Reply Brief — NationsBank of North Carolina, N. A. v. Variable Annuity Life Insurance

Bupreme Court, U.S,

FILED

| JUN } 1994

‘

No. 93-1613 | OFFICE OF THE CLERK

In the Supreme Court of the United States

OCTOBER TERM, 1993

EUGENE LUDWIG, COMPTROLLER OF THE CURRENCY,

ET AL., PETITIONERS

.

VARIABLE ANNUITY LIFE INSURANCE COMPANY, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

REPLY BRIEF FOR THE PETITIONERS

DREW S. Days, III

Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 514-2217

TABLE OF AUTHORITIES

Cases: Page

American Fed’n of Gov't Employees v. O’Connor, 747

F.2d 748 (D.C. Cir. 1984), cert. denied, 474 U.S. 909

c 4

American Land Title Ass n v. Clarke, 743 F. Supp. 491

e 4

Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984) . .. . 6

Good Samaritan Hosp. v. Shalala, 113 S. Ct. 2151

%% ͤ——— ͤ——ͤ 2 3

Independent Bankers Ass 'n v. Heimann, 613 F.2d 1164

(D.C. Cir. 1979), cert. denied, 449 U.S. 823 (1980) 4

Independent Ins. Agents v. Ludwig, 997 F.2d (D.C. Cir.

/ ˙ AAA A 2

New York Stock Exchange v. Bloom, 562 F.2d 736 (D.C.

Cir. 1977), cert. denied, 435 U.S. 942 (1978) .. 34

Russello v. United States, 464 U.S. 16 (1983) ................ 2

Saxon v. Georgia Ass’n of Indep. Ins. Agents, 399 F.2d

„AA 4

SEC v. Variable Annuity Life Ins. Co., 359 U.S. 65

TTT ͤ ̃ ̃——— ͤ— — — 5

Statutes and regulation:

Act of Jan. 12, 1983, Pub. L. No. 97-457, 5 3001), 96 Stat.

r ( ( eee 2

Re xe 4

, ... abdbebimeoveddioceibecedsans’ 1. 2, 5

ee. eee 1

ZZ 6

(1)

Miscellaneous: Page

Office of the Comptroller of the Currency:

Interpretive Letter No. 499, [1989-1990 Transfer

Binder] Fed. Banking L. Rep. (CCH) 4 83,090

9 dies 3

Interpretive Letter No. 241, [1983-1984 Transfer

Binder] Fed. Banking L. Rep. 1 85,405 (1982) ...... 4

In the Supreme Court of the United States

OCTOBER TERM, 1993

No. 93-1613

EUGENE LUDWIG, COMPTROLLER OF THE CURRENCY,

ET AL., PETITIONERS

V.

VARIABLE ANNUITY LIFE INSURANCE COMPANY, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

REPLY BRIEF FOR THE PETITIONERS

1. Respondent Variable Annuity Life Insurance

Company argues (Br. in Opp. 11)—for the first time—

that annuities should be treated as “insurance” for

purposes of 12 U.S.C. 92 because a proviso to an

exception to a provision of the Bank Holding Company

Act specifies “annuities,” as well as life insurance, as

products that small bank holding companies may sell

only under certain circumstances. See 12 U.S.C.

1843(c)(8)(F), reprinted at Br. in Opp. App. 5a. That

argument is unpersuasive. Section 1843(c)(8)(F) ex-

cepts the sale of annuities from an otherwise general

grant of authority to small bank holding companies to

engage in “any insurance agency activity.” Because

annuities have traditionally been underwritten by

(1)

2

insurance companies, Congress might well have

considered their sale an “insurance agency activity”

for purposes of the Bank Holding Company Act

without deeming annuities to be “insurance” for all

other statutory purposes. Respondent’s argument

seeks to equate the meaning of the word “insurance”

as used in 12 U.S.C 92, a banking statute passed in

1916, with the meaning of terms used in a proviso

added to a bank holding company statute in 1983. Act

of Jan. 12, 1983, Pub. L. No. 97-457, § 30(1), 96 Stat.

2511. That is not a correct approach to statutory

interpretation. See Independent Ins. Agents v.

Ludwig, 997 F.2d 958, 962 (D.C. Cir. 1993); see also,

e.g., Russello v. United States, 464 U.S. 16, 26 (1983).

2. The Comptroller’s decision in this case reasoned

(93-1612 Pet. App. 42a-43a) that even if annuities could

be considered “insurance,” 12 U.S.C. 92 applies only

to “types of insurance that are similar to fire and life

insurance, such as other general casualty insurance.”

Respondent disputes that reasoning (Br. in Opp. 9) on

the ground that the words “fire, life, or other” in

Section 92 describe the type of company for which a

covered bank may act as agent, not the types of

insurance it may sell. Section 92 provides, however,

that small-town banks may “act as the agent for any

fire, life, or other insurance company * * * by

soliciting and selling insurance and collecting

premiums on policies issued by such company.” The

Comptroller could fairly read that language to limit

both the types of companies and the types of

insurance“ to which Congress intended the statute

to apply. In any event, respondent does not seriously

contest the petition’s point (Pet. 14-17 & n.6) that

both the text of Section 92 and its historical

3

background indicate that in enacting that provision

Congress sought to permit banks in small towns to

sell a broad range of general insurance products, not

to prohibit banks generally from selling forms of

“insurance” whose sale the Comptroller determines

to be incidental to the business of banking.

3. Respondent suggests (Br. in Opp. 12) that the

Comptroller’s decision to permit banks to sell annu-

ities “reversed the Comptroller’s previous interpre-

tation of section 92 in 1978 and 1982,” and therefore

“is not entitled to significant deference.” Even if

respondent’s factual premise were true, its conclu-

sion would be incorrect. E. g., Good Samaritan Hosp.

v. Shalala, 113 S. Ct. 2151, 2160-2161 (1993). In fact,

however, respondent points to no prior inconsistent

administrative precedent.

The 1978 letter reprinted in the Brief in Opposition

(at la-2a) represents informal advice rendered by an

agency lawyer who had no authority to issue binding

opinions on behalf of the Comptroller or the agency’s

Chief Counsel. The letter does not represent a formal

interpretation by the Chief Counsel, contains no

analysis supporting the views expressed, and clearly

identifies its conclusions as the personal opinion of

the author. Ibid.; compare, e.g., Office of the Comp-

troller of the Currency (OCC), Interpretive Letter

No. 499, [1989-1990 Transfer Binder] Fed. Banking L.

Rep. (CCH) 1 83,090 (1990) (Chief Counsel’s opinion

underlying Comptroller’s decision at issue in this

case). Such a letter is not an action that would bind

the agency or the recipient, be subject to review by

the courts, or raise any issue of deference. See New

York Stock Exchange v. Bloom, 562 F.2d 736, 741

(D.C. Cir. 1977) (informal Comptroller opinion letter

4

not ripe for review), cert. denied, 435 U.S. 942 (1978);

American Land Title Ass’n v. Clarke, 743 F. Supp.

491, 494 (W.D. Tex. 1989) (letters from OCC Chief

Counsel and staff not final agency action); American

Fed’n of Gov’t Employees v. O’Connor, 747 F.2d 748,

752-753 (D.C. Cir. 1984) (advisory opinion of counsel to

Merit Systems Protection Board), cert. denied, 474

U.S. 909 (1985).

The 1982 letter that respondent cites (Br. in Opp. 4)

sets forth a similar informal opinion by a member of

the OCC legal staff. See OCC, Interpretive Letter

No. 241, [1983-1984 Transfer Binder] Fed. Banking L.

Rep. 1 85,405 (1982). That letter’s analysis of sales of

term life insurance, moreover, does not conflict with

the Comptroller’s position with respect to sales of

fixed and variable annuities. The letter points out

that the Fifth Circuit’s decision in Saxon v. Georgia

Ass’n of Indep. Ins. Agents, 399 F.2d 1010 (1968),

relied on by the court below in this case (see 93-1612

Pet. App. 6a-10a), can be distinguished from the D.C.

Circuit’s decision in Independent Bankers Ass’n v.

Heimann, 613 F.2d 1164 (1979), cert. denied, 449 U.S.

823 (1980), because Heimann involved a specialized

insurance product (“credit life” insurance) closely

related to the business of banking, rather than the

general “automobile, home, casualty and liability

insurance” at issue in Saxon. In the passage that

respondent quotes in part (Br. in Opp. 4), the 1982

letter expresses the view that, unlike sales of credit

life insurance, sales of ordinary term life insurance

were probably not sufficiently related to the business

of banking to come within a bank’s general powers

under 12 U.S.C. 24 Seventh. In the present case the

Comptroller has determined that, even if annuities

<—_ —

1 ~ -

—

5

are considered “insurance” for purposes of Section 92,

sales of annuities are, like sales of credit life insur-

ance (but unlike most sales of general casualty or

liability insurance), incidental to the business of

banking. 93-1612 Pet. App. 43a. The 1982 letter is

therefore consistent with the Comptroller’s decision

in this case.

4. The court of appeals’ opinion makes no

distinction between fixed and variable annuities, but

forbids national bank sales of annuities of any type.

Compare Pet. 4-5, 6 & n.3, 17 n.9. Respondent, on the

other hand, attempts (Br. in Opp. 11 n.5) to

distinguish this Court’s decision in SEC v. Variable

Annuity Life Ins. Co., 359 U.S. 65 (1959), which held

that certain annuities were not “insurance” for

purposes of exemption from the federal securities

laws, on the ground that that case dealt only with

variable annuities. Respondent’s argument concedes

the existence of considerable tension between this

Court’s decision in SEC v. VALIC and the decision

below with regard to variable annuities, which

constitute the bulk of annuities currently sold

(through banks or otherwise).

5. Respondent contends (Br. in Opp. 15-16) that

most bank annuity sales “will be totally unaffected by

the outcome of this case.” If that assertion were true,

it is difficult to understand why respondent would

have initiated and pursued this case. Moreover, while

it is true that national banks generally market

annuities through subsidiaries, respondent does not

explain why that fact lessens in any respect the

impact of the court of appeals’ decision, which over-

turned the Comptroller’s approval of precisely such

an arrangement. See Pet. 4. National bank sub-

6

sidiaries may engage only in activities in which their

parent banks could engage directly. See 12 C.F.R.

5.34(c). With respect to state-chartered banks, as

amici the American Bankers Association et al. point

out (Br. 19 & App.), those in three-quarters of the

States will effectively be subject to the decision

below, because statutes in those States tie the powers

- of state banks to those exercised by national banks.

As the petition points out (at 24), the fact that, under

the court of appeals’ decision, banks chartered in

other States (including New York) will be permitted

to market annuities, while national banks and banks

chartered in States that follow federal law will not, is

a reason for granting, not denying, review in this

case. Finally, respondent’s contention that banks may

be able to market annuities through more elaborate

(and presumably less efficient) legal structures, see

Br. in Opp. 16, only reenforces the point that the

court of appeals erred in substituting its own

interpretation of the relevant statutes for the

reasoned judgment of the administrator whom

Congress has entrusted with primary responsibility

for interpretation and enforcement of the federal

banking laws. See Chevron U.S.A. Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837, 842-

845 (1984).

7

For the foregoing reasons and those previously

stated in the petition, the petition for a writ of

certiorari should be granted.

Respectfully submitted.

DREw S. Days, III

Solicitor General

JUNE 1994

U.S. GOVERNMENT PRINTING OFFICE 1994—301.157/86158