Opinion ID: 381864
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 2 V-H operates an insurance business in Salem, Oregon. Its two shareholders, Mr. Compton and Mr. Smith, are also its chief executives and directors. Compton and Smith hold the same positions in another corporation, the Pioneer Trust Company (Pioneer Bank), which operates a commercial bank in Salem. In 1968, V-H received 16.4% of Pioneer Bank's outstanding shares upon V-H's sale to Pioneer Bank of real property adjoining the site of the Bank's offices. In 1970, Compton and Smith, as individuals, together owned 60.1% of Pioneer Bank's outstanding shares. As of 1977, Compton and Smith owned 33% and 21% respectively, for a combined total of 54%. 3 In 1970, Congress amended the Bank Holding Company Act to subject one-bank holding companies, i. e., those holding companies owning or otherwise controlling only a single bank, to the same federal controls that had been established previously for multi-bank companies. In January 1971, the Federal Reserve Bank of San Francisco (Reserve Bank) advised all banks in its district that one-bank holding companies were now included within the scope of the Act. Each bank was requested to inform the Reserve Bank if the bank was owned or thought to be controlled, either directly or indirectly, by any company. Pioneer Bank responded by setting out V-H's interest. The Reserve Bank, in turn, informed V-H that it would appear that V-H would be considered a bank holding company under the Act. The Reserve Bank later notified V-H that, based on the information V-H had submitted, it appears . . . your company . . . is required to register with the Board of Governors. V-H then filed a registration statement which the Reserve Bank accepted as legally and informationally sufficient on May 14, 1971. On July 21, 1971, in response to a request by V-H for certification under I.R.C. § 1101, the Board, through the Reserve Bank, informed V-H by letter that it could not be certified for purposes of a tax-free distribution because V-H was not a bank-holding company under the Act of 1956 or the Amendments of 1966. The reason for this result was that Congress failed to amend I.R.C. § 1101 to provide for certification of one-bank holding companies when it passed the 1970 Amendments bringing one-bank holding companies within the scope of the Bank Holding Company Act. The Board's letter indicated, however, that Congress was considering remedial legislation to rectify this omission by bringing one-bank holding companies within section 1101. In response to the Board's letter, V-H wrote that it had no desire to be subjected to any further governmental regulation, and that if there is any doubt about (our) status under the . . . Act, we wish to have it resolved immediately. A member of the Reserve Bank's legal department then told V-H's counsel by telephone that the Board was considering adopting certain regulatory presumptions on control to implement the 1970 amendments, and that until such a regulation was promulgated, V-H's status as a bank holding company would not be clear. The Board did subsequently adopt regulation 12 C.F.R. § 225.2, which creates a rebuttable presumption of control if a company holds more than five percent of a bank, and company officers, directors, or controlling shareholders hold additional bank shares such that the total bank shares held by the company and individuals connected with it exceed 25% of the bank's outstanding shares. When V-H received a copy of this regulation, in September 1971, it conceded by letter that it was covered by the Act. 4 In March 1972, the Reserve Bank informed V-H that it was required under the Act and the Board's regulations to file an annual report with the Board. When V-H asked for verification of this requirement, the Chief Examiner of the Reserve Bank replied that V-H was indeed required to file an annual report. V-H has since filed all required reports and submitted to the Board's audits and inspections. 5 Although Board rosters of bank holding companies have, since 1970, carried a notation indicating that control determinations have not been made as to some registrants, no such notation was ever made in reference to V-H. V-H claims that the fact that it was prohibited from making further acquisitions under 12 U.S.C. § 1843 prevented it from continuing to grow through acquisition of other insurance agencies. 6 In 1976, Congress passed amendments to I.R.C. § 1103, extending the benefits available under I.R.C. § 1101, i. e., the right of companies to make tax-free distributions after certification by the Board, to companies brought within the scope of the Bank Holding Company Act by the 1970 amendments. On January 10, 1977, V-H requested certification under I.R.C. § 1101. On June 16, 1977, the Board's General Counsel, empowered by the Board to issue certifications on the Board's behalf, issued its opinion that V-H was not a bank holding company within the terms of the Act. V-H then requested either reconsideration or a formal Board order denying the application for certification. On November 15, 1977, the Board denied the request and reaffirmed its conclusion that V-H was not a bank holding company within the terms of the Act, on the ground that V-H did not control Pioneer Bank.