The Shareholders of a One-Bank Holding Company Are Entitled to Inspect the Corporate Minutes of the Bank
 
December 22, 2004
 
Michael Weissman - Chicago

A sharply divided court held that Jared, Nathan and Samuel Danziger, shareholders of Croghan Bancshares, Inc., were entitled to inspect the corporate minutes of Croghan-Colonial Bank, the only bank owned by Croghan Bancshares, Inc. See, Danziger v. Luse, 103 Ohio St.3d 337, 815 N.E.2d 658 (2004).

The facts were not disputed. The holding company owned all of the stock of the bank and had no other assets. The holding company and the bank had the same officers and directors and held shareholders’ meetings on the same day at the same place. All of the holding company’s income was from dividends paid by the bank.

After asking to review the bank’s minutes and being rebuffed, the Danzigers filed suit. The Court first reviewed Ohio statutory law which only gave shareholders of the bank the right to inspect the bank’s books and records. The Court concluded that the Danzigers did not have a statutory right to review the minutes of the bank as they were not shareholders of the bank. But, said the majority, that was not the end of the matter. There was the matter of the common law right of inspection. This case presented an issue of first impression in Ohio.

Applying common law, the Court said that inspection should be granted when the separate corporate existence of the subsidiary should be disregarded, citing cases from Michigan, Pennsylvania and Delaware. It went on to say that the right of inspection has taken on greater importance in view of “high-profile corporate scandals involving financial misdeeds” and mentioned Enron and WorldCom. The Court also observed that: “The common law right to inspect gives shareholders additional opportunities to ferret out misdeeds and contributes to corporate transparency.”

Finding the undisputed facts as cited above, the Court said there was a basis to conclude that the holding company so controlled and dominated the bank that the separate corporate existence of the bank should be disregarded and inspection permitted.

A vigorous dissent was published arguing that the facts did not support the conclusion that the holding company was the alter ego of the bank and that only under such circumstances should the corporate existence of the bank be disregarded. The minority opinion asserted that there was no evidence the holding company ran the day-to-day operations of the bank or that it treated the bank as a mere division. The only evidence, said the minority, was “the existence of a parent-subsidiary relationship which necessarily entails some supervision of the subsidiary by the parent.”

What’s the point? Although there is a split of authority, the majority view is that the shareholders of a bank holding company have a common law right to review the books and records of a subsidiary bank where the facts warrant the disregard of the separate corporate existence of the bank due to the holding company’s domination and control.

For more information e-mail Michael L. Weissman at michael.weissman@hklaw.com or call toll free, 1-888-688-8500.