Jefco, Inc. v. Lewis

• Decision Date: 19 March 1975
• Docket Number: No. 12243,12243
• Parties: JEFCO, INC., et al., Appellants, v. W. Sale LEWIS, Savings and Loan Commissioner, et al., Appellees.
• Court: Texas Court of Appeals

Page 915

520 S.W.2d 915

JEFCO, INC., et al., Appellants, v. W. Sale LEWIS, Savings and Loan Commissioner, et al., Appellees.

No. 12243.

Court of Civil Appeals of Texas,

Austin.

March 19, 1975.

Rehearing Denied April 16, 1975.

Shannon H. Ratliff, McGinnis, Lochridge & Kilgore, Austin, Frank E. McLain, Turner, Rodgers, Sailers, Jordan & Calloway, Dallas, J. Sam Winters, Mary Joe Carroll, Clark, Thomas, Denius, Winters & Shapiro, Austin, for appellants.

John L. Hill, Atty. Gen., John W. Odam, John H. Banks, Thomas M. Pollan, Asst. Attys. Gen., Austin, Fred B. Werkenthin, Dennis R. Reese, Small, Craig & Werkenthin, Austin, for appellees.

SHANNON, Justice.

The resolution of this appeal turns on whether or not the Savings and Loan Section of the Finance Commission of Texas was empowered to adopt a regulation prohibiting savings associations from giving premiums or other items of value as attractions or inducements for the opening of, adding to, or maintaining minimum balances in, savings accounts. As we are of the opinion that the Section has that authority, we will affirm the judgment of the trial court.

The case comes to this Court as an appeal from an order of the district court of Travis County denying the application of appellants for a temporary injunction. The appellants are Jefco, Inc., Fort Worth Savings and Loan Association, and the Sperry and Hutchinson Company. Appellees are W. Sale Lewis, Savings and Loan Commissioner of Texas, C. E. Bentley, Robert B. Baldwin, III, and James R. Dickson, Jr., in their capacity as members of the Savings and Loan Section of the Finance Commission of Texas. Also appellees here and intervenors in the trial court, are Metropolitan Savings and Loan Association, Dallas, Texas; Southwest Savings Association, Dallas, Texas; and Tarrant Savings Association, Fort Worth, Texas. The Savings and Loan Section of the Finance Commission of Texas will usually be referred to in this opinion as the 'Section.'

On July 15, 1974, after hearing, the Section adopted the regulation of which appellants complain. The new regulation is in the form of a subsection to § 9.4 of the Rules and Regulations for Savings and Loan Associations, and it became effective on September 15, 1974. The regulation reads as follows:

'9.4(b) No association shall offer or give as an attraction or inducement for opening or adding to a savings account, certificate of savings or deposit or maintaining a minimum balance therein, any merchandise, premium or other item of value; 'item of value' does not include providing customer services on premise (sic). Safe deposit facilities, community rooms, club facilities, notary services and travel checks may be offered at no cost or at a reduced rate.'

In August of 1974, before the effective date of the new regulation, the appellants filed separate lawsuits in Travis County attacking its validity. Upon motion of the appellee officials, the court consolidated the three causes. In general, appellant Sperry and Hutchinson Company pleaded that it is in the trading stamp business. For a fee Sperry and Hutchinson Company licenses business organizations to issue the familiar 'S & H Green Stamps' to their customers who in turn trade in their collections of stamps for merchandise or cash. The purpose of the stamp service is to permit the subscribing business organizations to increase and maintain their operations by attracting customers and inducing those customers to return and purchase frequently so that they will collect enough stamps to secure their desired merchandise. In the operation of its business appellant pleaded that it contracted to supply its services to a number of savings and loan associations in thirty-three towns and cities in Texas. These associations have allegedly used the green stamp device to promote the opening of new accounts and to attract additional deposits.

Appellant, Jefco, Inc., pleaded that it was in the business of packaging, promoting, and selling merchandising programs to savings and loan associations, among others. Such programs were allegedly designed to promote and maintain deposits by coupling the giving of gift or premium with the depositor's agreement to open, add to, or maintain an account of a certain amount in the savings institution offering such program. The other appellant, Fort Worth Savings and Loan Association, alleged that it gave premiums to attract customers and induce them to open, maintain or add to certificate of savings or deposit accounts with it.

In general, the appellants alleged that the promulgation of the regulation was beyond the statutory power of the Savings and Loan Section, that the regulation was not supported by substantial evidence in the record made before the Savings and Loan Section, and that as to each of them the regulation was in violation of Tex.Const . Art. I, § 3, § 19, and § 26, and Art. II, § 1, Vernon's Ann.St.

During the course of the trial and over the objection of the appellants, the court admitted into evidence the record made in the hearing before the Savings and Loan Section. The appellants' objection was grounded upon the fact that none of the witnesses in that hearing were sworn. In addition to the introduction of the record made in the administrative hearing, the appellants and appellees called a number of witnesses.

Among others, appellants called Jerry F. Simmans, President of Fort Worth Savings and Loan Association, who testified in opposition to the new regulation. His association offered 'Green Stamps' as premiums for opening accounts. Simmans attributed the growth in savings in his association to its stamp program. He testified that without stamp giveaways his association could not compete as effectively for savings and he foresaw a substantial loss in savings for his association resulting from the promulgation of the new regulation.

George Adams, President of Parker Square Savings and Loan Association in Wichita Falls, and Roland Tucker, Executive Vice-President of Metropolitan Savings and Loan Association in Dallas, called by the appellees, testified that their associations, before the effective date of the new regulation, had employed giveaway devices to attract more savers. Adams said that his association entered into the giveaway program in order to compete with a local association which was offering 'Green Stamps.' The pattern in the giving of gifts by the savings and loan associations was that the program usually started with modest gifts, but under the pressure of competition the value of the gifts greatly increased . At the time of the hearing, the premium program for Parker Square Savings and Loan Association cost from $5,000.00 to $7,000.00 each month. Adams' experience was that his association's giveaway program was effective only so long as it 'out-did' the gifts of its competition, and only so long as it offered a still more attractive gift each succeeding quarter.

Adams' observation was that he had a order his giveaway merchandise long in advance of the date at which time his association released publicity about a new gift offering. He also testified as to the importance in ordering merchandise which would be likely to appeal to potential depositors. If the association miscalculated as to the tastes of the potential depositors, it might lose the value of the shipment. His association brought a pick-up truck in order to transport the merchandise. It was necessary for the association to rent space in which to store the merchandise. The Parker Square Savings and Loan Association hired an additional employee who spent about ninety percent of his time moving and storing giveaway merchandise.

The regulations of the Federal Home Loan Bank Board provide, in general, that no depositor in an association may receive more than one gift each year from that association. Adams and Tucker testified that the regulation was not enforced by the federal agency and that many savings and loan associations regularly violated that regulation by giving more than one gift each year to some depositors who demanded more.

Both Adams and Tucker were of the opinion that in many instances persons withdrew deposits in one association and put them in another association in order to receive a particularly attractive giveaway or stamp offer from that association. Husbands and wives with a single account frequently withdrew that account and opened two accounts in order to receive more prizes. The evidence was that frequently the depositor who continued to maintain his account in one association could not understand why he was not eligible to receive a gift with the accrual of each quarterly interest payment, and, upon demand, the association would usually present him a gift rather than risk losing his deposit.

The premium-giving associations experienced problems similar to that of the merchandiser. For example, persons on occasion returned prizes given long before, complaining perhaps that the prizes were defective or did not match the color scheme in the house. Nearly always the association replaced the gift with another since it 'could not afford to offend a customer.' At Parker Square Savings and Loan Association the teller was instructed to leave his window and accompany the customer to the prize tables, to show the wares. During that time if the other tellers were occupied with the same task or were engaged in the task of receiving deposits, customers wanting to deposit money had to wait until the teller had finished showing the gifts. Metropolitan Savings and Loan Association employed a special employee part-time at its principal office and each branch office who did nothing but wait on the premium table.

Parker Square Savings and Loan Association had its merchandise displayed on three tables in the lobby. Included at one time or another in the gift merchandise displayed at the savings and loan associations were George Washington's cookbook, Mrs. Kennedy's life story, pots, pans,...