New York State Ass'n of Life Underwriters, Inc. v. New York State Banking Dept.

• Decision Date: 30 March 1994
• Citation: 632 N.E.2d 876,610 N.Y.S.2d 470,83 N.Y.2d 353
• Parties: , 632 N.E.2d 876, 62 USLW 2627 In the Matter of NEW YORK STATE ASSOCIATION OF LIFE UNDERWRITERS, INC., et al., Appellants, v. NEW YORK STATE BANKING DEPARTMENT et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 470

610 N.Y.S.2d 470

83 N.Y.2d 353, 632 N.E.2d 876, 62 USLW 2627

In the Matter of NEW YORK STATE ASSOCIATION OF LIFE

UNDERWRITERS, INC., et al., Appellants, v. NEW YORK STATE BANKING DEPARTMENT et al., Respondents.

Court of Appeals of New York.

March 30, 1994.

Hinman, Straub, Pigors & Manning, P.C., Albany (Bartley J. Costello, III, Kimberly C. Lawrence, Albany, and Ann M. Kappler, Washington, DC, of counsel), and Jenner & Block, Washington, DC, of the District of Columbia Bar, admitted pro hac vice, for appellants.

G. Oliver Koppell, Atty. Gen., Albany (John McConnell, Jerry Boone and Peter H. Schiff, of counsel), for respondents.

Frank W. Hunger, Asst. Atty. Gen., Mark B. Stern, Jacob M. Lewis, William P. Bowden, Jr., L. Robert Griffin, Ernest C. Barrett, III, and Yvonne D. McIntire, Washington, DC, of the District of Columbia Bar, admitted pro hac vice, for the Comptroller of the Currency of the U.S., amicus curiae.

Sullivan & Cromwell, New York City (John L. Warden, H. Rodgin Cohen, Michael M. Wiseman, Theodore Edelman, Robert J. Giuffra, Jr., and Lisa J. Laplace, of counsel), and David L. Glass, for The New York State Bankers Ass'n, amicus curiae.

OPINION OF THE COURT

SMITH, Judge.

The issues in this case are (1) whether the State Banking Law authorizes State-chartered commercial banks to purchase and sell annuities, either directly or through a subsidiary, and (2) whether annuities are insurance and, thus, within the express statutory proscription of sales by commercial banks.

On December 20, 1989 and February 12, 1990, pursuant to requests by certain national banks, the Federal Office of the Comptroller of the Currency (OCC) issued Interpretive Letters No. 494 and No. 499, respectively, stating, in essence, that 12 U.S.C. § 24 (Seventh) ¹ authorizes national banks to broker financial investment instruments, such as agricultural futures, options, and fixed-rate annuities. Thereafter, the New York State Bankers Association requested from the New York State Banking Department its opinion as to whether State-chartered commercial banks had comparable authority under State law. By letter dated January 24, 1991, the State Banking Department, for reasons similar to those stated in OCC Letter No. 499, opined that "brokerage of fixed-rate annuities by state-chartered banks is permissible because such activity falls within the banks' power to broker financial investment instruments." In a letter dated April 23, 1991, petitioners, consisting of three individual insurance agents and several nonprofit organizations representing the insurance industry, sought a ruling from the Banking Department, pursuant to section 204 of the State Administrative Procedure Act and Supervisory Procedure G 110 of the Regulations of the State Banking Department (3 NYCRR), declaring, among other things, that State-chartered commercial banks are not authorized, either directly or through a subsidiary, to sell annuities. In its response on May 17, 1991, the State Banking Department declined to issue a declaratory ruling and construed the request as one for interpretations of the Banking Law. The Banking Department stated that Banking Law § 96(1) ² authorizes State-chartered commercial banks to sell fixed-rate and variable-rate annuities, and that such activity may be carried out either directly in the bank or through a subsidiary acquired pursuant to Banking Law § 97(5). ³

Petitioners then commenced this CPLR article 78 proceeding challenging the State Banking Department's January 24th and May 17th Interpretive Letters, and for a judgment declaring that the sale of annuities by a bank, directly or through a subsidiary, is not an "incidental power" of the "business of banking" within the meaning of Banking Law § 96(1). Supreme Court converted the proceeding to a declaratory judgment action to the extent necessary, and granted petitioners a judgment (1) annulling the Interpretive Letters, and (2) declaring that "the sale of annuities by a bank, directly or through a subsidiary, is not an 'incidental power' of the 'business of banking' within the meaning of section 96(1)." The court reasoned that nothing in the language of Banking Law § 96(1) expressly authorized State-chartered commercial banks to broker annuities and that such activity is not necessary to carry on the enumerated powers in the statute. The Appellate Division modified, on the law, by (1) reversing so much of the judgment as annulled the Banking Department's determination and declared that the sale of fixed-rate or variable-rate annuities by State-chartered commercial banks is not an "incidental power" of the "business of banking" under Banking Law § 96(1), (2) confirming the Banking Department's determination, and (3) declaring that such a sale is an "incidental power" of the "business of banking" under Banking Law § 96(1), and otherwise affirmed the judgment (190 A.D.2d 338, 598 N.Y.S.2d 824). The Appellate Division stated that the "incidental powers" clause of Banking Law § 96(1) was not intended to limit the power of banks to the specifically enumerated powers of the Banking Law, but, rather, was intended to permit banks to expand their banking services over time consistent with evolving business practices and their customers' needs (see, id., at 341, 598 N.Y.S.2d 824). The Court also acknowledged that such a construction of the "incidental powers" clause does not mean that banks are free to engage in any type of business activity and that, indeed, certain types of business activities are prohibited (see, id.). This Court granted leave to appeal. 82 N.Y.2d 656, 602 N.Y.S.2d 805, 622 N.E.2d 306.

It is settled that "the construction given statutes and regulations by the agency responsible for their administration, if not irrational or unreasonable, should be upheld" (Matter of Howard v. Wyman, 28 N.Y.2d 434, 438, 322 N.Y.S.2d 683, 271 N.E.2d 528; see also, Matter of Salvati v. Eimicke, 72 N.Y.2d 784, 791, 537 N.Y.S.2d 16, 533 N.E.2d 1045; Matter of Colt Indus. v. New York City Dept. of Fin., 66 N.Y.2d 466, 471, 497 N.Y.S.2d 887, 488 N.E.2d 817). Deference to such construction is appropriate where the language used in the statute is special or technical and does not consist of common words of clear import (cf., Matter of SIN, Inc. v. Department of Fin., 71 N.Y.2d 616, 620, 528 N.Y.S.2d 524, 523 N.E.2d 811). In addition, deference to an agency's construction of a statute is warranted "[w]here the interpretation of a statute or its application involves knowledge and understanding of underlying operational practices" (Kurcsics v. Merchants Mut. Ins. Co., 49 N.Y.2d 451, 459, 426 N.Y.S.2d 454, 403 N.E.2d 159).

Banking Law § 10 authorizes the Banking Department to supervise and regulate all banking organizations. Pursuant to Banking Law § 11(1), the Banking Department is "charged with the execution of the laws relating to the individuals, partnerships and corporations to which [the Banking Law] is applicable and shall exercise such powers and perform such duties as are conferred and imposed upon it" by the laws of this State. Furthermore, the Banking Board, within the Banking Department, may pass upon and determine any matter submitted to it for its determination (see, Banking Law § 14[2]. Clearly, the "incidental powers" clause in Banking Law § 96(1) does not consist of common words of clear import, and that clause is susceptible to differing interpretation. Because the Banking Department is charged with the supervision and regulation of the business of all banking organizations, it is presumed to have the requisite knowledge and understanding of the operational practices of such banking organizations and of the Banking Law. We conclude that the construction of Banking Law § 96(1) afforded by the Banking Department was not unreasonable or irrational, and that the Appellate Division correctly deferred to the Banking Department's determination that the sale of fixed-rate and variable-rate annuities by State-chartered commercial banks, either directly or through a subsidiary, is an "incidental power" of the "business of banking" within the meaning of the Banking Law.

Petitioners offer several reasons for rejecting the Banking Department's determination. First, petitioners argue that banks are prohibited from exercising any powers not expressly granted to them, and that nothing in the plain language of Banking Law § 96(1), including the "incidental powers" clause, expressly grants State-chartered commercial banks the authority to sell annuities. Petitioners' position is that the statute should be narrowly construed to limit the term "business of banking" in the "incidental powers" clause of that statute to those activities that are essential to achieving the expressly enumerated powers.

In Curtis v. Leavitt, 15 N.Y. 9, this Court rejected a similar argument when construing analogous language in the predecessor to the current Banking Law. In that case, the Court reasoned that the enumerated powers in the statute "were evidently intended not to restrict the appropriate business of banking, but as a mere legislative definition of that business; a definition not indispensable, perhaps, but eminently useful" (id., at 58). The Court explained that since other laws restrained banks from engaging in certain activities, including the powers of discount and deposit, without legislative approval, the enumerated powers were intended to explicitly remove the restraints, rather than leaving them to be derived from the general grant to carry on the business of banking (see, id., at 58-59). In explaining that the term "necessary" should be afforded a flexible meaning, the Court stated:

"There may be an absolute necessity, a great necessity, and a small necessity; and between these degrees there may be many others depending on the ever varying exigencies of human affairs. It is plain that corporations, in executing their express powers, are not confined to means of...