Owensboro Nat. Bank v. Stephens

• Decision Date: 15 March 1995
• Docket Number: Nos. 92-6330,92-6331,s. 92-6330
• Citation: 44 F.3d 388
• Parties: THE OWENSBORO NATIONAL BANK; The First National Bank of Louisa; Citizens National Bank of Paintsville; Kentucky Bankers Association, Plaintiffs-Appellees, United States of America, Intervening Plaintiff-Appellee, v. Don W. STEPHENS, Commissioner, Department of Insurance, Commonwealth of Kentucky, Defendant-Appellant (92-6330), Kentucky State Association of Life Underwriters; Independent Insurance Agents of Kentucky, Inc.; Kentucky Association of Professional Insurance Agents, Intervening Defendants- Appellants (92-6331).
• Court: U.S. Court of Appeals — Sixth Circuit

Page 388

44 F.3d 388

63 USLW 2417

THE OWENSBORO NATIONAL BANK; The First National Bank of

Louisa; Citizens National Bank of Paintsville;

Kentucky Bankers Association, Plaintiffs-Appellees, United States of America, Intervening Plaintiff-Appellee, v. Don W. STEPHENS, Commissioner, Department of Insurance,

Commonwealth of Kentucky, Defendant-Appellant (92-6330),

Kentucky State Association of Life Underwriters;

Independent Insurance Agents of Kentucky, Inc.;

Kentucky Association of Professional

Insurance Agents, Intervening

Defendants-

Appellants

(92-6331).

Nos. 92-6330, 92-6331.

United States Court of Appeals, Sixth Circuit.

Argued Sept. 29, 1994.

Decided Dec. 29, 1994.

Rehearing and Suggestion for Rehearing

En Banc Denied March 15, 1995.

M.T. Senn (argued and briefed), Morgan & Pottinger, Louisville, KY, M. Brooks Senn, Kentucky Bankers Ass'n, Louisville, KY, for plaintiffs-appellees.

Joseph L. Famularo, U.S. Atty., Lexington, KY, Anthony J. Steinmeyer, Jacob M. Lewis (argued and briefed), Dept. of Justice, Appellate Staff, Civil Div., Rosa M. Koppel, Office of Comptroller of Currency, Paul W. Bridenhagen, Anne L. Weismann, Dept. of Justice, Washington, DC, for intervenor-appellee in No. 92-6330.

Stephen B. Cox (briefed), Kentucky Dept. of Ins., Frankfort, KY, Ann M. Kappler (argued and briefed), Jenner & Block, Washington, DC, for defendant-appellant.

Michael F. Crotty (briefed), American Bankers Ass'n, Washington, DC, for amicus curiae American Bankers Ass'n.

Joseph L. Famularo, U.S. Atty., Lexington, KY, Rosa M. Koppel, Office of Comptroller of Currency, Paul W. Bridenhagen, Anne L. Weismann, Dept. of Justice, Washington, DC, for intervenor-appellee in No. 92-6331.

Jonathan B. Sallet, Ann M. Kappler (argued), Ann M. Kappler, Jenner & Block, Washington, DC, Terrell L. Black, Larry R. Blanton, Black, Carle, Maze & Wilmes, Louisville, KY, for intervenors-appellants.

Before GUY and BATCHELDER, Circuit Judges; and McKEAGUE, District Judge. ^*

GUY, J., delivered the opinion of the court, in which McKEAGUE, D.J., joined. BATCHELDER, J. (pp. 393-99), delivered a separate dissenting opinion.

RALPH B. GUY, Jr., Circuit Judge.

Defendants, the Commissioner of the Kentucky Department of Insurance ("Commissioner") and various Kentucky insurance industry associations, appeal the district court's grant of summary judgment in favor of plaintiffs, which are national banks doing business in Kentucky towns with populations of fewer than 5,000 persons. The district court concluded that a Kentucky statute that bars bank holding companies from acting as insurance agents was preempted by a federal statute that allows national banks operating in towns of fewer than 5,000 persons to act as insurance agents. On appeal, defendants argue that the Kentucky statute, Ky.Rev.Stat.Ann. Sec. 287.030(4) ("section 287"), does not conflict with the federal statute, 12 U.S.C. Sec. 92, and that, in any event, the McCarran-Ferguson Act, 15 U.S.C. Sec. 1011 et seq., and section 7 of the Bank Holding Companies Act, 12 U.S.C. Sec. 1846, each "immunize" section 287 from preemption by Sec. 92. We reject these arguments and affirm.

I.

In late 1990, plaintiffs submitted to the Commissioner requests for applications for licenses to act as life and general line insurance agents in Kentucky. The Commissioner denied these requests, but scheduled a hearing before a state administrative law judge ("ALJ") on the issue of whether section 287 barred plaintiffs from acting as insurance agents. Before that hearing was held, however, plaintiffs filed this lawsuit, seeking declaratory and injunctive relief. A Kentucky state court thereafter granted plaintiffs' request for a stay of the administrative proceedings pending the outcome of this lawsuit. Meanwhile, a number of Kentucky insurance industry associations intervened on behalf of the Commissioner in this lawsuit. The United States intervened on behalf of plaintiffs. Defendants filed a motion to dismiss, arguing that the case was not justiciable because of the unfinished administrative proceeding before the ALJ. Plaintiffs then filed a motion for summary judgment, to which defendants responded by filing a cross-motion for summary judgment. In a published opinion, see 803 F.Supp. 24 (E.D.Ky.1992), the district court determined that the case was justiciable, ¹ granted plaintiffs' motion for summary judgment, and granted plaintiffs the relief they sought. This appeal followed.

II.

Defendants first argue that section 287 is not preempted by Sec. 92 under conventional preemption analysis. Section 287 provides:

No person who after July 13, 1984, owns or acquires more than one-half ( 1/2) of the capital stock of a bank shall act as insurance agent or broker with respect to any insurance except credit life insurance, credit health insurance, insurance of the interest of a real property mortgagee in mortgage property, other than title insurance.

Ky.Rev.Stat.Ann. Sec. 287.030(4). Section 92 provides:

In addition to the powers now vested by law in national banking associations organized under the laws of the United States any such association located and doing business in any place the population of which does not exceed five thousand inhabitants, as shown by the last preceding decennial census, may, under such rules and regulations as may be prescribed by the Comptroller of the Currency, act as the agent for any fire, life, or other insurance company authorized by the authorities of the State in which said bank is located to do business in said State, by soliciting and selling insurance and collecting premiums on policies issued by such company; and may receive for services so rendered such fees or commissions as may be agreed upon between the said association and the insurance company for which it may act as agent: Provided, however, That no such bank shall in any case assume or guarantee the payment of any premium on insurance policies issued through its agency by its principal: And provided further, That the bank shall not guarantee the truth of any statement made by an assured in filing his application for insurance.

12 U.S.C. Sec. 92 (emphasis added).

It is well settled that "the Supremacy Clause, U.S. Const., Art. VI, cl. 2, invalidates state laws that 'interfere with, or are contrary to,' federal law." Hillsborough County v. Automated Medical Labs., 471 U.S. 707, 712, 105 S.Ct. 2371, 2375, 85 L.Ed.2d 714 (1985). One of the ways in which a state law may "interfere" with a federal law is by coming into "actual[ ] conflict[ ]" with it, i.e., by " 'stand[ing] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress[.]' " Id. at 713, 105 S.Ct. at 2375.

The Supreme Court has applied this "actual conflict" standard in cases with facts similar to those presented here. In Franklin National Bank v. New York, 347 U.S. 373, 74 S.Ct. 550, 98 L.Ed.2d 767 (1954), the Court considered whether a New York law that prohibited use of the word "savings" in advertising for banks other than state-chartered savings banks was preempted by a federal law that authorized national banks "to receive deposits without qualification or limitation, and ... [to] possess 'all such incidental powers as shall be necessary to carry on the business of banking[.]' " Id. at 376, 74 S.Ct. at 553. Although the federal law only implicitly permitted federal banks to use the word "savings" in their advertising, the Court concluded that there was "a clear conflict between the law of New York and the law of the Federal Government." Id. at 378, 74 S.Ct. at 554. Similarly, in Fidelity Federal Savings and Loan Association v. de la Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982), the Court considered whether a California law that prohibited the inclusion of a due-on-sale clause in loan instruments was preempted by a federal regulation that expressly granted to federal savings and loans the power to include such clauses in loan instruments. Noting that the conflict between the state law and federal regulation did not "evaporate" because the "regulation simply permits, but does not compel, federal savings and loans to include due-on-sale clauses in their contracts[,]" id. at 155, 102 S.Ct. at 3023, the Court easily concluded that preemption was appropriate. Id. at 159, 102 S.Ct. at 3025.

The conflict between section 287 and Sec. 92 is no different than those present in Franklin National Bank and de la Cuesta. For purposes of deciding the federal preemption issue only, the plaintiff national banks assumed as correct the Commissioner's position that section 287 applies not only to bank holding companies but also to subsidiaries thereof, such as national banks. Thus, while Sec. 92 provides that national banks such as plaintiffs "may" act as insurance agents, section 287 provides that they "may not."

Seizing upon the permissive nature of the right created by Sec. 92, however, defendants suggest that we should "reconcile" the two sections by construing the right created by Sec. 92 to be subject to state law restrictions such as section 287. That construction might be plausible if Sec. 92 provided that certain national banks "may have the power " to act as insurance agents. But Sec. 92 actually states that certain national banks "may, under such rules ... as may be prescribed by the Comptroller of the Currency, act as the agent for " certain insurance companies. Providing that a bank "may act" is no different than providing that a bank "shall have the power to act." Thus, the language of Sec. 92 does not permit the construction defendants advocate. That the power created by Sec. 92 is permissive does not allow us to conclude that it does not exist. ²

Defendants also contend that our construction of Sec. 92 assumes that Congress acted with an "unconstitutional motive" in passing Sec. 92, since the regulation of the business of insurance was understood to be beyond Congress's Commerce Clause...