Appeal from the United States District Court for the Northern District of Indiana, South Bend Division. No. S 77-0095 -- Allen Sharp, Judge.
Before Fairchild, Chief Judge, Pell, Circuit Judge, and Whelan, Senior District Judge.*fn*
The plaintiff-appellant, First Union Bank of Winamac, Indiana, (Winamac Bank) brought this action in the district court for declaratory and injunctive relief, seeking to have set aside an order by the defendant Comptroller of the Currency. The order at issue approved the establishment of a branch bank by the defendant First National Bank of Monterey (Monterey Bank) on the east side of U.S. Highway 35 north of Winamac, Indiana. The district court entered summary judgment in favor of the defendants, and the plaintiff Winamac Bank appeals. To decide this case we must determine whether the Comptroller's decision that the proposed site of the branch facility was a "town" within the meaning of the Indiana branch banking law, Ind.Code § 28-1-17-1, was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.
The statutory background of this case is not complex. According to federal banking law, state law governs the ability of national banks to establish branches. The Comptroller of the Currency may not approve a national bank branch if state law prerequisites are not satisfied. 12 U.S.C. § 36(c); First National Bank of Logan v. Walker Bank & Trust, 385 U.S. 252, 87 S. Ct. 492, 17 L. Ed. 2d 343 (1966).*fn1 The standard applicable to this case is set by Indiana law, which permits banks to open a branch if the branch is within the same county where the bank maintains its principal office, if the branch is in a city or town, and no other bank is located in the city or town.*fn2 Only the requirement that the branch be located in a "city" or "town" is at issue here. The Comptroller determined that the proposed site of the Monterey Bank branch was a "town." The plaintiff argues vigorously that this determination is contrary to Indiana law.
The proposed site of the Monterey Bank branch is approximately one-eighth mile north of the corporate boundaries of Winamac, Indiana, on the east side of U.S. Highway 35.*fn3 Also on the east side of the highway, approximately one-quarter mile to the north of the site,*fn4 is a nursery or garden center. This nursery is the closest business to the proposed branch that is not within the corporate limits of Winamac.*fn5 A veterinary clinic is located approximately one-quarter mile to the north of the nursery and is also on the east side of U.S. 35. On the west side of U.S. 35, approximately one-half mile to the north of the site, is a farm supply store. Slightly to the north of the supply store on the west side of the highway is a cattle lot. In the area along U.S. 35 north of the corporate boundaries of Winamac, these are the only business establishments within one-half mile of the site.*fn6
Also along the highway in the vicinity of the branch site are twenty-five houses with a population of approximately thirty-eight people, eight of whom are minors.*fn7 The area surrounding the site is not incorporated, nor does it have a name.
We begin our discussion by noting that judicial review of the Comptroller's decision is governed by the APA, 5 U.S.C. § 706(2)(A). We must determine whether the Comptroller's decision was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with (the) law." Camp v. Pitts, 411 U.S. 138, 142, 93 S. Ct. 1241, 1244, 36 L. Ed. 2d 106 (1973). We must not set aside the Comptroller's determination if it has a rational basis in the record. Citizens To Preserve Overton Park v. Volpe, 401 U.S. 402, 419-20, 91 S. Ct. 814, 28 L. Ed. 2d 136 (1971). The history of these proceedings, however, is somewhat unusual, and the course of the proceedings affects our review. After Winamac Bank brought this action for review of the Comptroller's decision, the district court remanded the case to the agency with directions to reopen the administrative record on the issue whether the proposed branch would be located in a "town" within the meaning of the Indiana statute and to make a written record of the Comptroller's conclusions and the legal basis for those conclusions. This procedure was the proper one for the court to follow when the Comptroller's explanation of its action is inadequate for judicial review. Camp v. Pitts, 411 U.S. 138, 143, 93 S. Ct. 1241, 36 L. Ed. 2d 106 (1973); Hempstead Bank v. Smith, 540 F.2d 57, 58 (2d Cir. 1976); Central Bank v. Smith, 532 F.2d 37, 40 (7th Cir. 1976). After consideration of written supplementary materials of the parties, the Comptroller issued a written opinion, explaining why the proposed site satisfied the "town" requirement of Indiana law.*fn8 Although our review of the Comptroller's decision would be impossible without it, the explanation before us is to some extent a post hoc rationalization, having been prepared during the course of the litigation, and must be viewed critically. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 420, 91 S. Ct. 814, 28 L. Ed. 2d 136 (1971).*fn9
We shall now examine the Comptroller's decision with that caveat in mind. The Comptroller's opinion properly considers the three cases in which the definition of "town" under the Indiana branch law is discussed, First National Bank of Crown Point v. Camp, 463 F.2d 595 (7th Cir. 1972); Pendleton Banking Co. v. Department of Financial Institutions, 257 Ind. 363, 274 N.E.2d 705 (1971); and Albion National Bank v. Department of Financial Institutions, 171 Ind. App. 211, 355 N.E.2d 873 (Ind.App.1976).
In Pendleton, the Indiana Supreme Court affirmed the determination by the Indiana Department of Financial Institutions that Huntsville, Indiana, was a town, emphasizing that Huntsville had several businesses and a rapidly growing population of 250 or more. In Pendleton the court described a town for purposes of the Indiana branch bank law as "a compact area having a number of persons living in close proximity to one another with some degree of business being transacted within the area." 274 N.E.2d at 708.
This definition of the word "town" was repeated by this court in First National Bank of Crown Point v. Camp, 463 F.2d 595, 597 n.4 (7th Cir. 1972). In Crown Point this court affirmed the Comptroller's determination that an area along a highway containing two or three houses, a retail complex, a saddle club, a veterinarian, and a church was a town for branch banking purposes, although there was an industrial complex one mile to the east, a housing development and restaurant 1.1 miles to the northwest, and a shopping center and mobile home park 1.1 miles to the south.
On the basis of these decisions the Comptroller properly observed that the question whether a site is in a town is for case-by-case determination. Furthermore, the Comptroller properly rejected the notion that "there is a fixed population or number of commercial enterprises which establish minimum requirements for the existence of a "town.' " Even under this flexible standard, however, the record in this case supplies no rational basis for the Comptroller's conclusion that the site of this branch is in a town within the meaning of the Indiana branch banking law. The decision of the Comptroller must therefore be set aside.
The Indiana branch banking statute uses "town" in its ordinary sense. Ind.Code § 1-1-4-1, First; Pendleton, supra. The word "town" denotes an area which serves to some extent as a hub for surrounding communities, that is, a population and commercial center. Thus, it need not be incorporated or have a name, Id., but it at least should have a separate identity. From its use of this term, it is apparent that the Indiana legislature intended to impose a general minimum standard for the type of community that it believed could support a branch facility. This qualitative definition of a town as a center of population and commerce sets the limits on what courts have called a "town," not raw numbers of businesses and people. Furthermore, in restricting branches to towns where another bank is not already located, the legislature has expressed opposition to the use of branch banks as a means of competition:
The policy which seems to underlie the Indiana statute is that creation of a branch bank is desirable or justifiable as a means of establishing a new local banking facility in a municipality not already so served, but not desirable or justifiable as a means of promoting competition in a municipality where one or more banks are already located.
Marion National Bank v. Van Buren Bank, 418 F.2d 121, 124 (7th Cir. 1969). We must guard against a definition of "town" ...