Petition for A Writ of Certiorari — Board of Governors of the Federal Reserve System v. Transamerica Corp.

Gnthe Supreme Gourtofthe Hnited States

OctoBEr TERM, 1953

No. 410

Boarp oF GOVERNORS OF THE FEDERA RESERVE

SYSTEM, PETITIONER

Vv.

TRANSAMERICA CORPORATION

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

THIRD CIRCUIT

The Acting Solicitor General, on behalf of the

Board of Governors of the Federal Reserve Sys-

tem, prays that a writ of certiorari issue to review

the judgment of the Court of Appeals for the Third

Circuit entered in the above-entitled case on

July 16, 1953.

OPINION BELOW

The opinion of the Court of Appeals (R. 10075)

is not yet reported:

JURISDICTION

The judgment of the Court of Appeals was en-

tered on July 16, 1953 (R. 10085). The jurisdic-

tion of this Court is invoked under 28 U.S.C.

1254(1).

(1)

2

QUESTION PRESENTED

In a proceeding under Section 7 of the Clayton

Act brought by the petitioner, the Board of Gover-

nors of the Federal Reserve System, the Board

found that respondent, a holding. company, had

‘*proceeded steadily’? for many years in a ‘‘per-

sistent and continuing’’ policy of acquiring com-

mercial banks in the states of California, Oregon,

N- .da, Washington and Arizona; had brought

under its control in this five-state area 41 percent

of all banking offices, 39 percent of all bank de-

posits, 50 percent of all bank loans, and 46 percent

of all deposit accounts—these being the appropri-

ate yardsticks for measuring control of the busi-

ness of commercial banking ;— and had both the

purpose and the power to continue to enlarge its

occupancy of the field of commercial banking in the

five-state area. The Board, on the basis of these and

other subsidiary findings, made the ultimate find-

ing that respondent’s acquisitions tended to create

a monopoly of commercial banking in the states of

California, Oregon, Nevada, Washington and Ari-

zona. The Board’s resultant order required re-

spondent to divest itself of its stockholdings of a

number of banks. The court below set aside that

order upon the ground that the foregoing finding

lacked the support of necessary subsidiary find-

ings; the court particularly stressed the absence of

a finding that the five states ‘‘constitute a single

area of effective competition among commercial

banks.”’

The question presented is whether the Board’s

3

findings that respondent’s continuing acquisitions

have, in their total impact and cumulative effect,

vested in respondent (1) control over a substantial

portion of commercial banking in five states, (2) a

monopoly of such business in numerous communi-

ties in these states, and (3) power to exclude

potential competition, adequately support the find-

ing that the acquisitions have, as to the five-state

area, a monopolistic tendency which brings them

within the prohibitions of Section 7 of the Clayton

Act, notwithstanding the absence of findings that

each individual acquisition, considered separately,

itself had such tendency.

STATUTE INVOLVED

Section 7 and 11 of the Act of October 15, 1914,

38 Stat. 730, as amended," commonly known as the

Clayton Act, provide in part as follows:

Sec,7 * * *

No corporation shall acquire, directly or in-

directly, the whole or any part of the stock or

other Share capital of two or more corporations

engaged in commerce where the effect of such

acquisition, or the use of such stock by the

voting or granting of proxies or otherwise,

? This proceeding was brought under the Clayton Act prior

to the amendment of that Act in 1950. The amendment (64

Stat. 1125) made no substantive change in the tendency to

monopoly standard with which this petition is exclusively

concerned. (See infra, p. 11, n. 19.) The principal changes were

(1) the broadening of Section 7 to prohibit, in the case of

corporations subject to the jurisdiction of the Federal Trade

mmission (i.¢., not banks), acquisitions of assets as well as

stock; and (2) to omit, under the substantial elimination of

competition standard, the requirement that such competition

had to be between the acquiring and the acquired corporations.

4

may be to substantially lessen competition be-

tween such corporations, or any of them, whose

stock or other share capital is so acquired, or

to restrain such commerce in any section or

community, or tend to create a monopoly of

any line of commerce [15 U.S.C. 18].

* * * ¥ *

See. 11. Authority to enforce compliance

with sections 2, 3, 7 and 8 of this Act by the

persons respectively subject thereto is hereby

vested * * * inthe Board of Governors of the

Federal Reserve System where applicable to

banks, banking associations, and trust com-

panies * ** . [15 U.S.C. 21.]

STATEMENT

By an amended complaint (R. 93-111) issued

under Section 11 of the Clayton Act on July 19,

1949,? the Board of Governors of the Federal Re-

serve System charged that Transamerica Corpo-

ration’s acquisition of controlling stock interests

in a substantial number of commercial banks in

California, Oregon, Nevada, Washington and Ari-

zona had had the effect of substantially lessening

competition, restraining commerce, or tending to

create a monopoly, in violation of Section 7 of the

Act. After full administrative proceedings, * the

¥ ay original complaint was issued on June 24, 1948 (R.

1-19).

’ Extensive hearings were held before a member of the Board

as hearing officer, the hearing officer filed a recommended de-

cision, respondent filed exceptions, both parties filed briefs, and

the Board heard oral argument (R. 362).

5

Board (two members dissenting (R. 402))‘ on

March 27, 1952, concluded that Transamerica’s ac-

quisition, holding and use of the stocks of 48 speci-

fied banks was in violation of Section 7 (R. 399),

and entered an order (R. 400-1) directing Trans-

america to divest itself of 47 of them.

The Board’s Findings—The pertinent findings

of the Board are as follows:

Transamerica is a holding company (Par. One

(a), R. 363). The Transamerica banking group °

had its origin in a bank organized in 1904 by A. P.

Giannini in San Francisco, California (Par. Three

(a), R. 367). Giannini and his associates acquired

a number of other banks between 1904 and 1928

(tbid.; Par. Three (b), R. 367-368). Transamer-

ica was organized by Giannini in 1928 for the pur-

pose, inter alia, ‘‘of facilitating control and man-

agement through a single corporation of the banks

and other corporations theretofore operated under

his general direction,’’ which were transferred to

Transamerica (Pars. One (a), Three (c), R. 363,

368). The ‘Transamerica group * * * oon

tinued its aggressive policy of acquiring other

banks and extending and expanding its opera-

*Two members did not participate.

* In addition to its banking interests—which also include 7.2

percent of the stock of The National City Bank of New York

—Transamerica holds all the stock of a sizable real estate

financing company and of three large insurance companies, and

majority interests in a number of industrial companies (Par.

One (c), R. 365-366). Two of these insurance companies have

written insurance on automobiles whose purchase was financed

by the Bank of America, Transamerica’s principal banking

rayetNe | (Par. Five (i)(2), R. 381). See also Par. Five

i) (3)-(6).

6

tions’? (Par. Four (a), R. 369) and, beginning in

1930, began to acquire banks outside California

(Par. Four (b), R. 369-370).

The Transamerica group has “‘proceeded stead-

ily”? in a “‘persistent and continuing expansion”’

since its founding in 1904 (Par. Eight (b) (1),

R. 388-389). Between 1904 and June 30, 1948,

Transamerica acquired 679 banks and branches in

the States of California, Oregon, Nevada, Wash-

ington and Arizona (Par. Bight (b) (3), R. 390).°

By the latter date, Transamerica controlled 645

banking offices,’ or 40.95 percent of all banking

offices in the five-state area (Par. Eight (b) (1), R.

388). In California, Transamerica’s offices in-

creased from 352 in 1928 to 556 in 1948—the lat-

ter figure constituting 50.86 percent of all banking

offices in the state—while non-Transamerica of-

fices decreased from 968 to 537 (Par. Eight (b) (1)

and (2), R. 388-389). For the five-state area, Trans-

america’s total offices increased from 565 in 1937

(the first year in which Transamerica expanded

into the last of the five states) to 645 in 1948, while

non-Transamerica banks decreased from 951 to 930

(ibid.). The latter changes occurred during a pe-

riod in which the population of the five-state area

6 During the same period, Transamerica established 233 new

branches (Par. Eight (b)3), R. 390). A number of these banks

and branches subsequently were merged, consolidated, ab-

sorbed, or discontinued (ibid.).

7 For these statistics, the Board used the term “bank” to

denote the corporate entity (including its main banking office) ,

and the term “banking office” to denote the physical premises

on which banking operations were conducted. Thus, a bank

with four branches ordinarily would have five banking offices.

7

increased by 70 to 80 percent, and income and busi-

ness generally increased by mugh larger percent-

ages (Par. Eight (b) (2), R. 389).°

Transamerica’s share of total bank deposits in

the five-state area increased from 31.27 percent in

1937 to 38.85 percent in 1948 (Par. Eight (c), R

392),° and its share of total bank loans in the area

increased, during the same period, from 32.24 per-

cent to 49.97 percent (Par. Eight (d), R. 393).

Transamerica accounted for $2,271,971,000 of the

$3,826,313,000 increase in such bank loans, or ap-

proximately 60 percent (ibid., R. 394).

Bank of America—which, by its own statement,

is ‘‘the world’s largest bank’’ (Par. Six (d), R

384)—was the ‘‘hard core’’ around which the

Transamerica-controlled banking group was built,

and still is the ‘‘center and principal support”’ for

that group (Conclusion, R. 399). From 1928 to

1937, Transamerica held more than 99 percent of

the stock of Bank of America (Par. Five (a), R

371). Although distributions to stockholders and

sales had, when the Board’s order was issued, re-

duced Transamerica’s holdings to 5.6 percent

8 As of December 31, 1947, there were 152 communities in

the five-state area in which Transamerica had acquired from

one to five banks and was operating the only banking office.

In 96 communities Transamerica had acquired from one to five

banks and was operating one of the two banking offices. In 8

communities Transamerica had acquired and was operating

the two existing banks (Par. Eight (b) (3), R. 390).

® As of September 30, 1949, Transamerica had 46.2 percent

of the total number of deposit accounts in the five-state area

(Par. Eight (g), R. 395).

10 In California, Transamerica had approximately 90 percent

of the total increase in bank loans ($2,128,083,000 of $2,348,-

281,000) from 1928 to 1948 (Par. Eight (d), R. 394).

8

(ibid.), Transamerica’s ‘‘effective control’”’ has

‘‘not [been] interrupted’’ (Par. Five (c)(1), R.

373), and Transamerica still controls and directs

the bank’s ‘‘major policies and activities’ (Par.

Five (j), R. 382).

Many factors, ‘‘tangible and * * * intan-

gible,’’ have ‘‘contributed to and aided in the con-

tinuance of this control to the present time, and

promise its continuance in the future’’ (Par. Five

(ec) (1), R. 373). Important intangible factors in-

clude the history of ‘‘Giannini management”’ of

Transamerica and its affiliates, the long established

relationships among members of this group, the

long and continuous service of most of its impor-

tant officials, the ‘‘expectation and acceptance’”’ of

policy direction, and the momentum of established

policies and procedures (Par. Five (e), R. 376).”

In 1948, the directors of Bank of America were,

with very few exceptions, either long term em-

ployees of, or had been closely connected with, the

Transamerica group for many years, and could

neither have been elected nor continued as direc-

tors without Transamerica’s ‘‘approval and sup-

11Tn 1937 Transamerica distributed to its stockholders 58

percent of its Bank of America stock (Par. Five (a), R. 371).

» By 1948 its holdings had been reduced to 22.88 percent (tbid.).

The Board found that even if Transamerica were required to

divest itself of all of its Bank of America stock, the existing

control relationships between the two companies would con-

tinue (Conclusion, R. 399). After the Board’s decision,

Transamerica sold the remainder of its Bank of America

stock, and, as a result of the death of L. M. Giannini (son of

A. P. Giannini), the two companies ceased to have any com-

mon directors (R. 10084).

12 A number of other factors are discussed in the Board’s

findings (Par. Five (c)-(i), R. 373-382).

9

port.”” (Par. Five (f), R. 378). Officers and

personnel are ‘‘freely moved’’ from Bank of

America to other banks controlled by Transamer-

ica, and from such banks to Bank of America (Par.

5 (h)(4), R. 380-381).* Since Transamerica be-

came a minority stockholder of Bank of America in

1937, Bank of America has performed a ‘‘wide

variety of services’ for Transamerica which are

inconsistent with cessation of control (Par. Five

(h) (2), R. 379).*

The commercial banks’ monopoly of money-

payment and money-creation functions and their

market domination of short-term business credit,”

together with the fact that substantially all who

require the services of commercial banks must rely

upon those banks to which they have ready access, *

** Fourteen of Bank of America’s 25 directors in 1948 had

been members of the 1937 Board which Transamerica had

elected when it held more than 99 percent of the bank’s stock

(Par. Five (f), R. 376); 12 of the directors had also been

directors and/or officers of Transamerica or its non-bank sub-

sidiaries in various years since 1937 (Par. Five (g), R. 378).

** When Transamerica offered to purchase the stock of a

bank in 1941, it agreed that, if any officers or employees of that

bank lost their jobs as a result of management policy, it would

endeavor to find them jobs with Bank of America (Par. Five

(1) (5), R. 382).

Such services have included assisting Transamerica in

acquiring other banks (Par. Five (h) (2), R. 379-380), and

auditing and examining Transamerica’s bank and non-bank

subsidiaries (Par. Five (h) (3), R. 380).

76 Commercial banks have “no substantial competition * * *

from any source” in performing these functions (Par. Seven

(b), R. 385).

17 While very large concerns with national standing have

access to credit from and maintain accounts in banks in many

parts of the country, the “great multitude” of commercial bank

customers—smaller concerns, local business enterprises, and

ordinary citizens—must depend upon. their local commercial

10

gives such banks ‘‘much power’’ over the business

affairs of their local area. They can overextend

credit by lending too freely and too much, restrict

credit so as to ‘‘hamper growth and development,”’

and discriminate among business enterprises and

individuals. (Par. Ten (a), R. 398.)

Authorization from regulatory agencies is re-

quired before new banks or branches may be estab-

lished. Such agencies consider the effect of the

new bank upon existing banks and the availability

of business to support the new bank, and seek to

avoid overbanking. Although a bank may not law-

fully buy the stock of another bank, a holding com-

pany such as Transamerica is not so restricted.

The size and resources of a large banking group

enable it to enter a community before a bank

clearly is warranted and, by establishing a branch

which does not have to be immediately profitable,

pre-empt promising areas and ‘‘anticipate and

block”’ the organization of a local bank. As the size

and resources of a banking group increase, so does

its power to suppress potential competition. Its

‘*size alone’’ may ‘‘discourage and prevent’’ the

establishment of competing independent banks, or

induce existing small banks which do, or are likely

to, compete with it, to sell out. (Par. Ten (b), R.

398. )

The Board noted that the ‘“‘significant stand-

ards’’ under Section 7 were the number of com-

bank, and cannot satisfy their banking needs through distantly

located banks (Pars. Seven (f), R. 387; Ten (a), R. 398),

11

mercial banking offices, volume of deposit liabili-

ties, volume of loans, and number of deposit

accounts, of which Transamerica-controlled banks

had, in the five-state area, approximately 41 per-

cent, 39 percent, 50 percent, and 46 percent, re-

spectively ; and that despite the tremendous growth

of population and wealth in the area, Transamer-

ica’s expansion had been accompanied by a decrease

in the number of independent banking offices, a

substantially higher relative increase in deposits

in Transamerica-controlled banks than in others,

and the absorption by such banks of ‘practically

all’’ of the total increase in bank loans (Par. Ten

(c), R. 399). The Board concluded that Trans-

america had the ‘‘purpose and the power’’ to con-

tinue to acquire additional banks (ibid.; Par. Six

(e), R. 384) ; * and that the effect of Transameri-

ca’s holding and use of its bank stocks may be to

tend to create a monopoly in commercial banking in

the five-state area (Par. 10 (c), R. 399). ”

The Board’s order (R. 400) directed Transamer-

*® The Board noted that Transamerica’s general reputation

among bankers in the area is “one of constantly seeking to

acquire more banks” (Par. Six (b), R. 383).

e Board’s findings also describe Transamerica’s attempts,

in 1942 and 1943, to acquire control of a large bank in Los

Angeles (Par. Nine, R. 396-397). Although the attempt failed,

Transamerica “continued its efforts” to buy stock in the bank

(R. 397), and by April, 1949, held more than 20% of the stock

(ibid.; R. 110). Since 1943 Transamerica has elected 5 of the

21 directors of this Bank (R. 397).

The Board also found that the effect may be to sub-

stantially lessen competition and restrain commerce in com-

mercial banking in the area (Par. 10 (c), R. 399). Petitioner

does not seek review of the Court of Appeals’ rejection of those

findings,

12

ica to cease and desist from violating Section 7, and

to divest itself of the stocks of 47 banks.”

The Decision of the Court of Appeals—The

Court of Appeals for the Third Circuit set aside

the Board’s order.* The court stated that, since

monopoly involves the power to eliminate compe-

tition, a lessening of competition is ‘‘clearly rele-

vant’’ in determining the existence of a tendency

to monopoly (R. 10082); that under Section 7 it

was not necessary for the Board to find that Trans-

america had achieved monopoly power ‘‘but merely

that the stock acquisitions under attack have

brought it measurably closer to that end’’ (ibid.) ;

that the Board’s findings disclosed a ‘‘tremendous

concentration of banking capital, and thereby of

economic power which may be unwise and against

sound public policy’’; and that ‘‘it may well be

that in some of these [competitive] areas [in

which its acquired banks operate] Transamerica

through the acquisition of banks has brought about

a substantial lessening of competition and in that

and other ways has moved measurably toward

monopoly power in those particular areas’’ (R.

2° The Board did not require divestiture of Bank of America,

on the theory that such divestiture would be a useless act and

would not terminate the existing control relationship (R. 399-

).

21 Prior to discussing the merits of the case, the court held

that Section 7 of the Act applies to banks. The court stated

that the Act covers “all ‘corporations engaged in commerce’

without exception,” and that there was nothing in the legisla-

tive history of the Section to show—as Transamerica argued—

that Congress intended to exclude banks (R. 10077). See infra,

p. 20, n. 30. It does not seem necessary in this petition to

summarize the evidence showing that the banks are in inter-

state commerce. Cf. Board Findings, Par. Two, R. 366-367;

infra, p. 17, n. 26.

13

10081-2). The court further stated, however, that

in order to establish a tendency to monopoly under

Section 7, evidence of mere size and participation

in a substantial share of the line of business in-

volved is ‘‘not enough,”’ since the tendency to

monopoly ‘‘must appear from the circumstances of

the particular case and be found as facts before

the sanctions of the statute may be invoked” (R.

10083-4) ; that the ‘‘areas of existing effective com-

petition in which monopoly power might be exer-

cised’’ must first be determined (R. 10082), and

that the Board’s finding of a tendency to monopoly

in the five-state area:

fails for want of a supporting finding that the

five states constitute a single area of effective

competition among commercial banks and flies

in the face of its own finding that the local

community is the true competitive banking

area [ibid.].”

SPECIFICATION OF ERRORS TO BE URGED

The Court of Appeals erred:

1. In holding that the Board’s supporting find-

ings were insufficient to sustain its ultimate find-

ing that Transamerica’s acquisition, use and hold-

ing of the stocks of a number of banks tended to

create a monopoly in violation of Section 7 of the

Clayton Act.

*2 The Court of Appeals did not pass upon Transamerica’s

contention that it had been denied a fair hearing, or its applica-

tion for leave to introduce additional evidence to show that

it had disposed of all its Bank of America stock and that the

two corporations no longer had any “common directors (R.

10084)—facts which the Board does not dispute.

14

2. In holding that the Board could not base its

finding that Transamerica’s bank stock acquisi-

tions tended toward monopolization of commercial

banking in a five-state area upon its findings as to

the cumulative effect of such acquisitions or the

banking business in that area.

3. In holding that the Board’s order was defec-

tive because of the absence Of a finding that the

five states in which the bank stock acquisitions

were made ‘‘constitute a single area of effective

competition among commercial banks.”’

REASONS FOR GRANTING THE WRIT

Petitioner asks this Court to review one issue:

whether the tendency to monopoly standard of

Section 7 of the Clayton Act is satisfied by a show-

ing of the cumulative effect of a large number of

acquisitions on the economic situation in the entire

area in which they are made, or whether, as the

court below held, the validity of each individual ac-

quisition must be determined separately in relation

to the particular ‘‘competitive areas in which

* * * [the] acquired * * * [companies] oper-

ate’’ (R. 10082).

This question is an exceedingly important one

in the application of the Clayton Act to the bank-

ing system of the nation—not only because of

this case, but also because of the existence of a

score of other bank-holding companies.” And

the impact of the Clayton Act on stock acqui-

sitions is, of course, not limited to bank holding

28 See infra, p. 21, n. 31.

15

companies, so that this question reaches to every

similar program of acquisition whatever the type

of business involved.

1. (a). The thrust of Section 7 of the Clayton

Act is not limited to individual acquisitions which

of themselves may tend to monopoly, but also

reaches a series of acquisitions whose cumulative

effect may have that tendency, even though no

particular acquisition, considered alone, may do so.

Thus, when Congress amended Section 7 in 1950,

it recognized that ‘‘[a]equisitions of stock or assets

have a cumulative effect, and control of the market

sufficient to constitute a violation of the Sherman

Act may be achieved not in a single acquisition but

as a result of a series of acquisitions.” H. Rep.

No. 1191, 81st Cong., Ist Sess., p. 8.% These

amendments did not declare a “‘new policy’? (see

supra, p. 3,n 1) or make any substantive changes

with respect to the tendency to monopoly provision

involved in this case; they were merely a ‘‘more

explicit expression of the purpose of the prior law,”’

*4 The Senate Report pointed out that the amendments were

designed to deal with the fact that “ [i]Jmminent monopoly

* * * is unlikely to be perceived in a small acquisition by

a large enterprise. As a large concern grows through a series

of such small acquisitions, its accretions of power are indi-

vidually so minute as to make it difficult to use the Sherman

Act test against them * * *. Where several large enter-

prises are extending their power by successive small acquisi-

tions, the cumulative effect of their purchases may be to con-

vert an industry from one of intense competition among many

enterprises to one in which three or four concerns produce the

entire supply.” S. Rep. No. 1775, 81st Cong., 2d Sess., p. 5.

The quoted language was taken by the Senate Committee from

a Federal Trade Commission report on “The Merger Move-

ment.” .

16

and their legislative history is a proper aid in con-

struing that law. Jordan v. Roche, 228 U.S. 436,

446. The Clayton Act, which was designed to ‘‘ar-

rest the creation of * * * monopolies in their

incipiency’”’ (S. Rep. No. 698, 63d Cong., 2d Sess.,

p. 1), must be read, we submit, as empowering the

Board to intervene in the ‘‘cumulative process

[of acquisition] when the effect * * * may be

a significant reduction in the vigor of competition,

even though this effect may not be so far-reaching

as to amount to a combination in restraint of trade,

create a monopoly, or constitute an attempt to

monopolize (H. Rep. No. 1191, supra, p. 8).

The Board’s findings clearly demonstrate that

Transamerica’s bank acquisitions have long since

reached that point. The findings detail a pattern

of ‘‘persistent and continuing expansion”’ by the

Transamerica group since its founding. From a

single bank in 1904 Transamerica has, through the

acquisition 6f 679 banks and branches, reached the

point where it now controls approximately 40 per

cent of the entire commercial banking business in

the five state aic> where it operates. This expan-

sion of Transamerica‘was paralleled by a corre-

sponding decline in the share of the market held by

non-Transamerica banks. A company which has

thus captured 40 per cent of a market to which

access is restricted because of government regula-

tion, which has the ‘“‘purpose and power’’ to con-

tinue to acquire additional banks, and whose eco-

nomic strength enables it to suppress potential

competition, has travelled far enough along the

17

road toward monopoly power to empower the

Board to step in and take appropriate remedial

action against it. The Board does not have to

“await arrival at the goal [of actual monopoly]

before condemning the direction of the movement.”’

International Salt Co. v. United States, 332 U. S.

392, 396.

(b) The fact that the primary market area of an

individual commercial bank is the local community

is not inconsistent with the Board’s finding that the

cumulative effect of a series of bank acquisitions

by a holding company is a tendency toward monop-

oly in the entire area in which it operates. Section

7 refers to acquisitions which may tend to create a

monopoly ‘‘of any line of commerce.’’ ‘Line of

commerce’’ is a concept broad enough to cover

banking in a five-state area. And, since Section 2

of the Sherman Act, 26 Stat. 209, 15 U.S.C. 2,

makes it illegal to monopolize any part of interstate

commerce which is a substantial sé¢gment thereof,

either from a geographical standpoint or from

the standpoint of classes of products moving in

such commerce,” it necessarily follows that a ‘‘tend-

ency toward monopoly”’ of such commerce within

a particular area must be deemed within the reach

of Section 7.” For the Clayton Act was designed

to deal with monopolies ‘‘in their sincipiency.”’

25 Indiana Farmer’s Guide v. Prairie Farmer Co., 293 U. S.

268, 279; United States v. Yellow Cab Co., 332 U. 8. 218, 226.

26 The Board’s finding (Par. Two, R. 366-367) that the com-

mercial banks whose stock acquisitions are at issue in this case

are engaged in interstate commerce was, as the Court of Ap-

peals noted (R. 10077), not contested by Transamerica.

18

Standard Fashion Co. v. Magrane-Houston Co.,

258 U. S. 346, 356; S. Rep. No. 698, 63d Cong., 2d

Sess., p. 1.

Thus, the Court of Appeals’ holding that the

Board was required to find ‘‘that the five states

constitute a single area of effective competition

among commercial banks’’ (R. 10082) appears

grounded upon its erroneous construction of Sec-

tion 7. Under the Act, the Board is empowered to

deal with illegal tendency to monopoly in any area

in which it finds that tendency. Since the five state

area is the one in which Transamerica conducts its

business, the Board was required to determine

whether, within this particular area, Transamer-

ica’s acts were such as to create a tendency to

monopoly of banking operations. Whether or not

the five states constitute an area within which indi-

vidual commercial banks may compete with each

other, the Board’s findings were sufficient to show

that Transamerica was tending toward a monopoly

of all commercial banking in that area.

Moreover, as the Board found (supra, pp. 10-11).

Transamerica’s power to suppress potential com-

petition at the local level stems from the substan-

tial portion of the total banking resources which it

has acquired in the five-state area.” The very ex-

istence cf this power to ‘‘suppress potential com-

petition’’ (R. 398) itself shows the requisite ten-

dency to monopoly which Section 7 of the Clayton

27 This power is operative not only within the individual

community, but also as between neighboring communities

where it would be practicable for the local residents to seek

banking assistance.

19

Act condemns. Aluminum Co. of America v. Fed-

eral Trade Commission, 284 Fed. 401 (0C.A. 3),

certiorari denied, 261 U.S. 616.

(c) The fact of the matter is that Transamerica’s

acquisitions have tended to monopoly in the only

comprehensive sense in which a monopoly can exist

in the banking business. It dominates, through its

ownership and control of banks throughout the

area in which it operates, the banking in five states.

Yet the restrictive interpretation placed upon Sec-

tion 7 by the court below would deny the Board any

effective weapon for dealing with this ‘*banking

colossus’’ (R. 10082). For, although the court be-

low recognized that the Board’s findings disclosed a

“tremendous concentration of banking capital, and

thereby of economic power, in the hands of the

Transamerica group which may be unwise and

against public policy’’ (R. 10081-2), it nevertheless

construed the Act to require the Board to deter-

mine the relationship between particular acquisi-

tions and the local ‘‘competitive areas in which

[Transamerica’s] acquired banks operate’? (R.

10082). But the extent of Transamerica’s economic

power is not measured solely by the number of local

monopolies it has achieved in particular commu-

nities ; it is also measured by the substantial share

of the banking business which it now controls in

the five state area. Indeed, few, if any, of the indi-

vidual acquisitions, examined alone, could be shown

to have the prohibited tendency.” By thus lim-

*® Thus, in many of the local areas where Transamerica

acquired the only bank in town, there obviously had been no

prior local competition, and the acquisition imposed no demon-

strable competitive restraint.

20

iting the scope of the Board’s inquiry, the decision

below would, as a practical matter, virtually vitiate

the Board’s power to deal with Transamerica’s

‘‘tremendous concentration of banking capital, and

* * * of economic power.”’

In like manner, the cases upon which the court

below relied, for its restriction of the Board’s

ability to terminate Transamerica’s ownership of

the majority of banks in the five-state area, dealt

with acquisitions of one manufacturing company

by another, and not with the cumulative effect of

a large number of acquisitions by a holding com-

pany.” As the Board had found (Par. Seven (f),

R. 387), a commercial bank draws its customers

primarily from its own local area. Banking, ac-

cordingly, has little of the traditional type of com-

mercial competition between industrial firms

which competitively invade market areas far from

their home offices.

In sum, the Court of Appeals’ quite correct hold-

ing (R. 10077) that Section 7 of the Clayton Act

applies to banks * would have little practical sig-

nificance if the Board were to be denied the power

to deal with the cumulative broad impact of bank

acquisitions in a relatively wide geographical area

29 International Shoe Co. v. Federal Trade Commission, 280

U. S. 291; Aluminum Co. of America v. Federal Trade Com-

mission, 284 Fed. 401 (C.A. 3), certiorari denied, 261 U. 8.

616; V. Vivaudo, Inc. v. Federal Trade Commission, 54

F. 2d 273 (C.A. 2) (R. 10083). Further, the International Shoe

case did not involve the tendency to monopoly provision of

Section 7; it dealt with the provision prohibiting stock acquisi-

tions whose effect may be to substantially lessen competition

between the acquiring and the acquired companies.

30 In so holding, the court stated that the language of Section

21

upon the general banking situation in that area.

Under the decision below, a few bank holding com-

panies similar to Transamerica, operating in

various sections of the country, could completely

control the banking of this nation, with the peti-

tioner powerless to intervene.” A decision which—

viewed from the standpoint of banks alone—can

lead to such results, obviously presents a question

of importance for this Court to review. :

2. The case in its present posture is clearly ripe

for review by this Court. The holding of the court

below does not turn merely on the failure of the

Board to make certain allegedly necessary find-

ings. For these subsidiary findings (as to the ‘‘ef-

fective area of competition among banks’’) would

be necessary only if the correct test of tendency to

7, relating to stock acquisition_, was so “clear and unambigu-

ous” as to leave no room for construction. “Its sweep,” the

court noted, “includes all ‘corporations engaged in commerce’

without exception.” (R. 10076-7.) The court stated that there

was nothing in the Act’s legislative history to show—as Trans-

america argued—that “Congress did not intend by Section

7 to exercise its power under the Commerce clause of the

Constitution to the fullest extent” (R. 10077).

51Tn 1950, the Board presented to a Senate Subcommittee

data which showed that, as of Degember 31, 1948, there were

twenty bank holding companies which the Board regulated as

holding company affiliates under the Banking Act of 1933, 48

Stat. 186, 12 U.S.C. 61. Hearings Before a Subcommittee of

the Committee on Banking and Currency, United States Senate,

8ist Cong., 2d Sess., on S. 2318, p. 53. These 20 holding com-

panies had 12.88 per cent (1231 of 9555) of the total com-

mercial banking offices in the 23 states in which they operated,

and had 18.58 per cent of the total commercial bank deposits

in those states. Jbid., p. 56. Although Transamerica was the

largest of these bank holding companies, there were a number

of others of substantial size. A New Jersey company had 98

banking offices, two Minnesota companies had 91 and 80,

respectively, and a Massachusetts company had 78. Id., p. 54.

BPR semcoesmetaerent RRR

22

monopoly were the one applied by the court below.

If, as is our position, the correct standard was that

actually applied by the Board, the Board’s findings

were fully adequate to sustain its order. The suffi-

ciency of the Board’s findings can be determined

only by first deciding the substantive issue of

statutory interpretation which this petition pre-

sents.

This is not a situation where a reviewing court

has remanded a case to an administrative agency

for further proceedings, and the correctness of that

decision may be adequately tested upon review of

the second agency order. Cf. United States v.

U. S. Smelting Co., 339 U. S. 186, 198-199. Here,

as in United States v. General Motors Corp., 323

U. 8. 373, 377, the correctness of the ruling below

is ‘‘fundamental to the further conduct of the

ease.’’ Although the Court of Appeals apparently

left the way open for further proceedings by the

Board, * in any such further proceedings the Board

would be required to apply the Act as construed

by the decision below. Under such a test, the Board

might well be unable to make the necessary find-

ings (cf. supra, p. 19, n. 28), and be compelled

to dismiss the proceedings. Thus, a failure to

obtain review of the decision below at this stage

of the case may result in denial to the Board of any

review at all.

82 The court did not expressly remand to the Board for further

proceedings, but merely stated that the Board might “decide,

in the light of this opinion, to proceed further against Trans-

america * * *” (R. 10084).

‘ieee

Ps»

23

CONCLUSION

The decision below involves an important ques-

tion of federal law which has not been, but which

should be, resolved by this Court. The case itself

is of great significance. It is respectfully sub-

mitted that the petition for a writ of certiorari

should be granted.

Rosert L. STERN,

Acting Solicitor General.

OcTOoBER, 1953.