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249

appeal such order as may be entered herein and may

or may not elect to prosecute ultimate appeals. Unless the

Bank is permitted to intervene for the purposes set forth

above, the Bank’s ability to protect its interest will as a

practical matter be impaired and impeded. The interests of

the Bank and the interests of the Comptroller are not

identical, and the Bank’s interests will not be adequately

represented by the Comptroller of the Currency.

Alternatively, under Rule 24(b) the Bank seeks to inter-

vene on the ground that its participation in the action will

present questions of law and fact common to those at issue

between Plaintiffs and the Comptroller and intervention by

the Bank will not unduly delay or prejudice the adjudication

of the rights of the original parties.

There are attached hereto in support of this motion an

affidavit of Robert L. Hoguet and a Memorandum of Points

and Authorities.

In connection with this motion, the Bank hereby adopts

and incorporates by reference Defendant’s Cross-Motion for

Summary Judgment and Opposition to Plaintiffs’ Motion

for Summary Judgment and Defendant’s Statement of Mate-

rial Facts as to Which There is No Genuine Issue, both filed

herein by Defendant on April 4, 1967.

Respectfully submitted,

STEPTOE & JOHNSON

/s/ Stephen Ailes

1250 Connecticut Avenue

Washington, D. C. 20036

223-4800

Attorney for First National

City Bank

250

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

[Title omitted in printing]

AFFIDAVIT OF ROBERT L. HOUGET IN SUPPORT OF

FIRST NATIONAL CITY BANK’S MOTION FOR LEAVE TO

INTERVENE AND MOTION TO GRANT A STAY

(Filed October 13, 1967)

STATE OF NEW YORK)

COUNTY OF NEW YORK) Ss:

ROBERT L. HOUGET, being first duly sworn, deposes

and says as follows:

i. I am an Executive Vice President of First National

City Bank (the “Bank”’), a national banking association

with its principal place of business in the City and State of

New York, and I am in charge of the Bank’s Trust and

Investment Division. | am also Chairman of the Committee

for the Bank’s Commingled Investment Account (the

“Commingled Account”). I submit this affidavit in support

of the Bank’s Motion for Leave to Intervene as a Defendant

and in support of its proposed Motion of Intervenor to

Grant a Stay.

2. The Bank and its Commingled Account are referred to

frequently in the Complaint in this action, in the Court’s

opinion of September 27, 1967, and in the proposed Order

submitted by Plaintiffs on October 2, 1967. The Comming-

led Account is a collective investment fund established and

operated by the Bank to permit it to accept relatively small

“managing agency” accounts, i.e., fiduciary accounts where

the Bank provides safe keeping for the customer’s funds and

securities and manages the investments in his account pur-

suant to a power of attorney giving the Bank broad invest-

ment discretion.

3. The Bank began operation of the Commingled

Account in June 1966. It took that step only after:

(a) the Comptroller of the Currency approved the

Commingled Account as a permissible form of col-

—

251

lective investment pursuant to Section 9.18(c)(5)

of Regulation 9, 12 C.F.R. § 9.18(c)(5);

(b) The Board of Governors of the Federal Reserve

System ruled that service by Bank officers on the

Committee for the Commingled Account would not

violate Section 32 of the Banking Act of 1933, 12

U.S.C. 8 78;

(c) the Securities and Exchange Commission granted

the Commingled Account certain exemptions from

the Investment Company Act of 1940, 15 U.S.C. 88

80a-1 to 80a-52; and

(d) the Securities and Exchange Commission de-

clared effective a registration statement under the

Securities Act of 1933, 15 U.S.C. 8 § 77a-77aa, rel-

ating to participations in the Commingled Account.

In addition, the Federal Deposit Insurance Corporation

announced that it believed that it was sound public policy

to permit banks collectively to invest funds held in the

capacity of managing agent for their customers. See Hearings

on S. 2704 Before a Subcommittee of the Senate Committee

on Banking and Currency, 89th Cong., 2d Sess. 25 (1966).

It has been in reliance on these approvals and rulings that

the Bank has proceeded with its plans for the Commingled

Account.

4. The Bank has expended substantial sums of money,

as well as the time and effort of its officers and employees,

on the establishment of the Commingled Account. The

total organizational expenses incurred by the Bank to date,

including such items as legal and accounting fees and dis-

bursements, printing costs and registration fees, amount to

more than $300,000.

5. This action was commenced by Plaintiffs on April

25, 1966, only five days after the filing with the Securities

and Exchange Commission of initial registration statements

with respect to the Commingled Account. Although Plain-

tiffs were fully aware of these filings (see paragraph 13 of

the Complaint herein), they made no attempt at that time

ERC ASRS US 5 YER Sy NAPA TOMER ORR LT I

252

to obtain a preliminary injunction in this action that might

have halted the Bank’s steps to put the Commingled

Account into operation. Even after operations commenced

in June 1966, Plaintiffs made no attempt to stay the operation

of the Commingled Account pending the outcome of this

action.

6. By August 31, 1966, the end of the Commingled

Account’s first fiscal year, 214 persons had placed in the

hands of the Bank approximately $2.7 million for invest-

ment through the Commingled Account. A year later, at

August 31, 1967, the number of participants had increased

to 621, the net amount received for investment had grown

to $9.6 million and the net asset value of the Commingled

Account stood at approximately $10.8 million.

7. Any attempt to halt the operation of the Commingled

Account now, more than 16 months after operations began,

would result in serious and irreparable injury to the Bank.

If it should become necessary to liquidate the Commingled

Account at this time and the decision of the District Court

in this case were later overruled on appeal, much of what

the Bank has already spent on the organization of the Com-

mingled Account would be wasted, as would the Bank’s

expenses in connection with the liquidation of the Comming-

led Account and the distribution of its assets to the partici-

pants, the Bank would also unnecessarily incur substantial

expenses in reestablishing the Commingled Account.

8. The participants in the Commingled Account will also

be irreparably injured if the Commingled Account is not

permitted to continue in operation pending appeal. Each

person who has authorized the commingling of his funds

through the Commingled Account has put at least $10,000

in the hands of the Bank. It is the policy of the Comming-

led Account to seek long-term growth of principal and

income and the participants are not looking for short-

term trading profits. They have committed substan-

tial funds, and in many instances have done so as

part of a long-range investment program which contemplates

253

the placing of additional funds for investment through the

Commingled Account from time to time or at regular inter-

vals. These participants would obviously be harmed by

forced liquidation of the Commingled Account, with its

attendant brokerage costs and realization of taxable gains.

They would also be harmed by any order of the Court

which did not permit them to continue their current invest-

ment program through the Commingled Account, including

the right to invest additional sums and to reinvest distribu-

tions. Even if the Commingled Account were to continue

intact, without liquidation, the existing participants would

be injured unless additional customers of the Bank were

permitted to come in as participants. If new participants

were not taken in from time to time, the Commingled

Account would inevitably shrink in size as a result of with

drawals (including automatic withdrawals upon the death or

incompetency of participants). As the net assets were

reduced, the ratio of the operating expenses to net assets

would increase. On the other hand, if the Commingled

Account is permitted to grow in size, the participants

would have the benefit of a lower expense ratio. Finally,

the existing participants would be irreparably injured by

any order of this Court which restricted their rights to trans-

fer participations as set forth in the Prospectus.

/s/ Robert L. Hoguet

{[Jurat omitted in printing]

254

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

[Title omitted in printing]

ANSWER OF FIRST NATIONAL CITY BANK,

INTERVENOR, TO PLAINTIFFS’ COMPLAINT

(Filed October 13, 1967)

1. Intervenor, First National City Bank, a national bank-

ing association organized and existing under the laws of the

. United States with its principal place of business in the

City and State of New York, by its attorneys, files this

Answer in compliance with Rule 24(c).

2. Upon information and belief, Intervenor alleges that

the collective fund for managing agency accounts maintained

by it and approved by the Comptroller of the Currency

under Regulation 9, 12 C.F.R. § 9, is the account referred

to in Paragraph 12 of the Complaint herein, and the Inter-

venor is the bank referred to in Paragraph 5 of the Com-

plaint.

3. The Intervenor, First National City Bank, adopts and

incorporates by reference the Answer of the Defendant,

Comptroller of the Currency, except for Paragraphs 13 and

1S of the Answer.

(a) In heu of Paragraph 13 Intervenor states that

it denies the allegations contained in Paragraph 13 of

the Complaint except that it admits that on April

20, 1966, registration statements relating to the com-

mingled investment account were filed with the Secu-

rities and Exchange Commission, and that on August

25, 1965, the Office of the Comptroller of the Cur-

rency issued a statement supporting and approving

the plans of Intervenor to establish a commingled

fund for agency accounts, and refers the Court to

the text of such registration statements and of

such statement by the Office of the Comptroller

of the Currency for the terms thereof.

-—

(b) In lieu of Paragraph 15 Intervenor states

that it is without knowledge and information suffi-

cent to form a belief as to the truth of the allegations

contained in Paragraph 15 of the Complaint except

that (i) it denies the allegations of the first sentence

of said Paragraph 15, and (ii) it admits that it main-

tains a commingled investment account.

255

Respectfully submitted,

STEPTOE & JOHNSON

/s/ Stephen Ailes

1250 Connecticut Avenue

Washington, D.C. 20036 ™

223-4800

Attorney for First National

City Bank

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

[Title omitted in printing]

ORDER

(Filed November 9, 1967)

This cause came on to be heard on plaintiffs’ Complaint

for Declaratory Judgment and Injunctive and Other Relief

and on cross motions for summary judgment filed by plain-

tiffs and defendant. All parties agreed that no disputed

factual issues existed and that the legal issues were ripe for

summary proceedings.

The court having considered the pleadings, the exhibits

and attachments thereto, having heard oral argument on the

motions, and having filed a Memorandum Opionion on

September 27, 1967 containing the court’s Findings of Fact

and Conclusions of Law;

And, the court having found that Regulation 9 promul-

gated by the Comptroller of the Currency (hereinafter

——————

256

“Comptroller”), Fiduciary Powers of National Banks and

Collective Investment Funds”, 12 C.F.R. § 9, authorizes the

Bank to maintain collective investment funds exclusively for

the collective investment and reinvestment of monies ten-

dered thereto by the bank in its capacity as managing agent

(hereinafter referred to as “managing agency collective

investment funds’’):

And, the cos’ ‘aving further found that Regulation 9,

insofar as it permits national banks to operate managing

agency collective investment funds (i) violates the prohibi-

tions of Sections 16, 20, 21 and 32 of the National Banking

Act of 1933, as amended, codified in Sections 24, 377, 378

and 73, 12 U.S.C. respectively, and (ii) is beyond the power

of the Comptroller under Section 92a(a), 12 U.S.C.:

And, the court having further found that the Comptroller

approved the plan of the First National City Bank of New

York for the establishment and operation of such a manag-

ing agency collective investment fund under the provisions

of Regulation 9, 12 C.F.R. § 9;

And, it appearing that plaintiffs have standing for the

reasons stated in the court’s Opinion of September 27,

1967 to challenge the establishment and operation of man-

aging agency collective investment funds pursuant to the

provisions of 12 C.F.R. § 9, which provisions were declared

unlawful in the court’s Memorandum Opinion of September

27, 1967;

And, it further appearing that plaintiffs would suffer

serious and irreparable injury by reason of the establish-

ment and operation of managing agency collective invest-

ment funds pursuant to the provisions of 12 C.F.R. § 9,

which provisions were declared unlawful in the court’s

Memorandum Opinion of September 27, 1967:

It is hereby ORDERED and ADJUDGED, as follows:

1. This court declares that those portions of Regulation

9, 12 C.F.R. § 9, which permit banks to engage in and oper-

ate managing agency collective investment funds are unlaw-

ful, inasmuch as they were promulgated in excess of the

257

Comptroller's statutory authority under Section 92a(a), 12

U.S.C., and are in violation of Sections 16, 20, 21 and 32

of the National Banking Act of 1933, as amended, codified

in Sections 24, 377, 373 and 73, 12 U.S.C., respectively,

and

2. This court declares that the Comptroller’s approval

of the plan of First National City Bank of New York to

operate a managing agency collective investment fund

under Regulation 9 is illegal, in excess of his statutory

authority, void, and of no effect, inasmuch as it was made

pursuant to regulations which are unlawful, as declared in

paragraph | above.

3. The Comproller is hereby ordered forthwith to set

aside any portion of Regulation 9 declared illegal pursuant

to paragraph | above and is permanently enjoined from

authorizing any bank to operate managing agency collective

investment funds under such Regulation; and

4. The Comptroller is enjoined from continuing in effect

any prior approval to any bank, including his approval of

the plan of First National City Bank of New York, which

might have heretofore permitted the operation of managing

agency collective investment funds under Regulation 9, and

is ordered to set aside forthwith and rescind any such prior

approval; and

5. The provisions of this Order are hereby stayed pending

the ultimate disposition of any appeal taken herein provided

that the Comptroller shall not, pending appellate proceed-

ing herein, authorize any national banks to commence

the operation of a managing agency collective investment

fund.

/s/ Joseph C. McGarraghy

JUDGE

a

258

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

[Title omitted in printing]

ORDER

(Filed November 21, 1967)

This cause came on to be heard on the motion of the

applicant, First National City Bank, for leave to intervene

as a defendant in this action under Federal Rule of Civil

Procedure 24(a), and the Court having considered said

motion and the pleading tendered therewith and the

arguments advanced by the plaintiffs in opposition to that

motion and it appearing to the Court that the applicant

can be allowed to intervene as a party defendant pursuant

to Rule 24(a) for the limited purpose of prosecuting an

appeal from the judgment of this Court and of participat-

ing in further proceedings in this case, it is:

ORDERED that the motion of the applicant, First

National City Bank, for leave to intervene as a party defend-

ant in this action under Federal Rule of Civil Procedure

24(a) is hereby granted for the limited purpose of allowing

the applicant to prosecute an appeal from the judgment of

this Court and to participate in any proceedings subsequent

thereto.

/s/ Joseph C. McGarraghy

Seen and approved as to form:

G. Duane Vieth

Irwin Goldbloom

259

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

[Title omitted in printing]

NOTICE OF APPEAL TO COURT OF APPEALS

(Filed January 5, 1968)

Notice is hereby given that the Comptroller of the Cur-

rency, William B. Camp, defendant above named, hereby

appeals to the United States Court of Appeals for the District

of Columbia Circuit from the final judgment entered in this

action on November 9, 1967.

/s/ Harland F. Leathers

/s/_ Irwin Goldbloom

Attorneys, Department of

Justice

Washington, D. C. 20530

Attorneys for Defendant

Comptroller of the Currency

UNITED STATES DISTRICT COURT FOR

THE DISTRICT OF COLUMBIA

[Title omitted in printing]

NOTICE OF APPEAL

(Filed January 5, 1968)

Notice is hereby given this day of , 19 , that

Intervenor, FIRST NATIONAL CITY BANK

hereby appeals to the United States Court of Appeals for

the District of Columbia from the judgment of this Court

entered on the 9th day of November, 1967 in favor of

260

Plaintiff, INVESTMENT COMPANY INSTITUTE against

said Defendant, WILLIAM B. CAMP.

Archibald Cox

Stephen Ailes

Attorneys for Intervenor

Steptoe & Johnson

1250 Connecticut Avenue

Washington, D.C. 20036

261

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 20,164 September Term 1968

National Association of

Securities Dealers, Inc.,

Petitioner,

v.

Securities and Exchange Commission,

Respondent.

First National City Bank,

Intervenor.

No. 21,661

First National City Bank,

Appellant,

v.

Investment Company Institute, et al.,

Appellees.

No. 21,662

Comptroller of the Currency,

William B. Camp,

Appellant,

v.

Investment Company Institute, et al.,

Appellees.

On Petition for Review of an order of the Securities and

Exchange Commission and on appeals from the United

States District Court for the District of Columbia.

oe

Before: Bazelon, Chief Judge; Wilbur K. Miller, Senior Cir-

cuit Judge; and Burger, Circuit Judge.

262

JUDGMENT

These causes came on to be heard on petitioner’s petition

for review and on the records on appeal from the United

States District Court for the District of Columbia, and were

argued by counsel.

Upon consideration thereof, it is

ORDERED AND ADJUDGED by this Court that the order

on review herein in case No. 20,164 is hereby affirmed and

it is

FURTHER ORDERED AND ADJUDGED by this Court that

the judgments of the District Court appealed from herein

in case Nos. 21,661 and 21,662 are hereby reversed.

Per Curiam.

Dated: June 21, 1969

Opinions will follow at a later date.

263

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 20,164

NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.,

Petitioner

¥.

SECURITIES AND EXCHANGE COMMISSION,

Respondent

FirnST NATIONAL CITY BANK,

Intervenor

Petition to Review Orders of the

Securities and Exchange Commission

No. 21,661

FirsT NATIONAL City BANK,

Appellant

¥.

INVESTMENT COMPANY INSTITUTE, et al.,

Appellees

No. 21,662

COMPTROLLER OF THE CURRENCY, WILLIAM B. Camp,

Anprellant

Vv.

INVESTMENT COMPANY INSTITUTE, et al.,

Appellees

eh

a

Appeals from the United States District Court

for the District of Columbia

Decided July 1, 1969

Mr. Joseph B. Levin, with whom Mr. Marc A. White was

on the brief, for petitioner in No. 20,164.

Mr. Archibald Cox, with whom Mr. Stephen Ailes was on

the brief, for appellant in No. 21,661.

Mr. Alan S. Rosenthal, Attorney, Department of Justice,

with whom Assistant Attorney General Edwin L. Weisl, Jr.,

Messrs. David G. Bress, United States Attorney at the time

the brief was filed, and Robert C. McDiarmid, Attorney,

Department of Justice, were on the brief, for appellant in

No. 21,662. Mr. Irwin Goldbloom, Attorney, Department

of Justice, also entered an appearance for appellant in No.

21,662.

Mr. John A. Dudley, Assistant Director, Division of Cor-

porate Regulation, Securities and Exchange Commission,

with whom Messrs. Philip A. Loomis, General Counsel, David

Ferber, Solicitor, and Leonard S. Machtinger, Attorney,

Securities and Exchange Commission, were on the brief, for

respondent in No. 20,164.

Mr. G. Duane Vieth, with whom Mr. Charles R. Halpern

was on the brief, for appellees in Nos. 21,661 and 21,662.

Mr. Melvin Spaeth also entered an appearance for appellees

in Nos. 21,661 and 21,662.

Mr. Samuel E. Gates, with whom Mr. Stephen Ailes was

on the brief, for intervenor in No. 20,164. Mr. Henry C

Ikenberry, Jr., also entered an appearance for intervenor in

No. 20,164.

Before: BAZELON, Chief Judge, WiLBUR K. MILLER, Senior

Circuit Judge, and BuRGER, Circuit Judge.

265

PER CURIAM:* In these appeals the mutual fund industry

levels a two-pronged attack on a national bank’s authority

to operate a collective investment fund as a service of its

trust department. The fund is a commingled managing

agency account, similar in most respects to an open-end

mutual fund. First National City Bank’s Commingled In-

vestment Account (the Account) and other bank-sponsored

funds likely to follow will compete with mutual funds and

with those who market their shares. Competitors claiming

that the Account is unlawful are the Investment Company

Institute (ICI), an association of mutual funds and their

investment advisers and underwriters; and the National Asso-

ciation of Securities Dealers (NASD), whose members sell

shares in open and closed-end mutual funds.

The Account was registered with the Securities and Ex-

change Commiission as an investment company under the

Investment Company Act of 1940, 15 U.S.C. 8 80a-1, and

approved by the Comptroller of the Currency as a bona fide

fiduciary activity authorized for national banks by § 92a of

the Federal Reserve Act of 1913, 12 U.S.C. § 92a. The

NASD intervened before the Securities and Exchange Com-

mission to oppose the grant to the Account of exemptions

from certain provisions of the Investment Company Act,

and now seeks to set aside the Commission’s orders grant-

ing them.' The ICI sued the Comptroller of the Currency

and First National City Bank (the Bank) in the United States

District Court for the District of Columbia for a declaratory

*These opinions were prepared prior to June 21, 1969 and are

issued pursuant to the Judgment of this court entered on that date.

'The petition for review of the Commission’s order was previously

dismissed by this court on the ground that the NASD lacked standing

as a party aggrieved under § 80a-42(a) of the Investment Company

Act. National Association of Securities Dealers v. Securities & Ex-

change Comm'n, No. 20164 (decided Nov. 21, 1967). A petition for

rehearing en banc was granted, and the division opinion vacated on

January 1, 1968. The en banc order was subsequently vacated on

April 12, 1968, to permit the assigned division to reconsider the mat-

ter. The case was consolidated for decision with Nos. 21661-62, and

considered without reargument.

266

judgment invalidating so much of the Comptroller's Regula-

tion 9, 12 C.F.R. § 9.18, as permits national banks to oper.

ate this type of account. Upon cross-motions for summary

judgment, the District Court invalidated portions of the reg-

ulation and required the Comptroller to rescind approval of

the Account. /nvestment Company Institute v. Camp, 274

F. Supp. 624 (1967). From that judgment, the Comptroller

and the Bank appeal.

Each appeal raises difficult questions of competitors’

standing. While a majority of the court has reservations

about standing, these doubts have been resolved in favor of

reaching the merits in cases of this consequence. On the

merits, we are agreed that the actions taken by the Securi-

ties and Exchange Commission and the Comptroller are

fully consonant with the statutes committed to their regu-

latory jurisdictions. Accordingly, we affirm the orders of

the Securities and Exchange Commission and reverse on the

merits the judgment of the District Court in favor of the

Investment Company Institute. It is so ordered.

The opinion of Judge Burger, in which Judge Miller con-

curs, and the opinion of Chief Judge Bazelon, which follow,

set forth the reasons for our action:

BAZELON, Chief Judge, concurring: First National City

Bank’s plan to operate a collective investment fund has gen-

erated complex and controversial issues for resolution by

the Comptroller of the Currency and the Securities and Ex-

change Commission. Because this innovation in banking

will create massive competition for the mutual fund indus-

try, its members have brought the dispute to court. For

the reasons stated at the conclusion of this opinion, I be-

lieve that representatives of the mutual fund industry have

standing to adjudicate the important legal questions aired

at length before the administrative agencies.

On the merits, the cases together present an interplay of

administrative decisions designed to serve different but com-

plementary regulatory aims. The Bank’s plan straddles two

—

sets of statutes. The result is a complicated, if sometimes

awkward, accommodation of the requirements of each.

Petitioners below claim that this accommodation compro-

mises the vital protection to investors and bank customers

afforded by the securities and banking laws, and creates a

dangerous blend of securities dealing and commercial bank-

ing. From an analysis of the relevant statutes and their

legislative history, | conclude that the Account, subject to

the mutually reinforcing regulations imposed by the Comp-

troller and the Commission, was established in accordance

with law.

267

|

INTRODUCTION

Since 1962. the Comptroller has exercised authority

under § 92a of the Federal Reserve Act to grant national

banks, by special permit, the authority to exercise trust

and other fiduciary powers,’ namely:

_.. to act as trustee, executor, administrator, regis-

trar of stocks and bonds, guardian of estates, assignee,

receiver, committee of estates of lunatics, or in any

other fiduciary capacity in which State banks, trust

companies, or other corporations which come into

competition with national banks are permitted to act

under the laws of the State in which the national

bank is located.

Section 92a(j) authorizes the Comptroller to issue such

rules as he deems necessary to enforce the proper exercise

of those powers. In April 1963 the Comptroller issued re-

vised Regulation 9, 12 C.F.R. § 9.18, which authorized for

the first time the commingling of managing agency accounts

under national banks’ fiduciary powers.

The background of Regulation 9 needs brief mention.

Since the thirties, banks have been authorized to act as

Regulatory responsibility for the fiduciary activities of national

banks was transferred from the Federal Reserve Board to the Comp-

troller pursuant to Public Law No. 87-722, 76 Stat. 668 (1962), codi-

fied at 12 U.S.C. § 92a (1964).

268

managing agents to purchase and sell stock for a single

principal, 1934 Fed. Reserv. Bull. 609, but the cost of bank

management made it prohibitive to offer this service to in-

vestors without very substantial assets. For example, the

Bank's minimum for an individual managing agency account

is $200,000. Prior to 1963, national banks were authorized

by the Federal Reserve Board to commingle and invest cus-

tomers’ funds only if held in its capacities as trustee, execu-

tor, administrator, or guardian, and funds held as part of a

tax-exempt pension and profit sharing or stock bonus plan

of employers for the benefit of employees. Regulation F,

12 C.F.R. § 206 (1959 Rev.). The Federal Reserve Board,

moreover, had consistently taken the view that common

trust funds should not be used as a medium to attract cus-

tomers primarily seeking investment management of their

funds.? After the responsibility for regulating bank trust

powers was transferred to the Comptroller, that office con-

cluded, after study, that existing regulations should be

broadened to extend the advantages of collective investment

to managing agency accounts.

The Bank proposed the establishment of a commingled

managing agency account pursuant to the revised regula-

tion.? Under the Bank’s plan, a customer deposits a mini-

mum of $10,000 under a broad authorization permitting

the Bank to invest the funds with those of other partici-

?26 Fed. Reserve Bull. 393 (1940), 12 C.F.R. § 206.102 (1947);

42 Fed. Reserve Bull. 228 (1956); and see 25 Fed.Reg. 12479 (1960),

announcing the Board's intention to investigate whether the common

trust fund regulations should be amended to exclude inter vivos

trusts, because the device of the revocable trust could and had been

used to obtain investment management through a common trust fund.

3The Bank’s plan does not conform in all respects to Regulation 9

as Originally issued due to the adjustments required to satisfy the

requirements of the Investment Company Act. The plan, as amended,

received the Comptroller's written approval under 12 C.F.R. § 9.18

(cS), and it is expected to set the pattern for other bank-sponsored

investment funds. There is accordingly no need to review the provi-

sions of Regulation 9 as it was originally promulgated.

269

pants in the plan. The customer is a principal, and the

Bank, his managing agent. The customer receives an undi-

vided interest in the fund, expressed as a “unit of partici-

pation.” These units are redeemable at net asset value,

and are not transferable except to other participants in the

plan. No sales load or redemption charge can be imposed.

The Account is registered as an investment company

under the Investment Company Act, and the units of par-

ticipation are registered: as securities under the Securities

Act of 1933, 15 U.S.C. § 77a (1964). The Bank is both

investment adviser to the Account and statutory under-

writer for the units of participation issued. The Account

is subject to a Committee with the powers of a board of

directors, whose members are elected annually by the par-

ticipants. The Bank sought and received exemptions from

provisions in the Investment Company Act which would

have required that a majority of the Committee be unaffili-

ated with the Bank. The Securities and Exchange Commis-

sion required that at least two of the five Committee mem-

bers must be persons unaffiliated with the Bank, but the

other three will normally be officers of its Trust and Invest-

ment Division.

The Account is managed by the Bank pursuant to a man-

agement agreement which must be approved by the partici-

pants at their first annual meeting. Thereafter, the contract

must be approved annually by the participants or by the

Committee, including both Committee members unaffili-

ated with the Bank.

The Account is the functional equivalent of an open-

end mutual fund, but there are several differences. The

Comptroller’s regulations provide that the units of partici-

pation or shares may not be marketed through regular chan-

nels of public distribution; participation is offered and pub-

licized only through the Trust Department. 12 C.F.R.

§9.18(b)(5S)(iii) and (iv) (1968). The Bank’s compensation

is limited by regulation to the sum of the fees normally

charged for separate management of such accounts, namely,

% of 1 percent per annum of the average net asset value of

270

the fund. 12 C.F.R. § 9.18(b)(12). Finally, and most im-

portant, the Account is under the supervision of the Comp-

troller like other banking functions. This includes review

of the fund's investments to see that they are in accordance

with sound fiduciary principles. 12 U.S.C. § 481 (1964).

12 C.F.R. § 9.1 1(d) (1968).

VALIDITY OF THE ACCOUNT

UNDER THE BANKING LAws

The District Court held that the Account is unlawful on

two grounds: (1) the commingled managing agency account

is not a fiduciary activity within the purview of § 92a of

the Federal Reserve Act and is not open to State banks

under the law of New York, and (2) the maintenance of

the fund violates 8 16, 20, 21, and 32 of the Glass-Steagall

Act, 12 U.S.C. 8 24 (seventh), 377, 378, 78 (1964).

A. The Federal Reserve Act

The District Court relied on the differences between the

trustee and agency relationships, noting especially the higher

standard of care of a trustee, to conclude that a collective

managing agency account was not a true fiduciary activity

within the purview of § 92a of the Federal Reserve Act.

The differences between the traditional trust relationships

of trustee, executor, or administrator and the contractual

principal-agent relationship do not, in my view, make the

agent any less a fiduciary, nor does commingling of funds,

subject to the principal’s authorization, change the fiduci-

ary character of the duty owed to each. Brown v. Christ-

man, 75 U.S.App.D.C. 203, 126 F.2d 625 (1942). The Dis-

trict Court apparently recognized that the Account might

pass muster under the phrase authorizing banks to act “in

any other fiduciary capacity,” but held that it did not

qualify as an activity open to competing State banks under

the New York law.

Section 100-c of the New York Banking Law specifically

authorizes trust companies to commingle funds held in the

of zn

,

strict trust capacities, but New York law contains no spe-

cific grant of authority to commingle funds held as manag-

ing agent. The District Court concluded that the absence

of such authority was an implied prohibition. Section 100-c,

however, simply permits commingling in cases where the

governing trust instrument does not authorize it. The con-

ditions on commingling imposed by § 100-c have not been

imposed upon collective accounts authorized by a trust in-

strument. The real question, therefore, was whether com-

mingling was permissible under the general authority of

§ 100, which empowers a State bank to act as agent for any

lawful purpose and to manage a principal’s funds accord-

ing to the terms of the power conferred upon the bank.

N_Y. Bank. Law § 100(1) and (5) (McKinney 1950).

Since the decision of the District Court, the New York

State Banking Department has given formal approval of

commingled managing agency accounts to two New York

banks, stating that the operation of the accounts is author-

ized by § 100 of the Banking Law. Appellee ICI describes

| this approval as a defensive response to enable State banks

to meet the national banks’ competition. This is surely

true. Prior to the Comptroller's issuance cf revised Regu-

lation 9, no State banks operated commingled managing

agency accounts. Still, the Banking Depariment’s action

cannot fairly be dismissed as merely following the Comp-

troller’s lead. The question of whether collective accounts

are a proper fiduciary activity for banks appears to have

been open under both Federal and New York law, and

both banking agencies could reasonably have resolved it

the same way.

The Bank concedes, of course, that the commingling

of managing agency accounts represents a departure from

past banking practice of limiting commingling to funds

held by the bank in the traditional trust capacities and as

trustee of a pension or profit-sharing trust. Regulation

9.18 permits banks to serve multiple principals under a

standard agreement vesting the bank with broad discretion

272

to invest their money, subject to the duties and liabilities

of a managing agent, and not a trustee. This is a new and

free-wheeling form of fiduciary activity.

I am persuaded, however, that the Comptroller’s regula-

tions, together with the protection of the customer qua

investor afforded by the securities acts, will reasonably as-

sure the proper exercise of this broad fiduciary power. The

restrictions imposed by Regulation 9, 12 C.F.R. § 9, secure

the Comptroller’s powers of examination and supervision

of the Account. (889.8, 9.9.) The rules safeguard the fidu-

ciary relationship by requiring the separation of the Ac-

count’s funds from other assets (8 9.13, 9.18(b)(2)), by

enforcing the obligations to refrain from self-dealing and

conflicts of interest (88 229.10, 9.12, 9.18(b)(8)), and by

limiting the Bank’s charge to its normal fiduciary compen-

sation (88 9.15, 9.18(b)(12)).

The major difference between the Bank’s relationship to

the customers of the Account and its relationship to the

beneficiaries of other management and trust services is the

absence of an individually negotiated agreement. The charac

ter of the Bank’s initial advice and ultimate accountability

to the customer is necessarily altered by a package deal

offered to all comers. This was one reason why the Se-

curities and Exchange Commission required registration of

the Account.* The provisions for disclosure and participant

control contained in the securities laws substantially com-

pensate for the drawbacks of a standardized fiduciary serv-

ice. The Securities Act of 1933 requires that potential

customer-investors receive a prospectus describing the man-

agement of the Account, its investment objectives and poli-

cies, and the rights of participants. 15 U.S.C. § 77j (1964).

Periodic reports and proxy statements must be issued for

inspection by both the participants and the Commission.

§§ 80a-20(a) and 80a-29(d). Pursuant to the provisions of

“See Statement of then Chairman Manuel F. Cohen, Hearings on

S. 2704 Before a Subcommittee of the House Committee on Banking

and Currency, 89th Cong., 2d Sess. 132-38 (1966).

273

the Investment Company Act, participants in the Account

will elect their directors (§ 80a-16(a)), retain the power to

terminate the contract (§ 80a-15(a)(3)), and ratify the se- .

lection of auditors (§ 80a-31(a)(2)). The interests of the

principals participating in the Account, though not identi-

cal, are bound to be similar; and as a group, they possess

a measure of control over the management of their money.

Dual regulation by the Comptroller and the Commission

should assure the proper operation of the Account.

B. The Glass-Steagall Act

The District Court held that the Comptroller’s authoriza-

tion of the Account violated four provisions of the Glass-

Steagall Act. It held that in the issuance of units of partici-

pation, the Bank was engaged in the business of dealing in

securities for its own account in violation of 88 16 and 21,

and that the relation between the Bank and the Account

| was an affiliation or interlocking directorate between a

bank and an organization principally engaged in the securi-

ties business in violation of 8 20 and 32 of the Act.

(1) Sections 16 and 2]

Section 16 of the Glass-Steagall Act imposes the follow-

ing limitation upon bank dealing in securities:

.. . The business of dealing in securities and stock by

the [national banking] association shall be limited to

purchasing and selling such securities and stock with-

out recourse, solely upon the order, and for the account

of, customers, and in no case for its own account, and

the association shall not underwrite any issue of securi-

ties or stock... . [12 U.S.C. § 24 (seventh).]

Section 21 of the Act prohibits commercial banks from en-

gaging in the business of “‘issuing, underwriting, selling or

distributing’ most types of securities.° Because the units

‘The Glass-Steagall Act permits banks to market government reve-

nue bonds backed by the taxing power of the public authority issuing

the bonds. 12 U.S.C. § 24 (Seventh). The Comptroller’s regulation

broadening bank underwriting authority to include revenue bonds was

274

of participation in the Account are securities, and the Bank

is the statutory underwriter under the Securities Act of

1933, the District Court held that the Bank is engaged in

the selling and underwriting of securities prohibited by

$$ 16 and 21 in operating the Account.

The words security and underwriter in the Securities

Act of 1933 are terms of art with a high gloss. Their ex-

pansive definitions under the Securities Act cannot be im-

ported wholesale into the Glass-Steagall Act when the two

statutes serve different purposes, in different contexts of

risk to the public. The securities laws are intended to pro-

tect investors, primarily through disclosure requirements.

Their terms have been interpreted broadly to afford their

protection to purchasers of all manner of investment inter-

ests, wherever it is needed. The Glass-Steagall Act, by con.

trast, was enacted to protect bank depositors and the bank.

ing system from the risk of insolvency incident to wide-

spread investment of banks’ assets in speculative secu. ities

during the twenties. Banks frequently not only invested

in speculative securities, but entered the business of invest-

ment banking by underwriting original issues. Some of

these activities were undertaken directly; others were car-

ried on by securities affiliates formed and controlled by

the banks to evade completely the weak restrictions upon

direct bank dealing in speculative securities. Section 16 of

the Act was addressed to three problems:

(1) Banks commonly invested their own assets in

securities, risking commercial and savings deposits if

the securities declined in value.®

(2) Direct bank investment in securities created

pressure for banks to make unsound loans to main-

invalidated in Baker, Watts & Co. v. Saxon, 261 F Supp. 247 (D.D.C.

1966), affirmed sub nom. Port of New York Authority v. Baker,

Watts & Co., 129 U.S.App.D.C. 173, 392 F.2d 497 (1968).

®Hearings Pursuant to S.Res. 71 Before a Subcommittee of the

Senate Committee on Banking and Currency, 71st Cong., 3d Sess.

1055-66 (1931).

| 275

tain the price of securities or the financial position of

companies in which the bank had holdings.’

(3) Large city banks frequently acted as issuers, OT

underwriters of blocks of securities, distributing them

at a profit through correspondent country banks. The

banks’ pecuniary interest in the ownership, price, or

distribution of securities created incentive to steer cus-

tomers into investing in what the banks had to scll.S

The problem of risk to deposits does not arise here, be-

cause the securities in the fund are purchased for the account

of the customer, not the Bank. The ICI does claim, how-

ever, that the Bank’s indirect holdings in the Account may

amount to an interest in individual companies sufficient to

influence its credit decisions. The short answer is that,

since this indirect risk is present in all bank investments in

securities for the account of customers, that problem was

not within the contemplation of the Glass-Steagall Act.

With regard to the third abuse treated by § 16, the ICI

points out that because the Bank’s compensation is tied to

the size of the fund, there will be pressure to market the

participations to maintain and increase its assets. I agree.?

TId. at 1063-64.

8See Address of Senator Bulkley, 75 Cong-Rec. 9912 (1932).

°The Bank would have us stress the restrictions upon merchandis-

ing the Account. The Bank is authorized to offer participations in

response to unsolicited requests, to persons on Bank premises, and

to existing customers. The Bank’s affidavit states that it will accept

the customer’s money if it is satisfied that the Account’s investment

policy is suited to his needs. It appears from the mailing to “valued

customers,” however, that they will be acceptable if they read the in-

vitation, with its caveats, and the prospectus and send in the tear-out

authorization with $10,000. The $10,000 minimum should accom-

plish a measure of natural selection, but the Bank’s decision on the

customer’s suitability is unlikely to be so discriminating that the

decision itself is a check on the issuance of participations. At any

rate, the merchandising problem is more relevant to the question of

the proper exercise of fiduciary powers than to entry into the securi-

ties business within the meaning of the Glass-Steagall Act.

= MET RAY SOY RTE Fy ay | SOWIE NPT Pe AARNE EIR POS OEP TTI BANS ,

276

But the Bank is under similar pressure to sell all the serv-

ices of its trust department. The Bank’s interest in earning

a regulated fiduciary charge bears little resemblance to its

interest in earning an indeterminate distributing profit from

securities which it owns or underwrites, and the interest

forbidden by 8 16 is the latter.

Section 21 of the Act prohibits banks from engaging

... in the business of issuing, underwriting, selling or

distributing, at wholesale or retail, or through syndicate

participation, stocks, bonds, debentures, notes, or other

securities ....” It was enacted to extend the prohibitions

of § 16 to members of the Federal Reserve System who

were not national banks. Congress did not intend to bar

those banks from buying and selling securities “‘for the ac-

count of customers,” so § 21 appears to add nothing to

the argument under § 16. If anything, the language of

§ 21 confirms the view that Congress was concerned in

both provisions with prohibiting bank dealing in specula-

tive securities for the traditional and direct form of dis-

tribution profit.!°

ee

(2) Sections 20 and 32

Sections 20 and 32 of the Act were enacted to maintain

the separation between commercial banking and securities

dealing by prohibiting interlocks and affiliations of person-

nel. Section 20 forbids certain types of bank affiliation

with any organization “‘engaged principally” in the same

brand of securities dealing forbidden as a direct bank activ-

ity by $21. One type of prohibited affiliation, defined in

!°Section 21 provides criminal penalties for willful violations. The

Attorney General is charged with prosecutions under § 21, and has

indicated that, while it is not clear whether the operation of the Ac-

count would involve criminal liability, the approval of the banking

agencies precludes a prosecution against the Bank. See letter of

January 24, 1966, to the Securities and Exchange Commission from

Assistant Attorney General Fred M. Vinson, in Hearings on S. 2704

Before a Subcommittee of the House Committee on Banking and

Currency, supra n. 4 at 588.

AA Ne ih is a Ne aI See ARR RnB A

277

§ 221a(b)(3), ordinarily exists when a majority of the direc-

tors of a securities organization are also directors of any

one member bank.

Section 32 generally prohibits directors, officers, or em-

ployees of organizations “primarily engaged”’ in securities

dealing from serving in those capacities for a member bank.

The Federal Reserve Board has consistently held that § 32

prohibits bank officials from serving as officials of open-

end investment companies because such companies (mutual

funds) are primarily engaged in issuing their own shares.

12 C.F.R. § 218.101 (1951). The Board ruled, however,

that the Account and the Bank were a single entity for pur-

poses of § 32, since the Account would be a department

of the Bank except for purposes of the Investment Com-

pany Act. So long as the Account remained under the

“effective control” of the Bank, the Board stated that there

was no prohibited interlock under § 32. 30 Fed.Reg. 12836

(1965), adding 12 C.F.R. § 218.111G) (1965)."

The participants’ reserve power to sever the connection

with the Bank would be worth something in the event of

extraordinary mismanagement, but barring this contingency,

the Account will remain part of the Bank’s organization.

Under the single entity theory, the Bank cannot interlock

with itself, but that is not really the point. The clear pur-

pose of §§ 20 and 32 is to prevent banks from entering

into prohibited forms of securities dealing by the back

door. We have held that the Bank may enter the business

of operating the Account by the front door. The organiza-

tional pattern imposed to satisfy the requirements of the

Investment Company Act does not in this context create

a prohibited interlock or affiliation any more than the Ac-

count itself constitutes a forbidden excursion into the

securities business.

"See also the Board’s letter of March 31, 1966, to the Bank stat-

ing that its ruling would stand even though the Securities and Ex-

_ change Commission required that there be two independent directors,

or 40 percent of the Committee, instead of the single unaffiliated

director proposed by the Bank.

Fe ee RL LAG EBS BET ALT OTT IARI ONE ENN BEE PLIES A OM RI

278

The establishment of a bank-sponsored colicctive invest-

ment fund is not barred by the banking laws. A commin-

gled managing agency account is a descendant of the indi-

vidual managing agency account and the common trust

fund, fitting within the traditional authority of banks to

manage other people’s money in a fiduciary capacity sanc-

tioned by the Federal Reserve Act. Where the fiduciary tie

between the bank and multiple principals is looser, the

Comptroller’s regulations and the securities laws will take

up the slack. The essential element in this judgment on

the applicability of the Glass-Steagall Act is the fact that

the securities in the Account are bought and sold for the

account of customers. The sale of an investment service to

a potentially large number of customers gives rise to obliga-

tions under the securities laws, but these do not convert

otherwise lawful transactions for the account of customers

into prohibited securities dealings within the meaning of

the Glass-Steagall Act.

The major consequence of expanded investment service

by banks will be a quantitative change in the volume of

securities bought, sold, and held by banks. While substan-

tial transactions in securities by banks may be essential for

the modern management of their customers’ money, an in-

crease in their already massive securities holdings for the

account of customers has some disquieting consequences

for the underpinnings of corporate accountability and com-

petition in the economy at large.'* The dimensions of the

problem are broader, however, than the banking laws on

the books. The Glass-Steagall Act enforces the separation

'2For recent comment on the power of banks as institutional in-

vestors to control so-called publicly held corporations, see Studies by

the Staff of the Cabinet Committee on Price Stability 52-54 (Jan.

1969). See also a warning that the trend toward conglomerate bank-

ing makes it possible for banks to condition access to credit upon

the borrower’s use of the bank’s other services and dealings with its

subsidiaries in “The Growth of Unregistered Bank Holding Companies

—Problems and Prospects,” Staff Report for the House Committee on

Banking and Currency, 91st Cong., Ist Sess. 2 (1969).

:

PINT ROE RUE LN! OS RES

279

of commercial banking and a particular kind of securities

dealing. Its legislative history affords little support and

even less guidance for a judicial decision to limit bank trans-

actions in securities for customers because today they dif-

fer in degree.

Il]

VALIDITY OF EXEMPTIONS FROM 810 OF

THE INVESTMENT COMPANY ACT

The NASD, for its part, claims that the Bank’s control

of the Account is all too effective. It contests the orders

by the Securities and Exchange Commission granting cer-

tain of the exemptions from § 10 of the Investment Com-

pany Act requested by the Bank prior to registration of the

Account as a diversified, open-end management investment

company under the Act. The exemptions together permit

three or 60 percent of the Account’s five-member Commit-

tee to be persons affiliated with the Bank.

Section 10 of the Act was enacted to protect sharehold-

| ers of investment companies from exploitation by insiders

with conflicting interests in other companies or lines of

business by requiring that a certain percentage of directors

be free of affiliations which may involve divided loyalties.

Without the exemptions, § 10 of the Act would preclude

the Account from having a majority of directors who are

officers, directors, or employees of (1) a principal under-

writer, 15 U.S.C. § 80a-10(b)(2), (2) investment bankers,

§ 80a-10(b)(3), and (3) a single bank, § 80a-10(c). While

the Bank fits each of these statutory categories, the over-

riding issue is the propriety of the exemption granted from

§ 10(c) to permit a maximum of three instead of two Bank

officers to serve on the five-member Committee. A work-

ing majority of Bank directors was essential to allow the

Account to function in conformity with the banking laws.

Before considering the exemption from § 10(c), it bears

emphasis that there is nothing unusual in the fact that the

Bank as investment adviser has majority control of the

— ——_———— Dee NORTE gama,

PEL ENED Lae ie

280

Committe of the Account. Open-end investment compa-

nies have traditionally been controlled and managed by

their investment advisers; investors are buying their advice.

Section 10(a) of the Act provides that 60 percent of the

directors of an investment company may be affiliated with

the investment adviser. Section 10(d), moreover, permits

certain types of “‘no-load’”’ funds to have only one unaffili-

ated director if they meet specified conditions. The Bank

sought but was denied an exemption which, if granted,

would have enabled it to have only one unaffiliated Com-

mittee member.!?

Given these facts, the NASD’s assertion that the Com-

mittee will abdicate its supervisory responsibilities because

the Bank has “effective control’ of the Account in the

eyes of the banking authorities requires a showing of some-

thing more than the normal pattern of majority control by

an investment adviser. Nothing in the Comptroller’s regula-

tions still applicable precludes the Committee from exercis-

ing its responsibilities. Although Regulation 9, as originally

promulgated, did not take account of the requirements of

the Investment Company Act, all provisions of Regulation

9 inconsistent with that Act were superseded by the Comp-

troller’s written approval of the Account in the form neces-

sary to satisfy the Securities and Exchange Commission.

The Bank’s majority control for purposes of day-to-day

management of the fund is a false problem. The real issue

is whether exemptions allowing an extra director on the

Bank side will undercut the Committee’s watchdog role in

areas of potential conflict of interest.

Section 6(c) of the Investment Company Act empowers

the Commission to grant exemptions from the Act, or any

'3Notwithstanding the provisions of §§ 10(a) and 10(b)(2), § 10(d)

permits all but one of the directors of certain types of “no-load”

funds to be affiliated with the investment adviser if certain condi-

tions are met. 15 U.S.C. § 80a-10(d). To qualify for the exception

under § 10(d), the Bank would have had to register as an investment

adviser, principally involved in that business. An exemption from

this condition was denied.

as i LRP NAE NAAERNERTAIN ANG TALLEST AR TSE APE SN SHES

. Wee Peta Se wwe we Pe ee res | bet

281

rule or regulation adopted under it, “‘ . . . if and to the ex-

tent that such exemption is necessary or appropriate in the

public interest and consistent with the protection of inves-

tors and the purposes fairly intended by the policy and pro-

visions” of the Act. 15 U.S.C. § 80a-6(c). The Com-

mission has exercised this authority to exempt persons not

within the intent of the Act and generally to adjust its pro-

visions to take account of special situations not foreseen

when the Act was drafted. Transit Investment Corporation,

28 S.E.C. 10, 16 (1948); The Atlantic Coast Line Company,

11 S.E.C. 661, 666-67 (1942).

In granting the exemptions at issue, the Commission first

observed that the Account differs on the one hand from

the bank-dominated securities affiliates of the twenties

whose abuses inspired § 10'* and, on the other, from open-

end investment companies (mutual funds) not subject to

the supervision of the Comptroller. For these reasons, it

was appropriate to consider whether a bank-sponsored fund

was a type of investment company requiring the standard

measure Of unaffiliated directors or whether exemptions

were justified by its novel characteristics. The Commission

concluded that the risks of conflict of interest would be

adequately controlled by the provisions of the Investment

Company Act still applicable, supplemented by the Comp-

troller’s regulations, and that the exemptions would permit

the establishment of a desired new investment medium,

'4Securities affiliates were organized by banks to evade the prohi-

bition against investment of bank funds in common stocks. The affil-

iates, usually closed-end investment companies, often took loans from

the sponsor banks, secured by the stock held by the affiliate, and

then used the borrowed funds to trade or invest in the bank’s stock

or in other securities in which the bank had an interest. The affili-

ates also made loans of investment company funds to the bank. Share-

holders of the affiliate and depositors of the bank were both on the

losing end of these arrangements. The abuses were detailed in a com-

prehensive study submitted to Congress by the Commission prior to

the adoption of the Glass-Steagall Act. /nvestment Trusts and Invest-

ment Companies, Report of the Securities and Exchange Commission,

Pt. 1, H.R. Doc. No. 707, 75th Cong., 3d Sess. 94 (1938).

FT Ay PED PA TOME Ng 4g: eS YY EYRE ROTI LENIN ETE OH EIT T EN 8 HHT SAAT LONI

282

still subject to all the safeguards necessary for the protec-

tion of its investors.

The conflict of interest problems created by bank affilia.

tion with investment companies are of a different order

when the fund is sponsored by the bank. In the proceed-

ings below, the Commission considered four danger zones,

previously cited by former Chairman William L. Cary in tes

timony before Congress recommending regulation of collec.

tive investment funds,'* and urged by the NASD as reasons

for denying the exemptions.

A. Retention of substantial cash deposits

for the Account in the Bank

The Commission discounted the danger that the Bank

might retain an unwarranted portion of the Account’s as-

sets in cash in order to earn money for the Bank, stating

that the temptation to leave funds uninvested would be

contrary to the Account’s stated policy of investment for

long-term growth of capital and income, and to the Bank’s

interest in having the fund’s assets increase. The interest in

increasing the assets in the fund dictates not only that funds

already held be invested in growth securities, but also. as

we have seen, creates pressure to increase the number of

participants. The undisputed fact that the Account will

compete with the mutual fund industry can be expected

to inhibit retention of its income-producing assets in the

form of lopsided cash deposits. There is an important point

of convergence between the interests of the Bank directors

qua commercial bankers and their interest in the success of

an investment medium offered as part of the Bank’s serv-

ices, a convergence not present when Bank personnel serve

as directors of independent investment companies.

The Comptroller’s regulations, moreover, state that funds

held in a fiduciary capacity by banks shall not be held un-

'S Hearing on Common Trust Funds—Overlapping Responsibility

and Conflict in Regulation, Before a Subcommittee of the House Com-

mittee on Government Operations (Hereinafter Hearing on Common

Trust Funds}, 89th Cong., Ist Sess. 11-12 (1963).

—

invested or undistributed for a period longer than is reasor-

able for the proper management of the particular account.

12 C.F.R. § 9.10(a). Observance of this regulation is po-

liced through examinations of bank trust departments which

occur at least three times in every two years. 12 U.S.C.

§ 481. The Commission reasonably concluded that the

Bank’s interest in holding the Account’s assets in cash was

offset by this combination of the carrot and the stick.

283

“B. Use of Account investments

to shore up Bank loans

Considered under § 16 of the Glass-Steagall Act was the

danger that the Bank might make unsound loans to shore

up companies in which it had made investments for the

Account. From the standpoint of the Investment Company

Act, the risk is that the Bank will make bad investments

for the Account to shore up unsound loans. In a letter to

the Senate Committee on Banking and Currency, Chairman

William McChesney Martin of the Federal Reserve Board

explained why this area of risk was not regarded as signifi-

cant.

For many years banks have participated in the man-

agement of employee-benefit funds and other fiduci-

ary accounts that hold stocks and other securities in

an aggregate amount far exceeding those held by the

entire mutual fund industry. The examinations con-

ducted by bank supervisory agencies have disclosed

practically no such misuse by banks of their invest-

ment advisory and management functions. In the case

of managing agency funds, an additional safeguard is

the prophylactic restrictions and requirements of the

Investment Company Act of 1940, particularly public-

ity of the financial transactions of registered invest-

ment companies, which almost inevitably would ex-

pose such malfeasance. A further deterrent would be

the adverse impact on a collective fund’s performance—

its comparative financial record—if any of its resources

were used to make unprofitable investments; the detri-

mental effect on sales of participations might outweigh

a IRE RH ESD) Ear RON

284

any benefits the bank could reasonably expect from

its breach of fiduciary duty.'¢

In addition to taking note of the Comptroller’s supervision

of investments, the Commission cited its own supervision of

transactions involving a joint arrangement between the Bank

acting as a principal and the Account under the insider pro-

vision of § 17(d) of the Act, 15 U.S.C. § 80a-17(d),!7 and

concluded that the margin for misconduct of this sort was

narrow.

C. Purchase by the Account of securities

underwritten by the Bank

The danger that the Account’s funds might be used to

promote the Bank’s investment banking business is relevant

generally to the exemption from § 10(c) and specifically tc

the exemption from § 10(b)(3). Section 10(b)(3) would

have required that a majority of the directors of the Ac-

count be unaffiliated with an investment banker. The Bank

is in the investment banking business to the extent that it

participates in syndicates which underwrite debt securities

of governmental authorities.

I concur in the Commission’s judgment that there is no

basis for concern that the Bank can or will use the Account

to further its limited investment banking business. The

Account is primarily a stock fund. It is not permitted to

purchase any securities from the Bank, 15 U.S.C. § 80a-

17(a), and cannot purchase government securities from

another member of a syndicate where the Bank participates

"®Letter dated December 14, 1967, from William McC. Martin, Jr.,

Chairman, Federal Reserve Board, to Senate Committee on Banking

and Currency, in Hearings Before the Senate Banking and Currency

Committee on Amendment No. 438 to S. 1659, 90th Cong., Ist Sess.

1223-26 (1968).

'7Shoring up loans or acquiring banking business in connection

with the purchase of stock for the fund may be such a joint transac-

tion. Note, Commingled Trust Funds and Variable Annuities: Uniform

Federal Regulation of Investment Funds Operated by Banks and In-

surance Companies, 82 HARV.L.REv. 435, 451 (1968).

_—

as principal underwriter. 15 U.S.C. § 80a-10(f). The Com-

mission conditioned the exemption by prohibiting purchases

from syndicate members even after the Syndicate has termi-

nated but the members hold unsold allotments.

285

D. Allocation of brokerage to existing

or potential Bank customers

Former Chairman Cary observed that banks often distrib-

ute brokerage to those brokers with whom the Bank has or

seeks reciprocal dealings, and that this may be contrary to

the best interests of the Account’s investors. This is one

breed of the “bird-dog” problem presented when bankers

direct investment business toward companies whose bank-

ing business they desire in return. Such a practice would,

of course, depart from the brokerage policy set forth in the

* prospectus. The Bank’s stated objective in placing orders

is to obtain the most favorable prices and execution of

orders and, secondarily, to deal with brokers and dealers

who provide the Bank as investment adviser with supple-

mentary research and statistical information or market quo-

tations.

Reliance on the Bank’s representations is not wholly satis-

fying. Allocation of brokerage for the Bank’s benefit is a

subtler form of self-dealing than questionable purchases of

securities or maintenance of an undue cash balance, and

one less amenable to control through disclosure and super-

vision by the agencies. Nonetheless, brokerage may be im-

properly distributed in the course of banks’ already exten-

sive securities purchases for the account of customers, and

it is appropriate to point out that Congress apparently did

not consider this threat to be of critical significance when it

exempted common trust funds from the Act entirely. See

15 U.S.C. § 80a-3(c)(3).

The Commission’s orders do not rest upon a sanguine

assumption that there are no conflicts of interest incident

to bank-sponsored investment funds, but rather proceed

from a showing that the dangers are significantly different

from those involved in other types of bank-investment

“

— ERTL RY STL EE EE EE AE AR NIL Ba IT AEN

ie

company affiliations. Because the Bank earns only a regu-

lated fiduciary charge tied to the amount of the Accounts

assets, the Bank-affiliated directors’ interest in attracting

more customers coincides with the interests of investors

and to some degree counteracts the incentive to hold the

fund’s assets in the form of commercial deposits. The re-

strictions upon Bank underwriting and Bank transactions

with the Account make it unlikely that the Bank can profit

by using the fund to unload or backstop its bad or indiffer.

ent investments, a major function of the bank-dominated

securities affiliates of the twenties. To the extent that

such hazards as improper brokerage allocation remain, the

Commission could reasonably have concluded that two inde-

pendent directors would perform adequately as watchdogs,

with the enforcement powers of the Comptroller adding

extra teeth.

286

Finally, the NASD claims that the Commission made an

expedient bargain in granting the exemptions in order to

head off legislation to exempt bank-sponsored funds from

the securities laws. It is true that the Commission’s asser-

tion of jurisdiction over such funds generated legislative

proposals, along with some friction between agencies of

the Executive;'* but I view the decision differently. Tak-

ing due account of the reduced potential for conflicts of

interest in bank-sponsored funds and the near-complete

coverage of the securities laws, the Commission determined

that the supervision of the Comptroller would compensate

for the absence of an independent tie-breaker on the Com-

mittee of the Account. This was a fair trade.

IV

STANDING

A. Standing of the Investment Company Institute

The ICI claims standing to challenge competition from

banks on the ground that the Comptroller has authorized

a competitive activity specifically prohibited by Congress

'8 Hearing on Common Trust Funds, supra n. 15 at 2-3 and 161-

64.

287

in the Glass-Steagall Act. Cf. Baker, Watts & Co. v. Saxon,

261 F.Supp. 247 (D.D.C. 1966), affirmed sub nom. Port

of New York Authority v. Baker, Watts & Co., 129 US.

App.D.C. 173, 392 F.2d 497 (1968); Saxon ». Georgia

Assn. of Ins. Agents, 399 F.2d 1010 (Sth Cir. 1968).

As a general rule, competitors lack standing to challenge

competiton created or enhanced by governmental action,

even if it is illegal, unless they can claim the benefit of an

implied or express statutory aid to standing. Pennsylvania

Railroad Co. v. Dillon, 118 U.S.App.D.C. 257, 335 F.2d

292, cert. denied sub nom. American S.S. Co. v. United

States. 379 U.S. 945 (1964). The Glass-Steagall Act was

not intended by Congress to protect mutual funds from

competition from banks, so they do not have standing as

intended beneficiaries; and the Act contains no aggrieved

party provision. Contrast Hardin v. Kentucky Utilities,

390 U.S. 1 (1968); F.C.C. v. Sanders Bros. Radio Station,

309 U.S. 470 (1940). The District Court held, however,

that the ICI was an implied, though not an intended bene-

ficiary of the Glass-Steagall Act, and granted it standing to

sue as a private attorney general to enforce the separation

between commercial banking and securities dealing, despite

the absence of an aggrieved party provision to support that

role.

We are all agreed that this holding is exceptional, but so

is this case. While the majority concludes from the cases

that there is no satisfactory authority for standing, I find

in those cases no reason to deny standing, and good reason

to grant it. First, the authorities for the rule denying com-

petitors standing to challenge unlawful competition are in-

apposite. Second, the basic justification for entertaining

competitors’ suits to challenge administrative action as

statutory aggrieved parties, intended beneficiaries, or licen-

sees is to vindicate a public interest, and not a private right.

The absence of a statutory aid to standing in this case is

adventitious, and I would grant appellants standing to assert

the public interest without it.

TRE rere SES I RE eae AAR AEA Ne eA NR TEENS

288

1. Competitors’ standing to challenge unlawful

competition without a statutory aid to stand-

ing

Analysis of suits by competitors confirms the Supreme

Court’s observation that ‘the various rules of standing ap-

plied by federal courts have not been developed in the

abstract. Rather, they have been fashioned with specific

reference to the Status asserted by the party whose stand-

ing is challenged and to the type of question he wishes to

have adjudicated.” Flast v. Cohen, 392 U.S. 83, 101 (1968).

The general rule denying standing to competitors who can

claim no statutory aid to standing is derived from two types

of cases in which their interest in attacking allegedly unlaw-

ful competition has not been found reasonably proportion-

ate to the burden on governmental agencies of defending

against such suits. In one class of cases, privately-owned

utilities have been denied standing to challenge legislative

public power programs. See, e.g, Alabama Power Co. y.

Ickes, 302 U.S. 464 (1938); Tennessee Electric Power Co.

v. T.V.A., 306 U.S. 118 (1933); Kansas City Power & Light

v. McKay, 98 U.S.App.D.C. 273, 225 F.2d 925, cert. denied,

350 U.S. 884 (1955). These cases draw much of their vital-

ity from considerations of separation of powers and the doc-

trine “that a person may not maintain a suit to enjoin the use

of Government funds, even if such use is claimed to be in

violation of law.” In suits of this nature, “‘[t]he fact that

the plaintiff is suffering an economic detriment from com-

petition assisted by a loan or grant of Government funds,

does not give him standing to sue.” Baker, Watts & Co. y.

Saxon, 261 F.Supp. at 249. Cf Saxon y. Georgia Assn. of

Ins. Agents, 399 F.2d at 1020-21 (concurring opinion).

There are similarly sound policy reasons why competi-

tive injury does not confer standing to challenge adminis-

trative decisions affording some incidental aid to another

competitor or group of competitors in an industry. Minor

or speculative economic injury is not worth burdening the

agencies and the courts with skirmishes among businesses

ky,

289

over comparative advantages resulting from allegedly illegal

agency action. See Pennsylvania Railroad Co. v. Dillon,

118 U.S.App.D.C. at 262, 335 F.2d at 297.

These, then, are the considerations underlying the many

opinions which deny standing with the homily that compe-

tition is our economic norm. To acknowledge that cases

denying standing to competitors are governed by (1) con-

siderations of separation of powers, and (2) a desire to limit

actions against the government, rather than by rigid abstract

rules, seems to me only to do justice to the subtleties of

standing as an element of justiciability. In suits by compe-

titors, the nature of the claim is plainly relevant to the

status of the economic interest asserted as a basis for stand-

ing. Here the ICI does not challenge the constitutional pro-

priety of legislation or government spending. It does not

ask this court to invoke due process or substantial evidence

standards to afford it a remedy for marginal injury from an

illegal administrative action. It points out, instead, that

national banks operate under a regime of enumerated powers

and prohibitions carefully laid down by Congress, and asks

us to decide whether the competition authorized by the

Comptroller violates specific provisions of the banking laws,

one of which carries criminal penalties for bank entry into

the securities business. 12 U.S.C. § 378.

In these circumstances, to put the ICI out of court with

the incantation that competition is our economic norm is

insupportable in law and fact. No case stands for the rule

that authorization of novel and prohibited—even criminal—

business activity by administrative agencies is part of the

rough-and-tumble of a competitive market. And in point

of fact, toe-to-toe competition between mutual funds and

commercial banks has never been the norm. The Comp-

troller’s action introduces a powerful new element into a

market previously closed to commercial banks by the rul-

ings of the Federal Reserve Board, enforcing the same pro-

hibitions now largely committed to the supervision of the

Comptroller. This case falls outside the authorities for the

290

general rule that competitors lack standing to challenge

illegal competition.

We are not locked into conventional concepts of unfair

competition in assessing a competitor’s interest for purposes

of standing. Cf. Jaffe, Standing To Secure Judicial Review.

Private Actions, 75 HaRv.L.REv. 255, 265-66 (1961). It

would not be far-fetched to conclude that competition ille-

gally authorized by an agency which has allegedly ignored

statutory prohibitions is unfair. But while there is arguably

a private interest meriting protection here, it is plain that

the overriding interest in enforcement of the Glass-Steagall

Act is a public one. The question is whether the ICI may

assert the public interest without a statutory aid to stand-

ing.

2. Competitors’ standing to challenge unlawful

ccmpetition with a statutory aid to standing

(a) Aggrieved party statutes

Since the decision in #.C.C. v. Sanders Bros. Radio Sta-

tion, 309 U.S. 470 (1940), competitors have been granted

standing to challenge administrative action under statutory

aggrieved party provisions despite the fact that the statute

does not require that their competitive interests be given

weight by the agency. Competitors need not even be mem-

bers of the industry subject to a specific regulatory statute

to sue under it, so long as they can show aggrievement by

administrative action pursuant to the statute. See Clarks-

burg Publishing Co. v. F.C.C., 96 U.S.App.D.C. 211, 225

F.2d 511 (1955); Philco Corp. v. F.C.C., 103 U.S.App.

D.C. 278, 257 F.2d 656 (1958), cert. denied, 358 U.S.

946 (1959). Competitors whose interests and injuries are

not legally protected or even immediately relevant to a reg-

ulatory jurisdiction are given standing as private attorneys

general to represent the public interest in the proper admin-

istration of a regulatory scheme. Scripps-Howard Radio,

Inc. v. F.C.C., 316 U.S. 4, 14 (1942); Associated Industries

v. Ickes, 134 F.2d 694 (2d Cir.), vacated as moot, 320 US.

707 (1943).

291

(b) Intended beneficiaries

Long before Sanders, the Supreme Court had held that

competitors have standing to challenge unlawful competi-

tion when they can show that a statute was intended to

afford some protection to their economic interests. The

Chicago Junction Case, 264 U.S. 258 (1924). The Chicago

Junction theory is the only logical support for cases holding

that a license, grant, or other property interest makes some

competitors more worthy plaintiffs than others. The sig-

nificance of a license for standing is not its conventional

status as a property right but the fact that licensing may

indicate a legislative intent to limit competition in a mar-

ket by regulating entry. Licensees may be intended bene-

ficiaries entitled to rely on a regulatory scheme, with stand-

ing to enforce it. See Frost v. Corporation Comm'n, 278

U.S. 515 (1929) (Dissenting opinions of Justices Brandeis

and Stone).

In Chicago v. Atchison, Topeka & Santa Fe Ry., 357 US.

77 (1958), the Supreme Court granted standing to a motor

carrier to challenge the operation of a new carrier which

had not obtained a permit required by statute on the ground

that the first carrier was adversely affected and contended

that the competition was prohibited by a valid city ordi-

nance. 357 U.S. at 83. The holding on standing does not

even refer to the fact that the plaintiff carrier had a license;

the point was that one party was lawfully in business and

one allegedly was not. In such cases, the limitation on the

number of entrants in a market is not really intended to

benefit a licensee, but to assure to the public an adequate

level of services from economically viable enterprises. The

licensee-plaintiff is vindicating a public interest. His private

interest is his reliance on the rules protecting the public.

Since the enactment of aggrieved party provisions giving

competitors standing in most regulated industries, the in-

tended beneficiary theory has conferred standing in excep-

tional cases where there is no express statutory aid to stand-

ing, notably in an action against the TVA and in the spate

SPE: orn a

~~ RSIS ENN Bhs IR CS SSI BE RR AS ner Nana

PO AES ee

Bato ee

aerhe Fee

292

of suits against the Comptroller. In Hardin v. Kentucky

Utilities, 390 U.S. 1 (1968), the Supreme Court granted

standing to a private utility to adjudicate a dispute over

statutory area limitations on the expansion of TVA, a

comparatively clear case of market allocation by the legis-

lature.

Competitors in regulated industries have been granted

standing as intended beneficiaries of a regulatory scheme

where the statute (1) requires equal treatment of competi-

tors (Chicago Junction), (2) regulates the number of entrants

into a market (Chicago v. Atchison, Topeka & Santa Fe),

and (3) allocates markets among competitors (Hardin). In

each case the legislature has concluded that the public inter-

est in an adequate level of efficient services is furthered by

some restriction on competition. When private parties sue

to enforce those restrictions, they are necessarily asserting

a distinct public interest more important than their own.

3. Competitors’ standing to sue the Comptroller

The banking laws affect competition by keeping banks

out of specified business activities, but the limitation of

competition in certain markets is a by-product of prohibi-

tions whose overriding purpose is to protect the banks and

their depositors’ fortunes. Two courts have nonetheless

granted standing to a group of insurance agents and a data

processing firm to challenge rulings of the Comptroller

authorizing banks to enter their bailiwicks on the ground

that certain provisions of the banking laws indicate an in-

tent to protect their interests. In Saxon v. Georgia Assn.

of Ins. Agents, 399 F.2d 1010 (Sth Cir. 1968), the major-

ity held that 892 of the National Bank Act, 12 U.S.C.

§ 92, permitting banks to act as insurance agents in cities

of 5,000 inhabitants or less was intended to protect insur-

ance agents in larger towns from bank competition. But it

seems more likely that the sale of insurance was never an

activity within the intent of the statutory provision grant-

ing banks “all such incidental powers as shall be necessary

to carry on the business of banking,” 12 U.S.C. §24(7),

293

and that the general ban on bank entry into the insurance

business was qualified solely for the purpose of strengthen-

ing weak banks in small towns. The interest of insurance

agents in retaining the implied prohibition in larger com-

munities is unrelated to the intent of Congress in enacting

it in the first place. 399 F.2d at 1019 (concurring opin-

ion).

Similarly, in The Wingate Corp. v. Industrial National

Bank, 408 F.2d 1147 (ist Cir. 1969), the plaintiff data

processors argued that solicitation by banks of data proc-

essing business from the business community at large was

not a power incidental to banking, and that recently

enacted limitations on the data processing activities of bank

service corporations, jointly formed by small banks to en-

able them to purchase computer equipment, were intended

to protect independent data processing companies.'? The

First Circuit accepted this argument, relying heavily upon

the fact that the National Society of Public Accountants

had proposed the limiting amendment. But the fact that

the organized accountants pressed for an explicit limitation

does not mean it was designed to protect them. Enterprises

| that lobby for legislation are not necessarily transformed

into intended beneficiaries if it passes.

I agree that the insurance agents and the data processors

| in these two cases did have standing, but I am not persuaded

that the specific provisions relied upon by the courts were

intended to create protected classes of competitors any

| more than the Glass-Steagali Act was intended to benefit

mutual funds or investment bankers. Cf. Baker, Watts &

Co. v. Saxon, 261 F.Supp. 247 (D.D.C. 1966), aff'd sub

nom. Port of New York Authority v. Baker, Watts & Co.,

119 U.S.App.D.C. 173, 392 F.2d 497 (1968). It is fruit-

less to look for an intent to protect these businesses from

competition from banks in legislation designed to restrict

or prohibit bank activities for reasons having nothing to do

'9Contra, Assoc. of Data Processing Serv. Organ., Inc. v. Camp,

- 406 F.2d 837, cert. granted, 37 U.S.L.W. 3489 (June 23, 1969).

294

with competition. The critical question of congressional

intent is this: Did Congress intend to immunize rulings of

the Comptroller from judicial review? This is the critical

question because substantial immunity is the consequence

of denying standing to competitors. They are the only

parties likely to challenge the authorization of prohibited

bank activity. Cf Office of Communication of the United

Church of Christ v. F.C.C., 123 U.S.App.D.C. 328, 335,

359 F.2d 994, 1001 (1966). The intended beneficiaries of

the banking laws, if the class is narrower than the public,

are bank customers who have no immediate and compel-

ling interest in litigation to further long-term sound bank-

ing.

It is fortuitous that there is no aid to standing for these

plaintiffs. If underwriters. insurance agents, data processors,

and securities dealers are right that banks are prohibited by

law from entering their businesses, Congress would never

have foreseen that administrative rulings under the banking

laws would substantially affect their economic interests.

Judging from the purpose and pattern of the banking laws,

the question of aggrieved non-bank competitors never came

up.

This conclusion finds support in the fact that when Con-

gress anticipated competition problems, it dealt with them

in specific terms, notably in provisions of the banking laws

equalizing the legal conditions of competition between state

and national banks. In dozens of cases, state banks, and

recently a state banking agency have had standing to chal-

lenge the authorization of new branches of national banks

in violation of the st tutory limitation of national bank

branching to areas where state branches are permitted. 12

U.S.C. § 36(c). See, e.g., Whitney Nat. Bank v. Bank of

New Orleans & Trust Co., 116 U.S.App.D.C. 285, 323 F.2d

290 (1963), rev'd on other grounds, 379 U.S. 411 (1965);

Nuesse v. Camp, 128 U.S.App.D.C. 172, 385 F.2d 694

(1967).2° Thus, under the usual rules of standing, a state

20Section 92a of the Federal Reserve Act, 12 U.S.C. §92a, author-

izing national banks to act in any other fiduciary capacity open to

295

bank can enjoin illegal branching by national banks, but

there is no party who can sue to enforce the separation

between commercial banking and the securities business.

Given the relative triviality of the threat to the banking

system posed by outlaw branch banks as compared to the

menace of illegal securities dealing, this result is too bizarre

to have been intended by Congress.

Disappointed license applicants can call the Federal Com-

munications Commission to account for its decisions in the

name of the public. Regulated carriers and state banks may

challenge unlawful competition because courts have inferred

some protection to their interests from a regulatory scheme.

In both cases, competitors’ suits are furthering the public

interest at stake in the rules. All that is missing in this case

is a “logical nexus” between the competitive interest of the

mutual fund industry and the aims of the banking laws.

Flast v. Cohen, 392 U.S. 83, 102 (1968). It is missing be-

cause Congress had more important interests in mind.

Principles of standing in competitors’ suits have operated

as rules of thumb to sort out proper plaintiffs and legal

issues Of competition deemed appropriate for judicial reso-

lution. Both are present here. It is not disputed that the

members of the ICI are aggrieved by the Comptroller's rul-

ing. Bank-sponsored diversified investment funds open to

$10,000 customers will compete for the cream of the mar-

ket now cornered by the mutual funds. The ICI presents

a question of statutory construction to define the bound-

aries of official authority, a type of question well within

the traditional competence of courts of law. It is the only

party likely to assert the public interest in observance of

the banking laws by the agency responsible for enforcing

them. In the exceptional circumstances of this case, |

state banks in the locality, discussed supra pp. 8-9, indicates a similar

concern for equalizing the ground rules of competition between state

and national banks.

296

would grant the ICI standing to vindicate the public inter-

est despite the absence of a statutory aid to standing.?!

B. Standing of the National Association

of Securities Dealers

The NASD claims standing to seek judicial review under

§ 80a-42(a) of the Investment Company Act, which accords

a right of review to “[a]ny person or party aggrieved by

an order issued by the Commission ....” 15 U.S.C. § 80a-

42(a). It relies principally on the case of F.C.C. v. Sanders

Bros. Radio Station, 309 U.S. 470 (1940), to support its

standing to sue as a private attorney general to vindicate the

2! The commentators agree that a conventional “legally protected

interest” or statutory aid to standing should not be required in all

cases. Professor Davis has long maintained that § 10 of the Adminis.

trative Procedure Act, 5 U.S.C. § 701 (Supp. II 1965-66), accords a

right of review to any person aggrieved in fact by administrative

action. 3 K. C. Davis, ADMINISTRATIVE LAW TREATISE § 22.02

(1958); Standing: Taxpayers and Others, 35 Cu1.L.REv. 601, 619

(1968). Aggrievement in fact is all that is needed to create a case or

controversy in the constitutional sense. There is some support for

Professor Davis’ in.erpretation in the legislative history of § 10, but

most courts, including this circuit, have rejected it. Kansas City Power

& Light v. McKay, 96 U.S.App.D.C. 273, 225 F.2d 924, cert. denied,

350 U.S. 884 (1955).

Professor Jaffe views the private attorney general theory grafted

on to aggrieved party provisions as a variant of the common law pub-

lic action, rooted in English and American state law. If a party is

suing as a private prosecutor, Professor Jaffe regards his individual

interest as irrelevant, but in such cases, “judicial discretion in terms

of the size, urgency, and clarity of the issue at stake” should be exer-

cised in the decision to take jurisdiction. Jaffe, Standing to Secure

Judicial Review: Private Actions, 75 HARV.L.REV at 286-87.

The theory that standing may be accorded as a matter of discre-

tion when the plaintiff is aggrieved in fact combines the two commen-

tators’ approaches. Curran v. Clifford, No. 21040 (D.C. Cir., decided

Dec. 27, 1968), opinion vacated, petition for rehearing en banc granted

April 3, 1969. These approaches would support a finding of standing

to challenge administrative action where (1) the plaintiff is aggrieved,

or (2) the question presented is important, urgent and susceptible of

judicial resolution, or (3) both conditions are present.

297

public interest in the proper enforcement of the Investment

Company Act. This standing issue is settled by Sanders.

There is no requirement that a plaintiff establish a legally

protected private interest to sue under “party aggrieved”

statutes. Office of Communication of United Church of

Christ v. F.C.C., 123 U.S.App.D.C. at 335, 359 F.2d at

1001. The only question is whether the NASD is aggrieved

by the Commission’s orders granting the exemptions from

the Act to the Bank.

The NASD represents about 3,700 registered brokers or

securities dealers. Most of its members sell shares in mutual

funds to investors and are compensated by sales commis-

sions from the “load” charged by the funds. The Bank’s

commingled investment Account and similar bank-sponsored

funds sure to follow?? are an addition to the group of “no-

load” funds whose shares are not sold at a commission by

NASD members. No one denies that bank-sponsored col-

lective investment funds will provide substantial competi-

tion to both “load” and “no-load” mutual funds. Limita-

tion of sale of participations to customers with a minimum

of $10,000 to invest does nct narrow the area of competi-

)

)

tive overlap enough to make probable injury insubstantial.

Surveys indicate that individual sales of $10,000 or more

have accounted for about half the mutual fund industry’s

total dollar sales.2> NASD members stand to lose commis-

sions earned from the cream of the business. This is enough

to show that they are aggrieved parties under § 80a-42(a).

It is clear, moreover, that the NASD is aggrieved as a re-

sult of the Commission’s orders. Analysis of the legal prob-

22Speaking of its exemption decision, the Commission has stated:

“A pattern has thus been set which other banks may follow if they

see fit.” Hearings on S. 2704 Before a Subcommittee of the Senate

Committee on Banking and Currency, 89th Cong., 2d Sess. 138. At

the hearings, the American Bankers Association and individual banks

demonstrated great interest in commingled accounts. Ibid. at 31-61.

23See testimony of an industry representative in Hearings on S.

2704 Before a Subcommittee of the House Committee on Banking

and Currency, supra n. 22 at 96.

298

lems in establishing the Account in conformity with the

banking laws confirms the Bank’s concession that without

the exemptions, it would be “effectively precluded” from

operating the Ac ount. Both conditions of standing to sue

under the aggrieved party provision are met.

For these reasons, I join in the decision of the court.

BURGER, Circuit Judge, concurring:* Although I am un-

able to join in the rationale underlying Judge Bazelon’s basis

for starding of Appellees, nonetheless I am prepared to

agree with the result in order to make a majority holding

for review of the merits of a subject of such importance.

I do so in order to reach consideration of the merits for

such aid as some examination at our level may be useful to

further judicial review.

(1)

As I see it, there are three generally accepted theories of

standing which guide the courts in ascertaining whether a

plaintiff is the appropriate “party seeking to get his com-

plaint before a federal court.’ Flast vy. Cohen, 392 U.S. 83,

99 (1968). The first emerges from those cases involving a

statutorily defined basis for standing. See, e.g., Scripps-

Howard Radio, Inc. v. FCC, 316 U.S. 4 (1942); FCC ».

Sanders Bros. Radio Station, 309 U.S. 470 (1940). The

second evolves from those cases where the plaintiff holds

a public license, grant, or recognized property interest

which supports his assertion of litigable rights. See, e.g.,

Frost v. Corporation Com’n., 278 U.S. 515 (1929); Whit-

ney National Bank v. Bank of New Orleans & Trust Co.,

116 U.S. App. D.C. 285, 323 F.2d 290 (1963), rev'd on

other grounds, 379 U.S. 411 (1965). A third theory of

standing centers around a finding of intended ‘“‘statutory

protection” which has been bestowed upon the plaintiff

“Consistent with the views herein expressed which are directed to

First Nat'l City Bank v. 1.C.1., No. 21,661, I concur in Judge Baze-

lon’s finding of standing as respects NASD v. SEC, No. 20,164 and

join in the disposition on the merits in that case.

—

299

thereby entitling him to sue in order to preserve the inter-

ests which the statutory scheme has found to be worthy of

protection. This third concept of standing supported the

development of a less easily identifiable strain of decisions

focusing on a theory of “unlawful competition.”

The “unlawful competition” theory as a basis for stand-

ing would seem to have two distinct definitional interpreta-

tions: (1) “to compete in any manner, whether legal or

illegal techniques are utilized, is ‘unlawful competition’”’;

(2) “to engage in non-prohibited competition by utilizing

techniques or engaging in activities which are in themself

illegal is ‘unlawful competition’. Under the former inter-

pretation, either no one may enter the competition in a

given kind or area of endeavor or the particular party seek-

ing to enter the competition has been prohibited from do-

ing so in order to protect those parties already pursuing the

activity under some grant, franchise or license. Under the

latter interpretation, competition per se is not proscribed

but the very conduct which constitutes the competition is

in itself illegal. In my view, the first interpretation is a valid

one which necessarily emerges from the recognized desire

to “protect” extant interests and can properly form the

basis for a claim of standing. The second finds no support

in a close analysis of the myriad cases reviewing the pre-

requisites to standing, is a misinterpretation of the concep-

tual genesis of the theory of unlawful competition, and

cannot support a claim of standing.

An illustration of this can be seen in the distinction drawn

in the recent Hardin v. Kentucky Utilities Co., 390 USS. 1,

5-6 (1968) case. There, the Supreme Court explained that:

[T]he economic injury which results from lawful com-

petition cannot, in and of itself, confer standing on

the injured business to question the legality of any

aspect of its competitor's operations (emphasis added).

The reasonable corollary of this proposition would be that

a party could question the legality of its competitor's oper-

ations if, independently, it could demonstrate that the com-

300

petition per se was “unlawful.”’ In its subsequent analysis,'

the Court made clear that by utilizing the term “unlawful

competition” it meant to preserve the operative distinction

between an evaluation of the lawfulness of the competition

itself and an evaluation of the legality of the particular

conduct which produces the competition.”

To resolve the standing question the Court did not find

it necessary to inquire into the legality or illegality of the

implementing operations which the Tennessee Valley Author-

ity was to utilize to enter the market for selling electricity

in the areas in question.’ All that was necessary was a find-

‘In the language following the above-quoted statement, the Court

continued:

But competitive injury provided no basis for standing in the

above cases simply because the statutory and constitutional

requirements that the plaintiff sought to enforce were in no way _

concerned with protecting against competitive injury. In con-

trast, it has been the rule at least since the Chicago Junction

Case, 264 US. 258 (1924), that when the particular statutory

provision invoked does reflect a legislative purpose to protect

a competitive interest, the injured competitor has standing to

require compliance with that provision.

390 US. at 6.

?This court recently recognized this distinction in Pennsylvania

R.R. Co. v. Dillon, 118 U.S. App. D.C. 257, 259-60, 335 F.2d 292,

294-95, cert. denied sub nom., American Hawaiian S.S. Co. v. Dillon,

379 US. 945 (1964);

“Legal wrong,” as we have only recently noted, is the inva-

sion of a legally protected right. See Gonzalez v. Freeman,

supra, 117 U.S. App. D.C. at 186 n.6, 334 F.2d at 576 n. 6.

Thus, in order to make out a claim of “legal wrong” under

Administrative Procedure Act § 10(a), appellants must assert

some legally protected right to be free of the competition ....

This court has very recently spoken on this aspect of standing.

When “Congress has not given them any such standing by ex-

press or implied provision of statute * * *, mere economic com-

petition made possible by governmental action (even if allegedly

illegal) does not give standing to sue in the courts to restrain

such action. [citations omitted] For purposes of standing in

this case, the sufficiency of appellants’ allegation of “legal

wrong” thus depend upon congressional intent to bestow upon

them a legal right to protection from such competition.

3Significantly, the Court finally concluded that TVA “could .. .

properly make its low-cost power available to consumers in this . . .

—

301

ing that “one of the primary purposes of the area limita-

tions in § 15d of the [Tennessee Valley Authority Act of

1933 as amended] was to protect private utilities from TVA

competition.” /d. at 6. An area limitation, of course, lends

itself to ready interpretation, hence competition per se by

TVA would be “unlawful” if TVA had in fact encroached

upon the market area which had been reserved for the local

utility companies and from which TVA’s entry had been

prohibited. Because Kentucky Utilities Co. was a member

of the class so meant to be protected, it had standing to

litigate to obtain an adjudication of its substantive rights

under the protective statutory scheme, and “. + «/licit

statutory provision [was] necessary to confer stum) ” Id.

at 7 (footnote omitted).

The rationale underlying this finding of standing is that

Congress affirmatively intended Kentucky Utilities to be

protected from TVA competition. In essence, it was a

clearly identifiable beneficiary of a statutory grant of pro-

tection, and as such, it was entitled to sue to protect the

rights conferred. Whether TVA’s operations which led to

the competition were in themselves legal or illegal was irrele-

vant to the determination of Kentucky Utilities’ standing.

In addition to these three categories of standing cases,

some hybrid variations—some of which are valid, others

not—have emerged. They include: (1) the Flast v. Cohen,

supra, provision for taxpayer challenges of federal expendi-

tures allegedly in violation of specific constitutional limita-

tions; (2) the unique application of the “consumer aggrieve-

ment” concept articulated in Office of Communication of

United Church of Christ v. FCC, 123 U.S. App. D.C. 328,

359 F.2d 994 (1966), pursuant to the “person aggrieved”

provision of the Federal Communications Act, 47 U.S.C.

30%d) (1964); (3) the discretionary standing theory

broached in Curran v. Clifford, No. 21,040 (D.C. Cir., Dec.

area... .” 390 US. at 5. Therefore, the Court's resolution of the

standing issue can not be evaluated as a rationalization prompted by

its determination that Kentucky Utilities Co.’s substantive rights had

been violated.

302

27, 1968), opinion vacated, petition for rehecring en banc

granted, No. 21,040 (D.C. Cir., April 3, 1969); (4) the con-

cept that “aggrievement in fact” is sufficient to give a party

standing to challenge agency action under § 10 of the Ad-

ministrative Procedure Act; (5) the improper utilization of

the “unlawful competition” theory discussed supra and em-

ployed by some courts which have granted standing in cases

involving recent promulgations by the Comptroller of the

Currency .*

(2)

Against this background we should examine Appellees’

claim of standing in the present litigation. As set forth in

the preceding opinion, Appellee-Institute is a national asso-

ciation representing 177 open-end management investment

companies commonly designated as “mutual funds” and the

88 investment advisers and 78 principal underwriters of

these funds. The mutual fund members of the Institute

represent 94 percent of all such companies in the United

States. The Institute membership also includes several

investment advisers and principal underwriters of individual

mutual funds which are individual Appellees in this suit.

The major basis for Appellees’ claim of standing to chal-

lenge the Comptroller’s regulations is that the entry of the

national banks into the so-called “mutual fund industry”

would constitute “unlawful competition” which Appellees

as representatives of the industry may challenge.* However,

“For an extensive collection of the recent cases involving ‘“‘unlaw-

ful competition” as a theory for challenging activity authorized by

the Comptroller see Saxon v. Georgia Assoc. of Independent Ins.

Agents, Inc., 399 F.2d 1010, 1017 n.6 (Sth Cir. 1968). See also

Judge Bazelon’s opinion at pp. 30-34.

5 Appellees also assert that § 702(a) (Supp. II, 1967), embodies an

independent and self-sufficient statutory basis for standing. I do not

feel that the APA was meant to arrest the development of the law of

standing as of the date of its passage:

[W]e would certainly be prepared to hold in an appropriate

case that one who complains of administrative action may find

ot

Sea Sane ts

ATES SP seS 5

303

an analysis of the tacts of this controversy illustrates Appel-

lees’ reliance on an incorrect interpretation of the concept

of “unlawful competition.” To perceive the faulty basis of

the claims of Appellees, their precise contentions must be

studied.

Appellees are complaining of unauthorized adminis-

trative action creating a form of competition specific-

ally prohibited by Congress in the Glass-Steagall Act.

The challenged regulations authorize banks to engage

in unlawful competition, permitting them to enter the

mutual fund business and engage in issuing, selling, dis-

tributing and underwriting securities in violation of

Sections 16, 20, 21 and 32 of the Glass-Steagall Act.

Appellees are not merely challenging a program of

governmental assistance, financial or otherwise, to law-

ful competitors whose competitive activities have been

specifically authorized by Congress.

Brief for Appellees 66 (emphasis added).

Appellees then go on with sweeping contentions “that com-

petitors have the right to challenge new competition, author-

ized by administrative action, which has been prohibited by

statute.”

* * *

Furthermore, there is no justification for the gloss

which Appellants attempt to put on Hardin requiring

a specific and express Congressional intent to protect

particular plaintiffs in order to confer standing on them

to challenge regulations which create unlawful compe-

tition. The well-established rule, in this Court, the

Supreme Court, and other courts, is directly to the

contrary. Where the effect of the statutory prohibition

a remedy under the Act beyond the strict scope of judicial

review recognized prior to its adoption ... .

Kansas City Power & Light Co. v. McKay, 96 U.S. App. D.C. 273,

282, 225 F.2d 924, 933, cert. denied, 350 U.S. 884 (1955). Never-

theless, although the review provisions of the APA were not meant to

retard the judicial development and adaptation of the law of stand-

ing, it does not establish an independent right to review absent judi-

cially articulated notions of “legal wrong” of “‘adversely affected or

aggrieved . . . within the meaning of any relevant statute.” See Penn-

sylvania R.R. Co. v. Dillon, supra note 2.

PEI ELLE LLDPE LIE FONE EME ET ESOT LM NER TRA SLOT

304

is to bar competition, those subject to such illegal com-

petition created by administrative regulation have the

standing to challenge the regulation.

Brief for Appellees 66, 67, 73 (emphasis added).

Appellees have thus sought to shift the focus to the activ-

ity of the Bank and its alleged violation of the strictures of

the Glass-Steagall Act; their burden is to establish their own

status as intended statutory beneficiaries of a freedom from

competition by national banks.

In a recent decision denying standing in a suit brought

by the Association of Data Processing Service Organizations

and Data Systems, Inc.® challenging allegedly improper na-

tional bank entrance into the data processing business, the

Eighth Circuit made some cogent observations:

Much of the confusion on standing seems to arise

from the emphasis upon the issues to be adjudicated

or upon the possible merits of the substantive claim

rather than upon an examination of the status of the

complaining plaintiff. Whether or not a defendant is

alleged to be engaged in illegal competition cannot by

itself determine a plaintiff’s standing to complain. ...

The fundamental aspect of standing is that it focuses

on the party seeking to get his complaint before a fed-

eral court and not on the issues he wishes to have adju-

dicated.

* * *

[I]t seems clear that an allegation of “‘illegal competi-

tion” is not the balancing determinant of a plaintiff's

standing. The primary search must rest on whether

the plaintiff’s status is one which 2njoys a private inter-

est entitled to protection or one which the law recog-

nizes to be of such legal significance to allow a party

to act as a public representative for a public interest.

Association of Data Processing Service Organizations, Inc.

v. Camp, No. 19,218 (8th Cir., Feb. 6, 1969) (citations

omitted) (emphasis added).

®Data Systems Inc. is a Minnesota corporation engaged in the data

processing business. Association of Data Processing Organizations is

an incorporated association domiciled in Pennsylvania whose members

perform data processing services throughout the United States.

305

That Court found that the plaintiffs were “competing in

a non-regulatory field of free competition,” they were not

| members of any class “designedly protected by statute, ,

and they possessed no legal interest “recognized at law.”

ld at 10. Accordingly, they had no standing to challenge

: the new rulings by the Comptroller which allowed the bank

to offer these new services.

As previously indicated, the Glass-Steagall Act does not

contain the familiar provisions which constitute an aid to

standing in terms of allowing a “‘person aggrieved” to chal-

lenge administrative decisions or promulgations made pursu-

| ant to the Act. Nor can Appellees validly assert any “‘license,

grant, or recognized property interest” entitling them to

) standing. It is equally clear that giving even the broadest

reading of the legislative history embellishing the Act will

not support the conclusion that Congress meant to bestow

upon Appellees any protection from competitive injury.’

With these bases of standing foreclosed, Appellees necessar-

ily turn to the inaccurate definition of “unlawful competi-

tion” which I find to be without support in an analysis of

the “competition” cases.

7See Judge Bazelon’s opinion at p. 25. The thrust of the legislation,

| and the concern of the drafters, was to protect the banking public

| through the maintenance of a sound national banking system. Sena-

tor Bulkley, one of the managers of the bill, made it explicit in his

| remarks that the bill was not focused on protecting the investing

public, much less the securities industry:

[T]he purpose of this bill does not extend to safeguarding pur-

| chasers of securities as such. The purpose of this bill is to im-

) prove the operation of the Federal reserve system and the banks

| which are members of it. The object of the inhibitions which

1 am discussing here is not primarily to protect the investing

public, although that is a worthy purpose, but our field is to

protect the operations of the banking system itself, and to pro-

tect the depositors and customers of the banks so that they

shall have the service from national and State member banks

which they are entitled to expect.

75 CONG. REc. 9913-14 (1932). See also Jaffe, Standing to Secure

Judicial Review: Private Actions, 75 HARV. L. Rev. 255, 266 (1961).

TERE CREE TON INO OY

306

For the most part the cases relied on by Appellees are

readily distinguishable. In American Trucking Ass'n., 364

U.S. 1 (1960), the Court found a Statutory purpose to pro-

tect “all modes of transportation” and the complaining

party had the benefit of a specific “party in interest” aid

to standing. Interstate Commerce Act, 49 U.S.C. § 305 (g).

Chicago v. Atchison, T. & S.F. Ry., 357 U.S. 77 (1958)

involved a plaintiff which held a license, thereby entitling

it to Oppose another carrier’s Operation without obtaining

a license. In Frost, supra, the Court found that a cotton

gin licensee had a “property right” and could challenge the

invasion of this right by another without a valid license. In

Whitney Nat'l. Bank, supra, the Court allowed a state bank

to challenge the Comptroller’s authorization of new branch

banks from national bank competition. The Georgia Insu-

ance Ass'n. case, supra, involved a provision of the Glass.

Steagall Act which evidenced an affirmative legislative intent

to protect local insurance agents from the competition of

national banks.

Some of the language in Port of New York Authority,

supra, is more troublesome. There, a group of investment

bankers challenged the Comptroller’s authority under Glass-

Steagall to permit national banks to distribute revenue bonds

not backed by the taxing power of the public body issuing

the bonds. In acknowledging standing for the investment

bankers to pursue their challenge, the District Court ex-

plained:

While no one may maintain a suit to restrain lawful

competition merely because he is suffering an economic

detriment, nevertheless, a person has a standing to

complain against illegal competition, or specifically,

against competition on the part of a person who lacks

the legal right or power to pursue the competitive

activities. In this respect this action is precisely paral-

lel to cases in which a state bank has been permitted

to maintain suit to restrain the Comptroller of the Cur-

rency from granting permission to a national bank to

establish a branch that would compete with the plain-

tiff.

/d. at 248 (emphasis added).

aaa i

P 307

It seems to me that the District Court gave undue weight

to the claim of unlawful competition and in effect equated

it with competition created by illegal activities. This made

it possible to rely on the “branch banking cases” which are

not really applicable, since those cases turn on the provisions

of Glass-Steagall which limit branch banking of national

banks specifically in order to protect state banks from the

unrestricted competition of national banks. See, Pennsyl-

yania R.R. Co. v. Dillon, 118 U.S. App. D.C. 257, 335 F.2d

292. cert. denied sub nom., American Hawaiian S.S. Co. v.

Dillon, 379 U.S. 945 (1964); Whitney National Bank v. Bank

of New Orleans & Trust Co., 116 U.S. App. D.C. 285, 323

F.2d 290 (1963), rev'd on other grounds, 379 U.S. 411

(1965).8

Appellees here pursue their associational livelihood in a

securities marketing industry which thrives on competition

in the quest for the investment dollar. The entry of the

national bank commingled investment accounts into this

competition admittedly adds a whole new category of com-

petitors but it is fundamentally not different from the situ-

ation which arises, for example, when “‘gas stations” sell

candy bars, soft drinks and other staples for which travellers

have need. Nevertheless, before Appellees may sue to pre-

vent bank competition which affects their private financial

interests, they must establish that the Glass-Steagall Act

contemplated that they were to be protected from this

competition in their pursuits. Even assuming that the com-

peting activity of the Appellant Bank may be otherwise

violative of a provision of the Act, I can find no indication

Sin Pennsylvania R.R. Co. v. Dillon, we specifically noted this crit-

ical distinction:

Appellants’ reliance on Whitney [citation omitted] is also

misplaced. There, this court held that certain state banks had

standing to attempt to enjoin the Comptroller of the Currency

from issuing to a national bank a Certificate of Authority alleg-

edly in violation of federal banking statutes. The court found

that federal statutes had guaranteed that state banks would be

free of certain competition from national banks.

118 U.S. App. D.C. at 262 n.6, 335 F.2d at 297 n.6.

308

that the Act intended to afford Protection to securities

dealers generally. My position therefore is one of reserva-

tion amounting to virtual disbelief in any standing in Appel.

lees.

(3)

concepts of standing:

The fundamental aspect of standing is that it focuses

n the party seeking to get his complaint before a fed-

eral court and not on the issues he wishes to have adju-

dicated.

Flast, supra at 99 (emphasis added).°

Evaluating Appellees’ qualifications aS prospective litigants

on behalf of their own private economic interests and the

°The Flast Court spoke in terms of the “concrete adverseness which

sharpens the presentation of issues upon which the court So largely

depends for illumination of difficult constitutional questions.” How-

ever, I suggest that the thrust of the “constitutional” reference was

in relation to the ability to challenge the Particular action—federal

ar

est in these proceedings has been examined in the preceding

opinion, and when this is coupled with authoritative prog-

nostications of impending financial harm to their interests

if the Comptroller's regulations are allowed to stand,'® it is

obvious that there exists one cogent qualification of a chal-

lenger in the reasonable probability of factual aggrievement

sufficient to insure the spirited adverseness necessary to ju-

dicial resolutions.

With this element satisfied, on this record the alternative

to agrant of Appellees’ claim to standing would be to effec-

tively frustrate any challenge to the regulations in question.

(4)

Because of the factors discussed heretofore I am unable

to set aside my grave doubts as to Appellees’ standing to

institute and maintain these suits. However, in the uncer-

tain state of the law as to standing, there is something to

be said on both sides of that question. I therefore resolve

my doubts in favor of the Appellees and concur in the result

of that portion of the foregoing opinion which holds that

the Appellees have standing. I am influenced substantially,

as | indicated at the outset, by the need for judicial exami-

nation of the important questions raised.

The record before us reflects that the Federal Reserve

Board and other government agencies involved gave careful

and comprehensive study to all aspects of this problem be-

fore taking the actions challenged by the mutual fund indus-

try. Our review function is narrow and limited; it does not

include the power to decide whether the public will be bet-

ter served by one or the other modes of investing funds so

as to achieve diversification, yield, safety or low cost. All

that is the primary responsibility of the special regulatory

bodies established by Congress for that purpose. On the

‘indeed, the Comptroller himself predicted that in the next dec-

ade commercial banks operating under these regulations “might cap-

ture as much as two billion dollars of mutual fund business.’ Hearings

on H.R. 8499, 9410 before the Commerce and Finance Subcommittee

of the House Committee on Interstate and Foreign Commerce, 88

Cong. 2d Sess. p.26 (1964).

310

face of the record there is, of course, nothing very startling

about the decisions of the Comptroller, the Commission or

of the Federal Reserve Board. In one form or another banks

have been holding, managing and investing funds for custom-

ers for a long time. Indeed, when one considers the histor-

ical background it could be reasonably argued by banks that

“investment trusts” and more recently ““mutual funds” have

invaded their domain. However, such arguments are of a

kind which are for the regulatory agencies.

Here the Comptroller of the Currency, after study, has

decided that the commingled managing agency account is a

function which is authorized by law for banks and is in the

public interest; the Securities and Exchange Commission

and the Federal Reserve Board have approved. Other state

and federal regulatory bodies are in accord. The regulator’

bodies charged by Congress with these large responsibilities

have construed the grant of power and with their accumv-

lated expert experience have decided these issues. Their

decisions are entitled to substantial deference and on this

record I see no basis for disturbing their conclusions.

=

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

311

[Title omitted in printing]

ORDER

(Filed August 15, 1969)

On consideration of appellees’ petition for rehearing, it is

ORDERED by the Court that appellees’ aforesaid peti-

tion is denied.

Per Curiam.

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1969

[Title omitted in printing]

[ORDER]

March 23, 1970. The petition for a writ of certiorari is

granted. The case is placed on the summary calendar and

set for argument immediately following No. 835. The Chief

Justice took no part in the consideration or decision of this

petition.

PPL SEARS PRE RT RE RENE AST