Amicus Brief — Lewis v. BT Investment Managers, Inc.

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IN THE Tie :

Supreme Court of the United States

Ocroper Tera. 1979

No. 79-45

GERALD A. LEWIS, COMPTROLLEK OF THE Stark vr

FLORIDA, AND COMMISSIONER OF BANKING OF THE

STATE OF Fioripa, Appellant,

V.

BT INvestMENT Manacers, Inc., Ev AL. Appellees.

On Appeal From the United States District Court

for the Northern District of Florida

BRIEF IN SUPPORT OF APPELLANT OF

FLORIDA BANKERS ASSOCIATION

AS AMICUS CURIAE

J. THOMAS CARDWELL, ESQUIRE AND

MicHaeu P. McManon, Esquire or

AKERMAN, SENTERFITT & E1pson

Post Office Box 231

Orlando, Florida 32802

(305) 843-7860

Counsel for Amicus Curiae

The Florida Bankers Association

Pausss or Byron S. ADAMS PRINTING, INC., WASHINGTON, D. C.

TABLE OF CONTENTS

Page

So us a veges ndaebebebesbbten.e ii

STATEMENT OF INTEREST OF AmiICcUS CURIAE ........... 1

ARGUMENT

Intropuction: THe Historicat Perspective ..... 2

I. The Negative Implications Of The Commerce

Clause Do Not Invalidate State Regulation Of

The Ownership Of Financial Institutions Con-

sistent With Congressional Policy And Limited

To Intrastate Economic Activity ............ 7

II. The Negative Implications Of The Commerce

Clause Do Not Invalidate State Laws Requiring

State Chartering Of Trust Companies Doing

ED WHEE Oa TUEOD occ ceseccnrscscccece 16

rere kas te eneenavadbecow cee 20

TABLE OF AUTHORITIES

CasEs:

Alabama Ass’n of Ins. Agents v. Board of Governors,

St en Wee Se CUD GO. BCU) ccc cccccescceseuss 4

American Trust Co. v. South Carolina State Board of

Bank Control, 381 F. Supp. 313 (D. S.C. 1974) . .12, 14,

17

Asbury Hospital v. Cass County, 326 U.S. 207 (1945) .18, 19

Atlantic Refining Co. v. Virginia, 302 U.S, 22 (1937) .. 18

Baldwin v. Montana Fish and Game Comm’n, 436 U.S.

CD cccuceesosdcaceveetcenveccces 19

Bank of Augusta v. Earle, 38 U.S. (13 Pet.) 519 (1839) 18

Braeburn Securities Corp. v. Smith, 15 Tll. 2d 55, 153

A 960)" 806 (1958), appeal dismissed 359 U.S. 311

DUP Ua ENED VE Obs CAbAHeKb eee eneeieees 5

il Table of Authorities Continued

Page

Commercial National Bank v. Board of Governors, 451

F. 2d 86 (8th Cir. 1971) ........ eee cece eee eees 14

Dahnke-Walker Mill. Co. v. Bondurant, 257 U.S. 282

ERED sccccvcdededevcccdessncestunccensivasss 10

Delaware & Hudson Co. v. Boston Railroad Holding

Co., 81 N.E. 5 2d 553 (Mass. 1948) ...........55:

Diamond Glue Co. v. United States Glue Co., 187 U.S.

GEE CIBER) cc ccccccccvivccesecvcccsoccseceness 18, 20

Eli Lilly & Co. v. Sav-On-Drugs, Inc., 366 U.S. 276

CREED wnbeccerdcccensvevaecenesuswesesosncens

Exxon Corp. v. Governor of Maryland, 437 U.S. 117

CRUE. viccccncccscccccdvcccvecsensscses 8, 10, 15, 18

First National Bank of Logan v. Walker Bank & Trust

Co., 385 U.S. 252 (1966) ..... cc ccccccccccccees

Hemphill v. Orloff, 277 U.S. 537 (1928) .........-++ 18

Investment Company Institute v. Board of Governors,

—_— F.2d ——, Case No. 77-1862 (D.C. Cir. Opin-

ion of March 30, 1979) ......ccsccccccccccscees 6, 13

lowa Independent Bankers v. Board of Governors, 511

F. 2d 1288 (D.C. Cir. 1975), cert. denied 423 U.S.

GIB (IDI) ccc ccescccccvccccncecccccccuscccces 12, 14

Lincoln National Life Ins. Co. v. Read, 325 U.S. 673

CRONE vevciccvenccccvcccvcdcccteccceseccsveus 20

Louis K. Liggett Co. v. Lee, 288 U.S. 517 (1933) (Bran-

Gola, J. Giswemting) ...ccccccccccccccccccsecvecs 14

Louisville € Nashville R.R. v. Kentucky, 161 U.S. 677

(BODE) nce vccccvocccccccvccccesccvcccevececces 15

. — .

Marketlinés, Inc. v. Chamberlain, 63 Ill. App. 2d 274,

911 N.E. 9d 300, 403 (1966) ....ccccccsccccccces 15

McCullough v. Maryland, 17 U.S. (4 Wheat.) 316 (1819) 3

National Courier Ass’n v. Board of Governors, 516 F.

94 1239 (D.C. Cir. 1978) ...ccccccccccscccccecs 6

Noble State Bank v. Haskell, 219 U.S. 104 (1911) .... 15

Opinion of the Justices, 151 A. 2d 236 (H.H. 1959) ... 5

Table of Authorities Continued ili

Page

Paul vy. Virginia, 75 U.S. (8 Wall.) 168 (1869) ....... 18

Pembina Consolidated Silver Mining € Milling Co. v.

Pennsylvania, 125 U.S. 181 (1888) .......... 18, 19, 20

Philadelphia v. New Jersey, 437 U.S. 617 (1978) ...... 7

Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) ...... 15, 18

Prudential Insurance Co. v. Benjamin, 328 U.S. 408

CROGE) Novccccecscaewatncresereecuaeue tee 15

United States v. Fox, 94 U.S. 315 (1876) ............ 17

United States v. South-Eastern Underwriters Ass’n,

Se We GOS TIPO ov ck Wives cence cuieiinee 18

Wheeling Steel Corp. v. Glander, 337 U.S. 562 (1949) .18, 19

York Manufacturing Co. v. Colley, 247 U.S. 21 (1918) .. 10

Statutes AND REGuLarTIONs:

BS UIA OOO 86 d66i nc scsseundakeveienl eee 3

Be TAD OD 6-500 000c bide vedecti ene 4

BR GG, Fe os aso ddvvcedevbcckveccs aa 11

BO WAL, 9 Oe si xn ciccs chives aeenieeeeeeeee 4,7

12 U.S.C. $§ 3102(a), 3102(h), 3103, 3107 ............ 14

§ 659.141, Florida Statutes ..............ccccceuee passim

§ 660.10, Florida Statutes .................ccceuce passim

Ch. 736, Piewida, Bieleee 4... 00 kcaleccca eee 16

OTHER:

Bank Holding Company Act Amendments: Hearings on

H.R. 6778 Before the House Comm. on San. ve

and Currency, 91st Cong., Ist Sess. (1969) ...... 12, 13

Control of Bank Holding Companies: Hearings on S.

880, S. 2350, and H.R. 6227 Before the Sabcomn,

on Banking of the Senate Comm. on Banking and

Currency, 84th Cong., Ist Sess. 64-66 (1955) ..... 12

iv Table of Authorities Continued

Page

Eligibility of Foreign Corporation to Appointment as

gp ee Pad form actrees or Testamentary Trus-

tee, 26 A.L.R. 3d 1019 (1969) ......-.-. ee eeeees 17

FDIC, OCC € Bd. of Gov., Fed. Res., 1977 Trust Assets

of Insured Commercial Banks (1978) .......----- 11

4 L. Loss, Securities Regulation 2219 (1969) ........ 15

Nosker, A Supervisor Looks At Recent Banking Devel-

opments, Problems, And Prospects, 94 Banking L.

J. 1B CUBE) ovcddcvucvcccosvessossvovenveucuses 12

One Bank Holding Company Legislation of 1970: Hear-

™ ings on S. 1082, S. 1211, S. 1664, S. 3823, and H.R.

6778 Before the Senate Comm. on Banking and

Currency, 91st Cong., 2d Sess. at 9, 21 (1970) .... 18

Savage, A History Of The Bank Holding Company

ovement: 1900-1978, in Staff of Board of Gov-

ernors, Federal Reserve System, The Bank Hold-

ing Company Movement to 1978: A Compendium

63 (Apr. BG, BUG) ccccccccccccodscvicvesssceces 3

1 A. Scott, The Law of Trusts § 1.11 (3d ed. 1967) ...15, 17

Wallach, Section 4(c)(6) of the Bank Holding Com-

pany Act: Chink in the Armor, 94 Banking L. J.

BOB (1977) .cccccccccccccvcsovccoscccsccoceoees 4

IN THE

Supreme Court of the United States

OctoBer TeRM, 1979

No. 79-45

GERALD A. Lewis, COMPTROLLER OF THE STATE OF

FLORIDA, AND COMMISSIONER OF BANKING OF THE

STaTE oF Fioripa, Appellant,

Vv.

BT InvestMeNnT Manacers, INc., eT AL., Appellees.

On Appeal From the United States District Court

for the Northern District of Florida

BRIEF IN SUPPORT OF APPELLANT OF

FLORIDA BANKERS ASSOCIATION

AS AMICUS CURIAE

This brief is filed under Rule 42(2) of the Rules of

this Court, with consent of all parties to the case.

STATEMENT OF INTEREST OF AMICUS CURIAE

The Florida Bankers Association has appeared as

Amicus Curiae in this proceeding because its member-

ship will be both directly and indirectly affected by

2

this Court’s determinations. The Florida Bankers

Association is the one organization in the State of

Florida which represents principally all banking inter-

ests. As a part of its activities, the Association has long

maintained an interest in the status of laws and regu-

lations governing banking and financial institutions.

The Association feels that because of both its status as

representative of Florida banks and its experience and

knowledge of the regulatory scheme governing Florida

banking, it is in a position to provide assistance to the

Court in considering the issues presented.

ARGUMENT

Introduction: The Historical Perspective

This is a case of first impression dealing with the

most fundamental controls placed on the accumulation

of economic power by bank holding companies under

the banking laws of this country. The simply stated

issue is whether the Commerce Clause of the United

States Constitution prohibits the Florida Legislature

from restricting bank holding companies from expand-

ing across state lines into Florida by means of subsid-

iary investment advisory companies and trust compa-

nies. At stake in this case is the geographic extent to

which bank holding companies are allowed to spin a

web of financial subsidiaries capable of concentrating

and exercising vast economic power within every com-

munity.

A brief historical review shows why such a funda-

mental issue is now being litigated. Since the founding

of the nation, a great debate has existed between those

favoring a centralized banking system in the nature of

european models, and those favoring a decentralized

system regulated principally by the several states. Not

3

infrequently, this great debate has made its way to the

halls of the Court. For example, in McCullough v.

Maryland, 17 U.S. (4 Wheat.) 316 (1819), the efforts

of states to tax the nationally chartered banks out of

existence was rebuffed.

After a century of experimentation, the Congress in

1927 reached one of the great compromises of Ameri-

can history. In order to preserve the major benefits of

centralization without sacrificing the benefits of local

controls over financial institutions, the Congress en-

acted the M»Fadden Act, 12 U.S.C. § 36. The purpose

of the McFadden Act was to broaden the generally in-

ferior powers of national banks as compared to state

banks, while guaranteeing competitive equality within

the uniquely American dual system of banking. It did

so in major part by permitting national banks to

branch, but only to the extent state law permitted state

banks to do so. Moreover, interstate branching was

prohibited, as the grant of the power to branch con-

tained in 12 U.S.C. § 36(c) was limited to the states

wherein the national bank was “‘situated’’. The legisla-

tive history of the McFadden Act is recounted in the

opinion of the Court in First National Bank of Logan

v. Walker Bank & Trust Co., 385 U.S. 252 (1966). The

limitations on branching contained in the laws of most

states, and made applicable to national banks through

the MeFadden Act, led to a phenomenal growth in bank

holding companies. By creating a corporation to own

multiple banks, it was possible to avoid branching lim-

itations. See generally, Savage, A History of the Bank

Holding Company Movement: 1900-1978, in Staff of

the Board of Governors, Federal Reserve System, The

Bank Holding Company Movement to 1978: A Com-

pendium § 2, at 6 (Apr.12,1978). Congressional fears

4

regarding the ability of holding companies to evade

regulation and to accumulate vast economic power

through combining control of banks with control of

non-bank commercial enterprises resulted in the enact-

ment of the Bank Holding Company Act of 1956, 12

U.S.C. § 1841 et seq. See Alabama Ass’n of Ins. Agents

v. Board of Governors, 533 F. 2d 224, 231 (Sth Cir.

1976) ; Wallach, Section 4(c)(6) of the Bank Holding

Company Act: Chink in the Armor, 94 Banking L. J.

525 (1977). To achieve its purpose, Congress required

holding companies to obtain approval of the Board of

Governors for acquisitions, and prohibited holding

companies from engaging in non-banking business di-

rectly or through subsidiaries. The only relevant ex-

ception was that a holding company could own a com-

pany whose business was of a ‘‘financial fiduciary or

insurance nature’’ and ‘‘so closely related to the busi-

ness of banking as to be a proper incident thereto.’’

The Act further prohibited expansion of a bank holding

company beyond the boundaries of the state in which

it maintained its principal place of business or con-

ducted its principal operations.

These organic and geographic restraints on the ac-

cumulation of power by bank holding companies were

recognized, moreover, to be only minimum restraints.

The important interest of the individual states in re-

taining their control over financial institutions operat-

ing within their borders persuaded Congress that it was

essential to preserve state powers within the dual sys-

tem of regulation. Thus, 12 U.S.C. § 1846 provides:

‘‘The enactment by the Congress of this chapter

shall not be construed as preventing any State

from exercising such powers and jurisdiction

which it now has or may hereafter have with re-

0) 2a ates

5

spect to banks, bank holding companies, and sub-

sidiaries thereof.’’

Pursuant to this reservation of sovereign powers, states

have acted to regulate bank holding companies more

stringently than federal law, including prohibition of

bank holding companies from doing business. Opinion

of the Justices, 151 A. 2d 236 (N.H. 1959); Braeburn

Securities Corp. v. Smith, 15 Tll. 2d 55, 153 N.E. 2d

806 (1958), appeal dismissed 359 U.S. 311 (1959);

Delaware & Hudson Co. v. Boston Railroad Holding

Co., 81 N.E. 2d 553 (Mass. 1948).

In 1966, Congress further limited the opportunities

for geographic exparsion of bank holding companies

by amending § 1842 to eliminate the option of expand-

ing either within the state in which the principal office

was maintained, or the state in which principal opera-

tions were conducted. Act of July 1, 1966, § 7(d), 80

Stat. 236, 238. With passage of the 1966 Amendments,

a bank holding company was limited to expanding

within the boundaries of the state wherein the greater

share of its deposits was sited as of July 1, 1966, or

upon becoming a holding company. Moreover, the

power of the states was strengthened. Without the

optional choice existing previously, there could be no

interstate expansion unless the state into which the

holding company desired entry expressly authorized

such entry by statute ‘‘and not merely by implieation’’.

Although the Holding Company Act expressly re-

ferred only to interstate acquisition of banking sub-

sidiaries, the effect was to bar substantially all inter-

state acquisitions. In order for a non-bank to be

“‘closely related to the business of banking’’, and thus

subject to being acquired, its activities had to be di-

6

rectly and significantly connected to the existing bank-

ing operations of the holding company. See Nattonal

Courier Ass’n vy. Board of Governors, 516 F. 2d 1229,

1235-37 (D.C. Cir. 1975). Thus, the interstate expan-

sion prohibition, commonly known as the Douglas

Amendment, effectively prohibited interstate acquisi-

tion of both banks and non-banks.

In 1970, the Act was amended to bring bank holding

companies owning a single bank within the limitations

of the Act, and § 1843(¢)(8) was amended to specifi-

cally state criteria which a holding company’s acquisi-

tion of a company had to meet to gain approval of the

Board of Governors, in addition to being ‘‘so closely

related to banking or managing or controlling banks

as to be a proper incident thereto”’. As the District of

Columbia Circuit Court of Appeals explained in Invest-

ment Company Institute v. Board of Governors, ——

F.2d ——, Case No. 77-1862 (D.C. Cir. Opinion of

March 30, 1979), the ‘‘closely related”? language of

§ 1843(¢).(8) was amended in 1970 to substitute the

phrase ‘‘closely related to banking’’ for the phrase

‘‘closely related to the business of banking’. The

purpose of this minor language change was simply to

allow bank holding companies to acquire subsidiaries

doing types of business generally engaged in by banks

without requiring that the existing subsidiaries already

be engaged in the particular activity. Although nothing

in the legislative history suggests a congressional de-

sire to allow interstate ownership of subsidiaries, hold-

ing companies were for the first time able to seize upon

an arguable gap in the Congressional prohibition of

interstate ownership.

Bankers Trust New York Corporation attempted to

take advantage of this arguable gay by forming a sub-

Se Michie to Lael

7

sidiary, BT Investment Managers, Inc., to get approval

of the Board of Governors for expansion across state

boundaries. Acting pursuant to 12 U.S.C. § 1846, which

reserves to the several states their full sovereign powers

with respect to ‘“‘banks, bank holding companies, and

subsidiaries thereof’’, the Florida Legislature enacted

§ 659.141(1), Florida Statutes, to halt the evasion of

the historical policy of limiting the concentration of

economic power in holding companies and restricting

interstate expansion as expressed in the McFadden

Act and the Douglas Amendment to the Bank Holding

Cor any Act, and to uphold the like publie policy of

the state of Florida.

L

The Negative Implications Of The Commerce Clause Do Not

invalidate State Regulation Of The Ownership Of Financial

Institutions Consistent With Congressional Policy And Limited

To Intrastate Economic Activity.

In declaring § 659.141(1), Florida Statutes, uncon-

stitutional under the Commerce Clause, the district

court ruled that the statute was per se unconstitutional

as raising a protectionist barrier to commerce. The dis-

trict court based its decision on the decision of the

Court in Philadelphia v. New Jersey, 437 U.S. 617

(1978). It is submitted, however, that the district court

misread that decision.

The Philadelphia decision is one of a long series of

decisions holding that the states can not erect barriers

to the interstate flow of commerce. The real issue in

the case was whether garbage was an item of commerce.

Quite clearly, if it was an item of commerce, free

movement across state lines could not be wholly barred

to advance a parochial interest. The district court erred

8

by interpreting the Philadelphia decision to mean that

practically any effect on interstate commerce condemns

a state law, rather than viewing the decision as an

application of the meaning of the term ‘‘commerce’’ to

a particular article which had been wholly barred from

crossing the state boundary.

The district court’s error arises from the failure to

give proper weight to the decision in Haron Corp. V.

Governor of Maryland, 437 U.S. 117 (1978). In that

case the Court was concerned with a Maryland stat-

ute prohibiting refiners and producers of petroleum

products from owning outlets for the retail sale of

such products. Although the regulation affected only

out-of-state interstate companies, the Court upheld the

statute under the Commerce Clause because it did not

discriminate against interstate commerce, but only as

to certain interstate firms. The decision recognized that

under the Commerce Clause the relevant concern is not

the wisdom of a state’s laws, but the constitutional con-

cern for borders open to the flow of commerce.

The present case is closely analogous to Exxon. Sec-

tion 659.141, Florida Statutes, does not discriminate

against an interstate flow of commerce. It is not at all

concerned with closing the borders of Florida to finan-

cial services provided by firms in other states. Banks,

bank holding companies and trust companies are free

under the statute to engage in any activity they may

desire on an interstate basis, including the provision of

investment advisory services. The use of telephone

and other electronic communication is unaffected. The

use of the mail is untouched. Travel into Florida is of

no statutory concern. The prohibition of the statute is

aimed solely at particular types of business entities

ok ete a la

9

owning or controlling banks, trust companies and in-

vestment advisory companies having offices in Florida

and doing an intrastate business.

The legislative intent to regulate only intrastate ac-

tivity permeates the statute. The statutory prohibition

is of ownership or control of

‘‘Any bank or trust company having a place of

business in this state where the business of banking

or trust business or functions are conducted, or

. . any business organization having a place of

business in this state where or from which it fur-

nishes investment advisory services in this state.’’

The acquisition of stock in banks, trust companies or

investment advisory businesses is not entirely prohib-

ited. Only controlling interests are prohibited. More-

over, the statute expressly exempts situations which

might arise in the course of doing business interstate.

Stock in the regulated types of enterprises can be gen-

erally acquired in a fiduciary capacity, or in connection

with the underwriting of an issuance of securities, or

in connection with the collection of a debt. Interstate

transactions are not the concern of the statute.

By limiting the application of § 659.141 to ownership

or control of companies with intrastate offices, exempt-

ing ownership of stock arising out of normally oceur-

ring business transactions, and exempting activities of

an interstate nature, the Florida Legislature has acted

in a manner fully consistent with the Commerce Clause

of the United States Constitution. See Eli Lilly & Co.

V. Sav-On-Drugs, Inc., 366 U.S. 276 (1961). The prin-

ciple that a corporation of one state may enter into all

other states of the union for purposes of interstate

commerce is in no manner abridged. Section 659.141

10

is aimed solely at the ownership of an intrastate office

from which intrastate activities are undertaken. Com-

pare Ex.con Corp. v. Governor of Maryland, 437 U.S.

117 (1978), with Dahnke-Walker Mill Co. v. Bondu-

rant, 257 U.S. 282 (1921), and York Manufacturing

Co. v. Colley, 247 U.S. 21 (1918).

In regard to § 659.141, only one factor exists in the

present case different from the circumstances on which

Exxon was decided. The Florida statute prohibits the

acquisition of control over the regulated enterprises by

banks, trust companies and bank holding companies

whose operations are principally conducted outside of

Florida. In Exzon, there were no intrastate producers

or refiners of petroleum products. This difference is not

of significance in the application of Commerce Clause

principles, however.

The statute does not prohibit control of the regu-

lated enterprises from outside of Florida. Any person,

natural or corporate, can own or control the regulated

enterprises without regard to state of residence, except

the three types of corporate entities to which the stat-

ute is directed. Moreover, Florida banks, trust com-

panies and bank holding companies are not exempt

from the statute. All such Florida institutions whose

operations are conducted principally outside of Flor-

ida are barred from controlling or acquiring any of the

regulated enterprises. The ‘‘grandfather’’ provisions

of the statute, § 659.141(3) (d)-(h), also apply equally

to Florida and non-Florida institutions. The statute

is evenhanded in its sanctions.

As in Exzon, no market is cordoned off and no one

is insulated from competition. The goal of the statute

is not an impermissible one. To the contrary, the stat-

aw

Sew

11

ute seeks to supplement the congressionally declared

national policy against interstate bank branching and

concentration of economic power. The distinction

drawn by § 659.141 is the same as that which Congress

has drawn in 12 U.S.C. § 1842(d), and promotes the

very policies motivating the McFadden Act and the

Douglas Amendment to the Bank Holding Company

Act. Expression by Florida of a limitation on the entry

of out-of-state bank holding companies is not a matter

of regional insularity or the protection of local vested

economic interests. A transcending concern of regula-

tion of financial institutions has been to avoid concen-

tration of economic influence and its anti-competitive

effects by any limited group.

The risk of undue concentration is perhaps best

exemplified by what has occurred as a result of the

district court declaring § 659.141 unconstitutional. A

number of institutions from the money centers have

made application to open trust companies in Florida.

The list includes Continental Illinois Corporation,

Bankers Trust New York Corporation, Manufacturers

Hanover Corporation, U.S. Trust Corporation, De-

troitbank Corporation, Morgan Holdings Corporation,

a subsidiary of J. P. Morgan & Company, and Harris

Bankcorp, Inc. As of 1977 these institutions had trust

assets under management of approximately $100 bil-

lion. FDIC, OCC and Bd. of Gov. Fed. Res., 1977 Trust

Assets of Insured Commercial Banks, Table 7 (1978).

In comparison, the total trust assets under manage-

ment in Florida is approximately $9 billion. Nearly

every applicant has trust assets under administration

exceeding the total for all of Florida. The strong in-

terest of the states in the healthy development of finan-

cial institutions is unquestionably challenged by such

12

a vast influx of economic power. It is for this reason

that Congress has time and time again given recogni-

tion to the importance of geographical restraints on

expansion to prevent concentration of power nationally

and in the states.

By restricting ownership ties of the regulated enter-

prises, the Florida statute responds to the impact on

Florida’s citizens posed by control of financial institu-

tions by entities headquartered beyond the reach of

Florida’s enforcement and regulatory powers. The un-

desirability of control of local financial institutions by

far-flung conglomerate entities is a proper and legiti-

mate subject of state concern, historically recognized

by Congress and the judiciary. See, e.g., Lowa Inde-

pendent Bankers v. Board of Governors, 511 F. 2d

1288 (D.C. Cir. 1975), cert. denied 423 U.S. 875 (1975) ;

American Trust Company, Inc. v. South Carolina

State Board of Bank Control, 381 F. Supp. 313 (D.

S.C. 1974). The basis for this concern is substantial.

Financial holding companies are fertile ground for

facilitating monopolization through anti-competitive

activities. The opportunities for tying arrangements,

reciprocal dealings, biased inter-company transactions

and self-dealing are manifest. See Bank Holding Com-

pany Act Amendments: Hearings on H.R. 6778 Before

the House Comm. on Banking and Currency, pts. 1-2,

91st Cong., Ist Sess. (1969) ; Control of Bank Holding

Companies: Hearings on S. 880, S. 2350, and H.R. 6227

Before the Subcomm. on Banking of the Senate Comm.

on Banking and Currency, 84th Cong., 1st Sess. 64-66

(1955) ; Nosker, A Supervisor Looks At Recent Bank-

ing Developments, Problems, And Prospects, 94 Bank-

ing L.J. 18 (1977). These risks to the public welfare

aggravated when geographic dispersal beyond juris-

13

dictional powers renders effective regulation virtually

impossible. The same risks are far more amenable to

regulation, and abuses far more likely to be discovered,

when the bank, trust company or investment advisory

business is an independent entity or owned by institu-

tions whose operations are principally conducted with-

in the jurisdiction of a single state regulatory authority.

The district court did not fully grasp the importance

of these considerations, as it misconceived the congres-

sional intent behind the 1970 Amendments to the Bank

Holding Company Act. As the District of Columbia

Circuit Court of Appeals has noted in Investment Com-

pany Institute v. Board of Governors, —— F.2d ——,

Case No. 77-1862. (D.C. Cir. March 30, 1979), a deep

congressional concern in the enactment of the 1970

Amendments to the Bank Holding Company Act was

to prevent the structuring of the American economy

in a manner similar to the Zaibatsu system of Japan,

where multiple types of economic activity are concen-

trated in a few conglomerates wielding vast power. See

Bank Holding Company Act Amendments—Hearings

on H.R. 6778 Before the House Comm. on Banking and

Currency, 91st Cong., Ist Sess. at 13 (1969) ; One Bank

Holding Company Legislation of 1970: Hearings on S.

1052, S. 1211, S. 1664, S. 3823, and H.R. 6778 Before

the Senate Comm. on Banking and Currency, 91st

Cong., 2d Sess. at 9, 21 (1970).

Congress by no means intended to encourage the

creation of financial conglomerates. Instead, Congress

curtailed the ability of one-bank holding companies

to control non-bank subsidiaries by bringing them with-

in the Act, and made a minor alteration in the extent

14

to which bank holding companies could enter into tra-

ditional areas of banking activity new to the particular

institution, but not to the industry. The lack of any

indication of a congressional intent to establish a policy

in favor of branching across state lines by financial in-

stitutions is significant. The long history of Congress’

policy of allowing the several states to control the ex-

tent to which interstate branching could occur is hardly

likely to have been altered without considerable debate.

Indeed, as recently as 1978, Congress reaffirmed the

principles of the McFadden Act and the Douglas

Amendment when it incorporated the substance of

those laws into the International Banking Act of 1978.

See 12 U.S.C. §§ 3102(a), 3102(h), 3103, 3107.

On the other hand, there was no need for Congress

to specifically address in 1970 the extent of the power

of the states to prohibit holding company control of

subsidiaries across state lines. It had done so previously

in 1956 by bowing to state regulation of control of

banks across state lines, and by reserving to the states

full power and jurisdiction ‘‘with respect to banks,

bank holding companies, and subsidiaries thereof.”’

(Emphasis Supplied.) See Jessee & Selig, Bank Hold-

ing Companies And The Public Interest, at 140 (1977) ;

Iowa Independent Bankers v. Board of Governors, 511

F. 2d 1288, 1297 (D.C. Cir.), cert. denied 423 U.S. 875

(1975) ; Commercial National Bank v. Board of Gov-

ernors, 451 F. 2d 86, 89 (8th Cir. 1971); American

Trust Co. vy. South Carolina State Board of Bank

Control, 381 F. Supp. 313, 320 (D. S.C. 1974).

The regulation of control over corporations has tra-

ditionally been a matter of state concern. See Louis K,.

Liggett Co. v. Lee, 288 U.S. 517, 556-561 (1933) (Bran-

—,

a ~ te Fete 0.0 webs * tem 2

15

deis, J. dissenting). In the absence of contrary federal

law, state regulation of corporate ownership has been

upheld under the commerce clause. See Louisville &

Nashville R.R. v. Kentucky, 161 U.S. 677 ( 1896). More-

over, banks, trust companies and investment advisory

businesses are affected by the public interest to such an

extent that they constitute an area of traditional state

concern. See Noble State Bank v. Haskell, 219 U.S. 104,

113 (1911); 1 A. Seott, The Law of Trusts § 1.11, (3d

ed. 1967) ; 4 L. Loss, Securities Regulation 2219 (1969) ;

Marketlines, Inc. . Chamberlain, 63 Ill. App. 2d 274,

211 N.E. 2d 399, 402 (1965). Considering the express

language of Congress in the context of the history of

the dual system of banking and traditional concepts of

the regulatory powers of the states, it is clear that the

congressional intent in making an express reservation

of state power in the Holding Company Act of 1956

was to avoid any question that Congress intended to

pre-empt an area of traditional state concern, and to

authorize full regulatory controls by the states.

Given the negligible affect of § 659.141 on interstate

commerce, the substantial interest of Florida in the

area regulated and the express authorization of state

regulation by Congress, the district court should not

have held the statute per se invalid under the com-

merce clause, but should have upheld it under the

teachings of Exxon Corp. v. Governor of Maryland,

437 U.S. 117 (1978) ; Pike v. Bruce Church, Inc., 397

US. 137 (1970) ; and Prudential Insurance Co. vy. Ben-

jamin, 328 U.S. 408 (1946).

16

Il.

The Negative Implications Of The Commerce Clause Do Not

Invalidate State Laws Requiring State Chartering Of Trust

Companies Doing Business Within A Siate.

In declaring § 660.10, Florida Statutes unconstitu-

tional, the district court mistook the nature of the stat-

ute. Section 660.10 does not prohibit anyone from doing

a trust business in Florida. It only requires that the

trust business be done through a trust company char-

tered in the regulatory process established by law. It

constitutes simply a regulatory technique for assuring

that the trust business is conducted in a proper manner.

It has no significant effect on interstate commerce.

Trust companies organized under the laws of other

states may enter into transactions in Florida consistent

with duties resulting from such a trust company be-

coming the executor or administrator of an estate; or

trustee under a will, charitable foundation or endow-

ment; or similar trust. The powers of such foreign

trust companies to engage in limited transactions in

Florida are detailed throughout the various provisos to

the statute. Foreign trust companies may contract with-

in Florida in regard to loans, security instruments,

and acquisition or conveyance or management of prop-

erty in relation to loans or obligations. They may ser-

vice Florida customers directly, or indirectly by con-

tract with other persons, and are allowed full access to

the courts of the state to enforce obligations. The stat-

utory prohibition is aimed solely at intrastate activity.

Foreign trust companies can not be the executor or

administrator of a decedent’s estate, except as set forth

in the Uniform Probate Code, Chapter 734, Florida

Statutes, for ancillary administration. Otherwise the

restrictions on foreign trust company activity is limited

17

to serving within Florida as a testamentary trustee, a

court appointed receiver or guardian, and holding real

property in trust. However, it is expressly permissibl:

for a foreign trust company to be bequeathed property

including real property, by a testator, with the laws of

the trust company’s principal place of business govern-

ing its duties as trustee. § 660.10(3), Florida Statutes.

The statute applies equally to all persons, creates no

competitive advantages and erects no barriers to com-

merce. The statute is concerned solely with the sensi-

tive area of protection of decedents estates, fiduciary

relationships and the devise of real property. These are

matters peculiarly of state concern and have been so

recognized by this Court. United States v. Fox, 94

U.S. 315 (1877). Indeed, like statutes exist in at least

fourteen other states and have been common place in

the law of trusts. See Appendix, Brief In Support Of

The Jurisdictional Statement For The Conference Of

State Bank Supervisors As Amicus Curiae, at 21;1 A.

Scott, The Law of Trusts § 96.6 (2d Ed. 1956) ; Anno.

Eligibility of Foreign Corporation to Appointment as

Executor, Administrator, or Testamentary Trustee, 26

A.L.R. 3d 1019 (1969).

Florida’s statute serves only one purpose, and that

is to require that the trust business be conducted by

all under a specially tailored regulatory process, with

the only exception being that national banks duly au-

thorized to exercise trust powers by federal regulators

are permitted pursuant to the doctrine of competitive

equality. See American Trust Co. v. South Carolina

State Board of Bank Control, 381 F. Supp. 313 (D.S.C.

1974). It is in effect a licensing requirement for doing

business intrastate. As such, the statute is an exercise

of the sovereign power of a state to exclude a foreign

18

corporation from its boundaries solely because it is a

foreign corporation. See Wheeling Steel Corp. V.

Glander, 337 U.S. 562 (1949) ; Asbury Hospital v. Cass

County, 326 U.S. 207 (1945) ; Paul v. Virginia, 75 U.S.

(8 Wali.) 168 (1869) as modified, United States v.

South-Eastern Underwriters Ass’n, 322 US. 933

(1944). The only limitations upon this power 1s the

erection of actual barriers to the flow of commerce inter-

state and the ouster of federal instrumentalities. Pem-

bina Consolidated Silver Mining & Milling Co. v. Penn-

sylvania, 125 U.S. 181 (1888). When the effect of a

statute barring foreign corporations is limited to op-

eration of offices within the host state, and does not bar

commercial intercourse, the power of a state to exclude

is wholly discretionary. Id. See also, Atlantic Refining

Co. v. Virginia, 302 U.S. 22 (1937) ; Hemphill v. Orloff,

2717 U.S. 537 (1928); Diamond Glue Co. v. United

States Glue Co., 187 U.S. 611 (1903) ; Bank of Augusta

v. Earle, 38 U.S. (13 Pet.) 519 (1839).

The only basis for § 660.10 being qusstioned in this

proceeding is the extent to which § 609.141 interacts

with it to bar bank holding companies whose operations

are conducted principally outside of Florida from

forming a Florida trust company. As discussed in Point

I of this brief, such a bar does not violate the Com-

merce Clause. The primary error of the district court’s

reasoning was to miscomprehend the nature of the

principles set forth in Pike v. Bruce Church, Inz., 397

U.S. 137 (1970), and Exxon Corp. v. Governor of Mary-

land, 437 U.S. 117 (1978). Rather than examining the

marketplace and the flow of commerce across state lines,

it looked solely to the effects of § 660.10 upon certain

marketers. The district court viewed any effect upon

interstate commerce sufficient to allow federal regula-

tion to be sufficient to condemn state laws drawing any

19

lines between domestic and foreign corporations. It

considered legitimate state interests ‘‘irrelevant’’ be-

cause such distinctions were drawn. 461 F. Supp. at

1197.

There is nothing in the record suggesting that

§ 660.10 has been applied by state regulatory authorities

in a manner discriminating against interstate com-

merce, not even an allegation. The sole basis for the

statute being condemned is that it requires foreign

trust companies to form a Florida trust company to do

business in Florida. The district court’s reasoning

grants a constitutional right to corporations to estab-

lish offices without regard to state boundaries, placing

in question even the power of the states to require for-

eign corporations to qualify with state authorities be-

fore doing business within a state. The district court

has forced Florida to recognize a special privilege of

engaging in business in the corporate form granted

by another state, despite innumerable rulings of this

Court that the states are not constitutionally obligated

to do so. E.9., Wheeling Steel Corp. v. Glander, supra;

Asbury Hospital v. Cass County, s pra; Pembina Con-

solidated Silver Mining & Milling Co. v. Pennsylvania,

supra. Also not considered is the need to interpret the

Commerce Clause in a manner consistent with the Priv-

ileges and Immunities Clause. As this Court has noted,

these two provisions of the Constitution have a com-

mon source. Baldwin v. Montana Fish And Game

Comm’n, 436 U.S. 371, 379-381 (1978). While these two

provisions have different subject matters, the goal is

the same. There can hardly be a sovereign state right

under the Privileges and Immunities Clause to disre-

gard the special privilege granted by another state to

do business in the corporate form, and a lack of state

power under the Commerce Clause to make the distine-

20

tion. The power either exists or it does not. This Court

has consistently viewed the states as having the sov-

ereign power to distinguish between domestic and for-

eign corporations, interpreting the Commerce Clause

to limit that power only to the extent that commercial

intercourse across state lines is unduly burdened. Dia-

mond Glue Co. v. United States Glue Co., supra; Pem-

bina Consolidated Silver Mining and Milling Co. v.

Pennsylvania, supra; ef., Lincoln National Infe Ins.

Co. v. Read, 325 U.S. 673 (1945). The district court

should have done the same.

Since § 660.10 does not discriminate against inter-

state commerce, does not favor Florida citizens over

others, does not create a protected market and other-

wise has no effect on interstate commerce, but is merely

the exercise of the sovereign power to exclude foreign

corporations from doing an intrastate business without

proceeding through the regulatory process applied to

all persons, it is a valid law.

CONCLUSION

For the reasons stated above, the decision of the

District Court for the Northern District of Florida

should be reversed.

Respectfully submitted,

J. THOMAS CARDWELL, ESQUIRE AND

MicHaEL P. McManon, EsQurmre OF

AKERMAN, SENTERFITT & EIDSON

Post Office Box 231

Orlando, Florida 32802

(305) 843-7860

Counsei for Amicus Curiae

The Florida Bankers Association

November, 1979