Title: WESTERN BANK v MONT STATE BANKING

State: montana

Issuer: Montana Supreme Court

Document:

No. 13753 IN THE SUPREME COURT OF THE STATE OF MONTANA WESTERN BANK OF BILLINGS, Petitioner and Appellant, THE MONTANA STATE BANKING BOARD and the PROPOSED RIMROCK BANK OF BILLINGS, Respondents and Respondents. Appeal from: District Court of the First Judicial District, Honorable Peter G. Meloy, Judge presiding. Counsel of Record: For Appellant: Berger, Anderson, Sinclair & Murphy, Billings, Montana Arnold Berger argued, Billings, Montana For Respondents: Crowley, Haughey, Hansen, Toole and Dietrich, Billings, Ion tana George Dalthorp argued, Billings, Montana James H. Wood argued, Helena, Montana Submitted: September 19,1977 Decided: NO'i ' 1 1 9 7 1 , - ? < 5 r - . - - ;'I' g d .a , -2 i? Filed : M r . Justice John Conway Harrison delivered the Opinion of the Court: This i s an appeal from the judgment of the d i s t r i c t court, Lewis and Clark County, affirming the decision of the respondent Montana State Banking Board (Board) granting a c e r t i f i c a t e of authorization t o respondent Rimrock Bank of Billings (Rimrock) for a new bank i n Billings, Montana. Appellant is the Western Bank of Billings (Western), the nearest existing bank t o Rimrock's location and the only protestant t o appear a t the hearing. In early February 1976, an application was presented t o the Board seeking a c e r t i f i c a t e of authorization t o organize a new Montana bank t o be called the Rimrock Bank of Billings and t o be located i n the western part of Billings. The appli- cation consisted of the basic application form provided by the Board and completed by the applicant, together with 1 1 exhibits attached thereto. When the application was received by the Board, the applicant was notified of certain delinquencies therein. After correction the Board f i l e d the application and scheduled a hearing thereon for March 29, 1976. The Board gave notice of the hearing as required by law t o a l l financial institutions within 100 miles of the location of the proposed bank. Letters of protest were f i l e d by two or three banks, but only Western appeared in opposition t o the application a t the hearing. A t the time s e t for commencement of the hearing, Western f i l e d a motion t o deny the application as insufficient as a matter of law, or, in the alternative, t o vacate the hearing and grant the applicant 60 days t o cure the alleged deficiencies i n the application. The Board took the motion under advisement and proceeded with the hearing. Both motions were l a t e r denied. The hearing l a s t e d f o r two and one-half days. Rimrock and Western presented documentary evidence a s well a s o r a l testimony. Both exercised t h e i r r i g h t s of cross-examination. The Board allowed Western t o submit additional evidence i n the form of exhibits approximately one month a f t e r t h e hearing. The Board issued an order granting Rimrock' s application on August 3, 1976. Western appealed from the order and the d i s t r i c t court, Lewis and Clark County, affirmed t h e Board's decision on January 3, 1977. Findings of f a c t made by the Board and not challenged by Western include the following background information : Rimrock w i l l be located i n an area which has experienced rapid and substantial r e s i d e n t i a l and commercial growth over the past f i v e years and the evidence indicates t h a t continued s i g n i f i c a n t growth i s l i k e l y i n the future. The primary service area of the bank increased i n population from about 20,000 i n 1970 t o over 25,000 i n 1975 and evidence indicates the population i n the area w i l l continue t o grow. I n the f a l l of 1975, there were approximately 254 businesses i n the primary service area and by the time of t h e hearing i n March 1976, t h a t number had increased t o 293. The bank w i l l be loca ted near a regional shopping center which opened on September 11, 1975, c a l l e d the Rimrock Mall. A t the time of t h e hearing there were 50 businesses i n operation i n the Rimrock Mall and it was pro- jected t h a t within one year there would be approximately 50 additional businesses and business type o f f i c e s open i n the area. Gross s a l e s f o r businesses i n the Rimrock Mall complex a r e projected t o be $24,000,000 f o r the year 1976 and $32,000,000 for the year 1977. Evidence indicated that future development in the general area of the Rimrock Mall is likely. Rimrock can reasonably be expected a t the end of the f i r s t f u l l three years of operation t o have achieved a deposit volume of $5.5 million and to show net operating earnings. Western assigns nine issues for review which we consolidate into three principal issues: 1. Was Rimrock's application, as f i l e d , sufficient t o allow the Board t o proceed with the hearing? 2. Does the record contain sufficient evidence t o support the conclusions of the Board and the d i s t r i c t court? 3. Were the regulations under which the Board proceeded legally adopted? The essence of the f i r s t issue (encompassing Western's f i r s t four basic issues presented for review) is whether Rimrock's application as f i l e d was sufficient t o allow the Board t o proceed with the hearing. Western argues the appli- cation was totally devoid of any "evidencpe that existing banks i n the area were falling short of offering adequate services t o a l l deserving bank customers in the area" as required by the Montana Administrative Code ( M A C ) 8-3.22(6) -S1000(d), then i n effect. Therefore, argues Western, the Board should not have gone ahead with the hearing and should not have issued the c e r t i f i c a t e of authorization for the new bank. Western's contention is tantamount t o saying that the slightest defect i n the application a t the time of the adminis- t r a t i v e hearing, deprives the Board of jurisdiction t o proceed with the hearing. W e have found no law and have been cited none giving any support t o that premise. To the contrary i s Columbine State Bank v. Banking Board, Colo.App.1973, 505 P. 2d 391, where the court rather summarily dealt with a similar contention, holding that the jurisdiction of the Board was not l o s t by a failure t o provide a l l required information i n the application. See: Wyoming Bancorporation v. Bonham, Wyo. 1974, 527 P.2d 432; American Farm Lines v. Black Ball Freight Service, 397 U.S. 332, 90 S.Ct. 1288, 25 L ed 2d 547. The application contains a great deal of detailed informa- tion a s required by the regulations. It had been accepted by the Department of Business Regulations a s conforming t o its requirements and thereupon filed. Western concedes that the application complied with every section and subsection of the regulations except one. Western remained s i l e n t as t o t h i s alleged defect u n t i l it f i l e d its motion to dismiss the application or t o continue the hearing a t a time when the Board, counsel for a l l parties, numerous witnesses, and the reporter were assembled i n Helena for the purpose of commencing the hearing. Rimrock then offered t o amend its application t o remedy the alleged defect while maintaining the application was sufficient. The Board took the motion under advisement and proceeded with the hearing. A t the end of the hearing, Rimrock . moved t o amend the application t o conform t o the evidence. The Board took t h i s motion under advisement also, and ultimately denied a l l motions, ruling that the application was adequate a s f i l e d and therefore no amendments were necessary. Applications i n administrative proceedings are roughly analogous t o pleadings in c i v i l actions. Many authorities hold that technical rules of pleadings such as sometimes govern c i v i l or criminal actions are not applicable t o pleading or applica- tions f i l e d with administrative agencies. See: Community of Woodston v. S t a t e Corporation Commission, 186 Kan. 747, 353 P.2d 206 (1960). Professor Davis i n h i s writings on administrative law emphasizes the unimportance of pleading i n the administrative process and s t a t e s t h a t the important thing is t h a t the p a r t i e s affected by orders of an adminis- t r a t i v e body be f u l l y heard. Davis, Administrative Law Text, 3rd Ed. 1972, 58.02, pp. 196,197. See Also: 2 Am J u r 2d Administrative Law, 55 370,371, pp. 179,180. Should the pleadings i n an administrative proceeding be construed by s t r i c t e r standards than pleadings i n c i v i l liti- gation? Rule 8 ( f ) , Montana Rules of C i v i l Procedure, provides: " A l l pleadings s h a l l be so construed a s t o do substantial j u s t i c e ." W e hold t h a t pleadings and applications i n an administrative matter should a l s o be construed a s t o do substantial j u s t i c e . Assuming, f o r the moment, t h a t the application f a i l e d t o contain evidence on one specific point, t h a t existing banks i n the area were f a l l i n g short of providing adequate services, a s alleged by Western, it i s appropriate t o inquire a s t o whether substantial r i g h t s of Western were prejudiced thereby. ! Section 82-4216(7), R.C.M. 1947. I n Martello v. Darlow and Lovely, 151 Mont. 232, 236, 441 P.2d 175 (1968), it is stated: "* * * On appeal, prejudice is never presumed but it must affirmatively appear t h a t the e r r o r has affected a substantial r i g h t of the party on the merits of the case. (Conway v. Fabian, 108 Mont. 287, 89 P.2d 1022.)" Western contends it was denied r i g h t s of discovery by reason of the f a i l u r e of t h e application t o contain any evidence on the point. Western did not, however, a t any stage of the proceedings point out how further discovery would have a s s i s t e d it i n rebutting adverse evidence presented a t the hearing. More- over the evidence most damaging t o Western on the question of the adequacy of its services was the testimony of i t s own president, Lawrence F. Walton. Western has never suggested t o the Board o r t o the courts what further evidence it could have or would have presented on t h i s issue. W e note that subsequent to the hearing, Western asked and was granted the right t o submit additional evidence on another point, but offered no new evidence on t h i s issue. W e f a i l t o see where Western has been prejudiced, even i f the application omitted evidence on the one point as alleged. W e hold the application was sufficient t o give the Board jurisdiction t o proceed with the hearing. The Board and the d i s t r i c t court found that the applica- tion as f i l e d satisfied the requirements of the regulations. While it i s not necessary t o t h i s decision i n view of our holdings above, we w i l l discuss t h i s issue. Section 5-6U, R.C.M. 1947, prescribes the statutory minimum standards under which an application for a new bank is t o be determined and requires the Board t o adopt appropriate rules t o that end. Section 5-611, provides: "Rules adopted by board--new banks. The board s h a l l adopt rules necessary for the administration of t h i s act in accordance with the Montana Adminis- t r a t i v e Procedure Act [82-4201 t o 82-42251. "In particular, the board s h a l l adopt rules con- cerning the authorization of new banks. Such rules s h a l l contain minimum standards under which an application for a new bank s h a l l be determined in- cluding the following: "(1) a persuasive showing that there is a reason- able public necessity and demand for a new bank a t the proposed location; (2) that the bank w i l l be owned and managed by persons of good moral character and financial integrity, and w i l l be safely and soundly operated; "(3) a persuasive showing that the new bank w i l l have a sufficient volume of business t o assure solvency and that establishment of the new bank w i l l be i n the public interest." , Pursuant t o the statutory mandate, the Board adopted rules setting forth a number of requirements for applications including the specification that it contain " (c) evidence demonstrating a persuasive showing of public necessity and demand a s required by Rule 8-3.22(6)-S1OOOtl. MAC J 8-3.22(2)- P2230. Rule 8-3.22(6)-S1000 provided i n part: "8-3.22(6)-SlOOO PERSUASIVE S H O W I N G O F R E A S O N A B L E PUBLIC NECESSITY AND DEMAND. "(1) The applicants for authority t o organize a new bank must present t o the Board exhibits, research data, and detailed projections t o make a persuasive showing that there is a reasonable necessity and demand for a new bank a t the proposed location. Such information s h a l l include but not be limited to: "(d) Evidence that existing banks i n the area are falling short of offering adequate services t o a l l deserving bank customers i n the area." Rule 8-3.22(6)-S1000 appears t o require that evidence be contained i n the application i t s e l f . The statute, section 5.611, contains no such requirement, stating only that the Board should adopt rules containing "minimum standards under which an application for a new bank s h a l l be determined''. This tends t o infer that such evidence i f presented a t a hearing rather than i n the application i t s e l f would be sufficient. The regulation l i s t i n g the specific i t e m s (S1000) states merely that the applicant must present the specific information t o the Board without specifying that it be i n the application i t s e l f . Rimrock suggests the Board may not have intended t o require that the evidence i t s e l f be contained in the application, and i f it did, the regulation was beyond the statutory authority therefor. In view of our conclusions, it is unnecessary t o determine these issues. Rimrock contends that the application does, indeed, contain evidence which by inference tends t o show tha't existing banks in the area, particularly Western, were falling short of offering adequate service t o a l l deserving bank customers. W e take note of the basic application which contains a projection of the volume of business Rimrock might expect a t the end of its f i r s t three years i n business and the exhibit attached t o the application, which is an economic f e a s i b i l i t y study prepared by Rimrock's expert, Dean C. Coddington, of the research firm of Bickert , Browne, Codding- ton & Associates, Inc. of Denver, Colorado. W e summarize Rimrock's arguments on t h i s issue: 1. The application states that Western is the only commercial bank in the proposed institution's primary service area containing about 25,000 people. The f e a s i b i l i t y study s t a t e s that Western had not grown rapidly and had a low r a t e of market penetration in i t s area. From these facts the deduction follows that Western is falling short of offering adequate services t o a l l deserving customers in the area. I n other words, i f Western were offering adequate services t o a l l deserving customers, it would have had a greater market penetration and would have grown considerably faster. 2. The fact that Western is the only commercial bank i n an area containing some 25,000 people shows a lack of local area competition for the bank. Lack of competition may not be conducfiPe t o good banking services, and that combined with the slow growth r a t e tends t o indicate a failure t o offer services which the great majority of banking customers i n the area considers adequate, or a t l e a s t attractive enough t o motivate them t o bank there. 3. The f e a s i b i l i t y study contains t h i s comment: "Western Bank of Billings is the only commercial bank in the proposed institution's primary service area. Western Bank opened i n 1970 and, with $5.5 million i n September 1975 deposits, t h i s bank has not grown rapidly. This is partially attributable t o capitalization problems prior t o opening, owner- ship changes, and a relatively unattractive banking f a c i l i t y * * *." A t the hearing evidence was presented through Western's witnesses of continuing capitalization problems resulting in Western's inability t o ameliorate its drive-in problems, enlarge its parking l o t , and maintain an adequate supply of safety deposit boxes because of the statutory l i m i t on capital investment in r a t i o to the bank's capital structure. Evidence a t the hearing also illustrated how ownership changes of Western resulted i n an unfavorable a t t i t u d e i n the community, discouraging deserving customers i n the area from using the bank. 4. The application projects that within three years Rimrock would have deposits of $5.5 million and would have net profits in the third year of operation. This projected success tends t o indicate that other banks may not be offering adequate services t o a l l deserving customers or a new bank would not be so popular. 5. The application shows that the nearest downtown Billings bank is nearly four miles through c i t y s t r e e t s from ~imrock's location. The other banks are therefore not in a location adequate t o serve a l l deserving bank customers in the area. Testimony a t the hearing illustrated how important it is for small businessmen and some housewives t o have banking f a c i l i t i e s i n a convenient location. Without weighing the merits of any particular one of these points, we hold the Board and the d i s t r i c t court were not in error in finding that the application as f i l e d s a t i s - fied the requirements of the regulations. The second principal issue presented for review relates to whether the record contains sufficient evidence to support the conclusion of the Board and the d i s t r i c t court. Section 82-4216, R.C.M. 1947, provides for judicial review of agency action and so f a r as it relates to the suffi- ciency of the evidence provides: "(7) The court s h a l l not substitute i t s judgment for that of the agency as t o the weight of the evidence on questions of fact. * * * The court may reverse or modify the decision i f substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclu- sions or decisions are: "(e) clearly erroneous i n view of the reliable, probative and substantial evidence on the' whole record * * *.Ir This Court has repeatedly held that its function on appeal is t o determine whether there is substantial evidence in the record t o support the judgment. Strong v. Williams, 154 Mont. 65, 460 P.2d 90 (1969). Western makes no general challenge t o the sufficiency of the evidence t o f u l f i l l the minimum statutory standards con- tained i n section 5-611, under which an application for a new bank is t o be determined. It does challenge the sufficiency of the evidence presented, even a t the hearing, t o indicate the inadequacy of services t o the area of other banks. However the testimony of Western's president, without more, is suffi- cient a s t o its own deficiencies i n service. With respect t o other banks, the testimony a s t o the distances involved and the d i f f i c u l t i e s i n reaching them through c i t y t r a f f i c constitutes substantial evidence. W e find no merit i n Western's contentions a s t o the sufficiency of evidence. Western also objected t o the testimony of Rimrock's expert witness, Dean C. Coddington, and t o the admissibility of the feasibility study prepared by him. W e note that Western concedes that M r . Coddington was educationally and professionally qualified t o conduct a feasibility study and t o express an opinion thereon, but contends that some of the facts upon which he based h i s opinion were inaccurate or inadequate. W e conclude that whatever merit any particular point of attack may have, the attacks go t o the weight of the evidence rather than t o the admissibility of e i t h e r the testimony or the study. W e also note that the record contains a great deal of evidence from other witnesses which tends t o corroborate the factual basis for M r . Coddington's testimony. W e find the evidence presented amply f u l f i l l s each and every one of the statutory and regulatory requirements for a new bank. The third principal issue on appeal concerns Western's challenge t o the legality of the regulations under which the Board proceeded on the grounds they were adopted without a hearing, and,therefore, Western contends the Board did not have jurisdiction t o entertain the application of Rimrock or any other proposed bank. The circumstances were that a f t e r the Board published notice of i t s intent t o adopt MAC Rule 8-3.22(6)-S1000 i n 1973, it received a petition requesting a public hearing on the proposed rules. Section 82-4204, R.C.M. 1947, provides i n pertinent part: "Prior t o the adoption, amendment or repeal of any rule, the agency shall: "(a) Give written notice of its intended action. * * *, I' (b) Afford interested persons fourteen (14) days t o submit data, views or arguments, orally or in writing. In the case of substantive rules, opportunity for o r a l hearing s h a l l be granted i f requested by either ten per cent (10%) o r twenty-five (25) of the persons who w i l l be directly affected by the proposed rule * * *.I' The petition requesting the hearing contained 27 signatures without any recitation that any of the persons signing would be directly affected by the proposed rule. Investigation by the Board revealed that 16 of the signatories were connected with the F i r s t Citizens Bank of Billings and it was undetermined what interests, i f any, the remaining signatories had i n the proposed rules. The Board therefore rejected the form on the grounds that it was not a qualified petition and so notified the president of the F i r s t Citizens Bank, one of the signers. In h i s l e t t e r to the president, the Director of the Department of Business Regulations explained in d e t a i l the Board's reasons for adopting the proposed rule. Nothing further was heard from the signers, and the rule was adopted. It went unchallenged by anyone u n t i l Western raised the issue i n t h i s case on appeal t o the d i s t r i c t court three years l a t e r . In our opinion, there is no m e r i t t o western's challenge t o the validity of the rule making process. In any event, t h i s issue was raised for the f i r s t time on appeal from the administrative action. Section 82-4216(1), R.C.M. 1947, prohibits the raising on appeal of any question not raised before the administrative agency except the validity of the statute under which the agency i s proceeding, unless it i s shown to the satisfaction of the Court that there was good cause for failure t o raise the question before the administrative agency. Good cause was not shown here. The order of the d i s t r i c t court i s affirmed. W e Concur: . C Chief Justice I 2% t I Justices .