State Bank of Coloma v. Smith

• Decision Date: 11 November 1975
• Docket Number: No. K 75-331.,K 75-331.
• Citation: 404 F. Supp. 1306
• Parties: STATE BANK OF COLOMA, a Michigan Banking Corporation, Plaintiff, v. James E. SMITH, as comptroller of the Currency of the U. S. of America and the First National Bank of Watervliet, a national banking association, Defendants.
• Court: U.S. District Court — Western District of Michigan

404 F. Supp. 1306

STATE BANK OF COLOMA, a Michigan Banking Corporation, Plaintiff, v. James E. SMITH, as comptroller of the Currency of the U. S. of America and the First National Bank of Watervliet, a national banking association, Defendants.

No. K 75-331.

United States District Court, W. D. Michigan, S. D.

November 11, 1975.

John D. Tully, Grand Rapids, Mich., for plaintiff.

John L. Crow, Benton Harbor, Mich., Gary L. Ryan, Washington, D. C., Frank S. Spies, U. S. Atty., Grand Rapids, Mich., for defendants.

OPINION AND ODRER

MILES, District Judge.

This is an action filed under the Declaratory Judgment Act, 28 U.S.C. § 2201 challenging the administrative determination by the Comptroller of the Currency that defendant bank could operate a branch bank at a site described as the "intersection of Red Arrow Highway and Center Street" in Coloma Township, Berrien County, Michigan. The case is currently before this Court on plaintiff's request for injunctive relief and defendant's motion for summary judgment. The complaint filed on July 24, 1975 sought a declaratory judgment to the effect that the Comptroller's action violated provisions of the National Bank Act (McFadden Act), more specifically, 12 U.S.C. § 36, along with injunctive relief enjoining the defendants from opening the proposed branch bank. The matter came before the Court on plaintiff's petition for a temporary restraining order on July 25, 1975. On that date, a temporary restraining order, along with an Opinion on Petition for Temporary Restraining Order was issued. The order prohibited defendants "from undertaking any overt physical act upon the site," set a date for hearing on a preliminary injunction and allowed defendant to continue its "present contractual relationships looking toward the potential construction" of the branch.¹ The defendant bank thereafter answered the complaint, and later filed a motion to dissolve the temporary restraining order. A hearing was held on this motion on August 18, 1975, and it was denied by an Opinion filed August 22, 1975. This denial was due in large measure to the Court's conclusion that in light of the potential for irreparable harm to the plaintiff bank's business, the status quo should be preserved pending receipt of the administrative record, which at that time was still being prepared by the Comptroller. The Court finally did receive the Administrative record on September 30, 1975. Defendant bank next challenged this ruling by way of an application for a writ of mandamus.² During this same period the defendants moved for summary judgment and both parties submitted briefing on this motion, and on plaintiff bank's request for injunctive relief. Oral argument on these motions was heard on October 6, 1975 and at that time, the Court, from the bench, orally modified the order then in force to allow the defendant bank to undertake at its peril the construction of the branch and all the preparations necessary to the operation of the branch, short of its actual opening.

COMPTROLLER'S ADMINISTRATIVE RECORD

The administrative record made by the Comptroller sets forth the factual setting giving rise to this case. On July 2, 1974, defendant bank filed an application with the Comptroller for permission to establish a branch at the above mentioned location. The application was forwarded to the Comptroller's Washington office, but because of a failure to comply with the notice requirements of the Comptroller's regulations (5 C.F.R. § 5.2(b)), this application received no consideration by the Comptroller. A reapplication was filed on August 2, 1974, and its processing was commenced by the Comptroller. This included the submission of a summary of information, the publication of notice of the application, the notification of other banks which might have an interest in the application and a field investigation by a national bank examiner. Upon receipt of the notice of defendant bank's application, plaintiff bank registered its objections and requested, first, an interview, and later a public hearing, pursuant to 12 C.F.R. § 5.4. This latter request was approved by the Regional Administrator on August 26, 1974 and the hearing was scheduled for December 19, 1974 in Chicago, Illinois. The scheduled hearing was held and the parties were afforded the opportunity to present exhibits, witnesses and arguments. In addition, the Deputy Regional Administrator agreed to hold the public file open for a ten day period following receipt of the transcript. Plaintiff bank made use of this opportunity to file post-hearing briefing on the legal issues involved. After review of this record by the staff of the Regional Administrator and of the Comptroller, the branch bank application was approved by the Acting Comptroller of the Currency on June 23, 1975. The decision prompted the filing of this case.

STANDARD OF REVIEW BY DISTRICT COURT

Before turning to a direct review of the merits of this case, we must first, with some specificity, ascertain the standard of review which must guide our deliberations. We are afforded pivotal assistance in this task by the Supreme Court's opinion in Camp v. Pitts, 411 U.S. 138, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973). There, in a case involving the denial by the Comptroller of an authorization to charter a bank, the Court, speaking per curiam stated:

Unquestionably, the Comptroller's action is subject to judicial review under the Administrative Procedure Act (APA), 5 U.S.C. § 701. See Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 156-158, 90 S.Ct. 827, 831-832, 25 L.Ed.2d 184 (1970). But it is also clear that neither the National Bank Act nor the APA requires the Comptroller to hold a hearing or to make formal findings on the hearing record when passing on applications for new banking authorities. See 12 U.S.C. § 26; 5 U.S.C. § 557. Footnote omitted.

* * * * * *

Nor was the reviewing court free to hold a de novo hearing under § 706 (2)(F) and thereafter determine whether the agency action was "unwarranted by the facts."

* * * * * *

The appropriate standard for review was, accordingly, whether the Comptroller's adjudication was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," as specified in 5 U.S.C. § 706(2)(A). In applying that standard, the focal point for judicial review should be the administrative record already in existence, not some new record made initially in the reviewing court.

* * * * * *

If, as the Court of Appeals held and as the Comptroller does not now contest, there was such failure to explain administrative action as to frustrate effective judicial review, the remedy was not to hold a de novo hearing but, as contemplated by Overton Park, to obtain from the agency, either through affidavits or testimony, such additional explanation of the reasons for the agency decision as may prove necessary. We add a caveat, however. Unlike Overton Park, in the present case there was contemporaneous explanation of the agency decision. The explanation may have been curt, but it surely indicated the determinative reason for the final action taken: the finding that a new bank was an uneconomic venture in light of the banking needs and the banking services already available in the surrounding community. The validity of the Comptroller's action must, therefore, stand or fall on the propriety of that finding, judged, of course, by the appropriate standard of review. If that finding is not sustainable on the administrative record made, then the Comptroller's decision must be vacated and the matter remanded to him for further consideration. 411 U.S. 140-143, 93 S.Ct. 1243-1244.

The test under this standard has been construed to involve an inquiry into whether the challenged agency action stands upon a rational or reasonable basis and whether the decision shows consideration of the relevant factors. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971); Chrysler Corp. v. Department of Transportation, 472 F.2d 659 (6th Cir. 1972); Air Transport Association of America v. Federal Energy Office, 382 F.Supp. 437 (D.C.1974). Something more than mere error appears to be required, N.L.R.B. v. Parkhurst Mfg. Co., 317 F.Supp. 513, 518 (8th Cir. 1963); First National Bank of Fayetteville v. Smith, 508 F.2d 1371 (8th Cir. 1974). There must be a clear error of judgment, Overton Park, supra; Chrysler Corp. v. Department of Transporation, supra. In this type of review:

"The fact that on the same evidence a reviewing court could have reached a decision contrary to that reached by the agency will not support a determination that the administrative action was arbitrary and capricious." N.L.R.B. v. Jas. H. Matthews & Co., Industrial Mark. Prod. Div., 342 F.2d 129, 131 (3 Cir. 1965), cert. denied, 382 U.S. 832, 86 S.Ct. 74, 15 L.Ed.2d 76 (1965).

(Quoted in Carlisle Paper Box Co. v. N.L.R.B., 398 F.2d 1 (3rd Cir. 1968).

CRITERIA CONSIDERED BY COMPTROLLER

The conditions under which the Comptroller may approve an application by a national bank for a new branch are contained in Section 7 of the McFadden Act, appearing now, as amended in 12 U.S.C. § 36. Subsection (c) of that section provides in pertinent part:

"A national banking association may, with the approval of the Comptroller of the Currency, establish and operate new branches: (1) Within the limits of the city, town or village in which said association is situated, if such establishment and operation are at the time expressly authorized to State banks by the law of the State in question; 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

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