NATIONAL COURIER ASS'N v. BOARD OF GOV. OF FED. R. S. Nos. 73-2235, 73-2240.
516 F.2d 1229 (1975)
NATIONAL COURIER ASSOCIATION and Purolator Courier Corp., Petitioners, v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent, Cameron Financial Corp., and Courier Express Corp., Intervenor. INDEPENDENT BANKERS ASSOCIATION OF AMERICA, INC., a non-profit corporation, Petitioner, v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent, Cameron Financial Corp. et al., Intervenors.
United States Court of Appeals, District of Columbia Circuit.
As Amended August 26, 1975.
Laurence C. Leafer, Alexandria, Va., of the bar of the Supreme Court of North Carolina, pro hac vice by special leave of court, with whom William F. King, Alexandria, Va., was on the brief,
Before McGOWAN, ROBB and WILKEY,
McGOWAN, Circuit Judge:
The Bank Holding Company Act of 1956, which generally prohibits bank holding companies from owning shares in companies other than banks, allows such ownership where the activities of the non-bank affiliate have been found by the Federal Reserve Board to be "so closely related to banking or managing or controlling banks as to be a proper incident thereto." 12 U.S.C. § 1843(c)(8) (1970). In the regulation herein challenged on direct review, the Board has enlarged the activities heretofore found by it to be "closely related."
12 C.F.R. § 225.4(a)(11) (1974).
A fourth category of service that may be provided by bank-affiliated couriers is contained in the following "interpretation," also added to Regulation Y by the contested order:
Id. § 225.129.
For the reasons stated below, the regulation under attack is upheld in part, and in part held invalid.
We note at the outset the limited nature of the question we have been asked to decide. Section 4(c)(8) of the Bank Holding Company Act provides that the general ban on the ownership by a bank holding company of shares in any company other than a bank shall not apply to
12 U.S.C. § 1843(c)(8) (1970). By an amendment of the same section in 1970 the Board has been further instructed as follows:
The parties are agreed that there are two distinct issues raised by a bank holding company's seeking to hold shares in a company engaged in non-banking activities, and that they correspond to the statutory segments set out above.
The second or so-called "public benefits" issue, derived from the 1970 amendments to the Act, is one which normally must be resolved upon specific facts. It poses the question whether the performance of a non-banking activity by a bank holding company affiliate will achieve a favorable balance of the kinds of benefits and adverse effects enumerated in the statute. Naturally the conclusion that the non-banking activity of one bank holding company would be anticompetitive or threaten "unsound banking practices" may not hold for a different bank holding company under different circumstances.
Recognizing this distinction in the nature of the two issues, the Board has reserved the latter for case-by-case resolution at the time of individual bank holding company applications to engage in courier service.
Courier services were described in the statement accompanying the Board's order as the "transportation of any item with a critical time schedule, provided such items are small in bulk, light in weight, and require only ordinary security measures." J.A. at 813. The items which are carried by courier service in far the greatest volume are financial documents and records—particularly banking instruments—which require speedy transportation from one place of business to another. It thus appears that the nation's banks are by far the largest consumers of courier services, accounting for more than half of that industry's sales. The industry itself is about thirty years old, and has thus far remained largely independent of the banks, though it is dominated by a very few firms.
Of the three categories of courier services that the Board has found to be "closely related" to banking, the first, that of courier services "for the internal operations of the holding company and its subsidiaries," is not in issue. The provision of services by one bank affiliate is expressly allowed by Section 4(c)(1)(C) of the statute. 12 U.S.C. § 1843(c)(1)(C) (1970).
The second category is that of courier services "for checks, commercial papers, documents, and written instruments (excluding currency or bearer-type instruments) as are exchanged among banks and banking institutions." What is meant are the so-called "cash letters" in which one bank transmits all the checks, drafts, and money orders that must be cleared or otherwise processed at another bank. As the Hearing Examiner explained:
The third category of "closely related" courier services are those "for audit and accounting media of a banking or financial nature and other business records and documents used in processing such media." The term "media" appears simply to refer to the physical form (paper documents, magnetic tapes, etc.) in which the financial data to be processed are conveyed. To cite a concrete example, one used by the Hearing Examiner, a bank which accepts demand deposits may find it efficient, particularly if it is a small bank, to employ a data processor to keep and update the records of those accounts—in effect to perform a bookkeeping function for it. As was testified at the hearings:
The "data center" need not, of course, be a bank. In this respect the Board's order must be read in connection with an earlier section of Regulation Y permitting bank affiliates to provide financially related data processing services such as ". . . payroll, accounts receivable and payable, or billing services." 12 C.F.R. § 225.4(a)(8) (1974). In effect subsection (iii) of the present rule authorizes bank-affiliated couriers to furnish transportation services which complement the activities of fellow affiliates engaged in data processing, just as subsection (ii) of the rule authorizes them to provide transportation services which complement the activities of fellow affiliates engaged in banking.
The fourth category of authorized courier services, that contained in the Board's separate "interpretation," is largely self-explanatory. Bank-affiliated couriers may carry non-financially related material if requests for such service are unsolicited and it is not otherwise reasonably available. Any doubt as to the lack of limitation on the kind of material that may be carried under this heading was erased by the press release accompanying the Board's order, which gave as examples "human blood, exposed and processed film, repair parts and cut flowers." J.A. at 800.
No challenge is made to the procedure by which the amendments to Regulation Y were adopted,
Without slighting the difficulties of separating questions of law and fact,
Unfortunately, no clear answers emerge from the legislative history of the statute. Its original passage in 1956 was accompanied by numerous expressions of the view that, in order to guard against conflicts of interest, bank holding companies should be confined to banking and to activities "closely related to the business of banking," but the quoted phrase was never elucidated.
A comparison of the wording of Section 4(c)(8) before and after it was amended might suggest that the Board had limited success. What had read:
70 Stat. 135 (1956), was amended to read:
12 U.S.C. § 1843(c)(8) (1970).
The history of these seemingly slight changes tells a different story, however. Though the precise amount of the intended increase in the latitude to be given the bank holding companies is something of a puzzle, it is plain that Congress intended to expand that latitude in substantial degree. The House and Senate each passed versions of the amendments which replaced the term "closely related" with the term "functionally related," and which were expressly intended, at least by the respective reporting committees, to relax the earlier restrictions.
Against this background, and reminding ourselves that the matter is one expressly committed by the statute to the Board, we think we owe considerable deference to the Board's judgment that a particular activity is "closely related to banking." Rather than define that term with any precision, therefore, we simply require that the Board go about making its "closely related" decision in a reasoned fashion consistent with the legislative intent.
The Board must, we think, articulate the ways in which banking activities and the proposed activities are assertedly connected, and must determine, not arbitrarily or capriciously, that the connections are close. As to what kinds of connections may qualify, at least the following seem to us within the statutory intent:
We turn, then, to the question of whether the Board has rationally found such connections in this case.
A. Banking Material.
The Board appears to have found all three of the foregoing kinds of connections between banking and courier service for banking material. It made clear, for example, that it did not regard courier service as the exclusive historical province of specialized carriers. It noted that "three bank holding companies, all of which became subject to the Bank Holding Company Act as a result of the 1970 Amendments, are engaged in providing `for hire' courier service."
The third kind of connection—the dependence of banks on a specialized form of the proposed services—has been the most emphasized in this case. The Board concluded that "courier services for cash letters play a vital role in the check clearing process," and that "the transportation of a cash letter has been so integrated into the process by which checks are collected as to be part of the present payments mechanism." J.A. at 813-815. Petitioners do not really dispute the point, but urge that, if the necessity of a service to banking activities may justify the establishment of a bank affiliate to provide the service itself, then the banks may expand into any number of industries whose goods and services they consume. Telephone service is given as an example. Apart from noting that this kind of connection to banking is not the only one present in the case, we can only respond by emphasizing that the service must be required by the bank in a specialized form, as is not true of telephone service or of many others that banks employ.
The Board has thus articulated several ways in which banking and courier services for banking materials may properly be considered related. Record evidence in support of each is ample, and we cannot say that in finding the relation a "close" one the Board was arbitrary or capricious.
B. Financially Related Data Processing Materials.
The Board's findings with respect to financially related data processing materials, though less explicit than its findings with respect to "cash letters," were to the same effect. It did not specify whether the banks which it found were already engaged in "for hire" courier services had been transporting data processing as well as other materials, but the record suggests that such was the case.
Hearing Officer's Recommended Decision, J.A. at 704. In short, the Board treated the transportation of data processing
The difficult question, of course, is whether the similarity of these two relations was enough. There is no question that courier service for data processing material has been found "closely related to banking" not because of its connection to banking per se but because of its relation to financial data processing, an activity banks are permitted to engage in. We are not so much bothered by the illogic of the reasoning (which could be overcome by simply asserting that the data processing industry as a whole is "closely related to banking") as we are by the danger, pressed on us by petitioners, that if the Board is permitted to string together a chain of close relations, the limitation means nothing.
Certainly the Board will not be permitted to tack one close relation on to another indefinitely, but we cannot forbid it in this case. The relations are of distinctly different kinds. That of financial data processing to banking may be thought of as horizontal, in the sense that these are parallel and kindred financial services. That of banking to the transportation of cash letters, and of financial data processing to the transportation of audit and accounting media, may be thought of as vertical, in the sense that transportation is a non-financial service necessary to the provision of financial services. Rather than threaten infinite repetition, the Board's reasoning seems rather to complete the missing fourth side of a square. More persuasive than its symmetry, however, are the practical realities it reflects. The record suggests that in many cases check processing and financially related data processing are carried on at the same locations and by the use of the same equipment.
We have not overlooked the fact that no restrictions are placed by the challenged regulation upon whom a bank-affiliated courier may serve. The carriage of banking materials authorized in the second part of the Board's order will presumably be between banks, but neither need be an affiliate of the bank-affiliated courier. The carriage of data processing materials under the third part of the Board's order may be between two places of business neither of which is a bank, a bank affiliate, or a customer of either. A bank-affiliated courier may thus carry the financially related records of a firm with which it has no dealings (let us say a department store that does its banking elsewhere,) to the independent data processor of that firm's choice. It is at this point that the Board has put its discretion to determine the closeness of relations to banking under the greatest strain.
We do not think it has exceeded that discretion, however. Authorization to provide courier services to banks and bank affiliates must carry with it the authorization to provide the same services generally. The reason is that otherwise the bank-affiliated courier services, which may be of superior quality, would be "tied" by law to the other services which banks and their affiliates provide. The anti-competitive effects of such a tie in respect of banking services would contravene the Act's most basic purposes. Recognizing this, the Board has in fact not only authorized but intends to require bank affiliated couriers to provide their services generally and without discrimination. See 12 C.F.R. § 225.129 (1974).
C. General Courier Services Where Unsolicited and Not Otherwise Available.
The Board has apparently not taken the manifestly untenable position that the transportation of non-financially related
The notion that bank affiliates may be permitted to engage not only in activities that are "closely related to banking," but also in "incidental" activities was not first introduced by the Board in the context of courier services. It apparently takes the same view with respect to all categories of "closely related" activities, having announced in the first sentence of its Regulation Y:
12 C.F.R. § 225.4(a) (1974) (emphasis supplied). The Board has in fact gone on to specify the activities that may be engaged in as "incidental" to one other "closely related" activity, that of financially related data processing.
The idea is thus fairly well established that Congress intended some reasonable latitude in the limitations it placed upon the activities of banks and their affiliates. In enumerating the activities that could be carried on, it certainly could not have meant to forbid engagement in such other "incidental" activities as were reasonably necessary to carrying out those that were enumerated.
The justification for the "incidental" courier services at issue here is, however, quite different. It is not, as far as we can tell, that the carriage of non-financially related material is in any way necessary to the successful operation of the courier service affiliates. Rather, it is that the provision of such service would serve "the convenience of the public."
But Congress did not instruct the Board to allow or disallow bank involvement in non-financial activities as may be required by the policies which counsel a separation of commerce and banking. Having heeded that counsel itself, it decreed the separation, and instructed the Board to enforce it. Its decision hardly seems an unreasonable one, even in the context of this case, for it is not at all clear that the Board's non-solicitation and non-availability conditions would in fact prevent bank-affiliated couriers from becoming substantially involved in general courier service. The problem, of course, is the inexactitude of such terms as "unsolicited" and "not otherwise reasonably available."
The result is that while there may be some warrant in the statute for the Board's permitting as "incidental" those activities that are necessary to the bank affiliate's closely related activities, we can find no such warrant for its determination that non-financially related courier services are "incidental" and therefore permissible if unsolicited and otherwise unavailable. The Board's order, which we have sustained in other respects, we decline to do so in this one.
The record in this case includes two intra-agency memoranda addressed to the Board from its Legal Division and from its Research and Statistics Division, parts of which the Board deleted on the ground that they contained "internal recommendations, staff analysis and work product and legal opinions." Petitioners have moved that these be included in the public record. The deleted material was ordered to be lodged with the court for in camera inspection, but further action was deferred until consideration of the case on its merits by this division.
Authority is sparse on the question of what internal agency memoranda are properly a part of the record in direct review proceedings. In Norris & Hirshberg v. SEC, 82 U.S.App.D.C. 32,
The Government takes the position that internal staff memoranda are never part of the record, since such documents are not within the statutory definition of the record as "the order sought to be reviewed or enforced, the findings or report upon which it is based, and the pleadings, evidence, and proceedings before the agency." 28 U.S.C. § 2112(b) (1970). See also Fed.R.App.P. 16. We think a fuller analysis is called for. Private parties and reviewing courts alike have a strong interest in fully knowing the basis and circumstances of an agency's decision. The process by which the decision has been reached is often mysterious enough without the agency's maintaining unnecessary secrecy. To be sure, the agency may have a strong interest of its own in keeping internal documents from public view, but it will normally be far easier for the agency to establish its interest in suppressing such documents than for the private litigants to establish their interest in exposing them to judicial scrutiny. The proper approach, therefore, would appear to be to consider any document that might have influenced the agency's decision to be "evidence" within the statutory definition, but subject to any privilege that the agency properly claims as protecting its interest in non-disclosure.
One such privilege is, of course, that which protects internal memoranda embodying the deliberative processes of the agency and its staff. The privilege is well established in several lines of
Unless he has left no other record of the reasons for his decision, the mental processes of an administrator may not be probed. Compare United States v. Morgan,
Two exceptions that have been made to the non-disclosability under FOIA of intra-agency deliberative memoranda are for (1) those parts of such memoranda that are purely factual in nature, see e.g., EPA v. Mink, supra at 89, 93 S.Ct. 827; Soucie v. David, 145 U.S.App.D.C. 144,
Petitioners have in fact sought inclusion of the deleted segments of the memoranda on both grounds. They claim that by including the undeleted parts of the memoranda in question in the record, the Board indicated that they were the basis of its decision and thereby destroyed any privilege. We draw no such inference. As noted in the earlier parts of this opinion, the basis of the Board's decision was adequately given in its order and accompanying statement. This being so, we can see no reason to believe that in including in the record those segments of the memoranda that it did, the Board had anything other than the entirely laudable objective of notifying the parties that they existed and of disclosing what it considered non-privileged sections.
With respect to the factual content of the deleted material, petitioners do not deny that summaries of record evidence may be deliberative and therefore privileged. See, e.g., Washington Research Project v. HEW, 164 U.S.App.D.C. 169,
In fact, however, our in camera review of the deleted material reveals that it consists almost exclusively of record summaries and expert or legal opinions. We can find only three instances in which the memoranda introduced factual information not otherwise in the record. All of these occur in the
The first is a reference to a report in the Chicago Tribune concerning the recent acquisition by the American Courier Corporation (Purolator's subsidiary) of a number of competing armored car companies. The second and third are references to orders of the Interstate Commerce Commission in which that agency passed on the legality of the courier operations of two bank holding companies. In one of these Cameron Financial Corporation was reported by the Commission, and in turn by the Research and Statistics Division, to have stated that it established a courier subsidiary because it believed that courier service could be provided at half the price that was being paid to the independent firm.
In the second order the Wachovia Bank was reported as stating, in defense of its own courier operations, that they were not carried on for profit. The former order is also cited in passing by the Research and Statistics Division as containing evidence that the service provided by independent couriers was not always satisfactory.
It may be that the factual information thus presented in the deleted parts of this memorandum should have been made a part of the record. The omission was clearly not significant, however, since the information is only remotely relevant to this appeal. It bears in each case on the competitive climate in the courier industry and therefore on the "public benefits" issue which the agency has not yet decided. See note 5 supra.
The petition for review is denied in all respects with the exception that so much of the so-called "interpretation" added to Regulation Y as relates to the furnishing of courier services for non-financially-related material, treated within ¶ III. C. of this opinion is set aside.
It is so ordered.
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