United States v. Connecticut National Bank 8212 767

• Decision Date: 26 June 1974
• Docket Number: No. 73,73
• Parties: UNITED STATES, Appellant, v. The CONNECTICUT NATIONAL BANK et al. —767
• Court: U.S. Supreme Court

41 L.Ed.2d 1016

94 S.Ct. 2788

418 U.S. 656

UNITED STATES, Appellant,

v The CONNECTICUT NATIONAL BANK et al.

No. 73—767.

Argued April 23, 1974.

Decided June 26, 1974.

Syllabus

The United States brought this civil antitrust action under § 7 of the Clayton Act challenging a proposed consolidation between the Connecticut National Bank (CNB) and the First New Haven National Bank (FNH), which are, respectively, the fourth and eighth largest commercial banks in Connecticut. The banks operate in contiguous areas of the State, CNB having headquarters in Bridgeport, with 51 offices there and in nearby towns; FNH having headquarters in New Haven, with 22 offices there and in nearby towns. The Government contended that the merger would eliminate significant potential competition in commercial banking in the New Haven and Bridgeport metropolitan areas and in other areas in Connecticut. The District Court rejected the Government's arguments in support of that position, relying on state law restraints on de novo branching, the two banks' expansion plans and capabilities, the posture of national and state regulatory officials regarding the issuance of new bank charters, and the existence and economic feasibility of possible foothold acquisitions. The court concluded that under § 7 commercial banking is not a distinct line of commerce in Connecticut and that the relevant geographic market, or 'section of the country' under that provision, is the State as a whole. Held:

FNH has its headquarters in the town of New Haven, approximately 19 miles to the northeast of Bridgeport along the Long Island Sound. FNH is the eighth largest commercial bank in Connecticut. At the end of 1972, it held 4.1% of commercial bank deposits in the State. FNH operates 22 bank offices in New Haven and surrounding towns.

1. The District Court erred in holding that the appropriate 'line of commerce' within the meaning of § 7 included both commercial banks and savings banks. Pp. 660—666.

2. The District Court further erred in ruling that the relevant geographic market is the State of Connecticut as a whole. In a potential-competition case like this, the relevant geographic market must be defined as the localized area in which the acquired bank is insignificant, direct competition with other banks, albeit not the acquiring bank. United States v. Marine Bancorporation, 418 U.S. 602, 94 S.Ct. 2856, 41 L.Ed.2d 978. Pp. 666—668.

3. On remand, the District Court must make a determination as to the geographic market in which each of the banks operates and to which the bulk of its customers may turn for alternative commercial bank services, and in making that determination it will be aided by the following considerations: (i) the Government has the burden of producing evidence to define localized banking markets; (ii) in satisfying that burden (as the District Court correctly held) the Government cannot rely only on Standard Metropolitan Statistical Areas; and (iii) town boundaries, although significant, are not controlling. Pp. 673—673.

4. The Government's contention that the State as a whole, though not a banking market, is a 'section of the country' within the meaning of § 7 is without merit, Marine Bancorporation, supra. P. 672—673.

362 F.Supp. 240, vacated and remanded.

Howard E. Shapiro, Washington, D.C., for appellant.

George D. Reycraft, Washington, D.C., for appellees The Connecticut National Bank and others.

Lee Loevinger, Washington, D.C., for appellee Comptroller of the Currency.

Mr. Justice POWELL delivered the opinion of the Court.

This case concerns the legality of a proposed consolidation of two nationally chartered commercial banks operating in adjoining regions of Connecticut. The United States brought a civil antitrust action challenging the consolidation under § 7 of the Clayton Act, 38 Stat. 731, as amended, 15 U.S.C. § 18. Following a lengthy trial and on the basis of extensive findings and conclusions, the United States District Court for the District of Connecticut dismissed the Government's complaint. 362 F.Supp. 240 (1973). The Government brought a direct appeal pursuant to the Expediting Act, 32 Stat. 823, as amended, 15 U.S.C.A. § 29, and the Court noted probable jurisdiction, 414 U.S. 1127, 94 S.Ct. 863, 38 L.Ed.2d 751 (1974).

The banks desiring to consolidate, Connecticut National Bank (CNB) and First New Haven National Bank (FNH), have offices in contiguous areas in the southwestern portion of Connecticut, CNB maintains its headquarters in the town of Bridgeport, which is situated on the Long Island Sound approximately 60 miles from New York City. CNB is the fourth largest commercial bank in the State. At year-end 1972, it held 6.2% of the deposits in commercial banks in Connecticut. CNB operates 51 offices located in Bridgeport and nearby towns in the extreme southwest section of Connecticut.

FNH has its headquarters in the town of New Haven, approximately 19 miles to the northeast of Bridgeport along the Long Island Sound. FNH is the eighth largest commercial bank in Connecticut. At the end of 1972, it held 4.1% of commercial bank deposits in the State. FNH operates 22 bank offices in New Haven and surrounding towns.

In Connecticut as a whole at the end of 1971, the five largest commercial banks held 61% and the 10 largest commercial banks held 83% of the deposits in such banks in the State. Two large commercial banks based in Hartford, Connecticut Bank & Trust Co. of Hartford and Hartford National Bank, operate essentially statewide. At year-end 1972, they had 41% of the total commercial bank deposits held by Connecticut banks.

CNB and FNH both have offices and are in direct competition in a so-called 'four-town area' located between Bridgeport and New Haven. The banks assured the District Court, however, that in implementing the consolidation they would divest themselves of a sufficient number of offices in the fourtown area to render insignificant the degree of overlap of their areas of actual operation. The District Court held that this divestiture plan eliminated any antitrust difficulties presented by the merger of direct competitors. 362 F.Supp., at 268—270, 286. The United States has not pursued the point on appeal. Accordingly, the case has been presented to us strictly as a geographic market extension merger on the part of both banks. The proposed consolidation would join the banks under FNH's national charter (with headquarters in Bridgeport). It would have no effect on the number of banks operating in either the Bridgeport or New Haven area. In that posture, the case presents potential- competition issues similar to those raised in United States v. Marine Bancorporation, Inc., 418 U.S. 602, 94 S.Ct. 2856, 41 L.Ed.2d 978.

The District Court rejected the Government's potential-competition arguments, relying on such factors as state-law restraints on de novo branching,¹ the expan- sion plans and capabilities of the two banks, the posture of national and state regulatory officials regarding the issuance of new bank charters, and the existence and economic feasibility of possible foothold acquisitions. 362 F.Supp., at 286—288. As we have held today in the Marine Bancorporation case, these and analogous factors are the appropriate considerations to take into account in determining the legality under § 7 of the Clayton Act of geographic market extension mergers by commercial banks. We are unable, however, to reach the question of whether the District Court correctly assessed the import of those factors in the instant case. We have also held in Marine Bancorporation that the legality of a market extension merger must be determined against the backdrop of properly defined product and geographic markets. See 418 U.S., at 618, 94 S.Ct., at 2868. In our view, the District Court erred in its definition of both concepts, and it is not possible to ascertain the degree, if any, to which those errors may have influenced its conclusions with regard to the Government's potential-competition arguments. Accordingly, the District Court's judgment must be vacated and the case remanded for reconsideration.

I

The District Court concluded that the appropriate 'line of commerce' within the meaning of § 7 included both commercial banks and savings banks. 362 F.Supp., at 281. The court recognized that its conclusion departed from this Court's holdings in, e.g., United States v. Phillipsburg National Bank, 399 U.S. 350, 359 362, 90 S.Ct. 2035, 2041, 26 L.Ed.2d 658 (1970), and United States v. Philadelphia National Bank, 374 U.S. 321, 356—357, 83 S.Ct. 1715, 1737, 10 L.Ed.2d 915 (1963). But in the District Court's view the pronouncements in Phillipsburg National Bank and Philadelphia National Bank 'were not intended to be ironclad, hard and fast rules which require a court to don blinders to block out the true competitive situation existing in every set of circumstances.' 362 F.Supp., at 280.

Several factors led the District Court to the conclusions that 'savings banks are in direct and substantial competition with commercial banks in providing product-services to the banking consumers in Connecticut . . .,' and that '(t) he cold, hard realities of the situation are that savings and commercial banks are fierce competitors in this state.' Ibid. The court noted that under state law savings banks in the near future will be permitted to offer one of the traditional indicia of commercial banks, personal checking accounts. See Conn.Pub.Act No. 73—195 (May 14, 1973). It pointed out that savings banks in Connecticut compete with commercial banks for real estate mortgages, personal loans, IPC (individual, partnership, and corporate) deposits, and, the court found, commercial loans. 362 F.Supp., at 280. If cited United States v. Continental Can Co., 378 U.S. 441, 84 S.Ct. 1738, 12 L.Ed.2d 953 (1964), for the proposition that 'complete industry overlap' is not required to establish a relevant line of commerce under § 7. 362 F.Supp.,...