First American Bankshares Inc. of Washington, one of the region's largest financial institutions, yesterday asked the Supreme Court to overturn lower court decisions requiring the bank to pay $13 million to shareholders who claim they were underpaid when the bank bought out the investors' shares.
A federal court jury in Alexandria had ruled earlier that the shareholders of First American Bank of Virginia, who were paid $42 a share for their stock, should have received $60 a share from First American Bankshares, the holding company. The verdict was later upheld by the federal appeals court in Richmond.
A key issue in the hearing was whether allegedly misleading statements in a proxy statement can be the basis for claims that federal securities laws were violated.
The shareholders claimed that the directors of First American Bank of Virginia were less interested in getting a good price for shareholders than in "retaining their seats on the board" and that a so-called "independent" appraisal of the value of the stock was not truly an independent one. When First American decided to buy out the minority shareholders of the First American Bank of Virginia, it already owned 85 percent of the stock.
First American attorney Stephen M. Shapiro of Mayer, Brown & Platt of Chicago, told the justices that if the lower court rulings were permitted to stand, it would open "a Pandora's box" of shareholder suits and bring "an outpouring of vexatious litigation" to the federal courts.
The shareholders were represented by attorney Joseph M. Hassett of Hogan & Hartson of Washington, who argued that the bank's proxy statement that described the buyout was misleading and thus violated securities laws.
In his presentation, Shapiro said that because the bank already had enough votes to approve the buyout it did not really need to ask for approval from minority shareholders, making the contents of the proxy statement moot. Nevertheless, the bank had sent a proxy statement to shareholders, asking for their approval at a stockholders' meeting. Hassett claimed that the proxy was required for a variety of reasons.
The lively one-hour hearing on the issues in the First American dispute marked the first case to be heard by newly installed Justice David Souter, who listened carefully to the arguments but remained silent throughout the discussion.
Among those present was Doris I. Sandberg of Roslyn Heights, N.Y., whose objections to the buyout helped spark the three-year struggle.