Reply Brief — United States Nat. Bank of Ore. v. Independent Ins. Agents of America, Inc.

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| DET B92

No. 92-484

eee » mE Glan

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

UNITED STATES NATIONAL BANK OF OREGON,

Petitioner

Vv.

INDEPENDENT INSURANCE AGENTS OF AMERICA, INC., é¢ al.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

REPLY BRIEF FOR THE PETITIONER

KENNETH L. BACHMAN, Jz.*

GIOVANNI P. PREZIOSO

MICHAEL R. LAZERWITZ

CLEARY, GOTTLIEB, STEEN

& HAMILTON

1752 N Street, N.W.

- Washington, D.C. 20086

(202) 728-2700

* Counsel of Record for

Petitioner United States

National Bank of Oregon

h) .. Wasen - Eres Paurrme Co.. Inc. - 789-0096 - Wasnimeton. D.C. 20001

ro -

TABLE OF AUTHORITIES

Cuses: Priapre

American Land Title Ass’n v. Clarke, 968 F.2d 150

(2d Cir. 1992), petitions for cert. pe nding (Nos.

92-482 & 92-507) 1,2, 5,6

Black v. Cutter Lab., 351 U.S. 292 (1956) 3

Capital Cities Cable. Ine. v. Crisp, 467 U.S oy!

RS TSE a rae tn th 4

Cohen v. Franchard Corp., 478 F.2d 115 (2d Cir.),

cert. denied, 414 U.S. 857 (1973) _. 10

Estate of Sanford v. Commissioner, 308 U.S. 39

(.. | es )

G.O. Searle & Co. v. Cohn, 455 U.S. 404 (1982). 4

Kirby v. Allegheny Beverage Corp., 811 F.2d 25

| YE ea PE ee eae eae ee 9, 10

Mitchell v. Keith, 752 F.2d 385 (9th Cir.), cert.

denied, 472 U.S. 1028 (1985) sits 10

Owensboro Nat'l Bank v. Moore, No. 91-3 (E. D.

Ky. Aug. 4, 1992), appeals pending, Nos. 92-

6330 & 92-6331 (6th Cir.) . | 6

Princeton Univ. v. Schmid, 455 U.S. 100 (1982). 9

Warren v. City of Lincoln, 864 F.2d 1436 (8th

Cir.), cert. denied, 490 U.S. 1091 (1989) 9

Williams v. Zbaraz, 448 U.S. 358 (1980) 9

Statutes:

Act of Sept. 7, 1916, ch. 461, Pub. L. No. 64-270,

SEAS Re RD, aie Sie, cc. taleiallNed 6,7

Bank Holding Company Act of 1956, 12 U.S.C.

§$ 1841 et seq.:

12 U.S.C. § 1843 (c) (8) (C) (i) 4

Federal Reserve Act, ch. 6, Pub. L. No. 63-43,

38 Stat. 251 (1913):

Oe IS TI once sioncs cmnticecocoercncsesceseonccenees 7,8

National Bank Act, 12 U.S.C. §§ 21 et seq.:

13 USC. § 34 Seventh .......................00............. 2

| SL ERE aaa pels oh Ree MN passim

a Sa cee sae passim

War Finance Corporation Act of 1918, ch. 45,

Pub. L. No. 65-121, 40 Stat. 506 000... 2,6

TABLE OF AUTHORITIES—Continued

Miscellaneous:

Third Annual Report of the Federal Reserve

Board (1917)

Pace

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

No. 92-484

UNITED STATES NATIONAL BANK OF OREGON,

. Petitioner

INDEPENDENT INSURANCE AGENTS OF AMERICA, INC., et al.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

REPLY BRIEF FOR THE PETITIONER

In this case, the court of appeals held that Section 92

of the National Bank Act, which authorizes national

banks “located and doing business” in places of 5,000 or

fewer inhabitants to act as the agent for “any fire, life

or other insurance company,” no longer remains in force.

Pet. App. 17a. In our petition, we demonstrated that the

court of appeals has ignored statutory language and over-

looked pertinent aspects of the legislative record. As a

result, the court’s erroneous interpretation calls into ques-

tion widespread and substantial national and state bank

insurance activities that Section 92 has engendered over

the past seventy-five years. Moreover, we pointed out

that the court of appeals’ decision conflicts squarely with

the Second Circuit’s decision in American Land Title

Ass’n v. Clarke, 968 F.2d 150 (1992), petitions for cert.

pending (Nos. 92-482 & 92-645). Finally, we showed

that the court of appeals reached out to nullify Section 92

by creating a controversy of its own making.

In response, respondents seek to minimize the impor-

tance of the substantial issues presented, the wayward-

ness of the court of appeals’ decision, and the sharpness

of the conflict among the circuits. Respondents’ efforts

fall far short of the mark. |

1. Respondents contend (Br. in Opp. 8) that there is

“no meaningful conflict” between the decision below and

the Second Circuit’s decision in American Land Title

Ass'n v. Clarke, because the continued existence of Sec-

tion 92 was not a necessary component of the Second

Circuit’s decision. See Br. in Opp. 8-10. As the Second

Circuit stated at the outset, “(t]he issue in this appeal

is whether two provisions of the National Bank Act, 12

U.S.C. §§ 92 and 24 (Seventh) (1988), permit national

banks to engage in the title insurance agency business.”

American Land Title Ass’n v. Clarke, 968 F.2d at 150-51.

In resolving that issue, the court of appeals first held,

“le]ontrary to the view of the D.C. Circuit,” that the

omission of Section 92 from the 1918 War Finance Cor-

poration Act was “inadvertent” and did not “effect{] a

repeal of section 92.” 968 F.2d at 152. Th court then

proceeded to hold that Section 92 impliedly prohibits “na-

tional banks located and doing business in towns with

over 5,000 inhabitants from engaging in the insurance

agency business,” including the sale of title insurance.

968 F.2d at 156 (emphasis in original). Because the

court concluded that Section 92 was a limitation on na-

tional bank authority, it saw “no need to determine the

Scope of section 24 (Seventh),” the provision authorizing

national banks to engage in activities “incidental” to the

“business of banking.” 968 F.2d at 157.

‘The Solicitor General, on behalf of the Acting Comptroller of

the Currency, has also sought review of the decision below and

has echoed these points. See U.S. Pet., No. 92-507, at 8-21.

_ By its terms, the Second Cireuit’s decision conflicts

squarely with the decision below regarding the existence

of Section 92—a fact recognized by the Solicitor General

und others.“ Contrary to respondents’ assertion, the Sec-

ond Cirecuit’s judgment that Chase Manhattan may not

sell title insurance was grounded in its holding that

Section 92 exists as a limitation on national bank activi-

ties.' The conflict between the Second Circuit’s decision

and the decision below is therefore manifest.

Respondents seek to wish away that evident conflict by

Suggesting that “there was no necessity for the Second

Circuit to decide whether Section 92 had been repealed”’

because “|Section 92’s] enactment in 1916 demonstrates

that national banks do not possess any power to sell in-

surance.” Br. in Opp. 10. Apart from the dubious merit

of such an argument, see, e.g., U.S. Pet., No. 92-645, at

9-18, that argument fails to come to grips with the

Second Circuit’s judgment.‘ Respondents’ effort at revi-

* See U.S. Pet., No. 92-507, at 8-10; American Bankers Associa-

tion Br. 4-5; Kentucky Bankers Association Br. 6, 8; American

Bankers Association Br., No. 92-507, at 4-5; Kentucky Bankers

Association Br., No. 92-507, at 6, 8; see also U.S. Pet., No. 92-645,

at 9; Chase Br. in Opp., Nos. 92-482 & 92-645, at 9-10; American

Bankers Association Br., No. 92-482, at 3-4; American Bankers

Association Br., No. 92-645, at 3-4.

* See Black v. Cutter Lab., 351 U.S. 292, 297-98 (1956) (“This

Court . . . reviews judgments, not statements in opinions.”). For

that reason, and contrary to respondents’ suggestion (Br. in Opp.

11), it is immaterial that petitioner and the Solicitor General each

take issue with one aspect of the statutory analysis embraced by

both the decision below and the Second Circuit, namely, that Con-

gress enacted Section 92 as part of Section 5202 of the Revised

Statutes.

-”

* Respondents thus err in suggesting (Br. in Opp. 10) that the

Second Circuit's judgment would not be altered if, contrary to our

contention, Section 92 has been repealed. See U.S. Pet., No. 92-645,

at 19 n.2.

Respondents also err by asserting (Br. in Opp. 22 n.29) that the

decision below may be affirmed on the alternative ground that the

sionism cannot obscure the square conflict over the exist-

ence of Section 92 that warrants this Court’s review.

2. Respondents also contend (Br. in Opp. 18-21) that

there is no need to determine whether Section 92 remains

in force because that issue is of limited practical impor-

tance. First, respondents conveniently ignore the fact

that, as matters now stand, the substantial national and

state bank insurance activities engendered by Section 92

are called into question.’ Respondents assert that “rela-

tively few national banks could actually be affected by

the court’s decision,” by suggesting that “{n]o one has

offered a firm number of the national banks seliing gen-

eral insurance pursuant to Section 92.” Br. in Opp. 19.

The fact that the number of banks engaged in insurance

activities comprises a relatively small percentage of the

total number of national and state banks does not dimin-

ish the significance of these activities. The insurance

activities at stake—as evidenced by the vigorous opposi-

tion of insurance trade associations in this case and else-

where—are substantial.

Second, respondents argue (Br. in Opp. 19-20) that

the issue presented is insubstantial because a parallel

provision of the Bank Holding Company Act (“BHCA”),

12 U.S.C. § 1843(¢)(8)(C) (i), permits bank holding

companies to sell insurance through subsidiaries in towns

with 5,000 or fewer inhabitants. That Statutory author-

Comptroller’s initial decision in this case was erroneous. The court

of appeals had no occasion to address that question, and this Court

does not ordinarily consider questions ot specifically passed upon

by the court below. See, e.y., Capital Cities Cable, Inc. Vv. Crisp,

467 U.S. 691, 697 (1984); G.D. Searle & Co. vy. Cohn, 455 U.S. 404,

414 (1982).

*See Pet. 10 & n.13; American Bankers Association Br. 1-4:

Kentucky Bankers Association Br. 9: American Bankers Association

Br., No. 92-507, at 1-4; Kentucky Bankers Association Br., No. %2-

507, at 9; see also U.S. Pet., No. 92-507, at 19 n.11 (“Whatever the

exact figure, it is clear that a significant number of national ban)-

currently engage in activities authorized by Section 92.’’).

ity is no substitute for Section 92. As respondents ae-

knowledge in passing, “(t/he BHCA permits the sale of

insurance only to customers located in [a] small town

and its environs,” whereas Section 92—as long construed

by the Comptroller—does not contain a geographical limi-

tation on customers. Br. in Opp. 20 n.26. In any event,

a bank would not have to form a bank holdin © « mony

if Section 92 remained good law.*

Third, respondents neglect to mention the fact that the

insurance industry and private litigants are currently

wielding the D.C. Cireuit’s holding that Section 92 has

been repealed as a sword against the Comptroller’s

approval—and ongoing regulation—of national bank in-

surance activities.’

Finally, the issue of Section 92’s existence is not a

parochial concern only for bank regulators. As has been

previously pointed out, that issue affects legal matters

that extend beyond the limited question of whether cer-

tain national banks may sell insurance.* Thus, respond-

ents’ statement that other courts—including this Court—

over the years have “simply ‘assumed’” Section 92’s ex-

istence is beside the point. Br. in Opp. 17.

* Respondents suggest that, even apart from the BHCA, banks

may have “some prospect of alternative federal sources of insurance-

agency authority,” citing interpretive rulings issued by the Comp-

troller. Br. in Opp. 20 n.27. In view of the litigation pending before

the Court in American Land Title Ass’n v. Clarke, 968 F.2d 150

(1992), petitions for cert. pending (Nos. 92-482 & 92-645), and

respondents’ submission attacking the Comptroller’s ruling at issue

there, see Independent Insurance Agents of America, Inc. Br., Nos.

92-482 & 92-485, at 12-19, respondents’ suggestion rings hollow.

7 See, e.g., American Bankers Association Br. 8 & n.2; Kentucky

Bankers Association Br. 12-13.

§ See U.S. Pet., No. 92-507, at 20-21; Pet. 9 & n.11.

*In view of the square conflict and the significance of the issue

presented, respondents err in suggesting (Br. in Opp. 12 n.11) that

further review is not warranted because that issue is currently

3. Turning to the merits of the court of appeals’ de-

cision, respondents contend that “the text [of the 1916

Act| will not bear the strained reading Petitioners would

force upon it.” Br. in Opp.,13. At the outset, it bears

emphasis that respondents—like the court below—otfer

no plausible basis for assuming that Congress, by enact-

ing the War Finance Corporation Act in 1918, had any

intention of repealing the national bank insurance au-—

thority it had adopted two years before. See American

Land Title Ass’n v. Clarke, 968 F.2d at 151-54. More-

over, a close look at the 1916 enactment refutes respond-

ents’ position.

The paragraph of the 1916 enactment immediately pre-

ceding the reference to Section 5202 (that concerning

Federal reserve bank advances to member banks (para-

graph 6)), and the paragraph of the 1916 enactment

immediately preceding the reference to the Section 92

provision (that concerning [I ederal reserve bank redis-

counts of bills and acceptances (paragraph 8)), each ex-

pressly refers to “this Act,” i.c., the Federal Reserve Act.

See Act of Sept. 7, 1916, ch. 461, Pub. L. No. 64-270, 39

Stat. 753; Pet. App. 69a-70a.

By contrast, the Section 5202 reference in the 1916

enactment (paragraph 7!—which appears before the

paragraph containing what became Section 92 (para-

graph 9)—concludes with a cross-reference to “the Fed-

eral reserve Act.” This specific reference thereby demon-

strates that the paragraph identified as “Fifth” marks

the end of the Section 5202 reference. See Act of Sept.

7, 1916, ch. 461, Pub. L. No. 64-270, 39 Stat. 753: Pet.

App. 70a.

Respondents argue that the reference to “this Act” in

the paragraphs preceding the references to Section 5202

pending before the Sixth Circuit. See Owensboro Net'l Bank

Moore, No. 91-3 (E.D. Ky. Aug. 4, 1992), appeals pending, Noo

92-6330 & 92-6331 (6th Cir.). Such pending litigatiow calls for tha-

Court to step in now to resolve the uncertainty.

and Section 92 in the 1916 enactment “could serve sim-

ply as an antecedent reference” to the Federal Reserve

Act. Br. in Opp. 14. That argument ignores the compo-

nents of the 1916 enactment, namely, the precise lan-

guage of the 1913 Act which had amended Section 5202

by adding a fifth provision. See Federal Reserve Act of

1913, ch. 6, Pub. L. No. 63-43, § 13, 38 Stat. 264; Pet.-

App. 80a. That amendment to Section 5202 of the Re-

vised Statutes, by necessity, referred to the “Federal

Reserve Act.” Pet. App. 80a. By contrast, the conclud-

ing paragraph of the 1913 Act, which concerned Federal

reserve bank rediscounts of bills and acceptances, re-

ferred expressly to “this Act,” namely, the Federal Re

serve Act. See Pet. App. 80a. That concluding para-

graph, which was obviously part of the Federal Reserve

Act, appears in the 1916 enactment immediately preceed-

ing the reference to Section 92. See Act of Sept. 7, 1916,

ch. 461, Pub. L. No. 64-270, 39 Stat. 752; Pet, App. 70

(paragraph §). Respondents’ “antecedent reference”

theory therefore breaks down. The reference to “this

Act” in the rediscount provision (paragraph 8)—a part

of the Federal Reserve Act—confirms that the Section

5202 reference had ended.’°

Respondents also assert that “the phrase ‘this Act’ in

the paragraph preceding Section 92 may refer to nothing

other than the 1916 Act itself.” Br. in Opp. 14. That

argument fails because the reference to “this Act” in the

1916 enactment appears verbatim in Section 13 of the

Federal Reserve Act of 1918. See Federal Reserve Act

of 1913, ch. 6, Pub. L. No. 68-43, § 13, 38 Stat. 264; Pet.

App. 80a. In other words, Congress was plainly referr-

ing to the original Federal Reserve Act—not the 1916

enactment itself.

that “the structure of the 1996 Act—-which Petitioners ignore —

furth resupports the conclusion that Congress made Section 92 part

of R.S. 6202." Br. in Opp. 15.

atin

Respondents contend that the construction outlined

above “does violence to express statutory language” be-

cause it requires the Court to ignore the prefatory lan-

guage that Section 5202 “ ‘is hereby amended [so] as to

read as follows.” Br. in Opp. 15; see Pet. App. 70a.

That prefactory language appears in Section 13 of the

1913 Act, where Congress had amended Section 5202 by

adding a fifth provision. See Federal Reserve Act of

1913, ch. 6, Pub. L. No. 63-48, § 18, 38 Stat. 264; Pet.

App. 79a-80a. In order to amend Section 13 in 1916,

Congress restated that provision of the Federal Reserve

Act in its entirety. In so doing, the 1916 Act restated

verbatim a portion of the 1913 Act that referred to

amending Section 5202, but the 1916 Act did not change

the 1913 amendment. See Pet. App. 70a, 79a-80a. Re-

spondents’ argument simply has basis other than the

placement of the quotation marks. In view of the draft-

ing history surrounding that inadvertently placed punc-

tuation, see Pet. 14-16, which respondents ignore, and in

light of Congress’s actions described above, that argu-

ment is makeweight.

In sum, it is apparent that this is not a case where

“the deletion of Section 92 was a ‘mistake,’”’ whose rem-

edy lies with Congress. Br. in Opp. 22. To the contrary,

the D.C. Circuit has erroneously construed a federal stat-

ute out of existence—a substantial legal issue that

plainly calls for this Court’s review.”

11 Respondents take issue (Br. in Opp. 16 n.17) with our state-

ment that the Federal Reserve Board, in its compilation of pertinent

banking statutes submitted to Congress in 1917, set forth Section

92 as part of the Federal Reserve Act. See Third Annual Report

of the Federal Reserve Board 135-36 (1917); Pet. 16 & n.22. Re-

spondents ignore the fact that, in that compilation, the statute

appears with quotation marks only introducing each paragraph,

thus showing that Section 92 is part of the Federal Reserve Act.

Contrary to respondents’ submission, the Annual Report did not

show the 1916 Act with “quotation marks . . . as it appears in the

Statutes at Large,” Br. in Opp. 16 n.17, é.e., with quotation marks

4. Respondents contend (Br. in Opp. 22-24) that the

D.C. Circuit’s determination whether Section 92 re-

mained in force, where the parties neither presented nor

took adverse positions on that issue, is unexceptionable.

Respondents neglect to mention a critical point—until or-

dered to respond to petitions for rehearing filed by the

Comptroller and petitioner, respondents expressly ad-

hered to the position that Section 92 remained good law.

See Pet. 6 n.7, 7 n.9. In other words, as this Court has

admonished, federal courts “do not sit . . . to give advi-

sory opinions about issues as to which there are not ad-

verse parties before [the courts].” Princeton Univ. ».

Schmid, 455 U.S. 100, 102 (1982) (per curiam), Re-

spondents’ effort to distinguish Williams v. Zbaraz, 448

U.S. 358 (1980), is unavailing, because there, as here,

the statute at issue was not “in controversy.” Br. in Opp.

23 n.31.

For those reasons as well, respondents err (Br. in Opp.

23 n.30) in asserting that the court of appeals’ decision

may be excused under the principle that courts need not

accept “stipulations as to questions of law.” Estate of

Sanford v. Commissioner, 308 U.S. 39, 51 (1989). The

parties here did not reach any stipulation, and the fact

that the parties each took the position that Section 92

remained good law is not tantamount to putting that

“question of law” in controversy.

Finally, respondents argue that this Court should not

use its “scare resources” to review this “predicate issue.”

Br. in Opp. 24. The issue regarding the propriety of

addressing matters sua sponte on appeal, although often

case-specific, has confused the lower courts. Compare

Warren v. City of Lincoln, 864 F.2d 1486, 1489 (8th

Cir.) (issues generally subject to review), cert. denied,

490 U.S. 1091 (1989); Kirby v. Allegheny Beverage

closing the paragraph before the Section 5202 reference and quota-

tion marks introducing the first paragraph of the Section 6202

reference.

Corp., £11 F.2d 258, 256 n.2 (4th Cir. 1987) (same)

with Mitchell v. Keith, 752 F.2d 385, 391 n.3 (9th Cir.)

(issues not subject to review absent plain error), cert.

denied, 472 U.S. 1028 (1985) ; Cohen v. Franchard Corp.,

478 F.2d 115, 124 (2d Cir.) (same), cert. denied, 414

U.S. 857 (1973). This case therefore presents an oppor-

tunity for the Court to address this “predicate,” yet

substantial, issue confronting federal courts.

* * * * *

For the foregoing reasons and those stated in the peti-

tion, it is respectfully submitted that the petition for a

writ of certiorari should be granted.

KENNETH L. BACHMAN, JR.*