Pa Bankers Ass'n v. Pa Dept. of Banking, 31 MAP 2007.

Decision Date24 September 2008
Docket NumberNo. 31 MAP 2007.,No. 32 MAP 2007.,No. 33 MAP 2007.,31 MAP 2007.,32 MAP 2007.,33 MAP 2007.
Citation956 A.2d 956
PartiesPENNSYLVANIA BANKERS ASSOCIATION and the Pennsylvania Business Bank, Appellants v. PENNSYLVANIA DEPARTMENT OF BANKING and TruMark Financial Credit Union, Appellees Pennsylvania Credit Union Association and Corry Jamestown Credit Union and Freedom Credit Union, Intervenors Pennsylvania Bankers Association, Pennsylvania Business Bank, Fulton Bank and Premier Bank, Appellants v. Pennsylvania Department of Banking, Pennsylvania Department of Revenue, The Attorney General of the Commonwealth, Appellees Pennsylvania Credit Union Association and Freedom Credit Union, Intervenors Pennsylvania Bankers Association and the Pennsylvania Business Bank, Appellants v. Pennsylvania Department of Banking, Appellees Freedom Credit Union and Pennsylvania Credit Union Association, Intervenors.
CourtPennsylvania Supreme Court

Daniel T. Fitch, Esq., Valentino F. DiGiorgio, III, Esq., Stradley, Ronon, Stevens & Young, L.L.P., Harrisburg, for TruMark Financial Credit Union, (31 MAP 2007).

Francis Crowley, Esq., Christopher Michael Guth, Esq., Blank, Rome, L.L.P., Philadelphia, for Freedom Credit Union, (31, 32, 33 MAP 2007).

Richard T. Wargo, Jr., Esq., PA Credit Union Association, for Pennsylvania Credit Union Association, (31, 32 MAP 2007).

Daniel T. Fitch, Esq., Harrisburg, for TruMark Financial Credit Union, (32, 33 MAP 2007).

Laurie Schnarrs Kennedy, Esq., Richard W. Wargo, Jr., Esq., Harrisburg, for PA Credit Union Association, (33 MAP 2007).

BEFORE: CASTILLE, C.J., and SAYLOR, EAKIN, BAER, TODD, McCAFFERY, JJ.

OPINION

Justice BAER.

This matter arises from a dispute between members of the banking industry, the credit union industry, and certain administrative agencies under the Pennsylvania Credit Union Code ("Credit Union Code"), 17 Pa.C.S. §§ 101-1504. As detailed later in this opinion, credit unions in Pennsylvania have historically organized their membership based upon common bonds of association, such as shared occupations. Effective February 2003, however, the General Assembly amended the Credit Union Code to follow the federal model, which, in addition to permitting association through common bonds, also allows membership to be organized by well-defined geographic communities or districts. Credit unions, including TruMark Financial Credit Union and Freedom Credit Union (collectively, "the Credit Unions") sought to take advantage of this amendment and filed a notice with the Pennsylvania Department of Banking ("the Department") of their intention to convert to geography-based membership. The Pennsylvania Bankers Association, the Pennsylvania Business Bank, Fulton Bank, and Premier Bank ("Appellants" or "the Banks") protested the Credit Unions' proposed conversions, and were granted permission to intervene in an administrative proceeding before the Department, which was convened to consider the Credit Unions' proposals to convert to geographically-organized entities. Following the hearing, the Department granted the conversion of TruMark and Freedom, and revoked the Banks' intervenor status. The Banks then appealed to the Commonwealth Court, which affirmed the Department.1 For the reasons that follow, we vacate the Department's order dismissing the Banks as intervenors, and remand to the Commonwealth Court for further proceedings consistent with this opinion.

Before taking up the facts of this case, a brief history of credit unions in Pennsylvania will provide necessary context. From their inception, Pennsylvania credit unions have been organized by common bonds of association,2 as set forth in each credit union's charter.3 These common bonds include, for example, membership in a religious congregation, a labor organization, or a shared occupation. See 17 Pa.C.S. § 701 (specifying the types of common bonds on which membership can be based). As noted previously, however, the General Assembly amended the Credit Union Code, effective February 2003, by adding a provision, 17 Pa.C.S. § 501(e), that gives Pennsylvania credit unions the option of organizing membership by well-defined geographic communities, as permitted under the Federal Credit Union Code, 12 U.S.C. § 1759, rather than by common bonds.4 According to the Banks, the expanded membership afforded by 12 U.S.C. § 1759 and 17 Pa.C.S. § 501(e) provides credit unions with an unfair competitive advantage, given that credit unions, which historically have been non-profit, cooperative entities organized for beneficent purposes, are exempt from most taxation, while Banks remain fully subject to taxation.5

The present dispute arose in 2003, when state-chartered credit unions, including TruMark and Freedom, filed notices with the Department seeking to reorganize their fields of membership by geographic communities. In response, the Banks submitted letters of comment and protests, opposing the Credit Unions' proposals. On April 3, 2004, the Department published a notice in the Pennsylvania Bulletin stating that the Credit Unions' proposals presented novel and complex issues of unprecedented scope, and therefore, the Department had decided to hold a consolidated hearing pursuant to 17 Pa.C.S. § 503(A.2) of the Credit Union Code.6 34 Pa.B. 1806. The notice also stated that the hearing would be governed by the General Rules of Administrative Practice and Procedure (GRAPP), 1 Pa.Code Part II, and invited interested persons meeting the eligibility criteria set forth at 1 Pa. Code § 35.28(a) to submit petitions to intervene by April 16, 2004.7

The Banks filed timely petitions to intervene, claiming that they met the criteria set forth in 1 Pa.Code § 35.28(a)(2) (henceforth, "the direct interest prong") because they were competitors of the Credit Unions, they would be harmed by direct competition with entities enjoying tax-exempt status, and no other entity would adequately represent the Banks' interests. The Credit Unions filed answers denying that the Banks had a direct interest, and arguing that unfair competition was not a relevant factor for determining eligibility to intervene under any of the subsections of § 35.28(a). See supra note 7. Moreover, the Credit Unions made a cursory assertion that, to satisfy the direct interest prong, the potential intervenor must not only have a direct interest, but must be bound by the agency's action.8

On May 4, 2004, the Department entered an order granting the Banks' intervention petitions, thereby making them parties to the proceedings. See 1 Pa.Code § 35.24 (stating that a petition to intervene is required to obtain party status). However, notwithstanding that the Banks had argued that they met the requirements of the direct interest prong, the Department's order granted intervention pursuant to § 35.28(a)(3) (henceforth, "the public interest prong"), which provides that intervention may be granted where the petitioner possesses an "interest of such nature that participation ... may be in the public interest." In addition, the order granting intervention indicated that limitations could be subsequently imposed, pursuant to 1 Pa.Code § 35.31(b).9 However, the Department did not specify what limitations might be later imposed; nor did it indicate that it was permitting only tentative participation by the Banks. As delineated in note 9, while 1 Pa.Code § 35.31(b) provides a process whereby an agency can tentatively grant participation in a proceeding subject to a subsequent grant or denial of a petition to intervene, the Department did not do this. Instead, it granted the Banks full intervenor status under the public interest prong.

The case then proceeded to a consolidated hearing, during which the Credit Unions submitted exhibits and presented expert testimony seeking to demonstrate that they met the regulatory criteria for conversion to geography-based membership. See supra note 4 (specifying the standards for a conversion to a geography-based body). The Banks, in turn, cross-examined the Credit Unions' witnesses and called their own experts, who provided testimony attempting to demonstrate that the criteria for the Credit Unions' conversions were not met. Understandably, the Banks did not directly address the unfair competition claim raised in their petitions to intervene in support of their assertion that they had a direct interest in the proceedings, given that intervention was granted in accord with the public interest, rather than the direct interest, prong.

At the conclusion of the hearing, the presiding officer informed the parties that the evidence would be considered and a recommendation would be made to the Secretary of Banking regarding whether the Credit Unions should be entitled to convert to geographically defined membership. Significantly absent was any suggestion by the presiding officer that the Banks' intervenor status was in jeopardy because they failed to prove that they satisfied either the direct interest or the public interest prong. See supra note 7. Shortly thereafter, the parties submitted post-hearing briefs containing proposed findings of fact and conclusions of law. In their briefs, the Credit Unions renewed their claim, raised previously in opposition to the Banks' petitions to intervene, that the Banks failed to establish a direct interest in the proceedings, as required by the direct interest prong, and therefore, the Banks should not have been allowed to participate further in the administrative hearing as intervenors.

On December 22, 2004, the Secretary of Banking determined that Freedom and TruMark met the criteria for converting to...

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