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X-6321

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COURT OF APPEALS OF TBB DISTRICT OF COLUMBIA

Charles L . Apfel, Stephen B . Gibbons,

Bertrand A . Unger, Joseph Sheldon,

Henry Green, Henry

M.

Susswein,

Edmund J . Horwath, a n d Milo Ogden Frank,

Appellants,

v s .

Andrew W. Mellon, J . W. Mcintosh,

Roy A.

Young, Edmund P i a t t , Adolph

C .

Miller , Charles

S .

Hamlin, Edward

H .

Cunningham,

a n d

George

R .

James,

a s

Members

of t he

Federal Reserve Board,

Appellees.

No. 4837

Appeal from

t h e

Supreme Court

of the

D i s t r i c t

o f

Columbia.

Before Martin, Chief Ju st ic e, an d Robb and Van Orsdel, Associ-

a t e Ju s t i c e s .

This i s an appeal from a f ina l order of t he lower court d i s -

missing t h e a ppe l l a n t s ' pe t i t i on f o r a wri t o f mandamus upon t h e a l l e ga -

t ions of t he p e t i t i o n a n d answer.

The case arises under the Act of Congress o f December 24, 1919,

( 4 1 S t a t . 3 7 8 ) , commonly known a s t h e "Edge A c t , f i r s t enac ted a s S e c -

t i on

2 5 ( a ) o f t h e

Federal Reserve

A c t . See

T i t l e

X I I ,

Sect ions

611 to

631,

U.S.C.A.

The Act

provid es tha t corporat ions

may be

organized

f o r t h e

purpose

of

engaging

i n

i n t e rna t i ona l

o r

foreign banking

o r

o the r in te r -

na t ional o r fore ign f inancia l opera t ions, an d may be formed by any number

of natural persons n o t le s s than fi ve ; tha t such persons sha ll ent er into

a r t i c l e s of as so ci at io n which sha l l s pecif y i n general terms th e objects

f o r which t h e a s soc i a t i on i s formed, an d shall execute a n organizat ion

ce r t i f i ca te which sha l l s e t o u t t h e name assumed b y t h e corporat ion,

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th e p lace o r places where i t s operations sure to he ca r r i ed on , the place

i n t h e

United States where

i t s

home office

i s t o he

located ,

t h e

amount

o f i t s

capi ta l s tock

a n d t h e

number

of

shares into which

i t

s h a l l

h e

ivi e

t h e

names

a n d

p laces

of

business

o r

res idence

o f t he

persons

executing

t h e

c e r t i f i c a t e

a n d t h e

number

of

shares

t o

which each

h a s s u b -

scr ibed , a n d t h e fact that t h e c e r t i f i c a t e i s made t o enable t h e s u b -

sc r iber s and their successors t o avail themselves of the advantages o f

t h e A c t . I t provides also that no corporat ion shal l be organized under

t h e A c t

with

a

capi ta l s tock

of

loss than $2,000,000,

one

quar ter

of

which shall

be

p a id

i n

before

t h e

corporation

may be

organized

to

begin

business; that

th e

persons signing

th e

o rgan iza t ion cer t i f ica te sha l l

duly acknowledge

t h e

execution thereof ,

a n d

forward

i t t o t h e

Federal

Reserve Board,

a n d

t h a t a f t e r

th e

a r t i c l e s

of

a s s o c i a t i o n

and an

organiza-

t i o n c e r t i f i c a t e a r e duly made a n d f i l e d , a n d " a f t e r t h e Federal Reserve

Board h a s approved t h e same a n d issued t h e permit t o begin business, t h e

association shall become and be a body corporate", with certaiti specified

powers including

i n

general

t h e

r igh t

t o

engage

i n

i n t e r n a t io n a l

o r

foreign

banking

o r

o ther f inancia l operat ions .

The Ac t

provides "that except such

a s i s

i n c id en ta l

a n d

prel iminary

t o i t s

organizat ion

no

such corporation

shal l exercise

any of the

powers conferred

by

th i s se c t ion un t i l

i t h a s

been duly authorized by t he Federal Reserve Board t o commence business a s

a corporation organized under t h e provis ions o f th i s sec t ion" . I t p i so

provides that such a corporat ion may e s t ab l i s h a n d maintain branches o r

agencies i n foreign countr ies a t such places as may be approved by t he

Federal Reserve Board

a n d

under such rules

a n d

r egu la t ions

a s t h e

Board

may

p r e s c r ib e .

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I n t h e

instant case

th e

appe l lan ts ,

a s

relators below, f i led

the i r pe t i t ion aga ins t t h e appel lees a s membere of t he Federal Reserve

Board, alleging that

t h e

r e l a t o r s

h a d

duly executed

a n d

f i l ed w i th

t he

respondents, a c e r t i f i c a t e f o r t h e organizat ion of a corporation under

t h e foregoing A c t f o r t h e purpose of engaging i n i n t e r n a t io n a l o r

foreign "banking under t h e name "Foreign Financing Corporation", a n d that

t h e c er t i f i c a t e fu l l y conformed with t h e requirements of th e A ct ; but

that

th o

respondents nevertheless

h a d

wrongfully refused

t o

approve

of

t h e

same

o r t o

itieud

a

permit

t o

r e l a t o r s

t o

"begin "business

a s a

"body

corporato under

t he A c t . The

re la tors prayed

f o r a

wr i t

of

mandamus

tb

corapol

t h o

respondents acting

a s t h e


t o

approve

t h e

a r t i c l e s

o f

incorporat ion

and t he

o rgan iza t ion cer t i f ica te a fo re -

said ,

and t o

permi t r e la to r s

t o

"begin "business

a s a

"body corporate under

t h e

name "Foreign Financing Corporation",

i n

accordance with

t h o p r o -

vis ions

o f t he A c t .

The

respondents filed their answer admitting that

th e

a r t i c l e s

of


a n d

o rgan iza t ion cer t i f ica te f i l ed wi th

t h e

Board

by r e -

lators were

i n

proper legal form,

b u t

s ta t ing tha t

t h e

Board

h a d

refused

to

approve

t h e

same

en the

following grounds:

"That

t h e


a s a

board,

and

t h e

respondents

a s

members thereof, deem

i t

their duty

c a r e f u l l y t o inquire into t h e q u a l i f i c a t i o n s of the

organizers

of

such proposed cor pora tio ns

and t o

refuse

t o approve t h e a r t i c l e s of assoc ia t ion a n d organization

c e r t i f i c a t e s

of

such proposed corp ora tio ns

and to

issue

a permit f o r such proposed corporations to do business,

unle ss a f t e r inve sti gat ion, said Board

i s o f t h e

opinion

tha t t h e f in anc ia l res pons ib i l i ty , exper ience, t ra in ing ,

a n d

o ther qua l i f ica t ions

of the

organizers

of

such

p r o -

posed corporations a r e such as may reasonably b e ca lcu l -

a t ed

t o

hold premise

o f t he

f inancial soundness, reliable

a n d competent management, a n d proper a n d successful oper-

a t i o n

of

such proposed co rp ora ti on. "

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* * *

tha t re la t o rs

do no t

possess

th e

qualif icat . ions

reasonably necossary

t o

assure

t h e

financial soundness,

r e l i a b l e

a n d

competent management,

o r t h e

proper

o r

successful operat ions

of a

corporation organized under

Sect ion

25 (a ) of th e

Federal Reserve

Ac t to

engage

i n

t h e h igh ly t echn ica l ac t iv i t i e s of i n t e rn a t i o n a l o r

foreign "banking o r o ther in te rna t ional o r fore ign

f inancia l opera t ions a n d t h a t i t would b e detrimental

t o t h e pub l ic in t e re s t t o approve such articles of

a s s o c i a t i o n o r o rgan iza t ion ce r t i f i ca te a n d t o issue

a prel iminary permit f o r such proposed corporation to.

commence business;

a n d

tha t , the re fo r e ,

th e

said Board

re fused

t o

approve

th e

a r t i c l e s

of


a nd the

o rg a n i z a t i o n c e r t i f i c a t e

an d

re fused

t o

i ssue

a

permit

t o

sa id proposed corpo rati on

t o

begin business .

R e-

spondents

sa y

that this determination

by the

Federal

Reserve Board

was

unanimous; that

i t wa s

adopted after

impart ia l inves t iga t ion a n d f u l l a n d impart ia l c o n -

s i d e ra t i o n o f a l l t h e f a c t s ; a n d that respondents b e -

l ieved then and now belie ve th at i t would be contrary

t o publ ic pol icy a n d contrary t o t h e duty of respondents

a s p u b l i c o f f i c e r s to approve said art ic les o f a s soc ia -

t i o n a n d s a id o rgan iza t ion ce r t i f i ca te or to i s sue a

preliminary permit

to the

r e l a t o r s

to

begin business

a s a

body corporate."

The

r e l a t o r s f i l e d

a

demurrer

t o t h e

answer

of

respondents.

The

lower cour t ove rr ul ed

t h e

demurrer,

a n d ,

r e l a t o r s e l e c t i n g

t o

stand

upon their demurrer, t h e court dismissed t h e p e t i t i o n , a n d t h e re la to rs

appealed.

I t i s contended by appellees that t h e statute imposes t h e duty

upon

t h e


of

exerc is ing

i t s

judgment

a n d

d iscre t ion

With respect

t o t h e

approval

o r

disapproval

o f the

a r t i c l e s

of

a s soc ia -

t i o n

a n d

organiza t ion cer t i f ica tes made

a n d

f i led under

t h e A c t , a n d

that

t h e Board ' s ac t ion i n this instance i s wi th in t h e l i m i t s o f tha t author i ty .

On the o th er hand ap pe ll an ts contend th at "Congress h a s n o t undertaken t o

delegate t o t h e Board t h e d i s c r e t i o n i t h a s assumed t o exerc ise" .

We

agree with

t h e

contention

o f the

appe l l ees .

The

s t a tu te

provides that

a n

association formedMinder

t h e A c t

sha l l

n o t

become

a

body

4 8

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X-6321

: 404

corpora te un t i l a f te r th e a r t i c l e s of a s s o c i a t i o n an d organizat ion c e r -

tificate have been duly made

a n d

f i l e d ,

a n d

a f t e r

t h e

Federal Reserve

Board h a s approved t h e same and issued a permit to i t to "begin business.

The

word "approved" naturally imports

t h e

exercise

of

judgment

a n d d i s -

cre t ion ;

and t he

power

t o

approve ordinarily implies

a

power

t o

disap-

prove.

To

"approve

1

o r

give "approval"

i s i n i t s

es s en t i a l a n d most obvious meaning t o confirm,

r a t i f y , s an c t io n ,

o r

consent

t o

some

a c t o r

thing done by another . The word "approve" does

n o t , e x v i termini, necessarily import t he ex -

e r c i s e

o f

d i s c r e t i o n ,

b u t

from

th e

connection

i n which th e term i s used i t of te n involves the

idea of d i s c r e t i o n a n d ad jud ica t ion , and i s

seldom construed

a s

r equ i r ing

a

mere minister ial

a c t .

4 C . J . 1464 .

I n t h e case of S t a t e ex r e l . Dodd v . B i l l , Banking Commissioner,

84 W. 7 a . , 468 , t he

Supreme Court

of

West Virginia deals with

a

s ta tu te

which provid ed tha t " he re af te r

no

char ter shal l

be

issued

to any

bank

t o

d» business i n t h i s s t a t e u n t i l t h e app l ica t ion there fo r h a s been approved

i n

w r i t i n g

by the

commissioner

of

banking". Acting under t hi s st at ut e

t he

commissioner

of

banking

h a s

r e fused

t o

issue such

a

char te r

to the

appe l l -

ants, upon t h e ground that, f o r t h e p r o t ec t io n of the pub l ic , h e h a d care-

fully considered

t h e

proposed location

o f t he

bank,

t h e

t e r r i t o r y co n t r i -

butory thereto, i t s p o s s i b i l i t i e s a n d p rob ab i l i t i e s f rom a banking stand-

po in t , a n d other questions connected therewith, a n d tha t i n t h e exercise

o f h i s

best judgment

as an

o f f i c e r

h e h a d

a r r iv ed

a t t h e

conclusion that

t h e appl icat ion should no t be approved. I n denying a wr i t ef mandamus

t o compel t h e commissioner t o issue a char te r t h e court held that t he

s ta tu tory provis ion aforesaid ves ted

i n t h e

commissioner discretionary

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X-6321

405

power

t o

approve

o r

reject such

a n

app l i ca t ion ,

a nd

t h a t

th e

commissioner's

dec is ion was no t subjec t to j ud ic ia l review unle ss i t clearly appeared that

h e h a d "v / i l fu l ly an d a r b i t r a r i l y di s regarded h i s duty, o r tha t h i s decision

was due to

capr ice , pass ion, par t ia l i ty-or corrupt ion".

I n t h e

People

e x r e l .

Schweder

v .

Brady, Auditor

of

Public

A c-

counts, 268 111 . 192 , the Supreme Court of I l l i n o i s h e l d i n r e l a t i o n to

s imi la r l eg i s l a t ion tha t a s t a tu te au thor iz ing th e State Auditor to wi th-

hold

t h e

f i n a l c e r t i f i c a t e

of

organiza t ion

o f a

hank when

h e i s n o t

s a t i s -

f i e d as t o t he personal character and standing of the o f f i c e r s or d i rec tors

o r whon h e h a s reason t o "believe that t h e hank i s organized f o r a n y purpose

other than that contemplated by the Act , i s no t uncons t i tu t iona l on the

ground that

i t

c o n f e r s - j u d i c i a l

o r

legis la t ive power

on the

Auditor.

S ee

First Rational Bank

v .

Union Trust Company,

24 4 U. S . 4 16 .

In t ho instant case i t i s clear that Congress was providing a

means

f o r

conferr ing spec ia l

an d

important privileges upon such corporations

a s

should

be

organized under

t h e

Edge

A ct . An

abuse

by any

corpora t ion

of

th e powers thus granted t o i t might involve grave consequences to our public

se rv ice . I t i s reasonable t o believe that Congress intended that a careful

inves t iga t ion should

be

made

by t he

Federal Reserve Board concerning

t he

charac tor

a n d

competency

of tho

incorpora tors

of

such

a n

e n t e rp r i s e ,

as one

of tho

ncans

of

determining whether

t o

grant

o r

withhold their approval

of

t h e a p p l i c a t i o n f o r in co rp or at io n. Moreover i t should be noted that the Act

repeatedly provided,

f o r a n

"approval"

by t he

Board

a s a

p r e r e q u i s i t e

t o

proceedings authorized thereunder,

a nd i n a l l

such instances

t h e

term plainly

implies t h e exe rc i se o f consideration, judgment, a nd d i s c r e t i o n by t he Board.

The Act provides in te r a l i a tha t any such corporation may at any time -within

the two

years next previous

t o t he

date

of the

exp i ra t ion

of i t s

corporate

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X-6321

existence , by a vote of the shareholders owning two-thirds o f i t s stock ^ . Q 0

apply

t o t h e


f o r i t s

approval

t o

extend

the

per iod of i t s corporate existence f o r a term of not more than twenty

years , a n d upon cert i f ied approval of t he Board such corporation shall

have i t s corporate existence f o r such extended pe ri od . The Board, a c -

cordingly,

may

exerc ise

i t s

judgment

and

discret ion with respect

t o

what

i s

p r a c t i c a l l y

a

renewal

of the

corporate ch ar te r . This fa ct

i s

signi f icant ly Consis tent wi th th e view that t h e Board ps ss es se s a similar

power over t h e g ran t ing of t he f i r s t c ha r t e r .

An

examination

of

congressional legislat ion with regard

t o

hank-

i n g

since

1864

shows that Congress

h a s

consistently used various forms

of

t h e word "approve" in t ho sense of conferring discret ion upon th o Comptrol-

l e r o f t h e Currency, t h e Secretary of t he Treasury, or t ho Federal Reserve

Board. Such

a

cons i s t en t

u s e o f t h e

term

i n

s t a t u t e s

i n

yari materia

i s

persuasive. Marks

v .

United States,

161 U. S . 2 97 .

The

s t a t u t e s r e l a t i ng

t o t h e

organiza t ion

of

national "banks

a r e

analogous t o those now in quest ion. I t i s the ref ore proper t o note that

t h e

Comptroller

of t he

Currency

h a s

p resc r ibed

th e

fol lowing

a s one of th e

regulat ions governing

t h e

inves t iga t ions

to he

made

by th e

examiners

r e -

l a t i n g t o a pp l i c a t i ons f o r national bank charters;

I n making this invest igat ion t h e examiner i s

i n s t ruc t e d

t o

give full const-deration

t o a l l

fac tors

enter ing into

t h e

pr op os it io n. Among oth er mat ter s

t o he considered a r e ; F i r s t ; th e general character

a n d

experience

of the

organizers

and of the

proposed

o f f i c e r s of the new hank; second, t h e adequacy of

ex i s t ing hanking fac i l i t i e s a n d t h e need of fu r the r

hanking ca pi ta l ; t hir d,

th e

outlook

f o r t h e

growth

a n d development of the town o r c i t y i n which t h e hank

i s t o h e

loca ted; four th ,

th e

methods

a n d

hanking

p ra c t i c e s of the existing hank o r "banks, t h e i n t e r e s t

rates which they charge t o customers, a n d t h e character

of t he

service which

a s

quasi -publ ic inst i tu t ions they

a r e render ing t o their community; fifth, t h e reasonable

prospec t s f o r success of the new bank i f e f f i c i e n t l y

managed." Instructions

Sa . 4 o f t he

Comptroller

o f

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t h e

Currency, Regulations Promulgated June

31, 1927,

Digest

of

Rulings

of the

Federal Reserve Board with

Appendices (1928) pages 394-395.

S ee

McCormick

v .

Market Bank,

165 U. S , 538 ,

551-2.

I n t h e p re se nt ca se mandamus w i l l n o t l i e t o con t ro l the

exerc i se

of the

Board 's d iscret ion .

I t i s a f r equen t ly asse r ted a n d .un iversal ly recog-

nized rule that mandamus only lies

t o

onforce

a

min i s t e r i a l

a c t o r

duty;

i n

this sense

a

mi nis te r ia l du ty

may he

b r i e f ly

def ined t o be some duty imposed expressly by law , no t by

con t rac t

o r

a r i s in g n eces s a r i l y

a s an

incident

to t he

o f f i c e ,

involv ing

no

d i s c r e t i o n

i n i t s

exercise ,

b u t

mandatory

and

imperat ive . The d is t inct ion between merely minis ter ia l and

j u d i c i a l

a n d

o th e r o f f i c i a l a c t s

i s

that where

th e

l a

p r e -

s c r ib e s

a n d

defifces

th e

duty

to be

performed with such prer-

c i s io n

a n d

c e r t a i n l y

a s t o

leave nothing

t o t h e

exercise

of

d i s c r e t i o n o r judgment, t h e a c t i s m i n i s t e r i a l ; b u t where

t h e a c t t o b e

done involves

t h e

exercise

of

d i s c r e t i o n

o r

judgment,

i t i s no t t o be

deemed merely ministerial

18 R.L.C. 116 .

The

judgment

of the

lower court

i s

aff irm ed with co st s .

(Signed) George

E .

Martin,

Chief Justice, Court of Appeals of

t h e D i s t r i c t of Columbia.

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