Bank of Ozark v. Federal Home Loan Bank Board

• Decision Date: 27 August 1975
• Docket Number: No. LR-74-C-408.,LR-74-C-408.
• Citation: 402 F. Supp. 162
• Parties: BANK OF OZARK, Plaintiff, v. FEDERAL HOME LOAN BANK BOARD et al., Defendants.
• Court: U.S. District Court — Eastern District of Arkansas

402 F. Supp. 162

BANK OF OZARK, Plaintiff, v. FEDERAL HOME LOAN BANK BOARD et al., Defendants.

No. LR-74-C-408.

United States District Court, E. D. Arkansas, W. D.

August 27, 1975.

COPYRIGHT MATERIAL OMITTED

John P. Gill, Harold H. Simpson, II, Little Rock, Ark., for plaintiff.

Harvey Simon, Federal Home Loan Bank Board, Washington, D. C., Roy R. Gean, Jr., Fort Smith, Ark., for First Federal Savings and Loan Association of Fort Smith.

MEMORANDUM OPINION

HENLEY, Circuit Judge, Sitting By Designation.

This is a suit for declaratory and injunctive relief brought by plaintiff, Bank of Ozark, against the Federal Home Loan Bank Board, the members of the Board, and First Federal Savings and Loan Association of Fort Smith, Arkansas.¹ By this action the Bank, which is chartered under the laws of Arkansas and has its principal place of business in the City of Ozark, Franklin County, Arkansas, seeks to invalidate the action of the Board, expressed in a resolution adopted on November 22, 1974, granting the application of First Federal Savings and Loan Association of Fort Smith for authority to open a branch office in Ozark.

The Bank contends, and the Board and the applicant deny, that in the course of the proceedings before the agency the Bank was denied procedural due process of law, and, further, that the action ultimately taken by the Board amounted to a violation of substantive due process. The case has been submitted on the pleadings and exhibits, motions for summary judgment filed by the defendants, the administrative record compiled in the agency proceedings, including a transcript of an oral argument of counsel heard by the local Supervisory Agent of the Board, memorandum briefs, and oral arguments made before the Court on August 15, 1975.

The Board's resolution was adopted pursuant to the authority conferred upon it by § 5 of the Home Owners' Loan Act of 1933, as amended, 12 U.S.C. § 1464(a). The application, which was opposed before the agency by the Bank and by First Savings and Loan Association of Clarksville, Arkansas, was considered in conformity with the procedures established by the Board's regulations dealing with branch applications, which regulations appear as 12 C.F.R. § 545.14. As is its custom under the regulations the Board held no evidentiary hearing and filed no formal findings of fact or conclusions of law or any formal opinion setting forth the basis for its ultimate conclusion that the application should be granted. As indicated, oral argument was heard by a Supervisory Agent of the Board. In line with the provisions of 12 C.F.R. § 545.14(c), the Board's resolution recited that there was a need for the proposed service, that there was a reasonable probability that the operation would succeed and be useful, and that the proposed branch office would not unduly injure properly managed existing thrift and home financing institutions in the area.

The Court is met at the outset with two preliminary questions.

While there is no question that Board action in connection with applications for operating authority is subject to judicial review under the relevant provisions of the Administrative Procedure Act, 5 U.S.C. § 701 et seq., the Board asserts that it is not subject to suit as an entity by the Bank since 12 U.S.C. § 1464(d) specifies only that the Board may be sued by federally chartered federal savings and loan associations and by their officers and directors. The Board points out that the Bank does not come within the purview of that subsection of the Act. Support for the Board's position is found in Central Savings & Loan Ass'n of Chariton, Iowa v. Federal Home Loan Bank Board, 293 F. Supp. 617 (S.D.Ia.1968), aff'd, 422 F.2d 504 (8th Cir. 1970). In that case Judge Stephenson held that banks and state chartered savings and loan associations cannot maintain an action against the Board as an entity. That ruling was not challenged on appeal. 422 F.2d at 505, and this Court accepts it. Actually, the question is not important because it was conceded in argument that the individual members of the Board, who are defendants here, are subject to suit and because the Court has jurisdiction of the applicant under the general "federal question" jurisdiction conferred by 28 U.S.C. § 1331(a).

The second preliminary question is whether a commercial bank has standing to challenge a determination by the Board that branch operating authority should be granted to a federal savings and loan association. The question is not without interest, and the Court has seen no reported case in which it was squarely presented. While both commercial banks and savings and loan associations are financial institutions, and while both institutions accept savings deposits on which they pay interest and make loans on which they charge interest, the functions that they perform in the business world are substantially different, and the extent to which they compete with each other is limited and varies from time to time and place to place and depends in large measure on prevailing economic conditions. A good description of the commercial banking system in this country and of federal regulation thereof will be found in United States v. Philadelphia National Bank, 374 U.S. 321, 324-30, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963). However, aside from any question of competition or of adverse economic impact that the granting of the application may have on the Bank, the Court is satisfied that the Bank in the public interest has standing to complain of any illegal agency action in connection with the granting of the application and thus has standing to maintain the suit. Cf., Federal Communications Comm. v. Sanders Bros. Radio Station, 309 U.S. 470, 476-77, 60 S.Ct. 693, 84 L.Ed. 869 (1940).

In support of its claim that it was denied procedural due process of law the Bank contends that it was constitutionally entitled to an evidentiary hearing, to findings of fact and conclusions of law, to a reasoned agency opinion, and to a de novo consideration by this Court of the merits of the challenged application. The Court rejects those contentions.

In passing on a branch application the function that the Board performs is essentially the same as that performed by the Comptroller of the Currency when he considers under 12 U.S.C. § 36 an application of a national bank for authority to establish a branch. Hence, principles laid down in cases involving the Comptroller are applicable to cases involving the Board. Benton Savings & Loan Ass'n v. Federal Home Loan Bank Board, 365 F.Supp. 1103 (E.D.Ark. 1973); Guaranty Savings & Loan Ass'n v. Federal Home Loan Bank Board, 330 F.Supp 470 (D.C.D.C.1971).

In passing on a branch application the Board exercises a function which is largely discretionary, although the discretion of the Board is not unlimited. While the action of the agency is subject to judicial review, the scope of that review is narrow. And it is now established beyond doubt that the Board is not required by the Constitution, the Home Owners' Loan Act, or the Administrative Procedure Act to conduct adversary evidentiary hearings, to make formal findings of fact, to draw formal conclusions of law, or to file written opinions supporting the actions taken; nor is the party seeking review entitled to a de novo hearing before the reviewing court. Pitts v. Camp, 411 U.S. 138, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973); Merchants & Planters Bank of Newport, Arkansas v. Smith, 516 F.2d 355 (8th Cir. 1975), aff'g Merchants & Planters Bank of Newport v. Smith, 380 F.Supp. 354 (E.D.Ark.1974); First National Bank of Fayetteville v. Smith, 508 F.2d 1371 (8th Cir. 1974); Central Savings & Loan Ass'n v. Federal Home Loan Bank Board, 422 F.2d 504 (8th Cir. 1970); Webster Groves Trust Co. v. Saxon, 370 F.2d 381 (8th Cir. 1966); Bridgeport Federal Savings & Loan Ass'n v. Federal Home Loan Bank Board, 307 F.2d 580 (3d Cir. 1962), cert. denied, 371 U.S. 950, 83 S.Ct. 504, 9 L. Ed.2d 499 (1963); Benton Savings & Loan Ass'n v. Federal Home Loan Bank Board, supra; Guaranty Savings & Loan Ass'n v. Federal Home Loan Bank Board, supra.

In Pitts v. Camp, supra, the Supreme Court rejected the view that had been taken by the Court of Appeals for the Fourth Circuit that where the Board does not hold an evidentiary hearing and where the basis for the administrative action does not appear clearly in the administrative record, the protesting party is entitled to a de novo judicial hearing.² Citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), the Supreme Court held that where the administrative record is inadequate to enable the reviewing court to determine the basis of the agency action, the remedy is not a de novo hearing but the obtaining from the agency by appropriate means of "such additional explanation of the reasons for the agency decision as may prove necessary." 411 U.S. at 143, 93 S.Ct. at 1244. And it was stated that if the administrative record is insufficient to sustain the action taken, the administrative decision should be vacated and the case remanded for further consideration. Ibid.

The argument that the Fifth Amendment required the Board to hold a hearing was specifically rejected in Guaranty Savings & Loan Ass'n v. Federal Home Loan Bank Board, supra, 330 F. Supp. at 472.³ It is true, and cases cited by counsel for the Bank establish that some administrative actions may have such an impact on the liberty and property of individuals and corporations that due process requires an evidentiary hearing, but this is not such a case.

Counsel for the Bank complain that the applicant submitted certain inaccurate data to the Board confidentially. In connection with an application for licensing authority for a financial institution, it is not unusual for the licensing agency to receive confidential data, and the practice has been approved and indeed found desirable. Sterling National Bank of Davie v. Camp, 431...