Petition — Mechanic's Building & Loan Co. v. Federal Home Loan Bank Board

Supreme Court, U. &.

FILED

MAR 81 1978

MICH MICHAEL RODAK, JR., CLERK

Supreme Court of the United States

October Term, 1977

No. 77-1399

MECHANIC’S BUILDING AND LOAN

COMPANY,

Petitioner,

VS.

FEDERAL HOME LOAN BANK

BOARD, et al.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

To the United States Court of Appeals

For the Sixth Circuit

CHARLES E. ZUMKEHR

Huntington Bank Building

117 East Main Street

Kent, Ohio 44240

(216) 673-3444

Counsel for Petitioner

Of Counsel:

WiuiaMs, Purtitt, ZUMKEHR AND WELSER

Huntington Bank Building

117 East Main Street

Kent, Ohio 44240

(216) 673-3444

—

THE GATES LEGAL PUBLISHING CO., CLEVELAND, OHIO—TEL. (216) 621-5647

TABLE OF CONTENTS

Table of Authorities

. .

Jurisdiction

Questions Presented

Constitution and Statutes Involved

Statement of the Case

Reasons For Granting the Writ

1. Whether the Whole Administrative Record Re-

quired by This Court to Be Reviewed Pursuant

to 5 U.S.C. $706 Includes the Staff Records, Opin-

ions, Recommendations, Summaries and Memo-

randa Used by the Federal Home Loan Bank

Board in Making a Decision to Permit the Estab-

lishment of a Branch Savings and Loan Associa-

tion

2. Whether the District Court Can Conduct a

“Thorough, Probing, In Depth Review” of the

Action of the Federal Home Loan Bank Board

in Granting Permission to Establish a Branch

Savings and Loan Association Without Examin-

ing All the Factors and Information That Were

Considered by the Board in Making Its Decision

3. Whether a “Rational Basis” Exists for a Decision

of the Federal Home Loan Bank Board to Permit

the Establishment of a Branch Savings and Loan

Association When the Record Reviewed Contains

No Probative, Independent Evidence to Support

the Decision and the Board Does Not Provide

Reasons for the Decision ..

Conclusion

e e de te 8 F

15

II

Appendix:

Order of Court of Appeals for Sixth Circuit (Jan-

uary 4, 1978) Al

Entry of Judgment of District Court (April 16,

1976) A3

Memorandum Opinion of District Court on Cross-

Motions for Summary Judgment (April 16,

1976) A4

Order of Distriet Court on Pending Motions Deny-

ing Motion of Mechanic's Building and Loan to

Reconsider Decision and Order of Magistrate

(January 5, 1976) Al2

Decision and Order by Magistrate Denying Motion

of Mechanic’s Building and Loan Association for

Order to Produce Documents (November 12,

1975) Al4

Resolution by Federal Home Loan Bank Board Ap-

proving Application of Cardinal Federal Savings

and Loan Association (March 12, 1975 Alꝰ

Statutes Involved:

5 U.S.C. $702 A20

5 U.S.C. 8704 A20

5 U.S.C. 8706 A20

TABLE OF AUTHORITIES

Cases

Camp v. Pitts, 411 U.S. 138 (1973) 18, 20, 21, 22

Citizens to Preserve Overton Park v. Volpe, 401 U.S.

402 (1971) 8, 11, 13, 16, 17, 18, 21, 22

City Federal Savings and Loan Association v. Federal

Home Loan Bank Board, No. 75-C-343 (E.D. Wisc.,

1977) 14

Community Savings and Loan Association v. Federal

Home Loan Bank Board, 68 F.R.D. 378 (E.D. Wisc.,

1975) 13, 14, 18, 19

First National Bank of Fairbanks v. Camp, 326 F. Supp.

541 (D.D.C., 1971), affd, 465 F.2d 586 (C. A. D.C.,

1972), cert. denied, 409 U.S. 1124 (1973) —..............12, 20

First National Bank of Fayetteville v. Smith, 508 F.2d

1371 (8th Cir. 1974), cert. denied, 421 U.S. 930

(1975) 12, 21

Klanke v. Camp, 320 F. Supp. 1185 (S.D. Texas, 1970) 21

Klanke v. Camp, 327 F. Supp. 592 (S.D. Texas, 1971) 20

Mutual Savings and Loan Association of Wisconsin v.

Federal Home Loan Bank Board, Case No. 73-C-146

(E.D. Wisc.) 14

U. S. v. Reynolds, 345 U.S. 1 (1953) 15

Washington Mutual Savings Bank v. F.D.I.C., 347 b.

Supp. 790 (W. D. Wash. 1972), aff'd, 482 F. 2d 459

(9th Cir. 1973) 18

IV

Statutes and Rules

L : 17

SS eT ae 17

5 U.S.C. § 701 et seq. (Administrative Procedure Act)

ats * 3, 8, 15

L 2, 3, 5

5 U.S.C. 8 704 ee eee 3

n 3, 6, 7, 9, 11, 16

12 U.S.C. § 1464 5

28 U.S.C. § 1254 (1) ... ; 2

SD UG. § Te cntinisiittlaninnniiiil 7

28 U.S.C. § 1292 ()) 6

Fed. R. Civ. P. 34 ............... 2,6

. SS 2. FS 5

Other

United States Savings and Loan League 1977 Fact

Book, United States League of Savings Associations

(Chicago, Illinois, 1977) .......... 8

Supreme Court of the United States

October Term, 1977

No.

MECHANIC’S BUILDING AND LOAN

COMPANY,

Petitioner,

vs.

FEDERAL HOME LOAN BANK

BOARD, et al.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

To the United States Court of Appeals

For the Sixth Circuit

Petitioner, Mechanic’s Building and Loan Company,

prays that a writ of certiorari issue to the United States

Court of Appeals for the Sixth Circuit to review the judg-

ment rendered by that Court in Case No. 76-1886, entitled

ty

OPINIONS BELOW

The memorandum decision of the United States Dis-

trict Court for the Southern District of Ohio, granting Re-

spondent’s motion for summary judgment appears in the

Appendix at page A4 and the entry of the judgment of

that Court appears in the Appendix at page A3. The de-

cision and judgment of the United States Court of Ap-

peals for the Sixth Circuit appears in the Appendix at

page Al.

JURISDICTION

The judgment of the Court of Appeals for the Sixth

Circuit was made and entered on January 4, 1978.

This Court’s jurisdiction is invoked under 28 U.S.C.

§ 1254 (1).

QUESTIONS PRESENTED

Petitioner sought the judicial review of a decision by

the Federal Home Loan Bank Board pursuant to 5 U.S.C.

§ 702. In an effort to put before the Court the “whole

administrative record” petitioner attempted in accordance

with Rule 34 of the Federal Rules of Civil Procedure to

discover certain staff records, opinions, summaries, recom-

mendations and memoranda used by the Federal Home

Loan Bank Board (“Board”) in making its decision. The

Board refused to disclose the documents claiming they

were privileged. The District Court adopted the Board’s

position and proceeded to review the administrative ac-

tion of the Board without the benefit of these documents.

3

The Court of Appeals affirmed. The questions presented

are:

1. Whether the whole administrative record required

by this Court to be reviewed pursuant to 5 U.S.C. § 706

includes the staff records, opinions, recommendations,

summaries and memoranda used by the Federal Home

Loan Bank Board in making a decision to permit the es-

tablishment of a branch savings and loan association.

2. Whether the District Court can conduct a “thor-

ough, probing, in depth review” of the action of the Fed-

eral Home Loan Bank Board in granting permission to

establish a branch savings and loan association without

examining all the factors and information that were con-

sidered by the Board in making its decision.

3. Whether a “rational basis” exists for a decision of

the Federal Home Loan Bank Board to permit the estab-

lishment of a branch savings and loan association when the

record reviewed contains no probative, independent evi-

dence to support the decision and the Board does not pro-

vide reasons for the decision.

CONSTITUTIONS AND STATUTES INVOLVED

This case presented questions arising under the guar-

antee against deprivation of property rights without due

process of law contained in the Fifth Amendment to the

Constitution of the United States. Other issues in the

instant case arose under various sections of the Adminis-

trative Procedure Act (5 U.S.C. § 701, et seq.), particularly

5 U.S.C. § 702, 5 U.S.C. § 704, and 5 U.S.C. 5 706, which

appear in the Appendix at page A20.

STATEMENT OF THE CASE

On April 6, 1973, the West Side Federal Savings and

Loan Association of Fairview Park, Ohio (“West Side”)

filed an application with the Federal Home Loan Bank

Board (“Board”) to establish a branch savings and loan

office near the intersection of U.S. Route 30 and Lexington-

Springmill Road in Ontario, Richland County, Ohio.

Mechanic’s Building and Loan Company of Mansfield, Ohio

(“Mechanic’s”) and other area savings and loan associations

filed protests against West Side’s application, and, on Octo-

ber 29, 1973, the Board denied the application.

On December 31, 1973, West Side and Second Federal

Savings and Loan Association of Cleveland, Ohio, merged

to form Cardinal Federal Savings and Loan Association

(“Cardinal”) thus becoming the largest federal savings and

loan association in the State of Ohio. On September 27,

1974, Cardinal filed with the Board another application

to establish a branch office at the same location in Ontario,

Ohio. Once again Mechanic’s and other area savings and

loan associations protested the application. Upon deter-

mining that the opposition to the Cardinal application was

substantial, the Board held a hearing for oral argument

on January 9, 1975, in Cincinnati, Ohio. There Mechanic’s

argued, among other things, that the circumstances sur-

rounding the application had not changed substantially

since the Board’s denial of the first application in 1973,

and that, consequently, the application of Cardinal should

be denied.

On March 12, 1975, the Board approved Cardinal’s

application pursuant to Board Resolution No. 75-258. The

Board’s Resolution appears in the Appendix at page A19.

Notice of the approval was issued by the Board to all

interested savings and loan associations on March 24, 1975.

5

Pursuant to 5 U.S.C. § 702 of the Administrative

Procedure Act, Mechanic’s filed its complaint in the United

States District Court for the Southern District of Ohio,

against the Board, various agents of the Board, and Car-

dinal in an effort to obtain judicial review of the Board’s

decision. Mechanic’s asserted that the decision of the

Board was unreasonable, arbitrary, capricious, and discrim-

inatory and violative of various rights guaranteed to Me-

chanic’s by the Constitution of the United States. Fur-

ther, Mechanic’s asserted that the Board had not estab-

lished reasonable standards for determining need for a

branch, prospective usefulness of the facility, and absence

of undue injury to other area banking institutions, as re-

quired by 12 U.S.C. § 1464, In the alternative, Mechan-

ic’s asserted as well that even if the Board had estab-

lished such standards, the Board had discriminated against

Mechanic’s by failing to disclose such standards. Finally,

Mechanic’s asserted that the Board’s decision was in viola-

tion of its regulations, contrary to law, and unsupported

by substantial evidence, and requested a temporary injunc-

tion or restraining order to prevent irreparable injury

to Mechanic’s.

On June 27, 1975, the District Court granted a pre-

liminary injunction preventing Cardinal from permanently

establishing the Ontario branch. However, Cardinal was

permitted to open a temporary trailer-type office on the

branch location.

On September 10, 1975, Mechanic’s filed a motion,

pursuant to Rule 37 of the Federal Rules of Civil Pro-

cedure, for an order of the Court requiring that certain

documents be produced and that a complete and full record

of the administrative procedures be made available to Me-

chanic’s and to the Court. Mechanic’s stated in its motion,

and briefs in support thereof, that certain staff records,

opinions, recommendations and memoranda had been used

by the Board in formulating its approval of Cardinal’s

application. Mechanic’s had requested that the Board

make these materials a part of the record and available

to Mechanic’s and the Court, pursuant to Rule 34 of the

Federal Rules of Civil Procedure. The Board, however,

refused, claiming that the materials were privileged and

therefore not subject to review. Mechanic’s argued that

review of the administrative record could not be effective

unless the entire record and all matters which were con-

sidered by the Board in reaching its decision were before

the Court; that is, Mechanic’s asserted that the Court could

not properly determine whether the Board’s action was

arbitrary, capricious, and unlawful unless it had access

to the “whole record”, as required in 5 U.S.C. § 706.

A magistrate of the District Court denied Mechanic’s

motion to produce on November 12, 1975, on the grounds

that he felt that the documents in issue were irrelevant

and privileged. The decision and order of the magistrate

appears in the Appendix at page Al4. Subsequently,

Mechanic’s moved the Court to reconsider the decision

of the magistrate. However, the District Court judge af-

firmed the magistrate’s decision and, at the same time,

dissolved the temporary injunction which had been granted

to Mechanic’s at the opening of the action. Further, the

District Court refused to certify an interlocutory appeal

requested pursuant to 28 U.S.C. § 1292 (b). The order

on these issues was filed on January 5, 1976 and appears

in the Appendix at page Al2.

Following the issuance of these orders, the District

Court considered motions for summary judgment which

had been filed by the Board on July 29, 1975, and by

Cardinal on September 12, 1975, as well as the cross-

motion for summary judgment filed by Mechanic’s on Feb-

7

ruary 6, 1976. Oral arguments were heard on the motions

on April 14, 1976, whereupon the Court granted the

Board’s and Cardinal’s motions. The memorandum opinion

of the District Court and the entry of judgment are found

in the Appendix at pages A4 and A3 respectively.

On May 14, 1976, Mechanic’s filed its notice of appeal

with the United States Court of Appeals for the Sixth

Circuit pursuant to 28 U.S. C. § 1291. Oral argument

was heard on December 14, 1977. Mechanic’s argued that

the District Court was not furnished with the “whole”

administrative record as required by 5 U.S.C. § 706, that

Mechanic’s was substantially prejudiced by the District

Court’s decision precluding Mechanic’s from discovering

the undisclosed documents, and that the Board’s approval

of Cardinal’s application was arbitrary, capricious, abusive

of discretion, and not properly founded in fact or in accor-

dance with law. On January 4, 1978, the Court of Appeals

affirmed the decision of the District Court by its order,

which appears in the Appendix at page Al.

Petitioner, Mechanic’s Building and Loan Company,

now seeks review of the order of the Court of Appeals.

REASONS FOR GRANTING THE WRIT

During the five year period from 1970 to 1975, the

number of savings and loan branches in the United States

more than doubled. In 1972, branch savings and loan

offices exceeded the number of main offices for the first

time.”

This increase in savings and loan branches has created

a need to review carefully the procedure by which these

branches are established and especially the standard of

judicial review that is provided in accordance with 5 U.S.C.

§ 701 et seq.

It is understood that the judicial review of a decision

by the Board to grant an application to establish a savings

and loan branch is a narrow one at best, but one, never-

theless, that is necessary in our open society. In reviewing

decisions of the Federal Home Loan Bank Board, the courts

have not followed the mandate of this Court in Citizens

to Preserve Overton Park v. Volpe, 401 U.S. 402 (1971),

requiring that a review of administrative agency action be

made by conducting a thorough, meaningful, probing, in

depth review of the entire administrative record that was

considered by the Board at the time of making its decision

regarding the branch. It is evident that the Federal Home

Loan Bank Board does not believe that its decisions are

required to be subjected to the review contemplated in

Overton Park.

2. From 1970 to 1975, the number of savings and loan asso-

yy branches in the United States increased from 4,318 to

In 1975, 767 new branch facilities were approved by the

Federal Home Loan Bank Board. An additional 672 were au-

thorized in 1976.

Source: United States Savings and Loan League 1977 Fact

Book, United States League of Savings Associati Chicago,

Illinois: 1977). W

9

1. WHETHER THE WHOLE ADMINISTRATIVE

RECORD REQUIRED BY THIS COURT TO BE RE-

VIEWED PURSUANT TO 5 U.S.C. § 706 INCLUDES

THE STAFF RECORDS, OPINIONS, RECOMMEN-

DATIONS, SUMMARIES AND MEMORANDA USED

BY THE FEDERAL HOME LOAN BANK BOARD IN

MAKING A DECISION TO PERMIT THE ESTAB-

LISHMENT OF A BRANCH SAVINGS AND LOAN

ASSOCIATION.

In an action to review the decision of an administrative

agency, the Administrative Procedure Act provides that

“the court shall review the whole record.” 5 U.S.C. § 706.

However, concrete, applicable standards as to what actually

constitutes “the whole record” have never been formulated

by Congress, nor by this Court, and, subsequently, the

lack of such standards has been the source of much litiga-

tion. In the instant case, the question arises as to whether

“the whole record” includes the staff records, opinions,

recommendations, and memoranda used by the Federal

Home Loan Bank Board in making its decisions concerning

applications to establish branch savings and loans. The

true nature of these documents may be better understood

in light of a view of the Board’s procedure in making

such decisions.

The Board’s procedure in evaluating and reaching a

decision on an application by a savings and loan association

for a branch facility is largely based on prime considera-

tion of the reports, opinions, recommendations, and memo-

randa prepared by the staff of the agency. A Supervisory

Agent takes the application for the branch facility, as

well as any applicable protests filed by other area savings

and loan associations. The Agent may hear oral argument

if he deems such a hearing necessary, and generally visits

the site in issue. The Supervisory Agent then prepares

10

a report with recommendations to the Board concerning

Sther approval or disapproval of the application, which

he submits to the Office of Industry Development. The

Office of Industry Development transmits the application

to the Office of Examinations and Supervision and the

Office of General Counsel for their comments as well.

Then a digest is prepared by the Office of Industry Devel-

opment which summarizes all the staff recommendations,

the positions of the interested parties, and its own conclu-

sions and recommendations for action on the application.

Obviously, the Board’s procedure is an info:mal inves-

tigatory process which lacks trial attributes in that no

formal findings of fact or conclusions of law are reached

by the Board. Several hundred pages of material pre-

sented in the application, protests, and hearings are sifted

out and condensed by Board staff members. The Board

itself receives these condensations of material from the

various offices as well as the digest prepared by the Office

of Industry Development. It is this group of documents

that the Board considers in reaching its decision. Thus

the Board does not consider the entire administrative rec-

ord, but rather bases its decision on the capsule summaries

prepared by its staff members, receiving only what the

staff feels are important factors for the Board to consider

when making its decision.

The question then arises whether these staff-prepared

documents constitute part of “the whole record” which

the courts must consider in judicial review of administra-

tive action. A set standard by which the courts can meas-

ure “the whole record” has not been established and thus

it seems that “the whole record” can be anything the

Board wishes it to be.

11

This Court's interpretation of the Administrative Pro-

cedure Act, and particularly the whole record” concept

in 5 U.S.C. § 706, appears in Citizens to Preserve Overton

Park v. Volpe, 401 U.S. 402 (1971). Dealing with the

Department of Transportation and judicial review of the

actions thereof, this Court stated that in order to conduct

a “thorough, probing, in depth review”,

[that review is to be based on the full administrative

record that was before the Secretary at the time he

made his decision. 401 U.S. at 420.

Although this statement in Overton Park should serve

to clarify the “whole record” standard, the uncertainty

remains at least as far as the Board is concerned. Clearly

the staff reports were the only documents before the Board

at the time it made its decision. However, the Board

claims an absolute privilege in the documents, fearing that

disclosure of the reports might hinder the Board’s effi-

ciency or prevent a full, frank interaction between those

in the decision-making process. Since the staff reports

comprise an integral part of the Board’s decision-making

process, they should be reviewed as a part of the “whole

record” to insure accuracy and to guard against any abuse

of discretion.

The blatant disparity in application of the “whole

record” concept is clearly demonstrated when considering

the Federal Home Loan Bank Board and the Comptroller

of the Currency and the manner in which each agency

treats the record that is developed between the hearing

and the final decision on a branch application. The Board

and the Comptroller of the Currency are sister agencies

which are very similar in their purpose and structure, yet

very dissimilar in their interpretation of what constitutes

the full administrative record for purposes of judicial re-

view of the branch application procedure.

12

The policy of the Comptroller of the Currency in such

a case is outlined in First, National Bank of Fairbanks v.

Camp, 465 F.2d 586 (D.C. Cir., 1972). The procedure in

processing branch applications to the Comptroller of the

Currency is virtually identical to the procedure used by

the Board. Applications and protests are received by the

Comptroller, a hearing is held if deemed necessary, and

the hearing record, with the data submitted by the ap-

plicant and protestants, is compiled in a “public file”. The

“public file” is then supplemented with recommendations

from various members of the hearing panel and the staff

of the Comptroller of the Currency. Id. at 589-591. On

judicial review of the decision of the Comptroller of the

Currency, both the District Court and the Court of Ap-

peals had before them the “public file” as well as the rec-

ommendations of the Director of the Bank Organization

Division, and the recommendations of two Deputy Con-

trollers. Also included in the record before the courts

were documents concerning reconsideration of the Comp-

troller’s decision including letters by the Regional Comp-

troller and recommendations of Deputy Comptollers and

the Director of the Bank Organization Division. The

Court of Appeals was “extremely careful in scrutinizing

the administrative record” (Id. at 597) and used the staff

recommendations and opinions rather frequently in for-

mulating its decision, referring to such analysis no fewer

than sixteen times.

The courts have agreed that staff opinions and rec-

ommendations do indeed comprise an integral part of the

“whole record”. In First National Bank of Fayetteville v.

Smith, 508 F.2d 1371 (8th Cir., 1974), cert. denied, 421

U.S. 930 (1975), judicial review of a number of individual

memoranda, prepared by bank examiners and similar in

content to the Board’s staff reports, was in question. The

court granted discovery of the documents and stated:

13

All of the above described documents together with

the transcript of the administrative hearing consti-

tute the record which we must consider. Id. at 1376.

Despite this, the Federal Home Loan Bank Board refuses

to accept the standard as other agencies have done.

The United States District Court for the Eastern Dis-

trict of Wisconsin has applied the Overton Park test to

judicial review of decisions of the Federal Home Loan

Bank Board. In Community Savings and Loan Associ-

ation v. Federal Home Loan Bank Board, 68 F.R.D. 378

(E.D. Wisc., 1975),the facts~were essentially identical to

those in the instant case.

Based on buch facts, the District Court found, first of

all, that the privilege asserted by the Board for its staff

recommendations and opinions is not absolute and that

such disputed items are properly subject to discovery. Id.

at 381, 362.

Moreover, the court likened the Board’s actions in

proceedings such as those in the instant case to those of

the Comptroller of the Currency and asserted that the

status of so-called “privileged” documents and the stan-

dards of discovery thereof should be the same for each

agency. As observed by the Court in the Community Sav-

ings decision, the Comptroller has adopted a policy of full

disclosure and has been given a “cross-precedential” status

with regard to the Board. Id. at 382.

The Court in Community Savings adopted the stan-

dard of review as established in Overton Park holding

that:

[ijn order for this Court to determine whether or not

the Board considered these factors [need for the

branch, whether there is a reasonable probability of

its usefulness and success, and whether the branch

14

can be established without undue injury to existing

institutions], the Court must have before it the same

information which was before the agency decision-

maker at the time he or she reached the decision in

question. This means that the Court must examine

the information which the Plaintiffs seek to discover.

Id. at 383. (emphasis added).

The Court granted Plaintiff's motion for discovery, hold-

ing that:

[The Court’s] scrutiny of the information in ques-

tion would be greatly aided by an adversary presen-

tation of the issues. The role of the Court in our judi-

cial system is to reach decisions after evaluating the

evidence presented by both sides. Therefore it could

best be determined whether the Board considered the

requisite issues after hearing the arguments of coun-

sel on this subject. To accomplish this it is necessary

that Plaintiff's attorneys be allowed to examine the

information which they request under a protective

order. Id. at 383. (emphasis added).

The Community Savings decision is presently being

brought before the United States Court of Appeals for

the Seventh Circuit in Mutual Savings and Loan Associ-

ation of Wisconsin v. Federal Home Loan Bank Board and

is not yet docketed. The Mutual Savings case has been

combined with Community Savings on the District Court

level.“

3. Another case in the District Court for the Eastern District

of Wisconsin has adopted the Community Savings approach. —

Federal Savings and Loan Association v. Federal Home

Bank Board, No. 75-C-343 (E. D. Wisc., 1977) was y~ on

grounds other than discovery of “privileged” documents. How-

ever, based on facts which were very similar to those in Com-

— Savings and the instant case, the District Court ted

City re docu-

ments as those sought here. The City Federal case is currently

pending in the United States Court of Appeals for the Seventh

Circuit, Case No. 78-1038.

15

It seems apparent that pertinent staff reports are an

integral portion of the administrative record under judicial

review. Congress has recognized the need for the inclu-

sion of all documents in the administrative record for ju-

dicial review of administrative action and has attempted

to meet that need with the Administrative Procedure Act.

The Board has attempted to repeal the “whole record”

requirements of Congress by delineating in each case that

part of the record the court is to review. The Courts have

held from U. S. v. Reynolds to the present that the whole

record is to be reviewed.

Judicial control over the evidence in a case cannot be

abdicated to the caprice of executive officers. U. S.

v. Reynolds, 345 U.S. 1 at 9, 10 (1953).

Therefore, the Board’s staff opinions and recommenda-

tions should be required to be reviewed by the courts in

that they clearly constitute an important part of the “whole

record” which should be provided to the reviewing court

pursuant to the Administrative Procedure Act.

2. WHETHER THE DISTRICT COURT CAN

CONDUCT A “THOROUGH, PROBING, IN DEPTH

REVIEW” OF THE ACTION OF THE FEDERAL

HOME LAND BANK BOARD IN GRANTING PER-

MISSION TO ESTABLISH A BRANCH SAVINGS

AND LOAN ASSOCIATION WITHOUT EXAMINING

ALL THE FACTORS AND INFORMATION THAT

WERE CONSIDERED BY THE BOARD IN MAKING

ITS DECISION.

Of great concern to the Petitioner is the failure of

the courts to follow the requirements imposed by the Ad-

ministrative Procedure Act in reviewing decisions of the

Federal Home Loan Bank Board.

16

The Administrative Procedure Act, 5 U.S.C. § 706,

provides:

5 .. The reviewing court shall—

(2) Hold unlawful and set aside agency action,

findings and conclusions found to be—

(a) arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law;

In making the foregoing determination, the court

shall review the whole record or those parts of it

cited by a party, and due account shall be taken of

the rule of prejudicial error.” (emphasis added).

This court in the landmark case of Citizens to Preserve

Overton Park v. Volpe, supra, should have put to rest any

question that the “whole record” as used in the Adminis-

trative Procedure Act goes beyond the mere factual input

and final decision by an agency. In that case, the Supreme

Court took Congress at its word in deciding that the basis

for review required by Section 706 was the “whole rec-

ord” when it held:

“Thus it is necessary to remand this case to the Dis-

trict Court for plenary review of the Secretary’s de-

cision. That review is to be based on the full adminis-

trative record that was before the Secretary at the

time he made his decision. But since the base record

may not disclose the factors that were considered or

the Secretary’s construction of the evidence, it may

be necessary for the District Court to require some

explanation in order to determine if the Secretary

acted within the scope of his authority and if the

Secretary’s action was justifiable under the applicable

standard.” 401 U.S. at 420 (citations omitted; empha-

sis added).

17

The Supreme Court, therefore, has given clear meaning

to the requirement that a reviewing court engage in

a thorough, probing, in depth review.” Id. at 418. Despite

the clarity of this statutory language and the interpretation

of this Section by the Supreme Court, the Federal Home

Loan Bank Board, as discussed earlier, insists that staff

recommendations, opinions, and other internal data that

are used by the Board in making its decision do not repre-

sent any part of the administrative record.

The general policy of placing before the reviewing

court all of the information that the agency decisionmaker

had was specifically applied by statute to the judicial

review of administrative actions. The Administrative Pro-

cedure Act requirement that the court review the “whole

record” is nothing less than a continuation of this policy

of full disclosure for the need of in depth judicial review.

This general policy was crystallized to a crisp statutory

command which dictates that judicial review should be no

more a game of blindman’s bluff than a trial should be.

This is a policy underlying the Supreme Court’s unrelent-

ing emphasis upon a review of the “whole record” as enun-

cited by Citizens to Preserve Overton Park v. Volpe, supra.

Therefore, nothing less than a careful examination of

all information, data, evidence and documents before the

Board by the Court could satisfy this standard of review.

In applying these policies to the present controversy,

it is well to keep in mind that the Board makes its deci-

sion on a branch office application at the conclusion of

an informal investigative procedure: there is no public

adjudicatory hearing as provided by 5 U.S.C. $§ 556

and 557. There is no cross examination of witnesses, no

right to subpoena witnesses, no right to have depositions

ordered, there is no development of a litigation type of

18

evidentiary record. Since the Board’s action is not based

upon a public adjudicatory hearing, it is not subject to

review under the “substantial evidence test” nor is there

provision for “de novo review”. Overton Park v. Volpe,

supra, at 414-15; and Camp v. Pitts, 411 U.S. 138 (1973).

Instead, the Board’s investigative procedure is informal

and casual. The applicant and protestants submit their

positions, whether fact, opinion or conjecture; the part

of the record the Board is willing to produce. The Board’s

staff then edits and distills this information in its various

reports and adds its construction of the evidence, and

information from field reports; the part of the record the

Board is unwilling to produce. It is upon these staff

documents that the Board reaches its decision on a particu-

lar application. These documents are in reality the only

record before the Board. The Board decision is issued

as a conclusory resolution.

Neither the public portion of the record nor the Board’s

bare resolution allows a reviewing court to engage in “a

through, probing, in depth review” which will “disclose

the factors which were considered or the construction of

the evidence” as required by Overton. Requiring the

F. D. I C. to produce its internal file, Judge Sharp declared:

“The Court reasoned it would be impossible to deter-

mine whether the Board considered all of the relevant

factors without examining the material the Board con-

sidered.” Washington Mutual Savings Bank v. F. D. I. C.,

347 F. Supp. 790 at 793 (W.D. Wash., 1972), aff'd, 482

F.2d 459 (9th Cir., 1973).

In the Community Savings case, Judge Reynolds ques-

tioned Mr. Simon, counsel for Board:

THE COURT: Well, you can always come up

with some evidence to support any decision, but the

19

issue is that you’re not subject to review. Has any

court ever reversed you?

MR. SIMON: No, we've never been reversed on

a branching decision.

THE COURT: As long as the law is construed

that way, I don’t think you ever will be. Record

at 39, Community Savings and Loan Association, supra.

What kind of review can a court undertake when

it does not have before it all of the facts, materials, and

documents that were before the decisionmaker?

Query: What if a portion of the record that was

not reviewed contains negative recommendations by in-

ternal experts of the “Agency”, or staff findings that con-

tradict the information contained in the so-called “public

record”? The possibility exists for those staff reports to

show conflict of interest problems between an applicant

and the Board. Certainly there is no method for a review-

ing Court to determine whether error of this nature exists

unless it has examined these documents and the entire

record. It is not important that the decision of the Board

is sustained by the reviewing court or reversed. What

is important is the court be permitted and actually does

conduct the type of review as contemplated by Adminis-

trative Procedure Act and further emphasized in the Over-

ton Park decision so that due process is achieved in ad-

ministrative matters.

Without an examination of the entire record that type

of judicial review can never be made.

20

3. WHETHER A “RATIONAL BASIS” EXISTS

FOR A DECISION OF THE FEDERAL HOME LOAN

BANK BOARD TO PERMIT THE ESTABLISHMENT

OF A BRANCH SAVINGS AND LOAN ASSOCIATION

WHEN THE RECORD REVIEWED CONTAINS NO

PROBATIVE, INDEPENDENT EVIDENCE TO SUP-

PORT THE DECISION AND THE BOARD DOES NOT

PROVIDE REASONS FOR THE DECISION.

The review of administrative agency action breaks

down into two distinct evidentiary tests. The “substantial

evidence test” and the so-called lesser test or “arbitrary

and capricious standard”. Camp v. Pitts, supra.

Decision of the Federal Home Loan Bank Board rela-

tive to applications to establish branch savings and loan

facilities fall into the latter test.

A reviewing Court must find some “rational basis”

to support the Board’s conclusory resolution granting or

denying the application.

However, reviewing courts in general and the instant

District and Circuit courts have been unable to firmly

establish what is meant by the “rational basis” test.

Numerous phrases have been used to describe the

“rational basis” test in administrative decisions regarding

national banks as regulated by the Comptroller of Cur-

rency and federal savings and loan associations as regulated

by the Federal Home Loan Bank Board.“

4. In First National Bank of Fairbanks v. or 326 F.

541, 544 (D. D.C., 1971), aff'd, 465 F.2d 586 (C. A. D.C., 1972),

cert. denied, 409 U.S. 1124 (1973), the Comptroller’s action in ap-

a a branch office was held valid if “there was some rational

for the action taken.” In Klanke v. Camp, 327 F. Supp. —

594 (S. D. Texas, 1971), action of the Comptroller was

(Continued on following page)

21

However, it is clear that in the instant case and

generally, the Federal Home Loan Bank Board refuses

to provide any rational explanation for its conclusionary

resolution.

The Board believes that the only so-called “public

record” should be thrown to the Court and the Court

should determine for itself what rational basis was utilized

by the Board. This the Board urges even though its deci-

sion may have been made upon information and recommen-

dations never given to the court for review.

In both Overton Park and in Camp v. Pitts, the Court

required that there at least be some explanation. The

Board steadfastly clings to the concept that a Court should

not substitute its opinion for that of an administrative

agency and yet contradicts that very concept by allowing

the Court to guess at the rational basis used by the Board

in arriving at its decision. In the instant case, the record

is devoid of any independent probative evidence to support

the Board’s decision. The Board should be required to

disclose the reasons for its decision rather than the conclu-

sionary resolution that it produced. This is even more

critical inasmuch as the Board failed to permit the Court

to review the entire administrative record but only those

portions of the record that it deems public. This secret

reasoning by the Board does not create either public or

industry confidence.

Footnote continued—

to be a te unless it was “totally devoid

foundation”. In the earlier case of Klanke v. Camp, 3 1 Supp.

1185, 1188 (S.D. Texas, 1970), similar judgment of the — ＋

ler was characterized as requiring merely upon eviden a

eee ee © eee ee, ee And again in First

National Bank of Fayetteville v. Smith, 508 F.2d 1371 (C. A. 8,

1974) the court upheld the decision since it". Was not

without some support in the record“.

CONCLUSION

The questions presented are of great and urgent signifi-

cance to the savings and loan industry. The importance

of defining the scope and standards for judicial review

are evidenced by the continual attention given the subject

by this court.

A review of this action would provide an opportunity

to further enhance this court’s decision in Overton Park

and Camp v. Pitts not only as the standard of judicial

review should be applied to the Federal Home Loan Bank

Board, but for other administrative agencies as well, and

is therefore appropriate for the exercise of this court’s

discretionary jurisdiction.

For the reasons set forth above, it is respectfully sub-

mitted that this petition for a writ of certiorari be granted.

Respectfully submitted,

CHARLES E. ZUMKEHR

Huntington Bank Building

117 East Main Street

Kent, Ohio 44240

(216) 673-3444

Counsel for Petitioner

Of Counsel:

WILLIAMS, PURTILL, ZUMKEHR AND WELSER

Huntington Bank Building

117 East Main Street

Kent, Ohio 44240

(216) 673-3444

Al

APPENDIX

ORDER OF COURT OF APPEALS

FOR SIXTH CIRCUIT

(Filed January 4, 1978)

No. 76-1886

UNITED STATES COURT OF APPEALS

For THE Stern Cmcurr

MECHANIC’S BUILDING AND LOAN ASSOCIATION,

Plaintiff-Appellant,

VS.

FEDERAL HOME LOAN BANK BOARD, CARDINAL

FEDERAL SAVINGS AND LOAN ASSOCIATION

and THOMAS R. BOWMAR, et al.,

Defendants-Appellees.

ORDER

Before Weick and Kerra, Circuit Judges, and Cen,

Senior Circuit Judge.

Upon consideration of the briefs, appendix and argu-

ments of counsel we are of the opinion that the order

of the Federal Home Loan Bank Board (Board) granting

to Cardinal Federal Savings and Loan Association authority

to open a branch office, was in no sense unreasonable,

arbitrary, capricious or discriminatory. There was a rat-

ional basis for the Board’s decision in granting the permit.

A2

We find no error in the denial by the District Court

of plaintiff’s motion for discovery which included internal

records and reports of the Board’s staff and of its super-

visory agent. Three pages of factual summaries were pre-

pared in connection with the reports and were voluntarily

furnished to plaintiff.

There was no error ii granting summary judgment

in favor of the defendants.

The judgment of the District Court is AFFIRMED.

Entered by Order of the Court

JohN P. HEHMAN, Clerk

By /s/ GRACE KELLER —

Chief Deputy Clerk

A3

ENTRY OF JUDGMENT OF DISTRICT COURT

(Filed April 16, 1976)

No. C-1-75-133

UNITED STATES DISTRICT COURT

For THE SOUTHERN DiIsTRICT oF OHIO

WESTERN DIVISION

MECHANIC’S BUILDING AND LOAN COMPANY,

Plaintiff,

VS.

FEDERAL HOME LOAN BANK BOARD, et al.,

Defendants.

JUDGMENT ENTRY

This matter came before the Court on the cross-mo-

tions for summary judgment of the plaintiff, Mechanic’s

Building and Loan Company and defendants Federal Home

Loan Bank Board, Garth Marston, Grady Perry, Jr., Law-

rence B. Muldoon, and Cardinal Federal Savings and Loan

Association pursuant to Rule 56 of the Federal Rules of

Civil Procedure. For the reasons stated in Memorandum

on Cross-Motions for Summary Judgment filed the same

day, the Court denies, plaintiff’s motion for summary judg-

ment but finds that the motions for summary judgment

of each and every defendant are well-taken and summary

judgment is hereby granted for each and every above-

named defendant.

IT IS SO ORDERED.

/s/ Trmoruy Hocan

United States District Judge

A4

MEMORANDUM OPINION OF DISTRICT COURT

ON CROSS-MOTIONS FOR SUMMARY JUDG-

MENT

(Filed April 16, 1976)

No. C-1-75-133

UNITED STATES DISTRICT COURT

For THE SOUTHERN DisTRICT oF OHIO

WESTERN DIVISION

MECHANIC’S BUILDING AND LOAN COMPANY,

Plaintiff,

vs.

FEDERAL HOME LOAN BANK BOARD, et al.,

Defendants.

MEMORANDUM ON CROSS-MOTIONS FOR SUMMARY

JUDGMENT

In this case the plaintiff, Mechanic’s Building and

Loan Company, challenges the approval of defendant Fed-

eral Home Loan Bank Board (Board) of an application

of defendant Cardinal Federal Savings and Loan Associa-

tion of Cleveland (Cardinal) to establish a branch in Rich-

land County, Ohio in the Village of Ontario near U. S.

Route 30 and across from the Richland Mall Shopping

Plaza. Also named as defendants are the supervisory

agent, the chairman and the members of the Federal Home

Loan Bank Board. After a hearing held on June 26, 1975,

Judge Carl B. Rubin denied plaintiff's motions for a tem-

porary restraining order and preliminary injunction and

Cardinal was authorized to proceed with the opening of a

temporary branch office. However, Judge Rubin did re-

A5

strain Cardinal from making any permanent improvements

on the site, conditioned upon the plaintiff posting a 825,000

surety bond. As plaintiff never posted the bond, this

Court dissolved the temporary injunction on January 5,

1976. Also on January 5, 1976, the Court affirmed the

Magistrate’s Discovery Decision and Order on plaintiff's

Motion to Produce and denied plaintiff’s motion for the

certification of the discovery issue and a continuance.

The cause is now before the Court on the cross-motions

of the parties for summary judgment. The parties have

submitted substantial memoranda, exhibits, and affidavits

supporting their respective positions and a hearing on the

cross-motions was held on April 14, 1976. We believe

the cause is suitable for summary judgment and that sum-

mary judgment should be granted in favor of all defen-

dants.

FACTS

We find the following facts from the extensive record

in this case. On April 6, 1973, the West Side Federal

Savings and Loan Association of Fairview Park, Ohio

(West Side) filed an application with the Board to estab-

lish a branch savings and loan office at the same location

which is the subject of tl. present suit. The plaintiff

and other area savings and loan associations protested this

application and on October 29, 1973, the Board denied

the application.

On December 31, 1973, West Side and the Second

Federal Savings and Loan Association of Cleveland, Ohio

merged and formed Cardinal Federal Savings and Loan

Association, one of the defendants herein. Cardinal has

become the largest federal savings and loan association

in the State of Ohio.

A6

On September 27, 1974, Cardinal filed its application

to establish a branch office at the location set forth above.

Once again plaintiff and other area savings and loan associ-

ations protested the application and a hearing was held

on the application on January 9, 1975. At the hearing

Cardinal presented evidence in support of its application

and the plaintiff and other savings and loan associations

presented evidence in opposition to the application.

On, March 12, 1975, the Board approved Cardinal’s

application. The Board notified plaintiff and other inter-

ested savings and loan associations on March 24, 1975.

Plaintiff filed the present action on April 17, 1975, claiming

that the Board’s approval was “unreasonable, arbitrary,

capricious and discriminatory.”

As stated above, the approved branch is located across

from the Richland Mall on land previously purchased by

Cardinal. The Richland Mall is a large, covered shopping

plaza located in or near the Village of Ontario. Sales

at the Mall grew by 12 % from 1973 to 1974. At the

1. The decision of the Board was stated in a resolution as

follows:

WHEREAS, the Board has considered the complete record

of the cause and the merits of the lication of Cardinal

Federal Savings and Loan Association, Cleveland, Ohio, dated

September 26, 1974 for to

fice at, or in the te vicinity of the Intersection of

U. S. 30-N and Lexington-Sp

land County, Ohio; and

WHEREAS, it is determined that a necessity exists for such

a branch office, that there is a reasonable probability of its

usefulness and success, and that it can be established with-

out undue injury to properly conducted existing local thrift

IL.

approved; provided that the exact loca

such

is established; and provided further that such

is established not later than twelve months from the date of

this approval.

A

time of Cardinal's application in 1974 there was only one

savings and loan association serving the Richland Mall

and it was located within the Mall itself. There were

no other savings and loan associations within a four mile

radius of Cardinal’s branch office.

THE BOARD’S PROCEDURES

The Board’s procedures governing branch applications

are set out in 12 U.S.C. § 1464(e), 12 CFR. §§ 545.14

and 556.5. For a Savings and Loan Association to establish

a branch, it must submit an application to the Board which

gives information on the necessity and reasonable proba-

bility of usefulness and success of the proposed branch.

The application must also include information showing

that the branch may be established without undue injury

to local institutions in the proposed service area.

Once the application is deemed complete, the applicant

must give notice of its filing in a newspaper of local

circulation. Within ten days after publication of the notice,

any person may file written material either in support

of or in opposition to the application. The applicant is

then given an additional 15 days to submit information

supporting its position.

Within ten days after the expiration of the time for

submitting written material, any protestant may request

an oral argument on the merits of the application. The

Board’s Supervisory Agent must then give at least ten

days notice of the time and place of the argument to

all persons who have submitted any filing regarding the

application.

At the oral argument, which is conducted by the Su-

pervisory Agent (or someone designated by the Board),

parties maybe represented by counsel, and each side has

A8

a minimum of one hour to present their arguments. Argu-

ments “should be based” on the written information al-

ready submitted, but the Supervisory Agent can admit

new material if he finds it constitutes “substantive new

matter.” A transcript of the proceedings is made and

included in the application file. Recommendations are

made by the Supervisory Agent to the Board which then

approves or disapproves the application.

SUMMARY JUDGMENT

We find that all of the above procedures were complied

with by Cardinal and the Board. Furthermore, we note

that the application, the protests to it, the applicant’s reply

to the protest, and the transcript of the oral argument

are a part of the record before this Court. The matter

is now ripe for judicial determination since each party

has moved for summary judgment and thoroughly briefed

their legal contentions. Elm Grove Sav. & Loan Ass’n

v. Federal Home Loan Bank Bd., 391 F. Supp. 1041, 1043

(E. D. Wis. 1975); Benton Sav. & Loan Ass’n v. Federal

Home Loan Bank Bd., 365 F. Supp. 1103, 1104 (E.D. Ark.

1973).

Plaintiff contends in its motion for summary judgment

that this Court should apply the “substantial evidence”

test in determining whether the Board had sufficient evi-

dence before it to make the decision it made on the applica-

tion. Plaintiff also argues that the Board’s decision is

invalid because the Board did not make any findings or

provide an opinion for its decision.

The Board’s determinations on branch applications are

issues committed to the sound discretion of the agency.

While that discretion is not unlimited, this Court has been

unable to find a single decision holding that the appropri-

ate standard of review to be employed in examining the

A9

Board’s decision on a branch application is the substantial

evidence test. The Administrative Procedure Act, 5 U.S.C.

§ 706(2)(E), provides that a reviewing court should em-

ploy the substantial evidence standard only in certain enu-

merated-instances (such as when there is an agency hearing

provided by statute) and it has been held repeatedly that

section 706 (2) (E) does not apply to the Board’s branching

decisions. Rather the applicable standard of review is

the “rational basis” test and the Court’s inquiry is thus

limited to whether the Board in granting the application

before it acted arbitrarily or capriciously or abused the

broad discretion vested in it. Camp v. Pitts, 411 U.S.

138 (1973); First Nat'l Bank of Fayetteville v. Smith, 508

F.2d 1371 (8th Cir. 1974); Bridgeport Fed. Sav. & Loan

Ass’n v. Federal Home Loan Bank Bd., 307 F.2d 580 (3d

Cir. 1962), cert. denied, 371 U.S. 950 (1963); Bank of Ozark

v. Federal Home Loan Bank Bd., 402 F. Supp. 162 (E.D.

Ark. 1975); Elm Grove Sav. & Loan Ass’n v. Federal

Home Loan Bank Bd., 391 F. Supp. 1041 (E.D. Wis. 1975);

Merchants & Planters Bank of Newport v. Smith, 380

F. Supp. 354 (E.D. Ark. 1974), affd 516 F.2d 355 (8th

Cir. 1975).

Nor is the Board required to issue findings of fact,

conclusions of law, or an opinion explaining its branch

application decisions. Camp v. Pitts, supra; First Nat'l

Bank of Fayetteville v. Smith, supra; Bank of Ozark v.

Federal Home Loan Bank Bd., supra; Elm Grove Sav.

& Loan Ass’n v. Federal Home Loan Bank Bd., supra; Lyons

Sav. & Loan Ass’n v. Federal Home Loan Bank Bd., 377 F.

Supp. 11 (N.D. II. 1974).

Finally, plaintiff argues at great length that the record

before the Board did not even satisfy the “rational basis”

test, especially as to the requirement that the branch be

established without “undue injury to properly conducted

existing local thrift and home-financing institutions,” and

Al0

therefore the Board’s decision was arbitrary and capricious.

Plaintiff also points to the fact that West Side’s branch

application was denied in 1973, yet Cardinal’s application

for the same location was accepted in 1975, and argues

that the Board’s decision was arbitrary because the eco-

nomic factors surrounding the particular branch location

did not change in that period of time.

As was stated in Elm Grove Sav. & Loan Ass’n v.

Federal Home Loan Bank Bd., supra:

the governing regulatory test is not mere “injury”

to the plaintiff but “undue injury.” In focusing on

this criteria, the board was required to balance any

possible injury to the plaintiff against the benefit to

the residents of the developing service area, and to

persons using the regional shopping center, from an

additional savings and loan facility. 391 F. Supp. at

1044.

Furthermore, Judge Rubin, in the Court’s Order on

plaintiff’s motion for a temporary restraining order, ex-

amined plaintiff’s argument of “undue injury” and found

that

There is no doubt that the entrance of an additional

savings and loan company into Richland County would

create some damage to the plaintiff. Whether such

building and loan entered by action of the defendant

in this case or by the action of the appropriate regulat-

ing authority of the State of Ohio, is not significant.

The regulatory standard is one of “undue injury.”

Irreparable damage in the equity sense in this instance

must be in terms of the regulatory concept of undue

injury. The testimony and argument of the plaintiff

indicated only that the injury would be that customary

and expected in the building and loan industry where

an additional competitor enters the area.

All

Although Judge Rubin was considering the question

of undue injury in terms of the necessity for a temporary

restraining order, we similarly believe that when the Board

was considering Cardinal’s application there was little

doubt that establishing a branch across from the Richland

Mall would cause plaintiff and other savings and loan

associations to lose some customers. However, we also

believe that the Board weighed the effect of the potential

competition of Cardinal’s branch with xisting savings in-

stitutions against the public’s need for an additional savings

and loan facility at the location and concluded that the

injury to existing savings facilities would not be “undue.”

Given the agency’s expertise in this area, this Court cannot

find that such conclusion was arbitrary or capricious. :

We also cannot agree with plaintiff’s contention that

the conditions had not changed from the time of West

Side’s application to the Board to Cardinal’s application.

There is sufficient evidence in the record of growth in

sales at the Mall and savings potential for the area. In

addition, the Board could reasonably have found that a

branch across from the Mall was now warranted because

of the difficulty of obtaining mortgage loans from area

institutions, increased sewer service development and in-

creased traffic flow in the area, and the fact that two

local savings and loan associations had subsequently ap-

plied to branch in the Mansfield area.

In short, this Court cannot say from the record before

us, that the Board acted arbitrarily or capriciously or

abused its discretion in granting the application.

Accordingly, the plaintiff’s motion for summary judg-

ment is hereby denied. The defendants’ motions for sum-

mary judgment will be granted.

/s/ Tomoruy Hocan

United States District Judge

Al2

ORDER OF DISTRICT COURT ON PENDING Mo.

TIONS DENYING MOTION OF MECHANIC’S

BUILDING AND LOAN TO RECONSIDER DE-

CISION AND ORDER OF MAGISTRATE

(Filed January 5, 1976)

C-1-75-133

UNITED STATES DISTRICT COURT

FoR THE SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

MECHANIC’S BUILDING & LOAN CO.,

Plaintiff,

v.

FEDERAL HOME LOAN BANK BOARD, et al.,

Defendants.

ORDER ON PENDING MOTIONS

The Court’s attention has been invited to this relatively

youthful, but voluminous, record and sundry pending mo-

tions by letters from counsel dated November 26, 1975 and

December 12, 1975. The letters are transmitted to the

Clerk herewith for filing (not docketed) in this C-1-75-133.

The undersigned regrets that he has not been able, by

reason of the press of the criminal docket, to earlier ac-

knowledge the letters.

No oral or evidentiary hearing or conference is ad-

visable or necessary.

The Court has examined the record in this case to the

extent necessary to dispose of the following matters. On

such consideration—

Al3

2

The temporary injunction contained in this Court's

order of June 27, 1975 has never become effective and

should be dissolved as a matter of record.

The order not only fixed a bond but “directed” the

“posting” of a “surety bond” and is as clear as could be.

See Rule 65 and 65(a). The plaintiff has had more than

ample opportunity to comply with the Court’s order.

ORDERED that the temporary injunction be and it is

dissolved.

—

The Court has re“- considered the Magistrate’s Dis-

covery Decision and Order on Plaintiff's Motion to Pro-

duce, entered November 12, 1975, and the briefs pertinent

thereto. That decision and order should be and it is

confirmed for the reasons set forth in that Decision, which

are adopted. The Order, including the declination (page 4

thereof) is adopted and confirmed. SO ORDERED.

aus

There is no warrant at all for the alternate motion

of the plaintiff for a certification of the discovery issue

and a continuance. Both requests are denied.

Plaintiff may have 30 days within which to file its

opposition (briefs and affidavits) to the defense summary

judgment motion(s) and/or file a summary judgment mo-

tion (with appropriate briefs and affidavits) and the matter

will thereafter be assigned for hearing on whatever sum-

mary judgment motions are then pending.

Happy New Year!

/s/ Tomorny Hocan

United States District Judge

Al4

DECISION AND ORDER BY MAGISTRATE DENY-

ING MOTION OF MECHANIC’S BUILDING AND

LOAN ASSOCIATION FOR ORDER TO PRO-

DUCE DOCUMENTS

(Filed November 12, 1975)

Civil Action No. C-1-75-133

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

MECHANIC’S BUILDING AND LOAN COMPANY,

Plaintiff,

VS.

FEDERAL HOME LOAN BANK BOARD, et al.,

Defendants.

DECISION AND ORDER ON PLAINTIFF’S MOTION

TO PRODUCE

Among its activities, defendant Federal Home Loan

Bank Board (hereafter “Board”), approves or disapproves

branch applications for federally chartered savings and

loan associations. In Board Resolution No. 75-258, dated

March 12, 1975, the Board authorized defendant Cardinal

Federal Savings & Loan Association (hereafter “Cardi-

nal”) to establish a branch office in Ontario, Ohio. Plain-

tiff brings this action seeking review by this Court of the

decision of the Board, and an injunction against the es-

tablishment of the Cardinal branch.

Plaintiff has made demand upon defendant for the

production of all summaries, findings, written statements,

Al5

or documents, prepared by the staff of the Board in con-

nection with the branch application of Cardinal. Defen-

dant says that two documents are actually in question.

The first is a report prepared by defendant Lawrence B.

Muldoon, supervisory agent for the Board in Cincinnati

which contains the agent’s analysis of the record and his

recommendation as to whether the subject branch appli-

cation should be approved. The other document is a one-

page report prepared by the office of Industry Develop-

ment of the Board containing the Washington staff’s anal-

ysis of the application and its recommendation on the

branch application. Defendant refuses to produce these

documents, claiming executive privilege. Three pages of

factual summaries were prepared in connection with the

two reports. Defendants have removed these pages from

controversy by attaching them to their memorandum in

opposition to the motion. Plaintiff has brought this mo-

tion to compel production under Rule 34 of the Federal

Rules of Civil Procedure. We overrule the motion.

The justification for executive privilege, in the aspect

with which we are here dealing, is to prevent interference

with administrative decision making and to encourage

such decision making after a full, frank and free inter-

change between those involved in the process within the

agency. Kaiser Aluminum and Chemical Corp. v. United

States, 157 F.Supp. 939, 945-946 (Ct. Claims 1958), ap-

proved in EPA v. Mink, 410 U.S. 73, 86-87 (1973). See

also NLRB v. Sears Roebuck & Co., 421 U.S. 132, 150-151,

44 L.ed.2d 29 (1975). Clearly the reports here sought are

within the privilege.

But Kaiser teaches that the privilege is not absolute.

Plaintiff urges that this is a case in which the privilege

should not apply and in support of its thesis, cites Com-

munity Savings & Loan Association v. Federal Home Loan

Al6

Bank Board, an unreported decision by the U. S. District

Court in the Eastern District of Wisconsin, CA No. 73-C-

121. In Community Savings, the Court allowed discovery

of documents such as those here in issue because it con-

cluded that “no harm will befall the consultative process

of the Board if the documents in question are revealed to

plaintiffs.” The Court believed that this settled the mat-

ter because in its view Kaiser held that the privilege

should not be applied where production of the contested

document would not, as a matter of fact, be injurious to

the consultative functions of an agency. A basis for the

Court’s belief in Community Savings was that there has

been no claim that the Comptroller of the Currency lacks

open and honest discussion regarding its decisions, not-

withstanding that a number of cases reveal that the Comp-

troller has revealed, voluntarily or pursuant to court or-

der, information similar to that sought by plaintiffs in this

action.

In addition, the court in Community Savings stated as

a positive reason under the facts of that case, for the grant-

ing of the discovery, the fact that “the agency has com-

pletely changed its position on an application within a

relatively short period of time,” and the court felt that

“public confidence in the soundness of the decision mak-

ing process will be promoted by allowing plaintiffs to see

the information they request” in view of this fact. Fur-

ther the Court said that it must have before it the same

information which was before the agency decision maker

in order for it to make a determination whether or not

the Board considered the factors which it is required to

consider on a branch application.

If one accepts that there is a rational basis for the ap-

plication of executive privilege to interagency pre-deci-

sional opinions and recommendations of subordinates, as

Al7

we do, there is nothing in this case which persuades us

that the privilege ought not to apply to the documents

here in question. That the Board changed its mind as to

whether or not a branch should be authorized from nega-

tive to positive in a relatively short period of time is a

fact which will have its place in the presentation to the

Court on the merits. It suggests nothing to us as a rea-

son for allowing the discovery here sought.

Nor do we think that a contrary recommendation by

subordinates which was rejected by the Board in reach-

ing its decision, if such was the case, is something that

the Court needs to have before it in deciding whether the

Board acted arbitrarily and capricious y. Indeed, the

whole purpose of the privilege in the first place is to al-

low free discussion within an agency with free expres-

sions of difference of attitude without fear that such dif-

ferences will come into public view. If an agency feels

that such protection is of worthwhile value for its deci-

sion making process, it may claim the privilege as it has

done here, and we see no reason why the privilege should

not be extended. Whether or not the Board acted arbi-

trarily or capriciously must be determined in the light of

relevant facts which the Court will have before it as it

approaches the case; we do not believe that the opinions

and recommendations in question ere relevant facts.

The foregoing should suffice to illustrate why we de-

cline to follow the Community Savings case except in one

respect. That is the point, relied upon to a significant

extent by the Court in Community Savings, that a num-

ber of cases show that the Comptroller of the Currency |

voluntarily discloses internal staff memoranda prepared

in connection with branch applications by national banks,

and the Court did not feel that this interfered with the

effectiveness of the decisional process of the Comptroller’s

Als

office. It is our view that the defendant here is entirely

within its rights in following a different course and claim-

ing the privilege. See United States v. Provident Bank,

41 F.R.D. 209 (E.D. Pa. 1966).

Plaintiff as part of its motion suggests that we must

at least examine in camera the subject documents “in or-

der to determine whether they are within the exemption

of the Freedom of Information Law.” Notwithstanding

the agreeability of the Board to an in camera inspection,

we decline such inspection. The Board by its acting chair-

man has filed an affidavit which adequately describes the

docurents sought. (See 10 Marston affidavit.) We may

rely upon that affidavit in concluding that the documents

contain matters protected by executive privilege. Ash

Grove Cement Company v. F.T.C., 371 F.Supp. 370 (D.C.

D.C. 1973). Moreover the documents here in question are

exempt from the operation of the Freedom of Information

Act, as expressly provided by statute at 5 U.S.C. § 552

(b) (5). See NLRB wv. Sears, Roebuck & Co., 421 US.

132, 150 (1975).

Plaintiff’s motion is denied.

SO ORDERED.

/s/ Burton PERLMAN

United States Magistrate

Alꝰ

RESOLUTION BY FEDERAL HOME LOAN BANK

BOARD APPROVING APPLICATION OF CAR-

DINAL FEDERAL SAVINGS AND LOAN ASSO-

CIATION

(March 12, 1975)

FEDERAL HOME LOAN BANK BOARD

No. 75-258

Date: March 12, 1975

WHEREAS, the Board has considered the complete

record of the cause and the merits of the application of

Cardinal Federal Savings and Loan Association, Cleveland,

Ohio, dated September 26, 1974, for permission to establish

a branch office at, or in the immediate vicinity of the Inter-

section of U.S. 30-N and Lexington-Springmill Road, On-

tario, Richland County, Ohio; and

WHEREAS, it is determined that a necessity exists for

such a branch office, that there is a reasonable probability

of its usefulness and success, and that it can be established

without undue injury to properly conducted existing local

thrift and home-financing institutions:

IT IS HEREBY RESOLVED, that said application is

hereby approved; provided that the exact location of such

branch office is approved by this Board before such branch

office is established; and provided further that such branch

office is established not later than twelve months from the

date of this approval.

By the Federal Home Loan Bank Board

/s/ Grenvitte L. ML, Jr.

GRENVILLE L. Mruiarp, Jr.

Assistant Secretary

A20

STATUTES INVOLVED

5 U.S.C. §702

Right of review.—A person suffering legal wrong be-

cause of agency action, or adversely affected or aggrieved

by agency action within the meaning of a relevant statute,

is entitled to judicial review thereof.

5 U.S.C. §704

Actions reviewable.— Agency action made reviewable

by statute and final agency action for which there is no

other adequate remedy in a court are subject to judicial

review. A preliminary, procedural, or intermediate agency

action or ruling not directly reviewable is subject to review

on the review of the final agency action. Except as other-

wise expressly required by statute, agency action other-

wise final is final for the purposes of this section whether

or not there has been presented or determined an applica-

tion for a declaratory order, for any form of reconsidera-

tion, or, unless the agency otherwise requires by rule and

provides that the action meanwhile is inoperative, for an

appeal to superior agency authority.

5 U.S.C. 8706

Scope of review.—To the extent necessary to decision

and when presented, the reviewing court shall decide all

relevant questions of law, interpret constitutional and stat-

utory provisions, and determine the meaning or applica-

bility of the terms of an agency action. The reviewing

court shall—

(1) compel agency action unlawfully withheld or un-

reasonably delayed; and

*

A21

(2) hold unlawful and set aside agency action, find-

ings, and conclusions found to be—

(A) arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law;

(B) contrary to constitutional right, power, privilege,

or immunity;

(C) in excess of statutory jurisdiction, authority or

limitations, or short of statutory right;

(D) without observance of procedure required by

law;

(E) unsupported by substantial evidence in a case

subject to sections 556 and 557 of this title or otherwise

reviewed on the record of an agency hearing provided by

statute; or

(F) unwarranted by the facts to the extent that the

facts are subject to trial de novo by the reviewing court.

In making the foregoing determinations, the court shall

review the whole record or those parts of it cited by a

party, and due account shall be taken of the rule of prej-

udicial error.