SAXON v. GEORGIA ASS'N OF INDEPENDENT INS. AGENTS, INC.

Rehearing Denied En Banc in No. 25060 October 28, 1968.

ELLIOTT, District Judge:

These two actions1 were brought by Appellees (Plaintiffs below) to have declared unlawful Appellant Comptroller's 1963 Ruling No. 7110 and to enjoin Appellant Citizens and Southern National Bank's insurance agent and agency activities in Georgia cities of over 5,000 population. The individual Appellees are duly licensed independent Georgia insurance agents. The National Association of Insurance Agents, Inc. is an incorporated professional association of approximately 35,000 independent insurance agencies, which includes approximately 150,000 licensed independent insurance agents located throughout the United States. The Georgia Association of Independent Insurance Agents, Inc. is an incorporated professional association of approximately 3,000 licensed independent Georgia insurance agents. The individual plaintiffs and the agent members of the two associations above named engage in their licensed profession for a livelihood and all of them have a substantial interest and investment in their profession in terms of time, money and effort. A considerable portion of the insurance agency business of the individual plaintiffs and of the agent members of the two associations is devoted to the sale and writing as agent of various forms of automobile and home insurance. The individual plaintiffs sue individually and on behalf of all similarly situated licensed independent insurance agents in the State of Georgia and the Associations sue individually and as the representatives of their agent members.

Two provisions of the National Bank Act (Title 12, U.S.C.A.) are involved:

Section 24(7), enacted in 1864, grants to national banks "all such incidental powers as shall be necessary to carry on the business of banking".

Section 92, enacted in 1916, provides that national banks "located and doing business in any place the population of which does not exceed five thousand inhabitants * * * may, under such rules as may be prescribed by the Comptroller of the Currency, act as the agent for any fire, life or other insurance company authorized by the authorities of the State in which such bank is located to do business in said State * *."

In this statutory setting James J. Saxon (the original defendant below in Case No. 25050)2 was secretary of an Advisory Committee appointed by the United States Senate in 1956 to make a study of the national banking laws and to make suggestions concerning revisions. He and the Advisory Committee drafted and recommended passage of legislation which would have allowed national banks in cities of more than 5,000 population to act as insurance agents if state chartered banks could do so under State law. This legislation was proposed in Congress as the Financial Institutions Act of 1957. After consideration and debate by the Congress this legislative proposal as drafted and recommended by Mr. Saxon and the Committee of which he was a member was rejected by Congress.3

In 1961 Mr. Saxon became Comptroller of the Currency and in 1962 Comptroller Saxon created a "National Advisory Committe on Banking Regulatory Policies and Practices", which committee was composed entirely of persons affiliated with the banking business. Comptroller Saxon asked this committee to make suggestions and recommendations to him for changes in the laws, policies and regulations affecting national banks. In due course Mr. Saxon's Advisory Committee recommended with regard to the insurance agency matter that "appropriate legislation should be enacted expressly to permit any National Bank to act as broker or agent in the writing of * * insurance issued in connection with a loan by the bank, and to participate in premium experience refunds. * * *"4 Instead of asking Congress for the "appropriate legislation" recommended by the committee, Comptroller Saxon in 1963 simply converted that recommendation into an administrative ruling, that being Ruling No. 7110, which is the subject of this inquiry, the full text of which provides:

This ruling was not limited in scope to cities of 5,000 population or less and purported to authorize every national bank, regardless of where located, to enter the insurance agency field and to compete with Appellees and other insurance agents.

In 1964 by an exchange of letters Appellant C & S Bank requested and received Comptroller Saxon's specific approval of the Bank's entry "into the insurance agency business", and in 1965 the Bank in its Atlanta offices began selling to borrowers broad forms of automobile, home, casualty and liability insurance, and the program was subsequently extended to its national bank offices in the cities of Athens, Augusta, Macon, Savannah and Valdosta, each of which has a population in excess of 5,000.

To protect their business from what was alleged to be unlawful encroachment by the bank, Appellees brought suit against the Bank, federal jurisdiction being based upon 28 U.S.C. §§ 1331(a), 1348 and 1391, and against Comptroller Saxon, jurisdiction being based upon 28 U.S.C. §§ 1331(a) and 1391(e) and 5 U.S.C. § 1009.

After overruling Appellants' motion to dismiss (260 F.Supp. 802), the District Court granted Appellees' motions for summary judgment (268 F.Supp. 236), and subsequently entered judgments declaring Comptroller Saxon's Ruling No. 7110 unlawful and in excess of statutory authority and declaring unlawful the Bank's insurance agent and agency activities in cities of more than 5,000 population.

We affirm the judgments of the District Court.

Two questions are presented for consideration:

(1) Does Section 92 of the National Bank Act impliedly prohibit national banks from carrying on the business of insurance agents in places of more than 5,000 population; (2) Did the plaintiffs below (Appellees here) have standing to bring these suits?

Appellants contend that authority for national banks located in cities of over 5,000 population to act as insurance agents may be inferred from the general provisions contained in Section 24 (7) of the Act, heretofore set out in pertinent part, this Section allowing national banks to exercise, subject to law, all such "incidental" powers as shall be "necessary" to carry on the business of banking. The District Court held that the specific grant of insurance agency power contained in Section 92 of the Act, heretofore set out, is the full extent of the insurance agency power possessed by national banks, and that an insurance agency power may not be inferred from the provisions of Section 24(7). Adjudication of the first question presented, therefore, hinges upon the proper construction to be given to these two sections of the Act.

Pertinent to consideration of these statutory provisions, we take note of the fact that prior to the 1916 enactment of Section 92 it seems to have been universally understood that no national banks possessed any power to act as insurance agents. Section 24(7) was contained in the original National Bank Act of 1864. Between that time and 1916 when Section 92 was enacted, the various administrative agencies charged by law with the administration of the Bank Act consistently ruled that national banks had no power to act as insurance agencies. In 1915 the Federal Reserve Board held that:

Immediately prior to the enactment of Section 92 in 1916 the office of the Comptroller of the Currency ruled that national banks possessed no power to act as insurance agents, Congress being told by the then Comptroller:

The Comptroller then recommended to Congress that it grant insurance agency power to national banks located in small towns, submitting to Congress a draft of a proposed amendment to the National Bank Act which Congress enacted and is now Section 92 of the Act. 53 Cong. Rec. 11001 (1916).

In interpreting the meaning of one provision of an act it is proper that all other provisions in pari materia should also be considered. So, in construing the general authority contained in Section 24(7) we must give equal consideration to Section 92 as it specifically deals with the power of national banks to act as insurance agents, and when the general language in Section 24(7) dealing with "incidental" powers is construed in conjunction with the specific grant in Section 92 it is clear that application of the expressio unius est exclusio alterius rule requires the construction that national banks have no power to act as insurance agents in cities of over 5,000 population.

In Continental Casualty Company v. United States, 314 U.S. 527, 62 S.Ct. 393, 86 L.Ed. 426 (1942), the court stated:

This rule was elaborated upon somewhat in Service Life Insurance Company v. United States, 293 F.2d 72 (8 Cir. 1961), where it was said that:

Since Congress dealt specifically with the insurance agency power in Section 92, the expressio unius rule negates the existence of any other power to act as an insurance agent under the general provisions of Section 24(7).

There is ample precedent for the conclusion that a power which has been withheld or denied by Congress cannot be found to exist as an "incidental" and "necessary" power and that principle has been applied several times to the National Bank Act. First National Bank in St. Louis v. State of Missouri, 263 U.S. 640, 44 S.Ct. 213, 68 L.Ed. 486 (1924), (establishment of branch banks); Baltimore & Ohio Ry. Co. v. Smith, 56 F.2d 799 (3 Cir. 1932), (pledge of assets).

Although the cases before us seem to represent the first instance in which the issue of whether national banks have insurance agency powers in cities of over 5,000 population has been directly presented, there have been other cases in which this question has been raised collaterally or incidentally, in which cases the courts have concluded that the banks' power is limited as we here find it to be. The most recent of such cases appears to be Commissioner of Internal Revenue v. Morris Trust, 367 F.2d 794 (4 Cir. 1966), which involved the merger of a state bank into a national bank. At issue was the tax treatment of a preliminary step in the merger by which the state bank divested itself through a "spin-off" of its insurance department. An important question in the case was whether there was a sound business reason (other than tax avoidance) for the spin-off. The Court said:

This Court of Appeals' decision upheld the ruling of the Tax Court below that:

In Washington Agency, Inc. v. Forbes, 309 Mich. 683, 16 N.W.2d 121 (1944), the Michigan Supreme Court, in deciding a case which involved the relationship by a bank and an insurance agency commented:

The Massachusetts Supreme Court in Dresser v. Traders' National Bank, 165 Mass. 120, 42 N.E. 567 (1896), held ultra vires a contract whereby a national bank agreed to act as a sub-agent for an insurance agent. It is to be noted that this case arose before enactment of Section 92 of the National Bank Act and the Court rendered its decision considering the "incidental" and "necessary" powers of Section 24.

If there be any doubt as to the meaning of the statute it is our function to construe the language of the statute so as to give effect to the intent of Congress, and an examination of the legislative history of Section 92 is helpful in the circumstances of this case. As heretofore noted, Section 92 became a part of the National Bank Act in 1916. In March of that year a bill was introduced to amend the Federal Reserve Act, this being identified as H.R. 13391, 64th Cong., 1st Sess. This bill contained no insurance agency provision. The question of insurance agency powers arose during consideration of the powers that were available to foreign banks as distinguished from domestically chartered national banks. In July, 1916, during the consideration of this House Resolution on the floor of the Senate, the Chairman of the Senate Banking and Currency Committee inserted in the record a letter which the Committee had received from the then Comptroller of the Currency. 53 Cong.Rec. 11001 (1916). This letter from the Comptroller dealt with problems facing national banks located in small towns, particularly their difficulty in deriving a profit from their banking business. In order to provide these banks located in small communities with an additional source of revenue the then Comptroller recommended that Congress give these national banks in small communities authority to act as insurance agents. After referring to the authority contained (or, more precisely, not contained) in Section 24(7) the Comptroller said:

It thus appears to be clear from the contemporaneous legislative history of Section 92 that Congress agreed with and acquiesced in the then Comptroller's ruling that "National banks are not given either expressly nor by necessary implication the power to act as agents for insurance companies", and by conferring the limited power which was conferred by the amendment Congress intended to protect insurance agents in cities of over 5,000 population from competition by national banks which would be "likely to trespass upon outside business naturally belonging to others".

In the briefs filed by counsel there is set forth a complete legislative history with respect to subsequent legislation dealing with national banks, particularly the 1933 Glass-Steagall Banking Act (H. R. 5661, 73rd Cong., 1st Sess., 1933), and the proposed Financial Institutions Act of 1957 (S. 1451, 85th Cong., 1st Sess., 1957), and we are impressed that the Congress has never considered that national banks had insurance agency powers except as limited by Section 92 and Congress has never deemed it appropriate or desirable that such powers be extended beyond the 5,000 population limit, it being our conclusion that Comptroller Saxon's 1963 Ruling No. 7110 is not only contrary to legislative intent as demonstrated contemporaneously with the enactment of Section 92, but it is also contrary to the continuing intent of Congress as demonstrated since that time.

Appellants insist, however, that even if the Comptroller's order was unauthorized by the statute and the bank's insurance activity therefore illegal, the plaintiffs below had no standing to bring these actions. In urging this view Appellants rely on a line of decisions concerning public power Authorities and Cooperatives, of which Alabama Power Company v. Ickes, 302 U.S. 464, 58 S.Ct. 300, 82 L.Ed. 374 (1938), and Tennessee Electric Power Company v. Tennessee Valley Authority, 306 U.S. 118, 59 S.Ct. 366, 83 L.Ed. 543 (1939), are typical.

We regard these cases as being clearly distinguishable as they involved federally financed competition by a new competitor who was lawfully authorized to compete with the power companies. That is not the situation in the case before us. Here we have new competition that is in and of itself unlawful because, as we have seen, a national bank cannot legally act as an insurance agent in a city of more than 5,000 population. We find no fault with Appellants' argument that the plaintiffs in the court below, who are licensed professional insurance agents, have no legal right to be free from lawful competition by other licensed agents who are lawfully and properly empowered to engage in the insurance business, but they do have a legal right to be protected from unlawful competition by national banks.

In recent years a number of the Comptroller's rulings and the activity purportedly authorized by them have been challenged in the courts, and in each instance the Comptroller has contended that the plaintiffs had no standing to bring the suits, with results as hereafter indicated.

For many years the Federal Reserve Board and the office of the Comptroller of the Currency had construed the National Bank Act as prohibiting national banks from underwriting local government securities not backed by the taxing power. In 1963 Comptroller Saxon reversed the position adopted by his predecessors and ruled that Section 24(7) of the Act authorized banks to underwrite such securities even though not backed by the taxing power of a government entity. In Baker, Watts & Co. v. Saxon, 261 F.Supp. 247 (D.D.C., 1966), a group of private underwriters who stood to suffer financial injury as a result of this new underwriting competition by national banks brought suit to declare unlawful Comptroller Saxon's ruling. The Comptroller interposed a "lack of standing" defense based upon decisions concerning public power cooperatives and urban renewal projects. Dealing with that defense the Court held:

The Court held the Comptroller's ruling unlawful.

In an even more recent case involving unlawful national bank competition and the Comptroller of the Currency, Investment Company Institute v. Camp, 274 F.Supp. 624 (D.D.C., 1967), a suit was brought by several "open-end" investment companies (mutual funds) and their national trade association, The Investment Company Institute, to have declared unlawful another ruling issued by Comptroller Saxon in 1963 by which he purported to authorize national banks to establish and operate "collective investment funds". Here again the Comptroller raised the issue of standing to sue, claiming that the plaintiffs had no legal right to object to the new national bank competition which was brought about by his ruling. The Court held that the plaintiffs had standing to complain against unlawful competition and that the public power and urban renewal cases relied upon by the Comptroller were not in point. The Court held the Comptroller's ruling unlawful.

In both of the cases immediately above cited the plaintiffs predicated their procedural right to judicial review upon the declaratory judgment and injective provisions of Section 10 of the Administrative Procedure Act as is done in this case, there being no specific judicial review provision in the National Bank Act.

These two district court decisions are in harmony with the decision of the Supreme Court in Frost v. Corporation Commission, 278 U.S. 515, 49 S.Ct. 235, 73 L.Ed. 483 (1929), in which it was held that one engaged in a licensed business has standing to sue to enjoin unlawful competition.

Without dwelling on the point further, it may be observed that the arguments advanced by Appellants against Appellees' standing to sue appear to be the same arguments that have been rejected in a large number of other "unlawful competition" cases in which the Comptroller and the national banks have been involved.6

A review of the cases footnoted shows that in at least four different areas of purported Comptroller action under the National Bank Act the federal courts have rejected the Comptroller's argument that competitors lack standing to challenge his actions, these areas being: (a) unlawful approval of branch banks; (b) unlawful chartering of new national banks; (c) unlawful approval of securities and underwriting; and (d) unlawful approval of "commingled investment accounts". In most of the cases footnoted the federal courts have ruled that competitors occupying a position comparable to that of the Appellees here had standing to challenge both the unlawful action by the Comptroller and the unlawful competition by the national banks.

Plaintiffs' standing to sue is also supported by the fact that the legislative history of the National Bank Act manifests a Congressional intent to protect insurance agents from an invasion of their insurance agency business by national banks in cities of over 5,000 population. Indeed, we can conceive of no reason why Congress would have limited such activity to communities of less than 5,000 population if it were not for the specific purpose of protecting those in the position of the Appellees in these cases. The limitation was imposed so that national banks in larger cities would not be "likely to trespass upon outside business naturally belonging to others". 53 Cong.Rec. 11001 (1916). A strong Congressional concern for the protection of insurance agents against unwarranted competition by national banks is again reflected in the legislative histories of the 1933 and 1957 attempts to overhaul the National Bank Act. In 1933 Congress recognized that national bank competition with insurance agents was "unfair competition" and that "it certainly is unfair to the man in the insurance business". 77 Cong.Rec. 4048. And in 1957 one of the stated purposes for the refusal of Congress to expand the insurance agency power of national banks was the Congressional desire to "consider the independent insurance businessmen, so that we don't do something that would be harmful to them".7

So, in addition to their legal right to protect themselves from unlawful competition, the insurance agents who instituted these actions had a "statutory aid to standing". See Hardin v. Kentucky Utilities Company, 390 U.S. 1, 88 S.Ct. 651, 19 L.Ed.2d 787 (1968).

Nothing said here conflicts with this Court's previous pronouncements in the public power cases, of which Rural Electrification Administration v. Central Louisiana Electric Company, 354 F.2d 859 (5 Cir., 1966), is typical. In that case it was said:

That case was not a case of this kind and this case is not a case of that kind. The cases here decided involved neither federally sponsored power projects nor federally sponsored urban renewal projects. Neither do they involve the spending of federal funds or lawful competition. Instead, these cases involve unlawful competition by a national bank from which the power to compete has been withheld by Congress. Moreover, the plaintiffs in these cases had a "statutory aid to standing".

Viewing the matter as we do, we agree that consideration of secondary factual issues was unnecessary and the grant of summary judgment was proper.

Affirmed.

THORNBERRY, Circuit Judge (concurring specially):

Inasmuch as I agree with the majority that the insurance agents have standing to sue, it is with some reluctance that I venture my own thoughts on what the Supreme Court has called "a complicated specialty of federal jurisdiction." See United States ex rel. Chapman v. Federal Power Commission, 1953, 345 U.S. 153, 156, 73 S.Ct. 609, 612, 97 L.Ed. 918. Nevertheless, I feel that I should do so because I am not persuaded that appellees have a statutory aid to standing and am troubled by Alabama Power Co. v. Ickes, supra, and Tennessee Electric Power Co. v. Tennessee Valley Authority, supra, two very difficult cases.

If it were clear that one of the purposes of section 92 was to protect insurance agents in cities of greater than 5,000 population from competition with national banks, there would be no question of standing in this case. See, e. g., Hardin v. Kentucky Utilities Co., 1968, 390 U.S. 1, 88 S.Ct. 651, 19 L.Ed.2d 787; Federal Communications Commission v. Sanders, 1940, 309 U.S. 470, 60 S.Ct. 693, 84 L.Ed. 869.1 But in evaluating the legislative history of section 92, I find little evidence of an intent to protect insurance agents from competition. The statute was designed to strengthen banks in smaller towns where they needed strengthening, but I do not see an equal concern for protecting insurance agents in larger towns. Though congressional concern for protecting insurance agents from competition with national banks was apparent in the attempts to overhaul the National Bank Act in 1933 and again in 1957, this evidence sheds no light on the legislative purpose underlying section 92, enacted in 1916.

I understand the majority to say that cases like Alabama Power, Tennessee Electric, and Rural Electrification Administration v. Central Louisiana Electric Co., 5th Cir. 1966, 354 F.2d 859 involved federally financed competition by a new competitor lawfully authorized to compete with the power companies whereas the insurance agents here are challenging new competition that is in itself unlawful. This same distinction was perceived by Judge Holtzoff in Baker, Watts & Co. v. Saxon, supra:

261 F.Supp. at 249. Baker, Watts & Co. is more closely in point than the so-called branch-banking cases (see footnote 6 of the majority opinion) because there a non-bank party was given standing to challenge the legality of competition that had been undertaken by national banks with the authorization of the Comptroller. As I see it, the critical point is that the rule of no-standing invoked by the Supreme Court in Tennessee Electric and Alabama Power rests on the philosophy of Frothingham v. Mellon, 1923, 262 U.S. 447, 43 S.Ct. 597, 67 L.Ed. 1078 that not just anyone should have standing to assert the invalidity of a federal program.2 To the rule for taxpayer-suits announced in Frothingham, the later cases add that there is a lack of standing even where a plaintiff alleges that as a result of an unlawful federal program he is suffering economic injury from increased, though lawful, competition. The distinguishing factor in the instant case, as in Baker, Watts & Co., is that plaintiffs-appellees allege that as a result of the Comptroller's ruling they are suffering economic injury from unlawful competition with a national bank. Setting the administrative decision to one side, the essence of this case is an allegation by insurance agents that a national bank is selling insurance in violation of the National Bank Act. More is involved than the bare allegation that a certain federal program or federal administrative decision is unconstitutional or in violation of statute. Since more is involved, Alabama Power and Tennessee Electric are not controlling.3

I would be the first to concede that the distinction drawn between Alabama Power and the instant case is a fine one and not altogether satisfactory, but I believe it to be valid. Any rule of no-standing, whether it be the one enunciated in Frothingham, Alabama Power, or some other case, must stem from the conclusion that the particular plaintiff does not present a dispute in a concrete adversary context and in a form historically viewed as susceptible of judicial resolution. As stated in Flast v. Cohen, 1968, 392 U.S. 83, 88 S.Ct. 1942, 1952-1953.

In Alabama Power and Tennessee Electric, the Court must have been persuaded that the power companies were not bringing a conventional legal action but were merely attempting to air generalized grievances about the conduct of government or the allocation of power in the federal system. Flast confirms that a plaintiff in this posture has no standing to sue. 88 S.Ct. at 1956.4

In the instant case, on the other hand, the insurance agents are face to face in the business world with formidable but allegedly illegal competitors. It is inarguable that they have a sufficient personal stake in the outcome of the controversy to assure concrete adverseness.

As for the merits of the case, I have little to add to what the majority have said. From an economic standpoint, it may be unfortunate that this Court is interfering with the expansion of national banks into the area of credit-related insurance, but the banks should look to Congress, not the Comptroller.

On Petition for Rehearing En Banc

Before GEWIN and THORNBERRY, Circuit Judges, and ELLIOTT, District Judge.

PER CURIAM:

The Petition for Rehearing is denied and no member of this panel nor Judge in regular active service on the Court having requested that the Court be polled on rehearing en banc, (Rule 35 Federal Rules of Appellate Procedure; Local Fifth Circuit Rule 12) the Petition for Rehearing En Banc is denied.