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


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).

Charles A. Rothfeld:

As a result, it is not surprising that all of the discussion in Congress about the appropriate scope of branching restrictions mentioned only bank offices that did one of those three things, that took deposits, paid checks, or made loans.

In contrast, during the entire three years that the McFadden Act was under consideration, there was no suggestion made by anyone that geographical restraints had been or would be imposed on any other bank officers performing any other activities.

And this was a significant omission by the drafters of the McFadden Act.

From the time of the enactment of the National Bank Act in 1864, national banks performed incidental services away from their main offices.

As long ago as 1870 this Court upheld their authority to do that in the Merchants Bank decision, and in the years following Merchants Bank national banks developed a substantial volume of that business, including particularly, as we demonstrate in our brief, a very substantial interstate securities business.

Now, in 1927, when Congress passed the McFadden Act, it was well aware of all this interstate bank activity.

It made reference to it and specifically authorized banks to continue the securities business.

Had Congress wanted to confine those bank operations to in-state branches in the process overruling Merchants Bank and substantially curtailing the existing business of national banks it presumably would have said something about that, but there is nothing in the language or legislative history of the McFadden Act suggesting that Congress had any such intention when it passed the statute.

Byron R. White:

I take it the argument is, or at least one of the arguments is that this kind of business is part of the banking business and the statute says you are only supposed to conduct banking business at your main… at your home location or in branches.

Charles A. Rothfeld:

You are referring, Justice White, to Section 36’s companion provision, 12 USC Section 81–

John Paul Stevens:


Charles A. Rothfeld:

–which respondent has pointed to for that.

And I think there are a number of difficulties with respondent’s reading of that provision.

Byron R. White:

Was that presented below?

Charles A. Rothfeld:

Yes, it was, Your Honor.

Byron R. White:

And rejected?

Charles A. Rothfeld:

Well, the District Court, we think engaged in the proper form of analysis.

Byron R. White:

Or accepted?

It wasn’t accepted?

Charles A. Rothfeld:

That’s correct.

The District Court looked, as we suggest this Court should look, to Section 36(f) in determining whether or not the bank office involved was defined as a branch within those terms, although respondent’s argument was presented to the lower court.

Well, didn’t our Plant City opinion say that a branch office might be a branch even though it doesn’t perform one of the three functions that you have described?

Plant City expressly declined to decide whether a bank office that does not perform one of those functions every could be treated as a branch.

Most of the Plant City opinion then went on to decide whether the bank facilities at issue in Plant City did one of those three things, and the Court ultimately concluded they took deposits and for that reason were branches.

That is exactly the analysis we are asking the Court–

William H. Rehnquist:

Yes, but isn’t there language in Plant City suggesting that you could have a branch even though it doesn’t do one of those three things?

Charles A. Rothfeld:

–I think as far as it went was to state that a bank’s branch includes offices that perform those three functions and may include more.

The Court found it unnecessary to decide whether it did include more, because the facilities there took deposits.

But this Court has never suggested that beyond that that ambiguous statement leaving the question open that a bank office should be treated as a branch if it doesn’t do one of those three things.

Byron R. White:

I suppose a bank could conduct in non-branches trust business.

Charles A. Rothfeld:

Well, that is our position.

That issue has been litigated, and the Eighth Circuit has held that trust businesses are within the definition of branch.

So far as we are aware, that is the only decision by any Court that has ever suggested that a bank office does not perform one of those three functions should be treated as a branch within the meaning of the statute.

We think that that decision is incorrect.

In fact, there are literally hundreds of bank offices that have been authorized by the Comptroller operating nationwide now that so long as they do not perform under those three functions are not treated by the Comptroller as branches.

One of the difficulties with both respondent’s broad reading of Section 81 and the District Court’s parallel analysis here which essentially reads the McFadden Act to mean that anything that a bank can do at its main office it must do only at the main office or at a licensed branch, which essentially realistically means that all bank operations must be performed at one of those two locations.

Really it is entirely without support either in decisions of the courts or the interpretation of the Comptroller, who is entrusted with administering the statute.

In all the time that the McFadden Act has been on the books, in 60 years no court has given it as broad a reading as the lower courts gave it here.

Even that Eighth Circuit case concerned a banking type function, and aside from that case every decision to confront a McFadden Act challenge as well as every ruling of the Comptroller to address the issue has ultimately looked to whether the bank office performed one of the three functions enumerated in Section 36(f).

The sort of analysis proposed by the respondent and used by the District Court here would sweep away all of that administrative and judicial construction of the statute, and it would sweep away as well all of the interstate business conducted by national banks at offices that don’t perform one of those three functions.

All that would be inconsistent with the reading proposed by the courts below.

In fact, I think what the Court… what Congress meant in Section 81, the statute that respondent is pointing to and that Justice White has asked about, was a general banking business, a business that performs essential banking functions and offers essential banking services.

In the McFadden Act itself Congress pointed out what those services are, taking deposits, making loans, and cashing checks.

If a bank office is not doing at least one of those things it is not offering a general banking business.

I think that is all really that is needed to decide the merits in this case.

I think before sitting down I should say a word about the standing issue here also, which requires a look at a different portion of the legislative history of the McFadden Act.

That history and this Court’s consistent interpretations of it put it beyond dispute that when Congress enacted the Act it had one goal in mind and only one goal.

It wanted to equalize competition between state and national banks in the provision of the basic banking services that are listed in Section 36(f) to prevent either group of banks from getting an advantage over the other.

Respondent, which competes with both national and state banks, obviously doesn’t fall into either group, and by definition that means that respondent cannot satisfy what the Court has called the zone of interest prerequisite standard.

As the Court explained last term in its Pierce County decision, and as the lower courts have uniformly held, plaintiff satisfies that prerequisite only if it is able to show that Congress intended it to benefit from the statute that is at issue in the litigation.

As Professor Jaffe asked rhetorically in describing the values that are served by the zone of interest requirement, if the people that the law chooses to protect are satisfied with the status quo, although it may involve an alleged violation of the law, why should a stranger have a right to insist on enforcement?

Respondent is just such a stranger or incidental beneficiary of the restrictions that are imposed by the McFadden Act.

This is not a situation where there is any doubt about whom Congress intended to benefit from the Act or the statute was silent about the beneficiaries.

Here it is quite clear Congress intended to provide for competitive equality between state and national banks so that neither bank, neither group would get an advantage over the other.

Given this, we think that then Judge Scalia had it absolutely right in his dissent in the Court of Appeals in this case where he noted that the brokerage houses suing here are no more within the zone of interest of the McFadden Act than would be a business competing for parking spaces with an unlawfully licensed branch.

We think that such an incidental, unintended beneficiary of the McFadden Act’s restrictions, particularly one who is trying to sue under a statute that was designed to preserve competition should not be able to go into court to win itself windfall relief from competition.

If there are no further questions, I will reserve the remainder of my time.

William H. Rehnquist:

Thank you, Mr. Rothfeld.

We will hear from you now, Mr. Coleman.

William T. Coleman, Jr.:

Good afternoon, Mr. Chief Justice, and may it please the Court, respondent stockbrokers seek to exclude national banks from their national, nationwide market, not through fair competition beneficial to consumers but through selective, novel, and unfair reading of statutory language.

William T. Coleman, Jr.:

Three points strongly support the Solicitor General’s position that neither Section 36 nor Section 81 can rationally be interpreted to render unreasonable the Comptroller’s ruling that a national bank may provide discount brokerage security services on a nationwide basis.

First, the legislative history of the McFadden Act Section 2(b) regarding national bank authority to conduct a safe deposit business.

Second, the consistency of the Comptroller’s ruling over 70 years of practice and Congressional approval of such practice.

And third, the inconsistency of respondent’s position with this Court’s efforts to analyze Section 36 in the Plant City National Bank case.

I would first like to turn to Section 2(b) of the McFadden Act.

In the same section which affirmed the national bank authority to engage in the security brokerage business also affirmed the authority to conduct a safe deposit business.

The provisions in Section 2(b) of the bill dealing with the safe deposit business originally provided that such business could only be conducted at the principal office of its branches or in a building adjacent thereto.

The location restrictions, however, were deleted during floor debates.

Representative Seller asked,

“Does this mean that a safe deposit business can be conducted a block away or a mile away from the National Bank Association? “

Representative McFadden responded that the amendment removes limitations on locations.

This fact completely destroys respondent’s argument that anything which is authorized by Section 24 7th must be done only at the principal office or at a branch, because clearly here there is Congressional intent to show that something which is authorized by 24 7th nevertheless could be done other than at the branch or at the home office.

With respect to the discount brokerage business Congress never at the time when it inserted the authority to do the security discount brokerage business, never at any time talked about a limitation, and as you know, a distinguished member of this Court once said that

“A page of history is worth a book of logic. “

and we have detailed throughout our briefs on Page 22 to 27 of the reply brief, all the instances where since the first Bank Act was established in 1864 where banks have done things other than the core business, which is defined in Section 36, at places throughout the United States.

Third, with respect to the Plant City National Bank case, Mr. Chief Justice, the issue there was whether the activity being done was one of the three things defined in that Section 36.

If the Court had felt that Section 81, which says the general business of the bank can’t be done any place other than the principal office or branches, then there was no need to spend about 15 pages trying to determine whether what was being done was the receipt of deposits.

And there is nothing in that case which in any way indicates that when the… Chief Justice Burger is talking about it may be more, that he is not talking about additional places rather than additional activities.

William H. Rehnquist:

But of course there is nothing to indicate to the contrary, either.

The language could well mean that it includes these three things but it might include something else.

William T. Coleman, Jr.:

Yes, and then that takes you back to the statute, and here the judge below said, based upon the literal reading of the statute, that the Comptroller was correct.

It is also in the Plant City case they talk about this indefiniteness.

Now, under those circumstances it seems to me that it is clear that this Court should say that since the Comptroller is the one responsible for administering the statute, and if you have this clear… if you have indefiniteness, a vagueness, then that is the type of case where you have always said that you will affirm the Comptroller and he does give reason.

Now, with respect to the statute, the sole reason why the judge below said that the statute which in my judgment reads so clearly nevertheless doesn’t give the result we say is because as a statement by Mr. McFadden made ten days after Congress has passed the statute and also after presumably the President has signed the law, and that statute in which he says not only is it the three things in 86(f) but in addition it is anything you could do at your principal place of business.

There is not a word about that in the statute.

There is not a word in any of the legislative history of that.

The one thing, and you know, whenever you talk about statutory interpretation, Congressional intent, you know, some time it works, sometimes it doesn’t, but the one thing which I think this Court has finally established and has to establish is that statements made by a Senator or Congressman after the bill was passed and after it was voted upon has no significance whatsoever in determining the interpretation of the statute, and once you get away from that, then I assure you there is not a word in the legislative history, there is not a word in the statute which justifies saying that anything other than the activity set forth in Section 36(f) are those activities that are restricted to the principal office and the branches.

Byron R. White:

Does the Comptroller have to authorize the setting up of a bank office that deals in securities?

William T. Coleman, Jr.:

The answer is, Your honor, no.

I will explain to you, because I asked the same thing.

Byron R. White:

Well, he has been doing… he has been doing it–

William T. Coleman, Jr.:

It took me a long time… I will tell you what the answer is.

The Comptroller has to authorize the setting up of any subsidiary corporation of a national bank regardless of what that subsidiary is going to do, and on that basis he authorized this transaction.

But there is nothing in the statute which says that he specifically has to authorize the setting up as it was in the case that Mr. Justice Powell had when you were dealing with the holding company acquiring a discount security brokerage business, and there, because the Holding Company Act says you can only do banking and things which are closely related and you there interpreted Section 4(c)(8) as saying the business is closely related and therefore that got the approval.

Byron R. White:

–So his approval power doesn’t suggest that what he is approving is banking business?

William T. Coleman, Jr.:

That’s true.

Byron R. White:

This is just that he has general… this is just some financial concern.

William T. Coleman, Jr.:

Yes, sir.

Yes, sir, that’s correct.

I have no other remarks, unless there are other questions.

William H. Rehnquist:

Thank you, Mr. Coleman.

We will hear now from you, Mr. Weidner.

James B. Weidner:

Mr. Chief Justice, and may it please the Court, this case, of course, concerns the locational restrictions of the National Bank Act.

The Act’s basic restriction in that respect is Section 81.

That statute enacted over 100 years ago provided that a national bank was limited in transacting its business to one office.

Byron R. White:

What business, the banking business?

James B. Weidner:

It is, as enacted, and I will return to this, it was its usual business.

As amended in 1927 and now it is general business.

It did not say its banking business.

In fact, that is a significant factor to which–

Byron R. White:

And you say that it certainly isn’t limited to that.

James B. Weidner:

–Correct, Justice White.

Indeed, the only exception that Congress has made to that one office restriction was in the McFadden Act in 1927.

That Act as amended permits national banks to establish branches within the state where their main office is located to the extent permitted by state law.

In effect, the Comptroller’s ruling focused solely on the branching exception and ignored completely the basic locational rule.

Furthermore, it seemed to assume that national banks were permitted to establish multiple locations to carry on their business unless they were expressly prohibited from doing so.

In fact, banking law is just the reverse.

That logical lapse, we suggest, pervades the Comptroller’s argument here both as to substance–

Byron R. White:

What happened to your argument below?

James B. Weidner:

–In our argument below, Justice White, there was some suggestion in the briefs in response to ours that the Section 81 argument hadn’t been made.

James B. Weidner:

In fact, it was made.

The District Court’s opinion starts with a quotation to Section 81, and indeed, and if I may, reading from the appendix which is part of the petition, 25A, the District Court rejected the Comptroller’s argument as to interstate locations because

“it ignores completely the fact that the McFadden Act was a limited extension of the National Banking Act provisions for the location of bank offices which previously had allowed national banks only one central office. “

“Never have national banks been authorized under the National Bank Act to– “

Byron R. White:

What happened in the Court of Appeals?

James B. Weidner:

–They affirmed basically for the reasons… the decision below, Justice White.

There was no separate opinion.

Byron R. White:

So your argument here wasn’t sustainable.

It was just–

James B. Weidner:

It was, to the extent… in this sense.

The Comptroller’s argument is essentially that Section 36 does not restrict these activities.

Byron R. White:


James B. Weidner:

Therefore they are permissible countrywide.

In our view that is not so.

In our view if they are not permitted by Section 36, they remain subject to 81 and therefore are restricted to the home office.

Byron R. White:

That wasn’t the rationale of the District Court or the Court of Appeals.

James B. Weidner:

I think it was the implicit rationale, Justice White.

In any event I believe it is the correct rationale, and, I believe, quite consistent with the District Court’s opinion.

Section 81 is the basic provision here and has been in the case since the beginning, and we believe this is a plain language case except that the governing plain language, we believe, is that of Section 81.

That provision, and I will quote, states that the general business of each National Banking Association shall be transacted at the place specified in its organization certificate and in the branch or branches, if any, established or maintained by it in accordance with the provisions of Section 36 of its title.

The statute does not further define the terms used in Section 81 thereby leading to the conclusion that Congress intended the ordinary meaning.

The ordinary meaning of the term “general” is all encompassing or including the whole rather than a part of a particular thing.

Here, then, under the plain language reading of this provision the conclusion follows that Congress intended to cover the whole of the general business of a national bank.

But in this case it is not necessary to try to define the outer parameters of that since at a minimum it certainly must encompass all those activities that are expressly permitted for national banks by the National Bank Act.

William H. Rehnquist:

Do you think general business then doesn’t mean anything more than just business, in your view?

James B. Weidner:

It means business in all of its respects, yes.

And in that sense it would encompass the express powers of banks, including, it has been held, the discount brokerage here undertaken.

Under that interpretation therefore the Comptroller’s ruling which permits discount brokerage operations at any location and not simply at the main office or at branches is contrary to law.

The legislative history, however, underscores what the plain language to Section 81 indicates.

As I noted, the section was initially passed as part of the National Bank Act of 1864.

James B. Weidner:

As passed, the statute limited the usual business of a national bank to one location, its headquarters.

In 1927 Congress amended the statute to read as it does now, the general business of a national bank shall be conducted, and so on.

Now, the linguistic change itself, I suggest, has significance.

Usual in its ordinary meaning connotes customary or traditional.

General, I suggest, connotes an all-encompassing intent, a broader term.

William H. Rehnquist:

Any indication in the legislative history as to why that change was made?

James B. Weidner:

Mr. Chief Justice, there is no indication in the legislative history one way or the other, although I think the circumstances make it fairly plain, and they are these.

In 1927, also as part of the McFadden Act, Congress recognized for the first time in the country’s history the authority of banks, national banks, to deal in securities.

It had not theretofore been among the enumerated powers.

So at the same time that Congress was changing the term in 81 from usual, customary, traditional, to general, all-encompassing, it was adding to the powers of banks the power to engage in the business of dealing in securities.

There was nothing to suggest that Congress did not intend to include that newly added power among the general business regulated by Section 81.

Indeed, the Congressional debates are full of statements by both Senators and representatives that the securities business was indeed a proper part of the business of a bank.

In fact, even in this case the Comptroller and Security Pacific Bank argued for two years that discount brokerage was indeed a proper part of the business of banking.

If I may, I am quoting now from the Joint Appendix before the Court of Appeals in this case at A163.

Security Pacific Bank in its application to the Comptroller to conduct discount brokerage and to conduct it on a nationwide basis said “We believe that these facts”, the facts in the application,

“show conclusively that the purchase and sale of securities are part of the “business of banking”,. “

so we had the bank, when it was trying to get authorization to do this business, arguing that conclusively it is properly part of the business of banking.

Now having gained permission to do it we have the bank stating that absolutely the discount brokerage business is not part of the business of banking.

Now, I suggest they can’t have it both ways.

If it is a properly authorized bank activity, then it is subject to the locational restrictions on those activities.

I suggest also that had Congress meant to limit Section 81 solely to the traditional business of banking, essentially what the argument is here before the Court by the Comptroller, it could easily have done so.

The power to engage in investment securities, deal in securities that Congress added in 1927 was added to Section 24 7th which sets forth the powers of national banks.

That provision, since it was enacted over 100 years ago, had given banks all such incidental powers as shall be necessary to carry on “the business of banking”, so it is quite clear that Congress in amending the statute did not intend to use the same language.

Having used different language in different sections of the same statute, it is to be assumed they meant different things.

“General” is clearly broad enough to cover and encompass the traditional business of banking and the business of buying and selling in securities then permitted.

Let me then turn, if I may, to Section 36 of the statute.

We think it is unnecessary to reach Section 36 and the definitional question because we believe the case is covered by Section 81.

Even, however, if Section 36 is examined, the conclusion is the same.

That section, as counsel said, defines the term “branch” as including certain geography… to include certain geography and at which deposits are received or checks paid or money lent, and indeed in the Plant City case this Court said that Congress intended a calculated indefiniteness about the term.

The argument under 36 here really is whether the term “include” is exclusive or illustrative.

James B. Weidner:

That is, do the functions listed thereafter simply serve as illustrations, or are they in fact set in store as the only functions permitted?

Here again, the legislative history tells us exactly what Congress meant.

The McFadden bill originated in the House.

As the House passed the bill, Section 8 of the McFadden bill provided that the general business of a bank shall be carried on at its headquarters.

It also provided that for branching and defined a branch to include a place where the three functions are carried on.

It did not, however, also provide that a bank might carry on general business at branches.

The bill then went to the Senate, which marked it up, and in the markup the Senate changed the language of Section 8 to read

“the general business of a national bank shall be conducted at headquarters or at such branches as may be established. “

The bill then went to conference committee.

The conference accepted the Senate version.

The conference report, the statement of the House managers, is highly significant in that respect.

One of those was Representative McFadden.

It said in this respect the Senate amendment provides that national banks might transact general business not only at the place specified in the organization certificate but also at such branches at the bank might lawfully maintain under the provisions of this bill.

The House bill contained no similar provision, and the House recedes.

Now, Representative McFadden, who is one of the authors of that statement, further underscored the importance of the change in the statement that he put in the Congressional Record.

He said about Section 36(f) it

“defines the term “branch” any place outside or away from the main office where the bank carries on its business of receiving deposits, paying checks, lending money, or transacting any business carried on at the main office. “

Byron R. White:

Of course, that isn’t what Section 36 said.

He added those words on the end.

James B. Weidner:

Section 36 does not specifically state that, Justice White.

That is correct.

On the other hand, his statement is directly consistent with what the conference committee had said it intended to do in accepting the Senate amendment and is consistent with the reading of the word “include” as being illustrative.

The fact is, if we accept the Comptroller’s interpretation of Section 36 we have a logical Catch 22 at least.

The Comptroller’s argument is that the three functions listed in 36(f) are the exclusive… 36(f) is limited to those functions.

If that is so, remember, 36(f), 36 is a permissive provision allowing branches, those three functions are the only functions that could be conducted in branches.

Thus absent a branch all remaining functions, including discount brokerage, would remain subject to the overall limitation of Section 81.

William H. Rehnquist:

Of course, you read 81 as a limitation.

You read it as if it said the general business of each national banking association shall be transacted only in the place specified in its organization certificate and the branch or branches.

It doesn’t say that.

A statute that said a bank shall be open for business every day from 9:00 a.m. to 3:00 p.m. Monday through Friday would not necessarily be read to prohibit a bank from being open on Saturday.

James B. Weidner:

Mr. Chief Justice, however, this Court has twice held that indeed the meaning of Section 81 is to limit the transaction of the general business of a national bank to one office.

That is absent Section 36.

Indeed, in 1924, the Court addressed the question of whether a bank had power to multiply the places at which it exercises its powers as one of the incidental powers of banking.

The Court concluded it did not have such incidental power.

Rather, the bank was limited to one location and supported that conclusion, citing to Section 81.

The Court reiterated what it had held in the Citizens and Southern case, cited in our brief.

In fact, it was this Court’s holding in January, 1924, in the St. Louis case that led in part to the McFadden Act.

McFadden proposed his bill in February, 1924, to remedy the problem, in his view, that had resulted from this Court’s decision in the St. Louis case.

So as construed by this Court there is little question, I suggest, that the one office location is just that, is a one office location.

Excuse me, furthermore, not only do we think that there is a logical Catch-22 if the Comptroller’s interpretation is accepted.

There is a further problem.

Banks have only such powers as are expressly granted and as are necessary incidentally to carry on their business.

It is a fundamental tenet of banking law so held by this Court repeatedly.

Now, in the St. Louis case, to reiterate, this Court specifically said that national banks do not have the incidental power to multiply the places at which their powers will be conducted.

Therefore, if the bank has authority, the power to multiply the places at which it conducts its business, it has to be expressly granted, and where Congress expressly granted that power was in the McFadden Act, Section 36.

The problem is, the Comptroller has said that brokerage does not fall within provisions of Section 36.

Therefore it is not permitted for branches.

Therefore, because it does not have the incidental power to multiply where it will carry on its business, the places, it has no power whatsoever.

So, in short, we believe the Comptroller’s finding was contrary to the direct language of Section 81 and its legislative history, is contrary to Section 36, as demonstrated by the legislative history of that section, and furthermore is logically inconsistent or leads to a completely illogical conclusion, that is to say that either the business is limited to the home office or banks have no power whatsoever to do what he has authorized.

If I may, let me turn briefly to the standing question.

There is no issue here as to constitutional standing.

We are all agreed that there is sufficient adverseness of interest under Article 3 to create a case or controversy.

The only question is whether the prudential zone of interest rationale should slam the door of this Court on the SIA.

As to that I don’t think… as to that, that is, the zone of interest test, I don’t really think there is an essential dispute between the SIA’s position and that of the government.

I read from Pages 10 and 11 of the government’s reply brief.

They agree that the test provides that in the face of Congressional silence about who is to benefit from a given legislative action the zone test is satisfied when

“Congress has arguably legislated against the competition that the plaintiff seeks to challenge. “

That quote is from this Court’s decision in Investment Company Institute v. Camp, a circumstance virtually identical to that here.

In Camp the Court considered the Comptroller’s ruling permitting national banks to sell shares enclosed in investment trust, essentially mutual funds.

There was a challenge to the Comptroller’s standing in that case.

James B. Weidner:

The standing was upheld, this Court’s finding.

Because Congress arguably legislated against the competitive activity at issue, sale of mutual shares, and because the members of that association, much like the members of the SIA, were adversely affected by the Comptroller’s ruling, and because there was no preclusion to review the Comptroller’s ruling under the National Bank Act, the ICI, the plaintiff in that case, had standing.

The Court has made clear equally in that case as well as the Data Processing and the Arnold Tours cases, which preceded it on the standing question that no, it is not necessary to show specific legislative history, that specific competitors are protected by Congress, nor is it necessary to show that the competition which is challenged, in that case mutual shares, was actually prevented, the latter simply being the legal interest test, which was rejected in those three cases, in essence which said you have got to prove you could win your case before you could get into court to prove your case.

We are in the same circumstance here.

The SIA has argued and we believe that it is at least arguable that Section 81 and/or Section 36, but certainly Section 81 limits the competition, multiplication of offices here involved.

Second, admittedly members of the SIA are adversely affected by reducing those restrictions.

And third, the Court has already held that there is no preclusion to review of the Comptroller’s opinions under the National Bank Act.

That is the statute which is involved here.

Therefore, under the zone rationale as articulated by this Court in Camp and other cases, we believe the SIA has standing.

The real issue here is again what is the relevant statute?

The Comptroller in his standing analysis as essentially in his substantive analysis, says only Section 36 is the statute that is involved, essentially ignoring Section 81.

Well, first, in our view that is to focus on the exception and ignore the rule.

The fact is, 81 was put in the statute 120 years ago.

Section 36 was a relaxation of the one office restriction permitting additional offices.

We are not basing our case on the relaxation.

We are basing our case on the basic restriction.

The two statutory provisions are integrally related.

We suggest they both should be interpreted in determining standing.

Section 81, the fundamental locational restriction, is but one example of a policy reflected throughout the National Bank Act that in light of the importance to our economic society and the economic wallop of national banks, they are limited both in where they can conduct their business and what business they can conduct.

Interpretations reducing those boundaries adversely affect competitors, be they travel agents, be they mutual funds, be they data processors, or be they, as here, securities brokerage.

Finally, as to the Comptroller’s argument under Section 36, here, too there is an anomaly.

The argument is that Section 36 was intended solely to benefit… I believe I have that correct; yes, from Page 11 of the reply brief… state banks, and because state banks aren’t the plaintiffs, although they are 7,000 strong in amicus on behalf of the SIA in this Court, because they are not technically plaintiffs, therefore the SIA has no standing, it is not a state bank, but the fact is that Section 36 was not enacted to protect state banks.

Recall at that point branching was prohibited for national banks.

What Congress intended to do was to permit national banks to branch, thereby adversely affecting state banks’ competitive interests, not benefitting or protecting them.

Therefore if state banks have standing to sue and everyone agrees that they do, and we certainly on behalf of the SIA agrees that they do, they have standing because they are significantly involved in activities that are affected by those that are regulated, here the national banks.

That is essentially simply another way of stating this Court’s holding in ICI v. Camp.

SIA is in the identical position.

We believe the SIA therefore clearly has standing.

Byron R. White:

Just competitors?

James B. Weidner:

As competitors.

James B. Weidner:

Accordingly, we ask the Court to affirm the decision below both as to substance and as to standing.

William H. Rehnquist:

Thank you, Mr. Weidner.

Mr. Rothfeld, do you have something more?

You have six minutes.

Charles A. Rothfeld:

Two basic points on the merits and one on standing, Your Honor.

If Section 81 is the fundamental restriction on the activities of national banks that has been presented to you, it is remarkable that in the 60 years the McFadden Act has been on the books neither the courts nor the Comptroller have noticed that.

As I suggested before, all–

Byron R. White:

The Court did in this case.

Charles A. Rothfeld:

–Well, I think the discussion of Section 81 in this case was largely in response to the Comptroller’s argument, which was not repeated here, that the McFadden Act only reaches intrastate and not extra-state activities of national banks.

I think a fair reading of what the District Court… District Court’s analysis which looked to Representative McFadden’s statement in Plant City is that it turned largely on the meaning of Section 36, aside from the references in this, which–

Byron R. White:

Well, the District Court specifically said that the brokerage business is part of the general business of the bank.

Charles A. Rothfeld:

–It did say that in response, as I said, to the argument of the Comptroller.

Byron R. White:

Well, isn’t that the whole argument?

Charles A. Rothfeld:

Well, leaving aside the District Court’s opinion here, which I think the preceding discussion in the District Court’s opinion–

Byron R. White:

How can you leave aside that opinion?

Charles A. Rothfeld:

–Well, I think in looking at it–

Byron R. White:

You say that no court has ever held it.

Charles A. Rothfeld:

–Well, our reading of–

Byron R. White:

In this Court and the Court of Appeals, too.

They just took what the District Court said.

Charles A. Rothfeld:

–Well, again, our reading of the District Court’s opinion is that it focused on a different analysis.

But aside from this case, in any event, no court and the Comptroller have never pointed to Section 81 in deciding whether bank offices are subject to geographical restrictions.

And I think there is a simple explanation for that.

I think that the account that has been presented here simply turns the history of the McFadden Act on its head.

From the… Section 81 was part of the original National Bank Act of 1864, and at the time it referred to the usual business of the national bank.

The terms 1927 when the current language was placed in the statute, used interchangeably in court opinions and in the opinion of the Attorney General that this Court has called authoritative.

I can’t see that there was any distinction between the two.

An from the beginning it has been recognized that national banks can perform business, certain types of business, away from their main offices.

This Court recognized that immediately after the passage of the National Bank Act in 1870 in the Merchants Bank case.

And in fact the language of the statute refers not to the business of a bank or all the business but to the general business.

Byron R. White:

Is it your point that the general business just doesn’t include brokerage?

Charles A. Rothfeld:

That’s right, Justice White, we think the general business… well, our analysis is broader than that, although we think that is all the Court need say here.

Byron R. White:

And the general business of the bank is the business that they perform in branches or… you think the general business is those three functions?

Charles A. Rothfeld:

Essentially that’s right.

Before the passage of the McFadden Act the only restriction that Section 81 was seen to place on national banks essentially was the ability to… it restricted their ability to branch.

The Attorney General analyzed the statute in 1911 in an opinion this Court termed authoritative, and he saw the distinction as being between a branch bank which performed the full range of essential banking functions and particular bank officers that performed individual bank functions but did not offer a general banking business.

That was the interpretation placed on Section 81.

When Congress passed the McFadden Act of 1927, it liberalized that by essentially removing a portion of the one restriction that was placed on locational activities of national banks, by permitting banks to branch, although subject to Section 36 of those geographical restrictions.

When it did that it specifically reenacted Section 81 as a part of the McFadden Act and amended Section 81 to refer to the branching restrictions imposed by Section 36.

Byron R. White:

May banks just willy-nilly engage in any kind of business they want to as long as it isn’t specifically prohibited?

Charles A. Rothfeld:

No, not at all, Justice White.

Byron R. White:

What about, could they just set up a… could they just say, well, we know a good place to set up a restaurant, and we are going to get in the restaurant business?

Charles A. Rothfeld:

No, they could not do that.

Byron R. White:

Why couldn’t they do that?

Charles A. Rothfeld:

The powers granted national banks are specifically set out in 12 USC Section 24 7th, and–

Byron R. White:

The brokerage business is one of those, then?

Charles A. Rothfeld:

–Well, Congress has set out essentially two types of businesses that banks engage in, the business of banking, and it lists a series of things that banks can engage in as part of the business of banking.

It separately authorizes banks to engage in the business of buying and selling securities, which is what obviously the national banks are trying to do in this case.

And Congress has also authorized banks to engage in–

Byron R. White:

But even though the banks are specifically authorized to buy and sell securities, it is not part of their general business?

Charles A. Rothfeld:

–It is not part of their general banking business as that term–

Byron R. White:

That isn’t what it says.

It says general business.

Charles A. Rothfeld:

–Well, the statute refers to the general business of a national bank, and that statutory language was interpreted by this Court, by the Comptroller, and by the Attorney General, and again in an opinion that was endorsed by this Court prior to 1927 as meaning a general banking business.

The terms were used interchangeably.

That was the interpretation placed on the statute from its enactment, and Congress–

Byron R. White:

But the statute permits, specifically permits the banks to do this as part of their business, to buy and sell securities as part of their business.

Charles A. Rothfeld:

–As part of their business, but again, Section 81–

Byron R. White:

But that is not part of their general business?

Charles A. Rothfeld:

–Section 81 doesn’t refer to all business or the business.

Charles A. Rothfeld:

It refers to the general business, and as I say, since 1870 the Court has taken the position that the general business is a subset of all the business the bank is authorized to engage in, the subset being the general banking business, the essential functions related to the banking activities of the bank, and when Congress reenacted Section 81 as part of the McFadden Act it included an express reference to Section 36, suggesting, I think, irrefutably that what Congress has in mind is the essential banking functions.

Those that could only be performed at the main office or a branch are the functions listed in Section 36(f).

It may be that the respondent’s reluctance to talk about Section 36 stems from the fact that his reading of Section 81… would read Section 36 out of the statute entirely, because if all the bank’s business must be performed only at its branches or at its main office, there is no point in separately defining the term “branch” in terms of a limited number of specifically enumerated functions.

Thank you, Your honors.

William H. Rehnquist:

Thank you, Mr. Rothfeld.

The case is submitted.

The Honorable Court is now adjourned until tomorrow at 10:00.