Amicus Curiae Brief — Chase Manhattan Bank, N. A. v. American Land Title Ass'n

No. 92-645

; NOV

IN THE ed

Supreme Court of the Gnited States”

OCTOBER TERM, 1992

STEPHEN L. STEINBRINK, et al.,

Petitioners,

V.

AMERICAN LAND TITLE ASSOCIATION, et al.,

Respondents.

On Petition for Writ of Certiorari

To the United States Court of Appeals

For the Second Circuit

BRIEF OF THE AMICI CURIAE

AMERICAN BANKERS ASSOCIATION, ET AL.,*

IN SUPPORT OF THE PETITIONERS

JOHN J. GILL III

Counsel of Record

_ MICHAEL F. CROTTY

AMERICAN BANKERS ASSOCIATION

1120 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 663-5026

Attorneys for Amici Curiae

November 12, 1992

{*Complete list of sponsoring organizations and counsel on

inside of cover.|

PLAN ERO ENE ENTS AIOE SSSI ASE RRR SEE NEI ARSED

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

ee

-_

—— -_

RICHARD M. WHITING

ASSOCIATION OF BANK HOLDING COMPANIES

730 15th Street, N.W.

Washington, D.C. 20005

(202) 393-1158

JAMES T. MCINTYRE

McNAIR LAW FIRM

1155 15th Street, N.W.

Washington, D.C. 20005

(202) 659-3900

Attorney for Association of

Banks in Insurance

MARCIA Z. SULLIVAN

CONSUMER BANKERS ASSOCIATION

1000 Wilson Boulevard

Arlington, Virginia 22209

(703) 276-1750 4

JOHN S. JACKSON

MINNESOTA BANKERS ASSOCIATION (

730 Second Avenue South

Minneapolis, Minnesota 55402

(612) 338-5137 (

WADE L. NASH

MISSOURI BANKERS ASSOCIATION

207 E. Capitol

Jefferson City, Missournn 65101

(314) 636-8151

JOHN E. KNIGHT

BOARDMAN, SUHR, CURRY & FIELD

P.O. Box 927

Madison, Wisconsin 53701

(608) 257-9521

Attorney for Wisconsin Bankers

Association

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QUESTION PRESENTED

Whether Section 92 of the National Bank Act,

granting insurance agency powers to national banks

in small towns that are “in addition to the powers

now vested by law in national banking associations,”’

constitutes an implied limitation upon the incidental

powers of national banks, granted elsewhere in the

statute, where such banks are located in larger towns.

ill

TABLE OF AUTHORITIES

Cases:

American Insurance Association v. Clarke, 865 F.2d

SR CED. Cie TOG) cvewisecscenctccssecnunessseaterenecnars

American Land Title Association v. Clarke, 772 F.

Supp. 1353 (S.D. N.Y. 1991) .....seeeeeeeereees

American Land Title Association v. Clarke, 968

F.2d 150 (2d Cir. 1992) ccccscccsnsiccccccsessecsesesnses:

Board of Governors of the Federal Reserve System

y. Dimension Financial Corp., 474 U.S. 361

PU icine da vcaicvasccnucrcatusnpentanscvacsasshanvennneeniwneniers

Clarke v. Securities Industry Association, 479 U.S.

BOB CUDST) vsnsksscivestincserecsieneiiieicamnenesan

Crawford Fitting Company v. J.T. Gibbons Inc., 482

OY. GBT CIT) wvvsevces cissxcescarceeresierionsrngsercanses

First National Bank of Eastern Arkansas v. Taylor,

907 F.2d 775 (8th Cir.), cert. denied, 111 8.Ct.

BAD C1GGO): oocccvciccesencocsncsevensnnsssnsexenssssnssieanvennsoes

Independent Bankers Association of America v. Hei-

mann, 613 F.2d 1164 (D.C. Cir. 1979), cert.

denied, 449 U.S. 823 (1980) ...........ccccccesereseeoes

Independent Insurance Agents of America v. Boa rd

of Governors of the Federal Reserve System,

Tae Od £60 (Oth Cie, TOBA) cecncisscnscccssossssesees

Independent Insurance Agents of America v. Clarke,

955 F.2d 731 (D.C. Cir. 1992) ...........scsseseevsee:

Saxon v. Georgia Association of Independent Insur-

ance Agents, 399 F.2d 1010 (5th Cir. 1968) ...

Securities Industry Association v. Clarke, 885 F.2d

1035 (2d Cir. 1989), cert. denied, 493 U.S. 1070

CWOG) ciccciinsscciscsccscsyeessarstaccssrsrssevintnctinceneecnunss

Variable Annuity Life Insurance Co. v. Clarke, 786

F. Supp. 639 (S.D. Tex. 1991), appeal pending,

No. 92-2010 (6th CAP.) ccc. isin oiiccscnne

Page

11

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Table of Authorities Continued

Page

Statutes:

ie tA. Soe Tey csc passim

Ae Wee. Be ccescasicsectsason eee passim

Act of Sept. 7, 1916, ch. 461, 39 Stat. 752

ERUPAWSS cxsancunnvadigensavnssccaccantcsnneeaesapieneieneae aaa 2

Miscellaneous:

Comptroller Interp. Letter No. 499 [1989-90 Trans-

fer Binder] Federal Banking Law Rep. (CCH)—

eee COD EE, TOD vos cactcsarsssisou 1]

Comptroller Interp. Letter No. 331 [1985-87 Trans-

fer Binder] Federal Banking Law Rep. (CCH)—

OO) CRORE 6. TU crsitiecciccuneenete 1]

McFadden American Bank Directory, Spring, 1992

CAADUIIIIOIRD , <sxcssnccassvcesskeukesealceariersceaes pean 11

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

No. 92-645

STEPHEN L. STEINBRINK, et al.,

Petitioners,

V.

AMERICAN LAND TITLE ASSOCIATION, et al.,

Respondents.

On Petition for Writ of Certiorari

To the United States Court of Appeals

For the Second Circuit

BRIEF OF THE AMICI CURIAE

AMERICAN BANKERS ASSOCIATION, ET AL.,

IN SUPPORT OF THE PETITIONERS

The American Bankers Association, et al., hereby

respectfully submit this brief as amici curiae in sup-

port of the Petitioner in accordance with the provi-

sions of Rule 37.2 of the Supreme Court Rules. All

parties have consented to this filing, and their written

consents are filed with this brief.

INTEREST OF THE AMICI CURIAE

The American Bankers Association, Association of

Bank Holding Companies, Association of Banks in In-

9

surance and Consumer Bankers Association are all

national trade associations of the commercial banking

industry. A large majority of commercial banks in the

United States, their employees or the bank holding

companies that own them are members of one or

more of the associations. The Minnesota, Missouri and

Wisconsin Bankers Associations are the principal

trade associations for the banking industry within

their respective states. All of the associations rep-

resent the interests of both national banks and state-

chartered banks in the legislatures, regulatory agen-

cies and in the courts on issues that are of widespread

importance to the industry. This is such a case for

the reasons set forth below.

REASONS FOR GRANTING THE WRIT

I. The Conflicts Among the Circuits

There are two conflicts among the circuits pre-

sented in this case. The first is whether or not Section

92 of the National Bank Act continues to exist; the

second is over how to construe Section 92 assuming

it does exist. For purposes of this case, the second

is the more important of the two.

Section 92 of the National Bank Act was enacted

in 1916. It was designed to grant to those national

banks located and doing business in small towns the

power to engage in the general insurance agency busi-

ness. The opening clause of Section 92 provided that

this power was to be “‘in addition to the powers now

vested by law in national banking associations.’”!

Among the powers then and now vested in national

banking associations was the power to exercise ‘‘all

‘Act of Sept. 7, 1916, ch. 461, 39 Stat. 752, 753 (1916).

such incidental powers as shall be necessary to carry

on the business of banking.’’? The Comptroller of the

Currency is charged with the interpretation and en-

forcement of these and other provisions of the Na-

tional Bank Act. Clarke v. Securities Industry

Association, 479 U.S. 388, 403-04 (1987).

In this case, Chase Manhattan, located and doing

business in New York City, sought and received the

approval of the Comptroller to engage in the business

of selling title insurance as agent, as an exercise of

its “incidental powers.’’ The District Court upheld the

Comptroller’s action. American Land Title Associa-

tion v. Clarke, 772 F. Supp. 1353 (S.D.N.Y. 1991).

On appeal, the Second Circuit reversed. In doing

so, each of the court’s two key holdings place the

Circuit’s decision in direct and irreconcilable conflict

with decisions of other U.S. Courts of Appeals.

The most obvious conflict is with a District of Co-

lumbia Circuit opinion handed down four months ear-

lier in Independent Insurance Agents of America v.

Clarke, 955 F.2d 731 (D.C. Cir. 1992), and it concerns

the very existence of Section 92 of the National Bank

Act. Because of two arguably - misplaced quotation

marks in the statute enacting Section 92, subsequent

iegislation, enacted only two years later and -on an

entirely unrelated subject, is said to have repealed

Section 92. The District of Columbia Circuit concluded

that Congress did what it did, and that “‘section 92

has ceased to exist.” Jd. at 739. The Second Circuit,

in the case below, explicitly disagreed with the Dis-

trict of Columbia Circuit, holding that whatever hap-

212 U.S.C. § 24 (Seventh).

—

pened in 1918 did not effect a repeal of Section 92.

American Land Title Association v. Clarke, 968 F.2d

150, 152 (2d Cir. 1992).

Obviously, this conclusion by the Second Circuit is

absolutely critical to its ultimate holding. If Section

92 does not exist, then there is no basis upon which

the court could find a “‘limitation”’ upon the incidental

powers of national banks. It would have to have

reached the question (which it declined to reach)

whether title insurance agency activities fit within the

incidental powers clause of the National Bank Act,

and the decision cannot stand.

The respondent title associations, the Comptroller

of the Currency, and your amici all take the position

that the Second Circuit’s decision upholding the con-

tinued existence of Section 92 is correct. Chase Man-

hattan does not take a contrary position. (See Chase

Manhattan Bank v. American Land Title Association,

No. 92-482, Pet. for Cert. at 12-13). The conflict be-

tween the Second and the District of Columbia Cir-

cuits is before the Court on petitions for writ of

certiorari to review the District of Columbia Circuit

opinion in the Independent Insurance Agents case.

Steinbrink v. Independent Insurance Agents of Amer-

ica, No. 92-507; U.S. National Bank: v. Independent

Insurance Agents of America, No. 92-484. The Court

can and should resolve the conflict over the existence

of the statute in the context of those cases.

But doing so will not resolve the second conflict

among the circuits that is created by the decision

below in this case. If Section 92 does exist, is it an

implied limitation upon the insurance powers of na-

tional banks in large towns or is it an independent

grant of insurance powers to national banks in small

3)

towns? That conflict is separate and distinct, and sur-

vives the outcome of the dispute over the existence

of Section 92.

The Petitions for Writ of Certiorari in this and its

companion case correctly point out that the decision

of the Second Circuit here and of the Fifth Circuit

in Saxon v. Georgia Association of Independent In-

surance Agents, 399 F.2d 1010 (5th Cir. 1968) both

construe Section 92 of the National Bank Act as a

limitation upon the rights of national banks located

in larger jurisdictions to engage in the insurance busi-

ness, whether or not the particular insurance business

in question might be considered “‘incidental”’ to bank-

ing. On the other hand, the District of Columbia Cir-

cuit, in Independent Bankers Association of America

v. Heimann, 613 F.2d_1164 (D.C. Cir. 1979), cert.

denied, 449 U.S. 823 (1980), and the Eighth Circuit,

in Independent Insurance Agents of America v. Board

of Governors of the Federal Reserve System, 736 F.2d

468 (8th Cir. 1984), both have clearly rejected the

idea that there is that kind of negative inference to

be drawn from Section 92.

While your amici agree with the Petitioners on this

point, we respectfully suggest that this particular con-

flict between the circuits is even deeper and perhaps

more subtle than it appears at first blush. The conflict

has to do with the order in which the respective courts

analyze the applicable or arguably applicable statutes

in cases testing the powers of banks under the Na-

tional Bank Act, and the priorities that are assigned

to different sections of the law.

Here, the Second Circuit looked first at Section 92

of the Act. Having done so, it opted for an easy

answer: Title insurance is insurance; insurance can

6

only be offered by those national banks located in

small towns; Chase Manhattan is located in a large

town, so it cannot offer title insurance; all other con-

siderations are irrelevant. Had the Second Circuit in-

stead looked first to Section 24 (Seventh) of the

National Bank Act, it would have to have analyzed

the question whether title insurance agency sales fit

within the business of banking or, more precisely,

whether the Comptroller of the Currency was within

his nights in so concluding. If the court then had

decided that title insurance was part of the business

of banking, it could have dismissed sections of the

law governing nonbanking activities as irrelevant—

including Section 92. Other courts—even including an-

other panel of the Second Circuit—have done precisely

that, and the Second Circuit’s failure to do so in this

case creates a conflict in the framework far analysis

of this particular issue and related ones.

in First National Bank of Eastern Arkansas v.

Taylor, 907 F.2d 775 (8th Cir.), cert. denied, 111 S.Ct.

442 (1990), the bank proposed to offer ‘‘debt cancel-

lation contracts”’ to its customers, alleging (with the

agreement of the Comptroller of the Currency and

the Comptroller's support as amicus curiae before the

Eighth Circuit) that such contracts were within the

incidental powers of national banks. The contracts

provided that, for a fee, the bank would cancel a

borrower’s then outstanding indebtedness upon the

borrower's death or disability. The Arkansas Insur-

ance Department directed the bank to cease and des-

ist, claiming that the contracts were the functional

equivalent of credit life insurance policies and, as such

were subject to regulation by the Department, could

not be sold without an insurance license, and that

~

insurance licenses could not be issued to banks in

Arkansas. The bank argued that, as a national bank,

its powers were governed by preemptive federal law;

the Department countered that the federal McCarran-

Ferguson Act left regulation of the insurance business

exclusively to the states.

The Eighth Circuit looked first to Section 24 (Sev-

enth) of the National Bank Act to determine the pow-

ers of the national bank in question. It concluded that

debt cancellation contracts fit within the incidental

powers of banks. The court then turned to the statute

governing nonbanking activities to determine its appl-

icability to the case at hand. It did not deny that

debt cancellation contracts might be ‘“‘insurance’”’ for

state law purposes, but concluded that that was an

irrelevant consideration: ‘Because debt cancellation

contracts offered by FNB fall within the incidental

powers granted by the National Bank Act, they do

not constitute ‘the business of insurance’ under the

McCarran-Ferguson Act.” Jd., 907 F.2d at 779.

Had the Eighth Circuit looked first at the statute

governing nonbanking activities, as the Second Circuit

did in this case, it could well have determined that

debt cancellation contracts were insurance and left to

the regulation of the Insurance Department, never

reaching the ‘‘incidental powers” issue. That court

examined the arguably applicable statutes in the re-

verse order from the Second Circuit’s, the two de-

cisions therefore being in conflict with one another.

In Securities Industry Association v. Clarke, 885

F.2d 1034 (2d Cir. 1989), cert. denied, 493 U.S. 1070

(1990), Security Pacific National Bank proposed to

pool its mortgage loans and sell participations in that

00

pool to investors. The Comptroller of the Currency

approved, and a trade association of the securities

industry sued, claiming that the bank would be en-

gaged in underwriting and selling securities in vio-

lation of the Glass-Steagall Act. The Second Circuit

upheld the Comptroller’s approval. It looked first at

Section 24 (Seventh) of the National Bank Act, and

found that that Section granted explicit powers to

national banks to negotiate promissory notes or other

evidences of debt, and that is precisely what Security

Pacific was doing. The Court then reached the pro-

visions of law governing the securities business, and

found them inapplicable because it had already deter-

mined the activities to be authorized by the statute

governing the banking business:

Activity that falls within the ‘‘business of

banking”’ is not subject to the restrictions the

latter part of section 16 places on a bank’s

‘business of dealing in securities and stock.”’

Thus, the issues concerning the definitions of

‘securities’ and “‘underwriting’’ only become

relevant if the activity constitutes ‘‘the busi-

ness of dealing in securities and stock.” If

the activity constitutes “‘the business of bank-

ing,’ then the Glass-Steagall Act prohibitions

SIA claims are violated here do not apply.

Id., 885 F.2d at 1048.

In this case, where the court looked first to the

statute governing nonbanking activities to determine

the powers of a bank, it has acted in conflict with a

different panel of the same court.

Obviously, this is not to say that the grant of power

to national banks to engage in the business of banking

found in Section 24 (Seventh) can overcome explicit

statutory prohibitions against banks engaging in a

particular business or in a particular way. But there

is no such prohibition here. Even if the Second Circuit

is right in holding that the law gives a power in one

section of the law and takes it away in another by

negative inference, there must still be some principled

way to choose which of those two sections actually

governs the outcome of a particular case. Here, the

Second Circuit claims to follow the rule of statutory

construction that the statute addressing the matter

under consideration in specific terms controls over

one that does so in a general manner. 968 F.2d at

157 (citing Crawford Fitting Company v. J.T. Gibbons

Inc., 482 U.S. 487, 445 (1987)). That is an entirely

fitting and proper rule of statutory construction where

it is applicable. It is not applicable here. There is no

reason to think that the term ‘“‘act as the agent for

any fire, life, or other insurance company” found in

Section 92 is any more (or less) ‘‘specific”’ than is the

term “carry on the business of banking’ found in

Section 24 (Seventh), nor does the Second Circuit

opinion state why that court believes the former to

be more specific than the latter. It merely premises

its decision upon the unsupported assumption that it

is SO.

The more appropriate rule of statutory construction

to follow—the one that is applicable in this case—is

the rule that requires courts to give effect to the

plain language of the statute. See, e.g. Board of Gov-

ernors of the Federal Reserve System v. Dimension

Financial Corp., 474 U.S. 361, 373-75 (1986). Here,

the court believed it was faced with the prospect of

choosing between Section 24 (Seventh) and Section

10

92. One of those sections directs the answer by its

own terms. The powers that are granted by Section

92 are “‘in addition to the powers now vested by law

in national banking associations.’’ With plain statu-

tory language like that, it would seem incumbent upon

the courts to decide—first—what those ‘‘other pow-

ers’ might be. That would require looking—first—at

Section 24 (Seventh). The fact that the Second Circuit

here performed the statutory analysis upside down

places it not only in conflict with the decisions of

other circuits, but also in conflict with this Court’s

“plain language’’ rule of statutory construction.

lI. The Important Question of Federal Law

The Petitions for Writ of Certiorari in this case

and its companion case correctly point out the impact

that the Second Circuit’s decision will have upon the

operations of a great many national banks if the de-

cision stands and, particularly, if it is followed as

precedent elsewhere.

Literally thousands of national banks act as agent

in the sale of credit-related insurance—credit life and

credit disability—in the exercise of their incidental

powers, with the approval of the Comptroller of the

Currency (12 C.F.R. § 2.6 (1991)) and the courts,

without regard for the size of the jurisdiction in which

they are located and doing business. Independent

Bankers Association of America v. Heimann, supra,

613 F.2d 1164.

A substantial and growing number of national banks

sell both fixed and variable rate annuities as agents,

over the objection by representatives of the insurance

industry that annuities are “‘insurance”’ products. Such

sales are likewise approved by the Comptroller of the

11

Currency as an exercise of the incidental powers of

national banks, again without regard to the size of

the town in which the bank operates (Comptroller

Interp. Letter No. 499 [1989-90 Transfer Binder] Fed-

eral Banking Law Rep. (CCH) ¢ 83,090 (Feb. 12,

1990); Comptroller Interp. Letter No. 331 [1985-87

Transfer Binder] Federal Banking Law Rep. (CCH)

€85,501 (April 4, 1985), and approved by the USS.

District Court in the only challenge to the Comp-

troller’s approvals. Variable Annuity Life Insurance

Co. v. Clarke, 786 F. Supp. 639 (S.D. Tex. 1991),

appeal pending, No. 92-2010 (5th Cir.).

The Comptroller of the Currency has approved the

sale of municipal bond insurance by national banks,

including a national bank in New York City, as an

exercise of incidental powers of the banks, and the

courts have upheld that action. American Insurance

Association v. Clarke, 865 F.2d 278 (D.C. Cir. 1988).

The Comptroller approved the sale of debt cancel-

lation contracts by national banks as an incidental

power. The Eighth Circuit upheld that action in First

National Bank of Eastern Arkansas, supra, 907 F.2d

775, even though the bank in question is located in

Forrest City, Arkansas, population 13,364.°

The Second Circuit’s decision is incompatible with

all of the above regulatory action and court decisions

and. if nothing else, casts doubt upon the validity of

considerable portions of the activities of national

banks of long standing, undertaken in reliance upon

earlier regulatory and judicial approval.

3 McFadden American Bank Directory, Spring, 1992 (Arkan-

sas) page 23.

12

But national banks are not the only banks with an

important interest in the outcome of this matter. State

chartered banks are affected by it as well. In as many

as 37 states, there are so-called “wild card” or ‘“par-

ity” statutes.‘ With quite a few variations, these stat-

utes generally provide that state chartered banks may

have and exercise any powers that may be exercised

by national banks located in the same state, notwith-

Standing other provisions of state law. In many ju-

risdictions, the “wild card” statute is the only source

of authority for state-chartered banks to engage in

one or more of the “‘incidental’’ functions described

above for national banks. Consequently, if the Second

Circuit decision remains unreviewed and unreversed,

the loss of “‘incidental’”’ powers by national banks shall

inevitably result in the loss of comparable powers by

a great many state chartered banks as well. Like their

national brethren, state-chartered banks have invested

in the development of ‘‘incidental’ business and es-

tablished business relationships with customers over

a long period of time in justified reliance upon fa-

vorable regulatory and judicial action. The Second

Circuit’s decision threatens to disrupt much of settled

practice, to the great detriment of both national and

State chartered banks and their customers. It there-

fore presents a question of federal law of sufficient

importance to warrant review by this Court, even

independent of the two conflicts among the circuits

that are created by the Second Circuit’s decision.

‘See Appendix to this brief for complete listing.

13

CONCLUSION

For all of the reasons stated herein and in the

Petition for Writ of Certiorari, the writ should be

granted.

Respectfully submitted,

JOHN J. GILL

Counsel of Record

MICHAEL F. CROTTY

AMERICAN BANKERS ASSOCIATION

1120 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 663-5026

Attorneys for Amici Curiae

November 12, 1992

APPENDIX

—

la

APENDIX

Wild Card/Parity Statutes

Alaska Sec. 06.01.020

Arizona Sec. 6-184(2)

Arkansas Sec. 23-32-701(16)

Colorado Sec. 11-2-103

Florida Sec. 655.057

Georgia Sec. 7-1-61(a)(1)

Hawaii Sec. 403-47.1

Idaho Sec. 26-1101(3)

Illinois Ch. 311.95(11)

Kansas Sec. 9-1715

Kentucky Sec. 287.020

Louisiana Tit. 6, §242(A\15), Revised Stat.

Maine Tit. 9B, §416

Maryland Sec. 5-504 of Fin. Inst. Art.

Minnesota Sec. 48.15 (Subd. 2)

Mississippi Sec. 81-5-1(10)

Missouri Sec. 362.105.3

Montana Sec. 32-1-362

Nevada Sec. 662.015(1\f)

New Hampshire Ch. 394-A

New Jersey Sec. 17:9A-24a and 17:9A-25(12)

New Mexico Sec. 58-1-54

North Dakota Sec. 6-03-38

Ohio Sec. 1125.23

Oklahoma T.6, §203

Oregon Sec. 707.340

South Carolina Sec. 34-1-110

South Dakota Sec. 51A-2-14 :

Tennessee Sec. 45-2-601

Texas Sec. 342-113(ayX4) of Civil

Statutes

Utah Sec. 7-1-301(3)

Vermont T.8, §1163

Virginia

Washington

West Virginia

Wisconsin

Wyoming

Sec.

Sec.

Sec.

Sec.

Sec.

2a

6.1-5.1

30.04.215

31A-3-2(a5\B)

220.04(8)

13-3-704