Petition for Writ of Certiorari — Chase Manhattan Bank, N. A. v. American Land Title Ass'n
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92-482
No.
IN THE :
Siuprene Court of the United States
OCTOBER TERM, 1992
THE CHASE MANHATTAN BANK, N.A,.
Petitioner,
V.
AMERICAN LAND TITLE ASSOCIATION, NEW YORK STATE
LAND TITLE ASSOCIATION, STEPHEN L. STEINBRINK, in
his official capacity as ACTING COMPTROLLER OF THE
CURRENCY, and THE OFFICE OF THE COMPTROLLER OF
THE CURRENCY, an agency of the United States,
Respondents.
Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Second Circuit
PETITION FOR A WRIT OF CERTIORARI
Of Counsel: JOHN D. HAWKE, JR.
L. EDWARD SHAW, JR. DENNIS G. LYONS
KENT T. STAUFFER ROBERT E. MANNION
The Chase Manhattan Bank, HOWARD N. CAYNE *
N.A. DAVID F. FREEMAN, JR.
New York, New York KATHLEEN KELLY
1200 New Hampshire Ave., N.W.
ARNOLD & PORTER Washington, D.C. 20036
Washington, D.C. (202) 872-6700
Attorneys for Petitioner
September 1992 * Counsel of Record
WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001
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QUESTIONS PRESENTED
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re piication, National bar iOL located
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fF &, a s from engaging in
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PARTIES TO THE PROCEEDINGS
IN THE COURT BELOW
The plaintiffs in the distriet ceurt ease were also the
La
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1) kon im 4 reat? yer Po * +) ] TL via inti , .
pelhants in the court of appeals. The plaintiffs were
American Land Tit}: Association ane he New York
7 rm:.7 : . fa hl } c - 4 ss re a m mt
nd Title Association. The defendants in the distriet
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wt cause were also the appellees in the court of appeals.
e defendants were Robert L. Clarke. in his official ca-
ity as then Comptroller of the Currency and the Office
the Comptroller of the Currency, an avency of the
United States, and The Chase Manhattan Bank. N.A..
Int
ey) enor-Defendant.
LIST OF PARENT CORPORATION AND
NONWHOLLY-OWNED SUBSIDIARIES
The only parent company of Applicant is The Chose
T ’ ‘ ry) ° ‘ .° . .
Manhattan {Corporation tne direct and Indirect s DSid-
aries of the Applicant ‘other than wholly-owned
aries! are
Banco Chase Manhattan, S.A
Chase Automated Clearing House, In
{ lanl an \ ! SL~LYat » “tr ‘if ()~ = \
C4 \Ian] nm € ) ( de Se } T +,]
(hase Man n Financ S.A
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{ . Pert ( Vi COE ‘ \
( male Ch } f nN Ine
C racion Me cana de aA eu } \
Nt Ma qual
E! nic Payment §$ Kone
Ims Imoveis Ltda.
O.A. Venezolano de Pulps Vv Papel
Panterhaven Ltd.
Rating Agency M vsia Berhad
Societe de Deve] mpement Regional Ant illes.
TABLE OF CONTENTS
QUESTIONS PRESENTED
PARTIES TO THE PROCEEDINGS IN THE COURT
BELOW
OPINIONS BELOW
JURISDICTION
STATUTORY PROVISIONS INVOLVED
STATEMENT
A. Introduction
B. The Statutory and Regulatory Scheme
C. Comptroller’s Approval
D. The District Court Decision
EK. The Court of Appeals Decision
REASONS FOR GRANTING THE WRIT
I. CONFLICT REGARDING THE CONTINUED
EXISTENCE OF SECTION 92
Il. CONFLICT REGARDING WHETHER SEC-
TION 92 “IMPLIEDLY BARS” ALL NA
TIONAL BANK INSURANCE AGENCY AC
TIVITIES NOT EXPRESSLY AUTHORIZED
THEREIN
Il. THE COURT OF APPEALS’ DECISION CON.
TRAVENES NUMEROUS BASIC RULES OF
STATUTORY CONSTRUCTION
A. Ignoring the Plain Meaning Rule
6b. Ignoring the Rule of Deference to Adminis
trative Statutory Construction
(ili)
Page
20)
A.
ry
| fs
(
a hl —
{Ek COURT OF
TS NATION
ANT COMPETI
ENDICES
Op no ne {
Opinion o he Dist)
OCC App | Lette
1986 OCC Interpri
1965 OC I rpl
Statuto1 P)
| Li Title A V. Clarke, 743 F. Supp
19 ] { +) 1) 1" LVS) 5
/ { V. Clarke, 865 F.2d 278 (D¢
Cir, 1988) 1d, 16
B Fee i | ye ( dit Bi TR8
F.2d 498 (8th Ci ) ( 179 U.S. 915
(1986 22, 23
Board of Gr of ti Fed. Rese C7, \
Di on Fin. Corp., 474 U.S. 361 (1986) 19, 21
( V. Pit 111 U.S. 138 (1973) 2()
Cheney R.R. Co. v. 1.64 ., 902 F.2d 66 (D.C. Cir.)
( l ls SER OR 4 5919 (1990) 22
{ U.S.A. i V. Nat ( R ces Defense
( Live 167 U.S. 837 (1984) passim
Vv. wel find | 479 U.S. 388
(1987) 5, 20, 21
( ( V. Fer al Mine Safety &
H Cr 890 F.2d 773 (D.C. Cir.), cert.
( Lli S. ¢ 137 (1990) 22
Deni V. Ma » 1115S. Ct. 599 (1991) 19
De } f Be gy & ¢ } f V. Clarke
809 F.2d 266 (Sth Cir.), « ( d, 483 U.S
O10 (1987) 2]
Director Vv. Bethleh i Corp., 669 F.2d 187
(4th Cir. 1982) 22
' eore art Vv. Nie sD j ( hia os GA
2989 (1992) 19
/ Vat'l Bi V. daylor, 907 F.2d 775 (8th Cir.)
a ( d, 1118S. Ct. 442 (1990) 15, 2]
( ¥.¢ f Sta 3290 U.S. 62 (1968) LO
Her) & Macher V. Huddl 159 U.S. 375
(1983) es
/ dent Ba | FL ann, 613 F.2d
1164 (D.¢ Air: To79%. 4 ae ( 149 IT S. g92
(1980) pa }
/ / | BR (; 0
vl
TABLE OF AUTHORITIES—Continued
Page
Independent Ins. Agents Vv. Clarke, 955 F.2d 731
(D.C. Cir. 1992) ; passim
Investment Co. Inst. Vv. Conover, 799 F.2d 925 (D.C.
Cir.), cert. denied, 479 U.S. 939 (1986) 21
Neube rger V. Commissioner, 311 U.S. 83 (1940) 2?
Owensboro Nat'l Bank V. Moore, No. 91-2 (E.D.
Ky. Aug. 4, 1992) 12
Pauley Vv. BethEnergy Mines, Ine., 111 S. Ct. 2524
g) |S eee 22
Sanford Vv. Garamendi, 284 Cal. Rptr. 897 (Ct. App.
1991) 14, 20
Saxon V. Georgia Ass’n of Indep. Ins. Agents, 399
F.2d 1019 (5th Cir. 1968) 8, 15, 17
Securities Indus. Ass’n V. Clarke, 885 F.2d 1034
(2d Cir. 1989), cert. denied, 493 U.S. 1070
(1990) 21
Southeastern Community College Vv. Davis, 442 U.S.
397 (1979) 22
Variable A nnnity Life Ins. Co. V. Clarhre . 786 F.
Supp. 639 (S.D. Tex. 1991), appeal filed, No. 92-
2010 (5th Cir.) passim
Statute S°
12 U.S.C. § 21 (1988) 3
12 U.S.C. § 24 (Seventh) (1988 & Supp. II 1990). passim
12 U.S.C. § 92 passim
28 U.S.C. § 1254(1) (1988).............. 2
28 U.S.C. § 2106 (1988) 10)
\ct of June 38, 1864, ch. 106, $8, 13 Stat. 101
(1864) passim
Act of Sept. 7, 1916, ch. 461, 39 Stat. 752 (1916). passim
Act of April 5, 1918, ch. 45, $20, 40 Stat. 506
(1918) passim
a (fi slatine Mate / als:
53 Cong. Rec. 11,001 (July 14, 1916) 9,24
DO fh lo IO LO bo
—— |
Comptro
si mim gir
—~ lin
vil
TABLE OF AUTHORITIES—Continued
€
Mat rials -
haa
POI E
.FLR. § 2.6 (1992)
.F.R. § 5.34 (1992)
FUR. §$ 5.34(c) (1992)
FER. $ 5.34(d) (1) (1992)
FR. $ 5.34(d) (1) (iii) (1992)
.F.R. § 7.7495 (1992)
‘ed. Reg. 48,518 (1977)
ller Interp. Letter No. 277,
| 1982-1984
Transfer Binder] Fed. Banking L. Rep. (CCH)
Comptroller Interp. Letter No. 283, [1983-84
fer Binder] Fed. Banking L. Rep.
© 85,447 (Mar. 16, 1984)
Comptroller Interp. Letter No. 331, [1985-87
fer Binder] Fed. Banking L. Rep
© 85,501 (Apr. 4, 1985)
Comptroller Interp. Letter No. 338, [1985-87
fer Binder] Fed. Banking L. Rep.
* 85,508 (Mav 2, 1985)
Comptroller Interp. Letter No. 368, [1885-87
fer Binder| Fed. Banking L. Rep.
© &5,538 (July 11, 1986)
Comptroller Interp. Letter No. 377, [1988-89
fer Binder| Fed. Banking L. Rep.
© 85.60] (Feb. 6. ] RT)
Comptroller Interp. Letter No. 450, [1988-89
fer Binde Fed. Bankir L. Rep.
© 85,674 (Sept. 22, 1988)
Comptroller Interp. Letter No. 495
fer Binder Fed. Banking L. Rep
* 83,084 (Dec. 22, 1989)
ptroller Interp. Letter No. 499, [1989-90
fer Binder] Fed. Banking ] Rep.
q § 90 (Feb. 12. 1990)
‘oller of the Currency (Aug. 3,
85,441 (Dec. 21, 1983)
Coleman Egerton, Depu
Al,
1965)
tx,
Trans-
(CCH)
Trans-
(CCH)
Trans-
(CCH)
Page
ped
~A O P LP A DL or
~m =
14,
15
Tran
(CCH)
5, 16, 25
Trans-
(CCH)
2, 16
| 1989-90 Trans-
(CCH)
Trans-
(CCH)
Comp-
15,
Vill
TABLE OF AUTHORITIES—Continued
Periodicals:
Ford Barrett, Remarks to the Third Annual Banks
in Insurance Conference, reprinted in 6 OCC J.
ae ED Sa by SE ree
Cass R. Sunstein, Law and Administration After
Chevron, 90 Colum. L. Rev. 2071 (1990) —
State Bank Powers, Banking Pol’y Rep., June 1,
| > Rene Eee Seo PERO TON
Miscellaneous:
Oxford English Dictionary 104 (Compact ed.
sy SERRA EAR Su anceS ene At PERCE tts eco aaa ae mC uP aa
2A Norman J. Singer, Sutherland Statutory Con-
struction §$ 47.25 (Sth ed. 1992 Rev.)
Page
IN THE
Supreme Court of the United States
OCTOBER TERM, 1992
No, ———
THE CHASE MANHATTAN BANK, N.A..
Petitioner.
V.
AMERICAN LAND TITLE ASSOCIATION, NEW York STATE
LAND TITLE ASSOCIATION, STEPHEN L. STEINBRINK, in
his official capacity as ACTING COMPTROLLER OF THE
CURRENCY, and THE OFFICE OF THE COMPTROLLER OF
THE CURRENCY, an agency of the United States.
Re spond nts.
Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Second Circuit
PETITION FOR A WRIT OF CERTIORARI
The Chase Manhattan Bank, N.A.. by its undersigned
counsel, respectfully petitions for a writ of certiorari to
review the judgment of the United States Court of Ap-
peals for the Second Circuit in this ease.
OPINIONS BELOW
The opinion of the court of appeals is reported at 968
M.2d 150 (2d Cir. 1992) and reproduced at Appendix
(“App.”) la. The judgment of the district eourt (App.
at 17a) is reported at 772 F. Supp. 1353 (S.D.N.Y. 1991).
The approval letter from the Office of the Comptroller
of the Currency (App. at 30a) is not reported.
Introduction
)
JURISDICTION
}O ws
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TORY PROVISIONS
STATEMENT
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(39 (D.C. Cir. 1992), that “section 92 has ceased to exist”
due to Congress’ omission of section 92 when it revised
ind reenacted section 5202 of the Revised Statutes in
Its. According to the D.C. Circuit. even “lilf the
letion of section 92 was a mistake, it is one for Congress
to correct, not the courts.” Td.
The Second Circuit flatly rejected the D.C. Circuit’s
ruling, holding instead that section 92 remains in full
force and effect. The Second Circuit said: “{clontrary to
the view of the D.C. Cireuit, we believe that this omission
Was Inadvertent and thus we do not interpret it as having
effected a repeal of section 92.” App. at 5a.
After ruling that section 92 “remains valid law,” the
Second Circuit took up ALTA’s contention that “section
92 imphedly prohibits national banks from selling insur-
ance—including title insurance—in towns with more
than 5,000 inhabitants.” App. at lla. While acknowledg-
ing that section 92 “obviously provides no explicit limita-
tion on national bank activity,” the court of appeals never-
theless concluded that section 92 should be interpreted to
“impliedly bar|| national banks in towns with more than
5,000 inhabitants from engaging in insurance agency ac-
tivities in general,” a holding which it applied to the title
insurance agency business in particular. App. at 11a,
I4a (emphasis added).
In attempting to bolster this ruling with its analysis
pun;
of two letters from what it called the “sparse” legislative
history of section 92,'' the court ignored the plain Jan-
guage of section 92 in which Congress unambiguously
In reaching this conclusion, the court relied upon the quesiion-
able principle of ¢ press:o unius est exclusio alterius as applied, or
mis:pplied, in the widely questioned decision in Savon V. Geargis
Ass’n of lide pe ndent Insurance Agents, 399 F.2d 1010, 1013 14
5th Cir. 1968).
M App. at 12a. These documents consisted of a letter from counse!
to the Federnl Reserve Dourd to a governor of the Board and i
letter from the Comptroller to the Senate Banking Committee.
declared that the powers granted by section 92 were “in
addition to the powers now vested by law in national
banking associations.” '* In disregard of this determina-
tj viun!l statement of congressional intent on the
precis miestion at issue, the court found “that the
anguage of section 92 evinces Coigress’ intent to bar
national banks thet fall outside of the provision’s geo-
graphical restrictions from acting as insurance agents.”
App 1 [2a
The court of appeals never reached the issue whether
1) Insurance ageney activities are incidental to the busi-
ss of | ing under section 24 (Seventh), saying that
“thlased on ur interpretation of section 9? we see no
need to determine the scope of section 24 (Seventh:.”’
\pp. at 48 [In parsing these letters for the barest glimmers
ntent, the court ignored the fact that the Comptro!
ler’s ‘ett n whieh it relied stated that the purpose of secti 92
' to “enl e” the powers of small town banks in order to im
their profitability. 53 Cong. Rec, 11,001 (July 14, 1916). Nor
did the court consider the contrary legislative analysis of the Eighth
Cireulit in Jnd end a | rance Agents \ Board of Gove Oo?
he | 1 Rese System, 726 F.2d 468, 477 n.6 (8th Cir. 1984
tihe | slative histor of section 92 ndicates that Congress
! I 1) r\ | ¢ H | ( h} b ] i 1) dd
Momo « A wit] hibiting city banks fre q
e” (empl dded
I) ht letermination that section 92 cleariy evinces
( Y) n? i } pe irt reviewer the OCC’s consiructio? of eP¢
A vz the first prong of Ch on and declined to accord any
Pe a 4 tha OC ( 1] ne. stating that tla defer to the OC(
n this mild flout Congressional intent omething w ren I
! lin 1 (1é \ D. al 162
, | } ( , tern t t } it ction 92 d , t ex , it
( 3 of limit national banks’ incidental powers under
{ 1 24 si ntl the ( rt Mav reman | this « \ the Second
‘termination of this issue. Alternatively this Court
J te} T of | rari ) yy y’’ nd In ] rht of t} ’
dist t mpe ng analvsis of this issue, wish to determine
10
; . ’ , ; ’ aes
App. at loa. Havine determined that section 92 im-
as <4 5, : : 2 .
pliedh ronlbits national banks located and doing busi-
ness 1n places with ove} yO Inhabitants fiom engaging
7 bd .
In tie ance avenc DUSINeSS, the court cen-
In section 24 (Seventh) were sufficiently broad to encom-
pass the title insurance agency business, so construed the
statute would have to vield to the specific limits on in-
surance activity convfained in section 92.° App. at 16a
‘emphasis added). Seetion 92, however, contains no such
‘specific limits” and its express language does not 2
dress, much less preclude. national banks loeated in larg:
communities frem engogine in those insurance agency
4 y= i es ee a — ; cee . , P a .
activities that are incidental to the business of banking.
REASONS FOR GRANTING THE WRIT
The court of appeals’ decision warrants this Court’s
ecause it presents issues of substantial and
recurring nationwide importance concerning the scope of
national banks’ powers that have generated conflicting
ES PS eee ee See ee : ‘ .
noidings among tne courts of appeals As the Second
section 2 has ceased te exist.””'" In addition. the Second
Circuits ruling that section 92 “impliedly bars” national
banks from engaging in insurance agency activities, even
if such activities are in lines of insurance incidental to the
business of banking under section 24 (Seventh). conflicts
with an earlier decision of the D.C. Circuit rejecting the
argument that section 92 “by clear implication” barred
national banks in towns of more than 5,000 inhabitants
{
; . a8 ist Ys . 199400 ; : .
Ing credit life insuranee. Jadepondent Bankers
at this time whether the mptroltier acted with he bre
of his allowable discretion in determining that tion 24 (Seventl
i) th ri? t ' nal l n! } ‘ t
ance. See Grosso V. United Stotes, 390 U.S. 62. 71-72. (1968 2g
U.S.C. § 2106 (1988
> Independent Ins. Agents Vv. Clarke, 955 F.2d 721. 729 (D¢
Cir. 1992)
11
Ass'n V. Hetmann, 613 F.2d 1164, 1169 (D.C. Cir. 1979),
cert. Conred, 449 US, 823 (1980)."" Although the Second
‘ircuit did not explicitly acknowledge this conflict, the
court clearly failed in its strained attempt to distinguish
feouann based on its flawed understanding of the
nature of credit life and title insurance. See p. 17 n.29.
—_
The decision of the Second Circuit sharply curtails the
fundamental statutory authority of all national banks to
exercise those “incidental powers” under section 24
(Seventh: that are necessary to carry on the business
; ‘ing. Enacted as part of the original NBA in
1864, this essential! statutory authority has played a
critical role in the long-term success and viability of the
national banking system. The decision below directly un-
dermines the authority of national banks to continue to
in 2 broad range of activities that are both con-
venient and necessary to their continuing viability and
The Second Circuit’s decision squarely contravenes the
pinin language of section 92 and mistakenly relies on
isolated snippets of ambiguous legislative history taken
ut of context to override the plain meaning of an un-
ambiguous statutory declaration of congressional intent
on tne precise question at issue in this litigation—whether
‘constitutes a supplement to or limitation on
national bunks’ incidental powers under section 24
(seventh!. Further, the court of appeals failed to accord
ne Comptroilei’s interpretation of sections 92 and 24
Seventh! the “substantial deference” that this Court
+
vtien has stated is required.
As a consequence, the Second Circuit has put those
national banks within iis jurisdiction at a distinct com-
etitive disadvantage both as to other types of financial
institutions. and possibly as to national banks located in
The /leimann court “presumed” the continuing validity of
J2. See Independent Ins. Agents Vv. Clarke, 955 F.2d at 737.
12
other circuits that have not construed section 92 as im-
pliedly barring the exercise of statutory powers granted
elsewhere in the national honkine statutes." The ¢ireuit
c
courts have reached an irreconcilable impasse on this
Issue. Guidance from this Court is urgent!y needed te ny!
4 ae as al {* afrsas ~~ . e+ oy} ’
anenc to neariy 25 years of confusion end uncertainty
()s)
ai
“\acliyer 4 wletinwmot a . ete "ie 7 ¥- 4
revarding the Petacionsnlp oeltween section 02 and section
‘ Cis 4] Pog: = 1 RHR, Fee Snr anda Pas
24 (Seventh), and, indeed, to resolve the issue of section
2s existence. Both are issues of substantial Importance
te the national banking system
I. CONFLICT REGARDING THE CONTINUED EX-
ISTENCE OF SECTION 92
The D.C. Circuit recently decided the same issue ini-
ially faced by the Second Cireuit in this exse—-whether
Congress repealed section 92 jn 1918——and reached the
opposite conclusion, ruling that “Congress has stricken
| section 92] from the statute hooks,” Lndependent lis
Agents, 955 F.2d at 729. The Second Cirenit, as noted
above, expressly rejected the ruling of its sister cireuit
and held that App. at
10a.
ss ‘
section 92 remains valid law.’
’
Resolution of this issue of substantial and recurring '*
national importance may easily dispose of the longstand-
v7 Before the district court, ALTA sought a nationwide injunction
against the Comptroller’s authorizing national banks in general to
act as agent in the sale of title insurance: the court of appeals,
in reversing the district court’s dismissal of the complaint, re-
manded the case to the distriet court with instructions “to enter
summary judgment for the appellants.” App. at 162. Thus, the
po sibility Of an 1D]
netive order of nationwide appleability pur-
porting to restrain the Comptroller from permitting any national
bank to act as agent for the sale of title insurance is presented,
is See () hOMSDOLrO AU ! ff Ba }: \ Moo ‘ No. 4] “4 slip ( }. at 16
E.D. Ky. Aug. 4, 1992), in which the district court recently adopted
the anslvsis of the Second ¢ reu) Its own in ho ling that Con
gress did not repeal section 92.
13
ing controversy ovcr che relationship between section 92
and section 24 (Seventh). If this Court determines that
Congress did in fact repeal section 92, this nonexistent
statute obviously no longer could be held impliedly to bar
the exercise by national banks of powers granted by an-
other statulory provision-—section 24 (Seventh). In the
event of such a ruling, the only issue remaining would be
Whether the broad grant of powers in section 24 (Sey-
enth!, considered in and of itself and in the light of its
consistent interpreiation by the OCC, would authorize the
sale of title insurance as agent by national banks as in-
cidental to the business of banking."
Little elaboration is necessary to make the point that
the question of the continued existence of an Act of Con-
gress—-a question admittedly answered in contradictory
terms by two contemporaneous decisions of two courts of
appeals-—is a question worthy of this Court’s attention.
The considerations in favor of this Court’s review become
all the more compelling where the Act in question not only
provides an important authority of its own but has been
the source of conflict between the federal courts of ap-
peals concerning whether it, by negative implication, ne-
banks which would otherwise
rates powers of national!
@XI1St.
Il. CONFLICT REGARDING WHETHER SECTION 92
“IMPLIEDLY BARS” ALL NATIONAL BANK IN-
SURANCE AGENCY ACTIVITIES NOT EX-
PRESSLY AUTHORIZED THEREIN
The Second Circuit ruled that section 92, which does
hot require that the Imsvrance agency powers exercised
pursuant thereto be incidental to the business of banking,
“impliedly bars national banks in towns with more than
5,000 Inhabitants from engaging in insurance agency ac-
tivities in general.” App. at Ida. It applied this rul-
ing to ali pational banks in places with more than 5.000
"We submit that the answer to this question is clearly “yes";
the court of ; ppeals, however, did not reach it.
14
inhabitants without considering whether specific insurance
agency activities—such as credit life or title insurance
are incidental to the business of banking and therefore
permissible under section 24 (Seventh). It thus adopted a
position consistently rejected by the Comptrol’er, and re-
jected by the D.C. Cireuit and other federal courts”. In
reaching its decision, the Second Circuit relied primarily
on the statutory analysis contained in the Fifth Circuit's
pre-Cherron decision in Savon v. Georgia Ass'n of Inde
pendent Insurance Agents, 399 F.2d 1010 (oth Cir, 1968:
("Savon"), In Savon, the Fifth Cireuit overturned an
administrative ruling of the OCC that “National Banks
have t!
surance which is incident to banking transactions.” Jd.
at 1012. According to the Saxon court, “|s}/ince Congress
dealt specifically with the insurance agency power in See-
tion 92, the evpressio unins rule negates the existence of
le authority to act as agent in the issuance of in-
any other power to act as an insurance agent under the
general provisions of Section 24(7)." Jd. at 1014.
During the 24 years that have elapsed since the Savon
decision, the OCC and a number of federal courts have
disagreed with and refused to follow it. The OCC long
has taken the position that Savon was wrongly de-
cided, and has repeatedly ruled that section 92. “does not
prohibit a national bank from conducting insurance-
related activities if the activities are otherwise authorized
by the National Bank Act.” Comptroller Interp. Letter
No. 331, [1985-87 Transfer Binder] Fed. Banking L. Rep.
(Ahn) 7 SO.901, al 77,776 (Apr. 4. 1985). See also
Comptroller Interp. Letter No. 283, {1983-S4 Transfer
Binder] led. Banking L. Rep. (CCH) © 85 147, at 77,609
(Mar. 16, 1984) (“{A] national bank may act as agent
“In addition, a California Court of Appeal has interpreted a
Culifornia banking statute, that was copied virtually word-for-word
from section 92, as not imposing any restrictions upon the incidents!
“uthority of state banks to offer insurance products outside of towns
of 5.000 or fewe} persons, Sant wad V. Cra side nad 28.4 { cll, Rpti
897, 903 (Ct. App. 1991).
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4
THE COURT OF APPEALS’ DECISION
VENES NUMEROUS BASIC RULES OI
TORY CONSTRUCTION
} 7 b | ‘ +? °. 9
miv qoes the Second Circult s ae
}
ssues, 1ts departure from the norn
+) . 1 | r +} } ‘Tt YT }
UCLION endorsed DY this Court Warrants re
A. Ignoring the Plain Meaning Rule
Dest Indication of a statute’s meaning j
) . } } (rly ry Y ) bs )) + } +L
D le dePINNINE polnt must be ne l
{ a wnen a Statute speaks W1tn ¢
iwhinial ani sé th tontreta? mann}
(diClai INQGQuiry 11icO Lie StLALULE SS MeAaN)
ne Thos CAXLPaAOralnary circumstance. is
Cowart Vv. Nicklos Drilling Co., 112 S.
CONTRA
STATLU-
\
= ve
Ss @X ~
;
~ 4 -
‘ )
\
‘
7
y Y)
il
thy
i ct
( PAG
_* e
9 GO38 (1991) Board of (sorernore of f kee
Sys. V. Dimension Fin. Corp., 474 U.S. 361, 373
GSN Rubin Vv. United States, 449 U.S. iP4, 430
'
ng” } hrase of seetion & 4 wl ich STate ¢
inted bv t] section were “in addition e
. ested by law in national banking associa-
Ges a Cleal, UNAMVIZUOUS SlenNal t} e
J2, Congress intended to grant supplementa
: ied class of national banks rat]
* the powers previously granted to all nationa
DV the provisions of the NBA.*! The phrase !
n to” > } clear as to he beyvo | i} t LP Se a It
vit creasing, or augmenting. Oxford Epo-
Vv 104 (Compact ed. 197] B !
9? is an express o 1} Ol iddi O - l}
) limited class of national banks
bb. lenoring the Rule of Deference to Administrative
Statutory Construction
{ ( ~
i {
{
I
~ ~ 7.) "7 2 |
Ed Tow A iv i
t
‘
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t {
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t I
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99)
a
4 ‘
utory Interpretation that is contrary to the “clear
ing of a statute as revealed by its language, purpose
, TAL ye Vv. Davis.
Mz U.S. 397, $1] (1979) (quoting I) i¢ rnational Bid, of
Peansters V. Daniel, 489 U.S. 551, 566 n.20 (19791),
ne agency’s interpretation need not be shown to be the
nly permissible view, Chevron, 467 U.S. at 843 n.11.
story,” Southeastern Community ¢
C. Abuse of “Expressio Unius’” Maxim
The court of appeals also erred in relying on the dis-
credited maxim of expressio unius to override the plain
meaning of the statutory language. Courts repeatedly
have recognized that the maxim is unreliable at best and
in any event should not be applied where it would produce
a result in contravention of clear statutory language ora
consistent administrative statutory construction.
Of direct relevance to this case, the courts have held
the expressio unius maxim “should not prevail when
a nonexclusive reading [of the statute] . . . allows thi
CX reise of inedental authority 1eCESSArY to a CV pre ssed
wer” OF right.” Bailey V. Federal Intermediate Credit
Banl:, T88 F.2d 498, 500 (8th Cir.), eert. denied. 475
‘Sec, e.g., Herman & MacLean v. Huddleston, 459 U.S. 275. 387
n.23 (1988) ‘rejecting application of maxim and noting maxim
must be subordinate to doctrine that courts will construe detai
an act in conformity with its dominating general purpos:
Pauley V. BethEnergy Mines, Inc., 111 S. Ct. 2524, 2537-38 (1991
maxim ‘‘is a questionable one in light of the dubious reliabilits
of inferring specific intent from silence’” (quoting Cass R. Sun-
stein, Law and Administration After Che ‘ron, 90 Colum. | Ri
2071, 2109 n.182 (1990))); Director vy. Bethlehem Mines C
669 F.2d 187, 197 (4th Cir. 1982) (“maxim is to be applied witl
great caution and is recognized as unreliable’); Newherger Vv. Con
missioner, 311 U.S. 83, 88 (1940 maxim can never override cleat
and contrary evidence of Congress’ intent): Chern fim. Co. \
1C.C., 902 F.2d 66, 68-69 (D.C. Cir.) (agen View overcor
erpressio unius canon), cert. denied, 111 S. Ct. 519 (1990) = Cline)
field Coal Co. vy. Federal Mine Safety & Health Comm'n. 895 F.2d
773, 779 (D.C. Cir.) (maxim not applied to override Chervro,
cert, den ed, Lit BS. rot 1990).
99
US. 815 (1986) Cemphasis added). See also 2A Normar
kf Sine r Naif fi, yl) ad Nfatuto) / (" pes é rod ve } . ¥parn
os» =f 2 ‘ ay TL, a4 P lg P TaN}
4 foth ed. 1992 Rev.). The court of appeals ignored
ne very substantial limitations on the use of this maxim
of questionable validity ard incorrect!y re'ied on it 2s the
, . " ,* . . . 2 . .
basis for disregarding the plain meaning of the explicit
tutorv language of section 92.
Moreover, even if the maxim were pertinent here, the
court of appeals’ application of the expressio unius maxim
Was incorrect. As applied to section 92, the maxim would
at most suggest that national banks in places of greater
than 5,000 inhabitants cannot engave in the full range of
general insurance agency activities authorized by section
92; the maxim does not have any application with respect
to specific insurance agency activities that are incidental
to banking under section 24 (Seventh). Accordingly, even
assuming argvendo that the expressio unius maxim were
applicable in this case, the Second Circuit’s Interpretation
of that canon was improper.
D. Misuse of Legislative History
Finding no basis in the plain lanvuage of section 92 to
displace the Comptroller’s approval of Chase’s Notification
Letter, the court of appeals mistakenly interpreted iso-
lated documents from section 92’s extremely limited legis-
lative history as supporting an implied limitation on sec-
tion 24 (Seventh)’s broad grant of “incidental powers.”
The meager and ambiguous legislative history that exists
does not contradict the section 92 text and the Comptrol-
i]
’
er’s Interpretation of it as a supplemental powers provi-
jon. The courts have recognized that section 92 was
origin proposed by the Comptroller to provide an addi-
tional source of revenue for national banks located in
31) towns and not t rohibit city banks from selling
surance where i} ental to banking transactions.
l cn: Sd 9 F 2
24
In recommending adoption of section 92, then-
Comptroller Williams stated in a letter to the Chairmen
of the Senate and House Banking Committees that “| flor
some time I have been giving careful consideration to the
question as to how the powers of the national banks migh!
he enlarged so as to provide them with additional sources
of revenue....” ** 53 Cong. Ree. 11,001 (July 14, 1916).
Similarly, Senator Owen, the Chairman of the Senate
Banking Committee, described Comptroller Williams’ pro-
posed amendment as “giving some additional powers to
the small banks to act as agents in insurance.” Jd. at
11,153 ‘emphasis added). Nowhere in the legislative his-
tory is there any reference to a Congressional intent to
bar or limit powers already authorized under section
24 (Seventh).
1V. THE COURT OF APPEALS’ DECISION SURJECTS
NATIONAL BANKS TO SIGNIFICANT COMPETI-
TIVE INEQUALITIES
The Second Cireuit’s decision places national banks at
a significant competitive disadvantage to siate banks,
savings and loan associations, and other financial institu-
tions that are able to offer various types of insurance
Life Ins. Co., 786 F. Supp. at 641 (legislative history indicates see-
tion 92 proposed to provide additional source of revenue).
“’ The Second Circuit’s heavy reliance on Comptroiier William's
letter as “provid!ing| evidence that Congress intended to with-
hold from national banks, located in towns with over 5,000. in-
habitants, the authority to sell insurance,” plainly is misplaced.
App. at 13a. As the OCC explained in promulgating its regulations
governing the sale of credit life insurance by national banks.
“lallthough the Comptroller assumed in requesting | the enactment
of section 92] that national banks lacked incidental pewer under
12 U.S.C. 24 (Seventh) to act as a full seale insurance agent
neither the language nor the legislitive history of the section sue-
gests that national banks would not possess ample authority under
the incidental powers clause of 12 U.S.C. 94 (Seventh) te nrocide
feredit life insurance!.” 42 Fed. Reg. 48,518 (19775.
25
products.** Substantial competitive disruptions may occur
as a result of the conflict among the courts of appeals
produced by this decision. National banks located in
states outside of the Second Circuit could continue to en-
gage in insurance activities incidental to the business of
banking, while national banks located within the Second
Circuit would be precluded from engaging in such
activities.
Moreover, all national banks will be significantly af-
fected by the court of appeals’ decision if the district
court, Which has been directed to enter summary judg-
ment for ALTA, issues the nationwide injunction against
the OCC requested in ALTA’s complaint. For example,
national banks currently engaged in the sale of credit
life insurance, municipal bond insurance, and annuities
will be faced with significant uncertainty as to the con-
tinuing legality of these activities. It is unlikely that
national banks seeking to obtain the Comptroller’s ap-
proval to offer such products would be able to obtain that
approval.
A i
The increasing competition posed by nonbank financial
institutions to the banking industry dictates that national
bunks not be judicially restrained from exercising the full
range of their available statutory powers. To deny na-
tional banks the power to engage in those insurance-re-
lnted activities that the OCC reasonably has determined
are incidental to the business of banking will eliminate
important business opportunities and thereby diminish
See Comptroller Interp. Letter No. 368, [1985-87 Transfer
Binder !, Fed. Banking L. Rep. (CCH) © 85,538, at 77,839 (July 11,
LOR6 noting savings and loan associations are authorized to act as
agents In sale of title insurance); State Bank Powers, Banking Pol'y
Rep., June 1, 1992, at 4 (fifteen states permit state banks to engage
insurance activities); Ford Barrett, Remarks to the Third An-
ypual Banks in Insurance Conference, re printed in 6 OCC J., at
36-37 (Mar, 1987 several major insurance companies not only
provide banking services, but actually own banks).
CONCLUSION
Of Co JOHN D HAWK] iR
L. EDWARD SHAW. J] DENNIS G. Lyo
KENT T. STAUFFER ROBERT E —
The Cha Vian} Ral IIo ' XT
N.A. yA » | ey " |
New Yi N \ Kx ILEEN Kk]
1200 New H ve, NY
ARNOLD & Po \V ry ¢
Washington, D.( (PNY) 2794 '
1/ 1
September 1992 nse R
APPENDICES
la
APPENDIX A
COURT OF APPEALS
TTY.
7 { )} |
UNITED STATES COURT OF APPEALS
POR THe SECOND CIRCUIT
AMERICAN LAND TITLE ASSOCIATION,
-EW YORK STATE LAND TITLE ASSOCIATION,
Plainti ffs-A ppe lla nts,
Roper? L. CLARKE, in his official capacity as Comptroller
of the Currency, OFFICE OF THE COMPTROLLER OF THE
CURRENCY, an agency of the United States, Defendants-
Appellees, TH CHAsk MANHATTAN BANK, N.A.,,
[ntervenor-De fe ndant-A pp lee.
January 7, 1992, Argued and submitted
Tune 15, 1992, Decided
JUDGES: Before: OAKES, Chief Judge, MESKILL and
ae :
OPINION: OAKES, Chief Judas
a as Ms a it abd :
e in th appeal is Whetner two provisions of
| \ ss YT) } 54 ) re ’ es Oo ama @ ‘ . 4
he National Bank Act, 12 U.S.C. $$ 92 and 24 (Seventh)
IMSS), permit nation winks to engage in the title
t i ! ati ) he
Ay American Land Title Association and
the New York State Land Title Association (collectively
-
pa
and
ti,
of a
fO—
-< v
—_
ag? a
f an
j
ry
*f
, ,
i —
= —
<
——
- a
—
),
Ou
-— ~ ¢ a ° * —_
r “~ — oe ~ -« ° <4
~ y, - =m v
> han SS wh <
= es ‘od
f , wy
/
ot
_ rt
a
6a
Where [its] application would be inconsistent with the
purposes of the statute.” FTC v. Standard Motor Prod-
ucts, Inc., 371 F.2d 618, 617 (2d Cir. 1967): see also
SEC. v. CM. Joiner Leasing Corp., 320 U.S. 344, 350-
o1 & n.8 (maxims of statutory construction are but aids
te interpretation).
Thus, we next consider the purpose of the War Finance
Corporation Act in general, and section 20 in particular.
The text and its legislative history indicate that the pur-
pose of the Act was to ensure that sufficient capital flowed
to industries deemed necessary to the prosecution of World
War I. As stated by then Secretary of the Treasury,
W. G. McAdoo, in a written statement presented before
the Senate Committee on Finance and included in the Sen-
ate Report, S. Rep. No. 286, 65th Cong., 2d Sess. 4
(1918):
The bill is purely a war measure designed to con-
serve the supply of labor and materials for the pur-
poses of the war, and to help supply the war's finan-
cial requirements, and to give them a first claim on
capital seeking investment in like manner as the
War's material requirements have been given a first
claim on production.
Congress sought to achieve this purpose by creating two
institutional mechanisms: a War Finance Corporation
and a Capital Issues Committee.2. Among other things, the
Act empowered the War Finance Corporation to make
advances to banks who had loans outstanding to, or had
purchased the bonds of, entities “whose operations shall be
necessary or contributory to the prosecution of the war.”
War Finance Corporation Act of 1918, Pub. L. No. 65-
121, § 7, 40 Stat. 506, 508 (1918). Thus, Congress in-
* The Capital Issues Committee, whose functions were set forth
in Title II, was designed to regulate the sale of new issues of secu-
rities. War Finance Corporation Act of 1918, Pub. L. No. 65-121,
§ 203, 40 Stat. 506, 513 (1918).
7a
tended the War Finance Corporation to serve as a conduit
for channelling funds, generally via banks, to war in-
dustries.
That successful prosecution of the war was the sole
purpose of the War Finance Corporation Act is under-
scored by the fact that it was a temporary measure. Sec-
tion 1 provided that the Corporation’s powers would ter-
minate (with the exception of powers incidental to its
liquidation and Winding up), and section 206 provided
that Title II would continue in effect only until, six
months after the end of the war, with such date to be
fixed by the President. Thus, the entire enactment was
drafted to be virtually self-destructing.
We next focus on the purpose of section 20 of the War
Finance Corporation Act, and begin with its legislative
history. Section 20 was offered on the floor of the House
by Representative Michael F. Phelan of Massachusetts
during consideration of the House version of the bill,
H.R. 10608, 76 Cong. Ree. 3804 (1918). The only ex-
planation of the amendment was offered by Representa-
tive Claude Kitchin, who stated:
If we do not put in this provision, and make the
change in the law which this amendment makes. it
will tie the hands of the national banks from helping
cL
7 .
out these corporations.
I think there were some of the committees that had
this amendment under consideration and thought that
this section of the Revised Statutes should not apply
to this limitation.
y
Id, (statement of Rep. Kitchin). The amendment was
avreed to without debate, and the House adopted its
version of the bill.
The House bill and the Senate version, S. 3714, were
then reconciled by a conference committee, which settled
8a
on a version that included section 20. The House confer-
ence report, H.R. Conf. Rep. No. 448, 65th Cong., 2d
Sess, 1 (1918) (Statement of Managers), explained
the eifect of section 20 as follows:
Lai
ry} 4 4 ) ; U
this CLION PTO that section 02 of the Re-
1 7 = )
seq 3S lalt QO! ine [ nlted Stace } «lt ne {) Lie
} } 4 +] } >] )
\) {ii ( « na VU cl cil “4 =U «a Ci! i
NOL appyy im the case of any liability incurred by
such association under the provisions of the War Fi-
hance Corporation Act. This provision does not ap-
pear In the Senate Bill. ihe conterees Adopt tne
When the Senate version of this conference report, S. Doe.
ng., 2d Sess. (1918), was submitted to
te by Senator Simmons, the Senator explained
he significant amendments incorporated from the House
sion of the bill, but he did not address the addition
section 20, 76 Cong. Rec. 4376-79 (statements of Sen.
immons!. Ultimately, both the Senate and House agreed
to chact the conierees’ version of the bill.
No mention of the insurance powers of national banks
exists in the legislative history. Thus, the legislative his-
v indicates that the sole purpose of the revision was to
ensure that section 5202 did not apply to liabilities in-
curved by a national bank in connection with the War
ihis view or the purpose of section 2O is supported by
the text of the provision, which shows that the only sub-
, re PHS : i er : ae ees. ~ ors
stantive addition to the existing version of section 5202
the following paragraph: “Sixth. Liabilities in-
curred under the provisions of the War Finance Corpora-
tion Act.” In sum, it is obvious from a reading of both
section 20 in its entirety, and its legislative history, that
the amendment was designed to further the general pur-
pose of the Act by ensuring that national banks could
ance Corporation without
~~
obtain funds from the War Fi
9a
running afoul of the requirement, contained in the open-
ing paragraph of section 5202, that certain bank liabili-
ties not exceed the capital requirements set forth in the
section,
Given the purposes of the Act as a whole and section 20
in particular, we believe that Congress did not intend to
alter the insurance agency powers of national banks w hen
it enacted section 20. First, on a general level, it would
de wholly incongruous for Congress to repeal a provision
regarding the totally unrelated matter of insurance
agency powers in an emergency measure directed at win-
ning the war. Second, on a more s pecifie level, it is
highly unlikely that Congress’ intent to render existing
limits on national bank liabilities consistent With the
operations of the War Finance Corporation would just
happen to coincide with an intent to repeal provisions
a rding national banks’ insurance agency powers.
urd, we cannot believe that Congress intended to make
ania changes to national banks’ insurance agency
powers in an act that by its terms would virtually self-
destruct six months after the conclusion of. the war.
Fourth, if it actually was Congress’ intent to effect such
a permanent change to an unrelated area of law, we
would « pect some clue to this intent to appear some-
where in ie legislative history, but we have searched
and it does not. Fifth, it would be—at least arguably—
inconsistent for Congress to repeal a provision that, as
we explain below, bars national banks in large towns
from engaging in insurance agency activity when the
[ of the War Finance Corpora-
tian Act was to orient national bank activity. toward
financing War Industries
. ? p } eee ; ‘5 . ++
We also note that the structure Of section 2O supports
our View that section 92 was inadvertently omitted. The
‘curs precisely after the insertion of the new
paragraph entitled “Sixth’—the provision that rendered
the War linance Corporation Act consistent with exist-
OMISSION O¢
10a
ing national banking law. This gives rise to the infer-
elice that the drafters of section 20 forgot to include the
remainder of section 5202 after they inserted the new
paragraph.
or these reasons, we believe the only rational inter-
pretation of the words ‘amended so as to read as fol-
lows” is that, contrary to the general rule, they do not
effect a repeal of 12 U.S.C. $92. Thus, section 92 re-
mains valid law. We now turn to the issues raised by the
‘ ; .
Dak Lies,
B. Standard of Review
ALTA first questions the district court’s application
of the principles of deference to agency action set forth
In Cherron SA: ic. - ©, Natural Resources Defense
Council, lne., 467 U.S. 837, 842-45 (1984). because the
OCC's decision to permit Chase Manhattan to sell title in-
surance took the form of an interpretive ruling rather
than a regulation, as was the case in Chevron. We dis-
agree. An OCC ruling interpreting a statute that it is
charged with enforcing is entitled to deference in accord-
ance with Chic CPOR, See, Ces larke ve. Securities lidust
Ass’n, 479 U.S. 388, 403-04 (1987) (citing Chevron with
approval and deferring to the Comptroller's interpreta-
tion of the National Bank Act, given that the provision
in question was ambiguous and the Comptroller's inter-
pretation was reasonable); sce also Securities Indust.
Ass'n v. Clarke, 885 F.2d 1034, 1042 (2d Cir. 1989)
(acknowledging applicability of principles of deferential
review to Comptroller's decision}, cert. di nied, 493 U.S.
L070 (19900; American Tins. Ass'n x. Clarke, 865 F.2d
278, 280-81 (D.C. Cir. 1988). Thus, the test set forth
in Chevron is fully applicable to the OCC decision at
issue in this case.
oF 7 ‘7 . a 4 ~hheed } . teres | +] ’ " .
LC nadaer Che; roi, We must firs decide Whether Co) yess
las direetly spoken to the precise question at issue.”
Ciceron 467 U.S. at 842. If, however, the statute is
lla
id, at 843, then we will uphold the OCC’s interpretation
provided it is reasonable and not “arbitrary, capricious.
or manifestly contrary to the statute.” Jd. at 844.
“silent or ambiguous with respect to the specific issue,”
C. Section 92
ALTA argues that the district court erred in uphold-
ing the OCC’s view that 12 U.S.C. § 92 places no limita-
tion on national banks’ incidental powers under 12 U.S.C.
s 24 (Seventh). ALTA contends that section 92 Impliedly
prohibits national banks from selling insuranece—inelud-
ing title insurance—in towns with more than 5.000 in-
habitants.
To det termine the scope of section 92, we turn first to
the relevant statutory neaaaes-
That in addition to the powers now vested by law
in national banking associations organized under the
laws of the United States any such wntepainics lo-
cated and doing business in any place the p ypulation
of which does not exceed five thousand inh: ok
as shown by the last preceding decennial census.
may, under such rules and regulations as may be
prescribed by the Comptroller of the westerien A act
as the agent for any fire, life, or other insurance
company. .
This provision obviously provides no explicit limitation
on national bank activity. But the maxim of eapressin
unius est exclusio alterius, used as an aid to construe-
tion, leads to the conclusion that Congress intended to
prohibit national banks located and doing business in
towns with orer 5,000 inhabitants from engaging in the
Mmsurance ne cy business. See, e.g... Water Tyans »),
Ass'n v, CC. “722 F.2d 1025, 1029 (2d Cir. 1983).
Applying this principle, had Congress intended to orant
national banks located in towns with large sae a
the authority to sell insurance, it would never have Jim-
12a
ited the grant of authority in section 92 to national banks
in locations with under 5,000 inhabitants. And if at the
time of enactment Congress believed that all national
banks—regardless ef loecation—already possessed the au-
thority to sell insurance, this provision would have been
superfluous. Thus, we believe that the language of sec-
tion 92 evinces Congress’ intent to bar natienal banks
that fall outside of the provision’s geographical restrie-
tions from acting as insurance agents.
This statutory construction, of course, would have to
“yield to clear contrary evidence of legislative intent.”
National RR, Passenger Corp. v. National Ass'n of RR.
Passengers, 414 U.S. 453, 458 (1974), Bunt here. the
legislative history lends support to our view of the statute.
Although the legislative history of section 92 is sparse,
two documents in particular shed light on the backdrop
to Congress’ enactment of this legisiation in September
1916. The first document, published by the Federal Re-
serve Board in February 1916, is a letter from its counsel
to the Governor of the Federal Reserve Board, opining
that the insurance business did “not come within either
the expressed or implied powers of national banks.” 2
Fed. Res. Bull. 73, 74 (Feb. 1916). The letter concluded
with the following statement: “Any such extension of the
powers of national banks must be left to the consideration
of Congress.” Jd,
The second document is a June 1916 letter from the
then Comptroller of the Currency, John Skelton Williams,
to the Senate Banking Committee, in which he proposed
an amendment to the National Bank Act. 53 Cong. Ree.
11001 (1916). In the letter, the Comptroller explained
that “{n]ational banks are not given either express!y nor
by necessary implication the power to act as agents for
insurance companies.” Jd. Enclosed with the letter was a
draft of a proposed amendment “designed to empower
national banks located in towns of not over 3,000 popula-
tion... to act as agents for the placing of insurance
13a
policies.” Jd. The Comptroller explicitly stated that “from
the standpoint of public policy and banking efficiency
this authority should be limited to banks in small com-
munities.” /d. This letter was entered into the Con-
gressional Record by the Chairman of the Senate Banking
Committee, Sen. Robert L. Owen. Jd. The Comptroller’s
amendment was ultimately enacted, albeit with the modi-
fication that national banks in towns wit ch populations up
to 5,000 could sell insurance. Jd. at 1115
These two documents indicate that when Congress en-
, It did so in the belief that under existing
banking law (specifically 12 U.S.C. $24 (Seventh)) na-
tional banks had no authority to engage in insurance
avency activities. Furthermore, the Comptroller’s letter
provided evidence that Congress intended to withhold from
ake tA Ya! SEL vt ion Q?
national banks, located in towns with over 5.000 inhabi-
tants, the authority to sel] insurance. Accordingly, the
legislative history supports our construction of the statute
Our view of the statute derives further support from
Savon i. Georqa “Ass wT Op Fired ji nde} iyi - Age nts, 399
h.2d 1610 (sth Cir. 1968). In Savon, the court relied
on section 92 to deciare unlawful Comptroller Saxon’s
ruling that permitted a national bank to sell its bor-
rowers “broad forms of automobile, home, casualty and
ability insurance.” Savon, 399 F. at at 1012. The court
7° ‘ . . ’ 2 . . ] .
applied the principle of exrpressio untus est cxrclusio
Te aoe : 1 +] leojsiati history t interpret
QTCRTUS, and analy LEG ne 1e€91Sic VC StUl © iterpre
section 92 such that “national banks have no power to act
as Insurance agents in cities of over 5,000 population.
Id. at 1013.
The OCC contends that Savon is irrelevant to the issn
hefore us." The OCC attempts tingul
the ground that it did not involve a form of insurance,
like title insurance, that is essential to a bank’s ability to
8’ The OCC also contends that Saxon was wrongly decided. We
disagree
rh the court sta
terms, the statute does
tional banks in larger
it Nsurance con
ife Insurance rather tl
2 impliedly operates
activity. Thus
ryt a) n Q9
a town With over
panies.” a “4 1170 . os
as a bi
, we see
RES BS ]
ayes ‘ar
bank from selling credit life insura
= ) mmo rete 4 } ‘ -
»000 Inhabitants. /d. at 1170.
n
In a 1oO~nOote that “|oOIV It
not address the authority of
COWNS Or elties to act as agent
. » «tl
o have based its decision largely on the nature of er
+), , , 5 , ‘ >
lan on the Issue of whether sec
+
—_
-
~=
10 reason to depart Trom our '
Having determined that section 92 im»pliedly bars
tional banks in towns with more t
.
Prom en
i
4
i
the conclusion that
appiy to “any
ance company surely
) } Nnsurance com)
)
}
i
lan »9 000 inhabit
Im Insurance avency activitle In wen
- }
nN particular section 92 a)
‘tas tne aver OY avy 7
\ . 1? | S ( (ys) )
Insurance company,” and a tith
Ss an insurance company. /
section 92 impliedly bars national banks from en
In the title insurance agency business,
The OCC again relies on Heima », asserting U
eredit life insurance.
Itle Insurance activities are out
> ) + ; Q
ection 92's limits on national bank activity. In up-
OCC 1 uations at issue in Heimann. the
! ? l-e other fi rn O1 INSU hee
verage . . . credit life insurance is a limited special
type of coverage written to protect loans. In no way does
he operations of a general life insurance busi-
Hoimann, 613 F.2d at 1170.
iteimann, however, does not persuade us that section
‘2 1s inapplicable to a national bank’s title insurance
les, First, as the Heimann court pointed out, eredit
ife insurance is unique in that it protects only the lender’s
interest by insuring that his loan will be repaid even if
orrower dies. When a bank sells credit life insur-
ince, it is similar to the bank demanding a higher price
‘or the loan to compensate for its assumption of a risk
inherent in any extension of credit made pursuant to a
borrower's promise to pay—-the risk that the borrower's
leath will render him personally incapable of repaying
the loan. Title insurance, by contrast, insures the bor-
rower'’s equity in the property as well as the bank’s inter-
in the mortgage it holds. Second, Heimann’s persua-
siveness is further eroded by its scant analysis of section
2 and its failure to discuss the provision’s legislative
hi Thus, /efmann is not dispositive of section 92’s
bearing on a national bank’s power to sell title insurance.
D. Section 24 (Seventh)
lion to the express powers granted national
banks by the National Bank Act, Section 24 (Seventh)
of the Act grants them “all such incidental powers as
shail he necessary to carry on the business of banking.”
The OCC contends that under judicial interpretations of
this provision, a bank’s sale of title insurance. as agent, is
“Incidental” to the banking business within the meaning
of section 24 (Seventh), and thus the OCC’s decision is
eonsistent with the National Bank Act.
} pmtarriie ~ P Mi
Based on our interpretation of section 92, we see no
ope of section 24 (Seventh). We
l7a
APPENDIX B
PINION OF THE DISTRICT COURT
UNITED STATES DISTRICT COURT
OUTHERN DISTRICT OF NEW YORK
yr)
-~ \ = ~
T> a ] j
NOBERT | { K n He capacity _:9 ! roll
]
)] t Hk © On PROLI
‘ | |
OF THE Cul n Agenc\ the Un i:
Det (
mn
cia ‘
> a79
‘i \ \ BA vik, \ \
ry
l / r-D) }
Tr\% 4 ,
y1>] ND ORDER
} \ ry 7
A Ai tS i l ri
I Y) 7 2. 7
MARY JOHNSON LOw] D..J
Bef } { } ntifte’ y ]
ot ® io 4 } ) Mole | LO pDursual K'ed
I ( P 6 fo) ) oO) ey O} nts @ —
IIS] ! | i \ Pr LZ )
7
he reason h } W, nts ! ranted
nd plaintiffs’ m n is denied
> )
BAC KGROI ND
I} ()( ¢ 1¢ I, ) haraad UW ] Ae ,
Al Ll 4 i i re
na n of national banks and thi Imi?
~ c < -
~ co a <
é r ~~
- o= . . r 7 -_
. . - j " -
- ai ° +
j - ~ ¢
f
—
19a
no preferential treatment would be accorded to
customers who chose to obtain title insurance
hrough the bank, and:
!, customers would be advised of the services of-
fered by the subsidiaries and of the relationship
between the lender and the subsidiaries.
>
he proposed plan would inelude procedures that would
guarantee the subsidiaries’ compliance with ail federal
and state laws and regulations applicable to title insur-
ance activities.
)
By letter dated June 20, 1989, the Comptroller ap-
proved Chase Manhattan’s proposal. In granting ap-
proval, the Comptroller relied upon two provisions of the
Act: 12 U.S.C. § 24 (Seventh)? and 12 U.S.C. § 371.3
The Comptroller specifically found that title insurance
falls within the incidental powers of a national bank.
noting that title insurance agency activities are both con-
venient and useful io the bank’s express power to make
eal estate loans and that there has been judicial recog-
nition that certain forms of insurance related to tradi-
tional lending activities of banks are within the incidental
powers of a bank.
Plaintiffs challenge the validity of the Comptroller’s
ruling. They argue that the sale of tilde insurance is
outside the scope of authority conferred on national benks
by the NBA, and is contrary to judicial precedent. They
contend that 12 U.S.C. $92, which permits national banks
doing business in towns with populations of less than
9,000 to “aci as the agent for any fire, life, or other in-
”
surance company,’ prohibits national banks in larger
” ‘ ° ’ ‘>¢ CY A. or\r act . |
“12 U.S.C. § 24 (Seventh) provide r perunent part, that na-
.: | 1 ae —_- } . = e } )
tional banks n \ CANCECINE : all such incidentai powers as shall
, . . - ; ,
De TOK ary tO Car} on the business of banking. :
. ° 1 . ’ :
+ ‘ > y , P ' ; +3.
towns trom engaging in the business ol] nsurance
] t
) ' 7 ; ‘ 1 r . ‘ "
n eope og war § be sm [+6 Intins Seen a GUeClaFaALOPY Cig Fy hn «i Li%
‘ : 1} é 4 } , | f ; — } ]
Co 1} ) I LeCQ L ic 4 ris cope OF autno) y ana
t 4. \ { + NY! f2 A } ’ ’ ‘ ) ry
Contrary ) he a DA Vy Lit nN He vy Nn Cit appre ct ‘.
\T ] 4 1 «3 ) ’ }
“7 , +7) ) } are Vy Ore ore t Sle
aricl Wa an LU Op) a FG hol © i | sic — eng yO In Ait 1) i
> ° .
r 7 ) >
n ate ol Pere 6 | noe LLS INsUurs 11Ce
. 7 7 , = ; ‘ 17 ’
P - , * + 4 + ate’ i ¢ , ) |
Defendan sk that the Court uphold t! ( pirower s
i i
2371) : he +4) y 46} ee ’ 13 ]
rune tha Iie insurance actlVItl are not pronipitead
1
a Oe eee ar 3 ee ; (ae ae +] daa clit? «)] ley
DV lf Uw.l. § va, are related to the tradivional 1ding
> rye > he i» a «i < ee oe +] . : ‘
powers OF banking, are ineicdental TC 1@ DUSINeSS
ing and thereiore fall within the meaning of the inci
, 4 e : . } , 4.7 Ae ry.) - 5 7 N ‘
dental powers clause of the NBA phnev argue aa § 92
relates Oni\ oO the Sale o1 raditional mnsurance, which
RE Sper eRe a gems Bere i; ee ey OR ee Fs EF .
Is substantialiv unlixe title msurance. Finally, detend-
. oe re . i samtinae’ ] cc + 134} i
ants argue that the Comptroiers decision to authorize
sibsidiaries must he ac lay) Peta, Sy ee pe See ae
Subsidiaries Mus e@e accoreed Feat cererence op this
WOuUrt cas this TCOurt IS reviewiInl- an agency s iInterpreta-
tion of its governing statute.
1} 1 a. ‘
troller J. Michael Shepard approved Chase Meant an
yMpiieation to ane ta 9 Teteet en ( lin t] y1}<)-
} Bat , L } { Sha 4 t I ram Se | ih t i i
4 .
ness of title Insurance activities. Mir. She Gq relied o
1 . ‘ oy! tae | 11 . ]
Oct in erpret € [Le I oDd, da q J ii’ Lj 1‘ Sh Wwnien
discussed CWO tests the courts nay used When aetermin-
7 T hie far f¢ pdants’ Ad ChE TES
First, under Arnold Tours, Inc. v. Camp, 472 F.2d 427
Ist ir 1972). an aetivity has been de! ned as inel-
( Z
dental to the business of banking if it is “convenient or
Zla
usctul in connection with the performance of one of the
bank’s established activities pursuant to its express pow-
Sank Act.” Jd. at 432. See also,
M & M Leasing Corp. v. Seattle First National Bank,
903 F.2d 1877 (9th Cir. 1972); Guaranty Mortg. Co. v.
41D. Associates, 506 F. Supp. 101 (S.D.N.Y. 1980).
Second, the Comptroller has found that an activity is in-
cidental to the business of banking where the activity
In question is similar to a permitted activity. See e.q.,
Lid pe ndent Baile rs Assoc. ?. Tle Iman, 613 F.2d 1164
(D.C. Cir. 1979) cert. denied, 449 U.S. 823 (1980).
Although the OCC views the Arnold Tours test as too
Beer rive. (and has maintained this position since the
issuance * Let cer +368: Nee Ee .. Ame: rican Tins. Assoc.
v. Clarke, "865 F.2d 278 (D.C. Cir. 1988) ; Securities In-
885 F.2d 1034, 1048 (2d Ci
1989) ) it found that under either the “convent ent and
useful” or the “similar to a permitted activity” test, title
Insurance activities are incidental to the business of
banking.
? v7} B
dustry cissoe ve. Claris
‘
The Comptroller found that title insurance meets the
Md t in that it is convenient and useful in
connection with making real estate loans, an express
power granted to national banks. 12 1
surance coverage to protect against contingencies that
would prevent the bank from being able to foreclose on
he collateral. He noted that it would be both convenient
and useful tor borrowers to discuss and purchase title
Insurance coverage While negotiating a real estate loan.
The Ss eimged clearly views title insurance as a logical
compliment to the review of abstracts of title, legal title
opinion, and title insurance commitments already con-
ducted by banks in connection with making real estate
loans. Similarly, every loan made by a bank that is col-
lente ra ized by il parce! of real ¢ state is condi ioned on an
examination of the relevant Oe 1 records. National lend-
ers WnNO Make real estate loans regard titie policy as an
22:
essential part of their loan package, helping them to
transfer these loans as they would other commercial!
property. Powell on Real Property, { 1028 at 92-3.
Furthermore, title insurance is a contract under which
the insurer indemnifies the insured for a specific amount
against any loss rie hoger existing defects in title.
Powell on Real Propert 1029 at 92-5-29-7. The lend-
ers poliey protects the fees interest in that it insures
a valid enforceable lien in the event of a default. In this
sense, the Comptroller found that title insurance is simi-
lar to an extension of credit, a traditional bank function.
Banks frequently prepare and review abstracts of title
and legal title opinions concerning mortgaged real prop-
erty. In this respect, the C ompt roller concluded that title
insurance, like credit life insurance, is a limited type
of coverage similar to a traditional bank practice con-
nected to an extension of credit and therefore, incidental
to the business of banking.
A similar position was adopted by the D.C. Cireuit in
Indep ndent Banke rs aissoc., 613 F, 2d L164. There the
court observed that credit life insurance (which includes
health, accident and life insurance issued as protection
for a loan) is essential where ordinary loans on personal
security are made, is a limited type of coverage that pro-
tects loans, and is connected to an extension of credit.
For these reasons, the court held that credit life insur-
ance is incidental within the meaning of 12 U.S.C. § 24
(Seventh) /d. at 1170.
B. The Plaintiffs’ Arquments
Plaintiffs rely on Saxon v. Georgia Ass'n of Independ-
ent. Ins. Agents, Inc., 399 F.2d 1010 (5th Cir. 1968), in
Which there was a dispute over a national bank’s au-
thority to issue broad forms of insurance. The Sa.on
court held that the Office of the Comptroller acted outside
its scope of authority and contrary to § 92 when it
granted national banks the very broad and unlimited
QRS
oa
26a
the requirements of the Arnold Tours test, we decline to
address the Comptroller's position that the test is too
restrictive.
Title insurance is eommonplace where loans collater-
alized by a parcel of real property are made and has, in
effect, become an essential element of the real estate
package. Therefore, it is a rational conclusion that the
sale of title insurance in connection with real estate loans
made by a national bank is incidental to the express power
of a national bank to make real estate loans. Further, it
is rational to conclude that title insurance, like credit
life insurance, is an activity considered incidental to the
business of banking in that it is a limited type of coverage
that protects the lender in the event of a default.
We find that it is neither arbitrary nor capricious to
view 12 U.S.C. $92 as a supplemental powers provision,
not 2 limitation on national banks’ incidental powers un-
der 12 U.S.C. § 24 (Seventh). Further, even if § 92 were
viewed as a limitation, we find that the Comptroller's
determination that title insurance is so significantly dif-
fere.it from the broad forms of insurance addressed in
5 92 as to remove title insurance from the scope of § 92
is rational under the NBA.
The question before this Court is not whether the NBA
expressly authorizes national banks to engage in the busi-
ness of title insurance agency activities. Rather, the ques-
tion is whether the Comptroller’s determinaticn that a
bank may engage in the business of title insurance agency
activities is rational under the NBA. The Comptroller
determined that the activities proposed by Chase Man-
hattan are incidental to banking business in that they are
convenient and useful in connection with its express power
to make real estate loans and that they are similar to an
extension of credit, an activity already performed and
permitted. As the Comptroller's determination was nei-
eer cae : sap Seat t aces 60 ae a “79rK1 ‘ |
Liicl erroneous 1:3) arbitrary Ol Capricious, this Court
UY O00 00 0
28a
UNITED STATES DISTRICT COURT
OUTHERN DISTRICT OF NEW YORK
S
»
89 Civil 6939 (MIL)
, AMERICAN LAND TITLE ASSOCIATION and
NEW YorK STATE LAND TITLE ASSOCIATION,
Plaintiffs,
-against-
Robert L, CLARKE, in his official capacity as Comptroller
of the Currency, and Tk OFFICE OF THE CoMPPROLLER
OF THE CURRENCY, an Agency of the United States,
Defendants,
and
THE CHASE MANHATTAN BANK, N.A..
Intervenor-Defendant,
JUDGMENT
{Filed Aug. 15, 1991]
Plaintiff having moved pursuant to F.R.Civ.P. 56 for
summary judgment, defendants having cross-moved for
dismissal under F.R.Civ.P. 12+b) (6), and the said mo-
tions come before the Honorable MARY JOHNSON
LOWE, U.S.D.I.. and the Court. theresfter on Au-
gust 7, 1991, havinggbanded down its opinion and order
(#68481); denying Waintiff’’ motion for summary
judgment, and granting defendants’ motion te ai muss, it
is;
29a
ORDERED, ADJUDGED AND DECREED: That
plaintiffs’ motion for summary judgment be and it is
hereby denied, and it is further,
ORDERED. that defendants’ motion to dismiss be and
it is hereby granted, and it is further,
ORDERED, that the complaint be and it is hereby
dismissed.
s James M. Parkinson
Clerk
DATED: New York, New York
August 15, 1991
3la
and title opinions, preparing preliminary title insurance
commitments and final title insurance policies on behalf
of Insurers, and providing clerical assistance related to
the Subsidiaries’ title insurance agency activities
It is also anticipated that the Subsidiaries will enter
into agency agreements with one or more title insurance
companies. Under these agreements, the Subsidiaries will
retain 2 portion of the premiums paid on the title insur-
‘ince policies they sell. You have stated that the Sub-
sidiaries will comply with all federal and state laws and
regulations applicable to their title insurance agency ac-
LiVitice.
eaxge loans. This condition is imposed in order to protect
the lender’s security interest in the mortgaged property.
Although the Bank and its affillates will continue to re-
quire mortgagors to obtain title insurance, the Bank has
assured the OCC that the following practices will be ob-
served when offering title insurance through the Subsid-
itvies. Borrowers will be able to purchase title insurance
from the insurer of their choice and will not be obligated
ie services of the Subsidiaries. Moreover, a
“s decision to grant or deny a mortgage will not be
affected by whether a borrower has purchased title insur-
ance sold by the Subsidiaries nor will a lender accord
more fayerable trentment to eustomers who elect to ob-
i rh the Subsidiaries. Customers
Will be advised of the services offered by the Subsidiaries
and the relationship between the lender and the Subsid-
Discussion
Tithe insurance is limited purpose insurance designed to
protect the owner of an interest in real estate against
the risk of loss resulting from title defects or encum-
brances on the property. Its development in the late 19th
Century is lated LO che mortgeave lending activities of
32a
—
~
~
~~
jo)
ws
~~
~~
_
~=
~
~~
lany title insurance companies were depart-
ments of banks and trust companies until the 1930s.
The OCC has issued an interpretive letter which concludes
ks are authorized to act as agents for
the sale of title insurance. Sec Letter No. 368. reprinted
m Fed. Banking L. Rep. (CCH) § 85.538 (July 11,
letermination
985). That conelusion was based on the di
+ anll; . ++ . 9 ya . 7c 3 1 . + ‘ IAN!) n ea’
that selling title insurance is Incidental to national banks
a ‘ eT oe 4 or Lp , 2aee a “a9 ] . .
expicit autnority to make, arrange, buy and sell mort-
aul
gage loans under 12 U.S.C. $$ 24(7) and 371. Id. The
conclusion also is supported by judicial recognition that
t is incidental to banking, and therefore permissible, for
national banks to sell forms of limited purpose insurane
ated to the traditional lending activities of banks. Se.
Tnd pre dey ia teeVS Association of A rericd v, Hi >) Pil be
613 i.2d 1164 (D.C. Cir. 1979), cert. denied. 449 U.S
is consistent in all material respects with
+] ] Lon ‘ s>) P1913" : ++ . Y oy: :
Lne } iv ( h Was approved 1h) l. L@} No. YOO. SimMnce
a ah om vee Talpe a
+ ae Oe ee 8 .o4 permits a national bank to eneage in
. .
y) pern xihl ( LU} thr eh in oneratine s
} }«y# 1 ) ] }2 }
sen . rr regulatory concerns, the Bunk may
} + Y . .
pro q@ with its proposal to estabilsh one) nes
; 1] : ' Tey
ics ) st i AN Li i 1? . al vent
Sin rely
s’ J. Michael Shepherd
J. MICHAEL SHEPHERD
Senior Deputy Comptroller
for Corporate and Economie Procrams
‘T° } ]
. The if mn reac) lin Le ter N 68 ha n
imp r ruler ng in A ni] Tit (
A87-CA-108 (WD. 1 I July &. 1987
ruled ! I OC ( ot rh ie | l nor is | }
th nN YY)? ‘ 11)? ] Y) 1? rs
33a
APPENDIX D
1986 OCC INTERPRETIVE LETTER
al Advisory
William B. Glidden, Assistant Director, Lee
1986. Inter-
services Division. Letter No. 368. July 11,
preting 12 U.S.C. § 24(7) ; 12 U.S.C. § 371.
This is in response to your request for an opinion as to
Whether vour client, (“Bank”), or its operating subsid-
‘
iiry may perform certain activities related to the sale of
| title Insurance. From correspondence and conversation
with vou, it is our understanding that the Bank is seek-
] ‘mission to engage in the following three activities:
agent in the sale of title insurance, to enter into
entnge lease and employee sharing arrangement
with a title insurance agency. and to acquire a franchise
from a title insurance agency to prepare and distribute
policies for title insurance.
In ord to delay any further our response, you
agreed, In a discussion with Nancy E. Chase, an attorney
with this Office, to limiting
4 }
+ + 4
me to tne
A
vour request at this
ity listed, with the Office givine you genera]
regarding the permissibilitv of engaging in
maining activities. This precedure would avoid
upplyine the Office with specifie information. re-
} tractual arrangements contemplated under
} ty pronvosals—information that the Office
would need in analyzing the activities and that Ms. Chase
understood was not currently available.
Title insurance is a unique type of insurance. Its pur-
se is to reduce the risk of loss resulting from title de-
ects or encumbrances existing on property at the time the
policy is issued. It does not protect the insured from
events that happen after the contract is written.
)
SS + . ?
Title surance can protect, venerally through separate
i
policies, both the owners of the property and the ‘mort-
the rly ventures into title insuran ’
hanks and trust companies who comb
surance function with the lending of n
See Title Insurance Companies ‘(Philo Smith }
also Public Regulation of Title Insurance i¢
Abstracters 0.10.30. (Villanova Press. E.F. R
1961) (“Villanova Treatise’).
The first title Insurance pol
delphia in 1876 by the Real Estate Title Insurance
Trust Company. More title insurance companies
established soon thereafter “practically all of which
sisted of title insurance departments of banks and
companies.” Villanova Treatise at 14 n.2. It is
Sbrsett lise +3 71 or f+. F ae :
W1ITNT! ne foliowlng hity vVealrs rac alive every
} - 2 ° ) ee ,é Marl ¢ , 0
and Lr’us company in | nhiiade pnia haa AL an veae'
the title in real estate acquired with the bank’s own
. + . 2 + + ys + ict at . t\ ‘ c
or tor tne account OF 1ts trust estates oO} cu }
, cas , , . .
AS a result OF rallure OI DaNnkS and !? rigage ou
WINAN?} 131 . +] 1) ne ' 4 :
( PMS Gur Lne wepression, Many eS 4
. . . : > 2
were dives ed ing naepenae} | CON i} '
% , + a | ’ i or) 7 ’ .
On'V In tn 1uie Insurance DusiIness Were ( !
: ‘
states NCW Stric Dallas TromM envgayl in)
T ‘ : 1) {
ANCE S¢ \MIemorandum ( poard OL &u No}
rs , ) + - > >»
Federal Reserve System from Fed Rese R
‘ . ies
( ¢ | .
Philade bid Aug 1, 19% ) rO\ iEf) Ni { <
a Catlol O retal ownersnlip of a ti ( :
any’; nowever, corporacdons May stl Lye
. = : :
I Mit r Ul & es. ific l1ilY? OKI; a a b) §
t }}"* ’ bs *} 1? } f )} ¢
title insurance and trust business.’ See Okla. stat.
Ii t} + oft the ()t] } +
‘ e per by le Th ( t
Met ran-Fei on A 5 I ( ie
itnorit t } Licaite Ut (
} } ) " , } ¢ , 1 } ' ]
‘ tl | ( ‘ i itt < ii < i ‘
37a
lit. 6, $s 100iA120) (West 1984). In addition. an oper-
ating subsidiary of a savings and loan association may
act as an agent or broker for title insurance. See 12
C.FLR. § 545.7410) (5) (iid.
Although title insurance companies now tend to be
independent of banks, there remains a close relationship
between certain banking functions and the title insurance
business. For example, title insurance companies may
perform functions similar to those of banks, such as deal-
ing in mortgage loans. and. depending upon state law,
acting as transfer agents and engaging in the trust
business.
Furthermore, as mentioned above, title insurance is
often purchased in conjunction with the granting of a
mortgage loan. In addition to performing a credit anal-
ysis, a bank must review the title insurance documents
prior to granting a loan to be sure that its security. in-
terest In the property will be protected. In cases where
banks conduct “closings” for customers, review by the
bank of title insurance policies takes on added Importance
i¢ bank also must confirm that the policy complies
?
I
With the borrower's previously established requirements,
hus, it is important for banks to be familiar with title
Insurance procedures in connection with their mortgage
lending activities. The experience gained in reviewing
title insurance documents gives national banks the exper-
tise necessary to perform related agency activities. Al-
though banks may have developed expertise in the title
insurance business, the authority of national banks to act
as agents in the sale of title insurance must also be es-
tablished.
Opinion
The National Bank Act provides that national banks
38a
To exercise . . . all such incidental powers as shall
be necessary to carry on the business of banking: by
discounting and negotiating promissory notes, drafts,
bills of exchange and other evidences of debt; by re-
celving deposits; by buying and selling exchange, coin
and bullion; by loaning money on personal se-
COKILY « «x
12 U.S.C. § 2417). Since national banks are not expressly
authorized to sell title insurance, in order for them to
engage in that activity, the activity must be-incidental to
the business of banking. Recently, the Court of Appeals
for the First Circuit enumerated a test to be used in
determining whether a given activity is incidental to the
business of banking. In Arnold Tours, Ine. v. Camp,
Which invalidated an OCC interpretive ruling authorizing
national banks to run travel agencies, the court stated
that:
A| national bank’s activity is authorized as an
incidental power, “nece ssary to carry on the business
of banking,” within the meaning of 12 U.S.C. § 24
seventh, if it is convenient or useful in connection
with the performance of one of the bank's established
activities pursuant to its express powers under the
National Bank Act.
rd | Y ¢ et arg ). + eer mr¢ eT "ley . I nae
172 F.2d 427, 432 (Ist Cir. 1972). Accordingly, undes
the Arnold Tours test, for an activity to be incidental to
the business of banking, it must be connected to the per-
formance by the bank of its CxADeSS powers.
This office views the Arnold Tours tes! as too restrie-
tive. Other courts have used broader and more realistie
tandards, such as finding the activity in question sim-
ilar to a permitted activity and not prohibited by. stat-
ute, Miller v. King, 223 U.S. 505 (1912); Wyman vy. Wal-
lace, 201 U.S. 230 (1906); finding that the banks have
lly
traditionally engaged in similar activities. Colorado Na-
tional Bank v. Bedford, 310 U.S. 41 (1940): IBAA vy,
Heimann, 613 F.2d 1164 (D.C. Civ. 1979): findine that
the activity is useful and convenient to the bank in the
current competitive climate, Tirst National Bank v. Hart-
ford, 273 U.S. 548 (1927); Colorado National Bank v.
Bedford, supra; Franklin National Bank v. New York,
47 US. 375 119541: or finding that the proposed ser-
vice is a convenience to its customers, Clement National
Bank v. Vermont, 231 U.S. 1290 (1913).
the Arno
proval by COULLS in
See National
Y
Pod 315
Howey ig
) ? «6 | ‘
CLAS)
Li
National Bank, 563 F.2
ZID
Mortvave Co. vy.
(S.D.N.Y. 1980).
1}
iq
i¢
i \
Tours
oth the Secon
test has been cited with ap-
d and Ninth Circuits.
Corp. v. Valley National Bank, 590
79); M&M Leasing v.
(9th Cir.
DOG
Seattle First
1977); Guaranty
I, 101
Associates, Supp.
Vy applying the several standards cited above, includ-
ing the more restrictive A nold Tours test, it can be con-
cluded that the sale of title insurance by national banks
In an Vy capacity is Incidental to banking under 12
U.S.C. $$ 24(7), 371.2 As you m be aware, the Office
has not in the past objected to national banks’ offering
title insurance as agents. However, the rationale for the
Office's position has only been alluded to briefly in earlier
opinion letters. Consequently, it is appropriate to. set
forth our reasoning in more detail at this time.
Pur 0 12 U.S.C. $371, national banks are ex-
authori ‘ ange, purecha e or sell
t has | t I f osition of the Off that ar nal
wl i] nsurance police cting as a poll
holder, ne 1 nt for the insure Consequently, if a bank
offer iy witit ed to bank loans, the activity is per-
! | { ! rail | 1
| { ! \ Cit ; Lae re | a f Jn pen lent
Phesarane holo (Sth Cir. 1968 Phereto the
Bank mays oat rs title a rance Cove de wroup
policy arrangement where the Bank holds the master yp without
cr nf rf with 12 USA 92 and
Lit axon ruli
40a
loans or extensions of credit secured by liens on interesis
In real estate... .’ Since banks make substantial loans
on the security of the real property being eee it is
important that banks ensure that they have a valid lien
on the property that would not be ate cted by unknown
encumbrances. A bank must rely on the integrity of its
interest in the real property securing the mortgage loan
hould the borrower become unable to meet scheduled pay-
ments of principal and interest. To conform with pru-
dent banking practices, banks often require title insur-
ance coverage to protect themselves against contingencies
that would prevent the bank from being able to foreclose
on the collateral.
In addition, banks often sell, in the secondary market,
the mortgage loans ae have made. In order to provide
for the saleability of these loans, banks generally require
borrower to obtain title insurance on the mortgaged
property. Therefore, permitting national banks to act as
agents in the sale of title insurance in connection with
real estate loans made by the banks would be convenient
useful to the banks and to their customers. Title in-
surance is also important to bank customers to protect
their own interests in the mortgaged property. It would
be convenient and useful to the customers to be able to
discuss title Insurance coverage and purchase the policy
the same time the customer negotiates a real property
loan at the bank.*
Furthermore, the convenience and usefulness of per-
mitting the bank to conduct the agency activity is evident
from banks’ current involvement with title insurance
policies. The agency activity would be merely an exten-
sion of or logical complement to the review of abstracts
}
i Arrangements under which banks are authorized both to make
hale
+}
loans and offer insurance related to the credit muav raise the issu
of the potential for illegal tie-ins. It is the opinion of this Office
il
that 12 U.S.C. § 1972. and Federal antitrust law are suificient pro
tection ugainst this practice.
41a
and title insurance commit-
—_ } ¢ 31° ci ing « Ins \*
banks conduct prio) to granting a i0an 0}
of title legal title opinions,
ments that
conducting 2 closing for a borrower. Accordingly, banks
le expertise to perform the agency activi-
be able to benefit financially from authori-
into agency relationships with title Insur-
lasoercl ty *) 1
already nave t
ties and would
mation Lo ent
unce companies and to collect commissions for performing
the services.
In addition, banks traditionally have been involved in
Indeed, as discussed above
was offered in
the title insurance business,
title ed from and
junetion with the real estate lending activities of banks
and trust companies from the 1870s until the Depression
of the 1930s. In this , title insurance
credit life insurance, the sale of which was considered by
the court in IBAA y. Heimann, 613 F.2d 1164 (D.C. Cir.
149 U.S, (1980), to be a tradi-
insurance originat con-
4 . ]
respect resembles
1979), cert. denied, 823
tional bank practice connected to an extension of credit
and, thus, a permissible bank activity.
\oreover. savings and loan associations are authorized
in the sale of title insur-
for national banks would
agents
activity
tO act as
by regulation
1 _ a eee
Authorizing the
ance ;
enable them to compete in an increasing:iy competitive
eer fa a . Re a ye ° oo
finuneial services market. The Office has recognized in its
’
ings and loans offer many of the
form many of the same
largest providers Of
avings and [oun asso
e marke national banks
eontaged as to savines and loans by being
ee! no rr a het {
Finally, title insur
It is
Surance,
unique form of in
analyzing branch applications
same services a
functions as national banks. In
banks and savings and loans are the
nortvage loans.
Therefore, since
nee, as pointed out
sufficiently unlike
ivses of Competitive markets when considering bank
1
and in its review of state branching
q S «yt “yy
that poy
1d per-
‘ i
See ted, Res.
national banks
lations are Increasingly servicing
should Hot be dis
prohibited f1
abo, e, 18 a
}}
fe,
)
ae ih
}
~
~
~
~
‘
hchd
= 4 &
‘ Y - oS
an ae. a ~
a i =
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_— 2 3
l o ~
— —
> gid ae J oad
~ ‘
, / oJ
7 , at
a a . —
~— fa Be) a.
-m~™s, YS
- el s
= _ ~y ned ~
- ss oo ¢;
me CG
— .
~ WW. J
Cc ro —
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a a: a -
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a“ = s
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nd
/ —
“ /
ges tal Y =
oS = —
= y a
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“ ~~ /
- = os
ane ieee
f ° we
- —_— ‘
y * : ~
fn > = -
a ~ ~ we
y f
r 5
‘ $
o— -
— fo
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/
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— f
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a = +
in
I.
44a
space leased te the ageney by the Bank, a partnership or
‘aint venture may be created if the persons performing
the clerical services are considered to be dual employees
ef the Bank and the insurance agency, <Althouch the
Office has permitted national banks to engage In certain
partnerships, such participation raises sienificant legal,
ho tey, and prudential concerns, Thus, the Office would
Want to review the particular contractual arrangements
prior to the Bank’s beginning operations under the second
proposal, Tam enclosing an OCC opinion letier related
to a percentage lease and employee sharing program to
assist you in structuring your arrangement,
Your third proposal involves the Bank’s acquiring a
franchise from a title insurance agency to prenare and
distribute commitments and policies for title insurance,
The Office has not taken a pesition on whether national
bans are authorized to enter into franchise agreements.
However, since the term “franchise” seems to he used to
deseribe various business arrangements, there does not
appear to be a consistently applied definition on which to
base an opinion that would he applicable in all cases, As
a result, as you indicated in your letter, the exact nature
of the franchisor franchisee relationship must be deter-
minéd on a case-by-case basis. Thus, if the Bank decides
to enter into a franchise arrangement, the Office would
a'so Want to review the terms of the contract to determine
if the arrangement would be permissible.
-“ >
45a
APPENDIX E
1965 OCC INTERPRETIVE LETTER
Name and address of addressee
redacted in publicly-available copy
This will confirm the telephone conversation of July
22, 1965, between you and a member of our legal staff
regarding your letter of July 2, 1965, in which you in-
quire whether the First National Bank, |name redacted
in publicly-available copy of letter] may act as an agent
for, or organize and have an interest in, a title insurance
and abstract company. |Name of town redacted] accord-
ing to the 1960 census, has a population of less than 5,000
persons.
Under 12 U.S.C. § 92, a National Bank is authorized to
act as a general agent for any fire, life or other insurance
company in any place the population of which does not
exceed 5,000 inhabitants, according to the last decennial
census. Accordingly, so long as the population of |name
of place redacted] does not exceed 5,000, the First Na-
tional Bank may act as a general agent in the issuance
of title insurance. In addition, a National Bank, wherever
located, may, under its corporate powers contained in
paragraph Seventh of 12 U.S.C. 24, act as an agent in
the issuance of title insurance which is incident to a bank-
ing transaction.
Very truly yours,
s R. Coleman Egertson
Deputy Comptroller of the Currency
46a
APPENDIX F
Upon duly making and filing articles of association
; ,
nat y ( ) { ) ? } ? S<O-
. 1] > - ’ , ’ } .
Clallon h; ti pecome as ] | { ( { QO] ON, ] On ray
. }
ts rzanization ( heat Qa bod te, nd ~
? » | ’ ,
Suen ind in tne name (| Be ead in tne ()} a
. { ; } 11 1 .
Ce} 114 ( Lsnhali Way
* % a6 -
. . a
1 .
seventh. To CIs ri] tors or ¢
} ) . " :
+ +7 ‘ r )
| na) (| Lice ini Suc
|
} lantéa] ’
Hiciqde i ah ¢} is ' i al } ? ting
i
Wo} , ] . ane } ’
OUSINeSS i bankit 1 mn (j } } ( } )
. +17 — ] { }
promisso notes, drat ne yt he
evidences of debt hy preg Yr 4 ) _ ’ ane ne and
} no ) > *)) ] } } }
‘ r¢ ON e. ( In ’ } > ae ’
| rsonal security: and } bic Bae ee ere ee
personal CUULTILYV , Alii ry 4 ‘ [ts stdil { ?
: ; . : : ;
+ + onn . , . + a) , 4 ‘ «) “s 47
Ing notes according the pi e |
> —-— ton tay4 ."
| Re vised Statutes. —
~ + . ¥
\ct of Sept.
Sa
17a
(, 1916, ch. 461, 39 Stat. 752. 7
» Sen
ceeds Of which have been use
. ee ae ;
[ poses, tne | eqdera!l Rese}
I ie Cnatl
} . a : 4S
; is ei1lgzibie Tor discount Witnin tn
Ac \ Ine 1? s Act « ntained |
-<
(1916).
j \ “ 1) j » UNS (IS
f Ac ( ( rede res e Ac
| + > ] .
( Brey f Ve) qd. ninetee} nunared ant
] \ loc] . Wee
i re, { \ Ai tit wu a iUVi +s
, 7 , | | 4
I e¢ { ind : op Gy f menaded
Ay Keds reserve Dank may recelve from anv of
: : ’
n kc a } } ] ed States. ce SIts of
{ ] c 4 } 4 _
ent funds in lawful money, national-bank notes. Fed-
] . ] 4 ah! 1
sf e notes, ( enecKs, and drafts ivable upon
— } { ] ea motraeina hilla« ‘
e 1}1¢ SO, LOOP COLectlo MatuUrINe Hillis: O}
QO} vposes OF exenange or or ecollection, mav re-
‘ j } it reds eS rye oan a aie \OS]I Oj Clu}'-
») , ‘ ) } t yt) ~*~ }_] nile , 4 ; oh kk
‘ Il ie Vils iQ) a Ila VUliditValin TIOLeS, O CLICCKS
' ’ , ‘
rederal eserve Danks and CNeCKS and drafts,
. — = i aarti ban giltuad ‘ nd matnr
LAIGK ‘ dil PT CSt LLI¢ é| ) iil ius CIStYl¢ . £ | ma u
\ r) ) ith: if , Trie
\ WVIthAIin ALS ( | re) Ue
: ] i ‘ x . ] .
e indorsemen f any of its member banks.
h sh; e deemed a waiver of demand, notice and
t hy 1? ] lL | Qe + } va . Y) yf 17
. )\ U¢ DAN 5 to - OW nadorse el e@Xcliuslvely,
. , 1 ] ss . rt : a
I eserve Dank may discount notes, drafts, and
. , a | . sh 2
i e@ O arising ou rt actual commercial rans-
4 ac ey : h .
~ s, notes, GdtralIts and Ollis OF execnange issue d
t soypjenitural indnetrial 1 area 117°
‘ AUT abricuicubdai, INGUSTYlal, OF COMMere! pur-
ch
id, or are to
; > - ae
Ve Board LO
48a
Wares, or merchandise from being eligible for such dis-
count; dut such definition shall not include notes, drafts.
bills covering merely investments or issued or drawn
the purpose of carrying or trading in stocks, bonds, or
other investment securities, except bonds and notes of the
Government of the United States. Notes, drafts, and bills
admitted to discount under the terms of this paragraph
must have a maturity at the time of disccunt of not more
than ninety days, exclusive of days of grace: Provided,
That notes, drafts, and bills drawn or issued for agricul-
tural purposes or based on livestock and having 2 matur-
itv not exceeding six months, exclusive of days of grace,
may be discounted in an amount to be limited to a per-
centage of the assets of the Federal reserve bank. to be
ascertained and fixed by the Federal Reserve Board.
‘The aggregate of such notes, drafts, and bills bearing
the signature or indorsement of any one borrower,
Whether a person, company, firm, or corporation, redis-
counted for any one bank shall at no time exceed ten per
centum of the unimpaired capital and surplus of said
bank; but this restriction shall not apply to the discount
of bills of exchange drawn in good faith against actually
existing values.
“Any Federal reserve bank may discount acceptances
of the kinds hereinafter described, which have a maturity
at the time of discount of not more than three months’
sight, exclusive of days of grace, and which are indorsed
by at least one member bank.
“Any member bank may accept drafts or bills of ex-
change drawn upon it having not more than six months’
sight to run, exclusive of days of grace, which grow out
of transactions involving the importation or exportation
of goods: or whieh grow out of transactions involving the
domestic shipment of goods provided shipping documents
conveying or securing title are attached at the time of
acceptance; or which are secured at the time of accept-
ance by a warchouse receipt or other such document con-
49a
veving or securing title covering readily marketable
staples. No member bank shall accept, whether in a for-
eign or domestic transaction, for any one person, com-
pany, firm, or corporation to an amount equal at any time
in the avgregate to more than ten per cent of its paid-up
and unimpaired capital stock and surplus unless the bank
is secured either by attached documents or by some other
V
41
Un
actual security growing out of the same transaction as the
acceptance and no bank shall accept such bills to an
amount equal at any time in the aggregate to more than
one-half of its paid-up and unimpaired capital stock and
surplus.
“Any Federal reserve bank may make advances to its
member banks on their promissory notes for a period not
exceeding fifteen days at rates to be established by such
Federal reserve banks, subject to the review and determi-
nation of the Federal Reserve Board, provided such prom-
issory notes are secured by such notes, drafts, bills of
exchange, or bankers’ acceptances as are eligible for redis-
count or for purchase by Federal reserve banks under the
provisions of this Act, or by the deposit or pledge of bonds
or notes of the United States.”
Section fifty-two hundred and two of the Revised Stat-
utes of the United States is hereby amended so as to read
as follows: “No national banking association shall at
any time be indebted, or in any way liable, to an amcunt
exceeding the amount of its capital stock at such time
actually paid in and remaining undiminished by losses
or otherwise, exceyt on account of demands of the nature
following:
“First. Notes of circulation.
“Second. Moneys deposited with or collected by the as-
sociation.
“Third. Bills of exchange or drafts drawn against
money actually on deposit to the credit of the association,
or due thereto.
5I BY
“Fourth. Liabilities to the steckholders of the associa-
tion for dividends and reserve profits.
“Iifth. Liabilities incurred under the provisions of the
Federal reserve Act.
“The discount and rediscount and the purchase and
sale by any Federal reserve bank of any bills receivable
and of domestic and foreign bills of exchange, and of ac-
cepiances authorized by this Act, shall be subject to such
restrictions, limitations, and regulations as may be im-
posed by the Federal Reserve Board.
“That in addition to the powers now vested by law in
national banking associations organized under the laws
of the United States any such association located and
doing business in any place the population of which does
not exceed five thousand inhabitants, as shown by the
last. preceding decennial census, may, under such rules
and regulations as may be prescribed by the Comptroller
of the Currency, act as the agent for any fire, life, or
other insurance: company authorized by the authorities
of the State in which said bank is iocated to do business
in said State, by soliciting and selling insurance and
collecting premiums on policies issued by such company;
and may receive for services so rendered such fees or
commissions as may be agreed upon between the said
association and the insurance company for which it may
act as agent; and may also act as the broker or agent
for others in making or procuring loans on real estate
located within one hundred miles of the place in which
said bank may be located, receiving for such services a
reasonable fee or commission: Porided, however. That
no such bank shall in any case guarantee either the prin-
cipal or interest of any such loans or assume or guar-
antee the payment of any premium on insurance policies
issued through its agency by its principal: And provided
further, That the bank shall not guarantee the truth
of any statement made by an assured in filing his ap-
plication for insurance.
5la
“Any member bank may accept drafts or bills of ex-
change drawn upon it having not more than three months’
sight to run, exclusive of days of grace, drawn under
regulations to be prescribed by the Federal Reserve
Board by banks or bankers in foreign countries or de-
pendencies or insular possessions of the United States zor
the purpose of furnishing dollar exchange as required
by the usages of trade in the respective countries, de-
pendencies, or insular possessions. Such drafts or bills
may be acquired by Federal reserve banks in such
amounts and subject to such regulations, restrictions, and
limitations as may be prescribed by the Federal Reserve
Board: Provided, however, That no member bank shall
accept such drafts or bills of exchange referred to this
paragraph for any one bank to an amount exceeding in
the aggregate ten per centum of the paid-up and unim-
paired capital and surplus of the accepting bank unless
the draft or bill of exchange is accompanied by documents
conveying or securing title or by some other adequate
security: Provided further, That no member bank shall
accept such drafts or bills in an amount exceeding at any
time the aggregate of one-half of its paid-up and unim-
paired capital and surplus.”
* * * *
52a
War Finance Corporation Act of 1918, ch. 45, 40 Stat.
906 (1918).
*
SEC. 20. Section fifty-two hundred and two of the Re-
vised Statutes of the United States is hereby amended
so as to read as follows:
“SEC, 5202. No national banking association shall at
any time be indebted, or in any way liable, to an amount
exceeding the amount of its capital stock at such time
actually paid in and remaining undiminished by losses
or otherwise, except on account of demands of the nature
following:
“First. Notes of circulation.
“Second. Moneys deposited with or collected by the
association.
“Third. Bills of exchange or drafts drawn against
money actually on deposit to the credit of the association,
or due thereto.
“Fourth. Liabilities to the stockholders of the associa-
tion or dividends and reserve profits.
“Fifth. Liabilities incurred under the provisions of the
Federal Reserve Act.
“Sixth. Liabilities incurred under the provisions of the
War Finance Corporation Act.”
- * * »
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.