Gerst v. Oak Cliff Sav. and Loan Ass'n, B--636

• Citation: 432 S.W.2d 702
• Decision Date: 26 June 1968
• Docket Number: No. B--636,B--636
• Parties: James O. GERST, Savings and Loan Commissioner of Texas, et al., Petitioners, v. OAK CLIFF SAVINGS AND LOAN ASSOCIATION, Respondent.
• Court: Supreme Court of Texas

Page 702

432 S.W.2d 702

James O. GERST, Savings and Loan Commissioner of Texas, et

al., Petitioners, v. OAK CLIFF SAVINGS AND LOAN ASSOCIATION, Respondent.

No. B--636.

Supreme Court of Texas.

June 26, 1968.

Rehearing Denied July 24, 1968.

Crawford C. Martin, Atty. Gen., Sam Kelley and Robert C. Flowers, Asst. Attys. Gen., Clark, Thomas, Harris, Denius & Winters, Mary Jo Carroll and Con P. Werkenthin, Austin, for petitioners.

Jacobsen & Long, Joe R. Long, Austin, Turner, Rogers, Winn, Scurlock & Terry, James R. Rodgers, Dallas, for respondent.

SMITH, Justice.

Oak Cliff Savings and Loan Association of Dallas County, with its principal office in the City of Dallas, applied for the Savings and Loan Commissioner of the State of Texas for authority to establish a branch office at 3526 Bluebonnet Circle in the southwest quadrant of the City of Fort Worth, Tarrant County, Texas. Six savings and loan associations with their home offices in Tarrant County were granted leave to intervene in opposition to the Oak Cliff application. After notice and hearing, the Commissioner, on January 21, 1966, denied the application. The finding of the Commissioner pertinent to the denial of authority to establish the branch office may be summarized as follows:

'(T)he Commissioner finds that there is no public need for the proposed branch office; the volume of business in the community in which the proposed branch office would conduct its business is not such as to indicate a profitable operation; the establishment of the proposed branch office would result in undue harm to existing associations; and the proposed location of the additional office is not within the same county as the principal or home office of the applicant association, and the community in which such additional office is to be located is being adequately served by savings and loan office facilities.'

More specifically, the order of the Commissioner denying the application contains the finding:

'From the testimony adduced at the hearing, the Commissioner finds that the Southwest Quadrant of the City of Fort Worth (including the two mile radius centered on 3526 Bluebonnet Circle) and the City of Fort Worth, are, at present, being adequately served by existing savings and loan associations.'

On February 25, 1966, Oak Cliff filed this suit for judicial review of the Commissioner's order under the provisions of Article 852a, Section 11.12, Vernon's Annotated Civil Statutes. ¹ The six intervening associations, with their principal office in Fort Worth, Texas, appeared in this suit, and aligned themselves with the Commissioner in support of his order denying the application.

Oak Cliff alleged that each of the above findings of the Commissioner was not supported by, nor based upon substantial evidence and, therefore, the order was arbitrary and capricious and as such was invalid and of no legal force and effect. Oak Cliff further alleged that on November 15 1963, pursuant to Article 342--114, ² as supplemented by the applicable provisions of Article 852a, ³ the members of the Building and Loan Section of the Texas Finance Commission and the then qualified and acting Savings and Loan Commissioner, promulgated certain rules and regulations for savings and loan associations, including Subsection (f) of Section 2.4, Chapter 2. Oak Cliff alleged that the Commissioner based his decision in whole or in part upon this particular Subsection. Section 2.4 reads:

'The Commissioner shall approve an application for a branch office if he shall have affirmatively found from the data furnished with the application, the evidence adduced at the hearing and his official records that:

(f) the proposed location of the additional office is within the same county as the principal or home office of the applying association Except in cases where it appears that the proposed additional office is to be in a different county from that in which the principal or home office of the applying association is located and there is no other association, either State or Federal, adequately serving the community in which such additional office is to be located.' (Emphasis added.)

Oak Cliff alleged that the order of January 21, 1966, refusing the application, was void insofar as it is based upon Section 2.4(f) for the reason that the Building and Loan Section of the Finance Commission unlawfully exceeded its authority by and through the promulgation of such rule and regulation. Oak Cliff alleged that the Commissioner erred in basing his decision, in whole, or in part, upon said Section for the further reason

'that said regulation is arbitrary and discriminatory against savings and loan associations whose home offices happen to be outside of the county of the proposed branch and that such discrimination is in violation of the 'equal rights' provision of Article I, Section 3 of the Texas Constitution and in violation of the 'equal protection of the laws' provisions of the 14th Amendment to the United States Constitution.'

All matters of fact as well as of law were submitted to the Court. The Court found 'that the order entered by the Defendant Savings and Loan Commissioner on January 21, 1966, refusing the application of Oak Cliff Savings & Loan Association for a branch office to be located at 3526 Bluebonnet Circle, Fort Worth, Tarrant County, Texas, should be set aside.' The trial court entered its judgment that the order of the Commissioner refusing the application was null and void and ordered that the matter be remanded to the Savings and Loan Commissioner of Texas for such further proceedings as may be necessary, not inconsistent with the Court's judgment. The court of civil appeals has affirmed, 421 S.W.2d 449, holding that Section 2.4(f) was invalid, and that the other findings upon which the Commissioner's denial was based were without support in substantial evidence. The Court of Civil Appeals has held that the Commissioner's consideration of the requirement of Section 2.4(f), commonly referred to as the 'County Line Rule,' increased the burden of Oak Cliff by injecting irrelevant factors contained in a rule which runs counter to the statutory requirements contained in Section 2.08 ⁴ of Article 852a. The intermediate court reasoned that since the rule was void, the question of whether or not the Commissioner's order was reasonably supported by substantial evidence must be determined without regard to the findings relative to Section 2.4(f). This holding led to the ultimate conclusion that there was 'no substantial evidence that the proposed operation will not be profitable or that the volume of business in the community is not such as to indicate success of the proposed' branch office.

The Commissioner and the intervenors, in their application for writ of error, challenge the holdings of the courts below with points, (1) that Section 2.4(f) is a valid and subsisting rule adopted by the Building and Loan Section of the Finance Commission under authority of Article 342--114; and, (2) the order of the Commissioner is supported by substantial evidence regardless of whether or not consideration is given to Section 2.4(f) of the Rules and Regulations for savings and loan associations. We have concluded to reverse the judgments of the courts below and render judgment that Oak Cliff take nothing by its suit.

We shall first dispose of the question of the validity of Section 2.4(f). All parties concede that the Building and Loan Section of the Finance Commission has rule-making power, but Oak Cliff contends that 'such rules and regulations must be limited in content to matters not inconsistent with the Texas Constitution and governing statutes.' While Oak Cliff recognizes that the provisions of Article 342--114 grant to the Building and Loan Section of the Finance Commission of Texas full and complete rule-making power, it argues that such rules and regulations are subject to challenge for various reasons. Oak Cliff contends that the Building and Loan Section of the Finance Commission unlawfully exceeded its authority by the promulgation of Rule 2.4(f) in that such rule, if upheld, makes a 'more onerous requirement for the establishment of branch offices in counties other than the county of domicile of the home office of the applying association.'

In determining whether or not the Building and Loan Section of the Finance Commission has exceeded the broad authority granted by Article 342--114 to promulgate general rules and regulations, the court of civil appeals has adopted a rather restricted view in holding that Rule 2.4(f) bears no logical relationship to the ultimate fact or conclusion sought to be established. The court of civil appeals has concluded that Rule 2.4(f), commonly referred to as the 'County Line Rule,' is a requirement in addition to the statutory requirements enumerated in Section 2.08 of Article 852a only, rather than giving to the Administrative Agency the right to supplement the statute or to incorporate in specific regulations the public policy of the State as declared in Article 852a as a whole. It was never the intention of the Legislature to cause the Building and Loan Section of the Finance Commission to operate in a straight jacket in exercising its rule-making powers granted under Article 342--114. In exercising the powers and the broad authority granted by the Legislature, the only requirement is that rules and regulations must be consistent with the Constitution and Statutes of this State. Kee v. Baber, 157 Tex. 387, 303 S.W.2d 376 (1957). In Kee, we said:

'Broad regulatory powers, many of which are somewhat discriminatory in nature, are delegated to the Texas State Board of Examiners in Optometry * * *. Article 4556 * * * provides that 'The Board shall have the power to make such rules and regulations not inconsistent with this law as may be necessary for the performance of its duties, the regulation of the practice of optometry and the enforcement of this Act."

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