Iowa Independent Bankers v. Board of Governors of Federal Reserve System, 73--1952

• Decision Date: 07 February 1975
• Docket Number: No. 73--1952,73--1952
• Citation: 167 U.S.App.D.C. 286,511 F.2d 1288
• Parties: IOWA INDEPENDENT BANKERS, an Iowa Nonprofit Corporation, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent, Northwest Bancorporation, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1288

511 F.2d 1288

167 U.S.App.D.C. 286

IOWA INDEPENDENT BANKERS, an Iowa Nonprofit Corporation, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent Northwest Bancorporation, Intervenor.

No. 73--1952.

United States Court of Appeals District of Columbia Circuit.

Argued Oct. 21, 1974.

Decided Feb. 7, 1975.

Wayne P. Dordell, St. Paul, Minn., with whom Horace R. Hansen, St. Paul, Minn. and Richard W. Berglund, Des Moines, Iowa, were on the brief for petitioner.

Karen K. Siegel, Atty., Dept. of Justice, with whom Irving Jaffe, Deputy Asst. Atty. Gen. and Robert E. Kopp, Atty., Dept. of Justice, were on the brief for respondent.

Duane W. Krohnke, Minneapolis, Minn., with whom Dorsey D. Ellis, Jr., Iowa City, Iowa, was on the brief for intervenor.

Before TAMM and LEVENTHAL, Circuit Judges and MERHIGE, ^* United States District Judge for the Eastern District of Virginia.

TAMM, Circuit Judge:

Iowa Independent Bankers (Iowa Bankers), an association of over 400 Iowa banks, petitions this court to set aside an order of respondent, Board of Governors of the Federal Reserve System (the Board), approving the acquisition of two Iowa banks by Northwest Bancorporation (Northwest). Petitioner argues principally that the Iowa statute authorizing the acquisition violates the fourteenth amendment to the United States Constitution, conflicts with federal law governing bank holding companies, and violates certain provisions of the Iowa Constitution. We reject petitioner's arguments and deny the petition.

I. INTRODUCTION

The bank holding company is a popular device for expansion in states that limit or prohibit financial institutions from engaging in branch banking. ¹ Since 1956, the federal government has regulated this field through the Bank Holding Company Act of 1956, 12 U.S.C. §§ 1841--1850 (1970). As part of the regulatory scheme, bank holding companies must register with the Board of Governors of the Federal Reserve System and must obtain its approval prior to culminating any acquisitions. 12 U.S.C. § 1842(a). Nevertheless, even after passage of the Act, the states still retained significant responsibility for regulating the banking industry within their borders. In section 1846, Congress reserved to each state 'such powers and jurisdiction which it now has or may hereafter have with respect to banks, bank holding companies, and subsidiaries thereof.' Of greater importance to this litigation is another limitation placed upon the Board, specifically section 1842(d), which provides that no acquisition of a state bank by an out-of-state bank holding company will be approved unless such an acquisition 'is specifically authorized by the statute laws of the State in which such bank (the acquiree) is located, by language to that effect and not merely by implication.'

In 1972, the Iowa legislature revised its banking laws, adding several sections regulating bank holding companies, including the following:

Nothing in this division shall be construed to authorize a bank holding company which is with respect to the state of Iowa an 'out-of-state bank holding company' . . . to acquire any . . . interest in . . . any bank in this state, unless such bank holding company was on January 1, 1971, registered with the federal reserve board as a bank holding company, and on that date owned at least two banks in this state.

Iowa Code Ann. § 524.1805 (Supp.1974--1975). The legality of this statute is the primary issue in this litigation.

At the time the statute was passed, Northwest was the only out-of-state bank holding company that controlled any banks in Iowa. Within several months of the enactment of section 524.1805, Northwest arranged to acquire controlling interests in two Iowa banks, Bettendorf Bank and Keokuk Bank, and applied to the Board for approval. The Board invited comments by interested persons, and Iowa Bankers, some of whose members would become competitors of Northwest if approval was granted, raised objections. Iowa Bankers argued that approval could not be granted because section 524.1805 violated the equal protection clause of the fourteenth amendment to the United States Constitution, and violated the equality, general and uniform, and no exclusive privilege clauses of the Iowa Constitution; consequently, the acquisition of Iowa banks by an out-of-state bank holding company was not expressly authorized by a valid law as required by section 3(d) of the Bank Holding Company Act, 12 U.S.C. § 1842(d). ² Petitioner also argued that the intent of Congress in passing this section of the Act was to prohibit the states from selectively allowing bank holding company expansion across state lines, and section 1842(d), in fact, prohibited the Iowa legislature from enacting such a statute. Northwest Bancorporation, 38 Fed.Reg. 21531--32 (1973). Finally, Iowa Bankers maintained that the proposed acquisition would have anticompetitive effects. Id. at 21531.

The Board approved the application, finding that the acquisition would not be anticompetitive but would promote competition in the affected area. Id. ³ It also concluded that section 524.1805 did not conflict with the intent of Congress, since 12 U.S.C. § 1846 expressly reserved to the states all power and jurisdiction that they possessed before passage of the Act. Id. at 21532. However, the Board refused to rule on the constitutional objections raised by Iowa Bankers, stating:

As required by Whitney (Whitney National Bank in Jefferson Parish v. Bank of New Orleans & Trust Co., 379 U.S. 411, 85 S.Ct. 551, 13 L.Ed.2d 386 1965)) the Board considers the applicability and effect of State legislation, but the constitutional validity thereof is presumed; and objectors' challenges to the constitutionality of the recently-enacted Iowa legislation in this matter are properly cognizable only by the judiciary.

Id. (citation omitted). ⁴

Dissatisfied with the Board's approval, Iowa Bankers petitions this court to set aside the Board's order. Northwest has intervened on the Board's side.

II. STANDING

At the threshold, we are confronted by Northwest's contention that petitioner does not have standing to raise the constitutional issues as neither it nor its constituents are members of the class discriminated against. We believe that this argument is untenable, the result of confusing the distinct concepts of standing to sue and standing to assert the rights of others once properly before the court. We hold that petitioner has standing to raise the constitutional issues before this court.

In the first instance, petitioner undeniably has standing to sue. Such standing is conferred upon petitioner statutorily, as 12 U.S.C. § 1848 provides that '(a)ny party aggrieved by an order of the Board' under the Act is entitled to judicial review in this court. Section 1850, added by the 1970 amendments, further defines the class of 'parties aggrieved' to include those who are or would become competitors of the applicant if the acquisition was approved. Thus, any bank that competes with the Bettendorf or Keokuk Banks has the right to seek judicial review of the Board's order. Since several of petitioner's member banks compete with the Bettendorf or Keokuk Banks, petitioner is properly before this court. See Sierra Club v. Morton, 405 U.S. 727, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972).

Once properly before this court, the question becomes may petitioner assert in this proceeding the rights of those out-of-state bank holding companies that are allegedly being discriminated against. We think that the Supreme Court's decision in FCC v. Sanders Bros. Radio Station, 309 U.S. 470, 60 S.Ct. 693, 84 L.Ed. 869 (1940), controls, and requires that we answer this question affirmatively. In Sanders, the Court considered a challenge to the standing of a party under section 402(b) of the Communications Act of 1934, 47 U.S.C. § 402(b) (1970), which provides for judicial review by the applicant for a permit or 'by any other person aggrieved.' Rejecting the contention that since economic injury to a competition was not a ground for refusing to issue a broadcast license, Sanders, as a competitor, could not seek review of a license grant, the Court stated that:

Congress had some purpose in enacting § 402(b)(2). It may have been of opinion that one likely to be financially injured by the issue of a license would be the only person having a sufficient interest to bring to the attention of the appellate court errors of law in the action of the Commission in granting the license. It is within the power of Congress to confer such standing to prosecute an appeal.

We hold, therefore, that the respondent had the requisite standing to appeal and to raise, in the court below, any relevant question of law in respect of the order of the Commission.

309 U.S. at 477, 60 S.Ct. at 698 (footnote omitted).

Just as the respondent in Sanders could properly seek judicial review of 'any relevant question of law in respect of the order of the Commission,' petitioner here may raise before this court any objection to the Board's decision, including any state and federal constitutional claims. See Sierra Club v. Morton, supra, 405 U.S. at 736--38, 740 n.15, 92 S.Ct. 1361; Scripps-Howard Radio, Inc. v. FCC, 316 U.S. 4, 14, 62 S.Ct. 875, 86 L.Ed. 1229 (1942); 3 K. Davis, Administrative Law Treatise § 22.07 (1958).

III. THE MERITS

A. Equal Protection

Petitioner's first argument is that section 524.1805 of the Iowa Code, set out in Part I, violates the equal protection clause of the fourteenth amendment by creating two classes of out-of-state bank holding companies: one, composed of those out-of-state bank holding companies that control only one Iowa bank or do not control any Iowa banks, cannot acquire banks within Iowa; the other, composed of all out-of-state bank holding companies controlling two or more Iowa banks, may acquire additional Iowa banks. In fact, the only member of the latter class is Northwest,...