Convening the Initial Meeting of Board of Directors of the NationalConsumer Cooperative Bank Before the President Has Appointed All Members

July 31, 1979

79-56 MEMORANDUM OPINION FOR THE COUNSEL TO THE PRESIDENT

(1) Federally Chartered Corporations—National Consumer Cooperative Bank—Board of Directors (2) Recess Appointments

This responds to your memorandum concerning the National Consumer Cooperative Bank (the Bank). The Bank has been “ created and chartered [as] a body corporate * * * as an instrumentality o f the United States, and until otherwise provided, shall be a mixed ownership Government cor­ poration.” Act o f August 20, 1978. § 101, 92 Stat. 499. I have been ad­ vised that it is important for budgetary reasons that the Bank be opera­ tional by early August. This would involve the convening o f the Board of Directors by that time. Under § 103(a) o f the Act, 92 Stat. 502, the Board consists o f 13 mem­ bers who for the time being are to be appointed by the President by and with the advice and consent o f the Senate. Seven members are to be ap­ pointed from the Senate. Seven members are to be appointed from among officers o f agencies and departm ents o f the Government o f the United States, and six from the general public. The President has nominated 11 directors, 5 o f whom are Government officials and 6 who represent the general public. It is likely that those directors will be confirmed prior to the August recess o f the Senate. It is, however, possible that the remaining two Government officials will not be nominated until the end o f July, too late to be confirmed prior to the recess. The question is whether the initial meeting o f the Board may be con­ vened before all its members have been appointed. In my view, the Board can be so convened. The statutory language (§ 101) provides: “ [tjhere is hereby created and chartered a body corporate * * * Congress thus intended the corporation to come into existence immediately. Under the

common law rule a quorum consisting o f a majority may act for a collec­ tive body in the absence o f a statutory provision to the contrary.1 Federal regulatory agencies frequently operate with vacancies in their membership as long as a quorum is present. Congress is fully aware o f that practice, which has been approved by the Supreme C o u rt,2 and it did not indicate that a different rule should apply to the first meeting o f the Bank’s Board o f Directors. We therefore are o f the opinion that a Board meeting can be held if a quorum o f at least seven directors is present, even if all o f the statutory num ber o f directors have not been appointed. We are aware o f the m em orandum o f the Deputy General Counsel of the Community Services Adm inistration, which concludes that the Board cannot act before all o f the 13 statutory members have been appointed. In our view, however, the authorities cited for that proposition are not ap­ plicable here. These authorities are fairly old State cases relating to boards and com­ missions o f a governmental nature. The Bank, however, although an instrumentality o f the United States, would operate in the main like a private corporation. Two o f the cases, Williamsburg v. Lord, 51 Me. 599 (1863), and Colman v. Shattuck, 62 N.Y. 348 (1875), as well as Schenck v. Peay, 21 F. Cas. 607 (C .C .E.D . A rk. 1868) (No. 12450), the only pertinent Federal case o f which we are aware, deal with tax sales o f real property where the courts traditionally are hypercritical. As Judge Miller stated in Schenck: Nothing is better settled in the law o f the country than that pro­ ceedings in pais for the purpose o f divesting one person o f title to real estate, and conferring it on another, must be shown to have been in exact pursuance o f the statute authorizing them, and that no presumption will be indulged in favor o f their correctness. This principle has been more frequently applied to tax titles than to any other class o f cases. The other two cases cited in the m em orandum, People ex rel. Hoffman v. Hecht, 105 Cal. 621 (1895), and First National Bank v. Mt. Tabor, 52 Vt. 87 (1879), in fact repudiate the ancient and technical common law rule on which the memorandum relies. We have not been able to discover any recent applicable cases. In a closely related situation, namely, the increase in the num ber o f the members o f a board o f directors o f a corporation, it has been held that the quorum o f the board is to be determined on the basis o f the old board until the new members are actually elected, thus implying that a board is capable o f transacting business before it has been brought up to its new membership. Robertson v. Hartman, 6 Cal. 2d 408, 57 P .2d 1310 (1936); Rocket Mining Co. v. Gill, 25 Utah 2d 434, 483 P .2d 897 (1971).

1Federal Trade Commission v. Flotill Products , 389 U .S. 179 183 (1967); 2 Fletcher, Cyclopedia o f the Law o f Private Corporations, §§ 419, 421; 4 McQuillan, The Law o f Municipal Corporations, § 13.30. ’See, Federal Trade Commission v. Flotill Products, supra.

The final argument o f the Deputy General Counsel is that the Presiden­ tial or Federal control envisaged by Congress would be lacking if the Board were composed only o f five Government and six private members. Federal control, however, is assured by the provision in § 103(a), pursuant to which any member o f the Board appointed by the President serves at the pleasure o f the President. This argument also overlooks the fact that, even if all Federal members were appointed, the Board could still transact business with a quorum consisting o f one Government member and six private members. You have also asked whether recess appointm ents would be appropriate for the two Government members who are not likely to be confirmed prior to the recess o f the Senate. The Attorneys General have ruled that the President can make recess appointm ents during a month-long summer recess o f the Senate. 33 Op. A tt’y Gen. 20 (1921); 41 O p. A tt’y Gen. 463 (1960). There have been numerous instances o f recess appointm ents before and after those opinions during intrasession recesses o f the Senate o f a month or similar duration. However, since Kennedy v. Sampson, 511 F.(2d) 430 (C .A .D .C . 1974), which held that the Pocket Veto Clause o f Article I, Section 7, Clause 2, o f the C onstitution does not apply to in­ trasession adjournm ents, Presidents have been reluctant to make recess appointm ents during an intrasession adjournm ent o f the Senate, although the Kennedy case does not directly apply to recess appointm ents under A r­ ticle II, Section 2, Clause 3, o f the Constitution. Nevertheless, it is our opinion that the President is constitutionally authorized to make recess ap­ pointments during the forthcoming recess. The question whether the two Government members o f the Board should be given recess appointm ents therefore constitutes a policy decision. In the event that it should be de­ cided to give recess appointm ents to the directors, it would be necessary, in view o f 5 U.S.C. § 5503, to submit nominations to the Senate before it goes into recess. Otherwise, the recess appointees could not be paid unless subsequently confirmed. We recommend against designations under the Vacancy Act (5 U.S.C. §§ 3345-3349) in view o f the uncertainties o f the application o f those pro­ visions to agencies and instrumentalities other than the departm ents listed in 5 U.S.C. §§ 101, 102, and o f the 30-day clause o f 5 U .S.C . § 3348. As to a call for the first meeting o f the Board o f Directors, it appears sufficient if it is signed by two or more o f the directors. Some take the position that the agenda attached to the notice may be brief, others suggest a more comprehensive notice. We suggest that the agenda be signed by the directors calling the meeting. Under the Sunshine Act it would be necessary to make a public an­ nouncement o f the meeting, including a notice in the Federal Register. 5 U.S.C. § 552b. John M . Harmon Assistant A ttorney General Office o f Legal Counsel