National State Bank of Elizabeth, N. J. v. Smith

• Decision Date: 05 February 1979
• Docket Number: Nos. 78-1161 and 78-1331,No. 78-,No. 78-1162,78-1162 and 78-1331,78-1161,Nos. 78-1160,78-,s. 78-1161 and 78-1331,78-1162,s. 78-1160
• Citation: 591 F.2d 223
• Parties: NATIONAL STATE BANK OF ELIZABETH, N. J., Plaintiff, New Jersey Bankers Association, Intervening Plaintiff, Appellants in1160, v. James E. SMITH, Comptroller of the Currency, Federal Home Loan Bank Board, Gilbert G. Roessner, Gerald E. Rupp, Alfred H. Hedden, David W. Matchett, Ronald J. Tell, John W. Atherton, Jr., City Federal Savings and Loan Association, and City Consumer Services, Inc., Defendants. Appeal of CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, City Consumer Services, Inc., Gilbert G. Roessner, Gerald E. Rupp, Alfred H. Hedden, David W. Matchett, Ronald J. Tell and John W. Atherton, Jr., inAppeal of John G. HEIMANN, Comptroller of the Currency, in
• Court: U.S. Court of Appeals — Third Circuit

Page 223

591 F.2d 223

NATIONAL STATE BANK OF ELIZABETH, N. J., Plaintiff, New Jersey Bankers Association, Intervening Plaintiff, Appellants in No. 78- 1160, v. James E. SMITH, Comptroller of the Currency, Federal Home

Loan Bank Board, Gilbert G. Roessner, Gerald E. Rupp, Alfred

H. Hedden, David W. Matchett, Ronald J. Tell, John W.

Atherton, Jr., City Federal Savings and Loan Association,

and City Consumer Services, Inc., Defendants.

Appeal of CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, City

Consumer Services, Inc., Gilbert G. Roessner, Gerald E.

Rupp, Alfred H. Hedden, David W. Matchett, Ronald J. Tell

and John W. Atherton, Jr., in Nos. 78-1161 and 78-1331.

Appeal of John G. HEIMANN, Comptroller of the Currency, in

No. 78-1162.

Nos. 78-1160, 78-1161, 78-1162 and 78-1331.

United States Court of Appeals, Third Circuit.

Argued Oct. 18, 1978.

Decided Jan. 15, 1979.

As Amended on Denial of Rehearing Feb. 5, 1979.

Michael F. Spicer, Jamieson, McCardell, Moore, Peskin & Spicer, Princeton, N. J Ralph L. Straw, Jr., Wharton, Stewart & Davis, Somerville, N. J., for National State Bank of Elizabeth, New Jersey, appellant in No. 78-1160 and cross-appellee in Nos. 78-1161 to 78-1162 and 78-1331.

for New Jersey Bankers Assoc., appellant in No. 78-1160 and cross-appellee in Nos. 78-1161-62 and 78-1331.

William F. McKenna, McKenna & Fitting, Los Angeles, Cal., for City Federal Savings & Loan Association, et al., appellees in No. 78-1161 and 78-1162 and cross-appellants in No. 78-1161 and 78-1331.

Barbara L. Herwig, App. Section, Civ. Div., Dept. of Justice, Washington, D. C., for John G. Heimann, Comptroller of the Currency, appellee in Nos. 78-1160, 78-1161 and 78-1331 and appellant in No. 78-1162.

Harvey Simon, Federal Home Loan Bank Board, Washington, D. C., for appellee, Federal Home Loan Bank Board.

Before GARTH, BIGGS and MARIS, Circuit Judges.

OPINION OF THE COURT

MARIS, Circuit Judge.

This civil action was brought in the District Court for the District of New Jersey on July 29, 1976, by National State Bank of Elizabeth, N. J., (herein National State), against the Comptroller of the Currency (herein Comptroller), the Federal Home Loan Bank Board (herein Board), City Federal Savings and Loan Association (herein City Federal), City Consumer Services, Inc. (herein City Consumer) and Gilbert G. Roessner, Gerald R. Rupp, Alfred H. Hedden, David W. Matchett, Ronald J. Tell and John W. Atherton, Jr. (herein the individual defendants). The complaint sought a declaratory judgment that the actions of the Board and the Comptroller in approving the creation of City Trust Services, N.A. (herein City Trust) were invalid as contrary to the Home Owners' Loan Act of 1933, 12 U.S.C.A. § 1461 Et seq., the National Bank Act, 12 U.S.C.A. § 21 Et seq., the Bank Holding Company Act, 12 U.S.C.A. § 1841 Et seq., the Sherman Antitrust Act, 15 U.S.C.A. § 1, and the Clayton Act, 15 U.S.C.A. § 19. The complaint also sought orders enjoining the Comptroller from issuing a certificate of authority to commence business to City Trust and enjoining City Federal, City Consumer and the individual defendants from engaging in the business of banking.

Answers were filed by all defendants and the case was heard and decided by the court on cross motions for summary judgment. The court (1) adjudged the Comptroller's actions in approving the creation of City Trust to be invalid, (2) ordered him to revoke the certificate of authority which he had issued to City Trust, and (3) dismissed as moot the claims against the other defendants. The New Jersey Bankers Association (herein Bankers) was first permitted to enter the case as Amicus curiae and shortly after the entry of the final judgment against the Comptroller was permitted to intervene as a party plaintiff. From the portion of the final judgment against him adjudging his approval of the creation of City Trust to be invalid and directing him to revoke the certificate of authority issued to City Trust the Comptroller appealed (No. 78-1162). City Federal, City Consumer and the individual defendants likewise appealed from that part of the final judgment (No. 78-1161) and also from the order permitting Bankers to intervene (No. 78-1331). National State and Bankers appealed from the portion of the final judgment dismissing as moot the claims against all the defendants except the Comptroller (No. 78-1160).

The facts are not in dispute and will be briefly stated. Central to them was the creation of City Trust as a national bank which was to conduct only the business of a commercial bank trust department and which was to be a wholly-owned subsidiary of City Consumer which in turn is a wholly-owned subsidiary of City Federal. It seems clear that the intention was to operate City Trust as, in effect, a trust department of City Federal. In order to create this sub-subsidiary City Federal, as a savings and loan association organized pursuant to the laws of the United States, had to obtain the approval of the Board as the agency in charge of regulating federal savings and loan associations.

City Federal accordingly made application on September 19, 1974, for permission to permit its existing subsidiary, City Consumer, to invest in the stock of City Trust, a proposed national bank to be chartered by the Comptroller for the purpose of offering certain fiduciary services. On October 28, 1975, the Board formally approved the application by resolution which included, Inter alia, the following conditions:

"1. The Comptroller issues a national bank charter to CTS, together with a special permit authorizing it to exercise fiduciary powers;

"2. CTS executes an agreement with the Comptroller under the terms of which CTS shall agree to render only those fiduciary services as may be authorized under the special permit issued by the Comptroller, and that it will not engage in any other activities otherwise permissible under a national bank charter, including the making of commercial loans and the receipt of deposits other than trust funds;

"3. CTS' Articles of Association are drafted in such manner that CTS is authorized to perform only those fiduciary services authorized by the Comptroller.

"4. The Federal Reserve Board issues a written opinion affirming that neither CFS or CCS will become a bank holding company by virtue of the Comptroller's issuance of a national bank charter to CTS; . . ."

Condition 4 above quoted was considered by the Federal Reserve Board which informed City Federal by letter of March 4, 1976, that in the opinion of its legal department City Trust would not be a bank within the definition of the Bank Holding Company Act, 12 U.S.C.A. § 1841, because it would not accept deposits or make loans and that, therefore, neither City Federal nor City Consumer would become a bank holding company by virtue of the incorporation of City Trust by the Comptroller as a national bank.

On April 14, 1975, while its application to the Board was pending, City Federal, having on April 3, 1975, requested authority for City Trust to offer fiduciary services without the customary authority of a national bank to receive deposits and make loans, made application to the Comptroller for permission to organize a national banking association to be known as City Trust Services, N.A. The application was accepted for filing on July 3, 1975. Twelve banks, including National State, together with Bankers filed objections to the application. A hearing was held on the application on October 28, 1975, by the Regional Administrator of National Banks following which, on June 28, 1976, City Federal was notified that the Comptroller had granted preliminary approval of its application to organize a national bank and exercise fiduciary powers. The approval was given subject to certain stated conditions, among them

" . . . that Article Eighth of the Articles of Association should be adopted to read as follows:

'The corporate existence of the Association shall continue until terminated in accordance with the laws of the United States. The purpose of the Association shall be to carry on the general business of a commercial bank trust department and to engage in such activities as are necessary, incident or related to such business. This Article shall not be amended, or any other provision added elsewhere in these Articles expanding the powers of the Association, without the prior approval of the Comptroller of the Currency.' "

As we have said, National State, as plaintiff, filed the present suit on July 29, 1976, against the Board, the Comptroller, City Federal, City Consumer, and the six individual defendants who were directors or officers of City Federal and incorporators and proposed directors of City Trust seeking declaratory relief against the Board and the Comptroller and injunctive relief against City Federal, City Consumer and the individual defendants. City Trust was not named as a defendant, it having not yet been incorporated. While the litigation was in its preliminary stages, the Comptroller, on December 13, 1976, accepted articles of association and an organization certificate from the organizers of City Trust, at which time City Trust became a body corporate under the National Bank Act, 12 U.S.C.A. § 24. Subsequently on January 3, 1977, the Comptroller issued to City Trust a certificate of authority "to commence the business of banking as a National Banking Association" and a special permit, pursuant to 12 U.S.C.A. § 92a, to engage in certain of the fiduciary activities contemplated by that section. City Trust commenced operations on January 4, 1977.

The district court filed its opinion on the motions for summary judgment on September 16, 1977, and on November 4, 1977, a final judgment was entered (1) declaring that the approval of the creation of City Trust by the Comptroller was contrary to law and invalid, (2) ordering the Comptroller to revoke the certificate of authority to commence business issued to City Trust and ...