Farmers and Merchants Bank of Las Cruces, N. M. v. Board of Governors of Federal Reserve System
| Decision Date | 22 December 1977 |
| Docket Number | No. 76-1367,76-1367 |
| Citation | 567 F.2d 1082 |
| Parties | FARMERS AND MERCHANTS BANK OF LAS CRUCES, NEW MEXICO, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent, First New Mexico Bankshare Corp., Intervenor. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
William L. Lutz, Las Cruces, N. M., for petitioner.
Ronald R. Glancz, Atty., Dept. of Justice, Washington, D. C., with whom Rex E. Lee, Asst. Atty. Gen., and John D. Hawke, Jr., Gen. Counsel, Bd. of Governors of the Federal Reserve System, Washington, D. C., were on the brief, for respondent. Michael Kimmel, Atty., Dept. of Justice, Washington, D. C., also entered an appearance for respondent.
Edwin B. Spievack and Ian D. Volner, Washington, D. C., were on the brief, for intervenor.
Before MacKINNON, ROBB and WILKEY, Circuit Judges.
Opinion for the court filed by Circuit Judge MacKINNON.
On March 29, 1976, the Board of Governors of the Federal Reserve System (hereafter "Board"), acting pursuant to the Bank Holding Company Act of 1956, 12 U.S.C. § 1841 et seq., approved the application by the First New Mexico Bankshare Corporation (hereafter "Bankshare"), a bank holding company of Albuquerque, New Mexico, to acquire all of the stock of the Bank of Las Cruces, New Mexico, a proposed new national bank (hereafter "New Bank"). From the approval of such acquisition, the Farmers and Merchants Bank of Las Cruces (hereafter "FMB") asserts that it is an aggrieved party and appeals in accordance with the right accorded it by the Bank Holding Company Act of 1956, as amended, which provides as follows:
Any party aggrieved by an order of the Board under this chapter may obtain a review of such order in the United States Court of Appeals within any circuit wherein such party has its principal place of business, or in the Court of Appeals in the District of Columbia, by filing in the court, within thirty days after the entry of the Board's order, a petition praying that the order of the Board be set aside. . . . Upon the filing of such petition the court shall have jurisdiction to affirm, set aside, or modify the order of the Board and to require the Board to take such action with regard to the matter under review as the court deems proper. The findings of the Board as to the facts, if supported by substantial evidence, shall be conclusive.
12 U.S.C. § 1848 (1970) (emphasis added). 1
This appeal presents two issues. The first is whether the Board is required to hold a hearing so that FMB can discover evidence and cross-examine the applicant Bankshare. Related to this issue is the question of whether an adequate opportunity for discovery of evidence and cross-examination was provided, irrespective of whether a formal hearing was required. The second issue is whether the Board's findings in favor of approval of the application are supported by substantial evidence.
The Bank Holding Company Act of 1956, as amended, prohibits a bank holding company from acquiring ownership or control of a bank without the approval of the Board. 2 Pursuant to the Board's implementing regulations, a bank holding company seeking such an acquisition must first file an application with a Federal Reserve Bank, which investigates the application and reports the facts and submits a recommendation to the Board. 3 Then, after notice of receipt of the application is published in the Federal Register, 4 the application, pursuant to 12 U.S.C. § 1842(b), is forwarded to the Comptroller of the Currency if the bank to be acquired is a national bank. 5 The statute requires the Board to "allow thirty days within which the views and recommendations of the Comptroller . . . may be submitted." 6 The Comptroller may disapprove the proposal, in which case the Board is required to hold a hearing after giving written notice to the applicant. This hearing "shall afford all interested parties a reasonable opportunity to testify at such hearing." 7 However, if the Comptroller approves the proposal for acquisition, the statute does not require that a hearing be held.
The rationale for requiring a hearing when the Comptroller disapproves the application but not when he approves the application is vividly apparent in legislative history. 8 In short, Congress sought both to ensure that the true merits of an application would be elicited in the event of disapproval and to facilitate more informal proceedings where the Comptroller (or state bank supervisory authority) approves the application. This procedure demonstrates that Congress believed it could place considerable reliance upon the intimate knowledge of the banking situation that the close, regular supervision and regulation of banks gave to their federal and state supervisors.
The factors governing the Board's determination of whether to grant or deny the application for approval of the transaction are stated in 12 U.S.C. § 1842(c) (1970):
The Board shall not approve
(1) any acquisition or merger or consolidation under this section which would result in a monopoly, or which would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or
(2) any other proposed acquisition or merger or consolidation under this section whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint or (of) trade, unless it finds that the anticompetitive effects of the proposed transactions are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.
In every case, the Board shall take into consideration the financial and managerial resources and future prospects of the company or companies and the banks concerned, and the convenience and needs of the community to be served.
On July 17, 1975, the Comptroller of the Currency granted preliminary approval for the charter for New Bank. The approval was subject to several conditions, including one that Bankshare hold all of the stock of New Bank except directors' qualifying shares (R. 10; J.A. 11-12). The decision of the Comptroller to approve the charter on the terms stated followed a hearing in which the need for another bank in Las Cruces and the relevant banking area of Dona Ana County was thoroughly considered (R. 239-416; J.A. 70-248). FMB and the two other commercial banks in Las Cruces participated in that hearing and were afforded an opportunity to offer testimony and to cross-examine Bankshare's witnesses on relevant issues (R. 243-46; J.A. 74-77).
Thereafter, Bankshare on August 20, 1975 applied to the Board for approval of acquisition of New Bank's shares. Its application was reviewed in the first instance by the regional Federal Reserve Bank. The 219-page application set forth in detail the alleged need of the community for the bank and the convenience that this new bank would afford the community (R. 1-219; J.A. 8-61). The application also included a three-year operations projection covering anticipated deposits, losses, and profits, an economic feasibility study, New Bank's expected contribution to the convenience and needs of the community, and a statement dealing with the plan's effect on competition. This application concluded that the economy and population of the relevant banking area was growing and would continue to grow, that the new proposed bank was economically feasible, and that no "undue injury" would be caused to existing local banks. On September 23, 1975, FMB filed with the regional Reserve Bank a protest to the application and requested a hearing (R. 417-20; J.A. 249-54).
On September 26, 1975, the Reserve Bank transmitted the application to the Board (R. 427). On October 16, 1975, the board informed FMB that a hearing on an application is required only in situations where the Comptroller disapproves the application, unless the Board deems a hearing desirable (R. 432; J.A. 255-56). Petitioner was requested to supply information as to the nature and scope of the issues that would be the subject of a hearing and why a written presentation would not be adequate. FMB responded that hearing and discovery procedures were necessary in order to develop the record and that five issues would be considered. 9
On November 3, 1975, the Reserve Bank forwarded a detailed report to the Board on the effects of the acquisition (R. 466-81; J.A. 273-308). The Board requested additional information of Bankshare, which was received and was transmitted to FMB (R. 489-503; J.A. 315-33). On March 1, 1976, the Comptroller recommended approving the transaction. Against this background and accumulation of data, the Board on March 29, 1976 decided that the record was ample, approved Bankshare's acquisition plans, and denied petitioner's request for a hearing (R. 520-27; J.A. 347-54).
In its order approving the acquisition, the Board evaluated relative market shares in the relevant market, which it found to be the area around Las Cruces, and on the basis of the facts in the record, concluded that the competitive effects of the transaction were consistent with and lent some weight toward approval of the acquisition (R. 522; J.A. 349). The Board considered the financial and managerial resources of the applicant and the needs of and convenience to the community to be served, and concluded that these factors also lent weight toward approval (R. 522-23; J.A. 349-50). The Board also evaluated protestant's contentions that Bankshare's acquisition of New Bank would be inconsistent with New Mexico law restricting branch banking (N.M.Stat.Ann. § 48-2-17 (1953)) and found that the affiliation of Bankshare with New Bank would not contravene state law (R. 523-25; ...
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