New York Stock Exchange, Inc. v. Smith, Civ. A. No. 74-1405.

• Decision Date: 05 December 1975
• Docket Number: Civ. A. No. 74-1405.
• Citation: 404 F. Supp. 1091
• Parties: NEW YORK STOCK EXCHANGE, INC., and Investment Company Institute, Plaintiffs, v. James E. SMITH, Comptroller of the Currency, the Department of the Treasury, Defendant.
• Court: U.S. District Court — District of Columbia

404 F. Supp. 1091

NEW YORK STOCK EXCHANGE, INC., and Investment Company Institute, Plaintiffs, v. James E. SMITH, Comptroller of the Currency, the Department of the Treasury, Defendant.

Civ. A. No. 74-1405.

United States District Court, District of Columbia.

December 5, 1975.

John E. Nolan, Jr., Michael D. Sandler, Washington, D. C., for New York Stock Exchange.

Richard A. Goldstein, G. Duane Vieth, Arnold & Porter, Washington, D. C., for Investment Co. Institute.

David C. Shonka and Nicholas Diacou, Attys., Dept. of Justice, Gen. Litigation Section, Civ. Div., Washington, D. C., for defendant.

MEMORANDUM OPINION

FLANNERY, District Judge.

Plaintiffs seek a judgment declaring invalid a ruling of the Comptroller of the Currency holding that automatic stock purchasing services offered by national banks did not violate sections 16 and 21 of the Glass-Steagall Act, 12 U.S.C. §§ 24, 378 (1970). The matter is now before the court on cross motions for summary judgment, pursuant to rule 56 of the Federal Rules of Civil Procedure. Defendant also urges that the case be dismissed on the grounds that plaintiffs lack standing to sue, the ruling in question is not reviewable, and necessary parties have not been joined. The court finds that plaintiffs have satisfied all threshold requirements, but that defendant is entitled to summary judgment on the merits.

I

This action is brought by the New York Stock Exchange (NYSE), a national securities exchange, and the Investment Company Institute (ICI), an association of open-end investment companies and their investment advisors and principal underwriters. Defendant James E. Smith, the Comptroller of the Currency, is responsible for the supervision and regulation of the national banking system. On June 10, 1974, he issued an opinion letter stating that sections 16 and 21 of the Glass-Steagall Act do not prohibit national banks from offering customers automatic stock purchasing services.

The plan approved in the Comptroller's letter, called Automatic Investment Service (AIS), permits checking account customers to designate a sum of money between $20 and $500 to be deducted automatically from their account each month and invested in one of 25 selected securities. The 25 stocks available are those having the highest aggregate market value of outstanding stock on Standard & Poor's 425 Industrial Index. Advertising brochures and the contracts between AIS customers and their banks state that the banks make no recommendation as to the merits of any individual stock or to the group of stocks as a whole. The plans are extensively advertised, however, and the stocks are often referred to as "blue chip."

When an AIS customer orders a stock, the bank has 30 days in which to complete the transaction. The bank does not promise to obtain the best possible price during the 30 days, only to execute the order before the end of that period. Until it purchases the securities ordered, the bank holds the customer's money in a common AIS account, interest free. The actual price charged against the customer's account is the average price paid by the bank for all shares of the same stock bought during the 30 days, plus a pro rata share of the brokers' commissions and a service charge.¹ When the amount designated for investment will not purchase an additional whole share at the average price, the customer is credited with a fractional share. Because all purchases of a single security are aggregated, no single purchase can be identified as being made for any particular customer.

Stocks purchased under AIS are held in the name of the purchasing bank, but the customer has full beneficial ownership. The customer can vote the shares and will directly receive any dividends paid on them. A customer can withdraw from the plan at any time and receive his stock certificates or their cash value. If a customer wishes to sell only a portion of his holdings, the bank will also execute the transaction for him. When holdings acquired under AIS are liquidated, the bank will often "cross" the sell order with a buy order from another AIS customer. Internal crosses allow the bank to avoid paying a broker's fee on the transactions and ensure that the money will not be needed for the full 30 days.

The letter of June 10, 1974, numbered 27 pages in length and represented the culmination of a substantial deliberative effort by the Comptroller. Consideration of AIS began on October 30, 1972, when the Security Pacific National Bank requested the Comptroller's opinion of the plan's legality. Following the issuance of a letter approving AIS, both ICI and NYSE requested the Comptroller to reconsider his position. Briefs exploring the legal merits of AIS were submitted by NYSE, ICI, and several national banks. After reviewing these documents, which contained virtually all the arguments presented by the parties now before the court, the Comptroller issued the June 10 letter.

II

Defendant urges upon the court several preliminary arguments which, if correct, would prevent adjudication of the merits of plaintiffs' complaint. Specifically, defendant contends that plaintiffs lack standing, that the letter in issue is not a reviewable agency action and, consequently, no justiciable case or controversy exists, and that plaintiffs have failed to join indispensable parties. The court finds no merit in any of these contentions.

Defendant's first argument is that plaintiffs lack standing to bring this suit.² That the plaintiffs have standing to sue was conclusively established by the Supreme Court in Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970), and Investment Company Institute v. Camp, 401 U.S. 617, 91 S.Ct. 1091, 28 L.Ed.2d 367 (1971). In Data Processing, the Court held that competitors of businesses aided by agency action suffered sufficient injury to effectively challenge that action. The Court also found that Congress, when passing the Glass-Steagall Act, arguably intended to protect nonregulated parties from competition by national banks. In Investment Company Institute, which concerned the operation of investment funds by national banks, the Court held that one of the very plaintiffs in the instant case was arguably within the zone of protection carved out by the Glass-Steagall Act. The potential competitive injury to NYSE and ICI in the case at bar is indistinguishable from that suffered by ICI in Investment Company Institute. Defendant's argument that NYSE and ICI actually benefit from the operation of AIS because it attracts new investors to the market lacks substance. If plaintiffs did not feel substantially threatened by AIS, they would not have undertaken this burdensome litigation.

A more substantial issue raised by defendant is the power of the court to review the opinion letter in question. Defendant submits that the opinion letter is not subject to review under section 10 of the Administrative Procedure Act, 5 U.S.C. § 704 (1970), because it is not legally binding on any party or the Comptroller's Office and because the plaintiffs conduct is not directly affected by the Comptroller's interpretation of the statute.³

The propriety of reviewing a statutory interpretation by an agency responsible for administering the act has been explored at length by the Supreme Court in Abbott Laboratories, Inc. v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967), and by the Court of Appeals for the District of Columbia Circuit in National Automatic Laundry and Cleaning Council v. Shultz, 143 U.S. App.D.C. 274, 443 F.2d 689 (1971) and Continental Air Lines, Inc. v. CAB, 522 F.2d 107 (D.C.Cir. 1975) (en banc). Abbott Laboratories established that in deciding whether an agency ruling is ripe for judicial review a court must "evaluate both the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration." 387 U.S. at 148-49, 87 S.Ct. at 1515. Further, doubt as to justiciability must be resolved in favor of the plaintiff since the Administrative Procedure Act "embodies the basic presumption of judicial review . .." Id. at 140, 87 S.Ct. at 1511.

The fitness of a particular ruling for judicial review depends upon its finality and the court's ability to discern and resolve the legal issues the ruling presents. See Toilet Goods Ass'n v. Gardner, 387 U.S. 158, 162-63, 87 S.Ct. 1520, 18 L.Ed.2d 697 (1967); National Automatic Laundry and Cleaning Council v. Shultz, supra, at 694. An opinion letter signed by the head of an agency, not indicating on its face that it is tentative, and growing out of substantial deliberation is "presumptively final" for purposes of judicial review. National Automatic Laundry and Cleaning Council v. Shultz, supra, at 701-02. This is so even though the opinion legally could be reconsidered by the agency at any time. Thus, in Continental Air Lines the court of appeals reviewed the merits of a CAB order which was not legally binding on the agency. See 522 F.2d at 123, 124-25. The agency action reviewed in NALCC similarly did not bind the agency, and, in fact, was an opinion letter interpreting a portion of the statute administered by the agency. See 443 F.2d at 692, 702. Opinion letters signed by an agency head are also "presumptively final" even though they have no legal effect on parties subject to agency regulation; the opinion need only affect those subject to regulation and their competitors as a practical matter. See Continental Air Lines, Inc. v. CAB, supra, at 124-25, citing, Bantam Books, Inc v. Sullivan, 372 U.S. 58, 83 S.Ct. 631, 9 L.Ed.2d 584 (1963). In the instant case, the opinion letter is signed by the agency head, shows no indication of being tentative, follows substantial deliberation, and, as a practical matter, encourages national banks to institute AIS programs. It thus appears that the letter is sufficiently final to permit judicial review of its merits.

The...