Owensboro National Bank v. Stephens

44 F.3d 388, 1994 U.S. App. LEXIS 36506, 1994 WL 716339

• Court: Court of Appeals for the Sixth Circuit
• Decided: December 29, 1994
• Docket: Nos. 92-6330, 92-6331
• Status: Published

Opinions

GUY, J., delivered the opinion of the court, in which McKEAGUE, D.J., joined. BATCHELDER, J. (pp. 393-99), delivered a separate dissenting opinion.

RALPH B. GUY, Jr., Circuit Judge.

Defendants, the Commissioner of the Kentucky Department of Insurance (“Commissioner”) and various Kentucky insurance industry associations, appeal the district court’s grant of summary judgment in favor of plaintiffs, which are national banks doing business in Kentucky towns with populations of fewer than 5,000 persons. The district court concluded that a Kentucky statute that bars bank holding companies from acting as insurance agents was preempted by a federal statute that allows national banks operating in towns of fewer than 5,000 persons to act as insurance agents. On appeal, defendants argue that the Kentucky statute, Ky.Rev.Stat. Ann. § 287.030(4) (“section 287”), does not conflict with the federal statute, 12 U.S.C. § 92, and that, in any event, the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., and section 7 of the Bank Holding Companies Act, 12 U.S.C. § 1846, each “immunize” section 287 from preemption by § 92. We reject these arguments and affirm.

I.

In late 1990, plaintiffs submitted to the Commissioner requests for applications for licenses to act as life and general line insurance agents in Kentucky. The Commissioner denied these requests, but scheduled a hearing before a state administrative law judge (“ALJ”) on the issue of whether section 287 barred plaintiffs from acting as insurance agents. Before that hearing was held, however, plaintiffs filed this lawsuit, seeking declaratory and injunctive relief. A Kentucky state court thereafter granted plaintiffs’ request for a stay of the administrative proceedings pending the outcome of this lawsuit. Meanwhile, a number of Kentucky insurance industry associations intervened on behalf of the Commissioner in this lawsuit. The United States intervened on behalf of plaintiffs. Defendants filed a motion to dismiss, arguing that the case was not justiciable because of the unfinished administrative proceeding before the ALJ. Plaintiffs then filed a motion for summary judgment, to which defendants responded by filing a cross-motion for summary judgment. In a published opinion, see 803 F.Supp. 24 (E.D.Ky.1992), the district court determined that the case was justiciable,¹ granted plaintiffs’ motion for summary judgment, and granted plaintiffs the relief they sought. This appeal followed.

II.

Defendants first argue that section 287 is not preempted by § 92 under conventional preemption analysis. Section 287 provides:

No person who after July 13,1984, owns or acquires more than one-half Qk) of the capital stock of a bank shall act as insurance agent or broker with respect to any insurance except credit life insurance, credit health insurance, insurance of the interest of a real property mortgagee in mortgage property, other than title insurance.

Ky.Rev.Stat.Ann. § 287.030(4). Section 92 provides:

In addition to the powers now vested by law in national banking associations organized under the laws of the United States any such association located and doing business in any place the population of which does not exceed five thousand inhabitants, as shown by the last preceding decennial census, may, under such rules and regulations 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 said bank is located to do business in said State, by soliciting and selling insurance and collecting premiums on policies issued by such company; and may receive for services so rendered such fees or commissions as may be agreed upon between the said association and the insurance company for which it may act as agent: Provided, however, That no such bank shall in any case assume or guarantee the payment of any premium on insurance policies issued through its agency by its principal: And provided further, That the bank shall not guarantee the truth of any statement made by an assured in filing his application for insurance.

12 U.S.C. § 92 (emphasis added).

It is well settled that “the Supremacy Clause, U.S. Const., Art. VI, cl. 2, invalidates state laws that ‘interfere with, or are contrary to,’ federal law.” Hillsborough County v. Automated Medical Labs., 471 U.S. 707, 712, 105 S.Ct. 2371, 2375, 85 L.Ed.2d 714 (1985). One of the ways in which a state law may “interfere” with a federal law is by coming into “actual[ ] conflict! ]” with it, i.e., by “ ‘standing] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress[.]’ ” Id. at 713, 105 S.Ct. at 2375.

The Supreme Court has applied this “actual conflict” standard in cases with facts similar to those presented here. In Franklin National Bank v. New York, 347 U.S. 373, 74 S.Ct. 550, 98 L.Ed.2d 767 (1954), the Court considered whether a New York law that prohibited use of the word “savings” in advertising for banks other than state-chartered savings banks was preempted by a federal law that authorized national banks “to receive deposits without qualification or limitation, and ... [to] possess ‘all such incidental powers as shall be necessary to carry on the business of banking[.]’ ” Id. at 376, 74 S.Ct. at 553. Although the federal law only implicitly permitted federal banks to use the word “savings” in their advertising, the Court concluded that there was “a clear conflict between the law of New York and the law of the Federal Government.” Id. at 378, 74 S.Ct. at 554. Similarly, in Fidelity Federal Savings and Loan Association v. de la Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982), the Court considered whether a California law that prohibited the inclusion of a due-on-sale clause in loan instruments was preempted by a federal regulation that expressly granted to federal savings and loans the power to include such clauses in loan instruments. Noting that the conflict between the state law and federal regulation did not “evaporate” because the “regulation simply permits, but does not compel, federal savings and loans to include due-on-sale clauses in their contracts!,]” id. at 155, 102 S.Ct. at 3023, the Court easily concluded that preemption was appropriate. Id. at 159, 102 S.Ct. at 3025.

The conflict between section 287 and § 92 is no different than those present in Franklin National Bank and de la Cuesta. For purposes of deciding the federal preemption issue only, the plaintiff national banks assumed as correct the Commissioner’s position that section 287 applies not only to bank holding companies but also to subsidiaries thereof, such as national banks. Thus, while § 92 provides that national banks such as plaintiffs “may’ act as insurance agents, section 287 provides that they “may not.”

Seizing upon the permissive nature of the right created by § 92, however, defendants suggest that we should “reconcile” the two sections by construing the right created by § 92 to be subject to state law restrictions such as section 287. That construction might be plausible if § 92 provided that certain national banks “may have the 'power ” to act as insurance agents. But § 92 actually states that certain national banks “may, under such rules ... as may be prescribed by the Comptroller of the Currency, act as the agent for” certain insurance companies. Providing that a bank “may act” is no different than providing that a bank “shall have the power to act.” Thus, the language of § 92 does not permit the construction defendants advocate. That the power created by § 92 is permissive does not allow us to conclude that it does not exist.²

Defendants also contend that our construction of § 92 assumes that Congress acted with an “unconstitutional motive” in passing § 92, since the regulation of the business of insurance was understood to be beyond Congress’s Commerce Clause powers when § 92 was passed in 1916. But § 92 in no way governs the manner in which the business of insurance is conducted; rather, it merely helps to define the powers of national banks. Congress has been understood to have the authority to define those powers since the Court’s decision in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819), so we reject defendants’ contention.

Finally, we note that section 287 interferes with the realization of a chief object of § 92. That object is to increase the number of banks serving small towns by creating “additional sources of revenue” for such banks. Letter from Comptroller John Skelton Williams to Sen. Robert L. Owen, reprinted in 53 Cong.Rec. 11001 (1916). (App. at 159). Section 287 removes that source of revenue and thus “ereate[s] ‘an obstacle to the accomplishment and execution of the full purposes and objectives [of Congress].’ ” de la Cuesta, 458 U.S. at 156, 102 S.Ct. at 3024 (emphasis added). Like the district court, we conclude that, under conventional preemption analysis, § 92 preempts section 287.

Defendants next argue that the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., “immunizes” section 287.030(4) from preemption by § 92. The relevant portion of the McCarran-Ferguson Act provides:

No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance....

15 U.S.C. § 1012(b), Thus, section 287.030(4) is not preempted by § 92 if (1) section 287 was “enacted ... for the purpose of regulating the business of insurance,” and (2) § 92 does not “specifically relate[ ] to the business of insurance.”

We first consider whether section 287 was “enacted ... for the purpose of regulating the business of insurance.” The “business of insurance” is made up of “practices” and “activities” that satisfy the criteria set forth in Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982). Those criteria are:

first, whether the practice has the effect of transferring or spreading a policyholder’s risk; second, whether the practice is an integral part of the policy relationship between the insurer and insured; and third, whether the practice is limited to entities within the insurance industry.

Id. at 129, 102 S.Ct. at 3009.

Citing United States Department of Treasury v. Fabe, — U.S.-, 113 S.Ct. 2202, 124 L.Ed.2d 449. (1993), however, defendants contend that the Pireno criteria are “not applicable” to the determination of whether a state law was “enacted ... for the purpose of regulating the business of insurance.” (Defendants’ Brief at 24 n. 22.) We disagree. It is true that Pireno addressed the scope of the antitrust immunity arising under the second clause of § 1012(b). That clause provides an exemption from federal antitrust laws for activities that (1) are regulated by state law and (2) qualify as the “business of insurance.” See 15 U.S.C. § 1012(b). Thus, “the first clause [of § 1012(b) ] commits laws ‘enacted ... for the purpose of regulating the business of insurance’ to the States, while the second clause exempts only ‘the business of insurance’ itself from the antitrust laws.” Fabe, — U.S. at-, 113 S.Ct. at 2209. Whether a particular activity is part of the “business of insurance” is, of course, a separate question from whether a state law was “enacted ... for the purpose of regulating the business of insurance.” The Fabe Court accordingly noted that the latter question cannot be answered by reference to the Pire-no criteria alone. But that does not mean those criteria simply are “not applicable” in cases involving the first clause of § 1012(b). If, in such a case, the issue arises of whether a particular activity is part of the “business of insurance,” the Pireno criteria apply. See Fabe, — U.S. at -, 113 S.Ct. at 2208 (noting, in considering claim that arose under first clause of § 1012(b), that Pireno “identified the three criteria ... that are relevant in determining what activities constitute the ‘business of insurance.’ ”) (emphasis added). In short, the Fabe Court merely noted that the scope of the respective immunities created by the first and second clauses of § 1012(b) are different; it assuredly did not give “business of insurance” one meaning in the first clause and a different meaning in the second.

The Fabe Court went on to hold that “[t]he broad category of laws enacted ‘for the purpose of regulating the business of insurance’ consists of laws that possess the ‘end, intention, or aim’ of adjusting, managing, or controlling the business of insurance.” — U.S. at-, 113 S.Ct. at 2210. Thus, to have been “enacted ... for the purpose of regulating the business of insurance,” section 287 must possess the aim of regulating activities that meet the Pireno criteria.

Section 287 does not possess such an aim. That section helps to define the powers of Kentucky bank holding companies by excluding such companies from participation in the activities that constitute the “business of insurance.” Excluding a person from participation in an activity, however, is different from regulating the manner in which that activity is conducted. The former is the regulation of the person; the latter is the regulation of the activity. Section 287 only regulates persons owning “more than one-half ()&) of the capital stock of a bank”; it in no way governs the manner in which the activities constituting the “business of insurance” are conducted. Section 287 thus is different in kind from the Ohio statute that was found to regulate the business of insurance in Fabe, since the Ohio statute set standards for “the actual performance of an insurance contract.” - U.S. at-, 113 S.Ct. at 2210. See also United Servs. Auto. Ass’n v. Muir, 792 F.2d 356, 364 (3rd Cir. 1986) (state law forbidding banks from being licensed as insurers “ha[d] no part in the business of insurance under McCarran-Ferguson”); but see SEC v. National Securities, Inc., 393 U.S. 453, 460, 89 S.Ct. 564, 568, 21 L.Ed.2d 668 (1969) (stating in dicta that state laws governing “the licensing of [insurance] companies and their agents ... [are] within the scope of’ McCarran-Ferguson).

Since we conclude that section 287 was enacted for the purpose of regulating certain conduct by bank holding companies, not the business of insurance, we need not consider whether § 92 “specifically relates to the business of insurance”; for, without regard to whether § 92 so relates, MeCarran-Fergu-son cannot save section 287 from preemption.

Defendants’ remaining argument is that section 287 cannot be preempted by § 92 because “section 7 of the Bank Holding Company Act [12 U.S.C. § 1846] expressly reserves to the Commonwealth the authority to regulate bank holding companies, and their subsidiaries, through state regulation such as [section 287].” (Defendants’ Brief at 28.) In making this argument, defendants ignore the plain language of § 1846, which provides:

No provision of this chapter shall be construed as preventing any State, from exercising such powers and jurisdiction which it now has or may hereafter have with respect to companies, banks, bank holding companies, and subsidiaries thereof.

12 U.S.C. § 1846 (emphasis added). Here, § 92 is the provision that prevents Kentucky from exercising the power to enforce section 287. Section 92 is found in chapter 2 of title 12, while § 1846 is found in chapter 17 of that title. Since § 92 is a provision of a chapter other than the chapter in which § 1846 is found, § 92 may be construed to prevent Kentucky from exercising the power to enforce section 287. Section 1846 simply is irrelevant to this case.

AFFIRMED.

1 . Defendants have not raised any justiciability issues on appeal, and the district court appears to have decided them correctly.

2 . The United States emphasizes that, in a 1990 letter to the Louisiana Commissioner of Insurance, the Chief Counsel of the Office of the Comptroller concluded that the right created by § 92 is not subject to state law restrictions. Because we reach the same conclusion without taking this letter into account, we need not determine whether such an informally expressed opinion is entitled to deference under the doctrine set forth in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).