Bank of North America v. State Banking Board

• Decision Date: 02 June 1971
• Docket Number: No. 11829,11829
• Citation: 468 S.W.2d 529
• Parties: BANK OF NORTH AMERICA, Appellant, v. STATE BANKING BOARD of the State of Texas et al., Appellees.
• Court: Texas Court of Appeals

Page 529

468 S.W.2d 529

BANK OF NORTH AMERICA, Appellant, v. STATE BANKING BOARD of the State of Texas et al Appellees.

No. 11829.

Court of Civil Appeals of Texas Austin.

June 2, 1971.

Callahan, Mulvihill & Collins, Houston, Byron Lockhart, Austin, for appellant.

Crawford C. Martin, Atty. Gen., John H. Banks, Asst. Atty. Gen., Austin, Jacobsen & Long, Joe R. Long, Austin, Liddell, Sapp, Zivley & Brown, Willis Witt, Houston, for appellees.

SHANNON, Justice.

Appellant Bank of North America has appealed from a judgment of the District Court of Travis County refusing its application for temporary injunction to enjoin the State Banking Board from making effective its approval of a charter for Southeast Bank to be located in Houston. In this opinion Southeast Bank will be referred to as 'Southeast', Texas Commerce Bank as 'Commerce,' Bank of North America as 'Appellant', and the State Banking Board as 'Board.'

The preliminary facts are as follows. In early 1969 Southeast applied for a charter to be located near the intersection of Telephone Road and Bellfort Street in Houston. Later that year appellant bank, located about two an done-half miles away, applied for permission to move to a site near the Telephone Road and Bellfort intersection, taking the basic position that it, rather than Southeast, should have that location. In April 1969, both applications were denied, and there was no appeal from that decision .

Still later in 1969 Southeast, apparently constituted by a different group, again filed for a charter at the same location, and appellant again applied for permission to move to that same site. On May 20, 1970 the State Banking Board heard Southeast's application which was vigorously contested by appellant and another area bank, and on August 12, 1970 the charter of Southeast was approved.

Appellant urges error by four points, asserting that the issuance of the charter of Southeast was: (1) in violation of Article XVI, Section 16 of the Texas Constitution, Vernon's Ann.St.; (2) in violation of the anti-trust laws of Texas; (3) in violation of 'fundamental due process;' and (4) that the trial court erred in excluding as evidence a portion of a report of a State Banking Board investigator.

Appellant does not fault that portion of the court's judgment that the State Banking Board order granting Southeast a charter is reasonably supported by substantial evidence. In that connection the court found, in accordance with Art. 342--305 of the Texas Banking Code, Vernon's Ann.Civ.St., that a public necessity existed; that the proposed capital structure of Southeast was adequate; that the volume of business at the proposed site was such as to indicate a profitable operation by Southeast; that the proposed officers and directors of Southeast had sufficient experience, ability, and standing to render success of Southeast probable; and that the applicants were acting in good faith.

In the beginning it should be observed that this is an appeal from an order refusing a temporary injunction. In considering a temporary injunction the trial court has broad discretion to grant or deny the injunction. And in appeals from the denial of a temporary injunction the judgment of the trial court should not be disturbed unless it is evident that from the record that the court abused its discretion. Janus Films, Inc. v. City of Fort Worth, 163 Tex. 616, 358 S.W.2d 589 (1962).

The gravamen of appellant's first point is that Southeast is but a branch bank of the Texas Commerce Bank, a large downtown Houston bank, and, as such, is in violation of Article XVI, Section 16 of the Texas Constitution. Article XVI, Section 16 reads in part as follows: 'Such body corporate (a bank) shall not be authorized to engage in business at more than one place which shall be designated in its charter.'

Section 16 of Article XVI has not been judicially construed although the Attorney General's office has written several opinions concerning its application to given situations. The most comprehensive of those opinions was written to the State Banking Board by Attorney General Price Daniel in 1952. That opinion held that Section 16, more than just prohibiting a single banking corporation from directly engaging in business at more than one place, was intended to effectuate a State policy requiring that each banking corporation operate as an independent unit. Section 16 was construed to prohibit one bank from organizing separate banks and then dominating the controlling them to the extent of indirectly engaging in the banking business through the ostensibly independent banks. That opinion stated further that Section 16 does not prohibit stockholders of one bank from owning stock in another bank and, if the only affiliation between two banks were the ownership of the majority of the stock in each bank by the same person, then that alone would not constitute a violation of Section 16. However, if stockholders in one bank acquire controlling interest in another bank for the purpose of operating that bank as an instrumentality or agency, and so arrange the corporate control so that one bank actually dominates and controls the operations of the other bank, then, in the opinion of the Attorney General, this arrangement would violate Section 16.

Appellant and appellee cite out of state authority concerning 'branch banking' which we find to be of little assistance in view of the difference between the statutes of those states and Section 16 of Article XVI of the Constitution. ¹

Appellant alleged that Southeast is a creation of Commerce and that while ostensibly they are separate entities, Southeast will be subject to the control of Commerce. Appellant alleged further that Southeast proposed to issue 30,000 shares of stock, and of that sum, 11,740 shares were subscribed to by the members of one law firm, Liddell, Dawson, Sapp and Zively, of Houston, and that 2,800 more of those shares were subscribed to by employees and officers of Commerce. Appellant alleged further that the Liddell firm represented both Commerce and Southeast and that the members of that firm were 'admitted agents' of Commerce.

Assuming, as contended by appellant, but not deciding, that the Attorney General's Opinion of 1952 is the law, we think that under that opinion appellant failed to make a case. Central to the Attorney General's Opinion is the fact of stockholders in one bank owning a majority or a controlling amount of stock in another bank. The bare fact of ownership, without more, does not constitute a violation of Section 16. It is not shown by this record that stockholders of Commerce own more than, at the most, 2,800 shares of stock in Southeast. One thousand of the 2,800 shares were subscribed to by an officer of Commerce who is the proposed president of Southeast. The remaining 1,800 shares of stock constitute about 6% Of the stock issued.

Appellant says that because the Liddell firm owns 11,740 shares, and officers and employees of Commerce own 2,800 shares of Southeast stock, that as a 'matter of law' Southeast was 'merely being organized as an adjunct, instrumentality or agency' of Commerce. We cannot agree with this contention. The flaw in appellant's reasoning is its premise, stated but not proved, that the members of the Liddell firm are 'admitted agents' of Commerce. The mere fact of the firm's representation of Commerce coupled with ownership of stock in Southeast, without further evidence, is not a sufficient showing to constitute the members of that firm agents for Commerce in a transaction of this character. There was no evidence that members of the firm were holding the stock other than for themselves . The evidence was also that besides the Liddell firm, two other firms of attorneys represented Commerce. This Court may take notice of the fact that it is common practice for members of law firms to own shares of stock of corporate clients and, in so doing, be not acting as agents for such clients. It is generally thought, or at least hoped, that the stock ownership will be profitable and will possibly act as a factor in the continued representation of the client by that law firm.

Appellant also points to the fact that Charles Sapp of the Liddell firm was active in soliciting subscribers for Southeast, and that he was a director of Commerce. Appellant then argues that because Sapp's firm also represents Commerce, as well as Southeast, that Sapp was in reality acting for Commerce to further its alleged plan to dominate Southeast. Appell...