Amicus Curiae Brief — NationsBank of North Carolina, N. A. v. Variable Annuity Life Insurance
Supreme Court brief1994
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QUESTIONS PRESENTED
1. Whether the Fifth Circuit misapplied the Chevron
standard when it did not adopt the Comptroller’s new
construction of 12 U.S.C. § 24(7) or his new determina-
tion that annuities do not constitute “insurance” for pur-
poses of 12 U.S.C. § 92, even though the Comptroller
contradicted his prior construction of those statutes.
(No. 93-1612).
2. Whether 12 U.S.C. § 92, which provides that, “in
addition to” their other powers, national banks located in
places with 5,000 or fewer inhabitants may act as the
agent for “any fire, life, or other insurance company,”
impliedly bars national banks in more populous places
from brokering annuities. (No. 93-1612)
3. Whether federal law permits national banks, wher-
ever located, to act as agents in the sale of annuities.
(No. 93-1613)
4. Whether the sale of annuity contracts is “necessary
to carry on the business of banking” under 12 U.S.C.
§ 24(7).
(i)
TABLE OF CONTENTS
QUESTIONS PRESENTED 20000.
TABLE OF AUTHORITIES |...
INTEREST OF AMICI 200. cecccccccccecseecocccscece..
rr
I. THE LANGUAGE AND STRUCTURE OF
Il.
ITT.
SECTION 24 (SEVENTH) OF THE NA-
TIONAL BANK ACT DO NOT PERMIT THE
COMPTROLLER TO AUTHORIZE NaA-
TIONAL BANKS TO SELL ANNUITIES ____
A. The Comptroller’s Interpretation Is Fore-
closed by the Plain Language of the Statute.
B. The Proper Interpretation of the Term
“Necessary” Is Confirmed When Read in the
Context of Section 24 ( Seventh) and the
Banking Laws as a Whole... is
C. The Comptroller Has Not Demonstrated That
the Sale of Annuities Is an Incidental and
Necessary Bank Power ..............
SECTION 92 DEMONSTRATES THAT CON-
GRESS DID NOT INTEND SECTION 24
(SEVENTH) TO AUTHORIZE NATIONAL
BANKS’ SALE OF INSURANCE...
THE BUSINESS PRACTICES OF STATE
BANKS DO NOT SUPPORT THE EXTEN-
SION OF THE POWER TO SELL ANNUITIES
TO NATIONAL BANKS oo
Ce
13
18
25
iv
TABLE OF AUTHORITIES
CASES Page
American Land Title Association v. Clarke, 968
F.2d 150 (2d Cir. 1992), cert. denied, 113 S. Ct.
SP CD en seeessessceevimmssnennstentcsnatenatess ees. 21
Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir.
STEEN , eoidnisshibiecomnommsieianinC ones Se 9, 28
pending) bless bhebabsmntinaisiemmbeietennnatidbendasitenimiaaieiie ai ee 2,4
Board of Governors v. Dimension Finance Corp.,
474 U.S. 361 (1986) 2 18
Boteny Worsted Mills v. United States, 278 U.S.
AR, es Se 21
Purlington Truck Lines, Ine. v. United States, 371
6 8. en ee een 6
Chevron USA, Inc. v. Natural Resources Defense
Council, 467 U.S. 887 (1984) . 5, 25
Clement National Bank v. Vermont, 231 U.S. 120
GUNMEN Weemidunnsansaninentenieiieanalecendsieasa dite. 11
Colorado National Bank of Denver v. Bedford, 310
re 12, 18, 26, 27
Crossman Co. v. Rauch, 263 N.Y. _ (1934) . 17
Curtis v. Leavitt, 15 N.Y.2 (1257). 9
Diamond v. Chakrabarty, M7 U s. ow (1980). 7
Farmers’ & Mechanics’ Bank v. Dearing, 91 US.
Fe IY ee AS ESS Ch 27
Federal Energy Admin. v. Algonquin SNG, Sne..
426 U.S. 548 (1976) 20
First National Bank v. City of Hartford, 273 U.S.
Se en eee 13
First National Bank ». ‘National Exch. Pank, 92
U.S. 122 (1875) sere 11
Franklin National Bank: ». New York, 347 US.
373 (1954) ; ae 8S OC
Independent Insurance A gents of America, Ine. v.
Ludwig, 997 F.2d 958 (D.C. Cir. a 4
Logan County National Bank +. Townsend, 139
U.S. 67 (1891) spaiiaaniaeetiiieniitiiaiiiaiaaaaaiia i 3
563 F.2d 1377 (9th Cir. 1977), cert. denied, 136
U.S. O66 (19TB) nec ccecccccccceceeeeeceeeee 29
Vv
TABLE OF AUTHORITIES—Continued
Page
MCI Telecommunications Corp. v. American Tele-
phone & Telegraph Corp., 114 S. Ct. 2223
cg A a ELA ae, 7,8
eI abiliaiesticaecaiciibiceeie ie 8-9
Mountain States T. & T. Co. v. Pueblo of Santa
Ana, 472 U.S. 287 (1985) 2... ccccccceceeee------- 20
NED Bank, N.A. v. Bennett, Civ. Action No. 1P
94-862-C (U.S. Dist. Ct., S.D. | Se 4
(1994) ........ speyieritimaeihianetiatidlnasceetiehiaiieiaansinlesinlat tinea i 28
NLRB »v. Fruit Vegetable Packers & Warehouse-
men, 377 U.S. 58 (1964) 00 cm 20
National R.R. Passenger Corp. v. Passengers As-
sociation, 414 U.S. 453 (1974) 21
Norwegian Nitrogen Products Co. v. Un ited States,
288 U.S. 294 (1933)... hadiainabati leptin ia 20
Owensboro National Bank v. Wright, 803 F. Supp.
24 (E.D. Ky. 1992) (appeals pending) 26
Perrin v. United States, 444 U.S. 37 SE 7
Pierce v. Underwood, 487 U.S. 552 (1988) ............. 8
Russello v. United States, 464 U.S. 16 (1983) _....... 10
surance Agents, Inc., 399 F.2d 1010 (5th Cir.
ae ae, SENT ae Ssielamibithesttile namals 21
Securities and Exchange Commi’n v. Variable An-
nuity Life Insurance Co., 359 U.S. 65 (1959)... 25
Shawmut Bank Connecticut, National Association
v. Googins, Civ. No. 3:94CV146 EEE 4
St. Paul Fire & Marine Insurance Co. v. Parry,
438 U.S. 531 (1978)... setndiedhihaigiitiad tien 24
Sunshine Mining v. United States, 827 F.2d 1404
«| TER CT Re renee Wn 8
Teras & Pacific Railway Co. v. Pottorff, 291 U.S.
_ ss ENE eens 8, 11, 21, 22, 27
United States Department of Treasury v. Fabe,
113 S. Ct. 2202 (1998) 0 24
vi
TABLE OF AUTHORITIES—Continued
Page
U.S. National Bank of Oregon v. Independent In-
surance Agents of America, Inc., 113 S. Ct. 2173
PERE SEC R ERS pinnae rman ee ma 19
United States v. Vogel Fertilizer Co., 455 U.S. 16
I oceanic a eee ta i eee eee iA 20
United States v. Wong Kim Bo, 472 F.2d 720 (5th
4 __ SaSSERS ae cel eas Sone ed ann een 10
Variable Annuity Life Insurance Co. v. Clarke, 998
F.2d 1296 (Sth Cir. 1998) ............................._. 25
STATUTES
12 U.S.C. § 24 (Seventh) ......... passim
12 U.S.C. § 92 (Supp. V 1993) 2000 passim
BS UB. § UTRO CE) anna cscecensennes--s-..-....... 9
ee 10
ES A) |, ee 10
1S UBL. § SSG (S9) ................................................. 10
|) | 10
bh. TTT 10
Use. eee... 8
Act of Feb. 25, 1863, ch. 58, § 11, 12 Stat. 665, 668. 18
Act of Sept. 7, 1916, Pub. L. No. 64-270, 39 Stat.
MEDS CIRSOISESSSISE SE 98 NE se 20
Alaska Banking Code § 06.05.272(b) sit 26
Indiana Fin. Code § 28-11-22... tis 26
Minn. Stat. § 48:61 ea 26
Tenn. Code Ann. § 42-2-601 ss ti—si—‘—sS 26
Tenn. Code Ann. § 56-6-201... ss stsi—st 26
MISCELLANEOUS
2 Fed. Res. Bull. 73 (Feb. 1, 1916) __. isaac 19
53 Cong. Rec. 11001 (1916)... 18, 19, 28
53 Cong. Rec. S11002 (1916) ss 20
53 Cong. Rec.S11153 (1916) ss 20
A Popular and Complete English Modern Diction-
EE 7
AARP & NASAA Bank Investment Products Sur-
ST i 5
vii
TABLE OF AUTHORITIES—Continued
Page
Edward L. Symons, Jr., The “Business of Banking”
in Historical Perspective, 51 G. Wash. Law Rev.
I I tiircredidiecie ee 16
K. Davis, Administrative Law Treatise Vol. Ill
dee. , eR, Ne 20
Letter from William P. Bowden, Jr., Chief Counsel,
OCC, to Jack Kelley, Blackfeet Nat’! Bank, May
Wilh MEE vateeticatintinsetibiinidbiticictise tee cat 13
Letter from Charles F. Byrd, Asst. Director, Legal
Advisory Services Div. (June - ae 17
of the Treasury, Feb. 5, 1991... —s—s 13
OCC Ltr. 494 (Dec. 20, 1989), reprinted in [1989-
1990 Transfer Binder] Fed. Banking L. Rep.
CRU i err 16, 17, 18
The American Standard Dictionary of The English
Language (1815) El ATO ee 7
The Oxford English Dictionary (1989) 7
The Universal English Dictionary (1861) 7
Webster's Collegiate Dictionary (9th ed. 1984) ...... 738
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,
Respondent.
EUGENE Lupwie, COMPTROLLER OF THE
CURRENCY, et al.,
7 Petitioners,
VARIABLE ANNUITY LIFE INSURANCE COMPANY,
Respondent.
On Writ of Certiorari to the
United States Court of Appeals
for the Fifth Circuit
BRIEF OF AMICI CURIAE
NATIONAL ASSOCIATION OF LIFE UNDERWRITERS,
NATIONAL ASSOCIATION OF PROFESSIONAL
INSURANCE AGENTS, AND INDEPENDENT
INSURANCE AGENTS OF AMERICA, INC.
IN SUPPORT OF RESPONDENT
INTEREST OF AMICI
Amici curiae National Association of Life Under-
writers, National Association of Professional Insurance
Agents, and Independent Insurance Agents of America.
Inc., are non-profit national trade associations that repre-
2
sent hundreds of thousands of insurance agents and their
employees throughout the United States. Many of these
agents market and sell fixed and/or variable annuities
pursuant to State-issued insurance agency licenses. To the
extent these agents sell annuities in North Carolina and
South Carolina, they are in direct competition with peti-
tioners, NationsBanc Securities, Inc. and NationsBank of
North Carolina, N.A. (collectively “NationsBank’’),
which seek to sell annuities as agents for life insurance
companies.
Amici have a substantial interest in the questions pre-
sented here because of their members’ involvement in the
sale of annuities—an important and growing part of the
insurance business. Amici’s members are directly threat-
ened by, and concerned with, the entry of banks like
NationsBank into the marketplace for insurance. Because
of their control of capital, banks necessarily have an un-
fair advantage in the sale of insurance that is detrimental
to both independent agents and the general public. See,
e.g., Barnett Bank of Marion County, N.A. v. Gallagher,
839 F. Supp. 835 (M.D. Fla. 1993) (explaining that
statutory separation of banking and insurance “is for the
protection of the solvency of the insurance industry, and
the prevention of coercion which in turn protects all
potential, present and future policyholders”) (appeal
pending).
Amici have long maintained that their associations’
interest in sustaining and improving the business environ-
ment of those engaged in insurance, and protecting the
insurance customer, is served by endorsing the separation
of banking and insurance as provided under current law.
In this regard, amici often appear as parties and as amici
curiae in cases, such as this, raising important questions
regarding the power of banks to engage in the business
of insurance.
3
SUMMARY OF ARGUMENT
It is well-settled that national banks—such as Nations-
Bank—are !imited to those activities authorized by law.
E.g., Logan County Nat'l Bank v. Townsend, 139 U.S.
67, 73 (1891). This Court long ago explained that
“[t]he measure of their powers is the statutory grant; and
powers not conferred by Congress are denied.” Texas &
Pac. Ry. Co. v. Pottorff, 291 U.S. 245, 253 (1934).
Section 24 (Seventh) of the National Bank Act enu-
merates a series of express banking powers so authorized.
It also permits a national bank to exercise “all such
incidental powers as shall be necessary to carry on the
business of banking ... .” 12 U.S.C. § 24 (Seventh)
(emphasis added).
An incidental power must be related to and facilitate
the accomplishment of one of Section 24 (Seventh)’s
enumerated powers. The “incidental” and “necessary”
clause does not confer the unfettered power to engage in
the undefined “business of banking.” Moreover, the word
“necessary” has been ignored by the Comp*‘roller and,
quite frankly, by many of the lower courts. But the teach-
ings of this Court emphasize that it is the plain meaning
of the statutory language that controls. Necessary, as
used in Section 24 (Seventh), cannot mean merely con-
venient or useful, but rather means “reasonably required.”
In this case, the language requires that the Comptroller’s
order be reversed, because the Comptroller has not found
—and could not find—that the sale of annuities is “neces-
sary” to the functioning of a national bank.
12 U.S.C. § 92 (Supp. V 1993) (“Section 92”), which
limits the sale of insurance to national banks located and
doing business in towns of 5000 or less, makes clear that
the sale of annuities is not “incidental” and “necessary”
for national banks to conduct the business of banking.
Finally, national banks’ power to engage in insurance
sales cannot be premised on state-chartered banks’ pur-
4
ported authority to do so. Most States completely prohibit
or severely restrict their chartered banks from engaging in
the sale of insurance products. Moreover, even if this
were not the case, the scope of the powers granted to
national banks cannot be determined by reference to the
powers granted to state-chartered institutions.
ARGUMENT
As a practical matter, the issue presented in this case
is narrow: whether every national bank may sell annuities
(pursuant to Section 24 (Seventh) ) or whether only those
national banks located and doing business in towns not
exceeding 5000 may engage in that insurance-agency ac-
tivity (pursuant to Section 92). The Fifth Circuit, in
the decision under review, held that national banks may
sell annuities only pursuant to Section 92. In reality, this
conclusion appears to impose few limitations on national
banks’ actions. As interpreted by the Comptroller, Sec-
tion 92 permits the bank to operate out of a branch in a
small town, even if its main office is in a large city, and
to sell insurance (including annuities) to customers lo-
cated anywhere.’ If the Comptroller’s interpretation of
Section 92 is correct, presumably any national bank that
is currently selling annuities (unlawfully) pursuant to Sec-
tion 24 (Seventh) could simply transfer its activities to a
small town branch of the bank. The dire predictions of
the national banks in this case must be seen for what they
are: a cry of “wolf.”
The relevance of this case, however, is much broader.
Especially in recent years, the Comptroller has repeatedly
1 See Independent Ins. Agents of Am., Inc. v. Ludwig, 997 F.2d
958 (D.C. Cir. 1993). This broad interpretation is subject to pend-
ing litigation. See Barnett Bank of Marion County, N.A. v. Gal-
lagher, 839 F. Supp. 835 (M.D. Fla. 1993), appeal pending, No.
93-3508 (11th Cir.); NBD Bank, N.A. v. Rennett, Civ. Action No.
IP 94-862-C (U.S. Dist. Ct., S.D. Indiana); Shawmut Bank Con-
necticut, National Ass’n v. Googins, Civ. 3:94CV146 (JAC) (U.S.
Dist. Ct., D. Conn.).
5
and consistently expanded the powers of national banks to
engage in non-banking activity—most relevant to amici,
in the insurance business—purportedly pursuant to Sec-
tion 24 (Seventh). The Comptroller has affirmatively
encouraged national banks, adversely affected by economic
forces that prompt consumers to obtain loans from non-
bank sources and to place their money elsewhere, to
garner revenues from non-traditional sources. Unable to
obtain legislation that would permit national banks to
expand into these non-banking businesses, the Comptroller
has taken an aggressive administrative stance and opened
the door to these activities under cover of the Chevron
doctrine—and not without significant detriment and risk
to the bank customer.’ This case offers the Court an
opportunity to instruct the Comptroller that he does not
have carte blanche authority to rewrite Congress’ care-
fully crafted legislation which, for the safety and sound-
ness of the banking system, has long maintained the
separation of banking and commerce.
I. THE LANGUAGE AND STRUCTURE OF SECTION
24 (SEVENTH) OF THE NATIONAL BANK ACT
DO NOT PERMIT THE COMPTROLLER TO AU-
THORIZE NATIONAL BANKS TO SELL ANNUI-
TIES.
In grantin: NationsBank permission to sell annuities in
the letter ac issue here, the Comptroller failed even to
identify the statutory language on which his authorization
of annuity powers was based. There is no question, how-
ever, that Section 24 (Seventh) does not expressly grant
2 In a recent survey of purchasers of non-banking products offered
by banks, for example, one of the primary conclusions made by
the American Association of Retired Persons and the North
American Securities Administrators Association was that many
bank customers incorrectly believe that the FDIC offers the same
protection to mutual funds, stocks and annuities offered by banks
that it offers to savings and checking accounts. These customers
are convinced to purchase non-banking products from banks under
a false sense of security. See AARP and NASAA Bank Investment
Products Survey (Jan., 1994).
6
national banks the power to sell annuities. Thus, the only
grant of power upon which the Comptroller could rely to
defend his interpretation of the section as allowing na-
tional banks to sell annuities is the “incidental powers
.. . Mecessary to carry on the business of banking” clause.
But the Comptroller made no actual finding that annuity-
sales powers are “incidental” and “necessary” to the busi-
ness of banking.
Even now, petitioners make no attempt to articulate
how the sale of annuities is “necessary” to the business of
banking. Indeed, they postulate no meaningful definition
of the term. The Comptroller post hoc states equivocally
that “the term may mean no more than convenient or use-
ful.” Fed. Br. at 23 (emphasis added).* NationsBank
appears to believe the term should mean “appropriate” or
“reasonably conductive to the end to be accomplished,”
NationsBank Br. at 21, although it does not explain how
the sale of annuities fits into even this overly broad defi-
nition. In the end, the Comptroller is reduced to asserting
that necessary means whatever he says it means. Fed. Br.
at 21-22.
Necessary must, however, have some meaning. And
because no party has argued that selling annuities is
reasonably “required” or “essential” to the business of
banking, the only issue to be resolved is whether “neces-
sary” can be read so broadly as to be unrecognizable—to
mean not essential or needed or even reasonably required,
but instead to mean merely “convenient” or “expedient.”
As demonstrated below, no plausible interpretation of the
word necessary, whether that term is read alone or in
the context of banking law generally, includes such a
broad, tortured definition.
8 This post hoc rationalization of the agency’s action is entitled
to no deference. E.g., Burlington Truck Lines, Inc. v. United States,
371 U.S. 156, 168 (1962).
7
A. The Comptroller’s Interpretation Is Foreclosed by
the Plain Language of the Statute.
“In cases of statutory construction we begin, of course,
with the language of the statute.” Diamond v. Chakra-
barty, 447 U.S. 303, 307 (1980) (citation omitted). In
construing that language, “[a] fundamental canon of statu-
tory construction is that unless otherwise defined, words
will be interpreted as taking their ordinary, contemporary
common meaning.” Perrin v. United States, 444 U.S. 37,
42 (1979) (citation omitted). Thus, in determining the
meaning of the term “necessary,” “we look to the ordinary
meaning of the term . . . at the time Congress enacted the
statute” in 1863. Jd. at 42; see also MCI Telecommuni-
cations Corp. v. American Telephone & Telegraph Corp.,
114 S.Ct. 2223, 2230 (1994) (“the most relevant time
for determining a statutory term’s meaning” is when the
statute was passed ).
“Necessary” has a plain, ordinary, unambiguous mean-
ing: it means “reasonably required,” “needed,” or “essen-
tial.” A review of dictionaries in existence during the mid
and late 1800s reveals that this was the understanding of
the word “necessary” at the time the statute was enacted;
indeed many dictionaries defined necessary in an even more
restrictive manner. See, e.g., The Universal English Dic-
tionary 216 (1861). (“Indispensably requisite; that can-
not be otherwise; needful; conclusive; decisive by inevit-
able consequence; unavoidable”); A Popular and Com-
plete English Modern Dictionary 870 (1850) (“That must
be; that cannot be otherwise, indispensably requisite. In-
dispensable; requisite; essential; that cannot be otherwise
without preventing the purpose intended. Unavoidable.”);
The American Standard Dictionary of the English Lan-
guage (1815) (“needful, unavoidable”). Modern diction-
ary definitions confirm this common-sense understanding
of the word. See, e.g., The Oxford English Dictionary
275 (1989) (“Indispensable, requisite, essential, needful;
that cannot be done without.”); Webster’s Collegiate Dic-
8
tionary 790 (9th Ed. 1984) (“Of an inevitable nature:
inescapable.” ).*
No dictionary reviewed in existence when the statute
was enacted defined necessary as “convenient” or “use-
ful.”° Thus, it is not surprising that this Court has
expressly rejected the definition petitioners proffer. As
the Court held, “[a] practice is not within the incidental
powers of a [national bank] merely because it is con-
venient in the performance of an express power.” Texas
Pac. Ry. Co. v. Pottorff, 291 U.S. at 255 n.7.
The plain, unambiguous meaning of the word “neces-
sary” has been recognized by other courts when interpret-
ing the word in the context of other statutes. In Sunshine
Mining v. United States, 827 F.2d 1404 (9th Cir. 1987),
for example, the Ninth Circuit recognized that a “neces-
sary” process is one that is “essential.” /d. at 1408 (in-
terpreting 26 U.S.C. § 613(c)(2)). Similarly, in Mor-
rison-Knudsen v. CHG Int'l, 811 F.2d 1209 (9th Cir.
1987), cert. dismissed, 488 U.S. 935 (1988), the court
recognized that the FSLIC could not appropriate more
power than was expressly granted to it merely by pointing
to statutory language allowing it “to do all other things
that may be necessary in connection” with its business.
4 Petitioners point to only one, contemporary, dictionary defini-
tion in which necessary is defined as either “convenient” or “useful”
or “inevitable” or “indispensable.” That dictionary, however, did
not exist at the time the Congress drafted what is now Section 24
(Seventh). Moreover, the existence of “one dictionary whose sug-
gested meaning contradicts virtually all others” is not sufficient to
establish that a phrase is ambiguous. MCI Telecommunications
Corp. v. American Telephone & Telegraph, 114 S.Ct. 2223, 2229
(1994). Instead, the commonly accepted meaning is the one that
courts should attribute to the word in question. /d.
5 Indeed, petitioners’ briefs notably fail to cite a single defini-
tion from a dictionary in existence when the statute was passed.
6 See Pierce v. Underwood, 487 U.S. 552, 563-67 (1988) (using
interpretations of similar language in other statutes to decide which
of two meanings to give to relevant language).
9
The agency, the Court noted, was “seek[ing] to burden a
word, in this case ‘necessary,’ with more weight than it
reasonably can carry”. Jd. at 1218-19 (interpreting 12
U.S.C. §$1729(d) ).’
B. The Proper Interpretation of the Term “Necessary”
Is Confirmed When Read in the Context of Section
24 (Seventh) and the Banking Laws as a Whole.
Reading Section 24 (Seventh) as a whole confirms that
necessary means “reasonably required,” not merely “con-
venient” or “useful.” Section 24 (Seventh) contains a
grant of express powers and also contains a grant of those
powers reasonably required—necessary—to effectuate
those authorized activities. Petitioners would not only
rewrite the definition of necessary but would also ignore
the phrase immediately following it: “to carry on the
business of banking.” Although it might be convenient or
useful for banks to offer annuities—it allows them an
additional revenue-raising opportunity and provides a serv-
ice their customers may want—selling annuities does not
further the business of banking, as that phrase is properly
understood. That is, selling annuities does not further the
bank’s ability to perform an express bank power, such as
deposit taking, credit granting or credit exchanging.* And
it certainly cannot be said that national banks reasonably
7 NationsBank’s attempt to draw meaning from the term “neces-
sary” as used in the “Necessary and Proper” clause of Article I of
the U.S. Constitution, NationsBank Br. at 22, is misguided. First,
unlike statutory provisions, constitutional implied powers are con-
strued generously. See Arnold Tours, Inc. v. Camp, 472 F.2d 427, 431
(1st Cir. 1972). Second, the term as used in Section 24 (Seventh)
is directly tied to specific enumerated banking powers.
58 That the sale of annuities must relate to one of national banks’
enumerated powers was made clear in the New York Court of
Appeals’ seminal decision in Curtis v. Leavitt, 15 N.Y. 2 (1857),
interpreting the incidental powers clause of the New York law on
which Section 24 (Seventh) was based. The Curtis court held that
an “incidental” power must be directly related to the exercise of
specified powers, as well as necessary and useful to give them effect.
Id. at 157-58.
10
require the power to sell annuities in order to engage in
banking; banks have been effectively engaging in banking
since the passage of the statute despite their historic
inability to sell annuities.
That necessary means reasonably required or needed
is clear when the word is viewed in isolation, clearer
when it is read in the context of Section 24 (Seventh)
as a whole, and clearer still when read in conjunction
with other banking statutes. When Congress wanted to
grant financial institutions the ability to exercise all in-
cidental powers that would be convenient or useful—
instead of reasonably required or needed—it did so ex-
pressly. Throughout banking law, Congress has conferred
certain incidental powers that are either necessary or ex-
pedient to the business of banking.’ It is therefore clear
that Congress, according words their ordinary meaning,
does not view the terms necessary and expedient as co-
extensive. And Congress’ failure to include “expedient”
or “convenient” language in Section 24 (Seventh) indi-
cates that the only power granted in that section is the
incidental power that is “necessary”—reasonably required
—and not merely expedient or convenient, to the busi-
ness of banking. See Russello v. United States, 464 U.S.
16, 23 (1983), quoting United States v. Wong Kim Bo,
472 F.2d 720, 722 (Sth Cir. 1972) (“ ‘[W]here Congress
includes particular language in one section . . . but omits
it in another . . ., it is generally presumed that Congress
acts intentionally and purposely in the disparate inclusion
or exclusion.’ ”’).
* See, e.g., 12 U.S.C. §§ 2013 (“Each Farm Credit Bank .. . shall
have power to— ... exercise . . . all such incidental powers as
may be necessary or expedient to carry on the business of the
bank”); 2073 (20) (same as to “[elach production credit asso-
ciation’) ; 2093 (20) (same as to “[elach Federal land bank asso-
ciation”) ; 2122 (16) (same as to “[e]ach bank for cooperatives” ) :
3012 (18) (National Consumer Cooperative Bank “shall . . . have
such other incidental powers as may be necessary or expedient
to carry out its duties’’).
11
This Court’s cases interpreting Section 24 (Seventh)
do not contradict this interpretation of the incidental and
necessary clause. Often, the Court has looked at the
nexus between the expressly authorized activity and the
activity in which national banks wanted to engage to de-
termine if the incidental and necessary clause would so
allow. In Texas & Pac. Ry. Co. v. Pottorff, 291 U.S.
245 (1934), for example, this Court examined a bank’s
pledge of bonds to a depositor. The bank claimed that
the ability to pledge securities to a depositor was inci-
dental and necessary to deposit banking—an expressly au-
thorized power." Because banks had not historically en-
gaged in such practice in the past, the Court held, the
activity was clearly not “necessary” to the bank’s ability
to engage in deposit banking. And although making such
pledges might be “convenient in the performance of an
express power,” that did not bring the activity within the
incidental and necessary clause. Pottorff, 291 U.S. at
255 & n.7.
Clement National Bank vy. Vermont, 231 U.S. 120
(1913) similarly does not support petitioners’ argument.
In Clement, the Court noted that incidental powers are
those that “‘are required to meet all the legitimate de-
mands of the [bank’s] authorized business.’” Jd. at 140,
quoting First Nat. Bank v. National Exch. Bank, 92 U.S.
122, 127 (1875) (emphasis added). The Court first rec-
ognized that accepting deposits and paying interest were
expressly authorized powers. Because the State could un-
questionably require the bank to pay taxes on such in-
terest which the bank would then, in turn, charge its de-
positors, the bank’s decision to act as the State’s agent,
the Court held, fell within the Sank’s incidental and nec-
essary power. Similarly, in Franklin Nat. Bank v. New
York, 347 U.S. 373 (1954), heavily relied on by peti-
tioners, this Court construed the incidental and necessary
1 “TRieceiving deposits” is a power expressly conferred by Sec-
tion 24 (Seventh).
12
clause as allowing a bank to advertise that it accepted
savings deposits, by using the term “savings.” Accepting
deposits was the expressly authorized activity,”’ the Court
held, and changed circumstances—“[m]odern competition
for business’—made it reasonably necessary for banks to
be able to advertise, truthfully, that they could engage in
such activity.”
In contrast to this Court’s cases, the courts of appeals
have revised the statutory provision Congress enacted,
rather than interpreting it. Although these courts gen-
erally have correctly required that any Section 24
(Seventh) power be directly related or ancillary to the
exercise of an express banking power (because Congress
has mandated that these subsidiary powers be “inciden-
tal”), the courts, like the Comptroller, have simply ig-
nored the separate and independent requirement that an
incidental power be “necessary” to the business of bank-
ing. See, e.g., Arnold Tours, Inc. v. Camp, 472 F.2d
427 (ist Cir. 1972) (holding that an activity “is au-
thorized as an incidental power . . . if it is convenient
and useful in connection with the performance of one of
the bank’s established activities pursuant to its express
powers under the National Bank Act” and failing to ac-
1! Although petitioners suggest that the banking “activity” in
question was advertising, see NationsBank Br. at 26, in fact the
banking activity at issue was receiving savings deposits. See
Franklin National Bank, 347 U.S. at 377. The “incidental and
necessary” activity was advertising the banking activity in which
the bank was engaged, by using the term “savings.”
12 Other cases relied on by petitioners did not require the Court
to reach the scope of the “incidental and necessary” clause at all.
In Colorado Nat'l Bank of Denver v. Bedford, 310 U.S. 41 (1940),
for example, offering safe-deposit boxes was found to be implicit
in the express grant of power, both beceuse Section 24 (Seventh)
places a limit on the ability to conduct safe-deposit business, and
because offering safe-deposit boxes was the functional equivalent
of accepting “special deposits,” an activity that is expressly au-
thorized by the statute. Jd. at 48-49.
13
knowledge this Court’s rejection of the “convenience”
standard in Pottorff).
The lax interpretations of Section 24 (Seventh) under-
taken by the Comptroller and the courts of appeals over
the years have not given full effect to the plain language
of that provision; the word “necessary” has been virtually
erased from the statute. As dictated by this Court’s ju-
risprudence, that word—purposefully inserted by Con-
gress——-must be given the effect that the statutory language
requires.
C. The Comptroller Has Not Demonstrated That the
Sale of Annuities Is an Incidental and Necessary
Bank Power.
The Comptroller seems to believe that if he authorizes
a national bank to engage in a certain activity then that
activity, a fortiori, is “necessary” to allow the bank to
conduct its enumerated banking powers. Fed. Br. at 23.
Indeed, the Comptroller contends that the courts are not
“competent” to judge the question. Jd. at 42. Nations-
Bank and its amici make their position more clear: na-
tional banks must be assured that the Comptroller’s rul-
ings as to their powers are irreversible. See NationsBank
Br. at 18; New York Clearing House Ass’n Br. at 4,
7-8. But Congress did not grant the Comptroller un-
bridled authority to shape national bank powers—to de-
138 The Comptroller’s lack of respect for court decisions invalidat-
ing his actions was made clear in the agency’s recent letter to
Blackfeet National Bank approving the Bank’s underwriting and
selling of a so-called “Retirement CD,” a product Chairman Din-
gell of the House Committee on Energy and Commerce described
as “functionally a deferred life annuity.” In the agency’s letter,
lodged with the Court for its review, the Comptroller made clear
that he believes the Fifth Circuit’s decision in this case failed to
give him proper deference and therefore he would ignore it. Ltr. at
5 n.4. In his letter to the Comptroller, also lodged with the Court,
Chairman Dingell recognized that the Comptroller’s sanctioning of
Blackfeet’s actions “directly conflicts” with the Fifth Circuit’s
VALIC decision. Dingell Ltr. at 2.
4
14
fine, at his will, the “business of banking.” Although the
Comptroller may be genuinely and justifiably concerned
about the future of national banks, that concern does not
permit him to ignore Congress’ directives. Without an
express statutory authorization, national banks may not
engage in any activity unless it is an “incidental power
[ ] necessary to carry on the business of banking.”
No evidence has been presented, nor was there any
finding by the Comptroller, that the sale of annuities
meets the proper test for an incidental and necessary
power. There is nothing about the sale of annuities that
makes them either a necessary means of carrying out the
express banking powers or necessary to the business of
banking in any other way.
Instead, by a bootstrap approach, petitioners maintain
that a bank’s sale of annuities is a proper incidental power
by claiming that annuities are “similar to” and “resemble”
other products sold by national banks, such as securities
and certificates of deposit, which in turn have been re-
garded as falling within the purview of the incidental
powers clause. The Comptroller contends that because
national banks are purportedly empowered to broker “fi-
nancial investment instruments” generally, they are per-
mitted to sell any product that the Comptroller believes
fits within this amorphous description.
Contrary to petitioners’ apparent assumption, however,
nothing in the National Bank Act authorizes national
banks to “broker[] investment instruments for their cus-
tomers.” Fed. Br. at 22; NationsBank Br. at 19-20. “Fi-
nancial investment instrument” is not a statutory term
that can be interpreted and applied to the particular
facts here. The phrase was fabricated by the Comptroller
for the purpose of expanding national banks’ powers; it
appears nowhere in the National Bank Act. Thus, there
is no basis for deferring to the Comptroller’s conclusion
that annuities constitute such so-called “financial invest-
ment instruments.”
15
No court has ever authorized national banks’ brokerage
of “financial investment instruments.” ** Thus, the Comp-
troller may not permit national banks to broker expensive
art, valuable antiques, estate jewelry or coin collections,
for example, even though they are often “treated as invest-
ment products in the marketplace.” NationsBank Br. at
13. This is simply not the relevant inquiry under Section
24 (Seventh).
Chairman Dingell succinctly explained the fallacy of
the Comptroller’s reasoning in a letter to the agency re-
garding its recent approval of a national bank’s marketing
of a deferred annuity called a “Retirement CD” (see n.13
supra):
Congress most recently refused to repeal this legal
separation [between banking and insurance and other
forms of commerce] in 1991 when it considered major
bank reform legislation that would have allowed
banks to engage in commerce. The Bush Adminis-
tration’s argument’ for this legislation, that banks
need a “synergism” among the products they provide,
was quite similar to the proclamations of the Comp-
troller in his letter: “A national bank’s express powers
allow it to design products which augment its tradi-
tional bank activities” and “The Retirement CD is a
logical outgrowth of the Bank’s business mandate
which, as with any bank, is to offer its customers
competitive and innovative financial products.” This
is an interesting idea, but banks simply have no such
‘mandate’. This erroneous line of reasoning would
'* To the contrary, courts have carefully confined their analyses
and decisions to the particular activity at issue. See, e.g., First
Nat’l Bank v. City of Hartford, 273 U.S. 548 (1927) (power to sell
mortgages and evidences of debt). To read these decisions as a
broad grant of authority to banks to engage in the sale of any sort
of “financial” product is a perversion.
15 Modernizing the Financial System: Recommendations for
Safer, More Competitive Banks, Department of the Treasury,
February 5, 1991.
”
16
allow banks to do any financial activities they
wanted, whether insurance, securities, or any other—
and is not only contrary to the laws currently appli-
cable to banks (see, e.g., the GlassSteagall Act), but
was also rejected by Congress when it refused to en-
act the 1991 legislation that proposed granting such
powers to banks. (Internal citations omitted).
In any event, there are fundamental and critical dif-
ferences between the so-called “financial investment in-
struments” whose sale by national banks have been au-
thorized (because they were found to facilitate one of the
expressly enumerated bank powers) and annuities. Unlike
a bank’s sale of securities and CDs and other debt instru-
ments, a bank’s sale of annuities in no way facilitates
its essential deposit-taking and credit-granting functions.”
Unlike a bank’s brokerage of securities and futures and
options contracts, there is no clearing function involved
or performed by a bank in connection with its brokerage
of annuities. As recognized by the Comptroller. clearing
involves an extension or substitution of the bank’s credit
for that of its customer—a quintessential banking func-
tion. Precisely because of the presence of the clearing
aspect involved in a bank’s sale of these other products,
and the fact that the clearing function is incidental to the
express traditional bank powers of credit extension or
substitution, the Comptroller has ruled that such sales
are an incidental banking function. See, e.g., OCC Ltr.
494 (Dec. 20, 1989), reprinted in [1989-1990 Transfer
Binder] (Fed. Banking L. Rpt. (CCH) € 83,083." An-
16 See Edward L. Symons, Jr., The “Business of Banking” in
Historical Perspective, 51 G. Wash. Law Rev. 676, 718 (1985)
(“Since insurance annuities do not serve to support the important
deposit-taking and credit-granting functions of banks, such trans-
actions are not incidental to the business of banking.’’).
17 As stated in OCC Ltr. 494 pertaining to a bank’s sale of securi-
ties and futures and options, upon which the Comptroller relied
in its ruling at issue:
17
nuity sales do not have a clearing component. Therefore,
the parallels for purposes of the incidental powers clause
are illusory.
The Comptroller’s assertion that annuities “resemble”
certificates of deposit sold by national banks is not only
misleading, but wrong. Unlike in a bank’s sale of a bank
CD to its customer, no debtor-creditor relationship is
established between the bank and the customer when the
bank sells an annuity. Instead, a debtor-creditor relation-
ship is established only between the customer and the
insurance company issuing the annuity—not the bank
which sells the annuity as an agent for the company. See,
e.g., Crossman Co. v. Rauch, 263 N.Y. 264, 273 (1934)
(“the obligation of the insurance company constitutes a
debt from the company to the beneficiary under the policy
[annuitant]”) (emphasis added). This distinguishes the
two activities viz-a-viz the bank’s enumerated powers, since
the debtor-creditor relationship is at the heart of the bank’s
principle functions.
Furthermore, national banks have never been permitted
to engage in, and indeed have not in the past engaged in,
the sale of annuities (outside the limited powers conferred
by Section 92): the activity is not within national banks’
traditional banking powers. Nor, before the decisions at
issue here, have federal regulators permitted such ac-
tivity."* This distinguishes the sale of annuities from any
part of this brokerage service—namely, clearing—is itself a
credit extension process.
Clearing is related to two other traditional and express bank credit
functions in which the bank adds its credit to, or substitutes its
credit for, that of its customer—a bank’s issuance of bankers’
acceptance and letters of credit.
18 As recently as 1978, the Comptroller ruled that national banks
were not empowered to sell annuities. See Letter from Charles F.
Byrd, Asst. Director, Legal Advisory Services Division (June 16,
1978) R. 7-8. It was the Comptroller’s abrupt change in this policy
that prompted national banks to race into the annuities business.
18
of the sanctioned activities upon which petitioners would
rely. See, e.g., OCC Ltr. 494 (agricultural futures and
options contracts); Colorado Nat'l Bank v. Bedford, 310
U.S. 41 (1940) (leasing safe deposit boxes ).
The fact that banks would like to sell annuities because
they generate revenue—which is really the motivating
force behind the banking community’s attempt to move
into this area—cannot translate into the required “inci-
dental and necessary” showing. Nothing said by any
party in this case indicates that a national bank reasonably
needs annuity-agent powers in order to effectively engage
in banking practices. Although the Comptroller might
wish national banks had been given a broader grant of
authority, his remedy is to seek Congressional action, not
to ignore the plain meaning of express statutory terms.
See Board of Governors v. Dimension Fin. Corp., 474
U.S. 361, 364 (1986) (holding that it is for Congress,
not the agency or courts, to remedy any perceived fault
with a federal statute).
II. SECTION 92 DEMONSTRATES THAT CONGRESS
DID NOT INTEND SECTION 24 (SEVENTH) TO
AUTHORIZE NATIONAL BANKS’ SALE OF IN-
SURANCE.
Congress enacted the predecessor of Section 24 (Sev-
enth), including the provision of “incidental” and “neces-
sary” powers, in 1863. Act of Feb. 25, 1863, ch. 58, § 11,
12 Stat. 665, 668. In 1916, then-Comptroller John Skelton
Williams wrote in a letter to the Senate Banking and
Currency Committee requesting that national banks located
in small towns be permitted to act as insurance agents.
53 Cong. Rec. 11001 (daily ed. July 14, 1916). The
Comptroller expressed a desire to find a statutory mech-
anism whereby “the powers of small national banks might
be enlarged so as to provide them with additional sources
of revenue and to place them in a position where they
could better compete with local State banks and with
19
companies which are sometimes authorized under the law
to do a class of business not strictly that of commercial
banking.” Id. (emphasis added).’® Accordingly, the
Comptroller proposed an amendment to the National Bank
Act.
Noting that national banks were already granted
“incidental” and “necessary” powers, Comptroller Wil-
liams explained that his proposed amendment was never-
theless required because “[n]ational banks are not given
either expressly or by necessary implication the power to
act as agents for insurance companies.” /d.*° Comptroller
Williams therefore clearly understood that a national
bank’s acting as agent for an insurance company was
not an “incidental power . .. necessary to carry on the
business of banking” under Section 24 (Seventh).
This letter constitutes virtually the entire legislative
history of Section 92. See id.; U.S. Nat'l Bank of Oregon
v. Independent Ins. Agents of Am., Inc., 113 S. Ct. 2173
(1993). Comptroller Williams’ proposed amendment was
19 Amici Conference of State Bank Supervisors’ (“CSBS”) sug-
gestion that Section 92 was motivated by Congress’ desire to pro-
vide insurance agents to customers in small towns is flatly wrong.
See CSBS Br. at 18-19 & n.9. Rather, Congress was concerned with
failing small town banks and wanted to provide them an additional
revenue source—revenue they could not earn through their tradi-
tional banking business pursuant to Section 24(Seventh). See
53 Cong. Rec. 11001 (daily ed. July 14, 1916). Therefore, Congress
empowered small town banks (and only small town banks) to sell
insurance and act as real estate brokers (the latter grant of power
being later repealed).
2° This view conformed with the opinion of the Federal Reserve
Board, which ruled that national banks had no authority, express
or implied, to engage in insurance agency activities. The Board
explained that “[a]ny such extension of the powers of national
banks must be left to the consideration of Congress.” 2 Fed. Res.
Bull. 73, 74 (Feb. 1, 1916) (emphasis added). At the time—as
now—national banks were granted the power “[t]o exercise . .
all such incidental powers as shall be necessary to carry on the
business of banking.” Jd. at 73.
20
formally introduced on the Senate floor together with Mr.
Williams’ letter by the bill’s sponsor, who referred to the
letter as his sole explanation for introducing the amend-
ment. See 53 Cong. Rec. $11002 & S11153 (1916).
That is, the letter effectively became the sponsor’s words
endorsing the amendment. Comptroller Williams’ com-
ments, explaining both Section 92 and Section 24 (Sev-
enth), are therefore entitled to great deference.”
Congress enacted Comptroller Williams’ proposed
amendment with only slight alteration and without debate
or discussion.” See Act of Sept. 7, 1916, Pub. L. No.
64-270, 39 Stat. 752-53, codified at 12 U.S.C. § 92
(Supp. V 1993). The limited insurance-agency provision
was added not as an amendment to Section 24 (Seventh),
but rather as a separate stand-alone section. The critical
language of Section 92 provides:
[i]n addition to the powers now vested by law in
national banking associations organized under the
laws of the United States any such association located
21 See United States v. Vogel Fertilizer Co., 455 U.S. 16, 31
(1982) (explanation of drafter entitled to great weight in deter-
mining congressional intent) ; Federal Energy Admin. v. Algonquin
SNG, Inc., 426 U.S. 548, 564 (1976) (“As a statement of one of the
legislation’s sponsors, this explanation deserves to be accorded sub-
stantial weight in interpreting the statute.”); NLRB v. Fruit
Vegetable Packers & Warehousemen, 377 U.S. 58, 66 (1964) (Black,
J., concurring) (“It is the sponsors that we look to when the mean-
ing of the statutory words is in doubt.’’).
In addition, as a contemporaneous interpretation of the mean-
ing of the statute by the agency charged with implementing that
statute, the 1916 Comptroller statements are entitled to great
weight. See Norwegian Nitrogen Products Co. v. United States,
288 U.S. 294, 315 (1933). See also Mountain States T. & T. Co.
v. Pueblo of Santa Ana, 472 U.S. 237, 254 (1985) (same) ; K. Davis,
Administrative Law Treatise Vol. III $6.3 at 244 (1994) (same).
22 The only alternation was an upward revision of the population
figure from the 3000 person figure suggested by Comptroller Wil-
liams to 5000 persons. 53 Cong. Rec. S11153 (July 14, 1916).
ee
21
and doing business in any place the population of
which does not exceed five thousand inhabitants . . .
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; . . . . (Emphasis added).
As the Fifth and Second Circuits have recognized, prior
to enactment of Section 92 it was “universally understood
that no national banks possessed any power to act as
insurance agents.” Saxon v. Georgia Ass’n of Indep. Ins.
Agents, Inc., 399 F.2d 1010, 1013 (Sth Cir. 1968)
(emphasis in original); American Land Title Ass’n v.
Clarke, 968 F.2d 150, 155 (2d Cir. 1992) (same),
cert. denied, 113 S. Ct. 2959 (1993). By its express
addition to national banks’ existing banking powers, Sec-
tion 92 constituted the sole source of authority for na-
tional banks to engage in insurance-agency activity.”
Section 92 was thought necessary precisely for the reason
that, as was universally understood at the time, national
banks otherwise had neither the express nor incidental
power to sell insurance—of any kind. Section 92 thus
reflects Congress’ understanding that insurance-agency
powers were beyond the power conveyed by the other pro-
visions of the National Bank Act—including the grant
of “such incidental powers as shall be necessary to carry
on the business of banking.”
This is precisely the reasoning this Court used in Texas
& Pac. Ry. Co. v. Pottorff. In Pottorff, the Court held
that national banks lack power to pledge their assets to
secure a private deposit. 291 U.S. at 251. The Court
ruled that such activity was not an incidental and neces-
* This Court has routinely applied the interpretive principle
that an affirmative grant of a specific power includes a denial of
powers not granted. See, e.g., Botany Worsted Mills v. United
States, 278 U.S. 282, 289 (1929) (“When a statute limits a thing
to be done in a particular mode, it includes the negative of any
other mode.”) ; National R.R. Passenger Corp. v. Passengers Ass’n,
414 U.S. 453, 458 (1974) (same).
22
sary power. In so holding, the Court reasoned that an
amendment to the National Bank Act to provide limited
power to pledge assets to secure deposits “indicates that
Congress believed that the original act had not granted
general power to pledge assets to secure deposits.” Id. at
258 & n.13 (citing legislative history similar to that of
Section 92). The Court noted that the fact that Congress
enacted the limited power in a separate section, rather
than as an amendment to Section 24 (Seventh), indicated
that Congress did not mean merely to clarify that the
power of a national bank to pledge its assets to secure
deposits was contained in the grant of “incidental” pow-
ers. Id. Similarly, the enactment of the limited insurance-
agency authority in a separate statutory provision (Sec-
tion 92) refutes any suggestion that it was merely a
clarification or so-called “supplementation” of powers al-
ready conferred by Section 24 (Seventh).
Faced with the inevitable conclusion to be drawn from
Section 92—insurance agency powers are not conferred
by Section 24 (Seventh)—petitioners argue that Section
92 pertains to the sale of only “general” lines of insur-
ance, not so-called “special” insurance, such as annuities.
It is not at all clear what distinction petitioners intend to
draw between different types of insurance,“ but no such
distinction can be found in Section 92.
To begin, the word “general” appears nowhere in the
text of the statute. Apparently, petitioners would insert
the word so that the statute would read: “act as agent
24 The distinction petitioners purport to draw is entirely un-
principled. Other than annuities, it is not at all clear what types
of insurance would be excluded under their theory; and, other
than “fire” and “life” insurance, it is not clear what would be
included. Indeed, it is significant that the Comptroller does not
articulate the types of insurance the sale of which is and is not
permitted by Section 92. Although it serves his present purposes
to argue that Section 92 is a narrow grant of power, in other con-
texts he is all too willing to interpret the power broadly. See
4 & n.l supra.
23
for any fire, life or other general insurance company.
” As enacted by Congress, Section 92 imposes no
limitation whatsoever on the type of insurance company
for which a national bank may act as agent. The plain
language indicates that a bank may serve “any” company;
fire and life companies are simply examples. There is no
other way to understand the statute—without rewriting
it, as petitioners would do.
Moreover, petitioners focus on the wrong words.
Contrary to the Comptroller’s suggestion, Section 92 does
not refer to “some ‘insurance’ sales.” Fed. Br. at 41.
NationsBank and its amici blatantly misrepresent Section
92’s provisions, contending that it “specifically enumer-
ate[s]” “fire and life insurance.” NationsBank Br. at 46;
see also id. (referring inaccurately to “Congress’ specifica-
tion of ‘fire’ and ‘life’ insurance”); New York Clearing
House Ass’n Br. at 29 (referring to the “general forms of
insurance enumerated in the provision”). The statute
does not refer to or enumerate any form of insurance
product. Rather, Section 92 authorizes national banks to
“act as agent for any fire, life or other insurance com-
pany ... by soliciting and selling insurance and collect-
ing premiums on policies issued by such company.” 12
U.S.C. § 92 (Supp. V 1993) (emphasis added). If there
were some limitation imposed by Section 92—and there
is not—it would be as to the types of companies, not the
types of insurance.” In any event, Section 92 clearly
authorizes small town national banks to act as agents for
life insurance companies. Hence, those banks can sell
annuities issued by life insurance companies only _pur-
suant to Section 92.
Petitioners argue that courts must construe Sections 92
and 24 (Seventh) harmoniously. See NationsBank Br.
at 39-40. But this is precisely what the Fifth Cir-
cuit did: it correctly construed Section 24 (Seventh)
*° Contrary to the Comptroller suggestion, there is no possible
grammatical way to read “fire and life” as modifying “insurance,”
rather than “insurance company.” See Fed. Br. at 41 n.238.
24
as not authorizing national banks to sell annuities, and
Section 92 as conferring limited authority to engage in
that activity. To paraphrase NationsBank, Congress ob-
viously saw no tension between the two provisions be-
cause Section 24 (Seventh) does not authorize banks to
act as agents for insurance companies—that activity is
not “incidental and necessary to the business of banking,”
as the Comptroller and Congress indicated in 1916 when
Section 92 was enacted.
Finally, in an effort to avoid Section 92’s import,
petitioners argue that annuities do not constitute “insur-
ance” within the meaning of Section 92. There is no
basis for this argument, as Respondent demonstrates.
As petitioners and their amici admit, federal banking
law does not define “insurance.” But that does not mean
that Congress intended the Comptroller to give that term
whatever meaning he saw fit. It is not surprising that
the 1916 Congress failed to define the term “insurance”
as used in Section 92. At the time, it was universally
understood that the regulation of the business of insur-
ance was beyond the constitutional power of Congress.
E.g., United States Dep't of Treasury v. Fabe, 113 S. Ct.
2202, 2207 (1993); St. Paul Fire & Marine Ins. Co. v.
Barry, 438 U.S. 531, 538 (1978). Indeed, the regulation
of insurance was left exclusively to the States. Fabe, 113
S. Ct. at 2207. Thus, the only reasonable conclusion is
that the 1916 Congress meant to incorporate in the term
“insurance” those products defined or regulated as in-
surance by the various States in 1916. And, as explained
more fully in Respondent’s brief, the vast majority of
States then, as now, defined and/or regulated annuities
as “insurance.”
Contrary to NationsBank’s assertion, NationsBank Br.
at 45, the Comptroller has no “special expertise” in deter-
mining what is and what is not “insurance.” Indeed, no
federal agency has such expertise precisely because, pur-
suant to tradition and federal statute, Congress has left
25
regulation of the business of insurance to the States.
Thus, there is no principled basis for deferring to the
Comptroller’s judgment that annuities are not “insur-
ance.” See Chevron USA, Inc. v. Natural Resources
Defense Council, 467 U.S. 837, 865 (1984) (deference
9 “
based on agency’s “great expertise”).
Ill. THE BUSINESS PRACTICES OF STATE BANKS
DO NOT SUPPORT THE EXTENSION OF THE
POWER TO SELL ANNUITIES TO NATIONAL
BANKS.
In its amicus brief, the American Bankers Association
(“ABA”) maintains that, because many state-chartered
banks are purportedly permitted to sell insurance, national
banks should be permitted to sell annuities—a form of
insurance.” See ABA Br. at 12-16. This contention is
without merit as a matter of both fact and law.
First, the overwhelming state authority that ABA in-
vokes simply does not exist. The ABA contends that 34
States grant banks at least some insurance sales powers.
However, the Appendix the ABA attached to its brief it-
self demonsratates that the vast majority of States prohibit
or restrict such powers: of the 34 States the ABA con-
tends permit their banks to sell insurance, 9 limit that
grant of authority to state-chartered banks located in
small towns—a power commensurate with small town
national banks’ Section 92 insurance sales authority; ** an
*6 See Variable Annuity Life Insurance Co. v. Clarke, 998 F.2d
1295, 1300 (5th Cir. 1993) (“All fifty states currently regulate
annuities under their insurance laws.”); id. at n. 2 (citing the
State statutes defining annuities as insurance); Securities and
Exchange Comm. v. Variable Annuity Life Ins. Co., 359 U.S. 65,
69 (1959) (“all the States regulate ‘annuities’ under their insur-
ance laws’’).
“7 These 9 States are Arkansas, Colorado, Florida, Georgia,
Kansas, Mississippi, Missouri, New Mexico, and Washington.
26
additional 4 of these States prohibit the sale of insurance
by banks except for those that were engaged in such
sales before a specified date; ** another 2 permit only sav-
ings banks to engage in insurance-agency activity; ” and
the ABA’s description of the insurance sales authority in
at least four other States is simply incorrect.”
Thus, most States—at least 35—-completely prohibit or
severely restrict state-chartered banks from selling insur-
ance. Therefore, even if the ability of state-chartered
banks to sell insurance were relevant to the powers
granted national banks, it would indicate that the sale
of insurance should not be considered an incidental power
necessary to the business of banking because States gen-
erally prohibit state-chartered banks from engaging in that
activity.
The ABA’s legal assertion that “this Court has held
that a power is incidental if it is a ‘generally adopted
method’ of banking,” ABA Br. at 13 (quoting Colo-
rado Nat'l Bank v. Bedford, 310 U.S. 41, 50 (1940)),
is also incorrect. The ABA’s contention is improperly
premised on the notion that an activity must be consid-
ered part of “the business of banking” if state-chartered
banks engage in that activity. An activity does not be-
28 These States are Connecticut, Kentucky, Louisiana and Texas.
Indeed, the United States District Court for the Eastern District
of Kentucky recently reaffirmed that Kentucky law generally pro-
hibits banks from selling insurance in a case in which the ABA
appeared as an amicus. See Owensboro National Bank v. Wright,
803 F. Supp. 24 (E.D. Ky. 1992) (appeals pending).
29 These two States are New York and Massachusetts.
3% The ABA categorizes Alaska, Minnesota and Tennessee as per-
mitting state-chartered banks to sell insurance, see ABA Amicus
Brief, App. 1, but Alaska Banking Code § 06.05.272(d), implemented
on January 1, 1994, specifically prohibits that activity, and Minne-
sota and Tennessee limit that grant of authority to banks located
in small towns. See Minn. Stat. § 48:61; Tenn. Code Ann. §§ 42-2-
601 and 56-6-201. In addition, Indiana prohibits banks from acting
as agent for life insurance companies. See In. Fin. Code § 28-11-2.
27
come part of the “business of banking” just because banks
sometimes engage in that activity. Indeed, while the past
practice of national banks may be relevant to the question
of whether a particular practice is “necessary to carry on
the business of banking,” it certainly is not determinative.
The ABA’s contention ignores the reality of our
dual banking system: two independent banking systems
exist in the United States—a federal banking system and a
state banking system. In contrast to state-chartered banks,
national banks are creatures of federal law, chartered by
the federal government. See Franklin Nat’! Bank vy. New
York, 347 U.S. at 375. It is well-settled that national
banks “are instruments designed to be used to aid the
government in the administration of an important branch
of the public service.” Farmers’ & Mechanics’ Bank
v. Dearing, 91 U.S. 29, 33 (1875). The United States
has established this separate national banking system
“to perform various functions such as providing cir-
culating medium and government credit, as well as financ-
ing commerce and acting as private depositories.” Frank-
lin Nat'l Bank, 347 U.S. at 375. “[T]he act under which
national banks are organized constitutes a complete sys-
tem of their government.” Pottorff, 291 U.S. at 253.
Put simply, state legislatures cannot grant national banks
power not afforded by Congress. Therefore, contrary to
the ABA’s suggestion, activities in which state-chartered
banks may be authorized to engage under state law have
no direct bearing on the determination of whether that
activity is an “incidental power . . . necessary to carry on
the business of banking” within the meaning of 12 U.S.C.
§ 24 (Seventh).
Colorado National Bank does not suggest otherwise.
In that case, the Court did not hold that methods of bank-
ing “generally adopted” by state-chartered banks are inci-
dental powers. Instead, the Court found that national
banks had traditionally engaged in the activity in question
—the leasing of safe deposit boxes—and that that ac-
tivity relates to a core banking function, namely, provid-
28
ing deposit services, and therefore was impliedly included
in that function. See 301 U.S. at 50.
Indeed, in proposing that small town banks be per-
mitted to sell insurance, then-Comptroller Williams ex-
plained that some States had already chosen to permit
their state-chartered banks to engage in that activity,
which is “not strictly that of commercial banking.” 53
Cong. Rec. 11001 (daily ed. July 14, 1916). When
Congress enacted Section 92 in 1916, it “place[d] [na-
tional banks] in a position where they could better com-
pete with [those] local State banks.” /d. If the “generally
adopted practice” by small town state-chartered banks of
selling insurance would have rendered that activity “in-
cidental” to the business of banking, then enactment of
Section 92 would have been wholly unnecessary.
Thus, the ABA’s statement that “under New York
law a New York State-chartered bank may own a subsid-
iary engaged in any line of business that is not otherwise
unlawful,” ABA Br. at 14 (citing New York State Asso-
ciation of Life Underwriters v. New York State Dept.
of Banking, 83 N.Y.2d 353 (1994)), is completely be-
side the point because, under federal law, a national bank
may engage in only specifically authorized activities or in
“incidental” activities that are “necessary to carry on the
business of banking.” The fact that some State legisla-
tures have made the policy decision to permit their state-
chartered banks to engage in a whole array of activities
beyond the “business of banking” does not mean that na-
tional banks can engage in such activities as well. For
example, the ABA’s 1990 survey of the products and
services that state-chartered banks are authorized to pro-
vide under state laws found that—unlike under the Na-
tional Bank Act—many States permit their state-chartered
banks to engage in a wide variety of non-banking ac-
tivities including the operation of travel agencies, provid-
ing data processing services, and offering management
consultant services. But, the Comptroller does not dis-
pute that the operation of a travel agency is not an in-
29
cidental power necessary to the business of banking even
though, as the ABA has found, many state-chartered
banks routinely engage in that activity. See Arnold Tours,
Inc. v. Camp, 472 F.2d 427 (1st Cir. 1972).
Although Amici agree that “‘the powers of national
banks must be construed so as to permit the use of new
ways of conducting the very old business of banking,’ ”
ABA Br. at 12 (quoting M&M Leasing Corp. v. Seattle
First Nat'l Bank, 563 F.2d 1377, 1382 (9th Cir. 1977),
cert. denied, 436 U.S. 956 (1978)), those powers must
still be limited to the business of banking. The very old
business of selling of insurance simply cannot be con-
strued as being part of that banking business.
CONCLUSION
The authority to act as agent for an insurance com-
pany in the sale of insurance, including annuities, is lim-
ited to those national banks located and doing business
in towns of 5000 or less (pursuant to Section 92); a na-
tional bank cannot invoke its “incidental and necessary”
power to avoid this statutory limitation.
This Court should affirm the judgment of the court of
appeals.
Respectfully submitted,
ANN M. KAPPLER *
Scott A. SINDER
JODIE L. KELLEY
JENNER & BLOCK
601 Thirteenth Street, N.W.
Twelfth Floor
Washington, D.C. 20005
(202) 639-6000
Attorneys for Amici Curiae
* Counsel of Record
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