NAT. RETAILER CORP. OF ARIZ. v. Valley Nat. Bank

• Decision Date: 02 February 1976
• Docket Number: Civ. No. 71-410-PHX-WEC.
• Citation: 411 F. Supp. 308
• Parties: NATIONAL RETAILERS CORPORATION OF ARIZONA, an Arizona Corporation, Plaintiff, v. VALLEY NATIONAL BANK, a National Banking Association; and James E. Smith, Comptroller of Currency, Defendants.
• Court: U.S. District Court — District of Arizona

411 F. Supp. 308

NATIONAL RETAILERS CORPORATION OF ARIZONA, an Arizona Corporation, Plaintiff, v. VALLEY NATIONAL BANK, a National Banking Association; and James E. Smith, Comptroller of Currency, Defendants.

Civ. No. 71-410-PHX-WEC.

United States District Court, D. Arizona.

February 2, 1976.

Jeremy E. Butler, Lewis & Roca, Phoenix, Ariz., for plaintiff NRCA.

Charles E. James, Jr., Gust, Rosenfeld, Divelbess & Henderson, Phoenix, Ariz., for defendant Valley Bank of Arizona.

James V. Elliott, Washington, D. C., for defendant James E. Smith, Comptroller of Currency.

MEMORANDUM OF DECISION

BOLDT, Senior District Judge, Sitting by Designation.

I. STATEMENT OF THE CASE

This is an action for a declaratory judgment and injunctive relief against the defendant, James E. Smith, Comptroller of Currency (hereafter Comptroller). Plaintiff seeks a declaratory judgment that a ruling, 12 C.F.R. § 7.3500, Use of data processing equipment and furnishing of data processing services, issued by the Comptroller is unlawful and should be set aside as arbitrary, capricious and an abuse of discretion, contrary to constitutional rights, power, privilege or immunity and, in excess of statutory jurisdiction, authority or limitations. Injunctive relief is sought to enjoin the Comptroller from issuing any opinion, rule or regulation permitting national banks to perform computer data processing services for any person unless the data processing services are directly "incidental" to the express powers of the bank under the National Bank Act, 12 U.S.C. § 24.

The factual pattern within which plaintiff seeks the declaratory and injunctive relief involves plaintiff, National Retailers Corporation of Arizona (hereafter NRCA) an Arizona corporation that has been offering data processing services to retailers and others in Arizona since 1966. The data processing services offered by plaintiff require the use of a cash register and computer sold by National Cash Register (NCR). The cash register produces a magnetic tape which can be fed into the NCR computer to produce computer print-outs reflecting various aspects of the customer's business. One of plaintiff's customers, a subsidiary of Hart, Schaffner & Marx, was Hanny's, a retail clothing merchandiser with a substantial number of stores in Arizona and in the Phoenix area. Prior to October 1, 1971, Hanny's was obtaining data processing services from plaintiff. On or about October 1, 1971, Hanny's obtained almost identical services from Valley National Bank (hereafter VNB). The data processing services offered by the VNB to Hanny's and the public, also utilized an NCR cash register and computer combination. The contested service which VNB offers pursuant to the Comptroller's ruling is called a Retail Information System (hereafter RIS). The retailer's sales transaction data, when recorded on NCR cash registers and processed through an NCR computer owned by VNB, can be assembled and compiled into numerous different reports which provide the retailer with information regarding various aspects of his business. A retailer whose sales data has been processed by VNB has the option of purchasing some or all of the reports made available by VNB's data processing service.

It is asserted by plaintiff, and the Court finds that, in fact, VNB relied on the ruling of the Comptroller, 12 C.F.R. § 7.3500, in providing the data processing services which are the subject matter of this litigation. The Comptroller of the Currency has issued this ruling as being his interpretation of the authority of national banks to provide data processing services under the National Bank Act, 12 U.S.C. § 24 (Seventh).

Plaintiff contends that the providing of data processing services to the public by VNB is not authorized by the express provisions of the National Bank Act, that the Comptroller exceeded his authority in rendering the interpretive ruling in question, and, in effect, induced VNB to provide such services.

The Comptroller challenges all of plaintiff's contentions and affirmatively asserts several other contentions, each of which is stated and ruled upon by the Court in paragraph IV below.

The undersigned Judge, (W.D. Wash.) sitting in this District by designation, was assigned to conduct a non-jury trial on the issues now presented in this case. In prior proceedings in the case: (1) on August 21, 1971, Judge William Frey, (D. Ariz.), denied plaintiff's motion for a preliminary injunction and entered Findings of Fact and Conclusions of Law consistent therewith; and (2) on October 30, 1975, Chief Judge Walter E. Craig (D. Ariz.) ruled that the VNB should be dismissed from the present action, thus making it unnecessary to determine the motion of VNB for partial summary judgment.

II. SUMMARY OF ISSUES PRESENTED

1. Does this Court have jurisdiction over the subject matter of this action?

2. Does the fact that VNB has been dismissed from this action in a prior ruling render any of the issues moot?

3. Does plaintiff have standing to assert its contentions in this Court?

4. Are the defendant's contentions, testimony, and exhibits pertaining to electronic money relevant or material to any issues in this action?

5. Are the Findings of Fact and Conclusions of Law entered by Judge Frey in denying plaintiff's motion for a preliminary injunction binding on this Court in

6. Has the Comptroller of the Currency by issuing and publishing the ruling contained in 12 C.F.R. § 7.3500, exceeded his statutory authority, violated

constitutional rights, rendered an arbitrary or capricious ruling in abuse of his discretion or not in accordance with law?

7. If so, should the Court enjoin the Comptroller of the Currency from issuing or giving effect to 12 C.F.R. § 7.3500, or any other interpretative ruling or regulation issued by him that would authorize a national bank to perform data processing services this Court finds and holds are not directly authorized by the National Bank Act or within the "incidental powers . . . necessary to carry on the business of banking"?

III. STATEMENT OF FACTS FOUND

At final argument the Court informed counsel that as a general principle and in the particular circumstances of this case, the rulings of this Court should and would be strictly limited to the specific issues presented in the Final Pretrial Order and the facts found pertaining to those issues. The following basic and controlling facts found by the Court are summarized as below stated. Other detailed and specific findings by the Court are stated in written Findings of Fact and Conclusions of Law signed and entered herewith.

Before plaintiff began doing business in Arizona, its officers and employees had extensive knowledge, training and actual experience in providing computer data processing services to retail businesses with considerable success in other areas, notably California. Prior to engaging in the same business in Arizona, plaintiff conducted an extensive search for potential customers, and conducted negotiations with them, including Hanny's and others. A customer doing business of the magnitude and with the substantial need for data processing services, such as Hanny's, was essential to plaintiff's entering business in Arizona. A firm commitment by Hanny's to take plaintiff's services on specific terms made it possible for plaintiff to begin business in this state in 1967. After various initial problems were resolved to Hanny's satisfaction over a period of time, plaintiff enjoyed not only a substantial regular income from the Hanny's account but also serviced a considerable number of small retail concerns in various areas in this state which produced significant income for plaintiff.

For some time prior to plaintiff engaging in business in this state, Hanny's had a deposit account at the VNB. An executive of that bank, Jere J. Brommer, when plaintiff's service to Hanny's commenced, acquired considerable information concerning plaintiff's data processing services to Hanny's which eventually led him to urge higher bank officials to authorize him to make a thorough study as to whether the bank might profitably provide to the public substantially the same services plaintiff provided Hanny's. Based on Brommer's study the bank approved his proposal that the bank purchase its own computers, related equipment and software from NCR. Over a period of several months, prior to acquiring the Hanny's account, Brommer, representatives of NCR and Hanny's engaged in numerous discussions resulting in a commitment from Hanny's to switch from plaintiff's data processing service to that of the bank in October of 1971. Subsequent to VNB putting the RIS into operation Hanny's notified plaintiff that its data processing services were terminated. The bank charged Hanny's substantially lower rates than those of plaintiff for essentially the same services. This was accomplished by all of those who, without advising plaintiff, participated in bringing about the bank take-over of Hanny's account from plaintiff. Shortly following this event, plaintiff brought the present action and, among other claims alleged, asserted the claims against the Comptroller now before this Court.

The subject matter covered and the facts found by the Court as stated above are based on the trial and deposition testimony admitted in evidence of witnesses Robert Palmer, Ira Fulton and Lester DeFreese and to the extent not inconsistent with the above findings, that of Jack Crawford and Brommer. Brommer and Crawford were highly interested witnesses. Portions of their testimony might negative any of the foregoing facts; however, the Court finds such portions incredible upon reasonable inferences drawn from a consideration of the evidence as a whole.

IV. RULINGS RE: JURISDICTION, MOOTNESS, STANDING, ELECTRONIC MONEY, PRELIMINARY INJUNCTION FINDINGS, COMPTROLLER RULING AND INJUNCTION

1. JURISDICTION:

After a full review of the arguments and briefs of counsel as well as...