Title: Ark. S. & L. Ass'n v. Cent. Ark. S. & L.

State: arkansas

Issuer: Arkansas Supreme Court

Document:

538 S.W.2d 505 (1976) ARKANSAS SAVINGS AND LOAN ASSOCIATION BOARD and Security Savings & Loan Association, Appellants, v. CENTRAL ARKANSAS SAVINGS & LOAN ASSOCIATION, Appellee. No. 75-293. Supreme Court of Arkansas. June 28, 1976. Smith, Williams, Friday, Eldredge & Clark by William L. Patton, Jr. and Hermann Ivester, Little Rock, for appellant Security Sav. & Loan Ass'n. Harold E. Anderson, Jr., Little Rock, for appellant Arkansas Sav. and Loan Ass'n Bd. Lester & Shults by Edward Lester, Little Rock, for appellee. BYRD, Justice. This application for a savings and loan charter by appellee, Central Arkansas Savings & Loan Association, was before us in Ark. S&L Bd. v. Central Ark. S&L, 256 Ark. 846, 510 S.W.2d 872 (1974) and in Security S&L v. Central Ark. S&L, 257 Ark. 1014, 521 S.W.2d 220 (1975). On the first appeal we remanded the case to the Arkansas *506 Savings and Loan Association Board because, in denying appellee's application, the Board had only stated conclusions and had failed to give findings of fact. On the second appeal appellant Security Savings and Loan Association, whose protest had been sustained by the Board, complained that its appeal to the Pulaski Circuit Court was erroneously transferred to the Faulkner Circuit Court. Following those decisions, on this appeal the Faulkner Circuit Court again reversed the action of the Board in denying appellee's application for a charter. For reversal, appellants, Arkansas Savings & Loan Association Board, hereinafter referred to as the Board, and Security Savings & Loan Association, hereinafter referred to as Security, contend that the findings of the Board are sustained by substantial evidence. In making their contention, appellants take the position that, for purposes of determining whether the Board's administrative findings are supported by substantial evidence, we should be governed by the same rule of review as in cases involving jury verdicts. In this connection appellants state: With respect to judicial review of administrative findings our Administrative Procedure Act, Ark.Stat.Ann. § 5-713 (Supp.1973), provides: The provisions of the federal Administrative Procedure Act were discussed in Universal Camera Corp. v. National L. R. Bd., 340 U.S. 474, 71 S. Ct. 456, 95 L. Ed. 456 (1950), with reference to whether a review of an administrative decision based upon the substantial evidence rule could be predicated upon only the evidence supporting the administrative finding when viewed by itself. In holding that such a review should be on the record as a whole, the court said: "Whether or not it was ever permissible for courts to determine the substantiality of evidence supporting a Labor Board decision merely on the basis of evidence which in and of itself justified it, without taking into account contradictory evidence or evidence from which conflicting inferences could be drawn, the new legislation definitely precludes such a theory or review and bars its practice. The substantiality of evidence must take into account whatever in the record fairly detracts from its weight. . . ." Under the language of the Administrative Procedure Act, supra, we construe the language thereof to give to the courts the same type of review that is applied by the federal courts to the federal Administrative Procedure Act. The order entered by the Board following the remand of the first appeal is as follows: "The Board, upon review of the record, finds that the application should be denied for the following reasons: *507 3. There is not a public need at the present time for the proposed association and the volume of business in the areas in which the association would conduct its business is not sufficient to indicate a successful operation. The Board hereby makes the following findings of underlying facts upon which this finding is based: The Board hereby makes the following findings of underlying facts upon which this finding is based: IT IS THEREFORE ORDERED that the Application for Charter by Central Arkansas Savings and Loan Association be and it is hereby denied." The record shows that a total of 59 stockholders subscribed and paid $231,150.00 in cash for 13,400 shares of stock in appellee. The subscribed savings accounts had increased to $1,120,345.00 at the date of the hearing of the application. Ten new industries and 14 new commercial establishments were opened for business in 1972. The 1960 census of Faulkner County showed a population of 24,303 while the 1970 census showed a population of 31,472, representing a 29.9% increase in the population of the county compared to a state-wide increase of 7.7%. Between 1960 and 1970 the personal income of the county increased from $30.3 million to $82.1 million. The total payroll for the same period for covered employment increased 94.3% or from $8.8 million to $25.1 million. Concurrently, the average *510 covered payrolls for the manufacturing industry increased from $4.3 million to $13.2 million, a 205.2% gain. For the same ten year period, retail sales increased from $18.3 million to $46.0 million. Income from governmental employment increased from $3.3 million to $11.8 million. In 1970 the total deposits in banks in the county were $40.9 million, and of those deposits, $22.6 million were in savings and time deposits. Total deposits in the banks had increased to $68,964,000 by December 31, 1972. The savings capital of Security increased from $5,759,854 in 1967 to $12,045,000 by June 30, 1972. The number of persons on institutional and industrial payrolls increased from 1,709 in 1960 to 6,245 in 1971. The electrical connections inside the city of Conway increased by 190 in 1971 and by 100 in 1972. In Faulkner County, outside the city of Conway, there was an increase of 274 electrical connections in 1971 and of 393 in 1972. Security is the only chartered savings and loan association in Faulkner County. Security's deposits were increased by $1,638,000 in 1971, and $2,801,000 in 1972. Dr. John Kane, professor of Economics at the University of Arkansas and former executive vice president of the McElroy Bank in Fayetteville, testified that in Boone County in 1972, the Harrison Savings and Loan Association increased its deposits by $5,346,000 and a second association in Harrison increased its deposits by $2,612,000. The First Federal Savings and Loan Association of Magnolia in 1972 increased its deposits by $3.75 million. The First State Savings and Loan Association of Mountain Home in 1972 increased its deposits $7,671,000. First Federal Savings and Loan Association of Rogers in 1972 had an increase of $6,999,000. The deposits in First Federal Savings and Loan Association of Russellville did not quite increase $3 million in 1972, but a second association in Russellville had an increase of $1,564,000 for a total county increase of $4,765,000 in savings and loan deposits. The two associations in Searcy had an increase of $3,860,000 for the same year. Table 13, 13A, 13B and 13C, attached as an appendix to this opinion, were introduced by Dr. Gene Lynch, who testified for Security. Table 15, shown in the appendix to this opinion, was introduced by Dr. Louis Amis who testified for appellee. Security was chartered in 1961 with a capital of $250,000. After six months operation it had assets of $645,000, savings of $465,000 and first mortgage loans of $423,000. At the end of 1972 Security had total assets of $14,173,298, savings of $13,269,691 and first mortgage loans of $11,847,387. Security's undivided profits in 1972 were $129,000 after taxes. George Shaw, Jr., testified that he was a director of Security. He owns 10% of the stock in the association, and his family owns another 10%. He testified that when Security started Morrilton Federal Savings and Loan Association conducted the principal savings and loan activity in Conway. That of Morrilton Federal's 100% of the market he would now say that Security has 70% and Morrilton Federal has 30%. Arch Ford, a director and founder of Security, estimated that in 1972 Morrilton Federal made loans of about $1,600,000 to $1,800,000 in Faulkner County while Security made loans of about $2,500,000. Between the date of the application for appellee's charter and the hearing date, Morrilton Federal obtained a federal charter for a branch bank in Conway. Security elected not to protest the application of Morrilton Federal for the branch bank. In the first appeal we remanded this case to the Board because the findings of fact did not comply with the Arkansas Administrative Procedure Act, Ark.Stat.Ann. § 5-710 (Supp.1973). Insofar as here pertinent, that statute provides: In stating our reasons for remanding to the Board, we pointed out that the record contained "not only what appears to be basically factual testimony but also what appear to be conclusions on the part of witnesses." A clear example of what happens when the Board does not analyze the testimony in connection with its fact findings can be demonstrated by the conclusions set forth in subsections (o) and (r), supra. In subsection (o) the Board states that "Security financed over 93% of the value of new residential construction in Conway, while savings and loan associations nationally financed 81% of the value of new residential construction." This information could only come from the testimony of Dr. Lynch, who relied upon Tables 13, 13A, 13B and 13C. (See appendix.) Since Table 13 represents only the residential construction done inside the city and since Table 13A represents the total loans made by Security both inside the city of Conway and outside of the city in Faulkner County, the 93% figure can only be computed by presuming that the total loans by Security from 1968 through 1972 were made only inside the city of Conway. Needless to say, the statement in subsection (o) of the Board's order is so erroneous that its error was admitted during oral argument. In subsection (r) the Board states that "interest rates charged by Security for home loans are competitive with other financial institutions which make home loans in Faulkner County." In this connection George Shaw, Jr., a director of Security, after stating that Security's rates were competitive, stated: However, John Shock, a certified public accountant, testified that the loan on his home was not with Security because he was told that security's interest rate was "8%, take it or leave it." Shock financed his home with Morrilton Federal at a lower rate. The testimony of John Shock is corroborated by that of Security's manager, who admitted that in new subdivision containing 50 or 60 homes, Security only made loans on 10 homes in that subdivision. He stated that one reason for Security's not having more loans in the subdivision was its interest rate. Security suggests that the granting of Morrilton Federal's branch charter should be considered as, in effect, creating another savings institution. However, Security's failure to protest Morrilton Federal's branch charter while protesting appellee's application places Security in the position of admitting that there is room for additional competition in the area but leaves it in the position of selecting its own competition. That the actions of Security speak louder than words on that issue can be seen from the testimony of its manager, Mr. Sly, as follows: Needless to say, the statements of the Board, when viewed from the whole record as distinguished from the conclusions of certain witnesses, are such that they show an abuse of discretion in the consideration of the evidence before the Board. To take each subsection of the Board's order and demonstrate how the Board has abused its discretion, including such things as comparing the population of Faulkner County to a market area covering some five counties, including Pulaski Countywhich *512 is like comparing apples to orangeswould make this opinion longer than appellant's brief, which consists of 280 pages. What we have set forth demonstrates that the Board abused its discretion and also violated its statutory duty to make "a concise and explicit statement of the underlying facts supporting the findings." For the violation of the Board's statutory duty, we remanded this case on the first appeal. However, to remand again would but reward the Board and Security by giving them another two years in which to delay the appellee's application for a charter. As pointed out by Mr. Justice Frankfurter, in Universal Camera Corp. v. National L. R. Bd., 340 U.S. 474, 71 S. Ct. 456, 95 L. Ed. 456 (1950), "Reviewing courts must be influenced by a feeling that they are not to abdicate the conventional judicial function." When we consider that the statistics show a steady and vigorous industrial growth in Faulkner County; that Security, while obtaining loans in new subdivisions at a rate of only one out of every five or six new homes constructed, had been continuously loaned up for the last six or seven years; and that Morrilton Federal was doing less than one-half of the business done by Security, we cannot find enough substantial evidence in the record to support the Board's finding that there was not a public need for and that the business in the area was not sufficient to support the successful operation of appellee. Security also contends that the Board erred in finding that the operation of a new savings and loan association will not unduly harm any other existing association or other financial institution. We find no merit to this contention. In fact, there does not seem to be any substantial evidence to the contrary. The evidence of Security shows that it has had a steady increase in income and that its present annual income, after taxes, exceeds 50% of the original investment. Then too, there is the admission that Security only obtained one loan for each five or six homes built in a new subdivision. Affirmed. FOGLEMAN, J., dissents. FOGLEMAN, Justice (dissenting). I might feel that I am doing no more than again voicing my protest previously expressed in such cases as Arkansas Savings & Loan Association Board v. Corning Savings & Loan Ass'n, 253 Ark. 987, 490 S.W.2d 460; Arkansas Savings & Loan Association Board v. Grant County Savings & Loan Ass'n, 256 Ark. 858, 510 S.W.2d 863, were it not for the fact that the majority has ignored our own statement as to substantial evidence review in favor of that of another court which is in decided conflict with our own rule. In First Federal Savings & Loan Ass'n v. Union Fidelity Savings & Loan Ass'n, 257 Ark. 199, 515 S.W.2d 75, decided November 4, 1974, and where we were cognizant of the Administrative Procedure Act, we said: Not only is that authority ignored, the majority has acted to the contrary. While I will continue my protest as long as I feel that the courts are invading the province of other agencies, I submit that if our own approach to determining substantial evidence is followed in this case, the result reached by the majority is not possible. I think I should also point out that there is a very significant difference between the statute considered in Universal Camera Corp. v. National L. R. Bd., 340 U.S. 474, 71 S. Ct. 456, 95 L. Ed. 456 (1950), relied upon by the majority, and our own act. This decision, in itself, was a departure from previous practice of that court. This, however, was accomplished by legislative mandate which was based upon dissatisfaction with the substantial evidence rule as it previously existed. It required that substantial evidence determinations be made by consideration of the record as a whole in both the Administrative Procedures Act and the Taft-Hartley Act. The United States Supreme Court frankly stated that these acts were demonstrative of a legislative mood, which must be respected by the judiciary, when expressed in legislation. But the "new legislation" upon which the court acted, after it had found that the Administrative Procedure Act actually contained the clear expression of legislative intention in both acts, is far different from our own Administrative Procedure Act. The federal act contained and still contains the critical language which required the change of stance of the United States Supreme Court. As recited in 5 U.S.C.A. § 706, it reads: Significantly, this language is absent from our Administrative Procedure Act, adopted after the United States Supreme Court decision. Its omission should mean that the General Assembly was satisfied with substantial evidence determinations as made under the traditional rule we so recently expressed. It seems to me that this court is in poor position to take such a drastic step based upon the authority of a case which simply recognized the legislative prerogative, particularly when our General Assembly deliberately omitted the mandate upon which that authority is based. The result of such action was aptly expressed in the cited case thus: I respectfully submit that the majority has arrived at its conclusion only by picking fragments of testimony that would have supported a result contrary to that of the Board. This approach is even more revolutionary than would be the case if it had *515 simply weighed the evidence on trial do novo. Even though done unconsciously, this is not the purpose of judicial review of administrative action. The effect of utilizing this type of review is to substitute the judgment of the court, which is without expertise on the subject, for that of the Board, which presumably is possessed of expertise. This approach was disavowed in Arkansas Savings & Loan Board v. Southerland, 256 Ark. 445, 508 S.W.2d 326, where we reversed the action of the circuit court, which had done exactly what this court is doing in this case in reversing the action of the Board. I do not agree with appellants that the finding of the Savings & Loan Association Board that the operation of a new savings and loan association in Conway will not unduly harm any other financial institution is not supported by substantial evidence, whether the Board's definition of undue harm was correct or not. However, I am unable to fathom the reasoning process by which the majority concluded that the Board erroneously found that there was no public need for the proposed savings and loan association and that the volume of business in the area in which the association would conduct its business was not sufficient to indicate a successful operation. The Board made numerous specific findings by which its conclusion was reached. The weakening or elimination of one of them does not destroy the foundation of substantial evidence on which the conclusion was reached. I submit that the majority has done nothing more than attempt to demonstrate the weakness of one or more of those numerous findings, as if the Board's conclusions were a three-legged stool, which would fall if one leg was sawed from under it. If those particular findings are eliminated, there is still a foundation for the ultimate holding. For instance, short of trial de novo by the courts, no amount of picking at minute details in expert and other testimony will destroy findings of underlying facts (a), (b), (c), (d), (h), (i), (l), (m), (n), (p), (q), (r), (s), (t), (u), (v) and (x), all of which are supported by substantial evidence. These seem to be actually supported by a clear preponderance of the evidence. Furthermore, there is no proper approach for our saying that (w), a matter clearly within the province of the Board, was incorrect, arbitrary, capricious or an abuse of the Board's discretion. They simply found Dr. Lynch's testimony plausible and that of Dr. Amis entitled to little weight. Morrilton Federal Savings & Loan Association had been in business 20 years and had 100% of the home loan market when Security Savings & Loan Association was founded. In the succeeding years, the ratio had become 70% by Security and 30% by Morrilton, excluding some 25% to 30% handled by other lending institutions. Morrilton had obtained approval of a branch office in Conway. The convenience of having this office will necessarily make this association much more competitive both in making loans and obtaining savings deposits, as many witnesses testified. In addition, there was testimony that the Morrilton association had stepped up its activities in Faulkner County and that three employees were actively soliciting business there. Obviously, there was basis for belief that the new branch office presented some of the aspects of a new savings and loan association in Faulkner County. The failure of Security to carry through on its protest of the branch office was explained and is understandable. Morrilton was already in business in Faulkner County and was seeking to retrieve business it had lost to Security. Security would have been in poor position to continue its protest. I submit that there was evidence other than that pointed out in the majority opinion, that Security's loan interest rates were competitive, even though there was some controverting evidence. But it would serve no useful purpose to go through the record and point out factors that subject the analysis made of the evidence in the majority opinion to question. I would point out that no statistical yardstick has been established for making the determinations intrusted to the Board. I must point out some significant *516 factors that furnish a basis for the Board's action that have been ignored. First, it was clearly shown that population figures relative to Conway and Faulkner Counties furnished a poor standard of comparison because college students comprise about one third of the population of Conway. Second, the growth rates of the county have declined. Third, Pulaski County institutions compete with Faulkner County institutions for both loans and savings dollars, and will continue to do so. Fourth, the banks in Conway are highly competitive for residential loans, because they are helpful in assuring that the borrowers will otherwise be their customers, and some borrowers prefer a one to five year loan with periodic payments no higher than on a long term loan, but with a "balloon" note for the bulk of the loan. This permits the borrower to readily renegotiate interest rates from time to time and to make larger payments of principal whenever advantageous to him. Fifth, home building was on a definite decline due to shortage and high cost of building materials and builders and developers were finding building of houses for the market less profitable. Probably the largest developer was phasing out its business. Others were building fewer houses. A trend to apartment living was noticeable. Sixth, the Quitman Bank and FHA and VA make residential loans in the county. Seventh, the attractiveness of putting savings into a savings and loan association was diminished because of money market conditions, which made other investments more attractive. Every one of these factors was important to the determination of both public need and probability of success. They themselves furnish a very substantial basis for, not only the opinion of Dr. Lynch, an eminently qualified economist, but also for the findings of the Board, which was in these respects exercising its expertise. I must also disassociate myself from the insinuation that the Board is acting to delay appellee's application. I would reverse the action of the circuit court. [*] Through October 31, 1971