472 F.2d 427 (1st Cir. 1972), 72-1142, Arnold Tours, Inc. v. Camp

Docket Nº:72-1142, 72-1143.
Citation:472 F.2d 427
Party Name:ARNOLD TOURS, INC., et al., Plaintiffs-Appellees, v. William B. CAMP, Comptroller of the Currency of the United States, Defendant-Appellant, South Shore National Bank, Defendant-Appellant.
Case Date:December 13, 1972
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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472 F.2d 427 (1st Cir. 1972)

ARNOLD TOURS, INC., et al., Plaintiffs-Appellees,


William B. CAMP, Comptroller of the Currency of the United States, Defendant-Appellant, South Shore National Bank, Defendant-Appellant.

Nos. 72-1142, 72-1143.

United States Court of Appeals, First Circuit.

December 13, 1972

Heard Sept. 7, 1972.

Elliott V. Grabill, Boston, Mass., with whom Arthur H. Bloomberg and Grabill

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& Ley, Inc., Boston, Mass., were on brief, for South Shore National Bank.

Leonard Schaitman, Atty., Dept. of Justice, with whom Harlington Wood, Jr., Acting Asst. Atty. Gen., Herbert F. Travers, Jr., U. S. Atty., Alan S. Rosenthal, Atty., Dept. of Justice, and John E. Shockey, Atty., Office of the Comptroller of the Currency, were on brief, for William B. Camp.

Richard W. Murphy, Boston, Mass., with whom Murphy, Lamere & Murphy, Timothy J. Murphy, Boston, Mass., Wilkinson, Cragun & Barker, Paul S. Quinn, and Pierre J. Laforce, Washington, D. C., were on brief, for appellees, Arnold Tours, Inc., and others.

Before COFFIN, Chief Judge, McENTEE and HAMLEY, [*] Circuit Judges.

HAMLEY, Circuit Judge.

This class action involves the authority of national banks to engage in the travel agency business. The plaintiffs are Arnold Tours, Inc., and forty-one other independent travel agents of Massachusetts engaged in the travel agency business.

One of the defendants is William B. Camp, Comptroller of the Currency (Comptroller), whose office has issued rulings and regulations to the effect that national banks may engage in that business. The other defendant is South Shore National Bank (South Shore), a national banking association chartered by the United States Government, with a principal place of business in Quincy, Massachusetts, and with twenty-seven branch offices throughout Massachusetts. South Shore has been engaged in the travel agency business, operating it as a department of the bank, since November, 1966, after having bought out the fourth largest travel bureau in New England. Plaintiffs asked for declaratory and injunctive relief, the effect of which would be to force South Shore out of the travel business. 1

The parties filed cross-motions for summary judgment. The district court granted judgment for plaintiffs. The court judicially declared that it is illegal for a national bank to operate a full-scale travel agency. The court also judicially declared that the Comptroller's regulation set out in 12 C.F.R. § 7.1 (1959), now superseded by 12 C.F.R. § 7.7475 (1972), is invalid to the extent that it is construed by the Comptroller as authorizing a national bank to operate a full-scale travel agency. In addition, the court permanently enjoined South Shore from engaging in the travel agency business and ordered the bank to divest itself of its travel department within six months. Arnold Tours, Inc. v. Camp, 338 F.Supp. 721 (D.Mass. 1972).

The Comptroller and South Shore took separate appeals which we consolidated for purposes of argument and disposition. The district court has stayed its judgment pending disposition of the appeals. For the reasons stated below we affirm, but with one qualification.

The parties are in agreement that if there is any statutory authority for national banks to engage in the travel agency business, it is to be found in the following language contained in 12 U.S.C. § 24, Seventh, a provision of the National Bank Act (Act):

"Seventh. To exercise . . . all such incidental powers as shall be necessary to carry on the business of banking. . . ."

The Comptroller relied upon the quoted statutory words in his 1963 ruling

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that national banks could engage in the travel agency business. Thus, paragraph 7475 of the Comptroller's Manual for National Banks (1963), which is now codified as 12 C.F.R. § 7.7475, reads:

"§ 7.7475 National banks acting as travel agents

"Incident to those powers vested in them under 12 U.S.C. 24, national banks may provide travel services for their customers and receive compensation therefor. Such services may include the sale of trip insurance and the rental of automobiles as agent for a local rental service. In connection therewith, national banks may advertise, develop, and extend such travel services for the purpose of attracting customers to the bank." 2

In holding that 12 U.S.C. § 24, Seventh, did not authorize national banks to engage in the travel agency business the district court, in its opinion, first focused attention on the nature of South Shore's travel agency operation. The court relied upon the graphic description of a modern agency operation given by Charles F. Heartfield. 3 Heartfield had served as vice-president of South Shore, in charge of its travel department, from November 1, 1966 to 1970. His description of a modern agency operation is set out in the margin. 4

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The district court then observed that

"To say that conduct of a business of the nature and type described by Mr. Heartfield is a sine qua non to the successful operation of a national bank is a self-refuting proposition, especially in view of the fact that on the defendants' own claim only 122 national banks out of the many hundreds if not thousands in existence were providing travel agency services in 1967." 5 338 F.Supp. at 723.

The Comptroller argues that the district court applied an erroneous legal standard in reviewing the Comptroller's construction of the "incidental powers" clause of the National Bank Act (12 U. S.C. § 24, Seventh), as indicated by the court's above-quoted use of the term sine qua non.

We are in agreement with the Comptroller that a sine qua non standard would be an inappropriate measure of a national bank's incidental powers under 12 U.S.C. § 24, Seventh. While the pertinent language of that section refers to all such incidental powers "as shall be necessary to carry on the business of banking," we do not believe "necessary" was there used to connote that which is indispensable.

But we believe that, read in context with its entire opinion, the district court's reference to the concept of sine qua non was not intended to state the test for determining whether a particular bank activity is authorized as an incidental power. What seems to us to be a more reliable gauge of the district court's rationale is its discussion immediately following the sine qua non statement quoted in the margin. 6

The district court therein indicated that its chief concern was whether a travel agency business primarily involves the performance of financial transactions pertaining to money or substitutes therefor. If not, the court in effect ruled, that business was not within the normal and traditional range of the monetary activities of a national bank, and thus not encompassed by the "incidental powers" provision of 12 U. S.C. § 24, Seventh. It was on this basis that the district court distinguished the travel agency business from such approved "incidental powers" of national banks as those employed in selling travelers' checks or foreign currency, issuing letters of credit, or making travel loans.

But the Comptroller and South Shore do not agree that the "incidental powers" of national banks should even be restricted to the performance of financial transactions pertaining to money or substitutes therefor or that only such transactions lie within the normal traditional range of the activities of a national bank. The Comptroller and South

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Shore, for example, refer to McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819), which upheld the constitutionality of the first Bank of the United States, as laying down the broad principle that the word "necessary" may include that which is convenient, or useful.

McCulloch v. Maryland was concerned not with statutory construction but with the power of Congress, under Article I, § 8 of the Constitution, "to make all Laws which shall be necessary and proper." With reference to the Constitution, it is an established principle that implied powers are to be generously construed. This is what Chief Justice Marshall meant in McCulloch when he said: "[W]e must never forget that it is a constitution we are expounding." 17 U. S. at 407. Almost the identical argument defendants here make concerning McCulloch v. Maryland was made in Texas & P. Ry. Co. v. Pottorff, 291 U.S. 245, 247, 249, 253, 259, 54 S.Ct. 416, 78 L.Ed. 777 (1934), and it was rejected or ignored by the Supreme Court.

The Comptroller and South Shore refer to the fact that the New York free banking law, enacted in 1838, contained an "incidental powers" provision almost identical with that contained in the National Bank Act, enacted in 1863; that, in 1857, a New York Court of Appeals in Curtis v. Leavitt, 15 N.Y. 9 (1857), gave the quoted words of the New York Act an expansive reading; and that those who sponsored the National Bank Act in Congress made it clear that the federal legislation was copied, almost word for word, from the earlier New York Act.

The essence of the New York decision in Curtis is distilled in these words in the opinion of the court:

"But necessity is a word of flexible meaning. There may be an absolute necessity, and a small necessity; and between these degrees there may be others depending on the ever varying exigencies of human affairs. It is plain that corporations, in executing their express powers, are not confined to means of such indispensable necessity that without them there could be no execution at all. . . ." 15 N.Y. at 64.

We are in accord with these views and we are willing to assume that Congress entertained these views when it enacted the National Bank Act. But we do not find these views particularly helpful in determining whether the district court erred in holding that a national bank's incidental powers under 12 U.S.C. § 24, Seventh, are limited to the performance of financial transactions pertaining to money or substitutes...

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