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Pennsylvania Bankers Association v. Pennsylvania Dep't of Banking

IN THE SUPREME COURT OF PENNSYLVANIA MIDDLE DISTRICT


December 17, 2008

PENNSYLVANIA BANKERS ASSOCIATION, ADAMS COUNTY NATIONAL BANK, COMMUNITY BANKS, PENNSYLVANIA ASSOCIATION OF COMMUNITY BANKERS, AND STERLING FINANCIAL CORPORATION,
v.
PENNSYLVANIA DEPARTMENT OF BANKING, BELCO COMMUNITY CREDIT UNION, PENNSYLVANIA DEPARTMENT OF REVENUE, ATTORNEY GENERAL,
APPEAL OF: PENNSYLVANIA DEPARTMENT OF BANKING
PENNSYLVANIA BANKERS ASSOCIATION, ADAMS COUNTY NATIONAL BANK, COMMUNITY BANKS, PENNSYLVANIA ASSOCIATION OF COMMUNITY BANKERS, AND STERLING FINANCIAL CORPORATION,
v.
PENNSYLVANIA DEPARTMENT OF BANKING, BELCO COMMUNITY CREDIT UNION, PENNSYLVANIA DEPARTMENT OF REVENUE, ATTORNEY GENERAL,
APPEAL OF: BELCO COMMUNITY CREDIT UNION AND PENNSYLVANIA CREDIT UNION ASSOCIATION

Appeal from the Order of the Commonwealth Court at 397 M.D. 2005, dated November 13, 2006, vacating and remanding the decision of the Department of Banking, dated July 8, 2005 910 A.2d 767

The opinion of the court was delivered by: Mr. Justice Baer

CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY JJ.

ARGUED: April 16, 2008

OPINION

We granted allowance of appeal in this matter to clarify the procedure by which the Pennsylvania Department of Banking ("the Department") evaluates a credit union's proposal to amend its membership structure from one premised on commonality of interests to one based on geographic proximity under the Pennsylvania Credit Union Code ("Credit Union Code"), 17 Pa.C.S. §§ 101-1504. First, we consider whether the Department's regulation at 10 Pa. Code § 3.6 (henceforth, "the mandatory hearing regulation"), which provides that protesting persons "shall be given a hearing," obligates the Department to hold evidentiary hearings whenever a person files a protest challenging a credit union's membership proposal.*fn1 Second, we examine whether the Commonwealth Court erred in concluding that Section 302 of the Department of Banking Code, 71 P.S. § 733-302 (henceforth, "the non-disclosure provision") is unconstitutional to the extent that it prevents protestors from obtaining discovery concerning a credit union's submission with the Department.*fn2 After careful review of the relevant regulatory and statutory provisions, we hold that the mandatory hearing regulation is inapplicable to the case before us, and that the Commonwealth Court erred in declaring the non-disclosure provision unconstitutional. Accordingly, we reverse the decision of the Commonwealth Court, and remand for further proceedings consistent with this opinion.

To provide context for our analysis, we begin with a brief discussion of how credit unions are organized under the Credit Union Code. Until recently, membership in Pennsylvania's credit unions was limited to groups sharing common bonds of association, such as shared occupations. These common bonds were set forth in each credit union's charter.*fn3 Effective February 2003, however, the Pennsylvania General Assembly amended the Credit Union Code by adding 17 Pa.C.S. § 501(e) (henceforth, "the federal parity provision"), which authorizes credit unions to amend their field of membership as provided under § 109 of the Federal Credit Union Act, 12 U.S.C. § 1759.*fn4 Section 109, in turn, provides credit unions with the option of organizing their membership either by common bonds of association or, alternatively, by well-defined local communities or districts.

The matter sub judice arose when Belco Community Credit Union ("Belco") proposed to amend its charter from an occupation-based credit union to one based on allegedly well-defined local communities, with membership consisting of persons who live, work, worship, volunteer, or attend school in the Counties of Adams, Cumberland, Dauphin, Lancaster, Lebanon, Perry, and York. Although unclear, the record suggests that Belco tentatively notified the Department of its proposal in early 2005. Shortly thereafter, notices of Belco's proposal were published in various legal journals and newspapers inviting interested persons to file comments by May 12, 2005. The Department then considered these comments in deciding whether to approve Belco's proposal. Secretary's Order, 7/8/2005 at 1-2.

On May 26, 2005, Belco filed a formal "notice" of its proposal with the Department,*fn5 after which the Department re-published Belco's proposal in the Pennsylvania Bulletin. The Pennsylvania Bankers Association, the Pennsylvania Business Bank, Fulton Bank, and Premier Bank ("Appellees" or "the Banks") responded by filing a Notice of Protest on June 20, 2005. In their protest, which the Banks asserted was being filed under 10 Pa. Code § 3.5,*fn6 the Banks made general objections claiming that, if the Department approved Belco's proposal, it would effectively permit a credit union, which is exempt from most taxation, to compete unfairly with commercial banks, which are fully subject to taxation, to the detriment of the Banks, consumers, and state government.*fn7 *fn8 Relevant to our analysis, the Banks also made a request seeking to reserve the right to "petition the Department for an evidentiary hearing" if "necessary and appropriate." Notice of Protest at 7; and also sought access to the Department's "hearing file" so that they could at least prepare meaningful comments based on the information contained therein.*fn9 In this regard, the Banks alleged that they were entitled to inspect the hearing file pursuant to 10 Pa. Code § 3.4(b) (henceforth, "the hearing file regulation"), which allegedly requires the Department to provide access to such file upon the request of a protesting person.

In a letter dated June 22, 2005, the Deputy Secretary informed the Banks that the Department was unable to accommodate their requests. First, with respect to whether the Banks were entitled to a hearing, the Deputy Secretary explained the Department's position that the decision of whether to hold a hearing is a matter of agency discretion under § 503(A.2) of the Credit Union Code, 17 Pa.C.S. § 503(A.2), and that the Department was exercising its discretion by choosing not to hold a hearing in this instance.*fn10 Second, with respect to the hearing file, the Deputy Secretary indicated that the Department did not have such a file*fn11 and that the non-disclosure provision would prohibit the Department from disclosing this information in any event. See supra note 2. Finally, the Deputy Secretary stated that the Department would accept the Banks' protest as a timely-filed comment, and that the agency would consider any additional comments filed by the Banks within the 30-day review period provided under 17 Pa.C.S. § 501(g) (henceforth, "the deemed approval provision").*fn12

On July 1, 2005, the Banks purported to file an administrative "appeal" to the Secretary of Banking raising two claims. First, the Banks challenged the Deputy Secretary's conclusion that the Department had the discretion to not conduct hearings under section 503(A.2) of the Credit Union Code, 17 Pa.C.S. § 503(A.2), noting that the mandatory hearing regulation expressly states that protesting persons "shall be given a hearing." See 10 Pa. Code § 3.6, supra note 1. Second, the Banks claimed that the hearing file regulation required the Department to maintain a hearing file and permit protestors such as themselves to inspect it upon written request. Finally, the Banks also included a request for a stay of further proceedings pending their appeal.

On July 8, 2005, the Secretary issued a responsive decision denying the Banks relief on all claims. The Secretary first opined that it was unclear whether the Deputy Secretary's June 22, 2005 letter, noted above, was an appealable decision. Secretary's Order at 4-5. The Secretary therefore declined to reach the substance of the Banks' claims, and instead, directed them to file a legal memorandum in support of their right to appeal. Id. at 8. Regarding the Banks' request for a stay, the Secretary stated that he was denying relief because the Banks failed to provide legal authority or otherwise develop their argument regarding their entitlement to a stay. Id. at 4-7. Finally, the Secretary commented that the Department had only 30 days to review a credit union's proposal under the deemed approval provision, 17 Pa.C.S. § 501(g), and therefore, the Department's authority to deny Belco's conversion had expired. The Secretary opined that, given the unambiguous 30-day statutory review period provided in the deemed approval provision, protestors seeking a stay must be diligent and develop meaningful arguments to demonstrate how their interests are at risk prior to the expiration of the 30-day period. The Secretary found that the Banks' argument was deficient because it consisted of general claims of unfair competition, and did not provide any specific assertions describing the Bank's direct interest in Belco's conversion.*fn13

Two weeks later, the Department published notice in the Pennsylvania Bulletin that Belco's proposal was deemed approved. The Banks then filed a Petition for Review in the Commonwealth Court, wherein they continued to argue that the mandatory hearing regulation and the hearing file regulation entitled them to an evidentiary hearing and to discovery of the hearing file, respectively. In addition, the Banks supplemented these arguments by asserting that: a) section 504 of the Administrative Agency law was an alternative basis that would require the Department to conduct a hearing, see supra note 10, and b) that the non-disclosure provision violated due process insofar as it prevented them from obtaining discovery of the hearing file.*fn14 In response, the Department and Belco argued that the regulations at 10 Pa. Code Ch. 3 (henceforth, "Chapter 3"), which include both the mandatory hearing regulation and the hearing file regulation at-issue in this case, were wholly inapplicable to credit unions.*fn15

In a published decision, a three-judge panel of the Commonwealth Court vacated the deemed approval of Belco's proposal, remanded to the Department for an evidentiary hearing, and directed the Department to make the hearing file available to the Banks. Pa. Bankers Ass'n v. Pa. Dep't of Banking, 910 A.2d 767 (Pa. Cmwlth. 2006).*fn16 The court began its analysis by addressing the scope of Chapter 3, and observed that it applies where an entity supervised or regulated by the Department files an "application." 10 Pa. Code § 3.2(a). The court then noted that the word "application" is defined as a "proposal to charter or license an institution." 10 Pa. Code § 3.1. Applying a "plain reading" of these definitions, the court reasoned that, because Belco was an entity regulated by the Department*fn17 that was proposing to charter itself as a community-based credit union, Chapter 3 applied. As noted earlier, because the mandatory hearing regulation and the hearing file regulation are encompassed within Chapter 3, the Commonwealth Court further concluded that the Department was required under these regulations to: 1) conduct a hearing,*fn18 and 2) provide the Banks with access to the hearing file, respectively.

Following its analysis of the applicability of Chapter 3, the Commonwealth Court went on to address the Banks' constitutional argument that the non-disclosure provision violated their due process rights insofar as it prevented them from obtaining access to the hearing file. The court began its discussion of this issue by noting our precedent in Conestoga National Bank of Lancaster v. Patterson, 275 A.2d 6 (Pa. 1971), a case in which two banks protested a competing bank's application to establish a new branch. Similar to the Banks in this case, the protesting banks in Conestoga requested an evidentiary hearing and discovery of the bank's branch application. Ultimately, the Department denied these requests and approved the competing bank's proposal to establish a new branch.

On appeal to this Court, the protesting banks in Conestoga, 275 A.2d at 8, argued that they were deprived of due process by the refusal of the Department to permit either an evidentiary hearing or access to the contents of the competing bank's application for a new branch. In addressing this argument, we observed that due process applies in an administrative context where, inter alia, an agency's action would directly affect a person's interests. Id. at 9-10. We then determined that a commercial bank has a direct interest in a new bank's application for a new branch. Id. at 10. Accordingly, we held that the protesting banks in Conestoga were entitled to a full panoply of procedural rights as a matter of due process, including, inter alia, the right to a hearing and to discovery of the competing bank's application. Id. at 11. Relevant to the instant matter, in a footnote, we also addressed whether the non-disclosure provision would prohibit discovery of the competing bank's application. Id. at 11 n.8. In concluding that it did not bar discovery, we observed that the non-disclosure provision included an exception, which permitted disclosure when made pursuant to "any other law of this Commonwealth."*fn19

In the instant matter, the Commonwealth Court determined that the facts of Conestoga were materially analogous to the facts of this case. As such, the court held that, in addition to the requirements imposed by the mandatory hearing regulation and the hearing file regulation, the Department was likewise obligated under due process to hold evidentiary hearings and provide protesting persons, such as the Banks, with access to the hearing file. Importantly, the court also noted that the current version of the non-disclosure provision did not have the exception, "any other law of this Commonwealth," that was included in the version of the provision that applied in Conestoga. See supra note 19. The court concluded that, insofar as the current version of the non-disclosure provision conflicted with the requirements of due process and Conestoga, it was unconstitutional.

Subsequently, Belco and the Department filed petitions for allowance of appeal with this Court, which we granted, limited to the following two questions:

Whether the plain language of the Credit Union Code and the Department of Banking Code demonstrates the General Assembly's intent to exclude credit unions and their amendments of their field of membership from being subject to the mandatory hearing [regulation] of 10 Pa. Code Chapter 3?

Whether the Commonwealth Court erred in declaring [the non-disclosure provision] unconstitutional to the extent that it prohibits protestors from inspecting hearing files where the court failed to apply the proper standard of review and elevated the importance of a regulation (10 Pa. Code § 3.4) over that of the statute at issue? Pennsylvania Bankers Association v. Pennsylvania Department of Banking, 922 A.2d 876 (Pa. 2007) (per curiam).*fn20

Preliminarily, we note that both of the issues for which we granted allowance of appeal implicate Chapter 3 of the Pennsylvania Code, as it contains both the mandatory hearing regulation and the hearing file regulation. Consequently, we begin our discussion by examining the parties' arguments, respective to whether the Banks are entitled to a hearing and discovery of the hearing file pursuant to the regulations at Chapter 3.

I. Chapter 3

As we briefly noted earlier, the Department and Belco take the position that Chapter 3 is inapplicable to the situation before us in this case because credit unions are not "institutions," and therefore, it follows that they cannot file an "application" under Chapter 3. See 10 Pa. Code § 3.2(b) (stating that Chapter 3 applies to "applications"); 10 Pa. Code § 3.1 (defining an application as a proposal to license or charter an "institution"). While they acknowledge that "institution" is not expressly defined in Chapter 3, they claim that words not defined under the regulations are to assume the meanings provided in the Department of Banking Code or the Banking Code.*fn21 See 10 Pa. Code § 1.1(b) ("terms not otherwise defined in this title have the meanings specified in the Banking Code or the Department of Banking Code [7 P.S. § 101 - 71 P.S. §§ 733-1]."). Turning to these statutes, the Department and Belco observe that the Department of Banking Code defines an institution as a "corporation or a person ... or other type of business entity ... which is subject to the supervision of the department. The term does not include credit unions ... unless specifically stated otherwise." 71 P.S. § 733-2(A) (emphasis added). Similarly, they note that the Banking Code defines an institution as an "incorporated institution," which, in turn, is defined as "a bank, a bank and trust company, a trust company or a savings bank" but not a credit union. 7 P.S. § 102. Because credit unions are not "institutions" under either of these statutes, the Department and Belco conclude that Chapter 3 does not apply.

The Department and Belco also argue that, notwithstanding whether credit unions qualify as "institutions," the history of Chapter 3 reveals that it was only intended to apply to specific categories of proceedings, none of which are implicated here. In this regard, they observe that, when the regulations were proposed in the Pennsylvania Bulletin in 1972, the preface explained that the regulations were intended to apply only to "specified classes of proceedings, including applications for licenses, charters, branches, mergers, consolidations and office relocations." 2 Pa. B. 2266. The Department and Belco also note that the limited scope of Chapter 3 was mirrored in the language of the regulations, which specified that the provisions set forth the procedure by which the Department could inquire into applications to "charter or license new institutions, to establish branches, to merge or consolidate ... or to relocate offices ...." Id. Because the instant dispute does not involve any of the enumerated classes mentioned above, but instead, involves an amendment to a charter of an existing credit union, the Department and Belco conclude that this case falls outside the intended scope of Chapter 3, on this basis as well.

In contrast, the Banks respond that the Department has consistently treated Belco's proposal as an "application" throughout the litigation of this case, noting for example, that the Department referred to Belco's proposal as an "application" in the Pennsylvania Bulletin, in the Deputy Secretary's letter, and in its order deeming Belco's conversion approved. Banks' Brief at 22. The Banks also reject the Department's and Belco's claim that we should adopt the definition of "institution" contained in the Department of Banking Code. In this regard, they note that some provisions of the statute include credit unions in the definition of "institution," while others do not. Compare, 71 P.S. § 733-2(A) ("[Institution] does not include credit unions or licensees unless specifically stated otherwise.") with, 71 P.S. § 733-303 ("For purposes of this section, "institution" shall include a licensee or credit union."). Given this alleged inconsistency, the Banks conclude that it would be "irrational" and "arbitrary" to select one definition of institution over another. Banks' Brief at 23.

Upon consideration of the foregoing arguments, and after careful review of the relevant regulations and statutes, we are persuaded that Chapter 3 is inapplicable to this case based on the plain language of the regulations. See Schappell v. Motorists Mut. Ins. Co., 934 A.2d 1184, 1186 (Pa. 2007) ("In interpreting an administrative regulation, as in interpreting a statute, the plain language of the regulation is paramount.").

As fully detailed by the Department and Belco supra at 12-13, Chapter 3 does not specifically define the term "institution." Instead, the Department's regulations include a provision stating that terms not defined therein "have the meanings specified in the Banking Code or the Department of Banking Code ...." 10 Pa. Code § 1.1(b). As correctly noted by the Department and Belco, the Department of Banking Code defines the term "institution" as, inter alia, a corporation, person, or mutual holding company, but not "credit unions ... unless specifically stated otherwise." 71 P.S. § 733-2(A) (emphasis added). The Banking Code also excludes credit unions from the definition of "institution" by defining the term as an "incorporated institution," which, in turn, is defined as "a bank, a bank and trust company, a trust company or a savings bank" and not as a credit union. 7 P.S. § 102. Thus, under either of these definitions, a credit union does not qualify as an "institution" within the meaning of the Department's regulations. It therefore follows that, because a credit union is not an institution, a credit union cannot file an "application," see 10 Pa. Code § 3.1, thereby removing the case before us from the scope of Chapter 3. See 10 Pa. Code § 3.2(a) (stating that the regulations contained in Chapter 3 apply to "applications").

We find little merit to the Banks' claim that the Department considered Belco's proposal to be an "application" throughout the litigation. In our view, it is immaterial whether the Department referred to Belco's proposal as a generic "application" in its verbiage, as there is no evidence that the Department was using the specific definition of the term "application" encompassed in Chapter 3. Moreover, we likewise disagree with the Banks that it would be "irrational" or "arbitrary" to adopt the definition of institution excluding credit unions in the Department of Banking Code. While the Banks are correct that there are instances in the statute where credit unions are deemed institutions, the general definitions provision applicable to the entire statute, 71 P.S. § 733-2(A), clearly states that institutions do not include credit unions "unless specifically stated otherwise." As such, any alleged inconsistency in the statute in defining the term "institution" to include credit unions can be explained by this exception. We thus fail to see how it would be "irrational" or "arbitrary" to apply the definition excluding credit unions.

Having determined that Chapter 3 does not apply, it therefore follows that the mandatory hearing regulation and the hearing file regulation contained therein cannot provide the legal basis for affording the Banks relief. Nevertheless, this does not end our inquiry. As discussed previously, the Banks also claim that there are alternative bases supporting their right to a hearing and to discovery of Belco's proposal.*fn22 We now turn our analysis to these other arguments.

II. Section 504

In addition to the regulations provided under Chapter 3, the parties likewise dispute whether the Banks are entitled to a hearing pursuant to Section 504 of the Administrative Agency Law, 2 Pa.C.S. § 504. As before, the Department and Belco take the position that § 503(A.2) of the Credit Union Code, 17 Pa.C.S. § 503(A.2), controls this matter, and provides the Department with the sole discretion to decide whether to hold a hearing in a given matter. They note, for example, that § 503(A.2) is phrased using permissive language by using the word "may" instead of the mandatory word, "shall," which they claim indicates the legislature's intent to give the agency the option, rather than the obligation, to conduct hearings. In their view, by concluding that the Department was required to hold a hearing, the Commonwealth Court erroneously constrained the Department's statutorily granted discretion.

The Banks respond that the Credit Union Code does not give the Department carte blanche to grant or deny a request for a hearing. While they concede that 17 Pa.C.S. § 503(A.2) is phrased using permissive language, they also emphasize that it includes the qualifier, "subject to the provisions of 2 Pa.C.S. [Ch.] 5 Subch. A." See supra note 10. The Banks note that the provisions at 2 Pa.C.S. [Ch.] 5 Subch. A. refer to the Administrative Agency Law, which includes 2 Pa.C.S. § 504. Section 504, in turn, states, "no adjudication ... shall be valid as to any party unless he shall have been afforded reasonable notice of a hearing and an opportunity to be heard ...." Id. Finally, the Banks note that a "party" is defined as a person with a direct interest in the proceeding. 2 Pa.C.S. § 101. Because the Banks claim they are parties with a direct interest in Belco's membership conversion, they conclude that the Department was required to hold a hearing.

Applying a plain reading of the aforementioned statutory provisions, the Banks make a colorable claim that under §§ 101 and 504 of the Administrative Agency Law, a person with a direct interest in a proceeding is a "party," and a "party" is entitled under § 504 to notice of a hearing and some type of forum in which to be heard. Nevertheless, for the reasons discussed herein, we need not reach this issue because the Banks did not properly raise this theory before the Department.

As noted earlier in our analysis, notice of Belco's proposal to convert its membership was provided on at least two separate occasions in 2005. The first set of notices, which was published in various newspapers and legal journals after Belco tentatively notified the Department of its proposal, invited interested persons to file comments by May 12, 2005. Subsequently, on May 26, 2005, Belco formally filed "notice" of its proposal with the Department. This notice commenced the 30-day approval period provided in the deemed approval provision, 17 Pa.C.S. § 501(g), and prompted the Department to publish a second notification in the Pennsylvania Bulletin. Reading these notices in their totality, we believe it was sufficiently clear that any person interested in Belco's conversion needed to file some type of comment, protest, or other document with the Department within the 30-day period. In this case, we are satisfied that the Banks complied with this procedure by filing a timely Notice of Protest on June 20, 2005.

That the Banks' Notice of Protest was timely, however, does not end our analysis. In this regard, we observe that the Banks' protest contained a crucial flaw in that it was filed pursuant to the Department's regulations at Chapter 3, which, as we have already determined, are inapplicable to this matter. Moreover, we note that the relief the Banks requested under Chapter 3 was access to the hearing file so they could prepare meaningful comments, and a reservation of right to petition for a hearing "if necessary and appropriate." Notice of Protest at 7. It is evident that the Banks never actually requested a hearing, nor did they include any suggestion in their protest that the Administrative Agency Law at 2 Pa. Code Ch. 5 applied. Notably, the protest did not even mention 2 Pa.C.S. § 504, as a basis for a hearing.

Consistent with these observations, after the Banks filed their Notice of Protest, they were informed by the Deputy Secretary that their protest was deficient, and that the mandatory hearing regulation under Chapter 3 was inapplicable. Nevertheless, in filing an administrative appeal from the Deputy Secretary's decision, the Banks requested a stay of the Department's proceedings, again relying solely on the regulations of Chapter 3, and again failing to assert any rights in accord with 2 Pa. Code Ch. 5. In response, the Secretary issued a decision denying the Banks' request for a stay, finding that the Banks waived any right thereto by failing to provide sufficient detail in their pleading. The Banks then filed an appeal to the Commonwealth Court. It was only during this third attempt at perfecting their claims that the Banks finally raised, for the first time, their alleged entitlement to a hearing pursuant to 2 Pa. Code § 504.

It is well settled that issues raised for the first time on appeal are waived. See Lincoln Phila. Realty Assocs. I v. Bd. of Revision of Taxes, 758 A.2d 1178, 1187 (Pa. 2000) ("By requiring that an issue be considered waived if raised for the first time on appeal, we ensure that the trial court or agency that initially rules on such matters has had an opportunity to consider the issue."); Wing v. Commonwealth, Unemployment Compensation Review Bd., 436 A.2d 179, 181 (1981) (indicating that an administrative law tribunal, like a trial court, must be given the opportunity to correct its errors as early as possible). As our foregoing discussion illustrates, it is apparent that the Banks did not raise their entitlement to a hearing in their Notice of Protest, nor did they suggest that they were entitled to a hearing under the Administrative Agency Law. We therefore conclude that the Banks waived their putative right to a hearing under 2 Pa. Code § 504.

III. Due Process

Finally, the parties dispute whether the Banks have a right to a hearing and to discovery of Belco's proposal, as a matter of fundamental due process pursuant to our precedent in Conestoga. As noted earlier, Conestoga, 275 A.2d 6, involved a protest filed by two commercial banks that were challenging a competing bank's application to establish a new branch. In determining whether the protesting banks were entitled to a hearing and to access to the competing bank's application, we observed that protesting commercial banks had a direct interest in a competing commercial bank's application for a new branch, and thus, had standing to file a challenge with the Department.*fn23 Given this conclusion, we held that the protesting banks were entitled to a due process evidentiary hearing and, incident thereto, to access to the application and supporting data of the competing bank. Id. at 11.

In this case, we need not reach whether the Banks are entitled, as a matter of due process, to an evidentiary hearing, and incident thereto, to discovery under Conestoga. It is without question that the right to a due process hearing, like most constitutional rights, can be waived. See, e.g., Bedford Downs Mgmt. Corp. v. State Harness Racing Comm'n Valley View Downs, 926 A.2d 908, 923 (Pa. 2007) (per curiam) (finding a due process argument waived when it was not raised before the administrative agency); In re Cicchetti, 743 A.2d 431, 443 n.1 (Pa. 2000) (acknowledging that a due process claim can be waived for failure to raise it in a timely fashion); In re Martorano, 346 A.2d 22, 27 (Pa. 1975) (finding a plaintiff's due process claim waived because it was raised for the first time on appeal). In the instant case, as noted in our preceding analysis of § 504, the Banks waived any right to a due process hearing when they failed to establish a direct interest in the controversy, and, consequently their standing as a party with a right to litigate the underlying issue. Again, the Bank's waiver arises from their failure to do no more than request the Department's "hearing file," and articulating a reservation of a right to petition the Department for a hearing, solely in accord with Chapter 3, "if necessary and appropriate." Notice of Protest at 7. As these averments are clearly inadequate to demonstrate a direct interest - and hence, standing - to challenge Belco's proposal, our precedent in Conestoga, holding that a party has a right to a hearing and consequential discovery, is not implicated herein.

IV. The Non-Disclosure Provision

As we observed earlier in this opinion, the Commonwealth Court determined that the non-disclosure provision, 71 P.S. § 733-302, which prohibits Department employees from, inter alia, divulging any documents in its custody or disclosing any information contained in papers sent to the Department, was unconstitutional insofar as it precluded the Banks from obtaining discovery of the hearing file. The Commonwealth Court's decision in this regard was premised upon its conclusion that discovery was required both under the hearing file regulation contained in Chapter 3, and pursuant to Conestoga. Given our conclusions herein that the Banks are not entitled to a hearing or to discovery pursuant to Chapter 3, and that Conestoga is inapplicable because of the Banks failure to establish standing, we hold that the Commonwealth Court erred in declaring the non-disclosure provision unconstitutional.

V. Conclusion

In summary, we conclude that the regulatory provisions encompassed within Chapter 3, including the mandatory hearing regulation and the hearing file regulation, do not apply in this case. As these regulations do not apply, it follows that they cannot serve as the basis for entitling the Banks to a hearing or to discovery concerning Belco's proposal. Moreover, while we acknowledge that the Banks may have been entitled to a hearing pursuant to § 504 of the Administrative Agency Law, 2 Pa.C.S. § 504, we hold that this claim is waived given the Banks' failure to raise this issue before the Department. For similar reasons, because the Banks failed to assert adequately a direct interest in Belco's proposal and thereby failed to establish standing, our precedent in Conestoga is inapplicable to this matter, and therefore, the Banks are not entitled as a matter of due process to a hearing or to discovery. Finally, as the Banks are not entitled to discovery, the Commonwealth Court erred in declaring the non-disclosure provision unconstitutional. The decision of the Commonwealth Court is therefore reversed, and this matter is remanded to that court to address the Banks' remaining constitutional challenge to the non-disclosure provision.*fn24 *fn25

Mr. Justice Eakin, Madame Justice Todd and Mr. Justice McCaffery join the opinion. Mr. Justice Saylor files a concurring and dissenting opinion in which Mr. Chief Justice Castille joins.

CONCURRING AND DISSENTING OPINION

MR. JUSTICE SAYLOR

In light of the limited grant of allocatur, peripheral issues are not directly available for consideration at this juncture. Nevertheless, the following background adds perspective to my evaluation of the issues before the Court:

The Department of Banking is the administrative agency charged with the implementation of both the Banking and Credit Union Codes.

The Department was presented with a colorable challenge to a notice of a credit union seeking to convert from an occupational-based credit union and expand its field of membership to a seven-county area, which notice was grounded on the notion that such large geographic area constituted a single "well-defined local community, neighborhood, or rural district." 12 U.S.C. §1759(b)(3), incorporated into 17 Pa.C.S. §501(e)(2). Cf. American Bankers Ass'n v. NCUA, , No. 1:05-CV-2247, slip op., 2008 WL 2857678, at *10 (M.D. Pa. July 21, 2008) ("To a casual observer familiar with central Pennsylvania, it would likely be a remarkable finding that . . . a geographical area of more than 3,000 square miles with a population of over 1.1 million people and encompassing Harrisburg, Hershey, Carlisle, York, Lebanon, Gettysburg, and Shippensburg -- constituted a 'well-defined local community'").

The challenge was asserted by other financial institutions (banks) alleging, among other things, that an unlawful expansion of the field of membership would result in unfair competition, particularly on account of tax advantages enjoyed by credit unions which are not shared by banks.

Despite the Department's enforcement obligations and the colorable challenge asserted, the Department refused to provide the challengers with even rudimentary information offered in support of the charter conversion, did not conduct any proceedings, and did not issue a decision of any sort.

Rather, the agency permitted the conversion approval to occur by default.

Thus, no Commonwealth administrative agency or court has ever passed on whether or not the seven counties involved fairly represent a well-defined local community.

In my view, the interests of justice would be better served if an agency faced with a colorable challenge of the sort presented by the Banks would respond with a reasoned and developed decision, thus providing interested parties and the public with some assurance of actual statutory compliance in areas of the agency's regulatory province.

In terms of the limited issues for review, initially, I have no difference with the majority's decision to accept the Department's interpretation of its own regulations, namely, that Chapter 3 of those regulations is not applicable to proceedings on credit union charters. Nevertheless, I differ with the majority's approach to the extent it faults the Banks for invoking Chapter 3. See Majority Opinion, slip op. at 18. At the very least, I believe the terms of Chapter 3 are ambiguous as to their application in proceedings initiated by credit unions. Furthermore, the alternative, default set of procedural regulations, the General Rules of Administrative Practice and Procedure, 1 Pa. Code, Chapter II, are well known to Commonwealth administrative agencies and promote a practice of liberal construction to secure just, speedy, and inexpensive determination of issues presented to agencies. 1 Pa. Code §31.2. Accordingly, I see no reason not to simply sanction the approach of treating the Banks' protest as such under the default regulations. See 1 Pa. Code §35.23 ("A person objecting to the approval of an application, petition, motion or other matter which is, or will be, under consideration by an agency may file a protest."). The majority's approach also seems to me to be in substantial tension with the Department's actual treatment of the Banks' protest as constituting at least a timely-filed comment, as well as with the Department's concession that, "[i]n the event a substantial and direct property interest is supported in comments that would warrant further due process, the constitution would demand it." Brief for the Department at 34.*fn26 Finally, as it appears that the Department has referenced the Chapter 3 regulations as the core procedural framework in its treatment of past credit-union submissions, see, e.g., 33 Pa. B. 6233 (Dec. 20, 2003); 34 Pa. B. 1806 (Apr. 3, 2004), it seems inequitable for the Banks to be prejudiced here for relying on such procedure.

The majority also faults the Banks for failing to request a hearing. See Majority Opinion, slip op. at 19-20. In their notice of protest, however, the Banks sought production of Belco's conversion notice and related documents and asked to reserve its entitlement to petition for a hearing upon review of such materials. They explained:

The Protestors will be unable to effectively prepare and submit comments or testimony to the Department regarding the Application filed by the Belco Community Credit Union until the Protestors are afforded a reasonable opportunity to review, copy and analyze portions of the Application and any related materials available in the hearing file other than material that is confidential and not relevant to the interests of the Protestors.

R.R. at 9a. Pursuant to this Court's decisions, an individual or entity with a due process interest in a charter proceeding is entitled to review application materials in furtherance of a protest. See Conestoga Nat'l Bank v. Patterson, 442 Pa. 289, 299 & n.8, 275 A.2d 6, 11 & n.8 (1971).*fn27 Thus, I do not regard it as a misstep for the Banks to have reserved the entitlement to a hearing pending review of integrally essential, requested documents. Rather, I believe that the overarching, dispositive question should always have been whether the Banks' protest raised a sufficient interest related to Belco's notice to implicate an entitlement to a review of the documents and a hearing.

On this issue of interest,*fn28 the Banks argue that their protest

adequately pleaded the Banks' interest in Belco's notice as their right to be free from direct competition in a manner not authorized by law and which could result in a loss of customers to their direct and substantial detriment; their interest in preserving consumer confidence in the banking system which is vital to their economic stability; and their interest in being free from a discriminatory system of taxation which confers tax exemptions upon Belco in a manner not authorized by law.

Brief for Appellees at 33. The Banks note that, in its Conestoga decision, this Court held that banks located within a community have standing to challenge branch applications filed by other banks located in the same community. See Conestoga, 442 Pa. at 296-97, 275 A.2d at 10 (explaining that "a decision on an application for a branch bank is judicial in nature and involves substantial property rights."); cf. Delaware County Nat'l Bank v. Campbell, 378 Pa. 311, 326, 106 A.2d 416, 423 (1954) (holding that a national bank had standing to protest the application of a state bank for a new branch). The Banks observe that a predominate concern arising out of both the Conestoga and Delaware County National Bank cases was for the health of the overall financial system, in which many types of financial institutions are participants. See, e.g., Delaware County Nat'l Bank, 378 Pa. at 324-25, 106 A.2d at 422 (discussing, with reference to the country's experience with bank "runs" during the Great Depression, the impact of the failure of one or more financial institutions upon the financial community at large). Indeed, the Banks emphasize that Conestoga, in particular, couched the salient interests broadly, confirming the entitlement of banks to remain competitive with all other types of financial institutions regulated by the Department, as follows:

[W]e believe that it is clear beyond question that substantial property rights are involved in the Banking Department's adjudication here. Those rights include not only the rights of the applicant and the protesting bank but also the rights of the surrounding financial community. As has been noted before, the banking system is unique in that the failure of one of several competing financial institutions frequently leads not to the enhancement of the relative position of the surviving competitors but to the possible adverse effect to all.

Conestoga, 442 Pa. at 298, 275 A.2d at 11 (emphasis added).

To the degree that this Court would depart from the broader concerns expressed in Conestoga and accept the counter-position of Belco and the Department that standing requires participation in a common regulatory scheme, the Banks contend that the various statutory codes governing financial institutions, in tandem with the Administrative Code, create such a common scheme for regulation, which obligates the Department to ensure the safety and soundness of all financial institutions and protect their competitiveness. For example, the Banks develop that, under both Section 103(a)(v) of the Banking Code and Section 103(a)(5) of the Savings Association Code of 1967, it is the duty of the Department to provide for "[t]he opportunity" for institutions subject to the Banking Code and associations subject to the Savings Association Code "to remain competitive with each other" and "with financial organizations existing under other laws of this Commonwealth." 7 P.S. §§103(a)(v), 6020-3(a)(5).*fn29 Finally, the Banks note that the United States Supreme Court highlighted the role played by restrictions upon the membership of credit unions in holding that commercial banks had standing, under federal jurisprudence, to challenge field-of-membership expansion. See NCUA v. First Nat'l Bank & Trust Co., 522 U.S. 479, 493-94, 118 S. Ct. 927, 935-36 (1998) ("As competitors of federal credit unions, respondents certainly have an interest in limiting the markets that federal credit unions can serve, and the NCUA's interpretation [of a statutory field-of-membership restriction] has affected that interest by allowing federal credit unions to increase their customer base.").

The Department and Belco, on the other hand, distinguish Conestoga as pertaining only to adverse financial organizations (there, competing banks) governed under the same regulatory scheme. Accord Pennsylvania Bankers Ass'n v. Pennsylvania Dep't of Banking, 893 A.2d 864, 871 (Pa. Cmwlth. 2006), rev'd on other grounds, ___ Pa. ___, 956 A.2d 956 (Pa. 2008); see also Pennsylvania Petroleum Ass'n v. PP&L Co., 32 Pa. Cmwlth. 19, 26, 377 A.2d 1270, 1273 (1977) (reasoning that, where a party alleges competitive injury, "such parties have standing only where the alleged competition is prohibited by a regulatory scheme in which both parties participate"), aff'd on different grounds, 488 Pa. 308, 412 A.2d 522 (1980). According to the Department, in the regulatory context, the concept of unfair competition can have meaning only within a unique regulatory environment. Both the Department and Belco express the concern, also advanced by the Commonwealth Court in Pennsylvania Bankers Association, that if Conestoga is read broadly, "banks would have automatic standing in proceedings involving all financial organizations, including credit unions, insurance companies, securities firms, check cashing businesses, any concern offering financing." Pennsylvania Bankers Ass'n, 893 A.2d at 871. Like the Commonwealth Court, the Department and Belco perceive this as an unreasonable result. See id.

The Department asserts that, particularly measured against the interests involved in the present case, a requirement of participation in a common regulatory scheme is sensible. In this regard, the Department develops competitive disadvantages of the credit union model, including the fact that such organizations cannot raise capital from investment markets or experience market appreciation since they do not have capital stock, and thus, credit-union capital grows very slowly out of many years of accumulating retained earnings. According to the Department, given the above, the limited size of credit unions, and the different system for insurance, it is highly unlikely that credit union failures would have significant impact on banks. Moreover, the Department concludes, there is no historical or other basis for determining that there is a unique relationship between credit unions and banks to support a finding of a substantial property interest. See Brief for the Department at 26 (arguing that "a claim based on competition is disingenuous given highly competitive financial marketplace and the numerous banks in the same market territory. The unrestricted ability of banks to operate in any geographic area without limitation under the law, unlike credit unions, renders their claims hollow."). In response to the Banks' arguments relying on the tax status of credit unions, the Department asserts that "the tax status of an entity is a legally insufficient reason to find unfair competition." Brief for the Department at 28 (citing Commonwealth v. Lukens, 312 Pa. 220, 167 A. 167 (1933); City of Pittsburgh v. Alco Parking Corp., 417 U.S. 369, 94 S. Ct. 2291 (1974)).

Additionally, it is the Department's position that, under the Credit Union Code, it lacks the authority to restrain field-of-membership expansion, except when the safety and soundness of the credit union involved is at issue. Brief for the Department at 30 (citing 17 Pa.C.S. §501(f)(3)). The Department further expresses the position that protracted proceedings at the behest of competitor banks would harm the interests of credit unions by injecting unnecessary delay into charter conversion proceedings. In this regard, the Department also relates its concern that the process would be subject to abuse, particularly since credit unions have no reciprocal ability to lodge field-of-membership challenges relative to other financial organizations. The Department also points to the General Assembly's intent to allow state credit unions to engage in activities on par with their federal counterparts upon notice, just as banks may operate on par with federal banks under notice-based parity provisions in the Banking Code. See 7 P.S. §201(c)(i). In this regard, the Department indicated that it does not wish to "circumvent the General Assembly by acting within the thirty-day period simply to deny the credit union its rights to exercise the statutory provision for a deemed approval" of parity-related charter conversions. Brief for the Department at 30. Finally, the Department contends that all the process which was due was provided via public notice and opportunity for comment.

Preliminarily, I differ substantially with the Department's approach to the deemed approval of the charter conversion. Given the public interest in reasoned governmental decision making, where governmental approval is a prerequisite to some action, I believe agencies should expressly accord substantive review when faced with a colorable challenge to the action asserted by an individual or entity having a direct interest.*fn30 In my view, approval by default despite a challenge such as that asserted by the Banks undermines the appearance of fundamental fairness. While I am sympathetic to the Department's concern with avoiding potential abuses of the review process, I do not agree that the solution to such difficulties is the affordance of no substantive review. Cf. Pennsylvania Coal Mining Ass'n v. Dep't of Insurance, 471 Pa. 437, 451, 370 A.2d 685, 692 (1977) (explaining that an agency's deemed approval of a private entity's proposal does not negate the due process rights of persons with direct interests in the proceedings).

Additionally, contrary to the Department's position, I believe that the agency possesses clear statutory authority to regulate parity-driven, field-of-membership expansion beyond the mere assurance of safety and soundness to the affected credit union. Indeed, the Credit Union Code's express authorization of the imposition of "conditions, limitations, and restrictions" on credit union activities includes a specific cross-reference to the parity-related provisions of the Credit Union Code. 17 Pa.C.S. §501(f)(2) (cross-referencing 17 Pa.C.S. §501(e)). Thus, it seems clear that the Department should enforce parity-related restrictions, including the maintenance of boundaries for community-based credit unions established by a well-defined local community. See 17 Pa.C.S. §501(e). It is far from clear, however, particularly without adversarial testing, that expansion to a seven-county area in South Central Pennsylvania meets that requirement. Cf. American Bankers Ass'n, No. 1:05-CV-2247, slip op., 2008 WL 2857678, at *10. Indeed, in American Bankers Association, the district court expressed substantial concern with the underpinnings of a federal administrative agency's decision that a six-county area in South Central Pennsylvania comprised a single well-defined local community.*fn31

I also disagree with the Department's and Belco's approach to the Conestoga decision. The broader language of the decision, see Conestoga, 442 Pa. at 298, 275 A.2d at 11 (indicating that substantial property rights at issue with regard to bank branch expansion "include not only the rights of the applicant and the protesting bank but also the rights of the surrounding financial community"), seems well justified, when considering that, in today's complex financial marketplace, competition occurs across the boundaries of multiple regulatory schemes. As the United States Supreme Court recognized in First National Bank, financial organizations may suffer direct harm, in the form of a loss of customers, due to the actions of credit unions and other competing financial organizations, and thus, maintain an acute interest in ensuring that competitors abide by statutory provisions limiting the markets that they can serve. See First Nat'l Bank., 522 U.S. at 488 n.4, 492-93, 118 S. Ct. at 933 n.4, 935. While the specific holding in all cases should be read against their facts, I agree with the Banks that the broader concerns expressed in Conestoga to be valid and pertinent here.*fn32

Notably, the arguments of both the Department and Belco generally address separately the field-of-membership restrictions and the tax advantages enjoyed by credit unions. A fair response to the Banks' argument, however, entails consideration of these factors in tandem. The Banks are not challenging the tax advantages enjoyed by credit unions as such; rather, they are asserting that the competitive advantage of credit unions, due to their tax-exempt status, is unfairly enhanced by an unlawfully expansive approach to credit union field of membership.*fn33 The interest of the Banks seems even more apparent if the statutory field-of-membership restrictions are viewed, as they are by some, as, at least in part, a quid-pro-quo for the tax advantages enjoyed by credit unions.

In view of the above, I differ with the majority's holding that the Banks waived any entitlement to due process protections. The majority reasons that the Banks did not establish a direct interest in the controversy, since they did nothing more than request the Department's hearing file and offer a reservation of a right to request a hearing. See Majority Opinion, slip op. at 21. As developed above, I believe that the Banks' protest and associated arguments, in fact, did substantially more.*fn34

As to the production of documents, as previously noted, the Department concedes that at least some reasonable disclosure is required if the Banks are deemed to have a sufficient interest to implicate due process norms. Having concluded that such interest is present, I would remand to the Department to determine, in the first instance, the scope of the materials to be provided and the conditions for their disclosure. At this juncture, I would merely note that the Department has acknowledged that much of the information supplied by Belco was not proprietary in nature. See Brief for the Department at 32 ("In field of membership cases, the documents at issue consist of rather benign compilation of geographic, demographic, social, commercial and governmental information from public sources and a discussion by the credit union as to why those facts support a finding of a community exists for purposes of a credit union field of membership.").

Mr. Chief Justice Castille joins this concurring and dissenting opinion.


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