United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

Nos. 96-1844 and 96-1874

___________

Norwest Bank Minnesota, *

National Association, *

 Appellee/Cross- *

Appellant, *

 v. * Appeals from the United States

Sween Corporation; Maurice A. * of

Sween; Keith B. Brekke, * Minnesota.

 Appellants/Cross- *

Appellees, *

Office of the Comptroller of the *

Currency, *

 Amicus Curiae.

*

*

* District Court for the District

*

*

___________

Submitted: February 12, 1997

 Filed: July 8, 1997

___________

Before FAGG, HEANEY, and JOHN R. GIBSON, Circuit Judges.

___________

JOHN R. GIBSON, Circuit Judge.

Norwest brought this action against Sween Corporation, Maurice Sween,

and Keith Brekke, seeking a declaratory judgment that its Corporate Finance

Division's 
Sween Corporation and Brekke also appeal. Because of their earlier dismissal, 1

however, they do not have standing to appeal on any issue except for their dismissal,

from which they do not appeal.

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business is incidental to its banking business, and that therefore Sween

Corporation breached its agreement with Norwest by failing to pay it the

advisory fee due under an agreement between Norwest Corporate Finance and

Sween Corporation. Norwest asked the court to award it the advisory fee

and attorneys' fees and expenses incurred in the action. Sometime after

filing the complaint, Norwest dismissed Sween Corporation and Brekke

voluntarily, but left Maurice Sween as a defendant. On cross- motions for

summary judgment the district court ruled in favor of Norwest. Sween

appeals, arguing that the agreement is unenforceable because Norwest's

1

actions under the agreement were not incidental to the business of banking,

and that Norwest's acts were beyond its powers because it did not obtain

prior approval from the Board of Governors of the Federal Reserve System

to enter into the agreement. Even if the agreement is enforceable, Sween

argues that the district court incorrectly computed the advisory fee owed

to Norwest, and that the agreement's terms do not obligate Sween to pay

Norwest's legal fees in this action. Norwest cross-appeals arguing that

it is entitled to prejudgment interest on the award granted by the district

court. We remand to the district court for the award of prejudgment

interest to Norwest, and affirm the district court's judgment in all other

respects.

Sween Corporation is a Minnesota corporation that develops and

manufactures skin care products for the medical market. Norwest is a

national bank established in Minneapolis, Minnesota pursuant to the

National Bank Act as amended. Norwest provides investment advisory

services related to mergers and acquisitions through a division of Norwest

referred to as Norwest Corporate Finance. This division is not a separate

legal entity. The common stock of Norwest is owned by Norwest Corporation,

a bank holding company governed by the Bank Holding Company Act as 
The common stock of Norwest Bank is owned by Norwest Corporation,

2

Lindeberg Financial Corporation, and Norwest Holding Company. The common stock

of Lindeberg Financial Corporation and Norwest Holding Company, however, are

owned by Norwest Corporation. Therefore, Norwest Corporation, either directly or

indirectly, owns all of the common stock of Norwest Bank. 

Because Norwest Corporate Finance is simply a division of Norwest, and not 3

a separate legal entity, we will refer to Norwest Corporate Finance as Norwest

throughout the rest of this opinion. 

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amended. Jeffrey Maas, Peter Slocum, and D. Christian Osborne worked for 2

Norwest in the Norwest Corporate Finance Division when Norwest Corporate

Finance and Sween entered into the Engagement Agreement at issue. None

3

of these three employees has ever been licensed as a Minnesota broker. 

An Engagement Agreement between Sween Corporation, Sween, Brekke, and

Norwest dated October 10, 1994, authorized Norwest to act as the exclusive

advisor to initiate negotiations regarding the sale of all or part of Sween

Corporation. Under the terms of the Engagement Agreement, upon the sale of

Sween Corporation, Sween Corporation agreed to pay Norwest an advisory fee.

Immediately after October 10, 1994, Norwest prepared and circulated

to prospective buyers an extensive brochure promoting Sween Corporation.

Norwest contacted in excess of 135 potential buyers. By December 1994,

Sween Corporation agreed to narrow the list to four prospective buyers.

These buyers brought teams to Mankato for a week in December to meet with

representatives of both Sween Corporation and Norwest for the purpose of

investigating and evaluating Sween Corporation. Two top ranking executives

of Coloplast A/S, one of the potential buyers, met with Sween personnel.

After these meetings, Maas was the go-between to the prospective

buyers and sellers. On December 18, 1994, a representative of Coloplast

called Maas and said that 
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Coloplast was prepared to execute a letter of intent to purchase Sween

Corporation for $80,000,000. Sween, Brekke, and David Hackley, an

attorney representing Sween Corporation, met with a representative of

Coloplast to discuss the purchase. Maas also attended the meeting and

advised Sween. As a result of this meeting Coloplast entered into a letter

of intent in which it agreed to purchase, at its option, either all the

assets or all the shares of Sween Corporation on February 28, 1995. The

purchase obligation was contingent upon a satisfactory due diligence

examination of Sween Corporation, to be followed by the execution of a

comprehensive purchase agreement.

During a two-day meeting representatives of Sween Corporation and

Coloplast negotiated the terms of the stock purchase agreement. During the

first day, Hackley and Douglas Hemer represented Sween Corporation. On one

or more occasions, Maas and Sween attended the meetings and participated

in negotiations. At the conclusion of this process, Sween Corporation and

Coloplast reached a stock purchase agreement. Attorneys represented Sween

Corporation at all times through the negotiations leading to the stock

purchase agreement. Norwest did not draft or prepare any part of the stock

purchase agreement. On February 28, 1995, Sween Corporation transferred

all of its shares to Coloplast's Georgia subsidiary. Norwest fully

performed its obligations under the Engagement Agreement, but Sween

Corporation refused to pay the advisory fee due to Norwest under the

Agreement.

Norwest brought this action before the district court seeking a

declaratory judgment that its acts under the Engagement Agreement were

incidental to its banking business, and that therefore it was not required

to have a Minnesota real estate broker's license to maintain an action to

collect the advisory fee. Norwest claimed that Sween had breached the

Engagement Agreement by failing to pay the advisory fee and asked the court

to award the fee, as well as attorneys' fees and expenses in connection

with enforcing the Engagement Agreement. 

The district court granted summary judgment to Norwest concluding

that the acts 
A broker is "any person who . . . for another and for commission, fee, or other 4

valuable consideration or with the intention or expectation of receiving the same

directly or indirectly lists, sells, exchanges, buys, rents, manages, offers or attempts to

negotiate a sale . . . of any business opportunity or business, or its goodwill, inventory,

or fixtures, or any interest therein." Minn. Stat. § 82.17, subd. 4(c) (1996). 

-5-

engaged in by Norwest under the Engagement Agreement were incidental to the

business of banking, and that therefore Norwest and Norwest Corporate

Finance's employees were exempt from the Minnesota broker license

requirement. See Norwest Bank Minn., Nat'l Ass'n v. Sween Corp., 916 F.

Supp. 1494, 1510-11 (D. Minn. 1996). The court also concluded that Norwest

was not required to obtain prior approval from the Federal Reserve before

entering into the Engagement Agreement. Id. at 1507-08. The court ordered

Sween to pay Norwest $2,741,707 in fees due under the Engagement Agreement,

and also held Sween liable for Norwest's attorneys' fees in connection with

this suit. Id. at 1508-11.

I.

A.

The primary issue before us is whether Sween is obligated to pay

Norwest the fee that he promised to pay under the Engagement Agreement.

Sween argues that Minnesota law prohibits Norwest from collecting the fee.

In formulating his argument, Sween first contends that Norwest is a broker

under Minnesota law, which Norwest does not dispute. Sween next points

4

to a Minnesota statute that prohibits a person required to be licensed from

bringing a suit for collection of compensation for the performance of acts

for which a license is required, without proving that the person was

licensed properly at the time the alleged action occurred. Minn. Stat. §

82.33, subd. 1 (1996). Sween argues that because neither Norwest Corporate

Finance, nor its employees, were licensed as brokers under Minnesota law

at the time the parties acted under the Engagement Agreement, Norwest

cannot bring this suit to collect the 
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advisory fee. 

Norwest responds by first pointing to Minnesota Statute section

82.18(e), that exempts various entities, including banks, from the term

"broker" when engaged in the transaction of business within the scope of

their corporate powers as provided by law. Norwest then asserts that

pursuant to the National Bank Act, as a national bank, it had federal

authority to enter into the Engagement Agreement and to fulfill its duties

under that agreement. See 12 U.S.C. § 24(Seventh) (1994). Sween responds

that Norwest's acts went beyond the authority provided to Norwest under the

Act. We review a grant of summary judgment de novo. See McKee v. Federal

Kemper Life Assurance Co., 927 F.2d 326, 328 (8th Cir. 1991). We will

affirm only if there is no genuine issue of material fact and the moving

party is entitled to judgment as a matter of law. See Fed. R. Civ. P.

56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). 

The National Bank Act vests each national bank with the authority

"[t]o exercise . . . all such incidental powers as shall be necessary to

carry on the business of banking." Id. Though the statute lists a few

activities in which banks are authorized to engage, the incidental powers

are not confined to activities that are considered essential to the

exercise of express powers. See First Nat'l Bank v. Taylor, 907 F.2d 775,

778 (8th Cir.), cert. denied, 498 U.S. 972 (1990). Our analysis thus

focuses on whether the acts conducted under the Engagement Agreement fall

within the "incidental powers" necessary to carry on the business of a

national bank. 

The Office of the Comptroller of the Currency, as the administrator

charged with the regulation of national banks, has primary responsibility

for supervising the "business of banking." See 12 U.S.C. § 27 (1994). It

is well established that we must defer to the reasonable judgments of

agencies on the meaning of ambiguous terms in statutes that they are

charged with administering. See Chevron U.S.A. Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837, 842-45 (1984). See also Smiley v.

Citibank (South Dakota), N.A., 116 S. Ct. 1730, 1733-34 (1996) ("[T]he

whole point 
The Comptroller's position in this litigation is based on a regulation and long

5

standing policy. We see no evidence that the Comptroller's position is a "'post hoc

rationalization advanced by an agency seeking to defend past agency action against

attack.'" Lovilia Coal Co. v. Harvey, 109 F.3d 445, 452 (8th Cir. 1997) (quoting Auer

v. Robbins, 117 S. Ct. 905, 911 (1997)). The Comptroller is not a party to this action

and because "[t]here is simply no reason to suspect that the [Comptroller's]

interpretation does not reflect the agency's fair and considered judgment on the matter

in question" we will consider whether the Comptroller's view is reasonable. See id.

(quotation omitted). The fact that the Comptroller reiterates its position in an amicus

brief does not prevent us from considering it. See Skandalis v. Rowe, 14 F.3d 173, 179

(2d Cir. 1994). 

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of Chevron is to leave the discretion provided by the ambiguities of a

statute with the implementing agency.") We previously have deferred to the

reasonable interpretation of the Comptroller on the meaning of the

ambiguous phrase "incidental powers" necessary to carry on the "business

of banking." See Taylor, 907 F.2d at 777-78. In addition, recently the

Supreme Court has reemphasized the need to defer to the reasonable judgment

of the Comptroller on the meaning of ambiguous terms in banking laws that

the Comptroller is charged with enforcing. See Smiley, 116 S. Ct. at 1733.

"The Comptroller of the Currency is charged with the enforcement of banking

laws to an extent that warrants the invocation of [the rule of deference]

with respect to his deliberative conclusions as to the meaning of these

laws." Nationsbank of N.C. v. Variable Annuity Life Ins. Co., 513 U.S.

251, 256-57 (1995) (citations and internal quotations omitted). 

The Office of the Comptroller of the Currency, through 12 C.F.R. §

7.1002 (1997) and an amicus brief submitted in this appeal, has stated its 5

view that Norwest's acts under the Engagement Agreement fall within a

national bank's powers. In 1971 the Comptroller adopted 12 C.F.R. §

7.7200, a regulation that specifically authorized a national bank to act

as a "'finder' in bringing together a buyer and seller." The present

version of this regulation provides that: 
-8-

(a) General. A national bank may act as a finder in

bringing together a buyer and seller.

(b) Qualification. Acting as a finder includes, without

limitation, identifying potential parties, making inquiries as

to interest, introducing or arranging meetings of interested

parties, and otherwise bringing parties together for a

transaction that the parties themselves negotiate and

consummate. Acting as a finder does not include activities

that would characterize the bank as a broker under applicable

Federal law.

(c) Advertisement and fee. Unless otherwise prohibited,

a national bank may advertise the availability of, and accept

a fee for, the services provided pursuant to this section.

12 C.F.R. § 7.1002. 

This regulation encompasses most of Norwest's activities under the

Engagement Agreement which involved locating suitable buyers for Sween

Corporation. In fact, Sween himself concedes in his brief that he "would

be pressed if forced to point to significant doings of [Norwest] that would

not arguably fit within subparagraph (b) of the amended regulation." In

addition, the Office of the Comptroller of the Currency argues that

Norwest's role in the negotiations between Sween Corporation and Coloplast

is of no consequence because these additional activities also fall within

a national bank's incidental powers under 12 U.S.C. § 24(Seventh). 

Under Chevron, we must now consider whether the Comptroller's view

that Norwest's actions were within a national bank's powers is based on a

permissible construction of the National Bank Act. 467 U.S. at 843. Sween

argues that neither Norwest nor the Comptroller has articulated why

Norwest's acts under the Engagement Agreement were "necessary to carry on

the business of banking" because Norwest has not identified any activity

in the business of banking that would be impaired, or at least moderately

inconvenienced, if Norwest could not conduct this type of business. We

emphasize, however, that the "'incidental powers' of national banks are not

limited to 
-9-

activities that are deemed essential to the exercise of express powers.

Rather, courts have analyzed the issue by asking whether the activity is

closely related to an express power and is useful in carrying out the

business of banking." Taylor, 907 F.2d at 778 (the Comptroller's

determination that debt cancellation contracts are within the incidental

powers granted by the National Bank Act is reasonable). See also

Nationsbank of North Carolina, N.A., 513 U.S. at 257-63 (the Comptroller's

determination that national banks may serve as agents in sale of annuities

was a reasonable construction of the National Bank Act). The Comptroller

explains that Norwest's activities are within the incidental powers

necessary to the business of banking because allowing banks to use their

expertise as an intermediary effectuating transactions between parties

facilitates the flow of money and credit through the economy. The

Comptroller further explains that as recognized intermediaries between

other nonbank participants in financial markets and payment systems, banks

have expertise to effectuate transactions between parties. Finally, the

Comptroller emphasizes that it has issued numerous administrative rulings

that expressly authorize banks to offer these types of services. We find

nothing unreasonable about the Comptroller's view as this type of activity

is related to an express banking power and is useful in carrying out the

business of banking. See Taylor, 907 F.2d at 778. 

B. 

Sween next argues that he does not have to show that Norwest's

conduct does not fit within subparagraph (b) of the amended regulation

because the amended regulation is a significant change from the original

regulation. The original regulation provided:

A national bank, pursuant to request, may act as "finder"

in bringing together a buyer and seller, where the bank's

activity is limited to the introduction and it takes no further

part in the negotiations. For this service the bank may accept

a fee. 
-10-

12 C.F.R. § 7.7200 (1996). 

Sween contends that the original regulation confined the authorized

activities of national banks to the introduction of the buyer and seller,

and did not authorize any activities beyond the introduction, but he admits

the amended regulation goes further. Because this "significant change" in

the law occurred after Norwest entered into and acted under the Engagement

Agreement, Sween argues that Norwest cannot use the new regulation to

create permission it did not have when it acted under the original

regulation. 

In Smiley, the Supreme Court deferred to a regulation concerning the

definition of "interest" as used in a provision of the National Bank Act

even though the Office of the Comptroller of the Currency had passed the

regulation after the acts at issue had occurred. 116 S. Ct. at 1733-35.

Sween attempts to distinguish Smiley, arguing in his brief that in Smiley

the Supreme Court emphasized the critical importance that the new

regulation was not a change in existing law, but rather "the first formal

enunciation of existing law." The petitioner in Smiley argued that the new

regulation was inconsistent with positions taken previously by the

Comptroller, and the Supreme Court acknowledged that some interpretative

letters from the Office of the Comptroller of the Currency could indicate

some "uncertainty and confusion." Id. at 1735. The Court concluded,

however, that absent "[s]udden and unexplained change, or change that does

not take account of legitimate reliance on prior interpretation . . .

change is not invalidating since the whole point of Chevron is to leave the

discretion provided by the ambiguities of a statute with the implementing

agency." Id. at 1734 (citations omitted).

Here, Sween offers no evidence of a sudden and unexplained change.

Indeed, all evidence presented suggests the new regulation was no different

from the allowed practices under the old regulation. For example, the

district court cited at least two opinion letters from the Office of the

Comptroller of the Currency supporting the view that national banks may

provide advisory services regarding mergers and acquisitions. 
-11-

916 F. Supp. at 1504-05. Neither letter makes mention of any limitation

of this authority beyond the introduction stage. We also look to the

discussion in the notice of proposed rule making. "Proposed § 7.1002

revises current § 7.7200 to reflect more recent [Officer of the Comptroller

of the Currency] interpretations. The proposal clarifies that a national

bank may act as a finder of certain goods and services other than

insurance." 60 Fed. Reg. 11924, 11925 (to be codified at 12 C.F.R. §

7.1002) (proposed Mar. 3, 1995). Finally, in the section by section

discussion of the final rule adopted, the Comptroller again stressed that

the proposal "clarified that a national bank may act as a finder" and

observed that section 7.1002 was adopted as proposed. See 61 Fed. Reg.

4849, 4850-51 (to be codified at 12 C.F.R. § 7.1002). 

Sween also argues that the amended regulation is a significant change

because the distribution table in the Federal Register commented that the

amended regulation was a "significant change" from the original regulation.

The Supreme Court did not discuss the distribution table in Smiley.

However, our review of the distribution table in the Federal Register for

the regulation at issue in Smiley, reveals that the table indicated that

the amended regulation was a significant change from the original

provision. See id. at 4861. We therefore reject Sween's argument and hold

that the amended regulation is not a sudden and unexplained change from the

original regulation. 

 

II.

Sween next argues that Regulation Y, 12 C.F.R. pt. 225, required

Norwest to apply or provide notice to the Board of Governors of the Federal

Reserve System before entering into the Engagement Agreement. In order to

understand this regulation, it is first necessary to consider the relevant

statutory framework. The Bank Holding Company Act grants the Federal

Reserve principal regulatory power over bank holding companies. See 12

U.S.C. §§ 1842-43 (1994). Section 1842 discusses Federal Reserve approval

for acquisition of ownership or control of a bank by a bank holding 
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company. Section 1843 discusses a bank holding company's ownership or

control of voting shares of any company not a bank and the nonbanking

activities of a bank holding company. This section provides that:

Except as otherwise provided . . ., no bank holding company shall--

(1) . . . acquire direct or indirect ownership or control

of any voting shares of any company which is not a bank, or

(2) . . . retain direct or indirect ownership or control

of any voting shares of any company which is not a bank or bank

holding company or engage in any activities other than (A)

those of banking or of managing or controlling banks and other

subsidiaries authorized under this chapter or of furnishing

services to or performing services for its subsidiaries, and

(B) those permitted under paragraph (8) of subsection (c) of

this section [governing notice and approval of services

"closely related to banking"] . . . 

The Federal Reserve issued Regulation Y pursuant, in part, to the Bank

Holding Company Act. Subpart C of Regulation Y, titled "Nonbanking

Activities and Acquisitions by Bank Holding Companies," contains a

provision that provides that a bank holding company or a subsidiary may not

engage in some activities related to banking without the prior approval of

the Federal Reserve in accordance with the requirements of this regulation.

See 12 C.F.R. § 225.21(a) (1996). 

Sween argues that Norwest's acts under the Engagement Agreement were

a type of activity for which prior approval was required because Norwest

is a subsidiary of a bank holding company. Sween contends that because

Norwest did not get prior approval from the Federal Reserve it went beyond

its powers when it entered into the Engagement Agreement. Norwest responds

that though it is a subsidiary of a bank holding company, because it is a

national bank subsidiary, it is not subject to regulation by the Federal

Reserve, but only to regulation by the Comptroller. The Comptroller agrees

with Norwest, arguing that the Bank Holding Act does not give the Federal
-13-

Reserve the statutory authority to prescribe the permissible activities of

national bank subsidiaries of bank holding companies.

The Second Circuit is the only circuit that has addressed the issue

of the Federal Reserve's regulatory authority where the subsidiary of a

bank holding company at issue was a bank. In Independent Insurance Agents

v. Board of Governors, 890 F.2d 1275 (2d Cir. 1989), cert. denied, 498

U.S. 810 (1990), the Federal Reserve interpreted section 1843 of the Bank

Holding Company Act that limited the nonbanking activities of bank holding

companies. The Federal Reserve found that the Act did not apply to bank

subsidiaries of a bank holding company, and thus concluded that it could

not regulate the activities of the state bank subsidiary of a bank holding

company. Id. at 1279. In the Federal Reserve's view, in enacting the Bank

Holding Company Act, Congress did not wish to displace the traditional

authority of state and national bank chartering authorities to regulate

activities of banking, even though a bank holding company owned the actual

banks. Id. at 1280. The Second Circuit applied Chevron analysis and first

determined that the statute at issue did not directly address this issue,

and then considered whether the Federal Reserve's conclusions were

reasonable. Id. at 1281. After a thorough analysis of the Federal

Reserve's interpretation of the statute and the legislative history of the

Act, the Second Circuit concluded that the Federal Reserve's interpretation

was reasonable. Id. at 1279-84. Independent Insurance Agents thus

concludes that the Federal Reserve has no authority to regulate the

activities of bank subsidiaries of bank holding companies. See also

Citicorp v. Board of Governors, 936 F.2d 66, 73-76 (2d Cir. 1991)

(extending Independent Insurance Agents and holding that the Federal

Reserve also lacks authority to regulate the subsidiary of a holding

company's bank subsidiary), cert. denied, 502 U.S. 1031 (1992).

 

We agree with the district court that the reasoning of the Second

Circuit is sound and applicable to this case. We therefore hold that 12

C.F.R. § 225.21(a) does not apply to Norwest as a national bank subsidiary

of a bank holding company. We thus 
-14-

reject Sween's arguments that by failing to provide notice to the Federal

Reserve before engaging in the activities under the Engagement Agreement,

Norwest was acting beyond its powers, because Norwest was not required to

obtain approval from the Federal Reserve.

III. 

Sween next argues that even if the contingent fee agreement is

enforceable, its terms do not obligate Sween to pay Norwest's legal fees

in this action. The district court did not err in concluding that the

indemnification clause included in the Engagement Agreement was not limited

to third-party indemnity actions, and we therefore affirm the judgment of

the district court on this issue. 

On appeal, however, Sween also asserts that the indemnification

clause made only Sween Corporation, and not himself or Brekke, liable.

Sween argues that when Norwest dismissed Sween Corporation voluntarily,

Norwest simultaneously dismissed its claim for attorneys' fees. Sween,

however, failed to raise this argument before the district court. In

Norwest's motion to dismiss Sween Corporation and Brekke, Norwest argued

that because Sween, Brekke, and Sween Corporation had each entered into

the Engagement Agreement all three parties were jointly and severally

liable, and therefore Norwest could elect to sue the parties jointly or

severally. Sween, in its reply before the district court, supported

Norwest's motion for voluntary dismissal of Sween Corporation and Brekke

conceding that "[n]either Sween Corporation nor Keith Brekke is an

indispensable party. If Norwest prevails against Maurice A. Sween as the

sole remaining defendant, it is afforded complete relief . . ." Sween's

failure to raise the issue that Norwest dismissed its claim for attorneys'

fees before the district court prevents us from now considering this

argument on appeal. See Roth v. G.D. Searle & Co., 27 F.3d 1303, 1307 (8th

Cir. 1994); Thompson v. Brule, 37 F.3d 1297, 1301 (8th Cir. 1994).
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IV. 

Finally, Sween argues that even if the Engagement Agreement is

enforceable, the district court incorrectly computed part of the advisory

fee due to Norwest. After careful review of the district court's analysis,

we see no error and we thus affirm the judgment of the district court on

this issue.

V.

Norwest cross-appeals arguing that the district court erred in

failing to include prejudgment interest in its judgment for Norwest. Sween

concedes that Norwest is entitled to prejudgment interest. Accordingly,

we remand to the district court for the award of prejudgment interest to

Norwest, and affirm the judgment of the district court in all other

respects. 

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.