First State Bank of Clute, Tex. v. Board of Governors of Federal Reserve System, 76-3073
| Citation | 553 F.2d 950 |
| Decision Date | 10 June 1977 |
| Docket Number | No. 76-3073,76-3073 |
| Parties | FIRST STATE BANK OF CLUTE, TEXAS, et al., Petitioners, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent. Summary Calendar. * |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
John E. Teed, Houston, Tex., C. Wayne Holder, Freeport, Tex., Charles T. Richardson, Clute, Tex., for petitioners.
James E. Scott, Atty., Board of Governors of the Fed. Reserve, John D. Hawke, Jr., Gen. Counsel, Washington, D. C., Ronald R. Glancz, Atty., Rex E. Lee, Asst. Atty. Gen., Appellate Sect., Dept. of Justice, Washington, D. C., for respondent.
Petition for Review of an Order of the Board of Governors of the Federal Reserve System.
Before THORNBERRY, RONEY and HILL, Circuit Judges.
This appeal raises the issues of whether substantial evidence supports the findings of the Board of Governors of the Federal Reserve System that the acquisition of a proposed new bank will not have significant anticompetitive effects and will not violate State branch banking laws. In addition, this case also raises the question whether a bank must be in operation before the Board may approve an application by a bank holding company to acquire the bank. The petitioners, three commercial banks in Brazoria County, Texas, are seeking review of an order of the Board of Governors of the Federal Reserve System ("Board"), dated July 1, 1976, approving the application of First Freeport Corporation ("Applicant"), to acquire Chemical National Bank, Clute, Texas, a proposed new bank ("New Bank"). The petitioners, as potential competitors of New Bank, are bringing this action for review under section 9 of the Bank Holding Company Act ("The Act"), 12 U.S.C. § 1848 (1970).
On October 15, 1975, First Freeport Corporation filed an application with the Federal Reserve Bank of Dallas, pursuant to section 3(a)(3) of the Act, for Board approval to acquire New Bank, a proposed national bank for which the Comptroller of the Currency had preliminarily and conditionally granted a charter on December 4, 1972, after a proceeding in which the Petitioners intervened and participated. At the time of application, Applicant had one subsidiary bank, First Freeport National Bank, Freeport, Texas, located 8.3 miles from New Bank.
Following its usual procedures for reviewing an application, the Board established an extremely thorough administrative record before issuing its final order approving the proposed action. After reviewing the application and obtaining certain additional information, the Federal Reserve Bank of Dallas accepted the application for processing on October 28, 1975, and so notified Applicant, the Board, the appropriate bank supervisory agencies and the Antitrust Division of the Department of Justice. The Reserve Bank began processing the application pursuant to authority delegated to it by the Board.
On November 12, 1975, notice of the application was published in the Federal Register inviting all interested persons to comment. On November 21, 1975, Petitioners submitted substantive comments in opposition to the application and, as a result, the application was transferred by the Reserve Bank to the Board for processing.
The petitioners raised three objections to the application: (1) that since the Comptroller had granted a preliminary charter to New Bank conditioned on Board approval of Applicant's request to acquire New Bank, the Board was without authority to approve acquisition of such a conditionally chartered entity; (2) that the acquisition would substantially lessen competition in Following the protest by Petitioners, the Reserve Bank conducted a field investigation to define the relevant banking market. The Reserve Bank concluded that the Freeport market was separate from the Houston market and consisted of Brazoria County with the exception of certain communities in the northern portion of the county. This study, which was included in a Reserve Bank memorandum of January 2, 1976, was presented to the Board together with the Reserve Bank's analysis of the competitive factors and the financial and managerial resources of the applicant and the convenience and needs of the community to be served. Copies were also provided to the Applicant and the Petitioners on January 7, 1976. On January 19, 1976, the Petitioners commented on the market study and agreed with the Reserve Bank's conclusion that the Freeport market is distinct from the Houston market.
the Brazosport Area, which they characterized as a market separate from Houston; and (3) that the acquisition would constitute branch banking in violation of Texas law. On December 5, 1975, in response to Petitioners' charges, the Applicant provided for the record data on the projected economic growth of the area, the growth of Petitioner Banks during the past decade, the need for a new bank in the area and facts refuting Petitioners' claims about branch banking. The Applicant also stated its view that Petitioners' argument concerning the Board's lack of authority had been previously litigated and conclusively found to be without merit.
On February 2, 1976, the Board's staff asked Applicant a series of detailed questions regarding the issue whether New Bank would be operated independently from Freeport Bank or as a branch thereof. The Applicant responded to this inquiry on February 10, 1976, providing the Board's staff with additional and detailed information about New Bank's proposed officers and directors, its correspondent relationships, its advertising and other factors relating to the independence of New Bank from Freeport Bank. On February 23, 1976, the Petitioners commented upon Applicant's response, and contended that New Bank's Board of Directors and Officers would not be independent of Freeport Bank. They contended further that Freeport and New Bank would be operated as a single institution and viewed as such by the public. Despite these objections, on February 20, 1976, the Comptroller recommended approval of the application and advised that the competitive considerations were favorable.
On May 4, 1976, the Reserve Bank submitted to the Board a memorandum in which the Reserve Bank analyzed various factors that supported its conclusion that New Bank would not be operated in a unitary fashion with Freeport Bank and would not be a branch in violation of Texas law. In addition, the Reserve Bank forwarded to the Board an opinion of the Attorney General of the State of Texas that acquisition of a bank by a bank holding company does not in itself violate the Texas law on branch banking. On July 1, 1976, the Board granted its approval for Applicant to acquire New Bank.
In its order, attached hereto as Appendix A, the Board defined the relevant market area as Brazoria County with the exception of certain communities of the northern portion of the county. The Board determined that there were twelve banks in the relevant market including Applicant's subsidiary bank, Freeport Bank, which is the largest bank in the market holding approximately 19.8 per cent of the deposits in the market. The Board concluded that acquisition of New Bank, a proposed new bank not yet in operation, would not eliminate any existing competition. Furthermore, the Board also determined that Applicant's and New Bank's financial and managerial resources and future prospects were satisfactory. With respect to convenience and needs considerations, the Board found that these factors lent some weight toward approval since New Bank would be capable of offering a full complement of banking services to its customers.
In response to the objections raised by Petitioners, the Board concluded that it had authority to approve the acquisition by Applicant of the proposed New Bank whose charter the Comptroller had approved on condition of Board approval of New Bank's becoming a subsidiary of Applicant. The Board also determined that the acquisition would not contravene the Texas branch banking law. Moreover, the Board examined Petitioners' contentions that the market was not attractive for entry of a new bank and that any new entrant would grow at the expense of existing banks in the market. Based on evidence contained in the record, the Board concluded that the market could be expected to support a new bank and that the proposed acquisition would have no significant adverse effects on the area's existing banks.
Our review is clearly limited to a determination of whether substantial evidence supports the findings by the Board. Section 9 of the Act, 12 U.S.C. § 1848 (1970), states that "(t)he findings of the Board, if supported by substantial evidence, shall be conclusive." This court has joined other circuits in recognizing the narrow scope of review prescribed by Congress with respect to findings of the Board under the Bank Holding Company Act. Alabama Association of Insurance Agents v. Board of Governors, 533 F.2d 224, 246 (5th Cir. 1976); North Hills Bank v. Board of Governors, 506 F.2d 623 (8th Cir. 1974); First Wisconsin Bankshares Corporation v. Board of Governors, 325 F.2d 946 (7th Cir. 1963). With this standard of review in mind, we proceed to examine Petitioners' claims that certain aspects of the Board's order are not
supported by substantial evidence. A. The Finding that
Unitary Fashion.
In making the determination that the acquisition would not violate the Texas branch banking law the Board relied on eleven factors established in the record. 1 The Petitioners allege that two of these factors were not supported by substantial evidence. The Petitioners first contend that the directors of New Bank will not generally be separate from Freeport Bank. The Board, however, received substantial evidence from which it could have reasonably concluded that the directors of New Bank would generally...
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