Clarke v. Securities Industry Association

RESPONDENT: Securities Industry Association
LOCATION: Adult Book Store

DOCKET NO.: 85-971
DECIDED BY: Rehnquist Court (1986-1987)
LOWER COURT: United States Court of Appeals for the District of Columbia Circuit

CITATION: 479 US 388 (1987)
ARGUED: Nov 03, 1986
DECIDED: Jan 14, 1987

Charles A. Rothfeld - on behalf of the petitioner in No. 85-971
James B. Weidner - on behalf of the respondents
William T. Coleman, Jr. - on behalf of petitioner in No. 972

Facts of the case


Media for Clarke v. Securities Industry Association

Audio Transcription for Oral Argument - November 03, 1986 in Clarke v. Securities Industry Association

William H. Rehnquist:

We will hear arguments next in No. 85-971, Robert L. Clarke, Comptroller of the Currency, versus Securities Industry Association, and Security Pacific National Bank versus Securities Industry Association.

You may proceed whenever you are ready, Mr. Rothfeld.

Charles A. Rothfeld:

Thank you, Mr. Chief Justice, and may it please the Court, the basic issues in this case involve fairly narrow questions of statutory construction.

They have considerable significance for the banking industry.

The question on the merits is whether discount brokerage offices that are operated by national banks must be treated as regular bank branches that are subject to the geographical restrictions on branching imposed by the McFadden Act.

The other closely related issue here is whether respondent has standing to try to enforce those geographical limitations.

The background that gives rise to these issues is, simply stated, in 1982 two national banks applied to the Comptroller of the Currency for permission to operate discount brokerage offices interstate.

The Comptroller granted the applications after concluding in a comprehensive written opinion that bank offices offering only discount brokerage services are not branches within the meaning of the McFadden Act, and therefore naturally are not affected by that Act's prohibition on interstate branching by national banks.

The case is here because first the District Court and then a divided panel of the Court of Appeals disagreed with the Comptroller's reading of the statute.

In a suit brought by the respondent, a trade association representing underwriters and securities brokers, those courts correctly found that the McFadden Act in 12 USC Section 36C permits a national bank to operate a branch only in its home state, and even there only to the extent that state banks are permitted to branch by state law.

But the courts went on to hold incorrectly, in our view, that essentially all bank offices must be treated as branches within the meaning of the Act.

As a result the Courts held that banks may offer discount brokerage services only at licensed in-state branches.

And in the course of reaching this conclusion those courts obviously held that respondent has standing to challenge the location of bank discount brokerage offices.

In our view, both of these holdings on standing and on the merits turned on a fundamental misapplication of the McFadden Act and its meaning.

On the substantive branch in question the lower courts disregarded both the plain language of the McFadden Act and the Comptroller's comprehensive analysis of what the statute means, and the courts granted standing to a party that Congress plainly did not intend to be one of the beneficiaries of the McFadden Act's restrictions.

Because these issues are related, because some background on the operation of the McFadden Act may shed light on standing issue, I would like to reverse the usual order and talk about the merits of the case first before reaching, discussing the standing question.

John Paul Stevens:

May I just ask, if you are talking in reverse order, if you persuade us with your second argument, will it be necessary for us to discuss your first?

Charles A. Rothfeld:

Much as we would like you to resolve the banking question, I think if the parties were found not to have standing, that should be the end of the case.

On the substantive banking question, we think that the resolution is straightforward, and that, I think, lends itself to a discussion of the Act.

That is why I am talking about it first.

The District Court here recognized that the geographical restrictions imposed on bank branches by Section 36C apply only to bank offices that are in fact branches within the meaning of the McFadden Act.

Other bank offices may be operated anywhere not subject to locational restraints.

That means that this case can be resolved simply by deciding whether bank-owned securities brokerage offices are branches within the meaning of the McFadden Act.

As might be expected, the Act itself contains a precise definitional provision that answers this question.

12 USC Section 36F defines the term "branch" to include any branch bank, branch office, branch agency, additional office, or branch place of business at which deposits received, checks paid, or money lent.

This provision states on its face that a bank office is a branch within the meaning of the Act only if it does one of those three things, if it takes deposits, pays checks, or makes loans.

Bank discount brokerage offices, whether or not owned by national banks, do none of those things, and that necessarily means that they are not branches within the meaning of the Act, are not subject to the Act's geographical restrictions, and that should be the end of this case.

That is all that is necessary to resolve the merits.

If there is any doubt about this, the legislative history makes it quite clear Congress meant what it said in Section 36F, in defining where the geographical limits apply.

During debate on the McFadden Act, Congress made clear and stated repeatedly that the Act and its geographical restrictions were designed to provide for competitive equality between state and national banks in the provision of the basic banking services listed in Section 36(f).