Grandview Bank & Trust Co. v. Board of Governors of Federal Reserve System

• Decision Date: 02 March 1977
• Docket Number: No. 76-1236,76-1236
• Parties: GRANDVIEW BANK AND TRUST CO., Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent, Commerce Bancshares, Inc., Intervenor-Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 415

550 F.2d 415

GRANDVIEW BANK AND TRUST CO., Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent Commerce Bancshares, Inc., Intervenor-Respondent.

No. 76-1236.

United States Court of Appeals Eighth Circuit.

Submitted November 11, 1976.

Decided March 2, 1977.

Rodger J. Walsh, and Robert C. Barry, Kansas City, Mo., for petitioner.

Ronald R. Glancz, Atty., Appellate Section, Civ. Div., U. S. Dept. of Justice, Washington, D. C., for respondent; John D. Hawke, Jr., Gen. Counsel, J. Virgil Mattingly, Atty., Bd. of Governors of Federal Reserve System, and Rex E. Lee, Asst. Atty. Gen., Washington, D. C., on brief.

Lawrence F. Noble, Metzger, Noble, Schwarz & Kempler, Washington, D. C., for intervenor-respondent; Lawrence F. Noble, Michael A. Greenspan and John V. Austin, Washington, D. C., William H. Sanders, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, Mo., on brief.

Before LAY, BRIGHT and STEPHENSON, Circuit Judges.

LAY, Circuit Judge.

Petitioner, Grandview Bank and Trust Company (Grandview), seeks review of the Federal Reserve Board's approval of an acquisition of a new national bank (New Bank) in Grandview, Missouri, by Commerce Bancshares, Inc. (Bancshares). We sustain the Board's approval.

I

Bancshares was organized and incorporated under Missouri law in 1966. It became a bank holding company (BHC) in 1968 and acquired the majority of the stock of Commerce Trust Company, now Commerce Bank of Kansas City, N. A., and two subsidiaries of that bank. It now controls, in addition to other business, 31 affiliated banks in Missouri as well as Compac Services, Inc., an automated data-processing service.

On January 23, 1975, the Comptroller of the Currency granted preliminary approval to a new national bank in Grandview, Missouri. In March of 1975, Bancshares sought the Federal Reserve Board's approval for acquisition of the proposed New Bank. ¹

Notice of the application was published in the Federal Register and Grandview filed a timely protest, requesting a hearing and a stay of the processing of the application. On March 15, 1976, the Board issued an order denying petitioner's request, noting that since the Comptroller had recommended approval there was no statutory requirement that the Board hold a hearing. ² Finding the record sufficiently complete to enable it to render a decision, ³ the Board granted the application.

Pursuant to 12 U.S.C. § 1848, petitioner, Grandview, seeks a review of the Board's order. It asserts that the Board's findings on the branch banking, monopoly and financial resources issues are not supported by substantial evidence, and that the Board denied it due process by not allowing a hearing and by deleting part of the record. Bancshares' subsequent motion to intervene was granted. Grandview's motion for stay was denied.

Grandview's major contention is that Bancshares is not a traditionally recognized BHC. It claims that Bancshares' affiliates are doing business as a "unitary operation" and requests this court to "pierce the corporate veil" and find that the acquisition of New Bank would be de facto branch banking violative of Missouri's branch banking laws. ⁴ Cf. Whitney Nat'l Bank v. Bank of New Orleans, 116 U.S.App.D.C. 285, 323 F.2d 290 (1963), rev'd on other grounds, 379 U.S. 411, 85 S.Ct. 551, 13 L.Ed.2d 386 (1965).

II

In approving Bancshares' application the Board found that New Bank would be a separate corporation with its own reserve requirements and capital stock and a loan limit based on such capital stock; that New Bank would have its own officers and a "generally" separate and independent board of directors; that it would maintain separate books of account, issue its own distinctive checks, and use its own stationery; that money deposited at New Bank would not be credited to the account of a depositor at any other of Bancshares' subsidiaries nor would money deposited at another subsidiary be credited to the account of a depositor at New Bank. The Board concluded that Bancshares is a "traditionally recognized bank holding company" and that "upon consummation of the proposed acquisition, a unitary operation will not exist between Bank and any of Applicant's other banking subsidiaries."

We first review the factors considered by the Board on the branching issue.

Management.

Each of the five interim directors of New Bank is a director or officer of at least one other of Bancshares' affiliate banks, and four are officers or directors of Bancshares.

Although Bancshares conceded that these interim directors would be elected at the organizational meeting of the incorporators, it stated that upon approval of the application and subsequent granting of the charter by the Comptroller, the shareholders would elect a permanent board. Bancshares stated it "would intend that the boards of directors of (New) Bank and of Commerce Bank of Kansas City, N. A. as well as the boards of Applicant's other banks would be 'substantially separate and independent.' " Bancshares also conceded that it will fill staff openings at New Bank with people who have been trained within its system.

Grandview urges that these facts demonstrate that New Bank will not have independent management, but in fact will be controlled by Bancshares. We disagree. As the Ninth Circuit observed:

(I)t is not enough for appellants to show that common control, through stock ownership by First Bank Stock, which participates actively in the management of its subsidiaries, produces cooperation or even eliminates competition between the subsidiaries. This is a usual, although not necessary, result of common ownership and control.

First Nat'l Bank v. First Bank Stock Corp., 306 F.2d 937, 942 (9th Cir. 1962).

Capital, Surplus and Undivided Profit.

New Bank's shares will be purchased by Bancshares through use of Bancshares' own capital resources. Petitioner argues that New Bank's capital will thus be supplied by Bancshares, but we find that this is the traditional means by which a BHC acquires control of a bank.

Loan Limits.

New Bank's loan limit will be based on its own capital. However, Grandview asserts that there is a possibility of increased loan capacity through affiliated banks. Bancshares concedes that New Bank will have the use of integrated participations and liaison arrangements within the holding company system. According to Bancshares this participation arrangement within the system does not consist of an automatic participation by one affiliate bank in any and all loans which may be made by another affiliate bank and which are over that bank's lending limit. Rather, each participating loan within the system must meet stringently applied criteria and the high standards imposed by Bancshares as well as being acceptable to the participating bank. We find these transactions to be the traditional and legal means by which a BHC may work with its affiliates.

Public Identity and "De Facto" Operation.

The Board's only finding on the identity issue was that New Bank will "issue its own distinctive checks, and use its own stationery."

Bancshares urges:

A person maintaining an account in Commerce Bank of Kansas City, N.A. or with any other bank affiliated with Applicant but not having an account with Bank would not be able to effect a deposit to or a withdrawal from such account at any office of Bank nor would the reverse situation occur. It would, of course, be possible for an ultimate withdrawal to be made by means of cashing a check at an affiliated bank other than the one where the customer would maintain his account but any check cashing privileges would be subject to the same procedures applicable in any such situation. Additionally, it is, of course, possible for an individual to present cash or its equivalent at a bank and cause the same to be wire transferred to another bank for the individual's account. While Commerce Bank of Kansas City has handled transactions of this nature a fee is charged for such wire transfers and no deposit receipt is issued to a customer by the transferring bank.

Nevertheless, petitioner is correct in its assertion that Bancshares' advertising suggests a more unitary operation. Bancshares advertises:

If you're a Missouri attorney who deals with Trust and Estate problems, the Commerce Bancshares family of banks brings you a new concept in estate handling. Statewide trust services that use our full team of 140 trust specialists.

It's a fact that most small banks simply cannot justify the expense of providing adequately trained personnel to handle trust matters for their customers. So, these customers must seek help from some big city trust department where they are unknown.

This is not the case with the banks in the Commerce Bancshares family. No matter how small, most Commerce banks are backed by our full team of 140 trust specialists, always ready to serve you and your clients.

Take advantage of this new concept in statewide trust services. When you have a client with a trust or estate problem, call your local Commerce Bank. And put our team of 140 trust specialists to work for you.

One advertisement ends with this statement: "When you bank at Commerce you bank at an affiliate of Commerce Bancshares with assets of more than $1.5 billion."

The banking affiliates share the cost of the advertising which is controlled by a central marketing department. Each affiliate bank makes its own decision on whether to participate in a particular advertising campaign.

Grandview also urges that an automated data-processing service affiliated with Bancshares will provide automated general ledger service to New Bank as it does for all of is affiliates, thus suggesting a unitary operation. However, New Bank will maintain separate books of account and this service is permissible under the Bank Holding Company Act. ⁵

Based upon this analysis we conclude that Bancshares is an existing multibank BHC seeking to acquire a newly established bank in an...