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Moreover, as explained in the OCC Bank Midwest Decision (at pages 58-61), we believe the language in the Conference Report referring to "appropriate state law and authority" is best understood as a reference to the manner in which the OCC's prior interstate decisions had addressed state law. In those decisions (the OCC First Fidelity/New Jersey Decision and the OCC NationsBank/Maryland National Decision), the OCC had determined that existing branches were retained in a main office relocation under section 30, without regard to section 36 and section 36's incorporation of state law. The OCC also had determined that section 30 preempted conflicting state law in this context and had interpreted those provisions of federal law that do incorporate aspects of state law and determined how those federal laws applied each state's law in various steps in the transactions. <NOTE: The OCC Bank Midwest Decision (at page 60) summarizes the positions taken by the OCC in prior decisions on the the application of state law to each step of the transactions involved in the applications.> In other words, following the branch retention in the relocation, issues arose regarding the "appropriate state law" to apply in subsequent transactions. But, on the precise issue of concern to the Commissioner (whether contrary state law would bar branch retention under section 30), the two pre-Riegle-Neal decisions had set forth the OCC's view that section 30 operated independently of state law, albeit in a brief form since the issue was not squarely presented in the two cases. See OCC NationsBank/Maryland National Decision (notes 43 & 44)(Maryland law); OCC First Fidelity/New Jersey Decision (note 41) (Pennsylvania law) & (note 44)(New Jersey law). See also McEnteer, 644 F.Supp. at 293-94 (section 30 preempts Pennsylvania state bank holding company law; state law also invalid under Commerce Clause); OCC Bank of New Jersey Decision (same); OCC Mark Twain Decision (section 30 preempts Kansas state bank holding company law; state law also invalid under Commerce Clause). Despite all the judicial precedent that section 30 is independent of, and preempts, state law, and the OCC's pre-Riegle-Neal interpretation of the relation betweeen section 30, section 36, and state law, the Commissioner's theory would posit that Congress, in this brief phrase in legislative history, meant that state law applied to these section 30 transactions. It is far more likely that a brief reference to OCC's procedures in past decisions would be a reference to how the OCC actually had approached state law in prior decisions than that it would be casually creating a new doctrine that state laws were to apply to national banks in a new way in this area. The fact that no changes adding any reference to state law were made to the statute itself makes this even more plain. The use of the modifier "appropriate" limiting the reference to state law indicates that Congress did not intend to increase the extent to which state laws were made applicable to national banks. It was merely stating that such state law as was appropriately applied would continue to be applied. Indeed, in light of the OCC's pre-Riegle-Neal interpretation, if Congress had intended the significant change in the OCC's interpretation that the Commissioner posits, it surely would have done more than a brief nine word phrase in the legislative history.
Finally, underlying the Commissioner's specific arguments is the general theme that it is inherently inconsistent with the interstate branching framework created in the Riegle-Neal Act for banks to be able to have interstate branches by other methods, such as a section 30 relocation, and that therefore Congress could not have intended other methods to be permitted. As we discussed earlier, in the Riegle-Neal Act Congress authorized interstate branching by interstate merger transactions and by de novo interstate branches. Each of these authorities provides means by which the states can determine whether to participate in them or not. Congress also enacted separate provisions that have the effect of making the two Riegle-Neal methods the exclusive means for national and state banks to enter new states with interstate branches. See 12 U.S.C. § 36(e) (national banks) & 1828(d)(3) (state nonmember banks). But these exclusivity provisions do not take effect until June 1, 1997. On the face of it, this clearly seems designed to provide that until then, any such other methods of interstate branching as may exist will continue in force alongside the two new Riegle-Neal methods. Then, after June 1, 1997, Congress terminates the other authorities, leaving the two Riegle-Neal Act authorities (and the other authorites listed in sections 36(e) and 1828(d)(3)) as exclusive. Contrary to the Commissioner's assertion, it is not unreasonable to suppose that Congress intended just such a transition period.
Moreover, it is worth remembering that state banks also enjoy the benefits of this transition period. For example, before the Riegle-Neal Act, some states had statutes allowing limited forms of interstate branching, such as allowing branching only among adjacent states or only for state savings banks or for state banks. <NOTE: We are aware of at least two instances in which state banks used such limited state laws to form an interstate state bank. Before their Riegle-Neal implementing legislation, Connecticut, New York, and Rhode Island had such limited interstate branching statutes. In the multi-step transactions involved in the OCC Shawmut Decision (Connecticut and Rhode Island) and the OCC Chase Decision (New York and Connecticut), the applicants used an intermediate step in which an interstate state bank would be formed with state approval (in one instance with its main office in Connecticut and branches in Rhode Island, and in the other instance with its main office in New York and branches in Connecticut). The applicants used interstate state banks because national banks could not use the interstate branching authority under the state laws to form an interstate bank. Once the interstate state bank had been created, then it could convert into, or merge into, a national bank under 12 U.S.C. § 35, 36(b) & 215a.> Such statutes would not qualify as opt-in statutes for Riegle-Neal Act purposes, since they are limited. But they are not rendered immediately invalid under the Riegle-Neal Act. State banks in two such states could have interstate branches under these laws. It is only on June 1, 1997, when the exclusivity provision of section 1828(d)(3) becomes effective that a state bank could no longer acquire or establish an interstate branch under these limited state laws. Thus, just as the section 30 authority continues in force for national banks until June 1, 1997, so these limited state interstate branching laws continue in force for state banks until then. The OCC believes Congress intended to treat national banks and state banks consistently: the impact of the Riegle-Neal Act on limited interstate branching by national banks under section 30 is treated the same way as limited interstate branching by state banks under state law.
Indeed, these provisions bear the hallmarks of a classic legislative compromise. Some may have argued that section 30 never contained branch retention authority or that, if it did, it should end immediately upon the enactment of Riegle-Neal. Similarly, some may have argued that limited state interstate branching statutes should end immediately upon the enactment of Riegle-Neal, so that the Riegle-Neal framework would be exclusive from its inception. On the other hand, others may have argued that these other sources of interstate branching (retaining existing branches under section 30 for national banks, limited state interstate branching laws for state banks) should be allowed to continue indefinitely as a parallel authority to the Riegle-Neal framework. Congress crafted a compromise: the parallel authorities will be ended and the Riegle-Neal framework made exclusive, but only on June 1, 1997, when the Riegle-Neal framework is fully implemented.
Accordingly, under section 30 and the transition provisions of the Riegle-Neal Act, after the interstate relocation of its main office, a national bank may continue to operate its existing branches. Thus, in the present Relocation Application, KeyBank is legally authorized to continue to operate its existing branches in Indiana and Michigan when it relocates its main office to Bryan, Ohio.
B. KeyBank may Establish a New Branch at the Site of its Former Main Office in Angola, Indiana, under 12 U.S.C. § 36(c).
After its main office relocation, KeyBank will be an interstate national bank. It will have its main office in Bryan, Ohio, and its existing branches in Indiana and Michigan. KeyBank also has applied then to establish a new branch at the site of its former main office in Angola, Indiana, under 12 U.S.C. § 36(c). The Branch Application is a separate transaction from the main office relocation and retention of existing branches. After the relocation, if no other application were made, KeyBank would have its main office in Bryan and its existing branches in Michigan and Indiana, but not an office in Angola. In order to have a branch in Angola, KeyBank must apply to open a new branch there. Since it has continued its existing branches in Indiana in the relocation, this Branch Application is an application by an interstate national bank for an additional branch in one of the states in which it already has a branches. This question has been considered before by the OCC and the courts. The Branch Application does not raise new issues, but only the application of established precedent for applying section 36(c) to interstate national banks.
The McFadden Act authorizes a national bank to establish new branches "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 ... ." 12 U.S.C. § 36(c)(2). The interpretation of the statute adopted since at least 1974 has been that, for the purpose of establishing additional branches under section 36(c), an interstate national bank is "situated" in each state in which it has its main office or a branch: The bank can establish other branches within each state to the same extent as other national banks situated in that state, i.e., to the same extent that state allows its state banks to have branches within the state. See Seattle Trust & Savings Bank v. Bank of California, N.A., 492 F.2d 48 (9th Cir.), cert. denied, 419 U.S. 844 (1974). Both before and after the Riegle-Neal Act, the OCC has applied this principle from Seattle Trust in prior decisions involving national banks with operations in more than one state. See, e.g., OCC Bank Midwest Decision (Part II-B); OCC NationsBank/Maryland National Decision (Parts II-B-2 and III); OCC First Fidelity/New Jersey Decision (Parts II-B-2 and III). See also OCC Decisions listed in notes 5 and 6 above.
The Seattle Trust case involved the Bank of California, a national bank with its main office in San Francisco and branches in California. It also had grandfathered branches in Seattle, Washington, Tacoma, Washington, and Portland, Oregon. In 1970, it applied to the OCC for approval to establish a new branch in Seattle. The OCC approved the branch, concluding that the Bank of California was situated in Washington for purposes of section 36 (c) because of its grandfathered branches and so could establish other branches in Washington as Washington law allowed Washington banks to do. The Ninth Circuit affirmed this conclusion. The court expressly held that the Bank of California was "situated" in Washington for section 36(c) purposes through its grandfathered branch. Seattle Trust, 492 F.2d at 51.
The OCC has consistently applied this interpretation of "situated" in section 36(c) -- that a bank is situated in the state(s) where it has branches as well as the state of its main office. This statutory language and interpretation continue after the Riegle-Neal Act. Existing branch authority in sections 36(a), 36(b), and 36(c) is not changed in the Riegle-Neal Act. The statutory language and legislative history clearly contemplate that existing authority under these provisions remains in effect. First, the new provision on exclusive authority for additional branches (new subsection 36(e)) is not effective until June 1, 1997. In addition, even after it is effective, it expressly does not apply in states in which the bank has its main office or already has a branch; and it also expressly includes, as a continuing source of authority, branching authorized "under this section" (i.e., Revised Statutes 5155, which includes existing subsections 36(a), (b), and (c)). See Riegle-Neal Act 102(b)(1) (adding new subsection (e) to section 36). <NOTE: Indeed, the section of the Riegle-Neal Act that sets out the new source of interstate branching authority in the new interstate merger transaction provides that interstate banks formed under its provisions ("section 44 interstate banks") have a similar rule covering the establishment of additional branches by section 44 interstate banks within each state in which they have existing branches. See Riegle-Neal Act 102(a) (new section 44(d)(2)). Similarly, the provisions in the Riegle-Neal Act regarding state opt-in to permit interstate branching through de novo branches apply only to the de novo establishment of a bank's first branch in another state (other than the bank's home state) "in which the bank does not maintain a branch." See Riegle-Neal Act 103(a) (adding new subsection 36(g)). It does not apply to situations where a bank is establishing a new branch in its home state or in one of the states in which it already has a branch. In those situations, existing law under section 36(c) still applies. See Decision on the Applications of Community National Bank (OCC Corporate Decision No. 96-22, April 19, 1996) (Part II-B).>
Moreover, another provision added to 12 U.S.C. § 36 in the Riegle-Neal Act further supports KeyBank's authority to establish the branch in Angola, Indiana. Congress added section 36(f) to address the law applicable to interstate branching operations at branches in a host state of an interstate national bank. Among other provisions, section 36(f)(1)(A) provides that "the laws ofthe host State regarding . . . establishment of intrastate branches shall apply to any branch in the host State of an out-of-State national bank to the same extent as such State laws apply to a branch of a bank chartered by that State, except -- (i) when Federal law preempts the application of such State laws to a national bank . . . ." 12 U.S.C. § 36(f)(1)(A). The provisions of section 36(f) apply to any interstate national bank (i.e., to the branches in a host state of any out-of-state national bank), without regard to the manner in which the national bank became interstate. They apply to KeyBank (and later to KeyBank-Resulting) even though it did not establish its out-of-state branches through one of the two new interstate branching authorities adopted in the Riegle-Neal Act. Thus, under this provision, but for the preemption exception, it is clear that, once an out-of-state national bank has branches in a host state, then the subsequent establishment of another branch within the host state is treated like the establishment of intrastate branches within the host state by the host state's state banks. Here, an Indiana state bank could establish a branch at the site of KeyBank's former main office in Angola, and thus under section 36(f), KeyBank would be able to do likewise. However, since there are federal laws specifically governing in-state branching by national banks (i.e., 12 U.S.C. § 36(b), 36(c), 36(g)(2)(B), & 1831u(d)(2)), those laws would preempt this provision under the preemption exception. But, since those laws also incorporate, and make applicable to national banks, state law for in-state branching by state banks, as discussed above, the outcome is generally the same. <NOTE: In some instances, there may be a difference between the manner in which state law would apply if applied directly in section 36(f)(1)(A) and the manner in which it is incorporated in the other statutes. However, that is not the case here, and so we need not address which statutes would take precedence in the case of such a conflict.> Thus, with respect to KeyBank's Branch Application, under the OCC's interpretation of section 36(c), KeyBank is authorized to establish the branch at the site of its former main office in Angola under section 36(c). And, if section 36(c) does not apply in this way, then section 36(f)(1) would be applicable, and the branch authorized under section 36(f)(1).
The Michigan Bank Commissioner objected to the Branch Application. The Commissioner's argument, similar to the Ghiglieri court's, appears to be that an Ohio state bank is not permitted to establish branches in Indiana, and that Ohio law is incorporated into the McFadden Act and, and so national banks in Ohio are not authorized under section 36(c) to establish branches in Indiana. We agree that, if KeyBank did not have its existing branches in Indiana, KeyBank would not have authority under section 36(c) to establish the new branch in Angola. But, after the relocation, KeyBank does have its existing branches in Indiana. This is, in fact, merely a restatement of the Commissioner's objection to the Relocation Application, and was addressed above. The Branch Application is a second transaction that occurs after and depends upon the first. Thus, in analyzing the legality of the Branch Application, the Relocation Application is assumed to have occurred.
Once KeyBank is an interstate bank, with existing branches in Indiana, the Commissioner's position that Ohio state branching law is incorporated into section 36(c) and prohibits KeyBank from establishing additional branches in Indiana is clearly erroneous. When an interstate national bank is applying to establish an additional branch in one of the states in which it already has branches (a host state), the law is clear that the applicable branching law incorporated into federal law for the national bank is the host state's statute for the establishment of in-state branches by the host state's own state banks. Seattle Trust established this construction of section 36(c) for interstate national banks. Section 36(f) leads to the same result if section 36(c) is not so applied. The Riegle-Neal Act has the same rule for additional branches in a state by interstate national banks formed under the new interstate provisions of the Riegle-Neal Act. See 12 U.S.C. § 36(g)(2)(B) & 1831u(d)(2). <NOTE: The Ghiglieri court's analysis of the branch application in that case was similarly flawed. Once the court determined that the bank's existing branches in Arkansas could not be retained under section 30, there was no need to address the establishment of the new branch at the old main office site, since the legal authority for the new branch under section 36(c) depended upon the bank's being situated in Arkansas because of its existing branches. If there are no existing branches in Arkansas, the court's additional discussion about the new branch is superfluous. If there are existing branches in Arkansas, then the court's additional discussion that both Texas and Arkansas law apply through section 36(c) to the bank's authority to establish an additional branch in Arkansas, as well as the court's manner of applying Arkansas law, are clearly contrary to the federal statutes, as set out in the text above.>
Therefore, after the main office relocation, KeyBank continues to be situated in Indiana (as well as Michigan) for section 36(c) purposes by virtue of its existing branches there. And thus, as a matter of federal law under section 36, it can establish additional branches in Indiana to the same extent that national bankks whose main office is in Indiana may establish branches, i.e., to the same extent that Indiana permits its own state chartered banks to establish branches in Indiana. Under Indiana statute, an Indiana state-chartered bank is permitted to establish one or more branches in any location or locations within Indiana. See Ind. Code 28-2-13-19(a). An Indiana state bank could establish a new branch at the location in Angola. Thus, a national bank situated in Indiana could establish a new branch at that location under 12 U.S.C. § 36(c). Therefore, KeyBank may establish a new branch at the location of its former main office under section 36(c).