# Petition for Writ of Certiorari — NationsBank of North Carolina, N. A. v. Variable Annuity Life Insurance > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0506%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1994 - **Citation:** 511 U.S. 1141 ## Text evpreme Court. U.S ~\ ry 931613 APR 1 3 3994 No. Se ee Jn the Supreme Court of the Cinited States OcTOBER TERM, 1993 KUGENE LUDWIG, COMPTROLLER OF THE CURRENCY, ET AL., PETITIONERS U. VARIABLE ANNUITY LIFE INSURANCE COMPANY, ET AL. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT DREW S. DAys, III Solicitor General \ FRANK W. HUNGER Assistant Attorney General PAUL BENDER Deputy Solicitor General EDWARD C. DUMONT Assistant to the Solicitor General MARK B. STERN JACOB M. LEWIS Attorneys WILLIAM P. BOWDEN, JR. Department of Justice Chief Counsel Washington, D.C. 20530 Office of the Comptroller (202) 514-2217 of the Currency Washington, D.C. 20219 (202) 874-5200 QUESTION PRESENTED Whether federal law permits national banks, wherever located, to act as agents in the sale of annuities. (1) Il PARTIES TO THE PROCEEDING The petitioners are Comptroller of the Currency Kugene Ludwig (substituted as a party pursuant to Rule 55.3), the Office of the Comptroller of the Currency, and the United States. The respondents are the Variable Annuity Life Insurance Company and, under Rule 12.4, NationsBank of North Carolina, N.A., and NatiousBane Securities, Inc., intervenor-defendants below. We are advised that. the respondents who were intervenor- defendants below also intend to seek review of the judgment in this case. Page oa. sca csnesapnsansooocoococe 1 EEE LES DETTE 1 ers oa ecscnccnascecmensscosoosacsececcooees 2 io ccc ennessocnnconoocacoes 4 Reasons for granting the petition ..............ccccccccccceceeeeeees 11 aa ss cstersescecctcocsncncnsoss 2h TABLE OF AUTHORITIES Cases: American Insurance Ass'n vy. Clarke, 865 F.2d 278 i ccitnccndectnscnccasoccocecansccsoccoes 19 American Land Title Ass'n v. Clarke, 968 F.2d 150 (2d Cir. 1992), cert. denied, sub nom. Ludwig v. Amer- ican Land Title Ass'n, 113 8. Ct. 2959 (1993) ................ 18 Chevron U.S.A. Ince. vy. Naural Resources Defense Council, Inc., 467 U.S. 837 (1984) ............ccccccecesesees 9, 11, 13, 21 Clarke vy. Securities Industry Ass'n, 479 U.S. 388 re .csnsecseacoeees 11-12, 13, 20 Corporation Comm'n v. Equitable Life Assur. Soc., I I on as sscncnencosescosecocscococes 13 Helvering v. Le Gierse, 312 U.S. 531 (1941) ................66.. 13 Hughey v. United States, 495 U.S. 411 (1990) .00000000.0.... 16 Independent Bankers Ass'n v. Heimann, 613 F.2d 1164 (D.C. Cir. 1979), cert. denied, 449 U.S. 823 (1980) ........ 18 Independent Ins. Agents of Am., Inc. v. Board of Gov- erners, 736 F.2d 468 (Sth Cir. 1984) ..............cccccceceeeeeees 14, 19 Ludwig v. American Land Title Ass'n, 113 S. Ct. 2959 i. woesssnnsesoncesoceecs 19 M&M Leasing Corp. v. Seattle First Nat'l Bank, 563 F.2d 1377 (9th Cir. 1977), cert. denied, 436 U.S. 956 is cssnsenoneonccccssocasse 15 M’Culloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819) .. 16 (IIT) IV Cases: Page National R.R. Passenger Corp. v. Boston & Me. Corp., Sg EF SEE enn Here eee 16 New York State Ass'n of Life Underwriters Inc. v. New York State Banking Dep't, No. 38 (N.Y. Mar. 30, ial vscnccnesiuvinettbdsensennnnensatieiiainpidialisaeiiilion 13, 15, 19, 24 Saron vy. Georgia Ass'n of Indep. Ins. Agents, Inc., BS IE coesictcetnniciecees cemctiieeteaiten 8, 9 SEC v. Chenery Corp., 318 U.S. 80 (1948) .................066 18 SEC vy. Variable Annuity Life Insurance Co., 359 U.S. ee GRD scneccmsnvidcndsisinetoninidniaidiindichniiiaapdaabieiaeadiddntrsbenviio 5 United States v. Shimer, 367 U.S. 374 (1961) ................ 21 Statutes, regulation and rule: Act of Sept. 7, 1916, ch. 461, § 13, 39 Stat. 753 2.0000. 3 Act of Oct. 15, 1982, Pub. L. No. 97-820, Tit. IV, § 403(b), Xe BSS ee 3 Banking Act of 1933 (Glass-Steagall Act), ch. 89, 48 Stat. SD TEE sncscircectsnomsinenincsendiscnsenenssindiiaasiaiibindintintanentiaaaiiadisitat 7 Federal Reserve Act, ch. 6, § 13, 38 Stat. 263 .....00000..... 3 Securities Act of 1933, § 3(a)(8), 15 U.S.C. T7e(a(&) ....... 12 Rev. Stat. $ 5136 (1878) (12 U.S.C. 24) ..........cccccccscccssseees 2 ee Fe Ee II westecicninrncicciiniinntastndinemmatinnctentaiinn passim Be CAs UE ceiicssincecscbsdinccenesisnndentsdarnutbucineiesinmmenionnmanmiien passim Fee ERIS TID eeeadisnbicdilinsincheceninsiantenaiaitidiininteinitininnpiaadaitaategelindia 6, 12 ee SPIE TEED -ccninsnnccveninsicinduascipaniniiialidiinisendpinsiaaeabiaanis 6 Be Wes TE Sicccdieticesnisecidunerneticinnesnicuiniinientaaiaaiuntianen 6 Be We iis GUNN . 19 See also American Ins. Ass’n v. Clarke, 865 F.2d 278 (D.C. Cir. 1988) (national bank subsidiary permitted to sell municipal bond “insurance” by analogy to established power to provide standby letters of credit); Independent Ins. Agents of Am., Ine. vy. Board of Governors, 736 F.2d 468, 477 n.6 (8th Cir. 1984) (permitting agency sales of insurance related to protecting security interest in financed property, and noting in dictum a “strong argument” that the Fifth Circuit’s prior Saxon decision was “wrongly de- cided”); New York State Ass’n of Life Underwriters Inc. v. New York State Banking Dep't, supra (defer- ring to state regulator’s decision permitting New York banks to act as agents for sales of annuities), 2. Although the issue of whether and to what extent Section 92 limits banks’ ability to make agency sales that the Comptroller has otherwise determined to be incidental to their banking business under 12 U.S.C. 24 Seventh has produced conflict among the circuits, the Court denied our request to resolve that conflict last Term. Ludwig v. American Land Title Ass’n, 113 S. Ct. 2959 (1993). This case involves the additional issue whether annuities are “insurance” for purposes of Section 92. N onetheless, we would not under the court’s own holding. The court’s conclusion that Section 92 bars banks from selling annuities rested not on a judgment that annuities are insufficiently related to the busi- ness of lending to come within a bank’s incidental powers, but rather on a determination that they are contracts of “insurance,” and ipso facto prohibited under Section 92 and impermissible under Section 24 Seventh. NBNC Pet. App. 13a- 17a. While the characterization of annuities may be debatable, that of credit life insurance is not—it is indisputably “insurance.” The court’s observation therefore does nothing to lessen the conflict between its logic and the result in Heimann. 20) normally seek further review under these circum- stances, even though we think the issues involved are of substantial legal and practical importance. Addi- tional considerations peculiar to this case, however, persuade us that review is warranted here. a. The decision below involves a particularly flagrant failure by the court of appeals to apply the well-settled principles of deference articulated by this Court in Chevron and applied specifically to the Comptroller in Clarke v. Securities Industry Ass'n. The district court properly applied those principles in evaluating the Comptroller’s decision in this case. The court of appeals, by contrast, dismissed Chevron on the ground that the text and intent of 12 U.S.C. 92 were so clear as to preclude interpretation. NBNC Pet. App. 9a. The implausibility of that contention is apparent from the differing arguments mustered by the Comptroller’s decision on the one hand and by the court’s own vpinion on the other. It is underscored by the dissent of four judges from the denial of rehearing en bane, on the explicit ground that the Comptroller’s position on the meaning of “insurance” for purposes of Section 92 represents “(t]he better view—and cer- tainly a reasonable one that is entitled to deference under Chevron” (NBNC Pet. App. 24a), and by the conflict among the courts of appeals on the larger issue of Section 92’s function and its relationship to Section 24 Seventh. The regulation of banking is an area of great importance, requiring a combination of special func- tional expertise and informed choices among some- times conflicting goals. Those goals include both the maintenance of a strong banking industry in light of modern developments in investment and finance and the protection of banks and bank customers from the 21 expansion of bank activities into inappropriate areas. It would be difficult to identify a regulatory context in which it is clearer that courts should defer, in matters of statutory interpretation, to “reasonable accommodation[s] of conflicting policies that were committed to the agency’s care by the statute.” Chevron, 467 U.S. at 845 (quoting United States v. Shimer, 367 U.S. 374, 383 (1961)). In this case the interpretations adopted by the Comptroller were thoroughly discussed and well supported in his decision. The court of appeals’ failure to defer to those interpretations represents a clear and impor- tant error. b. The opportunity for rehearing and correction by the full court often suffices to protect against a panel’s failure to apply well-settled principles cor- rectly in the context of a particular case. In this case a majority of the active judges voting on the issue— including four of the five who did not serve on the original panel''—favored granting rehearing en banc. NBNC Pet. App. 20a. Because six active judges recused themselves, however, the grant of rehearing would have required the concurrence of all non- recused active judges, including the original panel members. As the dissenters from the denial of rehearing en banc pointed out, the Comptroller was therefore precluded from “discern{ing] the views of a substantial majority of the active judges” on the court of appeals. /bid. Moreover, as the dissenters pointed out, “[rjecusal seems to be a particular problem in cases involving large banks and their '! The original panel included judges Jolly and Wiener and Senior Judge Goldberg, who was not entitled to vote on the suggestion for rehearing en banc. See Fed. R. App. P. 35(a). 22 regulatory agencies (and the attorneys of both) with whom several active judges are likely to have relationships that require them to recuse.” /d. at 21a. For that reason (and because it is impossible to determine why particular judges recused themselves in this case), it is possible that the same problem would recur were further cases raising the same issues brought before the Fifth Circuit. c. Moreover, it is possible that neither the gov- ernment nor affected banks will have the opportunity to litigate the issues involved in this case further in other circuits. Respondent VALIC, which is head- quartered in Houston, underwrites and sells fixed and variable annuities in all 50 States. NBNC Pet. App. 4a. Assuming that venue was proper in this case (where the bank involved is not located in the Fifth Cireuit and sold no annuities there), VALIC is therefore in a position to challenge in the courts of the Fifth Circuit any future decision by the Comp- troller to approve a bank’s application to sell annuities.'? Thus, it is possible that the decision 2 A national bank might choose to proceed with sales that it believed to be within its authority, without seeking explicit approval from the Comptroller. We are informed, however, that for a variety of legal and business reasons, agency sales of annuities are almost invariably conducted through brokerage subsidiaries, rather than directly by the parent banks. Sales by such subsidiaries are subject to mandatory prior legal and policy review by the Comptroller. 12 C.F.R. 5.34. We are also informed that national banks of significant size would typically have sufficient business contacts with one or more States in the Fifth Circuit to render them amenable to suit there. It thus appears likely that any suit VALIC might be able to bring directly against such a bank, to challenge its sales of annuities in alleged violation of federal law, could also be brought in the Fifth Circuit. 23 below will effectively preclude national banks from selling annuities of any type—and perhaps a wide variety of other products that are or may be thought of as “insurance”—anywhere in the country (other, presumably, than in small towns covered by Section 92), despite the Comptroller’s conclusion that they have the power to do so. The Second Circuit’s decision in American Land Title presented no similar risk that it would preclude further litigation in other circuits. d. The issue of Section 92’s scope and effect is inextricably intertwined with the additional issue present in this case: whether the annuities at issue here constitute “insurance” for purposes of that Section. In addition, the ability to sell annuities is of far greater importance to national banks—and therefore to their federal regulators—than the ability to sell title insurance of the sort involved in American Land Title. The dissent from denial of rehearing en banc in this case notes (NBNC Pet. App. 2la-22a) that in 1992 banks sold some $12.2 billion of fixed and variable annuities, representing approxi- mately 17% of all individual annuities and 21.9% of fixed annuities sold nationwide, and accounting for some 7% of all bank brokerage sales.'* We are informed that the volume of bank annuity business increased substantially in 1993."4 ‘8 We are advised that annuities are valued for these purposes on the basis of the gross premium required to be paid by the purchaser over the life of the contract. ‘4 In light of the substantial growth in annuity sales through banks, the federal bank regulatory agencies (including OCC) recently proposed to require all banks under their jurisdiction to report such sales (together with sales of mutual fund shares) 24 e. Finally, the conflict described in the American Land Title petition has now deepened. The court of appeals in this case cited and relied on American Land Title and rejected (while purporting to distinguish) the D.C. Circuit’s contrary decision in Heimann. NBNC Pet. App. 6a-7a, 13a-14a, 16a. Furthermore, as discussed above, the New York Court of Appeals has recently upheld a state regulatory decision—prompted by and premised in large part on the Comptroller’s decision in this case—that New York banks should be permitted to make agency sales of annuity products. New York State Ass’n of Life Underwriters, slip op. 2-3, 11-14. While the New York court’s decision is based on state law and thus presents no direct legal conflict with the decision below (see id. at 13), it is nonetheless relevant in two respects. First, the court’s ap- propriate deference under state law principles to a determination by state banking regulators that was explicitly based on “reasons similar to those stated in OCC Letter 499” (ibid.) provides a sharp contrast to the court of appeals’ refusal in this case to defer, under Chevron, to the Comptroller’s decision con- tained in that letter itself..° Second, the existence of approval for sales of annuities by New York banks in their quarterly Reports of Condition and Income. See 59 Fed. Reg. 2603-2604 (1994). 'S The similarity of the issues before the New York court and the issues in this case is further emphasized by the fact that 12 U.S.C. 24 Seventh, the basic federal bank powers statute at issue here, was originally modeled on the parallel provision of New York law at issue in New York State Ass’n of Life Underwriters. See, e.g., Trimble, The Implied Power of National Banks To Issue Letters of Credit and Accept Bills, 58 Yale L.J. 713, 719 (1949). 25 raises the undesirable prospect of important dif- ferences in bank powers that arise from the difference between state and federal regulation, and yet have been judicially placed beyond the power of federal regulators to correct. CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. Drew S. Days, III Solicitor General FRANK W. HUNGER Assistant Attorney General PAUL BENDER Deputy Solicitor General EDWARD C. DUMONT Assistant to the Solicitor General MARK B.STERN JACOB M. LEWIS Attorneys WILLIAM P. BOWDEN. JR Chief Counsel Office of the Comptroller of the Currency APRIL 1994 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0506%3A02. Public record. Not legal advice.