Continental Illinois Corp. v. Lewis

• Decision Date: 22 September 1987
• Docket Number: 85-3949,Nos. 85-3165,s. 85-3165
• Citation: 827 F.2d 1517
• Parties: CONTINENTAL ILLINOIS CORPORATION, et al., Plaintiffs-Appellees, Cross- Appellants, v. Gerald A. LEWIS, in his official capacities as Comptroller of the State of Florida and Head of the Department of Banking of the State of Florida, Defendant-Appellant, Cross-Appellee. CONTINENTAL ILLINOIS CORPORATION and William D. Plechaty, et al., Plaintiffs- Appellants, v. Gerald A. LEWIS, in his official capacity as Comptroller of the State of Florida and Head of the Department of Banking of the State of Florida, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1517

827 F.2d 1517

CONTINENTAL ILLINOIS CORPORATION, et al., Plaintiffs-Appellees, Cross- Appellants, v. Gerald A. LEWIS, in his official capacities as Comptroller

of the State of Florida and Head of the Department

of Banking of the State of Florida,

Defendant-Appellant, Cross-Appellee.

CONTINENTAL ILLINOIS CORPORATION and William D. Plechaty, et

al., Plaintiffs- Appellants, v. Gerald A. LEWIS, in his official capacity as Comptroller of

the State of Florida and Head of the Department of

Banking of the State of Florida,

Defendant-Appellee.

Nos. 85-3165, 85-3949.

United States Court of Appeals Eleventh Circuit.

Sept. 22, 1987.

Bowman Brown, Phillip G. Newcomm, Andrew L. Gordon, Lee D. Mackson, Shutts & Bowen, Miami, Fla., for Continental Illinois Corp.

Eric Joseph Taylor, Charles L. Stutts, Gen. Counsel, Albert T. Gimbel, Chief Banking Counsel, R. Michael Underwood, Asst. Gen. Counsel, Office of the Comptroller, Dept. of Banking & Finance, Tallahassee, Fla., for Lewis.

Appeal from the United States District Court for the Northern District of Florida.

Before FAY and CLARK, Circuit Judges, and HENDERSON, Senior Circuit Judge.

PER CURIAM:

This appeal involves the constitutionality of certain Florida statutes which regulate the conduct and ownership of financial institutions within the state of Florida.

To afford a better understanding of the case, an overview of certain relevant history is necessary. In 1972 Bankers Trust New York Corporation ("Bankers Trust"), a New York corporation operating as a bank holding company, sought federal approval to operate an investment management subsidiary in Florida. The Federal Reserve System's Board of Governors ("Board") denied Bankers Trust's application, citing Fla.Stat. Sec. 659.141(1) (amended 1980), which the Board concluded was intended to, and did, prohibit the performance of investment advisory services in Florida by non-Florida bank holding companies. Bankers Trust then instituted an action in the United States District Court for the Northern District of Florida seeking declaratory and injunctive relief. A three-judge district court concluded that Sec. 659.141(1) ¹ was unconstitutional because it placed an unjustified burden on out-of-state businesses, in violation of the Commerce Clause of the United States Constitution. BT Investment Managers, Inc. v. Lewis, 461 F.Supp. 1187 (N.D.Fla.1978). The United States Supreme Court affirmed. Lewis v. BT Investment Managers, Inc., 447 U.S. 27, 100 S.Ct. 2009, 64 L.Ed.2d 702 (1980).

The Supreme Court issued its decision in Lewis on June 9, 1980. In July, 1980 the Florida legislature enacted Fla.Stat. Sec. 658.29, ² ] section one of which is, in all pertinent ways, identical to Sec. 659.141(1), previously declared unconstitutional. At the same time the legislature enacted Fla.Stat. Sec. 664.03(3) which section extends the application of Sec. 658.29 to cover industrial savings banks ("ISBs"). ³

On June 29, 1981, Continental Illinois Corporation ("Continental"), a bank holding company incorporated in Delaware with its principal place of business in Illinois, applied to the Florida Department of Banking & Finance for a charter to operate an ISB to be known as Continental Illinois Savings Bank of Dade County. ⁴ The defendant, Gerald A. Lewis, the Florida Comptroller, rejected this application, refusing to process it in reliance on the prohibition contained in Sec. 664.03(3) against out-of-state ownership of in-state ISBs.

On August 6, 1981, Continental filed a complaint in the United States District Court for the Northern District of Florida, seeking a declaratory judgment that the two statutes, Secs. 658.29 and 664.03(3), were unconstitutional, and also seeking injunctive relief. The district court granted summary judgment for Continental, finding that although Sec. 664.03(3) was facially constitutional it was unconstitutional as applied to Continental. According to the district court this statute, through its prohibition of Continental's establishment of a non-bank in Florida, violated the Commerce Clause. The district court ordered Florida to process Continental's application. Lewis filed a motion to alter or amend the judgment pursuant to Fed.R.Civ.P. 59(e). During the pendency of this motion, the Florida legislature enacted a permanent moratorium on the issuance of charters for any additional ISBs in Florida, whether to be owned by in-state or out-of-state concerns. Fla.Stat. Sec. 664.02(1) (1984) (amended in 1984 to include this moratorium). The defendant then filed a suggestion of mootness, contending that it now had no authority to grant the relief ordered by the district court. The district court refused to find the case moot, noting that final judgment had been rendered prior to the legislature's amendment of Sec. 664.02 and, additionally, holding that the issues are "capable of repetition, yet evading review," citing Southern Pac. Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 283, 55 L.Ed. 310, 316 (1911).

In this appeal the defendant seeks the dismissal of the appeal as moot or, alternatively, a reversal of the district court's determination that Sec. 664.03(3) is unconstitutional as applied. On cross-appeal Continental asks this court to declare Sec. 664.02 either unconstitutional or inapplicable, and also challenges the district court's holding that Sec. 664.03(3) is facially constitutional. Finally, Continental seeks a reversal of the district court's denial of its motion for attorney's fees.

Section 664.02.

Lewis contends that Fla.Stat. Sec. 664.02, as a statutory ban on the issuance of charters for new ISBs, renders this entire controversy moot. This issue of mootness hinges, of course, on whether the amendment to Sec. 664.02 is constitutional. If constitutional, then we agree with the defendant that the statute precludes effective relief and moots the case. C & C Products, Inc. v. Messick, 700 F.2d 635 (11th Cir.1983). If unconstitutional, however, the statute would not affect the availability of the relief ordered by the district court.

Section 664.02 provides, in pertinent part:

Effect on existing industrial savings banks; prohibition on new charters.--

(1) The charters of industrial savings banks existing at the time of adoption of this chapter shall continue in full force and effect, but no new charter shall be granted for an industrial savings bank.

By its terms this statute is facially neutral between in-state and out-of-state commerce in its absolute prohibition against the establishment of additional Florida ISBs. The defendant relies on this facial neutrality as proof that the statute does not violate the Commerce Clause. Our analysis, however, requires more in-depth consideration of the statute than that proposed by the defendant.

The Commerce Clause of the Constitution grants Congress the power "[t]o regulate Commerce ... among the several states." U.S. Const. art. 1, Sec. 8, cl. 3. Although this language acts as a specific grant of power to Congress, the Supreme Court has long recognized that it also acts as a limitation on the power of the states to erect barriers against interstate trade. Lewis v. BT Investment Managers, Inc., 447 U.S. 27, 35, 100 S.Ct. 2009, 2015, 64 L.Ed.2d 702, 711 (1980) (citations omitted). In the absence of conflicting federal legislation, the states, pursuant to their police powers, retain the authority to regulate matters of "legitimate" public concern, even when interstate commerce is affected. See e.g., Raymond Motor Transportation Inc. v. Rice, 434 U.S. 429, 98 S.Ct. 787, 54 L.Ed.2d 664 (1978). Yet even where legitimate local interests are implicated, the states must not act in a manner which places them in economic isolation. Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032 (1935). In essence, the state interest "may not be accomplished by discriminating against articles of commerce coming from outside the State unless there is some reason, apart from their origin, to treat them differently." City of Philadelphia v. New Jersey, 437 U.S. 617, 626-27, 98 S.Ct. 2531, 2537, 57 L.Ed.2d 475, 483 (1978).

The analysis necessary for a determination of whether a facially neutral state statute is unconstitutional under the Commerce Clause involves the same central inquiry as when the evaluation is applied to a facially discriminatory state statute. The primary focus in both instances is whether the "practical operation" or the "probable effect" of the challenged statute is discriminatory. In summary, discriminatory protectionist legislation is per se unconstitutional under the analysis applied in City of Philadelphia v. New Jersey, supra, ("where simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected"). Alternatively, narrowly drawn state legislation which serves legitimate local purposes and is neutral in its effect upon local and interstate commerce is permissible if it survives scrutiny under the balancing test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970). Under both tests, however,

[t]he principal focus of inquiry must be the practical operation of the statute, since the validity of state laws must be judged chiefly in terms of their probable effects.

Lewis, 447 U.S. at 37, 100 S.Ct. at 2016, 64 L.Ed.2d at 712.

The fact that the legislation challenged in this action does not serve a valid local purpose is evidenced by the legislative history of Sec. 664.02. The significant portion of this history reveals that

Sections 34 and 35 of the bill were included in the bill because of growing concern over the use of industrial savings banks to circumvent restrictions on interstate banking. Two years ago, the legislature imposed a one-year moratorium on the issuance of new ISB charters pending the outcome of litigation over the application of Continental Illinois Corporation to establish ISBs in Florida. A federal...