The opinion of the court was delivered by: GREENE
The material facts are not in dispute. On May 6, 1982, the Board adopted Resolution No. 82-327, which granted the applications of Coast Federal Savings and Loan Association, Perpetual American Federal Savings & Loan Association, and California Federal Savings & Loan Association to invest in new service corporation subsidiaries.
Under the grant of approval, these wholly-owned service corporations will
become shareholders in a separate new corporation -- Savings Association Financial Corporation (SAFC) -- which will create its own wholly-owned subsidiary, Savings Association Investment Securities (SAIS). Both SAFC and SAIS will be Delaware corporations with their principal place of business in Tampa, Florida.
SAIS, which will be a registered broker-dealer and a member of the National Association of Securities Dealers, Inc., will operate "investment centers" in the offices of participating S&Ls. Such centers will provide the following services: (1) the execution on behalf of and for the account of others of purchases, sales, and redemptions of debt and equity securities, municipal and public utility bonds, and shares in mutual funds;
(2) provision to customers of investment advisory services, including portfolio analysis and valuation; and (3) the rendering of assistance to participating associations in the implementation of the brokerage program through marketing and training services, as well as advice and education about liquidity management. SAIS will charge a commission to customers for effecting securities transactions,
and it will charge fees to customers for portfolio analysis and evaluations, investment counseling, and similar services. SAIS will also charge initiating fees and recurring subscription fees to participating associations.
In approving the applications, the Board stated that it would revoke its authorization if the program materially deviated from the plan presented in the applications. The Board further required, as a condition of approval, that SAIS and SAFC conform to the Board's policy of requiring separate corporate identities for service corporations and savings and loan associations, and of prohibiting the intermingling of accounts and records of SAIS with those of the associations. Under the Board's requirements, SAIS will adopt a separate charter and by-laws, it will issue its own stock, and it will be adequately capitalized in accordance with the applicable SEC regulations. SAIS will also be governed by its own board of directors, the majority of whom may not be affiliated with any participating institution.
In addition, the Board requires the participating S&Ls to take the following prophylactic measures: First, the investment center must be identified by an appropriate and distinctive sign or trademark and all of its activities must be conducted in an area segregated from the place where the participating S&L conducts its business.
Second, the SAIS investment center staff must receive training from SAIS and report to SAIS regional supervisors who will visit the sites at regular intervals. The staff will, however, be considered employees of both the SAIS and the participating association and will be compensated by both. Third, other employees of the participating S&L may only introduce customers to SAIS representatives, explain SAIS services to customers, and present prepared literature; they may not perform brokerage services. Fourth, advertising and other promotional activities must clearly identify SAIS, and not the participating S&L, as the offeror of brokerage services. Fifth, advertising and other promotional activities must clearly identify SAIS, and not the participating S&L, as the offeror of brokerage services, and upon opening an account with SAIS, customers will be required to acknowledge in writing that they understand that SAIS, and not the S&L will perform the securities brokerage services.
The Securities Industry Association claims that by permitting federal S&Ls to invest in SAFC and SAIS, the Board exceeded its authority under the Home Owners' Loan Act (HOLA) of 1933, 12 U.S.C. §§ 1461 et seq., because (1) federal S&Ls may not invest in corporations which are not chartered in the State in which the investing S&L has its home office and which are not owned exclusively by S&Ls; (2) S&Ls are not authorized to engage in securities activities; and (3) the Board failed to consider whether the new activities are consistent with the "best practices" of local thrift institutions. Additionally, SIA argues that the Board's ruling violates section 21 of the Glass-Steagall Act, 12 U.S.C. § 378, which prohibits depository institutions from engaging in securities activities.
Before addressing the merits of plaintiff's objections, the Court must first resolve the threshold issue of standing. Although the Board does not contest SIA's standing to challenge its action under the Glass-Steagall Act, it argues that SIA lacks standing under HOLA because the interest it seeks to vindicate does not arguably fall within the "zone of interest" to be protected or regulated by that statute.
Association of Data Processing Organizations v. Camp, 397 U.S. 150, 153, 25 L. Ed. 2d 184, 90 S. Ct. 827 (1970); Copper & Brass Fabricators v. Department of the Treasury, 220 U.S. App. D.C. 133, 679 F.2d 951, 952 (D.C. Cir. 1982).
The Court may find SIA to be within the zone of interest protected by HOLA even if Congress did not specifically refer to it or its members in the statutory language or the legislative history. See Data Processing Services v. Camp, supra, 397 U.S. at 156, where the Supreme Court held that a trade association of data processing service providers had standing to challenge a ruling by the Comptroller which permitted bank service corporations to perform data processing services, upon its conclusion that section 4 of the Bank Service Corporation Act, 12 U.S.C. § 1864 -- which expressly prohibits service corporations from engaging in "any activity other than the performance of bank services for banks" -- arguably brought a competitor within the zone of interests protected by the Act.
Indeed, courts have explicitly found that competitors of S&Ls have standing to challenge agency action which permits a S&L to engage in certain conduct allegedly violative of HOLA. See, e.g., National State Bank of Elizabeth v. Smith, 591 F.2d 223, 233 (3d Cir. 1979). The Court therefore concludes that SIA has standing to sue.
In order to uphold the Board's decision, the Court need not find that the Board's construction of HOLA is the only reasonable one, or that the Board reached the result that the Court would have reached had the question arisen in the first instance in a judicial proceeding. Federal Election Commission v. Democratic Senatorial Campaign Comm'n, 454 U.S. 27, 39, 70 L. Ed. 2d 23, 102 S. Ct. 38 (1981); A.G. Becker Inc. v. Board of Governors, 224 U.S. App. D.C. 21, 693 F.2d 136, 140 (D.C. Cir. 1982). Rather, the Court must defer to the Board's interpretation of HOLA -- the statute which the Board is charged with administering and it is obligated to uphold the Board's decision as long as it is not unreasonable. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 568, 63 L. Ed. 2d 22, 100 S. Ct. 790 (1980).
Judicial deference to the Board's ruling may be especially warranted here for a number of reasons.
First, the Board is the type of agency to which deference should presumptively be afforded because of the scope of its authority. Congress gave the Board "plenary authority" to issue regulations governing federal S&Ls. References to the Board's broad discretion to regulate federal S&Ls appear throughout the legislative history and "nowhere is there a suggestion of any intent somehow to limit the Board's authority." Fidelity Federal Savings and Loan Association v. de la Cuesta, 458 U.S. 141, 164, 73 L. Ed. 2d 664, 102 S. Ct. 3014 (1982).
Second, the question of the necessity or justification for expanding the permissible activities of S&L service corporations is one which calls for highly specialized knowledge. It is reasonable to assume that Congress intended to repose ultimate authority with respect to such matters in those who are duly qualified to exercise that authority by education, training, and experience. See York v. FHLBB, 624 F.2d 495, 499 (4th Cir. 1980); A.G. Becker, Inc. v. Board of Governors, 224 U.S. App. D.C. 21, 693 F.2d 136, 140 (D.C. Cir. 1982).
It is the Court's view that the Board's ruling may not be overturned in view of the deferential standard. However, because of the significance of the issues, the Court does not rest its decision entirely on deference to the Board. Rather, the Court has examined the substantive issues and it now finds, as explained below, that the Board's determination with respect to S&Ls service corporations is consistent with HOLA and does not contravene the Glass-Steagall Act.
HOLA governs the permissible scope of activities and the investment authority of federal S&L associations. The statutory limitations on S&Ls' activities are both functional and geographic. Section 5(c)(4)(B), which is of primary importance to this case, permits federal S&Ls to invest in service corporation subsidiaries provided that, inter alia,10 (1) the subsidiary is "organized under the laws of the state in which the home office of the association is located," and (2) the entire capital stock of the subsidiary is available for purchase only by state and federal S&Ls having their home offices in that state. 12 U.S.C. § 1464(c)(4)(B).
SIA argues that the three-tiered arrangement approved by the Board
violates these limitations. Although conceding that the S&Ls will "technically" comply with HOLA by investing in service corporations which will be incorporated in the same State where the S&L has its home office, it argues that
this structure . . . cannot mask its obvious purpose: to permit the S&Ls to evade the HOLA restrictions on their ...