United States District Court, Southern District of New York
December 12, 2000
COMMUNITY BANK OF SULLIVAN COUNTY, PLAINTIFF,
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.
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
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.
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 law
of the State in question . . . and subject to the
restrictions as to location imposed by the law of the
State on State banks.
12 U.S.C.A. § 36(c) (West Supp. 1999) (em phasis added).
Under this statute, the Comptroller may permit the establishment of a
national bank branch only if New York State law would permit a New York
State-chartered bank to open a branch in the same location. See Union
Sav. Bank of Patchogue v. Saxon, 335 F.2d 718, 720 (D.C.Cir. 1964)
(noting that the establishment of a national bank branch is only
permitted "if the statutory law of the particular state would permit a
state bank to branch at the same location").
The "home office protection" rule prohibits New York-chartered banking
institutions from establishing a branch bank within a "village" with a
population of 50,000 or less in which the home office of another bank,
trust company, or national banking association is already located. N Y
Banking Law § 105(1)(a) (McKinney Supp. 1999). As used in New York
Banking law § 105(1)(a), the term "village" means "either an
incorporated or an unincorporated village." N.Y. Banking Law § 105(4)
(McKinney Supp. 1990).
As previously noted, the OCC determined that the area called Kiamesha
surrounding Community Bank's home office and the Wal-Mart Branch was not
an "unincorporated village" under N.Y. Banking Law § 105(4).
Following on this factual determination, the OCC approved Jeffersonville
Community Bank seeks judicial review of the OCC's decision under the
APA, which provides that a "person adversely affected or aggrieved by
agency action . . . is entitled to judicial review thereof."
5 U.S.C. § 702. In addition, Community Bank seeks declaratory relief
concerning the proper application of state and federal law to
Jeffersonville Bank's branch application.
See 28 U.S.C. § 2201(a).*fn1
The OCC's decision approving Jeffersonville Bank's application is
reviewed under 5 U.S.C. § 706(2)(A), which provides:
To the extent necessary to decision and when
presented, the reviewing court shall decide all
relevant questions of law, interpret constitutional
and statutory provisions, and determine the meaning or
applicability of the terms of an agency action. The
reviewing court shall —
(2) hold unlawful and set aside agency action,
findings, and conclusions found to be —
(A) arbitrary, capricious, an abuse of discretion,
or otherwise not in accordance with law.
Community Bank invites this Court to review de novo the OCC's
determination. This Court declines that invitation since it is well
established that that standard is not an appropriate one. In Camp v.
Pitts, 411 U.S. 138
, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973) the Supreme
Court identified the appropriate standard as "whether the Comptroller's
adjudication was "arbitrary, capricious, an abuse of discretion or
otherwise not in accordance with law" as specified in
5 U.S.C. § 706(2)(A). In Hempstead Bank v. Smith, 540 F.2d 57
, 60 (2d
Cir. 1976), our Court of Appeals held that a review of OCC bank branch
decisions under 12 U.S.C. § 36(c) "is limited to the question of
whether the decision was arbitrary, capricious or not in accordance with
law in light of administrative record". Specifically, the Court there
admonished that the OCC's determinations may not
"be questioned in a de novo hearing in the District Court." Id. Accord
Bank of the North Shore v. FDIC, 743 F.2d 1178
, 1184 (7th Cir. 1984).
De novo review would not be appropriate because this Court's review of
the administrative record reflects, and, indeed as all the parties
submissions make clear, the determination that Kiamesha was not an
unincorporated village was a fact-laden inquiry turning on the physical
features of the area, the nature and intensity of land-use regulation,
the character and evolution of commercial and residential housing in the
area, and whether the area was characterized by community cohesion or
urban sprawl — in other words, whether Kiamesha presents
"attributes of community life." See Putnam County Natal Bank of Carmel
v. Albright, 87 Misc.2d 391, 384 N.Y.S.2d 669 (N.Y.Supp. 1976).
Moreover, substantial weight of federal authority supports the
proposition that the review of OCC's determinations, such as the one at
issue here, is limited to the administrative record. See James Madison
Ltd. v. Ludwig, 82 F.3d 1085, 1096 (D.C.Cir. 1996); First National Bank &
Trust v. Dep't of the Treasury, 63 F.3d 894, 897 (9th Cir. 1995);
Franklin Savings Assoc. v. Director, Office of Thrift Supervision,
934 F.2d 1127, 1137 (10th Cir. 1991).
With these standards in mind, we turn to the administrative record. In
reviewing the administrative record, this Court is mindful that the OCC's
views are entitled to "`considerable respect.'" Independent Bankers.
Assoc. v. Marine Midland Bank, 757 F.2d 453, 461 (2d Cir. 1985) (quoting
Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566, 100 S.Ct. 790, 63
L.Ed.2d 22 (1980)). Moreover, this Court is not authorized to "substitute
its judgment for that of the agency." Citizens to Preserve Overton Park,
Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971).
Those principles are applied with particular force because the
Comptroller of the Currency is charged with enforcement of the banking
laws and courts "cannot come lightly to the conclusion that the
Comptroller has authorized activities that violate the banking laws."
Investment Co. Institute v. Camp, 401 U.S. 617, 626-27, 91 S.Ct. 1091, 28
L.Ed.2d 367 (1971).
This Court's review of the administrative record indicates that the
OCC, during its evaluation process, correctly identified and understood
New York Banking Law as it related to home office protection. The OCC
realized that the term "unincorporated village" is not defined with
particular precision under New York law, but identified and reviewed the
leading precedent on the subject: Union Savings Bank of Patchogue v.
Saxon, 335 F.2d 718 (D.C.Cir. 1964); Putnam County Nat. Bank of Carmel
v. Albriqht, 87 Misc.2d 391, 384 N.Y.S.2d 669 (N.Y.Sup. 1976). In
Putnam, the New York court set forth the relevant standard for
determining whether an area is an unincorporated village, which was
expressly cited by the OCC:
In the absence of a statutory definition, the word
"village" has been given a common rather than a
technical meaning. It has been defined as merely an
assemblage or community of people, a nucleus or
cluster for residential and business purposes, a
collective body of inhabitants, gathered together in
one group. In Union Savings Bank of Patchogue v.
Saxon, the United States Court of Appeals for the
District of Columbia adopted that definition of a
village in construing its meaning under the Banking
Law of this State. . . . In construing the term
"unincorporated village," we deem it to mean a
combination of the minimum requirements necessary for
incorporation as a village plus other appropriate
attributes of communal life. Surely, if only
incorporation standards were required, the statute
would have explicitly so provided. . . .
Consequently, it would seem reasonable to require, in
addition, appropriate evidence of a cohesive community
containing contiguous clusterings of population and
enterprises. . . . Pockets of residential clusters and
business enterprises separated by sparsely settled
areas may define a condition euphemistically referred
to as "urban sprawl" but may not satisfy the criteria
for an unincorporated village.
Putnam, 384 N.Y.S.2d at 671, 673 (internal quotations and citations
omitted). Accordingly, the record reflects that the OCC correctly
understood the attributes of an unincorporated village under New York
In applying this law to Jeffersonville Bank's application, the OCC
received and reviewed information concerning the physical characteristics
of the area in question from sources such as aerial photographs,
topographical maps and census data. The OCC examined in detail the area
at issue and concluded that it more closely resembled "urban sprawl" than
an unincorporated village:
The area surrounding Community Bank seems to be
similar to the area in Putnam. The area is a rural
lake community in the Catskills with numerous seasonal
residents. Route 17 runs along the southern border of
the Wal-Mart and is separated from the store and its
parking lot by several seasonal bungalows and woods.
To the east of the Wal-Mart runs Bard Road, on which
there are approximately 35 seasonal bungalows
surrounded by a densely wooded area. Anawana Lake Road
runs across the northern section of the Wal-Mart.
Beyond that is a small pond and woods. Lahanas Road
runs north from Anawana Lake Road, directly across
from the Wal-Mart. Along this road are approximately
15 seasonal bungalows in wooded surroundings. Both
Anawana Lake Road and Lahanas Road come into Route 42
on either side of the Monticello Mall. West of the
Wal-Mart toward Community Bank and before Route 42, is
a wooded area and a branch of Fleet Bank. Turning
north on Route 42, Monticello Mall is on the immediate
right. The Mall houses an [sic] Ames store and 13
small shops, a restaurant, movie theater and bank in
addition to Community Bank [sic]. The Town of Thompson
Town Hall is directly north of the Monticello Mall's
parking lot. The area to the south, east, and north of
the Mall are undeveloped and heavily wooded.
Approximately a quarter of a mile north off of Route
42 on Concord Road is another small bungalow
community. Along Route 42 between Route 17 and Concord
Road are 5 restaurants, 4 gas stations and three
banks. North of Concord Road is Kiamesha Lake. Along
the lakeshore is a small vacant townhouse community,
and some water company buildings. About .8 miles north
of Community Bank is a residential development called
Patio Homes with 80 to 90 homes. Further along on the
lake is Concord Resort, which is currently vacant. The
resort was purchased by Concord Associates, LP on
January 29, 1999, and there are plans for renovating
the resort as a conference center. The area is best
described as a heavily wooded, sparsely populated area
along a commercial corridor. There do not appear to be
the cohesive community elements that the courts in
Putnam and Patchogue found necessary to constitute an
Administrative Record at 12-13. This record clearly reflects that the OCC
concluded that because the area in question was heavily wooded and
sparsely populated, it lacked the type of cohesive community generally
understood under New York law to be necessary for an area to constitute
an unincorporated village. Further, the OCC reviewed and analyzed the
contrary conclusion by the NYSBD. The OCC concluded that the NYSBD's
determination was at odds with its own precedent and with the facts as
the OCC understood them. Moreover, the record reflects that the OCC was
generally aware of Community Bank's concerns and factored them into its
decision not to revoke its tentative
approval to Jeffersonville Bank's application.
Accordingly, the OCC's conclusion that the Kiamesha area was not an
unincorporated village was not only well grounded in the administrative
record, it was also legally correct.
Finally, contrary to Community Bank's submission, the OCC was not
obligated to defer to NYSBD's opinion that Community Bank was entitled to
home office protection because the surrounding area constituted an
unincorporated village. As previously noted, the OCC engaged in the
required fact-based analysis and concluded that the area could be best
described as urban sprawl, which, under the reasoning in Putnam, 384
N YS.2d at 673, does not qualify as an unincorporated village. But even
if this conclusion was incorrect, it is clear that while the NYSBD's
opinion was entitled to weight, the OCC is not required to follow the
legal interpretations of state regulatory officials.
In First National Bank of Fairbanks v. Camp, 465 F.2d 586, 594
(D.C.Cir. 1972), cert. denied, 409 U.S. 1124, 93 S.Ct. 936, 35 L.Ed.2d
256 (1973) (quoting Union Savings Bank, 335 F.2d at 723), the court held
that the OCC was not bound by a decision by the NYSBD:
Since, we are of the opinion that the § 36(c)
reference to "statute law of the state" includes
legislative enactments and not administrative
interpretations of those enactments, the New York
Banking Department's view of § 105 of the New York
Banking Law would not be authority for the
establishment of the Tinker branch.
See also Bank of the North Shore, 743 F.2d at 1180 ("the Comptroller is
not bound by state agency or state court interpretations of state
statutes"); American Fidelity Bank & Trust Co. v. Heimann, 683 F.2d 999
1004 (6th Cir. 1982) ("the Comptroller is not bound by a state agency's
interpretation of state law"); Dakota National Bank and Trust Co. v.
First National Bank and Trust Co., 554 F.2d 345
, 355 (8th Cir.), cert.
denied, 434 U.S. 877
, 98 S.Ct. 229
, 54 L.Ed.2d 157 (1977) (state
regulator's view is not "dispositive"); First National Bank & Trust Co.
v. Smith, 509 F.2d 663
, 666 (1st Cir. 1975), cert. denied, 430 U.S. 931
97 S.Ct. 1551
, 51 L.Ed.2d 775 (1977) ("the Comptroller is not bound by a
state agency's interpretation of state's statutes"); First National Bank
of Southaven v. Camp, 471 F.2d 1322
, 1325-26 (5th Cir. 1973) ("we do not
find a long-standing administrative interpretation, nor would the
Comptroller necessarily be bound by if there were one").
For the foregoing reasons, this Court concludes that the OCC's findings
were not arbitrary or capricious and were supported by the administrative
record, and that its conclusions were, in any event, legally correct.
Defendants' motion for summary judgment is granted. The Clerk of the
Court is directed to enter judgment in favor of defendants.