RESPONDENT: Board of Governors of the Federal Reserve System
LOCATION: Temple Hills Country Club Estates
DOCKET NO.: 84-363
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Second Circuit
CITATION: 472 US 159 (1985)
ARGUED: Apr 15, 1985
DECIDED: Jun 10, 1985
Laurence Henry Tribe - on behalf of respondents bank of new england corporation, et al.
Laurence H. Tribe - Argued the cause for the respondents Bank of New England Corp. et al
Rex E. Lee - Argued the cause for the federal respondent
Stephen M. Shapiro - Argued the cause for the petitioners
Facts of the case
Certain bank holding companies located principally in either Connecticut or Massachusetts applied to the Federal Reserve Board (Board) to obtain approval for acquisitions of banks or bank holding companies (banks) in the other state. If a bank from one state seeks to acquire a bank, or substantially all of a bank's assets, from another state, the Douglas Amendment to the Bank Holding Company Act (BHCA), 12 U.S.C. Section 1842(d), allows the Board to approve the acquisition only if it "is specifically authorized by the statute laws of the State in which such [acquired] bank is located." Massachusetts and Connecticut have substantially similar laws allowing out-of-state banks to buy in-state banks only if the out-of-state banks (1) have their principal place of business in another New England State, and (2) the other New England State accords equivalent reciprocal privileges. Certain banks from outside of New England opposed the acquisitions, but the Board found that the Douglas Amendment did not prevent their authorization, and approved them.
Does the Douglas Amendment permit states to allow banks only from certain other states to buy in-state banks, and, if so, do such state laws violate the Commerce, the Compact, or the Equal Protection Clauses of the Constitution?
Media for Northeast Bancorp, Inc. v. Board of Governors of the Federal Reserve System
Audio Transcription for Oral Argument - April 15, 1985 in Northeast Bancorp, Inc. v. Board of Governors of the Federal Reserve System
Warren E. Burger:
We'll hear arguments next in Northeast Bancorp against the Federal Reserve.
Mr. Shapiro, I think you may proceed whenever you're ready.
Stephen M. Shapiro:
Thank you, Mr. Chief Justice, and may it please the Court:
At issue in this case is the constitutionality of regional banking laws enacted by the states of Connecticut and Massachusetts which permit New England bank holding companies to enter those states and engage in full service commercial banking, but which withhold that same right from bank holding companies located in other sister states.
The first question presented is whether the Douglas Amendment to the Bank Holding Company Act immunizes the statutes from scrutiny under the Commerce Clause of the Constitution.
The second question is whether these laws are part of an agreement among the states which requires Congress' approval under the Compact Clause of the Constitution.
And after briefly describing these statutes, I'd like to address all of these questions.
The Massachusetts and Connecticut laws permit companies from six designated New England states to enter those states and engage in full service commercial banking if the other New England state extends reciprocity to Connecticut and Massachusetts.
These regional laws operate in combination with another regional law enacted by the state of Rhode Island, and together they set up a multistate common market which permits some companies to come in and denies that same right to other companies based solely on the location or the state origin of those other companies.
Thus, some companies in some states get important competitive benefits which are withheld from other companies based solely on geography or state of origin.
Now, these statutes in New England were designed to permit regional expansion of bank holding companies in New England while excluding companies from the neighboring state of New York, regardless of their proximity to New England and regardless of their size.
By the same token, companies that are in New England such as petitioner Northeast Bancorp, are unable to merger with banks located directly across the New York border.
The practical impact of these laws can be illustrated with a simple example.
Before passage of these laws, companies in Massachusetts and in New York competed on an equal basis for business in Connecticut.
Each could offer full service commercial banking in its home state, but neither could offer full service commercial banking in the state of Connecticut.
Now, however, Massachusetts companies can have full service banks both in their own home state and in the state of Connecticut, while their direct competitors in the state of New York are still limited to their one home state.
As the Court is aware, these regionally discriminatory laws are not an isolated phenomenon.
New York is flanked by the New England laws on the east, and directly to the south its neighbors are in the process of forming another exclusionary market, the Mid-Atlantic market.
And there is a similar combination of states in the southeast which also excludes the state of New York.
We are thus witnessing a partitioning of the entire East Coast into exclusive banking zones, and as the Court is aware, some other... some 20 other states are in the process of considering regionally exclusive banking laws which would divide the countries into other regions throughout the entire nation.
Now, as the Solicitor General and the Board have acknowledged and the other respondents do not dispute, these laws would violate the Commerce Clause unless approved by Congress.
As this Court stated in the Eisenberg Farm case, and I quote,
"The United States could not exist as a nation if each of them were to have the power to discriminate as against sister states with respect to admitting articles of commerce. "
"And when combinations of states jointly impose this kind of discrimination in unison, the danger of injury and divisiveness and retaliation is even greater. "
Now, where there is this kind of a threat to the core purposes of the Commerce Clause, this Court's decisions require proof that Congress unmistakably gave its consent to otherwise invalid state legislation.
And that, we say, is a burden which respondents cannot sustain in this proceeding.
The Solicitor General on the one hand has made the argument that the plain language of the Douglas Amendment permits this kind of discrimination among sister states.
But all that the Douglas Amendment says is that the Board may not approve an acquisition unless there is a state law in existence which permits the acquisition.
It doesn't say a single word about the various kinds of laws which a state might adopt, and it certainly doesn't say that a state in lifting the federal ban is free to pick and choose among sister states or to join into a regional confederation which sets up a preferential trade zone for some states and excludes the others.
William H. Rehnquist:
But doesn't the very paucity of language, Mr. Shapiro, suggest that the states were given very wide latitude; that all Congress was interested in was state approval?