Wilshire Oil Co. of Texas v. Board of Governors of Federal Reserve System
| Decision Date | 01 February 1982 |
| Docket Number | No. 81-1560,81-1560 |
| Citation | 668 F.2d 732 |
| Parties | WILSHIRE OIL COMPANY OF TEXAS, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent. |
| Court | U.S. Court of Appeals — Third Circuit |
John W. Dickey (argued), Jeffrey S. Parker, Sullivan & Cromwell, New York City, and Alan V. Lowenstein, Gregory B. Reilly, Lowenstein, Sandler, Brochin, Kohl, Fisher & Boylan, Roseland, N. J., for petitioner.
J. Virgil Mattingly, Jr. (argued), Associate Gen. Counsel, Bronwen Mason, Senior Counsel, Board of Governors of the Federal Reserve System, Washington, D. C., for respondent.
Before ADAMS, VAN DUSEN and SLOVITER, Circuit Judges.
This matter comes before us as a petition for review of a cease and desist order of the Board of Governors of the Federal Reserve System (the "Board"). The Board found petitioner, Wilshire Oil Company of Texas ("Wilshire"), to be in violation of the Bank Holding Company Act of 1956, as amended, 12 U.S.C. §§ 1841-1850 (1976) (the "BHC Act"). The only contested issue is whether Wilshire's subsidiary, the Trust Company of New Jersey ("TCNJ"), is a "bank" under the BHC Act. Wilshire concedes that if TCNJ is a "bank," then Wilshire is a "bank holding company" engaged in both banking and non-banking activities in violation of § 4(a)(2) of the Act, 12 U.S.C. § 1843(a)(2). We affirm the Board's conclusion that TCNJ is a "bank" under the BHC Act, and deny the Petition for Review seeking to terminate the cease and desist order against Wilshire.
The Bank Holding Company Act, 12 U.S.C. §§ 1841-1850 (1976), was enacted to prevent the concentration of commercial banking activities and to separate banking from commerce. 1 Section 4 of the BHC Act generally restricts the non-banking activities of "bank holding companies," defined in § 2(a)(1) as companies which have "control over any bank." As originally enacted, the BHC Act restricted the non-banking activities of only companies that controlled more than one bank, but in 1970 Congress amended the Act so as to apply also to one-bank holding companies. Under § 4(a)(2), these one-bank holding companies were given 10 years, until December 31, 1980, either to divest their non-banking operations or to cease being bank holding companies. 12 U.S.C. § 1843(a)(2) (1976).
Congress has twice modified the definition of "bank" under the BHC Act. The original definition included all national banks, state banks, and savings banks. Act of May 9, 1956, c. 240, § 2(c), 70 Stat. 133. In 1966, the definition was narrowed to encompass only those domestic institutions which "(accept) deposits that the depositor has a legal right to withdraw on demand." Act of July 1, 1966, Pub.L. 89-485, § 3, 80 Stat. 236, 237. The current definition was enacted in 1970:
"(c) 'Bank' means any institution ... which (1) accepts deposits that the depositor has a legal right to withdraw on demand, and (2) engages in the business of making commercial loans."
The Board of Governors of the Federal Reserve System is charged with the administration of the BHC Act, and § 5(b) authorizes the Board "to issue such regulations and orders as may be necessary to enable it to administer and carry out the purposes of this chapter and prevent evasions thereof." 12 U.S.C. § 1844(b) (1976). Under §§ 8(b)(1) & (3) of the Financial Institutions Supervisory Act of 1966 ("FISA"), 12 U.S.C. §§ 1818(b)(1) & (3) (Supp.1980), the Board also has the power to institute cease and desist proceedings whenever it has reason to believe that the BHC Act is about to be violated.
Wilshire Oil Company of Texas, the petitioner here, is engaged in the production of oil and natural gas, both directly and through its subsidiaries. Until November 1980, Trust Company of New Jersey, one of Wilshire's subsidiaries, 2 was concededly a "bank" under the BHC Act's current definition; TCNJ "(1) accept(ed) deposits that the depositor (had) a legal right to withdraw on demand, and (2) engage(d) in the business of making commercial loans." 12 U.S.C. § 1841(c) (1976). 3 Because Wilshire controlled a "bank," it was a bank holding company required by § 4(a)(2) either to divest its oil and gas business or to cease being a bank holding company before December 31, 1980.
Beginning in 1977, the Board frequently urged Wilshire to decide how it would come into compliance with the BHC Act before the December 31, 1980, deadline. Wilshire suggested several possible ways of complying with the Act, but made no firm proposal until November 1980. On November 3, 1980, less than two months before the final deadline, Wilshire notified the Board that it intended to keep both its oil and gas business and its interest in TCNJ. Wilshire announced that it would comply with the BHC Act by changing TCNJ into a "nonbank" under the Act.
On November 5, 1980, TCNJ sent a notice to its depositors that
(App. 294). TCNJ also modified its account agreement forms for its newly-named "transactional accounts" to include this reservation of the right to require notice for withdrawal. Except for this reservation, TCNJ has not changed any of its banking operations, and the reservation has had no practical effect on the institution. Specifically, TCNJ has not altered its commercial lending activities.
Wilshire claims that this reservation of a right to require notice means that TCNJ's depositors no longer have "a legal right to withdraw (their deposits) on demand," and therefore TCNJ is not a "bank" under the BHC Act definition in § 2(c) and Wilshire is not a "bank holding company" under § 2(a)(1). The Board disagreed and issued a Notice of Charges against Wilshire, its directors, and certain officers on December 9, 1980, pursuant to §§ 8(b)(1) & (3) of FISA, 12 U.S.C. §§ 1818(b)(1) & (3). The Board also directed that a formal administrative hearing be held to determine whether Wilshire would be in violation of the BHC Act on January 1, 1981.
On December 31, 1980, Wilshire transferred all of its TCNJ shares to an independent trustee. The operations of the two companies were temporarily separated, and all interlocking officer and director relationships were terminated.
After the December 31, 1980, deadline had passed, the Board amended its December 9 Notice of Charges and issued a Notice of Assessment of Civil Money Penalties. This latter notice, issued on January 6, 1981, under §§ 8(b)(1) & (3) of FISA and § 8(b) of the BHC Act, charged Wilshire, its directors and certain officers, with a violation of § 4(a)(2) of the BHC Act.
The administrative proceedings culminating in the Board's order now under review were governed by an agreement between Wilshire and the Board. In this agreement, Wilshire waived its right to a formal administrative hearing, and both parties agreed that "the sole issue between the parties is the legal issue whether TCNJ is a bank under the BHC Act and Wilshire is a bank holding company under the BHC Act and whether TCNJ's reservation of the right to 14 days' advance notice of withdrawal from deposits at TCNJ caused TCNJ to become a nonbank for purposes of the BHC Act" (App. 36-37). The agreement also ensured the temporary separation of Wilshire's and TCNJ's operations, incorporating the terms of the trust established by Wilshire on December 31, 1980, pending final judicial review of the Board's order. 4
The Board of Governors of the Federal Reserve System issued its Final Decision and Order on April 2, 1981. The Board concluded that TCNJ was a "bank" within the meaning of the BHC Act, that Wilshire was a bank holding company that was required to divest its nonbanking operations by December 31, 1980, and that, since Wilshire did not do so, it was in violation of § 4(a)(2) of the Act. Wilshire then petitioned for review.
The basic thrust of Wilshire's argument is that when Congress has written precise and detailed definitions in a statute, the Board cannot expand its own regulatory power by applying the substantive terms of the statute in a setting where the plain definitional requirements are not met. Wilshire relies on the Supreme Court's admonition regarding statutory interpretation: " '(t)he starting point in every case involving construction of a statute is the language itself.' " Southeastern Community College v. Davis, 442 U.S. 397, 405, 99 S.Ct. 2361, 2366, 60 L.Ed.2d 980 (1979), quoting Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756, 95 S.Ct. 1917, 1934, 44 L.Ed.2d 539 (1975) (Powell, J., concurring).
Wilshire argues that TCNJ's reservation of the right to require 14 days' notice of withdrawal means that the holders of its "transactional accounts" no longer have a legal right to withdraw their deposits on demand. Because the depositors lack this legal right, Wilshire contends, TCNJ does not fit within the literal definition of a "bank" in § 2(c) of the Act, and Wilshire is not a bank holding company subject to the Board's regulatory powers.
The Board concluded in its Final Order and Decision that "TCNJ is a 'bank' within the meaning of the section 2(c) of the BHC Act because it accepts deposits that the depositor has the legal right to withdraw on demand and engages in the business of making commercial loans ..." (App. 236). The Board considered the statement sent by TCNJ to its depositors reserving the right to require notice of withdrawal, and noted that this announcement stated that TCNJ "has no intention of exercising" this reserved right. The purpose of this disclaimer of intention,...
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