First Wisconsin Bankshares Corp. v. Board of Governors

• Decision Date: 17 December 1963
• Docket Number: No. 14108,14109.,14108
• Citation: 325 F.2d 946
• Parties: FIRST WISCONSIN BANKSHARES CORPORATION, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent (two cases).
• Court: U.S. Court of Appeals — Seventh Circuit

325 F.2d 946 (1963)

FIRST WISCONSIN BANKSHARES CORPORATION, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent (two cases).

Nos. 14108, 14109.

United States Court of Appeals Seventh Circuit.

December 17, 1963.

Edwin P. Wiley, David E. Beckwith, Milwaukee, Wis., Allen M. Taylor, Foley, Sammond & Lardner, Milwaukee, Wis., for petitioner.

Morton Hollander, Chief, Appellate Section, Pauline B. Heller, Attorney, U. S. Department of Justice, Washington, D. C., John W. Douglas, Asst. Atty. Gen., Washington, D. C., for respondent.

Before HASTINGS, Chief Judge, and CASTLE and SWYGERT, Circuit Judges.

SWYGERT, Circuit Judge.

Petitioner, First Wisconsin Bankshares Corporation, is a Wisconsin corporation with its office and principal place of business in Milwaukee. It is a registered bank holding company under the Bank Holding Company Act of 1956 (12 U.S.C. §§ 1841-1848). This court is asked to review, pursuant to section 9 of the act, 12 U.S.C. § 1848, orders of the Board of Governors of the Federal Reserve System denying petitioner's applications for prior approval by the Board of proposed acquisitions of eighty per cent or more of the voting shares of two Wisconsin state banks, the American Bank and Trust Company, located in Racine, and the Merchants & Savings Bank, located in Janesville.

The applications filed with the Board, pursuant to section 3(b) of the act, 12 U.S.C. § 1842(b), were the bases of separate proceedings before the Board. The Board denied approval of the acquisitions by orders which are before us on separate petitions for review. We propose, however, to treat these petitions together because of the similarity of their factual and procedural background and of the questions presented.

The Commissioner of Banks of the State of Wisconsin (whose recommendation was required to be solicited under section 2(b) of the act, 12 U.S.C. § 1842 (b)) advised the Board that he had no objection to the American application. Petitioner, at the request of the Board, filed supplementary information in support of its application. The Department of Justice wrote the Board opposing the application. On January 31, 1963, the application was denied. The petition for review followed.

Petitioner's application to acquire the stock of Merchants & Savings was opposed by both the Wisconsin Commissioner of Banks and the Justice Department. Because the Commissioner's recommendation was not timely filed, the Board was not compelled to hold a formal hearing pursuant to section 3(b) of the act. However, the Board did hold a public hearing "to afford opportunity for the expression of views and opinions by interested persons." Thereafter, the Board on May 22, 1963, denied the application and the petition for review followed.

Petitioner contends that the Board's findings and conclusions are not supported by substantial evidence; that the Board incorrectly interpreted section 3 (c) of the Bank Holding Company Act; and that the Board deprived petitioner of due process by refusing to hear further evidence, by considering facts not found in the record, and by failing to inform form the petitioner in advance of its alleged changed interpretation of the act.

Section 3(c) of the act, 12 U.S.C. § 1842(c), requires the Board to consider five factors in granting or denying acquisitions by a bank holding company. These factors are:

"(1) The financial history and conditions of the company or companies and the banks concerned; (2) their prospects; (3) the character of their management; (4) the convenience, needs, and welfare of the communities and the area concerned; and (5) whether or not the effect of such acquisition or merger or consolidation would be to expand the size or extent of the bank holding company system involved beyond limits consistent with adequate and sound banking, the public interest, and the preservation of competition in the field of banking."

Section 9 of the act provides that the factual findings of the Board if supported by substantial evidence shall be conclusive.

In the proceedings before us, the evidentiary facts, including statistical data, were supplied by petitioner to the Board. They are not in dispute.

The findings of the Board relating to the factors it is required to consider are ultimate factual conclusions drawn by inference from the primary evidentiary facts. It is our duty under section 9 to determine whether these ultimate findings have substantial support in the record. In discharging that duty, the reviewing court does not act as a super agency, substituting its judgment for that of the Board. Inferences of fact must remain within the purview of the administrative agency. The test is not whether the Board's findings are those that the court might have made de novo; rather, it is whether the Board's ultimate findings and conclusions could have reasonably been drawn from the primary evidentiary facts, and whether they are arbitrary or capricious. Northwest Bancorporation v. Board of Governors, 303 F.2d 832 (8th Cir. 1962).

Upon reviewing the records before us and applying the foregoing standard of review, we conclude that there is substantial evidence upon the whole record to support the Board's ultimate findings that led to the denials of the applications.

We do not think it necessary to make analyses of the multitudinous details on which the Board's findings rest in an attempt to demonstrate their reasonableness. Instead, the opinions of the Board, denying the two applications, are set forth below.¹ These statements we think sufficiently show that the Board, pursuant to the statutory mandate, gave full consideration to all the facts presented by

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petitioner and that its findings are not arbitrary, capricious, or unreasonable.

The first three factors which the Board must consider, financial history and condition, prospects, and character of management, as regards both the holding company and the bank whose control is sought, relate to the solvency of the institutions.²

After reviewing the pertinent facts, the Board found that the financial history, condition, prospects, and management of each were satisfactory. Petitioner disagrees with the Board's finding that future management problems confronting each bank were not insurmountable absent acquisition by petitioner. It also says that insufficient weight was given by the Board to the lack of prospects for the banks' growth. While the facts relating to these matters might support the granting of the applications, we cannot say that the Board's findings were not reasonably supported by the evidence. Legitimate inferences could have been drawn either way. We are mindful of what was said in Northwest Bancorporation, supra, "Where either one of two inferences may reasonably be drawn from undisputed facts, the inference adopted by the agency or board whose duty it is to draw the inference from which it is to formulate its judgment may not be disturbed on appeal."

But even if we were to agree with petitioner, we are still confronted with the Board's findings with respect to the remaining two factors.

As to the fourth statutory factor, petitioner, argues that the Board's failure to find that the proposed acquisitions would substantially serve the convenience, needs, and welfare of the Racine and Janesville areas is both contrary to the evidence and based upon a misinterpretation of the Bank Holding Company Act. The crucial issue, petitioner says, is "the validity of the Board's view that if local banking needs can be satisfied from non-local sources, there is no need to strengthen or improve the capacity of local banks to meet those needs sufficient to favors a holding company acquisition"; that this view is contrary to the legislative policy underlying the act because it favors increased dependence by smaller communities for their financial needs upon banking institutions in the "established money centers" of the country.

We believe the Board's view regarding this fourth factor is neither an arbitrary nor capricious treatment of the facts. This is demonstrated by what the Board said in denying the American application:

"Essentially, then, the banking needs of the community are being served at present, but Applicant argues that Racine and Wisconsin banks are entitled to a `fair share\' of banking business generated in Racine, and that, if the independent local banks cannot attract this share, then the facilities of a holding company and of its more powerful member banks should be brought into the community to capture and hold what rightfully belongs there. Had Congress intended such regional splitting up of the national banking market to be a basis for approving bank holding company expansion, it would have so stated. It did not so direct the Board.

"This is not to say that the banks in a community should not be strong and supple enough to serve the banking needs of that community. Where banking needs were going unmet, and where considerations under the remaining factors were not adverse to holding company acquisitions, then the Board has granted its approval to those acquisitions."

It should also be pointed out that the Board concluded as to the American application, "considerations under the fourth factor, then, lend some but only slight weight for approval," and as to the Merchants & Savings application, "the Board does not believe that a strong case for approval has been presented under the fourth factor." We think the Board's remarks can be interpreted to mean that the applications might have been granted were it not for the overriding findings that the proposed acquisitions would have an adverse effect on competition.

In applying the fifth factor, the effect on adequate and sound banking, the public...