Whitney Nat. Bank in Jefferson Parish v. James

• Decision Date: 13 June 1966
• Docket Number: No. 6745,6745
• Citation: 189 So.2d 430
• Parties: WHITNEY NATIONAL BANK IN JEFFERSON PARISH et al. v. A. Clayton JAMES, State Bank Commissioner of the State of Louisiana.
• Court: Court of Appeal of Louisiana — District of US

Page 430

189 So.2d 430

WHITNEY NATIONAL BANK IN JEFFERSON PARISH et al. v. A. Clayton JAMES, State Bank Commissioner of the State of Louisiana.

No. 6745.

Court of Appeal of Louisiana, First Circuit.

June 13, 1966.

Rehearing Denied July 8, 1966.

Writ Refused Nov. 7, 1966.

Malcolm L. Monroe, of Monroe & Lemann, Walter J. Suthon, III, Jerry A. Brown, New Orleans, for appellants.

Joseph H. Kavanaugh, Asst. Atty. Gen., Baton Rouge, A. J. Waechter, Jr., of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Bean & Rush, Lafayette, G. Harrison Scott, Sessions, Fishman, Rosenson & Snellings, New Orleans, Edwards L. Merrigan, Washington, D.C., for appellee.

Before ELLIS, LOTTINGER, LANDRY, DRY, REID and BAILES, JJ. ^*

LANDRY, Judge.

This is an action for a declaratory judgment by Whitney National Bank in Jefferson Parish (Whitney-Jefferson) and Whitney Holding Corporation (Whitney-Holding) against defendant A. Clayton James, State Bank Commissioner of the State of Louisiana (Commissioner), seeking an adjudication holding that the provisions of Act 275 of 1962, LSA-R.S. 6:1001--6:1006, inclusive, known as the Bank Holding Company Act, which prohibits a bank holding corporation from opening any place of business not actually open on the effective date of the statute, is inapplicable to Whitney-Jefferson, and, alternatively, that its application to Whitney-Jefferson is unconstitutional. From the judgment of the trial court holding that the statute in question is directly applicable to petitioner Whitney-Jefferson and bars said plaintiff's opening for business and also decreeing the law constitutional, plaintiffs Whitney-Jefferson and Whitney-Holding have appealed.

The declaration of public policy to be served by the aforementioned Bank Holding Company Act is contained in Section 1001 which reads as follows:

' § 1001. Declaration of policy

'It is declared to be the policy of this state to protect and to foster the growth of the independent unit bank, and institution whose ownership and origins are grounded in the local community and whose activities are bound up with local economic and social organizations; to prevent the undesirable concentration of control in the banking field to the detriment of the public interest; to insure effective competition among all banking institutions; and, to accomplish these objectives by prohibiting the formation of new banking holding companies and the acquisition of control by whatever means of additional banking institutions by existing bank holding companies and by their subsidiaries. Acts 1962, No. 275, § 1.'

The precise section of the Bank Holding Company Act which appellants contend is inapplicable to Whitney-Jefferson is Section 1003, the pertinent portion of which states:

' § 1003. Prohibitions upon acquisition of bank shares or assets

(5) for any bank holding company or subsidiary thereof to open for business any bank not now opened for business, whether or not, a charter, permit, license or certificate to open for business has already been issued. Notwithstanding the foregoing, this prohibition shall not apply to additional shares acquired by a bank holding company in a bank in which such bank holding company owned or controlled a majority of the voting shares prior to such acquisition.'

In the first instance appellants maintain Section 1003 is inapplicable to Whitney-Jefferson because said concern was at least 'constructively' open for business on the effective date of the statute, therefore, to impose the terms of the statute upon appellant characterizes such application as an ex post facto law in violation of the state and federal constitutions. Alternatively, appellants contend that by virtue of the procedure hereinafter set forth it acquired vested rights and entered into valid and binding contracts which application of the statute would divest and impair contrary to the provisions of both the state and federal constitutions. Also, in the alternative, appellants maintain the statute deprives Whitney-Jefferson of property rights, prevents the opening of a properly chartered national bank, grants special privileges to competing banks in the form of the exclusive right to operate in Jefferson Parish and constitutes an arbitrary and capricious classification resulting in a denial of vested rights without due process of law.

It is readily conceded by all concerned that the present litigation emanates from the attempt of Whitney National Bank of New Orleans (Whitney-New Orleans), admittedly the largest bank in Louisiana and one of the largest in the south, to extend its sphere of operations from Orleans Parish (its domicile) into the neighboring Parish of Jefferson. The ingenious method by which Whitney-New Orleans sought to accomplish its proposed expansion resulted in protracted litigation between the parties in the federal courts before institution of the present action in the courts of this state. Narration of the background and history of the events, and circumstances which prompted the initial litigation in the federal courts and the chronological developments which ensued, though lengthy and detailed, are essential to a complete and clear understanding of the issues herein posed.

Appellant, Whitney-Holding, is a Louisiana business corporation which owns all the stock in Whitney-New Orleans, excepting director's qualifying shares. Although Whitney-New Orleans is not a nominal party to this litigation its relationship to appellants is a basic aspect of this and the antecedent federal actions between the litigants at bar. Whitney-Holding is a bank holding company as defined pursuant to the provisions of the Louisiana Bank Holding Company Act, more particularly LSA-R.S. 6:1002.

Plaintiff, Whitney-Jefferson, is also a banking association organized pursuant to the National Banking Laws, its domicile being in Jefferson Parish as the corporate name indicates. Although Whitney-Jefferson is apparently a legal entity with power to sue and be sued, the question whether it has the right to receive authority to operate and conduct a banking business is an issue in this suit.

Appearing herein as intervenors opposing the relief sought by appellants are The Bank of New Orleans and Trust Company (The Bank of New Orleans). The Bank of Louisiana in New Orleans (The Bank of Louisiana) and the Guaranty Bank and Trust Company of Lafayette, Louisiana (Guaranty Bank).

Admittedly to meet the needs of the expanding economy in the rapidly growing portion of Jefferson Parish situated east of the Mississippi River and adjacent to the City of New Orleans, and counter the competition of a rival bank, National Bank of Commerce in New Orleans, which had opened an affiliate bank in Jefferson Parish bearing the name National Bank of Commerce in Jefferson Parish, Whitney-New Orleans sought to establish a banking connection in Jefferson Parish to be controlled by Whitney-New Orleans. The City of New Orleans being conterminous with the Parish of Orleans, Whitney-New Orleans could not open a branch in Jefferson Parish because of state and federal prohibitions contained in LSA-R.S. 6:54 and 12 U.S.C. § 36(c) whose design and purpose is to promote, encourage and protect development of local banks under local management with local capital and control. Although Whitney-New Orleans could legitimately extend its operation into Jefferson Parish by means of an affiliate bank, which plan of operation received approval in Camden Trust Company v. Gidney, 301 F .2d 521; it rejected the affiliated bank plan because that method made it impossible to retain and preserve identity of ownership and also because control of the affiliate could in time slip away from the parent corporation through stock transfers by sale or succession . In this regard Whitney-New Orleans was aware that the law prohibits common officers or directors serving affiliated banks when the stockholders of the parent bank no longer have control of the subsidiary.

Having rejected the affiliated bank plan because of the very features thereof which would exempt such an operation from application of the antibranch banking laws, Whitney-New Orleans devised an alternate method whereby it could establish a banking connection in neighboring Jefferson Parish over which its stockholders would maintain perpetual control and ownership. The scheme involved four basic steps as follows:

First: Whitney-New Orleans, using $350,000 of its own funds as capital, created Whitney-Holding and distributed the shares in Whitney-Holding to the stockholders of Whitney-New Orleans.

Second: With the funds provided by Whitney-New Orleans, Whitney-Holding created a new national bank known as Crescent City National Bank (Crescent City).

Third: Whitney-New Orleans, Whitney-Holding and Crescent City confected an agreement whereby Whitney-New Orleans was merged into Crescent City which latter bank then changed its name to Whitney-New Orleans. In this manner the creature, Whitney-Holding, became the parent of its creator, Whitney-New Orleans.

Finally, Whitney-New Orleans then provided the sum of $650,000 to its new parent, Whitney-Holding, for use in purchasing the entire stock issue of Whitney-Jefferson.

To bring its plan to fruition, it was necessary for Whitney-New Orleans to obtain approval of the Comptroller of the Currency of the United States (Comptroller) and the Board of Governors of the Federal Reserve System (Board of Governors). Whitney-Holding was organized July 20, 1961. On October 3, 1961, the Comptroller approved Whitney-New Orleans' proposed plan and thereafter, by letter dated October 11, 1961, recommended its approval by the Board of Governors.

On January 17, 1962, the Board of Governors held a public hearing with respect to the intended procedure and on May 3, 1962, issued the following order with respect thereto:

'ORDER APPROVING APPLICATION UNDER BANK HOLDING COMPANY ACT

There has come before the Board of Governors, pursuant to section 3(a)(1...