Independent Bankers Ass'n of Georgia v. Bd. of Governors of Federal Reserve System
| Decision Date | 31 July 1975 |
| Citation | 516 F.2d 1206 |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Arthur B. Hanson, Washington, D. C., with whom John N. Fenrich, Jr., Washington, D. C., was on the brief, for petitioner.
Donald Etra, Atty., Dept. of Justice, with whom Carla A. Hills, Asst. Atty. Gen., and Robert E. Kopp, Atty., Dept. of Justice, were on the brief for respondent. Jean A. Staudt, Atty., Dept. of Justice, also entered an appearance for respondent.
Daniel B. Hodgson, Atlanta, Ga., with whom John H. Brebbia, John K. Train, III, Atlanta, Ga., and Michael A. Greenspan were on the brief, for intervenor. H. C. Kilpatrick also entered an appearance for intervenor.
Before ROBINSON, ROBB and WILKEY, Circuit Judges.
Opinion for the Court filed by Circuit Judge WILKEY.
This appeal comes from an order of the Board of Governors of the Federal Reserve System (Board), dated 31 August 1973, approving the proposal of the Citizens and Southern Holding Company (C & S Holding) to engage de novo through a newly formed subsidiary, Citizens and Southern Mortgage Company (C & S Mortgage) in the activities of mortgage banking. In challenging that order, petitioner Independent Bankers Association of Georgia (Association) raises the following issues:
(1) Whether the Association was denied its statutory right under section 4(c) (8) of the Bank Holding Company Act (Act) 1 to an evidentiary hearing before the Board.
(2) Whether the finding of the Board that the public benefits of the C & S proposal would outweigh the possible adverse effects is supported by substantial evidence.
(3) Whether the C & S proposal would constitute branch banking in violation of federal and Georgia law.
We do not reach the latter two issues, because we hold that the Association was denied its statutory right to an adjudicatory hearing in which to explore those very questions. 2 We reverse the order of the Board, and remand for such a hearing.
C & S Holding is a wholly-owned subsidiary of Citizens and Southern National Bank (C & S National), both of which are registered bank holding companies within the meaning of the Bank Holding Company Act. C & S National is the largest bank in Georgia; C & S Holding owns more than fifty percent of the stock of eight banks and five percent of the stock of 27 other banks in Georgia. Including these indirectly-held affiliates as under effective C & S control, 3 C & S National controls twenty-three percent of the bank deposits in Georgia. 4
The C & S Holding proposal at issue involves the formation of C & S Mortgage as a wholly-owned subsidiary of C & S Holding, with a transfer of the bulk of C & S National's real estate lending activity to C & S Mortgage. 5 C & S Mortgage would engage in the activities of a mortgage company including making and servicing loans and acting as an investment or financial advisor in eleven Georgia communities. Under Board regulations governing the administration of section 4(c)(8) of the Act, a bank holding company may engage de novo in the type of activity proposed by C & S Holding without Board approval, unless adverse comments to the proposal are received by the local Federal Reserve Bank (Bank) within thirty days after publication of the proposal. 6
C & S Holding advised the Bank on 24 January 1972 that it had published notice of its proposal in newspapers of general circulation in the eleven communities. In January and February the Bank received protest letters both from the Association and from individual banks and savings and loan associations objecting to the proposal on the grounds that it would not produce benefits to the public and would be in violation of Georgia branch banking laws. On 8 March 1972 the Bank requested C & S Holding to submit comments and views on the issues raised; at the same time the protestants were informed they could supplement their earlier letters of comment if they wished. C & S Holding responded in April with a memorandum of law and additional information about its proposed operation. The opponents of the proposal furnished no supplemental material.
On 1 June 1972 the Bank approved the C & S Holding proposal, whereupon several protestants petitioned the Board for review. The Board granted the petition, supplied each party with a copy of the C & S Holding memorandum previously submitted to the Bank and invited the parties to submit legal memoranda or other documents. The memoranda subsequently submitted to the Board by the protestants detailed their legal position on the branch banking issue, argued that approval of the C & S Holding proposal would lessen competition by further contributing to the dominant financial position of the C & S system, and instanced two communities (Rome and Athens, Georgia) where no public benefit would accrue from the proposal.
On 9 August 1972 the Association, joined by the First National Bank of Athens, filed a Petition for Hearing, requesting the Board to order a formal hearing in accordance with the Board's regulations, including pre-hearing discovery procedures. 7 The hearing was requested for the purpose of enabling the parties to develop the facts regarding the parties' allegations of, inter alia, unfair competition, undue concentration of resources, and unlawful branch banking. On 27 February 1973 the pleas were renewed in an Amended Petition for Hearing, accompanied by a memorandum which raised one new argument, viz., that the C & S Holding proposal should be denied because C & S National's corporate structure was illegal. 8
On 26 June 1973, almost ten months after the Association's original request, the Board denied the petition for hearing, stating:
In denying this request, the Board has determined that the objections on which the request for hearing was predicated raised questions as to the legal effect of or conclusions to be drawn from certain facts, but did not raise any dispute as to relevant material facts. 9
Subsequently, by order of 31 August 1973, the Board approved the C & S Holding proposal. On 11 September 1973 C & S Holding advised the Board that C & S Mortgage had commenced operations in seven Georgia cities. The Association filed its petition for review of the Board's order in this court on 28 September 1973.
Responding to the first issue raised by petitioner, the Board makes three arguments in support of its position that the Association was not entitled to a formal evidentiary hearing under section 4(c)(8) prior to the Board's approval of the C & S Holding proposal: (1) there is no statutory right to an adjudicatory hearing under section 4(c)(8); (2) even assuming such a right exists, the Association's request raised no material issues of fact which warranted a hearing; and (3) the Association forfeited any right it may have had to a hearing by waiting until 9 August 1972 to initiate its request. We deal with these three arguments in turn below. We conclude this opinion by noting the prematurity of reviewing the other issues raised in this case, since they are properly the subject of the adjudicatory hearing to which we hold the Association is entitled.
The Bank Holding Company Act, originally enacted in 1956, was based on the belief that
bank holding companies ought not to manage or control nonbanking assets having no close relationship to banking. 10
Thus, section 4 of the Act provided that after May 1956 no bank holding company could acquire ownership or control of any company which is not a bank. 11 Under subsection 4(c)(8), 12 however, this prohibition did not apply to acquisitions of
shares of any company all the activities of which are or are to be of a financial, fiduciary, or insurance nature and which the Board after due notice and hearing, and on the basis of the record made at such hearing, by order has determined to be so closely related to the business of banking as to be a proper incident thereto and as to make it unnecessary for the prohibitions of this section to apply in order to carry out the purposes of this chapter. 13
There was no question that the Board could only make decisions under this subsection by order, on a case-by-case basis, after a full adjudicatory hearing. 14
In 1970 the Act was extensively revised. As amended, section 4(c)(8) now allows bank holding companies to acquire
shares of any company the activities of which the Board after due notice and opportunity for hearing has determined (by order or regulation) to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is a proper incident to banking or managing or controlling banks the Board shall consider whether its performance by an affiliate of a holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. In orders or regulations under this subsection, the Board may differentiate between activities commenced de novo and activities commenced by the acquisition, in whole or in part, of a going concern. 15
The central issue presented here is the extent to which the 1970 amendments to section 4(c)(8) have affected the right of interested parties to obtain a full adjudicatory hearing in which to challenge the application of a bank holding company to engage in "closely related" activity.
The Board, represented by the Civil Division of the...
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