City Nat. Bank v. Smith
| Decision Date | 27 May 1975 |
| Docket Number | No. 73-2132,73-2132 |
| Parties | CITY NATIONAL BANK, Appellant v. James E. SMITH, Comptroller of Currency of the United States, Meadowbrook National Bank, Appellees |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
David E. McGiffert, Washington, D.C., with whom John D. Taurman, Washington, D.C., was on the brief, for appellant.
Donald Etra, Atty., Dept. of Justice, with whom Irving Jaffe, Acting Asst. Atty. Gen., Dept. of Justice, Earl J. Silbert, U.S. Atty., and Leonard Schaitman, Atty., Dept. of Justice, were on the brief, for appellee Smith.
John D. Hawke, Jr., Washington, D.C., with whom Irvin B. Nathan, Washington, D.C., was on the brief, for appellee Meadowbrook National Bank.
Before McGOWAN, ROBINSON and ROBB, Circuit Judges.
Opinion for the Court filed by Circuit Judge SPOTTSWOOD W. ROBINSON, III.
Appellant City National Bank filed suit in the District Court challenging the preliminary approval by appellee Comptroller of the Currency of a national bank charter for appellee Meadowbrook National Bank. The court denied City's motion for summary judgment and granted summary judgment for the Comptroller and Meadowbrook. 1 City urges reversal on the grounds that misrepresentations by Meadowbrook's organizers precluded approval of the application, 2 that the Comptroller failed to investigate adequately and neglected to decide the misrepresentation issue 3 and that the Comptroller did not explain his decision sufficiently to permit effective judicial review. 4 We affirm.
The National Bank Act 5 empowers the Comptroller to issue charters for national banks. 6 The dual purpose of the chartering process is to regulate entry into the banking industry on the basis of economic considerations and to assure that national banks are competently and honestly operated. These objectives are reflected in the topics subject to investigation prior to approval of applications for charters:
(1) The adequacy of the proposed banks structure.
(2) The earning prospects of the proposed bank.
(3) The convenience and needs of the community to be served by the proposed bank.'
(4) The character and general standing in the community of the applicants, prospective directors, proposed officers, and other employees, and other persons connected with the application or to be connected with the proposed bank.
(5) The banking ability and experience of those officers and other employees. 7
On July 17, 1972, a group of businessmen applied for a charter authorizing organization of Meadowbrook National Bank in the eastern section of Fort Worth, Texas. The Regional Administrator of National Banks initiated an investigation, including a four-day field examination. He also notified the 40 existing banks in the county in which Meadowbrook would be located that the application had been filed and invited written comments. city responded in opposition to the proposed charter, expressing the view that there was no economic necessity for a new bank in the area. 8 Later City requested, and was granted, a public hearing on the application 9 at which it might defend that position.
At the hearing Meadowbrook presented evidence of the need for a new bank in east Forth Worth. The testimony of witnesses called by City was directed solely towards the economic considerations generated by the application. Meadowbrook offered further testimony in rebuttal concerning the economic desirability of favorable action on the application.
In closing argument, following Meadowbrook's summation, City's counsel raised a question regarding a possible lack of full disclosure in the application. This charge had not surfaced in the prehearing communications nor had it been the subject of any testimony offered at the hearing. 10 City suggested that Meadowbrook's organizers had concealed the identity of an interested party, 11 and Meadowbrook vigorously denied this allegation. 12
After the hearing intradepartmental recommendations were submitted to the comptroller to assist the final decision. 13 The rEgional Administrator's report noted the concealment claim, but concluded that "ownership distribution appears satisfactory." The comptroller approved the application conditionally and stated the following reasons:
Population of area adequate to support this new entry. Only bank in area is undoubtedly of sufficient size (32 million) to stand competition, the addition of which should redound to the benefit of the consuming public. Subject to aggregate capital of at least one million. 14
The applicants were notified that the Comptroller had granted preliminary approval subject to a number of conditions, including acceptability of initial management personnel and submission of financial and biographical data by each person who subscribed for 5% of Meadowbrook's shares. 15 The distribution of shares was, as it apparently is in all cases, subject to the Comptroller's approval of the subscribes. 16
City then filed suit against the Comptroller to invalidate approval of the application, and Meadowbrook was granted leave to intervene. The primary ground for relief stated in City's amended complaint related to the alleged misrepresentation by Meadowbrook's organizers in the application. The Comptroller submitted the full administrative record, 17 and all parties moved for summary judgment. The District Court concluded that "the Comptroller's decision to grant preliminary approval of the charter application of Meadowbrook National Bank is both rationally and substantially supported by the record and the record does not support plaintiff's charge of fraud, misrepresentation, or concealment, and this charge was reasonably and properly rejected by the Comptroller's office."
II. THE MISREPRESENTATION CHARGE
The Meadowbrook application represented,in the standard form prescribed by the Comptroller, that its organizers were not acting in behalf of any person "undisclosed to the Comptroller" and that there was no "agreement or understanding" providing for purchase of Meadowbrook shares by any person. 18 City claims that the organizers had an understanding with Dee J. Kelly, the principal shareholder of another area bank, that Kelly would be a stockholder and that this understanding suggests that they were acting on his behalf, as well as their own, in filing the application. City contends that the failure to disclose this arrangement--variously termed by City "fraud," "misrepresentation," "omission of material facts" and "lack of candor"--invalidated the Comptroller's approval of the application. 19
18. The relevant paragraphs of the application state:
The standard for judicial review of the Comptroller's action in granting or denying a charter application was recently set by the Supreme Court in Camp v. Pitts. 20 The test is whether the comptroller's decision was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 21 By this standard, the District Court was clearly justified in rejecting the misrepresentation charge.
The evidence offered by City to substantiate its allegations was, to say the least, far from compelling. On the other hand, there was a good deal of evidence indicating that Kelly's proposed participation in Meadowbrook was disclosed to the Comptroller's office, even if the application was not literally accurate in all particulars. 22 Before the filing of the application, the applicants told the Deputy Regional Administrator, in a meeting with Kelly present, that Kelly intended to become a stockholder in the proposed bank. This intention was reaffirmed at the hearing by Meadowbrook's counsel, who also stated that Kelly had recognized throughout the application proceedings that the Comptroller reserved the prerogative of final approval of the stockholders. The field examiner was informed that Kelly intended to subscribe for 5% of the shares, and this fact was contained in the examiner's report, which was a part of the record submitted to the Comptroller. Finally, in a post-hearing letter, Kelly asserted that he always intended to invest in the bank, that he never had any agreement with the organizers and that he realized that any purchase of shares was subject to authorization by the comptroller. On this record,the approval of the application was not arbitrary, capricious or an abuse of discretion, and the District Court's rejection of the misrepresentation charge must be sustained.
III. THE ADEQUACY OF THE DECISION-MAKING PROCESS
City also asserts that the evidence revealed at the hearing mandated a post-hearing investigation by the Comptroller's office to resolve questions that were yet unanswered. The Comptroller's discretion in the area of investigations and hearings relating to charter applications is plain. 23 Although the Comptroller might have been justified in exercising his discretion in favor of further investigation, City's presentation was not so forceful that he was required to do so.
Additionally, the purported concealment was not a major issue in the administrative proceedings, which focused mainly on the need for a new bank in east Forth Worth. Although city has placed great emphasis on that issue in the District court and on appeal, it was not mentioned at all prior to the hearing--despite ample opportunity to do so--and city did not include any reference to nondisclosure in its presentation of evidence at the hearing. 24 Nor did City question any of the organizers at the hearing, although five of the six were present and one was called by Meadowbrook to testify concerning the need factor. Besides, a "conclusion" filed by City after the hearing listed six reasons for denial of the application but completely ignored the misrepresentation charge. If the record revealed that the Comptroller had not conducted a sufficient inquiry into an important facet of the application, we might be...
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