutory grant of authority." Id. at §392. We examined both Chapters 54B and Chapter 150B and did not find any statutory authority which gives the Administrator (or the Deputy Administrator, who may, pursuant to N. C. Gen. Stat. § 54B-54(a), act in the absence of the Administrator) the power to revise an otherwise final agency decision. Also, we were unable to locate any North Carolina decisions on this point of law.
This question was, however, the subject of a discussion in the American Law Reports. See, E. H. Scholper, Annotation, Power of Administrative Agency to Reopen and Reconsider Final Decision as Affected by Lack of Statutory Authority, 73 A.L.R. 2d (1960). The commentators concede that "[i]t is not possible to state a general rule governing all administrative agencies in all situations…" with respect to their power, absent an express statutory authority, to reconsider or modify their own final decision. 73 A.L.R. 2d at p. 942. A few courts have taken the view that an agency exercises functions of a judicial nature and, like a court of general jurisdiction, has the inherent power to grant a rehearing or otherwise reconsider a previous decision. On the other hand, the majority of appellate courts addressing this issue deny such power absent an express statutory grant of authority.
In Murdock v. Perkins, 219 Ga. 756, 135 S.E.2d 869 (1964), the Georgia Supreme Court ruled that in the absence of specific authority, an administrative agency, once having made a judicial determination, has no lawful authority to reverse that decision. 135 S.E.2d at 874, citing 73 A.L.R. 2d 938 at 944. The Court concluded that without such a limitation, the power could be invoked at any time after the original decision had been made and as many times as an agency wished and that there would be no end to litigation. See also, 73 A.L.R. 2d at 943.
This same conclusion has been reached as recently as 1989 by the Illinois Court of Appeals which determined that "[a]n agency being a creation of statute, has only those powers specifically conferred upon it [and that] … [i]t has no inherent authority to amend or change a decision it has made. Board of Education v. Illinois Educational Labor Relations Board, 179 Ill. App.3d 696, 128 Ill.Dec. 577, 534 N.E.2d 1022 at 1026 (1989). Also in recent years, many other states have adopted or recited the rule that an administrative agency does not have the inherent or implied power to reopen or reconsider its final decisions. See, 73 A.L.R. 2d at §3 (Later Case Service 1986 & Supp. 1994).
Finally, when determining the power of an agency to revisit an administrative decision in the absence of a specific grant of authority, courts will consider not only the function of the agency and the necessity of its continuing jurisdiction, they will look to see if by an administrative order a party obtained a vested right, expended money or changed its position in reliance on the order. 73 A.L.R. 2d at 952. From the facts known to us, it is clear that in reliance on the Administrator's approval decisions, the applicants proceeded to print and distribute proxy materials, and, following approval by the required vote of the respective memberships, consummated the transactions. In our view, these factors weigh heavily against the power to revise these final decisions in the absence of a statutory grant of authority.
C. Collateral Attacks
Absent evidence to the contrary, administrative decisions or orders are presumed valid and correct. Those who seek to have them reviewed bear the burden of demonstrating the error. Also as a general rule, "[a]n agency is bound by its own decision or order." 2 Am. Jur. 2d, Administrative Law, §380 (1994). See also, Board of Education v. Illinois Educational Labor Relations Board, supra.
The common law doctrines of collateral estoppel and res judicata may, in certain instances, apply to final agency action. "[O]nce an administrative order becomes final, the administrative decision of an adjudicatory character binds the parties to the proceeding and is res judicata, thereby precluding a subsequent judicial proceeding between the same parties regarding the matters litigated in the administrative actions." Id. at §381.
Although the decisions of the Administrator were not the result of administrative litigation, nevertheless, final agency decisions were made and the Commission elected not to hear those matters. As a general rule, the agency is bound by those decisions and there is significant legal precedent that the agency would be estopped to now revise or revisit those orders. Also, there is the potential that res judicata would bar an action to recover benefits previously approved.
CONCLUSION
The SID possesses substantial regulatory supervision over savings institutions doing business under Chapter 54B, and, during the various merger/conversion application proceedings it retained continuing jurisdiction over those matters. We are of the opinion, however, that when the final agency decisions were reached and the transactions were thereafter consummated, jurisdiction was exhausted, absent a specific grant of statutory authority to the contrary. Neither Chapters 54B or 150B provides for such authority.
Even in those instances where courts have allowed an agency to revisit a previous decision, absent a grant of authority to do so, the courts concluded that (i) the agency must have retained jurisdiction over the matter and (ii) must have acted with reasonable diligence to reconsider. As we have indicated above, in our view, jurisdiction has been exhausted and it appears that an extended period of time has passed before the question of officers and directors benefits was raised. More importantly, it can be said that the applicants obtained the right to proceed and, acting in reliance on this right, proceeded to consummate the transactions.
Finally, there is a substantial argument that the agency is bound by its decisions and would be estopped to now revise those decisions or could be barred, under res judicata, from maintaining an action to recover benefits it approved.
Based on the foregoing, we are of the opinion that you do not have the statutory authority to require former mutual savings institutions officers and directors to refund benefits received as the result of a conversion and merger of the institution. In the absence of this authority and any allegations of fraud, illegality or failure of the applicant to disclose material information, it is also our opinion that you would encounter significant legal precedent against the power to revisit the decisions previously reached by the SID Administrator.
We trust that this adequately addresses your questions to us. Please let us know if we may be of further assistance.
Andrew A. Vanore, Jr.
Chief Deputy Attorney General
L. McNeil Chestnut
Assistant Attorney General