Lewis v. Bt Investment Managers, Inc
| Citation | 100 S.Ct. 2009,447 U.S. 27,64 L.Ed.2d 702 |
| Decision Date | 09 June 1980 |
| Docket Number | No. 79-45,79-45 |
| Parties | Gerald A. LEWIS, Comptroller of the State of Florida, etc., Appellant, v. BT INVESTMENT MANAGERS, INC., et al |
| Court | United States Supreme Court |
A Florida statute (§ 659.141(1)) prohibits out-of-state banks, bank holding companies, and trust companies from owning or controlling a business within the State that sells investment advisory services. Another statute (§ 660.10) prohibits all corporations except state-chartered banks and trust companies and national banks located in Florida from performing certain trust and fiduciary functions. Appellee out-of-state bank holding company's proposal to operate appellee investment management subsidiary in Florida was rejected by the Board of Governors of the Federal Reserve System on the ground that it was prohibited by § 659.141(1). Appellees then brought suit in Federal District Court for declaratory and injunctive relief, alleging, inter alia, that § 659.141(1) violates the Commerce Clause and that the joint operation of that section with § 660.10 constitutes a similar violation since but for the existence of such statutes authority would be sought to establish a subsidiary trust company in Florida. The District Court held that the statutes violate the Commerce Clause, because in combination they discriminate against out-of-state bank holding companies and are "parochial legislation" that "must be deemed per se unconstitutional." The court also held that the federal Bank Holding Company Act of 1956 does not foster or permit the types of discrimination against out-of-state bank holding companies reflected in the Florida statutes. The court granted declaratory relief against both statutes but enjoined only the enforcement of § 659.141(1).
Held:
1. Section 659.141(1) directly burdens interstate commerce in a manner that contravenes the Commerce Clause's implicit limitation on state power. Pp. 37-49.
(a) While banking and related financial activities are of profound local concern, it does not follow that these same activities lack important interstate attributes that establish Congress' power to regulate commerce and that also support constitutional limitations on the powers of the States. Such limitations clearly apply in this case. Pp. 38-39.
(b) The District Court properly concluded that § 659.141(1) is "parochial" in the sense that it overtly prevents foreign enterprises from competing in local markets. Under that section, discrimination against affected business organizations is not evenhanded because only banks, bank holding companies, and trust companies with principal operations outside Florida are prohibited from operating investment subsidiaries or giving investment advice within the State. It follows that § 659.141(1) discriminates among affected business entities according to the extent of their contacts with the local economy. Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91, distinguished. And the disparate treatment of out-of-state bank holding companies cannot be justified as an incidental burden necessitated by legitimate local concerns, such as discouraging economic concentration or protecting the citizenry against fraud, or by an asserted interest in promoting local control over financial institutions. Pp. 39-44.
(c) Neither § 3(d) of the Bank Holding Company Act—which prohibits bank holding companies from acquiring banking subsidiaries in other States without local authorization—nor § 7 of that Act—which reserves to the States a general power to enact regulations applicable to bank holding companies—authorizes a State to prohibit out-of-state holding companies from acquiring local investment subsidiaries. The only authority § 3(d) grants to the States is the authority to permit expansion of banking across state lines where it would be otherwise federally prohibited. Moreover, the Act's structure reveals that § 3(d) applies only to holding company acquisitions of banks. Section 7 was intended to preserve existing state regulations of bank holding companies and to define the extent of the Act's pre-emptive effect on state law, and there is nothing in § 7's language or legislative history to indicate that it was also intended to extend to the States new powers to regulate banking that they would not have possessed absent federal legislation. Section 7 applies only to state legislation that operates within the boundaries marked by the Commerce Clause. Pp. 44-49.
2. Since the constitutionality of § 660.10 was neither fully placed in issue nor fully determined by the District Court's decision, the validity of that section's limitation on the types of corporations that may perform trust responsibilities is not properly before this Court at this stage of the proceedings; hence, the District Court's judgment with respect to § 660.10 is vacated and the case is remanded for further proceedings. Moreover, the amendment, in the interim, of § 3(d) of the Bank Holding Company Act so as apparently to prohibit appellee bank holding company from establishing a Florida trust subsidiary raises new jurisdic- tional and substantive questions that should be addressed in the first instance by the District Court. Pp. 50-53.
461 F.Supp. 1187, affirmed in part, vacated in part, and remanded.
John L. Warden, New York City, for appellees.
This case concerns the constitutionality of two Florida statutes regulating the conduct of investment advisory and trust services within that State. A three-judge United States District Court, convened pursuant to 28 U.S.C. § 2281 (1970 ed.),1 held that the statutes violate the Commerce Clause, U.S.Const., Art. 1, § 8, cl. 3, because in combination they discriminate against bank holding companies that operate principally outside Florida. It also held that such discrimination is not authorized by federal legislation regulating the interstate operations of bank holding companies. The case was brought here on direct appeal, see 28 U.S.C. § 1253, and we noted probable jurisdiction to resolve the substantial constitutional and statutory issues presented. 444 U.S. 822, 100 S.Ct. 41, 62 L.Ed.2d 28 (1979).
Appellee Bankers Trust New York Corporation (Bankers Trust) is a corporation organized under the laws of the State of New York. It maintains its principal place of business in that State. It is a bank holding company within the meaning of § 2(a) of the Bank Holding Company Act of 1956, 70 Stat. 133, as amended, 12 U.S.C. § 1841(a) (1976 ed. and Supp. II) (Act). Accordingly, it is subject to federal restrictions on the kinds of subsidiaries it may own or control. Upon authorization from the Board of Governors of the Federal Reserve System, however, it is permitted to own or control shares of any company the business of which is "so closely related to banking or managing or controlling banks as to be a proper incident thereto." § 4(c)(8) of the Act, 12 U.S.C. § 1843(c)(8). By regulation, the Board has designated both the provision of investment or financial advice and the performance of certain trust functions as "closely related" business within the meaning of this statute. See 12 CFR §§ 225.4(a)(4) and (5) (1979).
In 1972, the management of Bankers Trust decided to seek the Board's approval for an investment management subsidiary to operate in Florida. On October 3 of that year, Bankers Trust filed a formal proposal for such a subsidiary, which it planned to operate from offices in Palm Beach. Appellee BT Investment Managers, Inc. (BTIM), was Bankers Trust's intended vehicle for entry into the Florida market. It was incorporated under the laws of the State of Delaware as a wholly owned subsidiary on November 24, 1972. Three days later it qualified to do business in Florida. The application to the Board proposed that BTIM would provide "portfolio investment advice," as well as "general economic information and advice, general economic statistical forecasting services and industry studies" to persons other than banks. See Complaint ¶ 7, App. 9-10, and appellant's Answer ¶ 7, App. 19.
When Bankers Trust filed its application with the Board, certain Florida statutes restricted the ability of out-of-state bank holding companies to compete in the State's financial market. At that time Fla.Stat. § 659.141(1), added by 1972 Fla. Laws, ch. 72-96, § 1, and effective March 28, 1972, prohibited Bankers Trust from owning or controlling a bank or trust company located within the State; the same statute also prohibited it from owning businesses furnishing investment advisory services to local banks or trust companies. In addition, Fla.Stat. § 660.10 prohibited any corporation, other than a state-chartered bank and trust company or a national banking association located in Florida, from performing certain trust and fiduciary functions. Neither statute, however, directly prohibited an out-of-state bank holding company from owning or controlling a business furnishing investment advisory services to the general public. Thus, at the time Bankers Trust filed its application with the Board, it appeared that ownership of BTIM would not violate Florida law, although BTIM would be restricted in the types of financial services it could perform and the customers it could serve.
The reaction of the Florida financial community to Bankers Trust's proposed investment subsidiary was decidedly negative. The State Comptroller, the Florida Bankers Association, and the Palm Beach County Bankers Association, Inc., all filed comments with the Board objecting to the Bankers Trust proposal. More importantly for present purposes, the state legislature was persuaded to take action. On November 30, 1972, shortly after BTIM had qualified to do business in the State, a special session of the legislature amended Fla.Stat. § 659.141(1). That statute, which had...
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