Cheshire Nat. Bank v. Smith
| Decision Date | 22 February 1977 |
| Docket Number | Civ. A. No. 76-94. |
| Parties | The CHESHIRE NATIONAL BANK and Connecticut River National Bank v. James E. SMITH, Comptroller of the Currency of the United States. |
| Court | U.S. District Court — District of New Hampshire |
Arnold R. Falk, Bell & Falk, Keene, N. H., for plaintiffs.
The plaintiffs, Cheshire National Bank of Keene and Connecticut River National Bank of Charlestown, seek to overturn the Comptroller's approval of an application by the Keene National Bank (Keene) of Keene to relocate its Walpole, New Hampshire, agency from Westminster Street to Main Street. They also challenge an alleged approval by the Comptroller of an expansion of services by Keene.
The issue is whether the Comptroller was correct in finding that Keene's agency in Walpole is a branch and that it qualified under the "grandfather clause" of 12 U.S.C. § 36(a) (The McFadden Act).
Purely legal issues are decided de novo by this court, but factual determinations made by the Comptroller can be overturned only if they are without rational basis. If the Comptroller committed no procedural errors which would call for a remand, and if he did not act arbitrarily or capriciously, his decision cannot be overturned. Camp v. Pitts, 411 U.S. 138, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973); City National Bank v. Smith, 168 U.S.App.D.C. 221, 513 F.2d 479 (1975); First National Bank of Fayetteville v. Smith, 508 F.2d 1371 (8th Cir. 1974); Seattle Trust and Savings Bank v. Bank of California, N.A., 492 F.2d 48, cert. den., 419 U.S. 844, 95 S.Ct. 77, 42 L.Ed.2d 72 (2 Cir., 1974); Sterling National Bank of Davie v. Camp, 431 F.2d 514, cert. den., 401 U.S. 925, 91 S.Ct. 879, 27 L.Ed.2d 829 (5 Cir., 1970).
Keene was chartered as a national association in 1865 and has continuously conducted banking business in Keene ever since. Despite the fact that national associations were permitted to have offices in only one location, Keene's Board of Directors authorized one Josiah G. Bellows to hold $500 in Walpole for the purpose of cashing checks, making loans, discounting notes, and accepting loan payments on January 16, 1872. From that time, with the possible exception of a few months in 1927, Keene employed an agent in Walpole in a similar capacity. From 1898 until May of 1975, this business was conducted at the offices of the Savings Bank of Walpole (Walpole) by an employee paid in part by Walpole and in part by Keene.
Until recently, savings banks in New Hampshire could not offer demand deposit accounts (checking accounts) to their customers while commercial banks, including national associations, could.1 The arrangement between Keene and Walpole gave the customers of Keene an opportunity to do business with that institution without travelling the seventeen miles from Walpole to Keene and allowed the customers of Walpole to have checking accounts conveniently serviced in the same office as was the rest of their business. This mutual convenience provided the basis for a very comfortable relationship between the two banks until 1974 when savings banks in New Hampshire and Massachusetts were granted authority to offer demand deposit accounts called Negotiable Order of Withdrawal (NOW) accounts.2 The practice of having one bank's employee serve as the agent for another bank may have been unique to this situation, but it is common in New Hampshire to find a savings bank and a commercial bank sharing the same lobby for the convenience of their customers and their own mutual profit. This practice is diminishing as the different institutions encroach increasingly on each other's terrain.
With the advent of NOW accounts in the early 1970's and their express legalization in 1974, Walpole was able to duplicate the checking services offered by Keene. Not surprisingly, Walpole evicted Keene from its premises in May of 1975. By letter of May 16, 1975, Keene notified the Comptroller that it was about to be evicted from Walpole's premises and requested permission to relocate. The Comptroller, by letter dated May 21, 1975, granted Keene temporary permission to relocate pending "the full administrative consideration . . . provided by 12 C.F.R. Part 5 . . .."
The statutory requirements for national banking associations to maintain a branch or branches are at 12 U.S.C. § 36, the codification of the McFadden Act, which states in pertinent part:
The McFadden Act was passed in 1927, according to its chief sponsor, Congressman McFadden, "to restore as nearly as possible the equilibrium between state and national banks within the Federal Reserve System." Cong. Rec., June 7, 1924, p. 1296ff. Prior to the enactment of this law, several states allowed branch banking for state chartered institutions. National banks, in order to compete in those jurisdictions, were converting from their federal charters to state charters. The McFadden Act allowed national banks to establish branch offices in jurisdictions which permitted it for their own institutions under the same terms and conditions. In the First National Bank of Logan v. Walker Bank and Trust Co., 385 U.S. 252, 261, 87 S.Ct. 492, 497, 17 L.Ed.2d 343 (1966), the Court reviewed the history of federal branch banking law and concluded "that Congress intended to place national and state banks on a basis of `competitive equality' insofar as branch banking was concerned."
One of the requirements of 12 U.S.C. § 36(a) is that a branch to be maintained under the grandfather clause, must have been "continuously . . . operated . . . for a period of more than twenty-five years immediately preceding . . ." February 25, 1927. Another requirement is that the institution wishing to maintain a branch under this authority can have only one branch that qualifies. 12 U.S.C. § 36(a). The Comptroller found that both of these conditions were satisfied. The plaintiffs dispute his findings. This first issue is clearly one of fact, and the Comptroller must be sustained if there is any rational basis for his conclusion.
All parties agree that Keene's agent in Walpole was in continuous operation from 1876 to the present time except for the possibility of a brief interruption in 1927. Plaintiffs allege that correspondence and excerpts from national bank examination reports released by the Comptroller pursuant to Freedom of Information Act requests were not considered in reaching the Comptroller's conclusion and that these documents reveal that there were two outpost agencies, not one, and that they both ceased to exist on or about January 17, 1927, although the agency in Walpole was reestablished shortly thereafter.
A letter dated March 17, 1906, from W. B. Ridgely, Comptroller, to G. A. Litchfield, President of Keene, mentions two agencies, one in Hinsdale and one in Walpole. In his letter, the Comptroller said: "As it is unlawful for a national bank to receive deposits elsewhere than at its banking house, an explanation of this matter is requested." A letter from Keene's Board of Directors to the Comptroller, dated January 21, 1924, states that the practice of making loans at the agencies was discontinued. The examiner's report of November 1, 1925, suggests that this was not the case:
The bank examination report of September 14, 1926, again calls into question the activities of Keene's two agencies:
Cashier Mason stated that several years ago he went to Washington and took up this matter with the Comptroller and was advised that the department would not object to this bank maintaining these agencies as they are now conducted. It is respectfully requested that your examiner be adives sic if the above agencies are legal.
The Deputy Comptroller responded to this request by the bank examiner with a letter to Keene's Board of Directors dated October 25, 1926. The letter states that the agencies are illegal and demands a response from...
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