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Pennsylvania Bankers Association v. Pennsylvania Dep't of Banking

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 ...


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