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February 27, 1985

C. TODD CONOVER, Comptroller of the Currency of the United States of America, and DIMENSION FINANCIAL CORPORATION, Defendants

The opinion of the court was delivered by: HOGAN

 The controversy before the Court involves the legal authority of the Comptroller of the Currency ("the Comptroller") to issue final charters to the Dimension Financial Corporation to operate thirty-one proposed national banks. The plaintiff, Independent Bankers Association of America ("I.B.A.A.") has challenged the Comptroller's issuance of preliminary approval to four of the proposed banks on the grounds that "the [Comptroller's decision] purporting to determine the merits of certain controversies arising under the Bank Holding Company Act (12 U.S.C. § 1841, et seq.) is unlawful" and beyond the authority of the Comptroller.

 This controversy over the jurisdiction of the Comptroller arises out of division of federal regulation of the banking industry among several federal agencies. The defendant in this case, the Office of the Comptroller, was established to oversee the regulation of national banks chartered under the National Bank Act. 12 U.S.C. § 1, et seq. Another independent agency, the Federal Reserve Board, has jurisdiction to administer and enforce the Bank Holding Company Act, 12 U.S.C. § 1841, et seq. Although the laws they administer are distinct, these and other federal and state regulators often have overlapping interests and authority.

 The ultimate issue in this case is the applicability of the Bank Holding Company Act ("B.H.C.A.") to the proposed Dimension banks. If the B.H.C.A. is indeed applicable, jurisdiction to determine the legality of the proposed banks under the B.H.C.A. would be exclusively vested with the Federal Reserve Board. Whitney National Bank v. Bank of New Orleans, 379 U.S. 411, 419-20, 13 L. Ed. 2d 386, 85 S. Ct. 551 (1965). More important from a practical standpoint, application of the B.H.C.A. might result in preventing Dimension's operation of the proposed banks because section 3(d) of the B.H.C.A. generally prohibits a bank holding company from holding banks in more than one state. *fn1" 12 U.S.C. § 1842(d).

 For purposes of the B.H.C.A., the term "bank" is defined as an institution which both "(1) accepts demand deposits that the depositor has a legal right to withdraw on demand, and (2) engages in the business of making commercial loans." 12 U.S.C. § 1841(c). The I.B.A.A. claims that there is a substantial question whether the Dimension banks are indeed "banks" under this definition, subject to the B.H.C.A. *fn2" The I.B.A.A. further argues that the authority to decide these questions under the B.H.C.A. is within the exclusive jurisdiction of the Federal Reserve Board and that the Comptroller cannot, as a matter of law, issue final charters to the Dimension banks until the Federal Reserve Board determines the legality of the transaction under the B.H.C.A.


 A short time later, Deerbrook State Bank, a member of plaintiff I.B.A.A., filed a petition with the Board of Governors of the Federal Reserve System, requesting that the Board commence hearings under the B.H.C.A. to examine the legality of the proposed Dimension banks. *fn4" In June, 1983, the I.B.A.A., on behalf of its members, filed a letter with the Federal Reserve Board concurring with and joining in the petition of Deerbrook State Bank.

 At the time, the I.B.A.A.'s argument that the proposed Dimension banks would constitute "banks" under the B.H.C.A. was based largely on an expanded definition of the term "commercial loans" as used in 12 U.S.C. 1841(c). In May, 1983, the Board had put out for notice and comment a proposed revision to Regulation Y ("Reg. Y"), which implements the B.H.C.A. The revisions included this expanded definition of "commercial loan" as including the sale or trading of commercial paper, certificates of deposit, bankers' acceptances, broker call loans, and federal funds. *fn5" 48 Fed. Reg. 23520, 23521 (May 25, 1983). Aside from the I.B.A.A., the proposed amendments were not well received. Both the F.D.I.C. and the Comptroller of the Currency expressed their disagreement with the Board's position; virtually all of the comments received on the proposed redefinition were negative. Nevertheless, on December 29, 1983, the Board incorporated its expanded definition in a final rule amending Regulation Y ("Reg. Y"), 12 C.F.R. Part 225 (1983), 49 Fed. Reg. 794 (January 5, 1984).

 Of course, the action of the Board did not go unnoticed by Dimension. By letter of August 26, 1983 to the Comptroller, Dimension made a commitment to avoid engaging in the activities defined as "commercial lending" by Reg. Y as long as that definition was in effect. *fn6"

 Meanwhile, proceedings on the Dimension petition continued before the Office of the Comptroller. On April 28, 1983 the Office published notice of its decision to hold public hearings on the applications. 48 Fed. Reg. 19265. The hearings were held on August 8-12, 1983 and the comment period remained open through September 16. Over 90 parties participated and they were generally opposed to the Dimension proposal for a variety of reasons, including the legal issue of Dimension's status under the B.H.C.A.

 On November 15, 1983, the Board, through its general counsel, made its first official comment to the Comptroller on the then-pending Dimension proposal. In a letter to the Chief Counsel to the Office of the Comptroller of the Currency, the general counsel to the Board noted that while it did "not appear appropriate for the Board at this time to take any action on the Deerbrook Bank's petition," the purpose of the correspondence was to "inform you that . . . there is a substantial question whether the Dimension banks would be 'banks' for the purpose of the BHC Act." The letter went on to state that "neither the Board nor the staff has made any final determination on the status of the Dimension banks under the BHC Act. I expect that any Board action on this issue would take place promptly after the granting of any preliminary charters. . . . In fact, applicable case law requires that any final charter approval of any Dimension banks be conditioned either on Dimension's obtaining prior approval under the BHC Act to acquire the banks or on a determination by the Board that the BHC Act does not apply to the acquisition."

 While the maneuverings continued on the administrative front, the first federal court was asked to rule in this controversy. On July 5, 1983 plaintiff, along with others not party to this action, filed a complaint in the United States District Court for the Northern District of Illinois seeking declaratory and injunctive relief against the Comptroller. Deerbrook State Bank, et al. v. Conover, 568 F. Supp. 696 (N.D. Ill., 1983). In that suit, plaintiffs sought to enjoin the Comptroller from holding hearings or otherwise taking action on the Dimension applications until the Board had an opportunity to rule on the B.H.C.A. issues involved. The court denied plaintiffs' motion for a preliminary injunction on August 9, 1983 on the grounds that the plaintiffs had failed to show a reasonable likelihood of success on the merits and that the harm was "far too speculative to warrant the granting of a preliminary injunction." Deerbrook State Bank v. Conover, 568 F. Supp. 696, 700 (N.D. Ill., 1983). At the time of that ruling, the Comptroller had not yet conducted hearings on the Dimension proposal and, of course, had not made any preliminary rulings on the merits. *fn7" Thus, the court found that the requisite irreparable injury had not been demonstrated.

 On May 9, 1984, the Comptroller handed down his written decision on the Dimension bank proposal. In his thirty page opinion, the Comptroller granted preliminary approval for a maximum of four Dimension banks and reserved judgment on the remainder of the applications. Decision of the Comptroller of the Currency on the Applications of Dimension Financial Corporation to Charter 31 National Banks in 25 States. The Comptroller held inter alia, that "the most important legal issue posed by the applications is the applicability of the Bank Holding Company Act. . . ." The Comptroller went on to discuss the "very expansive definition of 'commercial loan'" in Reg. Y (promulgated January 5, 1984) as well as the November 15, 1983 letter from the Federal Reserve Board General Counsel. See supra slip op. page 6. Nevertheless, in light of Dimension's "commitment" not to engage in any activities within the expanded definition of commercial loan, see supra slip op. page 5, the Comptroller concluded that "the applications no longer can be said to pose substantial B.H.C.A. questions."

 The I.B.A.A. responded to the preliminary charter approval by promptly renewing its inquiries at the Federal Reserve Board. In a May 18, 1984 letter, the I.B.A.A., through counsel, requested that the Board "reaffirm its intention to conduct its own investigation to determine whether the manner in which Dimension intends to operate its proposed bank subsidiaries complies with the BHC Act."

 By letter of June 19, 1984, the Board, through its secretary, responded to the I.B.A.A.'s letter. The Board stated 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 Board's regulations on the bank definition. To this end, the staff plans to hold an informal hearing in order to develop the facts fully for review by the Board."

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