U.S. v. Crocker Nat. Corp.

Decision Date10 November 1981
Docket Number76-3692 and 76-3738,Nos. 76-3614,76-3615,s. 76-3614
Citation656 F.2d 428
Parties1981-2 Trade Cases 64,288 UNITED STATES of America, Plaintiff-Cross-Appellee, v. CROCKER NATIONAL CORP., et al., Defendant-Cross-Appellants. UNITED STATES of America, Plaintiff-Appellant, v. CROCKER NATIONAL CORP., et al., Defendant-Appellees. UNITED STATES of America, Plaintiff-Cross-Appellee, v. BANKAMERICA CORPORATION, et al., Defendants-Cross-Appellants. UNITED STATES of America, Plaintiff-Appellant, v. BANKAMERICA CORPORATION, et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Robert Raven, Morrison & Foerster, San Francisco, Cal., for Crocker bank.

J. Randolph Wilson, Covington & Burling, Washington, D. C., for Equitable Life Assurance Soc., etc.

Catherine G. O'Sullivan, Dept. of Justice, Washington, D. C., for USA.

William Simon, Howrey & Simon, Washington, D. C., for Prudential Ins.

Appeal from the United States District Court for the Northern District of California.

Before BROWNING, Chief Judge, KENNEDY, Circuit Judge, and CHRISTENSEN, * District Judge.

BROWNING, Chief Judge:

Three questions involving application of Section 8 of the Clayton Act, 15 U.S.C. § 19, are raised on this appeal. The principal issue is whether Section 8 prohibits the same person from serving at the same time as a director of a bank and as a director of an insurance company with which the bank competes, when the competition is such that an agreement between the companies would violate the antitrust laws. A closely related issue is whether the statute prohibits interlocking directorates between a bank holding company and an insurance company, when the only competition is between the holding company's bank subsidiary and the insurance company. Finally, we are asked to decide whether, if otherwise within the reach of Section 8, such interlocking directorates are nonetheless excluded from coverage by the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015.

The district court held Section 8 does not apply to interlocking directorates between a bank and a non-bank or between a bank holding company and non-banks. However, assuming coverage, the court held that the McCarran-Ferguson Act would not exempt bank/insurance company interlocks from the antitrust laws.

We agree with the district court that the McCarran-Ferguson Act is inapplicable, but hold that Section 8 of the Clayton Act prohibits the bank and bank holding interlocks involved here.

Section 8 contains five unnumbered paragraphs. The first three relate to interlocking personnel of member banks of the Federal Reserve System. No director, officer or employee of such a bank may serve as a director, officer, or employee of another, subject to six exceptions. The bar applies whether or not the banks compete, although banks not in adjacent cities or engaged in the same class of business are excluded. Power to enforce the prohibitions of these banking paragraphs is vested in the Board of Governors of the Federal Reserve System.

The fourth paragraph contains the provision invoked here. This "competing corporations" paragraph prohibits any person from serving as a director of any two or more corporations "other than banks, banking associations, trust companies, and common carrier" provided any one of the corporations has capital exceeding $1,000,000 and is engaged in commerce, and the corporations are or have been in such competition that an agreement between them would violate the antitrust laws. 1

This proceeding was initiated by the filing of two complaints by the United States challenging interlocking directorates held by five individuals linking three of the nation's largest banks with four of its largest insurance companies. 2

The parties stipulated that each of the appellee banks "by virtue of its business and location of operations, has been and is now a competitor" of the life insurance company or companies with which it is interlocked "in the extension of mortgage and real estate loans(,) and that such competition is not insubstantial." The companies waived any defense that the elimination of this competition by agreement among them would not violate the antitrust laws. The substantial nature of the competition potentially affected is indicated by stipulations that at the beginning of 1975, outstanding real estate loans of the three banks totaled $6.5 billion and those of the four insurance companies totaled $32 billion.

As the district court noted, interlocking directorates of this kind are common approximately 40% of the insurance company directors in the United States are also bank directors. United States v. Crocker National Corp., 422 F.Supp. 686, 691 (N.D.Cal.1976).

Both sides moved for summary judgment. The district court granted judgment for appellees on the ground that interlocking directorates between banking and non-banking corporations were not covered by the fourth paragraph of Section 8.

We conclude that the language of the statute does not exempt interlocking directorates between competing banks and non-banks where the competition between them is such that an agreement would violate the antitrust laws, that there is no indication that Congress intended to exempt such interlocking directorates, and that to exempt them would be contrary to Congress's purpose in enacting the Clayton Act as a whole and Section 8 in particular. 3

I.

Appellees' primary argument, and the principal ground of decision below, is that the language of Section 8 clearly and unambiguously exempts from the bar of the statute all interlocking directorates between banks and non-banks regardless of the competition between them.

Appellees interpret the language of the exclusionary clause ("in any two or more corporations ... other than banks, banking associations, trust companies, and common carriers") to mean "two or more corporations ... (none of which is) a bank, banking association, trust company or common carrier." On its face, however, the language may be read with equal plausibility as meaning "two or more corporations ... (not all of which are) banks, banking associations, trust companies and common carriers."

The meaning remains equivocal if the context of the clause is considered. Parsing the paragraph, the district court identified four limiting clauses and concluded that a parallel construction of three of them would support the inference that the "other than" clause applies to both interlocked corporations. 4 This construction would exclude interlocking directorates between competing banks and non-banks from Section 8 entirely. As others have observed, 5 however, when the section is read as a whole the exemption of "banks, banking associations, trust companies" in the competing corporations paragraph appears to relate back to the immediately preceding paragraphs regulating interlocking personnel between a bank and "any other bank, banking association, savings bank, or trust company." Since the banking paragraphs apply only to interlocking personnel between two or more banks, a normal reading would attribute the same meaning to the phrase in the competing corporations paragraph. This construction would exclude from the competing corporations paragraph only interlocking directorates between banks governed by the banking paragraphs. Section 8 as a whole would then cover all horizontal interlocks.

As will be seen, the latter interpretation is supported by the circumstances in which the "other than banks" clause was added to the statute. 6 At this point, however, it is sufficient to conclude that the exclusionary clause in the competing corporations paragraph of Section 8 is not so clear and unequivocal, either alone or in context, as to make resort to the legislative history unnecessary.

Before turning to the history of Section 8, reference should be made to Section 10, dealing with common carriers. Section 10 replaced a provision originally found in Section 8. Section 10 regulates transactions between a common carrier and another business entity relating to supplies, construction, and maintenance or to the distribution of the carrier's securities. It does not bar personnel interlocks between the carrier and the other party to the transaction, but provides that if such interlocks exist the transaction must be based upon the competitive bid most favorable to the carrier. 7

II.

The applicability of the competing corporations paragraph of Section 8 to interlocking directorates between competing banks and non-banks was not clearly addressed by Congress. Possible references to the subject, discovered by the parties in an exhaustive examination of the legislative materials, are in themselves ambiguous. 8 The scope of the statute must be determined from less direct evidence; "(s)tatutory language should be construed in accordance with its underlying purpose." TRW, Inc. v. F.T.C., 647 F.2d 942, at 946 (9th Cir. 1981). Therefore, we must "look to the 'object and policy of the law.' " Stafford v. Briggs, 444 U.S. 527, 536, 100 S.Ct. 774, 780, 63 L.Ed.2d 1 (1980) (citation omitted).

After two decades of experience under the Sherman Act it was widely felt among persons interested in such matters that the Act had failed to accomplish its objectives. 9 The Clayton Act was proposed to supplement the Sherman Act and remedy its perceived deficiencies. 10 The Act condemned certain practices not clearly barred by the Sherman Act that were believed to threaten free competition and lead to monopoly. 11

Interlocking directorates were of particular concern. The Democratic platform of 1908 called for abolition of interlocking directorates between competing corporations; the 1912 platform urged prohibition of all interlocking directorates. 12 Woodrow Wilson emphasized the issue in his successful campaign for the Presidency. 13 Shortly before Mr. Wilson's inauguration, a...

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