Federal Deposit Ins. Corp. v. Sumner Financial Corp., 71-1317.

• Decision Date: 07 January 1972
• Docket Number: No. 71-1317.,71-1317.
• Citation: 451 F.2d 898
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, a corporation organized and existing under the laws of the United States of America, Plaintiff-Appellant, v. SUMNER FINANCIAL CORPORATION, a Florida corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

451 F.2d 898 (1971)

FEDERAL DEPOSIT INSURANCE CORPORATION, a corporation organized and existing under the laws of the United States of America, Plaintiff-Appellant, v. SUMNER FINANCIAL CORPORATION, a Florida corporation, Defendant-Appellee.

No. 71-1317.

United States Court of Appeals, Fifth Circuit.

November 30, 1971.

Rehearing and Rehearing Denied January 7, 1972.

Frank X. Friedmann, Jr., Rogers, Towers, Bailey, Jones & Gay, Jacksonville, Fla., Reford J. Wedel, Deputy Gen. Counsel, Myers N. Fisher, Asst. Gen. Counsel, Daniel Wm. Persinger, Atty., Federal Deposit Insurance Corporation, Washington, D. C., for plaintiff-appellant.

Harris Dittmar, Jacksonville, Fla., for defendant-appellee; Bedell, Bedell, Dittmar, Smith & Zehmer, Jacksonville, Fla., of counsel.

Before GEWIN, GOLDBERG and DYER, Circuit Judges.

Rehearing and Rehearing En Banc Denied January 7, 1972.

GEWIN, Circuit Judge:

The Federal Deposit Insurance Corporation (FDIC) appeals from an order dismissing its suit against Sumner Financial Corporation (Sumner) seeking to enjoin Sumner from violating the FDIC regulations pertaining to the advertisement of interest on deposits in insured member banks.¹ The district court ordered FDIC's complaint dismissed "because it has not been made to appear that plaintiff has statutory authorization to seek injunctive relief to enforce its regulations under the facts of this complaint."

On Appeal FDIC contends that the only issue presented is their capacity to sue for injunctive relief. Sumner argues that FDIC lacks statutory authority to regulate independent money brokers such as Sumner. Because the precise ruling of the district court is unclear and in the interest of economy of judicial time,² we proceed to consider both questions and conclude that the case must be reversed and remanded.

The facts alleged in FDIC's complaint are considered to be admitted for the purposes of this review of the court's order granting Sumner's motion to dismiss. FDIC claims that Sumner is a money broker who in part solicits, directly and indirectly, individuals, organizations and business entities to purchase certificates of deposit, letters of credit and other deposit instruments from insured nonmember banks. The deposits are represented by Sumner to bear more than the legal rate of interest.³ Such solicitation is often connected, directly or indirectly, with the solicitation of an individual, organization or business entity who desires to borrow money from or establish a compensating balance with the nonmember bank accepting the deposit.

FDIC further alleges that Sumner has violated FDIC regulations pertaining to the advertisement of interest on deposits by distributing written documents to investors and by orally soliciting deposits from investors or their agents representing that insured nonmember banks would pay more than the legal rate of interest on deposits. FDIC complains that the widespread use of brokered funds by insured banks has been responsible for abuses in banking, particularly in the area of loans by banks of brokered funds to non-credit worthy borrowers. These practices, it is claimed, have contributed to recent bank closings with consequent losses to depositors, creditors, shareholders, the general public and FDIC. FDIC specifically alleges that Sumner's activities in brokered deposits directly contributed to the closing of the Peoples State Savings Bank of Auburn, Michigan. FDIC asks that Sumner be enjoined from violating the FDIC regulation at 12 C.F.R. section 329.8(g) (1971) which binds any person or organization soliciting deposits for an insured nonmember bank to the same advertising rules applicable to such banks.

FDIC contends that it has no adequate remedy at law and that it and the general public, which FDIC is obligated to protect, will be irreparably damaged unless Sumner is enjoined. Sumner's acts are alleged to be frustrating the intent of Congress and seriously impairing FDIC in performing its regulatory responsibilities.

I.

At the threshold we must consider whether FDIC has any power whatsoever to regulate the activities of a nonbank entity which is engaged in the business of soliciting deposits for regulated banks. Sumner argues that such regulation constitutes a statutorily unsupported extension of the FDIC's authority to regulate bank activities and that the questioned regulation amounts to an attempt to regulate the money broker industry. If such an extension is permitted, Sumner contends, the FDIC could equally as well self-extend its authority to regulate all members of the public as bank depositors that do business with insured nonmember banks.

We find that such an argument requires an unreasonble interpretation of the language of the regulation:

(g) Solicitation of deposits for banks. Any person or organization which solicits deposits for an insured nonmember bank shall be bound by the rules contained in this section with respect to any advertisement, announcement or solicitation relating to such deposits. No such person or organization shall advertise a percentage yield on any deposit it solicits for an insured nonmember bank which is not authorized to be paid and advertised by such bank." 12 C.F.R. section 329.8(g) (1971)

A person or organization who merely deposits money or "does business" with an insured nonmember bank does not fall within the regulation. On its face, the regulation seeks to prevent direct circumvention of the FDIC's regulatory scheme through the use of non-bank entities to solicit deposits for an insured nonmember, hence, regulated banks.

In this regard the regulation is fully supported by the language and Congressional history of the statute. 12 U.S.C.A. section 1828(g) (1969), as amended (Supp.1971), upon which the regulation is based, provides in relevant part:

"The Board of Directors (of the FDIC) may from time to time, after consulting with the Board of Governors of the Federal Reserve System and the Federal Home Loan Bank Board, prescribe rules governing the payment and advertisement of interest on deposits, including limitations on the rates of interest or dividends that may be paid by insured nonmember banks * * * on time and savings deposits. * * *"

This authority was conferred upon the FDIC by Section 2(b) of the Act of September 21, 1968 (Public Law 90-505, 82 Stat. 856) and has now been continued to June 1, 1973.⁴

The specific grant of authority to "prescribe rules governing the payment and advertisement of interest on deposits * * *" is not limited by its terms to advertisements made only by banks. The same section of the Act provides:

"The Board of Directors (of the FDIC) is authorized for the purpose of this subsection to define the terms `time deposits\' and `savings deposits\', and to determine what shall be deemed a payment of interest, and to prescribe such regulations as it may deem necessary to effectuate the purposes of this subsection and to prevent evasions thereof. * * *" 12 U.S.C.A. Section 1828(g) (1969) as amended (Supp.1971)

This broad grant of discretionary power over advertisement is supplemented by 12 U.S.C.A. § 1819 Seventh and Tenth (1969). Section 1819 Seventh provides that FDIC is authorized "To exercise by its Board of Directors, or duly authorized officers or agents, all powers specifically granted by the provisions of this chapter, and such incidental powers as shall be necessary to carry out the powers so granted." Section 1819 Tenth provides that FDIC is authorized "To prescribe by its Board of Directors such rules and regulations as it may deem necessary to carry out the provisions of this chapter."

The Report of the House Committee on Money and Banking on Public Law 90-505 reflects the Committee's concern with moderating excessive competition for consumer savings H.R.Rep.No.1814, 90th Cong., 2d Sess. (1968), U.S.Code Cong. & Admin.News 1968, p. 3587. The report of the Senate Committee accompanying the Senate version of Public Law 90-505 states:

"(T)he Committee approved an Amendment offered by Senator Proxmire authorizing the bank supervisory agencies (including FDIC) and the Federal Home Loan Bank Board to `promulgate rules governing the payment of interest on deposits.\' The existing law extends only to the establishment of maximum ceilings on deposits. The Amendment is intended to clarify the authority of the financial agencies to issue rules and regulations to prohibit any misleading and deceptive advertising concerning rates paid on time and savings deposits." S.Rep.No.1343, 90th Cong., 2d Sess. 5 (1968).

Following enactment of Public Law 90-505, the Board of Directors of FDIC proposed 12 C.F.R. Section 329.8(g) as part of a set of rules designed to implement its new authority to govern the advertisement of interest on deposits. The accompanying statement noted:

"(T)he (proposed) regulations are made expressly applicable to persons or organizations who solicit deposits for insured non-member banks in advertisements relating to such deposits. This requirement would prevent brokers from advertising a percentage yield on deposits solicited for insured non-member banks, which is in excess of the percentage yield which such banks themselves are permitted to advertise." 34 Fed.Reg. 6199 (1969)

In construing this statute we feel it is proper to show great deference to the interpretation given the statute by the officers or agency charged with its administration.⁵ Udall v. Tallman, 380 U.S. 1, 85 S.Ct. 792, 16, 13 L.Ed.2d 616, 625 (1965); United States v. Chicago, 400 U.S. 8, 91 S.Ct. 18, 27 L.Ed.2d 9, 12-13 (1970); Pan American World Airways, Inc. v. C.A.B., 129 U.S.App.D.C. 159, 392 F.2d 483, 496 (D.C.Cir. 1968). Deference is particularly appropriate where the administrative practice at stake involves a contemporaneous construction of a statute by the men charged with the responsibility of setting its machinery in motion, of making the parts work efficiently and smoothly while they are yet untried...