Earl Warren: Number 26, Whitney National Bank and Jefferson Parish, Petitioner, versus Bank of New Orleans and Trust company et al., and Number 30, James J. Saxon, Comptroller of the Currency, Petitioner, versus Bank of New Orleans and Trusty Company. Mr. Spritzer.
Ralph S. Spritzer: Mr. Chief Justice, Your Honors. This case comes here from the District of Columbia Circuit on the petitions of the Comptroller of the Currency and of the Whitney National Bank of Jefferson Parish. At the suit of the three respondent banks all of them state banks alleging standing on the basis of competitive injury and at the suit of the Louisiana Banking Commissioner, the courts below have permanently enjoined the Comptroller of the Currency from issuing a so-called certificate of authority which is the last document of title that a National Bank Association requires, requires in order to open its doors and commence doing business as a national bank. The District Court granted its injunction solely on the ground that a Louisiana statute was effective to forbid the opening of the National Bank. That statute was passed as emergency legislation while the complaint in this case was pending in the District Court. The Louisiana Act purports to forbid any bank which is a subsidiary of a holding company and Whitney-Jefferson is that. From opening for business in Louisiana it -- it has not yet done so. The Court of Appeals reached the same conclusion namely that a permanent injunction against the Comptroller should issue but it reached that result by a quite different route. It concluded that the opening of Whitney-Jefferson would be a violation of federal law relating to the establishment of a branch or branch office of a bank. The Court of Appeals was aware that the Federal Reserve Board which administers the Bank Holding Company Act had approved after full administrative proceedings the relationship between Whitney-Jefferson and its parent the Whitney Holding Company.
Earl Warren: That was before the passage of the statute.
Ralph S. Spritzer: Yes sir. The Court of Appeals did not say that the Federal Reserve Board's order which incidentally has been appealed by two of these same respondents to the Court of Appeals for the Fifth Circuit a case which has been argued by -- before that court. The Court of Appeals did not say that the Board's order was invalid nor did it rule upon the question whether Louisiana's statute relating to subsidiaries of bank holding companies could validly forbid the opening of this contemplated national bank.
Byron R. White: (Inaudible)
Ralph S. Spritzer: If it were to succeed, I would assume that the Board's order would either be disapproved or that the case would be remanded to the Federal Reserve Board and I think for all practical purposes that would moot this litigation. The burden of our argument would -- is going to be that the only matter which is really in controversy here is properly a matter within the primary jurisdiction of the Federal Reserve Board and subject only to review of that Board's order.
Hugo L. Black: And that issue was attacked in the Fifth Circuit?
Ralph S. Spritzer: Yes, the Board's order is attacked in the Fifth Circuit and we are in effect arguing that this attack is an impermissible collateral attack upon a subject matter which is committed to the Board and is properly reviewable in the Fifth Circuit.
Speaker: (Inaudible)
Ralph S. Spritzer: Yes, it held up to await the outcome of this injunctive action. It entered a -- an order stating that it was doing that. As I was about to say, the Court of Appeals for the District of Columbia --
Tom C. Clark: Could I -- may I ask you, are you going into the respective jurisdictions of the Comptroller and the Federal Reserve Board?
Ralph S. Spritzer: Yes sir. I think that's basic too.
Tom C. Clark: What -- were the Comptroller's has an independent function to perform or is it ministerial and so on?
Ralph S. Spritzer: Yes. My argument too indicated in advance will be that the matter we're dealing with here is solely within the Reserve Board's jurisdiction and that his function, the Comptroller's function is an independent one relating to different matters but it doesn't -- he has no authority to approve or disapprove the holding company relationships. Now, the Court of Appeals for the District of Columbia --
William J. Brennan, Jr.: Could he be mandamus to issue a certificate?
Ralph S. Spritzer: To issue a certificate of authority?
William J. Brennan, Jr.: After the Board Federal Reserve get approved?
Ralph S. Spritzer: No because he has to make additional determinations. The qualifications to be a national bank are clearly within the Comptrollers authority but we say that any objection to the National Bank they simply upon the fact that it is owned by a holding company is outside of his domain that that's before the Federal Reserve Board the Comptroller incidentally participates to the extent of making his recommendations to the Federal Reserve Board on the question of approval or disapproval of the holding company relationship.
Byron R. White: I take it the Federal Reserve Board agrees with you in this regard.
Ralph S. Spritzer: Both the Federal Reserve Board and the Comptroller are in agreement in this case.
Byron R. White: And there's nothing in the Reserve Board's -- in the proceedings of Federal Reserve Board in this case which indicates the contrary?
Ralph S. Spritzer: Oh! No, the proceedings confirm what I'm saying because the Comptroller submitted his recommendation to the Federal Reserve Board as it's contemplated by the statute, the Holding Company Act which sets out the procedures which the Federal Reserve Board is to follow.
Arthur J. Goldberg: (Inaudible)
Ralph S. Spritzer: Yes, we are --
Arthur J. Goldberg: Now assuming --
Ralph S. Spritzer: No, Your Honor it's quite light. I do wish to make perfectly clear, however, that the objections to this action are quite different. That here we claim there is a fundamental jurisdictional bar in the Fifth Circuit, we think, the merits are open. The Court of Appeals for the District of Columbia ruled that the Comptroller was about to violate Section 36 (c) of the Banking Act of 1933, a section which adopts by reference to state laws governing state banks certain geographical restrictions upon the opening of branch offices. Now, we think that this is a fundamentally wrong decision on the Court of Appeals' part because there is no basis as we read the relevant statutes for treating a separately chartered institution whether or not a subsidiary of a holding company as a branch of a bank. Whitney-Jefferson to be sure is a holding company subsidiary. By the same token, it is also an affiliate of other subsidiaries of Whitney Holding Company but it is not a branch as that term is used or has ever been used in the banking industry. Branch banking and holding company banking are different institutions and have long been recognized as such. Back in 1931, in one of the leading articles in the field being Jefferson Fordham to cite one of many commentators who had been unanimous, I think, in making this observation noted and I quote from him “that the rapid spread and growth of group i.e. holding company banking is due in large part to the widespread restrictions on branch banking.” A holding company affiliate as I shall elaborate later is not a branch in the language of the Banking Act and it is not a branch for purposes of the Bank Holding Company Act. This I would emphasize is not a matter of insisting on correct terminology for reasons of nice fit. The considerations which determine when a national bank is qualified to organize and to commence operations and also when a national bank may establish a branch office are committed to the determination of the Comptroller under certain specified standards. So far as branching is concerned, he is directed by Section 36 (c) to refer to state geographical restrictions upon branch banking. Congress, however, adopted a separate statute, the Holding Company Act in order to regulate comprehensively the establishment of bank holding companies and the operations and acquisitions of such holding companies. That statute has its own standards. It has its own provisions for the conduct of administrative proceedings and the subject matter with which it deals embraces the very question here at issue, the propriety of a holding company's acquisition and in certain circumstances of a bank subsidiary that subject matter is committed to the judgment of the governors of the Federal Reserve Board and there are no geographical, relevant geographical restrictions in the Bank Holding Company Act. A bank holding company may have subsidiaries. Many of them do in two different counties or parishes of the state, in circumstances where a bank in one of those counties would not be free to establish a branch in the other. This, we shall argue, represents a most deliberate decision on Congress' part. Let me anticipate now to the extent of quoting Senator Robertson who was the sponsor and manager of the Senate Bill which became the Bank Holding Company Act. He stated, and I'm referring to page 56 of the governments brief, the committee that is the Senate Committee decided against the inclusion of a provision in the bill, this was the House Bill which would automatically apply state laws concerning branch banking to bank holding company operations. This provision was contained in the House Bill and was advocated by the Independent Bankers Association. And then he goes on to say, “A bank branch is by form ownership and functions vastly different from a bank holding company affiliate.”
Arthur J. Goldberg: (Inaudible)
Ralph S. Spritzer: Oh! They are and no doubt that the State of Louisiana could pass a law that would prohibit the formation of holding companies under any charter from that state but we think the branch banking restrictions do not in any way control the Federal Reserve Board. We also question the Louisiana statute in this case not on the ground that Louisiana could not prohibit the chartering of bank holding companies in that state but on the ground that it cannot permit a nationa -- forbid a national bank to open. We question the form of the regulation which is adopted and that is the point through which counsel for the bank is going to address himself in his argument. I'm going to concentrate on the relationship of the Bank Holding Company Act and the Bank Act.
Byron R. White: Well, Mr. Spritzer then the -- I -- I take it, the branch banking restriction is administered by the Comptroller?
Ralph S. Spritzer: Yes sir.
Byron R. White: And the Holding Company Act by the Board.
Ralph S. Spritzer: Quite so.
Byron R. White: And your suggestion is that the Congress in dealing with the bank holding companies deliberately that that is a decision by Congress to proscribe the treatment of -- of holding Company subsidiaries as branches.
Ralph S. Spritzer: Yes. The Congress adopted separate -- a separate statute, separate standard, separate administrative agencies for the regulation of branch banking on the one hand and holding company or group banking on the other. If one confuses to separately chartered corporations which are subsidiaries of a holding company which are treated throughout the federal statutes as affiliates with two branches of the same institution and then I think the almost inevitable consequence is, one, to confuse the provisions of the Holding Company Act and its standards with those of the Banking Act; two, to confuse the authority of the two separate agencies which Congress has set up to regulate these two separate institutions; and three, to confuse the provisions for judicial review which made thereafter be available and all of these things have taken place in this case as I see it.
Earl Warren: Does the Board have any function with relations to administrative function with relation to branch banking?
Ralph S. Spritzer: No sir. From the government's standpoint, these confusions that I have, I should pause a moment and say that if branch banks are members of the Federal Reserve System, they would be subject of course to those requirements not for purposes relevant here. This confusion of the authority of the two agencies is the matter of primary concern from the government's standpoint here. Whether the arrangement proposed by the Whitney Group is a good one, whether it should have been approved by the Federal Reserve Board or not, is a question from our view secondary to the fundamental issues which this case raises. Namely, what is the system of regulation, where does the administrative responsibility lie and what has the Congress provided with respect to judicial review. Let me emphasize that the sole point decided by the Court of Appeals for the District of Columbia in this case is that the Whitney Bank program violates branch banking restrictions. Now, those restrictions are inapplicable to holding company affiliates and if as we are convinced, the appraisal of a holding company relationship is in any event committed exclusively to the Reserve Board's jurisdiction. It follows that the merits of this proposal submitted by the Whitney Group can only be examined in the Board proceeding and on review in the Court of Appeals for the Fifth Circuit assuming for the moment that --
William J. Brennan, Jr.: Suppose the Comptroller concludes the holding company devices a sham is really branch banking, couldn't he do something?
Ralph S. Spritzer: If the Comptroller -- if the Com -- Comptroller concludes that?
William J. Brennan, Jr.: Yes.
Ralph S. Spritzer: I think the Comptroller's authority is to determine whether the applicant for certificate authority meets the qualifications of the Banking Act. If there's something -- if the holding company relationship is one which the Board shouldn't have approved because it was for an illegitimate purpose or there was -- there were any bad effects which might be envisioned, I think that that is solely a matter that the Board can determine and which must be determined upon review of the Board's order. Of course, the Comptroller can raise any question he wishes before the Board. He is -- the Board is called upon under the statute to solicit the views of the Comptroller of the Currency in any case where the bank holding company proposes to acquire an interest in the national bank and in the same way to solicit views of the responsible state banking commissioners if the acquisitions relate to state banks. Those recommendations however are not binding the decision of this issue if submitted to the Federal Reserve Board.
Hugo L. Black: Suppose -- do I understand your argument to be that if -- if it is really in genuine a device perfectly created for the purpose of evading the Branch Banking Act and that people who were being proved by evidence that the courts cannot look through the sham or whatever it is?
Ralph S. Spritzer: I don't think it's a question of sham, Your Honor. Holding companies doubtless are formulated. They have been or formed, they doubtless have been for 40 years because there are certain advantages and certain disadvantages in going that route as opposed to going another route such as operating a chain banking system or a branch banking system. Insofar as there are any relevant policies that ought to be considered by the responsible agency in deciding whether a particular holding company relationship is good, bad or indifferent, it seems to me those objections must under the statutory scheme be presented to the Board.
Hugo L. Black: I didn't quite make my question clear or maybe it's not clear to me. Let us assume that this is not a genuine holding company within the meaning of the federal Holding Company Bank Act. But it is a genuine branch bank efforts -- branch bank labeled with the name holding company, is it your idea that the courts couldn't pass on that?
Ralph S. Spritzer: Well, the courts may pass on it. The Federal Reserve Board had said this is a holding company.
Hugo L. Black: I understand the fact but whatever the Federal Board says. Suppose that he had said that the dog is a cat. I'm talking about that kind. What you have here is an argument as I understand it. I don't know what's right or what's wrong but that this is not the real, genuine holding company within the meaning of the law but is in reality a branch, branch bank disguised under the label of the holding -- holding company there. Who has the right to determine that? Do you say that the courts can't determine that and that has to be determined by the Federal Reserve Board?
Ralph S. Spritzer: I'd say that the courts can determine it on review of the Federal Reserve Board's order, Your Honor. Here, what we have here is an application filed with the Federal Reserve Board by a -- to form a holding company and to acquire a stock of a subsidiary bank. Every formal requirement of a holding company and every incident of the holding company is present. Now, if there are reasons, if there are objections to approving the establishment of this holding company or the acquisition which this holding company proposes to make and if the Board does not take proper account of all of the relevant policy considerations which it should, I say those are certainly matters which are reviewable but they are reviewable in the way that Congress is provided, namely by appeal to the Court of Appeals from the Federal Reserve Board's order.
Hugo L. Black: You would say then and I think I understand you, you would say that even if you say this had all the incidents of a holding company. Suppose it could be held it had all the incidents of a branch bank disguised as a holding company, would you still stay that that matter had to be submitted to the Federal Reserve Board to be considered on review?
Ralph S. Spritzer: Your Honor, there are overlapping incidents in every one of these good relationships.
Hugo L. Black: Let's suppose it had every incident on earth of a branch bank except they call it a holding company. Do I -- is it the government's view as I understood it was that that has to be decided by the Federal Reserve Board and the courts can't decide it?
Ralph S. Spritzer: Your Honor, I don't want to stand entirely on the -- on the labels. When I say it's a holding company, I mean something more than the -- than the fact that Whitney and its applications said we wish to form a holding company. I mean also that the corporate relationships thereby established were in the nature of holding company relationships.
Hugo L. Black: You say that would be reviewable in the Fifth Circuit case?
Ralph S. Spritzer: Yes.
Earl Warren: Then what is the scope of review in the Court of Appeals in the --
Ralph S. Spritzer: In the Fifth Circuit case?
Earl Warren: There is a specific section on that, isn't there?
Ralph S. Spritzer: Oh! Yes. Congress has provided that every order of the Federal Reserve Board approving the formation of a holding company or any acquisition by a holding company of bank stock shall be reviewable in the Court of Appeals subject to the substantial evidence rule.
Hugo L. Black: I thought it was (Inaudible) however that Congress (Inaudible) that Congress didn't have to deem to preempt (Inaudible) with the national bank and holding company. That of course (Inaudible), isn't that correct? I mean --
Ralph S. Spritzer: I think there is a separate question as to the effect of the Louisiana statute and that I have put aside, if I may, because counsel for the bank is going to develop his time to that point. I am attempting to show the nature of that speech whether it's a branch bank or a holding company and the -- and to establish the proposition that a holding company proposes whatever ground it's attacked upon, whether it's a good or a bad one comes within the primary jurisdiction of the Federal Reserve Board. In other words, all objections which are made based on the proposition that the bank which is to be established is owned by a holding company must be presented to the Federal Reserve Board. Perhaps as a matter of stating a little more detail, then I have a few of the facts which I haven't put fully before Your Honors, Whitney National Bank of New Orleans, not Jefferson Parish is the largest bank in that city. New Orleans, like many cities, has spread and Whitney-New Orleans desired to engage in multiple-unit banking and to follow its customers into Jefferson Parish. It could not have established a branch in Jefferson Parish because Louisiana law which is adopted as a matter of federal law by Section 36(c) provides that a bank may not establish a branch in a parish other than the one in which its head office is located. Whitney's New Orleans considered two other well worn avenues for engaging in multiple-unit banking.
Speaker: (Inaudible)
Ralph S. Spritzer: Well, I'm using a term that will cover branch banking and chain banking, both. I'm sorry.
Arthur J. Goldberg: What is it called?
Ralph S. Spritzer: Multiple-unit, I mean to cover branch banking, chain banking and holding company banking. One method would have been for the stockholders of Whitney-New Orleans to form a bank in Jefferson Parish. This had been done by two of Whitney's competitors. One of these the second largest bank in New Orleans known as the National Bank of Commerce has established through the same stockholders an affiliate bank known as the National Bank of Commerce in Jefferson Parish and it's widely known as chain banking. Apparently for reasons of convenience, one of them that Whitney-New Orleans had a very large body of shareholders. It decided that it would seek permission to form a holding company which once organized would hold the stock both of Whitney and New Orleans and of the new bank in contemplation, the Whitney-Jefferson. Now, this type of group or holding company banking is also widely prevalent. There are some 1800 banking units in the country which are controlled by holding companies. Now, how do this Federal Reserve Board and the Comptroller fit into this picture? First, is to the Federal Reserve Board. Beginning the 1950s, the Board had expressed its concern to Congress that although it had some limited authority under the Banking Act of 1933 to deal with holding company practices, there was no limit whatsoever upon the ability of bank holding companies to expand their acquisitions. Congress responded by adopting the Bank Holding Company Act and under Section 3 of that statute which is reprinted in page 81 of our brief, it is unlawful for a bank holding company to be established without prior approval of the Board. Moreover, the bank holding company once it is established may not acquire control of an additional bank without Board approval. The section goes on to state that if a bank holding company proposes to acquire a national bank, the Comptroller shall be notified, so that he may state his recommendation. There are provisions for public notice and hearing at which public officials and other interested parties may participate and the factors which the Board is to consider are set forth in Section 3 (c) which begins on page 82. There are five criteria. The financial history and condition of the company and the bank's concern their prospects, the character of their management, the convenience, needs, and welfare of the communities, and area of concern, and finally whether or not the effect of such acquisition would be to expand the size of the bank holding company system beyond limits consistent with sound banking, the public interest and the preservation of competition.
Arthur J. Goldberg: The statute (Inaudible)
Ralph S. Spritzer: Yes sir. In the case of an acquisition of a state bank, the State Banking Commissioner rather than the Controller is solicited to submit his recommendations. Finally, as I indicated, the Act makes provision for judicial review in the Courts of Appeals. Now, it follows from what I'd said I think that if the Whitney interest operating in holding company form had proposed to acquire for some existing bank in Jefferson Parish, there would have been no occasion whatever to file any application of any kind with the Comptroller of the Currency. It would have been necessary to obtain the Board's approval of that acquisition. The added element is introduced in this case only because it was proposed both to establish a holding company and to establish a new national bank as to the latter feature. Therefore, it was necessary to go before the Comptroller. Now, word about his authority, he is directed to authorize a company to become a national bank if it meets standards which are set forth in the Banking Act. This referred to the provisions of that Act alone. He has to determine whether the amount of capital paid in meets the requirements of the statute or the qualifications of the stockholders and directors and other matters of that character. The Banking Act imposed no limitation upon expansion by means of group banking or chain banking. Now, the Comptroller is essentially an examining official. He makes his determination whether to grant a certificate ex parte. He makes detailed examinations but he is not directed to conduct any adversary hearings and there's no provision in that statute in the Bank Act for judicial review with his determinations. The Whitney Bank first submitted its proposal to establish this new national bank that was then controlled by Mr. Gidney to obtain his preliminary approval for the establishment of a separately chartered bank in Jefferson Parish. After examining into the proposed management, its capital structure and so forth Mr. Gidney concluded that it would meet the qualifications of the Bank Act and gave preliminary approval subject to the Board's approval of the holding company aspects of the arrangement. The holding company proposal was then duly submitted to the Reserve Board. Notice was published and three banking competitors expressed written condition. The present respondents were silent, the Comptroller's recommendation was solicited and Mr. Gidney recommended in favor of approval. A public hearing was ordered to afford further opportunity to any interesting party to participate. This was noticed in the Federal Register and widely publicized. Still none of the present respondents appeared in the administrative proceeding. It went forward. The Board ultimately entered an opinion in order with one governor dissenting approving the application to establish the holding company and to make the acquisition of stock in Whitney-Jefferson. In its opinion, the Board concluded that the five statutory criteria I mentioned a few moments ago had been met. It provided further that the stock acquisition was not to be affected for a week thereafter. No petitions for rehearing were filed during that time. More than a month after the Board had approved the establishment of Whitney holding and the acquisition of the Whitney-Jefferson stock, respondents were heard from for the first time. At that point they commenced an action against the Comptroller charging him with a violation of the branch banking laws and only some days later did they first petition the Federal Reserve Board for reconsideration. That petition was denied and that thereafter respondents appealed the Board's order to the Fifth Circuit where they are making virtually the same arguments as they have made in this case. I'd like to emphasize that though there are doubtless similarities between branch and group banking there are also important differences. In branch banking, all of the units constitute a single enterprise with one capital structure, one management, one set of directors. A deposit in a branch office has the same status as one in the main office and is backed by the capital and assets of the entire bank. In a holding company system, each subsidiary is necessarily a separate corporation. Each has its own capital funds. There can be no transfers between affiliated banks. Each has its own borrowing and lending limitations. Each set of directors is personally liable. But more importantly, Congress was completely aware of these differences.
Potter Stewart: Is there any -- is there any restriction on interlocking director -- directors that people being members of both Boards in a -- in a holding company?
Ralph S. Spritzer: There may be directors on both of these.
Potter Stewart: With no restriction so far as the national logo, is that right?
Ralph S. Spritzer: Not unless the Federal Reserve Board disapprove the character of the management (Voice Overlap) in particular case. Now, in the Banking Act of 1933, the Congress made a comprehensive study of group banking, chain banking, and branch banking. It treated them differently. For example, in Section 61 the Congress -- of the Banking Act the Congress provided a measure of regulation for holding companies, a holding company couldn't vote the stock of a -- it couldn't vote bank stock without a permit from the Board. However -- and also the 1933 Act regulated the loans by or to affiliates but it did not limit acquisitions by holding companies. In the 1950s, as I indicated, the Reserve Board became concerned that there was no limitation upon the possibilities of expansion through the holding company device. When a proposal to regulate holding company acquisitions came before the Congress in 1955 and 1956, the Independent Bankers Association specifically proposed that the law be drawn so that a holding company could not have subsidiaries in two different places where state law would prohibit a single bank from having two branches. I noted at the outset to Senator Robertson's comment, let me refer very briefly, my time is running fast, to what the committee stated in its reports which appeared at pages 55 and 56 of the government's brief. In the middle of the page, you will notice I won't read the full excerpt that the committee states that a federal standard should determine and that the approval or disapproval of the holding company acquisition should not be referred to state law. The ultimate determination, I quote, of public interest in the national bank system should rest with the appropriate federal authorities and even more pointedly beginning at the bottom of that page, the committee decided against the inclusion of the provision in the bill that would automatically apply state laws concerning branch banking to bank holding company operations. The purposes of branch banking laws are not identical with the purpose of this bill to control bank holding companies. It is believed that the bill contains adequate provisions to regulate bank holding company operations without an arbitrary tie-in with branch banking laws. Thanks to us that the unavoidable conclusion is that the Federal Reserve Board was empowered to pass on this acquisition under the standards set forth in the Bank Holding Company Act.
Earl Warren: Was the Senate version --
Ralph S. Spritzer: It was adopted without changes by the (Inaudible). The Senate version became the law.
Arthur J. Goldberg: (Inaudible)
Ralph S. Spritzer: No, I'm referring to a national bank at this point.
Arthur J. Goldberg: The holding and not the national.
Ralph S. Spritzer: The holding company -- what -- the holding --
Arthur J. Goldberg: Well does the holding company headed by the provision of national bank.
Ralph S. Spritzer: Yes.
Arthur J. Goldberg: (Inaudible)
Ralph S. Spritzer: I think there is room certainly for the Federal Reserve Board to consider when it passes upon an application to acquire an interest in a state bank, the policies of the state, and that the public interest factor and the reference to the areas concerned which appears in Section 3 (c) of the Holding Company Act furnishes that latitude.
Arthur J. Goldberg: But you still have the authority to make the final judgment that was in --
Ralph S. Spritzer: Yes. Well of course, in many respects of course the states have their own means of control over state banks or state chartered institutions.
Earl Warren: Within Section 7, leave with the states the power to control.
Ralph S. Spritzer: Yes.
Earl Warren: This kind banking (Voice Overlap) if they are state banks?
Ralph S. Spritzer: The state can -- can pass and Section 7 clearly reserved that power, a law as many states have some 16 or 17, I believe, which forbids the formation of any bank holding company in that state.
Earl Warren: But it's your position that that applies only to state banks?
Ralph S. Spritzer: No, it can prohibit the formation of a bank holding company under the law of that state. Actually, Louisiana did not do that. It chartered the way of holding company. It could have had a law that it would not charter any holding companies and then the Bank Holding Company Act in Section 3 (d) also permit the -- permits the state to say that it doesn't want any of its banks owned by an out of state holding company because the Board has directed not to approve an acquisition by a holding company in the state A -- of a bank -- of bank stock in state B if state B has a law against such acquisitions. I would like to sum up in just a few sentences. The claim here is that the Comptroller was about to violate branch of banking restrictions. We say, that this case properly speaking, does not involve branches or branch banking. It involves holding company affiliates. We say the Congress has recognized the difference for many years and without exception that it has provided a completely separate and comprehensive means of regulating expansion through holding company systems that this regulation is by the Board. Accordingly, we would urge that this attack must fail whatever may be said pro or con as to the wisdom of the Board's decision because these respondents have relied on the wrong statute, they've challenged the wrong order and they proceeded in the wrong Court and that I say should be conclusive of this lawsuit whatever it may leave for decision in the Fifth Circuit.
Earl Warren: Mr. Acheson?
Dean G. Acheson: May it please the Court. I shall address myself to the Louisiana statute which has been put forward in this case as an alternative ground for granting the injunction, a ground that's not accepted by the Court of Appeals but accepted by the District Court. First of all, I want to draw the Court's attention to the statute itself. This is a criminal statute. It's a statute which reads on actions by citizens of Louisiana. It has a section which makes five acts illegal and punishable by fines and or imprisonment. This section reads, “It shall be unlawful” and then follow four provisions which are not involved in this case and not applicable. And finally there is a fifth section. It shall be unlawful for any bank holding company or subsidiary thereof to open for business any bank not now open for business whether or not a charter, permit, license or certificate to open for business has already been issued and this section is specifically made applicable to a national bank and in this case is sought to be made applicable to one. It is not in dispute between the parties in this litigation that without some permission from Congress, this statute would be unconstitutional. It is argued that Congress has given that permission in Section 7 of the National Bank Holding Company Act which has just been referred to by the Chief Justice. Before attending to that section, I should like to make one exclusionary point. It has been argued in the brief that other states have the same or similar statutes to that of Louisiana and that these statutes have been upheld. This is in error. The bank examiner of Louisiana in his brief candidly admits that he says, “Respondent will concede that there is no other state Bank Holding Company Act which has the exact language contained in Section 1035 of the Louisiana Act.” He could have gone further and conceded that there's no other state act which has any provision remotely similar to subsection 5 of the Act and indeed that no state act undertakes to enforce its restrictions against bank holding companies by operating upon the opening or closing of a national bank so that the authorities sought to be derived from other statutes and other decisions is not correct.
Arthur J. Goldberg: According to that – to that state -- there are that we have regarded I suppose.
Dean G. Acheson: There are --
Arthur J. Goldberg: (Inaudible)
Dean G. Acheson: Now, Mr. Justice there are states which have the exact four provisions of the Louisiana statute and then stopped and this is almost the identical legislation that occurs in other states. They are the same as Louisiana except they do not contain Section 5 which solely is invoked here. Now, it is argued as I said that Section 7 permits the Louisiana Act as in Section sub 5. Section 7 reads as follows --
Byron R. White: Is it that Act?
Dean G. Acheson: I beg your pardon.
Byron R. White: I mean is this solely supposed to be in Section 5. Is that in your brief?
Dean G. Acheson: Yes. Section 5 is imprinted here in our --
Potter Stewart: On page 74 of your brief, Mr. Acheson, I think bottom of the page.
Byron R. White: I have it.
Dean G. Acheson: You have it. Section 7 reads as follows, this is Section 7 of the National Bank Holding Company Act. The enactment by Congress in this chapter shall not be construed as preventing any state from exercising such powers and jurisdiction which it now has or may hereafter have with respect to banks, bank holding companies and subsidiaries thereof. In order to make it very clear what the Congress meant by this section, the Senate Committee have the following in its report to the Senate. It said, a great deal of concern has been expressed that Section 7 of this bill granted new authority and powers to states over national banks in general and respecting the stocks of national banks in particular. In order to clarify the legislative history of Section 7, the committee wishes to emphasize that this section does not grant any new authority to states over national banks. The purpose of this action is to preserve to the states those powers which they now have in our dual banking system. It is always of upper most importance a legislation of this nature to preserve the dual system of national and state banks and Section 7 must be viewed in that light. Thus, if the Court please, it is clear from this statement that Section 7 neither increased nor reduced the preexisting state powers. It expressed the congressional intention not to extend federal preemption into the field of the regulation of bank holding companies. It did not narrow the field of preemption in regard to national banks. It kept open for state legislation the field in which the statute operated, that is the field of bank holding companies. It did not open to state legislation the field which the National Bank Act and the decisions of this Court had closed. This is a matter of most important legislative practice and it's an area which we would be brought in the greatest confusion if the views of the respondents were adopted. Well, for instance, let me point out how this confusion occurs in the mind of the counsel for Louisiana, the state bank examiner. In his brief he writes this, “If the Congress has preserved to the states the right to prohibit and restrict the expansion of bank holding companies,” and it has this is clearly the purpose of Section 7 to keep open to the states the right to prohibit and res -- restrict the expansion of bank holding companies and he goes on, “there is no difference between provisions which seek to restrict bank holding companies by one, prohibiting the acquisition of stock in a national bank or two, by prohibiting a subsidiary of a bank holding company not already open for business from opening for business.” Now, what is asserted here as contending no difference is the very issue at stake in this case and the difference is as plain, as plain can be. Provision one prevents a holding company from acquiring bank stock whether it is national bank stock or other banks stock. Provision two, however, prevents an approved national bank from opening its doors. The incidence of provision one falls on bank holding companies which are open for state regulations. The incidence of provision two falls on national banks which are closed to state regulation. Congress wished to leave one free and to leave the other closed.
Arthur J. Goldberg: (Inaudible)
Dean G. Acheson: That's the -- they -- they're not involved here at all. If the Louisiana statute stopped the Section 4, subsection 4, it would not be invoked in this case at all. It wouldn't be relevant. None of its provisions would be applicable. It is only when the statute attempts to keep close the bank which the Federal Government is trying to open that it is involved here and it is unconstitutional. The system which is created by the holding company legislation and the national bank legislation is very clear and very worthy. It is provided in the National Bank Holding Company Act that states are protected against the invasion of foreign holding companies. The Federal Reserve Board is prohibited from permitting any holding company to buy the stock of any bank in the state which does not want that to occur. In fact, it says, it may permit the purchase of bank stock by a foreign holding company only in banks and estate which expressly by legislation permits this to happen. Then it leaves open through the state the power to prohibit holding companies altogether and to restrict the expansion of those which already exists. There is a perfect balance and scheme in this legislation which is entirely were. Now, if it is that that scheme is invaded by the provision sought to be exactly held here we immediately get into most dangerous situations. There is a con -- confrontation directly between the state and the federal government. Let us presume that this state had sought to be, this statute had sought to be invoked according to its terms. You see it doesn't read now at all upon the Comptroller. The Comptroller is only enjoined here, I suppose, by some theory that if he issues this certificate he will contribute to the delinquency of a citizen of Louisiana. This is a criminal statute which says citizens of Louisiana may not form holding companies, may not open banks including national banks. Presume then that the Comptroller had issued this certificate without interference and that the state had then sought to indict and toput into penitentiary the men who were authorized by the Comptroller to open the national bank. There you would have a direct confrontation between the power of the State of Louisiana and the authority of the United States of America and under the decisions of this Court stemming from the Cook County case in 1882, the very last session of this Court has been clear that the National Banking Act creates a complete system for the establishment, formation and operation of national banks in which no state may interfere in anyway whatever.
Earl Warren: Mr. Merrigan?
Edward L. Merrigan: Mr. Chief Justice, may it please the Court. In order to put the Court of Appeals' decision in this case in its proper perspective and in order to put the questions actually presented by this case in their proper perspective I beg to leave the Court to refer just briefly that some of their real facts of this case that has yet been developed from an undisputed record. The record in this case consists in the main, if it please the Court, of exhibits and testimony introduced into this case by the petitioners themselves mainly by the Comptroller of the Currency, in other words testimony by the president of the Whitney National Bank of New Orleans, sworn affidavits of the Comptroller of the Currency and other documents which have been filed in this case by the petitioners. Now, these facts, may it please the Court, the Whitney National Bank of New Orleans is the largest bank by far in the entire state of Louisiana. It's one of the largest things in the entire southern portion of the United States. For approximately 80 years, Whitney has operated its offices limited to the confines of the City of New Orleans, Parish of Orleans. Orleans Parish being the same territorial limitation as the City of New Orleans. Through these operations which are admittedly and concededly in this case properly restricted by a combination of Section 36 of the National Bank Act and Louisiana Revised Statute 654 to the limits of New Orleans. Whitney has grown to a position of banking dominance where it controls approximately $500 million in resources approximately $14 million in undivided profit and approximately $27,200 in a surplus account. Whitney-New Orleans with these constitutional proper limit -- limitations prescribed by the Congress in the State of Louisiana and admittedly still fully applicable today has accumulated at its bank in New Orleans, its original bank in the 12 branches, 39% of the total deposits in all banks in Orleans Parish. It has also accumulated approximately 44% of all deposits of individuals, partnership, and corporations in the parish. Now, just as in the side comparing notes figured with the figures that were presented to this Court by the Philadelphia National Bank case, if the merger which this Court struck down has been approved, it would have involved approximately 30% of the banking business in Philadelphia that is that the merger is going through. Here, before the plan which is even proposed, has even going into effect Whitney already controls approximately 40 to 44% of the business available in New Orleans.
Earl Warren: Well Mr. Merrigan does the size of the bank -- is the size of the bank relative to the -- to the legal question that's involved here?
Edward L. Merrigan: I think it's overwhelming important, Your Honor, because of course the size of this bank as it poses this threat of unlawful competition to the respondents in this case, is an extremely relevant fact. In other words the respondents in this case based their standing to sue upon the contention of an unlawful competition which will be turned lose by the largest bank in the entire State of Louisiana.
Speaker: That may be to sue --
Earl Warren: Yes.
Speaker: -- expressly.
Edward L. Merrigan: That could be true, that could true.
Earl Warren: But would -- wouldn't your position be the same, would your position be the same if this was a small bank?
Edward L. Merrigan: I would say that it is correct that if a small bank were precluded from going into Jefferson Parish by a combination of Section 36 in Louisiana law, it too like all the other banks in Louisiana, would be precluded. But I'm mentioning this to Your Honor solely because this does go right to the heart of the type of competition which Louisiana was considering when it adopted the legislation we have been discussing through the petitioner's oral arguments here today.
Hugo L. Black: That's the question then that the Federal Reserve should've taken into account for its business --
Edward L. Merrigan: I would say that that would be a question, Your Honor that the Federal Reserve could or should have taken into consideration but if again here it's just a matter of complete background to the type of competition which the respondents in this case are confronted with.
William J. Brennan, Jr.: Well, if it's -- hopefully for the Board, this argument then were relevant to the case pending in the Fifth Circuit to the District of Orleans?
Edward L. Merrigan: No Your Honor. This argument is more relevant to the question of standing to sue here which we're going to be getting into when I approach it because it's a type of competition, the type of destructive unlawful competition which does confront the respondents in -- in this case and indicate -- should indicate why the statutes have been passed. Section 36 of the National Bank Act in the Louisiana statutes, these are really antitrust statutes in essence which were passed to limit these banks to the confines of their own, the certain confines in order to keep them from expanding throughout a state and taking away the business of the other banks. Some states for example as Your Honor pointed out in the Philadelphia National Bank case can't branch at all such as in Illinois and these statutes have been passed to keep banks from just becoming big and spreading throughout the state. But as I say, it would apply Your Honor to whether if you were a large or a small bank but in this case the injury is compounded by the fact that this is the largest bank in the State of Louisiana. Now, as indicated by the petitioners in their opening arguments, it is conceded that Whitney National is absolutely prohibited from going over into Jefferson Parish to open banking offices. The stipulation is contained in both petitioners briefs and as I understood the argument made by Mr. Spritzer this morning it's absolutely conceived that Whitney-New Orleans there's no statutory right of any kind to leave the confines of New Orleans and open any banking offices in Jefferson Parish and nevertheless as pointed out by the government this morning, Whitney is still, Whitney-New Orleans has still been exceedingly desire over a long period of years of leaving New Orleans and opening banking offices in Jefferson Parish.
Speaker: (Inaudible)
Edward L. Merrigan: Well, I say this Your Honor that they actually did consider getting an affiliate and the president of Whitney-New Orleans actually was shown to testify that they rejected the affiliate arrangement because it was -- they couldn't hold on to it and necessarily I think that was the type of testimony he gave. He said an affiliate does not become part of our organization. It's just sort of hanging loosely to use these words that you have these conflicts of interest in its office. So while they actually did consider the possibility of an affiliate arrangement, they rejected it because it did not have the completeness of control and the continuity of control that Whitney wanted when it wanted to go out in the Jefferson Parish with his holding company approach.
Potter Stewart: What would have -- what do you mean by affiliate?Would that be a chain bank, a separate bank organized by the same stockholders?
Edward L. Merrigan: That's correct, Justice Stewart. It would involve some of the stockholders of Whitney or all of the stockholders of Whitney going out in the Jefferson Parish and raising new fresh capital of their own --
Potter Stewart: Right.
Edward L. Merrigan: -- and putting that into a new bank which they would then organize. Now, under this holding company approach as I'm going to show in just a moment, the funds were actually drawn out of Whitney-New Orleans into the holding company and then out of the holding company into the other bank in Jefferson Paris. So there was that -- and of course in the affiliate arrangement, those two banks can compete for the same business and as they point out there are conflicts of interests between the two banks. The bank in Jefferson may compete for the same business as the Bank in New Orleans wants but they are stopped by the conflicts of interest facing substantially the same Board of Directors from going after the same business. So in order to avoid all of this and in order to be able to have absolute control over the two banks and in order to have the funds drawn out of Whitney-New Orleans without the necessity of raising new fresh capital, they adopted as the President of Whitney-New Orleans testifying, the holding company approach.
Speaker: How many times there would be (Inaudible) and the outline of the bank -- banks from additional fee. That there are no provisions that Louisiana law in the present has suppose having that (Inaudible).
Edward L. Merrigan: That's correct other than (Voice Overlap) other than the absolute rule of law that says the corporate forms will be disregarded when you attempt to pro -- to evade the prohibitions of a federal estate statute by simply creating a corporation to get around it. That couldn't --
Earl Warren: You have to arrive in order to -- this is in fact was in effect.
Edward L. Merrigan: Yes and that the corporate bill should be passed as this Court held in the Northern Security case and as Solicitor General Lehmann said should be done when he wrote his opinion in 1911 which is contained in our supplemental appendix.
Byron R. White: But when wouldn't they -- when would a under the Court of Appeals opinion, when would a subsidiary of a bank holding company be considered a branch?
Edward L. Merrigan: Whenever the bank holding company does not take the fund it employs -- let's start from the beginning, if I might Justice White. In this case, the Court of Appeals as you know held this to be a branch because it was organized with the funds of the first bank. That is the -- that starts to change, in other words --
Byron R. White: So you say any time that happens, the subs -- the other subsidiaries the holding company is a branch?
Edward L. Merrigan: I would say anytime a banks sets out to evade Section 36 and admit it's trying to evade Section 36 by forming a corporation, a holding company through which it can site it's own funds into the opening of the other office and it intends to run both that way not with fresh funds invested by the holding company but with the banks own funds, then you have a situation where the rule of the Court of Appeals is correct.
Byron R. White: So that even in those states which permit bank holding companies but prevent branches, this rule of the Court of Appeals would prevent as a federal rule the bank holding company because the federal rule would be, this is a branch?
Edward L. Merrigan: It would not prevent the bank holding company.
Byron R. White: Even though the state law had approved the creation of the holding company, the federal law would say, “No it's a branch?”
Edward L. Merrigan: I don't think I can agree completely with Your Honor on that. I think what the Court of Appeals has said that it feels that when a bank sets out to evade the branch restrictions of law solely by forming its own holding company through which it can pass its own funds to open the office and nullify the law, yes, I think the Court of Appeals decision would apply.
Byron R. White: Even though the state law had applied -- had approved it?
Edward L. Merrigan: I know of no state law which would approve such a holding company operation Your Honor but assuming a state law did provide for the establishment of a holding company to operate within the limits of the state law, I think that would still be open to attack if -- if this type of procedure will follow to evade and to frustrate and to repeal in all effect Section 36 (c) of the National Bank Act.
Earl Warren: Did you sort of evade the question when -- when you say that if a bank starts out to evade the law because when the government gives them a choice of having either branch bank or an affiliated bank or a holding company bank?
Edward L. Merrigan: I don't think the government because that was given a bank of choice Your Honor of evading Section 36 by forming so --
Earl Warren: I know that -- that's what I say, aren't you evading the question when you say evading? You have to establish that to us that -- that it is evasion rather than -- rather than an attempt to -- to come under one of the regulatory procedures of the federal government, do you not?
Edward L. Merrigan: I think that's entirely correct, Mr. Chief Justice, and that's why I'm reviewing the facts because I think these facts established as an undisputed record based on the testimony of the petitioners would show I think the unheard ventures that they set out to do it. They did it in the most careful way. They went to the Comptroller of the Currency and got his advice and consent before they move one step down the road. They operated with the Comptroller of the Currency the whole way and the sole purpose was to evade Section 36 and that's what I say the record in this case does show without any doubt.
Earl Warren: Well, is there any essential difference between this bank and chain bank?
Edward L. Merrigan: Yes, Your Honor. There is a very essential difference from the very beginning. In a chain bank, that is the affiliate which was involved in the Camden Trust case in which I just discussed with by Justice Stewart. You have the situation where some of the stockholders or all of the stockholders, if it's a small bank, set out and raise new money, new capital to form a new bank, in other words, a brand new bank which has no direct connection with the first bank.
Earl Warren: Yes, but that's an affiliated bank I'm talking about a branch bank?
Edward L. Merrigan: Well branch bank that is --
Earl Warren: Is there any -- any significant distinction with creating this bank and a branch bank?
Edward L. Merrigan: No, we say there is no significant difference, there is no difference of substance, it's all difference of form and we -- we say then that you should apply the rule which has been applied for years back to the Northern Security case that equity looks at substance not form, that the corporate entities which are established for the purpose of evading a law, the law looks, it does not -- it is not going to let the law be frustrated by mere forms but it's going to be governed entirely by the substance of the transactions.
Earl Warren: What I understood counsel for the government to say that -- that each of these banks must stand on its own financial structure and they were limited and they're borrowing and they're lending by their -- by their assets and liabilities and that includes the branch of a branched bank, is it?
Edward L. Merrigan: I say, that's correct, Your Honor that in a branch bank situation obviously the -- the parent bank and the branch bank do have to combine lending authority of the two banks. In this case, the testimony has been given in the record by Mr. Gilly, the executive vice president of this bank formerly the executive vice president of Whitney-New Orleans is also the president of Whitney-Jefferson and by Mr. Barry who is the president of Whitney-New Orleans that the two banks would have their combined deposits to work with through the holding company, would then have their combined loans to be made through the two, in other words they'd share loans and it's a very simple procedure to follow. If a borrower comes into the bank out in Jefferson Parish and wants to borrow more than the fixed -- the 10% of the capital of Whitney-Jefferson, they simply get an officer in Whitney-New Orleans to come in and sit down with him in the two banks and share the same loan so it's --
William J. Brennan, Jr.: But with that -- but they -- they can't actually take deposits for the purposes of increasing the loan limit?
Edward L. Merrigan: No they cannot. As a matter of form, they cannot but as a matter of factual operations of the two banks they can and of course intended to do.
William J. Brennan, Jr.: (Voice Overlap) a piece proportionate to whatever is its own loan limit.
Edward L. Merrigan: That's correct sir.
Byron R. White: Well, in that basis any -- any two friendly banks might be -- there are correspondent banks between cities who do this all the time?
Edward L. Merrigan: I say well and that's one and that is of course true that any two friendly banks can do that but in this case they specifically kept that in mind and of course using the funds from one bank, the $650,000 which was used to establish Whitney-Jefferson is drawn right out of Whitney-New Orleans and put over in Whitney-Jefferson so that when they make a loan out of Whitney-Jefferson, they're actually using the funds originally from Whitney-New Orleans to make the loan anyway.
Byron R. White: It has -- does the new bank still has its own obligation to some depositors subject to its own liabilities, subject to independent examination by the Comptroller, isn't that true?
Edward L. Merrigan: There are some differences but they -- it has been pointed out in the -- in the congressional proceedings which are referred to in the briefs and they pointed out --
Byron R. White: The bank might fail -- that bank might fail without affecting the older banks at all or -- or the reverse.
Edward L. Merrigan: Well, that would be one of the very bad vices of this whole arrangement that Whitney-New Orleans can have all of the benefits of this branch relationship with this bank and yet if it fails and its depositors would be left with its capital alone.
Byron R. White: The new bank might fail without -- without affecting other banks at all?
Edward L. Merrigan: That is correct, Your Honor.
Byron R. White: This would be true of the branch bank?
Edward L. Merrigan: That is true too, Your Honor. So that is the difference. But I say that these differences, Your Honor, and I say this from -- from the bottom of my heart are differences without a real distinction. These are differences in form. These are differences which can be circumvented any day in the week that can be dealt with any day in the week by the banks simply operating really as one.
Byron R. White: Why shouldn't that -- why wouldn't these matters be appropriate for the Board who considered in granting this? Why wouldn't you address this argument that this is in effect a branch to the Board?
Edward L. Merrigan: The Federal Reserve Board in this case as the record shows took the position in a question of Section 36 that is an alleged violation of the branch restrictions of Section 36, it's not for the Board but it's for the Comptroller of the Currency.
Byron R. White: Now, where -- I saw that in your brief. Where is that in the record?
Edward L. Merrigan: I think its page 168 of the record.
Byron R. White: This is in a letter?
Edward L. Merrigan: That's in a letter rejecting the petition for reconsideration of the re -- of the respondent bank. The Board took the -- you see in this case, Your Honor, when some of the dissenting stockholders of Whitney-New Orleans went before the Federal Reserve Board, the Federal Reserve Board didn't hold a public hearing in this case or the statutory public hearing which is provided by the --
Byron R. White: Well, where is that, that 168 of -- of the record?
Edward L. Merrigan: It's 168 of the record.
Byron R. White: And --
Tom C. Clark: And it says that this additionally relate largely to an alleged violation of provisions of National Bank Act?
Edward L. Merrigan: -- which is administered by the Comptroller of the Currency and the official of the United States Treasury Department.
Tom C. Clark: And I suppose that with this kind of problem, we have here arises because the -- the holding company is the applicant before the Federal Reserve Board and the new subsidiary affiliate in seeking the charter is the applicants before the --
Edward L. Merrigan: It's not even before the Board.
Tom C. Clark: I beg your pardon.
Edward L. Merrigan: It's not even before the Board.
Tom C. Clark: So it can't be because it's not in existence?
Edward L. Merrigan: It was the application for its existence was pending before the Comptroller.
Tom C. Clark: That is right it is.
Edward L. Merrigan: But as a matter of law it would never be because the application is filed by the holding company simply for the right to acquire the stock of the bank and of course the Federal Reserve Board in this case actually after hearing the dissenting stockholders of Whitney-New Orleans who appeared before that Board and protested vigorously about this whole thing just as we are here, referred the whole questions of the Comptroller of the Currency and one of the reasons I think we are before the Court is that the Comptroller refused to comment on these alleged violations of Section 36 to the Board. The Board of course taking the position that they couldn't pass on alleged violations of Section 36 in having no position from the Comptroller of --
William J. Brennan, Jr.: I must say Mr. Merrigan I have difficulty reading that letter as saying that. All it says is at first they say those arguments without substantial merit and in any event.
Edward L. Merrigan: In addition they relate --
William J. Brennan, Jr.: Well, the implication is led -- the alleged matter from that letter that they did consider.
Edward L. Merrigan: If there's in the -- in addition they relate --
William J. Brennan, Jr.: In addition that the -- that's preceded by and the judgment of the Board that those arguments are without substantial merit.
Edward L. Merrigan: Well, that's correct but then it goes on to say in addition they relate largely to an alleged violation of provisions of the National Bank Act which is administered by the Comptroller of the Currency, an official of the United States Treasury Department.
Tom C. Clark: Prior to the passage of the statute, they said that it is the judgment of the Board. Than what largely under (Inaudible).
Edward L. Merrigan: Well except that no Your Honor what they pass orders what is right before that it said it is also alleged the Board's action though unnecessarily placed into the hands of federally charted banks a powerful and unfair competitive advantage of a state banks. It says in the judgment of the Board those arguments are without substantial merit. Then they move on and say, in addition they relate largely to an alleged violation of provisions of the National Bank Act.
William J. Brennan, Jr.: They, meaning those arguments?
Hugo L. Black: The Treasury Department, is it not?
Edward L. Merrigan: Well, we -- we were -- we were -- I really think what the Board meant what I say the Board intended to mean Your Honors was that we were arguing that trying to get the Board to listen to the fact that this was in a violation of Section 36 of National Bank Act and the Board took the position as they did during the proceedings itself that this was a question to be resolved by the Comptroller of the Currency.
Byron R. White: They turned you down.
William O. Douglas: Now, does the Board have any jurisdiction under, to administer the National Bank Act that I'm asking you in ignorance?
Edward L. Merrigan: No, they do not. Of course the Comptroller of (Voice Overlap)
William O. Douglas: -- exclusively under the --
Edward L. Merrigan: My statute is the -- the National Bank Act and all violations of the National Bank Act are exclusively under the jurisdiction of the Comptroller of the Currency. That --
William O. Douglas: What the jurisdiction does the Board have just under the Holding Company Act?
Edward L. Merrigan: The sole jurisdiction is for -- its relevant here, the Federal Reserve Board.
William O. Douglas: What's all about here is?
Edward L. Merrigan: Is to pass on the holding company's proposed acquisition of shares in the subsidiary bank. The Board, Your Honor, cannot in any case pass on the validity of the bank a writ or come to the -- come to grips with what the Congress has prescribed must become the grips with under Section 27 of the National Bank Act whether the proposed bank is -- is lawfully entitled to commence business and whether the bank is proposed to be open for a legitimate object contemplated by the Bank Act and we say in this case that this was an illegitimate object from the very beginning to whip a proposed intentional purposeful evasion of Section 36 of the National Bank Act.
Byron R. White: Well, I unders -- I take it is an order subject to inquiry to whether when the Comptroller has jurisdiction over the branch banking law and the Board has jurisdiction of the holding company and under the Holding Company Act and the allegation was made that the holding company is going to violate the branch banking law. There is a question as to what and in what form do you wear that kind of an argument?
Edward L. Merrigan: The sole thing here involved is that the propo -- that this Comptroller in this case should be enjoined. As the Court of Appeals have enjoined him, if the District Court enjoined him from licensing a bank to open for business.
William J. Brennan, Jr.: Well, basically I gather your position is that the error committed here is not necessarily that of the Board. It's primarily that with the Comptroller's.
Edward L. Merrigan: Yes.
William J. Brennan, Jr.: And that he in issuing this certificate or attempting to issue it had done violence to the branch banking restrictions of the Act which he supposed to administer, that's in your position.
Edward L. Merrigan: That's correct and in fact, Your Honor, I was just trying to get to this particular part of this case because it shows that the real -- the real defendant is the Comptroller and the real defendant from the very beginning has been the Comptroller and that's what I wanted to try to get to now in these facts and I (Voice Overlap)
William J. Brennan, Jr.: Can I ask you now Mr. -- well, are you going to get --
Edward L. Merrigan: Yes, right now.
William J. Brennan, Jr.: What participation did -- did your clients have in any of the proceeding leading to the certificates?
Edward L. Merrigan: I'm sorry, Your Honor.
William J. Brennan, Jr.: What participation if any was there before the Comptroller --
Edward L. Merrigan: None. None be -- before the Comptroller because he holds no hearing whatsoever. He's entirely ex parte. There are no proceedings before the Comptroller of any kind. He conducts his procedures entirely off the record without any statutory hearing of any kind. There's no place for anyone who wants to oppose, to oppose until you can go to Court to get an injunction when he proposes to do the charting.
Byron R. White: But he is a -- he is a party to the proceedings before the Board and if you are airing arguments about this being a violation of the branch banking law the Comptroller is well aware of it and that he participated in the argument and he did participate in the matter and -- and recommended the Board with the -- an application to be approved, did he not?
Edward L. Merrigan: Well, let's just examine the statutory way in which he participates before the Board. The application is filed Mr. Justice White. The Federal Reserve Board then gives the Comptroller a notice that the application has been filed. The Comptroller then, if he disapproves, the Board must hold a statutory public hearing in Louisiana under the Administrative Procedure Act where the bank can come in and add their views on the subject but in this case, the minute the Comptroller approves that obviates the necessity for any public hearing, statutory hearing before the Board. So what the Board did in this case they didn't hold the hearing prescribed by the statute, they didn't have a trial examiner or hearing examiner take testimony cross-examine, hear opponents and so forth, they simply held a meeting up here in Washington before the Board at which they accepted a series of views presented by the bank itself and by the minority stockholders of the bank who came in and said, “This is terrible, don't let them do it” and then by one other bank official from Louisiana who apparently got notice of it or wind of it and came up here and participated. But frankly, we had no notice and there was no statutory public hearing held in Louisiana where we could rush in and make a lot of objections and cross-examine witnesses and participate.
Earl Warren: Is there any public notice given by the Board? Was it in this case?
Edward L. Merrigan: If the hearing that the -- the informal acceptance of views as what they called, it Your Honor, was notice that was given in the Federal Register but no personal notice was served on anyone and no one was give -- written a letter by the Board saying, “Please come,” and while we lawyers here in Washington do read the Federal Register, I don't know how many people actually do it in New Orleans or in Lafayette, Louisiana.
Potter Stewart: Is it your representation that your clients had no actual notice of this as a matter a fact?
Edward L. Merrigan: No actual notice or no legal notice or --
Potter Stewart: No actual. Did they know about it?
Edward L. Merrigan: There were supposedly articles in the New Orleans newspapers about it Your Honor. Whether my clients knew about it from an article in the newspaper, is hardly a notice that I should refer to as notice bef -- before this Court.
Potter Stewart: Well, I just wondered if you were representing that this was all done without -- or surreptitiously, so to speak, or at least without the knowledge of your client. Well I -- I'm afraid we didn't say that it was surreptitious.
Potter Stewart: No I --
Edward L. Merrigan: It's like a case in court where you get no notice that a complaint has been filed and they take it to follow a judgment against you, you would run in and say you have no notice. But I'm saying that it wasn't necessarily surreptitious but the fact is we got no notice.
Potter Stewart: Well, did you -- did your clients know about it?
Edward L. Merrigan: Mr. Webster, who is the general counsel for the Bank of New Orleans said that through the newspapers, they had heard that these proceedings were being held before the Federal Reserve.
Potter Stewart: And there was to be -- and in the Federal Register there was --
Edward L. Merrigan: There was a note.
Potter Stewart: -- that kind of notice --
Edward L. Merrigan: Yes.
Potter Stewart: I -- and there was, was there not an opportunity for your clients to come here and be heard, if they have object -- objections before the Board now not before the Comptroller.
Edward L. Merrigan: I would say before the Board. If you take newspaper notice and from that (Voice Overlap) before Federal Reserve Board, if they would come up here before the Board. But when you study the proceedings, Your Honor, which was set before the Board then I have the traditional type of proceeding that's conducted under the Administrative Procedure Act where you have the right to counsel and cross-examination and all of the protection which you otherwise would have. They accepted a series of unsworn views from the president of Whitney-New Orleans, a series of views from one of the dissenting stockholders of Whitney-New Orleans, a series of views from the attorneys or some of the other minority stockholders, and then a statement by one other official of another national bank who did come up here and oppose it. But this is not the type of statutory hearing which of course the Congress prescribed.
Byron R. White: You don't suggest that there's -- that the record is inadequate to make a decision as to whether or not this is really a branch now, do you?
Edward L. Merrigan: No, I would say that the -- the record is absolutely complete and I've been trying to get to --
Byron R. White: Regardless that they're not being in your --
Edward L. Merrigan: I think it's complete with the admissions. In other words, it was candidly admitted in the Federal Reserve, Mr. Justice White that --
Byron R. White: Well that's all I want to know.
Edward L. Merrigan: Right.
Byron R. White: You think the record is complete.
Edward L. Merrigan: That's correct, just as it is.
Arthur J. Goldberg: (Inaudible)
Edward L. Merrigan: Yes, Your Honor.
Arthur J. Goldberg: Is it your view that it should (Inaudible)?
Edward L. Merrigan: No, I -- I think that his letter, Your Honor fails, it even mention Section 36 and it fails to mention all of the other fault at law.
Arthur J. Goldberg: So if you're -- this and I think that was left and that the Federal Reserve is going to say in fact the violation that this bank is in whether or not is in effect the claims that they can conclude and that was all. Is that what you're saying?
Edward L. Merrigan: Yes and when the Federal Reserve Board, Your Honor, later in the record asked the Comptroller to please comment on the claims that the law which has been violated and circumvented, he wrote back in a subsequent letter and refused so to comment or failed to comment, claiming that this letter which Your Honor is looking at now merits, page 166 which expressed the views of the Comptroller.
Arthur J. Goldberg: Discharge his view.
Edward L. Merrigan: Discharge his view.
Arthur J. Goldberg: Now, really what you're saying that the only time that the stipulation was given is the substantive part of your argument that this very well, if we are to say, this fact that (Inaudible) constituted a violation of the section (Inaudible).
Edward L. Merrigan: Yes, that's correct.
Byron R. White: Well, Mr. Merrigan let's assume that the rule was, the correct rule was that the Federal Reserve Board should consider this kind of an argument and dispose of it. If that were the correct rule, then the Fifth Circuit is the one that ought to tell the Board to -- to omit it. You omitted consideration of the crucial element in deter -- in determining whether or not to approve this subsidiary of the holding company. Now, the Fifth Circuit should or would -- should pass on this question. If that were the rule, if that were the rule you're saying that not only that they didn't pass on it and that they said that the Comptroller should consider it but you're saying that that's the way that rule should be and that the Comptroller should be the one to pass on this kind of a claim rather than the Board.
Edward L. Merrigan: Well, I don't think Your Honor that it's a matter of my desire but how I think about it. I think it's a pure matter of law that they have no authority to pass on.
Byron R. White: I agree with you 100%.
Edward L. Merrigan: That they have no authority to pass on it. But this is a matter for the Comptroller of the Currency. He's the official choice by law to administer the National Bank Act and if you have to sue the Comptroller to enjoin the Comptroller from participating in a plan like this from the beginning and trying to put the thing through although he knows its wrong and although he knows that it's in violation of the National Bank Act and I'm trying to come right now to those facts in this case which I say show that he knew it was wrong from the very beginning.
Hugo L. Black: Suppose he did, what's your remedy and he just did it deliberately.
Edward L. Merrigan: The remedy is -- is our suit here for declaratory judgment --
Hugo L. Black: Pardon?
Edward L. Merrigan: Our remedy, Mr. Justice Black, is the suit here. Our only remedy is the suit here because once he issues the charter, of course, he's the only one who can possibly question it or who can possibly revoke it, so the only chance for the respondent bank based with this unlawful competition is to sue him for declaratory judgment and injunction which we've done here and which the District Court has upheld, in which the Court of Appeals has upheld.
Hugo L. Black: Do you agree that his findings that -- that it did not violate those national or it's not a branch bank that's unduly prohibiting, you'll read that his findings are final or is supported by substantial evidence?
Edward L. Merrigan: No, I don't find that he has any findings because Your Honor, he makes no findings, he simply says, “I'm going to is -- issue a charter.”
Hugo L. Black: If the Board has to do it.
Edward L. Merrigan: If the Board has to do it, yes, but that's because they do make a decision under the Federal Bank Holding Company Act that this charter, pardon me, that the Comptroller, Your Honor, has a completely ex parte proceeding in which he makes no record and in which he renders no decision other than that he suffice it to be in the public interest so-called to issue a charter so that you don't get the question of the Comptroller until after the “cow is out of the barn” so to speak. And that's what we were trying to prevent here, the -- because even --
Hugo L. Black: Well, assuming -- assuming that the -- the Board does have the power to do what it's trained to do there, foreclose you and it's supported by substantial evidence. Are you claiming here that unless you get a relief against the Comptroller at this time, you will be irreparably invincible that the view of the Board's action can be taken?
Edward L. Merrigan: Well, positively. Because in this case now, the statute, the Federal Reserve Board's statute, the Holding Company Act gives you 60 days within which to appeal for example from the decisions of the Federal Reserve Board. That is to go in and review the decision of the Federal Reserve Board within a period of I think it was 10 or 12, 15 days after the Federal Reserve Board acted and before the 60-day appeal period had even substantially started to run, the Comptroller here issued a formal announcement saying, “I'm going to issue the charter to Whitney-Jefferson whenever they apply for it.” Then we brought our suit and after the suit was filed and again before the 60-day period was out, he came in with an affidavit before the District Court saying that if -- “if the injunction in this case, the temporary restraining order is lifted, I intend immediately to charter Whitney-Jefferson” and as I say, Your Honor, once he charters Whitney-Jefferson, the game is over as far as the banks are concerned because no one can question that other than the Comptroller or perhaps the Attorney General who in this case were quo warranto -- quo warranto proceeding might do so. But that's such a speculative remedy in most cases than no remedy here because the Attorney General has actually participated in representing and defending the Comptroller in this case.
Byron R. White: Well, then you have the case of -- in fact that charter today is that the issue of whether or not the bank holding company can own that bank it's still unresolved.
Edward L. Merrigan: Well, once the bank is over -- is open, now the -- the Section 36 of the National Bank Act has been completely evaded, has been completely nullified and the bank is open.
Byron R. White: Well that's the -- that's the thrust of your argument.
Edward L. Merrigan: Yes sir.
Earl Warren: Why couldn't -- why couldn't you go into the Court of Appeals and have this decision of the Board reviewed? Why didn't you do it?
Edward L. Merrigan: We have done that, Your Honor. We did petition the Court of Appeals in the Fifth Circuit to review the Federal Reserve Board decision.
Earl Warren: That's the one that's pending?
Edward L. Merrigan: That's the one that's pending and the court there has held its decision because of course its action will be mooted, if this Court upholds the Court of Appeals --
Earl Warren: Yes.
Edward L. Merrigan: -- decision in this case.
Arthur J. Goldberg: Do you think that the Fed -- did you not gone to the Court of Appeals for the Fifth Circuit and the Federal Reserve Board happens to be reserved and find that it has been reviewed (Inaudible).
Edward L. Merrigan: We could have applied for a stay in the Fifth Circuit, there's no question about that. But the point is that before we could even get into the Court of Appeals or before we could even prepare papers and get into the Court of Appeals, the Comptroller here issued a written statement or --
Arthur J. Goldberg: But as you conceded though, the authorization has happened and the fact that the (Inaudible), is that it?
Edward L. Merrigan: If the Court of Appeals had stayed the acquisitions but as he had showed in this record and as it stated that we -- our suit was really unfair. They had already gone out and acquired the stock, acquired the stock and the Federal Reserve Board of Atlanta, the Federal Reserve Bank of Atlanta had gone out and made a lease on a temporary building that you see in the appendix to our brief, they had gone out and purchased a permanent location out in Jefferson Highway so that we could have been in the event the Federal Reserve -- pardon me, in the event the Fifth Circuit had failed to grant the stay, the charter would have been granted by the Comptroller before the issues that have been decided by the Fifth Circuit.
Earl Warren: Where do we find this in the record, the section stating the power of the Court of Appeals on review?
Edward L. Merrigan: Provision said the Act had been -- had been printed in the Whitney brief on page 71 at the bottom of the page, Mr. Chief Justice.
Hugo L. Black: I was trying to ask you this question because I'm much interested in what was actually being done than what's held out. In this order what has been held up? What has the Comptroller been ordered not to do?
Edward L. Merrigan: He's been enjoined from issuing a certificate of authority authorizing Whitney-Jefferson to open its doors for business.
Hugo L. Black: Now, if of course, if the Court of Appeals holds on indeed that the Board, Reserve Board was wrong, there would be no harm done here would it unless it's harm to the Comptroller to keep him from doing his -- his pending time. There would have been no harm subject except that the bank would have been open and it would have been held by the review of the Fifth Circuit that it never should have been open.
Edward L. Merrigan: Yes, Your Honor but I do want to try to get one thing --
Hugo L. Black: Well, what I'm getting at is why does it not -- why is it -- it is an error for the Court here to enjoin the opening of a bank while there is pending in the Court of the Fifth Circuit a motion for review and it has not been decided which if decided in your favor would have made any issuance of power to operate the bank on local.
Edward L. Merrigan: I find no error in that. I find there's danger on the --
Byron R. White: Well, Mr. Merrigan that is what the Court of Appeals did, however. Now, the Court of Appeals decided that not only, they don't do it for this charter pending appeal of the Fifth Circuit don't ever issue it because this is a branch.
Edward L. Merrigan: It's permanent injunction.
Byron R. White: Yes.
William J. Brennan, Jr.: Under the --
Edward L. Merrigan: But there's no error in which Your Honor said either -- that would be precisely the extent.
William J. Brennan, Jr.: Under the decision of the Court of Appeals that we're now reviewing could the case go back to the Comptroller or could he make findings contrary to what the Court of Appeals says and conclude that this is not branch banking because there's a valid holding company?
Edward L. Merrigan: Well no, he couldn't because of course the Court of Appeals and the District Court made findings and conclusion that it's unlawful.
William J. Brennan, Jr.: This is the end of the road in other words.
Edward L. Merrigan: This is the end of the road and this should be the end of the road in our position because it was illegal from the beginning. You see once Whitney decided and the expressed testimony has -- as set forth at page 14 and 15 of our brief shows that Whitney-New Orleans set out on this whole device from the very beginning knowing he had one purpose alone in mind and that is to evade and circumvent Section 30 (c) the provisions. If this is allowed from the standpoint of the national interest, any bank in any state whether it'd be Illinois which has no branch banking or any other state, any big national bank or any little national bank that wants the branch now will simply form its own holding company, run its funds through and open the branch bank where it wanted to originally. This is --
Arthur J. Goldberg: (Inaudible) have had proof for section for the enactment of the statute and again there is the charter in which the new bank holds it on. They can have shortcut the statute and long after the court has stated that this Court --
Edward L. Merrigan: Your Honor, it's absolutely correct. I did overlook the fact that Illinois for example the state mention does have the Bank Holding Company Act which is to supplement the branch banking in order to prohibit the same things being done by a holding company. But in a state, that doesn't have the Holding Company Act and only has the branch restrictions well, of course this would be a nice way to simply get around the law. Change itself into a holding company, use your own funds and open the bank in a prohibited location, so that's the national interest question which is before this Court in this case. It's not limited to our case or the State of Louisiana alone, it is a national interest question.
Arthur J. Goldberg: Actually that before you answer the question. Wouldn't there (Inaudible). But the question really here is that Louisiana is not having been assigned that all this could close. That they just have to go see with respect to the banks which in short has the bank holding which it can (Inaudible). Isn't that the question?
Edward L. Merrigan: The question here is even more narrower than that because of course Whitney-Jefferson has not yet become a national bank it's simply a National Banking Association. It has not gotten a charter, that's one of the purposes of the Act that -- I mean of this case that they'd be enjoined so that they cannot become a national bank. So Louisiana confronted with a head on rush by a holding company to get into business and it was the only known holding company operation to even be organized or attempt to get in business in Louisiana. The question here is whether Louisiana in the act of constitutional exercise of its police power can go one step further and say, “Before we let this lose” the beast, I think it was called by Mr. Spritzer, “the beast lose on the state, can we pay us an additional provision constitutionally and say that they cannot open for business and therefore stamp out before it gets started” and in Ferguson against Skrupa which this Court decided just recently, Kansas faced with debt adjusting business which it did not approve of, certainly have passed a law which outlawed debt adjusters, existing debt adjusters, and present debt adjusters are contemplated debt adjusters, and this Court held that there was no violation of the Fourteenth Amendment if Kansas found that that was in line with its public policy and also exercise that in line with its police powers.
Earl Warren: Mr. Merrigan, what I'd like to know is this, why couldn't you on the direct review before the Court of Appeals have obtained adequate relief under this language. Upon the filing of such petition the Court shall have jurisdiction to affirm, set aside or modify the order of the Board and to require the Board to take such action with regard to the matter under review as the Court deems proper. The findings of the Board as to the facts have supported by substantial evidence so be conclusive. Now, why couldn't you have gotten all the relief you're entitled to and why couldn't you have asked for it in that proceeding rather than to come here collaterally where this order could never be reviewed.
Edward L. Merrigan: Well, Your Honor first we, let me give you the reasons in order as I understand them. Number one, the question before the Court of Appeals in the Fifth Circuit is not the question which is before the Court here and the questions before this Court really I don't think it properly be before the Court in the Fifth Circuit. The question there is --
Earl Warren: So that's -- that's the danger of it, isn't it, that it is a direct review of the order that -- that you're complaining against and -- and in the Court of Appeals, you could have had that reviewed thoroughly and according to that broad language, couldn't you have obtained any relief to which you were entitled?
Edward L. Merrigan: No, Mr. Chief Justice because I think the Fifth Circuit could say quite properly that the question you raised that is whether this is an illegal branch under Section 36 is a question which should be litigated against the Comptroller who operates in a completely different procedure under a different statute to which the National Bank Act. The only question to review in the Fifth Circuit is whether the decision of the Federal Reserve Board on the right of Whitney Holding Corporation to acquire the stock in the two proposed banks present city which I'll go -- wanted to talk about in a moment and the Whitney-Jefferson Bank was within the -- the statutory limits of their law to which the Federal Bank Holding Company Act. You see we have before the Fifth Circuit only the holding corporation and only the Federal Reserve Board. The Comptroller is not a party and therefore he would be less free to do anything he wanted to do in the interim. If for any reason, we did not get to stay which would prevent the Comptroller in some way from issuing his certificate, the game would be over before the Fifth Circuit case could even be adjudicated, Your Honor, because the question is different, the parties are different and I think the question of the law involved is different. That is procedures under the Federal Bank Holding Company Act, the procedure by the Comptroller under the National Bank Act. So I don't think really and I don't want to -- in the light of the situation, say that there would be no question and no matter in which that Court could pass on these questions but I don't think and I know the government has been urging that they can't pass on those questions because in the proceedings in the Fifth Circuit, the government, the same attorneys who have been representing the Comptroller here, had told the Fifth Circuit that the Board must pay us on applications for the acquisition or establishment of subsidiaries without regard to state prohibitions against branch banking, and that's number one. Then they sy none of the issues before this Court had been decided by the District Court for the District of Columbia and the only issue resolved by that Court is not before this Court. Now, that was the government is telling the Fifth Circuit. So I'm sort of like the poor country fellow who was caught in between one courts told, no jurisdiction because all this ought to be urged against the Comptroller and the other courts told, no you ought to go to the -- this Court, no don't come to the Comptroller, go talk to the Federal Reserve Board. So we're in a position where we have no remedy if we're left that way. I mean that's --
Hugo L. Black: You're in the position that the lawyer frequently gets in.
Edward L. Merrigan: In the middle --
Hugo L. Black: Playing nice, playing fair, that something maybe done by three or four people has, that one of them will knock him out and he doesn't know which one the Court finally going to hold his rights.
Edward L. Merrigan: If that's the verdict sir --
Hugo L. Black: Now, you have two case pending, one to review the action of the Board which undoubtedly the statute proviso.
Edward L. Merrigan: Yes, Your Honor.
Hugo L. Black: And you have one on the ground that the Comptroller was pertinent to issue a charter.
Edward L. Merrigan: Yes, Your Honor.
Hugo L. Black: And in that way the charter would be out and you're after him too.
Edward L. Merrigan: We'll stop him to but he's trying to get that further.
Hugo L. Black: Even if the court below were wrong in permanently deciding this as it did. You still insisted it was not but assuming that it was wrong and permanently decided was it wrong in issuing an injunction to prevent you, to prevent the Comptroller from completing this as you would call it coup d'état before you could finally get it litigated.
Edward L. Merrigan: And I said they weren't because if they hadn't done that, we'd be in the Fifth Circuit with a case that may or may not involve the issue.
Hugo L. Black: I presume after this argument you may take it wise probably, put could under the Fifth Circuit and see what's in there, what else happens?
Edward L. Merrigan: Well, I --
Hugo L. Black: -- to do is to stop the charter being issued and the bank operating until you can get your question finally litigated whether it's legal.
Edward L. Merrigan: Yes, because I think the Court of Appeals to the Fifth Circuit is taking this position. It has taken this position over a period of almost a year now or more that it should hold its case, its decision in the case until the final decision of this Court or the Court of Appeals whichever was to be final becomes final because I think as I think the Solicitor General, the Assistant Solicitor General as he admitted this morning that that case will really be moot if this case is upheld, if the Court of Appeal is upheld. Now just as should not be a thing that he has thought of a game with chance.
Speaker: After they had given for that (Inaudible).
Edward L. Merrigan: Well, I -- well let me say this I -- I can certainly -- if -- if Mr. Spritzer didn't say that, I will say it myself, I misunderstood it that certainly the proceedings in the Fifth Circuit will be moot if the Court of Appeals or the District Court decision in this case that has upheld either one and quite frankly, if the -- if the thing involved is wrong, if the thing involved is unfair, if the thing involved is illegal, I don't think we should be put in the position of shuttled back and forth between courts on a -- in a -- in a state of no relief whatsoever because if you dismiss our case here, then we're left with a very, very dubious situation, Mr. Chief Justice, in the Fifth Circuit. And if this plan gets into operation in the face of the Louisiana statute, in the face of Section 36 of the National Bank Act, Louisiana's public policy will be thwarted, the respondent banks have the unlawful competition unleashed upon them in Jefferson Parish, and the possibilities for the other states in the United States are just a big question of low because then any other bank so desiring to get out into an illegal location will consider the possibility as put here that well worn possibility of circumventing the laws through the holding company.
Earl Warren: But what issue is there in this case that is not in the Fifth Circuit case?
Edward L. Merrigan: There are two issues here if you can believe the government's own brief. Number one, whether or not a national bank knowing that it is prohibited by law, Section 36 of the National Bank Act from branching to a prohibited location promoting an office in a prohibited location can with the company and with the help of the Comptroller of the Currency who considers the end personally desirable to him simply form of synthetic holding corporation through which he can put its own fund and often at the illegal prohibited location through the holding company device, that's number one. The government says that the Court in the Fifth Circuit has no right to look at the branching restriction, that it has to look only at the things that are set out in the statute, the injury to competition, the public interest involved all those things.
Potter Stewart: Public interest --
Edward L. Merrigan: Yes.
Potter Stewart: -- certainly would in -- would include many things including the state and the federal law, wouldn't it?
Edward L. Merrigan: Whether -- whether it wouldn't be the very good question because there's no case on that subject and Congress has not chosen to so provide but the -- certainly Section 36 of the National Bank Act administered exclusively by the Comptroller, Your Honors. The Federal Reserve Board has no jurisdiction for a moment over Section 36. It has no jurisdiction at all on the National Bank Act for that matter and I think the first person who would be complaining bitterly if the Federal Reserve Board tried to seek an administration of the National Bank Act would be Comptroller Saxon himself.
Byron R. White: Well, Mr. Merrigan, in -- in the Fifth Circuit since the Board -- between the time the Board acted in the case at the Fifth Circuit, Louisiana changed this law, didn't it?
Edward L. Merrigan: Louisiana changed its law right after the case --
Byron R. White: The case is public policy, right after the Board acted. And lets assume that it hasn't even added Section 5 on to the Act then there would have been a flat provision in Louisiana against the acquisition of this bank, isn't that true, under the new law? If that law had been in existence prior to the Board's action of course, the -- the approval would have, that could have issued?
Edward L. Merrigan: That's right.
Byron R. White: Now, would a proper position in the Court of Appeals where you'd be that -- that these case isn't final, it isn't over, that there has been a change in Louisiana law that the -- that now the Board should consider?
Edward L. Merrigan: Well, I think that would certainly be a proper position to take with the Federal Reserve Board regarding the stock acquisition phases of the case. But I think it's also a perfectly good legal position to take against the Comptroller who is charged by law only to license lawful operations and I think it's a perfectly good position to take here and I think with -- I think the court below was absolutely correct.
Byron R. White: But is it your position that as regards to Comptroller license, it isn't there -- I mean Louisiana statute is not relevant to your position as against the Comptroller, is it?
Edward L. Merrigan: Yes, it is Your Honor because the District Court based its original injunction on the Louisiana statute.
William J. Brennan, Jr.: Well I know, but I thought your position basically what you told me earlier the Comptroller has violated Section 36 because this is actually a branch bank, isn't that in your position?
Edward L. Merrigan: We have two positions basically, Your Honor. The first position is that this injunction is correct and the injunction issued by the Court of Appeals is correct because the Comptroller's action violates Section 36.
William J. Brennan, Jr.: Alright, now that -- that has not -- the new Louisiana statute has no relevance to that question.
Edward L. Merrigan: No relevance to that, no. If that --
Byron R. White: But if -- but if the -- if the Louisiana law prevented the old bank requiring the new one and it didn't, there wouldn't be a branch even if there was a bank.
Edward L. Merrigan: Now, the Louisiana statute simply supplements the branching provisions of the State of Louisiana and it's the second question raised by this case, Your Honor which is that it's also unlawful for the Comptroller to -- to issue a certificate licensing the opening of a completely directly illegal operation. That's what the District Court rule judgment brought in and then of course the Court of Appeals said, “Well, this was illegal from the very beginning, you should not have even started.”
Hugo L. Black: They determined the judgment law and granted it unconstitutional because it is passed after the bank attempted to -- cared to expand.
Edward L. Merrigan: Yes, there is a challenge here to that.
Hugo L. Black: What contributes to it?
Edward L. Merrigan: The Fourteenth Amendment and they say it denies them equal protection and of course we say to that, that it does not violate the Fourteenth Amendment and we cite Ferguson against Skrupa as the most recent decision. We say this law was enacted within the police powers of Louisiana. We also say it doesn't deny them equal protection because it applies to all holding company, to all bank subsidiaries, all banks equally. The fact that Whitney is the only one that tried to get into the holding company business and it's thus the only holding company as its fault not the state.
Hugo L. Black: But you have to indicate in anyway that the state's permission to outlaw this -- this kind of procedure depends on one, does it?
Edward L. Merrigan: No, it does not and in this --
Hugo L. Black: What was the basis of the Holding Company Act? Was it on the basis that the holding companies on matters, kinds of operations should be furthered in the public interest?
Edward L. Merrigan: No, Your Honor. They passed this Act, its preamble states that it's against the public policy of Louisiana. The holding company operations are against the public policy and they passed this Act honestly with Whitney in mind because Whitney was rushing madly to be the first holding company in Louisiana to open a bank.
Hugo L. Black: Is it your contention that they had a right to do it then?
Edward L. Merrigan: Yes, Your Honor.
Hugo L. Black: They did not have the charter?
Edward L. Merrigan: That's correct because they were not even a national bank at that point. Your Honor, in a few moments which are remaining to me, I would like to just say this that the dispute against the Comptroller Saxon in this case that the Comptroller of the Currency starts on these grounds. Number one, he met with Whitney-New Orleans from the very beginning here in Washington before they even put the plan into operation and sat down with them and advised and consented with them on -- on how they could really get a bank open in Jefferson Parish. Number two, the first step in this whole plan was to take $350,000 of money out of Whitney-New Orleans to buy stock in the Whitney Holding Corporation. Section 24 of the National Bank Act makes it illegal for a national bank to use its funds to purchase stock of any corporation. The Comptroller approved it knowing well that that was an illegal step. The second step of this complicated transaction involved the formation of what the Federal Reserve Board called a phantom bank Crescent City National Bank of New Orleans. The purpose of that bank was one thing only, to eliminate all dissenting stockholders under Section 215 of the National Bank Act because under that section if a dissenting stockholder doesn't go along with the merger of that phantom bank with the Bank of New Orleans, his stock can be appraised and he can be bought out. This was step number two looking toward a complete unitary type of operation. Step number three was to take $650,000 out of the Bank of New Orleans and run it through the holding company. All of those Sections 1845 of Title XII a provision of the Federal Bank Holding Company Act say that a bank shall not invest its funds in any of the securities of a holding company, shall not lend any money to a holding company, shall not engage in upstream finances. So here's number three, the steps of the Comptroller has approved. Finally, we get down to the end of the line and he's going to charter this thing in Jefferson Parish in violation of Section 36. So I complained here, he goes before the Federal Reserve Board under Section 1842 of Title XII, gives his approval to this whole plan and therefore obviates the public hearing on it in Louisiana, the statutory hearing where there could be crossed examination and so forth. So we're litigating against the right end in the right court. The suit against the Federal Reserve Board when they -- when they went to the Comptroller during the course of their proceedings and said look, the minority stockholders of Whitney-Jefferson who will be squeezed out on this thing, what's your advise as to why this might be in circumvention of the National Bank Act which you administer? He refused to comment on it. So we find and felt here, Your Honor -- feeling that the Court of Appeals was eminently correct and perfectly correct in every respect and we feel also that the District Court was correct in upholding the Louisiana Act. But on either ground we think we're entitled to judgment of an -- of an affirmance.
Ralph S. Spritzer: I heard about the matter of interim relief. In the first place, I would stress that what the District of Columbia courts have done is not to attempt to maintain a status quo pending an adjudication in the Fifth Circuit. The action before them was for a permanent injunction restraining the Comptroller at anytime from issuing this last document of title which this national bank needed in order to open up. So far as remedy pendente lite is concerned, it seems to me perfectly clear that if we are right in our view that the objections which are being made in this case should have been made before the Fifth Circuit, that the Court of Appeals for that circuit would have the power to do anything that was necessary or appropriate to maintain the status quo while the matter was pending before it. Nor I think is there any likelihood that if there were any indication that the Court of Appeals was concerned about possible precipitant action by the Comptroller nor is there any likelihood that he would take such action pending review in the Fifth Circuit.
Hugo L. Black: Well isn't that about the statute? I suppose that he may, the Comptroller (Inaudible).
Ralph S. Spritzer: He was about to, that is right Your Honor. What I'm suggesting is that any necessity for a stay of proceedings pending review of the Board's order could be satisfied by an application for a stay to the Court in which review of that order is pending.
William J. Brennan, Jr.: If he would have prevailed, we also could tell him that your view would be pending (Voice Overlap) in that case but --
Ralph S. Spritzer: Certainly, I was merely suggesting that I did not think.
William J. Brennan, Jr.: So why go through all the business with an application to the Fifth Circuit?
Tom C. Clark: Is that the issue here?
Ralph S. Spritzer: No dissent from that Your Honor.
Tom C. Clark: That may be issued before anybody even get at something.
Ralph S. Spritzer: Well, actually the Fifth Circuit as matters now stand is waiting on Your Honors.
Tom C. Clark: Sometimes I remember when I was in the government, they acted predictably and I mean, is that it, asserting perhaps you might get an injunction, so is there any merit for that, I suppose it would be best to prohibit for it to have stay.
Ralph S. Spritzer: I'm sorry I didn't catch that last, Your Honor.
Tom C. Clark: Is there any merit from the proposition that should be a stay, well perhaps this Court should take to some action.
Ralph S. Spritzer: I don't question that this Court had concluded that the injunction of the Court of Appeals was improperly issued but also concluded that the matter should be held in advance until the Fifth Circuit completed its review that it could issue an appropriate direction. The case with its conclusion I think comes back to the beginning point and that is that the basis of the complaint in this case is that the Board, well the basis of it stems from the fact that this bank which Whitney and Chris proposed to open is owned by a holding company. Now, if that ownership is objectionable for any reason it seems to me that it must be that the Federal Reserve Board has improperly performed its function in approving the relationship.
William O. Douglas: Did they complain of the violation, an alleged violation of the National Banking Act?
Ralph S. Spritzer: Yes. But to get to that Your Honor they have to say that this is a branch in -- they are really not prepared to say that because you can't say that. It's obviously a holding company relationship so what they say in effect and I'm going to quote what they said to the Fifth Circuit, this is the brief of the respondent banks in the Fifth Circuit. They say a respondent, and they're talking about the Federal Reserve Board, has knowingly permitted the use of the Bank Holding Company Act to provide national banks with an artifice to evade regulatory state and federal laws. Now, if -- if they are right, if the bank holding company has been abused and this holding company is somehow illegitimate in its conception or in its proposed operations then I should think it's inescapable that the appraisal of the claim that the holding company is improper certainly must be for the only agency which is authorized to pass on a holding company relationship and I think the very arguments they make here emphasize that. For example, Your Honors were told that this was a violation of the -- this acquisition would be anti competitive in its effects. Well, the Board has directed to pass upon competition. Your Honors were told that the source of the funds was improper. The source of the funds was actually undivided profits which were free monies and available to the payment of dividends instead of paying the dividends out and the shareholders then subscribing them a new, these free monies were paid directly into Whitney Holding Company but if that were a violation of any provision of law, it would be a violation of Section 6 of the Holding Company Act and the Federal Reserve Board is supposed to enforce that Act, so that I think all of the issues which are presented if there is any merit to them which I'm not conceding are issues for the Federal Reserve Board alone.
Hugo L. Black: (Voice Overlap) why does the case at bar that certain end whether this Act was passed on Louisiana, it was admitted to express its hostility questionable to the attorney of the state, this holding of one of his counsel (Inaudible). Why would did it bar them to take whether that is constitutional or because it -- it has forbidden it -- has been expressed to pass the law which the Congress has said unfair, unless for some reason about the Constitution.
Ralph S. Spritzer: We do argue that the Louisiana Act cannot stand because of preemption Your Honor without reaching any constitutional question.
William O. Douglas: So that's the Constitution questioned.
Ralph S. Spritzer: Well yes, but in the ultimate sense it certainly is. I thought that perhaps Justice Black was referring to the arguments based on the Fourteenth Amendment and retroactivity. We have relied in our brief, I have not dealt with this point in oral argument, on the contention that the violation results from preemption of the National Bank Act.
William J. Brennan, Jr.: Well, suppose that Section 7 is authority to the states to have just this point of statute premature.
Ralph S. Spritzer: Well --
William J. Brennan, Jr.: Is there any preemption problem then?
Ralph S. Spritzer: No, if you interpreted Section 7 is doing that --
William J. Brennan, Jr.: Then do you have this --
Ralph S. Spritzer: That would be an answer to my preemption argument, I don't think Section 7 does that.
William J. Brennan, Jr.: Well, about -- what -- on the premise it did? Does the government have another position about the Section 5 of the --
Ralph S. Spritzer: Well, I would still question the remedy of an injunction against the Comptroller. I would think that the -- whether in the light of the Louisiana Act, this relationship should have been approved or to have been presented in the first instance to the Reserve Board because all the Comptroller does is to determine whether a bank is qualified under the provisions of the National Bank Act, he makes some examination and the determination of formal qualifications. He doesn't pass upon issues of state law --
Byron R. White: Mr. Spritzer, if Section 7 authorizes a statute including this Section 5 provision, can the Board in any event approve this acquisition?
Ralph S. Spritzer: Well, I would -- what I was suggesting was that the Board, I would suppose that the Board in the first instance rather than the Comptroller would make the initial decision as to whether the action it proposed to take was forbidden by any other provision of law. If the Board arguably urge then that issue could be taken up on appeal. I don't see that the effect of the Louisiana law was an issue before the Comptroller or that it is properly an issue before a suit to enjoin the Comptroller from issuing a certificate under the Bank Act.
William J. Brennan, Jr.: Well, you may be right. And perhaps, the most properly blown to the Fifth Circuit so to speak but it's a little unusual isn't it if we were to conclude that Section 7 did authorize Section 5 and this is an absolute prohibition. If you find them on every agencies of the federal government that we go all through the rig in the row and sending them back.
Ralph S. Spritzer: Oh! I think Your Honors could certainly examine the relationship of the Louisiana law to the Bank Holding Company Act in the case now before you.
Earl Warren: Mr. Acheson (Voice Overlap)
Hugo L. Black: Why would the Comptroller be the proper person if he's in doubt that (Inaudible).
Ralph S. Spritzer: Well I -- I would --
Hugo L. Black: We are waiting like both of them will know.
Ralph S. Spritzer: I'm not suggesting that the Court can't consider the point in this case, what I was suggesting to Your Honor was that the asserted rights in this case or relate to whether a relationship with the parents to subsidiary should have been approved and as a matter of primary jurisdiction I would think that that issue to begin with was before the Federal Reserve Board rather than the -- rather than the Comptroller having in mind that the Comptroller's functions are solely to determine the more or less formal qualifications imposed by the Banking Act and not to pass upon control relationships or the public interest which is involved or the policies which are involved in such relationships.
Hugo L. Black: Suppose we reach the conclusion that he was right and enjoined but he gave, the Court gave their own reasons (Voice Overlap) there was an Act of Louisiana because they have the right to pay decided under Section 7. Do you mean that the event we should say that the total that I'm talking about it.
Ralph S. Spritzer: I'm sure that the --
Hugo L. Black: -- anything?
Ralph S. Spritzer: If Your Honors were to conclude that the Louisiana Act forbad could properly invalidly forbid the opening of the bank, I'm sure that regardless of what kind of an order were entered that that would be the end of this proposal by Whitney Bank because I would have to say, it would attempt to open in that circumstance. As to the legal argument we make in relation to the Louisiana Act, it is grounded as our brief elaborates upon the claim that with respect to the organization, operation, and establishment of national banks, the Banking Act occupies the field. That is not to deny the possibility that the Louisiana might even go so far as to direct the shareholders that is the holding company to divest itself of its interest in this national bank. It is to argue that the state has no authority under the Bank Act to prevent the opening of a chartered national bank order require its closing.
William J. Brennan, Jr.: And that Section 7 can't be given the scope in this Act with modifying that consequence of the Bank Act?
Ralph S. Spritzer: Yes. To which I would add that this every indication that it was not intended to.
Hugo L. Black: But as I understand, they now had moved that it seems to me that therefore they can have a thought of amending it. That is that even though Section 7 fully authorizes the defendant to withdraw that the law is fully apt that you can't stop the Comptroller from giving the license to other banks.
Ralph S. Spritzer: What I was saying in response to Justice Brennan's question was that I did not think Section 7 did authorize such a statute that's all I was saying Your Honor.
Hugo L. Black: What difference is Section 7 does authorize it, and the Act doesn't.
Ralph S. Spritzer: Oh, I think that is the difference of course.
Tom C. Clark: Mr. Spritzer you could say you need some homework, what was the date of the Louisiana Section 5 in reference with reference to the amended or what we call petition for rehearing before the Board?
Ralph S. Spritzer: I have it here, which the Board approved -- I'll give you the sequence of several events, if that will help. The Board approved on May 3 of 1962 the acquisition. An action was first brought in the District Court on June 9 of 1962, that was the first complaint. A petition for reconsideration was filed with Federal Reserve Board on June 13th, that was the action and that's the fact. Once that --
Byron R. White: And the ruling of the Board?
Ralph S. Spritzer: The Board denied rehearing on June 25th. On June 30th, the Board's order was appealed to the Fifth Circuit and on July 10th Act 275 became effective.
William J. Brennan, Jr.: Do you have the date when that Act was introduced in the Louisiana legislature?
Ralph S. Spritzer: I think the brief indicate it, I don't recall it. It was in May, I'm told. I don't have the exact date.
Arthur J. Goldberg: (Inaudible)
Ralph S. Spritzer: That's right.
Arthur J. Goldberg: A temporary restraining order.
Ralph S. Spritzer: Yes, there was a temporary restraining order and then a preliminary injunction by Judge (Inaudible), as I recall.
Speaker: Do you recall if it's June 9?
Ralph S. Spritzer: June 9, it's correct.
Speaker: (Inaudible)