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Lewis v. BT Investment Managers, Inc

    Brief Fact Summary. A Florida statute prohibited an out-of-state bank holding company from owning or controlling a business within the State that sells investment advisory services to any customer. Bankers Trust sued after the Board rejected its proposal to open a subsidiary that would furnish investment advisory services to the general public.

    Synopsis of Rule of Law. The negative Commerce Clause (also known as the Dormant Commerce Clause) prohibits economic protectionism in the form of regulatory measures designed to benefit instate economic interest by burdening out of state competitors. The only way to save a facially discriminatory statute is by asserting a justified goal or motive unrelated to economic protectionism. Even if there is a valid motive the State has to use the least restrictive means possible.

    Facts. In 1972 Bankers Trust New York Corporation sought and received approval to open a subsidiary in Florida that would furnish investment advisory serves to the general public. At the time its proposal was approved because only giving advice to trust companies or banks was prohibited. The Florida financial community reacted negatively and many filed comments with the Board objecting to the Bankers Trust proposal. The state legislature also took action and shortly after Bankers Trust qualified to do business, the legislature amended the statute so that no out-of-state bank holding company could own or control a business within the State that sold investment advisory services to any customer, including the general public, trust companies, or banks. The amendment was a direct response to Bankers Trust’s pending application and the amendment had the strong backing of the local financial community. In April 1973 the Board rejected Bankers Trust’s proposal on the ground that it would co
    nflict with state law. Its entry would ordinarily have a desirable pro-competitive impact but the Board could not vote for the proposal since the statute intended to and does prohibit Bankers Trust’s entry. Bankers Trust sued and the District Court on summary judgment held that the two statutes (prohibiting business with banks, and prohibiting business with the general public) violated the Commerce Clause.

    Issue. Did the Florida statutes that prohibited an out-of-state corporation from setting up an investment advisory business within Florida violate the Commerce Clause?

    Held. Justice Blackmun opinion: Yes. District Court judgment affirmed.
    The statute overtly prevents foreign enterprises from competing in local markets. The State makes the out-of-state location of a bank holding company’s principal operations an explicit barrier to operating within the State. The statute thus prevents competition in local markets by out-of-state firms. The State virtually conceded this effect and the circumstances of enactment suggest that it was the legislature’s principal objective. Therefore the district Court did not err in applying a stringent standard for the facially discriminatory statute.
    The State then argued that this case was similar to Exxon Corp v. Governor of Maryland. The Court did not agree because Florida engaged in additional discrimination by saying that all companies with principal operations outside Florida were barred. In Exxon, interstate independent dealers were permitted to enter Maryland so long as they did not own production or refining facilities. That rule served a legitimate state purpose of “controlling the gasoline retail market,” which was necessary because of inequities in the allocation of petroleum products to retail outlets during the fuel shortage of 1973. The absence of discrimination between interstate and local producer-refiners is significant. In-state and out-of-state businesses were both barred. Here the critical factor is not the type of business the subsidiary is a part of but where their principle office is located. The businesses at issue are discriminated against only if their principle operations are outside Florida.
    There is no valid justification for the disparate treatment of out-of-state bank holding companies. Discouraging economic concentration in the arena of high finance and protecting the citizenry against fraud are legitimate state interests but these interests do not justify the heavily disproportionate burden this statue places on bank holding companies that operate principally outside the State. None of the state’s interests concerning local control are advanced by this statute because, as the State concedes, the statute does not prevent entry by out-of-state entitles other than those having the prohibited organizational forms.

    Discussion. This statute was obviously passed in response to local companies’ anti-competitive actions and to protect local economic interests. Thus, the Court’s decision is on solid ground.


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