Amicus Curiae Brief — Northeast Bancorp, Inc. v. Board of Governors, FRS

ee ED

LED

FEB 21 1985

R L. STEVAS,

ck

No. 84-363 \\)

IN THE

Supreme Court of the United States

OCTOBER TERM 1984

NorTHEAST BANCOorP, INC., UNION TRUST COMPANY

AND CITICORP,

Petitioners,

V.

THE BOARD OF GOVERNORS

OF THE FEDERAL RESERVE SYSTEM, ef al.,

Respondents.

ON A WRIT OF CERTIORARI TO THE UNITED STATES

Court OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF THE NEW YORK CLEARING HOUSE

ASSOCIATION

AS AMICUS CURIAE IN SUPPORT

OF PETITIONERS’ POSITION

RICHARD S. SIMMONS

ROBERT F. MULLEN*

One Chase Manhattan Plaza,

CRAVATH, SWAINE & Moore, New York, N.Y. 10005

One Chase Manhattan Plaza, (212) 422-3000

New York, N.Y. 10005 *Counsel of Record

DEBORAH S. PRUTZMAN,

General Counsel,

The New York Clearing Counsel for The New York

House Association, Clearing House Association

100 Broad Street, as Amicus Curiae

New York, N.Y. 10004

(212) 943-2200

Of Counsel.

February 21, 1985

Introduction and Summary of Argument

Argument.

|. The Statutes Violate the Commerce Clause

TABLE OF CONTENTS

SERRE EER EEE EEE EEE EEE EEE EEE EEE EEE EEE EE EES

eee eee eee eee ee ee eee eee eee ee eee eee eee ee eee ee ee eee

SEER EEE EEE EE EEE EEE EE EEE

Oe ee ee eee ee eee eee eee ees)

EERE EEE EEE EEE EEE EEE EEE EEE EEE EEE EE EEE EEE EEE EEE HEHE EES

(a) The statutes impose an unreasonable

burden on interstate commerce............

(b) Section 3(d) of the Bank Holding Com-

pany Act does not authorize the cre-

ation of regional banking systems........

2. The Statutes Violate the Compact Clause..........

Conclusion

TABLE OF AUTHORITIES

Page

Cases:

Bacchus Imports, Ltd. v. Dias, 1048. Ct. 3049 (1984)........ 6, 9

Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (1935) ............ 6,7

Bank of Boston Corp., 70 Fed. Res. Bull. 524 (1984).......... 11

Bank of New England Corp., 70 Fed. Res. Bull. 374

a scnepromietnene 7, 11,

12,14

Brimmer v. Rebman, 138 U.S. 78 (1891) ............ccccccceccceeeeee 7

Brown v. Maryland, 25 U.S. (12 Wheat.) 419 (1827) ......... 4,5

Chrysler Corp. v. Brown, 441 U.S. 281 (1979)... 13

Crowell v. Benson, 285 U.S. 22 (1932) ......ccccccccccseccceeeeseeeees 11

Cuyler v. Adams, 449 U.S. 433 (1981) .......ccccccccccccccceeeeeeeeees 16

Dean Milk Co. v. Madison, 340 U.S. 349 (1951) oo... 5,7

Energy Reserves Group, Inc. v. Kansas Power & Light Co.,

a sstustiuiunouonne ]

Garcia v. United States, 105 S. Ct. 479 (1984) ooo... 13

Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824)... 4

Great Atlantic & Pacific Tea Co. v. Cottrell, 424 U.S. 366

ae ESTES gf TET cate A a 5

Hartford National Corp., 70 Fed. Res. Bull. 353 (1984) ..... 11

Herndon v. Chicago, Rock Island and Pacific Railway Co.,

a ssdpessoucannaes 10

H. P. Hood & Sons v. Du Mond, 336 U.S. 525 (1949)......... 6

Hughes v. Oklahoma, 441 U.S. 322 (1979) .....ccccccccccccecceeeeee 4

Hunt v. Washington State Apple Advertising Commission,

ET er 5,7

Iowa Independent Bankers v. Board of Governors, 5\\ F.2d

1288 (D. C. Cir. ), cert. denied, 423 U.S. 875 (1975)....... 12

Lewis v. BT Investment Managers, Inc., 447 US. 27

EEE SEE TE ER 8,9, 13

Looney v. Crane Co., 245 U.S. 178 (1917) cocccccccccccccccccceeeeee 10

Marbury v. Madison, 5 U.S. (1 Cranch) 137 (1803) ........... 11

Milk Control Board v. Eisenberg Farm Products Co., 306

SE a en saeiameaiiinns 5

Minnesota v. Barber, 136 U.S. 313 (1890) sys a 6

s

New England Power Co. v. New Hampshire, 455 U.S. 331

a eaten onnnonnnsnanenaite 9,12, 13

Northeast Bancorp, Inc. v. Board of Governors, 740 F.2d

I a ecarecscsnslendanncmidile 11, 16

Northern Pipeline Construction Co. v. Marathon Pipe Line

TR 11

Pennsylvania v. West Virginia, 262 U.S. 553 (1923) ........... 6

Petty v. Tennessee-Missouri Bridge Commission, 359 U.S.

I a santeemdnlacteokbisinonions 16

Philadelphia v. New Jersey, 437 U.S. 617 (1978) 0.0.0.0. 6

Polar Ice Cream & Creamery Co. v. Andrews, 375 U.S. 361

EE SEED CEES ESA SO )

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

SEED IIA Rae eo coo 9

Robbins v. Shelby County Taxing District, 120 U.S. 489

atic pnacindnantecenanedininenniens 6

Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384

SE Eee eR 13

South Carolina State Highway Department v. Barnwell

ani cclbboetnesenennsaian 5

South-Central Timber Development Inc. v. Wunnicke, 104

i cere eiatendnmmseninscnnnntiotanmneatiiniete 8,9

Southern Pacific Co. v. Arizona, 325 U.S. 761 (1945)......... 8

Sporhase v. Nebraska, 458 U.S. 941 (1982) ........ccccceeeeeees 7)

United States v. Public Utilities Commission, 345 U.S. 295

aaa tit ale inncetiaentmetinnmemesintane 9

U.S. Steel Corp. v. Multistate Tax Commission, 434 US.

EE ne ae 14

Virginia v. Tennessee, 148 U.S. 503 (1893) 0.0.0... 14

West Virginia ex rel. Dyer v. Sims, 341 U.S. 22 (1951)....... 16

Western & Southern Life Insurance Co. v. State Board of

Equalization, 451 U.S. 648 (1981) .........ccccececeeseeeeeeeeeeee 9,10

Constitutional and Statutory Provisions:

I Tana steenneeenmsnennnonmtenesancnnicnses 3

Ls ssguaguinntnisnsagnothonanaton 3

I i insie narinmetnesnsincetodinnnmanennns passim

1983 Conn. Act 83-411 ( Reg. Sess. )............ccccceceeseeeeeeeeeeeees 6

Mass. Gen. Laws Ann. ch. 167A, § 2 (West 1971 & Supp.

TINA ciiidiacindi cece tcaiadaediabicienesipatenaneanenndsiiinieintpencineeneneen

Legislative Materials:

Ss SIRI Se ITED I icsesis hesiteiantbicneabseSmnpeiscaadamiceummennaainasts 12,13

Connecticut House Debate ( May 26, 1983)............0....0000000. 7,15

Connecticut Senate Debate ( March 3, 1983)... 8, 15

Connecticut Senate Debate ( May 18, 1983) 0.0.0.0... 7, 8, 15

Massachusetts Joint Standing Committee on Banks

and Banking, Research Staff Summary (November 9,

UTI cossisitsassicttivancoceniasninsieipiestbetiannssenadaaiatanitalaidaianaidashinudaid aaa 7

Other:

Brief for the Federal Respondent in Opposition to the

Sn I i 12

J. Elliot, The Debates in the Several State Conventions on

the Adoption of the Federal Constitution as Recommend-

ed by the General Convention at Philadelphia in 1787

6 8 RL Nat PR WINE ees eye met ex Rent 4

Enlivening Banking for Fun and Fireworks, N.Y. Times,

SI i I aia kee 7

The Federalist Papers No. 22 ( Rossiter ed. 1961 ) .......00...... 5

J. Madison, The Debates in the Federal Convention of

1787 which Framed the Constitution of the United States

ee IY TI sccocecircccssonsbicteccdenenscisiciateitededteetacs. 4

iv

No. 84-363

IN THE

Supreme Court of the United States

OCTOBER TERM 1984

NorTHEAST BANCORP, INC., UNION TRUST COMPANY

and CITICORP,

Petitioners,

Vv.

THE BOARD OF GOVERNORS

OF THE FEDERAL RESERVE SYSTEM, ef al.,

Respondents.

On A Writ OF CERTIORARI TO THE UNITED STATES

CourT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF THE NEW YORK CLEARING HOUSE

ASSOCIATION

AS AMICUS CURIAE IN SUPPORT

OF PETITIONERS’ POSITION

INTEREST OF AMICUS CURIAE

The New York Clearing House Association (the “Clearing

House”) is an association of 12 leading commercial banks

2

located in New York City.’ It operates electronic payment

systems and clears commercial drafts and items in the New

York area. In addition, it has filed briefs as amicus curiae in

cases presenting significant general questions of law affecting

banking in the United States.

Members of the Clearing House have a direct and vital

interest in issues affecting interstate banking and in the proper

interpretation of Federal banking statutes such as the Bank

Holding Company Act. The Clearing House believes that the

Connecticut and Massachusetts statutes at issue here impose an

impermissible burden on interstate commerce, not authorized

by Congress, in violation of the Commerce and Compact

Clauses. The Clearing House believes that the views presented

in this brief will provide assistance to the Court in its consid-

eration of these issues.

CONSENT OF THE PARTIES

All parties to this action have consented to the filing of this

brief. The written consent of each party has been filed with this

Court.

INTRODUCTION AND SUMMARY OF ARGUMENT

The purpose and effect of the Connecticut and Massachu-

setts statutes is to exclude non-New England bank holding

companies in order to protect New England commercial bank-

ing from competition. Such patent economic protectionism is

impermissible under the Commerce Clause unless it has been

unmistakably authorized by Congress. These state statutes

were not authorized by Section 3(d) of the Bank Holding

Company Act. Section 3(d) authorizes states to permit entry

‘The members of the Clearing House are The Bank of New

York, The Chase Manhattan Bank, N.A., Citibank, N.A., Chemical

Bank, Morgan Guaranty Trust Company of New York, Manufac-

turers Hanover Trust Company, Irving Trust Company, Bankers Trust

Company, Marine Midland Bank, N.A., United States Trust Com-

pany of New York, National Westminster Bank USA and European

American Bank & Trust Company.

\

by out-of-state bank holding companies, but that is all it

authorizes. It is not a license to discriminate among the several

states.

Moreover, no matter how broadly Section 3(d) is con-

strued with respect to unilateral state action, it clearly does not

authorize states to take joint action. Because agreements

between states to enhance their power over interstate commerce

are governed by the Compact Clause, the failure of Connecticut

and Massachusetts to obtain Congressional approval for their

joint action violates that Clause.

ARGUMENT

Analysis of the constitutionality of the Connecticut and

Massachusetts statutes must, at the outset, be placed in the

context of the fundamental policies they violate. A primary

goal of the Framers of the Constitution was to ensure the free

flow of commerce within the United States. This goal was

accomplished principally through the inclusion in the Con-

stitution of the Commerce Clause,? which prohibits state action

that unreasonably burdens interstate commerce. Further, be-

cause joint state action poses special risks to the supremacy of

the Federal’ government, the Compact Clause? requires Con-

gressional consent to agreements between states that enhance

their power over commerce.

The state of affairs before the adoption of the Constitution

made clear the need for national regulation of commerce:

“The oppressed and degraded state of commerce,

previous to the adoption of the constitution, can scarcely be

2U.S. Const., art. I, §8, cl. 3: “The Congress shall have

Power... To regulate Commerce with foreign nations, and among

the several States... .”

3U.S. Const., art. I, § 10, cl. 3: “No State shall, without the

Consent of Congress, . . . enter into any Agreement or Compact with

another State... .”

4

forgotten. It was regulated by foreign nations, with a

single view to their own interesis; and our disunited efforts

to counteract their restrictions, were rendered impotent, by

want of combination.”

This lack of Federal power over commerce and the

“exercise of [that] power separately, by the States [had] not

only proved abortive, but engendered rival, conflicting and

angry regulations”.5 As Madison reported:

“It seems to be feared that the Northern States wi!l oppress

the trade of the Southern. . . . The middle States may

apprehend . . . combinations against them between the

Eastern & Southern States... .” J. Madison, supra note 5,

at 438-41.

In response to this problem, above all others, the Federal

Convention of 1787 convened to draft a Constitution “adequate

to the exigencies of government and the preservation of the

Union”.6 The “one object riding over every other in the

adoption of the Constitution” was thus “to keep the commercial

intercourse among the States free from all invidious and partial

restraints”, Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 231

(1824), and “to avoid the tendencies toward economic

Balkanization that had plagued relations among the Colonies

and later among the States under the Articles of Con-

federation”. Hughes v. Oklahoma, 441 U.S. 322, 325-26

4 Brown v. Maryland, 25 U.S. (12 Wheat.) 419, 445-46 (1827).

5J. Madison, The Debates in the Federal Convention of 1787

which Framed the Constitution of the United States 11 (ed. Hunt &

Brown 1920).

6 Resolution of Congress, Feb. 21, 1787, in | J. Elliot, The

Debates in the Several State Conventions on the Adoption of the

Federal Constitution as Recommended by the General Convention at

Philadelphia in 1787 i20 (2d ed. 1866).

(1979).7 The Commerce Clause and Compact Clause were

adopted to prevent such “economic Balkanization”’.®

1. The Statutes Violate the Commerce Clause.

(a) The statutes impose an unreasonable burden on inter-

state commerce.

The Commerce Clause “by its own force, prohibits dis-

crimination [ by any state] against interstate commerce”. South

Carolina State Highway Department v. Barnwell Bros., 303 U.S,

177, 185 (1938); Great Atlantic & Pacific Tea Co. v. Cottrell,

424 U.S. 366, 370-71 (1976). A state statute thus violates the

Commerce Clause if it has a discriminatory purpose or dis-

criminatory effect upon out-of-state firms or goods. Hunt v.

Washington State Apple Advertising Commission, 432 U.S. 333,

352-53 (1977); Dean Milk Co. v. Madison, 340 U.S. 349, 354

7 See Brown v. Maryland, 25 U.S. (12 Wheat.) 419, 446 (1827):

“Those who felt the injury arising from this state of things,

and those who were capable of estimating the influence of

commerce on the prosperity of nations, perceived the necessity of

giving the control over this important subject to a single govern-

ment. It may be doubted, whether any of the evils proceeding

from the feebleness of the federal government, contributed more

to that great revolution which introduced the present system,

than the deep and general conviction, that commerce ought to be

regulated by congress.”

See also The Federalist Papers No. 22, at 144 (Rossiter ed. 1961)

(absent national regulation, the “interfering and unneighborly regu-

lations of some States . . . would be multiplied and extended till they

became not less serious sources of animosity and discord than

injurious impediments to the intercourse between the different parts of

the Confederacy”’).

8 See Milk Control Board v. Eisenberg Farm Products Co., 306

U.S. 346, 351 (1939):

“When the people declared ‘The Congress shall have Power . . .

To regulate Commerce . . . among the several States, . . .’ their

purpose was clear. The United States could not exist as a nation

if each of them were to have the power to forbid imports from

another state, to sanction the rights of citizens to transport their

goods interstate, or to discriminate as between neighboring states

in admitting articles produced therein.”

6

(1951); Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 521-22

(1935).

Where a statute effects “simple economic protectionism,

. . . @ Virtually per se rule of invalidity has been erected”.

Philadelphia v. New Jersey, 437 US. 617, 624 (1978) (in-

validating statute prohibiting use of waste landfill sitcs for

waste collected outside state). Were the law otherwise, “we

[would be] brought back to the condition of things which

existed before the adoption of the Constitution .. . .” Robbins v.

Shelby County Taxing District, 120 U.S. 489, 498 (1887).10

The statutes at issue’! are plainly offensive to this Con-

stitutional mandate. They are the product of unabashed

economic protectionism directed against non-New England

states. On their face, they allow out-of-state bank holding

companies to acquire control of an in-state bank only if the

princpal place of business of the acquiring holding company is

in New England. The statutes’ legislative histories make clear

that they were avowedly designed to exclude “the big money

9 Accord, Bacchus Imports, Ltd. v. Dias, 104 S. Ct. 3049, 3055-57

(1984) (invalidating statute imposing excise tax on sale of liquor

while excepting certain local products); H. P. Hood & Sons v. Du

Mond, 336 U.S. 525, 535-39 (1949) (invalidating statute allowing

denial of entry by out-of-state milk distributors if entry would “tend to

a destructive competition” in local market); Minnesota v. Barber, 136

U.S. 313, 323-29 (1890) (invalidating statute that prohibited sale of

meat of animals not inspected within state before being slaughtered ).

10 See also Pennsylvania v. West Virginia, 262 U.S. 553, 599

(1923):

“[ absent the Commerce Clause,] Pennsylvania might keep

its coal, the Northwest its timber, the mining States their

minerals. And why may not the products of the field be brought

within the principle? Thus enlarged, or without that enlargement,

its influence on interstate commerc. need not be pointed out. To

what consequences does such power tend? If one State has it, all

States have it; embargo may be retaliated by embargo, and

commerce will be halted at state lines.”

"1983 Conn. Act 83-411 (Reg. Sess.) (reprinted in the Appen-

dix to the Petition for Certiorari [hereinafter “Pet. App.”] at A97);

Mass. Gen. Laws Ann. ch. 167A, § 2 ( West 1971 & Supp. 1984) ( Pet.

App. A101).

7

center banks”’2 in order “to give our banks . . . time to merge

and consolidate and purchase some of the New England banks

around and get as large as they possibly can”.'9

That exclusionary device erects “an economic barrier

protecting a major local industry” from competition from

without the region and establishes “the mutiplication of prefer-

ential trade areas”. Dean Milk Co. v Madison, 340 US. at 356.

Such efforts “to suppress or mitigate the consequences of

competition between the states” are precisely what the Com-

merce Clause forbids. Baldwin v. G.A.F. Seelig, Inc., 294 US.

511, 522 (1935); Hunt v. Washington State Apple Advertising

Commission, 432 U.S. 333, 352 (1977); see Brimmer v. Reb-

man, 138 U.S. 78, 82 (1891) (state may not “make dis-

criminations against the products and industries of some of the.

States in favor of the products and industries of its own or of

other States”).

No constitutionally justifiable “local benefit” outweighs the

burden these statutes place on interstate commerce. Indeed, the

only claimed “local benefit” is the very economic protectionism

that the Constitution prohibits. The purported interest of

12 Enlivening Banking for Fun and Fireworks, N.Y. Times, April

3, 1983, at F4, col. 2 (quoting Massachusetts State Senator Brennan )

(Pet. App. A189).

13 Conn. Sen. Debate at 64 ( May 18, 1983) (Sen. Sullivan) ( Pet.

App. A159); see also Conn. House Debate at 259 (May 26, 1983)

(Pet. App. A158) (Rep. Onorato: states pass regional laws to “protect

what’s theirs that’s within their own state” before banks from other

regions enter market); Mass. Joint Standing Comm. on Banks and

Banking, Research Staff Summary at | (November 9, 1982) (Pet.

App. A150) (bill’s purpose is to establish “the necessary authority for

a regional, New England banking system . . . [and] to ensure that

only New England based financial institutions can avail themselves of

this authority”); 70 Fed. Res. Bull. 374, 382 (1984) ( Pet. App. AS58)

(approving merger of Bank of New England Corp. with CBT Corp.:

“The discriminatory nature [of the Connecticut statute] is apparent

from its legislative history, which demonstrates the intention of the

Connecticut legislature to permit Connecticut banks and bank holding

companies to develop and consolidate on a regional basis before

having to compete with banks outside the region”).

8

Connecticut and Massachusetts in “thwart[{ing] any inter-

vention as best we can from the large institutions” (Connecticut

Senator Sullivan) ‘4 in an effort to avoid “stiffer competition”

( Massachusetts Senator Brennan)'5 cannot be permitted under

our Federal system of commerce:

“In almost any Commerce Clause case it would be possible

for a State to argue that it has an interest in bolstering local

ownership, or wealth, or control of business enterprise.

Yet these arguments are at odds with the general principle

that the Commerce Clause prohibits a State from using its

regulatory power to protect its own citizens from outside

competition.” Lewis v. BT Investment Managers, Inc., 447

U.S. 27, 43-44 (1980).

(b) Section 3(d) of the Bank Holding Company Act does

authorize the creation of regional banking systems.

Section 3(d) of the Bank Holding Company Act of 1956,

12 U.S.C. § 1824(d), does not save these statutes. While

Congress may at times “permit the states to regulate the

commerce in a manner which would otherwise not be per-

missible”, Southern Pacific Co. v. Arizona, 325 U.S. 761, 769

(1945), its intent to remove state legislation “from the reach of

the dormant Commerce Clause . . . must be unmistakably

clear”. South-Central Timber Development Inc. v. Wunnicke,

104 S. Ct. 2237, 2242 (1984) (emphasis added). This is so

because when state regulation affecting commerce

“is of such a charter that its burden falls principally upon

those without the state, legislative action is not likely to be

subjected to those political restraints which are normally

exerted on legislation where it affects adversely some

interests within the state.’ . . . On the other hand, when

Congress acts, all segments of the country are represented

and there is significantly less danger that one State will be

in a position to exploit others. . .. A rule requiring a clear

14 Conn. Sen: Debate at 64 (May 18, 1983) (Pet App. A159).

5 Conn. Sen. Debate at 15 (March 3, 1983) (Pet. App. A155).

9

expression of approval by Congress ensures that there is, in

fact, such a collective decision and reduces significantly the

risk that unrepresented interests will be adversely affected

by restraints on commerce.” Jd. at 2243.

This Court has repeatedly rejected the argument that

Congress has authorized the imposition of a burden on inter-

state commerce by a state if there is any ambiguity as to that

authorization. E.g., South-Central Timber Development Inc. v.

Wunnicke, 104 S. Ct. 2237, 2240-43 (1984); Sporhase vy.

Nebraska, 458 U.S. 941, 958-60 (1982); New England Power

Co. v. New Hampshire, 455 U.S. 331, 340-44 (1982); Lewis v.

BT Investment Managers, Inc., 447 U.S. 27, 44-49 (1980);

Polar Ice Cream & Creamery Co. v. Andrews, 375 U.S. 361, 379

(1964); United States v. Public Utilities Commission, 345 U.S.

295, 299-311 (1953); see also Bacchus Imports, Ltd. v. Dias,

104 S. Ct. 3049, 3057-59 ( 1984) (state liquor tax discriminating

against interstate commerce not saved by 2Ist Amendment;

although the amendment allows a state to exclude liquor

entirely, it does not follow that the state is authorized to

discriminate among its sister states if it chooses not to exclude

all liquor).

It is, by contrast, only when Congress has spoken with

unambiguous precision that this Court will find burdensome

state regulation to have been sanctioned. E.g., Energy Reserves

Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 414

n.17 (1983) (Senate Conference Report states that “the Con-

gress .. . is ceding its authority under the commerce clause of

the Constitution .. . to affected States”); Western & Southern

Life Insurance Co. v. State Board of Equalization, 45\1 US.

648, 653-55 (1981) (federal statute provides that state regu-

lation of taxation of insurance business “is in the public interest,

and that silence on the part of Congress shall not be construed

to impose any barrier to the regulation or taxation of such

business by the several States”); Prudential Insurance Co. v.

Benjamin, 328 U.S. 408, 427-29 (1946) (same).

Section 3(d) of the Bank Holding Company Act does not

authorize Massachusetts and Connecticut to form a regional

10

banking system or to discriminate against the bank holding

companies of particular states—much less authorize such action

with “unmistakable” clarity. That section merely provides:

“|. no application [to the Federal Reserve Board of

Governors] . . . shall be approved under this section which

will permit any bank holding company or any subsidiary

thereof to acquire, directly or indirectly, any voting shares

of, interest in, or all or substantially all of the assets of any

additional bank located outside of the State in which the

operations of such bank holding company’s banking sub-

sidiaries are principally conducted . . . unless the acquisi-

tion of such shares or assets of a State bank by an out-of-

State bank holding company is specifically authorized by the

statute laws of the State in which such bank is located, by

language to that effect and not merely by implication”. 12

U.S.C. § 1842(d) (1984) (emphasis added ).

This language plainly aliows individual states to permit the

acquisition of in-state banks by out-of-state bank holding

companies. It does not with “unmistakable” clarity grant states

the right to discriminate among their sister states.‘6 As the

Federal Reserve Board of Governors recognized, Section 3(d)

“does not appear on its face to authorize discrimination by

Connecticut in favor of its own residents and those of

Massachusetts and other New England states having recip-

rocal laws, but against all other states. . . . [ This language ]

16 States may effectively continue the federal prohibition on

acquisition of state banks by out-of-state bank holding companies by

declining to pass legislation that would allow entry by such holding

companies. But, such power to exclude, without more, does not carry

with it the power to discriminate. States may not “use their lawful

authority to exclude foreign corporations by directly burdening inter-

state commerce as a condition of permitting them to do business in the

State in violation of the Constitution”. Looney v. Crane Co., 245 U.S.

178, 188 (1917); accord, Herndon v. Chicago, Rock Island and Pacific

Railway Co., 218 U.S. 135, 158-59 (1910); cf. Western & Southern

Life Insurance Co. v. State Board of Equalization, 45\ U.S. 648, 657-

58 (1981) (“a State may not impose unconstitutional conditions on

the grant of a privilege”) (emphasis in original ).

does not appear to meet the stringent test of explicitness

laid down by the Supreme Court.” 70 Fed. Res. Bull. 374,

384 (1984) (Pet. App. A65) (emphasis in original ).17

Nor does the section’s legislative history evince a Congres-

sional contemplation and acceptance of the regional parochial-

ism of the statutes at issue. Section 3(d) was introduced by

Senator Douglas as an amendment to the Bank Holding

17 Having stated the proper standard, the Board proceeded to

apply a totally different one. In essence, the Board required the

protestants to establish with unmistakable clarity that Section 3(d)

did not authorize the challenged statutes. While acknowledging that

ihe issue of authorization was not “free from doubt”, the Board relied

on the “principle of statutory construction that legislatures are pre-

sumed to have acted within constitutional limits”, and decided to hold

the Connecticut and Massachusetts statutes constitutional unless

shown “clear and unequivocal” evidence to the contrary. Jd. at 376-

77 (Pet. App. A40-41) (approving merger of Bank of New England

Corp. and CBT Corp. ); accord, 70 Fed. Res. Bull. 524, 525-26 ( 1984)

(Pet. App. A83) (approving merger of Bank of Boston Corp. and

Colonial Bancorp, Inc.); 70 Fed. Res. Bull. 353, 354 (1984) (Pet.

App. A74) (approving merger of Hartford National Corp. and Arltru

Bancorporation). Applying this erroneous standard, the Board read

Section 3(d) broadly and found the challenged statutes constitutional.

The Board’s error was compounded by the Court of Appeals for

the Second Circuit which not only failed to correct the mistake, but

gave “substantial deference” to the Board’s “finding”. Northeast

Bancorp, Inc. v. Board of Governors, 740 F.2d 203, 207-08 (2d Cir.

1984) (Pet App. A29). The Second Circuit purported to be deferring

solely to the Board’s statutory interpretation but, as shown above, this

interpretation was based upon a misapprehension of the constitutional

standard for interpreting statutes that are argued to have delegated

Congress’ power over commerce. The Second Circuit’s opinion can

thus be entitled to little or no weight. Indeed, even if the Federal

Reserve Board should apply such a standard because it is an

administrative agency and not a court, deference upon judicial review

constituted an impermissible abdication of the Court of Appeal’s duty,

under Article III of the Constitution, independently to decide issues of

constitutional law. Crowell v. Benson, 285 U.S. 22, 60 (1932):

Marbury v. Madison, 5 U.S. (1 Cranch) 137, 176 (1803): see Northern

Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 63-

70 (1982) (Brennan, J.). At the very least, therefore, this Court

shouid remand to the Court of Appeals with instructions to apply the

proper standard of review.

12

Company Act then under consideration, and passed during a

floor debate. It was given no interpretation or analysis by the

collective body of Congress.

As the Federal respondent concedes,

“The sparse legislative history of the Douglas Amend-

ment does not directly address the question whether

Congress intended to authorize the creation of regional

banking arrangements, and therefore does little to illumi-

nate the meaning of the statutory language... . [7 ]here

was no congressional discussion of the specific types of

action that the states might or might not take under the

Douglas Amendment.” Brief for the Federal Respondent in

Opposition to the Petition for Certiorari at 6 (emphasis

added ). 8

The sole references in the legislative history to the power of

states over out-of-state bank holding companies do not, with

“unmistakable” clarity, authorize the discrimination among

states here at issue. On the contrary, they consist

“in large part of conclusory statements by Senator Douglas

to the effect that his Amendment would ‘permit out-of-

State holding companies to acquire banks in other States

only to the degree that State laws expressly permit them’

({ 102 Cong. Rec.] at 6858 [1956] ), would ‘prevent bank

holding companies from expanding across State lines,

unless the States give them explicit permission to do so’

(id. at 6859), or would leave room for the exercise of

‘State policy’ in the banking field (id. at 6860)”. Id.

This Court has warned against “[r]eliance on such isolated

fragments of legislative history”. New England Power Co. v.

18 See also 70 Fed. Res. Bull. 374, 385 (1984) ( Pet. App. A66)

(there was “no discussion [in Congress] of the power of the states to

discriminate among potential out-of-state entrants”); Jowa Independ-

ent Bankers v. Board of Governors, 511 F.2d 1288, 1296 (D.C. Cir.)

(“Not once in the entire debate is the discrimination question

raised”), cert. denied, 423 U.S. 875 (1975).

13

New Hampshire, 455 U.S. 331, 342 (1982).19 Courts may not

rewrite legislation “based on mere speculation as to what

Congress ‘probably had in mind’”, id. at 343—and nothing

could be more improbable than that Congress, without any

discussion, intended to authorize the Balkanization of com-

merical banking.2° Absent clear Congressional intent2' to sus-

tain otherwise discriminatory state regulation of interstate com-

merce, Section 3(d) cannot be interpreted as authorization for

the statutes in question.

2. The Statutes Violate the Compact Clause.

The Constitution also bars the discrimination effected by

the Connecticut and Massachusetts statutes because it is accom-

plished through an agreement between states. The Compact

Clause prohibits, absent Congressional consent, agreements

among the states

“which may tend to increase and build up the political

influence of the contracting States, so as to encroach upon

or impair the supremacy of the United States or interfere

with their rightful management of particular subjects

19 See also Garcia v. United States, 105 S. Ct. 479, 483 (1984)

(“In surveying legislative history we have repeatedly stated that the

authoritative source for finding the Legislature’s intent lies in the

committee reports on the bill .... We have eschewed reliance on the

passing comments of one member . . . and casual statements from the

floor debates”); Chrysler Corp. v. Brown, 441 U.S. 281, 311 (1979)

(“[t}he remarks of a single legislator, even the sponsor, are not

controlling in analyzing legislative history”); Schwegmann Bros. vy.

Calvert Distillers Corp., 341 U.S. 384, 396 (1951) (Jackson, J.,

concurring) (to “select casual statements from floor debates, not

always distinguished for candor or accuracy, as a basis for making up

our minds what law Congress intended to enact is to substitute

ourselves for the Congress in one of its most important functions”).

20 The only results of Section 3(d) which appear to have been

anticipated by Congress were “an absolute prohibition against future

expansion by bank holding companies”, 102 Cong. Rec. at 6,861

(statement of Senator Bricker), and a “freez[e of] the banking

system of America”. Jd. (statement of Senator Douglas).

21 This Court has previously observed that the intent behind

Section 3(d) is not clear: “it is doubtful that § 3(d) authorizes state

restrictions of any nature on bank holding company activities”. Lewis

v. BT Investment Managers, Inc., 447 U.S. 27, 47 (1980).

14

placed under their entire control”. Virginia v. Tennessee,

148 U.S. 503, 517-18 (1893 ).22

In U.S. Steel Corp. v. Multistate Tax Commission, 434 US.

452 (1978), This Court made clear that agreements which

“enhance[ ] state power with respect to commerce”, id. at 475,

comprise one class of agreements that meet this standard and

are therefore subject to the consent requirement of the Compact

Clause. The Court in U.S. Steel explained that the Compact

Clause applies when two states obtain by joint action power

over interstate commerce that neither could have obtained

alone. /d. The statutes at issue, in creating a regional banking

system, manifest exactly an exercise of such power.

It cannot be seriously argued that the agreement between

New England states to create a regional banking system does

not enhance the power of the states with respect to commerce

beyond that of any of the states acting alone. The admitted

purpose of each statute is to foster the growth of New England

banks and to increase their power in anticipation of broader

competition. As Massachusetts Senator Brennan testified be-

fore the Connecticut legislature:

“IT welcome the opportunity to share with you some of

our ideas and concepts that grew up and developed and

evolved over the so called regional or New England

Regional Experimental Banking Network, if you will... . I

think it is advisable for a region such as ours, a region that

has a tradition of cooperativeness, a region that has a

tradition of regional pride, Mr. Chairman, to get up and

get going in terms of providing the banking institutions

within this region whoever had a tradition and a concern

22 All agreements, formal or informal, including those reached

through reciprocal legislation, are within the scope of the Clause.

U.S. Steel Corp. v. Multistate Tax Commission, 434 U.S. 452, 470-71

(1978); see Virginia v. Tennessee, 148 U.S. at 517-518. That the

statutes here at issue constitute an agreement is made clear by the fact

that, as the Federal Reserve Board of Governors found, Connecticut,

Massachusetts, and other New England states worked closely together

prior to the statutes’ enactment “to discuss regional interstate bank-

ing” in an “effort to create a regional banking zone”. 70 Fed. Res.

Buil. 374, 380 (1984) (Pet. App. AS1).

15

for the stability and the vitality and the economic health of

this region. Provide those entities with a testing ground for

a freak [sic] period of time, so that they will have an

opportunity to be in a healthier situation, they’ll have an

opportunity to accustom themselves, if you will, to the rigas

[sic] of interstate banking, before they have to go head on

head with the stiffer competition on a national basis... .”

Conn. Sen. Debate at 14-15 (March 3, 1983) (Pet. App.

A153, A155).

Senator Sullivan of the Connecticut Senate likewise made

this clear:

“what the committee did and in what we consider our

wisdom was to come forth with a measure which would

follow the Massachusetts bill that has passed which is a

New England pact and to follow the Rhode Island pact to

the extent that they have formed a, or passed a statute

restricting it to New England even though they have a

trigger mechanism in 1986, I think it is, which that law has

passed the legislature in Rhode Island. [|W ]e’ve come up

with the measure to create a New England banking

law....” Conn. Sen. Debate at 61 (May 18, 1983)

(Attachment A at 2).

And, as Representative Gilligan explained in urging that

the Connecticut statute be effective immediately:

“There’s everything to be gained by seizing the

opportunity of getting out into the market and permitting

ourselves to participate along with Massachusetts in mu-

tually advantageous mergers to buttress the position of the

local banking industry for the survival test they'll face in

the very near future.” Conn. House Debate at 288 (May

26, 1983) (Attachment B)

No state by itself could create a regional banking system

populated by the large financial institutions that will exist if the

acquisitions challenged in this case are consummated. It is only

joint action by New England states that can enhance the power

16

of that region over interstate banking. Such joint action,

however, must be approved by Congress pursuant to the

Compact Clause. No such approval has been obtained.

The Bank Holding Company Act does not say anything

about joint action among the states. In those cases where this

Court has found the requisite Congressional consent under the

Compact Clause, there has consistently been a clear expression

of intent to approve joint action. E.g., Cuyler v. Adams, 449

U.S. 433, 441 (1981); Petty v. Tennessee-Missouri Bridge

Commission, 359 U.S. 275, 277 (1959); West Virginia ex rel.

Dyer v. Sims, 341 U.S. 22, 25 (1951). Nothing in the text or

legislative history of Section 3(d) suggests that in 1956 Con-

gress even considered, much less approved, the possibility of

joint action.

Finally, the suggestion of the Court below that the agree-

ment between Connecticut and Massachusetts would not violate

the Compact Clause because

“if at any time Congress should find any encroachment [on

Federal Supremacy ], it could remove the encroachment by

appropriate legislation”, 740 F.2d at 209 ( Pet. App. A32),

turns the application of the Compact Clause on its head. If that

were true, no agreement between the states could violate the

Compact Clause. The Compact Clause, of its own force,

expressly requires states to obtain the assent of Congress—it

does not require Congress to be constantly vigilant for state

encroachments on Federal supremacy. See Cuyler v. Adams,

449 US. at 439 (“the requirement of congressional consent is at

the heart of the Compact Clause”’).

The agreement at issue enhances the power of Connecticut

and Massachusetts over interstate commerce, and has not

received Congressional consent. It therefore violates the Com-

pact Clause.

17

CONCLUSION

The Federal system of the United States requires that

Congress approve restrictions on commerce such as those in the

Connecticut and Massachusetts statutes. The Congress that

enacted Section 3(d) did not consider the creation of regional

banking systems. Such a major reorganization of the nation’s

banking structure should be left to explicit Congressional

approval—if that can be obtained—and not to the parochial

efforts of the several states.

Respectfully submitted,

RICHARD S. SIMMONS

ROBERT F. MULLEN*

One Chase Manhattan Plaza,

New York, N.Y. 10005

Counsel for The New York

Clearing House Association as

Amicus Curiae

* Counsel of Record

CRAVATH, SWAINE & Moore,

One Chase Manhattan Plaza,

New York, N.Y. 10005

DEBORAH S. PRUTZMAN,

General Counsel,

The New York Clearing

House Association,

100 Broad Street,

New York, N.Y. 10004

Of Counsel.

February 21, 1985

A-|

ATTACHMENT A

Connecticut Senate Debate at 60—64

(May 18, 1983)

(remarks of Senator Sullivan)

“Mr. President, before I explain the amendment, I'd like to

point out to the circle that this is probably the most significant

banking legislation that’s come before this body, at least in my

time anyway, and Mr. President, it is the result of many of the

activities in the Congress, many of the reports, Presedential

[sic] reports, sent to the Congress and some of the actions of

the Congress more particularly the banking committee and the

Congress of the United States wherein they’ve left banking

interstate up to the states, more or less, or regions, and the

reason for this, Mr. President, was that the Congress in its

wisdom saw the great harm that it could do to banking and the

financial industries in this country were they to pass some all-

sweeping legislation in regard to opening up banking through-

out the United States wide open. Some of the reasons for this,

Mr. President, were more particularly the case here in the New

England region where we are contiguous to big financial centers

in New York where some of the banks in New York dwarf

us—make our banking institutions look like midgets. Some of

them like City Corps, which is probably a hundred twenty-two

or a hundred and twenty-three billion dollars as compared to

our largest bank in Connecticut which is something in excess of

five billion. If you were to put all of our banks together, Mr.

President, all of them together including savings and loans,

mutuals, trust companies including credit unions, we probably

would be twentieth or twenty-first in the list in the financial

picture in New York, so that gives the circle an idea of how

large the banking center in New York is, and to open our doors

up completely throughout the United States would reek [sic]

havoc, at least in the Committee’s eyes, on the financial

institutions of Connecticut. New England is peculiar in that it

has probably one of the strongest mutual savings bank in-

dustries in the country. There are not too many mutual savings

A-2

banks throughout the country. In certain regions there are, but

most of them are concentrated here in New England and

they’re a very strong and viable industry, and to just open the

doors up and submit them to the onslaught of the big banks

throughout the country including California, New York, etc.,

Chicago, would reek [sic] havoc on the industry, so what the

committee did and in what we consider our wisdom was to

come forth with a measure which would follow the Massachu-

setts bill that has passed which is a New England pact and to

follow the Rhode Island pact to the extent that they have

formed a, or passed a statute restricting it to New England even

though they have a trigger mechanism in 1986, I think it is,

which that law has passed the legislature in Rhode Island.

we've come up with the measure to create a New England

banking law whereas any of our institutions here in Con-

necticut, that is mutual savings and loans and trust companies,

can acquire banks in any other New England state that has

similar provisions in the law of their states as ours and vice

versa, those banks can come into Connecticut and acquire our

banks. Our law allows a mutual, or I mean a Connecticut

Savings and Loan Association to acquire a New England

Savings and Loan Association but the resulting bank will be a

savings and loan association. Our law allows a Connecticut

Mutual Savings Bank to acquire a New England Mutual

Savings Bank or a Trust Company or a Savings and Loan

Association and the resulting bank will be a mutual savings

bank. Our law also allows, within the State of Connecticut, for

the acquisition of a trust company or a savings and loan

association by a mutual savings bank and the resulting in-

stitution will be a mutual savings bank. It also at the same time

allows a merger between these various institutions stock in-

stitutions which we a couple of days ago passed a stock

conversion bill for savings and loan and mutual savings banks.

It allows stock institutions to merge and at the time of merger,

they must indicate what type of institution will be the resulting

entity which could be a trust company or a savings bank or a

savings and loan association. Our law also gives the commis-

sioner vast latitude in approving these various mergers and

A-3

purchases of assets or stock, and so the commissioner will be

looking very closely at the merger that it is to take place. That’s

in regard to financial stability of the institution that’s going to

affect the merger. The commissioner also has the power to

overlook the mergers of our various banking institutions within

the State of Connecticut. If these terms seem boring, I have to

keep mentioning them because we have these distinct banking

institutions in Connecticut, that is mutual savings and loan

associations and Connecticut Bank and Trust Companies who

all have different powers and all these powers are granted by

the State of Connecticut through statute or in the case of

Federals, granted by Federal or regulation. Our law also

prevents any other out-of-state bank from coming into Con-

necticut other than a New England Bank who has comparable

law to ours, so it strictly forbids any of our banks within our

state from acquiring any out-of-state bank other than a New

England. It strictly forbids any New England bank from

acquiring a Connecticut bank and then being acquired by an

out-of-state bank outside of New England. In a case where this

happens, the commissioner in Connecticut can issue a cease and

desist order from that bank doing business in Connecticut. Our

law also, the law that I’m putting forth today, also has provided

for two out-of-state, by out-of-state I mean two banks anywhere

in the United States, banks or bank holding companies, to

establish two night depository offices per year in Connecticut

and this is not cumulative. They may establish two per year. If

they don’t establish the two, then they fal! by the wayside and

they’ve got two to next year. Our law also prevents the leap-

frogging provision for, as | say, a New York bank going into

Maine and acquiring a Maine bank and having the Maine bank

come in and acquire a Connecticut bank. The law prevents that

from happening. Now, Mr. President, we spent long, hard

hours thrashing out this piece of legislation and it had a

majority support of the committee, not the unanimous support

but the majority support, and that’s indicative of the various

views that were put forth in the committee during the promul-

gation of this legislation, and Mr. President, I want to commend

the committee for the long, hard hours they put into listening to

A-4

various testimony in regards to this and, Mr. President, the

main reason for this New England position is that if we were to

open the doors up a big bank, and I mentioned these various

banks, a large bank with a hundred billion dollar asset, could

come into Connecticut and pick up two or three or four or five

banks or four banks or three banks and then bring their entire

marketing operation into Connecticut and a bank that size

could overwhelm almost any bank we have here right now. So,

Mr. President, we thought that to give our banks in Connecticut

time to gird for the eventual coming of wide-open interstate

banking, which I have no doubt is going to come, when, I’m not

sure about that, but I know in the future it will come, in order to

give our banks in Connecticut time to merge and consolidate

and purchase some of the New England banks around and get

as large as they possibly can so we can thwart any intervention

as best we can from the large institutions and still provide the

service, the loan power of the banks that we have in Con-

necticut today to our Connecticut consumers. As we know,

many of the large New York banks have great, great in-

vestments in foreign countries and so there’s a fear that they

would come into Connecticut, get our deposits and invest them

in foreign countries, so we’ve tried to the best of our ability to

prevent this from happening and the result is the New England

Bank, and, Mr. President, {| would move adoption of this

amendment and I hope it would be unanimous and I would ask

for a roll call vote, Mr. President.”

B-|

ATTACHMENT B

Connecticut House Debate at 287-88

(May 26, 1983)

(remarks of Representative Gilligan )

“Mr. Speaker, I rise in opposition to the amendment [that

would postpone the effective date of the statute until July 1,

1984]. And I had the privilege of serving on the HEB

commission and it’s not quite as complicated as it would seem.

What we’re really addressing this afternoon is an opportunity.

And the question is whether we’re going to seize that opportu-

nity this afternoon.

“There is absolutely nothing to be gained by putting this

off for one year. There’s everything to be gained by seizing the

opportunity of getting out into the market and permitting

ourselves to participate along with Massachusetts in mutually

advantageous mergers to buttress the position of the local

banking industry for the survival test they’ll face in the very

near future.

“We can’t stop the forces of change, but we can manage

them and we can control them and we can guide them in a way

that will strengthen our local banking industry. I see absolutely

nothing to be gained by delaying this until 1984. Rhode Island

admittedly decided to make it effective July 1, 1984, I believe.

But I see every opportunity gained by acting immediately on

this issue and giving Connecticut a competitive edge.

“I don’t know why anyone in this Chamber would feel

otherwise. I urge rejection of the amendment.”