The U.S. Court of Appeals for the D.C. Circuit ruled this week that the Office of Thrift Supervision was justified in issuing a rule that lets newly converted thrifts tighten the limit on the amount of stock one person can own.

Activist shareholder Joseph Stilwell had challenged a rule by the OTS that would allow subsidiaries of mutual holding companies to limit their minority stock to 10% of the subsidiary's total minority stock. Stilwell had filed a petition in August 2008 asking a federal court to set aside the rule, arguing it was "arbitrary," "capricious" and "unlawful."

The appeals court upheld the OTS' rule and Circuit Judge Brett Kavanaugh said it struck the right balance.

"Applying the deferential arbitrary and capricious test, we conclude that the OTS rule is reasonable and reasonably explained," Kavanaugh wrote.

"OTS struck a permissible balance between the goals of deterring management's self-dealing and preventing abusive short-term investment strategies."

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