Petition — Colonial Bank & Trust Co. v. Department of Financial Institutions of Indiana

IN THE MICHAEL R8DAK, JR., CLERK

Supreme Court of the United States

NOVEMBER TERM, A.D., 1978

——78 -887

CoLton1aL Bank & Trust Company, }

Petitioner,

vs.

DEPARTMENT OF FINANCIAL

INSTITUTIONS,

Respondent. |

PETITION FOR WRIT OF CERTIORARI TO THE

SUPREME COURT OF INDIANA

Dean E. Ricwarps

156 E. Market, 7th Floor

Indianapolis, Indiana

Counsel for Petitioner

TueoporeE L. SENDAK

Attorney General of Indiana

Offices of The Attorney General

219 State House :

Indianapolis, Indiana

Attorney for Respondent

C. E. Pauley & Co., In«., Indianapolis

INDEX

Page

The Opinion Below _ -adeashaliliapatataail 2

Statement of the Jurisdiction 2

Question Presented 2

Constitutional Provision Involved .... 2

Stokeamia ai Uk Cane ce 3

ek hf . SRR Un OTe EEE nC 24

CUD.» iiciscisicspicn db baieatcalakbletigteabablatlibces tikes basanbecsiodiiedike 30

APPENDIX A

May 15, TONG Ti iii a sietnstcataen peice 2

APPENDIX B

Petition For Rehearing Denied -..W2.222...2..22.2..21.e-eceeeeeees 2

AUTHORITIES CITED

Page

State ex rel Dybdal v. State Securities Commission, 145

Minn. 221, 176 N.W. 759, 760 (1940) 0.0.0.2... eeeeeee 7, 26

Central Bank of Clayton v. State Banking Board of Mis-

sous, SOD BW. Ba TTB (OTE) ances cass, peaseccenccncessnvesees 8, 26

Farmers State Bank, LaGrange v. Department of Finan-

ctal Institutions, 355 N.E. 2d 277 .............s-ccecceeseceeeees 26, 27

Morgan v. Nelson, 322 Mich. 230, 33 N.W. 2d 772, 778

SEEMED sal OLE SSA Seer oo Oe eee 26

Mashak v. Poelker, 367 S.W. 2d 625, 623 ......0..........::-00020-++ 27

Bank of New Bern v. Wachovia Bank & Trust Co., 355

We COI: GU, CHP REED rcitecpeetecsnbincvesczecsaccsueninaess 27

United Mine Workers v. Pennington, 381 U.S. 657, 85

le Rt ee ROOD ek ihcasletideminnsdeithanpecaudasiegcnieasepsidninommnsiiches 28

California Motor Transport Co. v. Trucking —

GOR RE Tes Dy Tee nisin ringecs 28

Central Bank of Clayton v. Clayton Bank, 424 Fed. Supp.

FB | EMRE RAIL SI OE ret POMEL OE rE I 28

United States v. Philadelphia Nat. Bank, 374 U.S. 321,

DO Titel ee Oy ey he BAI ects ci scesctsncncncecene 28

Howard Savings Institution of Nurich, 32 N.J. 29, 159

Wis: BIG Me alicyclic tepadesiisteccdeatdatincital indapabicabadsassdeicsaneakoaledaos 28

Wall v. Fenner, 76 S.D. 252, 76 N.W. 2d 722 (1956) ........ 29

Banking Board v. Turner Industrial Bank, 165 Col. 147,

WE MN tia, CRI his cles t diet iee Meranciaccataienctios 29

Wilmington Savings Fund Society v. Green, 300 A. 2d

ys GURENER RI BASED ne Wiet Na ect cb NDNA UPS 5 RRS aaea 29

First Federal Saving & Loan Assoc. v. Department of

Banking, 188 Neb. 215, 196 N.W. 2d 105, (1972) ........ 29

State Bank of Plainfield, 61 N.J. super. 150, 160 A. 2d

SR cree a es Ae 29

Chimney Rock National Bank of Houston v. State Bank-

ing Board, 376 S.W. 2d 595 (Tex. Civ. App. 1964) ...... 29

iii

IN THE

Supreme Court of the United States

NOVEMBER TERM, A.D., 1978

No.

CotoniaL Bank & Trust Company, |

Petitioner,

vs.

DEPARTMENT OF FINANCIAL

INSTITUTIONS,

Respondent. |

PETITION FOR WRIT OF CERTIORARI TO THE

SUPREME COURT OF INDIANA

To the Chief Justice of the United States and the Associ-

ate and the Associate Justices of the United States

Supreme Court:

Petitioner respectfully asks this Honorable Court to is-

sue a Writ of Certiorari to review the judgment of the

Indiana Court of Appeals which reversed and remanded

the decision of the Marion County Superior Court, Room

No. 3, which reversed the findings of the Respondent, De-

partment of Financial Institutions which denied the Peti-

tioner a new state bank charter in Zionsville, Indiana.

The Petition For Rehearing was denied on August 10,

1

2

1978, and the decision of the Court of Appeals of Indiana

was dated May 11, 1978.

THE OPINION BELOW

The final opinion of the Indiana Court of Appeals which

denied the Petitioner’s application for a new bank charter

which was granted by the Court below was dated May 11,

1978, under Cause No, 2-975-A-254 and has been cited as

375 N.E.2d 288.

STATEMENT OF JURISDICTION

Denial of the Petition For Rehearing to the Indiana

Court of Appeals took place on August 11, 1978. The stat-

utory provision believed to confer upon this Court is Title

28, United States Code, Section 1257 as amended. The Peti-

tioner alleges no Petition to Review by State Supreme

Court and appeals from Indiana Court of Appeals Decision.

QUESTION PRESENTED

Whether the Indiana Department of Financial Institu-

tions’ definition and usage of the ‘‘Public Necessity”’’ re-

quirement in chartering new state banks tends to create

a regulated monopoly of banking in Indiana in violation

of Federal Antitrust Laws.

CONSTITUTIONAL PROVISIONS INVOLVED

Whether the Petitioner’s constitutional right to engage

in the business of banking was violated by the actions of

the Respondent and whether Respondent’s action violated

the due process provision of the Constitution of the United

States and violation of the Sherman Antitrust Act 15

USCA Sections 1 and 2 and the Clayton Act Section 4,

15USCA Section 15.

3

STATEMENT OF THE CASE

An application for the organization of a new commercial

banking institution to be known as Colonial Bank and

Trust Company, located at 385 South Main Street, Zions-

ville, Boone County, Indiana, was filed with the Depart-

ment of Financial Institutions on June 5, 1974, pursuant

to IC 28-1-2-22 (R. 30, 239). A hearing on the application

was held on July 12, 1974 and continued to August 2, 1974

in Zionsville, Indiana. (R. 29) ostensibly. On September

23, 1974 the Department of Financial Institutions issued

its findings of fact, conclusions, and order which denied

the application because, the Board said there was no public

necessity for a new bank in the proposed service area of

Colonial Bank and Trust Company (R. 30, 33). Notice of

the appellants findings, conclusions and order was not

received by Appellee until October 11, 1974, and was mailed

on the date of October 8, 1974.

On January 10, 1975 the plaintiff Colonial Bank and

Trust Company filed a Petition for Judicial Review, orig-

inally filed in Boone County on October 23, 1974 and

venued to Marion County (R. 16). In April 1975 arguments

were heard on the Petition for Judicial Review (R. 132-

133). Both parties filed briefs on the substantive issues

involved (R. 135-150, 163-180). On June 3, 1975 the court

overruled defendant’s Request to Include Omitted Docu-

ments (R. 181). The court concluded that the defendant’s

denial of plaintiff’s application was arbitrary, capricious,

contrary to law, and without proper procedure. The mat-

ter was remanded to the department for further proceed-

ings. The court’s findings of fact, decision and order,

omitting caption and signature reads as follows:

4

FINDING OF FACTS AND DECISION

This matter is before the Court pursuant to a

petition for judicial review filed by plaintiff

Colonial Bank and Trust Company requesting a

judicial review of the denial of its application to

organize a new commercial bank in Zionsville, Indi-

ana. The record in this matter shows that the de-

fendant Department of Financial Institutions de-

nied said application and issued its ‘‘Findings of

Fact, Conclusions and Order’’ denying said appli-

cation and that this matter was venued from the

Boone County Superior Court to this Court for de-

termination.

The Court will deal with the procedural questions

raised by the parties first. After a review of the

procedural questions involved, the Court has

determined that the Department of Financial Insti-

tutions has committed serious procedural irregular-

ities in this matter. The Administrative Adjudica-

tion Act, IC 1971, 4-22-1-1 through 30, establishes a

uniform method of administrative adjudication to

be followed in these matters. Also involved are cer-

tain procedural requirements as set out in the

Financial Institutions Act, IC 1971, 28-1-2-25. The

Department has chosen to interpret these rules in

its own way, of which this Court does not alto-

gether agree.

The Administrative Adjudication Act requires

that notice of a decision or order by the Depart-

ment of Financial Institutions shall be made to a

party in writing and by certified or registered mail.

In this matter, the Department admittedly failed to

do this. It is noted that the application form sup-

plied to the plaintiff required the plaintiff to furnish

the name of a registered agent for the Department

to deal with in matters relating to the applica-

tion. In this case, the registered agent named in

the application was ‘‘Dean E. Richards, Attorney

4)

at Law, 156 East Market Street, 13th Floor, Inland

Building, Indianapolis, Indiana’’, The Depart-

ment’s records do show that a notice of its de-

termination and order relating to plaintiff’s appli-

cation was sent to ‘‘Dean E. Richards, Attorney

at Law’’, at another address. For some unknown

reason, ‘‘Ralph Atkinson’’ was listed by the De-

partment as the applicant’s representative in the

Department’s ‘‘Findings of Fact, Conclusions and

Order’’.

Further, under IC 1971, 28-1-2-25, the Depart-

ment is given sixty (60) days from the date of the

hearing to either approve or disapprove said ap-

plication. Plaintiff did not receive any notice of

determination until after sixty (60) days had

passed. This Court does not accept the Depart-

ment’s argument that so long as a decision is made

within sixty (60) days from the hearing, the De-

partment can give notice of its decision to an ap-

plicant any time it deems reasonable. This Court

finds that the Department of Financial Institutions

had failed to observe mandatory procedural re-

quirements as set out under the Administrative

Adjudication Act.

Further, the parties to this action have filed sev-

eral pleadings which this Court has taken under

advisement. The Court now overrules defendant’s

motion to dismiss plaintiff’s petition for judicial

review. The Court finds that the matters raised in

defendant’s motion are without merit. The Court

further overrules requests of both parties to include

additional documents into the transcript of this

proceeding.

In reviewing the substantive issues presented by

the plaintiff in this matter, the Court finds the De-

partment of Financial Institutions, under IC 1971,

28-1-2-26, is required to investigate the applicant

and make a determination relative to (1) the fi-

6

nancial standing and character of the incorporators

or organizers, (b) the character and qualifications

and experience of the officers of tiie proposed fi-

nancial institutions, (c) the public necessity for the

financial institution in the community in which such

proposed financial institution is to be established

and (d) the adequacy of the proposed capital of

the proposed bank.

In the Department’s ‘‘Conclusions’’, paragraphs

b, e, and d, it determined the financial standing of

the organizers to be satisfactory, it determined the

character, qualification and experience of the offi-

cers to be satisfactory and it determined that the

capitalization was adequate. Under paragraph g of

said ‘‘Conclusions’’, the Department stated that

there was no public necessity for applicant’s pro-

posed commercial bank.

Thus, the issue in this case is whether the Depart-

ment’s findings relative to the public necessity issue

was either arbitrary and capricious, contrary to law

or without observance of procedure required by

law. From the reading of the Department’s ‘‘ Find-

ings of Fact, Conclusions and Order’’, it is ap-

parent that plaintiff’s application was denied be-

cause the Department felt there was ‘‘no public

necessity’’ for a new commercial bank in the com-

munity inasmuch as the banking needs of the service

area were being well served by the existing financial

institutions doing business in the proposed service

area.

This Court’s review of actions of the Depart-

ment of Financial Institutions, as with any ad-

ministrative agency, is severely limited. This Court

ean only review the facts appearing in the certified

record of the agency’s proceedings which led to its

decision. This it has done. The Department of Fi-

nancial Institutions, and not this Court, determines

the issues of fact and this Court cannot and will not

7

weigh conflicting evidence in the record. This Court

has only to affirm or remand this matter to the

Department for further proceedingsa In this matter

the Court finds no need to weigh the evidence or to

disturb the ‘‘ Findings of Fact’’ and ‘‘Conclusions’’

made by the Department in this matter.

The issue in this matter is whether the Depart-

ment properly construed the meaning of ‘‘ public

necessity’’ as set out in IC 1971, 28-1-2-26. The

Department has construed the meaning of ‘‘ public

necessity’’ in its absolute literal sense as shown in

paragraph g of its ‘‘Conclusions’’ wherein it ‘‘there

is no public necessity at this time for applicant’s

proposed commercial bank in the community in

which such proposed bank is to be established, in-

asmuch as the banking needs of the applicant’s

proposed service area, are being well served at this

time by the several financial institutions doing busi-

ness in the proposed service area of the applicant.’’

This Court finds that said construction of the

term ‘‘publie necessity’’ by the Department is im-

proper. This provision in the Act is for the public

protection and not for the protection of existing

financial institutions. It was passed, not to prevent

new banks from entering into the market place, but

to insure the existence of a healthy banking system

in a given community. As set out in State ex rel.

Dybdal v. State Securities Commission, 145 Minn.

221, 176 N.W. 759, 760 (1920), the Minnesota Su-

preme Court construed a ‘‘reasonable public de-

mand’’ chartering provision as follows:

‘*. .. It (the statute) does not intend that one

or more established banks may keep out another

because the banking facilities sufficiently take

care of the banking business. Its purpose is not

to deter competition or foster monopoly, but to

guard the public and public interests against im-

prudent banking.’’

8

The Michigan Supreme Court in Morgan v.

Nelson, 322 Mich. 230, 33 N.W. 2d 772, 778 (1948),

likewise rejected a reading of ‘‘need’’ or ‘‘neces-

sity’’ in the absolute sense and ordered a bank

charter to issue, even though the area to be served

by the new bank was well served by several well

established banks. A recent case also adopting this

interpretation is Central Bank of Clayton v. State

Banking Board of Missouri, 509 S.W.2d 175 (1974).

If the Department of Financial Institutions would

be allowed to construe the term ‘‘ public necessity”’

in the absolute literal sense they have employed in

this case, it would tend to deter competition and

foster a monopoly. This Court does not believe

that the Financial Institutions Act intended to ere-

ate a regulated monopoly of banks in Indiana. That

further the Court notes that the ‘‘Findings of

Facts, Conclusions and Order’’ shows that, of the

seven member board, five new members including a

new chairman, were appointed shortly before the

Department’s ruling and that the new board could

have been unfamiliar with the consequences of its

literal interpretation of the ‘‘public necessity”’

provisions,

If, in this matter, the Board had found that

another bank in the designated service area would

have tended to seriously injure the existing financial

institutions already there, and bring about bank

failures, then the Department could properly re-

strict competition in order to promote banking

safety. In the present case, however, the Depart-

ment failed to find any such conditions endanger-

ing banking safety and this Court states that there

is no substantial evidence in the record of the pro-

ceedings to support such a finding if it had been

made.

9

ORDER

It is therefore found by this Court that the De-

partment’s denial of plaintiff’s application was

arbitrary and capricious and that said Depart-

ment’s decision was contrary to law and without

observance of procedure required by law and that

this matter is hereby remanded to the Department

for further proceedings. This Court further retains

jurisdiction of this case pending further determina-

tion by the Department.

On July 21, 1975 the plaintiff Colonial Bank & Trust

Company filed a Motion to Compel Action (R. 189-191).

The court ordered the defendant Department of Financial

Institutions to show cause why within twenty (20) days

the re-determination as previously ordered by this court

had been withheld or delayed (R. 193). On July 23, 1975

the defendant Department of Financial Institutions filed a

Petition to Stay the court’s order of July 21, pending

disposition of defendant’s Motion to Correct Errors (R.

196-199). Said petition was granted until August 21, 1975

(R. 200). The defendant filed a Motion to Correct Errors

on July 41, 1975 (R. 202-210). On August 21, 1975 a hearing

was held on plaintiff’s Motion to Compel Action and on

defendant’s Petition for Stay and Motion to Correct Er-

rors. The cause was taken under advisement with the

parties requested to submit briefs by August 29. (R. 211).

The defendant submitted its memorandum on August 28,

1975 (R. 212-221), and the plaintiff’s memorandum was

filed on September 9, 1975 (R. 223-228). On September 10,

the court overruled defendant’s Petition to Stay and

Motion to Correct Errors. (R. 229). On September 30,

1975 the defendant filed a Praecipe (R. 231). The defend-

ant’s Motion to Clarify the Court’s Order, filed on Novem-

ber 6, 1975, was overruled (R. 233-236).

10

On November 20, 1975 the defendant Department of

Financial Institutions held a hearing (R. 25-124). On

December 18, 1975 the members of the Department re-

viewed the transcripts and exhibits of the hearings held

on July 12, 1974, August 2, 1974 and November 20, 1975

and again denied the plaintiff’s application (R. 127). On

January 14, 1976 the defendant issued findings of fact,

conclusions and an order (R. 43-252). The plaintiff filed

a Petition for Further Judicial Review on January 30,

1976 (R. 239-241). The court issued a Notice of Hearing

ordering the defendant to file with the court a copy of the

transcript of the proceedings of November 20, 1975 and

to appear on March 12, 1976 for a hearing to ascertain

whether the defendant complied with tue court’s order of

June 3, 1975 (R. 271). The hearing was continued, at de-

fendant’s request, to March 29, 1976 (R. 295). The hearing

was held on March 29, 1976 (R. 299-345). The court de-

termined on May 6, 1976 that the defendant’s denial of

plaintiff’s application for a charter was not supported by

substantial evidence anc ordered the defendant to approve

the application within ten (10) days and deliver the charter

to the court (R. 361). The court’s findings of fact, con-

clusions and order omitting caption and signature, read as

follows:

FINDINGS OF FACT

This matter is again before the Court pursuant

to a petition for judicial review filed by plaintiff

Colonial Bank and Trust Company requesting a

judicial review of the denial of its application to

organize a new commercial bank in Zionsville, Indi-

ana.

An application for the organization of the new

commercial banking institution to be known as

Colonial Bank and Trust Company, to be located at

11

385 South Main Street, Zionsville, Boone County,

Indiana was filed with the Department of Financial

Institutions on June 5, 1974, pursuant to IC 1971,

28-1-2-22.

The requisite notices were published and the hear-

ing was held on the application on July 12, 1974 at

which time the plaintiff herein presented evidence

in support of its application. The hearing was con-

tinued by the Department of Financial Institutions,

but before the next hearing was held on August 2,

1974, a new Board was named to the Department

of Financial Institutions by the Governor of Indi-

ana. At the continued hearing on July 12, 1974, the

new Board heard the remainder of the plaintiff’s

evidence in behalf of the application and heard in

full the two remonstrator’s cases in opposition to

the granting of a new charter.

The record shows that the defendant Department

of Financial Institutions denied the application in

its ‘‘Findings of Fact, Conclusions and Order’’

issued to applicant on October 11, 1974 (by letter

dated October 8, 1974) which was purportedly made

on September 23, 1974. A law suit was filed there-

after, and this matter was venued from the Boone

County Superior Court to this Court for judicial

review.

The Court, in its Decision of June 3, 1975, dealt

with the procedural questions raised in the review

and the Court determined that the Department of

Financial Institutions had committed serious pro-

cedural irregularities in this matter. The Admin-

istrative Adjudication Act, IC 1971, 4-22-1-1 through

30, established the procedure to be followed, in

addition there were certain procedural requirements

set out in the Financial Institutions Act, IC 1971,

28-1-2-25. The Court found, and still finds, that the

Department interprets these rules in a manner not

in compliance with the Acts.

12

The Administrative Adjudication Act requires

that notice of a decision or order by the Depart-

ment of Financial Institutions shall be made to a

party in writing and by certified or registered mail.

The Department admittedly failed to do this, It is

noted that the application form supplied to the

plaintiff required the plaintiff to furnish the name

of a registered agent for the Department to deal

with in matters relating to the application. In this

case, the registered agent named in the application

was ‘‘Dean E. Richards, Attorney at Law, 156 Kast

Market Street, 13th Floor, Inland Building, Indi-

anapolis, Indiana’’. The Department’s records show

that a notice of its determination and order relating

to plaintiff’s application was sent to ‘‘Dean KH,

Richards, Attorney at Law,’’ but not to the correct

address listed. For some unknown reason, ‘‘ Ralph

Atkinson’’ was listed by the Department as the ap-

plicant’s representative in the Department’s ‘‘ 'ind-

ings of Fact, Conclusions and Order.’’

Further, under IC 1971 28-1-2-25, the Department

is given sixty (60) days from the date of the hearing

to either approve or disapprove said application.

Plaintiff did not receive any notice of determination

until after sixty (60) days had passed, This Court

did not and does not accept the Department’s con-

tention that so long as a decision is made within

sixty (60) days from the hearing, the Department

can give notice of its decision to an applicant any

time it deems reasonable. This Court found that the

Department of Financial Institutions had failed to

observe mandatory procedural requirements as set

out under the Administrative Adjudication Act.

This Court is aware that a decision or verdict of

the administrative agency is contrary to law if any

statute, constitutional provision, legal principle or

rule of substantive or procedural law has been

violated. This Court finds that the procedural rules

13

as required by the Administrative Adjudication Act,

have been violated, with harm to the applicant bank,

by reason of the failure of the Department of Fi-

nancial Institutions to notify the applicant Colonial

Bank of the initial denial of iis charter within the

sixty (60) day period required by statute.

In reviewing the substantive issues presented by

the plaintiff in this matter, the Court found the

Department of Financial Institutions, under IC

1971, 28-1-2-26, is required to investigate the ap-

plicant and make a determination relative to (a)

the financial standing and character of the incor-

porators or organizers, (b) the character and quali-

fications and experience of the officers of the pro-

posed financial institution, (¢) the publie necessity

for the proposed financial institution in the com-

munity in which such proposed financial institution

is to be established and (d) the adequacy of the

proposed capital of the proposed bank.

The Department in its original ‘‘Conclusions’’ (in

paragraphs b, ¢, and d) determined the financial

standing of the organizers to be satisfactory, de-

termined the character, qualification and experience

of the officers to be satisfactory and determined

that the capitalization was adequate. Then, in para-

graph g of said ‘‘Conclusions’’, the Department

stated that there was ‘‘no public necessity’’ for

applicant’s proposed commercial bank. The Court,

after reviewing carefully the Record and from read-

ing the Department’s original ‘‘Findings of Fact,

Conclusions and Order,’’ determined that plaintiff's

application was denied solely because the Depart-

ment felt there was ‘‘no public necessity’’ for a

new commercial bank in the community, based on

the Department’s finding that: ‘‘there is no public

necessity at this time for applicant’s proposed com-

mercial bank in the community in which such pro-

posed bank is to be established, inasmuch as the

14

banking needs of the applicant’s proposed service

area, are being well served at this time by the sev-

eral financial institutions doing business in the pro-

posed service area of the applicant.’’

This Court found that the application of the re-

quirement ‘‘publie necessity’? by the Department

was improper and that this provision in the Act

is for the public protection and not for the protec-

tion of existing financial institutions and was

passed, not to prevent new banks from entering into

the market place, but to insure the existence of a

healthy banking system in a given community.

The Court further determined that if the Depart-

ment of Financial Institutions would be allowed to

apply the requirement ‘‘publie necessity’’ in the

absolute literal sense they had employed in this

case, it would tend to deter competition and foster

a monopoly. This Court stated, and still believes,

that the Financial Institutions Act was not intended

to create a regulated monopoly of banks in Indiana,

The Court found that if the Department, based

on substantive evidence, had found that another

bank in the designated service area would have

tended to seriously injure the existing financial

institutions already in the service area, and bring

about bank failures, then the Department could

have properly restricted competition in order to

promote banking safety. The Court noted however,

that the Department failed to find any such condi-

tions endangering banking safety and this Court

stated that there was no substantial evidence in the

record of the proceedings to support such a finding

if it had been made,

As a result of the findings made in the judicial

review, the Court on June 3, 1975, found that the

Department’s denial of plaintiff’s application was

arbitrary, capricious, contrary to law and without

observance of procedure required by law. The Court

15

remanded the matter to the Department for further

proceedings not inconsistent with the Court’s find-

ings. The Court retained jurisdiction of this case

pending that further determination by the Depart-

ment as ordered.

After several delays by the Department, an addi-

tional hearing to determine ‘‘ public necessity’’ pur-

suant to the order of this Court was finally held, on

November 20, 1975. The Department and the plain-

tiff stipulated as to records and that the only issue

was the ‘‘publie necessity’’ issue.

The Department in its Order dated January 14,

1976, Ordered that the charter for the new bank be

again denied. This was based upon the following

findings and conclusions;

‘*7, That according to the official published call

reports, Midwest National Bank has op-

erated at a loss since it’s inception in 1972;

8. That according to the call reports Midwest

National Bank lost approximately $198,000

in 1974, and lost approximately $56,000 in

the first six months of 1975. (Transcript

pp. 40,40) ;

9. That Midwest National Bank advertises

widely within applicants trade area and

that Midwest service area overlaps with

the service area which applicants propose

which would result in increased competi-

tion for Midwest National Bank which is

presently experiencing financial difficulties.

(Transcript pp. 42, 58, 61);

10. That Carmel Bank and Trust Company

has lost money since it came into existence

according to the Call Reports;

11. That Carmel Bank and Trust lost approxi-

mately $114,000 before special charges of

$21,113 in 1974, and lost approximately

12.

13.

16

$60,000 in the first six months of 1975.

(Transcript pp. 46, 47);

That Carmel Bank and Trust Company

advertises in the same trade area as the

proposed Colonial Bank and Trust Com-

pany and that the two trade areas actually

overlap. (Transcript pp. 42, 53, 61);

That the granting of a bank charter at the

proposed site might tend to cause serious

harm at this time to two existing financial

institutions which are presently experienc-

ing financial problems

CONCLUSIONS

Midwest National Bank has uperated un-

profitable from the date of its opening in

1972; it incurred an operating loss of $198,-

000 in 1974, and continued to operate un-

profitable during the first six months of

1975, the most recent period for which

figures are available, losing an additional

$56,000, resulting in a diminution of its un-

divided profits account to only $39,155.

Carmel Bank and Trust Company operated

unprofitably during the first six months of

1975, the most recent period for which

figures are available.

Both Midwest National Bank and Carmel

Bank and Trust and Company operate,

advertise and compete for banking busi-

ness within the proposed service area.

The chartering of another commercial bank

within Applicant’s proposed service area

will tend to seriously injure at least two

existing commercial banks now operating

within Applicant’s proposed service area,

and possibly bring about a bank failure of

17

an existing bank now operating within Ap-

plicant’s proposed service area.

E. Based upon the requirement of ‘‘public

necessity’’ as set forth at IC 1971, 28-1-2-6

and as further defined by Judge Barteau’s

Order of June 3, 1975, there is not at this

time a ‘‘public necessity’’ for a new com-

mercial bank in Applicant’s proposed serv-

ice area.’’

This Court now finds, after a review of all the

evidence which appears in the record of the various

hearings, that there is no substantial evidence to

support the Order of the Department of Financial

Institutions in denying the applicant Colonial Bank

and Trust Company a charter for a new bank.

This Court has not attempted to review the evi-

dence and make its own special findings of fact

which are contrary to those of the Department of

Financial Institutions. This Court, in reviewing the

action of the Department is aware that under the

law it has no right to weigh conflicting evidence or

to chose that evidence which it sees fit to rely on.

The Court has not done so, as it is aware that the

Administrative Adjudication Act gives this fact

finding function solely to the adminstrative body.

However, This Court has determined that there is

no substantial evidence to support the findings,

conclusions and order of the Department of Finan-

cial Institutions and that their action was arbitrary

and capricious and contrary to the law.

This Court finds that there is no evidence of

probative value to support the Findings and Con-

clusions of the Department of Financial Institutions

at the rehearing of November 20, 1975, there was

one witness; namely Thomas Gruhl, president of

the remonstrator Farmer’s State Bank, which is

located within the City of Zionsville, Indiana ap-

proximately two or three blocks from the proposed

18

site of Colonial Bank and Trust Company. Thus,

the service area for the new bank would be the same

as the service area for Farmer’s State Bank. Yet,

the witness Thomas Gruhl, when asked how many

banks were located in the service area of Farmer’s

State Bank, stated:

‘*A. I would say approximately five or six.

Q. Five or six. And would you name them for

the Board?

A. Citizens Bank has a Whitestown branch

that would be; Boone County State Bank has a

branch at Eagle Village; Fidelity Bank of Indi-

ana has a branch on North Michigan Road at

Mayflower; Indiana National Bank and Merchants

National Bank of Indianapolis have branches in

the—I believe it would be—I’m not sure what

hundred block, its just east of Zionsville Road on

86th Street.’’ (Hearing tr. pp. 55, 56)

The Court notes that it is only in the most recent

and Conclusions that the Department has claimed

that the Midwest National Bank and the Carmel

State Bank are competitors in the proposed service

area. In fact, the Board found in its determination

in Finding ¢9 that:

‘* Applicant’s proposed service area will include

the city of Zionsville and all or portions of Eagle,

Union, and Worth Townships with the primary

service area being located in the southern corner

of Boone County. In addition, Applicant’s pro-

posed service area will include a small part of

extreme northwestern Marion County and a small

portion of southeastern Hamilton County.”’

Other than mentioning in Finding $10 of the

first determination that residents of Boone County

have ‘‘close economic ties with Marion County,’’

there was no finding that Midwest National Bank

or Carmel Bank were competitors in the service

19

area. In Finding #14, the Board did mention some

Marion County banks whose service area over-

lapped that of the proposed new bank, as follows:

‘‘Immediately adjacent to Applicant’s proposed

service area to the south and east, People’s Bank

and Trust Company, American Fletcher National

Bank, Indiana National Bank and Merchant’s

National Bank and Trust Company have in op-

eration or proposed six branch offices. Service

areas of these branch banks overlap to a large

extent with Applicant’s proposed service area.’’

However, Midwest National Bank is not mentioned,

showing this Court that only as an after thought has

the Department brought in the Midwest National

Bank as a factor.

Moreover, the Finding that ‘‘Carmel Bank and

Trust Company has lost money since it can-e into

existence’’ in 1974 is very misleading, especially

since it was brought out that a new bank, Fidelity

Bank, located much closer to the proposed service

area of applicant bank, was doing very well. More-

over, the evidence does not show Midwest National

Bank and Carmel Bank are in the ‘‘service area’’

of the applicant bank. Further, in the brief and the

proposed findings by the Department, and in the

new additional Findings and Conclusions, the De-

partment has tried to interchange the terms ‘‘serv-

ice area’’ and ‘‘trade area.’’ The two terms, how-

ever, are not interchangeable as stated in oral

argument. The Department itself has admitted that

the proposed service area does not include Midwest

National Bank and the Carmel State Bank. The

Court finds the Department has arbitrarily and

capriciously varied the terminology of the statutory

requirements in an effort to deny to the plaintiff

a charter.

In its decision of June 3, 1975 the Court found

that the construction of the term ‘‘public necessity’’

20

by the Department was improper. The Court found

that the Department was construing public neces-

sity in such a way that it was being used for the

protection of existing financial institutions and not

for the public’s protection. This Court found that

the Department was in practice construing the re-

quirement of ‘‘public necessity’’ to prevent new

banks from entering into the market place and not

to insure the existence of a healthy banking system

in a given community or service area. This Court

noted that if the Department was allowed to con-

tinue using and construing the term ‘‘public neces-

sity’’ in the absolute literal sense it had been em-

ployed, it would tend to deter and discourage

competition and foster a monopoly among the ex-

isting banks. This Court stated that if the Depart-

ment had, based upon the substantive evidence

before it, found that another bank in the ‘‘desig-

nated service area’’ would have tended to seriously

injure the existing financial institutions already

there and to bring about bank failure in the desig-

nated service area, the Department could have

properly restricted competition in order to permit

banking safety and to protect the public. But, the

Court found that there was no substantial evidence

in the record to support such finding if it had in

fact been made.

The Court now finds that at its rehearing on

November 20, 1975 the Department made such a

finding, but that finding was not based upon any

substantive evidence before it. True, there was some

evidence that there were two newly formed banks

at a distance from the service area which were

showing a ‘‘loss’’ position, however, there was no

evidence that this loss position was not the normal

and expected loss that new banks would experience

or that bank failure was expected. The Court notes

that the exhibits by the Applicant bank showed that

it would be in a ‘‘loss’’ position for a period of four

21

‘years, a condition the Department accepted as

normal,

The president of Farmer’s State Bank who was

the chief witness in the hearing could not state that

the five banks in his service area did not make a

profit. He did state that two of the banks, Indiana

National Bank and Merchants National Bank, did

make money (tr. p. 56).

The president of the protestant Farmer’s State

Bank acknowledged that, while originally he had

stated that Midwest National Bank in Indianapolis,

Indiana and Carmel Bank in Carmel, Indiana had

been ‘‘losing money’’ as shown by their reports to

the Director of the F'.D.I.C., he did not know wheth-

er this ‘‘loss position’? was ahead or behind the

projected earning schedule they had filed with the

Department of Financial Institutions in that Banks

had just recently opened’’ (tr. p. 58). The president

of Farmer’s State Bank stated that his bank did

make money during the previous year and its de-

posits were up for the year (tr. p. 60).

The Court finds that the Department expects new

banks to experience a projected loss situation for

some years after their opening, as they did with

the applicant bank. The Court finds the Department

has misused testimony of the normal expected oc-

currence upon which to base a finding that the

Midwest National Bank and the Carmel State Bank

are threatened by the proposed bank and that there

was no evidence of probative value to support such

a Finding or Conclusion.

This Court is further aware that the expressed

intent of the Administrative Adjudication Act was

to limit the reviewing Court’s authority to remand

a case to the administrative agency for further pro-

ceedings after the proper determination has been

made that the agency’s decision was without ob-

22

servance of procedure and was contrary to the law.

This the Court has previously done. This Court is

also aware that it has the power, if upon remand to

the administrative agency, the agency unlawfully

withholds or unreasonably delays the redetermina-

tion of the case, to compel agency action by direct

order. This the Court is reluctant to do unless a

clear case for it is shown. In this case, the Court

herein finds that the Department of Financial Insti-

tutions has delayed, for an unreasonable length of

time, the proper rehearing of the applicant’s case

and further finds that the rehearing held on Novem-

ber 20, 1975 did not meet with the instructions given

to the Department by this Court when it ordered

the rehearing. This Court further finds that the

rehearing of November 20, 1975 was but another

attempt at circumventing the Court’s previous

order and was a continuation of the Department of

Financial Institutions to deny, without basis in

substantive evidence or law, the application of

Colonial Bank and Trust Company for a State

Banking charter.

The Court acknowledges the general rule of law

that arbitrary or capricious action (as envisioned

in Administrative Adjudication Act) is action taken

without some basis which would lead a reasonable

and honest man to such action. The Court now finds

that the denial to the application Colonial Bank of a

State banking charter was such an arbitrary or

capricious action as was taken without basis (name-

ly the law of Indiana or being based upon sub-

stantial facts to support the action taken) as would

lead a reasonable and honest man to such an action.

This Court, looking to the evidence of probative

value which tends to support the determination by

the Department of Financial Institutions and per-

mitting all inferences from that evidence which are

most favorable to the decision by the Department,

23

now determines that the action of the Department

is not supported by substantial evidence or infer-

ences to be drawn therefrom.

This Court is aware that the Administrative Ad-

judication Act requires this Court on judicial re-

view to not try to determine the cause de novo, but

‘the facts shall be considered and determined ex-

clusively upon the record filed with said Court

pursuant to this Act.’’ The law also states that if

the administrative agency’s ‘‘finding, decision or

determination is supported by substantial, reliable

and probative evidence, such agency’s finding, de-

cision or determination shall not be set aside or

disturbed herein.’’ Pursuant to the requirements of

the statute and the law, this Court has considered

and determined exclusively upon the record filed

with this Court of the evidence given before the

Department in its various hearings. The Court has

not tried the matter as a new action nor has it

weighed the evidence to determine the facts as in

appeal de novo.

This Court now finds there is not substantial evi-

dence to support the Findings, Conclusion and

Order of the Department and it finds that the action

by the Department in denying the applicant bank a

new charter constituted an abuse of discretion and

was arbitrary and capricious as revealed by the

uncontradicted facts. Thus it also finds that the

Department’s Findings, Conclusions and Order ig-

nores and attempts to circumvent this Court’s order

of June 3, 1975; that the Department has unlawfully

and unduly delayed these proceedings in order to

discourage the investors and deny the granting of

a charter to the applicant Colonial Bank and Trust

Company. The Court finds that the Department’s

Findings, Conclusions, and Order denying the ap-

plication to charter a state bank in Zionsville, Indi-

ana should not be allowed to stand.

24

Upon the Court’s finding that the denial of the

charter is not based upon substantial evidence, and

because the evidence shows the Department of Fi-

nancial Institutions has unlawfully withheld and

unreasonably delayed action upon the application

for a charter, the Court now Orders the Department

of Financial Institutions to approve the Plaintiff’s

application and to issue and deliver the charter to

this Court within ten (10) days of this Order.

Wherein this Court will then make final disposition

herein. Colonial Bank and Trust, plaintiff herein,

is Ordered not to begin business until ‘it obtains

federal deposit insurance from the Federal Deposit

Insurance Corporation and permission from this

Court.

On May 13, 1976 the defendant filed a Petition to Stay

the court’s May 6 order pending appeal (R. 371-372) which

petition was denied (R. 374). On May 17, 1976 the de-

fendant filed a Motion to Correct Errors (R. 1-13, 382-

394), which motion was overruled (R. 373, 395), and a

Praecipe for the transcript (R. 399). Briefs were filed and

on May 11, 1978 the Indiana Court of Appeals issued its

decision. (See Appendix A), Petitioner filed its Petition

For Rehearing on May 30, 1978 and the Indiana Court

of Appeals denied said Petition on August 10, 1978. That

Petitioner now seeks a Writ of Certiorari before this

Honorable Court.

REASONS FOR GRANTING WRIT

The Petitioner argues that the Indiana Department of

Financial Institutions definition and usage of the public

necessity requirement in deciding whether to charter new

state banks in Indiana tends to foster a regulated monopoly

of banking in Indiana which results in violations of the

Federal Antitrust Laws. The present law of Indiana pro-

25

vides for a determination as to whether there is sufficient

public need or necessity to justify the granting of an

application for a new bank charter requires that decision

to be made by seven (7) persons which is composed of

the members of the Indiana Department of Financial

Institutions. Included in the seven (7) persons must be

at least five (5) Board Member who have ‘‘practical ex-

perience at the executive level’’ of financial institutions

and remaining consideration to be given to the ‘‘con-

sumer, agricultural, industrial and commercial interest of

the state’’ in the appointment of the remaining members

only, IC 28-1-2-2 as amended by 1974, PL 127, Section 1,

Page 536. Thus, in Indiana the regulation of financial

institutions are governed by a State Administrative Board

of which five (5) of the seven (7) members are required

by law to be executives from the various financial insti-

tutions existing in Indiana. This results in an industry

governing itself.

The Department of Financial Institutions in denying

Petitioner’s application stated that all requirements were

met by the Petitioner to form a new state bank with the

exception of the failure of the Petitioner to show that

there was sufficient ‘‘public necessity’’ to allow a new

bank in the service area where the proposed bank was to

be located. The Department of Financial Institutions in

construing the meaning of ‘‘public necessity’’ as set out

in IC 1971, 28-1-2-26 in its Findings Of Facts And Con-

clusions stated that ‘‘There is no public necessity at this

time for applicant’s proposed commercial bank in the

community in which such proposed bank is to be estab-

lished, insomuch as the banking needs of the applicant’s

proposed service area, are being well served at this time

by several financial institutions doing business in the

26

proposed service area of the applicant’’. The Petitioner

argues that said construction of the term ‘‘public neces-

sity’’ by the Department is improper even though twice

affirmed by the Indiana Court of Appeals in its present

decision and in the case of Farmers State Bank, LaGrange

v. Department of Financial Institutions, 355 N.E. 2d

277. The Petitioner argues that the provision cited above

in the Act is for the public protection and not for the

protection of existing financial institutions. It was passed,

not to prevent new banks from entering into the market-

place but to insure the existence of a healthy banking system

in a given community as set out in State ex rel Dybdal v.

State Securities Commission, 145 Minn, 221, 176 N.W.

759, 760 (1920), the Minnesota Supreme Court construed

a ‘‘reasonable public demand’”’ charting provision as fol-

lows:

‘* .. If (the statute) does not intend that one or

more established banks may keep out another be-

cause the banking facilities sufficiently take care of

the banking business. Its purpose is not to deter

competition or foster monopoly, but to guard the

publie and public interests against imprudent bank-

ing.’?

The Michigan Supreme Court in Morgan v. Nelson, 322

Mich, 230, 38 N.W. 2d 772, 778 (1948), likewise rejected a

reading of ‘‘need’’ or ‘‘necessity’’ in the absolute sense

and ordered a bank charter to issue, even though the area

that is to be served by the new bank was well served by

several well established banks. A recent case also adopt-

ing this interpretation is Central Bank of Clayton v. State

Banking Board of Missouri, 509 S.W. 2d 175 (1974).

The Central Bank of Clayton case stated:

‘Tt is not possible to give effect to legislative in-

tent expressed in this statute by construing ‘the

27

convenience and needs of the community’ in light

of the plain and ordinary meaning of the words,

In the case of Mashak v, Poelker, 367 S.W. 2d 625, 623,

the words themselves speak of ‘‘nebulous concepts’’. Bank

of New Bern v. Wachovia Bank & Trust Co., 353 F.

Supp. 648, (1.D.N.C, 1972).

‘“‘This statute is on its face written in vague and

abstract language, and it will not suffice to say, as

Respondent suggests, that the legislation intended

that the Board give percise meaning to the statu-

tory working. Where words in a statute are on their

face so abstract as to lack any limitation, as here,

such interpretation of legislative intent would give

the Board the power of roving commission, free in

each particular case to pick and choose from amount

the possible endless categories of issues and evi-

dence,’’

In the present case as shown in the lower Court’s opinion

and by reaffirming the Farmers State Bank, LeGrange

decision the Indiana Court of Appeals has allowed the

Department of Financial Institutions to ‘‘pick and choose’’

issues and doctrines to use to deny new bank charters in

Indiana. In the Farmers State Bank, LeGrange (supra)

public necessity was interpreted as follows:

‘*Publie necessity has been defined as a substantial

or obvious community need in light of the attendant

circumstances. It requires more than mere conven-

ience but less than absolute or indispensable need.

However, convenience may be properly considered

when supplemented by facts and circumstances

persuasive of necessity.’’

The Petitioner argues that to allow this interpretation

of a legislative intent to stand would give the Indiana

Department of Financial Institutions the right to protect

one existing bank in the area and the surrounding banks

28

from further competition as in the present case. The Board

conduct such as in the present case inhibits lawful compe-

tition in the banking community and tends to create a

regulated monopoly and the application of the Sherman

Antitrust Act and the Clayton Act would be justified.

United Mine Workers v. Pennington, 381 U.S. 657, 85 S.

Ct. 1585, (1965). California Motor Transport Co, v. Truck-

ing Unlimited, 404 U.S. 508, 92 S, Ct. 609. Central Bank of

Clayton v. Clayton Bank, 424 Fed. Supp. 163 (1967). That

further, in United States v. Philadelphia Nat. Bank, 374

U.S. 321, 10 L.Ed. 2d 915, 83 S. Ct. 1715 this Court stated:

‘‘Competition among banks exists at every level—

price, variety of credit arrangements, convenience

of location, attractiveness of physical surroundings,

credit information, investment advice, service

charges, personal accommodations, advertising, mis-

cellaneous, special and extra services—and it is

keen;

There is no reason to think that concentration is

less inimical to the free play of competition in

banking than in any other services industries, On

the contrary, it is all probability more inimical.

For example, banks compete to fill the credit needs

of businessmen. Small businessmen especially are,

as a practical matter confined to their locality for

the satisfaction of their credit needs, If the number

of banks in the locality is reduced the vigor of

competition for filling the marginal small business

borrower’s needs is likely to diminish. At the same

time, his concomitantly greater difficulty in obtain-

ing credit is likely to put him at a disadvantage

vis-a-vis larger businesses with which he competes.’’

The Petitioner further argues that the New Jersey

Supreme Court in application of Howard Savings Insti-

tution of Nurich, 32 N.J. 29, 159 A. 2d 113, (1959) held

that:

29

‘*But absolutely necessity for further facilities is

not essential. The public should always be entitled

to increase the interest rates and greater services

and convenience which proper competition may

well bring. Mere sufficience of existing facilities in

the sense of some existing banking facilities more

or less appropriately located in an area and fur-

nishing the usual gambit of services, is not in and

of itself sufficient basis to deny establishment of a

new institution or branch if the general economy of

the area and its reasonable potential are such that

there is room for a further installation without caus-

ing excessive competition with real harm to any in-

stitution or unduly affecting the ban*ing structure

at large.’’

Similarly in Wall v. Fenner, 76 S.D. 252, 76 N.W. 2d 722,

(1956) the South Dakota Court rejected the view that

because there are adequate (existing banking facilities)

that public convenience and necessity justifying another

bank cannot exist, and said:

‘Tf such were the case the statute would tend to

deter competition and foster a monopoly.’’ See also

Banking Board v. Turner Industrial Bank, 165 Col.

147, 437 P. 2d 531, (1968), Wilmington Savings Fund

Society v. Green, 300 A, 2d 227, (1972). First Fed-

eral Savings & Loan Assoc. v. Department of Bank-

ing, 188 Neb. 215, 196 N.W. 2d 105, (1972). Applica-

tion of State Bank of Plainfield, 61 N.J. super. 150,

160 A. 2d 299, (1960); and Chimney Rock National

Bank of Houston vy. State Banking Board, 376 S.W.

2d 595 (Tex. Civ. App. 1964).

30

CONCLUSION

Petitioner prays that a Writ of Certiorari issue and that

the decision of the Indiana Court of Appeals be reviewed

and reversed and remanded for further proceedings not

inconsistent with an appropriate opinion.

Dean E. Ricuarps

Attorney for Petitioner

Colonial Bank & Trust

Company

THEODORE L. SENDAK

Attorney General of Indiana

Offices of The Attorney General

219 State House

Indianapolis, Indiana

Attorney for Respondent

APPENDIX

Appendix A

IN THE

COURT OF APPEALS OF INDIANA

SECOND DISTRICT

DEPARTMENT OF FINANCIAL 7

INSTITUTIONS,

Appellant (Defendant Below),

Vs. > No. 2-975-A-254

CotontaL Bank & Trust

CoMPANY,

Appellee (Plaintiff Below). |

APPEAL FROM THE MARION SUPERIOR COURT,

NUMBER THREE

The Honorable Betty Barteau, Judge

Attorneys for Appellant: Attorney for Appellee:

TxxroporE L. Senpak Dean KE. Ricwarps

Attorney General of Indiana 156 Kast Market Street

Indianapolis, Indiana 46204

Susan J. Davis

Deputy Attorney General

Office of the Attorney General

219 State House

Indianapolis, Indiana 46204

33

34

CASE SUMMARY

Bucwanan, C.J.—The Department of Financial Insti-

tutions (Department) appeals a decision by the Marion

Superior Court, Number Three, reversing its denial of

Colomal Bank & Trust Co.’s (Colonial) application to

establish a new commercial banking institution, claiming

that any procedural errors by the Department were harm-

less, that the court misinterpreted ‘‘public necessity’’ as

stated in Inp. Cope 28-1-2-26, and that the denial by the

Department was supported by substantial evidence.

We reverse.

FACTS

On June 5, 1974, Colonial filed with the Department its

application for organization of a new commercial bank in

Zionsville, Indiana. After hearings, the application was

denied on September 23, 1974, due to a lack of a public

necessity for a new bank in the proposed service area.

Colonial petitioned for judicial review. The trial court

set aside the denial, finding that the Department had in-

correctly interpreted ‘‘public necessity’’ as used in Inp.

Copr 28-1-2-26,' and that the Department had failed to

meet two statutory procedural requirements.

1 Ind. Code 28-1-2-26 states:

Upon the filing of such application, the department shall make,

or cause to be made, a careful investigation and examination

relative to the financial standing and character of the ineorpora-

tors or organizers, the character, and qualifications and experience

of the officers of the proposed financial institution, of the public

necessity for the financial institution in the community in which

such proposed financial institution is to be established, and, if

the institution is to be a bank or trust company, of the adequacy

of the proposed capital thereof; and if the members of the de-

partment, after the hearing, as hereinbefore provided, shall

determine either of such questions unfavorably to such applicants,

the application shall not be approved, and if all such questions be

determined favorably, the application shall be approved, (Em-

phasis added )

35

Pursuant to the trial court’s order, the Department held

another hearing. On January 14, 1976, the application was

again denied.

Colonial filed a Petition for Additional Judicial Review.

The trial court, on May 6, 1976, found the denial was not

supported by sufficient evidence, and ordered the Depart-

ment to approve the application and issue a charter for

the new bank.

The Department appeals.

ISSUES

Three issues are presented:

1. What was the effect of certain procedural irreg-

ularities in notifying Colonial of the Depart-

ment’s decision?

2. Did the trial court correctly define public neces-

sity, as stated in Inp. Copr 28-1-2-26?

3. Was the Department’s decision supported by

any substantial evidence?

As to Issue One, the Department argues that any pro-

cedural irregularities were harmless, and therefore could

not be a basis for reversing its decision. Colonial maintains

it was harmed by procedural irregularities in that it did

not receive the form of notice to which it was entitled by

statute.

As to Issue Two, the Department contends that the trial

court erred by defining ‘‘public necessity’’ too broadly.

Colonial asserts that the court’s definition was correct and

in accord with case law.

As to Issue Three, the Department contends that given

the proper definition of ‘‘publie necessity’? there was sub-

stantial evidence to support its decision. Colonial main-

tains that the trial court using its own correct definition

of ‘‘public necessity’? properly found the Department’s

decision was not supported by substantial evidence.

36

DECISION

Issue One

CONCLUSION—Procedural irregularities in notifying

Colonial of the Department’s decision, if they existed, were

harmless and could not be the basis for reversing the

Department’s decision.

The trial court found two procedural irregularities in

providing Colonial with notice of the Department’s deci-

sion. First, the Department failed to notify Colonial of its

decision by certified or registered mail as required by Iyp.

Cope 4-22-1-1 through 30. Second, the Department failed

to give such notice of its decision within sixty (60) days

from the date of the hearing, as required by Inp. Cope

28-1-2-25.

The Department concedes that notice was not given by

certified or registered mail. But it disputes that Inv. Cope

28-1-2-25 requires notice of the Department’s decision must

be given within sixty (60) days.

We need not reach a decision on statutory interpreta-

tion, for these errors, if they exist, were harmless.

In judicial appeals from administrative decisions, trial

courts may not reverse for errors which are non-prejudicial

and harmless. Ogilvie v. Review Board of Indiana Employ-

ment Security Division (1972), 133 Ind. App. 664, 184 N.E.

2d 817; Deszancsity v. Oliver Corp. (1948), 118 Ind. App.

504, 81 N.E. 2d 703; 1 LL.E., Administrative Law & Pro-

cedure, § 80; 73 C.J.S., Public Administrative Bodies &

Procedure, § 252. See Indiana University v. Hartwell

(1977), — Ind. App. —, 367 N.E. 2d 1090; LZ. S. Ayres &

Company v. Indianapolis Power & Light Co. (1976), —

Ind. App. —, 351 N.E. 2d 814.

Colonial received notice of the Department’s decision by

regular mail. The notice was mailed October 8, 1974, and

received October 11, 1974—seventy (70) days after the

administrative hearing. Colonial claims harmful error only

in that it failed to receive notice to which it was entitled

by statute. Colonial does not claim, nor can we perceive

37

any way in which it could claim, that its substantial rights

were in any way compromised’ by the Department’s pro-

cedural irregularities.

As Colonial actually received notice of the Department’s

decision within a brief time after the sixty (60) day period,

and as Colonial has been able to avail itself of full judicial

review there has been no prejudice to its substantial rights.

Therefore the error is harmless and cannot serve as a basis

upon which to reverse the Department’s decision.

Issue Two

CONCLUSION—The trial court incorrectly defined ‘‘ pub-

lic necessity’’ as that term is used in Inp. Copr 28-1-2-26.

Public necessity is a substantial or obvious community

need in light of attendant circumstances. It is a somewhat

nebulous concept which requires more than mere con-

venience but less than absolute or indispensable need.

Farmers State Bank, LaGrange v. Dept. of Financial Insti-

tutions (1976), — Ind. App. —, 355 N.E. 2d 277. See VIP

Limousine Service, Inc. v. Herider-Sinders, Inc. (1976),

—Ind. App. —, 355 N.E. 2d 441.

The trial court was mistaken in finding that the Depart-

ment could rule there was no public necessity only if

‘‘another bank in the designated service area would have

tended to seriously injure the existing financial institutions

already there, and bring about bank failures.’’

Neither Colonial nor this court’s research has revealed

a single case in which public necessity for the establish-

2 Ind. Rules of Procedure, TR. 61:

No error in either the admission or the exclusion of evidence

and no error or defect in any ruling or order in anything done or

omitted by the court or by any of the parties is ground for

granting relief under a motion to correct errors or for setting

aside a verdict or for vacating, modifying or otherwise disturbing

a judgment or order or for reversal on appeal, unless refusal to

take such action appears to the court inconsistent with substantial

justice. The court at every stage of the proceeding must disre-

gard any error or defect in the proceeding which does not affect

the substantial rights of the parties. (emphasis added)

38

ment of a new bank was determined solely on whether its

creation would endanger an existing financial institution.

Among the factors to be considered in determining pub-

lie necessity are: a community’s population, including size,

composition, density and growth rate; economic growth

projections; the community’s current business situation;

investments by other companies anticipating growth; and

availability and quality of banking services provided by

existing institutions. Farmers State Bank, LaGrange v.

Dept. of Financial Institutions, supra.

Other factors which may be considered include: the

number of banks recently chartered compared to pro-

jected growth, Moran vy. Nelson (1948), 322 Mich. 230,

33 N.W. 2d 772; stimulation of banking competition within

the community, Second National Bank of Culpeper v. New

Bank of Culpeper (1974), 215 Va. 132, 210 S.E. 2d 136;

and whether the community is ‘‘overbanked’’, Western

Pennsylvania National Bank v. Myres (1962), 407 Pa. 298,

180 A. 2d 423.

Our decision as to what constitutes ‘‘public necessity’’

is controlled by Farmers State Bank, LaGrange v. Dept.

of Financial Institutions, supra.

In the hearings before it the Department heard and con-

sidered a broad range of circumstances encompassing the

various factors referred to above, and therefore acted

properly in reaching its decision.

The remaining question is whether, using the proper def-

inition of public necessity, the Department’s denial of Co-

lonial’s application was supported by substantial evidence.

Issue Three

CONCLUSION—The Department’s initial denial of Colo-

nial’s application was neither arbitrary nor capricious.

and was supported by substantial evidence.

An administrative decision can only be overturned if it

is not supported by substantial evidence or if uncontra-

39

dicted facts show the decision to be arbitrary and capri-

cious. The reviewing court can not substitute its judgment

for that of the administrative body. Dept. of Financial

Institutions v. State Bank of Lizton (1969), 253 Ind. 172,

252 N.E. 2d 248; City of Indianapolis v. Nickel (1975),

— Ind. App. —, 331 N.E. 2d 760; Indiana Alcoholic Bever-

age Commission v. Johnson (1973), 158 Ind. App. 467,

303 N.E. 2d 64.

When the legislature creates a fact finding body of ex-

perts, their decision should not be overridden merely be-

cause the reviewing court may have reached a contrary

opinion on the same evidence. Dept. of Financial Institu-

tions v. State Bank of Lizton, supra.

In the present case, the Department’s findings and con-

clusions in its initial denial of Colonial’s application were

neither capricious nor arbitrary and were supported by

substantial evidence.

Among the factors considered by the Department in its

denial were: The new bank offered no significant new

services in its proposed service area; the proposed service

area is close to Marion County and its residents have close

economic ties to Marion County; the proposed service area

contains the home office and branch of one bank, branches

of two other banks and the approved location of a branch

for an additional bank; Boone County’s bank office to pop-

nlation ratio is greater than all but one of the surrounding

counties; six branches of Indianapolis banks exist or are

proposed adjacent to the new bank service area; several

branch banks have been approved in the applicant’s serv-

ice area; and two new commercial banks were recently

chartered in Hamilton County immediately adjacent to the

proposed service area.

These facts clearly constitute a substantial basis upon

which the Department could find that no public necessity

existed at that time for a new bank in Zionsville. Conse-

quently we find the trial court erred in reversing the De-

partment’s determination. _

40

The judgment is reversed and this case is remanded to

the trial court for further proceedings not inconsistent

herewith. WHITE, J. and STATON, J. (by designation)

CONCUR.

Appendix B

STATE OF INDIANA

Indianapolis 46204

Cuerk or tae Supreme Court anp Court or APPEALS

Billie R. McCullough, Clerk

217 State House

Telephone 633-5200

Dept. oF FinancraL INstTITUTIONS

v. No. 2-975A254

CoLtoniaL Bank & Trust Co.

You are hereby notified that the Court of Appeal has on

this day—Appellee’s Petition for Rehearing DENIED.

Suuurvan, A.C.J.

Please acknowledge receipt of this notice in order that

our records may show that you have been notified of this

action.

WITNESS my name and the seal of said Court, this 10th

day of August, 1978

Billie R. McCullough

Clerk Supreme Court and Court of Appeals

8/10/78

No. 2-975A254

I hereby acknowledge receipt of the above notice

ij 197

Attorney For

Dean E. Ricwarps, Indpls.

Tueo, L. Senpax, Atty. Genl.

Return This Portion

41