issues raised by the [Dimension] petition with respect to the Bank Holding Company Act, and that the Comptroller's purported determination in the Preliminary Charter Approval that Dimension could lawfully acquire the Proposed Bank Subsidiaries . . . is unlawful, null, void and of no legal effect." The I.B.A.A. also seeks an injunction preventing the Comptroller from issuing a final charter or certificate of authority to commence business to any of the Dimension banks until the Federal Reserve Board determines the legality of the proposed banks under the Bank Holding Company Act.
Dimension moved to intervene as a defendant and was granted leave to do so on August 16, 1984.
The I.B.A.A. had moved for a preliminary injunction, but the Court postponed any ruling while it considered and then granted a motion to transfer to this District from the Northern District of Illinois.
Defendant Dimension has also filed a counterclaim, alleging antitrust violations, on which this Court stayed proceedings. After transfer to this Court, the parties argued and briefed the defendants' motions to dismiss. Following the December 10th hearing on those motions, the Court took the motion to dismiss under advisement and requested that the parties file their memoranda on the merits of the case in the form of cross-motions for summary judgment. This allowed the Court to consolidate the preliminary motions with its rulings on the merits, see Fed.R.Civ.P. 65(a)(2), and, in the absence of material facts in dispute, provided for a more orderly analysis of the arguments of the parties.
Finally, it must be noted that recent appellate litigation
involving parties to the present action has had some impact on the present case. Reg. Y, which broadened the definition of "commercial loan" and hence broadened the Federal Reserve Board's jurisdiction, see supra slip op. page 4, was challenged before the Tenth Circuit by a group of petitioners including Dimension Financial Corporation. On September 24, 1984, the Court of Appeals for the Tenth Circuit issued its decision in that case. Dimension Financial Corporation v. Board of Governors of the Federal Reserve System, 744 F.2d 1402 (10th Cir. 1984). The court held that Reg. Y, at least insofar as it redefined "commercial lending," 12 C.F.R. Part 225, § 225.2, was invalid and that the Board was enjoined from enforcing or implementing the regulation. Id. at 22. Based on this development, Dimension -- joined later by the Comptroller -- moved to dismiss this case for lack of subject matter jurisdiction on the grounds that the I.B.A.A.'s claim was now moot. It is to this argument that the Court must now turn.
The doctrine of mootness involves circumstances in which a federal court is divested of jurisdiction over an issue because of events subsequent to the filing of a claim. The Supreme Court has recently emphasized the Article III jurisdictional bases of the doctrine, see e.g., Globe Newspaper Co. v. Superior Court, 457 U.S. 596, 73 L. Ed. 2d 248, 102 S. Ct. 2613 (1982); Deposit Guaranty Nat. Bank v. Roper, 445 U.S. 326, 63 L. Ed. 2d 427, 100 S. Ct. 1166 (1980); County of Los Angeles v. Davis, 440 U.S. 625, 59 L. Ed. 2d 642, 99 S. Ct. 1379 (1979). It has been held that a "moot" case is beyond the jurisdiction of the federal courts because of the "case or controversy" requirement, Iron Arrow Honor Society v. Heckler, 464 U.S. 67, 104 S. Ct. 373, 78 L. Ed. 2d 58 (1983), or because the opinion in a moot case would be merely advisory. Preiser v. Newkirk, 422 U.S. 395, 95 S. Ct. 2330, 45 L. Ed. 2d 272 (1975); North Carolina v. Rice, 404 U.S. 244, 30 L. Ed. 2d 413, 92 S. Ct. 402 (1971). Mootness can perhaps best be analyzed as a subclass of Article III standing issues viewed from a perspective that focuses on the time element. See Monahan Constitutional Adjudication: The Who and When, 82 Yale L.J. 1363, 1384, quoted in United States Parole Comm'n v. Geraghty, 445 U.S. 388, 63 L. Ed. 2d 479, 100 S. Ct. 1202 (1980).
In their motion, defendants suggest that the Tenth Circuit's ruling in Dimension that Reg. Y is invalid is the type of intervening event that renders plaintiff's claim moot. Defendants' argument in support of this position may be stated in simplistic terms as follows. First, according to the defendants, this is an action in which plaintiff seeks this Court's aid in getting the B.H.C.A. issue before the Federal Reserve Board so that the Board may apply Reg. Y and declare that the proposed Dimension subsidiaries are "banks" under the B.H.C.A. But -- because of the Dimension opinion -- the Federal Reserve Board is now precluded from doing what the plaintiff wants: declaring the proposed Dimension subsidiaries to be "banks" within the B.H.C.A. definition. Thus, say the defendants, plaintiff cannot as a matter of law obtain the relief originally sought and this case is moot.
This argument has some appeal. It is self-evident that when a judicial remedy such as an injunction becomes unnecessary, the claim is moot. See Atherton Mills v. Johnston, 259 U.S. 13, 66 L. Ed. 814, 42 S. Ct. 422 (1922) (suit to prevent discharge of minor under statute regulating work by minors becomes moot when plaintiff reaches majority). The same result obtains when the judicial remedy sought becomes not unnecessary but "impossible." See e.g., Humboldt County v. United States, 684 F.2d 1276, 1283 (9th Cir., 1982) (argument that road closing is premature because area not designated as wilderness is rendered moot when area so designated); H.R. Porter Co. v. Metropolitan Dade County, 650 F.2d 778, 782 (5th Cir. 1981) (government contract claim seeking hearing on bid and injunction awarding contract to plaintiff was rendered moot by award of contract to third party).
Another line of cases holds that legislative or judicial modification of an essential element of a claim may render that claim moot. For example, amendment of a statute to allow the activity that the plaintiff claims is unlawful obviously renders the complaint moot. See, e.g., Collins v. Hoke, 705 F.2d 959 (8th Cir. 1983). Similarly, invalidation of a statute by a court may render a claim under that statute moot. See Hicklin v. Orbeck, 437 U.S. 518, 57 L. Ed. 2d 397, 98 S. Ct. 2482 (1978).
However, the Court believes that defendants' mootness argument in the present case is distinguishable from these lines of cases. In each of the mootness cases above, the intervening event directly affected the ability of the Court to render the relief sought regardless of the merits of the claim. The event had an effect on the controversy that made it unnecessary for the court to consider the merits.
In the present case, there has obviously been an intervening event: a change in the law, Reg. Y, that affects the merits of this controversy. Indeed, defendants' argument concerning the magnitude of this change is difficult to dispute. Nevertheless, while the invalidation of Reg. Y may have a precipitous effect on plaintiff's claims, it is not readily apparent that this effect is of the nature of a withdrawal of this Court's jurisdiction.
Defendants' arguments regarding mootness were well put, and perhaps it is a matter of slight degree to distinguish the jurisdictional effect of mootness from a similar, significant effect on the merits. See 13A Wright Miller & Cooper, Federal Practice and Procedure § 3533.3 ("a high degree of probability [that there will be no effective relief awarded] is often found, and rightly supports a finding of mootness").
However, defendants' arguments ultimately fall short of doing anything more than demonstrating that the invalidation of Reg. Y has weakened the plaintiff's case. The error in the defendants' argument lies in their characterization of the issues. This is not a case in which this Court must decide whether the application of Reg. Y would cause the Dimension subsidiaries to be treated as "banks" under the B.H.C.A. If it were, the invalidation of Reg. Y might moot this lawsuit. However, the merits of the Reg. Y issue are not being argued here. Instead, the Court must decide whether an injunction should issue to stay the hand of the Comptroller while the Federal Reserve Board considers the merits
of the Dimension proposal. The relief sought is not the application of Reg. Y, but a declaration of Federal Reserve jurisdiction. Reg. Y affects this Court's determination of the Federal Reserve Board's jurisdiction, but it does so on the merits. The invalidation of Reg. Y does not render this Court's ruling unnecessary or moot.
The "Substantial Issue" Test
As a preliminary matter, the parties would agree that in some circumstances the federal courts have the power and authority to enjoin the Comptroller's issuance of final bank charters in order to allow the Federal Reserve Board an opportunity to exercise its jurisdiction over B.H.C.A. issues. The seminal case in this area is Whitney National Bank v. Bank of New Orleans, 379 U.S. 411, 13 L. Ed. 2d 386, 85 S. Ct. 551 (1965), which held that the Comptroller may not issue a final charter to a proposed bank where "substantial" B.H.C.A. questions exist. The Whitney court based this holding on the premise that as long as a B.H.C.A. issue was pending before the Federal Reserve Board, the applicant would not be "lawfully entitled to commence the business of banking." 379 U.S. at 426. The Whitney doctrine has been applied not only in cases where an applicant has submitted an application for Federal Reserve approval, 12 U.S.C. § 1842, but also in cases where no application is pending. See Marshall & Ilsley Corp. v. Heimann, 652 F.2d 685, 699-701 (7th Cir. 1981) (federal courts may issue injunction against Comptroller to allow Board opportunity to review B.H.C.A. issues); American Bank of Tulsa v. Smith, 503 F.2d 784, 784-787 (10th Cir. 1974). (Comptroller may be enjoined although no application pending.)
Before the Court turns to the issue of whether such a "substantial" B.H.C.A. issue exists, several preliminary matters should be considered. Plaintiff has supplemented its cross-motion for summary judgment with a Motion for an Order of Referral to the Federal Reserve Board.
Under the I.B.A.A.'s proposed order, the Comptroller would be enjoined from issuing final charters until the Federal Reserve Board "first determines that Dimension Financial Corporation can lawfully acquire the proposed bank subsidiaries under the Bank Holding Company Act." Because the Comptroller's decision conditions final approval of Dimension's proposal on Federal Home Loan Bank Board ("F.H.L.B.B.") approval, the proposed order triggers referral of the B.H.C.A. issues to the Federal Reserve Board on such F.H.L.B.B. approval. If this occurs, the order provides that the Federal Reserve shall file a written report on its "determination" of the B.H.C.A. issues within thirty days.
Prior to applying the "substantial issue" test, several issues relating to this I.B.A.A. motion must be considered.
At the outset, it is clear that a district court has no authority to issue orders mandating action or inaction by the Federal Reserve Board.
Although this Court might enjoin the Comptroller, the Board is subject to direct review in the Court of Appeals. 12 U.S.C. § 1848. It is the law of this Circuit that where a statute commits agency action to direct review in the Court of Appeals, any suit that might affect that future jurisdiction is "subject to the exclusive review of the Court of Appeals." Telecommunications Research and Action Center v. Federal Communications Commission, 242 U.S. App. D.C. 222, 750 F.2d 70, 75 (D.C. Cir. 1984).
The I.B.A.A.'s proposed order would require a Board decision on the merits of the B.H.C.A. issues in the Dimension proposal. Such a Board decision would, of course, be a final order subject to appellate review. Thus, this Court would be taking action to affect the Court of Appeals' future jurisdiction over the Board; such an order is improper and this Court lacks jurisdiction to enter it. See Telecommunications Research 750 F.2d 70, slip op. at 12-13 (exclusive appellate jurisdiction over final agency orders extends to non-final orders; district court lacks jurisdiction to compel agency action); Southwest Bank of Fort Worth v. Hermann, No. 80-1115, mem. op. at 4, (D.D.C. March 25, 1981) (district court has no jurisdiction over Federal Reserve Board). For this reason alone, the motion for an order of referral should be denied.
The I.B.A.A. has also argued that the Federal Reserve Board has conclusively determined that the Dimension proposal raises a substantial B.H.C.A. issue and that this Court is bound by that determination. This contention is incorrect as a matter of fact and law.
The most recent comment of the Federal Reserve Board
spoke directly to the "issues . . . raised in the above-captioned case." In that letter, the Board took the position that "it intends to conduct a thorough inquiry into whether the proposed Dimension banks will be operated in a manner so as to comply with the definition of 'bank' for purposes of the [B.H.C.] Act." The letter then goes on to quote the F.H.L.B.B.'s position that the proposal raises "serious and very complex policy issues." The letter ends as follows:
The staff believes that it would be most useful to undertake a review of the lawfulness under the BHC Act of Dimension's acquisition of the proposed national banks after any approval of the Dimension proposal by the Bank Board. This scheduling will avoid potentially unnecessary expenditure of administrative resources and will assure that a Board decision is made in the light of facts that are more timely and relevant in relationship to the possible opening for business by the proposed banks.
It is of course preferable that matters such as this be resolved by cooperation among the interested agencies with referral to the Board of issues that require resolution under the BHC Act. In any event, the courts have recognized that the Board's jurisdiction with respect to matters arising under the BHC Act is paramount. E.g., Board of Governors v. First Lincolnwood Corp., 439 U.S. 234, 250 [58 L. Ed. 2d 484, 99 S. Ct. 505] (1978). The Board, therefore, has at any time the authority to determine whether any particular banking institution is a bank for purposes of the BHC Act.