ADMINISTRATIVE LAW BANKING AND FINANCE: BANK CHARTERS

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1 ADMINISTRATIVE LAW During the survey period, the Nebraska Supreme Court clarified Nebraska's policy in two areas of administrative law. In the case of Southwestern Bank & Trust Co. v. Department of Banking & Finance,' the court held that the language of the statute authorizing the department to charter banks required the department to compare applications to determine the better qualified, rather than to rely on a first to file rule. In Lincoln v. Nebraska Liquor Control Commission, 2 the court clarified its policy on the issuance of new licenses, and the relocation of existing licenses. The court held that the decision of the Liquor Control Commission which denied an applicant permission to relocate under his existing license did not preclude the applicant from seeking a new license. SOUTHWESTERN BANK & TRUST CO. v. DEPARTMENT OF INTRODUCTION BANKING AND FINANCE: BANK CHARTERS In considering applications for a bank charter, the public interest must prevail, 3 which includes a determination of how many banks a community can support. This rule was applied by the Nebraska Supreme Court in Southwestern Bank & Trust Co. v. Department of Banking & Finance.4 FACTS AND HOLDING In Southwestern Bank, the Southwestern Bank & Trust Co. filed an application for a bank charter with the Department of Banking and Finance. 5 American State Bank fied an application with the department two weeks later. The department denied the application of Southwestern and granted American's. Southwestern appealed to the district court both the order granting American's application and that denying Southwestern's application, but the district court affirmed the decision of the department awarding the charter to American Neb. 599, 294 N.W.2d 343 (1980) Neb. 630, 304 N.W.2d 922 (1981). 3. Furstenberg v. Omaha & Council Bluffs St. Ry. Co., 132 Neb. 562, 574, 272 N.W. 756, 762 (1937) Neb. 599, 294 N.W.2d 343 (1980). 5. Id. at 600, 294 N.W.2d at Id. Southwestern's appeal was taken pursuant to the procedures set forth

2 CREIGHTON LAW REVIEW [Vol. 15 Upon issuance of the final judgment of the district court, an aggrieved party may secure a review of that decision by appeal to the Nebraska Supreme Court. 7 The supreme court's review or an order made by an administrative agency is de novo on the record. 8 When there is substantial evidence to support the decision of the administrative agency, the reviewing court should not disturb the findings. 9 In Southwestern Bank, the supreme court reviewed the decisions of the district court and the department to determine whether the proper criteria had been applied and to determine if the evidence of record justified the department's ruling. 10 Southwestern contended that the department exceeded its authority when it conducted separate hearings on each party's application, compared the two applications, and selected American as the better qualified." The statutory authority granting the department administrative control over the issuance of commercial bank charters is found in the Nebraska Banking Act. 12 This statute provides that the department shall issue a charter if it is satisfied that the stockholders and officers of the corporation are parties of integrity and responsibility, and that the public necessity, convenience and advantage will be promoted by such issuance. 13 By incorporating the word "shall" into the statutes, it would seem that the legislature has made it mandatory that the department issue a charter when the applicant has complied with the statute. However, the court in Southwestern Bank held that the issuance of a in NEB. REV. STAT (1) (Reissue 1976). This section provides that any person aggrieved by a final decision of an administrative agency is entitled to judicial review. Id. The initial review is heard in the district court, without a jury, on the record of the agency. NEB. REV. STAT (5) (Reissue 1976). 7. NEB. REV. STAT (Reissue 1976). 8. Id. Although the standard of review on appeal to the supreme court is de novo on the record, the court held in The 20's, Inc. v. Nebraska Liquor Control Comm'n, 190 Neb. 761, 212 N.W.2d 344 (1973), that the supreme court will review the decision of the district court to determine whether it and the commission have applied the proper criteria set forth in NEB. REV. STAT (6) (Reissue 1976), and it is in this sense that it reviews de novo. 190 Neb. at , 212 N.W.2d at NEB. REV. STAT (6) (Reissue 1976) provides that the court may affirm or remand the decisions of the agency. The court may reverse, modify or vacate the decision if substantial rights of the petitioner have been prejudiced because the agency decision is: (a) in violation of a constitutional provision, (b) in excess of statutory authority, (c) made upon unlawful procedure, (d) an error of law, (e) unsupported by competent and substantial evidence, or (f) arbitrary and capricious. Id. 9. The 20's, Inc. v. Nebraska Liquor Control Comm'n, 190 Neb. at , 212 N.W.2d at Neb. at 601, 294 N.W.2d at Id. 12. NEB. REV. STAT (Reissue 1977). 13. Id.

3 1981] ADMINISTRATIVE LAW bank charter is within the discretion of the department. 14 BACKGROUND Southwestern asserted that the Banking Act mandates that a charter be granted by the department whenever the applicant who files first meets the statutory standards.' 5 There is no specific legislative provision which delineates the procedure to be followed when two applicants are filed at the same time. 16 However, there is a legislative requirement that the department take that action which best serves the interests of the public, specifically the promotion of the public necessity, convenience and advantage.' 7 In First National Bank of Bellevue v. Southroads Bank, 18 the Nebraska Supreme Court held that when it appears that an administrative agency has acted within its power and there is some competent evidence to sustain its findings as to public necessity, the order of the administrative agency will be affirmed. 19 Southwestern argued that the department's discretion is controlled by the decision in State ex rel. Woodridge v. Morehead. 20 In that case the bank board refused to issue a banking charter to an otherwise qualified applicant because it found that the economic conditions of the community where the applicant sought a charter did not require an additional bank. 2 1 The court held that the statute was mandatory and that once the applicant satisfied the statutory requirements the department had no discretion to withhold the charter. 22 However, the statute then in effect did not require the department to find that the public necessity, convenience, and advantage would be promoted by permitting an additional bank in the community. 23 The Nebraska Supreme Court held that the addition of these words to the present Banking Act made Southwest- 14. See note 47 and accompanying text infra Neb. at 602, 294 N.W.2d at Id. 17. NEB. REV. STAT (Reissue 1977) Neb. 748, 205 N.W.2d 346 (1973). 19. Id. at 751, 205 N.W.2d at 348; First Nat'l Bank & Trust Co. v. Ley, 182 Neb. 164, 167, 153 N.W.2d 743, 746 (1967) Neb. 864, 161 N.W. 569 (1917). If the Department of Banking and Finance, after holding a public hearing, found that an applicant for a charter had fully met and satisfied all of the statutory requirements, the department must issue a charter to such applicant. "If the legislature had intended to confer upon the banking board the jurisdiction to determine how many banks there should be in any locality, or whether there should not be any, it would have said so." Id. at 686, 161 N.W. at Id. 22. Id. 23. NEB. REV. STAT. 295 (1913). With the statutory addition of the public necessity requirement, it would seem that the first to file rule announced in Morehead

4 CREIGHTON LAW REVIEW [Vol. 15 ern Bank distinguishable from Morehead. 24 Southwestern Bank provided the first opportunity for the Nebraska Supreme Court to consider the first to file issue under the present Banking Act. 25 Other jurisdictions have addressed this question of whether priority should be given to a qualified applicant on the basis of first to file. 26 In Vose v. Banking Board, 27 the Oklahoma Supreme Court held that an application for a bank charter should be heard on its individual merits. 28 When two or more applications are pending simultaneously, the banking board may defer final action until the merits of each application are heard, as opposed to following a strict first to file rule. 29 In Stafford State Bank v. Schaub, 30 the New Jersey Superior Court stated that the public interest must be the predominant consideration of the banking board in considering bank charter applications. 31 The court held that by following the first to file rule, the commission allowed no comparative evaluation, and therefore its decision was not in the best interest of the public. 32 However, the Kansas Supreme Court has ruled that if several applications of equal qualification were presented at the same time, the charter board would be correct in granting the charter to the first application filed. 33 The Nebraska Supreme Court, in interpreting the Banking Act, ruled that the existence of public necessity and convenience vests the department with the discretion to consider two appliwould not always be in the best public interest. See notes and accompanying text infra. 24. Southwestern Bank & Trust Co. v. Department of Banking & Fin., 206 Neb. at 603, 294 N.W.2d at Id. at 604, 294 N.W.2d at See notes and accompanying text infra P.2d 731 (Okla. 1971). 28. Id. at Id. The Oklahoma Supreme Court again had an opportunity to review the decisions of the banking board in Brown v. Banking Boards, 579 P.2d 1267 (Okla. 1978). The court stated that the granting of a bank charter application when mutually exclusive applications are pending is a legislative matter and the court does not have the power to independently substitute its judgment for that of the banking board. Id. at The court concluded, "We do not, at this time, adopt [the] 'first to file' rule as the law of this jurisdiction." Id. at N.J. Super. 145, 362 A.2d 1209 (1976). 31. Id. at -, 362 A.2d at Id. at -, 362 A.2d at Schaake v. Dolley, 85 Kan. 598, 616, 118 P. 80, 87 (1911). The case is not clear as to exactly what type of a determination the charter board made but apparently it had couched its findings categorizing the applications as being equally deserving or of equal merit. Id. Such is not the case in Southwestern Bank, where the department had clearly made a finding that the applications were not of equal merit. 206 Neb. at 606, 294 N.W.2d at 346.

5 1981] ADMINISTRATIVE LAW cants concurrently, and to determine which would best serve the public interest. 34 The court supported its conclusion by stating that the adoption of a first to file rule would unduly restrict the department's authority. 35 By allowing comparison the department is able to determine which applicant is best suited to fulfill the banking needs of a community and is therefore in the best public interest. 36 ANALYSIS Since the Banking Act makes no reference to any discretionary authority of the department to weigh applications against each other, 37 and the language of the statute is couched in mandatory terms, 38 one could argue, as Southwestern did, that the statute mandates that every application for a commercial bank charter is to be determined on its individual merits, and must be granted if the statutory criteria has been met. However, the inclusion of the public necessity clause has left the department discretion to determine whether the needs of a community would best be served by chartering an additional bank. If the department decides that a community's interest would best be served by allowing an additional bank, the department should also have the power to determine which bank would best serve the needs of this particular community. 39 The concept of priority importing a right to preferential treatment is antithetical to the statutory command that the public interest be the predominant consideration. To the extent that it forecloses the department from deciding which of several competing banks, all meeting statutory criteria, would best serve a particular community, 40 such an approach is inconsistent with the purpose behind the Banking Act. 34. Southwestern Bank & Trust Co. v. Department of Banking & Fin., 206 Neb. at , 294 N.W.2d at Id. at 602, 294 N.W.2d at Id. at , 294 N.W.2d at NEB. REV. STAT (Reissue 1977). 38. Id. The statute requires that the department shall issue a charter if the applicant meets the statutory criteria. The term "shall" is mandatory, particularly when the statute is addressed to public officials, as is NEB. REV. STAT (Reissue 1977). Smith v. Nebraska Liquor Control Comm'n, 152 Neb. 676, 679, 42 N.W.2d 297, 299 (1950). 39. For example, if the community was of small size and could support the addition of only one bank, the public interest would be defeated by following a first to fie rule which would not necessarily provide this community with the best available bank. 40. Stafford State Bank v. Schaub, 143 N.J. Super. at -, 362 A.2d at 1216.

6 CREIGHTON LAW REVIEW [Vol. 15 CONCLUSION The Nebraska Supreme Court has adopted the better rule. By allowing the department the discretion to determine which of two applicants would provide more viable competition to existing banks, the court has adopted a system which will afford the greatest latitude within which the department may protect the public interest. This will allow the department to approve the charter of the best applicant for the area while at the same time minimize the problems which would be encountered in the absence of any priority system. By making the public interest the predominant consideration, the needs of a particular community along with all legislative requirements are met. CITY OF LINCOLN v. NEBRASKA LIQUOR CONTROL COMMISSION: RELOCATION OF LIQUOR LICENSES The Nebraska Liquor Control Commission is vested with complete discretion over the issuance of liquor licenses; however, it may not act arbitrarily, unreasonably, or capriciously in rendering its decision. 41 When the commission relies upon recommendations of a local governing body to support its refusal to grant a liquor license, it is required to furnish evidence supporting the local body's decision in the record of its proceedings. 42 If this evidence lacks sufficient clarity, or if the commission fails to adduce any evidence in support of the local governing body's decision, it has failed to satisfy its burden of proof. 4 3 When the burden of proof is not met, action taken on such record is held to be unreasonable and arbitrary, and therefore an abuse of the commission's discretion." 41. Joe & Al's IGA, Inc. v. Nebraska Liquor Control Comm'n, 203 Neb. 176, 180, 277 N.W.2d 693, 696 (1979); Hadlock v. Nebraska Liquor Control Comm'n, 193 Neb. 721, 727, 228 N.W.2d 887, 891 (1975). 42. Brannen v. Nebraska Liquor Control Comm'n, 206 Neb. 662, 665, 294 N.W.2d 376, 378 (1980). 43. Id. 'When the commission fails to satisfy its burden of proof it is not entitled, on appeal of its decision, to another opportunity to satisfy that deficiency. Id. 44. J K & J, Inc. v. Nebraska Liquor Control Comm'n, 194 Neb. 413, 419, 231 N.W.2d 694, 698 (1975). The appeal procedure for an abuse of discretion by the commission is contained in NEB. REv. STAT. 53-1,116 (Reissue 1978). Any party to the proceedings may, within 20 days after service of any rule, order, or decision by the commission, apply for a rehearing in respect to any matters determined by the commission. Id. at 53-1,116(3). If a rehearing is denied or an appeal of the case is sought, a notice of intention to appeal must be filed with the commission within 20 days after the mailing of the commission's final decision to each party of the record. Id. at 53-1,116(5). Within 30 days of such mailing a petition must be filed in the district court. Id. If a motion for a rehearing has been filed, the time for filing the

7 1981] ADMINISTRATIVE LAW The power to regulate all phases of the manufacturing, distribution, sale and traffic of alcoholic liquors is vested exclusively in the commission 45 courts are therefore denied authority to interfere unless there is an abuse of discretion by the commission. 46 This is a necessary result of the separation of legislative and judicial functions of the state governmental system. In reviewing decisions of the commission the courts may not exercise independent judgment on fact and policy, but must give deference to the decisions made by the commission if the same are based upon evidence in the record. 47 Liquor license appeals are heard and tried de novo in the district court in the manner provided for the trial of suits in equity. 48 In addition to the commission's record of proceedings, the district court is allowed to hear additional testimony. 49 Additional information may be introduced to determine whether the commission's ruling was unreasonable or arbitrary. 50 Any decision of the commission to grant or deny a liquor license may be reversed, vacated, or modified by the district court. 51 Review by the supreme court of the district court's decision is limited to determining whether the findings of the commission are supported by the evidence, and whether the district court followed the proper statutory provisions. 52 During the survey period, the Nebraska Supreme Court in Lincoln v. Nebraska Liquor Control Commission 53 (Lincoln II) clarified its policy on the new issuance, transfer, and relocation of a liquor license. In Lincoln II, the court refined the distinction between the relocation of a license 5 4 and the issuance of a new license. 55 The Nebraska code provides that once a liquor license has been granted for a particular location, the commission may authorpetition and the notice of intention to appeal begins with the date of the mailing of the notice that a rehearing has been denied. Id. 45. NEB. REV. STAT (Reissue 1978). But see notes and accompanying text supra. 46. Lincoln v. Nebraska Liquor Control Comm'n, 208 Neb. 630, 635, 304 N.W.2d 922, 925 (1981); Allen v. Nebraska Liquor Control Comm'n, 179 Neb. 767, 769, 140 N.W.2d 413, 415 (1966) nd St. Pizza Inc. v. Nebraska Liquor Control Comm'n, 199 Neb. 729, , 261 N.W.2d 614, 618 (1978). 48. NEB. REV. STAT. 53-1,116(8) (Reissue 1978). 49. Id. 50. Id. 51. NEB. REV. STAT. 53-1,116(5) (Reissue 1978). 52. The 20's, Inc. v. Nebraska Liquor Control Comm'n, 190 Neb. 761, , 212 N.W.2d 344, 347 (1973) Neb. 630, 304 N.W.2d 922 (1981). 54. See NEB. REV. STAT (Reissue 1978). 55. See NEB. REV. STAT (Reissue 1978).

8 CREIGHTON LAW REVIEW [Vol. 15 ize the licensee to transfer the license to a new location only with the approval of the local governing body. 5 6 The section governing the issuance of new liquor licenses states that any person desiring a new license must file an application with the commission. 5 7 This section also specifies the procedure to be followed by the commission in reviewing these applications. 5 8 In Lincoln 1I, the commission received an application for a license filed on behalf of Stransky and Brummer, doing business as the Pop Shoppe and Beer Stop. 59 The city argued that when Stransky and Brummer applied for a liquor license, it was really a transfer of an existing license held by one Darrell Standard. Standard obtained this license when Stransky transferred to him a license he had owned for approximately forty-two years. According to the arrangement, if Standard could not find a new location for the license, Stransky would take the license back if permissible. 60 The district court held that the commission did not abuse its authority when it issued a retail off-sale beer license to the Pop Shoppe and Beer Stop. 61 On appeal the city maintained that the application was not for a new license but rather a transfer of a license previously held, and that the license could not be relocated without the approval of the local governing body. 62 In this case the local governing body, the City of Lincoln, denied the approval for such a transfer. 63 The court solved this dispute by looking to the Liquor Control Act. In determining the legislative purpose behind the relocation section, 64 the court relied on the interpretation set forth in Lincoln v. Nebraska Control Commission.65 In that 1967 decision the court concluded that the general intent of the legislature under the Liquor Control Act was to grant to the Nebraska Liquor Control Commission the power to make all decisions concerning liquor 56. NEB. REV. STAT (Reissue 1978). See notes and accompanying text infra. The license may be relocated only if the new location complies in all respects with the requirements of Chapter 53 of the Nebraska Statutes. Id. 57. NEB. REV. STAT (Reissue 1978). 58. Id Neb. at 631, 304 N.W.2d at 923. The application was filed pursuant to NEB. REV. STAT (Reissue 1978). 60. At the time of this suit, Standard was still seeking a new location for the license, and Stransky and Brummer were seeking a new license for their business. Brief for Appellant at 12-13, Lincoln v. Nebraska Liquor Control Comm'n, 208 Neb. 630, 304 N.W.2d 922 (1981) Neb. at 631, 304 N.W.2d at Id. 63. Id. at 632, 304 N.W.2d at NEB. REV. STAT (Reissue 1978) Neb. 277, 147 N.W.2d 803 (1967).

9 19811 ADMINISTRATIVE LAW licenses. 66 The purpose of the relocation section, however, was to furnish a short procedure for a change of location of the business premises of a liquor licensee when neither the commission nor the municipality objected. 67 In support of its conclusion that a short procedure was intended under the relocation section, the court noted the lack of a provision requiring notice or a hearing in this section, 68 the absence of a provision for an appeal, 69 and the general purpose of the Liquor Control Act to grant to the commission discretion in all other cases. 70 A liquor license is issued to a named licensee for a specified location. 7 ' If a licensee desires to relocate its license, it must do so by making an application to the local governing body. 72 In Lincoln II, the court focused on the concept that the relocation of a license from its issued premises to a new premises is dependent upon the approval of the local governing body. 73 If the local authority disapproves, the license may not be relocated. 74 However, the court stressed that such disapproval under the relocation section does not preclude the applicant from seeking a new license. 75 In seeking a new license the recommendations of the local governing body are only advisory and the commission may issue a license even if the local governing body objects Id. at 283, 147 N.W.2d at Id. at 284, 147 N.W.2d at NEB. REV. STAT (Reissue 1978). 69. NEB. REV. STAT. 53-1,115 (Reissue 1978) provides for an appeal to the commission from any order or action of the local authority revoking or refusing to revoke a license under NEB. REV. STAT (Reissue 1978). NEB. REV. STAT. 53-1,116(5) (Reissue 1978) provides that any decision of the commission granting or refusing to revoke a license for the sale of alcholic liquors including beer may be modified, vacated or reversed by the district court. In neither section is an appeal provided from an order granting or refusing relocation as provided in NEB. REV. STAT (Reissue 1978). When no notice or hearing is required the general appeal provisions under NEB. REV. STAT to -917 is inapplicable. 70. Lincoln v. Nebraska Liquor Control Comm'n, 181 Neb. at 284, 147 N.W.2d at Lincoln v. Nebraska Liquor Control Comm'n, 208 Neb. at 632, 304 N.W.2d 924. A liquor license may not be used by any entity other than that to whom it has been issued, nor may the license be used in any other premises except that which is specified in the license. Id. 72. NEB. REV. STAT (Reissue 1978) Neb. at 62, 304 N.W.2d at Id. 75. Id. at 633, 304 N.W.2d at 924. The court reaffirmed its holding in Lincoln v. Nebraska Liquor Control Comm'n, 181 Neb. at 284, 147 N.W.2d at 808, that if the licensee to whom the license has been issued previously could not obtain the approval of the local authority to transfer, it could nevertheless make an application to the commission for a new license under the provisions of NEB. REV. STAT (Reissue 1978). Id Neb. at 633, 304 N.W.2d at 924. All recommendations made by the local

10 CREIGHTON LAW REVIEW [Vol. 15 If those applicants who were denied a relocation were barred from seeking a new license, it would seem that the local governing body would have complete control over such applicants. 77 This position is contrary to the Liquor Control Act which vests exclusive control over the issuance of new liquor licenses in the commission. 78 This position must fail since the Nebraska statutes only allow the local governing body to regulate the business of beer licensees if such regulations are contained in a properly executed city ordinance. 79 Therefore the district court was correct in holding the application filed as one for a new license and not that of a relocation, and was correct in holding the commission did not abuse its discretion in granting the liquor license. 80 The Nebraska Supreme Court in Lincoln II also clarified the meaning of the word "transfer." The court stated: "The simple fact of the matter is that there is no statutory authority under Nebraska law to 'transfer' a liquor license." 81 A liquor license is a purely personal privilege, 8 2 it does not constitute property and vests no property rights in a licensee which can be transferred. 83 Therefore, the only "transfer" ever involved with a liquor license is really a relocation 84 of the license by the existing licensee. The supreme court reached the correct result in this case. If an applicant is denied permissible to relocate its liquor license and also is unable to seek a new license for a permit, then that applicant is placed in a worse position than if he had never been issued a license in the first place. Also, such an interpretation of the statutes would give the city an absolute veto over liquor licenses that was not intended by the legislature. Finally, the city is not prejudiced by this interpretation. It may still air its objections to the issuance of a new license before the commission when the application comes up for a hearing. Appelauthority concerning denial or issuance of new liquor licenses are advisory. See NEB. REV. STAT (Reissue 1978). 77. Lincoln v. Nebraska Liquor Control Comm'n, 181 Neb. at 283, 147 N.W.2d at NEB. REV. STAT (Reissue 1978) Neb. at , 147 N.W.2d at 806; NEB. REV. STAT (Reissue 1978). 80. Lincoln v. Nebraska Liquor Control Comm'n, 208 Neb. at 632, 304 N.W.2d at Id. at 633, 304 N.W.2d at NEB. REV. STAT (Reissue 1978) Neb. at 633, 304 N.W.2d at 924; NEB. REV. STAT (Reissue 1978). 84. See NEB. REV. STAT (Reissue 1978).

11 1981] ADMINISTRATIVE LAW 137 late review is available in the district court and the supreme court for any abuse of discretion by the commission. Charlane J. Plucheck-'83