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

Nos. 98-1812, 931613

a ee en me ne - ee Ce eee

In THE

Supreme Court of the Untied Btates

OCTOBER TERM, 1994

NATIONSBANK OF NORTH CAROLINA, N.A., ef al.,

y Petitioners,

VARIABLE ANNUITY LIFE INSURANCE COMPANY, et al.,

Respondent.

EUGENE LUDWIG, COMPTROLLER OF THE

CURRENCY, et al.,

. Petitioners,

VARIABLE ANNUITY LIFE INSURANCE COMPANY, ef al.,

Respondent.

On Writs of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

_ BRIEF OF AMERICAN LAND TITLE ASSOCIATION

AS AMICUS CURIAE IN SUPPORT OF RESPONDENT

SHELDON E. HOCHBERG *

RODERICK L. THOMAS

STEPTOE & JOHNSON

1830 Connecticut Ave., N.W.

Washington, D.C. 20086

(202) 429-3000"

Counsel for Amicus Curiae

September 8, 1994 * Counsel of Record

WILson - Eras Painting Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

"BEST AVAILABLE COPY

TABLE OF CONTENTS

i Om

INTEREST OF THE AMICUS CURIAE ....................-..

SUMMARY OF ARGUMENT... eccseeeeeeeeee

ARGUMENT ....................

I. SECTION 92 OF THE NATIONAL BANK ACT

II.

ITT.

CONSTITUTES AN IMPLIED LIMITATION

ON THE INSURANCE ACTIVITIES OF NA-

Si ceninniissnttnhinunpajenistennatsesgustehnsmeinesnss

PETITIONERS’ VIEW OF THE “INCIDEN-

TAL” POWERS OF NATIONAL BANKS IS

FR UEEIED ccenssnsentvscenenteneeetnmenmanenenne

AFFIRMANCE OF THE DECISION BELOW

WILL NOT JEOPARDIZE THE ABILITY OF

NATIONAL BANKS TO CONTINUE TO EN-

GAGE IN CREDIT-RELATED INSURANCE

ACTIVITIES THAT HAVE BEEN UPHELD

ee Ee GED scivescesnsnmensicceccsceneescmmeinmmenenane

IIE iii iaiaistidbinbbibassnnictantecndenestctditthannsdidinccseutioien

IIIT. csi aseiedssianipentnientinicciaadiicicenmsdiiantenmnimennmmaisiniibiaitine

15

20

la

ii

TABLE OF AUTHORITIES

CASES Page

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

Cher. BOTY nececcececscececesecciesststseminnnene 2,18

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

(2d Cir. 1992), cert. denied sub nom. Ludwig v.

American Land Title Ass’n, 113 S. Ct. 2959

CBT hacsiicencicsaivsiinnsniesnpetentenssnestennaianiisannnnnne passim

Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir.

BTID cececencececrerecsccercesrnsintimmmmman 19

BankAmerica Corp. v. United States, 462 U.S. 122

CRB) creccececevencacesccssnstersnmmeensme 13

California Nat’l Bank v. Kennedy, 167 U.S. 362

(jr 18

Clement Nat'l Bank v. Vermont, 231 U.S. 120

CREED nccacvsssscevesesseinssenstiitnismmtsiaaa 17

Colorado Nat'l Bank v. Bedford, 310 U.S. 41

CBG eeeneeoxccrsensscsionsienscmmetiiataumaaniae 17

Commissioner v. First Sec. Bank, 405 U.S. 394

|, ; | OM rn ET 23

First Nat'l Bank v. Converse, 200 U.S. 425 (1906) .. 18

First Nat'l Bank v. Hartford, 273 U.S. 548 (1927).. 17

First Nat’l Bank v. National Exch. Bank, 92 U.S.

> Rh | Serene 16

First Nat'l Bank v. Smith, 436 F. Supp. 824 (S.D.

Tex. 1977), modified, 610 F.2d 1258 (5th Cir.

BOD). anevcccocscnincsvsnssntstmsmeiiaae 23

First Nat'l Bank v. Taylor, 907 F.2d 775 (8th

Cir.), cert. denied, 498 U.S. 972 (1990) _.............. 17

Franklin Nat'l Bank v. New York, 347 U.S. 373

) . . | Se 17

Independent Bankers Ass’n of Am. v. Heimann, 613

F.2d 1164 (D.C. Cir. 1979), cert. denied, 449 U.S.

GED CBD ccicccececcessctsninceseccssensaiimenmamanee passim

Lindahl v. Office of Personnel Management, 470

eS Ff) | | ee 10

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

563 F.2d 1377 (9th Cir. 1977), cert. denied, 436

os OE Ff). 18, 19, 20

Merchants’ Nat’l Bank v. State Bank, 77 U.S. (10

., A 8) |; ) ee 16

ee

—_—

ili

TABLE OF AUTHORITIES—Continued

Page

Merchants’ Nat’l Bank v. Wehrmann, 202 U.S.

a neotanpuunonenonine 18

Miller v. King, 223 U.S. 505 (1912) 2000000000. 17

Miller v. Youakim, 440 U.S. 125 (1979) 0.000000... 11

National Retailers Corp. v. Valley Nat’l Bank, 604

I a ccenesencrnneecs 18, 19

Platt v. Union Pac. R.R., 99 U.S. 48 (1879) .......... 10

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

pL | ne passim

Securities Indus. Ass’n v. Clarke, 885 F.2d 1034

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

ESS EES Sa 17, 18, 19

Selective Serv. Sys. v. Minnesota Public Interest

Research Group, 468 U.S. 841 (1984) —200000......... 11

Union National Bank v. Matthews, 98 U.S. 621

a esinttamanoatenevoves 16

United States v. American Trucking Ass’ns, 310

Teen eiessuecs 11

United States v. Vogel Fertilizer Co., 455 U.S. 16

EE SLES 10

Wyman v. Wallace, 201 U.S. 230 (1906) 0.0.0.0... 17

STATUTES

12 U.S.C. § 24 Seventh (Supp. V 1993) —................ passim

is Use. See (ane. ¥ 1998) ................................ passim

CONGRESSIONAL MATERIALS AND FEDERAL

REGULATIONS

12 C.F.R. §§ 2.1-2.7 (1994) ....... ES ce 12, 21

ee 21

53 Cong. Rec. 11,001 (1916) 2000000000... 1 5,11

I 12, 13

MISCELLANEOUS

Disposition of Credit Life Insurance Income (Final

Regulation), 42 Fed. Reg. 48,518 (1977) ........... 21, 22

Disposition of Credit Life Insurance Income (Pro-

posed Rulemaking), 41 Fed. Reg. 29,846 (1976).. 21, 22

iv

TABLE OF AUTHORITIES—Continued

Page

Edward S. Symons, Jr., The “Business of Bank-

ing” in Historical Perspective, 51 Geo. Wash. L.

Rev. 676 (1983) ........... rasa ORE ae AN 7,16

2 Fed. Res. Bull. 73-74 (Feb. 1916) -....................... 6, 11, 12

OCC Staff Interpretive Letter No. 368, reprinted

in, [1985-87 Transfer Binder] Fed. Banking L.

Rep. (CCH) { 85,538 (July 11, 1986) ~................ 3

Sutherland Stat. Const. § 49.04 (5th ed. 1992) ....... 11

IN THE

Supreme Court of the United States

OCTOBER TERM, 1994

Nos. 93-1612, 93-1613

NATIONSBANK OF NORTH CAROLINA, N.A., ef al.,

- Petitioners,

VARIABLE ANNUITY LIFE INSURANCE COMPANY, et al.,

Respondent.

EUGENE LUDWIG, COMPTROLLER OF THE

CURRENCY. et al.,

- Petitioners,

VARIABLE ANNUITY LIFE INSURANCE COMPANY, et al.,

Respondent.

On Writs of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF OF AMERICAN LAND TITLE ASSOCIATION

AS AMICUS CURIAE IN SUPPORT OF RESPONDENT

This brief is submitted on behalf of the American Land

Title Association (“ALTA”) with the written consent of

counsel to all parties. Copies of such consent have been

filed with the Clerk of the Court.

2

INTEREST OF THE AMICUS CURIAE

The Federal Petitioners and the NationsBank Petition-

ers urged this Court in their certiorari petitions to grant

review based upon their conclusion that there was a

conflict in the circuits over whether Section 92 of the

National Bank Act, 12 U.S.C. §92 (Supp. V 1993),

constitutes a limitation on the insurance activities of

national banks that the Comptroller of the Currency may

authorize under the incidental powers provision of 12

U.S.C. § 24 Seventh (Supp. V 1993). Petitioners con-

trasted the decision below and the Second Circuit’s deci-

sion in American Land Title Ass'n v. Clarke, 968 F.2d

150 (2d Cir. 1992), cert. denied sub nom. Ludwig v.

American Land Title Ass'n, 113 S. Ct. 2959 (1993)

(“ALTA v. Clarke’) on the one hand, and the D.C.

Circuit’s decision in Independent Bankers Ass'n of Am.

v. Heimann, 613 F.2d 1164 (D.C. Cir. 1979), cert. de-

nied, 449 U.S. 823 (1980) (“Heimann”), on the other.’

Despite the importance of ALTA v. Clarke to their

petitions, none of the petitioners or their many amici even

mentions the case in their merits briefs. The omission is

not surprising, since the petitioners apparently hope that,

if the Court reverses the decision below, its opinion might

inadvertently sweep in title insurance and reverse the

Second Circuit’s decision as well.

ALTA is a voluntary, non-profit incorporated trade

association representing the Nation’s land title industry.

Organized under the laws of the District of Columbia,

ALTA has approximately 2,300 members, including title

insurance agents and title insurance companies doing

business in all 50 states.

Title insurance is the business of insuring the interests

in real property of owners, leaseholders, lenders, and

others. Title insurance policies can only be issued on the

1 See, e.g., Federal Petitioners Br. at 18-19; NationsBank Peti-

tioners Br. at 22-24.

3

basis of a search and examination of the records and

documents that establish or give notice of the rights, liens,

claims and encumbrances that may exist with respect to

the property. Because most real estate records are main-

tained at the local level, title insurance policies are typi-

cally issued at the local level, frequently by title insurance

agents. These agents are generally responsible for the

search and examination of the underlying title informa-

tion, the determination (pursuant to underwriting guide-

lines established by the title insurance company) whether

particular matters must be excepted from policy coverage

or may be insured against, and for the issuance of the

policies on behalf of the title insurance companies they

represent.

On matters of common concern to the title insurance

industry and its consumers, ALTA represents its members

before courts, agencies, and the Congress. ALTA has

participated as amicus curiae in this Court where the

matter is likely to have a significant influence on the

title insurance industry.” ALTA files this brief because

of the potential that a reversal of the decision below

might affect the finality of its own litigation against the

Office of the Comptroller of the Currency (“OCC”).

In 1986, the OCC issued an interpretive ruling that a

national bank may act as an agent in the sale of title

insurance in any community regardless of population if

such activities are undertaken in transactions involving

the bank’s loans.* Based on this ruling, in 1989 the OCC

2 See, e.g., United States v. 92 Buena Vista Avenue, Rumson,

N.J., 113 S. Ct. 1126 (1993) ; Phillips Petroleum Co. v. Mississippi,

484 U.S. 469 (1988) ; United States v. Mottaz, 476 U.S. 834 (1986);

Oneida County, New York v. Oneida Indian Nation of New York

State, 470 U.S. 226 (1985); United States v. Dann, 470 U.S. 39

(1985).

3 OCC Staff Interpretive Letter No. 368, reprinted in [1985-87

Transfer Binder] Fed. Banking L. Rep. (CCH) {§ 85,538 (July 11,

1986).

4

approved the establishment by Chase Manhattan Bank of

two operating subsidiaries with authority to issue title

insurance in transactions involving residential and com-

mercial mortgage loans. Prior to the OCC ruling, there

was no evidence that national banks had ever engaged

in the title insurance agency business.

ALTA filed suit against the OCC, urging that the

OCC’s ruling and approval be set aside as unlawful

because it permitted a national bank to engage in title

insurance agency activities that are (a) prohibited to

them by 12 U.S.C. § 92 and (b) not authorized by 12

U.S.C. § 24 Seventh or any other provision of law. While

ALTA lost on a motion to dismiss in the trial court, a

unanimous panel of the Second Circuit reversed.

The Second Circuit concluded that the language and

legislative history of 12 U.S.C. § 92 supported the finding

that national banks were precluded from acting as insur-

ance agents outside the provision’s geographical restric-

tions. ALTA v. Clarke, 968 F.2d at 155-56. The court

also rejected the OCC’s alternative contention that title

insurance, like credit life insurance in Heimann, was a

“‘snecial’” type of insurance that fell outside Section

92’s limits on national bank activity. 968 F.2d at 156-57.

This Court denied certiorari.

Because the interpretation of Section 92 in this case

may affect the title insurance industry as well, ALTA

has a strong interest in the proper resolution of this case.

ALTA seeks to demonstrate that the legislative history of

Section 92 reveals that the only possible interpretation

of the introductory language of the section is that Comp-

troller Williams (who drafted the language) and Con-

gress were intending to make clear that the limited insur-

ance agency powers granted by Section 92 were the sole

insurance agency powers authorized for national banks.

ALTA also seeks to show that petitioners’ broad frame-

work for determining when activities are “incidental” to

“the business of banking” is contrary to the historical

5

jurisprudence in this area. Finally, ALTA files this brief

to demonstrate that an affirmance of the decision below

will not necessarily jeopardize the ability of national

banks to continue to engage in credit-related insurance

activities (such as credit life insurance) that the courts

have found to be uniquely related to the business of bank-

ing in fundamental ways that are not shared by other

kinds of insurance products, such as automobile, home-

owners, and title insurance, or annuities.

SUMMARY OF ARGUMENT

1. Petitioners and their amici contend that Section 92

was an additional grant of insurance agency powers to

small town banks that was not intended to limit those

insurance agency powers that were provided to all na-

tional banks by the incidental powers provision of 12

U.S.C. § 24 Seventh, which was enacted some 50 years

earlier. They claim that this interpretation is compelled

by the introductory language to Section 92 (“In addition

to the powers now vested by law in national banking

associations under the laws of the United States . . .”).

The legislative history clearly demonstrates, however, that

this language reflects Congress’ intent that Section 92

was the only authority for national banks to engage in

insurance agency activities.

Section 92 was adopted on the recommendation of the

Comptroller of the Currency, who drafted the provision

and who laid out the reasons for its enactment in a letter

to the chairmen of the House and Senate banking com-

mittees. This letter was reproduced in its entirety in the

1916 Congressional Record and is set forth in the Ap-

pendix to this brief. While the Comptroller indicated that

it would be desirable to allow small town banks to realize

additional revenue through the sale of insurance prod-

ucts, his letter made clear that under existing law “[n]Ja-

tional banks are not given either expressly nor by neces-

sary implication the power to act as agents for insurance

companies ....° App. at 3a. (This conclusion was

6

echoed in a memorandum published earlier in 1916 by

the Federal Reserve Board.) After reviewing Supreme

Court jurisprudence on the powers of national banks, he

concluded that “[i]t is certainly clear that the Comp-

troller of the Currency has no right to authorize or permit

a national bank to exercise powers not conferred upon

it by law.” Jd. On the basis of this letter and recom-

mendation, Congress enacted Section 92 without further

substantive debate.

In light of the conclusions so clearly communicated to

Congress by the Comptroller who drafted Section 92, it

is impossible to read the introductory language to the

section in the manner suggested by petitioners and their

amici. To do so implies that the intent of the language

was to preserve powers that neither the Comptroller nor

the Congress believed to exist. Rather, the only possible

interpretation is that the phrase (“[i]n addition to the

powers now vested by law”) was intended to emphasize

that, as of 1916, no other provision of law (including

the incidental powers provision) vested any insurance

agency powers in national banks. Accordingly, the court

below and the Second Circuit in ALTA y. Clarke cor-

rectly concluded that Section 92 was intended by Con-

gress to be the exclusive grant of insurance agency powers

for national banks.

2. Fundamental principles derived from the historical

jurisprudence on national bank powers should guide the

Court’s determination of the proper scope of the inci-

dental powers of national banks. That jurisprudence

demonstrates that the incidental powers provision of 12

U.S.C. § 24 Seventh does not restrict national banks to

the business of banking as it existed in the nineteenth

century. On the other hand, the jurisprudence also dem-

onstrates that the provision does not permit national

banks to engage in business or commercial activities thet

have not been authorized by Congress merely because

they may have some nexus to the “business of banking.”

7

Between these two extremes, there is an intermediate

view that not only harmonizes and explains the 130-year

jurisprudence in this area, but provides a principled ap-

proach to the incidental powers provision that would

provide national banks with the flexibility to meet the

needs of the modern era in performing the very old

“business of banking.” This analysis was presented in

Professor Edward L. Symons’ insightful article, The

“Business of Banking” in Historical Perspective, 51 Geo.

Wash. L. Rev. 676 (1983). While all of the briefs filed

by petitioners and their amici cite Professor Symons’ ar-

ticle for various propositions, none of them discusses the

fundamental principles he derives from his comprehensive

analysis of the statute and case law.

As discussed in Part II below, a review of the relevant

jurisprudence demonstrates that the courts have upheld

activities as incidental to “the business of banking” when

the activity (1) is a form of, or functionally equivalent

to, deposit taking, credit granting, or credit exchanging

activities (i.e., activities that constitute the “business of

banking,”) or is reasonably necessary to enable banks to

perform those activities more efficiently or effectively, and

(2) does not expose banks to risks of a non-banking

nature, such as those of a commercial business enterprise.

On the other hand, activities that do not meet these

standards have consistently been rejected by the courts.

ALTA submits that this is the standard that should be

applied by the Court in determining the proper scope of

the incidental powers of national banks.

3. In addition to the Fifth Circuit’s decision on

annuities, federal appellate courts have addressed the

insurance agency powers of national banks in three other

contexts. In Saxon v. Georgia Ass'n of Indep. Ins.

Agents, 399 F.2d 1010 (Sth Cir. 1968), the court held

that Section 92 precluded national banks in places with

a population over 5,000 from engaging in the insurance

agency business in connection with automobile, home-

8

owners, and other forms of property and casualty insur-

ance issued in connection with loans made by the bank.

In ALTA v. Clarke, the Second Circuit reached the same

conclusions with respect to title insurance. However, in

Heimann, the D.C. Circuit concluded that Section 92

did not prohibit national banks from selling credit-related

forms of insurance, such as credit life insurance, to their

borrowers.*

Petitioners’ amici are concerned that if the Court

concludes that Section 92 limits the insurance agency

activities of national banks, as the Fifth and Second Cir-

cuits have found, the continued ability of national banks

to sell credit-related forms of insurance without express

Congressional authorization would be jeopardized. How-

ever, in upholding the analysis of Section 92 reached by

the Fifth and Second Circuits, the Court does not neces-

sarily have to overturn the conclusions of the D.C. Circuit

in Heimann.

There are fundamental and unique characteristics of

credit life insurance and its use by banks that do not

pertain to other kinds of insurance, such as automobile,

homeowners, and title insurance, that may be purchased

in connection with loan transactions, or to annuities.

Credit life insurance is sold only in credit transactions;

it exists solely to protect credit grantors and would not

be available unless credit grantors sold it; national banks

were almost universally involved in the sale of such in-

surance at the time of the Heimann decision; and the

bank, in performing the ministerial activities of enrolling

borrowers in its credit life insurance program, does not

4 Credit-related insurance provides that the insurer will pay to

the bank, in whole or in part, the outstanding balance of the loan

in the event the borrower dies (credit life insurance), becomes

disabled (credit disability insurance), is seriously injured in an

accident (credit accident insurance), or becomes unemployed (in-

voluntary unemployment insurance). For convenience, the various

forms of credit-related insurance will be collectively referred to as

“credit life insurance.”

9

undertake the functions and activities normally performed

by an insurance agent.

These characteristics were identified by the Comptroller

in promulgating the credit life insurance regulations that

were at issue in Heimann. They expiain why the D.C.

Circuit concluded that credit life insurance was “unlike

other forms of insurance,” 613 F.2d at 1170, and why

the Second Circuit concluded that the credit life insurance

precedent was not relevant to deciding whether Section

92 limited the title insurance agency activities of national

banks. ALTA v. Clarke, 968 F.2d at 270.

Accordingly, in addressing the incidental to banking

and Section 92 issues in this case, the Court should recog-

nize the limited relevance of the credit life insurance

precedent. There is ample reason and basis to distinguish

the sale of credit-related insurance from the agency activi-

ties involved in other kinds of insurance products, such as

those at issue in Saxon, in ALTA vy. Clarke, and in this

case.

ARGUMENT

I. SECTION 92 OF THE NATIONAL BANK ACT CON-

STITUTES AN IMPLIED LIMITATION ON THE

INSURANCE ACTIVITIES OF NATIONAL BANKS

In support of their contention that Section 92 imposes

no limitations on the insurance activities that the Comp-

troller may authorize for national banks under the “inci-

dental” powers provision of 12 U.S.C. § 24 Seventh, peti-

tioners and their amici lay heavy emphasis on the initial

twenty words of the provision (“In addition to the powers

now vested by law in national banking associations under

the laws of the United States... .”).° The NationsBank

Petitioners contend that the initial three words “conclu-

sively demonstrate[]” that Section 92 was not intended as

5 See Federal Petitioners Br. at 39-40; NationsBank Petitioners

Br. at 37-40; ABA Br. at 7-10; New York Clearing House Associa-

tion Br. at 27-28; Conference of State Bank Supervisors Br. at 24-25.

10

a limitation on insurance activities that fall within the

incidental powers clause, NationsBank Petitioners Br. at

37, and the Federal Petitioners suggest that this language

can only mean that those lawful powers of national banks

that “pre-date” Section 92 were intended by Congress to

“survive” Section 92. Federal Petitioners Br. at 40.

If, at the time Section 92 was enacted in 1916, the

Comptroller had previously determined that national banks

could engage in certain kinds of insurance agency activi-

ties under Section 24 Seventh, and Congress was aware of

that determination, petitioners’ interpretation of the “in

addition to” language would be compelling. Indeed, the

“in addition to” language would have been needed so as

to avoid any negative implication that the new powers for

small town banks were intended to be in derogation of

those insurance powers that the Comptroller had _ previ-

ously determined were enjoyed by all national banks under

Section 24 Seventh.

Ultimately, it is Congress’ understanding of what it was

enacting that must guide the interpretation of this lan-

guage. United States v. Vogel Fertilizer Co., 455 U.S. 16,

31 (1982).° In discerning this understanding, the Court

“ ‘necessarily attach[es] ‘great weight’ to agency repre-

sentations to Congress’” when the agency drafted the

provision at issue and made its views directly known to

the Congress. Lindahl v. Office of Personnel Management,

470 U.S. 768, 788 (1985) (quoting from United States v.

Vogel Fertilizer Corp., 455 U.S. 16, 31 (1982), in turn

quoting Zuber v. Allen, 396 U.S. 168, 192 (1969)). The

Court has repeatedly emphasized the importance of the

contemporaneous views expressed to Congress by an

® See also Platt v. Union Pac. R.R., 99 U.S. 48, 64 (1879) (“[T]n

endeavoring to ascertain what the Congress of 1862 intended, we

must, as far as possible, place ourselves in the light that Congress

enjoyed, look at things as they appeared to it, and discover its pur-

pose from the language used in connection with the attending

circumstances.”’).

11

agency that has drafted or participated in the drafting of

legislation in determining Congress’ understanding of what

it was enacting. See Selective Serv. Sys. v. Minnesota

Public Interest Research Group, 468 U.S. 841, 850

(1984); Miller v. Youakim, 440 U.S. 125, 144 (1979);

United States v. American Trucking Ass'ns, 310 U.S. 534,

549 (1940). See also 2A N. Singer, Sutherland Stat.

Const. § 49.04 (Sth ed. 1992) (“[L]egislative history in

the form of information as to how draftsmen of a provision

understood it and that their meaning was communicated

to the Congress which enacted it has been held to be

entitled to greater weight than subsequent administrative

interpretation.” ).

The legislative history of Section 92, while sparse, is

clear and compelling that the “in addition to” language

must be given precisely the opposite reading from that

proffered by the NationsBank Petitioners and their amici.

In June of 1916, while the Senate was considering a

banking bill previously passed by the House, Comptroller

of the Currency Williams wrote to the chairmen of the

Senate and House banking committees enclosing draft

legislation that would grant insurance agency powers to

national banks located in towns with a population of

3,000 or less. 53 Cong. Rec. 11,001 (1916); App. la-5Sa.

In explaining the need for such legislation, the Comptroller

told the Congress that under existing laws (specifically re-

ferring to the incidental powers provision), “[nJational

banks are not given either expressly nor by necessary

implication the power to act as agents for insurance com-

panies .... It is certainly clear that the Comptroller of

the Currency has no right to authorize or permit a national

bank to exercise powers not conferred upon it by law.”

App. at 3a.’

7 Earlier in 1916 the Federal Reserve Board had published a

memorandum regarding the authority of national banks to engage

in insurance agency activities. 2 Fed. Res. Bull. 73-74 (Feb. 1916).

That memorandum likewise concluded that a national bank had no

12

The Comptroller explained that he had been giving

consideration to how small national banks might better

compete with state banks and trust companies, which are

sometimes authorized to do “a class of business not strictly

that of commercial banking.” App. at 2a. In discussing

the reasons for limiting the grant of such authority to

banks in small communities, he concluded that:

I think it would be unwise and therefore undesira-

ble to confer this privilege generally upon banks in

large cities where the legitimate business of banking

affords ample scope for the energies of trained and

expert bankers. I think it would be unfortunate if any

movement should be made in the direction of placing

the banks of the country in the category of depart-

ment stores. The business is one requiring training,

skill, and application, and I think that the profession

of banking would suffer if there should be a departure

from the principles which should govern and have

heretofore governed.

App. at 4a.

After receiving the letter, Senator Owen, the chairman

of the Senate Banking Committee, indicated that he would

offer the amendment recommended by Comptroller Wil-

liams, which he described as “giving some additional

powers to the small banks to act as agents in insurance

matters.” 53 Cong. Rec. 11,153 (1916). Chairman Owen

later introduced the language of the amendment, which he

described to his colleagues as having been “reported upon

favorably by the Comptroller of the Currency, giving cer-

tain limited rights of agency to national banks.” /d. He

noted that while the Comptroller had recommended limit-

ing the provision to communities with a population of

3.000 or less, he was amenable to increasing the popula-

express power to engage in such activities and that no such author-

ity could be derived from the incidental powers of national bank«

under 12 U.S.C. § 24 Seventh. According to the memorandum,

“lalny such extension of the powers of national banks must be

left to the considerations of Congress.” 2 Fed. Res. Bull, at 74.

13

tion limit to 5,000. The amendment, as modified, was then

adopted by the Senate and subsequently incorporated with-

out change into the conference committee report on the

overall bill.®

Thus, the Comptroller who drafted Section 92 and upon

whose recommendation the provision was enacted was

clear and unequivocal in his views that (a) national banks

had neither the express nor the incidental power to engage

in the business of being an insurance agent, (b) the Comp-

troller “has no right to authorize or permit a national bank

to exercise powers not conferred upon it by law,” App. at

3a, and (c) it would be “unwise and therefore undesirable”

to confer insurance agency powers on national banks

generally. App. at 4a.” Moreover, there is not a scintilla

of evidence that anyone in Congress disagreed with these

views. What, then, did Comptroller Williams—and the

Congress—intend by the introductory language to Section

92?

The one intention that cannot be attributed to them is

to preserve some purported insurance agency powers of

national banks under Section 24 Seventh. In light of the

Comptroller’s letter to Congress, it is totally unreasonable,

indeed absurd, to read the “in addition to” language as

8 Jd. at 13,259-61 (Senate) ; id. at 13,354-56 (House). There was

no further discussion of the insurance provision in the Senate or

House.

® The fact that, in the 50 years between the enactment of Sec-

tion 24 Seventh and the enactment of Section 92, the Comptroller

had never concluded that the incidental powers provision consti-

tuted a congressional grant of insurance agency authority to na-

tional banks should be significant in determining whether such

power was actually conferred by Section 24 Seventh. See Bank-

America Corp. v. United States, 462 U.S. 122, 131 (1983) (quoting

FTC v. Bunte Brothers, Inc., 312 U.S. 349, 352 (1941)) (“just as

established practice may shed light on the extent of power conveyed

by general statutory language, so the want of assertion of power

by those who presumably would be alert to exercise it, is equally

significant in determining whether such power was actually con-

ferred”).

14

reflecting Comptroller Williams’—or the Congress’—inten-

tion to preserve incidental powers for national banks that

the Comptroller had so clearly concluded did not exist.

Similarly, there is no basis for reading the “in addition

to” language as having been intended to preserve insurance

agency powers that future Comptrollers of the Currency

might authorize. Any such intent is clearly belied by

Comptroller Williams’ view that the Comptroller had no

authority under Section 24 Seventh to authorize insurance

agency activities under that section. More importantly,

the relevant language of Section 92 is “[i]n addition to the

powers now vested by law” in national banks (emphasis

supplied). “Now” was September 17, 1916, the date of

enactment of Section 92. It is indisputable that the Comp-

troller who drafted this language, and the Congress that

enacted it, believed that in 1916 national banks were

“then” not vested by law with any power to act as insur-

ance agents. Thus, the inclusion of the word “now”

absolutely forecloses any argument that it was the intent

of Congress, in enacting this language, to preserve the

grant of insurance agency powers by future Comptrollers

under Section 24 Seventh.

In light of the legislative history, the only possible in-

terpretation of the “in addition to the powers now vested

by law” language is that the Comptroller and the Congress

were intending to make clear that the limited insurance

agency powers granted by Section 92 were the sole in-

surance agency powers authorized for national banks.

Indeed. the “in addition to” language supplies compelling

support for the application of the “expressio unius” prin-

ciple by the Fifth Circuit below and by the Second Circuit

in ALTA v. Clarke.”

10 “Exrpressio unius est excluvsio alterius” is a maxim of statutory

construction that is translated as “the mention of one thing im-

plies the exclusion of another.” See VALIC, 998 F.2d at 1298.

In the VALIC and ALTA v. Clarke decisions, the courts applied

the erpressio unius principle to hold that the explicit and limited

15

In sum, Congress demarcated the insurance agency

powers of national banks in 1916 and any expansion or

modification of those powers must come from Congress.

Il. PETITIONERS’ VIEW OF THE “INCIDENTAL”

POWERS OF NATIONAL BANKS IS ERRONEOUS

Since 1864 the National Bank Act, 12 U.S.C. § 24

Seventh, has provided that a national bank may exercise

“all such incidental powers as shall be necessary to carry

on the business of banking.” Petitioners seek to present

the Court with a choice between two possible interpreta-

tions of the provision. Either the provision conveys a

broad grant of authority with the attendant broad delega-

tion of administrative discretion to the Comptroller (as

petitioners contend), or the provision represents a static

grant of powers that is unable to keep pace with the

changing demands and the increased sophistication of the

business of banking."

In fact, neither alternative is consistent with the prin-

ciples derived from Supreme Court and federal appellate

court jurisprudence on the incidental powers of national

banks. As this jurisprudence demonstrates, the incidental

powers provision does not mean that national banks are

limited only to those activities that characterized the busi-

ness of banking as it existed in the nineteenth century.

Nor, however, does it mean that national banks have

the authority (in the absence of an express statutory

grant) to engage in any commercial or business activity

that the Comptroller believes has some nexus to banking

or to an express power of banks.

grant of insurance agency powers under Section 92 precluded sub-

sequent administrative determinations of insurance agency powers

under Section 24 Seventh. This was a proper application of the

principle because it was based on, and totally consistent with,

extrinsic evidence of the intent of the drafters of Section 92.

1! See, e.g., Federal Petitioners Br. at 16-20; NationsBank Peti-

tioners Br. at 26-30.

16 nei

Between these two extremes, there is an intermediate

view of the incidental powers provision—one that explains

and harmonizes the judicial precedent in this area and

is consistent with a safe and modern banking system.”

A review of that precedent demonstrates that the courts

have upheld activities as “incidental” to “the business of

banking” when the activity (1) is a form of, or func-

tionally equivalent to, deposit taking, credit granting, or

credit exchanging activities (i.e., activities that constitute

the “business of banking,”) or is reasonably necessary to

enable banks to perform those activities more efficiently

or effectively, and (2) does not expose banks to risks of

a non-banking nature, such as those of a commercial

business enterprise.

From the time of the enactment of the National Bank

Act, Supreme Court decisions have upheld activities of

national banks as within their incidental powers when

such activities fell within these “business of banking”

standards. These decisions include:

* Merchants’ Nat'l Bank v. State Bank, 77 U.S. (10

Wall.) 604, 647 (1871) (power to certify checks;

functionally equivalent to accepting checks);

* First Nat'l Bank v. National Exch. Bank, 92 U.S.

122, 127-28 (1876) (power to acquire stock in

compromise of debt owed to the bank as reasonably

necessary to effectuate power to make loans; but

bank may not engage in business of buying or

selling stocks for profit) ;

* Union National Bank v. Matthews, 98 U.S. 621

(1879) (power to foreclose on a deed of trust given

12 The analysis that follows is derived in substantial measure

from Edward L. Symons, Jr., The “Business of Banking” in His-

torical Perspective, 51 Geo. Wash. L. Rev. 676 (1983). Remark-

ably, petitioners and all of their amici cite Professor Symons’

article for other propositions, but fail to draw the Court’s attention

to the fundamental insights Professor Symons derives from the

relevant jurisprudence regarding the proper interpretation of the

incidental powers clause.

17

by a third party and pledged to bank to secure a

loan from the bank);

* Wyman v. Wallace, 201 U.S. 230, 243 (1906)

(power to borrow money to repay depositors: “|The

bank] is not borrowing money to engage in new

business. It simply exchanges one creditor for

others”’ );

* Miller v. King, 223 U.S. 505, 510 (1912) (power

to act as trustee for collection of a debt and to sue

for recovery of that debt; such activity being func-

tionally equivalent to a bank’s traditional business

of taking title to a negotiable instrument endorsed

to it for purposes of collection);

* Clement Nat'l Bank v. Vermont, 231 U.S. 120,

139-40 (1913) (power to execute agreement with

state to implement state law permitting banks, on

behalf of their depositors, to pay tax imposed on

the interest paid on such deposits; agreement was

directly related to the business of deposit taking);

* First Nat'l Bank v. Hartford, 273 U.S. 548, 559-60

(1927) (power to sell mortgages and other debt

instruments acquired by loan or discount);

* Colorado Nat'l Bank v. Bedford, 310 U.S. 41, 49

(1940) (power to conduct a safe deposit business;

functionally equivalent to express power under 12

U.S.C. § 133 to accept special deposits); and

* Franklin Nat'l Bank v. New York, 347 U.S. 373,

377-78 (1954) (power to use the word “savings”

in advertising the bank’s authorized business).

Recent decisions of federal appellate courts upholding

activities of national banks as within their incidental

powers likewise reflect the above-described “business of

banking” standards. See, e.g., First Nat'l Bank v. Taylor,

907 F.2d 775 (8th Cir.) (power to issue debt cancella-

tion contracts to borrowers under which the borrower’s

debt is extinguished in the event of death), cert. denied,

498 U.S. 972 (1990); Securities Indus. Ass'n v. Clarke,

18

885 F.2d 1034 (2d Cir. 1989) (power to sell mortgage

pass-through certificates as a mechanism for the sale of

the bank’s mortgage loans), cert. denied, 493 U.S. 1070

(1990); American Ins. Ass'n v. Clarke, 865 F.2d 278,

282 (D.C. Cir. 1989) (upholding the issuance of standby

credits to insure municipal bonds as essentially constitut-

ing “the issuance of a standby letter of credit, a device

long recognized as within the business of banking’);

M & M Leasing Corp. v. Seattle First Nat'l Bank, 563

F.2d 1377, 1380 (9th Cir. 1977) (authorizing bank to

engage in the leasing of personal property “when, in the

light of all relevant circumstances, the transactions con-

stitute the loan of money secured by the properties

leased”), cert. denied, 436 U.S. 956 (1978).

On the other hand, the courts have repeatedly rejected

activities as not being incidental to banking where the

activity did not fall within the “business of banking”

standards identified above or otherwise exposed the bank

to risks beyond those entailed in its deposit taking, credit

granting, and credit exchanging activities. See, e.g.,

Merchants’ Nat'l Bank vy. Wehrmann, 202 U.S. 295

(1906) (denying power of bank to become a partner in

a business that would expose it to unlimited liability);

First Nat'l Bank v. Converse, 200 U.S. 425 (1906)

(denying power to become an organizer and stockholder

in a new venture even if the bank had previously lent

money to a predecessor company); California Nat'l Bank

v. Kennedy, 167 U.S. 362 (1897) (denying power to

acquire stock in another corporation except as security

for or in compromise of a debt); M & M Leasing Corp.,

563 F.2d at 1383-84 (denying power to engage in auto-

mobile lease transactions that would involve the bank in

more than traditional credit risk exposure, or to provide

“operational services such as repairs, maintenance, spare

parts, insurance coverage, license renewals . . . [because]

such services are not those of a bank”) (emphasis added)

(footnote omitted); National Retailers Corp. v. Valley

Nat’! Bank, 604 F.2d 32 (9th Cir. 1979} (per curiam)

19

(denying power to offer data processing services to

parties other than the bank itself); Arnold Tours, Inc. vy.

Camp, 472 F.2d 427 (1st Cir. 1972) (denying power

to operate a travel agency).

In an attempt to sidestep this historical framework,

petitioners misconstrue the “convenient or useful” stand-

ard first articulated in Arnoid Tours, 472 F.2d at 432

(an activity is incidental if it is “convenient or useful”

in connection with the performance of an express power).

The “convenient or useful” language used by the First

Circuit was intended to summarize in a few words the

principles to be derived from its analysis of the prior

Supreme Court and lower court jurisprudence discussed

above. Jd. at 431-32. The principles the Arnold Tours

court sought to encapsulize in the “convenient or useful”

standard are the same principles that have been identified

in Professor Symons’ article, and that ALTA believes

should be applied by this Court.

Stripped from the context in which it must be viewed—

the historical jurisprudence on the activities of national

banks—the phrase “convenient or useful” can easily be

misunderstood as sanctioning any commercial or business

activity that has some nexus of “convenience” or “use-

fulness” to banking or a bank’s express powers. Judicial

decisions that have applied the “convenient or useful”

standard have not, in fact, sanctioned such broad-ranging

activities." Rather, consistent with Professor Symons’

analysis they have not permitted banks to engage in new

business activities unless the activity was functionally

equivalent to or involved the same risks as deposit taking,

credit granting, or credit exchanging, or was reasonably

necessary to enable those powers to be exercised effec-

tively. This analysis of the incidental powers provision

is faithful to the principle that new substantive powers

13 See, e.g., Securities Indus. Ass'n v. Clarke, 885 F.2d 1034;

American Ins. Ass'n v. Clarke, 865 F.2d 278; National Retailers

Corp., 604 F.2d 32; M & M Leasing Corp., 563 F.2d 1377.

20

for national banks should be established by Congress and

provides a reasoned, consistent approach to “permit[ting |

the use of new ways of conducting the very old business

of banking.” M & M Leasing Corp., 563 F.2d at 1382.

It is the analysis that should guide this Court’s resolution

of the incidental powers issue.

Ill. AFFIRMANCE OF THE DECISION BELOW WILL

NOT JEOPARDIZE THE ABILITY OF NATIONAL

BANKS TO CONTINUE TO ENGAGE IN CREDIT-

RELATED INSURANCE ACTIVITIES THAT HAVE

BEEN UPHELD BY THE COURTS

Petitioners’ amici point out that for many years na-

tional banks have engaged in the sale of certain credit-

related products (most prominently credit life and credit

disability insurance) that are generally considered to be

insurance and that the sale of such products has been

upheld by the courts."* The implication is that a decision

by the Court that Section 92 restricts the authority of

national banks to act as insurance agents in places with

a population in excess of 5,000 may jeopardize the con-

tinued ability of national banks to engage in these

activities.”°

The nub of the issue is how to reconcile the conclusion

of the D.C. Circuit in Heimann, that Section 92 does not

limit the sale of credit life insurance by national banks,

with the conclusions in the Fifth Circuit’s decisions in

VALIC and Saxon, and in the Second Circuit’s decision

in ALTA v. Clarke—that Section 92 limits the powers

of national banks to sell annuities, and to act as agents

14 New York Clearing House Association Br. at 2-3; ABA Br. at

14.

15 This concern was highlighted by the NationsBank Petitioners.

See NationsBank Petition for Writ of Certiorari at 27 (“If the

expansive and unsupportable interpretation given Saxon by the

court of appeals stands, then all of the national bank insurance

activities regarding the specialized insurance-related products dis-

cussed above would be subject to challenge.”).

ae

21

in the sale of property and casualty insurance, and title

insurance. While credit life insurance is not at issue in

this case, the Court should appreciate why a decision af-

firming the conclusions reached by the Fifth and Second

Circuits regarding the scope and meaning of Section 92

would not necessarily have to apply to the credit-related

insurance activities that were approved in Heimann."*

The Heimann decision involved regulations promulgated

by the Comptroller to curb self-dealing by bank insiders

who were personally profiting from the sale of credit life

insurance to bank customers and to permit the banks

themselves to obtain commissions from the sale of such

insurance’ In promulgating these regulations, the Comp-

troller identified certain salient characteristics of credit life

insurance and national bank involvement in the sale of

credit life insurance that had led him to approve the ac-

tivity for all national banks.’* These factors included:

* credit life insurance is issued only in connection

with credit transactions, exists solely for the pro-

16 The alleged conflict between the Second Circuit’s decision on

title insurance and the Heimann decision on credit life insurance

was also a principal ground on which the Federal Petitioners and

Chase Manhattan had sought review in the ALTA case. In opposing

the petitions for writs of certiorari, ALTA addressed at length

the unique factors regarding bank involvement in the sale of credit

life insurance that are discussed below and the reasons why such

factors were completely inapposite in the context of title insurance.

See Brief in Opposition to Petition for a Writ of Certiorari to the

United States Court of Appeals for the Second Circuit at 11-16,

Nos. 92-482, 92-645 (filed Nov. 12, 1992).

17 These regulations are presently codified at 12 C.F.R. §§ 2.1-2.7

(1994). The regulations define “credit life insurance” as including

“credit life, health, and accident insurance.” 12 C.F.R. § 2.3 (1994).

18 The rulemaking notices in which these factors were discussed

are Disposition of Credit Life Insurance Income (Final Regula-

tion), 42 Fed. Reg. 48,518 (1977) (hereafter “Final Rulemaking”)

and Disposition of Credit Life Insurance Income (Proposed Rule-

making), 41 Fed. Reg. 29,846 (1976) (hereafter “Proposed Rule-

making’).

22

tection of credit grantors, and “has no appeal what-

soever to persons not simultaneously borrowing

from the bank;” ”

credit life insurance is the functional substitute for

provisions that might otherwise be included in the

loan agreement to provide additional security to

the lender for the repayment of the loan; ~°

credit life insurance would not be available for the

protection of creditors unless credit grantors, such

as national banks, sold the insurance; *’

national banks were almost universally involved in

the sale of credit life insurance at the time of the

Comptroller’s credit life rulemaking; * and

unlike the work performed by agents for other

types of insurance, a bank that sells credit life

insurance performs only de minimis clerical work

in enrolling borrowers in the credit life program.”

19 Final Rulemaking, 42 Fed. Reg. at 48,518 col. 3.

20 See Final Rulemaking, 42 Fed. Reg. at 48,518 col. 2 (Section

92 was not intended to limit the ability of national banks “to pro-

vide, in connection with a credit transaction, a peculiarly special

type of insurance which could serve the same purpose as additional

collateral, a co-maker, or a guarantor.”’).

21 See Final Rulemaking, 42 Fed. Reg. at 48,518 col. 2 (credit

life insurance is “peculiarly related to the business of banking

and not generally available from insurance agencies unaffiliated

with financial institutions”) ; id. at col. 3 n.3 (“Congress recognized

that creditors are virtually the only source of credit life insurance”).

22 See Proposed Rulemaking, 41 Fed. Reg. at 29,847 col. 1 (Comp-

troller’s conclusion influenced by the widespread availability of

credit life insurance at commercial banks throughout the United

States) & n.1 thereto (survey by national bank examiners of 2,900

national banks indicated that fewer than 20 were not providing

credit life insurance) (emphasis supplied).

23 See Final Rulemaking, 42 Fed. Reg. at 48,518 col. 3 (banks

engaged in selling credit life insurance do not engage in risk

investigation or evaluation or other functions typically performed

by an independent insurance agent); id. at 48,521 col. 3 (“the

eS

23

In light of these factors, it is understandable why the

D.C. Circuit concluded that credit life insurance is “[u]n-

like other forms of insurance” and is a “limited special

type of coverage written to protect loans,” Heimann, 613

F.2d at 1170. They also explain why the Second Circuit

concluded that its determination on title insurance was not

inconsistent with the D.C. Circuit’s conclusions regarding

the credit life insurance powers of national banks. See

ALTA v. Clarke, 968 F.2d at 270.

While these factors characterize credit life insurance

and the other types of credit-related insurance, they do

not pertain in any way to the types of insurance activities

that were at issue in Saxon (homeowners and automobile

insurance), in ALTA v. Clarke (title insurance), or to

the sale of annuities.

In sum, the lower courts have appropriately recognized

that national bank sale of credit-related insurance should

be differentiated from the sale by national banks of other

kinds of insurance products, such as automobile, home-

owners, and title insurance. ALTA believes that the court

below properly concluded that the sale of annuities is

embraced within the limitations of Section 92. If, how-

ever, the Court should reach a contrary conclusion, we

urge it to be mindful of the careful and proper balance

that the lower courts have struck with regard to the various

types of insurance and to avoid inadvertently upsetting

administrative cost of producing credit life insurance income is

close to negligible’). See also Commissioner v. First Sec. Bank,

405 U.S. 394, 397 (1972) (“The cost to each of the Banks for the

actual time devoted to explaining and processing the [credit life]

insurance was less than $2,000 per year, characterized by the courts

below as ‘negligible.’ ’’).

Indeed, one could well conclude that the ministerial role a bank

plays in the sale of credit life insurance should not be considered

to be that of an insurance agent within the meaning of Section

92. See First Nat’l Bank v. Smith, 436 F. Supp. 824, 831-33 (S.D.

Tex. 1977), modified, 610 F.2d 1258, 1262 (5th Cir. 1980) (discus-

sion of Section 92 vacated as unnecessary to resolution of case).

24

that balance through language in its opinion that might

suggest a broader ruling than the Court intends. Just as

petitioners’ amici are concemed that a decision upholding

the court below not cast doubt on the continued power of

national banks to sell credit-related insurance, ALTA is

concerned that a decision reversing the court below not

inadvertently cast doubt on the Second Circuit’s determina-

tion regarding title insurance.

CONCLUSION

For the foregoing reasons, the judgment of the court

below should be affirmed.

Respectfully submitted,

SHELDON E. HOCHBERG *

RODERICK L. THOMAS

STEPTOE & JOHNSON

1330 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 429-3000

Counsel for Amicus Curiae

September 8, 1994 * Counsel of Record