St. Louis County Nat. Bank v. Mercantile Trust Co. Nat. Ass'n, s. 76-1603

• Decision Date: 31 January 1976
• Docket Number: 76-1709,Nos. 76-1603,s. 76-1603
• Parties: ST. LOUIS COUNTY NATIONAL BANK et al., Appellees, v. MERCANTILE TRUST COMPANY NATIONAL ASSOCIATION and James E. Smith, Comptroller of the Currency of the United States, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 716

548 F.2d 716

ST. LOUIS COUNTY NATIONAL BANK et al., Appellees, v. MERCANTILE TRUST COMPANY NATIONAL ASSOCIATION and James E.

Smith, Comptroller of the Currency of the United

States, Appellants.

Nos. 76-1603, 76-1709.

United States Court of Appeals,

Eighth Circuit.

Submitted Sept. 15, 1976.

Decided Dec. 16, 1976.

Rehearing Denied Jan. 31, 1976.

William G. Guerri, St. Louis, Mo., and Ronald R. Glancz, Atty., Dept. of Justice, Civil Div., Appellate Sec., Washington, D. C., for appellants.

Albert H. Hamel, Clayton, Mo., for St. Louis County Nat. Bank.

Irven L. Friedhoff, Div. of Finance, Jefferson City, Mo., for appellee William R. Kostman.

Robert F. Schlafly, St. Louis, Mo., for appellee Clayton Trust Co.

Before MARKEY, Chief Judge, ^* and STEPHENSON and HENLEY, Circuit Judges.

STEPHENSON, Circuit Judge.

Mercantile Trust Company National Association (Mercantile) appeals from the district court's ¹ judgment which enjoined Mercantile from any further operation of its trust office in Clayton, Missouri. The two issues raised on this appeal are: (1) whether Mercantile's trust office is a branch within the meaning of 12 U.S.C. § 36, and (2) whether Mercantile's trust office constitutes a violation of 12 U.S.C. § 92a. We affirm.

Mercantile is a national banking association whose principal office is located in St. Louis, Missouri. Mercantile is engaged in the banking business and operates a trust department. In February of 1970 Mercantile opened a trust office in Clayton, Missouri, a suburb of St. Louis. Prior to opening the Clayton office, Mercantile received notice from the Comptroller of the Currency of the United States approving the establishment of the trust office as long as deposits were not accepted, loans made, or checks paid. According to the Comptroller, if deposits were accepted, loans made, or checks paid, then the trust office would fall within the definition of a branch as set forth in 12 U.S.C. § 36(f) and a certificate of approval from the Comptroller's office would be needed.

On the date that Mercantile opened its trust office Mercantile issued a press release stating that the trust office would provide added convenience for existing as well as future customers. Five full-time employees of Mercantile staffed the Clayton office. From the spring of 1970 until March of 1973 the overall administration of approximately 500 living and testamentary trusts, managing agency and safekeeping accounts were handled by a trust administrative officer at the trust office. During this period no checks were paid, no money was lent, and no deposits were received at the Clayton trust office. The Clayton office was not a separate corporation but rather an office operated by Mercantile as part of its organization.

This action was commenced by St. Louis County National Bank for a declaratory judgment that Mercantile's Clayton trust office was illegal. An injunction was also sought against Mercantile's continued use of the Clayton office. James E. Smith, the then-Comptroller of the Currency of the United States, was joined with Mercantile as a defendant. Clayton Trust Company and William R. Kostman, Director of the Division of Finance for the state of Missouri, were permitted to intervene as plaintiffs.

One June 18, 1976, the district court enjoined and restrained Mercantile from further operating its branch trust office. On August 2, 1976, our court granted Mercantile's application to suspend injunction pending appeal until further order of the court. After a hearing on August 5, 1976, our court ordered that the injunction be stayed until further order of the court.

Appellant Mercantile's first contention is that its Clayton trust office does not constitute a branch as defined by 12 U.S.C. § 36(f). The question concerning whether the trust office is a branch is important since a branch may be established only when, where, and how state law would authorize a state bank to establish and operate such a branch. 12 U.S.C. § 36(c); ² First Nat'l Bank v. Dickinson, 396 U.S. 122, 130, 90 S.Ct. 337, 24 L.Ed.2d 312 (1969); First Nat'l Bank of Logan v. Walker Bank & Trust Co., 385 U.S. 252, 87 S.Ct. 492, 17 L.Ed.2d 343 (1966). In this case it is clear that a state chartered bank would be unable to operate the same type of facility as Mercantile's Clayton trust office. See St. Louis Union Trust Co. v. Pemberton, 494 S.W.2d 408 (Mo.App.1973). Therefore, if the Clayton office is a branch under 12 U.S.C. § 36(f), it would be illegal under 12 U.S.C. § 36(c).

Section 36(f) defines a branch as follows:

The term "branch" as used in this section shall be held to include any branch bank, branch office, branch agency, additional office, or any branch place of business located in any State * * * at which deposits are received, or checks paid, or money lent.

Appellant Mercantile's argument simply stated is that since no deposits are received, or checks paid, or money lent at the Clayton trust office, it is not a branch. Recent cases interpreting section 36(f) have cautioned, however, about giving the definition of branch a too restrictive meaning.

Chief Justice Burger has observed for the Supreme Court that:

(W)hile Congress has absolute authority over national banks, the federal statute has incorporated by reference the limitations which state law places on branch banking activities by state banks. Congress has deliberately settled upon a policy intended to foster "competitive equality." * * * State law has been utilized by Congress to provide certain guidelines to implement its legislative policy.

(The) Act reflects the congressional concern that neither system have advantages over the other in the use of branch banking.

The mechanism of referring to state law is simply one designed to implement that congressional intent and build into the federal statute a self-executing provision to accommodate to changes in state regulation.

In short, the definition of "branch" in § 36(f) must not be given a restrictive meaning which would frustrate the congressional intent this Court found to be plain in Walker Bank, supra.

Because the purpose of the statute is to maintain competitive equality, it is relevant in construing "branch" to consider, not merely the contractual rights and liabilities created by the transaction, but all those aspects of the transaction that might give the bank an advantage in its competition for customers.

First Nat'l Bank v. Dickinson, supra, 396 U.S. at 131, 133, 134, 136-37, 90 S.Ct. at 342, 343, 345 (citations and footnote omitted).

In this circuit we have likewise recognized that "The preservation of competitive equality is the pervasive underlying principle of the McFadden Act." Nebraskans for Independent Banking, Inc. v. Omaha Nat'l Bank, 530 F.2d 755, 759 (8th Cir.) (citation omitted), vacated and remanded for reconsideration in light of subsequent state legislation, 426 U.S. 310, 96 S.Ct. 2616, 48 L.Ed.2d 658 (1976). Further, we have stated "It is settled that the McFadden Act, which, as amended, is the controlling statute here, was 'intended to place national and state banks on a basis of "competitive equality" insofar as branch banking was concerned.' " Driscoll v. Northwestern Nat'l Bank, 484 F.2d 173, 175 (8th Cir. 1973) (citations omitted).

Similarly, the Tenth Circuit has stated:

(Section 36(f)) declares that the term "branch" shall include any branch place of business where deposits are received or checks paid, or money lent. In this regard the Supreme Court in Dickinson commented as follows:

Although the definition may not be a model of precision, in part due to its circular aspect, it defines the minimum content of the term "branch"; by use of the word "include" the definition suggests a calculated indefiniteness with respect to the outer limits of the term. However, the term "branch bank" at the very least includes any place for receiving deposits or paying checks or lending money apart from the chartered premises; it may include more.

In line with the foregoing, then, accepting deposits, or paying checks, or lending money are not the only indicia of branch banking. The typical bank of the present time provides many other services.

State of Colorado ex rel. State Banking Board v. First Nat'l Bank of Fort Collins, 540 F.2d 497, 499 (10th Cir. 1976).

Likewise, the District of Columbia Circuit has recently observed:

After the Act's passage, Representative McFadden placed in the Congressional Record a section-by-section analysis of the statute. In this analysis he described the scope of section 36(f)'s definition as follows:

(Section 36(f)) defines the term "branch." Any place outside of or away from the main office where the bank carries on its business of receiving deposits, paying checks, lending money, or transacting any business carried on at the main office, is a branch if it is legally established under the provisions of this act.

Clearly, Congress intended to include within its definition not only the typical brick-and-mortar branch bank, but also lesser bank agencies which provide only some of the services available at a traditional branch, i. e., agencies which accept deposits, cash checks, lend money, or transact any business generally carried on at the main office.

Independent Bankers Ass'n of America v. Smith, 534 F.2d 921, 931-32 (D.C. Cir. 1976) (footnote omitted).

In light of the legislative history of section 36(f) and recent case interpretation of that section, we conclude that the three routine banking functions delineated in section 36(f) are not the only indicia of branch banking. In our view each case must be considered on its own facts to determine if a branch exists. North Davis Bank v. First Nat'l Bank, 457 F.2d 820, 824 (10th Cir. 1972).

Turning to the record before us we note that Mercantile's main office in St. Louis conducts a substantial amount of trust business. ³ The activities performed by Mercantile at its Clayton office are summarized as...