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UNITED STATES v. FIRST NATL. STATE BANCORPORATION

November 7, 1979

UNITED STATES OF AMERICA, Plaintiff,
v.
FIRST NATIONAL STATE BANCORPORATION, FIRST NATIONAL STATE BANK OF CENTRAL JERSEY and FIRST NATIONAL BANK OF SOUTH JERSEY, Defendants, and JOHN G. HEIMANN, Comptroller of the Currency, Intervenor.



The opinion of the court was delivered by: GERRY

This antitrust action was brought by the United States to enjoin a proposed merger of two New Jersey banks on the ground that such a merger would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18. The defendants, First National State Bancorporation ("Bancorp"), First National State Bank of Central Jersey ("Central"), and First National Bank of South Jersey ("South"), and the intervenor, the Comptroller of the Currency, have moved to lift the statutory stay of the merger which was automatically imposed by the Bank Merger Act of 1966 (the "Bank Merger Act"), 12 U.S.C. § 1828(c)(7)(A), upon the filing of this suit. At the close of oral argument heard on September 21, 1979, the court rendered its decision from the bench denying the motions to lift the stay. This opinion is intended to supplement the court's ruling.

BACKGROUND OF THE ACTION

 The acquiring bank, defendant Central, operates in Trenton, New Jersey and the surrounding area and is wholly owned by defendant Bancorp, a registered bank holding company. Bancorp controls six New Jersey banks, including Central, and ranks as the state's largest banking organization, holding approximately 8% Of the total commercial bank deposits in New Jersey. Bancorp's subsidiaries are located primarily in central and northern New Jersey.

 The bank to be acquired, defendant South, is the largest commercial bank in Atlantic County with over 46% Of the commercial bank deposits in that county. Only one of Bancorp's subsidiaries, First National State Bank of West Jersey ("West") operates in Atlantic County. It holds approximately 3% Of that county's bank deposits.

 As part of the merger agreement, South proposes to sell two Atlantic City offices and two Burlington County offices *fn1" to banks not presently located in the Atlantic City and Burlington County markets, *fn2" and Bancorp proposes to sell West's three Atlantic County offices, also to new market entrants. The purpose of these sales would be to maintain the number of competitors in this region of New Jersey after the merger and minimize the effect of the loss of competition between South and Bancorp.

 Pursuant to the Bank Merger Act, 12 U.S.C. § 1828(c), approval of the proposed merger between South and Central was sought of the Comptroller of the Currency. The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the United States Attorney General's office each submitted reports to the Comptroller of the Currency concluding that the proposed merger would have significant adverse effects on competition. Nevertheless, on May 8, 1979, the Comptroller approved the merger on condition that the four South offices and three West offices be sold as described above. This suit followed, automatically staying the merger under the Bank Merger Act.

 The complaint filed by the plaintiff seeks to enjoin the merger on the ground that it will (1) eliminate substantial direct and potential competition between South and Bancorp in the Atlantic County and other smaller commercial banking communities; (2) eliminate Bancorp as a potential competitive factor in these communities; and (3) significantly increase concentration of these already concentrated markets, all in violation of Section 7 of the Clayton Act.

 On September 7, 1979, the Comptroller of the Currency was granted leave by this court, pursuant to 12 U.S.C. § 1828(c)(7)(D), to intervene in the action.

 STATUTORY FRAMEWORK OF THE BANK MERGER ACT

 The statutory stay imposed by the commencement of any antitrust action arising out of a bank merger forms an integral part of a legislatively enacted procedure whose purpose is reflected in its title: "An act to establish a procedure for the review of proposed bank mergers so as to eliminate the necessity for the dissolution of merged banks." Act of February 21, 1966, P.L. No. 89-356, 80 Stat. 7 (1966).

 The legislative history which the parties have elaborated on at length confirms that the Bank Merger Act was designed to provide a means of reviewing the effects of bank mergers on competition prior to their consummation. Such prior review is intended to minimize those disruptions in the banking community which would occur if completed mergers were held to be unlawful under the antitrust laws, thereby necessitating a judicial decree of divestiture. *fn3"

 No merger may be approved where the effect "may be substantially to lessen competition," unless the responsible agency "finds that the anti-competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served." Id. § 1828(c)(5)(B). In this case, the proposed merger was approved by the Comptroller of the Currency, although the Attorney General and the two other banking agencies noted that it would have a significant negative impact on competition.

 The second step provides that if the merger is approved, its consummation is stayed for 30 days, during which time the Attorney General may file an antitrust suit to enjoin the merger. A trial De novo on the antitrust issues presented by the proposed merger is then held. The stay which is the subject of this motion is triggered upon the filing of such a suit. Id. § 1828(c)(7) (A).

 This two-step procedure is mandated in all but emergency circumstances where the responsible agency "has found that it must act immediately to prevent the probable failure of one of the banks involved." Id. § 1828(c)(6). *fn4"

 STANDARD FOR LIFTING THE STAY

 1. Frivolity of the Complaint

 The Bank Merger Act provides that the commencement of any action brought under the antitrust laws arising out of a merger between two federally insured banks "shall stay the effectiveness of the (reviewing) agency's approval unless the court shall otherwise specifically order." Id. § 1828(c)(7)(A). The statute is silent as to the grounds upon which a court should decide whether to lift the stay.

 While conceding that the burden of proving that a stay should be lifted is on the defendant, defendants and the intervenor contend that the standards to be applied by a court in deciding whether that burden has been met are no different than in a motion for a preliminary injunction in non-bank merger cases where the statutory stay does not apply. Thus, defendants argue, the court should look to irreparable injury absent the injunction, likelihood of success on the ...


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