Northwest Bancorporation v. BOARD OF GOVERNORS, ETC.

• Court: U.S. Court of Appeals — Eighth Circuit
• Writing for the Court: VOGEL, BLACKMUN and RIDGE, Circuit
• Citation: Northwest Bancorporation v. BOARD OF GOVERNORS, ETC., 303 F.2d 832 (8th Cir. 1962)
• Decision Date: 13 June 1962
• Docket Number: No. 16774.,16774.
• Parties: NORTHWEST BANCORPORATION, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.

303 F.2d 832 (1962)

NORTHWEST BANCORPORATION, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.

No. 16774.

United States Court of Appeals Eighth Circuit.

June 13, 1962.

Loring M. Staples, of Faegre & Benson, Minneapolis, Minn., for petitioner; Leonard O. Langer, of Faegre & Benson, Minneapolis, Minn., with him on the brief.

Pauline B. Heller, Attorney, Dept. of Justice, Washington, D. C., for respondents; William H. Orrick, Jr., Asst. Atty. Gen., Washington, D. C., and John G. Laughlin, Jr., Atty., Dept. of Justice, Washington, D. C., with her on the brief.

Horace R. Hansen, St. Paul, Minn., for Independent Bankers Ass'n; Hansen, Hazen & Lynch, St. Paul, Minn., on the brief.

Before VOGEL, BLACKMUN and RIDGE, Circuit Judges.

VOGEL, Circuit Judge.

This is a petition for review of an order of the Board of Governors of the Federal Reserve System (hereinafter the Board) dated March 23, 1961, denying an application of Northwest Bancorporation, petitioner, to secure prior approval of petitioner's proposed acquisition of 80% or more of the 1500 outstanding shares of stock of the First National Bank of Pipestone, Minnesota (hereinafter the bank). Petitioner is a bank holding company as defined by the Bank Holding Company Act of 1956, 12 U.S. C.A. § 1841 et seq. (hereinafter the Act), such prior approval being required by § 3 of the Act, 12 U.S.C.A. § 1842(a).¹

Petitioner's application contained facts and figures demonstrating petitioner's financial soundness and ability to manage the bank, coupled with its announced intention of improving service to the public, among other things by the erection of a new building. The application also stated additional reasons why the petitioner believed the proposed acquisition was in the public interest. It disclosed that the bank is a family institution with a majority of its shares closely held by the Feldman family. Mr. E. J. Feldman, presently managing the institution, is 80 years of age and desires to retire. The other members of the family and the heirs of the present management are in no position to take over control of the bank, the logical successor being Mr. Feldman's son, a doctor who is living in Bronxville, New York, and who has never been actively associated with the bank. Plans to sell the bank to its employees proved to be impractical. It was represented that the only apparent way to avoid liquidation and get the bank management into strong hands was a sale to petitioner, and that the family had approached petitioner on the subject, discussions had taken place, and an offer of purchase made subject to the approval of the Board of Governors.

In accordance with the provisions of the Act, petitioner filed its application with the Board. Upon receipt thereof, the Board notified the Comptroller of the Currency, as required by the Act.² By letter of June 29, 1960, to the Board the Comptroller of the Currency recommended approval of the application. Had the Comptroller disapproved the application, the petitioner would, in accordance with the Act, note 2, supra, have been entitled to a hearing as a matter of express right. At the conclusion thereof the Board would have been required to grant or deny the application "on the basis of the record made at such hearing." However, since the Comptroller approved the application, no hearing was had, although one was requested by petitioner. On September 15, 1960, the Board issued a Tentative Statement proposing to deny the application. The notice of the Board's tentative decision provided that any interested person could, not later than fifteen days after the publication of such notice in the Federal Register, file with the Board in writing any comments upon or objections to the Board's proposed actions. Petitioner responded thereto, filing with the Board its "Comments upon and Objections to Tentative Statement and Proposed Action of Board of Governors." It requested reconsideration by the Board and "If our statements of fact are questioned, that we be permitted to prove them; if the Board wishes, at a formal hearing before a trial examiner."

On October 12, 1960, the Board, by letter, informed petitioner that it would consider any additional information or arguments petitioner cared to submit, including statistical material, affidavits and memoranda of law. Therein the Board stated:

"Although the memorandum submitted appears to present no material facts or arguments not heretofore considered by the Board, it states that you are prepared to prove the contrary of asserted assumptions and conclusions contained in the Board\'s Tentative Statement. The Board will consider any further information or arguments submitted in support of either the factual assertions made in the memorandum or the interpretation of the statute urged therein, provided such information or arguments are submitted within a reasonable time not to exceed 30 days from the date of this letter.

"There appears to be no basis at the present time for conducting a hearing on the instant application. However, as above indicated, the Board will give consideration to any written material, including statistical material, affidavits, or memoranda of law, that you may care to submit within the time above specified in support of the assertions of fact or law contained in the memorandum of October 4."

In accordance therewith petitioner did submit additional written material in the form of affidavits, an analysis of a statistical survey, and argument of its legal counsel. In submitting such material to the Board, the petitioner stated:

"* * * We also again request a hearing in this matter if the Board still feels inclined to reject our application."

On March 23, 1961, the Board unanimously denied the application. It accompanied its order with a statement setting forth its findings and its reasons for the denial. On May 19, 1961, petitioner, pursuant to the provisions of the Act,³ sought review by this court of the Board's order.

In asking for review by this court, it is the petitioner's contention (1) that the order is invalid because of the Board's failure to make adequate findings to support its conclusions; (2) that the order is arbitrary, capricious and an abuse of discretion, contrary to and unsupported by the evidence; (3) that the order is predicated upon an erroneous interpretation of § 3(c) of the Bank Holding Act of 1956; and (4) that the denial of a hearing was a violation of petitioner's constitutional rights.

In the enactment of the Bank Holding Company Act of 1956 the Congress specifically provided that before a bank holding company could directly or indirectly acquire through ownership or control more than 5% of the voting shares of a bank it must obtain approval of the Board. § 3(a) of the Act, 12 U.S.C.A. § 1842(a), supra. It left the responsibility of approving or disapproving such bank acquisitions by holding companies squarely with the Board. In each instance the Board has the duty to make a judgment as to the effect a proposed acquisition would have upon the convenience, needs and welfare of the communities and the area concerned, sound and adequate banking, the public interest, and the preservation of competition in the field of banking. Congress specifically set forth the factors which were to govern the Board in its determination to approve or disapprove the application. § 3(c) of the Act, 12 U.S.C.A. § 1842 (c), provides:

"In determining whether or not to approve any acquisition or merger or consolidation under this section, the Board shall take into consideration the following factors: (1) the financial history and condition of the company or companies and the banks concerned; (2) their prospects; (3) the character of their management; (4) the convenience, needs, and welfare of the communities and the area concerned; and (5) whether or not the effect of such acquisition or merger or consolidation would be to expand the size or extent of the bank holding company system involved beyond limits consistent with adequate and sound banking, the public interest, and the preservation of competition in the field of banking."

In consideration of the first two assignments of error, one, attacking the findings as inadequate and, two, charging that the order is arbitrary, an abuse of discretion and unsupported, we believe it expedient that the main portion of the Board's statement accompanying its order of denial be set forth in full.⁴

It must be conceded first that there is no dispute between the Board and petitioner as to the basic facts. The history and size of the petitioner, the number of banks it controls, the size of First Bank Stock Corporation, its banks and the locations thereof, the size and location of the First National Bank of Pipestone, the number of banks in Pipestone and in its primary, secondary, and general areas — these are all basic facts about which there is no dispute, nor can there be.

Summarized, they present the following picture: (1) That petitioner controls 77 banks in a seven-state area. Within Minnesota it controls 47 banks with aggregate deposits of over one billion dollars. It controls 26% of the total deposits of commercial banks in Minnesota. (2) If the acquisition of bank were approved, petitioner would control 72% of the IPC (individual, partnership and corporation) deposits in Pipestone; it would control 35% of the IPC deposits of the Minnesota banks in the primary and secondary areas served by bank; and 28% of the IPC deposits of all banks (nine in Minnesota and two in South Dakota) in the areas concerned. (3) There is only one other bank in Pipestone. It is a subsidiary of First Bank Stock Corporation, a bank holding corporation which controls 86 banks in five states, 49 of which, with aggregate deposits of about $1,202,550,000, are in Minnesota. If the proposed acquisition of bank were approved, all of the banking resources of Pipestone, Minnesota, would be controlled by relatively...