Sears, Roebuck & Co. v. Brown

• Decision Date: 15 November 1985
• Docket Number: Civ. No. H 84-1009 (JAC).
• Citation: 641 F. Supp. 878
• Court: U.S. District Court — District of Connecticut
• Parties: SEARS, ROEBUCK AND CO., Allstate Insurance Company, Allstate Life Insurance Company, Allstate Enterprises Inc., Coldwell, Banker & Company, and Dean Witter Reynolds, Inc., Plaintiffs v. Howard B. BROWN, Acting Commissioner of the Department of Banking of the State of Connecticut, Defendant, and The Connecticut Bankers' Association and the Savings Banks' Association of Connecticut, Defendant-Intervenors.

641 F. Supp. 878

SEARS, ROEBUCK AND CO., Allstate Insurance Company, Allstate Life Insurance Company, Allstate Enterprises Inc., Coldwell, Banker & Company, and Dean Witter Reynolds, Inc., Plaintiffs v. Howard B. BROWN, Acting Commissioner of the Department of Banking of the State of Connecticut, Defendant and The Connecticut Bankers' Association and the Savings Banks' Association of Connecticut, Defendant-Intervenors.

Civ. No. H 84-1009 (JAC).

United States District Court, D. Connecticut.

November 15, 1985.

COPYRIGHT MATERIAL OMITTED

Duane C. Quani, Robert C. Johnson, Alan M. Posner, Sonnenschein Carlin Nath & Rosenthal, Chicago, Ill., Thomas D. Clifford, David Herrman, Skelley, Clifford, Vinkels, Williams and Rottner, P.C., Hartford, Conn., for plaintiffs.

Joseph I. Lieberman, John G. Haines, Peter J. Jenkelunas, Jane Comerford, Office of the Atty. Gen., Hartford, Conn., for defendant.

Allan B. Taylor, Day, Berry & Howard, Hartford, Conn., for defendant-intervenors.

RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

JOSÉ A. CABRANES, District Judge:

The question presented by this case is whether provisions of a Connecticut statute regulating the banking activities of holding companies and their subsidiaries violate the Commerce Clause or the Supremacy Clause of the United States Constitution. The provisions at issue are Sections 2(b), 2(c) and 2(d) of Connecticut Public Act 84-329 (the "Act") codified in C.G.S. § 36-5a(b), (c), (d).¹

The plaintiffs in this action are Sears, Roebuck and Co. ("Sears"), a New York corporation with its headquarters in Chicago, and five of its financial service subsidiaries. See Agreed Statement of Facts (filed Jan. 4, 1985) ("Statement I"), ¶¶ 1-38. These and 12 other of Sears's 264 subsidiaries do business in Connecticut. Id. Plaintiff Allstate Enterprises, Inc., which is a wholly owned subsidiary of Sears, wholly owns Sears Savings Bank, which is a California chartered stock thrift institution.² Id. at ¶ 9. Sears is considered to be a "holding company"³ under the Act because of its interest in Sears Savings Bank as a wholly owned second-tier subsidiary. Id.

Howard B. Brown ("defendant") is the Acting Commissioner of the Department of Banking of the State of Connecticut.⁴ He succeeded Brian J. Woolf, who issued the determinations at issue in this lawsuit during his tenure as Commissioner of the Banking Department. (The term "Commissioner" refers to both Brown and Woolf during their respective tenures in office.) The defendant-intervenors ("intervenors") are associations of Connecticut banks and thrift institutions, respectively. See Affidavit of Preston C. King (filed Nov. 1, 1984) ("King Aff.") and Affidavit of Robert A. Eden (filed Nov. 1, 1984) ("Eden Aff.").

The parties have filed cross-motions for summary judgment and have submitted joint statements of undisputed facts. See Statement I; Supplemental Agreed Statement of Facts (filed April 10, 1985) ("Statement II").⁵ Oral argument was heard on April 15, 1985. Accordingly, this matter is ripe for decision. The facts as stated in Statement I and Statement II, as well as the exhibits admitted at the hearing, are fully incorporated by reference herein.

I. Factual Background

The undisputed facts show that, since the enactment of the Act,⁶ the Commissioner has approved applications by Sears and its various subsidiaries to open 91 offices in Connecticut pursuant to Section 2(b) of the Act. According to the defendant, these applications were approved because the offices with which they were concerned would not be engaging in "banking business." See Applications Submitted by Sears, Roebuck and Company and its Subsidiaries under Section 2(b) of Public Act 84-329 (exhibit submitted Apr. 15, 1985 and docketed Aug. 29, 1985); Statement I and Statement II. Sears paid no fee for any of these applications.

Four of Sears's applications have been denied pursuant to Section 2(b) because the Commissioner determined that the proposed offices would engage in banking business. In a letter ruling issued on December 28, 1984, Commissioner Woolf denied applications for two Sears Financial Network Centers ("SNFCs"). See Statement I, ¶¶ 11-13 (description of activities of SFNCs). However, the Commissioner expressed a willingness to approve these two applications pursuant to Section 2(d) (which, according to the defendant, allows holding companies to open two banking business offices per year in Connecticut) subject to two conditions: First, the SFNCs could not offer "deposit services" (proscribed by Section 2(d)) "including, but not limited to, the deposits in Sears Savings Bank through the `sweep account' feature of the Dean Witter Active Assets Account...." Statement I, ¶ 52; see id., ¶¶ 32-38 (description of sweep account).⁷ Second, Sears would be required to pay a "processing fee" of $1,000 per application pursuant to Section 2(d) of the Act. See Statement I, ¶ 52. On January 23, 1985, the Commissioner stayed his ruling on Sears's SFNC applications pending the court's decision in this matter. See Statement II, ¶ 56.

On January 17, 1985, Commissioner Woolf denied approval, under Section 2(b) of the Act, for two offices of Allstate Enterprises Mortgage Corporation ("AEMC"), a Sears subsidiary, because he determined that these offices would conduct banking business. In his letter ruling, the Commissioner expressed the opinion that these offices "would fall within the provisions of Section 2(d) of the Act." Statement II, ¶ 59. Sears has not since filed an application pursuant to Section 2(d) for the two AEMC offices, presumably because it does not wish to exhaust its yearly limit of two new banking business establishments on these offices. See Certified Official Transcript of Hearing Held on April 15, 1985 (filed Apr. 30, 1985) ("Tr.") at 24-25.⁸

The plaintiffs challenge the Act in two general respects. First, they maintain that the provisions of the Act in question violate the Commerce Clause, Art. I § 8, Cl. 3 of the United States Constitution.⁹ Second, the plaintiffs contend that the Act, as applied to Sears, is pre-empted by the federal Savings and Loan Holding Company Act, 12 U.S.C. § 1730a, and the Supremacy Clause, Art. VI, Cl. 2 of the United States Constitution.¹⁰

II. Statutory Construction

Before turning to the merits of the parties' contentions, the court must determine the proper construction of the Act—a statute, it may be noted, that is not a model of clarity.

The plaintiffs offer an interpretation of the Act that is particularly adverse to their own interests and that serves to bolster their position that the Act, on its face, impermissibly discriminates against non-Connecticut holding companies. With the single exception of Section 2(c)(3), which will be discussed later, the plaintiffs' allegations of discrimination and burden on interstate commerce derive from an interpretation of the Act that is directly contrary to the interpretation adopted and applied by the Commissioner. The plaintiffs' interpretation of these provisions is based not on the language of the Act itself but on various statutory definitions enacted prior to the adoption of the Act. See Memorandum In Support of Plaintiffs' Motion for Preliminary Injunction (filed Sept. 17, 1984) ("Plaintiffs' Memorandum I") at 7-10, 21-26. In fact, the plaintiffs formulated their interpretation before the Act had been applied to Sears and its subsidiaries. Id.

A.

The plaintiffs contend that the "grandfather" clause of Section 2(c)(4) does not apply to non-Connecticut holding companies such as Sears. See id. at 9, 25; Tr. 7-8. The corollary to this contention is that the plaintiffs have to re-establish all of their offices in Connecticut, even if these offices were doing business prior to June 1, 1984. Interestingly, despite the plaintiffs' allegations concerning the discriminatory nature of Section 2(c)(4)'s exemption, they have not made any applications involving offices established before June 1, 1984. See Tr. 30. Furthermore, the Commissioner has taken the position that Section 2(c)(4) applies to offices of all holding companies covered by the Act whether or not they are based in Connecticut, see Memorandum in Support of Motion to Dismiss (filed Oct. 15, 1984) ("Defendant's Memorandum I") at 3, and he has made no attempt to enforce the Act to the plaintiffs' detriment based on the asserted nonapplicability to the plaintiffs of Section 2(c)(4). See Tr. 30.

The plaintiffs also contend that Section 2(d) allows Connecticut holding companies to establish two banking business offices per year but makes no such allowance for non-Connecticut holding companies. See Plaintiffs' Memorandum I at 10, 24-26; Tr. 8. According to the plaintiffs, they may not establish any offices in Connecticut to conduct banking business. In contrast to the plaintiffs' view, the Commissioner has taken the position that Section 2(d) applies to non-Connecticut holding companies. See Defendant's Memorandum I at 3. The Commissioner already has granted provisional approval pursuant to Section 2(d) for the SFNCs and has offered to do the same for the AEMC offices. See Statement I, ¶ 52; Statement II, ¶ 59.

Finally, the plaintiffs maintain that Section 2(b) of the Act requires that a $1,000 fee be paid in connection with applications to open offices in Connecticut that will not engage in banking business. See Plaintiffs' Memorandum I at 1, 11, 18, 30. However, Section 2(b), unlike Section 2(d), mentions nothing about an application fee, and the Commissioner has imposed no such fee for the nearly 100 Sears applications that he has approved pursuant to Section 2(b).

B.

The court, for the purposes of this lawsuit, adopts the Commissioner's interpretation of the Act, absent any application or state court construction to the contrary.¹¹See Kaplan v. Board of Education of the City School District of the City of New York, 759 F.2d 256, 260 (2d Cir.1985) ("Kaplan") (reliance on relevant agency's...