Appendix — First Nat. Bank of Logan v. Walker Bank & Trust Co.

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> APPENDIX A .

[Filed December 18, 1964]

UNITED STATES DISTRICT COURT

FOR THE DISTRIOT OF COLUMBIA

C. A. No. 1815-63 $

CommencuL Securrry Bank, Plaintiff,

: v. ‘

* James J. Saxon, Comptroller of the Currency, Defendant.

Finest Secugrry Bax or Urau, N.A., Intervenor-Defendant.

Memorandum and Order

This matter came before the Court on the motion to

dismiss filed by defendant Comptroller and the cross mo-

tions for summary judgment of Intervenor and Plaintiff.

The relevant facts are not in dispute and can be stated

as follows:

Plaintiff, a state bank, and Intervenor, a national bank,

each have their principal office and one branch in the city

of Ogden, Utah. Two other state banks have their main

offices in Ogden, the Bank of Utah and the Bank of Ben

Lomand. Since Ogden has a population of between 30,000

and 90,000 persons, it is classified as a city of the ‘‘second

class’? by the Utah Bank Statute (Utah Code Ann., Title ©

10, Chap. 1, Sec. 1 (1953, as amended)).

On June 25, 1963, the First Security Bank, Intervenor,

filed an application with the Comptroller of the Currency,

pursuant to Title 12, United States Code, Section 36(c),

requesting permission to establish an additional branch

office in Ogden. The requested branch would be in addition

to the ‘main bank offices and two branches presently

in. existence in Ogden. Shortly thereafter, on July 18,

1963, the Commercial Security Bank brought this action

against the Comptroller, seeking a declaratory judgment

that approval of the branch application would violate 12

U. 8. C. A. § 36, and an injunction to restrain the Comp-

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troller from issuing the certificate evidencing approval of

the branch. In addition, plaintiff sought preliminary in-

junctive relief pending disposition of the case. ;

Judge Curran on July 19, 1963, issued a temporary re-

straining order prohibiting the Comptroller from issuing

a certificate of authority to First National. Prior to the

' expiration date of that order, On July 26, 1963, counsel

for Commercial Security and the Comptroller filed a Stipe-

= with the Court by which it was agreed:

‘. . . that the Comptroller of the Currency will issue

no certificate of authority to the First Security Bank

of Utah until the District Court has heard Commercial

Security Bank’s pending motion for a preliminary in-

junction . . . that if counsel for the Comptroller of the

Currency notifies James F. Bell, Esq., of the Comp-

troller’s intention to issue the certificate, Commercial

Security will apply to the Court for the earliest possi-

ble hearing on its pending motion for preliminary

injunction.”’

Or June 9,.1964, the Comptroller notified the First Secu-

_ rity Bank of Utah that its branch application had been ap-

proved, but the Comptroller has not, as yet, notified counsel

for Plaintiff of his intention to issue the certificate of

authority.

- The First Security Bank was granted leave to intervene

as a party defendant on June 26, 1964.

At the outset, the Comptroller contends that the Com-

mercial Security Bank has no standing to bring this suit.

The contention can be disposed of by reference to the

uncon affidavit of the president of plaintiff bank

that if certificate of authority is issued to the First

Security Hifi, plaintiff will sustain damage to its business

and profits of upwards of fifty thousand dollars a year and

_ Plaintiff would have no adequate remedy at law, and by the

following holding of our Court of Appeals in Whitney Na-

tional Bank v. Bank of New Orleans and Trust Company,

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323 F. 2d 290, 300 (0.D.A.C., 1963), cert. granted 376 U.S.

948: »

‘‘The appellee banks cannot complain of lawful com-

petition from other lawfully chartered state or national

banks because their own charters are not exclusive

licenses. But where, as here, the threatened competi-

tion arises from an allegedly illegal facility, the ap-

* pellee state banks have standing to invoke the juris-

diction of a federal court to challenge the alleged

unlawful federal administrative action which ad-

mittedly would result in irreparable injury to their

property rights in their charters.’’ \

The Comptroller further contends that his determina-

tion, based upon his statutory interpretation of 12 U.S.C.

§ 36(c), should be upheld by this Court unless it is clearly

unreasonable. Whatever be the merits of this contention,

it is clearly not the law in this Circuit. In both Com-

mercial State Bank of Roseville v. Gidney, 174 F. Supp.

770, 778, affirmed per curiam 108 U.S. App. D.C. 37, 278

F. 2d 871 (1960), and the Whitney National Bank case,

supra, at page 300, the Court stated, ‘*. . . there is no dis-

cretion to unlawfully issue a certifica ”, and went on to

an independent interpretation of 12 U. S. G. § 36(c) and the

applicable state law.

The sole question before this Court is whether the Comp-

troller of the Currency has the statutory authority to grant

a certificate to First Security Bank of Utah, N.A., for the

establishment of a new branch in the city of Ogden, Utah.

The applicable statutory law primarily involved is clause

(1) of Title 12, U.S.C. § 36(c) (1927, as amended), which

provides:

‘*(c) A national banking association “may, with the

approval of the Comptroller of the Currency establish

and operaie new branches: (1) Within the limits of

the city, town, or village in which said association is

situated, if such establishment and-operation are at

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the time expressly authorized to State banks by the

law of the State in question; ...’’. [emphasis sup-

plied].

Utah Code Ann., Title 7, Chap. 3, Sec. 6 (1953, as

amended), provides as follows:

‘Except in cities of the first class, or within unin-

corporated areas of a county in which a city of the

first class is located, no branch bank shall be estab-

lished in any. city or town in which is located a bank

or banks, state or national, regularly transacting a

customary banking business, unless the bank seeking

to establish such branch shall take over an existing

bank.’ No unit bank organized and operating at a point

where there are other operating banks, state or na-

tional, shall be permitted to be acquired by another

bank for the purpose of establishing a branch wntil

such bank shall have been in operation as such for a

period of five years.’’ [emphasis supplied].

As stated above, Ogden, Utah, is not a city of the ‘‘first

class,’’ and there are already located in Ogden four main

bank offices and two branch banks. I¢ is clear to this Court

at the outset that a state bank would be prohibited from

opening a branch i en unless it took over one of the

existing banks which had been in operation for at least five

years. Thus, if a state bank had applied to the Utah

Bank Commissioner for a branch in Ogden under the same

conditions which the First Security Bank applied to the

Comptroller in this case, the application would clearly have

been denied. The question before this Court, therefore,

1 A recent decision of the Supreme Court of Utah, Walker Bank

& Trust Co. v. Taylor, 390 P. 2d 592 (1964), construed the Utah

statute with regard to Provo, Utah, which, like Ogden, is a city ©

of the ‘‘second class.’’ The court there held that under the Utah

branch statute, de novo branching by a State bank was prohibited

ee ee eet bank

city. ~

Bn om sperrorae | wn romana

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has been narrowed down to whether or not clause (1) of

12 U.S.C. § 36(c) requires the Comptroller to apply to the

establishment of pational bank branches exactly the same

statutory standards as apply to the establishment of state

bank branches.

Tne defendants argue that if it is at all possible for a

state bank to establish a branch in the city in question,

then the Comptroller may approve a branch for a national

bank, whether or not the national bank meets the specific

requirements of a state law which would be applied to the

state bank. The plaintiff, on the other hand, argues that

the Comptroller must apply the same statutory standards

as would be applied to a state bank.

In Commercial State Bank of Roseville v. Gidney, supra,

an opinion affirmed by our Court of Appeals, Judge Young-

dahl of this Court held that indeed it was ‘‘. . . the ap-

parent purpose-ef Congress to have exactly the same stand-

ards—state law—apply to the establishment of national

bank branches as apply to the establishment of state bank

branches.’’ (at page 775. Judge Youngdahl applied a

Michigan state court case in granting a preliminary injunc-

tion against the Comptroller restraimng him from issuing

a branch certificate to a national bank in Michigan. The

holding was in terms of § 36(c) generally, though the pro-

vision involved in that case, set clin clause (2) of § 36(c),

deals only with branches outside of the city in which the

- main office of the bank is situated.

On the other hand, the learned Judge Christensen of the

United States District Court of Utah, Northern Division,

reecntly held that the Comptroller is not held to specific

conditions of Utah law in granting branches to national

banks under clause (1) of § 36(c), that the granting of ex-

press authority for branch banking was all that is neces-

sary for the Comptroller to authorize intra-city branch

banking by a national bank. Walker Bank @ Trust Co. v.

Saxon, 234 F. Supp. 74 (1964). In that case, the defendant

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national bank, located in a ‘‘second class’’ city, as is the

situation in the instant case, was not required to take over

an existing bank in order to establish a new branch. The

Commercial Bank of Roseville case, supra, as well as other

cases emphasizing the controlling effect of the conditions

specified by state law, were distinguished as constructions

of subsection (c), clause (2). Judge Christensen held that

Congress did not intend to apply the same conditions to

clause (1) as it did to clause (2) of subsection (c), and he

justified this distinction by the difference in language be-

tween the two clauses and by reference to legislative his-

tory of the enactments of clause (1) in 1927 and of clause

(2) in 1933.

After a careful consideration of Judge Christensen’s

opinion, which seems to be directly in point with the case

at hand, and with due deference and respect for its learned

brother, this Court feels impelled to reach a different con-

clusion as to the construction to be given to clause (1) of

§ 36(c).

It seems clear to the Court that in order for the ‘‘dual

banking system’’ of the United States, consisting of state

chartered banks and national banks chartered under the

National Bank Act of 1864 (now 12, U.S.C.A. §§ 21-213),

to continue to function as such, there must be a competitive

equality in at least the most important areas of competi-

tion between the two systems. If such were not the case,

one or the other of the two types of banks, the one with

the competitive weight against it, would substantially be

driven out of existence, either through failures or conver-

sions to the other class of banking.

Congress has recognized this need for. competitive equal-

ity in a manner that protects the state banks and national

banks at the same time. In many important areas of the

National Bank ‘Act, Congress has incorporated state law

as the standard for national banks.? In this manner, states

712 U.S.C.A, §§ 36(¢), 51, 85, 92a(a), and 214c.

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are permitted to control national banks to a great extent,

but the states must apply the same controls to state banks

as-they do to the national banks.

Prior to 1927, however, there was a serious inequality

between state and national banks in the important area of

branching. There was no provision for branches in the

National Bank Act, and the Supreme Court had made it

clear that, except in the case of certain limited and spe-

cifically stated exceptions by Congress, national banks had

no branch authority whatever. First National Bank of

Missouri v. Missouri, 263,0.S. 640 (1924). Many states

at that time did allow branching, however, and as a result,

the competitive situation was so imbalanced that the Comp-

_ troller in his 1924 report (Government Printing Office),

stated, at page 4:

‘‘The question as to whether national banks may be

granted the opportunity to meet the competition of

state banks in intra-city branching in my opinion in-

volves the question of the perpetuation of the national

banking system.’’

This situation was the background for the enactment of

the McFadden Act of 1927, part of which is now § 36(c),

clause (1). That statute also amended the Federal Re-

serve Act to prohibit new branches outside the corporate

limits of the municipality in which the main office was lo-

cated to state banks which were members of the Federal

Reserve System. The purpose of the Act, and this is borne

out by a study of the legislative history, was obviously to

correct the competitive imbalance. The Banking Act of

1933 removed the above restriction on state member banks

and in addition enacted what is now clause (2) of 13

U.8.C.A. 36(c). (1933, as amended) set out below:

‘*(c) A national banking association may, with the

approval of the Comptroller of the Currency, estab-

Sen LEAL OE PLY OOS OE eH ~~~ - _ rs Mane Hen oa a

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lish and operate new branches: ... (2) at any point

within the State in which said association is situated,

if such establishment and operation are at the time

authorized to State banks by the statute law of the

State in question by language specifically granting

such authority affirmatively and not merely by impli-

cation or recognition, and subject to the restrictions as

to a ria rae by the law of the State on State

banks .

In spite of the difference in the language of clauses (1)

and (2) of subsection (c), this Court feels that the purpose

of each was to establish competitive equality, and that the

two provisions should, therefore, be interpreted in the

same manner.

Thus, this Court feels, in light of the Commercial State

- Bank of Roseville case, supra, that it is bound to hold that

the exact standards of the Utah branching law must be ap-

plied to the First Security Bank of Utah, N.A., and that

the Comptroller does not possess the statutory authority to

authorize the branch in question.

Even if it were not so bound, however, the Court» feels

that it would come to the same decision in this case. If

the Comptroller were permitted at this time to authorize

branches for national banks when other banks in the city

in question were not at the time and under the same condi-

tions permitted by state law to branch, the Court feels

that the purpose of Congress in enacting clause (1) of sub-

section (c) would not be met. In fact, the grave competi-

tive imbalance which existed before 1927 would only be

shifted to the detriment of state banks. Of course, states

could prevent this situation by liberalizing their branching

laws, but the Court does not feel that this pressure on

state legislatures was intended.

Thus, the Court will grant the declaratory judgment that

the issuance by the defendant, Comptroller of the Cur-

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rency, of his certificate evidencing his approval and au-

thorization of the establishment and operation by First

Security Bank of Utah, N.A., of Ogden, Utah, of a branch

on Harrison Boulevard Kates 30th and 36th Streets,

Ogden, Utah, would constitute a violation of 12 U.S.C.A.

§ 36. The Court will also enjoin the defendant Comp-

_ troller of the Currency from i issuing the above certificate

of authority.

Accordingly, there being no material issue of fact, and

in light of the above opinion, it is by the Court this 18th

day of December, 1964,

OrpERED, that the Motion to Dismiss filed by defendant

Comptroller of the Currency be, and the same hereby is,

denied ;

OrpErED, that the Motion for Summary Judgment filed _,

by the Intervenor-Defendant, First Security Bank of Utah,

be, and the same hereby is, denied; and further

Orprrep, that the Motion of. Summary Judgment filed -

by the Plaintiff, Commercial Security Bank, be, and the

same hereby is, granted.

Iris FURTHER OrprreD, that the defendant a Pc

of the Currency be, and he hereby is, enjoined from author-

izing the establishment of the branch bank by the First

Security Bank of Utah, N.A., which is the subject matter

of this cause of action. :

Leonarp P. WatsH ~

Leonard P. Walsh, Judge

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[Filed November 18, 1965]

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

SEPTEMBER TERM, 1965

No. 19,356 ¢

First Securiry Bank or Uran, N. A., Appellant,~

v.

CommercuaL Security Bank, Appellee.

No. 19,357

James J. Saxon, Comptroller of the Currency, Appellant,

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CoMMERCIAL | ITY Bank, Appellee.

Appeals from the United States District Court for the

District of Colimbia. .,

Before: Bazzton, Chief J udge, and WricHT ory Tam,

Circuit Judges.

V7 _ Judgment

These cases came on to be heard on the record on appeals

from the United States District Court for the District of

Columbia, and were argued by counsel. ~

On ConsmeraTion WHEREOF, it is ordered and adjudged

by this court that the judgment of the District Court ap-

pealed from in these cases is hereby affirmed. Walker

Bank & Trust Company v. James J. Saxon, Comptroller of

the Currency, et al., decided October 26, 1965, No. 7981,

C.C.A. Tenth Circuit. a)

It is further Oxpzrep by the court that all parties bear

their own costs on these appeals. : \

Per Curiam.

Dated: Nov. 18, 1965 a ae

a RTOS A TR EERE DEPOT ee Oe IT OR te OE

The following statutory provisions are the ones in-

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volved in this case. -

I

United States Code, Title 12, Sec. 36(c), as amended,

provides, in pertinent part:

‘‘(c) A national banking association may, with the

approval of the Comptroller of the Currency, establish

and operate new branches:

‘‘(1) Within the limits of the city, town or village

in which said association is situated, if such estab-

lishment and operation are at the time expressly

authorized to State banks by the law of the State

in question; and ,

‘¢(2) At any point within the State in which said

association is situated, if such establishment and

operation are at the time authorized to State banks

by the statute law of the State in question by lan-

guage specifically granting such authority affirma-

tively and not merely by implication or recognition,

and subject to the restrictions as to location imposed

by the law of the State on State Banks.’’

(12 U.S.C. 36(c) (1) was enacted in 1927; 12 U.S.C. 36

(c)(2) was enacted in 1933).

II

Utah Code Annotated, 1953, Sec. 7-3-6, as amended, pro-

vides, in pertinent. part:

‘*Except in cities of the first class, or within unin-

corporated areas of a county in which a city of the

first class is located, no branch bank shall be estab-

”

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lished in any city 6r town in which is located a bank

or banks, state or national, regularly transacting a

customary banking business, unless the bank seeking

to establish such branch shall take over an existing

bank. No unit bank organized and operating at a

point where there are other operating banks, state or

national, shall be permitted to be acquired by another

bank for the purpose of establishing a branch until

such bank shall have been in operation as such for a

period of five years.’’ ‘

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Se re ee

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APPENDIX C

UNITED STATES COURT OF APPEAIS

FOR THE FOURTH OIROUIT

No. 9795 -

Fist Nationan Bank or Sutrurrei, North Carolina,

| Appellee,

v.

JAMES J. Saxom, Comptroller.of the Currency of the United

States, Appellant.

No. 9796

First Nationau Bank or Smirurred, North Carolina,

Appellee,

v.

First Nationa, Bank or Eastern, North Carolina, .

Appellant. ~

Appeals from the United States District Court for the

Eastern District of North Carolina, at Raleigh. Algernon

L. Butler, Chief Judge. \

(Argued April 7, 1965. Decided October 2], 1965.)

Before SospeLorr, Borneman and Bryan, Circuit J udges.

David L. Rose, Attorney, Department of Justice, (John

W. Douglas, Assistant Attorney General, Morton Hol-

lander, Attorney, Department of Justice, and Robert H.

Cowen, United States Attorney, on brief) for Appellant in

No. 9795, Carl V. Venters for Appellant in No. 9796, and _

John R. Jordan, Jr., and Herbert L. Toms, (E. V. Wilkins ~

and F. T. Dupree, J r., on brief) for Appellee.

Apert V. Bryan, Circuit Judge:

The Comptroller of the ois fe approval of the estab-

lishment of a branch of a Na

1-Banking Act of 1933, 48 Stat. 189, 190, as amended, 12 USC

36(c), (e) (1964 Ed.).

ey

tional bank’ is ex facie invalid,

Ide

the District Court has held, if it is issued by the Comp-

troller without a hearing conforming to the requirements

of the Administrative Procedure Act.? In this ‘view® we

think the Court was mistaken. Throughout it must be.

remembered that we are not deciding whether it would be

advisable or more equitable for the Comptroller to grant

a hearing. We are deciding only that the law does not

require it.

This is not to say that there may not be judicial review

of the Comptroller’s action. We hold, too, that the bank’s

competitors have standing to seek the review, not because

of the potential sharpening of competition, but because

they have an immediate concern, apart from the public

generally, to prevent an approval contrary to law. Thus

they are ‘‘interested’’ within the purpose of § 1004(b),

APA. .

‘The First National Bank of Eastern North Carolina ap-

plied to the Comptroller of the Currency on July 11, 1963

for authorization to establish a branch in the Town of

Smithfield, North Carolina. The applicant has its princi-

pal office at New River, North Carolina and eleven branches

in the east end of the State. In a field investigation made

by the Comptroller preparatory to consideration of East-

ern’s request, an examiner called upon the First National

Bank of Smithfield, North Carolina. Thereupon the latter

sought and obtained a conference with the Comptroller’s

office, on August 5, 1963, where its representatives pressed

objection to the advent of a new bank in town. Eastern

was not present or heard at that time.

Approval was given the Eastern application by the

Comptroller on August 19, 1963, without a penn ‘emad

260 Stat. 237 (1946), as amended, 5 USC 1001 et seq. (1964

Ed.) Section reference hereinafter ‘will be to U.S.C. (1964 Ed.).

® First Nat. Bank of Smithfield, N.C. v. First Nat. Bank of

E.N.C., 232 F. Supp. 725 (E.D.N.C. 1964).

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EEE LEONEL HL LEI SELLER EL PE I Oe

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ment of fact findings, conclusions of law or opinion... How-

ever, no certificate of authority then issued. Bank of

Smithfield brought this action on September 9, 1963 to

have the Comptroller’s determination declared illegal and

enjoined. The bank denied any need or necessity for

Eastern’s branch, predicted irreparable damage to follow

from the permitted entry of another bank in the Town and

averred that the approval was illegal because arbitrary,

capricious and contravening the Comptroller’s own regu-

lations.

In limine the complaint charged the Comptroller’s pro-

cedure violative of the Administrative Procedure Act and

abridging the rights of the Smithfield Bank without Con-

stitutional due process of law. More specifically in this

regard, it alleged that the Comptroller’s ruling was an

adjudication under § 1004, APA, Which could not be made

without notice and a full-dress hearing. This primary

position the District Court upheld.

The Banking Act in pertinent part, 12 USC 36(c) (1964

Ed.),* provides:

‘*(c) A national banking association may} with the

approval of the Comptroller of the Currency, establish

and operate new branches: (1) Within the limits of

the city, town or village in which said association is

situated, if such establishment and operation are at

the time expressly authorized to State banks by the

law of the State in question; and (2) at any point with-

in the State in which said association is situated, if

such establishment and operation are at the time au-

thorized to State banks by the statute law of the State

in question by language specifically granting such au-

*Section 36(e), also, provides: ‘‘No branch of any national

banking association shall be established or moved from one location

to another without first obtaining the consent and approval of the

Comptroller of the Currency.’’

OS eISSN AES Nn TS RI A tia ts

‘

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thority affirmatively and not merely by implication or

recognition, and subject to the restrictions as to loca-

tion imposed by the law of the State on State

banks. ...’’

The North Carolina statute, to be read under the refer-

ence in the Banking Act, is G.S. 53-62. It permits the

establishment of bank branches with the approval of the

Commissioner of Banking which ‘‘may be given or with-

held [by him] in his discretion’’. In this judgment he is

required to consider stated relevant factors.

Assuming that the Comptroller is an ‘‘agency’’, that the

approval by the Comptroller is a ‘‘license’’ and that the

consideration by him of the application is an ‘‘adjudica-

tion’’, all within the meaning of § 1001, still no requirement

is found in the APA of the hearing now claimed by the

Bank of Smithfield. The provision on which appellee re-

lies is § 1004, but that section cémpels an agency hearing

only when the ‘‘adjudication [is] required by statute to

be determined on the record after opportunity for an

‘agency hearing’’, and there is no such compulsion here.

The District Judge thought that the implication of the

APA was to command an adversary hearing before the

Comptroller. This inference, we think, is unwarranted.

Not only is statutory foundation wanting for it, but the

legislative history of the APA discloses that Congress ex-

pressly disavowed any intent that the Act demand a hear-

ing except where ady required by some other statute.

' See: Statement of the Chairman of the Drafting Subcom-

mittee, 92 Cong. Rec. 5651, 5655; Sen. Rept. ‘No. 752, 79th

Cong., Ist Sess., pp. 6, 7, 16 (1945); H.Rept. No. 1980,

79th Cong., 2d Sess. pp. 10, 18, 26 (1946). For compil- ,

ation see Sen. Doc. No. 298, 79th Cong., 2d Sess., pp. 192,

193, 202, 244, 252, 260, 359, 370 (1946).

Furthermore the uniform administrative practice of the

Comptroller for a hundred years has sanctioned his present

17a

course. True, his own regulations had permitted an ad-

versary hearing, but resort to these rules was entirely at

his option. 12 C.F.R. § 4.8(d)(e) (1963). It is stipulated

that when Eastern’s application came before the Comp-

troller, these regulations, were in suspense pending re-

vision—they had been rescinded on February 20, 1963, 12

C.F.R. Part 4 (Cum. Supp. 1965), and were not republished

until June 9, 1964. 12 C.F.R. §4.1 et seq. (Cum. Supp.

. 1965). The practice in the Comptroller’s office has not

gone unquestioned, but it has never been disapproved.

N. W. Bancorporation v. Board of Governors, 303 F. 2d

832, 843 (8 Cir. 1962), citing Davis, Administrative Law

Treatise, § 4.04, pp. 247-248. This strongly argues its

validity. Zemel v. Rusk, ... U.S. ... (May 3, 1965) 33

U.S.L. Week 4419; Paragon Coal Co. v. Commissioner,

... US. ... (April 28, 1965), 33 U.S.L. Week 4361.

Procedural due process is not offended by the Comp-

troller’s practice. The absence of a hearing provision in

the Banking Act raises no Constitutional question, for the

omission was within the power of Congress. Bridgeport

Fed. Sav. & L. Assn. v. Federal Home Loan Bank Bd., 307

F. 2d 580, 581 (3 Cir. 1962), cert. den., 371 U.S; 950. How-

ever, all apprehension is dissipated by the APA’s grant in

§ 1009 of a review of the Comptroller’s decision in the Dis-

trict Court to any party in interest. Lichter v. United

States, 334 U.S. 742, 791 (1948); cf. Communications

Comm’n. v. WJR, 337 U.S. 265, 274 (1949). ,

Abundant authority, with which we agree, holds that the

Comptroller’s determination in the present area is not im-

munized from review by the exemption in the preface of

§ 1009, APA, reading, ‘‘Except so far as .. . agency action

is by law committed to agency discretion,’’ Any discre-

tion vested in the Comptroller in passing upon applications

for approval of bank branches is not the type of discretion

to which action has been ‘‘committed by law’’-but is rathe*™

one of the character expressly made reviewable by § 1009

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(e)(1). 4 Davis, Administrative Law Treatise, § 28.16;

Community National Bank of Pontiac v. Saxon, 310 F. 2d

224 (6 Cir. 1962); Whitney Bank v. Bank of New Orleans,

379 U.S. 411, 428 (1965) (dissentiug opinion of Justice

Douglas); Commercial Security Bank v. Saxon, 236 F.

Supp. 457 (D.D.C. 1964).

Protestant Smithfield Bank also contends that the Comp-

troller’s approval is contingent upon his compliance with

the inquiries and ascertainments required of the State Com-

missioner of Banks by the North Carolina statute, GS.

53-62 supra. It stipulates: that no branch shall be per-

mitted save upon the approval of the Commissioner of

Banks, which ‘‘may be given or withheld by . . . [him] in

his discretion’’; that ‘‘in exercising such discretion, [he]

shall take into account, but not by way of limitation, such

factors as the financial history and condition of the appli-

cant bank, ... its future earnings prospects, and the gen-

eral character of its management’’; and that the approval

shall not be given until the Commissioner shall have ‘‘as-

certained to his satisfaction (i) that the establishment of

such .. . will meet the needs and promote the convenience

of the Community to be served by the bank, and (ii) that

the probable volume of business and reasonable public

demand in such community are sufficient to assure and

maintain the solvency of said branch . . . and of the exist-

ing bank or banks in said community’’.

The Federal statute, the protestant continues in argu-

ment, incorporates all of these requirements and exacts

analagous compliance with them by the Comptroller. For

this contention reliance is placed upon the clause in 12

USC 36(c), supra, directing that the establishment of a_

National bank branch be ‘‘subject to the restrictions as to

location imposed by the law of the State on State banks’’.

We disagree with the argument. Assuming arguendo that

the North Carolina statute does demand as a condition pre-

cedent to the approval of a branch, an ascertainment of

need and convenience, with discretion in decision neverthe-

a a.

e

19a

less always retained by the Commissioner, in our judgment

this command has not been extended to the Comptroller by

the National Banking Aci.

That the phrase ‘‘restrictions as to location’’ does not

advert to economic factors of need and convenience, but

refers exclusively to a geographical determination is quite

plain from the legislative history of the Act. In Congress,

debate on the bill which became the heart of the current

Act, 12 USC 36(c), supra, was between advocates of un-

limited National bank branching and those’ favoring its

equation with the branch privileges of State banks. Gen-

erally the latter. had been confined to the municipality of

the parent bank, to immediately adjacent areas or to other

territorial regions. By way of compromise the present

clause was added with the intent of restricting National

branches to the city-wide, county-wide “or State-wide de-

limitation circumscribing the State banks. There was no

other reason for the words ‘‘subject to the restrictions

as to location imposed by the law of the State on State

banks.’’ H. Rept. 83, 69th Cong., Ist Sess., pp. 2, 47

(1926) ; 68 Cong. Rec. 5816; McFadden Act, 44 Stat. 1228;

S. Rept. 584, 72nd Cong., 1st Sess., pp. 1-6, 11; S. Rept. 77,

73d Cong., Ist Sess., pp. 11, 16-17; 77 Cong. Rec. 3726,

5896; Banking Act of 1933, 48 Stat. 189, 12 U.S.C. 36(c).

For the court review no evidential record need first be

developed before the Comptroller. No such prerequisite is

exacted by the APA; plainly it envisions instances where

the evidence initially is to be taken in a suit reexamining

the agency action. To this end the Act gives the court

jurisdiction to ‘“‘hold unlawful and set aside agency action

..- found to be .. . unwarranted by the facts to the extent

that the facts are subject to trial de novo... .’’ § 1009

(e)(6). Nothing in the statute precludes the court from

discovering the facts for the first time. |

- The court will not be held to the substantial-evidence

rule, that is it will not be limited to the ascertainment of

20a

whether, on the record as a whole, there is substantial evi-

dential and factual support for the Comptroller’s action. :

Cf..4 Davis, Administrative Law Treatise, supra, § 29.01;

Universal Camera Corp. v. N.L.R.B., 340 U.S. 474 (1951).

We have said the Comptroller did not act arbitrarily in not

allowing a hearing. However, a necessary consequence of

his unilateral procedure is that the facts on which the

Comptroller presumably acted should not be given the pre-

ferred position accorded by the substantial-evidence rule.

The rule would declare them indisputable if some reason-

able basis for them may be found in the evidence. Applied

here, the plaintiff would be bound by evidence offered in

a proceeding in which it was not heard. Hence, there is

no place in the review for an opening-presumption of cor-

rectness of any fact which it may appear to the Court was

adopted by the Comptroller for his decision. This is the

necessary and plain intent of the APA in § 1009(e) (6) just

quoted.

The Banking Act, 12 USC 36(c), in permitting bank

branching ‘‘with the approval of the Comptroller of the

Currency’’ intended, we think, to allow the Comptroller to

consider as a factor in his decision to grant or refuse ap-

proval, the public interest, need and necessity, and, subject

to court review, to exercise his discretion in determining

such interest, need or necessity. Apfel v. Mellon, 33 F. 2d

805, 806, 807 (D.C. Cir. 1929), cert. den., 280 U.S. 585

(1929).5 On the remand of this case, the plaintiff may

adduce evidence demonstrating the impermissibility of the

Comptroller’s approval of a branch bank at Smithfield.

Testimony to the contrary will be receivable from the

Comptroller. The Court will then find the facts. Thereon,

it will judge de novo the validity, in fact and in law, of

the Comptroller’s final action.

5 But cf. Whitney Bank-v:-New Orleans Bank, 379 U.S. 411, 423

(1965) posing the query whether the action of the Comptroller in

granting an original charter is more than routine.

21a

The standards by which the Comptroller’s action will be

measured are, first, the criteria enumerated in the Banking

Act, 12 USC 36(c) supra, viz: whether the establishment

of the branch is ‘‘authorized to State Banks”’ and the loca-

tion conforms to the restriction of State laws. The capital

requirements of the statute have, concededly, been met.

If after the court has made its fact findings, it then ap-

pears that the decision of the Comptroller is dependent

upon an exercise of discretion, the Court cannot substitute

its discretion for the Comptroller’s. However, it can set

aside such a determination if, in the light of the facts found

by the Court, it concludes that the Comptroller has abused,

exceeded or arbitrarily applied his discretion. Mastra-

pasqua v. Shaughnessy, 180 F. 2d 999, 1002 (2 Cir. 1950).

A competitor qua a competitor is not ineligible to seek

the review. Admittedly, threat of competition is not

ground for rejection of the application. Tennessee Power

Co. v. T.V.A., 306 U.S. 118, 139 (1939). Nevertheless a

competitor has an obvious interest sufficient to warrant his

insistence that no branch bank be established through pro-

cedures or upon grounds not acceptable under the permis-

sive statutes. Alabama Power Co. v. Ickes, 302 U.S. 464,

484 (1938); Union Savings Bank of Patchogue v. Saxon,

335 F. 2d 718 (D.C. Cir. 1964); National Bank of Detroit

v. Wayne Oakland Bank, 252 F. 2d 537, 544 (6 Cir. 1958),

cert. den., 358 U.S. 830; North Arlington Nat. Bank v.

Kearney Fed. Sav. & L. Assn., 187 F. 2d 564 (3 Cir. 1951),

cert. den., 342 U.S. 816. 3

With the Smithfield Bank we think the Comptroller is

obliged to ‘‘state and currently publish in the Federal

Register’’ the ‘‘general course and method by which [his]

' functions are channeled and determined’’ and ‘‘publish”’

or ‘‘make available to public inspection all final opinions

or orders in the adjudication of cases’’ (except when con-

fidential) and ‘‘all rules’’ as directed by the APA, § 1002.

OER AS ON Se EON AO EEO I LARRY EDIE LOE LORE COA OT LTTE SOCIOL I

22a

This requirement applies to ‘‘every agency’’. Save for

the temporary suspension, already mentioned during which

the approval in suit was sought and obtained, the Comp-

troller apparently did promulgate and publish advices of

his procedures. No complaint can be made that word of

his intention to grant the approval did not seasonably reach

the Smithfield Bank. -

The ‘intermission of the rules and regulations did not

flaw the Comptroller’s actions during that period, for the

only penalty of the statute for the omission is to excuse

compliance by outsiders with the requisite procedure.

Furthermore, in view of our conclusion that the Smithfield

Bank was not, in any event, entitled to a formal hearing

before the Comptroller, the temporary absence of an out-

line of the procedure before him could not have prejudiced

the bank.

The District Court overturned the Comptroller’s ap-

proval solely because of the absence of an APA hearing

before him; it did not resolve the merits of the complaint.

Upholding the jurisdiction of the District Court of this

suit, we will request the Court to review de novo the action

of the Comptroller. To this end the order annulling and

enjoining his issuance of a certificate of approval to the

First National Bank of Eastern North Carolina will be

vacated and the case remanded, the District Court being

empowered to reinstate its injunction pendente lite if it

should be so advised. Whitney Bank v. Bank of New

Orleans, supra, 379 U.S. 411.

Reversed and remanded.

ae me

23a.

[Filed October 21, 1965]

Soserorr, Circuit Judge, dissenting:

With great respect, I take a different view from my

brethren as to the nature of the issues raised in this case.

The plaintiff, First National Bank of Smithfield, North

Carolina, was notified in July, 1963, that First National

Bank of Eastern North Carolina had applied to the Comp-

troller for permission to open a branch in Smithfield, North

Carolina. Smithfield promptly requested the Comptroller

to give it access to the application, the supporting data,

and the report of the Regional Bank Examiner, so that it

could attempt to refute them at the informal conference

set before the Comptroller. This request was denied.

The Comptroller offers no explanation for denying this

seemingly reasonable request, nor does he point to any

interest to be served by the denial. We move here in no

area involving emergency or security considerations. The

Comptroller’s position strikes me as unfair, unwise and

administratively unnecessary. History has given impres-

sive evidence of the necessity for informed and objective

regulation of our banking system. Questionable banking

practices and excessive competition in the past led to dis-

astrous results during the Great Depression. By affording

objecting banks an adequate opportunity to be heard the

Comptroller receives the benefit of a report suggesting

reasons why the particular application should not be

granted. The self-interest of the complainant may thus

serve the public interest by raising considerations that

might otherwise never come to light before the Comptroller.

Thus, in presenting its own position, the objecting bank

is also arguing that of the community which has a vital

interest in the solvency of its local banks. The bank can

perform this useful function only if it is allowed to know

the supporting data presented to the Comptroller by the

applicant.

Ss

24a

The plaintiff bank is acutely interested in the competi- ~

tion threatened by Eastern’s applicationsfor permission

to establish a branch bank in Smithfield, North Carolina.

Rightly, I think, the majority holds that this interest is

sufficient to entitle the Smithfield bank to appeal from the

Comptroller’s decision granting the application. Smith-

field contends, however, that this right of appeal is mean-

ingless unless it has previously been given an effective

chance to be heard before the Comptroller reaches his final

decision on the merits of the application. With this con-

tention I agree, and would hold that such an opportunity,

if requested, is a prerequisite to a valid decision on the

part of the Comptroller. The right of the plaintiff to

appear is of little worth to it if there is no disclosure of

the pertinent data and if the Comptroller may make up his

mind in a private huggermugger with the applicant.

The action of the Comptroller in issuing a branch bank

license, being based in large part on an exercise of discre-

tion, cannot in any true sense be subjected to review de

nova, as my brethren indicate, for it may be reversed only

if it is found to be ‘arbitrary, capricious, or an abuse of

discretion.”’ 5 U.S.C.A. §1009(e); Community National

Bank of Pontiac v. Saxon, 310 F. 2d 224, 226 (6th Cir.

1962). If an objector has been granted no adequate op-

portunity to present his position before the case reaches

“the district court stage, a protest will usually be of little

avail since the decision under attack comes clothed with a

presumption of correctness.

Smithfield’s argument is that it should be allowed to

inform itself and express its views before the Comptroller

arrives at his decision which will be accorded a large

measure of finality in any appeal. Although the court re-

view by brethren hold out to the complaining party may

euphemistically be called a hearing de novo, the complain-.

ant comes into the reviewing court severely hobbled. The

Comptroller’s mind has been made up ex parte upon hear-

me Te

25a

ing from the proponent only, but not effectively from any

opponents, for they have been kept in the dark as to the

issues and the evidence. The operative scope of the court

review being limited, it cannot easily repair any

resulting from the inadequate practice followed by the

Comptroller.

T have difficulty, as I think the District Judge on remand

will have difficulty, in reconciling two statements in the

majority opinion. First it is said that ‘‘there is no place

in the review for an opening-presumption of correctness

of any fact which it may appear to the Court was adopted

by the Comptroller for his decision.’’ (It bears repeating

that the Comptroller makes a secret of the facts he has

adopted.) In the second statement the court says: ‘‘If

after the court has made its fact findings, it then appears

that the decision of the Comptroller is dependent upon an

exercise of discretion, the Court cannot substitute its dis-

cretion for the Comptroller’s. However, it can set aside

such a determination if, in the.light of the facts found by

the Court, it concludes that the Comptroller has abused,

exceeded or arbitrarily applied his discretion.”’

How can the District Court conduct a proper examina-

tion if the Comptroller has not/disclosed what issues he is

resolving? The District Court is told to make its own de

novo fact-findings, but it is still in no position to judge how

far the Comptroller’s decision rests upon fact-findings

which the court deems erroneous and how far it is an

exercise of discretionary judgment. It is not apparent

how the District Court, observing the admonition against

any opening-presumption of correctness, can be sure that

it is not intruding in the area of the Comptroller’s discre-

tion, for concededly the court may not substitute an inde-

pendent discretion.

The Comptroller has not divulged his mental processes,

and his determinations of fact, rulings of law and exercises

of discretion and judgment are inextricably ee,

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26a

~ The District Court is thus placed in the unhappy position

of choosing between two equally unacceptable alternatives.

Either it must blindly assume that the Comptroller’s dis-

cretion rests upon an adequate basis in fact, in which event

the court review almost inevitably becomes a meaningless

gesture; or the District Court, proceeding upon the basis

of facts independently determined-by it, must act in ignor-

ance of the nature of the decision it is reviewing, in which

case the court’s judgment is liable to usurp the Comp-

troller’s function. We should not require or tolerate such

a game of “blind man’s bluff.’’ The majority opinion

leaves the District Court without guidance in the dilemma

thus created.

The District Court held, in accordance with the objecting

bank’s contention, that a permit issued by the Comptroller

after his bobtailed procedure ought not be permitted to

stand. While the court’s order setting aside the Comp-

troller’s action did not in terms order a rehearing, it was

left open to the Comptroller to remedy the deficiency by

holding an appropriate administrative hearing.

The indiscriminate use of the term ‘‘hearing’’ has tended

to obscure the issues in this case. An administrative hear-

ing may be either a formal, trial-type procedure or an

informal conference. For many years the Comptroller

pursued the latter course with great success, and I share

the majority’s reluctance to interfere. With a different

but perhaps analogous question before it (namely the ap-

pointment of a receiver), the Supreme Court has indeed

noted that more formal procedures, constitutionally neces-

sary in some situations, may not be indispensable in bank-

ing cases because of ‘‘the delicate nature of the institution

and the impossibility of preserving credit during an in-

vestigation * * *.’’ But the Court went on to-warn that

this ‘‘is a heavy responsibility to be exercised with dis-

interestedness and restraint * * *.’’? Fahey v. Mallonee,

332 U.S. 245, 253-54 (1947).

:

|

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27a

The absence of a constitutional compulsion to conduct

a trial-type hearing does not completely answer the object-

ing bank’s protest. The Comptroller’s utilization of in-

formal conferences to settle controversies arising out of

‘branch bank applications is certainly an efficient procedure,

but while informality is permissible, it may not be ad-

ministered unfairly.

More attention needs to be paid to the problem of pfo-

tecting against arbitrary exercises of administrative dis-

cretion when it is decided that the safeguards of.a trial-type

hearing are not appropriate. In commenting on this prob-

lem a pioneering authority in this field has said:

‘‘Fair procedure is vital even when [the procedure]

is entirely as informal as conversation. Informal

procedure is not the equivalent of no procedure. For

instance, before an agency makes a discretionary de-

termination that affects a party adversely, the pro-

cedural protection is very great if the officer will tell

the party what he believes the facts to be, and what

he contemplates and why, and then if the officer listens

to what the party has to say. The fundamentals of

procedural fairness can be observed even in an in-

formal conference * * *.’? 1 Davis, ADMINISTRATIVE

Law Treatise § 4.14 (1965 Supp.).

In fact, Professor Davis has commented directly upon

the decision of the District Court in this case. While he

adheres to the view that an informal procedure, such as a

conference, is preferable in these circumstances to a trial-

type hearing—a view with which I agree—he is neverthe-

less critical of the procedure followed by the Comptroller

in the instant case. He states:

‘‘But even if a conference method is used, the basic

principle of fairness that each party should be entitled

to know the materials on the other side may still be

applicable.

eee cance,

28a

‘‘The Comptroller had little or nothing to gain by

denying the existing bank a chance to see fHle applica-

tion, the supporting data, the report of the Regional

Bank Examiner, and the Comptroller’s decision.’’ 1

Davis, ApmiInierratTive Law Treatise § 4.04 (1965

Supp.).

nt get Meret ale ow hares

If the Comptroller wishes to continue to use informal

proceedings to deal with branch applications he must make

sure that the proceedings are fair.. Banks potentially

affected, which desire to contest an application, should be

permitted reasonable access to relevant materials and an

opportunity to have their say, if only informally. I would

remand the case to the District Court for its return to the

Comptroller with instructions to make available to the

plaintiff the requested information. Thereafter a confer-

ence should be held at which the Smithfield bank may

articulate its opposition. Such disposition of the case is

preferable to the so-called hearing de novo in court which

the majority orders. An informed conference before the

Comptroller would not only be more just to the complain-

ing bank but would tend less to disrupt the orderly con-

duct of the Comptroller’s office.’

1The Comptroller has called our attention to the recent case of ;

Continental Bank v. National City Bank (N.D. Ohio, Civil -No.

C-65-484, August 20, 1965). Its relevance to the instant case is '

sharply diminished by the fact that it deals only with the question :

of whether a full-blown, trial-type hearing by the Comptroller was i

required. While the court refused to order such a hearing, it is 3

. noteworthy, as the court pointed out, that the objecting bank was :

afforded an opportunity to present pertinent information to the

Comptroller, and that the Comptroller himself argued that the

written application of the national bank would have been made

available to the objecting bank had a request been made.