Cement National Bank v. Department of Banking

230 A.2d 209, 425 Pa. 554, 1967 Pa. LEXIS 713

Opinions

Opinion by

Mr. Chief Justice Bell,

This is an appeal from the Order of the Department of Banking authorizing Tri-County State Bank of Bow manstown, whose principal office is in Carbon County, to establish a branch banlc at 1840 Main Street in the Borough of Northampton, Pennsylvania.

On July 25, 1966, Tri-County State Bank (hereinafter referred to as Tri-County) filed an application with the Department of Banking in accordance with the new Pennsylvania Banking Code of 1965 (Act of November 30, 1965, P. L. 847, 7 P.S. §904(b) (iv)), seeking authority to establish a branch bank at 1840 Main Street, Northampton, Northampton County. At that time, Tri-County did not have any offices in Northampton County.

On August 19, 1966, Cement National Bank and Merchants National Bank of Allentown notified the Department of Banking of their opposition to the proposed branch.

Norman E. Oelschlegel, an examiner for the Department of Banking, made an ewhaustwe investigation of the merits of the application and in particular the need for a branch bank at the proposed location. In the course of his investigation Oelschlegel interviewed officers of the banks which he believed were in the banking area from which the proposed branch would draw its depositors, customers and business, including particularly those of the appellant banks. Officers of these banks were given an opportunity to state their reasons for opposing the proposed branch. Thereafter, on August 26, 1966, Oelschlegel submitted to the Secretary of Banking a detailed and exhaustive report supported by voluminous data of the investigation and examination he, together with an examiner representing the Federal Deposit Insurance Corporation, had conducted into this matter. Therein Oelschlegel recommended that the Department approve the application for the branch.

On September 9, 1966, Cement National Bank, Merchants National Bank of Allentown, and Walnutport State Bank filed an official letter of protest and in support thereof submitted a large amount of detailed documentary material.

On September 20, 1966, the Department of Bank: ing, after studying all the evidence pro and con, approved the application of Tri-County and issued a letter of authority authorizing it to establish a branch bank at 1840 Main Street, Northampton, Northampton County, Pennsylvania. It is worthy of note that the Federal Deposit Insurance Corporation, after careful investigation, also approved this branch.

Thereafter, the aforesaid competing banks filed á petition for allowance of appeal under Supreme Court Rule 68%

Footnotes

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* and a petition for a writ of supersedeas. Both of these petitions were granted on November 4, 1966.

Appellants raise three questions. They. first contend that the statutes of Pennsylvania do not authorize the Department of Banking to deny to banks protesting branch applications the right to inspect such applications and the supporting material submitted therewith. We shall consider this in inverse order.

Appellants further contend that the Department of Banking, in refusing to hold a hearing at the depart: ment level and in failing or refusing to make findings of fact, or to set forth and inform all parties of its reasons for approving the branch bank application, has violated appellants’ (a)' procedural rights, and (b) their property rights and (c) other (unspecified) Con stitutional rights.* All of these contentions are, as we shall see, devoid of merit.

Section 905 of the Banking Code of 1965 pertinently provides: “Approval of branch by department** (a) Investigation and discretionary hearings—Upon receipt of an application for approval of a branch which satisfies the requirements of this Act, the department shall conduct such investigation as it may deem necessary and, in its discretion, may hold hearings before the department or before the Banicing Board.”

The comment of the Banking Commission is as follows:*** “Subsection (a) does not require hearings in connection with branch applications but permits the department to hold such hearings in its discretion either before the department or before the banking board.”

Appellants contend that under the Banking Code (1) hearings are necessary, and the only discretion which the Department has is whether to hold a hearing before the Department or before the Banking Board, and (2) the Department must give detailed reasons for its decision. This interpretation of the Code and these contentions are devoid of merit.

Section 905 further provides: “(c) Action by department—Within sixty days after receipt of the application . . . the department shall . . . approve the application if it finds that there is a need for banking services or facilities such as are contemplated by the establishment of the proposed branch and that the requirements of this act have been complied with. ... If the department approves the application, it shall issue to the institution a letter of authority to establish the branch. If the department disapproves the application, it shall give the institution written notice of its disapproval and a statement in detail of the reasons for its decision. The decision of the department shall be final and shall not be subject to review except by the Supreme Court upon broad certiorari.”

It is clear from the above quoted provisions of the Code that neither an adversary hearing nor any other kind of hearing is required before the Secretary of Banking or at the Department level. This nonrequirement of a hearing is because both the Banking Department and the Legislature have recognized the delicate and sensitive nature of banking and of the banking information in the possession of the Banking Department, which in some matters should remain confidential, and the disastrous effects which divulgence of this information might have on all banks in that community. This is further confirmed (1) by Article III, §302, of the Department of Banking Code* which makes the divulgence of information by the Secretary or by any officer or employee of the Department of Banking, with certain enumerated exceptions, a misdemeanor, and (2) by the Administrative Agency Law of 1945.

Section 51 of the Administrative Agency Law of June 4, 1945, P. L. 1388, as amended, 71 P.S. §1710.51, by the Act of June 13, 1963, P. L. 135, and by the Act of July 31, 1963, P. L. 425, contains an enumeration of the “agencies” to which the provisions of the Administrative Agency Law applies. Such enumeration includes the Banking Board, but does not include the Secretary or the Department of Banking.

It is likewise clear from the above quoted language of (c) that the Department is required sur an applica tion for a branch bank to give a statement of the reasons for its decision only in the event it disapproves cm application.

However, we again emphasize, as we did in Blairsville National Bank v. Myers, 409 Pa. 526, 534, 187 A. 2d 655, the desirability of having the Department make findings of fact and conclusions—which in their discretion may be brief—whenever protests are filed against the grant of a new bank or of a merger, or of a branch bank, in order to support the Department’s final decision. This practice is especially desirable where an appeal by broad certiorari is allowed by this Court.

. Delaware County National Bank v. Campbell, 378 Pa. 311, 106 A. 2d 416, which is relied upon by appellants, supports the Banking Department and not the appellants. It also vividly portrays the respective powers of the Department of Banking in contrast with the powers of a Court and the reasons therefor. In that case, this Court first held that a National bank has a standing to protest the grant of a State bank’s application for a branch. With respect to a decision in Short’s Estate, 315 Pa. 561, 173 A. 319, which had quashed an appeal from the refusal by the Board of Finance and Revenue of a refund for inheritance taxes, the Court pertinently said (page 322) : “We believe the decision was based upon the fact that the action of the Board [of Finance and Revenue] was a matter of legislative grace and not a judicial act and that it did not affect property rights. . . . Newport Township School District v. State Tax Equalization Board, 366 Pa. 603, supra. Cf. also: Grime v. Department of Public Instruction, 324 Pa. 371, 188 A. 337.”

The Court further pertinently said (page 325): “Part of the powers and duties of the Department of Banking, and in cases of mergers with resultant branch banking, part of the powers and duties of the Banking Board, is to determine, as the Department and Board did in the present case, whether the community served* and from which a bank draws its depositors and clients has adequate banking facilities and is. not over-banked. . . ‘As interpreted by the Banking Board in accordance with its plain terms, the clear intention of the statute in regard to establishment of branches, both by new branch and by merger, is the same: to guard against “overbanking” on the one hand, and “underbanking” on the other; . . .’. The legislature, as appellees further admit, did not exclude or intend to exclude competition between banks; it intended, inter alia, to exclude such competition as would likely weaken or destroy some banks in an overbanked community and thus weaken or injure the entire banking system, to the detriment of depositors, creditors, stockholders and the public alike.

“We therefore interpret §204D as the Banking Board did, namely, a merger [or branch] may be approved if the city, borough, or other community in which such branch is to be established is without adequate banking facilities. . .

“We will not overrule or reverse the Banking Board if there is adequate evidence to support its findings of fact and the proceeding is free from error of law and there has been no clear abuse of discretion. Cf. Rolling Green Golf Club Case, 374 Pa. 450, 458, 97 A. 2d 523. . .”

It is appropriate to note that the dissenting Opinion of Mr. Justice, later Chief Justice, Jones which was joined in by Mr. Justice Stearns and Mr. Justice Chidsey, went even further than the majority Opinion. It took the position (1) that the Order of the Department of Banking or of the Banking Board (a) was nonjudicial and (b) did not adjudicate property rights, and (2) that the Department of Banking and the Banking Board had, under Article XVI, §11 of the Pennsylvania Constitution, only such limited rights as were granted by the Legislature, including the right to deny Judicial review.

Banks often forget that they are merely creatures of a Legislature or of Congress, and have only such rights as are granted by Statute or by Congressional Act, as the case may be. The Legislature can grant such powers and impose such conditions and limitations as it desires on all banks and other bodies it creates, provided the same are not unlawful or unconstitutional; and in particular, the Legislature is not required to provide for hearings before its created bodies such as are constitutionally required in judicial proceedings. Moreover, in this case, as we have seen, the Legislature is not required to provide, nor has it provided for hearings at the Department level. The denial of a Judicial or a public or adversary hearing before the Department of Banking or even before a Banking Board is not a violation of procedural due process or of any other Constitutional right; nor is the refusal to permit (a) the inspection of applications and supporting material, or (b) the divulging of information* by the Secretary of Banking or by any officer or employee of the Department, a violation of any Constitutional right which is possessed by a bank.

To summarize: The denial by or the failure of the Legislature to provide for a hearing before the Department of Banking or for a Judicial review of the action of the Department of Banking would not be a depriva tion or violation of any Constitutional right which is or may be possessed by a bank. Cases, supra.

We note that under the Federal system, the Comptroller of the Currency is not required to conduct hearings sur the establishment of a branch bank. First National Bank of Smithfield v. Saxon, 352 F. 2d 267 (C.C.A. 4, 1965); Bank of Sussex County v. Saxon, 251 F. Supp. 132 (U.S.D.C.D. N.J. 1966); Farris v. Indian Hills National Bank, 244 F. Supp. 594 (U.S.D.C.D. Neb. 1964).

In the Bank of Sussex County case, the Court reiterated what had previously been held in the Smith-field Bank case and said (page 142) : “The opinion [in Smithfield] also recites (p. 270) that ‘Procedural due process is not offended by the Comptroller’s practice [of dispensing with a hearing]. The absence of a hearing provision in the Banking Act raises no Constitutional question, for the omission was within the power of Congress.’ ”

In Farris, the Court said (pages 595-596) : “The Administrative Procedure Act, 5 U.S.C.A. §1004 requires a hearing ‘[i]n every case of adjudication required by statute to be determined on the record after opportunity for an agency hearing.’ There is no provision that we can find in the National Banking Act, 12 U.S.C.A. for such a hearing. Indeed 12 U.S.C.A. §27 provides that a certificate shall be issued in the following manner: ‘If, upon a careful examination of the facts so reported, and of any other facts which may come to the knowledge of the comptroller, whether by means of a special commission appointed by him for the purpose of inquiring into the condition of such association, or otherwise, it appears that such association is lawfully entitled. . . .’

“The quoted statute obviously does not require a hearing. In effeet it negates the necessity for a hearing by setting out other possibilities for arriving at a decision. Terminology such as ‘or otherwise’ would appear to leave the Comptroller free to determine for himself whether or not he will have a formal hearing in any given case. We find that he is not required to hold formal hearing.” (Italics in original.)

See also, Peoples Bank of Van Leer v. Bryan, 397 S.W. 2d 401 (Court of Appeals, Tenn. 1965). There the Court said (page 405) : “The granting or withholding of permission to establish a branch office of a bank is not a judicial function, but is purely an administrative function.” And, also (page 407) : “In our opinion, it makes no difference whether the Superintendent of Banks acquired facts upon which he based his decision by an investigation or by a hearing, so long as the evidence shows his decision was based upon some material fact or facts, and was not arbitrary or illegal. The manner in which the facts are obtained, whether by letters, affidavits, depositions or oral testimony, is a matter which is left to the discretion of the Superintendent, so long, of course, as he observes the basic requirements of private as well as public interest.”

With these interpretations we agree.

Appellants contend that the Smithfield case is clearly distinguishable because an appeal lies under Federal law from a comptroller’s decision, with a hearing de novo* in the District Court. Even if we assume that a right of Judicial appeal is Constitutionally required, appellants overlook the fact that Pennsylvania provides a similar Appellate Court review under the Banking Code of 1933, i.e., an appeal to this Court by narrow certiorari and under the present Banking Code of 1965, cm appeal by broad certiorari is allowed to this Court under Buie 68%.

Appellants further contend that the record with all the voluminous exhibits and data does not support the Department’s conclusion that a branch bank may be established at the proposed location. The evaluation of all this evidence, some of it conflicting, some of it merely deductions and conclusions from all the data submitted to or gathered by the Department, is sometimes difficult. However, we must approach this and similar cases mindful of what this Court aptly said in Blairsville National Bank v. Myers, 409 Pa. 526, 533-534, 187 A. 2d 655: “A Supreme Court cannot be a Secretary of Banking or a Department of Banking or a Banking Board. These men are not only experts in the technical field of banking, but they may have knowledge of intangibles and imponderables, of strengths and weaknesses which may exist in a particular bank or in the broad banking situation in that banking area which are not clearly or definitely or concretely disclosed in the cold, bare record. For these reasons much must be left to the discretion of the Secretary of Banking or, as the case may be, to the Banking Board.

“We are well aware of the accuracy of the statements in Philadelphia Saving Fund Society v. Myers, 406 Pa., supra, where the Court said (pp. 449-450) : ‘The question of whether there is a need for the services and facilities of an additional bank or branch is sometimes a delicate and difficult one. The dangers inherent in any situation which may possibly or likely create on overbanked area that may likely weaken or destroy some existing banks to the detriment of depositors, creditors, stockholders, and the public alike, must never be forgotten or minimized. . . . “ . Part of the powers and duties of the Department of Banking ... is to determine . . . whether the community served and from which a bank draws its depositors and clients has adequate banking facilities and is not over- banked. ..“... the clear intention of the statute . . . is the same: to guard against ‘overbanking’ on the one hand, and eunderbanking’ on the other; . . ” ’ However, we appropriately added: ‘ “Where a Board [or Department] is composed of able and experienced experts who are dealing with technical questions, a Court should be loath to find a clear abuse of discretion upon a subject or subjects as to which they are far better qualified than any Court.” ’ ”

We have studied the voluminous record and are satisfied that the evidence to establish a need for this branch bank was both adequate and ample, and the Department of Banking in approving the proposed branch was not guilty of an abuse of discretion or an error of law.

Order affirmed.

Mr. Justice Cohen concurs in the result.

Although no one raised the question of the proper procedure for bringing an appeal to this Court, §905 (e) of the Banking Code of 1965 provides: “. . . The decision of the department shall be final and shall not be subject to review except by the Supreme Court upon broad certiorari.” We interpret this to mean that an appeal will lie under Rule 68% only if specially allowed by the Supreme Court or a Judge thereof, and, if allowed, it will be heard' on broad certiorari.

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Since these contentions are sometimes interrelated or overlapping, they will sometimes be considered together.

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Italics throughout, ours.

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Section 104(a) provides that the comments of the Commission may be consulted in the construction and application of the provisions of the Act,

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Act of May 15, 1933, P. L. 565, 71 P.S. §733-302.

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This debatable subject is usually one of the two areas upon which the established banks and the branch-seeking bank disagree. It probably has its basis in the natural desire, although not openly expressed, of nearly every country bank to protect and enhance its future growth and prosperity.

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See, supra.

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Whether the hearing de novo thus granted is the kind or a different kind of de novo hearing which is usually held by Courts, it is unnecessary to decide.