First Nat. Bank of Bellaire v. Comptroller of Currency

• Decision Date: 07 February 1983
• Docket Number: No. 81-4221,81-4221
• Citation: 697 F.2d 674
• Parties: FIRST NATIONAL BANK OF BELLAIRE, Petitioner, v. COMPTROLLER OF the CURRENCY, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 674

697 F.2d 674

FIRST NATIONAL BANK OF BELLAIRE, Petitioner, v. COMPTROLLER OF the CURRENCY, Respondent.

No. 81-4221.

United States Court of Appeals Fifth Circuit.

Feb. 7, 1983.

As Modified on Denial of Rehearing and Rehearing En Banc May 13, 1983.

Charles R. Vickery, Jr., E.D. Vickery, Houston, Tex., for petitioner.

J.J. Cranmore, Jr., Atty., Rolph E. Sharpe, Ronald R. Glancz, Litigation Div., of the Comptroller of Currency, Washington, D.C., for respondent.

Petition for Review of an Order of the Comptroller of the Currency.

Before GARZA, TATE, and WILLIAMS, Circuit Judges.

GARZA, Circuit Judge:

The petitioner, First National Bank of Bellaire, (hereinafter the Bank), seeks to have the Cease and Desist Order issued by the Comptroller of the Currency (hereinafter the Comptroller) set aside. On July 3, 1980, the Bank was served with the Notice of Charges by the Comptroller. ¹ The The Comptroller conducts periodic examinations of all national banks with the most recent examinations of Bellaire Bank being on February 3, 1978, August 27, 1979 and June 7, 1980. In the June 7, 1980, examination the Comptroller found what it believed to be violations of 12 U.S.C. Secs. 29, 30, 84, 371d, and 375a. Furthermore, the Comptroller believed the Bank was operating without adequate capital and was intending to relocate without receiving a certificate of approval from the Comptroller.

                charges were amended on August 28, 1980. 2   A hearing was held from September 16, 1980, through September 26, 1980, and the Administrative Law Judge certified the entire record of the hearing to the Comptroller including a recommended decision, findings of fact, the hearing transcript, exhibits, rulings and all briefs and memoranda filed in connection with the hearing.  The case was submitted to the Comptroller on March 6, 1981, and the Acting Comptroller  
                of the Currency, Charles E. Lord, issued a Cease and Desist Order on May 28, 1981. 3
                

The issues in this case, for the most part, involve several sets of unrelated fact situations. Consequently, for the sake of clarity, the facts pertinent to each issue will be discussed with the issues.

The authority and discretion of the Comptroller presents an overriding issue in this case. The Comptroller is the supervisor and regulator of national banks. J. White, Banking Law (1976). Generally speaking the function of the Comptroller is to charter, examine and supervise all national banks. Senate Committee on Banking, Housing and Urban Affairs, The Report of the President's Commission on Financial Structure and Regulation 90 (1972). Congress has conferred broad statutory powers on the Comptroller to enable him to perform his supervisory and regulatory functions. First National Bank of Lamarque v. Smith, 610 F.2d 1258, 1264 (5th Cir.1980). This authority allows the Comptroller to exercise extensive controls on banks. Groos National Bank v. Comptroller of the Currency, 573 F.2d 889, 896 (5th Cir.1978). The Comptroller's expertise affords him a certain The Comptroller's discretion, however, is far from unbridled.

                amount of discretion in the area of banking.   See First National Bank of Eden, South Dakota v. Department of the Treasury, Office of the Comptroller of the Currency, 568 F.2d 610, 611 (8th Cir.1978).  The exercise of the Comptroller's discretion will not be disturbed unless the exercise is arbitrary, capricious or contrary to law.   First National Bank of Lamarque v. Smith, supra, at 1264
                

The Comptroller, ..., must be subordinate to the law from which he received his authority, and is subject to the limitations imposed by that law. Therefore, if he acts in excess of his statutory grant of power, acts arbitrarily or capriciously, abuses his discretion, or unlawfully discriminates in violation of the Constitution, he is certainly subject to restraint by the courts. Though he may exercise the discretion the expertise of his office affords him, the congressional grant of authority does not empower arbitrary and capricious action, nor does it contemplate abuses of that discretion.

Webster Groves Trust Company v. Saxon, 370 F.2d 381, 387 (8th Cir.1966). Even if the Comptroller can give reasons for its actions, the actions are arbitrary and capricious if the Comptroller's reasons are not supportable. The Comptroller must be able to articulate a correlation between the action taken and the reason given for the action. Reasons which are in substance mere rhetoric are not sufficient and indicate arbitrary action.

The discretion of the Comptroller allows him, upon finding a violation, to fashion relief in such a form as to prevent future abuses. Groos National Bank v. Comptroller of the Currency, supra, at 897. See Federal Trade Commission v. Mandel Bros., 359 U.S. 385, 392, 79 S.Ct. 818, 824, 3 L.Ed.2d 893 (1959). One form of relief available to the Comptroller is the Cease and Desist Order. ⁴ 12 U.S.C. Sec. 1818(b). Congress designed the Cease and Desist power to give the Comptroller "a statutory means of moving quickly and effectively to require adherence to the law and cessation and correction of unsafe or improper practices." 1966 U.S.Code Cong. & Ad.News 3532, 3536. See Gulf Federal Savings and Loan Association of Jefferson Parish v. Federal Home Loan Bank Board, 651 F.2d 259, 262, 263 (5th Cir.1981). ⁵ In other In formulating the Comptroller's Cease and Desist power the objective of the Senate Committee on Banking and Currency was to balance the interest of depositors and savers, the interest of well run banks and the interest of government on the one hand against the interest of banks in receiving fair treatment from the government and in "receiving a reasonable degree of protection from arbitrary government action." 1966 U.S.Code Cong. & Ad.News 3534. In administering his authority the Comptroller must attempt to maintain this balance. The Comptroller must not become so obsessed with protecting the integrity of the national banking system that individual banks are arbitrarily treated unfairly. ⁶

words the Cease and Desist power was envisioned as a means of correcting improprieties and not as a punitive form of relief.

A Cease and Desist Order may be issued in two types of situations: when a bank is, has or is about to engage in an unsafe or unsound practice or when a bank is, has or is about to violate a law, rule, or regulation. Here, both types of situations are covered in the Cease and Desist Order. It is important to remember that both situations are limited to practices with a reasonably direct effect on a bank's financial stability. Gulf Federal Savings and Loan Association of Jefferson Parish v. Federal Home Loan Bank Board, supra, at 264, 265 n. 5.

ALLEGED VIOLATION OF 12 U.S.C. Sec. 29

On October 19, 1972 the Bank acquired a tract of land, the Dashwood property, for the purpose of future expansion. The Bank paid $42,914 for the property and it was not held under mortgage nor was it purchased to secure any debts due the Bank. The Dashwood property was being held in the Banking House account on the Bank's books. In 1974 the Bank acquired additional property for the purpose of expansion. On May 1, 1974, the Bank transferred the Dashwood property from the Banking House account to the account entitled "Real Estate Owned Other Than Bank Premises." The Dashwood property was held in this account until 1981 when it was sold. ⁷

In the Notice of Charges the Comptroller alleged the Bank violated 12 U.S.C. Sec. 29. The Cease and Desist Order commands the Bank to take such actions as are necessary to correct the violation and to implement adequate policies and procedures to insure that similar violations do not occur in the future. We hold that the Comptroller's finding of a violation of 12 U.S.C. Sec. 29 was supported by substantial evidence and the Cease and Desist Order in this regard was proper.

The purpose of 12 U.S.C. Sec. 29 is "to keep the capital of the banks flowing in the daily channels of commerce; to deter them [banks] from embarking in hazardous real-estate speculations; and to prevent the accumulation of large masses of such property in their hands, to be held as it were, in mortmain." National Bank v. Matthews, 98 U.S. 621, 626, 25 L.Ed. 188 (1878). In pertinent part 12 U.S.C. Sec. 29 provides:

A national banking association may purchase, hold, and convey real estate for the following purposes, and for no others:

First. Such as shall be necessary for its accommodation in the transaction of its business.

Second. Such as shall be mortgaged to it in good faith by way of security for debts previously contracted.

Third. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings.

Fourth. Such as it shall purchase at sales under judgments, decrees, or mortgages held by the association, or shall purchase to secure debts due to it.

But no such association shall hold the possession of any real estate under mortgage, or the title and possession of any real estate purchased to secure any debts due to it, for a longer period than five years.

The statute sets forth the four exclusive categories of real property a bank can purchase, hold or convey. Furthermore, if real property falls in one of the four permissible categories and the property is held under mortgage or the property was purchased to secure debts due the bank the property cannot be held more than five years. If the property does not fall in one of the four permissible categories the five-year limitation on real estate obtained through mortgage foreclosure or the like does not apply. See generally J. White, Banking Law (1976). If the five-year limitation is applied to property outside the four permissible categories (to property which the bank is not authorized to hold) the effect would be to allow the bank to hold unauthorized property, which is held under mortgage or was purchased to secure debts due the bank, for five years. Such a construction...