CORNING S & L ASS'N v. FED. HOME LOAN BK. BD., LR-C-83-69.

Citation571 F. Supp. 396
Decision Date19 September 1983
Docket NumberNo. LR-C-83-69.,LR-C-83-69.
PartiesCORNING SAVINGS & LOAN ASSOCIATION; and The Corning Bank v. FEDERAL HOME LOAN BANK BOARD, et al.
CourtU.S. District Court — Eastern District of Arkansas

COPYRIGHT MATERIAL OMITTED

John P. Gill and Jack Fink, Gill, Skokos, Simpson, Buford & Owen, Little Rock, Ark., for plaintiffs.

James T. Lantelme, Jonothon K. Heffron and Harvey Simon, Washington, D.C., for Federal Home Loan Bank Board.

James W. Lance, Little Rock, Ark., and John F. Forster, Jr., Wallace, Hilburn, Clayton, Calhoon & Forster, North Little Rock, Ark., for Pocahontas Federal Sav. & Loan.

MEMORANDUM OPINION

ROY, District Judge.

The instant complaint involves an action by Corning Savings and Loan Association ("Corning S & L") and Corning Bank against the Federal Home Loan Bank Board ("Board" or "Bank Board"), its individual members, and Pocahontas Federal Savings & Loan Association ("Pocahontas"), concerning the Board's approval of an application by Pocahontas to open a branch office in Corning, Arkansas. Plaintiffs have asked for the following:

(1) a stay of Board Resolution No. 83-41, dated January 20, 1983 ("Resolution"), whereby Pocahontas' application for the Corning branch was approved;

(2) the reversal and quashing of the Resolution;

(3) a temporary and permanent injunction halting the operation of the new branch office;

(4) a declaratory judgment that the Board is without authority to approve branch office applications until it adopts regulations to implement the Community Reinvestment Act and to consider undue injury to commercial banks;

(5) an order directing the Board to promulgate such regulations and to adopt constitutionally sound procedures for protesting branch office applications;

(6) the award of $25,000 damages; and

(7) an order directing the Board to file with the Court all documents and other matters considered by the Board in reaching its decision.

By Order dated April 13, 1983, the Court denied the plaintiffs' motion for a stay of the Resolution. The remaining issues raised in the complaint have been presented by the defendants for resolution via motions for summary judgment, to which the plaintiffs have filed their response. Also pending before the Court are the defendants' motions for protective orders whereby they seek to prevent the plaintiffs from conducting further discovery. It is the defendants' contention that the resolution of this case should be based solely upon the administrative record1 which was compiled in conjunction with Pocahontas' branch application, and that further discovery is improper.

A hearing was held on the motions for summary judgment and for protective orders on May 19, 1983, after which the parties were given the opportunity to file supplemental briefs. These briefs have now been received and the matter is ready for decision.

The Court has carefully considered the excellent briefs which have been filed herein and the arguments of counsel, each of whom has thoroughly and most competently presented his client's position to the Court. Upon review, the Court finds (1) that the matter should be resolved on the defendants' motions for summary judgment; (2) that said motions must be granted; and (3) that the defendants' motions for protective orders should be granted.

The record reflects that the background of this case is as follows:

On March 3, 1982, Pocahontas filed an application with the Board to establish a branch office at the intersection of West Pine and West Second Streets in Corning, Arkansas. The application proposed that the branch would serve all of Clay County, Arkansas, the primary market area ("PMA"). Supporting geographic, demographic, statistical and economic information was included in the application.

As permitted by Board regulation, 12 C.F.R. § 545.14(f), both plaintiffs filed written protests to the application, which protests were determined to be "substantial" by the Board's Supervisory Agent pursuant to 12 C.F.R. § 545.14(f)(2). Pocahontas submitted its written response to the protests as is provided for by 12 C.F.R. § 543.2(e).

Oral argument on the application was set by the Supervisory Agent for June 1, 1982, in Little Rock, Arkansas. Before the argument was held, Corning Bank brought suit against the Board in the Eastern District of Arkansas, Corning Bank v. FHLBB, LR-C-82-379, wherein an injunction halting the Board's processing of the application was sought. Subsequent to the filing of the lawsuit, the June 1, 1982, oral argument before the Board was postponed until July 7, 1982. On July 2, 1982, Corning Bank's complaint was dismissed by the Honorable George Howard, Jr., U.S. District Judge, as being premature.

The administrative oral argument was held on July 7, 1982, at the offices of the Federal Home Loan Bank of Little Rock ("Little Rock Bank") before the Board's Supervisory Agent, David Cockroft. During the course of the argument, plaintiffs made numerous motions and introduced many exhibits.

In the January 17, 1983, issue of the Federal Register an agenda was published wherein it was stated that the branch application of Pocahontas would be considered by the Board at 10:00 a.m., Thursday, January 20, 1983, at 1700 G Street, N.W., Washington, D.C. Said notice had been filed on January 13, 1983, and was first made public on January 10, 1983.

At the January 20, 1983, meeting, the Board adopted the aforementioned Resolution approving Pocahontas' branch application. In this Resolution the Board determined, inter alia, that "the branch can be established without undue injury to properly conducted existing local thrift and home-financing institutions," rejected the plaintiff-protestants' allegations of bias of the Supervisory Agent, and denied all of the protestants' motions which had been raised at the argument.

On January 21, 1983, Pocahontas submitted its Application for Final Approval of Exact Location of Authorized Branch Office to Supervisory Agent Cockroft, proposing that the approved branch be temporarily located at # 7 Huddle Plaza, Corning, Arkansas, pending construction of permanent quarters. On the same day, under authority delegated to him by the Board, Mr. Cockroft approved the Huddle Plaza location pursuant to 12 C.F.R. § 545.14(i). The branch then opened for business on the following day, January 22, 1983, and the instant suit was filed by the plaintiffs on January 26, 1983.

In their complaint plaintiffs allege bias and conflict of interest of the Supervisory Agent; improper communications by Pocahontas with the Board and its agents; improper denial by the Board of plaintiffs' requests for information; failure of the Board to make "an independent decision in the application"; improper denial of plaintiffs' various motions filed during the oral argument; improper reliance by the Board on information not in the record; lack of adequate notice to protestants of the oral argument; lack of "substantial evidence" to support a finding of Pocahontas' compliance with the Community Reinvestment Act; an unlawful and arbitrary burden of proof on protestants to show why the application should be approved; and improper approval of the application based "upon incomplete, out-of-date, and materially misleading evidence and data" presented by Pocahontas.

Plaintiffs' Count I alleges that, because of the above claims, the Board's decision to approve the Application is arbitrary and capricious. Count II alleges denial of due process based on the above and upon plaintiffs' purported constitutionally protected property interest in their respective licenses. Count III alleges that there is no substantial evidence in the record "that either the Board Defendants or Defendant Pocahontas ... complied with the Community Reinvestment Act ..." Count IV alleges the Board has violated the Freedom of Information Act and "has denied Plaintiffs the right to information guaranteed thereby." Count V alleges the failure of the Board to follow "procedure required by law, and by the Board Defendants' own rules ..." Count VI alleges that the "Institutions Deregulation and Monetary Decontrol Act of 1980, 12 U.S.C. § 1464" sic, and the Garn-St Germain Depository Institutions Act of 1982, P.L. 97-320, 96 Stat. 1469, have largely eliminated the difference between banks and savings and loan associations. Corning Bank alleges that, as a commercial bank, it thus has been denied equal protection and due process because the Board's regulations only recognize undue injury to properly conducted thrift and home-financing institutions as a basis for denying a branch office application. Finally, Count VII requests an injunction against the operation of the Pocahontas branch office at the Huddle Plaza site because operation of the branch office at that site is not in accord with the provisions of the Board's Resolution.

Courts in this district have frequently decided challenges to approval of branch office applications on motions for summary judgment. Poinsett County Savings & Loan Ass'n v. FHLBB, 504 F.Supp. 610 (E.D.Ark.1980); Bank of Ozark v. FHLBB, 402 F.Supp. 162 (E.D.Ark.1975); Merchants and Planters Bank of Newport v. Smith, 380 F.Supp. 354 (E.D.Ark.1974). See, also, Elm Grove Savings & Loan Ass'n v. FHLBB, 391 F.Supp. 1041 (E.D.Wisc.1975).

The action complained of by the plaintiffs is an administrative decision by the Board that is subject only to very narrow review by this Court under the Administrative Procedures Act, 5 U.S.C. § 706. Camp v. Pitts, 411 U.S. 138, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973); Bank of Ozark v. FHLBB, supra; Elm Grove Savings & Loan Ass'n v. FHLBB, supra. The appropriate standard of review is not the "substantial evidence" test, but rather the "rational basis" test. The rational basis standard permits review only of the existing administrative record and does not allow the establishment of a new record by the reviewing court. Camp v. Pitts, supra; First National Bank of Baudette v. First Federal...

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