Lewis v. BT Investment Managers, Inc.

PETITIONER:Lewis
RESPONDENT:BT Investment Managers, Inc.
LOCATION:Turner Turnpike

DOCKET NO.: 79-45
DECIDED BY: Burger Court (1975-1981)
LOWER COURT:

CITATION: 447 US 27 (1980)
ARGUED: Jan 15, 1980
DECIDED: Jun 09, 1980

ADVOCATES:
Erwin N. Griswold –
John L. Warden – for appellees

Facts of the case

Question

  • Oral Argument – January 15, 1980 (Part 2)
  • Audio Transcription for Oral Argument – January 15, 1980 (Part 2) in Lewis v. BT Investment Managers, Inc.

    Audio Transcription for Oral Argument – January 15, 1980 (Part 1) in Lewis v. BT Investment Managers, Inc.

    Warren E. Burger:

    The case is submitted.

    We’ll hear arguments next in Lewis against BT Investment Managers.

    Mr. Griswold, you may proceed whenever you are ready.

    Erwin N. Griswold:

    May it please the Court.

    This case is here on appeal from a three-judge District Court in the Northern District of Florida.

    It is a constitutional case in the Commerce Clause area relating to banks, involves specifically the validity of two Florida statutes dully enacted by the Florida Legislature, designed to prevent activities in Florida by subsidiaries of out-of-state bank holding companies.

    The first of these statutes is Section 659.141 of the Florida statutes as amended effective in December 1972.

    This is set out in full in Appendix A at the close of the appellant’s brief.

    That’s the red brief.

    The appendices are separately paginated but I think it can be easily found at the beginning of Appendix A.

    The part which is relevant in this case is at the beginning of the section, on the first half of page A1, except it’s provided in Subsection 3 “No bank, trust company, or holding company, the operations of which are principally conducted outside the State, shall acquire, retain, or own directly all or substantially all the assets of, or control over, any bank or trust company having a place of business in the State where the business of banking or trust business or functions are conducted.”

    That’s the first part.

    “Any bank or trust company, or acquire, retain or own all or substantially all of the assets of or control over any business organization having a place of business in the State, where or from which it furnishes investment advisory services in the State.”

    Now, that statute was amended in 1972, the reading in its present form.

    Prior to that, it had been applicable only to the rendering of investment services to banks, but the restriction of the banks was taken out in December 1972.

    It will be seen that this bars an out-of-state bank holding company from one owning any bank or trust company, having a place of business in the State.

    And it also bars an out-of-state bank holding company from owning a subsidiary having a place of business in Florida from which it furnishes investment advisory services.

    The second of the Florida statute is Section 660.10.

    And that is in Appendix B at the close of the appellant’s red covered brief and the essential part of it is that, “No one except a bank and trust company incorporated under the laws of the State and having trust powers, except the National Bank located in the State and having trust powers, can exercise any of the following powers which include acting as executive, guardian, trustee, trustee in various situations, receiver assignee, fiscal agent and so on, debarring anybody but Florida corporations from conducting the trust business in Florida.”

    You’ll see that fits in with the corresponding provision in the other section.

    William H. Rehnquist:

    Mr. Griswold, do you think that the effect of these statutes would bar an individual who did not wish to limit his liability from going into Florida and rendering this suit?

    Erwin N. Griswold:

    Not, not at all.

    It’s only applicable, an individual would have to incorporate in Florida but he — he could not —

    William H. Rehnquist:

    What if he didn’t want to incorporate at all?

    Erwin N. Griswold:

    He — he — well, I have to read the — the language of the statute to see just how it applies to an individual.

    William H. Rehnquist:

    I — I was looking at page 82 of your appendix and on Section 2 there it says, “Referring to the business organization control in any manager in any manner of the election of a majority, the directors, or trustees of the bank, trust, or holding company.”

    And then Section 1 before that says, “The business organization directly or indirectly acting to one or more person’s own controls as part about 25% of all the shares of any class of voting security.”

    So those — now, that language to me connotes a corporation.

    Erwin N. Griswold:

    And — and Section 660.10, and I’ve been looking at it, is plainly applicable only to — to corporations.

    It does not apply to individuals and you could have private individuals acting as trustees in — in Florida in the trust business.

    Erwin N. Griswold:

    And the section has no relation to it.

    John Paul Stevens:

    Mr. Griswold, before you leave the statutes, may I — do I correctly understand that 659.141 would prohibit the formation of a subsidiary to engage in the investment advisory business, whereas 660.11 would permit an out-of-state bank to own a local subsidiary if it’s provided.

    We got a Florida charter (Voice Overlap) —

    Erwin N. Griswold:

    As far as the Florida statute is concerned, it — it would.

    John Paul Stevens:

    Yes.

    Erwin N. Griswold:

    There are other —

    John Paul Stevens:

    I have some question as to whether we really have to decide anything about 660. — the second statute because I don’t see that they ever tried to do that.

    Erwin N. Griswold:

    I — I agree with you entirely, Mr. Justice, however, the court below did grant an injunction against the enforcement of 659.141 and entered a declaration that Section 660.10 was unconstitutional.

    If either of those stand, the result is essentially the same with respect to trust companies.

    But I think the operative statute is 659.141.

    The court below held that, first to the statutes, was unconstitutional as applied to trust and investment advisory services as an interference with interstate commerce.

    In the Court’s words, “This parochial legislation must be deemed per se unconstitutional.”

    It enjoined the enforcement of the statute except as to the ownership of banks.

    It also gave a declaratory judgment that Section 660.10 is invalid as violative of the Commerce Clause.

    William H. Rehnquist:

    The District Court had originally abstained, had it not?

    And then been reversed by the Fifth Circuit?

    Erwin N. Griswold:

    And they’ve been — been reversed by the Fifth Circuit and they went back and they then decided the case.

    It’s our contention that neither of these Florida statutory provisions violates the Commerce Clause as understanding of the effect of that clause has been developed in the teachings of this Court.

    As this Court recently said in its decision in Hughes against Oklahoma just last April, the case as defining a scope of permissible state regulation in areas of congressional silence, reflect an often controversial evaluation of rules to accommodate federal and state interest.

    And that is what we have involved in this case.

    The cases show that for the purposes of applying the Commerce Clause as a limitation on state power, the definition of interstate commerce while broad is not without limits.

    One of the cases which we discussed in our brief is United States against the Oregon State Medical Society which found that local personal services were not interstate commerce for the purpose of the claim involved in that case.

    Similarly, I would point out that this case does not involve movement of goods across state lines as in Philadelphia against New Jersey, the case upon which the court below primarily relied, or in Hughes against Oklahoma, nor does it involve any restrictions on the means of transportation of goods, such as railroads or trucking companies or airlines.

    In this case, the subject of commerce is the provision of a personal service on a local basis.

    The next is with interstate commerce, is much less obvious and proof of the substantial effect on interstate commerce is required before a straight — state restriction can be struck down.

    But there is no such showing of a substantial adverse effect on interstate commerce here.

    No direct evidence of any sort was presented on that matter in the trial court.

    The case was tried entirely on a stipulation which is set out in full text on pages 22 to 25 of the appendix.

    The court below hypothesized the necessary effect on interstate commerce.

    The court expressly acknowledged that there was no direct evidence of that effect in this case.

    Erwin N. Griswold:

    The appellees were the plaintiffs in the court below, and it is difficult, if not impossible, to conclude that they have met their burden of proof on this element.

    We have discussed a number of cases in our brief but the case which is closest to this, I believe, is the decision two years ago in Exxon Corporation against the Governor of Maryland.

    It’s appropriate, I think, to point out that the court below didn’t even discuss the Exxon case.

    It didn’t even cite it in its opinion, though it is, I think, clearly the closest case.

    It involved a Maryland statute which prohibited all producers and refiners of petroleum products from operating retail service stations in Maryland or from discriminating between customers in Maryland.

    Now, there are no producers or refiners of petroleum products in Maryland which everyone knew.

    It is suggested in the other side of the brief here that this statute is bad because it is discriminatory on its phase whereas the Maryland — Maryland statute was not.

    But this Court said in the Hughes against Oklahoma case last spring, that a statute must be determined as to whether it is discriminatory on its face or in its operation and effect.

    And the impact of the statute in the Exxon case was entirely on out-of-state refiners and producers which operated service stations in Maryland.

    This Court noted that statute did not totally block interstate marketers of petroleum from — from entering the Maryland market and this statute does not totally block extra state corporations, individuals, businesses, other than banks and bank holding companies from entering the — the Florida market.

    Byron R. White:

    How do you enter the Florida market into these statutes?

    How would a New York bank enter the Florida market?

    Erwin N. Griswold:

    A New York bank can’t enter the market under the — under the Paine, Webber, Jackson & Curtis can open an office and give investment advice in New York.

    Standard & Poor’s which puts out much investment service can open an office and give investment advice in New York.

    Byron R. White:

    The bank —

    Erwin N. Griswold:

    Anyone —

    Byron R. White:

    — the banks and trust companies, especially trust companies who are usually in the business of giving investment advice —

    Erwin N. Griswold:

    Any —

    Byron R. White:

    — they can’t — they can’t enter the market at all.

    Erwin N. Griswold:

    So are Paine, Webber —

    Byron R. White:

    In any — yes, but in any — in any way, they can’t enter the market.

    Erwin N. Griswold:

    It is quite true.

    The effect of this statute —

    Byron R. White:

    Either through a subsidiary or directly.

    Erwin N. Griswold:

    Either directly or — or through a subsidiary, they cannot enter this —

    Byron R. White:

    Investment advisory business.

    Erwin N. Griswold:

    — this — this investment advice or —

    Byron R. White:

    Market.

    And — and that — that also means they can’t act as a trustee?

    Erwin N. Griswold:

    And the other part of the statute means they cannot act as a — as a trustee.

    Byron R. White:

    That is a — and that — that normally includes giving investment advice.

    Erwin N. Griswold:

    It often includes giving investment advice.

    As in Exxon, the statute here does not prohibit the interstate movement of articles or goods.

    It doesn’t prohibit the flow of fiduciary services into or out of Florida.

    It limits in-state outlets when owned by out-of-state banks, trust companies and holding companies just as the Maryland statute in Exxon, barred in-state outlets only to produces and refiners all of which were out of state.

    Similarly, Section 660.10 by itself —

    John Paul Stevens:

    Mr. Griswold, could I ask you a question about the Exxon case?

    There, the State at least asserted the reason whether one agrees with it or not for discriminating against the refiners and ownership.

    What is the reason that Florida asserts for treating out-of-state banks differently than, say Paine Webber or other types of businesses that might want to open investment advisory services, if any?

    Is there any reason for it?

    Erwin N. Griswold:

    The — it is — it is — it wasn’t too clear in Exxon.

    It was asserted but there were —

    John Paul Stevens:

    Well, they —

    Erwin N. Griswold:

    — other —

    John Paul Stevens:

    — the — at least the legislature had some hearings and — and came to a conclusion that ownership of retail stations by refiners gave rise to certain kinds of discrimination that they thought — that the legislature —

    Erwin N. Griswold:

    And i think it is the —

    John Paul Stevens:

    — thought it was bad.

    Erwin N. Griswold:

    — I think it is the — the problem that all of the States have had over the years of trying to find a way to maintain, control over their own banking and economic facilities in such a way that their assets will not be drawn away by out-of-state operations.

    The States be led while the money goes elsewhere.

    It is — it is in very large measure a — a —

    John Paul Stevens:

    Trying to protect local capital, is that right?

    Erwin N. Griswold:

    No, protect local citizens, protect local people who may want to borrow money to buy houses and find the money as going to be lent on the Euro or Dollar market —

    John Paul Stevens:

    But is there a greater danger —

    Erwin N. Griswold:

    — with very high rates of interest.

    John Paul Stevens:

    But is there a greater danger of the outflow of money from Florida if the investment advisory service is owned by Paine Webber rather than some big bank?

    I don’t see the difference.

    I don’t see how your explanation justifies that kind of a distinction.

    Erwin N. Griswold:

    The whole — the — the history of this country is filled for 150 years of the struggle between national banking and local banking.

    I think the history book show that a Chief Justice of this Court attained prominence because he supported President Jackson in opposition on behalf of the State of Maryland to the operations of the Bank of the United States.

    This is part of that same —

    Byron R. White:

    But a bank — a bank is kept out of Florida but an investment banker isn’t.

    Erwin N. Griswold:

    That is correct.

    Byron R. White:

    And they both give investment advice and —

    Erwin N. Griswold:

    They both give investment advice but —

    Byron R. White:

    And Mr. — would this — you — would — would this statute — under the statute, could a bank, could a Florida bank, acting as a trustee and — and giving investment services, could it buy some investment advice from a New York bank?

    Erwin N. Griswold:

    Yes, so far as I can see.

    Byron R. White:

    Well, but I’ve — I’ve — then there was a New York bank doing business in Florida —

    Erwin N. Griswold:

    No.

    Byron R. White:

    — selling investment advice.

    Erwin N. Griswold:

    No, it’s not — it doesn’t have an office in Florida but —

    Byron R. White:

    Well, you mean — you mean under the statute, New York banks may give investment advice to Florida citizens?

    Erwin N. Griswold:

    They can do it by mail or telephone, and they can send representatives into the State, as long as they don’t open an office and conduct business in the State.

    Byron R. White:

    But they’re acting — they may — could they act as trustee of assets located in Florida?

    Erwin N. Griswold:

    Not — not without complying with Section 660.10 —

    Byron R. White:

    Yes.

    Erwin N. Griswold:

    — which means —

    Byron R. White:

    You have to have a corporation.

    Erwin N. Griswold:

    — to be — to be becoming incorporated in Florida.

    Byron R. White:

    All right.

    Erwin N. Griswold:

    I think it’s appropriate now to — to move on to the other aspect of the case which is the fact that we have two strings to our bow.

    I’ve tried to argue so far that under Exxon, there is not interstate commerce here, which is adversely affected by this statute, sufficiently to require the result reached below.

    But there are two federal statutes which are directly relevant.

    These federal statutes are important not only because of the text of their provisions but also because they represent important policy determinations made by Congress which are relevant in determining the validity of the Florida statutes here involved.

    They show that Congress made clear choices in this area, and this should not be frustrated by opening the doors to miners and sappers, to use in historical phrase, in the form of the devices involved here which, if allowed, and if allowed here soon extended, will enable out-of-state bank holding companies to do much of what they have been specifically forbidden to do by Congress.

    William H. Rehnquist:

    Mr. Griswold, before you move on.

    Well, what would the District Court’s decision here do to the general provisions in all of the Sunbelt States denying reciprocity of admission to the bar?

    Erwin N. Griswold:

    I haven’t the slightest idea, Mr. Justice.

    They — there isn’t any question of reciprocity involved in the decision of the court below.

    William H. Rehnquist:

    But it is a common fact that the Sunbelt States simply refused to admit on — on reciprocity where the most of the other States don’t.

    Erwin N. Griswold:

    And — but the fact here is involving control by a State over admission to the bar, it seems to me, are historically and otherwise different factors in those involved in the admission of foreign incorporations to do business in the State, particularly in the light of the federal statutory provision to which I’m about to refer to.

    Erwin N. Griswold:

    The first to these statutes was the McFadden Act which was passed in 1927, more than 50 years ago.

    It relates to national banks, but it says that national banks cannot have branches in a — a State except to the extent that state banks can have branches in the State.

    And it also prevents interstate branching of national banks because branches whereby that statute limited to States within which the national bank was situated.

    But pressure to reach out is always found in the banking area.

    That indeed is what this case is all about.

    In due course, the effect of these limitations on banking including the limitations and the laws of most of the States led to the development of a new expensive device and thus, to a vast growth in the use of bank holding companies.

    By creating a corporation to own multiple banks, it was possible to avoid limitations on branching not only in intrastate but across state lines across many state lines.

    It was to deal with this problem that Congress passed the Bank Holding Company Act in 1956, and it contains three provisions that are relevant here.

    The first of this is Section 3 (d), and that appears in Appendix C as 12 U.S.C. 1842 (d).

    And it provides — it — it bars any bank holding company or subsidiary from acquiring any additional bank located outside of the State where the holding company’s banking subsidiaries are operating unless this is expressly authorized by the outside State.

    And here, we have the Florida statute which says, “We don’t authorize, just what’s invited by that provision.”

    And the second provision is Section 4 of the Bank Holding Company Act, now found in 12 U.S.C. 1843.

    It’s in Appendix D at the close of the appellant’s brief.

    The basic provision there says, “Except as otherwise provided in this Act, no bank holding company shall acquire direct or indirect ownership or control of any voting shares of any company which is not a bank.”

    And if it has said that this investment advisory and trust company services are not banks, Congress has said, “The out-of-state holding company can’t own it.”

    And then finally, there at Section 7 of the Bank Holding Company Act, which is in Appendix E, which broadly reserved to the States their powers to regulate bank holding companies and their subsidiaries, the last three words are “and subsidiaries thereof” as long as the state regulation is not inconsistent with the acts of Congress.

    Now, thus, the basic federal statutory scheme maybe stated very simply.

    “No bank holding company may own a bank outside the home state without the outside State’s expressed permission.”

    It does not seem to me to be too difficult to construe this to apply to bits and pieces of banks, particularly when they are owned by a bank holding company and are so closely related to managing or controlling banks as to be a proper incident thereof as the federal board — Reserve Board has determined.

    Warren E. Burger:

    We’ll resume there at 1 o’clock, Mr. Griswold.