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LYONS SAVINGS & LOAN ASS'N v. FED. HOME LOAN BANK BD.

March 27, 1974

LYONS SAVINGS & LOAN ASSOCIATION, PLAINTIFF,
v.
FEDERAL HOME LOAN BANK BOARD ET AL., DEFENDANTS. GLENVIEW GUARANTY SAVINGS AND LOAN ASSOCIATION, AN ILLINOIS SAVINGS AND LOAN ASSOCIATION, ET AL., PLAINTIFFS, V. THOMAS R. BOMAR ET AL., DEFENDANTS. SKOKIE FEDERAL SAVINGS AND LOAN ASSOCIATION, PLAINTIFF, V. FEDERAL HOME LOAN BANK BOARD AND TALMAN FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO, DEFENDANTS. WINNETKA SAVINGS AND LOAN ASSOCIATION, AN ILLINOIS SAVINGS AND LOAN ASSOCIATION, ET AL., PLAINTIFFS, V. HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO, A FEDERAL SAVINGS AND LOAN ASSOCIATION, ET AL., DEFENDANTS. AMERICAN HERITAGE SAVINGS AND LOAN ASSOCIATION, AN ILLINOIS SAVINGS AND LOAN ASSOCIATION, PLAINTIFF, V. AUSTIN FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO, A FEDERAL SAVINGS AND LOAN ASSOCIATION, ET AL., DEFENDANTS. HINSDALE FEDERAL SAVINGS & LOAN ASSOCIATION, AN ASSOCIATION ORGANIZED UNDER THE LAWS OF THE STATE OF ILLINOIS, 1ST SAVINGS OF DOWNERS GROVE, AN ASSOCIATION ORGANIZED UNDER THE LAWS OF THE STATE OF ILLINOIS, AND BEN FRANKLIN SAVINGS AND LOAN ASSOCIATION, AN ASSOCIATION ORGANIZED UNDER THE LAWS OF THE STATE OF ILLINOIS, PLAINTIFFS, V. MID AMERICA FEDERAL SAVINGS & LOAN ASSOCIATION, A FEDERAL SAVINGS AND LOAN ASSOCIATION, ET AL., DEFENDANTS. FIRST CALUMET CITY SAVINGS, AN ILLINOIS SAVINGS & LOAN INSTITUTION, ET AL., PLAINTIFFS, V. FINANCIAL FEDERAL SAVINGS & LOAN ASSOCIATION, A FEDERAL SAVINGS & LOAN ASSOCIATION, ET AL., DEFENDANTS. FIRST CALUMET CITY SAVINGS, AN ILLINOIS SAVINGS & LOAN ASSOCIATION, ET AL., PLAINTIFFS, V. CALUMET FEDERAL SAVINGS & LOAN ASSOCIATION, A FEDERAL SAVINGS & LOAN ASSOCIATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Will, District Judge.

  MEMORANDUM OPINION

Plaintiffs in all eight of these actions are financial institutions located in Illinois. The complaints seek declaratory and injunctive relief from decisions made by the Federal Home Loan Bank Board (Board), a defendant in each of the suits, approving applications from various federally chartered savings and loan associations in Illinois to establish branch offices. The jurisdiction of the court is invoked pursuant to 28 U.S.C. § 1331(a) and 1337, and 28 U.S.C. § 2201 and 2202.

In addition to the Board and two individual members, Thomas R. Bomar and Grady Perry, Jr., various federal savings and loan associations whose branching applications have been approved are also named as defendants. All defendants have moved to dismiss either part or all of the respective complaints for failure to state a claim upon which relief can be granted. In accordance with Rule 12(b)(6), Fed.R.Civ.P., these motions are being treated as motions for summary judgment. For the reasons set forth below, they will be granted in part and denied in part.

I

The Federal Home Loan Bank Board is the agency charged with the regulation and supervision of all federal savings and loan associations in the United States. The Board is responsible for chartering any new federal association, as well as authorizing any of a broad range of activities in which existing federal associations may engage. Until January 12, 1973, the Board had never authorized de novo branches for federal associations in Illinois. On that date, the Board reversed its prior policy and voted to allow federal associations to apply for branching permits. The stated basis for its decision was, in part, a staff study which revealed "a multiplication of state approved savings and loan banking facilities, and the existence of substantial affiliate banking operations in Illinois." (Exhibit 2, Board's Memorandum). This circumstance, in the Board's view, put federal associations at a severe competitive disadvantage. Consequently, as of January 31, 1973, it began to accept, process and approve branch applications from federal savings and loan associations in Illinois. The instant suits all involve challenges to the Board's actions in approving certain applications.

Lyons Savings and Loan Association v. Federal Home Loan Bank and LaGrange Federal Savings and Loan Association and Brookfield Federal Savings and Loan Association, No. 73 C 2565 (the Lyons case), is brought by a state savings and loan association against the Board and two federal savings and loan associations, LaGrange and Brookfield, whose applications for branch offices in Countryside, Illinois, were approved by the Board on August 15, 1973, in Resolutions No. 73-1122 and No. 73-1123. Glenview Guaranty Savings and Loan Association, et al. v. Thomas Bomar, et al., 73 C 2595 (the Glenview case), involves a challenge by two state savings and loan associations, a state bank and a federal bank, to the approval of the application of Talman Federal Savings and Loan Association, for the establishment of a branch in Skokie, Illinois. (Board Resolution No. 73-1471, October 15, 1973). Skokie Federal Savings and Loan Association v. Federal Home Loan Bank Board, et al., No. 73 C 2677 (the Skokie Federal case), is brought by a federal savings and loan association and also challenges the Board's approval of the Talman branch. And, Winnetka Savings and Loan Association, et al. v. Home Federal Savings and Loan Association No. 73 C 2820 (the Winnetka case), involves a challenge by three state savings and loan associations, a state bank and a federal bank against the Board's approval of the application of Home Federal for a branch office in Winnetka, Illinois. (Board Resolution No. 73-1123, October 5, 1973).

American Heritage Savings and Loan Association v. Austin Federal Savings and Loan Association of Chicago, et al., No. 73 C 3170 (the American Heritage case), is brought by a state savings and loan association against the Board and Austin, a federal association, challenging the Board's approval of a branch office and redesignation of that office as a "home office." (Resolution No. 73-956, July 20, 1973). First Calumet City Savings, et al. v. Calumet Federal Savings & Loan Association, et al., No. 73 C 3197 (the Calumet Federal case), is the action by four state associations against the Board and Calumet, a federal association, challenging the approval of a Calumet branch in Dolton, Illinois. (Resolution No. 73-1554, October 17, 1973). Hinsdale Federal Savings & Loan Association, et al. v. Mid-America Federal Savings & Loan Association, et al., No. 73 C 3175 (the Hinsdale case) is brought by two state associations and one federal association against the Board and another federal association, Mid-America, for the approval of a branch in Clarendon Hills, Illinois. (Resolution No. 73-1679, November 14, 1973). And in First Calumet City Savings, et al. v. Financial Federal Savings & Loan Association, et al., No. 73 C 3196 (the Financial Federal case), three state associations are challenging the Board's approval of a branch office for Financial Federal in Calumet City, Illinois (Resolution No. 73-1620, October 29, 1973).

While there are some differences among the complaints, many of the issues raised by each are identical and will be treated together wherever possible. In brief, the complaints challenge: (1) the Board's authority to approve branch applications of federal savings and loan associations in any case; (2) the Board's statutory authority to allow de novo branching of federal associations in the face of state law which prohibits de novo branching of state savings and loan associations; (3) the constitutionality of allowing greater branching powers to federal associations than is allowed to either state associations or to banks; (4) the Board's compliance with its own regulation governing the effect of state law on the issue of branching; (5) the validity of the procedures followed by the Board in processing branch applications; and (6) whether the Board's action in approving the specific branch application involved in each of these eight cases was arbitrary and capricious.*fn1

Defendants seek a preliminary ruling in their favor on all of these contentions except the last one, which involves the propriety of the Board's action in each particular case. That will depend on an examination of the record in each case and is clearly not amenable to decision at this state of the proceedings.*fn2

However, all the other issues in these cases are appropriate for disposition at this point since we find that the law clearly supports the legality of the Board's action in allowing federal savings and loan associations to establish branch offices in Illinois. Because of the weight of authority in support of the Board's actions, most of the various plaintiffs' contentions can be disposed of summarily.

II

The broadest contention of the plaintiffs in the instant cases is that the Board has no power to authorize branch offices for federal associations under any circumstances. While it is true that no explicit authority to approve branches appears in the Home Owners' Loan Act of 1933, 12 U.S.C. § 1461 et seq., (the "HOLA," or, "the Act"), every court which has considered this issue has construed the Act as including such a power.*fn3

The source of the branching authority is found in Section 5(a) of the Act, 12 U.S.C. § 1464(a), which gives the Board as the chartering agency, plenary powers over the "organization, incorporation, examination, operation, and regulation" of all federal associations.*fn4 Both the comprehensive nature of the authority conferred by the Act, and an analysis of its wording,*fn5 compel the conclusion that the authority to approve branch applications is necessarily included among the Board's statutory powers. There is no basis for a contrary conclusion in the Act itself, its legislative history, judicial precedent or logic. Consequently, all aspects of the complaints which attack this aspect of the Board's authority will be dismissed.

III

The next issue deals with the Board's branching authority over federal associations where state laws prohibit or limit branching of state associations. Plaintiffs contend that, whatever general authority the Board may have to approve branches, it may not authorize de novo branching in a state which prohibits de novo branching of state chartered savings and loan associations.

Certain plaintiffs argue that a limitation on the Board's power
is found within the statute itself. However, they are unable to
point to any such limitation and we are unable to find one. The
only statutory reference these plaintiffs make is to the language
in § 1464(e) which states that "No charter shall be granted . . .
unless the same can be established without undue injury to
properly conducted existing local thrift and home-financing
institutions." They then argue that allowing greater branching
powers to federal associations gives those institutions an undue
competitive advantage which, per se, unduly injures state
institutions. However, the "undue injury" requirement in the HOLA
is clearly directed to an analysis of a particular application in
the context of its proposed service  area and the local
institutions already serving that area. Adopting plaintiff's
interpretation could lead to harsh and absurd results —
undercutting the very basis of the Act.

The primary purpose for the enactment of the HOLA was to provide savings and loan services for areas not being served, or being served inadequately, by state institutions. Obviously, allowing a federal association to establish a branch office in an area not currently being served by any institution cannot cause "undue injury" to existing local institutions. The requirement is simply an appropriate safeguard against the establishment of federal associations in areas where they are not necessary.

Furthermore, this issue has been thoroughly considered by numerous courts, all of which have held that the Board is not limited by state law nor subject to state regulation. See e.g. North Arlington National Bank v. Kearny Federal Savings & Loan Ass'n, supra; Springfield Institution for Savings v. Worcester Federal Savings & Loan Ass'n, supra; and Central Savings & Loan Ass'n of Chariton, Iowa v. Federal Home Loan Bank Board, supra. Plaintiffs are unable to assert any judicial support for their position and are forced to argue that all of the prior cases were wrongly decided. Our review of those decisions, the rationales of which are summarized below, reveals no basis for finding they were wrongly decided.

First, courts have upheld the authority of the Board on the basis that the plenary powers given to the Board in the HOLA clearly evidence a Congressional intention to preempt the field, thus precluding any regulation of federal associations by state law. See e.g., Washington Federal Sav. & L. Ass'n v. Balaban, 281 So.2d 15, 17 (Fla.S.Ct. 1973), and People v. Coast Federal Savings & Loan Association, 98 F. Supp. 311, 316 (S.D.Cal. 1951).

Second, they have noted the absence of any provision in the HOLA comparable to that found in Section 36(c) of the National Bank Act, 12 U.S.C. § 36(c), which expressly limits branching of federal banks to the extent allowed state banks by state law.*fn6 Not only is there no comparable provision in the HOLA, but proposals to amend the Act to include a similar restriction have failed — notwithstanding Congressional awareness of both the Board's broad interpretation of its powers, and judicial sanctioning of that interpretation.*fn7

In sum, there is nothing in the HOLA itself which can even arguably be construed as limiting the Board's authority to approve branch offices for federal associations in any given state to the extent that local associations in that state are allowed to branch.

IV

The Board, however, has issued a regulation limiting its authority in this area. It ...


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