Republic of Texas Corp. v. Board of Governors of Federal Reserve System

Citation649 F.2d 1026
Decision Date24 June 1981
Docket NumberNo. 80-1985,80-1985
Parties1981-2 Trade Cases 64,236 REPUBLIC OF TEXAS CORPORATION, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent. . Unit A
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Marshall M. Searcy, George C. Lamb, III, Dallas, Tex., for petitioner.

J. Virgil Mattingly, Jr., William J. Sweet, Jr., Bd. of Governors, Federal Reserve System, Washington, D. C., for respondent.

Petition for Review of an Order of the Board of Governors of the Federal Reserve System.

Before BROWN, WISDOM and RANDALL, Circuit Judges.

RANDALL, Circuit Judge:

Petitioner Republic of Texas Corporation ("Republic") is a multibank holding company under the Bank Holding Company Act of 1956, as amended, 12 U.S.C.A. §§ 1841-1850 (West 1980). By order dated August 20, 1980, the Board of Governors of the Federal Reserve System ("the Board") denied Republic's application under section 3(a) of the Act, 12 U.S.C. § 1842(a) (Supp. III 1979), for advance approval of Republic's proposed acquisition of The Citizens National Bank of Waco, a commercial bank located in Waco, Texas ("CNB"). Republic of Texas Corporation, 66 Fed.Res.Bull. 787 (1980). Pursuant to section 9 of the Act, 12 U.S.C. § 1848 (1976), Republic petitions this court for review of the Board's order.

Republic first argues that because the Board failed to comply with the so-called "91-day rule" created by section 3(b) of the Act, 12 U.S.C. § 1842(b) (Supp. III 1979), Republic's application must be deemed to have been granted by operation of law. The proper operation of the 91-day rule is a question of first impression in this circuit. After examining the statute and its legislative history, the related regulations promulgated by the Board, and the decisions of the other circuits that have considered the 91-day rule, we conclude below in part III of this opinion that Republic's application cannot be deemed to have been granted by operation of law.

In the alternative, Republic argues that the record does not contain substantial evidence to support the Board's rejection of Republic's application on anticompetitive grounds. This issue is directly controlled by our recent holding in Mercantile Texas Corp. v. Board of Governors of the Federal Reserve System, 638 F.2d 1255 (5th Cir. 1981). Following the teachings of that case, which we discuss below in part IV of this opinion, we vacate the Board's order and remand Republic's application to the Board for reconsideration and more thorough findings.

I. THE STATUTORY AND REGULATORY FRAMEWORK FOR THE PROCESSING OF APPLICATIONS UNDER SECTION 3 OF THE BANK HOLDING COMPANY ACT
A. The Statutory Language

Section 3(a) of the Bank Holding Company Act of 1956, as amended, 12 U.S.C. § 1842(a) (Supp. III 1979), makes it unlawful for any bank holding company to acquire control of more than 5% of any class of voting shares of any bank, unless the bank holding company has obtained prior approval of the acquisition from the Board. 1 Section 3(b) of the Act, 12 U.S.C. § 1842(b) (Supp. III 1979), requires that immediately upon receiving an application for Board approval pursuant to section 3(a), the Board must notify either the Comptroller of the Currency or the appropriate state authority of the application. 2 The statute explicitly directs that the Comptroller or the state authority shall have 30 days in which to submit his views and recommendations on the proposed acquisition. If the Comptroller or state authority opposes the acquisition, the Board must hold a hearing. The statute explicitly sets out an expeditious timetable within which such a hearing must take place. 3

Section 3(b) goes on to impose a deadline on the Board's deliberations upon an application:

In the event of the failure of the Board to act on any application for approval under this section within the ninety-one-day period which begins on the date of submission to the Board of the complete record on that application, the application shall be deemed to have been granted.

12 U.S.C. § 1842(b) (Supp. III 1979) (emphasis added). It is the proper application of this provision, hereinafter referred to as section 3(b)'s "91-day rule," that we must decide in the case at bar.

B. The Board's Implementing Regulations

The Board's implementing regulations require that a bank holding company's application for Board approval be filed initially with the Federal Reserve Bank of the district in which the head office of the bank holding company is located, rather than directly with the Board. 4 The Reserve Bank investigates and prepares a report on the relevant facts; the report is submitted to the Board along with the Reserve Bank's recommendations on the application. 5 In practice, the Reserve Banks usually cooperate with applicants to "clean up" applications before they are sent to the Board. 6 Upon receipt of the application and the Reserve Bank's report and recommendations, the Board's staff considers all relevant matter and submits comments to the Board. 7 The Board then "takes such action as it deems appropriate in the public interest." 8

The Board's regulations recognize, but do not elaborate upon, section 3(b)'s requirement that the Board notify either the Comptroller of the Currency or the appropriate state banking authority "(u)pon receiving" a section 3 application. One regulation provides that "(t)he Board will consider comments on an application from a bank supervisory authority to which notification of receipt of an application has been given, only if such comment is received by the Secretary of the Board within 30 days of the date of the letter giving such notification." 9

Section 3 of the Act does not explicitly mandate the provision of notice to, and an opportunity for comment from, the public at large. Nonetheless, in determining whether to approve an application under section 3, one factor that the Board must consider is whether any anticompetitive effects of the proposed acquisition would be "clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served." 12 U.S.C.A. § 1842(c) (West 1980). 10 Accordingly, Congress must have contemplated that the Board might find it appropriate to solicit public comment on a proposed acquisition. Unfortunately, the Board's regulations relating to public notice are, charitably speaking, somewhat less than clear. The regulations apparently envision two distinct types of public notice the first through newspaper publication, and the second through publication in the Federal Register.

The timing and content of the required notice is clearly detailed only as to the former type i. e., the newspaper publication. The Board's regulations require that a bank holding company which seeks to acquire control of a bank must, during the two weeks before filing with the Reserve Bank its application for Board approval, publish notice of its intentions in newspapers of general circulation in both the community in which the bank holding company has its head offices and the community in which the bank to be acquired is located. The notice must contain the name of the bank holding company, the subject matter of its application, the location at which the bank holding company proposes to engage in business, and an invitation to the public to submit written comments relating to the application to the appropriate Reserve Bank no later than 30 days after the date of publication of the first notice. 11

The Board's regulations relating to publication in the Federal Register are considerably less clear, and correspondingly more troublesome. The primary regulation relating to Federal Register publication provides simply that "(n) otice of receipt of all section 3 applications is published in the Federal Register." 12 That regulation does not specifically require that this notice be published within any particular period of time after receipt of the application, and it does not distinguish between receipt of the application by a Reserve Bank and receipt of the "cleaned up" application by the Board. Neither does it explicitly provide for a public comment period much less a public comment period of any particular length. While another regulation, which purports to detail the Board's policies on considering public comments and requests for hearings, clearly envisions the receipt of public comments following the Federal Register publication, that regulation cannot fairly be said to evidence a Board policy on the length of such comment periods. 13

II. FACTS RELATING TO THE PROCESSING OF REPUBLIC'S APPLICATION TO ACQUIRE CNB

As required by the Board regulations discussed above, Republic published notice of its proposed acquisition of CNB in newspapers of general circulation in both Dallas and Waco. The notices appeared in the Dallas Times Herald on January 23 and January 30, 1980, and in the Waco Tribune-Herald on January 25 and February 1, 1980. The notices provided in part that "(p)ersons wishing to comment on this proposal should submit their views in writing within 30 days of (the) date of (this) notice to the Federal Reserve Bank of Dallas," and gave a mailing address for the Reserve Bank.

On February 15, 1980, Republic filed with the Reserve Bank its application to acquire CNB. During the following months, the Reserve Bank requested and received from Republic supplemental information relating to the merits of the application. This information was incorporated into the record on Republic's application. The Reserve Bank received Republic's last relevant submission on April 24, 1980.

On May 1, 1980, the Reserve Bank notified Republic by letter that its application was being forwarded to the Board for consideration. The Reserve Bank advised Republic that its "application ha(d) been reviewed preliminarily and appear(ed) informationally complete," although it warned that "further analysis of the application by this...

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