THE A7rro ET GENERAL OF EXAS

October 20, 1989

Mr. James L. Pledger Commissioner Texas Savings and Loan Department 2601N. Lamar, Suite 201 Austin, Texas 78705 Opinion No. JM-1110

Re: Whether article 342-705, V.T.C.S., restricts the authority of the Savings and Loan Commissioner to issue subpoenas forbank records (RQ-1765)

DearMr. Pledger:

You ask:

Does Section 1 ofArticle 342-705, Vernon's Texas Civil Statutes, restrict the authority of the Texas Savings and Loan Commissioner to issue subpoenas tobanks for records of bank accounts or other bank records pursuant to examinations conducted under Section 8.02 of the Texas Savings and LoanAct?

Section 8.02 of article 852a,V.T.C.S., aprovision of the Savings and Loan Act (hereinafter "section 8.02") provides inpertinent part:

The commissioner shallperiodically cause an examination tobemade into the affairs of each association, including its subsidiaries and transactions and the dealings of any savings and loan holding company related to its savings and loan subsidiaries, including
an audit if an independent audit is not available or isunsatisfactory to the commissioner. On completion ofan audit, one copy of the audit report, signed and certified by the auditor, shall be filedpromptly with the commissioner. The commissioner, a deputy commissioner, or an examiner or auditor of the commissioner shall have free access to thebooks and records ofan association or a subsidiary corporation orholding company of the association that relate to the association's business and tobooks and records kept

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by an officer, agent, or employee of one of the entities relating to or onwhich arecord of itsbusiness iskept. The commissioner, deputy commissioner, examiner, or auditor may subpoena witnesses and administer oaths or affirmations inexamination of the directors, officers, agents, or employees of an association or any other person inrelation to its affairs, transactions, and condition and may require and compel by subpoena the production of records, books, papers, contracts, or other documents.

It is ourunderstanding that ithas been a frequent and long-standing practice of the Savings and Loan Department (hereinafter the "department") of the Finance Commission of Texas, in conducting the examinations provided for in section 8.02, to obtain bank records where necessary to reconstruct transactions ofa savings and loan association (hereinafter "S&L") under examination. In the brief submitted with your request, you refer, as authority for thispractice, to the language of section 8.02 empowering the commissioner, etc., to "subpoena witnesses and administer oaths or affirmations in examination of the directors, officers, agents, or employees of an association
or anv other oerson in relation to itsaffairs, transactions, and condition andmay require and compel by subpoena theproduction of records, books, papers, contracts, or other documents." (Emphasisyours.)1

1. The last quoted language of section 8.02 derives fromprovisions originally enacted in 1913 aspart of, in thewords of the bill's caption, "anAct toprovide for the incorporation and regulation of certain corporations generally known as building and loan associations." Acts 1913, 33d Leg., 1stC.S., ch. 33, at 72. Section 16 of the 1913act provided forperiodic examination of the affairs of allbuilding and loan associations by the Commissioner of Banking and Insurance. The second sentence of section 16 read:

Such examinations shall be full and complete, and in making the same the examiner shall have full access to, andmay compel theproduction of allbooks, papers andmoneys, etc., of the association under examination, and may administer oaths to and examine the officers of such association or any other person (Footnote Continued)

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Wenote that you do not askwhether this language of section 8.02 standing alone authorizes the commissioner to subpoena bank records inconnection with the examination ofan S&L. Inthe understanding that the department has long construed theprovision togrant such authority -- and mindful of the rule that acourtwill ordinarily defer to a long-standing construction of anambiguous statute by the administrative agency charged with its implementation -- we will assume forpurposes of this opinion that section 8.02 does authorize the commissioner to subpoena bank records when hedeems thempertinent to the affairs of an S&L under examination. See, e.a., Ex carte Roloff, 510 S.W.2d 913 (Tex.1974).

It isourunderstanding that ina recent examination of
an S&Lunder section 8.02, the department sought to examine certain bank records the commissioner deemed relevant to the affairs of the S&Lunder examination. The bank's officials expressed concern that aprovision of the Texas Banking Code of 1943, as amended, seeV.T.C.S. art. 342-705, restricted the bank's disclosure of records covered by that article.

Article 342-705, as amended by the 71st Legislature in 1989,provides insection 1that no financial institution2 shall be required to recognize the claim of any third party to any deposit orwithhold payment of any deposit to any depositor until the bank is served with citation or other process from a court. Section 1 as amended further provides:

[Nleither shall any~financial institution be

required to disclose or produce to third

(Footnote Continued) connected therewith, as to itsbusiness and affairs.

Id. at 76.

2. Section 4of article 342-705, added in 1989 provides:

Inthis article 'financial institution' means a state or national bank or state or federal savings and loan association maintaining an office, branch, or agency office in this state or otherwise engaged in thebusiness of lending money or extending credit in this state.

Acts 1989, 71st Leg., ch. 1196, 5 7,at 4886.

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parties, orpermit third parties to examine the amount deposited by any depositor or other records pertaining to the deposits, accounts, loans, or other transactions of
adepositor, owner, borrower, or customer except (i) where the depositor, owner, borrower, or customer towhom the information isto bedisclosed isaproper or necessary party to aproceeding ina court of competent jurisdiction in which event the records pertaining to thedeposits, accounts, loans,
or other financial institution transactions of such depositor, owner, borrower, or customer shall be subject todisclosure or (ii)where the financial institution itself isa proper or necessary party to a proceeding inacourt of competent jurisdiction, except that records pertaining to the deposits, accounts, loans, or other transactions of a depositor, owner, borrower, or customer may not be disclosed unless the court orders and the financial institution subsequently obtains the written consent of the depositor, owner, borrower, or customer towhom the records pertain, or (iii) in response to a subpoena issued by a legislative investigating committee of the Legislature of Texas, or (iv)in response to a request for examination of itsrecords by the Attorney General ofTexas pursuant toArticle 1302-5.01 et seq. of the Texas Miscellaneous Corporation LawsAct.

Acts 1989, 71st Leg., ch. 1196, 57,at 4885, effective June 16, 1989.

Attorney General Opinion JM-101 (1983),at 2, pointed to theprovision in section 3of a 1983amendment to article 342-705 that "theprovisions of thisAct shall not apply to the investigation orprosecution of criminal offenses." YOU state in your brief, andwe assume for purposes of this opinion, that thebank records you ask about are not sought inthe context of criminal investigations orprosecutions.

The limitations on required disclosure provided for in article 342-705 were first adopted in 1963, and then applied only tobank depositors' accounts. Acts 1963, 58th Leg.,

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ch. 440, § 1, at 1135.3 The 1989 amendment to article 342-705 broadened the scope of the disclosure restriction to
cover "records pertaining to thedeposits, accounts, loans,
or other transactions ofadepositor, owner, borrower, or customer" of a financial institution. Acts 1989, 71st Leg., ch. 1196, §7,at 4885. Clearly, the application of article 342-705 in its present form as a restriction on the examination of S&L's under section 8.02would limit not only the department% access to bank records deemed relevant to examinations, but also access to the records of S&L's under examination, the latter being "financial institutions" now within the article's coverage.

The 1989 amendment to article 342-705 also added a section 5,providing inrelevant part:

This article does not restrict orapply to the use ordisclosure by abank of information or records pertaining to deposits, accounts, orbank transactions iftheuse or disclosure ismade ingood faith inthe usual
course of the financial business of the bank

. . . .
Id. at 4886.

3. It isperhaps worthy ofnote that subparts (iii) and (iv) of section 1, excepting legislative committee subpoenas and certain requests for examination by the attorney general from the required disclosure prohibition, derive from a house committee amendment to the 1963 bill which originally added the disclosure restrictions to article 342-705. The bill as introduced provided only for the litigation exceptions covered insubparts (i)and (ii). See Bill File, S.B. 298, 58th Leg. (1963).

We also note that in the enrolled version of the 1989 amendment to section 1,and inthe corresponding session law entry -- chapter 1196 --an "as"appears tohave been mistakenly deleted from the pre-amendment language before the words "towhom information isto bedisclosed" in subpart (iI. That language should probably read "except (i) where the depositor, owner, borrower, or customer as towhom the information istobedisclosed

. . .'IObviously subpart (i) ismeant to except information s todepositors and not information tobe disclosed to thedepositors, etc., themselves. See Bill File, S.B. 962, 71st Leg. (1989).

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Though we do nothere rule on theprecise scope of the language in section 5, that article 342-705 "does not restrict or apply to

. . .disclosure

. . . [of bank] records

. . .ifthe use ordisclosure ismade ingood faith intheusual course of the financial business of the bank,"
we think that the language strongly suggests that the article is not intended to apply todisclosures in the
course of section 8.02 examinations. Banks and other financial institutions are regulated industries, and it would seem that theperiodic examinations provided for in section 8.02 aspart of the regulatory process would be matters "inthe usual course of the financial business of thebank."
Concededly, if section 5of article 342-705 isnot read to except that articles' application to section 8.02 examinations involving bank records, the provisions of section 8.02 and article 342-705 could be harmonized by reading the disclosure limitations inarticle 342-705 as an exception to the subpoena provisions of section 8.02; i.e., that section 8.02 authorizes the commissioner to gain access to records pertinent to examinations of S&L's except those records article 342-705 provides a financial institution may notbe required todisclose. You suggest inyour brief that toplace such restrictions on section 8.02 examinations would yield an absurd result by rendering examinations based only on records not covered by article 342-705 ineffectual. Of course, inattempting to ascertain the legislative intent
as to the interaction, if any, of section 8.02 and article 342-705, a court would indulge thepresumption that the legislature could not have intended an absurd or unreasonable result. See, e.a., Metrooolitan Transit Auth. v. Plessner, 682 S.W.2d 650 (Tex.App. -Houston [lst Dist.] 1984, nowrit).

A determination ofwhether the result of limiting the section 8.02 subpoena power by the disclosure limitations in article 342-705 would be an absurd or unreasonable one might, we think, involve questions of fact as to examination procedures andwhether the department's assessments of the soundness and lawfulness ofan S&L's operations can be made without access to such records as are covered by article 342-705. We areunable tomake findings of fact in the opinion process. The department, as the agency responsible forexamining and regulating S&L's, isbetter situated than
we are tomake such determinations.
Clearly the purpose of section 8.02 examinations is to provide the commissioner with information about the financial condition of S&L's so that hemay perform his other duties under the act. See, e.a., V.T.C.S. arts.

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342-205(d) (commissioner and department to supervise and regulate S&L's); 852a, 55 8.01 (department and commissioner to regulate S&L's and subsidiaries and enforce Savings and LoanAct), 8.04 (commissioner may intervene inthe affairs of an S&L if it isengaging inunsound practices orviolates applicable laws or rules), 5.01 (commissioner shall adopt rules regarding loans and investments of S&L, including types of loans S&Lmay originate, make, or sell), 5.05 (restrictions on lending). Itmay be that in order to fulfill his statutory duties to insure that S&L's are operating ina sound and lawful manner, etc., the commissionerwould have occasion to require information available only from the types ofrecords covered by article 342-705.

Until such time as acourt,4 through the taking of testimony and other evidence, determines a reasonable construction of theprovisions inquestion, oruntil the legislature clarifies their import,we feelwemust defer to what we understand to be the long-standing construction of these provisions by the department: that the disclosure restrictions of article 342-705 do not apply to the obtaining of records by the Savings and Loan Commissioner in the context of section 8.02 examinations of S&L%. The newly added provisions of section 5of article 342-705 would appear to 'support the department's long-standing construction of that article asnot applying to section 8.02 examinations, at leastwhen the records sought are &+.& records within themeaning of that section.

In support of our decision to adhere to the construction of the provisions in question by the department, we note that the Banking Department of the Finance Commission has also, as we understand it, long construed the restrictions ondisclosure in article 342-705 not to apply tobank examinations conducted by the Banking Department under the similarly broad authorization ofV.T.C.S. article

4. Interestingly, Nikrasch v. State, 698 S.W.2d 443, 450 (Tex. APP. - Dallas 1985, nowrit), noted that the language of the prior version of article 342-705 under consideration inthat opinion -- "neither shall anybank be required todisclose the amount deposited by any depositor to third parties" --did not "forbid abank from disclosing howmuch adepositor has ondeposit: itonlyprovides that a bankmay not be reauired to disclose that information." (Emphasis in original.) We find no cases, however, addressing whether article 342-705 limits the subpoena of bank records under section 8.02.

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342-208 (commissioner, etc.,may "examine anyperson under oath upon any subject which he deems pertinent to the financial condition of any state orprivate bank").

We also note that section 11.18 of V.T.C.S. article 852a, the Savings and LoanAct, restricts the commissioner and other officers, agents and employees of the savings and loan section from disclosing information obtained in examinations. The existence of these provisions we think suggests that there would beno policy served by applying the additional disclosure restrictions of article 342-705 to section 8.02 examinations of S&L'S. The provision of 12 U.S.C., section 3413(b), also indicates that, as a policy matter, regulatory agencies should not be subject to disclosure restrictions such as these of article 342-705. Section 3413(b) excepts examinations by supervisory agencies of financial institutions from the restrictions on access to financial records by government authorities provided for in sections 3401, et seq.

You also ask:

Do the advance notice and challenge provisions of Sections 2and 3ofArticle 342-705, apply to subpoenas issued tobanks by the Texas Savings and Loan Commissioner in examinations conducted under Section 8.02 of the Texas Savings and LoanAct?

Section 2 of article 342-705 provides that "before disclosure, production, or examination may be required under Section 1 of this article" the party or entity seeking disclosure must give notice and certificate of service as provided for inthe section. Since, following the Savings and Loan Department's construction of the provisions in question, we have concluded that the disclosure limitation provisions of section 1of article 342-705 do not apply to records sought by thedepartment under section 8.02 of the Savings and LoanAct, itwould follow that the department's obtaining such records would not involve a "disclosure, production, or examination

. . . required under Section 1" within themeaning of theprovisions of section 2, and that the notice and certification requirements of section 2would therefore notbe applicable to subpoenas for records issued tobanks inconnection with S&L examinations under section 8.02 of the Savings and LoanAct.

Section 3 of article 342-705 deals with court challenges to production subpoenas, requests, etc. under sections 1and 2. Since, aswe have concluded, sections 1 and 2of article 342-705 do not apply to subpoenas of bank

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records by the Savings and Loan Department under section 8.02 of the Savings and LoanAct, theprovisions of section 3regarding challenges to section 1and section 2 subpoenas would not apply either to such section 8.02 subpoenas by the department.

SUMMARY

The provisions of V.T.C.S. article 342-705, restricting disclosure of records of
a financial institution and providing for notice, certificates of service, and court challenges with regard to requests and subpoenas for such records, donot apply to subpoenas forbank records by the Savings and Loan Commissioner inconnection with examinations of savings and loan associations under section 8.02 of article 852a, the Savings and LoanAct.

Very truly y , 

# J h

& JIM MATTOX Attorney General ofTexas

WARY KELLER FirstAssistant Attorney General

LOUMCCREARY Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Prepared byWilliam Walker Assistant Attorney General

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