United Jersey Banks v. Parell

• Decision Date: 11 March 1986
• Docket Number: No. 85-5525,85-5525
• Citation: 783 F.2d 360
• Parties: , 1986-1 Trade Cases 66,953 UNITED JERSEY BANKS; United Jersey Bank/Southwest; Constellation Bancorporation; the National State Bank; Horizon Bancorp; Princeton Bank; New Jersey National Corporation; New Jersey National Bank; United Counties Bancorporation; and United Counties Trust Company, Appellants v. Mary Little PARELL, Commissioner of Banking of the State of New Jersey; First Fidelity Bancorporation; First Fidelity Bank, N.A., South Jersey; Community Bancshares Corporation; and National Bank and Trust Company of Gloucester County.
• Court: U.S. Court of Appeals — Third Circuit

Page 360

783 F.2d 360

54 USLW 2442, 1986-1 Trade Cases 66,953

UNITED JERSEY BANKS; United Jersey Bank/Southwest Constellation Bancorporation; the National State Bank Horizon Bancorp; Princeton Bank; New Jersey National Corporation; New Jersey National Bank; United Counties Bancorporation; and United Counties Trust Company, Appellants v. Mary Little PARELL, Commissioner of Banking of the State of New Jersey; First Fidelity Bancorporation; First Fidelity Bank, N.A., South Jersey; Community Bancshares Corporation and National Bank and Trust Company of Gloucester County.

No. 85-5525.

United States Court of Appeals Third Circuit.

Argued Nov. 18, 1985.

Decided Feb. 14, 1986.

Rehearing and Rehearing In Banc Denied March 11, 1986.

William S. Greenberg (argued), James F. Schwerin, Greenberg & Prior, Princeton, N.J., for appellants.

Irwin I. Kimmelman, Atty. Gen. of New Jersey, James J. Ciancia, Asst. Atty. Gen., Robert M. Jaworski, Deputy Atty. Gen., Barbara S. Goldsmith (argued), Trenton, N.J., for appellee Mary Little Parell, Commissioner of Banking of the State of N.J. Eugene J. Metzger (argued), Samuel Shepard Jones, Jr., Donald L. Hardison, Metzger, Shadyac & Schwarz, Washington, D.C., John D. Schupper, Stephen N. Dermer, Gregory G. Campisi, Lowenstein, Sandler, Brochin, Kohl, Fisher, Boylan & Meanor, Roseland, N.J., for appellees First Fidelity Bancorporation; First Fidelity Bank, N.A., South Jersey; Community Bancshares Corp.; and National Bank and Trust Co. of Gloucester County.

Before HIGGINBOTHAM, SLOVITER and MANSMANN, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

This case presents a significant issue regarding the scope and propriety of removal to federal court on the basis of what is essentially a claim of federal preemption. To reach that issue, we must first traverse the maze of state and federal legislation on bank mergers, acquisitions and bank holding companies.

Plaintiffs are attempting to use state law to prevent a merger between two nationally chartered banks. The plaintiffs (hereafter "United Jersey") are five New Jersey bank holding companies and the subsidiary banks of each. The defendants are the merging banks, First Fidelity Bank, N.A., South Jersey, and the National Bank & Trust Company of Gloucester County ("NB & T"), and their respective parent holding companies, First Fidelity Bancorporation and Community Bancshares Corporation. All four defendants will be collectively referred to as "First Fidelity" unless otherwise noted. United Jersey also sued the New Jersey Commissioner of Banking, Mary Little Parell, seeking to enjoin her to exert her authority over the merger.

Plaintiffs originally filed their action in New Jersey state court, but defendants removed it to the United States District Court for the District of New Jersey. The district court denied United Jersey's motion to remand and thereafter dismissed the action as premature. The principal issue before us is whether federal jurisdiction existed to support removal.

I.

The transaction at issue in this case was structured as a merger between two nationally chartered banks. ¹ NB & T was merged into First Fidelity Bank. As consideration, NB & T shareholders received shares of First Fidelity's parent corporation, First Fidelity Bancshares. After being presented for verification, NB & T's shares ceased to exist without actually changing hands. Prior to the transaction, NB & T's parent corporation, Community Bancshares, also ceased to exist.

Pursuant to its obligations under the federal banking laws, First Fidelity filed a merger application with the Comptroller of the Currency, who must approve all mergers of insured banks in which the resulting bank is a national bank. See 12 U.S.C. Sec. 1828(c)(2)(A). Three of the plaintiffs in this case filed formal protests against the merger with the Comptroller. As required by 12 U.S.C. Sec. 1828(c)(4), the Comptroller requested reports from the Department of Justice and the Board of Governors of the Federal Reserve System concerning the anticompetitive effect of the merger. Both filed reports which predicted no significant anticompetitive effects from the merger. On August 29, 1985, the Comptroller approved the merger.

Under the Federal Bank Merger Act, anyone seeking to challenge a merger between nationally chartered banks on the ground that the merger violates either the Sherman or Clayton Acts must file suit within thirty days after the Comptroller's approval. 12 U.S.C. Sec. 1828(c)(6) & (7)(A). ² If no such action is filed, the Comptroller's decision becomes final, and the merger may be consummated. Id. Sec. 1828(c)(6) & (7)(A).

In this case, no challenge under the federal antitrust laws was filed during the thirty-day limitation period. On September 29, 1985, the limitation period expired. Immediately thereafter the merger took place. Plaintiffs concede that they deliberately chose not to challenge the merger under federal law.

However, even before the Comptroller's decision, plaintiffs sought to use state law to block the merger by petitioning the New Jersey Commissioner of Banking, Parell, to hold a hearing on the merger. In a letter dated July 1, 1985, the Commissioner held that she did not have jurisdiction over this merger, because, in her view, New Jersey had disclaimed any intention to regulate mergers between national banks. United Jersey appealed this denial to the state courts, but no decision had been rendered at the time this case was briefed.

Using yet another tactic, United Jersey filed this suit in New Jersey Superior Court, Chancery Division, alleging two causes of action under state law. The theory of United Jersey's complaint was that despite the form of the merger, it actually was an acquisition of NB & T by First Fidelity Bancshares, the holding company. The first count of United Jersey's complaint alleged that the transaction violated a provision of the New Jersey Bank Holding Company Act, N.J.Stat.Ann. Sec. 17:9A-345 (a). In general terms, this statute prohibits any company owning more than 25% of the stock of any bank in New Jersey from acquiring more than 10% of another New Jersey bank if the acquiring bank would then own more than 20% of the bank deposits in the state. ³ The complaint alleged that after the acquisition, the aggregate deposits of the resulting institution would exceed this 20% state imposed cap. Another section of the New Jersey banking laws, N.J.Stat.Ann. Sec. 17:9A-347, allows companies to exceed this 20% deposits cap if the acquisition occurs by way of a merger. ⁴ United Jersey's complaint sought to avoid the force of this provision by arguing that it was counter to the policy expressed in Sec. 345, and therefore, that the New Jersey legislature had repealed it by implication. ⁵

United Jersey's complaint also charged that the merger would restrain commerce and tend to create a monopoly in violation of provisions of the New Jersey Antitrust Act, N.J.Stat.Ann. Sec. 56:9-4. This statute disclaims regulation of "[t]he activities of any State or national banking institution to the extent that such activities are regulated ... by ... the Federal Government under the banking laws of the United States." N.J.Stat.Ann. Sec. 56:9-5(b)(7). United Jersey's complaint argued, however, that the transaction had been structured to avoid federal regulation and, therefore, that this exemption did not apply.

The complaint sought relief in the form of a declaration that the New Jersey banking and antitrust laws applied to the merger and that the merger would violate these laws. United Jersey also sought an injunction against the consummation of the merger. Finally, United Jersey asked for a declaration that the Commissioner of Banking had authority over the merger and an injunction against the Commissioner prohibiting her from approving the transaction.

The corporate defendants removed the action to federal court. ⁶ At the same time, they moved to dismiss the complaint for failure to state a claim upon which relief could be granted. United Jersey then cross-moved for a remand to the state court.

The district court denied the petition to remand and granted the motion to dismiss. The court rejected United Jersey's characterization of the transaction as an acquisition of a national bank by a holding company, and instead, characterized it as a merger between two national banks. The court interpreted a provision of the New Jersey banking laws, N.J.Stat.Ann. Sec. 17:9A-148B, ⁷ which on its face applies only to mergers of state banks into national banks, as reflecting New Jersey's recognition that "mergers into national banks under national bank charters are beyond the power of the state to regulate." See App. at 30a. ⁸ The court concluded that the state has no role with respect to the merger and also rejected plaintiffs' efforts to bring the transaction under the federal Bank Holding Company Act which permits some continued state regulation. The court also held that no antitrust challenge to a merger between national banks could be stated under state law. Thus, according to the district court, " 'the [plaintiffs] necessarily [are] stating a federal cause of action....' " App. at 31a (quoting 14A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 3722 at 271-273 (1985) (hereafter "Wright & Miller")). The court further stated that this was a case "in which the state law which plaintiffs invoke expressly indicates that Federal law controls the question they raise." App. at 32a. Therefore, federal jurisdiction existed and removal was proper.

With federal jurisdiction established, the court turned to First Fidelity's motion to dismiss. At the time of the district court's decision, the Comptroller of the Currency had not yet approved the merger. Thus, United Jersey's "necessarily" federal cause of action challenging the merger on federal antitrust grounds, which the court viewed as the only cause of action plainti...