Motion — United States v. Connecticut Nat. Bank

INDEX

Motion To AFFIRM

Be. Temhees SUCGIVOER coos ce caccseccievacecceses

MB, Benbommemt onc. cersccccccccneccccccsscccesss

C. Argument

(1) The District Court’s Opinion Is Based

Upon Findings of Fact for Which Substan-

tial Evidence Can Be Found in the Record.

For This Reason, the District Court’s Find-

ings Are Not Clearly Erroneous ...........

(2) Recent Actions by This Court as Well as

Past Decisions Indicate There Is No Need for

a Probable Jurisdiction in the Present

OS cd ndncns en baew she eeeendeeneexauaeen

(3) The Alleged Anticompetitive Effects of

This Consolidation Are Clearly Outweighed by.

Its Effect in Meeting the Convenience and

Needs of the Community, Thus Requiring

Affirmance of the Judgment Below ...........

Ba, SEI. 5. xs vc. no ecw 0dknast¥in vastasnunen

TABLE OF AUTHORITIES

CASEs :

Brown Shoe Co. v. United States, 370 U.S. 294 (1962) .6,18

F.T.C. v. Procter € Gamble Co., 386 U.S. 568 (1967) .. 19

Tidewater Oil Co. v. United States, 409 U.S. 151

EGE io oooh cc acn usu exkeisdaciviviaesaiceacts

United States v. E. I. duPont de Nemours € Co., 353

Ris We CRONE nbs vk ccccnevacaseaacecsssucia

vane “on v. El Paso Natural Gas Co., 376 U.S. 651

United States v. Falstaff Brewing Co., 410 U.S. 526

CRUNND . ew ie nese vacee ve wise eevsceewsse css 6, 14, 17

ii Index Continued

Page

United States v. First National Bancorporation, 410

U.S. 577 (1973) aff’g. 329 F.Supp. 1003 (D. Colo.

oe) ee SMA EGNWRESES PEROS RAKE SHAKE SSS RAES 5

United States v. International Telephone € Telegraph

Corp., 324 F. Supp. 19 (D. Conn. 1970) ..........

United States v. Marine Bancorporation, Inc., No.

bP re rvereT Tet TTT TTT er Tre TTT Tee +418, 19

United States v. National Association of Real Estate

Boards, 339 U.S. 485 (1950) ...............28. 7

United States v. Oregon State Medical Society, 343

TE SRS CRUE ik vin sed de sae sdescasescscaes an

United States v. Penn-Olin Co., 378 U.S. 158 (1964) ... 19

United States v. Phillipsburg National Bank, 399 U.S.

350

United States v. Third National Bank in Nashville,

UO UL. TT CARRE) occ wnneecesssassesascnsces 20

United States v. United Virginia Bankshares, Inc., 347

F.Supp. 891 (E.D. Va. 1972) .................. 16

United States v. Yellow Cab Co., 338 U.S. 338 (1949) ..8, 10

Zenith Radio Corp. v. Hazeltine Research, Inc., 395

ie Fe: ere rer er err 7

STaTUTEs :

Bank Merger Act of 1966, 80 Stat. 7, as amended, 12

Ri SOE ki ceed sicdscncenxeessa eds esuees passim

Clayton Act, Section 7, 38 Stat. 731, as amended, 64

Btat. TIT, 1B UBC TD occ icscciivs ces ists passim

— General Statutes Annotated (C.G.S.A.) 36-

gow enn ess aoa sere eee serene cesn ces 3,5

OO IG Oe coe nek ee ewes 5 case ob kaon enuiwaas 3

MISCELLANEOUS:

Pod. BH. Gav. BP SAO) 5 oss ccsn is oascwcavscasns saees 7

a eee

IN THE

Supreme Court of the United States

OcToBER TERM, 1973

No. 73-767

UniTep StaTEs OF AMERICA, Appellant

v.

THE CONNECTICUT NATIONAL BANK, THE First NEw

HaveN NATIONAL BANK, AND JAMES E. SMITH,

Comptroller of the Currency, Appellees.

On Appeal from the United States District Court for the

District of Connecticut

Appellee James E. Smith, Comptroller of the Cur-

rency, moves this Court under Rule 16 to affirm the

judgment of the district court, reported at 362 F. Supp.

240, on the ground that this case does not warrant

plenary consideration because no basis exists for dis-

turbing the district court’s findings of fact and its

conclusions therefrom.

—

2

A. STATUTES INVOLVED

Subsection 5(B) of the Bank Merger Act of 1966,

80 Stat. 8, as amended, 12 U.S.C. 1828(c)(5)(B),

provides in pertinent part:

The [Comptroller of the Currency] shall not i

approve—

(B) any other proposed merger transaction

whose effect in any section of the country may be

substantially to lessen competition, or to tend to

ereate a monopoly, or which in any other manner

would be in restraint of trade, unless it finds that |

the anticompetitive effects of the proposed trans- |

action are clearly outweighed in the public in-

terest by the probable effect of the transaction in

meeting the convenience and needs of the com-

munity to be served.

ee

In every case, the responsible agency shall take

into censideration the financial and managerial

resources and future prospects of the existing and

proposed institutions, and the convenience and

needs of the community to be served.

Section 7 of the Clayton Act, 38 Stat. 731, as

amended, 64 Stat. 1125, 15 U.S.C. 18, provides in per- ’

tinent part:

No corporation engaged in commerce shall ac-

quire, directly or indirectly, the whole or any part

of.the stock or other share capital and no corpora- |

tion subject to the jurisdiction of the Federal

Trade Commission shall acquire the whole or any

part of the assets of another corporation engaged

also in commerce, where in any line of commerce

in any section of the country, the effect of such ac-

quisition may be substantially to lessen competi-

tion, or tend to create a monopoly.

3 . 1

12 U.S.C. 36 provides in pertinent part:

2 (ec) A national banking association may, with

‘the approval of the Comptroller of the Currency,

establish and operate new branches: (1) .. . and

(2) at any point within the State in which said

association is situated, if such establishment and

operation are at the time authorized to State

banks by the statute law of the State in question

by language specifically granting such authority

affirmatively and not merely by implication or

recognition, and subject to the restrictions as to

location imposed by the law of the State on State

banks (Emphasis added).

C.G.S.A. 36-59 provides in pertinent part:

(1) With the approval of the commissioner,

wny state bank and trust company having a com-

bined capital and surplus of not less than one mil-

lion dollars may:

(a) Establish and operate one or more branches

within the town in which such state bank and

trust company is located;

(b) Establish and operate one or more branches

in any town or towns within this state in which

the main office of no state and trust company or

natiénal banking association is located, pro-

vided the capital stock and surplus of such state

bank and trust company is in excess of one mil-

lion dollars.

B. STATEMENT

On November 19, 1970, an agreement was entered

into between the respective boards of directors of The

Connecticut National Bank, Bridgeport, Connecticut

(hereinafter Connecticut National) and The First

New Haven National Bank, New Haven, Connecticut

(hereinafter First New Haven) to consolidate under

4

the charter of the latter and with the title of ‘‘The First

Connecticut National Bank.’’ Application was then

made by the two banks on February 2, 1971, to the

Comptroller of the. Currency for permission to con-

solidate. Pursuant to provisions of the Bank Merger

Act of 1966, 12 U.S.C. 1828(c¢) (4), the Comptroller

sought and received from the Department of Justice,

the Board of Governors of the Federal Reserve System

and the Federal Deposit Insurance Corporation reports

on the competitive factors involved in the application.

After giving due consideration to these reports and to

other factors bearing upon.‘‘.. . the probable effect of

the transaction in meeting the convenience and needs

of the community to be served,’’* the Comptroller

approved the proposed consolidation on July 26, 1971.’

In his opinion (IX-1), the Comptroller pointed out

that Connecticut’s economic development is largely de-

pendent on financing by out-of-state banks, particu-

larly New York and Boston banks. To generate in-

creased competition with these institutions, additional

large banks are needed in Connecticut. The creation

of a sizable bank in the southwestern part of the state

would better enable local interests to challenge the

112 U.S.C. 1828(c) (5) (B)

2 It should be noted that the Comptroller of the Currency was the

only regulatory agency which evaluated and balanced both the

competitive factors and the needs and convenience factors in the

case at bar. The opinions rendered by the three other agencies are

based solely on an analysis of competitive factors, as required by 12

U.S.C. 1828(c¢) (4), and do not include an assessment of the needs

and convenience aspects. Indeed, both the Federal Reserve Board

and the FDIC competitive reports (GX-97 and GX-96) contain

express disclaimers of any intent to go beyond the competitive fac-

tors. While the report of the Department of Justice (GX-95) makes

no such disclaimer, the Department’s views clearly do not include

an analysis of needs and convenience criteria.

5

outsiders and retain banking profits now being si-

phoned from the state.

The Comptroller was also of the opinion that exist-

ing competition between the two banks is confined to

a small area and could not be termed ‘‘substantial’’,

as that concept is employed in either Section 7 of the

Clayton Act or in 12 U.S.C. 1828(c)(5)(B). Poten-

tial competition in the reasonably foreseeable, future

between the two defendants was, in the Comptroller’s

view, dimmed by the restrictive nature of Connecticut’s

home-office-protection banking statute* and by the

economic infeasibility of establishing a significant

number of de novo branches in each other’s trade areas,

or elsewhere. (IX-1 at 5)

On August 23, 1971, the Department of Justice filed

its complaint in this action, alleging that the proposed

consolidation would violate Section 7 of the Clayton

Act by eliminating substantial existing and potential

competition. The filing of the complaint automatically

stayed the consolidation pursuant to 12 U.S.C. 1828

(e) (7) (A). The motion of the Comptroller of the Cur-

rency to intervene as a party to this action under the

provisions of 12 U.S.C. 1828(c)(7)(D) was granted

on October 19, 1971.

After extensive discovery procedures lasting nearly

a year, trial commenced on October 10, 1972. Testi-

mony was heard from twenty-four witnesses, four of

whom were called by plaintiff and the remainder by

defendants and intervenor. Sixteen trial days were

consumed spanning a period of five weeks.

Subsequent to this Court’s decisions in United

States v. First National Bancor poration, 410 U.S. 577

3C.G.S.A. 36-59.

—

6

(1973) aff’g. 329 F. Supp. 1003 (D. Colo. 1971), and

United States v. Falstaff Brewing Corp., 410 U.S. 526 .

(1973), the district court issued its opinion, holding

that appellant had failed to sustain its burden of prov-

ing that the consolidation would tend substantially to

lessen competition, actual or potential, in any line of

commerce in any section of the country. The lower >

court was also of the view that if the anticompetitive

effects alleged by the appellant were assumed for the

sake of argument, such effects are clearly outweighed

by the probable effect of the transaction in meeting

the convenience and needs of the community to be

served. 362 F. Supp. at 288, J.S. 103a. The court’s

opinion was accompanied by 293 findings of fact. 362

F. Supp. at 242-278; J.S. 2a-80a.

C. ARGUMENT

(1). The District Court’s Opinion Is Based Upon Findings of

Fact For Which. Substantial Evidence Can Be Found In

The Record. For This Reason, The District Court's Find-

ings Are Not Clearly Erroneous.

Under settled principles of law, the filing of a suit |

by the Government (herein the appellant) imposes

upon the plaintiff the duty to come forward with the ;

quantum of proof necessary to show a violation of the

civil or criminal laws of the United States. In civil

antitrust cases brought by the Government under Sec-

tion 7 of the Clayton Act, 15 U.S.C. 18, the plaintiff

is required to prove more than the mere possibility of

a substantial lessening of competition as a result of

the merger in question. Rather, the Government must

show that the prohibited effect of the merger is ‘‘rea-

sonably probable.’? Brown Shoe Co. v. United States,

370 U.S. 294, 323 (1962); United States v. E. I. Du-

Pont de Nemours & Co., 353 U.S. 586, 607 (1957) ;

7

United States v. International Telephone & Tel. Corp.,

324 F. Supp. 19, 30-31 (D. Conn. 1970).

The central question of the merger’s effect and the

degree to which it lessens competition is a question of

fact that is peculiarly within the province of the trial

court. The trier of fact is called upon to assess not only

whether a substantial lessening of competition is a

reasonable probability, but also whether the adverse

effects ‘‘are clearly outweighed in the public interest

by the probable effect of the transaction in meeting the

convenience and needs of the community to be served.”’

12 U.S.C. 1828(¢) (5) (B). The weighing of these fac-

tors is within the special discretion of the trial court

alone, and is not to be disturbed by appellate courts

unless ‘‘clearly erroneous.’’ Fed. R. Civ. P. 52(a).

This Court has made abundantly clear that appel-

late courts ‘‘must constantly have in mind that their

function is not to decide factual issues de novo.” Ze-

nith Radio Corp. v. Hazeltine Research, Inc., 395 U.S.

100, 123 (1969). In the context of an antitrust’ case,

the Court has declared that. findings of fact cannot be

set aside as ‘‘clearly erroneous’? merely because the

Court might give the facts another construction, re-

solve the ambiguities differently, or find a more sinis-

ter cast to actions which the lower court deemed inno-

cent. United States v. Nat’l. Ass’n of Real Estate Bads.,

339 U.S. 485, 495-96 (1950); International Boxing

Club of New York, Inc. v. United States, 358 U.S. 242,

252 (1959); United States v. Oregon State Medical

Soc., 343 U.S. 326, 332 (1952). Even in antitrust cases

in which the Government is the appellant, reviewing

courts do not have the discretion to engage in the

equivalent of a trial de novo of disputed facts. As this

4

8

Court stated in United States v. Yellow Cab Co., 338

U.S. 338, 341 (1949) :

It ought to be unnecessary to say that Rule 52

applies to appeals by the Government as well as

to those by other litigants. There is no exception

which permits it, even in an antitrust case, to

come to this Court for what virtually amounts to a

trial de novo on the record of such findings as in-

tent, motive and design. While, of course, it would

be our duty to correct clear error, even in findings

of fact, the Government has failed to establish

any greater grievance here than it might have in

any case where the evidence would support a con-

clusion either way but where the trial eourt has

decided it to weigh more heavily for the defend-

ants. Such a choice between two permissible views

of the weight of the evidence is not ‘“‘clearly er-

roneous,”’

In spite of the unmistakable import of Rule 52(a)

and this Court’s utterances on the subject, appellant

seeks here what is tantamount to a trial de novo in the

nation’s highest Court. There is no basis for this plea.

The findings of fact, upon which the court’s opinion

is based, are well grounded in the evidence submitted

at trial and are therefore not clearly erroneous. This

can be seen from an examination of several questions

surrounding the consolidation’s effect upon potential

competition, an issue which dominates this case.

Appellant insists that this consolidation will elim-

inate the prospect of First New Haven’s and Connec-

ticut National’s entering each other’s markets in

Bridgeport and New Haven, respectively. (J.S. 24-

25) To prove that entry is attractive and reasonably

foreseeable, appellant introduced at trial certain evi-

dence purporting to show that both metropolitan areas

9

are sufficiently prosperous and dynamic to attract new

investment. Appellee banks, on the other hand, at-

tempted to prove that the economies of Bridgeport

and New Haven are sluggish and not conducive to entry

by outsiders. This proof was accomplished by the in-

troduction of objective evidence suggesting that popu-

lation trends in Bridgeport had remained static from

1960-1970, while the population of Connecticut grew

19% in the same ten years; and that total retail sales

in Bridgeport, total employment of Bridgeport resi-

dents in Bridgeport, and total manufacturing employ-

ment in Bridgeport had increased during the recent

past at rates far below increases for Connecticut as

a whole. (DX-28) Similar evidence on the economy of

New Haven was presented to show that that city also

lacked the necessary ingredients to attract a bank like

Connecticut National.‘

Thus, a classic conflict was created between two sets

of evidence. As the trier of fact, the district court alone

could resolve this conflict using the traditional means

employed by a trial court, e.g., examination of the cre-

dentials of the expert witness who sponsored the evi-

* Appellees also offered proof that both the City of Bridgeport

and the City of New Haven are closed under Connecticut’s home

office protection law to de novo branching by banks not head-

quartered therein. Thus, regardless of the allure of the economies

of the two cities, de novo branching into each is legally impossible.

The district court noted these important facts. Findings 120 and

124, 362 F. Supp. at 256-257, J.S. 34a-35a. Appellees also showed

that it was not ‘‘reasonably probable’’ that the two merging banks

would enter the suburbs surrounding Bridgeport and New Haven

because (a) many of the towns on the fringes of the two cities are

closed by law to de novo branching and (b) the only effective entry

into these two metropolitan areas would be by means of offices in the

downtown cores of the two cities. See, for exemple, Findings 122

and 189, 362 F. Supp. at 257 and 265, J. S. 34a and 53a. ,

ay

10

dence, observation of the witness’ demeanor, assessing .

the effect of cross-examination upon direct testimony, ?

etc. The district court duly performed this task, adopt-

ing some of the facts urged by appellees into the

court’s own findings of fact and rejecting others ad-

vanced by the appellant. (See Findings 121 and 124,

362 F. Supp. at 257 & n. 18, J.S. 34a-35a). That the

district court ultimately had to make a choice between

two permissible views of the weight of the evidence

does not make its findings ‘‘clearly erroneous’’, United

States v. Yellow Cab Co., supra., 338 U.S. at 342, and,

we submit, not subject to change by this Court. }

The above represents only one example of the many

conflicts of evidence that characterized this case.

Throughout the trial, neither side hesitated to meet

the other’s proof with facts and testimony suggesting

a contrary point of view. In this situation, the burden

on the trial court was formidable. But the court re-

solved the conflicts, carefully constructing its own

findings and thereby obviating any legitimate reason

for plenary consideration thereof by this Court.°

Several additional instances of choices between con-

flicting evidence that had to be made by the district |

court will bear out this argument.

(a) Appellant argues that Connecticut National

and First New Haven have the capability and incen-

tive to expand by de novo branching, suggesting that

this consolidation will eliminate the potential for com-

petition between the two banks in different parts of |

the state where they are not now located. (J.S. 29-30).

5In contrast, see United States v. El Paso Natural Gas Co., 376

U.S. 651 (1964), where findings proposed by defendants’ counsel

were mechanically adopted verbatim by the district court.

11

To demonstrate that both banks are inclined to grow

by means of branching, appellant cited at trial appel-

lees’ branching history and the increases in their total

resources and net income over selected years. (J.S.

8-9). In response, appellees presented objective evi-

dence that Connecticut National’s branch expansion

has dramatically slowed in recent years‘ following

the bank’s realization that de novo branching was bet

coming prohibitively expensive, with a consequent

drain on bank earnings. Moreover, appellees pointed

out that Connecticut National’s ratio of loans to capi-

tal is considered ‘‘weak’’ under the guidelines of the

Comptroller of the Currency, indicating that the bank

would have difficulty raising either equity or debt cap-

ital for branch expansion. With respect to First New

Haven, appellees demonstrated that in 1971, nine of

the bank’s 22 offices were still showing operating losses

aggregating $535,000 per year. In addition, First New

Haven’s tendency to remain a local institution was em-

phasized by statistics indicating that of the nine new

branches opened since 1963, five are located within

the boundaries of the City of New Haven.

Faced with relevant data from both sides, the trial

court had to decide which evidence was most probative

of the banks’ true capacity to eXpand through de novo

branching. The court’s findings (Findings 167-184, 362

F. Supp. at 262-265, J.S. 46a-51a) reflect its judgment

that appellant’s theory, while superficially plausible,

cannot withstand analysis of the realities. Under these

circumstances, it cannot seriously be contended that

the court’s findings are ‘‘clearly erroneous.”

* In fact, from 1965 to 1970, Connecticut National had the lowest

rate of increase in number of branches among the nine largest com-

mercial banks headquartered in Connecticut- (Tr. 939; D-16;

Finding 167, 362 F.Supp. at 262, J.S. 46a).

—y

12

(b) Appellant also argues that appellees should

have sought an acquisition considerably smaller than

the one now subject to litigation. Under this ‘“‘toe-

hold’’ acquisition theory, as explained by appellant,

Connecticut National would have generated fewer an-

ticompetitive effects had it merged with a less sizable

bank in the New Haven SMSA, specifically, with a

bank in a suburban town like North Haven, Hamden,

North Branford or Woodbridge. (J.S. 27-28; Finding

186, 362 F. Supp. at 265, J.S. 52a) Similarly, First

New Haven, in appellant’s view, should have explored

merger opportunities with the Lafayette Bank & Trust

Co. of Bridgeport or with James Staples & Co., a pri-

vate banker in Bridgeport.

No evidence whatsoever was advanced by appellant

at trial to indicate that any of the suggested ‘‘toe-

hold’? alternatives was available for sale. The practical

problem that may arise as a result of plaintiff’s fail-

ure of proof is apparent in the frequent refusals to

sell encountered by Connecticut National in the past

when negotiating for mergers with small banks. (Tr.

784; Finding 191, 362 F. Supp. at 265, J.S. 53a). Thus,

it is purely speculative for appellant to suggest that

such an approach could be followed.

The problem of availability aside, there exist no

toehold acquisitions in the entire New Haven SMSA

which would provide effective entry into New Haven.

The Second Bank of New Haven (until recently Sec-

ond National Bank), the smallest bank in that city,

is the tenth largest in the state and has been identified

by plaintiff as having the capacity to go statewide; its

size and the premium it would command as a condition

of sale put it beyond the financial capability of Con-

necticut National. The Woodbridge Bank and Trust

13

Company is too far removed from New Haven’s core

to allow the acquiring bank to compete effectively for

the business it would need to become profitable, and its

future growth will be inhibited by geographic bar-

riers surrounding its present location. (Finding 187,

362 F. Supp. at 265, J.S. 52a). Acquisition of banks in

North Branford, North Haven and Hamden would

also put Connecticut National in a position too distant

from downtown New Haven to have any beneficial com-

petitive impact. Serious questions are raised as well

about the profitability of any one of these acquisitions

in view of the high premium that likely would be ex-

acted. Further, Connecticut National would find itself

stiffled in any one of the suggested toeholds, unable

to branch into New Haven or into the other closed

towns bordering the City. (Tr. 690-692, 331-332; Find-

ings 188-189, 362 F. Supp. at 265, J.S. 52a-53a).

Finally, the likelihood of Connecticut National’s

making an acquisition of any nature, absent the con-

solidation, is severely diminished by its experience in

merging Atlantic National Bank in Stamford in 1970.

The bank’s stockholders are still suffering from a 10%

dilution in their earnings-per-share arising from the

premium of $1.2 million paid to Atlantic to consum-

mate the merger. Stockholder support for further

acquisitions by merger is in doubt. (Tr. 1565-1566;

Finding 1, 326 F.Supp. at 242, J.S. 2a-3a).

With respect to acquisitions in Bridgeport available

to First New Haven, there are only two, neither of

which is a reasonable choice for an entrant wishing to

compete effectively in that city. The objective evi-

dence characterizing James Staples & Co., a private

banker with only one office and barely $2. 5 million in

deposits, is sufficient by itself to show that no eommer-

—.

14

cial bank desiring to enter Bridgeport could consider |

acquiring that firm. And, if James Staple & Co. is too f

small, the other option, Lafayette Bank & Trust Co.,

is so large that First New Haven could not afford the |

purchase. Lafayette, with $52 million in deposits,

represents the only ‘‘small’’ institution in a commu-

nity of giant banks and thus is in a position to exact

a hefty premium far beyond the ability of First New

Haven to pay. Nagged by a 14% decline in earnings

for the six months ended June 30, 1973, over a com-

parable period in 1972, First New Haven must con-

centrate on reducing deficits in the operation of nine

of its 22 branches before fantasizing about acquiring

a bank the size of Lafayette in Bridgeport.

If appellees are assumed to have the burden of proof |

on this issue, as appellant would have us believe,’ ap- |

pellees have made a strong and credible showing that

appellant’s suggested options are totally unrealistic.

Since little evidence other than speculation was pre-

sented by opposing counsel to offset appellee’s proof,

we submit that the district court’s findings on the issue

(Findings 185-193, 362 F.Supp. at 265, J.S. 51a-53a)

are not clearly erroneous.

(ec) Appellant argues that appellees, absent the con-

solidation, could come into competition with each other

at some unspecified time in the future if one were to

form a holding company, charter a new bank in the

other’s service area and then arrange for the holding

7 J.S. 27-28 & n. 43. Appellant’s contention that it need not prove

the availability for sale of any of its recommended ‘‘toehold’’ banks,

is without foundation in law. Contrary to appellant’s claim, noth-

ing in Mr. Justice Marshall’s concurring opinion in United States v.

Falstaf Brewing Corp., 410 U.S. 526 (1973), relieves appellant from

offering proof on this point.

15

company to acquire the new bank. That such an idea

‘is completely unrealistic is supported by ample evi-

dence of record, on which the district court could prop-

erly make definitive findings.

If, as plaintiff insists, more weight should be given

to ‘“‘objective facts’’ than to subjective testimony, no

objective fact speaks louder than that, to date, no bank

in Connecticut has formed a holding company for the

purpose of chartering a new bank, even though 22 new

banks have been established in that state since 1962.°

The reluctance of Connecticut banks to utilize the hold-

ing company route apparently stems from doubts

about the legality of chartering a new bank in a closed

town to circumvent the state’s home office protection

statute. Regardless of whether such a move is ulti-

mately found to be legal or not, Connecticut bankers

are clearly hesitant to undertake this novel project.

As a result, one cannot say that either First New

Haven or Connecticut National can, absent the con-

solidation, consider realistically the organization of a

new bank in New Haven or Bridgeport, both of which

are closed towns.

Other barriers block any prospect of appellees’ re-

sorting to the holding company route to establish a

new bank in any town, open or closed. Since Febru-

ary 19, 1965, the Comptroller of the Currency has, with

one exception, strictly adhered to its moratorium on

new national bank charters in major banking markets

in Connecticut, including Bridgeport and New Haven.’

*GX-90; Finding 199, 362 F.Supp. at 266, J.S. 55a-56a.

® Subsequent to the trial court’s decision, the Comptroller gave

preliminary approval for a new national bank in the Town of Fair-

field contingent upon the sale of $2.5 million in capital stock.

a

16

Furthermore, the policy of Connecticut’s state banking |

Commissioner precludes the chartering of a new state

bank which is to be sold to a holding company upon

formation. Even if no doubt existed about the legality

of the holding company vehicle in Connecticut, the

policies of state and federal regulatory agencies make

this avenue unrealistic.

If regulatory policies do not inhibit the use of the

holding company route, cost factors make the idea well-

nigh impossible. The formation of a new holding com-

pany and the chartering of a new bank would require |

approximately $2,000,000 in capital funds. Start-up

and promotional expenses would bring the figure to

$2,500,000 for one office. If several additional offices

were established to place the new bank in a truly com-

petitive posture, approximately $750,000 would have

to be budgeted as well. Neither bank can afford this

kind of money on a venture which has no precedent in

Connecticut. Cf. United States v. United Virginia

Bankshares, Inc., 347 F.Supp. 891, 894 (E.D. Va.

1972).

Assuming, however, that the defendants had ample

capital available for the creation of a holding company

and the making of acquisitions, there are many other

investments which would be more rewarding to the

holding company than the chartering of a new bank.

Pursuant to the Bank Holding Company Act Amend-

ments of 1970, 12 U.S.C. 1841 et seq., the Federal Re-

serve Board has approved for investment by bank

holding companies approximately ten activities which

the Board considers ‘‘. . . to be so closely related to

banking or managing or controlling banks as to be a

proper incident thereto.’ 12 U.S.C. 1843(c)(8); 12

C.F.R. 225.4 (1973). Significantly, the holding com-

17

panies of the two large Hartford banks have chosen

to invest in the Board’s permissible activities rather

than to charter a new bank within the state.

These considerations suggest that the district court’s

findings on the holding company issue (Findings 194-

207, 362 F.Supp at 266-268, J.S. 53a-58a) are not

clearly erroneous. Appellee’s proof represents hard

facts which more than stand up against appellant’s

speculative theoxigs and the sketchy supporting evi-

dence. Therefore, it was not illogical for the trier of

fact to conclude that appellant’s arguments could not

be sustained when the realities of the problem were

scrutinized. .

(d) A final example, which exhibits more of a

complete failure of proof than a conflict in evidence,

is especially noteworthy in view of this Court’s re-

marks in Falstaff, supra. Although appellant had the

opportunity to prove that appellees are potential com-

petitors in the sense that they are so positioned on

the edge of the market that they exert beneficial influ-

ence on competitive conditions in that market, 410

U.S. at 532-533, no evidence was presented on this

point. Rather, it was appellees who undertook to

show, as the district court found, that competitors

presently in the market do not take seriously the

prospect of entry by an outsider through means of

the holding company vehicle. (Finding 199, 362 F.

Supp. at 266-267, J.S. 55a-56a. In the absence of

proof on appellant’s part, the court’s finding is not

clearly erroneous.

These examples of conflicting proofs, drawn from

the paramount issue of potential competition, show

that the district court properly performed its most

basic function of weighing the evidence and coming to

18

supportable conclusions. Such a task is not within

the province of the appellate courts if the district

court has acted diligently, independently and respon-

sibly. Appellees make no suggestion to the contrary,

nor could they do so in view of the court’s extensive

findings of fact. Instead, appellant attempts to turn

disputed questions of fact into questions of law suffici-

ently novel to warrant plenary review. Appellant’s

attempt must fail, however, because (a) this case

clearly involves not interpretations of the law but

rather a weighing of facts; and (b) the legal ques-

tions hypothesized by appellant are no longer novel.

As this Court, speaking through Mr. Justice Marshall,

recently reminded us in Tidewater Oil Co. v. United

States, 409 U.S. 151, 170 (1972):

The simple fact is that ‘‘ [t]he legal issues in most

[Government] civil antitrust cases are no longer

so novel or unsettled as-to make them especially

appropriate for initial appellate consideration by

this Court, as compared with those in a variety

of other areas of federal law,’’ Brown Shoe Co.

v. United States, [370 U.S. 294], at 364 (Harlan,

J., dissenting in part and concurring in part).

(2) Recent Actions By This Court As Well As Past: Decisions

Indicate There Is No Need For Noting Probable Jurisdic-

tion In The Present Case.

This Court has recently noted probable jurisdiction

in United States v. Marine Bancorporation, Inc., No.

73-38, which, like the instant case, involves the alleged

elimination of potential competition in banking. If

there are unresolved legal questions surrounding the

applicability of potential competition theories to bank-

ing, answers can be furnished through the Court’s

plenary review of Marine. The manner in which this

Court disposes of Marine, combined with the potential

—

19

| competition guidelines previously enunciated in Fal-

staff, supra, Penn-Olin”® and Procter & Gamble,” will

be adequate to guide lower courts in future cases.

Review of the instant case would not, therefore, give

the Court an opportunity to throw additional light

upon this now familiar area.

) While Marine and the instant case are sufficiently

similar to make further consideration of this case

by the Court unnecessary, there is one glaring differ-

ence between the two that reinforces a decision not to

grant plenary review. In contrast to Marine, where

} the district court rendered no opinion and _ subse-

quently adopted, without change, the defendant’s pro-

posed findings of fact and conclusions of law (Marine,

J.S. at 10), the lower court in the case at bar wrote

its own opinion supported by 293 carefully fashioned

} findings of fact. Clearly, the evidence in this case

was diligently evaluated.

(3) The Alleged Anticompetitive Effects Of This Consolidation

Are Clearly Outweighed By Its Effect In Meeting The Con-

venience And Needs Of The Community, Thus Requiring

Affirmance Of The Judgment Below.

In bank merger prosecutions under Section 7 of

the Clayton Act, the Bank Merger Act of 1966 (12

U.S.C. § 1828(¢)(5)) provides an affirmative defense

to a merger otherwise prohibited on anticompetitive

| grounds. Such a merger may be approved by the

court where the anticompetitive effects are clearly out-

weighed in the public interest by the probable effect

of the transaction in meeting the convenience and needs

of the community to be served. Since the court below

found that the consolidation would not violate §7 of

© Umited States v. Penn-Olin Co., 378 U.S. 158 (1964)

1 F.T.C. v. Procter & Gamble Co., 386 U.S. 568 (1967)

20

the Clayton Act, it need not have weighed the benefits

to the convenience and needs, but it did so in order to

avoid piecemeal appeals, by assuming arguendo that

the violations alleged in the complaint were proved.

The court’s finding that these effects were clearly out-

weighed, being amply supported by the record, is an

independent ground for aa of the Judgment

below.

This Court has made clear that procompetitive ben-

efits are a proper consideration in determining the

convenience and needs of the community under the

Bank Merger Act. United States v. Phillipsburg

National Bank & Trust Co., 399 U.S. 350, 367 (1970).

This Court has also stated that where procompetitive

gains from better banking service outweigh any anti-

competitive detriment and where the merger was

essential to secure this net gain to the public interest,

the merger should be approved. United States v.

Third National Bank in Nashville, 390 U.S. 171, 188-

189 (1968). The district court below, after weighing,

found the present consolidation procompetitive and

essential to secure this net gain to the public interest.

The most important contribution of this consolida-

tion to the needs and convenience of the community

will be the creation of a more competitive banking

structure in Connecticut. By combining their re-

sources, appellants will be able to introduce a measure

of balance into a competitive picture now dominated

by out of state banks ” and the two one-billion dollar

12 A Special Master appointed by the district court found that

six large New York City banks alone obtained over $483 million in

deposits and $381 million in commercial, industrial and mortgage

loans from Connecticut customers. These findings must be con-

sidered low because only six New York banks were surveyed, and

even the figures from these banks were incomplete. Finding 90,

362 F.Supp. at 253, J.S. 26a-27a.

21

banks in Hartford.” This will be achieved through

expansion into other parts of the state, notably Hart-

ford and New London, both of which are now highly

concentrated and sorely in need of new entries. With-

out the consolidation, appellees are destined to remain

locally oriented banks, and in the words of a competitor

of the consolidated bank, the overpowering position of

the two Hartford banks will be assured. (Findings

181, 231-240, 362 F. Supp. at 264, 270-273, J.S, 50a,

64a-67a).

This consolidation will also stimulate competition in

New Haven and Fairfield counties, where appellees

expect to divest six branches in the towns of Ansonia,

Derby, Milford and Orange. The divested branches

will be sold to six new entrants, including the two

large Hartford banks, neither of whom is now repre-

sented in this area. Moreover, the consolidated

bank’s service area in the two counties will be coinci-

dent with the market now served by Union Trust Com-

pany, the state’s third largest bank, with the inevita-

ble result that competition between the two will be

increased. (Findings 217-224, 233, 362 F. Supp. at

269-270, 271 J.S. 61a-62a, 65a)

In rendering his decision ’* approving apellees’

application to consolidate, the Comptroller found that

the applicants could, by combining their resources,

13 The extraordinary market power of the Hartford National Bank

and Connecticut Bank & Trust Company is evident in figures indi-

cating that between December 31, 1969 and September 30, 1972, a

span of less than two years, the two Hartford banks increased their

deposits in an amount greater than the entire deposit structure of

the proposed consolidated bank. (Findings 161 and 162, 362

F. Supp. at 261-262, J.S. 45a)

14 TX-1.

22

‘‘eontinue to serve the customers who are outgrowing

their individual capabilities, and, with combined re-

sources, to compete more effectively with the larger,

statewide Connecticut banks and with the out-of-

“state banks that canvass the area for profitable bank-

ing business.’’ Viewing the State of Connecticut, the

Comptroller found it constituted ‘‘a lush bank-

ing market,”’ attracting large billion and near-billion

dollar institutions from New York, Boston and Provi-

dence in search of business. To combat, the competi-

tive inroads of these out-of-state institutions requires

more large banks. Larger banks, he felt, are ‘‘essen-

tial to Connecticut if the wealth it generates is to re-

main within the State and redound to the advantage

of the people who created it.’’

The Comptroller also found that ‘‘[b]oth banks are

able to provide only small proportions of major

commercial borrowing requirements, and both suffer

from the lack of resources to service the international

financing and corporate counselling needs of the large

customers.’’ By means of this consolidation, ‘‘new and

better services will be offered to their customers,

thereby making the resulting bank more competitive.”’

In his view, ‘‘out-of-state banks, particularly those

located in New York and Boston, largely finance the

industrial development in Connecticut and drain the

banking profits from the state. The only method open

to applicants to compete with those banks is to con-

solidate their resources, raise their lending limits,

and provide the sophisticated banking services de-

manded by industrial and commercial customers.”’

Appellant disputes the trial court’s findings that

certain benefits will accrue to the community as a re-

sult of this consolidation, arguing that these benefits

23

‘‘redound almost exclusively to the very large custo-

mers’’ and that ‘‘[t]hese services are not important

to the great bulk of bank customers.’’ (J.S. 30-31).

The evidence does not support these conclusions. At

the trial, intervenor called seven witness representing

broad sectors of the business community who demon-

strated the need for alternative and convenient

sources of credit, trust services, computer services

and the like. In addition, the Regional Administrator

of National Banks testified that the consolidation would

benefit all seekers of banking services in the state. In

his opinion, the consolidation would make available

a broader range of banking services to the entire bank-

ing public and the corporate customer: He testified

that the public would be provided with an additional

and more sophisticated choice in the areas of trust

services, international services, computer services,

municipal financial services, as well as higher lending

limits. (Tr. 1822) Even appellant’s chief witness,

Dr. Murphy, agreed that bank mergers can assist local

customers and that a larger bank may be more apt to

loan because the risk factor is less than in a smaller

bank. (Tr. 201-202).

The Court determined that a ‘‘healthy banking sys-

tem’’ in Connecticut should have as its nucleus more

than just three statewide banks. As a result of this

consolidation, both the people of Connecticut and the

state’s business community would have a choice among

a larger range of banks with similar capacity. (Find-

ings 230 and 232, 362 F. Supp. at 270-271, J.S. 64a-65a)

The Court also found that the consolidated bank’s

increased lending limit will help both the large and

small borrower. Because standard banking practice

requires corporate loan customers to keep on deposit

—

at all times 10% to 20% of their loans in compensating

balances, the doubling of the bank’s lending limit as a |

result of the consolidation will cause a similar in-

crease in these balances. These balances can then be

plowed back into the community, either in the form of

new loans to corporations for plant and equipment,

which in turn creates more jobs for local residents,

or in the form of personal and installment loans to

individuals. The result is that more lendable funds are

made available to small borrowers (Finding 259, 362

F.Supp. at 274, J.S. 72a)

Appellant has not challenged the procompetitive or

other convenience and needs findings in this case as

incredible. Nor could he do so, for they were the result

of direct evidences of bankers, businessmen, experts

and the Regional Administrator of National Banks.

Nor does appellant offer persuasive reasons to review

these factual issues here. The Court below, before

whom each witness appeared, had no reason to doubt

this testimony. The district judge properly weighed

the benefits to the convenience and needs of the com-

munity against the anticompetitive effects on the as-

sumption that these effects were proved as charged,

and correctly concluded that they were clearly out- ,

weighed in the public interest ‘‘by enabling the new

bank to compete statewide with the two big Hartford

banks and by offering their customers new services.”

(J.S. at 12) Clearly, the entire public will benefit

from the creation of a banking institution with the

capability of throwing its weight against out of state

competitors now canvassing the state and the two large,

billion dollar banks situated in Hartford.

24

25

D. CONCLUSION

The judgment of the court below should be sum-

marily affirmed for the reasons set out above.

Respectfully submitted,

Rogsert Bioom

Chief Counsel

CHARLES H. McENErNeEY, Jr.

Associate Chief Counsel

Forp Barrett

Attorney, Office of the

Comptroller of the Currency

Washington, D. C. 20220

December, 1973