Parsons Steel, Inc. v. First Alabama Bank of Montgomery, N.A., 81-7556
| Decision Date | 25 June 1982 |
| Docket Number | No. 81-7556,81-7556 |
| Citation | 679 F.2d 242 |
| Parties | 1982-2 Trade Cases 64,805 PARSONS STEEL, INC., et al., Plaintiffs-Appellants, v. FIRST ALABAMA BANK OF MONTGOMERY, N.A., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Frank M. Wilson, Beasley & Wilson, Jere L. Beasley, Montgomery, Ala., for plaintiffs-appellants.
M. R. Nachman, Jr., Steiner, Crum & Baker, Montgomery, Ala., for defendant-appellee.
Appeal from the United States District Court for the Middle District of Alabama.
Before GODBOLD, Chief Judge, MERRITT * and HENDERSON, Circuit Judges.
The issue in this case is whether a bank is prohibited under the 1970 Amendments to the Bank Holding Company Act, 12 U.S.C. §§ 1972-75 (1976), from conditioning additional credit on a change of corporate management and majority stock ownership. Parsons Steel, Inc. of Montgomery was a wholly owned subsidiary of the plaintiff company, Parsons Steel, Inc., of Mobile, owned by co-plaintiffs Melba and Jim Parsons. The subsidiary had been heavily financed on an on-going basis since 1976 by the defendant First Alabama Bank of Montgomery. By the fall of 1978, the bank had outstanding fully secured loans of one million dollars and was the subsidiary's largest creditor.
At about this time the subsidiary began experiencing financial difficulty and anticipated inability to repay its debts. Mr. Parsons and an agent of the bank discussed refinancing the subsidiary's debt. The discussion between Parsons and the bank not only focused on refinancing but also included an unsuccessful attempt to sell the subsidiary to an out-of-town corporation. After the first attempt to sell fell through, the bank contacted a local businessman, Michael Orange, with whom the bank had done business, to determine if he were interested in buying the subsidiary. Although Orange declined to buy the company, he apparently offered to take over management of the company for a fee plus a stock option.
The plaintiffs claim that the bank conditioned the grant of any additional credit on Parson's agreement to accept Orange as the manager of the subsidiary with an option to acquire a majority interest in the subsidiary in lieu of other compensation. The bank claims that it never agreed to extend any credit and did not require that Orange be granted the controlling stock option. The jury found that the bank did condition the extension of credit on the appointment of Orange as manager and on granting the option.
The District Court, although denying the defendant's motions for summary judgment and a directed verdict, heard all the evidence and ultimately granted the bank's motion for judgment notwithstanding verdict. The plaintiffs contend that in granting the judgment n.o.v., the District Court usurped the function of the jury and substituted its judgment of the credibility of the witness for that of the jury.
Taking the facts in the light most favorable to plaintiffs, we find, as a matter of law, that a bank's requirement that financial control of an enterprise be placed in new hands when necessary to protect its investment before extending further credit, does not constitute a violation of the statute, 12 U.S.C. § 1972, absent evidence of a "tying" arrangement. We, therefore, affirm the judgment of the District Court.
Section 1972 of the Act provides in relevant part that "(a) bank shall not in any manner extend credit ... on the condition ... that the customer provide some additional credit, property, or service to such bank, other than those related to and usually provided in connection with a loan, ..." 12 U.S.C. § 1972(1) (1976) (emphasis added). The appellants' arguments rest primarily on the single premise that a jury's finding that it is "unusual" for a bank to require a change in management and ownership as a condition to extending additional credit to an already heavily indebted enterprise in fear of default is sufficient to establish liability under the Act.
Although the language of the Act, when read in isolation, appears broad enough to encompass such a rule, the legislative history of the statute leaves no doubt that its intent is more narrow. The original focus of the Bank Holding Company Act was the regulation of the power of bank holding companies so as to prevent a small number of powerful banks from dominating commerce and to ensure a separation of economic power between banking and commerce. See Sen.Rep.No.91-1084, 91st Cong., 2nd Sess., reprinted in (1970) U.S.Code Cong. & Ad.News 5519, 5520; 116 Cong.Rec. 32127 (1970). With the 1970 Antitying Amendment, however, Congress intended to reach anticompetitive practices of even smaller banks, which notwithstanding their comparative size, were able to exert economic power over businesses because of their control over credit. Id. at 5535. In regulating potential misuse of such economic power, however, Congress was concerned that the federal regulation not be too expansive. First, Congress did not intend to "interfere with the conduct of appropriate traditional banking practices," id., and did not intend to prohibit attempts by banks to protect their investments where no anticompetitive practices were involved. A per se rule prohibiting banks from devising particular methods for protecting themselves against default in various situations could have the undesirable effect of discouraging banks from granting extensions of credit, and thus precipitate foreclosure or bankruptcy. There is no support for such a rule in the legislative history. Indeed, an earlier proposed version of the antitying provision which would have potentially subjected virtually all conditions placed by banks on extensions of credit requiring credit customers to purchase additional services from the bank to review by the Federal Reserve Board, was amended to incorporate the narrower language of the statute which explicitly permits banks to take certain actions to protect their investments while prohibiting anticompetitive practices. See Remarks of Senator Bennett, 116 Cong.Rec. 32125 (1970). Second, it appears that Congress was concerned that the proposed federal banking regulation not intrude upon recognized state authority over the banking process. In proposing the version of § 1972 that was ultimately enacted Senator Bennett noted that "(t)o provide federal bank regulatory restrictions on state banking practices without reference to antitrust considerations would be a reversal of a long-standing policy under which State law regulates State banking practices...." 116 Cong.Rec. at 32130-31. It appears, therefore, that the purpose and effect of § 1972 is to...
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