The First National Bank in Sioux Falls, a National Banking Corporation v. National Bank of South Dakota and All Its Branches Using the Name of First Bank of South Dakota (n.a.)-sioux Falls, a National Banking Corporation and John Heimann, Comptroller of the Currency

Citation: 667 F.2d 708Docket: 81-1803

Court: Court of Appeals for the First Circuit; December 28, 1981; Federal Appellate Court

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The First National Bank in Sioux Falls appeals a summary judgment from the district court, which upheld the Comptroller of the Currency's approval for the National Bank of South Dakota to change its name to First Bank of South Dakota. The district court had stayed the name change pending this appeal. The appellate court reviewed the case independently, using the same administrative record as the district court, without granting deference to the lower court's decision.

The National Bank applied to the Comptroller to change its name under 12 U.S.C. § 30, with eighteen branches across South Dakota. Two banks opposed the name change: the First National Bank in Sioux Falls and First National Bank of the Black Hills. A public hearing was held, where both the proposing bank and the objecting banks presented witnesses. The National Bank argued that the name change would not cause substantial confusion, while the opponents cited past instances of confusion from similar name changes.

Post-hearing, the Regional Administrator and Director for Corporate Activities reviewed the record, which included all submitted evidence and testimonies, and forwarded their recommendations to Washington, D.C. The Comptroller’s staff unanimously recommended approval of the name change. Following this review, the Deputy Comptroller approved the application and issued a Supplemental Opinion detailing the rationale for approval, which was subsequently affirmed by the district court.

Three standards of review apply when examining the district court's affirmation of the Comptroller's decision. First, for factual questions regarding agency decisions, the 'arbitrary and capricious' standard is used, which is more restrictive than the 'substantial evidence' test. Under this standard, agency actions may only be deemed arbitrary and capricious if they lack a rational basis and demonstrate willful disregard for factual circumstances. Second, for legal questions, such as statutory or constitutional interpretations, courts can review these de novo, meaning without deference to the agency. Third, when interpreting an agency's own regulations, courts grant deference unless the interpretation is plainly erroneous or inconsistent with the regulation, provided the regulation aligns with the underlying statute.

The relevant statute, 12 U.S.C. § 30, permits national banking associations to change their names with the Comptroller's approval, indicating discretionary authority. The Comptroller has established a policy stating that name change applications will generally be approved if the new name is sufficiently distinct to avoid public confusion. The record indicates that the bank's motivation for changing its name was to better associate with its parent bank and other member banks within the First Bank System, particularly to enhance recognition in shared media markets.

Bank officials believed that adopting the common prefix "First Bank" would enhance marketing efficiency and help customers and tourists recognize the bank's affiliation with its holding company. The Comptroller determined that this change served a legitimate business purpose and would benefit all parties involved. While FNB Sioux Falls contended that the name change was unnecessary, the Comptroller’s decision was upheld as neither arbitrary nor capricious.

The key contention centered on whether the name change would confuse the public. Both proponents and opponents presented evidence during a hearing. National Bank's supporters included seven witnesses, primarily bank officials, who described a comprehensive educational and advertising campaign to inform the public about the name change. They shared experiences from other banks that had undergone similar name changes, acknowledging some confusion but attributing issues mainly to postal and Federal Reserve operational errors rather than customer misunderstanding. They ultimately concluded that significant public confusion would not arise.

On the other hand, protestants presented four witnesses who argued that the name change would lead to considerable confusion, citing specific incidents from Fargo and Aberdeen, including misdelivered mail, incorrect wire transfers, and customer misdirection. These testimonies highlighted the potential for significant inconvenience to customers.

Additionally, FNB Sioux Falls had developed the abbreviated name "First Sioux Falls" for its branding, fearing that National Bank might shorten its name to "First Bank-Sioux Falls," increasing confusion. However, concerns regarding potential name alterations were not within the scope of this appeal. Evidence suggested that the name change could actually reduce confusion by strengthening the connection between National Bank and its parent company. The Comptroller's Supplemental Opinion supported the proposed name as compliant with policy and possibly beneficial in minimizing public confusion.

The name change for the bank was deemed beneficial for both the institution and its customers, with no substantial public confusion anticipated. The court found that the Comptroller's decision was not arbitrary, capricious, or an abuse of discretion. The appellant argued that trademark law should apply to the confusion standard, but name changes for national banks are preempted by federal law, as established in relevant case law. The court asserted that the Comptroller correctly concluded that a financial institution does not possess a proprietary right to the term 'first,' citing that generic and geographic names lack trade name protection. Notably, there are multiple financial entities in Sioux Falls that also use 'first' in their names, which further supports the lack of confusion. The court affirmed that the Comptroller's interpretation of regulations was valid and not inconsistent with the law. The procedural history included a state court claim of unfair competition, which was removed to federal court on preemption grounds. The district court allowed an amendment to challenge the Comptroller's decision and issued a preliminary injunction against the name change, ultimately converting the case to a review of the Comptroller's actions. The court upheld the wide discretion granted to the Comptroller in national banking matters, affirming the lower court's judgment.

5 U.S.C. 706(2)(E) allows courts to invalidate agency actions lacking substantial evidence in cases reviewed under sections 556 and 557, which do not apply to this Comptroller decision since a hearing is not mandated by statute. If approved, National Bank will be the final bank among 91 members to adopt the name "First." One witness indicated that the Federal Reserve Bank's new identification system would reduce confusion. National Bank contended that experiences from Fargo and Aberdeen should not influence the review regarding FNB Sioux Falls, as the testimonies were provided by FNB of the Black Hills and did not pertain to FNB Sioux Falls's situation. The evidence from the hearing will be considered relevant for both banks. In Aberdeen, the First National Bank of Aberdeen coexisted with the Aberdeen National Bank until the latter adopted the name First Bank-Aberdeen. In Fargo, Merchant's National Bank changed to First Bank of North Dakota (N.A.). FNB Sioux Falls claimed that the similarity between the First Bank logo and its own, along with the logo's placement, would exacerbate confusion. Under state unfair competition law, a bank may face liability if it uses a misleading logo or advertisement (North Dakota v. Merchant's Bank, Trust Co., 634 F.2d 368, 381-82; First National Bank of Aberdeen v. Aberdeen National Bank, 627 F.2d 843, 845 n.3). The cases cited by the appellant are distinguishable as they involved identical title wording.