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84-363 6 Board of Governors of the : 7 Federal Reserve System, : Et Al LIBOTSII SUPREME COURT, U.S. WASHINGTON^ £>.C. 20543 OFFICIAL TRANSCRIPT PROCEEDINGS BEFORE THE SUPREME COURT OF THE UNITED STATES DKT/CASE NO. «*-3«3 -r-t-r-1 r NORTHEAST BANCORP, INC., ET AL. , Petitioners V. IllLt- BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, ET AL. PLACE Washington, D. C. DATE April 15, 1985 PAGES 1-51 (202) 628-9300 1 IN THE SUPREME COURT OF THE UNITED STATES 2 x 3 NORTHEAST BANCORP, INC., ET AL., 4 Petitioners 5 v. No. 84-363 6 BOARD OF GOVERNORS OF THE : 7 FEDERAL RESERVE SYSTEM, : ET AL. : 8 --------------- - -x 9 Washington, D.C. 10 Monday, April 15, 1985 11 The above-entitled matter Came on for oral 12 argument before the Supreme Court of the United States 13 at 11:05 a.m. 14 APPEARANCES: 15 STEPHEN M. SHAPIRO, ESQ., Chicago, Illinois; on behalf 16 of the Petitioners. 17 REX E. LEE, ESQ., Solicitor General of the United States, Department of Justice, Washington, D.C.; on behalf of 18 the federal Respondent. 19 LAURENCE HENRY TRIBE, ESQ., Cambridge, Massachusetts; on behalf of Respondents Bank of New England Corporation, 20 e t a 1. 21 22 23 24 25 1 ALDERSON REPORTING COMPANY, INC. 20 F ST., N.W., WASHINGTON, D.C. 20001 (202) 628-9300 1 CONTENTS 2 ORAL ARGUMENT PAGE 3 STEPHEN M. SHAPIRO, ESQ., on behalf of the Petitioners 3 4 REX E. LEE, ESQ., 5 on behalf of the federal Respondent 28 6 LAURENCE HENRY TRIBE, ESQ., on behalf of Respondents Bank of New England 7 Corporation, et al. 38 8 STEPHEN M. SHAPIRO, ESQ., on behalf of the Petitioners — rebuttal 49 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 ALDERSON REPORTING COMPANY, INC. 20 F ST., N.W., WASHINGTON, D.C. 20001 (202) 628-9300 1 PROCEEDINGS 2 CHIEF JUSTICE BURGER: Mr. Shapiro, I think 3 you may proceed whenever you're ready. 4 ORAL ARGUMENT OF STEPHEN M. SHAPIRO, ESQ., 5 ON BEHALF OF THE PETITIONERS 6 MR. SHAPIRO: Thank you, Mr. Chief Justice, 7 and may it please the Court: 8 At issue in this case is the constitutionality 9 of regional banking laws enacted by the states of 10 Connecticut and Massachusetts which permit New England 11 bank holding companies to enter those states and engage 12 in full service commercial banking, but which withhold 13 that same right from bank holding companies located in 14 other sister states. 15 The first question presented is whether the 16 Douglas Amendment to the Bank Holding Company Act 17 immunizes the statutes from scrutiny under the Commerce 18 Clause of the Constitution. 19 The second question is whether these laws are 20 part of an agreement among the states which requires 21 Congress' approval under the Compact Clause of the 22 Constitution. And after briefly describing these 23 statutes, I'd like to address all of these questions. 24 The Massachusetts and Connecticut laws permit 25 companies from six designated New England states to 3 ALDERSON REPORTING COMPANY, INC. 20 F ST., N.W., WASHINGTON, D.C. 20001 (202) 628-9300 1 enter those states and engage in full service commercial 2 banking if the other New England state extends 3 reciprocity to Connecticut and Massachusetts. These 4 regional laws operate in combination with another 5 regional law enacted by the state of Rhode Island, and 6 together they set up a multistate common market which 7 permits some companies to come in and denies that same 8 right to other companies based solely on the location or 9 the state origin of those other companies. Thus, some 10 companies in some states get important competitive 11 benefits which are withheld from other companies based 12 solely on geography or state of origin. 13 Now, these statutes in New England were 14 designed to permit regional expansion of bank holding 15 companies in New England while excluding companies from 16 the neighboring state of New York, regardless of their 17 proximity to New England and regardless of their size. 18 By the same token, companies that are in New England 19 such as petitioner Northeast Bancorp, are unable to 20 merger with banks located directly across the New York 21 border. 22 The practical impact of these laws can be 23 illustrated with a simple example. Before passage of 24 these laws, companies in Massachusetts and in New York 25 competed on an equal basis for business in Connecticut. 4 ALDERSON REPORTING COMPANY, INC. 20 F ST., N.W., WASHINGTON, D.C. 20001 (202) 628-9300 1 Each could offer full service commercial banking in its 2 home state, but neither could offer full service 3 commercial banking in the state of Connecticut. 4 Now, however, Massachusetts companies can have 5 full service banks both in their own home state and in 6 the state of Connecticut, while their direct competitors 7 in the state of New York are still limited to their one 8 home state . 9 As the Court is aware, these regionally 10 discriminatory laws are not an isolated phenomenon. New 11 York is flanked by the New England laws on the east, and 12 directly to the south its neighbors are in the process 13 of forming another exclusionary market, the Mid-Atlantic 14 market. And there is a similar combination of states in 15 the southeast which also excludes the state of New 16 York. We are thus witnessing a partitioning of the 17 entire East Coast into exclusive banking zones, and as 18 the Court is aware, some other — some 20 other states 19 are in the process of considering regionally exclusive 20 banking laws which would divide the countries into other 21 regions throughout the entire nation. 22 Now, as the Solicitor General and the Board 23 have acknowledged and the other respondents do not 24 dispute, these laws would violate the Commerce Clause 25 unless approved by Congress. As this Court stated in 5 ALDERSON REPORTING COMPANY, INC. 20 f ST., N.W., WASHINGTON, D.C. 20001 (202) 628-9300 1 the Eisenberg Farm case, and I quote, "The United States 2 could not exist as a nation if each of them were to have 3 the power to discriminate as against sister states with 4 respect to admitting articles of commerce. And when 5 combinations of states jointly impose this kind of 6 discrimination in unison, the danger of injury and 7 divisiveness and retaliation is even greater. 8 Now, where there is this kind of a threat to 9 the core purposes of the Commerce Clause, this Court's 10 decisions require proof that Congress unmistakably gave 11 its consent to otherwise invalid state legislation. And 12 that, we say, is a burden which respondents cannot 13 sustain in this proceeding. 14 The Solicitor General on the one hand has made 15 the argument that the plain language of the Douglas 16 Amendment permits this kind of discrimination among 17 sister states. But all that the Douglas Amendment says 18 is that the Board may not approve an acquisition unless 19 there is a state law in existence which permits the 20 acquisition. It doesn't say a single word about the 21 various kinds of laws which a state might adopt, and it 22 certainly doesn't say that a state in lifting the 23 federal ban is free to pick and choose among sister 24 states or to join into a regional confederation which 25 sets up a preferential trade zone for some states and 6 ALDERSON REPORTING COMPANY, INC. 20 F ST., N.W., WASHINGTON, D.C. 20001 (202) 628-9300 1 excludes the others. 2 QUESTION: But doesn't the very paucity of 3 language, Mr. Shapiro, suggest that the states were 4 given very wide latitude; that all Congress was 5 interested in was state approval? 6 MR. SHAPIRO: To the contrary, Your Honor. 7 When Congress defers to the states in this manner with 8 general language of this sort, the Court has made it 9 quite clear that the presumption is that Congress means 10 to defer to constitutionally valid state law; and when 11 it refers to state law in these very general terms, the 12 negative ingredients of the dormant Commerce Clause are 13 part and parcel of the state law to which Congress has « 14 deferred. 15 QUESTION: Well, Mr Shapiro, I suppose the 16 McCarran-Ferguson Act doesn't really make it 17 unmistakably clear that states can adopt reciprocal 18 discriminatory taxes, and yet, the Court upheld that 19 power in cases like Western and Southern. 20 MR. SHAPIRO: That's a very important 21 question, and the distinction is between night and day; 22 and let me explain that. 23 In the McCarran-Ferguson Act, the statute 24 explicitly says not only that the states may regulate, 25 but that the silence of Congress shall not be deemed to 7 ALDERSON REPORTING COMPANY, INC. 20 F ST., N.W., WASHINGTON, D.C. 20001 (202) 628-9300 1 be any barrier to regulation or taxation of insurance 2 within the state. And the legislative history, of 3 course, was that this was an area that traditionally had 4 not been treated as part of commerce. And then in 1944 5 this Court changed the construction on that question, 6 and all of a sudden state laws across the country were 7 exposed to Commerce Clause challenge. 8 Congress acted within one year to pass this 9 law which expressly stated that it was lifting the 10 negative implications of the dormant Commerce Clause.
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