Decision Date06 April 1961
Docket NumberCiv. No. 282.
Citation197 F. Supp. 417
PartiesFIRST NATIONAL BANK IN BILLINGS, a National Banking Association, Security Trust & Savings Bank, a corporation, and the Yellowstone Bank, a Corporation, Plaintiffs, v. FIRST BANK STOCK CORPORATION, a Corporation, Midland National Bank of Billings, a National Banking Association, and Valley State Bank, an ostensible Corporation, Defendants.
CourtU.S. District Court — District of Montana

Kirkland, Ellis, Hodson, Chaffetz & Masters, Chicago, Ill., Luxan & Scribner, Helena, Mont., for plaintiffs.

W. F. Marquart, Curtis L. Roy and Dorsey, Owen, Barber, Marquart & Windhorst, Minneapolis, Minn., Cooke, Moulton, Bellingham & Longo, Billings, Mont., for defendants.

KILKENNY, District Judge.

Action for declaratory judgment and injunctive relief.

Count I charges defendants with the violation of the Bank Holding Company Act of 1956, 12 U.S.C.A. §§ 1841-1848. Count II charges defendants with the violation of the National Banking Act, 12 U.S.C.A. § 36, and Section 5-1028 of the Montana Code. The cause is before the Court for decision on an agreed statement of facts, on defendants' motion to dismiss, plaintiffs' motion for summary judgment on Count I and defendants' motion for summary judgment on Counts I and II.

At the time of filing the complaint four of the banks were located in the City of Billings, Montana, and one bank in Laurel, Montana, a short distance from Billings. About November 1, 1960, a fifth bank, Valley State Bank (herein called Valley) opened temporary quarters in a dwelling house in West Billings, Montana. The legality of the conduct of Valley is challenged in these proceedings. Substantially all of the capital stock of three of said banks located in Billings is owned by bank holding companies having principal offices outside of Montana. Midland National Bank of Billings (herein called Midland) is a national banking association.

First Bank Stock Corporation is a holding company incorporated in Delaware in April, 1929 and has been and now is subject to and registered under the Bank Holding Company Act of 1956. Its corporate purpose is to acquire and retain stock ownership in banks and trust companies. First Bank has its offices in First National Bank Building, Minneapolis, Minnesota. First Bank owns a majority of the stock in 87 banks and trust companies which conduct their banking business out of 94 banking offices in the Ninth Federal Reserve District, to wit: Wisconsin, Minnesota, North Dakota, South Dakota and Montana.

Early in 1955, at a time when the Bank Holding Company Act was under consideration in the Congress of the United States, First Bank applied to the Comptroller of Currency of the United States for a charter for a new national bank to be located in Billings, Montana. In March of that year the Superintendent of Banks wrote to the Comptroller of Currency indicating that existing banks in Billings were capable and sufficient to serve the needs of the city and the community. In April of that year certain banks wrote the Comptroller of Currency objecting to the application filed by First Bank and late in 1955 the Comptroller rejected said application.

On November 29, 1955, the incorporators of Valley caused an application and articles of agreement to be filed with the Superintendent of Banks of the state of Montana. A certificate of authorization on said application was issued by said Superintendent to Valley on April 30, 1956, and the capital, surplus and undivided profits of Valley in the sum of $300,000 were paid prior to that time. Included in such sum was the purchase price paid by First Bank Stock Corporation (herein called First Bank) for its 1,460 shares of stock in Valley. Valley's bylaws were adopted by its stockholders on April 30, 1956, at which time the articles of agreement were approved and accepted and directors elected. On the same date the first meeting of Valleys' board of directors was held, their oaths being transmitted to the Superintendent of Banks. Thereafter, monthly meetings of such board were held and annual meetings of the stockholders of Valley were held on January 8, 1957, January 14, 1958, January 16, 1959, and January 12, 1960. On November 16, 1960, First Bank owned ninety-nine percent of Midland's shares and ninety-six and two-thirds percent of Valley's shares. Shares of Midland and Valley not owned by First Bank are directors' qualifying shares with respect to which First Bank has option to purchase at book value after a director's term ceases. Midland, Valley and First Bank are defendants.

Substantially all of the stock of Billings State Bank is owned by Northwest Bank Corporation, an out-of-state bank holding company. First National Bank in Billings, one of the plaintiffs (herein called First National), is a national banking association. Security Trust & Savings Bank, one of plaintiffs (herein referred to as Security), is a bank organized under the laws of the state of Montana. The Yellowstone Bank (herein called Yellowstone), is a bank organized under the laws of the state of Montana.

On April 30, 1956, shares of the capital stock of Valley were issued and temporary stock certificates were used, no permanent stock certificates having been printed at that time. The temporary certificate for 1,460 shares was issued on said date to First Bank and such bank was in possession of such certificate long prior to May 9, 1956. All of the temporary certificates were issued and delivered prior to such date. All meetings of the board of directors of Valley prior to the institution of this litigation were held either in Midland's offices or in the offices of one of its attorneys.

During the first few months of Valley's operations a large part of Valley's deposits will be drawn from Midland. Thereafter, Valley's deposits probably will be drawn from the other Billings banks approximately as follows: thirty-nine percent from Security; thirty-three percent from Midland; nineteen percent from First National, and nine percent from Billings State Bank. A small percentage of the above may be diverted from Yellowstone.

Valley's temporary location is approximately two miles from the respective banking houses of Security, Midland, First National and Billings State Bank, and approximately thirteen miles from Yellowstone's banking house. If Valley is permitted to continue its banking operations, loss in deposits to plaintiffs will be substantial. The present value of the right, if any, of Valley to receive the deposits above mentioned, capitalized over a reasonable number of years at a reasonable rate of interest, is far in excess of $10,000, exclusive of interest and costs.

On September 29, 1960, all four of Valley's directors, who were officers or directors of Midland, resigned. One director who was attorney for both Midland and Valley did not resign. The directors elected on that date were an employee of the First National Bank of Minneapolis, a First Bank affiliated bank, and three Billings businessmen. These resignations and elections took place after the commencement of this litigation.

Prior to August 1, 1960, all or substantially all of the correspondence to Valley was addressed to its officers who were likewise officers of Midland at Billings. All or substantially all of the correspondence sent to Billings and related to Valley was typed on Midland's stationery. Valley had no banking house prior to November 1, 1960, and had no stationery of its own prior to October 24, 1960. Valley purchased a lot in Billings in June 1959. A wholly-owned subsidiary of First Bank prepared proposed sketches and plans for Valley's banking house. In August 1960, after defendants had been served, Valley passed a resolution to defend the action and proceeded with its plans for the construction and opening of the bank. Valley had no employees and paid no salaries prior to the institution of the law suit and no compensation was paid to the directors until after the adoption of a resolution on January 13, 1959. Valley was not listed in any telephone directory in the state of Montana or elsewhere. Neither Valley nor its shareholders have paid the Montana state tax on banks located and doing business in the state or on shares of stock in such bank. Income taxes were paid by Valley for the years 1957, 1958 and 1959 and the Montana Corporation License Tax, based on corporate income, was paid by Valley for the same years. Valley from time to time has expressed a desire to operate as an insured bank, but has never been insured. Valley's proposed bank building would cost approximately $211,000. Nothing was done in connection with construction or preparation for construction prior to August 11, 1960. Extensions of time to commence business were granted Valley from time to time by the Montana Superintendent of Banks to January 1, 1961 and the bank commenced business prior to that date. Valley's temporary quarters are located on property which it leased on September 12, 1960.

Prior to September 27, 1960 the certificates representing Valley's directors' qualifying shares were kept for safe keeping at First Bank's offices in Minneapolis. Since that time the certificates are retained in possession of Valley's directors. From the date of incorporation until September 29, 1960, all correspondence relating to Valley was carried on from Midland National Bank. Midland is and will be Valley's chief correspondent bank. Valley has its own capital, surplus and undivided profits, separate from Midland, and maintains its own books of account and has its own stationery, checks and forms, none of which make any reference to Midland.

Other facts, of no particular significance as I view them, appear in the agreed statement. The issues, if any, raised in paragraphs 32, 44, 47, 58, 62, 69, 73, and 75 are not of such importance as to prevent a decision at this time.

After commencement of this litigation First Bank submitted to the Board of Governors...

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