FIRST FED. S. & L. ASS'N, ETC. v. Fed. Home Loan Bank Bd.

Decision Date25 February 1977
Docket NumberCiv. No. F-76-54-C.
PartiesFIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF FAYETTEVILLE et al., Plaintiffs, v. FEDERAL HOME LOAN BANK BOARD et al., Defendants.
CourtU.S. District Court — Western District of Arkansas

COPYRIGHT MATERIAL OMITTED

James B. Blair, Crouch, Blair, Cypert & Waters, Springdale, Ark., for plaintiffs.

Bradley D. Jesson, of Hardin, Jesson & Dawson, Fort Smith, Ark., for Superior Federal Sav. and Loan Ass'n.

Harold B. Shore, John E. Gunther, Washington, D.C., for Federal Home Loan Bank Bd., Garth Marston and Grady Perry.

Hermann Ivester, Smith, Williams, Friday, Eldredge & Clark, Little Rock, Ark., for Fayetteville Sav. and Loan Assn.

MEMORANDUM OPINION

PAUL X WILLIAMS, Chief Judge.

This is an action to review a resolution of the Federal Home Loan Bank Board permitting Superior Federal Savings and Loan Association of Fort Smith, Arkansas, to establish a branch facility in Fayetteville. This Court has jurisdiction pursuant to 28 U.S.C. § 1331(a), 12 U.S.C. § 1464(d)(1) and 5 U.S.C. §§ 701 et seq.

The defendants are the Federal Home Loan Bank Board, two individual members of the Board and Superior Federal, the institution authorized to establish the branch office. The plaintiffs are state and federally chartered savings and loan associations which protested Superior's application in the administrative proceedings. Though state chartered institutions lack standing to sue the Board, they can sue its individual members. (12 U.S.C. § 1464(d); Central Savings and Loan Association v. Federal Home Loan Bank Board, 269 F.Supp. 965 (E.D.Pa.1967); Bank of Ozark v. Federal Home Loan Bank Board, 402 F.Supp. 162, 165 (W.D.Ark.1975).

On May 7, 1976, Superior Federal Savings and Loan Association of Fort Smith filed application with the Board to establish a branch office at the Northwest Plaza, a shopping mall located in Fayetteville, Arkansas. Notice was published in accord with 12 C.F.R. § 545.14(g)(1). The plaintiffs filed formal protests. All parties supplied relevant economic data to the Board's regional representative, Supervisory Agent, H. B. Proctor, who heard oral arguments on July 29, 1976. All evidence, transcripts of oral argument and the supervisory agent's recommendations were then forwarded to the Board's staff in Washington, D. C., who studied the record and summarized its findings and recommendation into a "staff digest." On September 23rd, the Board passed Resolution 76-722 which granted Superior's application.

On October 2, 1976, plaintiffs instituted this suit, accompanying their complaint with motions for a temporary restraining order or preliminary injunction. At the hearing called in response to the motion for a preliminary injunction, defendant, Superior, promised to take no action toward the establishment of the branch if the matter could be finally resolved within a reasonable length of time and the plaintiffs withdrew their motion. The Court ordered the Federal Home Loan Bank Board to file a copy of the administrative record with the clerk of the court and established a schedule for the filing of cross motions for summary judgment.

The first issue is whether the Board made available the complete administrative record. Plaintiffs contend that the Board should disclose the recommendations of Supervisory Agent Proctor, the advice of the Board's Washington staff, and certain financial reports about Superior and plaintiffs.

In certain situations the Administrative Procedure Act provides for judicial type hearings in which the party or parties have an opportunity to present oral evidence and the presiding officer makes findings of fact in reliance on the demeanor of the witnesses testifying at the hearing. See 5 U.S.C. §§ 556 and 557. The conclusions or opinions of the presiding officer on "demeanor evidence" are binding on the agency and are properly made part of the administrative record. In contrast to the judicial type of hearing, the oral argument afforded branch applicants and protestants before the Federal Home Loan Bank Board does not provide for the introduction of any oral evidence. Compare 12 C.F.R. §§ 545.14(h), 509.14 with 12 C.F.R. §§ 509.1, 509.6. The parties are merely provided an opportunity to highlight and summarize the written evidence which is before the presiding officer.

The presiding officer's recommendations are based entirely on the written record. The same written record as well as a transcript of the oral argument is before the Board when it renders its decision. The recommendation of the presiding officer who observed counsel's demeanor cannot be said to be crucial to the Board's ultimate decision. His recommendations are traditionally excluded from the administrative record of the case on the theory that its importance to the agency's final decision is greatly outweighed by the public policy of fostering frank and open discussions between the civil servant and his superior which would be jeopardized if the lower-esch-elon public servant were compelled to disclose his advisory opinions. Kaiser Aluminum and Chemical Corp. v. United States, 157 F.Supp. 939, 141 Ct.Cl. 38 (1958); E.P.A. v. Mink, 410 U.S. 73, 86, 93 S.Ct. 827, 35 L.Ed.2d 119 (1973); Freeman v. Seligson, 132 U.S.App.D.C. 56, 405 F.2d 1326 (1968); Miller v. Smith, 292 F.Supp. 55 (S.D.N.Y. 1968); S.E.C. v. Shasta Minerals & Chemical Co., 36 F.R.D. 23 (D.Utah 1964); Lyons Savings and Loan Assoc. v. Federal Home Loan Bank Board, 377 F.Supp. 11 (N.D.Ill. 1974); Winnetka Savings and Loan Assoc. v. Home Federal Savings and Loan Assoc. of Chi., 377 F.Supp. 11 (N.D.Ill.1975). Contra: Community Savings and Loan v. Federal Home Loan Bank Board, 68 F.R.D. 378 (E.D.Wis.1975). The Freedom of Information Act expressly exempts internal recommendations of an agency's own staff. 5 U.S.C. § 552(b)(5), N.L.R.B. v. Sears, Roebuck & Co., 421 U.S. 132, 95 S.Ct. 1504, 44 L.Ed.2d 29 (1975); Renegotiation Board v. Grumman Aircraft Engineering Corp., 421 U.S. 168, 95 S.Ct. 1491, 44 L.Ed.2d 57 (1975).

Some courts have approached the question of staff advice differently, holding that it is technically part of the administrative record because it was considered by those persons who made the final decision of the agency, but that the predecisional intra-agency staff advice need not be disclosed because it is privileged. Smith v. F.T.C., 403 F.Supp. 1000, 1017-1018 (D.C.Del.1975); National Courier Assoc. v. Board of Governors, 170 U.S.App.D.C. 301, 516 F.2d 1229, 1241 (1975).

In light of the above discussion we find that plaintiffs' contentions concerning disclosure of the recommendations of Supervisory Agent Proctor and the advice of the Washington staff, have no merit.

Plaintiffs have also urged the Board to disclose certain reports concerning the financial condition of Superior and some of the protestants. We recognize the extremely sensitive nature of this information and that it is privileged from disclosure. 12 C.F.R. § 505.5(a)(2), 5 U.S.C. § 552(b)(4) and (b)(8); National Parks and Conservation Association v. Morton, 162 U.S.App.D.C. 223, 498 F.2d 765 (1974). Though plaintiffs urge the Court to examine this information in camera, we find it unnecessary. The Board's decision is supported by "some evidence" presently before the Court. See First National Bank of Fayetteville v. Smith, 508 F.2d 1371 (8th Cir. 1974). Even if the financial reports of concern to the plaintiffs were non-supportive of the Board's decision, our holding in this case could not be affected, as we are not to weigh the evidence and we are not to apply the substantial evidence test. First National Bank of Fayetteville v. Smith, supra; Bank of Ozark v. Federal Home Loan Bank Board, 402 F.Supp. 162 (W.D.Ark. 1975). Instead we are to make a thorough search of the record to determine if there is any rational basis for the Board's action and that it is in accord with law. Camp v. Pitts, 411 U.S. 138, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973) (reviewing Comptroller's action); Bank of Ozark v. Federal Home Loan Bank Board, 402 F.Supp. 162 (W.D.Ark.1975) (standard for reviewing Comptroller's decision applies to decisions of the Federal Home Loan Bank Board); First National Bank of Fayetteville v. Smith, 508 F.2d 1371, 1376 (8th Cir. 1974) ("some support in the record"). This standard for review is often phrased as whether the board acted "arbitrarily and capriciously or abused the broad discretion vested in it," Bank of Ozark, supra, at 167. This standard satisfies the requirements for review enunciated by the United States Supreme Court in Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). See Camp v. Pitts, 411 U.S. 138, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973).

In its resolution 76-722, the Board found a necessity existed for the branch office proposed by Superior; that there was a reasonable probability of its usefulness and success; and that it could be established without undue injury to properly conducted existing local thrift and home-financing institutions. The Board must find the foregoing three conditions to exist before it authorizes the establishment of a branch office. 12 C.F.R. § 545.14(c).

We have examined the administrative record and find that the record contains not only some evidence but also a great deal of evidence to support the Board's conclusions.

For its branch office, Superior proposes to build a two-story free-standing building containing approximately 4000 square feet near the entrance of the Northwest Arkansas Plaza. The Plaza is an enclosed shopping center containing 445,000 square feet of retail space and housing fifty-five tenants. It has 2460 parking spaces. It is located on United States Highway 71 in Fayetteville, but less than .3 of a mile from the southern city limits of Springdale, Arkansas.

The Board defines the primary market area (PMA) as all of Fayetteville within its corporate...

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