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January 15, 1962

UNITED STATES of America, Plaintiff,
The PHILADELPHIA NATIONAL BANK and Girard Trust Corn Exchange Bank,Defendants

The opinion of the court was delivered by: CLARY

This is a civil action instituted under Section 4 of the Act of Congress of July 2, 1890, as amended, 15 U.S.C.A. § 4, (commonly known and hereinafter referred to as the 'Sherman Antitrust Act'), and Section 15 of the Act of Congress of October 15, 1914, as amended, 15 U.S.C.A. § 25, (commonly referred to and hereinafter designated as the 'Clayton Antitrust Act'), in which the United States (hereinafter referred to as 'government' or 'plaintiff') seeks as injunction to restrain the defendants, The Philadelphia National Bank (hereinafter referred to as 'PNB') and Girard Trust Corn Exchange Bank (hereinafter referred to as 'Girard'), from carrying out an agreement of consolidation. This agreement of consolidation was drawn up after the passage of Public Law 86-463, (commonly referred to as 'The Bank Merger Act of 1960'), amending 74 Stat. 129, approved May 13, 1960, found at 12 U.S.C.A. § 1828(c), and is subject to the provisions thereof. Plaintiff herein alleges that the proposed consolidation violates Section 1 of the Sherman Antitrust Act, as amended, 15 U.S.C.A. § 1, and Section 7 of the Clayton Antitrust Act, as further amended by the Act of Congress of December 29, 1950, 15 U.S.C.A. § 18, (commonly known as 'The Celler-Kefauver Anti-Merger Act').

 The proposed merger sought to be enjoined was approved by the Directors of the banks involved on November 15, 1960, and by the Comptroller of the Currency on February 24, 1961. This action was instituted on February 25, 1961.

 Generally, the complaint alleges that commercial banking and several of its integral parts comprise interstate commerce; that commercial banking with its integral parts fills an essential and unique role in the nation's economy with a combination of services unduplicated by other financial institutions; that existing and potential competition in commercial banking in the Philadelphia area would be substantially and unreasonably lessened; that the merger would substantially and unreasonably increase concentration in banking in the Philadelphia area and that existing and potential competition in the commerce and industry served by commercial banks in the Philadelphia area would be substantially and unreasonably lessened. Parenthetically it may be noted at the outset that the last of these averments has not been seriously presented by the plaintiff and, for all practical purposes, has been abandoned.

 The net effect of the above, the plaintiff contends is a violation of both Section 1 of the Sherman Act and Section 7 of the Clayton Act. The plaintiff contends further that competition in commercial banking is absolutely vital and necessary to the preservation of the financial structure and security of the nation; that undue concentration of banking powers would have the effect of increasing costs and interests rates both to depositors and borrowers; would result in a decrease in the credit facilities available to the general public and, in effect, would destroy the very foundation of the banking system of the United States which, according to the Government's witnesses, rests entirely upon a number of independently-owned banks serving the community, which system they felt strengthened competition, and a merger such as this would tend to destroy it.

 Initially, it would help to review, in extremely brief outline, what Congress has done in this field. The Sherman Act, supra, enacted in 1890, was designed to prevent combinations in restraint of trade or commerce among the several states or with foreign nations. That this was an exposition of the common law doctrine is revealed by the decision in United States v. American Tobacco Company, 221 U.S. 106, at pages 179-180, 31 S. Ct. 632, at page 648, (1911) where the Supreme Court of the United States declared:

 'Applying the rule of reason to the construction of the statute, it was held in the Standard Oil Case that, as the words 'restraint of trade' at common law and in the law of this country at the time of the adoption of the anti-trust act only embraced acts or contracts or agreements or combinations which operated to the prejudice of the public interests by unduly restricting competition, or unduly obstructing the due course of trade, or which, either because of their inherent nature or effect, or because of the evident purpose of the acts, etc., injuriously restrained trade, that the words as used in the statute were designed to have and did have but a like significance. * * * the words 'restraint of trade' should be given a meaning which would not destroy the individual right to contract, and render difficult, if not impossible, any movement of trade in the channels of interstate commerce, -- the free movement of which it was the purpose of the statute to protect.' Citing Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619 (1911).

 It will therefore be seen that the Supreme Court judged the key factor and purpose of the Sherman Antitrust law to be the perpetuation of and protection of free competition. An examination of both the Clayton Act and the Federal Trade Commission Act, both passed in the year 1914, and the case law decided thereunder, again stresses the principle of law that competition should be encouraged as a national policy, and it is the destruction of this free competition which is proscribed.

 The Miller-Tydings Amendment to the Clayton Act and the Robinson-Patman Amendment were both designed to insure free and fair competition. The Celler-Kefauver Amendment of 1950 was designed to prevent asset acquisitions thereby plugging a loophole in the Clayton Act which previously prevented stock acquisition only, and did not cover the area in which asset acquisitions might tend to destroy competition. The legislative history of this latter Act clearly indicates the intent of the Congress to preserve competition as defined by the Supreme Court.

 Since competition and the preservation of competition permeates each of the aforementioned Acts and is the common bond between each of them, it would appear that 71 years after the passage of the first Antitrust law, the Court should have (but does not) a clear legal definition of competition as used in each of the Acts. Congress has given the Court at least one idea of what it means in the use of the word when it refers to 'vigorous' competition. What then is the real definition of competition and what are the standards of competition required by these acts? The Webster definition reads as follows:

 'Com. & Econ. The effort of two or more parties, acting independently, to secure the custom of a third party by the offer of the most favorable terms; also, the relations between different buyers or different sellers which result from this effort.'

 In United States v. Aluminum Company of America, 91 F.Supp. 333, at 355 (S.D.N.Y.1950), Chief Judge Knox defined competition as follows:

 'Commercial competition, theoretically, is the independent endeavor of two or more persons or organizations within the realm of a chosen market place, to obtain the business patronage of others by means of various appeals, including the offer of more attractive terms or superior merchandise.'

 It seems to the Court that the Congress, by the use of the word 'competition', intended to preserve free and open markets wherein the rivalry of the commercial firms, in the same line of endeavor, for the patronage of the common customer, would be demonstrated by a business atmosphere where free purchasers and free sellers, under no obligation to buy, and under no obligation to sell, would enter into contracts of purchase and sales (or service contracts) because of the actual inducements offered, such as quality of product, terms, delivery and the many other factors which make for good business relations, having in mind the peculiar situations, facts and circumstances which govern the particular transactions between individuals or organizations.

 It is also apparent that in any antitrust action, including the instant one, a Judge called upon to decide the case must, of necessity, take the facts that are presented to him and determine on those peculiar facts whether the particular circumstances involved will, or will not, destroy the free competition which the Congress intended to preserve, and with particular scrutiny of the industry or part thereof charged with violations.

 The Government here has brought an action -- the first of its kind -- to prevent the merger of two strong Philadelphia banks, and on the ground that this merger will (1) violate the Sherman Act by restraining trade, and (2) violate the Clayton Act by lessening and/or destroying competition and tending toward a monopoly. The Court believes that the Government's general theory of the case should be set out in brief, broad outline before coming to the specifics.

 The Government's case was predicated upon the premise that the banks involved were legally restricted to having offices in geographic limits. Starting with that assumption, the Government introduced a wealth of statistical data, the accuracy of which has not been questioned, which would show that a very large percentage of the deposits and loans originated in the restricted geographical area. Based strictly upon this premise, and applying the principles heretofore enunciated in industrial cases, the Government argues that these percentages are all persuasive, show a high degree of concentration of the market involved, and that it is therefore the duty of the Court to prevent this clear, apparent restraint of trade, destruction of, or restriction of competition, and tendency to monopoly by prohibiting the merger.

 The Court accepts the statistics introduced as showing exactly what they demonstrate on the figures used, but, as will be pointed out later when discussing the specifics, refuses to accept the conclusions which the Government asks the Court to draw.

 In support of its contention that this merger is illegal, the Government attempted to show by the testimony of two university professors that the merger would have a profound adverse effect upon the banking system of this area, actually restrict credit, and permit price fixing for banking services. This attempt was far from successful. The professors had individual theories of the effect of the merger on the monetary system of the United States and of this area, which were completely destroyed on cross-examination, particularly as relating to the Philadelphia situation. The Government also attempted to establish, by opinion testimony of small town bankers, that the contemplated merger would adversely affect not only the banking situation in Philadelphia, but generally throughout the country, including their own small towns. Their testimony was practically a rehash of the testimony they gave before both the House and Senate Committees considering the Bank Merger Act of 1960. There they strongly urged the Congress of the United States to forbid further bank mergers and to maintain the status quo of the banking system of the United States. They attempted to have Congress limit prospective mergers to the very narrow situations where economic necessity would make a merger absolutely imperative. For example, they conceded that where a bank was on the verge of insolvency, a merger should be permitted with a strong solvent bank for the protection of depositors and the general public. They also agreed that where ineffectual management was demonstrated, again it would be in the public interest to merge the bank with a strong progressive bank, again for protection of depositors and the public. With these two and other minor exceptions, not necessary to outline here, they fought vigorously to have the Congress absolutely forbid all other mergers. This the Congress refused to do, and, in the opinion of this Court, properly so.

 Both the Government and the defendants have, in support of their respective contentions, cited the only antitrust case law available and all such cases were decided under the Sherman and subsequent Acts. All involve only commercial and industrial organizations. While the Court recognizes the validity of the broad principles of law therein enunciated, it certainly does not follow that those principles should be applied with the same force and effect to a regulated industry as to one in the so-called 'free enterprise' field. The Congress of the United States has, in fact, in the industrial and commercial field, usually exempted regulated industries from the application of the antitrust law and in the public interest.

 It is significant to note that in the Bank Merger Act, the Congress of the United States has included as one of the controlling elements, and an important one, for consideration in the determination of Governmental approval of bank mergers, that same public interest. This Court does not believe, as the Government would have it, that this was a mere passing reference without practical significance and actually completely irrelevant to a decision of this case, but, on the contrary, feels that the inclusion of this public interest concept is an important element in the Congressional approach to monetary regulation.

 The only question involved in this case is -- Will this proposed merger of two Philadelphia banks, in the City and County of Philadelphia, Commonwealth of Pennsylvania, substantially lessen competition, tend toward monopoly, and/or restrain trade and commerce, in violation of the Clayton and Sherman Acts?

 Coming now to the specifics of this case and expanding upon the allegations of the complaint, it avers, inter alia, that commercial banks fill an essential and unique role in the nation's economy with a combination of services unduplicated by other financial institutions; that commercial banking in Philadelphia and the surrounding metropolitan area is heavily concentrated in a few banks; that PNB and Girard compete with each other, and with other banks in the Philadelphia area, in the performance of commercial banking functions; that as of June 30, 1960, PNB accounted for approximately 22% And Girard for approximately 15% Of the total deposits in Philadelphia commercial banks; and, that as a result of the proposed merger PNB would become the largest commercial bank in the Philadelphia area and would be approximately 50% Larger than its closest competitor.

 Further, it is charged that defendants have been engaged in an unlawful combination in unreasonable restraint of trade and commerce in commercial banking in violation of Section 1 of the Sherman Act, and that the effect of the merger may be substantially to lessen competition, or tend to create a monopoly in violation of Section 7 of the Clayton Act.

 PNB is a banking association, engaged in interstate commerce, organized under the laws of the United States, having its principal place of business at Philadelphia, Pennsylvania. Girard is a banking association, engaged in interstate commerce organized under the laws of the Commonwealth of Pennsylvania, having its principal place of business at Philadelphia, Pennsylvania,

 On November 15, 1960 the Boards of Directors of PNB and Girard approved a proposed merger of the two banks. On the same day, an application for approval of the merger was filed with the Comptroller of the Currency in accordance with the provisions of the 1960 amendment to the Federal Deposit Insurance Corporation Act, 12 U.S.C.A. § 1828(c), commonly known as the Bank Merger Act.

 ,0n December 20, 1960, the two Boards approved a written agreement of consolidation to be effected in accordance with the provisions of the national banking statutes, 12 U.S.C.A. § 215. On February 24, 1961 the Comptroller of the Currency approved the proposed merger. He did so despite the fact that in the reports submitted to the Comptroller by the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Attorney General, as was required by the Bank Merger Act, both the Attorney General and the Federal Reserve Board concluded that the merger would result in a substantial lessening of competition and a tendency toward monopoly, and the Federal Deposit Insurance Corporation concluded that the merger would be adverse as to Philadelphia and the immediate suburbs, but not adverse in the regional, national, and international fields of competition.

 The next day the Department of Justice filed the complaint in this action. On May 9, 1961, meetings of the shareholders of the two banks were held and the agreement of consolidation was approved. The trial of this case began on June 5, 1961, without a jury, and was concluded on August 3, 1961.

 PNB was chartered on October 20, 1864 under an Act of Congress of June 3, 1864. In 1926 it merged with Girard National Bank, and in 1928 it merged with Franklin-Fourth Street National Bank. Until 1951 PNB engaged in what has been termed a 'wholesale' banking business, at which time it was decided to enter the 'retail' banking and trust fields. Since 1951 PNB has acquired 9 additional banks. As of March 10, 1961, PNB conducted a general commercial banking business through 27 offices, 10 of which are located in Philadelphia County, 5 in Delaware County, 5 in Bucks County, and 7 in Montgomery County. As of June 30, 1960, PNB had total assets of $ 1,064,335,000, total deposits of $ 924,495,000, and total loans of $ 523,612,316 of which approximately 57% In dollar amount were in commercial and industrial loans.

 Girard was chartered as a state bank on March 17, 1836 by the Pennsylvania legislature. It was primarily engaged in the trust business and accompanying banking services until 1940 at which time efforts were begun to develop commercial business and consumer credit loans. Until 1950 Girard had only one office. In the past 10 years it has engaged in 6 mergers. Girard now conducts a general commercial banking business through 39 offices, of which 21 are located in Philadelphia, 12 in Delaware County, and 6 in Montgomery County. As of June 30, 1960 Girard had total net assets of $ 740,920,000, total net deposits of $ 650,790,000 and total net loans of $ 399,362,000, of which approximately 49% In dollar amount were in the commercial and industrial category.

 With this brief introduction it now becomes necessary, before discussing in detail the factual questions presented and the law applicable thereto, to decide two purely legal questions which have been raised, one relating to the Bank Merger Act, the other to the applicability of the Clayton Act to this action.

 Bank Merger Act of 1960.

 The defendants contend that the approval of the merger by the Comptroller of the Currency is the final and exclusive determination of its legality and that the Bank Merger Act of 1960 precludes a review of the proposed merger under the antitrust laws. 12 U.S.C.A. § 1828(c) reads in relevant part:

 'No insured bank shall merge or consolidate with any other insured bank or, either directly or indirectly, acquire the assets of, or assume liability to pay any deposits made in, any other insured bank without the prior written consent (i) of the Comptroller of the Currency if the acquiring, assuming, or resulting bank is to be a national bank or a District bank, * * *. In granting or withholding consent under this subsection, the Comptroller, * * * shall consider the financial history and condition of each of the banks involved, the adequacy of its capital structure, its future earnings prospects, the general character of its management, the convenience and needs of the community to be served, and whether or not its corporate powers are consistent with the purposes of this chapter. In the case of a merger, consolidation, acquisition of assets, or assumption of liabilities, the appropriate agency shall also take into consideration the effect of the transaction on competition (including any tendency toward monopoly), and shall not approve the transaction unless, after considering all of such factors, it finds the transaction to be in the public interest.'

 Defendants claim that the above statute makes it clear that it was the intent of Congress that the Comptroller test the validity of bank mergers by a public interest standard which is broader than and essentially different from an exclusively antitrust standard. Since Congress decided to apply antitrust policies to such mergers only to the limited and subordinate extent of being a single factor for consideration, it is argued, it must follow that the practical implementation of this congressional decision necessarily precludes an antitrust action to prevent a merger which has been approved by the executive agency charged with applying the public interest standard in determining whether approval should be given.

 In support of this argument, it is submitted that the legislative history of the Bank Merger Act (hereinafter referred to as the 'Act'), emphasizes the fact that the competitive factors are not to be controlling in the public interest determination to be made by the Comptroller. For example, at page 24 of the Senate Report, Senate Report No. 196, 86th Cong., 1st Sess. on S. 1062 (1959), the following statement appears:

 'Under S. 1062 the competitive factors involved in the merger are only one element of several to be considered in passing on the application. The committee wants to make crystal clear its intention that the various banking factors in any particular case may be held to outweigh the competitive factors, and that the competitive factors, however favorable or unfavorable, are not, in and of themselves, controlling on the decision.'

 And, in the House Report at pages 9 and 10, House Report No. 1416, 86th Cong.2d Sess., (1960), this statement appears:

 'Because banking is a licensed and strictly supervised industry that offers problems acutely different from other types of business, the bill vests the ultimate authority to pass on mergers in the Federal bank supervisory agencies, which have a thorough knowledge of the banks, their personnel, and their types of business.' ,U.S.Code Congressional and Administrative News 1960, p. 1995.

 It is true that one can find statements in the legislative history of the Act which, when read alone, indicate that Congress intended to preclude the application of the antitrust laws to bank mergers. It is most difficult, however, to accept defendants' contention when faced with unequivocal statements to the contrary in the reports of both the Senate and the House. This statement appears at page 9 of the House Report:

 And, at page 3 of the Senate Report:

 'S. 1062 would not affect in any way the applicability of the Sherman Act to bank mergers and consolidations.'

 These statements cannot possibly be reconciled with defendants' interpretation of the legislative intent of Congress.

 In support of their position, the defendants place a great deal of weight on the public interest, as opposed to the antitrust, standard written into the Act. Why, they ask, would Congress arm the Comptroller with such a comprehensive standard if it intended that the Department of Justice could supersede his determination by a mere showing of anticompetitive effects? This argument of the defendants, while persuasive, does not convince the Court that it should enunciate the rule of law requested that public interest is the controlling factor in any particular merger. There is no doubt that the public interest factor, while not controlling, does, in this type of antitrust litigation, play more than a casual or secondary role, particularly where it involves a highly regulated field. The Court cannot conclude that merely because a public interest standard was written in the statute as one of the factors to be considered, that a Court is rendered incompetent to review the action of the individual or department charged with the administration of the Act. Had Congress so intended, it certainly would have been specifically set out and in plain terms in the language of the statute. The Court does not find that intendment here.

 Defendants also press the argument on another ground as well. They say that Congress intended to exclude the antitrust laws because the Act contains no provision such as is found in Section 11 of the Bank Holding Company Act of 1956, 12 U.S.C.A. § 1841 et seq., which explicitly preserves the application of the antitrust laws to the subject matter of the statute. It is pointed out that Congressman Celler proposed specific language for such an amendment in the House hearings on the bill, but nevertheless it was not included in the amendment by the House of Senate 1062 as previously passed by the Senate. The following statement, however, clearly indicates that Congressman Celler did not consider that the antitrust laws would be excluded by the failure to insert such a provision:

 'While such a provision would not add to the bill from a substantive standpoint, it would avoid needless controversy and possible litigation involving the contention that the strictures of the Sherman and Clayton Acts had been nullified by the provisions of the pending bill.' Hearings before the Subcommittee No. 2 of the Committee on Banking and Currency, H.R., 86th Cong., 2d Sess. on S. 1062 (1960), pages 131 and 132.

 Moreover, the Court finds the antithetical argument proffered by the plaintiff equally, if not more persuasive, than that of the defendants. The Government argues that a creation of an exemption from the antitrust laws requires clear and explicit language in the exempting statute such as is found in Section 5(11) of the Interstate Commerce Act, 49 U.S.C.A. § 5(11).

 In light of this difference of opinion, the Court is constrained to return to the statements made in both the Senate and House reports concerning the applicability of the Clayton and Sherman Acts. It is the opinion of this Court that defendants have failed in their attempt to nullify the plain meaning ...

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