392 F.2d 497 (D.C. Cir. 1968), 20870, Port of New York Authority v. Baker, Watts & Co.

Docket Nº20870.
Citation392 F.2d 497
Party NameThe PORT OF NEW YORK AUTHORITY, Appellant, v. BAKER, WATTS & CO. et al., Appellees.
Case DateMarch 08, 1968
CourtUnited States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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392 F.2d 497 (D.C. Cir. 1968)



BAKER, WATTS & CO. et al., Appellees.

No. 20870.

United States Court of Appeals, District of Columbia Circuit.

March 8, 1968

Argued Oct. 25, 1967.

Mr. Daniel B. Goldberg, New York City, of the bar of the Court of Appeals of New York, pro hac vice, by special leave of court, with whom Mr. Sidney Goldstein, New York City, was on the brief, for appellant. Messrs. James M. Henderson and Arthur L. Winn, Jr., Washington, D.C., also entered appearances for appellant.

Mr. Gerherd A. Gesell, Washington, D.C., with whom Messrs. W. Graham Claytor, Jr., and Cyril V. Smith, Jr., Washington, D.C., were on the brief, for appellees.

Before BAZELON, Chief Judge, and PRETTYMAN, Senior Circuit Judge, and TAMM, Circuit Judge.

TAMM, Circuit Judge.

The Banking Act of 1933 1 (also known as the Glass-Steagall Act of 1933) prohibits

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commercial banks 2 from under-writing or dealing in investment securities. Specifically excepted from that prohibition are bonds issued by the United States, certain federal agencies, and 'general obligations of any State or of any political subdivision thereof.' 12 U.S.C. § 24, Para. Seventh (1964). 3 The question presented here is whether bonds of the type issued by the Port of New York Authority 4 -- obligations secured by all its resources but not by the taxing power-- come within the exception. We hold that they do not.

The Comptroller of the Currency 5 issued regulations in 1963 authorizing national banks to underwrite and deal in what are generally called revenue bonds, including those issued by appellant Port Authority. Appellees, a group of investment bankers, brought suit in the District Court and sought both a declaratory judgment that the regulations were void and an injunction prohibiting the Comptroller from authorizing similar bank underwriting in the future. When the trial judge learned that the Federal Reserve Board had taken a position opposite that of the Comptroller as to the meaning of the contested clause, he invited the Board to appear as amicus curiae. Appellant intervened as a defendant and supported the Comptroller. Cross motions for summary judgment were made, and in ruling for the appellees the trial judge adopted the position of the Federal Reserve Board. Both defendants noticed an appeal, but the Solicitor General dropped the Comptroller's appeal. 6 Hence, the Port Authority appeal is the only one before us.

Appellees have raised a preliminary question as to Port Authority's standing to appeal. We feel that the question is foreclosed by International Union of Mine, Mill & Smelter Workers, Locals No. 15 v. Eagle-Picher Mining & Smelter Co., 325 U.S. 335, 338, 65 S.Ct. 1166, 87 L.Ed. 1649 (1945), where unions which had intervened in the Court of Appeals in support of an NLRB petition were held to have standing to appeals the petition's denial, even though the Board did not seek review.


Following the collapse of the stock market in 1929 and the ensuing collapse of many of the nation's banks, Congress undertook a thorough study in order to discover the causes of the collapse and to propose and enact various preventive reforms. One of the principal evils discovered was the practice of banks functioning both as commercial and as investment banks through the use of banking affiliates. The temptations inherent in such a scheme were frequently overwhelming and drew many banks into conflict of interest dealings. Public clamor for reform was reflected in the campaign of the then Democratic candidate for President, Franklin D. Roosevelt: 'Investment banking is a legitimate business. Commercial banking is another wholly separate and distinct legitimate business. Their consolidation and mingling is contrary to public policy. I propose their separation.' 76 Cong. Rec. 1940 (1933). Several bills which had as their purpose separation of the two functions were introduced in Congress,

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and after lengthy hearings and debate the Banking Act of 1933 was adopted.

While no judicial construction of the Act's term 'general obligations' has been found, 7 the trade meaning of the term clearly requires a full faith and credit obligation supported by the taxing power. FUNDAMENTALS OF MUNICIPAL BONDS 3 (3d ed. 1963); FUNDAMENTALS OF INVESTMENT 218 (Rice ed. 1926). Its construction by administrative authorities, however, has been less clear. The Comptroller has reversed his position with respect to the clause three times since the Act was passed, and the position to which he now adheres is opposed by the Federal Reserve Board. Thus, the two authorities charged with administering the Act have adopted, by formal regulation, conflicting interpretations of the same clause. In this setting we look, as a necessary aid to interpretation, to the Congressional debate which preceded the statute's passage. United States v. Great Northern R., 287 U.S. 144, 154, 53 S.Ct. 28, 77 L.Ed. 223 (1932).

All of the debate involving the term 'general obligations' took place in the Senate on January 18, 19, and 24, 1933 8 during consideration of a predecessor bill in the session prior to that in which the Act was passed. The discussions encompassed both broad definitions of the contested phrase by the bill's floor manager and others and requests by various Senators about the potential eligibility, under the clause, of specific bonds issued by entities in their states. There is little dispute about the general definitions; our concern is with the applicability of those definitions to Port Authority bonds.

Many questions were asked with respect to specific issuers and issues, the characteristics of which are now and apparently were then unknown. Because an argument based on the debate concerning such specific issued depends on the similarity between that issuer and its obligations and the Port Authority and its obligations, there is small value for us in those portions of the debate. One segment of the debate, however, dealt with Port Authority bonds. We consider it to be the only part sufficiently definite to be of assistance here, and we have set it out in full:

MR. COPELAND. Mr. President, what the Senator from Michigan has said raises another question in my mind. Does the Senator from Michigan mean that bonds issued by a city for a specific purpose-- we will say the purpose of wiping out slums or the building of a subway-- would not be usable in a national bank?

MR. COUZENS. They would not be unless the city guaranteed the bonds of the particular district. I can perhaps better illustrate it by giving an example. For instance, the street railways of Detroit had two options as to how to finance themselves. One was by issuing bonds secured by the property itself without the obligation of the taxpayers of the city of Detroit behind them; or they had the opportunity of issuing securities backed by the guaranty of the city. Under the reading of the bill, the street-railway bonds themselves would not be eligible unless the city guaranteed them. To put it in another way, using the illustration to which I referred a moment ago, the securities of...

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