Norwest Bank MN v. Sween Corporation , 118 F.3d 1255 ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
Nos. 96-1844 and 96-1874
___________
Norwest Bank Minnesota, *
National Association, *
*
Appellee/Cross- *
Appellant, *
*
v. * Appeals from the United States
* District Court for the District
Sween Corporation; Maurice A. * of
Sween; Keith B. Brekke, * Minnesota.
*
Appellants/Cross- *
Appellees, *
*
Office of the Comptroller of the *
Currency, *
Amicus Curiae.
___________
Submitted: February 12, 1997
Filed: July 8, 1997
___________
Before FAGG, HEANEY, and JOHN R. GIBSON, Circuit Judges.
___________
JOHN R. GIBSON, Circuit Judge.
Norwest brought this action against Sween Corporation, Maurice Sween,
and Keith Brekke, seeking a declaratory judgment that its Corporate Finance
Division's
business is incidental to its banking business, and that therefore Sween
Corporation breached its agreement with Norwest by failing to pay it the
advisory fee due under an agreement between Norwest Corporate Finance and
Sween Corporation. Norwest asked the court to award it the advisory fee
and attorneys' fees and expenses incurred in the action. Sometime after
filing the complaint, Norwest dismissed Sween Corporation and Brekke
voluntarily, but left Maurice Sween as a defendant. On cross- motions for
summary judgment the district court ruled in favor of Norwest. Sween
1
appeals, arguing that the agreement is unenforceable because Norwest's
actions under the agreement were not incidental to the business of banking,
and that Norwest's acts were beyond its powers because it did not obtain
prior approval from the Board of Governors of the Federal Reserve System
to enter into the agreement. Even if the agreement is enforceable, Sween
argues that the district court incorrectly computed the advisory fee owed
to Norwest, and that the agreement's terms do not obligate Sween to pay
Norwest's legal fees in this action. Norwest cross-appeals arguing that
it is entitled to prejudgment interest on the award granted by the district
court. We remand to the district court for the award of prejudgment
interest to Norwest, and affirm the district court's judgment in all other
respects.
Sween Corporation is a Minnesota corporation that develops and
manufactures skin care products for the medical market. Norwest is a
national bank established in Minneapolis, Minnesota pursuant to the
National Bank Act as amended. Norwest provides investment advisory
services related to mergers and acquisitions through a division of Norwest
referred to as Norwest Corporate Finance. This division is not a separate
legal entity. The common stock of Norwest is owned by Norwest Corporation,
a bank holding company governed by the Bank Holding Company Act as
1
Sween Corporation and Brekke also appeal. Because of their earlier dismissal,
however, they do not have standing to appeal on any issue except for their dismissal,
from which they do not appeal.
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amended.2 Jeffrey Maas, Peter Slocum, and D. Christian Osborne worked for
Norwest in the Norwest Corporate Finance Division when Norwest Corporate
Finance3 and Sween entered into the Engagement Agreement at issue. None
of these three employees has ever been licensed as a Minnesota broker.
An Engagement Agreement between Sween Corporation, Sween, Brekke, and
Norwest dated October 10, 1994, authorized Norwest to act as the exclusive
advisor to initiate negotiations regarding the sale of all or part of Sween
Corporation. Under the terms of the Engagement Agreement, upon the sale of
Sween Corporation, Sween Corporation agreed to pay Norwest an advisory fee.
Immediately after October 10, 1994, Norwest prepared and circulated
to prospective buyers an extensive brochure promoting Sween Corporation.
Norwest contacted in excess of 135 potential buyers. By December 1994,
Sween Corporation agreed to narrow the list to four prospective buyers.
These buyers brought teams to Mankato for a week in December to meet with
representatives of both Sween Corporation and Norwest for the purpose of
investigating and evaluating Sween Corporation. Two top ranking executives
of Coloplast A/S, one of the potential buyers, met with Sween personnel.
After these meetings, Maas was the go-between to the prospective
buyers and sellers. On December 18, 1994, a representative of Coloplast
called Maas and said that
2
The common stock of Norwest Bank is owned by Norwest Corporation,
Lindeberg Financial Corporation, and Norwest Holding Company. The common stock
of Lindeberg Financial Corporation and Norwest Holding Company, however, are
owned by Norwest Corporation. Therefore, Norwest Corporation, either directly or
indirectly, owns all of the common stock of Norwest Bank.
3
Because Norwest Corporate Finance is simply a division of Norwest, and not
a separate legal entity, we will refer to Norwest Corporate Finance as Norwest
throughout the rest of this opinion.
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Coloplast was prepared to execute a letter of intent to purchase Sween
Corporation for $80,000,000. Sween, Brekke, and David Hackley, an
attorney representing Sween Corporation, met with a representative of
Coloplast to discuss the purchase. Maas also attended the meeting and
advised Sween. As a result of this meeting Coloplast entered into a letter
of intent in which it agreed to purchase, at its option, either all the
assets or all the shares of Sween Corporation on February 28, 1995. The
purchase obligation was contingent upon a satisfactory due diligence
examination of Sween Corporation, to be followed by the execution of a
comprehensive purchase agreement.
During a two-day meeting representatives of Sween Corporation and
Coloplast negotiated the terms of the stock purchase agreement. During the
first day, Hackley and Douglas Hemer represented Sween Corporation. On one
or more occasions, Maas and Sween attended the meetings and participated
in negotiations. At the conclusion of this process, Sween Corporation and
Coloplast reached a stock purchase agreement. Attorneys represented Sween
Corporation at all times through the negotiations leading to the stock
purchase agreement. Norwest did not draft or prepare any part of the stock
purchase agreement. On February 28, 1995, Sween Corporation transferred
all of its shares to Coloplast's Georgia subsidiary. Norwest fully
performed its obligations under the Engagement Agreement, but Sween
Corporation refused to pay the advisory fee due to Norwest under the
Agreement.
Norwest brought this action before the district court seeking a
declaratory judgment that its acts under the Engagement Agreement were
incidental to its banking business, and that therefore it was not required
to have a Minnesota real estate broker's license to maintain an action to
collect the advisory fee. Norwest claimed that Sween had breached the
Engagement Agreement by failing to pay the advisory fee and asked the court
to award the fee, as well as attorneys' fees and expenses in connection
with enforcing the Engagement Agreement.
The district court granted summary judgment to Norwest concluding
that the acts
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engaged in by Norwest under the Engagement Agreement were incidental to the
business of banking, and that therefore Norwest and Norwest Corporate
Finance's employees were exempt from the Minnesota broker license
requirement. See Norwest Bank Minn., Nat'l Ass'n v. Sween Corp., 916 F.
Supp. 1494, 1510-11 (D. Minn. 1996). The court also concluded that Norwest
was not required to obtain prior approval from the Federal Reserve before
entering into the Engagement Agreement. Id. at 1507-08. The court ordered
Sween to pay Norwest $2,741,707 in fees due under the Engagement Agreement,
and also held Sween liable for Norwest's attorneys' fees in connection with
this suit. Id. at 1508-11.
I.
A.
The primary issue before us is whether Sween is obligated to pay
Norwest the fee that he promised to pay under the Engagement Agreement.
Sween argues that Minnesota law prohibits Norwest from collecting the fee.
In formulating his argument, Sween first contends that Norwest is a broker
under Minnesota law,4 which Norwest does not dispute. Sween next points
to a Minnesota statute that prohibits a person required to be licensed from
bringing a suit for collection of compensation for the performance of acts
for which a license is required, without proving that the person was
licensed properly at the time the alleged action occurred. Minn. Stat. §
82.33, subd. 1 (1996). Sween argues that because neither Norwest Corporate
Finance, nor its employees, were licensed as brokers under Minnesota law
at the time the parties acted under the Engagement Agreement, Norwest
cannot bring this suit to collect the
4
A broker is "any person who . . . for another and for commission, fee, or other
valuable consideration or with the intention or expectation of receiving the same
directly or indirectly lists, sells, exchanges, buys, rents, manages, offers or attempts to
negotiate a sale . . . of any business opportunity or business, or its goodwill, inventory,
or fixtures, or any interest therein." Minn. Stat. § 82.17, subd. 4(c) (1996).
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advisory fee.
Norwest responds by first pointing to Minnesota Statute section
82.18(e), that exempts various entities, including banks, from the term
"broker" when engaged in the transaction of business within the scope of
their corporate powers as provided by law. Norwest then asserts that
pursuant to the National Bank Act, as a national bank, it had federal
authority to enter into the Engagement Agreement and to fulfill its duties
under that agreement. See 12 U.S.C. § 24(Seventh) (1994). Sween responds
that Norwest's acts went beyond the authority provided to Norwest under the
Act. We review a grant of summary judgment de novo. See McKee v. Federal
Kemper Life Assurance Co., 927 F.2d 326, 328 (8th Cir. 1991). We will
affirm only if there is no genuine issue of material fact and the moving
party is entitled to judgment as a matter of law. See Fed. R. Civ. P.
56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
The National Bank Act vests each national bank with the authority
"[t]o exercise . . . all such incidental powers as shall be necessary to
carry on the business of banking." Id. Though the statute lists a few
activities in which banks are authorized to engage, the incidental powers
are not confined to activities that are considered essential to the
exercise of express powers. See First Nat'l Bank v. Taylor, 907 F.2d 775,
778 (8th Cir.), cert. denied, 498 U.S. 972 (1990). Our analysis thus
focuses on whether the acts conducted under the Engagement Agreement fall
within the "incidental powers" necessary to carry on the business of a
national bank.
The Office of the Comptroller of the Currency, as the administrator
charged with the regulation of national banks, has primary responsibility
for supervising the "business of banking." See 12 U.S.C. § 27 (1994). It
is well established that we must defer to the reasonable judgments of
agencies on the meaning of ambiguous terms in statutes that they are
charged with administering. See Chevron U.S.A. Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 837, 842-45 (1984). See also Smiley v.
Citibank (South Dakota), N.A., 116 S. Ct. 1730, 1733-34 (1996) ("[T]he
whole point
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of Chevron is to leave the discretion provided by the ambiguities of a
statute with the implementing agency.") We previously have deferred to the
reasonable interpretation of the Comptroller on the meaning of the
ambiguous phrase "incidental powers" necessary to carry on the "business
of banking." See Taylor, 907 F.2d at 777-78. In addition, recently the
Supreme Court has reemphasized the need to defer to the reasonable judgment
of the Comptroller on the meaning of ambiguous terms in banking laws that
the Comptroller is charged with enforcing. See Smiley, 116 S. Ct. at 1733.
"The Comptroller of the Currency is charged with the enforcement of banking
laws to an extent that warrants the invocation of [the rule of deference]
with respect to his deliberative conclusions as to the meaning of these
laws." Nationsbank of N.C. v. Variable Annuity Life Ins. Co., 513 U.S.
251, 256-57 (1995) (citations and internal quotations omitted).
The Office of the Comptroller of the Currency, through 12 C.F.R. §
7.1002 (1997) and an amicus brief submitted in this appeal,5 has stated its
view that Norwest's acts under the Engagement Agreement fall within a
national bank's powers. In 1971 the Comptroller adopted 12 C.F.R. §
7.7200, a regulation that specifically authorized a national bank to act
as a "'finder' in bringing together a buyer and seller." The present
version of this regulation provides that:
5
The Comptroller's position in this litigation is based on a regulation and long
standing policy. We see no evidence that the Comptroller's position is a "'post hoc
rationalization advanced by an agency seeking to defend past agency action against
attack.'" Lovilia Coal Co. v. Harvey, 109 F.3d 445, 452 (8th Cir. 1997) (quoting Auer
v. Robbins, 117 S. Ct. 905, 911 (1997)). The Comptroller is not a party to this action
and because "[t]here is simply no reason to suspect that the [Comptroller's]
interpretation does not reflect the agency's fair and considered judgment on the matter
in question" we will consider whether the Comptroller's view is reasonable. See id.
(quotation omitted). The fact that the Comptroller reiterates its position in an amicus
brief does not prevent us from considering it. See Skandalis v. Rowe, 14 F.3d 173, 179
(2d Cir. 1994).
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(a) General. A national bank may act as a finder in
bringing together a buyer and seller.
(b) Qualification. Acting as a finder includes, without
limitation, identifying potential parties, making inquiries as
to interest, introducing or arranging meetings of interested
parties, and otherwise bringing parties together for a
transaction that the parties themselves negotiate and
consummate. Acting as a finder does not include activities
that would characterize the bank as a broker under applicable
Federal law.
(c) Advertisement and fee. Unless otherwise prohibited,
a national bank may advertise the availability of, and accept
a fee for, the services provided pursuant to this section.
12 C.F.R. § 7.1002.
This regulation encompasses most of Norwest's activities under the
Engagement Agreement which involved locating suitable buyers for Sween
Corporation. In fact, Sween himself concedes in his brief that he "would
be pressed if forced to point to significant doings of [Norwest] that would
not arguably fit within subparagraph (b) of the amended regulation." In
addition, the Office of the Comptroller of the Currency argues that
Norwest's role in the negotiations between Sween Corporation and Coloplast
is of no consequence because these additional activities also fall within
a national bank's incidental powers under 12 U.S.C. § 24(Seventh).
Under Chevron, we must now consider whether the Comptroller's view
that Norwest's actions were within a national bank's powers is based on a
permissible construction of the National Bank Act. 467 U.S. at 843. Sween
argues that neither Norwest nor the Comptroller has articulated why
Norwest's acts under the Engagement Agreement were "necessary to carry on
the business of banking" because Norwest has not identified any activity
in the business of banking that would be impaired, or at least moderately
inconvenienced, if Norwest could not conduct this type of business. We
emphasize, however, that the "'incidental powers' of national banks are not
limited to
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activities that are deemed essential to the exercise of express powers.
Rather, courts have analyzed the issue by asking whether the activity is
closely related to an express power and is useful in carrying out the
business of banking." Taylor, 907 F.2d at 778 (the Comptroller's
determination that debt cancellation contracts are within the incidental
powers granted by the National Bank Act is reasonable). See also
Nationsbank of North Carolina, N.A., 513 U.S. at 257-63 (the Comptroller's
determination that national banks may serve as agents in sale of annuities
was a reasonable construction of the National Bank Act). The Comptroller
explains that Norwest's activities are within the incidental powers
necessary to the business of banking because allowing banks to use their
expertise as an intermediary effectuating transactions between parties
facilitates the flow of money and credit through the economy. The
Comptroller further explains that as recognized intermediaries between
other nonbank participants in financial markets and payment systems, banks
have expertise to effectuate transactions between parties. Finally, the
Comptroller emphasizes that it has issued numerous administrative rulings
that expressly authorize banks to offer these types of services. We find
nothing unreasonable about the Comptroller's view as this type of activity
is related to an express banking power and is useful in carrying out the
business of banking. See Taylor, 907 F.2d at 778.
B.
Sween next argues that he does not have to show that Norwest's
conduct does not fit within subparagraph (b) of the amended regulation
because the amended regulation is a significant change from the original
regulation. The original regulation provided:
A national bank, pursuant to request, may act as "finder"
in bringing together a buyer and seller, where the bank's
activity is limited to the introduction and it takes no further
part in the negotiations. For this service the bank may accept
a fee.
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12 C.F.R. § 7.7200 (1996).
Sween contends that the original regulation confined the authorized
activities of national banks to the introduction of the buyer and seller,
and did not authorize any activities beyond the introduction, but he admits
the amended regulation goes further. Because this "significant change" in
the law occurred after Norwest entered into and acted under the Engagement
Agreement, Sween argues that Norwest cannot use the new regulation to
create permission it did not have when it acted under the original
regulation.
In Smiley, the Supreme Court deferred to a regulation concerning the
definition of "interest" as used in a provision of the National Bank Act
even though the Office of the Comptroller of the Currency had passed the
regulation after the acts at issue had occurred. 116 S. Ct. at 1733-35.
Sween attempts to distinguish Smiley, arguing in his brief that in Smiley
the Supreme Court emphasized the critical importance that the new
regulation was not a change in existing law, but rather "the first formal
enunciation of existing law." The petitioner in Smiley argued that the new
regulation was inconsistent with positions taken previously by the
Comptroller, and the Supreme Court acknowledged that some interpretative
letters from the Office of the Comptroller of the Currency could indicate
some "uncertainty and confusion." Id. at 1735. The Court concluded,
however, that absent "[s]udden and unexplained change, or change that does
not take account of legitimate reliance on prior interpretation . . .
change is not invalidating since the whole point of Chevron is to leave the
discretion provided by the ambiguities of a statute with the implementing
agency." Id. at 1734 (citations omitted).
Here, Sween offers no evidence of a sudden and unexplained change.
Indeed, all evidence presented suggests the new regulation was no different
from the allowed practices under the old regulation. For example, the
district court cited at least two opinion letters from the Office of the
Comptroller of the Currency supporting the view that national banks may
provide advisory services regarding mergers and acquisitions.
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916 F. Supp. at 1504-05. Neither letter makes mention of any limitation
of this authority beyond the introduction stage. We also look to the
discussion in the notice of proposed rule making. "Proposed § 7.1002
revises current § 7.7200 to reflect more recent [Officer of the Comptroller
of the Currency] interpretations. The proposal clarifies that a national
bank may act as a finder of certain goods and services other than
insurance." 60 Fed. Reg. 11924, 11925 (to be codified at 12 C.F.R. §
7.1002) (proposed Mar. 3, 1995). Finally, in the section by section
discussion of the final rule adopted, the Comptroller again stressed that
the proposal "clarified that a national bank may act as a finder" and
observed that section 7.1002 was adopted as proposed. See 61 Fed. Reg.
4849, 4850-51 (to be codified at 12 C.F.R. § 7.1002).
Sween also argues that the amended regulation is a significant change
because the distribution table in the Federal Register commented that the
amended regulation was a "significant change" from the original regulation.
The Supreme Court did not discuss the distribution table in Smiley.
However, our review of the distribution table in the Federal Register for
the regulation at issue in Smiley, reveals that the table indicated that
the amended regulation was a significant change from the original
provision. See id. at 4861. We therefore reject Sween's argument and hold
that the amended regulation is not a sudden and unexplained change from the
original regulation.
II.
Sween next argues that Regulation Y, 12 C.F.R. pt. 225, required
Norwest to apply or provide notice to the Board of Governors of the Federal
Reserve System before entering into the Engagement Agreement. In order to
understand this regulation, it is first necessary to consider the relevant
statutory framework. The Bank Holding Company Act grants the Federal
Reserve principal regulatory power over bank holding companies. See 12
U.S.C. §§ 1842-43 (1994). Section 1842 discusses Federal Reserve approval
for acquisition of ownership or control of a bank by a bank holding
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company. Section 1843 discusses a bank holding company's ownership or
control of voting shares of any company not a bank and the nonbanking
activities of a bank holding company. This section provides that:
Except as otherwise provided . . ., no bank holding company shall--
(1) . . . acquire direct or indirect ownership or control
of any voting shares of any company which is not a bank, or
(2) . . . retain direct or indirect ownership or control
of any voting shares of any company which is not a bank or bank
holding company or engage in any activities other than (A)
those of banking or of managing or controlling banks and other
subsidiaries authorized under this chapter or of furnishing
services to or performing services for its subsidiaries, and
(B) those permitted under paragraph (8) of subsection (c) of
this section [governing notice and approval of services
"closely related to banking"] . . .
The Federal Reserve issued Regulation Y pursuant, in part, to the Bank
Holding Company Act. Subpart C of Regulation Y, titled "Nonbanking
Activities and Acquisitions by Bank Holding Companies," contains a
provision that provides that a bank holding company or a subsidiary may not
engage in some activities related to banking without the prior approval of
the Federal Reserve in accordance with the requirements of this regulation.
See 12 C.F.R. § 225.21(a) (1996).
Sween argues that Norwest's acts under the Engagement Agreement were
a type of activity for which prior approval was required because Norwest
is a subsidiary of a bank holding company. Sween contends that because
Norwest did not get prior approval from the Federal Reserve it went beyond
its powers when it entered into the Engagement Agreement. Norwest responds
that though it is a subsidiary of a bank holding company, because it is a
national bank subsidiary, it is not subject to regulation by the Federal
Reserve, but only to regulation by the Comptroller. The Comptroller agrees
with Norwest, arguing that the Bank Holding Act does not give the Federal
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Reserve the statutory authority to prescribe the permissible activities of
national bank subsidiaries of bank holding companies.
The Second Circuit is the only circuit that has addressed the issue
of the Federal Reserve's regulatory authority where the subsidiary of a
bank holding company at issue was a bank. In Independent Insurance Agents
v. Board of Governors, 890 F.2d 1275 (2d Cir. 1989), cert. denied, 498
U.S. 810 (1990), the Federal Reserve interpreted section 1843 of the Bank
Holding Company Act that limited the nonbanking activities of bank holding
companies. The Federal Reserve found that the Act did not apply to bank
subsidiaries of a bank holding company, and thus concluded that it could
not regulate the activities of the state bank subsidiary of a bank holding
company. Id. at 1279. In the Federal Reserve's view, in enacting the Bank
Holding Company Act, Congress did not wish to displace the traditional
authority of state and national bank chartering authorities to regulate
activities of banking, even though a bank holding company owned the actual
banks. Id. at 1280. The Second Circuit applied Chevron analysis and first
determined that the statute at issue did not directly address this issue,
and then considered whether the Federal Reserve's conclusions were
reasonable. Id. at 1281. After a thorough analysis of the Federal
Reserve's interpretation of the statute and the legislative history of the
Act, the Second Circuit concluded that the Federal Reserve's interpretation
was reasonable. Id. at 1279-84. Independent Insurance Agents thus
concludes that the Federal Reserve has no authority to regulate the
activities of bank subsidiaries of bank holding companies. See also
Citicorp v. Board of Governors, 936 F.2d 66, 73-76 (2d Cir. 1991)
(extending Independent Insurance Agents and holding that the Federal
Reserve also lacks authority to regulate the subsidiary of a holding
company's bank subsidiary), cert. denied, 502 U.S. 1031 (1992).
We agree with the district court that the reasoning of the Second
Circuit is sound and applicable to this case. We therefore hold that 12
C.F.R. § 225.21(a) does not apply to Norwest as a national bank subsidiary
of a bank holding company. We thus
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reject Sween's arguments that by failing to provide notice to the Federal
Reserve before engaging in the activities under the Engagement Agreement,
Norwest was acting beyond its powers, because Norwest was not required to
obtain approval from the Federal Reserve.
III.
Sween next argues that even if the contingent fee agreement is
enforceable, its terms do not obligate Sween to pay Norwest's legal fees
in this action. The district court did not err in concluding that the
indemnification clause included in the Engagement Agreement was not limited
to third-party indemnity actions, and we therefore affirm the judgment of
the district court on this issue.
On appeal, however, Sween also asserts that the indemnification
clause made only Sween Corporation, and not himself or Brekke, liable.
Sween argues that when Norwest dismissed Sween Corporation voluntarily,
Norwest simultaneously dismissed its claim for attorneys' fees. Sween,
however, failed to raise this argument before the district court. In
Norwest's motion to dismiss Sween Corporation and Brekke, Norwest argued
that because Sween, Brekke, and Sween Corporation had each entered into
the Engagement Agreement all three parties were jointly and severally
liable, and therefore Norwest could elect to sue the parties jointly or
severally. Sween, in its reply before the district court, supported
Norwest's motion for voluntary dismissal of Sween Corporation and Brekke
conceding that "[n]either Sween Corporation nor Keith Brekke is an
indispensable party. If Norwest prevails against Maurice A. Sween as the
sole remaining defendant, it is afforded complete relief . . ." Sween's
failure to raise the issue that Norwest dismissed its claim for attorneys'
fees before the district court prevents us from now considering this
argument on appeal. See Roth v. G.D. Searle & Co., 27 F.3d 1303, 1307 (8th
Cir. 1994); Thompson v. Brule, 37 F.3d 1297, 1301 (8th Cir. 1994).
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IV.
Finally, Sween argues that even if the Engagement Agreement is
enforceable, the district court incorrectly computed part of the advisory
fee due to Norwest. After careful review of the district court's analysis,
we see no error and we thus affirm the judgment of the district court on
this issue.
V.
Norwest cross-appeals arguing that the district court erred in
failing to include prejudgment interest in its judgment for Norwest. Sween
concedes that Norwest is entitled to prejudgment interest. Accordingly,
we remand to the district court for the award of prejudgment interest to
Norwest, and affirm the judgment of the district court in all other
respects.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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