Kelley ex rel. Slay v. Michigan Nat. Bank

• Decision Date: 05 April 1966
• Docket Number: Nos. 20,21,s. 20
• Citation: 377 Mich. 481,141 N.W.2d 73
• Parties: Frank J. KELLEY, Attorney General of the State of Michigan, ex rel. Charles D. SLAY, Commissioner of Banking of the State of Michigan, Plaintiff-Appellant, v. MICHIGAN NATIONAL BANK, a National banking association, the Grand Ledge State Bank, a Michigan banking corporation, and Loan and Deposit State Bank, a Michigan banking corporation, Defendants-Appellees. The GRAND LEDGE STATE BANK, a Michigan banking corporation, Loan and Deposit State Bank, a Michigan banking corporation, and Michigan National Bank, a National banking association, Plaintiffs-Appellees, v. Charles D. SLAY, Commissioner of Banking of the State of Michigan, Defendant-Appellant.
• Court: Michigan Supreme Court

Page 73

141 N.W.2d 73

377 Mich. 481

Frank J. KELLEY, Attorney General of the State of Michigan,

ex rel. Charles D. SLAY, Commissioner of Banking

of the State of Michigan, Plaintiff-Appellant, v. MICHIGAN NATIONAL BANK, a National banking association, the

Grand Ledge State Bank, a Michigan banking corporation, and

Loan and Deposit State Bank, a Michigan banking corporation,

Defendants-Appellees.

The GRAND LEDGE STATE BANK, a Michigan banking corporation, Loan and Deposit State Bank, a Michigan banking corporation, and Michigan National Bank, a National banking association, Plaintiffs-Appellees, v. Charles D. SLAY, Commissioner of Banking of the State of

Michigan, Defendant-Appellant.

Nos. 20, 21.

Supreme Court of Michigan.

April 5, 1966.

Frank J. Kelley, Atty. Gen., Robert A. Derengoski, Sol. Gen., Maurice M. Moule, Maxine Boord Virtue, Asst. Attys. Gen., Lansing, for appellant.

Hudson E. Deming, Grand Ledge, for appellee, Grand Ledge State Bank.

Louis E. Wirbel, Grand Ledge, and Miller, Morriss & Pappas, Lansing, of counsel, for appellee, Loan and Deposit State Bank.

Butzel, Eaman, Long, Gust & Kennedy, by Victor W. Klein, Harold A. Ruemenapp, Detroit, Fraser, Trebilcock, Davis & Foster, by James R. Davis, Lansing, for appellee, Michigan Nat. Bank.

Before the Entire Bench, except BLACK, J.

KAVANAGH, Chief Justice.

On the relation of the banking commissioner, the attorney general sought by quo warranto to prevent the Michigan National Bank, the main office of which is in Lansing, from purchasing the assets and assuming the liabilities of the two Grand Ledge State banks, which banks thereupon were to be liquidated and a branch or branches of the Michigan National Bank established in Grand Ledge. The attorney general alleged that such transactions would create a monopoly contrary to State law, ¹ in the banking business in the Grand Ledge service area.

The two Grand Ledge State banks filed a complaint against the banking commissioner seeking to set aside the commissioner's order of March 10, 1964, refusing to approve the sales, purchases and liquidation of the two banks by arrangement with the Michigan National Bank. The cases were consolidated for pretrial and trial, since they involved the same factual transactions and issues.

Following trial, the circuit court found as a matter of fact that: the growth of the two Grand Ledge State banks over the past five years was substantially less than other banks in the area; one of the banks had an acute management succession problem; neither bank had the trained personnel necessary to offer modern banking services to the community, such as Federal Housing Administration (FHA) and Veterans Administration (VA) loans or trust department services; an increase of the interest rate to four per cent (which many banks were already paying) would present serious financial difficulties to both banks; both banks, due to increased competition from credit unions, building and loan associations, and insurance companies were experiencing grave difficulties in procuring sufficient high-yield loans; and the proposed transactions resulted from good faith, open, competitive bidding between Michigan National Bank and another Lansing bank, the American Bank & Trust Company.

In addition to these facts, from which the trial court found not only economic necessity but a lack of modern banking facilities in Grand Ledge, it should be noted that the city of Grand Ledge attempted to intervene as a party defendant in the attorney general's suit in order to show that the city of Grand Ledge was not adequately served by the two State banks and that the proposed sale and liquidation would benefit the city of Grand Ledge. The comptroller of currency of the United States in approving the acquisition of the assets and assumption of the liabilities of the banks by the Michigan National Bank stated: 'While consummation of this proposal (and operation of the State banks' offices in Grand Ledge as branches of the Michigan National Bank) will have no significant consequences in the city of Lansing, it will produce marked benefits for the public in the Grand Ledge area.'

The trial court concluded that section 26 of the Michigan financial institutions act ² announces a public policy that a community of less than 6,000 is better served by only one bank or branch, and that section 26 should be read in connection with the antimonopoly laws of the State. Judgment was entered accordingly and plaintiff attorney general for himself, and in the companion case on behalf of the defendant banking commissioner, appealed.

The questions at issue are: (1) whether the acquisition of the assets and assumption of liabilities of the two Grand Ledge State banks, the operation of their offices as branches of the Michigan National Bank, and alleged resulting monopolization of the banking business in the Grand Ledge market area by Michigan National Bank is a violation of the Michigan antimonopoly laws, or alternatively, whether the purchases and alleged resulting monopolization by Michigan National Bank is justified by economic necessity; (2) whether the acquisition of the assets of the two Grand Ledge State banks and the asserted resulting monopolization of banking business in the Grand Ledge market area by Michigan National Bank were justified by the legislative policy declaration in section 26 of the Michigan financial institutions act; and (3) whether the Michigan banking commissioner was justified in refusing to approve sale of the assets of the two Grand Ledge State banks to the Michigan National Bank because of the personal interests of the officers of the two State banks therein and because of the alleged monopolistic nature of the transaction.

The attorney general claims that the result would constitute an illegal monopoly under the Michigan antimonopoly laws simply because Michigan National Bank would thereby obtain roughly 92 per cent of all the banking business in the city of Grand Ledge and a 5-mile area surrounding it, which has been stipulated to be the market area for the purposes of this case.

In order to determine what a monopoly is, we must turn to the definitions of the Courts. The Michigan Supreme Court, quoting United States v. American Tobacco Co., 164 F. 700, has approved the following definition of a monopoly:

"A monopoly, in the modern sense, is created when, as a result of efforts to that end, previously competing businesses are so concentrated in the hands of a single person or corporation, or a few persons or corporations acting together, that they have power to practically control the prices of commodities and thus to practically suppress competition."

Attorney General ex rel. James v. National Cash Register Co., 182 Mich. 99, 107, 148 N.W. 420; People, ex rel. Attorney General v. Detroit Asphalt Paving Co., 244 Mich. 119, 122, 123, 221 N.W. 122, 123.

In Peoples Savings Bank v. Stoddard, 359 Mich. 297, 329, 102 N.W.2d 777, 793, 83 A.L.R.2d 344 (1960), this Court said:

'Monopoly may be said to be the result of the practical elimination of effective business competition which thereby creates a power to control prices to the harm of the public.'

1 Trade Reg.Rep. (1965), par. 1530, says:

'The existence of monopoly power is determined in the light of the market involved, that is, the relevant market.'

Although it was once thought by some that banking could not be the subject of a monopoly (5 Toulmin's Anti-Trust Laws, Banking (Anderson Ed. 1950)), § 2.1, p. 57, this is not the prevailing view and in Michigan since 1960 banks have been held subject to the State's antimonopoly laws. Peoples Savings Bank v. Stoddard, supra. However, once banks are subjected to antimonopoly regulation, one must determine just what is the relevant market area of any banking community.

To determine 'market area' we may again turn to the Supreme Court's definition. The United States Supreme Court in United States v. Philadelphia National Bank, 374 U.S. 321, 359, 83 S.Ct. 1715, 1739, 10 L.Ed.2d 915 (1963) used the following test in a case involving violation of the Federal antitrust laws:

'Therefore, since, as we recently said in a related context, the 'area of effective competition in the known line of commerce must be Charted by careful selection of the market area in which the seller operates, and to which the purchaser can practicably turn for supplies.' Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (81 S.Ct. 623, 628, 5 L.Ed.2d 580).' (Emphasis supplied.)

The court held that the relevant market area was the four-county area around Philadelphia. In support of the concept that the relevant market in regard to banking can be quite small, the Supreme Court of the United States has determined that the relevant area can be confined to one county.

'We also agree with the District Court that the consolidation should be judged in light of its effect on competition in Fayette county. The record establishes that here, as in United States v. Philadelphia National Bank, * * * the 'factor of inconvenience' does indeed localize banking competition 'as effectively as high transportation costs in other industries." United States v. First National Bank & Trust Co. of Lexington, 376 U.S. 665, 668, 84 S.Ct. 1033, 1034, 12 L.Ed.2d 1.

In Peoples Savings Bank v. Stoddard, supra, the Michigan Supreme Court, without discussing the problem, applied the antimonopoly statute to one city, Port Huron, with a population of 35,000.

In the case at bar, the admitted relevant market area is the city of Grand Ledge and the immediate area within a radius of five or six miles with a population of 10,340. If the proposed sale and liquidation of the two State banks are approved, upon commencement of business in the offices of the State banks as branches Michigan National Bank will have acquired over 90% Of the banking business in the Grand Ledge area.

The Michigan Supreme Court has adopted the 'rule of reason' in applying...