United States v. Citizens and Southern National Bank 8212 1933

• Decision Date: 17 June 1975
• Docket Number: No. 73,73
• Citation: United States v. Citizens and Southern National Bank 8212 1933, 45 L.Ed.2d 41, 95 S.Ct. 2099, 422 U.S. 86 (1975)
• Parties: UNITED STATES, Appellant, v. CITIZENS AND SOUTHERN NATIONAL BANK et al. —1933
• Court: U.S. Supreme Court

45 L.Ed.2d 41

95 S.Ct. 2099

422 U.S. 86

UNITED STATES, Appellant,

v CITIZENS AND SOUTHERN NATIONAL BANK et al.

No. 73—1933.

Argued March 19, 1975.

Decided June 17, 1975.

Syllabus

To circumvent Georgia's longstanding stringent restrictions on city banks' opening branches in suburban areas, appellee Citizens & Southern National Bank (C&S National) formed a holding company, which then embarked on a program of forming de facto branch banks in Atlanta's suburbs.This program included the holding company's ownership of 5 percent of the stock of each of the suburban banks, ownership of much of the remaining stock by parties friendly to the C&S system of banking entities (hereafter C&S), the suburban banks' use of the C&S logogram and of all C&S's banking services, and close C&S oversight of the suburban banks' operation and governance.In 1970, Georgia amended its banking statutes so as to allow de jure branching upon a countywide basis.This meant that C&S could now absorb the 5-percent banks as true branches, because Atlanta is contained within the two counties encompassing the suburbs in which the 5-percent banks operated.Consequently C&S applied to the Federal Deposit Insurance Corporation(FDIC) under the Bank Merger Act of 1966 for permission to acquire all the stock of six of the 5-percent banks historically operated as de facto branches or 'correspondent associate' banks within the C&S system.The FDIC authorized five of the proposed acquisitions.The Government then brought suit in District Court for injunctive relief, alleging that the five acquisitions would lessen competition in relevant banking markets in violation of § 7 of the Clayton Act, and that the historic, de facto branch relations between C&S and the six 5-percent banks constituted unreasonable restraints of trade in violation of § 1 of the Sherman Act.The court rendered judgment for C&S.Three of the 5-percent banks were formed prior to, and three after, July 1, 1966.The 'grandfather' provision of the Bank Holding Company Act,12 U.S.C. § 1849(d), as added by the 1966amendments, provides that '(a)ny acquisition, merger, or consolidation of the kind described in (12 U.S.C. s)1842(a) . . . which was consummated at any time prior or subsequent to May 9, 1956, and as to which no litigation was initiated by the Attorney General prior to July 1, 1966, shall be conclusively presumed not to have been in violation of any antitrust laws other than'§ 2 of the Sherman Act.Title 12 U.S.C. § 1842(a) makes it unlawful, absent the Federal Reserve Board's prior approval, for bank holding companies to engage in certain transactions, including those tending to create or enlarge holding company control of independent banks.Held:

1.Since the Attorney General took no action by July 1966 against the three 5-percent banks that were formed prior to that date, the transactions by which these banks became 5-percent banks fall within the terms of the grandfather provision of the Bank Holding Company Act, and therefore the correspondent associate programs in force at these banks are immune from attack under § 1 of the Sherman Act.While C&S's formation of a de facto branch was a unique type of transaction, it may fairly be characterized as an 'acquisition, merger, or consolidation of the kind described in (12 U.S.C. s)1842(a),' and clearly falls within the class of dealings by bank holding companies that Congress intended, in the grandfather provision, to shield from retroactive challenge under the antitrust laws.Pp. 102-111.

2.In the face of the stringent state restrictions on branching, C&S's program of founding new de facto branches, and maintaining them as such, did not infringe § 1 of the Sherman Act.Pp. 111-120.

(a) Though the Government contends that the correspondent associate programs encompassed at least a tacit agreement to fix interest rates and service charges so as to make the interrelationships—to that extent at least—illegal per se, it cannot be held, in view of the mixed evidence in the record, and of the fact that such programs, as such, were permissible under the Sherman Act, that the District Court clearly erred in finding that the lack of significant price competition flowed, not from a tacit agreement, but as an indirect, unintentional, and formally discouraged result of the sharing of expertise and information that was at the heart of the correspondent associate program.Pp. 112-114.

(b) The Government's alternative contention that the correspondent associate programs transcending conventional 'correspondent' relationships 'unreasonably' restrained competition among the 5-percent banks and between these banks and C& § National, is not persuasive, since even if the Government had proved that such programs restrained competition among the defendant banks more thoroughly or effectively than would have a conventional correspondent program (which the District Court found not to be the case), that alone would not make out a Sherman Act violation.Pp. 114-116.

(c) Where C&S has operated the 5-percent banks as de facto branches in direct response to Georgia's historic restrictions on de jure branching, restraints of trade integral to this particular, unusual function are not unreasonable.To characterize the relationships at issue as an unreasonable restraint of trade is to forget that their whole purpose and effect were to defeat a restraint of trade, and by providing new banking options to suburban Atlanta customers, while eliminating no existing options, C&S's de facto branching program has plainly been procompetitive.Pp. 116-120.

3.The proposed acquisitions will not violate § 7 of the Clayton Act.Pp. 120-122.

(a) Since C&S's program of founding and maintaining new de facto branches in the face of Georgia's antibranching law did not violate the Sherman Act, and since the de facto branches that C&S proposes to acquire were all founded ab initio with C&S sponsorship, it follows that the proposed acquisitions will extinguish no present competitive conduct or relationships.P. 121.

(b) As for future competition, there is no evidence of any realistic prospect that denial of the acquisitions would lead the defendant banks to compete against each other, the Clayton Act being concerned with 'probable' effects on competition, not with 'ephemeral possibilities.'P. 121-122.

372 F.Supp. 616, affirmed.

Daniel M. Friedman, Deputy Solicitor Gen., Washington, D.C., for appellant.

Daniel B. Hodgson, Atlanta, Ga., for appellees.

Mr. Justice STEWARTdelivered the opinion of the Court.

For many years the State of Georgia restricted banks located in cities from opening branches in suburban areas.To circumvent these restrictions in the Atlanta area, the Citizens & Southern National Bank (C&S National) formed the Citizens & Southern Holding Company(C&S Holding), and the latter company embarked on a program of forming de facto branch banks in the suburbs of Atlanta.This program involved, among other features, ownership by C&S Holding of 5 percent of the stock of each of the suburban banks (the maximum allowed by state law), ownership of much of the remaining stock by parties friendly to C& S,¹ use by the suburban banks of the C&S logogram and of all of C&S's banking services, and close C&S oversight of the operation and governance of the suburban banks.The expectation on all sides—by C&S, by the suburban banks, and by state and federal bank regulators—was that C&S would acquire these '5-percent banks' outright, and convert them into de jure branches, as soon as state law, or the Atlanta city limits were altered so as to permit the accomplishment of this end.

In 1970, Georgia amended its banking statutes to allow de jure branching on a countywide basis.Because the city of Atlanta is contained within two counties, DeKalb and Fulton, which encompasses the Atlanta suburbs in which the 5-percent banks operated, this change in the law meant that C&S National could now absorb the 5-percent banks as true branches.C&S consequently applied to the Federal Deposit Insurance Corporation(FDIC,) under the Bank Merger Act of 1966, 80 Stat. 7,12 U.S.C. § 1828, for permission to acquire all of the stock of six of the 5-percent banks historically operated by C&S as de facto branches.The FDIC authorized all but one of the proposed acquisitions.

The Justice Department immediately commenced this litigation in a Federal District Court for injunctive relief, alleging that the five acquisitions authorized by the FDIC would lessen competition in relevant banking markets, and thus violate § 7 of the Clayton Act,38 Stat. 731, as amended, 64 Stat. 1125,15 U.S.C. § 18, and that the historic, 'de facto branch' relations between C&S and the six 5-percent banks constituted unreasonable restraints of trade in violation of § 1 of the Sherman Act,26 Stat. 209, as amended, 15 U.S.C. § 1.After a trial, the court rendered judgment for C&S on all the issues.372 F.Supp. 616.The Government appealed under § 2 of the Expediting Act, 32 Stat. 823, as amended, 15 U.S.C. § 29, and we noted probable jurisdiction.²

I.The Background of This Litigation

In applying the antitrust laws to banking, careful account must be taken of the pervasive federal and state regulation characteristic of the industry, 'particularly the legal restraints on entry unique to this line of commerce.'United States v. Marine Bancorporation, 418 U.S. 602, 606, 94 S.Ct. 2856, 2862, 41 L.Ed.2d 978.This admonition has special force in the present case, for the de facto branch arrangements and the proposed acquisitions involved here were a direct response to Georgia's historic restrictions on branch banking.

Before 1927 Georgia permitted statewide branching, and C&S National, then as now headquartered in Savannah, established three branches in the city of Atlanta.In 1927, state law was changed to prohibit all branching.³ C&S therefore decided to expand through the formation of a bank holding...