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COMMUNITY BANK OF SULLIVAN v. FIRST NAT. BANK

December 12, 2000

COMMUNITY BANK OF SULLIVAN COUNTY, PLAINTIFF,
V.
THE FIRST NATIONAL BANK OF JEFFERSONVILLE AND JOHN D. HAWKE, JR. IN HIS OFFICIAL CAPACITY AS COMPTROLLER OF THE CURRENCY, DEFENDANTS.



The opinion of the court was delivered by: Barrington D. Parker, Jr., District Judge.

MEMORANDUM DECISION AND ORDER

Community Bank of Sullivan County ("Community Bank") challenges the approval by the Comptroller of the Currency (the "OCC") of an application by the First National Bank of Jeffersonville ("Jeffersonville Bank") to open a branch office near Community Bank's home office.

Jeffersonville Bank is a federally chartered banking association located in Jeffersonville, Sullivan County, New York. Jeffersonville Bank is barred by the National Banking Act from establishing a branch in any New York location where it would be prohibited from doing so if were a New York State chartered bank. 12 U.S.C. § 36(c). Community Bank is a New York State chartered banking institution located in the Town of Thompson, Sullivan County, New York. Community Bank's home office is located in an unincorporated area of Thompson, generally known as Kiamesha. Jeffersonville Bank seeks to locate its new branch there. Under New York's "Home Office Rule," a New York State banking institution is barred from establishing a branch within an unincorporated village with a population of 50,000 or less if that unincorporated village contains the home office of another New York bank. The critical factual issue in this case is whether the Kiamesha region was merely an unincorporated area or was sufficiently concentrated to be an unincorporated village. Were Kiamesha an unincorporated village, Community Bank would be entitled to home office protection and Jeffersonville Bank could not open the branch. The New York State Banking Division ("NYSBD") concluded that the Kiamesha was an unincorporated village; the OCC determined that it was not, and approved the Jeffersonville Bank's application in September 1999. This litigation ensued.

FACTS

In late 1998, Wal-Mart began construction of a store on Anawana Lake Road in Thompson and sent bid solicitations to financial institutions, including Jeffersonville Bank and Community Bank, seeking a full service bank to operate an in-store branch at that location. The next year, in February 1999, Jeffersonville Bank submitted its bid to open a branch at Wal-Mart, as did Community Bank, and Wal-Mart accepted Jeffersonville Bank's bid. Community Bank's home office is located in a strip mall east of Route 42 North. Community Bank's home office and the Wal-Mart store are approximately one-half mile apart.

Anticipating a new Jeffersonville Bank branch at Wal-Mart, Community Bank wrote the NYSBD that it wished to assert its home office protection to prevent Jeffersonville Bank from opening the branch. In March 1999, Jeffersonville Bank submitted its application to the OCC and that same month the OCC provided a copy of Jeffersonville Bank's branch application to the NYSBD and requested comments. In April 1999, the NYSBD provided an Opinion Letter to the OCC in which the NYSBD concluded that Community Bank's home office was in an unincorporated village and, consequently, was entitled to home office protection.

In connection with its administrative review of Jeffersonville Bank's application and Community Bank's challenge, the OCC considered the information supplied by the NYSBD and Jeffersonville Bank. The OCC also reviewed aerial maps, property descriptions and other information concerning physical characteristics of the area. The administrative record also indicates that the OCC considered data on the assets, branches and financial soundness of Jeffersonville Bank, and, in addition, OCC officials conferred internally on the application.

In June 1999, Nina Lipscomb, an Analyst Specialist at the OCC, forwarded to Michael G. Tiscia, the OCC Licensing Manager responsible for Jeffersonville, a confidential memorandum summarizing Jeffersonville Bank's application and analyzing the relevant factual issues. She concluded that the Jeffersonville Bank's branch application should be approved. Notably, she concluded that a New York court had found an area with physical characteristics identical to those of Kiamesha was not an unincorporated village under New York law. On June 23, 1999, Mr. Tiscia officially concurred with Ms. Lipscomb's recommendation.

Jeffersonville Bank's application was the subject of further analysis at OCC. The next month Laurie Sears, OCC's Senior Attorney for the Bank Activities & Structure Division, disseminated another memorandum further analyzing the issues presented by Jeffersonville Bank's application, reaching the same conclusion as had Ms. Lipscomb. Further, Ms. Sears analyzed the NYSBD's April 20, 1999 Opinion Letter and concluded that it was inconsistent with the prior opinion of the NYSBD and that the OCC was not bound to follow the opinions of state regulatory authorities. Following further internal review and discussions at the OCC, on July 27, 1999, it issued a formal decision approving Jeffersonville Bank's branch application.

Although Community Bank did not directly participate in administrative proceedings at the OCC, after Jeffersonville Bank's branch application was approved, Community Bank lodged sharp objections to the OCC's determination and, in August 1999, requested documentation concerning the OCC's deliberation and that final approval of the branch be postponed on the ground that the OCC lacked authority to make the factual findings it made. Following discussions with Community Bank representatives, the OCC in September 1999, rejected Community Bank's challenges and declined to revoke its July 27 approval of Jeffersonville Bank's application. In September 1999, the OCC officially authorized Jeffersonville's Bank branch and it opened on September 30, 1999.

Community Bank then commenced this action against Jeffersonville Bank and the OCC alleging that the location of the branch violated New York Banking Law § 105(1) and sought declaratory and injunctive relief, and compensatory damages against Jeffersonville Bank. The parties have cross moved for summary judgment. The relevant facts are not in dispute, but the parties sharply contest whether the OCC's approval of the branch violated federal law.

DISCUSSION

The National Bank Act prohibits the establishment and operation of branches of federally-chartered banks in any New York location where that establishment or operation would not be permitted to a New York-chartered banking institution. 12 U.S.C. § 36(c). Section 36 of the National Bank Act provides in part:

A national banking association may, with the approval of the Comptroller of the Currency, establish and operate new branches: (1) Within the limits of the city, town or village in which said association is situated, if such establishment and operation are at the time expressly authorized to State banks by the law of the State in question; and (2) at any point within the State in which said association is situated, if such establishment and operation are at the time authorized to State banks by the statute ...

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