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

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Nos. 93-1612, 93-1613 BILED

WAT 13 1994

IN THE 1 )

Supreme Court of the United Stettemnce o me cLers . |

OCTOBER TERM, 1993

NATIONSBANK OF NorTH CAROLINA, N.A. and

NATIONSBANC SECURITIES, INC..,

7 Petitioners,

VARIABLE ANNUITY LIFE INSURANCE Co.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF IN SUPPORT OF PETITIONERS

FILED BY AMICI CURIAE

CONFERENCE OF STATE BANK SUPERVISORS,

COMMUNITY BANKERS ASSOCIATION

OF NEW YORK STATE,

FLORIDA BANKERS ASSOCIATION,

INDEPENDENT BANKERS ASSOCIATION OF AMERICA,

INDEPENDENT BANKERS ASSOCIATION OF TEXAS,

KENTUCKY BANKERS ASSOCIATION,

MISSISSIPPI BANKERS ASSOCIATION,

SAVINGS & COMMUNITY BANKERS OF AMERICA,

TEXAS BANKERS ASSOCIATION,

and WESTERN INDEPENDENT BANKERS

DAVID W. RODERER *

Eric L. HIRSCHHOKN

DONN C. MEINDERTSMA

WILLIAM B.F. STEINMAN

WINSTON & STRAWN

1400 L Street, N.W.

Washington, D.C. 20005-3502

(202) 371-5700

Counsel for Amici Curiae

* Counsel of Record

(Additional Counsel Listed on Inside Cover)

WILSON - Eras PrinTING Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001 f

DOYLE C. BARTLETT

CONFERENCE OF STATE BANK

SUPERVISORS

1015 18th Street, N.W.,

Suite 1100

Washington, D.C. 20036

ROBERT O. LEHRMAN

THE COMMUNITY BANKERS

ASSOCIATION OF NEW YORK

STATE

200 Park Avenue

6th Floor West

New York, New York 10166

J. THOMAS CARDWELL

ACKERMAN, SENTERFITT &

EIDSON, P.A.

255 South Orange Avenue

Orlando, Florida 32802

Attorney for Florida Bankers

Association

LEONARD J. RUBIN

BRACEWELL & PATTERSON

2000 K Street, N.W.

Washington, D.C. 20006

Attorney for Independent

Bankers Association of

America

KAREN NEELEY

INDEPENDENT BANKERS

ASSOCIATION OF TEXAS

408 West 14th Street

Austin, Texas 78701

M. Brooks SENN

KENTUCKY BANKERS

ASSOCIATION

One Riverfront Plaza

Suite 500

Louisville, Kentucky 40202

McKINLEY DEAVER

CLINT GARDNER

MISSISSIPPI BANKERS

ASSOCIATION

640 North Street

Jackson, Mississippi 39205

PHILIP GASTEYER

SAVINGS & COMMUNITY

BANKERS OF AMERICA

900 19th Street, N.W.

Washington, D.C. 20006

LAURA M. HALE

TEXAS BANKERS ASSOCIATION

202 West 10th Street

Austin, Texas 78701

DAVID B. JACOBSOHN

VERNER, LIIPFERT, BERN HARD,

McPHERSON & HAND

901 15th Street, N.W.

Washington, D.C. 20005

Attorney for Western

Independent Bankers

TABLE OF CONTENTS

REASONS FOR GRANTING THE WRIT .......

Il.

ITI.

THE COURT OF APPEALS’ ERRONEOUS

CONSTRUCTION OF FEDERAL LAW WILL

SEVERELY CONSTRICT ONGOING BANK-

ING PRACTICES TO THE SERIOUS DETRI-

MENT OF BANKS AND THEIR CUSTO-

I Nita iisdolllinidpisebbtasnstdesobiesumstsoloontemamesaaceneeaee

THE COURT OF APPEALS IGNORED CON-

GRESS’ INTENT TO CREATE A FLEXIBLE

BANKING SCHEME ADMINISTERED BY

THE COMPTROLLER ...... ee

THE COURT OF APPEALS MISINTER-

PRETED SECTION 92 IN CONFLICT WITH

THIS COURT’S DECISIONS AND WITH THE

TEXT OF THE STATUTE helilbsaissnaninen

CONCLUSION .....0.... Se ae eaiiies

TABLE OF AUTHORITIES

CASES Page

American Ins. Ass’n v. Clarke, 865 F.2d 278 (D.C.

Cir. 1988) ............. TE TES ae Sa ee) ee 10

Arnold Tours, Inc. v. Camp, 472 F.2d 427 (Ast Cir.

SIIIITIIIT sstccdoniknnsuneuidetanceiiaisatiniaddnieeea eet Alene aiiaeeaaatarenane 9,10

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

Council, Inc., 467 U.S. 887 (1984) —...00000000........-. 11

Clarke v. Securities Indus. Ass’n, 479 U.S. 388

I a ie datnatetiene:. 11

Curtis v. Leavitt, 15 N.Y. 9 (1857) .......................... 9

First Nat'l Bank of Eastern Ark. v. Taylor, 907

F.2d 775 (8th Cir.), cert. denied, 498 U.S. 972

RSLS SSE Saar aye) PC ae, PR, pe ee 10

In re Howerton, 21 B.R. 621 (Bankr. N.D. Tex.

ER Ne aa i a al 14

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

Re en ein 15

Independent Ins. Agents v. Board of Governors of

the Fed. Reserve Sys., 736 F.2d 468 (8th Cir.

Ee a RE Ree Maen Tele IONE a 15

Investment Co. Inst. v. Camp, 401 U.S. 617 (1971).. 11

John Hancock Mut. Life Ins. Co. v. Harris Trust &

Sav. Bank, 114 S. Ct. 517 (1993) ........ eee, 12-14

M & M Leasing Corp. v. Seattle First Nat'l Bank,

563 F.2d 1877 (9th Cir. 1977) ......................-.-..... 8,10

New York State Ass’n of Life Underw riters v.

New York State Dep’t of Banking, 83 N.Y.2d

353, 1994 N.Y. LEXIS 324 (1994) —................. i)

New York State Ass’n of Life Underwriters v. New

York State Dep’t of Banking, 190 A.D.2d 338,

598 N.Y.S.2d 824 (1993), aff'd, 83 N.Y.2d 353,

1994 N.Y. LEXIS 324 (1994) ......................... 9-10

In re Newman, 993 F.2d 90 (5th Cir. 1993) —_. 14

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

(1959) anes 12, 13, 14

Saron v. Georgia Ass'n of Indep. Ine. Agents, Inc..,

399 F.2d 1010 (5th Cir. 1968) ............0000.000....... 10, 14, 15

Securities Industry Ass'n v. Clarke, 885 F.2d 1034

(2d Cir. 1989), cert. denied, 493 U.S. 1070

(1990) 10

In re Young, 806 F.2d 1303 (5th Cir. 1987) - 14

iii

TABLE OF AUTHORITIES—Continued

STATUTES Page

Be ie He III occcecccsiccccccnncesvoccnsssanossconvetneanestinnes passim

ET ae SO TRE Nee 11

12 U.S.C. $8 ............... semaines miapinneets sienneneieetienia passim

A a acento 11

12 U.S.C. 1818 ................. a a a ee 11

MISCELLANEOUS

ASSOCIATION OF BANKS-IN-INSURANCE, FACT BooK

ES ee Eo ce 6

Doyle C. Bartlett, Playing the Wild Card, 3 BANK

INS. MARKETING 8 (1998) .................................... &

OCC, Interpretive Letter No. 331 [1985-87 Trans-

fer Binder] Fed. Banking L. Rep. (CCH)

pi ES a ea 4

2B N. SINGER, SUTHERLAND STATUTES AND STAT-

UTORY CONSTRUCTION §§ 51.01, 51.06 (5th ed.

EEE eae ee a a ee 9

Symons, The “Business of Banking” in Histori-

cal Perspective, 51 Gro. WASH. L. REV. 676

(1983) See si sialinendid hod hleieniligstaiaiaeh ea lo 9

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

Nos. 93-1612, 93-1613

NATIONSBANK OF NortH CAROLINA, N.A. and

NATIONSBANC SECURITIES, INC.,

Petitioners,

Vv.

VARIABLE ANNUITY LIFE INSURANCE Co.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF IN SUPPORT OF PETITIONERS

FILED BY AMICI CURIAE

CONFERENCE OF STATE BANK SUPERVISORS,

COMMUNITY BANKERS ASSOCIATION

OF NEW YORK STATE,

FLORIDA BANKERS ASSOCIATION,

INDEPENDENT BANKERS ASSOCIATION OF AMERICA,

INDEPENDENT BANKERS ASSOCIATION OF TEXAS,

KENTUCKY BANKERS ASSOCIATION,

MISSISSIPPI BANKERS ASSOCIATION,

SAVINGS & COMMUNITY BANKERS OF AMERICA,

TEXAS BANKERS ASSOCIATION,

and WESTERN INDEPENDENT BANKERS

Concerned with the broad public policy issues and the

specific repercussions to financial institutions engendered

by the decision of the court of appeals, amici curiae sup-

port the petitioners ' in urging this Court to grant certio-

rari. This case presents important issues for consumers,

for bank regulators, for all national and many state banks,

and for the entire financial services industry. Together

with amici that are filing separate briefs, amici represent

virtually every commercial bank in the United States.

Respondent Variable Annuity Life Insurance Co.

(“VALIC”) is an insurance company seeking to restrain

competition in the sale of annuities to consumers. If the

decision below is permitted to stand, VALIC—benefitting

from the court of appeals’ failure to accord any deference

to the expertise of the Comptroller of the Currency

(“Comptroller”) and from two procedural quirks “—

could accomplish that objective nationwide, constricting

the availability of annuities to consumers and causing ir-

reparable injury to the banking industry. Amici respect-

fully join the petitioners in asking this Court to review

' The petitioners in No. 93-1612 are NationsBank of North Caro-

lina, N.A. and NationsBane Securities, Inc. The petitioners in

No. 93-1613 are the United States and the Comptroller of the

Currency. Citations to the appendices to the petition of NationsBank

in No. 93-1612 are denoted by “App.”

Pursuant to Supreme Court Rule 37, amici have requested and

received consent to file this brief from counsel for petitioners and

from counsel for respondent Variable Annuity Life Insurance Co.

The original letters of consent to the filing of this brief have been

filed with the Clerk of this Court.

* The first procedural quirk apparently permits VALIC to compel

any national bank wishing to sell annuities to litigate the issue in

VALIC’s home district and circuit. See Petition of NationsBank,

at 23 n.22; Petition of the United States, at 22-23.

The second quirk deprived the banking industry of the oppor-

tunity to have the issues heard en banc by the court of appeals.

Even though four circuit judges sharply disagreed with and voted

for rehearing en banc of the three-judge panel decision, the recusal

of nearly half of the active Fifth Circuit judges meant that such

consideration was denied. App. 19a n.*. The dissenting judges

lamented the court’s “serious error” in failing to review the case.

App. 28a; see Petition of NationsBank, at 9-10; Petition of the

United States, at 21-22.

the judgment of the Court of Appeals for the Fifth

Circuit.

INTERESTS OF THE AMICI CURIAE

This case concerns the statutory authority for national

banks to market annuities. The court of appeals funda-

mentally misconstrued the national banking scheme and

reached a conclusion that ignores heretofore unquestioned

pronouncements of this Court. In so doing, the court of

appeais also improperly reviewed de novo the Comp-

troller’s determination.

Amici include the national association of state banking

regulators—the Conference of State Bank Supervisors—

and national, regionai, and state trade associations for the

banking industry representing financial institutions of all

sizes and types. The member institutions of amici asso-

ciations are located in every state and the District of

Columbia, and in major financial centers as well as in

small communities and rural areas.

The Conference of State Bank Supervisors (CSBS) is

the professional association of state government officials

responsible for chartering and regulating more than

10,000 state-chartered banking institutions in the fifty

states and in Guam, Puerto Rico, and the Virgin Islands.

CSBS joins this bricf out of specific concern about the

important policy consequences of the court of appeals’

decision and the impact of the decision on the supervisory

authority of bank regulators over state-chartered banks.

The amici associations represent many financial institu-

tions that currently sell annuities. These amici and their

embers are directly and adversely affected by the court

of appeals’ erroneous decision. The decision—if allowed

to stand—will have an immediate and destructive effect

upon the substantial and profitable business of bank sales

of annuities. Some institutions represented by amici have

been marketing annuities for nearly a decade. in accord-

ance with long-standing decisions of the Comptroller.

See, e.g., OCC, Interpretive Letter No. 331 [1985-87

Transfer Binder] Fed. Banking L. Rep. (CCH) © 85,501

(1985). Moreover, because of the commonplace incor-

poration by reference of national bank powers into state

banking statutes (so-called wild card laws), the disposi-

tion of this case will affect the powers of numerous state-

chartered banks as well. Amici include the following na-

tional and state associations whose members have a dis-

tinct interest in the outcome of this case:

The Community Bankers Association of New York

State (CBANYS) is the principal trade association for

savings institutions in New York. Its 129 members rep-

resent $126 billion in assets and include federal and state-

chartered savings banks and savings and loans, and mu-

tual and stock-owned savings and banking institutions.

The Florida Bankers Association (FBA) is the prin-

cipal organization representing commercial banks in

Florida. FBA’s 321 members comprise 88% of the banks

in the state, and these member banks hold 96% of the

state’s bank deposits.

The Independent Bankers Association of America

(IBAA) is the only national trade association that ex-

clusively represents the interests of the nation’s commu-

nity banks. The 5800 member institutions of IBAA serve

a variety of communities—cities, suburbs and rural areas

—in all fifty states and the District of Columbia.

The Independent Bankers Association of Texas (IBAT)

is a trade association representing approximately 800 in-

dependently owned or community banks domiciled in the

State of Texas. The IBAT membership includes both

national and state-chartered institutions.

The Kentucky Bankers Association is a trade associa-

tion of 300 national and state banks representing over

95% of the banking industry in Kentucky.

The Mississippi Bankers Association (MBA) (formally

known as the Mississippi Association of Financial Institu-

tions of Deposit, Inc.) is a trade association representing

commercial banks in Mississippi. MBA comprises 114

commercial banks, which hold over 99% of the state’s

commercial banking assets.

Savings & Community Bankers of America (SCBA) is

the national trade organization for the savings industry.

Its 1900 members include federal and state-chartered in-

stitutions, stockholder or mutually-owned, throughout the

United States. SCBA serves its members through tech-

nical assistance, educational products and programs, pub-

lications, meetings, and other activities that enhance the

operations of savings institutions. Among other things,

SCBA provides information to the officers and directors

of its individual members on how to comply with the re-

quirements of federal and state law and regulation.

The Texas Bankers Association (TBA) is the principal

trade association for the commercial banking industry in

Texas. TBA’s members include over 900 federal and

state-chartered banks within the state. The members in-

clude banks of all sizes locat** throughout Texas, includ-

ing independent banks as well as members of multistate

holding companies. TBA members account for approxi-

mately 95% of the deposits in Texas’ commercial bank-

ing system.

Western Independent Bankers (WIB) is the only re-

gional multistate banking association in the United States.

Its members consist of 250 independent community banks

located in Alaska, Arizona, California, Hawaii, Idaho,

Montana, Nevada, Oregon, Utah, Washington and Wyo-

ming, as well as American Samoa and Guam. WIB’s

members account for more than $34 billion in banking

assets.

REASONS FOR GRANTING THE WRIT

I. THE COURT OF APPEALS’ ERRONEOUS CON-

STRUCTION OF FEDERAL LAW WILL SEVERELY

CONSTRICT ONGOING BANKING PRACTICES TO

THE SERIOUS DETRIMENT OF BANKS AND

THEIR CUSTOMERS.

As the four circuit judges dissenting from the denial of

rehearing en banc noted: “No one can seriously question

the importance of this case to the banking industry and to

commerce and competition in general.” App. 2la. For

the banking industry, as the dissent put it, the panel’s de-

cision “seriously thwarts competition in a major market,

with no indication that that is what Congress intended.”

App. 20a. The original three-judge panel accomplished

this anticompetitive result by circumscribing the ability

of banks to participate in the profitable and growing an-

nuities market.

1. The anticompetitive consequences of which the dis-

sent warned are straightforward: the court of appeals’

revocation of banks’ power to market annuities would

leave customers with little choice but to purchase annui-

ties through insurance agents and other non-bank distrib-

utors such as respondent VALIC.

Bank customers are the primary beneficiaries of bank

annuity sales. The distribution of annuities by and

through banks provides a convenient way for consumers

to purchase such investment products. Indeed, recent

statistics demonstrate that between 75% and 90% of

customers purchasing annuities from banks were first-time

buyers of these products. ASSOCIATION OF BANKS-IN-

INSURANCE, Fact Book 7 (1993). By foreclosing bank

annuity sales and thus constricting the consumer’s oppor-

tunity to purchase annuities, the decision below makes

the banking public the victim of its error.

Banks’ ability to market annuities and similar invest-

ment products also benefits the banking system. Fees

generated by bank brokerage of annuities represent an

increasingly important source of revenue for banks. Re-

cent statistics provided by Kenneth Kehrer and Associates

demonstrate that financial institutions more than tripled

their annual annuity sales between 1987 and 1993, and

that by 1993 annual annuity sales by financial institutions

in the United States totalled $/3.5 billion. In 1993 banks

and thrifts accounted for 21.3% of individual annuity

sales.

The sale of annuities by banks poses no risk to the fi-

nancial security of banks because they act solely as agents

for non-bank underwriters of the annuity policies. For

the same reason, bank sales of annuities pose no risk to

the Federal Deposit Insurance Fund. The Fifth Circuit's

ruling curtails this source of revenue, seriously under-

mining the financial strength and competitiveness of

banks, with no evidence that this is what Congress in-

tended, App. 20a, and without appropriate deference to

the views of the Comptroller.

The Comptroller’s determination that petitioner Na-

tionsBank may market annuities is consistent with the

procompetitive policies embodied in federal banking law

and in our system of enterprise: “Customers will benefit

from the increased range of products made available to

them by [petitioner NationsBank].” App. 48a (Comp-

troller’s ruling). That determination rests on the Comp-

troller’s critical and expert analysis of the nature of annui-

ties and the relevant provisions of the federal banking

laws. App. 37a-48a. In substituting its own views for

the reasonable interpretations of the Comptroller, the

court of appeals constructed anticompetitive barriers that

stifle the ability of banks to participate fully in the rapidly

changing financial services marketplace.

2. The panel’s decision nominally deals only with the

powers of national banks under federal law but will di-

rectly affect many state-chartered banks as well. Many

states have enacted so-called wild card statutes that em-

power their state-chartered banks to engage in banking

activities to the same extent as permissible for national

banks. Doyle C. Bartlett, Playing the Wild Card, 3 BANK

Ins. MARKETING 8-9 (1993) (identifying 38 “wild card”

states). Accordingly, the court of appeals’ limitation

upon the power of national banks also limits the powers

of banks chartered by many states. This Court should

review the Fifth Circuit’s faulty conclusion on this im-

portant question of federal law.

Il. THE COURT OF APPEALS IGNORED CONGRESS’

INTENT TO CREATE A FLEXIBLE BANKING

SCHEME ADMINISTERED BY THE COMP-

TROLLER.

In overturning the Comptroller’s determination and in

interpreting 12 U.S.C. 24 Seventh narrowly, the court of

appeals fundamentally misconstrued the adaptable design

of the National Bank Act and ignored the central, con-

gressionally assigned role of the Comptroller in adminis-

tering the national banking laws. The panel’s errors in

this important area of federal law merit review by this

Court.

1. Congress crafted a flexible statutory scheme to gov-

ern national banks. “{T]he National Bank Act did not

freeze the practices of national banks in their nineteenth

century forms,” and “the powers of national banks must

be construed so as to permit the use of new ways of con-

ducting the very old business of banking.” M & M Leas-

ine Corp. v. Seattle First Nat'l Bank, 563 F.2d 1377,

1382 (9th Cir. 1977).

In particular, Section 24 Seventh imbues national banks

with “all such incidental powers as shall be necessary to

carry on the business of banking.” 12 U.S.C. 24 Seventh.

The Comptroller determined that banks possess the power

to sell annuities pursuant to this “incidental powers”

clause. App. 37a-41a. In overturning this determination,

the court of appeals ignored the flexibility afforded by the

provision and adopted an interpretation that does violence

to the very purpose of the incidental powers clause—to

allow the business of banking to evolve to meet changing

market and consumer demands.

This flexible character is reinforced by the recent judi-

cial interpretations of an identical provision of New York

law that, significantly, is the predecessor of the incidental

powers provision of Section 24 Seventh.* The interpreta-

tion of the New York statute accordingly is instructive

as to the meaning of the federal clause.* New York’s in-

termediate appellate court recognized that “the incidental

powers clause has as its purpose events in futuro,” New

York State Ass'n of Life Underwriters v. New York State

Dep't of Banking, 190 A.D.2d 338, 342, 598 N.Y.S.2d

824, 827 (1993), aff'd, 83 N.Y.2d 353, 1994 NY.

LEXIS 324 (1994), and held that the sale of annuities is

“an ‘incidental power’ of the ‘business of banking,’” 190

A.D.2d at 344, 598 N.Y.S.2d at 829. The New York

Court of Appeals affirmed, stating that “the business of

banking is not static but rather must adjust to meet the

needs of the customers to whom banking organizations

provide a valuable service.” 1994 N.Y. LEXIS at *10.°

The incidental powers provision of Section 24 Seventh

does not freeze the “business of banking” in time but in-

stead allows “banks to expand their banking services over

time consistent with evolving business practices and their

’ Symons, The “Business of Banking” in Historical Perspective,

51 Geo. WASH. L. REV. 676, 689 (1983).

* See 2B N. SINGER, SUTHERLAND STATUTES AND STATUTORY CON-

STRUCTION §§ 51.01, 51.06 (5th ed, 1992).

5 The New York rulings were based upon Curtis v. Leavitt, 15

N.Y. 9 (1857), which was decided six years before Congress enacted

the National Bank Act. Congress doubtless was aware of the pur-

pose of New York’s incidental powers clause when it included identi-

cal language in the federal statute. See Arnold Tours, Inc. v. Camp,

472 F.2d 427, 431 (1st Cir. 1972) (“[Wle are willing to assume

that Congress entertained these views when it enacted the National

Bank Act.”).

customers’ needs.” 190 A.D.2d at 341, 598 N.Y.S.2d

at 827.

The court of appeals’ analysis in this case disregards

entirely the prospective orientation of the National Bank

Act and Section 24 Seventh. The decision below would

freeze the business of banking as it cixsted when the

banking laws were enacted."

The court of appeals also said that “[e]ven conceding

arguendo that the power to sell annuities would be in-

cidental to banking, by no stretch of the imagination can

that power be deemed to be ‘necessary..” App. 15a

(emphasis added). This analysis, however, construes the

word “necessary” in a manner that consistently has been

rejected by federal courts for over two decades, Instead,

the courts generally construe an activity to be a permis-

sible form of the business of banking under Section 24

Seventh if the activity is “convenient or useful in connec-

tion with the performance of one of the bank’s established

activities pursuant to its express powers under the Na-

tional Bank Act.” Arnold Tours, Inc. v. Camp, 472 F.2d

427 (ist Cir. 1972): see also M & M Leasing Corp.,

563 F.2d at 1382; Securities Industry Ass'n v. Clarke,

885 F.2d 1034, 1049 (2d Cir. 1989), cert. denied, 493

U.S. 1070 (1990); First Nat'l Bank of Eastern Ark.

v. Taylor, 907 F.2d 775 (8th Cir.), cert. denied, 498

U.S. 972 (1990). Cf. American Ins. Ass'n v. Clarke,

865 F.2d 278 (D.C. Cir. 1988) (finding even the “con-

venient and useful” test of Arnold Tours to be unduly

restrictive ).

2. Congress empowered the Comptroller to administer

this flexible regulatory scheme:

®The court of appeals made a similar error in Saxon v. Georgia

Ass'n of Independent Insurance Agents, Inc., 399 F.2d 1010 (5th Cir.

1968). There the court of appeals looked to the business of banking

as it had existed in:1916 to determine whether a national bank could

operate an insurance agency under the incidental powers clause of

Section 24 Seventh.

[CJourts should give great weight to any reasonable

construction of a regulatory statute adopted by the

agency charged with the enforcement of that statute.

The Comptroller of the Currency is charged with the

enforcement of banking laws to an extent that war-

rants the invocation of this principle with respect to

his deliberative conclusions as to the meaning of

these laws.

Clarke v. Securities Indus. Ass'n, 479 U.S. 388, 403-04

(1987) (“Clarke v. SIA”) (citing Investment Co. Inst.

v. Camp, 401 U.S. 617 (1971)); see also 12 U.S.C. 26

(Comptroller's chartering authority), 211(a) (rulemak-

ing authority), 1818 (enforcement authority ).

While Congress intended the activitics of national banks

to develop over time, their evolution was made subject to

the supervision of the Comptroller. The Comptroller is

expert in this complex area of law and business and has

been charged with ensuring the orderly development of

the national banking system consistent with sound bank-

ing standards. It is this pervasive regulatory structure,

administered by the Comptroller, that has allowed the

business of banking to evolve and meet the challenges of

the contemporary financial services market, though the

structure of the National Bank Act has remained essen-

tially unchanged for over a century.

Whether the sale of annuities is an “incidental power”

under Section 24 Seventh is in the first instance for the

Comptroller to determine. See Chevron U.S.A., Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837

(1984); Clarke v. SIA, 479 U.S. at 403-04. Ignoring

this fundamental principle of administrative law, the panel

instead rendered its own interpretation, compounding its

error by looking backward instead of forward. By sub-

stituting its own construction for that of the Comptroller,

the court of appeals ignored the regulatory scheme estab-

lished by Congress, in derogation of the instructions of

this Court in Chevron and in Clarke v. SIA.

Ill. THE COURT OF APPEALS MISINTERPRETED

SECTION 92 IN CONFLICT WITH THIS COURT'S

DECISIONS AND WITH THE TEXT OF THE

STATUTE.

The court of appeals held that 12 U.S.C. 92 prohibits

national banks located in places with a population ex-

ceeding 5000 from selling annuities. App. 6a-17a. To

reach this conclusion the panel had to determine (1) that

ennuities are “insurance,” App. 10a-17a, and (2) that

notwithstanding the incidental powers clause of Section

24 Seventh, the express permission granted by subse-

quently enacted Section 92 for national banks in small

towns to sell “fire, life, or other insurance” constitutes an

unspoken prohibition upon the sale of any type of “in-

surance” in a larger locality. App. 6a-10a. Both determi-

nations were errors that, as demonstrated above, will in-

jure greatly the public and the banking industry.

1. The court of appeals reached an absolutist de-

termination that “annuities are . . . insurance.” App.

10a. To support this unprecedented proclamation, the

court of appeals observed that the sale of annuities is

regulated under some state insurance laws and quoted

a provision of the Internal Revenue Code of 1986—

one saying nothing more than that insurance companies

sell both life insurance policies and annuity contracts.

App. lla. As to the former basis, this Court long ago

made clear that state law does not determine whether

annuities are “insurance” for federal law purposes. SEC

v. Variable Annuity Life Ins. Co., 359 US. 65, 69

(1959) (“SEC v. VALIC”). From the latter basis, the

court of appeals generalized, incorrectly, that federal laws

“reflect the fact that annuities are an insurance product.”

App. lla. This Court has also made clear that in the

federal context it is the nature of the particular product

under review that determines whether it is “insurance.”

SEC v. VALIC, 359 U.S. at 69; see John Hancock Mut.

Life Ins. Co. v. Harris Trust & Sav. Bank, 114 §. Ct. 517

(1993) (holding that each component of the product

must be examined separately to ascertain whether it is

insurance).

The court of appeals’ decision conflicts with this

Court’s holding in SEC v. VALIC. There, the Court

determined that variable annuities are not “insurance”

within the meaning of the Securities Act of 1933 and

Section 2(b) of the McCarran-Ferguson Act. In so

doing, the Court rejected the contention—advanced by

the same entity that is the respondent here—that annuities

are “insurance” for the purposes of these two federal laws

(albeit securities and insurance laws rather than banking

laws).

Ignoring the Court’s holding in SEC v. VALIC, the

court of appeals relied upon Justice Brennan’s tepid con-

curring observation that “‘the granting of annuities has

been considered part of the business of life insurance.’ ”

App. 10a (quoting SEC v. VALIC, 359 US. at 81

(Brennan, J., concurring) (emphasis added) ). The court

of appeals, however, overlooked the fact that Justice

Brennan concurred with the Court’s conclusion that vari-

able annuities are not “insurance.” Indeed, only two sen-

tences after the language quoted by the court of appeals,

Justice Brennan stated that the administration of variable

annuities “involves a very substantial and in fact predomi-

nant element of the business of an investment company,

. In any way totally foreign to the business of a tradi-

tional life insurance and annuity company.” SEC v.

VALIC, 359 US. at 81.

This Court reaffirmed the vitality of SEC v. VALIC

only last December. John Hancock Mut. Life Ins. Co. v.

Harris Trust & Sav. Bank, 114 S. Ct. 517 (1993). In

analyzing whether the contract at issue in John Hancock

was a “guaranteed benefit policy” exempt from certain

aspects of the Employee Retirement Income Security Act,

the Court looked to its “decisions construing the insurance

policy exemption [of] the Securities Act of 1933.” Jd. at

527. In conducting this analysis the Court examined each

component of the contract to determine whether that

component allocated risk to the insurer.

John Hancock and SEC v. VALIC demonstrate the

error of this aspect of the decision below. SEC v. VALIC

made clear that application of the term “insurance” for

federal securities law purposes requires scrutiny of a

product's risk allocation. John Hancock underscored this

point by instructing that the risk allocation for each

component of a contract must be examined separately.

The Fifth Circuit undertook no such analysis, relying

instead on inapposite definitions in Black’s Law Diction-

ary and a single citation to the Internal Revenue Code

to support its conclusion that annuities are “insurance”

for all purposes.’ That conclusion cannot be squared

with the teachings of SEC v. VALIC or John Hancock.

2. The court of appeals further erred by determining

that because Section 92 added to the existing authority

of national banks in small towns, Section 92 perforce

must have detracted from the authority of banks located

elsewhere. App. 3a, 6a-7a. This error perpetuates the

misinterpretation of Section 92 by a prior Fifth Circuit

decision, Saxon v. Georgia Ass'n of Independent Insur-

ance Agents, 399 F.2d 1010 (Sth Cir. 1968).

Whether Section 92 somehow impliedly restricts the

power of national banks in towns of more than 5000

7 Indeed, as the dissenters from the denial of rehearing en banc

noted, the panel ignored not only this Court’s rulings but also Fifth

Circuit precedent that annuities are not insurance for purposes of

state law. App. 27a. In re Newman, 993 F.2d 90 (5th Cir. 1993),

held that an annuity contract is a “general intangible” for purposes

of Texas commercial law. Significantly, “insurance” is expressly

exempted by Texas law from the definition of general intangibles.

If annuities were “insurance,” they could not be “general intangi-

bles.” See also In re Young, 806 F.2d 1303, 1306 (5th Cir. 1987)

(“an annuity is essentially a form of investment”) (quoting Jn re

Howerton, 21 B.R. 621, 623 (Bankr. N.D. Tex. 1982)). The inability

of the court of appeals to resolve this conflict en banc further

demonstrates the need for resolution by this Court.

oe EF Cee. ee —

residents to sell insurance—despite the language of Sec-

tion 92 that grants powers “[i|n addition to the powers

now vested by law” “—is itself an important federal ques-

tion meriting resolution by this Court.”. The courts of

appeals have been unable to agree on this issue. The

court of appeals here relied upon the assertedly “plain

language” of Section 92. App. 3a; accord Saxon, 399

F.2d at 1013-16. The Eighth Circuit has taken a con-

trary view: “There is a strong argument that Saxon was

wrongly decided. The legislative history indicates that

Congress was concerned only with providing small-town

banks with an additional profit source, not with prohibit-

ing city banks from selling insurance.” /ndependent Ins.

Agents v. Board of Governors of the Fed. Reserve Sys.,

736 F.2d 468, 477 n.6 (8th Cir. 1984). So has the

D.C. Circuit: “By its own terms, the statute does not

address the authority of national banks in larger towns

or cities to act as agents for life insurance companies.”

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

1170 n.18 (D.C. Cir. 1979) (authorizing sale of credit

life insurance). This important conflict among the cir-

cuits, which is underscored by the court of appeals’ deci-

sion, merits resolution by this Court.

Contrary to the position of the Fifth Circuit here and

in Saxon, Section 92 does not address the authority of

banks located outside of small towns to act as agents for

insurance companies. Indeed, as the conflict among the

circuits demonstrates, the language of Section 92 is any-

thing but plain in this respect. This Court should grant

certiorari to consider this important issue as well as the

issue of the scope of Section 24 Seventh.

* “In addition to the powers now vested by law in national bank-

ing associations organized under the laws of the United States any

association located and doing business in any place the population

of which does not exceed five thousand inhabitants ... may, under

such rules and regulations as may be prescribed by the Comptroller

of the Currency, act as the agent for any fire, life, or other insur-

ance company.” 12 U.S.C. 92.

*See Question Presented, No. 2, Petition of NationsBank at i.

CONCLUSION

For the foregoing reasons, amici urge the Court to

grant the petitions for writ of certiorari.

Respectfully submitted,