CITY FED. SAV. & L. ASS'N v. FED. HOME L. BANK BD.

Decision Date28 October 1977
Docket NumberNo. 75-C-343 & 75-C-416.,75-C-343 & 75-C-416.
Citation441 F. Supp. 89
PartiesCITY FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. FEDERAL HOME LOAN BANK BOARD and First Federal Savings and Loan Association of Wisconsin, Defendants. WEST ALLIS SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. FEDERAL HOME LOAN BANK BOARD and First Federal Savings and Loan Association of Wisconsin, Defendants.
CourtU.S. District Court — Eastern District of Wisconsin

COPYRIGHT MATERIAL OMITTED

Frisch, Dudek & Slattery by Edward A. Dudek, Milwaukee, Wis., for City Federal Sav. & Loan Assn.

John C. Shabaz, West Allis, Wis., for West Allis Sav. & Loan Assn.

Quarles & Brady by David E. Jarvis, Milwaukee, Wis., for First Federal Sav. & Loan Assn.

Harold B. Shore, John E. Gunther, Harvey Simon, Washington, D.C., for Federal Home Loan Bank Bd.

DECISION and ORDER

MYRON L. GORDON, District Judge.

I. INTRODUCTION

In these consolidated actions, City Federal Savings and Loan Association (City Federal), a federally-chartered savings and loan association, and West Allis Savings and Loan Association (West Allis), a state-chartered institution, seek judicial review of resolution no. 75-400 of the Federal Home Loan Bank Board (the Board). The resolution authorized First Federal Savings and Loan Association of Wisconsin (First Federal), a federally-chartered institution, to establish a "limited facility branch office" pursuant to 12 C.F.R. § 545.14(j), in West Allis, Wisconsin. The plaintiffs also seek an injunction prohibiting First Federal from operating the approved facility.

These actions are presently before the court on the parties' cross-motions for summary judgment, and the plaintiff City Federal's motion to strike an affidavit filed by the defendants in support of its summary judgment motion. West Allis has not filed briefs on the present motions, electing instead to adopt City Federal's briefs. Thus, although this decision refers primarily to City Federal, it is dispositive also as to West Allis' claims.

On August 24, 1974, First Federal applied for Board approval of a limited facility branch office in downtown West Allis, Wisconsin. The proposed location was 900 feet west of the plaintiff West Allis' location and 240 feet west of a City Federal branch office. The City Federal branch office itself had been authorized by the Board a year earlier and was still operating temporarily out of a trailer at the time of First Federal's application.

In accordance with the procedures set forth in 12 C.F.R. §§ 545.14 and 556.5, the plaintiffs protested against Board approval of First Federal's application. On April 29, 1975, the Board adopted resolution no. 75-400, approving the application, and shortly thereafter the plaintiffs commenced this action for judicial review of the Board's resolution.

The plaintiffs contend that (1) the Board acted beyond the scope of its authority because the limited facility branch office regulation upon which it based its resolution is contrary to the provisions of 12 U.S.C. § 1464(e); and (2) the Board's decision was arbitrary, capricious, an abuse of discretion, and not in accordance with law.

In my opinion, both the regulation and the Board's resolution are valid. Summary judgment will therefore be granted to the defendants.

II. THE LIMITED FACILITY BRANCH OFFICE REGULATION

A federal savings and loan association that desires to establish a branch office must furnish information in support of its application showing that three tests have been met:

"(1) There will be at the time the branch is opened a necessity for the proposed branch office in the community to be served by it; (2) there is a reasonable probability of usefulness and success of the proposed branch office; and (3) the proposed branch office can be established without undue injury to properly conducted existing local thrift and home-financing institutions." 12 C.F.R. § 545.14(c).

Since 1970, many of the branch regulations have been amended or replaced. Included in this process was the creation of 12 C.F.R. § 545.14(j), which provides:

"Limited facility branch office(1) General. In connection with any application for permission to establish a branch office which the Board has determined does not satisfy in full the requirements of paragraph (c) of this section as to necessity and reasonable probability of usefulness and success, but such tests, in the opinion of the Board, are met to a degree which would support a limited operation of a branch office, the Board may approve the application as a limited facility branch office. Such an office if approved by the Board, will be subject to limitations imposed by the Board as to one or more of the following:
"(i) Number and type (supervisory, clerical, teller) of personnel to be utilized;
"(ii) Physical size and characteristics;
"(iii) Amount of capital investment by the applicant; and
"(iv) Extent of activities.
"In addition, an applicant for permission to establish a branch office under this section may propose that the office be a limited facility branch office in a case where the applicant believes that the tests in paragraph (c) of this section can be met only to a degree which would support a limited operation of a branch office, and the applicant may propose one or more of the limitations to be imposed by the Board. A limited facility branch office may be advertised to the public as a branch office."

City Federal contends that this regulation is void as a sham created merely to circumvent the requirements of section 5(e) of the Home Owners' Loan Act of 1933, as amended and codified at 12 U.S.C. § 1464(e). The latter section provides:

"No charter of a federal savings and loan association shall be granted except to persons of good character and responsibility, nor unless in the judgment of the Board a necessity exists for such an institution in the community to be served, nor unless there is a reasonable probability of its usefulness and success, nor unless the same can be established without undue injury to properly conducted existing local thrift and home-financing institutions."

City Federal argues that the Board's power to approve branch offices is limited by the three tests set forth in section 5(e), namely (1) necessity; (2) reasonable probability of usefulness and success; and (3) creation without undue injury to properly conducted existing institutions. City Federal emphasizes that 12 C.F.R. § 545.14(j) softens the first two tests by requiring that, in the case of a limited facility branch office application, the first two tests need only be met to a degree which in the Board's opinion supports such an office. It is therefore urged that § 545.14(j) unlawfully permits the establishment of savings and loan institutions that do not meet the requirements set forth in section 5(e).

Although the threefold requirement of section 5(e) is incorporated also into 12 C.F.R. § 545.14(c), the regulation governing "full" branch facilities, nothing in section 5(e) requires that branch applicants meet those tests. Thus, it is the regulation rather than the statute that requires "full" branch applicants to meet the three tests. I therefore believe that no statutory mandate is violated by lessening the requirements for limited facility branch office applicants.

In First National Bank of McKeesport v. First Federal S. & L. Ass'n of Homestead, 96 U.S.App.D.C. 194, 225 F.2d 33, 36 (1955), the court considered the question whether the Administrative Procedure Act, 5 U.S. C.A. § 1001 et seq., applies to proceedings for branch approvals. Holding that an agency hearing pursuant to the Administrative Procedure Act is not required for branch applications, the court distinguished between branch applications and bank charters:

"While neither Section 5(e) nor any other section of the act specifically requires an agency hearing in granting an original charter, we may assume for the purposes of these cases that such a hearing is required in that instance. Even so, the same formalities are not required in the consideration of an application for a branch. Section 5(e) quoted above refers simply to `charters,' and governs the Board's consideration of an application for the grant of a charter to establish an `institution.' A branch, however, is not an `institution' and does not require a charter, its establishment being of an entirely different character.
. . . . .
"We think it clear that, even if it be assumed that Section 5(e) requires an agency hearing on the original grant, there is no such requirement on an application for the establishment of a branch." 96 U.S.App.D.C. at 197, 225 F.2d at 36. (emphasis supplied).

Furthermore, it has been recognized that once an original charter is approved, the Board may approve the establishment of lesser facilities without meeting the criteria set forth in section 5(e). In Central S. & L. Ass'n of Chariton, Iowa v. Federal Home Loan Bank Board, 293 F.Supp. 617 (S.D.Iowa 1968), aff'd 422 F.2d 504 (8th Cir. 1970), the court rejected the contention that a regulation governing mobile bank facilities was invalid because of its incongruence with section 5(e): "Plaintiffs allege that section 545.14-4 is invalid because the criteria for the establishment of a mobile facility are not the same as those specified in section 5(e) of the Act. . . .

"It will be noted that this section refers simply to `charters,' and governs the Board's consideration of an application for the grant of a charter to establish an `institution.' A mobile facility, however, is not an `institution' and does not require a charter, its establishment being of an entirely different character. As stated above, this Court believes that once an institution is established under the grant of an original charter, the establishment of branches and mobile facilities is committed to the discretion of the Board." 293 F.Supp. at 622.

I believe that the limited facility branch office regulation is valid for the same reason that the mobile...

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