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

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ty Office - Supreme Court, U.S.

y FILED

No. 84-363 MAR 29 1985

Ss.

IN THE p CLERK "L

Supreme Court of the United States

OCTOBER TERM, 1984

NORTHEAST BANCORP, INC.,

UNION Trust Co. and CITICORP,

vy. Petitioners,

BOARD OF GOVERNORS OF THE

FEDERAL RESERVE SYSTEM,

and Respondents,

BANK OF NEW ENGLAND CORPORATION, CBT CORPORA-

TION, HARTFORD NATIONAL CORPORATION, THE CoM-

MONWEALTH OF MASSACHUSETTS, THE STATE OF CON-

NECTICUT AND BANK OF BOSTON CORPORATION,

Intervenor-Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Second Circuit

BRIEF OF THE

COUNCIL OF STATE GOVERNMENTS,

THE U.S. CONFERENCE OF MAYORS,

THE NATIONAL LEAGUE OF CITIES, AND THE

INTERNATIONAL CITY MANAGEMENT ASSOCIATION

AS AMICI CURIAE IN SUPPORT OF RESPONDENTS

VickI C. JACKSON JOYCE HOLMES BENJAMIN

JAMES E. PFANDER THE STATE AND LOCAL

ROGOVIN, HUGE & LENZNER LEGAL CENTER

A Professional Corporation Suite 349

1730 Rhode Island Ave., N.W. 444 North Capitol St., N.W.

Washington, D.C. 20036 Washington, D.C. 20001

(202) 466-6464 (202) 688-1445

Of Counsel Counsel of Record for the

Amici Curiae

QUESTIONS PRESENTED

1. Whether the Douglas Amendment to the Bank

Holding Company Act, 12 U.S.C. § 1842(d) (1), which

prohibits all interstate bank acquisitions unless “specifi-

cally authorized by the statute laws of the State in which

such bank is located,” and which was intended to permit

each state’s policy to determine the degree to which it

would permit such acquisitions, authorizes states to per-

mit interstate acquisitions of banks located within their

borders only by bank holding companies located in a

geographically limited number of other states.

2. Whether separately enacted Massachusetts and

Connecticut statutes, each of which authorizes acquisi-

tions of their within-state banks only by banks ov bank

holding companies located in other New England states

that permit Massachusetts or Connecticut banks, respec-

tively, to acquire banks within their borders, violate the

Commerce Clause, art. I, § 8, cl. 3, or the Compact

Clause, art. I, § 10, cl. 3, of the Constitution.

(i)

TABLE OF CONTENTS

STATEMENT OF THE CASE .....00022 woe

SUMMARY OF ARGUMENT ....WW000 eee.

EEE ERE TESS

I. THE CONNECTICUT AND MASSACHU-

SETTS STATUTES DO NOT IMPINGE ON

THE JUST SUPREMACY OF THE NA-

TIONAL GOVERNMENT AND DO NOT RE-

QUIRE CONGRESSIONAL CONSENT UN-

DER THE COMPACT CLAUSE .......00...... dius

A. There Is No Agreement Between Massachu-

setts And Connecticut To Exclude States

Outside New England .......................................

B. The State Laws At Issue Here Do Not In-

crease The Political Power Of Massachu-

setts And Connecticut Or Impair Sover-

eignity Of Other States ............

C. i .ese State Laws Do Not Encroach Upon

The Just Supremacy Of The United States....

1. The Massachusetts and Connecticut Stat-

utes Do Not Violate the Commerce

2. The Douglas Amendment’s Renunciation

of a Federal] Interest Alters the Balance

of State and Federal Power Over Inter-

state Bank Acquisitions And Precludes

Finding An Encroachment on Federal

EEE SE OE

II. CONGRESS MAY GIVE ITS CONSENT TO

COMPACTS AND AGREEMENTS IN VARI-

acta esecerllbernetitnncnncetnccnnectsouncenaves

Page

oooOnr.lCrhOOlCU

TABLE OF AUTHORITIES

Cases

Barron v. Baltimore, 32 U.S. (7 Pet.) 243 (1833) ..

Bode v. Barrett, 344 U.S. 583 (1953) -..................

Breest v. Moran, 571 F. Supp. 343 (D.R.I. 1983)..

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

Deveau v. Braisted, 363 U.S. 144 (1960) _.............

Dover v. Portsmouth Bridge, 17 N.H. 200 (1845)..

Ex Parte Tenner, 20 Cal. 2d 670, 128 P.2d 338

CTD ccceneseniisasissiiatetinacccntitessitiaiiinsiiiaailaaadaadnamiaiamine

Fisher v. Steele, 39 La. App. 447, 1 So. 882

COED <innsciinssrssictciiescriisnininsccamusiuianiiasipataaiiamammninsinamins

Florida v. Georgia, 58 U.S. (17 How.) 478 (1855)..

Gencral Expressways, Inc. v. Iowa Reciprocity

Board, 163 N.W.2d 413 (Iowa 1968) ...................

Green v. Biddle, 21 U.S. (8 Wheat.) 1 (1823)-.......

Gulley v. Apple, 213 Ark. 350, 210 S.W.2d 514

CEI .<ccncéscsinnticnstcssinestsiseastesimaenisiaainiaiatinnsnedaiaiaaieaniice

Holmes v. Jennison, 39 U.S. (14 Pet.) 540 (1840)..

Ivey v. Ayers, 301 S.W.2d 790 (Mo. 1957) .............

Landes v. Landes, 1 N.Y.2d 358, 185 N.E.2d 562

RUD. citsisnicsncscnseninccecnieamabiciainammminmamenatmamnaiatss

Lewis v. BT Investment Managers, Inc., 447 U.S.

SF | Ce vccnsecccsinsninisicisnaeceiaaiaicnnciaeagesiieiiamicaniapeaiianatiaditi

McHenry County v. Brady, 37 N.D. 59, 163 N.W.

New Hampshire v. Maine, 426 U.S. 363 (1976)....

New State Ice Co. v. Liebman, 285 U.S. 262

I virsciccctosecsicehecteheacacleanaiesdacbeniiascaiiiandalsiaiaistaiiisbeaiveadinne

New York v. O’Neill, 359 U.S. 1 (1959) —...............

North Carolina v. Tennessee, 235 U.S. 1 (1914)...

Northeast Bancorp., Inc. v. Board of Governors,

7140 F.24 308 (3a Cir. 1966) .................................

Northwest Bancorporation, 38 Fed. Reg. 21530

(1973), aff'd, Iowa Independent Bankers v.

Board of Governors, 511 F.2d 1288 (D.C. Cir.),

cert. denied, 423 U.S. 875 (1975) —.......................

Opinion of the Justices, 344 Mass. 770, 184 N.E.2d

CE sscickaticeiecticincatnsbilaleiipaalaicieatsciaiiasincainidaiaaiani

Otero Savings & Loan Association v. Federal Re-

serve Bank, 665 F.2d 279 (10th Cir. 1981) ........

Page

9, 16

7, 28

10, 28

2, 20

8, 19

TABLE OF AUTHORITIES—Continued

Page

Pennsylvania v. Wheeling & Belmont Bridge Co.,

59 U.S. (18 How.) 421 (1856) 0000. 25, 29

People ex rel. Barlow v. Curtis, 50 N.Y. 321

an an 14, 24

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

ae 20

Rhode Island v. Massachusetts, 37 U.S. (12 Pet.)

I I a 14

Salorio v. Glaser, 82 N.J. 482, 414 A.2d 943 (1980),

cert. denied, 449 U.S. 804 (1980) 000. 13

St. Louis & S.F.R. Co. v. James, 161 U.S. 545

RSE ATE SE taremiteapes sooo oe Coes AE RS 16, 17, 24

Texas v. New Mezico, 462 U.S. 554 (1983)... li

Tobin v. United States, 306 F.2d 270 (D.C. Cir.),

cert. denied, 371 U.S. 902 (1962) .......0 29

Union Branch R. Co. v. East Tennessee & G.R.

i en I as 8, 24

United States v. Public Utilities Commission, 345

IN 26

United States v. Rauscher, 119 U.S. 407 (1886).. 24

United States Steel Corp. v. Multistate Tax Com-

mission, 434 U.S. 452 (1978) ..............2................. passim

Wharton v. Wise, 153 U.S. 155 (1894)... 16, 19

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

West Virginia ex rel. Dyer v. Sims, 341 U.S. 22

a aaa a 9

Western & Southern Life Insurance Co. v. State

Board of Equalization, 451 U.S. 648 (1981) ........ 20

Constitution

EL i

FR RR ee eee passim

Federal Statutes and Rules

I celecalininhenenaael 28

ERY Aa De ener nS 21

I eauusenianiiaien 27

ee 27

RE IER 2

Se ennctmnsemennad passim

NER A Ree 27

42 U.S.C. § 2021 (d) (1) (a) (2) (B) eee 26

TABLE OF AUTHORITIES—Continued

Page

General Bridge Act of 1946, 60 Stat. 847 (1946)... 28

Act of Aug. 20, 1958, Pub. L. No. 85-684, 72 Stat.

635, as amended, Act of Aug. 20, 1964, Pub. L.

§ © § | 3 28

State Statutes

Ala. Stat. § 06.05.2385 (1982) ......................-.......2---- 4

Conn. Act No. 83-441 (1983) (to be codified at

Conn. Gen. Stat. Ann. § 36 Pts. 552-57) -.............. 5, 10

Del. Code Ann. tit. 5, § 803 (Supp. 1984) -.............. 4

Fla. Stat. Ann. § 658.29(3) (d) (1984).........--.0...-. 4

Fla. Stat. Ann. §§ 658.295 et seq. (1984) ................. 4

Ga. Code Ann. §§ 7-1-620 et seg. (Michie Supp.

NTI -on:ncessicsesinistnineiinnininaiiealilanscetasidaiatianadbamemnabacisnbitadedsiaeitainssinie 4

Iowa Code Ann. § 524.1805 (West Supp. 1984-85) .. 3

Ky. Rev. Stat. §§ 287-900 et seq. (Michie Supp.

NSTI scieiiiciesciahenieteeiiaeielinibiteataihdianagiatieliceiiiaidh beta dabielbianaees 4

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

STII sinsctinsaeiteitiehsitaniieasiaieaiiadedatiiniainadiaemastnaietiitditen 5, 10

Md. Fin. Inst. Code Ann. §§ 5-906-908 (Supp.

TTI ccscsisscinssedesiliighoesatiineinnnathiiiniditasiasmaiisaniiiaiaeibdiiiadsiaiees 4

Me. Rev. Stat. Ann. tit. 9-B, § 1013 (West Supp.

ATID 1: ns0icssinstteentsiseniacensametnicninginidemminininauemmanals 3

N.C. Gen. Stat. §§ 53-209 et seq. (Supp. 1984) ...... 4

N.Y. Banking Law §142-b (McKinney Supp.

i ale ali lsd lin altniatenidan 4

Or. Rev. Stat. § 716.920(8) (1983) -.........-............. 4

R.I. Gen. Laws §§ 19-30-1, 19-30-2 (Supp. 1984)... 4,5

S.C. Code Ann. tit. 34, ch. 24, 25 (Law Co-op

TED <cccsltissnsesiascnnicntatciesssdiiuianmindtiinnmmnnnnaiamneiine

Utah Code Ann. §§ 7-1-102, 7-1-702 (Supp. 1984).. 4

1985 Va. Acts (to be codified at Va. Code Ann.

RE BF OF 8 a eee 4

Wash. Rev. Code Ann. § 30.04.230 (Supp. 1985) .... 4

Legislative History

102 Cong. Rec. 6857-6863 (1956) _...........-......--.-.--..-. passim

H.R. Rep. No. 609, 84th Cong., Ist Sess. (1955)....... 3

S. Rep. No. 1095, Pt. 1, 84th Cong., 1st Sess.

IIE .<ccsco<sererecennesisistiieieseeitateanntigeaascesieicigitaiemaamanineiesdlaiuites 3

vii

TABLE OF AUTHORITIES—Continued

Compacts and Agreements Page

Delaware River Basin Compact, 75 Stat. 688

RAE EE Oe eT TD 12

Interstate Agreement on Detainers, 48 Stat. 909

ERS Sane en aes ne a 28

Interstate Compact on Juveniles, 48 Stat. 909

AER ANON eS Ri Se eRe EN LD 26, 28

Minnesota-Wisconsin Student Reciprocity Agree-

ment, Wis. Stat. Ann. § 39.47 (Supp. 1984-85) .... 17

New England Health Services and Facilities Com-

pact, Me. Rev. Stat. Ann. tit. 22, §§ 691-99

RRR A Mec On nO a eR 18

New England Interstate Corrections Compact, 48

i 28

New England Radiological Health Protection Com-

pact, Me. Rev. Stat. Ann. tit. 22, §§ 751-59

ERE ES ae ee aes NOE | ee ee 18

New York-New Jersey Port Authority Compact,

I i is 12

Southern Growth Policies Agreement, Va. Code

Ann. §§ 21-339.1 et seq. (1979 Repl.) ............ ia 18

Southern Regional Education Compact, Md. Educ.

Code Ann. §§ 25-201-205 (1978) 000. 18, 26

Western Interstate Energy Compact, Pub. L. No.

RENEE EI SIP OES aenss one eee Rave Tee 18

Treatises and Periodicals

Council of State Governments, The Book of the

I 16

Council of State Governments, /nterstate Com-

pacts & Agencies (1983) ............-- 12, 18, 28

Celler, Congress, Compacts & Interstate Authori-

ties, 26 Law & Cont. Prob. 682 (1961) ................ 26, 29

Engdahl, Characterization of Interstate Arrange-

ments: When Is A Compact Not a Compact?,

64 Mich. L. Rev. 68 (1965)... 12, 27

Frankfurter & Landis, The Compact Clause of the

Constitution—A Study in Interstate Adjust-

ments, 34 Yale L.J. 685 (1925) 2.0 18, 28

viii

TABLE OF AUTHORITIES—Continued

Grad, Federal-State Compact: A New Experi-

ment In Co-operative Federalism, 63 Colum. L.

I Fae CD cctenitesicshisirdincicnemnnniaenaniddieniebitemiinmesons

R. Sezudlo, Developments in the Area of State

Regulation reprinted in Bank Acquisitions and

Takeovers: 1984 (Practicing Law Institute

SUITED xccsncassiicuhlabicteiinsaidetniannsdiiscipepeiinitainiigasiounbbaninabarnensians

Stokes, Public Convenience and Advantage in Ap-

plications for New Banks and Branches, 74

Ee Tat, Ge CIO ctrccccccesetepcccrecsamncesssensccece

II J. Story, Commentaries on the Constitution of

the United States (Cooley ed. 1873) -...................

F. Zimmerman & M. Wendell, The Interstate Com-

F. Zimmerman & M. Wendell, The Law and Use of

Page

Interstate Compacts (1976) ~..................--.------ 11, 27, 28

Zimemrman & Wendell, Interstate Compacts re-

printed in Council of State Governments, The

Book of the States: 1976-1977 _........2......2.---220000-+-

Miscellaneous

The Constitution of the United States of America:

Analyses and Interpretations, S. Doc. No. 82,

92d Cong., 2d Sess. (1978) -..........--.-..-------22eeeeee---

INTERESTS OF AMICI

The amici organizations’ members include state and

local government officials throughout the United States.

Amici and their members have a vital interest in legal

issues that affect the powers and responsibilities of state

and local governments.

States play a unique and significant role in bank reg-

ulation. Concurrent with extensive federal regulation of

national banks, Congress long ago recognized the desir-

ability of permitting states to exercise powers of exclu-

sion that would ordinarily be denied them under the

Commerce Clause. Accordingly, the Douglas Amend-

ment to the Bank Holding Company Act prohibits the

Federal Reserve Board from approving interstate bank

acquisitions, unless specifically authorized by the statutes

of the state in which the bank to be acquired is located.

Thus, Congress imposed an absolute restriction on inter-

state banking, leaving the states discretion to determine

whether, and to what extent, to remove this federal

barrier to interstate commerce.

The state statutes directly at issue here, those of

Massachusetts and Connecticut, represent two of many

choices that states have made in implementing the au-

thority conferred upon them by the Douglas Amendment.

Under the terms of these statutes, the federal bar on

interstate acquisitions is lifted as to bank holding com-

panies located in other New England States which them-

selves permit Massachusetts or Connecticut banks, re-

spectively, to acquire banks within their states. While

amici believe that resolution in favor of the states of

both the Commerce Clause and Compact Clause issues is

compelled by the Douglas Amendment, their interests in

this matter are not confined to the somewhat unique area

of interstate bank acquisitions.

Petitioners’ arguments that these statutes are prohib-

ited as an unapproved “Compact” would substantially

restrict state power and authority in other areas as well.

Reciprocal state legislation on a multiplicity of issues

exists. Moreover, states presently engage in a wide

variety of mutually beneficial arrangements, agreements

and understandings, with sister states to achieve a range

of economic and cultural goals. Much of this interstate

cooperative activity has been undertaken without explicit

congressional consent, consistent with the decision in

United States Steel Corp. v. Multistate Tax Commission,

434 U.S. 452 (1978). Petitioners’ effort here to undo

Multistate and persuade this Court that the Massachu-

setts and Connecticut statutes are an unconstitutional

“Compact” or “Agreement,” could implicate a far

broader range of cooperative state activity.

Thus, the legal issues presented by this case are of

importance to all state governments. Amici accordingly

submit this brief to assist the Court in its resolution of

the Compact Clause issue.

STATEMENT OF THE CASE

The Bank Holding Company Act (“BHCA”)' was en-

acted “to prevent the concentration of banking resources

in the hands of a few financial giants [and] to imple-

ment a congressional policy against control of banking

and nonbanking enterprises by a single business entity.”

Lewis v. BT Investment Managers, Inc., 447 U.S. 27, 46

(1980). The provision that lies at the heart of the

instant case represents a compromise between two con-

flicting approaches to the control of interstate bank ac-

quisitions, both designed to promote these fundamental

goals.

The Douglas Amendment prohibits the Federal Reserve

Board from approving a proposed out-of-state bank ac-

quisition unless “specifically authorized by the statute

laws of the State in which such bank is located.”? The

House Bill from which the Douglas Amendment emerged

contained an absolute prohibition on interstate acquisi-

112 U.S.C. §§ 1841 et seq.

212 U.S.C. § 1842(d) (1).

tions by bank holding companies.* As reported out of

committee, the Senate version would have permitted in-

terstate acquisitions subject only to the oversight of the

Federal Reserve Board.* As Senator Douglas explained,

the amendment that bears his name establishes a federal

ban on interstate acquisitions but confers upon states

regulatory power to permit such acquisitions “to the

degree” the states see fit.© The only express constraint

the amendment places on the free exercise of state power

is its requirement that the state statute authorize the

acquisition “by language to that effect and not merely

by implication.” ®

Since 1956, states have exercised their authority over

interstate bank acquisitions in a variety of ways that

creatively respond to local policy concerns. In 1972, Iowa

enacted legislation that permitted acquisition of Iowa

banks by a single out-of-state holding company;’ both the

Federal Reserve Board and the D.C. Circuit approved this

legislation as lying within the state’s Douglas Amend-

ment authority to promote “state policy” and “choose

selectively” among potential out-of-state holding company

entrants. Maine—an erstwhile member of the so-called

“New England Compact” Petitioners decry—adopted a

statute that imposes very few restrictions on the acqui-

sition of banks by out-of-state holding companies.’ Other

states lifted the federal bar to a degree but also retained

3 H.R. Rep. No. 609, 84th Cong., Ist Sess. 1-2, 5-7 (1955).

4S. Rep. No. 1095, Pt. 1, 84th Cong., Ist Sess. 10-11 (1955).

5 102 Cong. Rec. 6858 (1956).

®12 U.S.C. § 1842(d) (1).

7 See lowa Code Ann. § 524.1805 (West Supp. 1984-85).

8 See Northwest Bancorporation, 38 Fed. Reg. 21530, 21531-32

(1973), aff'd, Iowa Independent Bankers v. Board of Governors,

511 F.2d 1288 (D.C. Cir.), cert. denied, 423 U.S. 875 (1975).

® Me. Rev. Stat. Ann. tit. 9-B, § 1013 (West Supp. 1984-85) (mini-

mum capital requirements). Citicorp has established a full service

bank in Maine pursuant to this provision.

certain limitations to advance local concerns.’® New York,

for example, permits only those holding companies from

states with reciprocal laws to acquire local banks.”

Alaska permits out-of-state acquisition of only those banks

existing on a certain date.’* Two states authorized inter-

state acquisitions only of failing banks.” Eight states,

not including Connecticut and Massachusetts, enacted

statutes authorizing bank holding companies from a

multi-state region to acquire local banks.* And many

states, by not enacting any legislation in this area, have

chosen to retain the absolute federal bar on out-of-state

bank acquisitions.”

The pattern of experimentation established throughout

the country is reflected in New England, whose six states

10 See Fla. Stat. Amn. § 658.29(3)(d) (1984) (effective 1976)

(authorizing entry of three out-of-state holding companies) ; Del.

Code Ann. tit. 5, § 803 (Supp. 1984) (authorizing entry of out-of-

state holding companies to establish financial center with stated

assets and employees); Md. Fin. Inst. Code Ann. §§ 5-906-908

(Supp. 1984) (same).

11 N.Y. Banking Law § 142-b (McKinney Supp. 1983).

12 Alaska Stat. § 06.05.235 (1982).

13. Or. Rev. Stat. § 716.920(8) (1983); Wash. Rev. Code Ann.

§ 30.04.230 (Supp. 1985).

14 See Fla. Stat. Ann. §§ 658.295 et seg. (1984) (effective July 1,

1985) ; Ga. Code §§ 7-1-620 et seq. (Michie Supp. 1984); Ky. Rev.

Stat. §§ 287.900 et seg. (Michie Supp. 1984) ; N.C. Gen. Stat. §§ 53-

209 et seq. (Supp. 1984) ; R.I. Gen. Laws §§ 19-30-1, 19-30-2 (1984) ;

S.C. Code Ann. tit. 34, ch. 24, 25 (Law Co-op. 1984); Utah Code

Ann. §§ 7-1-102, 7-1-702 (Supp. 1984) ; 1985 Va. Acts (to be codified

at Va. Code Ann. §§ 6.1-381 et seq.) (effective July 31, 1985). See

also note 18 infra.

15 Petitioner Citicorp has lobbied extensively in Florida, Mary-

land and elsewhere for so-called national reciprocal legislation that

would authorize out-of-state banks from any jurisdiction with a

similar statute to acquire the assets of local banks. Failing this,

Citicorp has supported provisions that trigger the elimination of

barriers at some future date, and those that authorize toe-holds in

certain states that will ripen in time into full service banks. See

R. Scezudlo, Developments in the Area of State Regulation, reprinted

in, Bank Acquisitions and Takeovers: 1984 41, 67-76 (Practicing

Law Institute 1984).

have adopted five responses to the problem of interstate

banking. Vermont and New Hampshire have both re-

jected any interstate banking legislation, thus choosing

to preserve the absolute bar on out-of-state bank acquisi-

tions established in the Douglas Amendment. Maine, by

contrast, has enacted provisions that liberally authorize

out-of-state banks to acquire full service banks.

The three remaining states have enacted statutes be-

tween these two extremes. Massachusetts, Connecticut and

Rhode Isiand each permit bank holding companies from

New England states with reciprocal legislation to acquire

banks within their borders.'*® None of these state statutes

require any other state to adopt the geographic restric-

tion that excludes petitioners from acquisitions in these

states. Because these states chose to lift the bar of the

Douglas Amendment only for bank holding companies

located within New England, however, the federal pro-

hibition on interstate expansion and concentration con-

tinues to apply outside that region.

SUMMARY OF ARGUMENT

I. An agreement among states requires Congress’ con-

sent under the Compact Clause only when it tends to

increase the political power of those states in such a way

as to encroach upon the just supremacy of the federal

government. United States Steel Corp. v. Multistate Tax

Commission, 434 U.S. 452 (1978). Because this standard

invalidates only those agreements that “impermissibly en-

hance state power at the expense of federal supremacy,”

id. at 472, the Douglas Amendment’s “renunciation of fed-

eral interest” is dispositive. There, Congress expressly

authorized states to determine whether to permit inter-

state bank acquisitions and, for purposes of this case,

16 See Mass. Gen. Laws Ann. ch. 167A §2 (West Supp. 1984) ;

Conn. Act No. 83-441 (1983) (to be codified at Conn. Gen. Stat.

Ann. § 36 Pts. 552-57); R.I. Gen. Laws §§ 19-30-1, 19-30-2 (Supp.

1984). These state statutes are by no means identical; Rhode

Island’s statute, for example, includes a provision, effective July

1986, that will permit bank holding companies from any state with

reciprocal laws to acquire in-state banks.

struck “the proper balance between federal and state

power.” Id. at 471. The Connecticut and Massachusetts

reciprocal bank statutes neither increase the political

power of the states nor otherwise encroach on the just

supremacy of the federal government. Accordingly, they

do not violate the Compact Clause.

A. Before applying the Multistate test, a reviewing

court must determine whether the states have reached

agreement on the challenged issue. In this case, neither

ine Connecticut nor the Massachusetts statute conditions

reciprocity with other New England states on those states’

adopting similar geographic limitations. Thus, the geo-

graphic exclusion of which Petitioners complain is not

embodied in the reciprocity provisions that form the

basis for their Compact Clause challenge, and further

Compact Clause scrutiny is not appropriate.

B. Enactment of these statutes by the separate leg-

islatures of Connecticut and Massachusetts in no way

increases the political power of either state. While

boundary agreements or agreements creating multistate

agencies could threaten to enhance state political power

at the expense of federal supremacy, these reciprocal

statutes present no such threat. They do not affect either

state’s voting power in the Congress, nor create any

multistate agency exercising sovereign powers. They do

not confer otherwise lacking sovereign powers upon a

state or states, nor do they compel other New England

states to adopt similar geographic restrictions. Given the

conclusion that the Multistate Tax Commission did not

impermissibly alter the political balance, these statutes

a fortiori pose no such risk.

Petitioners’ argument that the Compact Clause is of-

fended by agreements that may economically disadvan-

tage other states is neither factually apposite nor con-

sistent with the reasoning of Multistate. As Multistate

makes clear, states may freely confer mutual economic

benefits on one another under the Compact Clause so

long as they do not offend the Commerce Clause or an-

other constitutional area of federal supremacy. Indeed,

many agreements and other forms of state cooperation

promote regional economic development and interests, and

have been neither approved by Congress, nor questioned

by the courts. Such arrangements pose no threat to any

sister state’s sovereignty and thus cannot violate the

Compact Clause.

C. Nor do these statutes encroach on the “just su-

premacy” of the United States, in view of the Douglas

Amendment’s renunciation of a federal interest in regu-

lating interstate bank acquisitions. Plainly the Com-

merce Clause is not offended by the two state statutes.

Congress has unquestioned power to restrict the flow of

interstate commerce. In adopting the Douglas Amend-

ment, Congress interposed just such a federal restric-

tion on out-of-state bank acquisitions and, at the same

time, authorized the states to determine the degree to

which such acquisitions of local banks would be per-

mitted. This renunciation of a federal interest removes

any objection founded on the Commerce Clause or Con-

gress’ regulation of banking, and, with it, any asserted

encroachment on the “just supremacy” of the United

States.

II. Petitioners err in contending that the Compact

Clause requires Congress to consent “explicitly and with

full knowledge” of the compact being approved. Al-

though this case presents no occasion for addressing this

question, this Court has consistently held that Congress

may “consent ... in advance... or by giving express

or implied approval to an agreement the states have

already joined.” Cuyler v. Adams, 449 U.S. 433, 441

(1981). Sister states claiming prejudice from an exer-

cise of state authority may seek redress from Congress

at the time of injury, and are thus not prejudiced by ad-

vance or implicit congressional authorizations.

ARGUMENT

I. THE CONNECTICUT AND MASSACHUSETTS

STATUTES DO NOT IMPINGE ON THE JUST

SUPREMACY OF THE NATIONAL GOVERNMENT

AND DO NOT REQUIRE CONGRESSIONAL CON-

SENT UNDER THE COMPACT CLAUSE

The Compact Clause of the Constitution, art. I, § 10,

cl. 3, provides: “No State shall, without the Consent of

Congress, . . . enter into any Agreement or Compact

with another State, or with a foreign Power.” Literally

construed, the Compact Clause would invalidate a great

variety of beneficial forms of state cooperation unless the

states convinced a busy Congress to place its imprimatur

on each arrangement. As a practical matter, tne expense

and inconvenience of obtaining such consent would pre-

clude many beneficial cooperative state agreements.

At least since its decision in Virginia v. Tennessee,

148 U.S. 503 (1893),'7 this Court has recognized that

the framers did not intend so unworkable a scheme.

There, the Court limited the sweep of the requirement

of Congressional consent

to the formation of any combination tending to the

increase of political power in the States, which may

encroach upon or interfere with the just supremacy

of the United States.

Id. at 519. New Hampshire v. Maine, 426 U.S. 363, 369-

70 (1976), and United States Steel Corp. v. Multistate Tax

Commission, 4384 U.S. 452, 471 (1978), confirmed that

Virginia v. Tennessee states the proper test for deter-

mini.g whether the absence of Congressional consent

precludes state cooperation. The fundamental question

is whether the challenged agreements “enhance state

power at the expense of federal supremacy.” 434 U.S. at

472.

17 Early suggestions to the same effect appear in Barron v. Balti-

more, 32 U.S. (7 Pet.) 243, 249 (1833) and Union B. R. Co. v. East

Tennessee & G.R. Co., 14 Ga. 327, 339 (1853).

Petitioners’ Compact Clause challenge to the Connecti-

cut and Massachusetts statutes confuses the reciprocity

provisions with the geographic limitations to conjure an

agreement that does not, in fact, exist. Petitioners ignore

the decisive effect of the Douglas Amendment in assessing

the nature of the federal interest in interstate banking

acquisitions, and can show no political encroachments

on federal interests or state sovereignty that the “just

supremacy” of the United States protects. Accordingly,

their constitutional challenge must fail.

A. There Is No Agreement Between Massachusetts

And Connecticut To Exclude States Outside New

England

Petitioners disparagingly refer to the Connecticut and

Massachusetts statutes as a “New England Compact,”

and then purport to apply this Court’s Compact Clause

analysis to determine whether Congressional approval

should have been obtained. Although this Court’s deci-

sion in United States Steel Corp. v. Multistate Tax Com-

mission, 434 U.S. 452, 471 (1978), certainly sanctions

Compact Clause scrutiny of informal, as well as formal,

interstate agreements, it does not require such scru-

tiny in the absence of at least some agreement between

compacting states.'®

18 While the Multistate Court stated that “agreements effected

through reciprocal legislation may present opportunities for enhance-

ment of state power,” 434 U.S. at 470, it did not state that reciprocal

legislation of itself necessarily imports an agreement. Indeed, in

Bode v. Barrett, 344 U.S. 583, 586 (1953), the Court stated that

“reciprocal arrangement[s] between states [have] never been

thought to violate the Compact Clause;” Justice Frankfurter, who

dissented on the grounds that the legislation in question burdened

interstate commerce, did not question or take issue at all with the

majority’s brief disposition of the Compact Clause challenge, not-

withstanding his interest and familiarity with such issues. 344

U.S. at 586 (Frankfurter, J., dissenting). See also West Virginia

ex rel. Dyer v. Sims, 341 U.S. 22, 27 (1951) (Frankfurter, J.)

(recognizing that “growing interdependence of regional interests,

calling for regional adjustments,” has brought extensive use of

compacts).

The reciprocal character of the Massachusetts and

Connecticut legislation provides the centerpiece of Peti-

tioners’ claim that such an agreement was effected. A

careful examination of the statutes, however, reveals

that their reciprocity provisions in no way condition

entry of out-of-state bank holding companies on the

adoption by such other states of similar geographical lim-

itations. Neither Massachusetts nor Connecticut requires

the other, or any New. England state, to exclude non-

New England states in order to benefit from the rec-

iprocity provisions. All that the reciprocity conditions

require is that states whose banks want to acquire a

Connecticut bank, for example, permit Connecticut banks

to make acquisitions within their territory.’° Thus, noth-

ing in the challenged statutes prevents holding companies

located in Maine from acquiring banks in both Connec-

ticut or Massachusetts, despite Maine’s failure to adopt

a geographic restriction. Cf. Multistate, 434 U.S. at 492

(White, J., dissenting) (compact there required member

states to provide certain tax options).

In sum, each of the New England states remains free

to assess the competitive character of its own local bank-

ing industry and to permit or deny out-of-state entry

under the Douglas Amendment to the degree it sees fit.

Maine and Rhode Island have adopted statutes strik-

ingly different from those under review; New Hamp-

shire and Vermont have chosen to leave intact the fed-

eral bar on out-of-state entry. Massachusetts and Con-

necticut, moreover, each retains authority to reconsider

its interstate banking statute and amend or repeal it if

local conditions change.”

19 See Mass. Gen. Laws Ann. ch. 167 §2 (West Supp. 1984);

Conn. Act. No. 83-441 (1983) (to be codified at Conn. Gen. Stat.

Ann. § 36 Pts. 552-57).

20 Reciprocal legislation in general poses less potential for in-

trusion on federal interests than a formal compact or agreement

subscribed to as such by the states, since it may be modified by

participants at any time. Cf. Green v. Biddle, 21 U.S. (8 Wheat.)

1, 92 (1823) (“compact or agreement” under art. I, sec. 10, cl. 3 is

In such a dynamic legislative environment, Petitioners

cannot well argue that the reciprocal character of the

challenged statutes causes them any injury. The New

England states have not monolithically enacted statutes

with a purely regional focus nor do the challenged stat-

utes require such a focus in other states. Rather, it was

the independent decisions of Connecticut and Massachu-

setts legislators that their own banking industry would

be well served by some, but not unlimited, interstate

competition that Petitioners challenge in this Court.”

Petitioners’ legal injury, if any, does not arise from the

reciprocity provisions. While it is thus doubtful that

any further analysis of the statutes under the Compact

Clause is necessary, application of the Multistate Tax

Commission standard confirms that congressional consent

to these state laws is not required.

B. The State Laws At Issue Here Do Not Increase The

Political Power Of Massachusetts And Connecticut

Or Impair Sovereignty Of Other States

Enactment of legislation regulating interstate bank

acquisitions by the separate legislatures of Connecticut

and Massachusetts will in no way “increase and build up

the political influence of the contracting states,” Virginia

v. Tennessee, 148 U.S. at 517-18, in derogation of the

concept of Union embodied in the Compact Clause. As

originally understood, the Compact Clause was aimed

principally at requiring congressional consent to border

compacts,” perhaps because they may affect the voting

enforceable contract which the states are forbidden to impair) ;

Texas v. New Mexico, 462 U.S. 554, 569 n.16 (1983) (states may

only withdraw from compact in accordance with its terms).

21 Indeed, any suggestion that there was an actual “agreement”

to “boycott” New York is refuted by the legislative process itself,

in which individual legislators of each state participated. See also

United States Steel Corp. v. Multistate Tax Commission, 434 U.S.

452, 478 (1978) (individual state’s decision, though based on com-

mission recommendation, no threat to other states’ sovereignty).

22 See F. Zimmerman & M. Wendell, The Law and Use of Inter-

state Compacts 22 (1976) [hereinafter cited as “Zimmerman &

power of the states in Congress and thus pose a threat

of increased or altered political influence.** In modern

times, the most dramatic new use of congressionally-

approved compacts has been to establish multistate gov-

ernment agencies, exercising sovereign powers over, ¢.g.,

the Port of New York,** or the Delaware River Basin.”

The economic regulation of interstate banking by Con-

necticut and Massachusetts will clearly not alter their

voting power in Congress, nor otherwise affect the po-

Wendell, Law and Use’’|; Council of State Governments, /nterstate

Compacts & Agencies vi (1983) [hereinafter cited as “Council,

Interstate Compacts’ | (from 1783 to 1920, states entered into 36

compacts dealing predominantly with “common boundary line[s]’’).

See also F. Zimmerman & M. Wendell, The Interstate Compact Since

1925 3 (1951) [hereinafter cited as “Zimmerman & Wendell, Com-

pacts Since 1925”’|. One modern scholar suggests that the framers

understood the terms “compact” and “agreement” to refer to dis-

positive transactions, such as border compacts, that resolve issues

for all time and do not contemplate continuing performance.

Engdahl, Characterization of Interstate Arrangements: When Is a

Compact Not a Compact?, 64 Mich. L. Rev. 63, 77 (1965) [herein-

after cited as “Engdahl”]. In Multistate, 434 U.S. 452, 459-64 &

nn.10-14, the Court surveyed various interpretations of the original

meaning, concluded that the passage of time had eroded any dis-

tinct meaning and proceeded to apply the test articulated in Virginia

». Tennessee, 148 U.S. 503, 519 (1893).

23 See Zimmerman & Wendell, Law and Use, supra note 22, at

23; Virginia v. Tennessee, 148 U.S. 503, 521 (1893).

24The New York-New Jersey Port Authority Compact, 65 Stat.

650 (1921), a landmark in the history of compact evolution, estab-

lished a commission to develop and construct comprehensive trans-

portation and terminal facilities and to promote commerce and

trade. The Port Authority today employs 8000 workers. See Coun-

cil, Interstate Compacts, supra note 22, at 2. Its success has

spawned similar efforts in such interstate Metropolitan areas as

St. Louis and Philadelphia. Jd. at 17.

25 The Delaware River Basin Compact, 75 Stat. 688 (1961), es-

tablished a commission that serves as a regional multipurpose water

resources agency. Notably, the United States joined as a party to

the compact. See Grad, Federal-State Compact: A New Experi-

ment In Co-operative Federalism, 63 Colum. L. Rev. 825 (1963).

litical power of those two states.** Neither state has

relinquished or delegated its police or other sovereign

powers; no interstate agency or commission has been

created. Neither state conditions reciprocity on other

states’ having geographic limitations, and each state re-

tains power to supervise its regulatory initiative and

define the scope of permissible bank acquisitions within

its own borders.

On such a record, there is no basis for finding a pro-

hibited enhancement of state political power that “‘ pro-

ject[s] a new presence onto the federal system [or]

alter[s] any state’s basic sphere of authority.’”*7 Un-

able to make such a showing, Petitioners claim that the

statutes offend the sovereignty of non-New England

states and thus violate the Compact Clause. The diffi-

culties with this formulation are legion.

To begin with, the exclusion of sister states of which

Petitioners complain was established by the Douglas

Amendment, which erected a federal barrier preventing

bank holding companies from acquiring banks in other

states. Against the background of this federal prohibi-

tion on interstate acquisitions, the challenged legislation

operates to enhance competition within New England.**

26 Cf. Multistate, 434 U.S. at 479 n.383 (enhanced capacity to lobby

Congress does not encroach on or interfere with just supremacy of

the United States).

27 Multistate, 434 U.S. at 470 n.21 (quoting Prof. Tribe). Cf.

Salorio v. Glaser, 414 A.2d 943, 957 (N.J.), cert. denied, 449 U.S.

804 (1980). As in Multistate, the statutes as issue do “not purport

to authorize the member States to exercise any powers they could

not exercise in its absence.” Jd. at 473. The case for finding a pro-

hibited compact is, in fact, far less compelling than in Multistate,

where an interstate commission sought to apply uniform tax stand-

ards to all businesses operating in interstate commerce. Indeed,

apart from boundary resolutions and actions which, through the

creation of new government entities or otherwise, reallocate or dele-

gate powers of governance, state agreements are unlikely to “build

up” or enhance state political power “quoad the National Govern-

ment.” 434 U.S. at 473.

28 Indeed, the Federal Reserve Board found evidence that the

proposed merger between BNE of Massachusetts and CBT of Con-

Petitioners’ fundamental complaint, it must be seen, is

with the policy of the Douglas Amendment, and not with

the regional lifting of its bar adopted by Massachusetts

and Connecticut.”

Apart from its mistaken premise that it is the chal-

lenged state laws that “derange” state relations, Peti-

titioners’ claim of “affront” to sister states is inconsist-

ent with the reasoning in Multistate.*° The appellants in

necticut would potentially enhance consumer welfare in New Eng-

land by creating a financial institution with the resources to com-

pete with large interstate financial conglomerates in offering “non-

banking” financial services. Pet. App. A44. The argument that the

regional restriction burdens commerce by limiting the capital mar-

ket for bank shares similarly ignores the even greater restriction

imposed by federal law. Cf. Bolger Trust Am. Br. at 3-4.

29 Under the Douglas Amendment, every state is free to permit

entry by out-of-state banks, subject to limitations in keeping with

the interests of its citizenry and health of its banking industry. New

York has itself done so, enacting a reciprocity provision that

does not remove the federal bar for New Hampshire or Vermont

bank holding companies that might seek to acquire New York banks,

small or large. Cf. N.Y. Am. Br. at 3.

30 Petitioners err in relying on dicta from Florida v. Georgia,

58 U.S. (17 How.) 478 (1855) to support their theory that the

Compact Clause requires an inquiry—separate from the Commerce

Clause—into possible disadvantaging of economic rights and in-

terests of other states. First, Florida v. Georgia concerned the

right of the United States to intervene in a boundary dispute

litigation. In this context, the Court’s reference to the United

States as the representative of the interests of the other states

simply restates the modern formulation of the function of the

Compact Clause; it has been consistently recognized that boundary

adjustments, since they change the character of the sovereign par-

ticipants in the Republic, affect the sovereign political interests of

all. Second, as the other case cited by Petitioners suggests, any

“state interests” viewed as protected under the Compact Clause

must be viewed as the states’ interests in the federal union. See

Rhode Island v. Massachusetts, 37 U.S. (12 Pet.) 657, 726 (1838)

(Compact Clause guards against “the derangement of [the states’ |

federal relations with the other states of the Union.”) (emphasis

added). Cf. People ex rel. Barlow v. Curtis, 50 N.Y. 321, 324

(1872) (“The highest interests of the States are promoted by yield-

ing to the general government and protecting it in the enjoyment

of unquestioned control over the subjects confided to it by the Con-

Multistate claimed that the Tax Compact exerted “un-

due pressure” on nonmember States “in violation of their

‘sovereign right[s] ....’” 434 U.S. at 477. Finding any

such pressure to arise “independent of the Compact,” the

Court went on to hold that, even if economic pressure

arose from the Compact, it would not be “an affront to

the sovereignty of the nonmember States,” or implicate

“our federal structure,” “[w]nless that pressure trans-

gresses the bounds of the Commerce Clause or the Privi-

leges and Immunities Clause... .” 434 U.S. at 477-78

(emphasis added). As discussed below, the statutes here

do not violate the Commerce Clause, and no claim has

been made under the Privileges and Immunities Clause.**

Petitioners’ argument that economically beneficial but

geographically limited reciprocal statutes “affront” other

States’ sovereignty so as to reauire Congress’ consent

would, by focussing analysis on alleged injury to other

states rather than encroachment on federal interests,

threaten many established forms of state cooperation.

Such an approach to the Compact Clause, unless bounded

by the principles of Commerce Clause analysis, would

disrupt many accepted and beneficial forms of state co-

operation.

Compacts, like reciprocity statutes, are generally en-

tered into for the mutual improvement and benefit of the

contracting states.** Without reference to the interests

stitution.”). See also Multistate, 434 U.S. at 467 (interpretations

of the Compact Clause preceding Virginia v. Tennessee are such a

“puzzlement” that they provided little guidance). Petitioners offer

no persuasive basis to abandon the Multistate analysis.

81 The Compact Clause, independent of other constitutional con-

straints, protects only against aggrandizement of state political

power at the expense of the federal government, which has not

occurred here. Compare 434 U.S. at 479 n.33 with id. at 494 (White,

J., dissenting) .

82 The statutes at issue here, though not an agreement at all,

were plainly enacted by Massachusetts and Connecticut for the

benefit of their respective citizens. And the reasonableness of the

geographic restriction for each State’s first experiment in 30 years

in permitting interstate acquisitions is suggested by Congress’ own

of non-compacting states, this Court has approved ex-

plicit agreements designed “‘to promote the peace, good

neighborhood, and welfare of both [compacting] states,

and facilitate intercourse between their citizens.” Whar-

ton v. Wise, 153 U.S. 155, 167 (1894). Such arrange-

ments, by their very nature, tend to establish special re-

lationships between the party states, but do not run

afoul of the Compact Clause on that basis.**

A wide variety of uniform laws, reciprocal agree-

ments, and regional promotional arrangements might be

subject to attack under Petitioners’ view that the Com-

pact Clause will prohibit, absent congressional consent,

what mutual economic advantages to the compacting par-

ties the Commerce Clause permits. Uniform state laws

on a variety of subjects exist, and often confer reciprocal

rights on the enacting parties.** These statutes have

use of the New England states as a laboratory for its experi-

ment with NOW accounts. See Otero Sav. & Loan Ass’n v. Federal

Reserve Bd., 665 F.2d 279, 283 (10th Cir. 1981).

33 Justice Frankfurter articulated a classic rejoinder to the claim

that conferring such a joint benefit violates the Compact Clause:

an argument that benefiting other States is beyond the power

of a State would completely disregard the inherent implica-

tions of our federalism within whose framework our organic

society lives and moves and has its being—the abundant and

complicated interrelationship between national authority and

the States, and between the States inter sese. To yield to this

argument would foreclose to the States virtually all arrange-

ments which increase comity among the States.

New York v. O'Neill, 359 U.S. 1, 9, (1959) ‘citation omitted). See

also Bode v. Barrett, 344 U.S. 583, 586 (1953); St. Louis & S.F.R.

Co. v. James, 161 U.S. 545, 562 (1836).

34 The National Conference of Commissioners on Uniform State

Laws, founded in 1896, produces up to ten new proposed uniform

laws every two years. See generally Council of State Governments,

The Book of The States: 1982-83, 84-85. Among the most popular as

of September 1, 1981 were the Uniform Anatomical Gift Act (50

jurisdictions) , the Uniform Commercial Code (50 jurisdictions) , the

Uniform Declaratory Judgment Act (43 jurisdictions), the Uniform

Limited Partnership Act (50 jurisdictions), and the Uniform Crim-

inal Extradition Act (49 jurisdictions). Jd. at 86-88.

always been upheld when challenged under the Compact

Clause,” yet Petitioners’ approach would permit attack

if non-participating states claim any disadvantage from

their enactment by others. States have adopted a variety

of other multistate and bi-lateral arrangements, designed

to make the most efficient use of existing institutions.*

Such arrangements necessarily exclude other states but

have never been understood as subject to Compact Clause

challenge on that basis.*

Moreover, states across the country have in recent

years recognized that there are “regional interests, re-

gional cultures and regional interdependencies” that,

without threat to the interests of other states or the

35 See Ivey v. Ayers, 301 S.W. 2d 790 (Mo. 1957) (Uniform Sup-

port of Dependents Law); Landes v. Landes, 1 N.Y. 2d 358, 135

N.E. 2d 562 (1956) (same). Gulley v. Apple, 210 S.W. 2d 514

(Ark. 1948) (Uniform Act for Out-of-State Parole Supervision) ;

Ex Parte Tenner, 20 Cal. 2d 670, 128 P.2d 338 (1942) (same). See

also General Expressways, Inc. v. lowa Reciprocity Board, 163

N.W.2d 413 (Iowa 1968) (Uniform Vehicle Registration Proration

and Reciprocity Compact).

36 See, e.g., Minnesota-Wisconsin Student Reciprocity Agreement,

Wis. Stat. Ann. § 39.47 (West Supp. 1984-85) (reciprocal waiver of

nonresident tuition). See also Zimmerman & Wendell, /ntersiate

Compacts, reprinted in Council of State Governments, The Books of

the States: 1976-1977 573 (describing efforts of New England

Board of Higher Education to coordinate joint legislative approval

of regional college of veterinary medicine, open to all students

from region with advantageous tuition arrangement). Other

regional agreements provide for the mutual availability of health

services and facilities, radiological treatment facilities and welfare

services and benefits, all without congressional consent. See notes

38, 39 infra.

37 See, e.g., Opinion of the Justices, 344 Mass. 770, 184 N.E.

2d 353 (1962) (proposed compact among New England states pro-

viding for the cooperative use of the region’s correctional institu-

tions would not require congressional approval under Virginia v.

Tennessee). See also Breest v. Moran, 571 F. Supp. 343, 345 (D.R.I.

1983). Cf. St. Louis & S.F'.R. Co. v. James, 161 U.S. 545, 562 (1836)

(reciprocal bi-state regulation of railway, without congressional

consent, does not violate Compact Clause “in absence of inhibitory

legislation by Congress’).

supremacy of the nation, justify “regional solutions.”

Frankfurter & Landis, The Compact Clause of the Con-

stitution—A Study in Interstate Adjustments, 34 Yale

L.J. 685, 708 (1925). Many have accordingly entered

into regional development agreements, whose express pur-

pose is to enhance the economic and resource develop-

ment of member states.** Many of these have not re-

ceived congressional consent.**

Under Petitioners’ proposed focus on the economic in-

terests of nonparticipating states, such agreements as

the Southern Growth Policies Agreement, the Southern

Regional Education Compact, and the New England

Radiological Health Protection Compact, none of which

has received congressional consent, and a wide variety

of less formal, mutually beneficial arrangements between

states in different regions would fall under a cloud of

constitutional suspicion. But under Multistate, alleged

affronts to state economic interests are measured against

the Commerce Clause, and are not viewed as impair-

ments of state sovereignty implicating the fundamental

88 In adopting the Southern Growth Policies Agreement to foster

economic growth through cooperative planning and development,

for example, the 12 Southern member states found that they shared

“a sense of community based on common social, cultural and eco-

nomic needs and fostered by a regional tradition.” Va. Code Ann.

§§ 2.1-339.1 (1979 Repl.) (effective 1971). Other regions of the

country, including the West and New England, have entered into

compacts that pledge cooperation on subjects as diverse as nuclear

energy, health, and education. See Council, Interstate Compacts,

supra note 22, at 11, 18 & 15 (describing, inter alia, Southern Re-

gional Education Compact, New England Radiological Health Pro-

tection Compact, Western Interstate Energy Compact). See also

note 39 infra.

89 A partial list of regionally exclusive compacts that have not

received congressional consent includes the following: Southern

Regional Education Compact, Md. Educ. Code Ann. §§ 25-201-25-205

(1978) ; New England Health Services and Facilities Compact, Me.

Rev. Stat. Ann. tit. 22 §§ 691-99 (1980) ; New England Radiological

Health Protection Compact, Me. Rev. Stat. Ann. tit. 22, §§ 751-59

(1980) ; Sduthern Growth Policies Agreement, Va. Code Ann. §§ 2.1-

339.1 et seq. (1979 Repl.).

concern of the Compact Clause: to protect against a

build-up of state political power “that threatens the Su-

premacy of the Federal Government.” New Hampshire

v. Maine, 426 U.S. at 370.

C. These State Laws Do Not Encroach Upon The Just

Supremacy Of The United States

As presently understood, the Compact Clause and its

requirement of congressional consent apply only to “ ‘the

formation of any combination tending to the increase of

political power in the states, which may encroach upon

or interfere with the just supremacy of the United

States.’” Multistate, 434 U.S. at 468, (quoting Virginia

v. Tennessee, 148 U.S. 503, 519 (1893)). This test vali-

dates compacts and other forms of state cooperation that

“promote the . . . welfare of both States,” Wharton v.

Wise, 153 U.S. at 166, and do not “‘infringe[] the

rights of the national government.’” Virginia v. Ten-

nessee, 148 U.S. at 519 (quoting II J. Story, Commen-

taries on the Constitution of the United States § 1403

.(Cooley ed. 1873) ).

The Douglas Amendment decisively defines the scope

of the “rights of the national government” in a way

that defeats Petitioners’ Compact Clause challenge to the

Connecticut and Massachusetts statutes. The Amend-

ment erects a federal barrier to interstate bank acquisi-

tions, and gives states authority to permit such acquisi-

tions to the degree they see fit. As the Court below

concluded, such a grant of authority renders the Con-

necticut and Massachusetts statutes “invulnerable” to

Commerce Clause challenge. The Douglas Amendment,

moreover, effects a renunciation of federal interest in

regulating this aspect of interstate bank acquisitions and

thus precludes any possible encroachment on the “just

supremacy” of other federal regulatory interests.

1. The Massachusetts and Connecticut Statutes Do

Not Violate the Commerce Clause

This Court has long recognized, and Petitioners do not

deny, that Congress may, in the exercise of its authority

over interstate commerce, confer upon states power they

would otherwise lack to regulate an area of interstate

commerce. See Lewis v. BT Investment Managers, Inc.,

447 U.S. 27, 44 (1980) ; Prudential Insurance Co. v. Ben-

jamin, 328 U.S. 408, 423-24 (1946). When Congress au-

thorizes such state regulation with the requisite degree

of clarity, “any action taken by a State within the scope

of the congressional authorization is rendered invulner-

able to Commerce Clause challenge.” Western & Southern

Life Insurance Co. v. State Board of Equalization, 451

U.S. 648, 653 (1981). See Prudential Insurance Co. v.

Benjamin, supra, 328 U.S. at 429, 431.

As both the reviewing Court below and the federal

agency charged with applying its provisions have held,

the Douglas Amendment grants states control over the

degree to which out-of-state bank holding companies may

acquire local banks. In order “to prevent the concentra-

tion of banking resources in the hands of a few financial

giants,” Lewis v. BT Investment Managers, 447 U.S. at

46, the Douglas Amendment divides the country into

fifty banking regions, defined by the boundaries of the

states, and prohibits acquisitions across state lines

unless [such acquisition] 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) (1). Congress has thus empowered

each state to control the extent to which out-of-state

bank holding companies may acquire banks within the

state.

It has been argued, however, that despite this un-

restricted authorization the states are disabled from

adopting innovative approaches and must choose between

retaining the blanket federal prohibition on interstate

banking or permitting interstate banking on the broadest

national scale. The plain language of the statute, how-

ever, supports the view that the congressional grant of

authority vested the states with power to deal creatively,

and on a geographically limited basis, with interstate

banking acquisitions.*° Review of the legislative history

of the Douglas Amendment rebuts any all-or-nothing

interpretation.

In support of his amendment, Senator Douglas traced

the history of increasing financial concentration in this

country and highlighted the central role that bank hold-

ing companies played in such concentration. See 102

Cong. Rec. 6850, 6857-60 (1956). In particular, Doug-

las called attention to the use of bank holding companies

as a device to skirt limitations states had imposed on

branch banking. In explaining the limitations he pro-

posed on the powers of bank holding companies to make

interstate acquisitions, Senator Douglas relied on the

McFadden Act, 12 U.S.C. § 36(c),** which had made

national banks chartered by the Comptroller of the Cur-

rency subject to the same restrictions on branching that

each individual state applied to state-chartered banks

within its borders.

At the time of the Douglas amendment, the states had

developed a variety of innovative branch banking laws

responsive to the policy imperatives of their particular

regions.** Senator Douglas was aware of this variation

among state laws and called it to the attention of his

40 Indeed, by requiring states to act by “statute,” Congress placed

control over the decision to permit interstate mergers, not in the

offices of state banking commissioners, but in the houses of the state

legislatures. This grant of authority directly to state legislatures

suggests that Congress anticipated that these laboratories of in-

ventiveness would bring their creative powers to bear on the

problem of interstate banking. Cf. New State Ice Co. v. Liebman,

285 U.S. 262, 311 (1933) (Brandeis, J., dissenting).

41 102 Cong. Rec. 6858 (1956).

42 As of the approximate date of the Dougias Amendment, some

seventeen states permitted statewide branch banking; thirteen

flatly prohibited it; and sixteen authorized branching within limited

areas. See Stokes, Public Convenience and Advantage in Applica-

tions for New Banks and Branches, 74 Banking L. J. 921, 942

(1957) (compiling analysis of state laws).

colleagues.** Douglas pointed out that branch banks had

grown rapidly in the years prior to the McFadden Act

“and to check their growth various states passed laws

limiting, and in some cases preventing it, as in the case

of Illinois.” 102 Cong. Ree. 6858 (1956). National banks

sought power to establish branches freely but, as Douglas

emphasized, the McFadden Act authorized such banks to

open branches “only to the degree permitted by State law

and State authorities.” Jd. (emphasis added) (referring

to McFadden Act).

In describing the scope of state authority to permit

interstate acquisitions by bank holding companies under

his amendment, Senator Douglas chose the same all-

encompassing phrase: the amendment “will permit out-

of-State holding companies to acquire banks in other

States only to the degree that State laws expressly per-

mit them.” Jd. (emphasis added). Senator Douglas thus

explicitly contemplated that state regulation of interstate

acquisitions would range from statutes banning inter-

state acquisitions to those freely permitting such acquisi-

tions and would include intermediate provisions permit-

ting interstate acquisitions “to the degree” consistent

with local policy concerns.‘ Over objections by Senators

concerned with “discrimination by one State against

43 See, e.g., 102 Cong. Rec. 6858 (1956) (Sen. Douglas) (describ-

ing New York’s plan; State divided into 10 zones, with branch

banking permitted within each region; bank-holding companies

evaded competitive purpose of zones by acquiring banks in all

zones).

44 See also id. at 6860 (“the amendment would leave the way

open for States to make explicit provisions for such purchases

and acquisition if they so decided.”); id. at 6859 (“explicit per-

mission” requirement) (Douglas). Other sponsors plainly shared

Senator Douglas’s understanding that the proposed amendment

would authorize varying state legislative responses. Senator Payne

argued that

the control of expansion of bank holding companies across

state lines into state banks is a matter of primary concern to

the State governments and is an area best left to their

discretion.

Id. at 6862 (emphasis added).

another” *° and with Congress’ “requir[ing] discrimination

in interstate commerce,” * his amendment was adopted.

In the face of this record, there can be little doubt that

the Massachusetts and Connecticut statutes are within

the authority granted by Congress and thus “invulner-

able to Commerce Clause challenge.” *

2. The Douglas Amendment’s Renunciation of a

Federal Interest Alters the Balance of State

and Federal Power Over Interstate Bank Acqui-

sitions and Precludes Finding An Encroachment

on Federal Supremacy

As shown above, each of these statutes is authorized by

the Douglas Amendment. The fact that two states en-

acted the same regional restriction in no way consti-

tutes an encroachment on federal supremacy.

This Court has been understandably “reluctant to strike

down newly emerging forms of interstate cooperation.”

Multistate, 434 U.S. at 465. Indeed, only where a state

agreed with a foreign power to an extradition in deroga-

tion of exclusive federal authority has this Court found

45 Jd. at 6861 (Remarks of Sen. Bricker).

46 Jd. at 6860 (Remarks of Sen. Bennett).

*? Given the choice between the national reciprocal state legisla-

tion that petitioner Citicorp has lobbied for, see note 15, supra,

or the geographically limited lifting of the ban on interstate

acquisitions that Connecticut and Massachusetts have chosen, there

can be little doubt that Senator Douglas would favor the latter

approach. In support of his amendment, he filled many columns of

the Congressional Record with a well-documented concern to pre-

vent both any “tendency toward monopolizing credit by driving out

the small banks,” and any “concentration [in] banking . . . power,”

102 Cong. Rec. 6857, which, based on experience here and abroad,

he thought would result if bank acquisitions and mergers were

not halted. Jd. at 6858-59. He made clear his goal of “a bank sit-

uation in which there are a large number of banks with no

monopoly and with a dispersion of power,” and rejected arguments

by opponents that it would ve unfair to competitors of existing

large banks to preclude their expansion: “The present degree of

concentration of control does not give everyone else a vested right

to equivalent expansion.” Jd. at 6860.

a violation of the Compact Clause.** State cooperation

on such matters of concurrent state and federal interest

as the building of railroads or bridges, the improvement

of levees and drainage of lands, has been sustained with-

out Congress’ consent.*® Understood as stating the

“proper balance between federal and state power,” id.

at 471, and informed by the distinction between areas

in which federal control must be exclusive and those in

which states remain competent to act, Multistate’s analy-

sis requires consent only to those forms of state coopera-

tion that would encroach upon the exercise of federal

powers.”°

48 See Holmes v. Jennison, 39 U.S. (14 Pet.) 540, 574 (1840).

Holmes is the only federal case of which amici are aware in which

state action was arguably found to violate the Compact Clause.

It is currently understood as recognizing that the preeminent fed-

eral power displaces state extradition agreements with foreign

countries. See Multistate, 434 U.S. at 465 n.15; see also United

States v. Rauscher, 119 U.S. 407, 414 (1886) ; People ex rel. Barlow

v. Curtis, 50 N.Y. 321, 331 (1872).

49 See St. Louis & S.F. R. Co. v. James, 161 U.S. 545, 562 (1896).

(railroad) ; Union Branch R. Co. v. East Tennessee & G. R. Co., 14

Ga. 327, 339 (1853) (railroad); Dover v. Portsmouth Bridge, 17

N.H. 200, 223 (1845) (bridges); Fisher v. Steele, 39 La. App. 447,

1 So. 882 (1887) (levees); McHenry County v. Brady, 37 N.D. 59,

70, 163 N.W. 540, 544 (1917) (upholding informal drainage agree-

ment between North Dakota county and Canadian province).

50 In analyzing reciprocal state regulation of a railroad that ex-

tended across state boundaries, this Court has noted:

Such legislation on the part of two or more states is not, in

the absence of inhibitory legislation by Congress, regarded as

within the constitutional prohibition of agreements or compacts

between states.

St. Louis & S.F.R. Co. v. James, 161 U.S. 545, 562 (1836) (em-

phasis added). The decision thus recognizes that the failure of

Congress to exercise certain powers may leave states an arena of

regulatory competence over matters that touch upon interstate

commerce. Petitioners thus err in claiming that the court below

improperly dismissed their Compact Clause challenge in reliance

en congressional power “to remove the encroachment by appro-

priate legislation.” Northeast Bancorp., Inc. v. Board of Governors,

740 F.2d 203, 209 (2d Cir. 1984). The court’s analysis correctly

Petitioners’ Compact Clause attack ignores the decisive

effect of the Douglas Amendment in defining the strength

and nature of the federal, as opposed to state, interests

involved.** Congress has granted control over interstate

bank acquisitions to the states through the Douglas

Amendment, clearly expressing its intention to withdraw

from the field and leave to each state’s competence the

task of defining the extent to which such acquisitions

will be permitted within its borders.” Although, federal

presence obviously remains in other aspects of interstate

bank regulation, the agency charged with implementing

national banking policy has construed the Douglas Amend-

ment as a grant to the states of “plenary power to regu-

late entry of out-of-state bank holding companies” and

“a renunciation of federal interest in regulating the in-

terstate acquisition of banks by bank holding companies.”

Pet. App. A52. Such a renunciation of interest precludes

a finding that a state statute within the literal terms of

the Douglas Amendment poses any threat to the supre-

macy of Federal power that the Compact Clause seeks to

safeguard.

recognizes that congressional withdrawal from the field of inter-

state bank acquisitions eliminates, for now, any “just supremacy”

concern.

51 The application of these principles to the compact at issue in

Multistate, 484 U.S. at 472-78, illustrates the manner in which this

Court has tested state cooperation for evidence of interference with

Congressional power. The Court proceeded from the assumption

that under the Commerce Clause the states, individually, could

properly tax multistate business operations and searched the com-

pact for evidence that the states, jointly, were overstepping these

established bounds. Finding no evidence of such enhanced “state

power quoad the National Government,” id. at 473, the Court up-

held the compact. Jd. at 479. The Multistate decision thus adopts

a Compact Clause analysis that tests joint state regulatory initia-

tives for evidence of conflict with the federal commerce and other

powers.

52 Congress undoubtedly has authority to reve'.e its decision

and to regulate all aspects of interstate banking acquisitions, dis-

placing state authority. Cf. Pennsylvania v. Wheeling & Belmont

Bridge Co., 59 U.S. (18 How.) 421, 433 (1856).

Petitioners recognize the significance of this renuncia-

tion of federal interest in interstate bank acquisitions but

claim that the Douglas Amendment does not save the

challenged statutes because it does not explicitly con-

template, and thus consent to, regional banking districts.

Such a claim misconceives the nature of the Virginia v.

Tennessee test, which authorizes state cooperation in the

absence of any congressional consent so long as the

resulting combination does not encroach upon just supre-

macy. Under a proper analysis, the Douglas Amendment

need not operate as explicit consent to any interstate

compact. Rather, its renunciation of federal interest

53 Petitioners mistakenly cite this Court’s decision in United

States v. Public Utils. Comm’n, 345 U.S. 295, 309 n.16 (1953), for

the proposition that where a Congressional statute delegates power

to a single host “State,” this Court has followed a rule of con-

struction that forbids cooperative state action. The footnote Peti-

tioners cite refers to a lower court decision rejecting the claim

that Congress had intended to permit states jointly to regulate

interstate electricity sales. Unlike the instant case, however, the

history and structure of the statute at issue there revealed con-

gressional intent for the FPC to regulate all interstate sales, thereby

foreclosing any state regulation.

54 Congress’ failure to act on requests to approve the Massachu-

setts and Connecticut statutes in no way suggests that, absent con-

sent, the acts are unconstitutional. This Court has quite properly

recognized that efforts may be made to obtain congressional ap-

proval, not because such approval is required but from “considera-

tions of caution and convenience,” Multistate, 484 U.S. at 471; and

likewise, that Congress’ failure to approve such attempts does not

imply any disapproval of the matter under consideration. Jd. at 458

n.8 (congressional approval sought, unsuccessfully, on 12 occasions).

Many other compacts have gone into operation after congres-

sional approval was sought but not given. Celler, Congress, Com-

pacts & Interstate Authorities, 26 Law & Cont. Prob. 682, 686

(1961) (Southern Regional Education Compact; Interstate Com-

pact on Juveniles). Such an approach does not deprive Congress

of its central role in assessing compacts for potential conflicts with

its regulatory initiatives; indeed, Congress has enacted legislation

specifically requiring consent to any compacts in regulatory areas

where it perceives state cooperation as presenting a potential of

conflict. See 42 U.S.C. § 2021d(a)(2)(B) (1980) (requiring ex-

plicit consent to compacts affecting low-level radioactive wacte

sharply restricts the area of undoubted federal supremacy

and thus frees the states to cooperate more closely with-

out threatening the proper balance of federal and state

power.”

In view of Petitioners’ failure to show any encroach-

ment by the Massachusetts and Connecticut statutes on

the “just supremacy” of the United States, the two state

laws at issue here should be upheld.

II. CONGRESS MAY GIVE ITS CONSENT TO COM-

PACTS AND AGREEMENTS IN VARIOUS FORMS

Petitioner Northeast Bancorp’s startling claim that

“congressional approval of an interstate compact must

be made explicitly and with full knowledge of its ram-

disposal) ; 33 U.S.C. § 1253 (requiring consent to interstate water

pollution abatement compacts) .

Despite Multistate’s confirmation of the very limited scope of

the Compact Clause as an independent constraint on cooperative

state action, Congress’ consent may still be sought out of an excess

of caution or to avoid questions under the Commerce Clause. Cf.

Engdahl, supra note 22, at 102; Zimmerman & Wendell, Law &

Use, supra note 22, at 23. Any rule that imputes dispositive signifi-

cance to congressional inaction would thus place an even greater

burden on that already overworked body.

55 Petitioners’ principal effort to show an encroachment on fed-

eral supremacy under Multistate is to argue a conflict with the

Garn-St Germain Depository Institutions Act of 1982, which pro-

vides for interstate acquisitions of failing thrifts. 12 U.S.C.

§ 1823(f). But it is the Douglas Amendment, not state law, that

generally prohibits interstate bank acquisitions and thus would

stand as an obstacle to interstate mergers between heaithy and

failing thrifts. Accordingly, Congress was careful to insert a pro-

vision in Garn-St Germain creating an exception to the Douglas

Amendment prohibition on Federal Reserve Board approvals of

interstate mergers and acquisitions, and specifically preempting any

conflicting law, state or federal. 12 U.S.C. § 1823(f) (4) (i). This

preemption provision itself evidences Congress’ awareness of the

varying state exercises of Douglas Amendment power and a will-

ingness to preserve such laws, except to the extent they conflict

with federal efforts to rescue failing thrifts. In view of these

provisions, the FDIC has ample power to arrange mergers with-

out regard to the provisions of state law, and the Connecticut

and Massachusetts statutes cannot undermine this federal policy.

ifications,” Northeast Bancorp Brief at 38, calls for

refutation. This Court has recently reaffirmed that

Congress may consent to an interstate compact by

authorizing joint state action in advance or by giv-

ing express or implied approval to an agreement the

States have already joined.

Cuyler v. Adams, 449 U.S. 433, 441 (1981) (emphasis

added).** Congress has exercised its power of blanket

advance consent on numerous occasions, and very broadly.

In 1934, for example, Congress authorized any two or

more states to make compacts for the general purpose of

crime prevention and aiding in the enforcement of their

criminal laws.’ Pursuant to this very broad and gen-

eral authorization, years later states subscribed to the

Interstate Agreement on Detainers (initially drafted in

1956), the Interstate Compact on Juveniles (initial state

adoption in 1955), and the New England Corrections Com-

pact (initial state adoption in 1960).*

56 Accord Virginia v. Tennessee, 148 U.S. 521 (1893) (upholding

implied consent to boundary compact); see North Carolina v. Ten-

nessee, 235 U.S. 1, 15-16 (1914) ; Green v. Biddle, 21 U.S. (8 Wheat.)

1, 86-87 (1823). See also Zimmerman & Wendell, Law & Use, supra

note 22, at 21.

57 48 Stat. 909 (1934), codified at, 4 U.S.C. § 112.

58 See Council, Interstate Compacts, supra note 22, at 7-8. Similar

advance approvals for state compacts have been given with respect

to the construction of bridges, General Bridge Act of 1946, 60 Stat.

847 (1946), and for encouraging highway safety. See Act of Aug.

20, 1958, Pub. L. No. 85-684, 72 Stat. 635, as amended, Act of Aug.

20, 1964, Pub. L. No. 88-466, 78 Stat. 564. Pursuant to the latter,

states have widely subscribed to the Driver License Compact, the

Nonresident Violator Compact of 1977 and the Vehicle Equipment

Safety Compact. See generally Council, Interstate Compacts, supra

note 22, at 13-24. See also Deveau v. Braisted, 363 U.S. 144, 154

(1960) (Congress, in approving New York-New Jersey Waterfront

Compact, expressly consented to implementing legislation to be

subsequently adopted by the participating states). See Frankfurter

& Landis, The Compact Clause of the Constitution—A Study in

Interstate Adjustments, 34 Yale L.J. 685, Appendix A (1925) (ad-

vance approval given as early as 1861).

This varied congressional practice ® itself refutes Peti-

tioner’s suggestion that Congress must act formally and

specifically with respect to each individual compact in

order to afford sister states a congressional forum in

which to raise objections to proposed agreements or com-

pacts. Any interests of sister states injured by state

legislation pursuant to implicit or advance consents un-

der the Compact Clause may be brought to Congress’

attention, and remedied through Congress’ broad consti-

tutional powers. Cf. Pennsylvania v. Whecling & Bel-

mont Bridge Co., 59 U.S. (18 How.) 421, 433 (1856)

(Congress does not restrict its own powers under Inter-

state Commerce Clause by consenting to a compact) .*°

This case presents no occasion to consider the degree or

form of consent required to sustain a compact or agree-

ment under the Compact Clause, or to revisit the rule

that the consent need not take any specific form and

may be given in advance or arise by implication. For,

as shown in earlier sections, the reciprocal statutes of

Massachusetts and Connecticut are not in fact an agree-

ment or compact to exclude other states, and do not en-

hance the political power of those states or other New

England states. Most important, they do not encroach

upon the “just supremacy” of the United States in view

59 The exact nature of Congress’ formal approval of state com-

pacts and agreements has varied as well. See The Constitution of the

United States of America: Analyses and Interpretations, S. Doc.

No. 82, 92d Cong., 2d Sess. 421-22 (1973). In one instance, at

least, Congress gave approval in advance to compacts filed with both

Houses, subject to a power within 60 days to disapprove. Celler,

supra note 54, at 686-87 (discussing Civil Defense Act of 1951). The

willingness of past courts and congresses to view the consent re-

quirement with flexibility is consistent with the fundamental pur-

pose of the clause—to protect the political supremacy of the United

States.

8 See also Tobin v. United States, 306 F.2d 270, 273 (D.C. Cir.),

cert. denied, 371 U.S. 902 (1962) (Congress has “abundant au-

thority to supervise and regulate the activities of operational com-

pacts in such a way as to ensure that no violence is done by these

compacts to more compelling federal concerns.”’).

of the federal renunciation of interest in controlling

state policies with respect to interstate bank acquisitions

found in the Douglas Amendment to the Bank Holding

Company Act.

CONCLUSION

For all these reasons, the judgment and decision of

the Court of Appeals should be affirmed.

Respectfully submitted,

VIcKI C. JACKSON JOYCE HOLMES BENJAMIN

JAMES E. PFANDER THE STATE AND LOCAL

ROGOVIN, HUGE & LENZNER LEGAL CENTER

A Professional Corporation Suite 349

1730 Rhode Island Ave., N.W. 444 North Capitol Ss., N.W.

Washington, D.C. 20036 Washington, D.C. 20001

(202) 466-6464 (202) 638-1445

Of Counsel Counsel of Record for the

Amici Curiae

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