State of South Dakota v. National Bank of South Dakota

• Decision Date: 17 July 1963
• Docket Number: Civ. No. 1353.
• Parties: STATE OF SOUTH DAKOTA, Plaintiff, v. The NATIONAL BANK OF SOUTH DAKOTA, Sioux Falls, and First Bank Stock Corporation, Defendants.
• Court: U.S. District Court — District of South Dakota

219 F. Supp. 842

STATE OF SOUTH DAKOTA, Plaintiff, v. The NATIONAL BANK OF SOUTH DAKOTA, Sioux Falls, and First Bank Stock Corporation, Defendants.

Civ. No. 1353.

United States District Court D. South Dakota, S. D.

July 17, 1963.

Frank L. Farrar, Atty. Gen., and Joe Bottum, III, Asst. Atty. Gen., Pierre, S. D., for plaintiff.

M. T. Woods, of Woods, Fuller, Shultz & Smith, Sioux Falls, S. D., and Curtis L. Roy, of Dorsey, Owen, Marquart, Windhorst & West, Minneapolis, Minn., for defendants.

Roswell Bottum, Rapid City, S. D. (Horace R. Hansen, of Hansen, Hazen & Lynch, St. Paul, Minn., was with him on the brief), for Independent Bankers Association as amicus curiae.

Roswell Bottum, Rapid City, S. D., also appeared in behalf of the South Dakota Independent Bankers Association as an amicus curiae.

MICKELSON, Chief Judge.

This is an action brought by the State of South Dakota against the National Bank of South Dakota, Sioux Falls, South Dakota, and First Bank Stock Corporation, Minneapolis, Minnesota. Hereinafter the defendants will be referred to as the National Bank and First Bank Stock.

For reasons that will be discussed more fully later, the Court is of the opinion that the action arises under a law of the United States and that jurisdiction is based upon 28 U.S.C.A. § 1331(a).

The National Bank of South Dakota is a national banking association organized under the laws of the United States. First Bank Stock Corporation is a bank holding company registered as such under the Bank Holding Company Act of 1956, 12 U.S.C.A. §§ 1841-1848, and having its principal place of business at Minneapolis, Minnesota.

On December 6, 1962, the National Bank acquired all of the assets and liabilities of three state banks, whereupon the banks merged into the National Bank. Prior to December 6, 1962, the controlling stock interest in the state banks, the Farmers and Merchants Bank, Platte, South Dakota; Farmers and Merchants Bank, Presho, South Dakota; and Farmers and Merchants Bank, Wessington Springs, South Dakota, was held by Mr. N. J. Thomson and members of his family. Hereinafter the three banks will be referred to as the Thomson banks.

The Comptroller of the Currency issued his certificates of approval on December 6, 1962, and on that same day the National Bank established branches at Platte, Corsica, Presho and Wessington Springs, South Dakota, the municipalities in which the Thomson banks had maintained banking offices.

The merger of the Thomson banks into the National Bank was the result of an "Agreement of Merger and Plan of Reorganization" entered into on October 9, 1962, by the Thomson banks, the National Bank and First Bank Stock. By the terms of the agreement, the stockholders of the Thomson banks were to receive shares of First Bank Stock stock in return for all of the business, properties and assets of the Thomson banks. The stock in the Thomson banks was to be surrendered for cancellation. The merger was carried out in accordance with this agreement.

On February 21, 1963, the Attorney General of South Dakota filed a complaint in this court. Count I of the complaint alleges that the merger of the Thomson banks with the National Bank was illegal and that the operation of the Thomson banks as branches of the National Bank is in violation of 12 U.S.C.A. § 36(c), SDC 1960 Supp. 6.0402, and Rule 17 of the Rules and Regulations of the South Dakota State Banking Commission. The complaint also alleges that substantial and irreparable harm will result to the State of South Dakota, to the public, to the state regulated banking system, and to the state banks operating under the state banking laws unless the defendants are enjoined from committing and continuing to commit their illegal acts.

Count II of the complaint alleges a violation by First Bank Stock of the Bank Holding Company Act of 1956, 12 U.S. C.A. §§ 1841-1848.

The complaint asks for a declaratory judgment, a permanent injunction against the National Bank enjoining it from operating the branch banks, and an order directing defendants to divest themselves of the assets of the Thomson banks to the extent that the holding and owning of such assets is prohibited by law.

Defendants filed a motion to dismiss. Both sides made motions for summary judgment pursuant to Rule 56, F.R.Civ. P., there being no genuine issue of material fact.

Upon request, the Court granted Mr. Roswell Bottum, Rapid City, South Dakota, and the Independent Bankers Association, Sauk Centre, Minnesota, leave to appear as amicus curiae.

The defendants' motion to dismiss is based upon the contention that the State is not a proper party to bring this action. Since this contention is basic to the disposition of the case, the Court will discuss it first.

National banks exist solely by virtue of federal law. Davis v. Elmira Savings Bank, 161 U.S. 275, 16 S.Ct. 502, 40 L.Ed. 700 (1896). The present system of national banks was created by the National Banking Act of 1863, 12 Stat. 665, which was replaced a year later by the Act of 1864, 13 Stat. 99, Rev.Stat. 5133-5156 (1875). The present law governing national banks is found in 12 U.S.C.A. §§ 21-213.

A national bank is subject to state law so long as the state law does not interfere with the purposes of the bank's creation, does not destroy its efficiency, and does not conflict with some paramount federal law. Lewis v. Fidelity & Deposit Co., 292 U.S. 559, 54 S.Ct. 848, 78 L.Ed. 1425 (1934). In a recent case, Mercantile National Bank v. Langdeau, 371 U.S. 555, 558, 83 S.Ct. 520, 9 L.Ed.2d 523 (1963), the United States Supreme Court quoted this statement from Van Reed v. People's National Bank, 198 U.S. 554, 557, 25 S.Ct. 775, 776, 49 L.Ed. 1161 (1905):

"`National banks are quasi-public institutions, and for the purpose for which they are instituted are national in their character, and, within constitutional limits, are subject to the control of Congress and are not to be interfered with by state legislative or judicial action, except so far as the lawmaking power of the Government may permit.'"

Prior to 1927, there was no provision for branch banking by national banks. In the case of First National Bank in St. Louis v. State of Missouri, 263 U.S. 640, 44 S.Ct. 213, 68 L.Ed. 486 (1924), the United States Supreme Court held that since there was no paramount federal law on the subject, the states were free to prohibit branch banking by national banks if they so desired.

In 1927, the McFadden Act, 44 Stat. 1224, authorized national banks to establish branches within the limits of the municipality in which they were situated if the state law permitted state banks to establish and operate similar branches. The Banking Act of 1933, 48 Stat. 162, expanded this authority to permit the establishment of branches outside the city in which the national bank was located. The present provision for branch banking by national banks is found in 12 U.S. C.A. § 36(c). The part of the statute that is pertinent to the instant case reads as follows:

"(c) A national banking association may, with the approval of the Comptroller of the Currency, establish and operate new branches * *

(2) at any point within the State in which said association is situated, if such establishment and operation are at the time authorized to State banks by the statute law of the State in question by language specifically granting such authority affirmatively and not merely by implication or recognition, and subject to the restrictions as to location imposed by the law of the State on State banks."

Branch banking in South Dakota is authorized by SDC 1960 Supp. 6.0402, which provides that:

"A branch office or a branch bank may be conducted by a bank only with the permission of the Commission under such rules and regulations as the Commission shall prescribe, and such permission to be in the sole discretion of the Commission. * * *"

Rule 17 of the Rules and Regulations of the State Banking Commission provides that:

"No such branch office or branch bank shall be established outside of the county, or adjoining counties, of the bank's domicile, or more than fifty miles away from such bank."

The State contends that because the Thomson banks are located more than fifty miles from the National Bank, their operation as branches by the National Bank is in violation of state law. The State maintains that because § 36(c) looks to state law to determine whether national banks may establish branches, the State is a proper party to bring this action, and has not only the right but the duty to enforce and vindicate its law; and since the federal law looks to state law on the question of branch banking, there can be no conflict with any paramount federal law on the subject, and thus the State is free to enforce its local law. In support of this position, the State relies upon First National Bank in St. Louis v. State of Missouri, supra, wherein it was said that the Missouri statute prohibiting branch banking did not conflict with the laws of the United States. The Supreme Court reasoned that since the state statute was valid as applied to national banks, and since the sanction behind the statute was that of the state and not the federal government, the power of enforcing the law rested with the state and not the federal government. The Court specifically stated that the state was not seeking to enforce the law of the United States, but was seeking to vindicate and enforce its own law.

The defendants argue that the case can be distinguished on several grounds. First, in that case the action was brought in state court to enforce state law. In the instant case, this court would have no jurisdiction to proceed if the State sought to enforce South Dakota law. This is not a diversity case. Rather, as has already been indicated, it is a case arising under the laws of the United States, i. e., 12 U.S.C.A. § 36(c) and 12 U.S.C.A. §§ 1841-1848, and thus cognizable under 28 U.S.C.A. § 1331(a)....