WASHINGTON - In the first case of its kind to reach the Supreme Court, Barnett Banks Inc. is asking the justices to resolve whether states can block bank insurance sales in small towns.
The Jacksonville, Fla.-based institution said the court should hear the case because two federal appeals courts have interpreted the law differently.
Banking advocates welcomed the long-awaited appeal.
"There is a lot of uncertainty hovering over the conduct of insurance activities due to the state anti-affiliation laws," said Richard Whiting, general counsel to the Bankers Roundtable. "This hopefully will remove that."
A federal appeals court in Atlanta ruled in the case that states can enact laws banning national bank insurance sales. But a Cincinnati court said in Owensboro National Bank of Kentucky v. Stephens that Section 92 of the National Bank Act outlaws these anti-affiliation statutes.
"The validity of these laws will remain in question, and the freedom of national banks to engage in activities permitted by Sect. 92 will remain under a cloud of uncertainty, until this court resolves the legal issue," the bank wrote.
Most legal observers expect the Supreme Court to accept the case, noting that the justices usually resolve disputes between the circuits.
The $41.2 billion-asset bank also announced late Monday that it had retained two high-profile Supreme Court veterans to argue its case. Nathan Lewin and Scott L. Nelson, partners at Miller, Cassidy, Larroca & Lewin, are both Harvard Law School graduates and former Supreme Court clerks.
Mr. Lewin, the lead counsel, has argued 26 cases before the high court and has represented President Nixon, Attorney General Edwin Meese III, and actress Jodie Foster. He is a former assistant to the solicitor general and was deputy assistant attorney general in the civil rights division during the 1960s.
"I'd call them big guns," said David Roderer, a partner at Winston & Strawn who represents a number of trade associations on insurance issues. "They are certainly highly respected members of the Supreme Court bar."
Bankers want the fee income that insurance sales to small-town residents can generate. But lawmakers in 16 states have denied national banks licenses to sell the product. This case, and several related cases winding through the courts, should resolve whether those states violated federal law.
In one of those related cases, the Louisiana Supreme Court last week refused to hear an appeal by First National Bank of Dedham Springs, effectively closing that state to bank insurance sales.
"This is, barring an appeal to the U.S. Supreme Court, the final word for the law of Louisiana," said Michael Crotty, deputy general counsel at the American Bankers Association.
First National asked the top court to overturn a decision by a Louisiana appellate court, which had ruled that the insurance commissioner can prevent national banks from selling insurance in small towns.
But the state Supreme Court, in a 5-2 decision May 5, refused to hear the case, depriving the bank of its last state court appeal.
First National president Bob Easterly said in a prepared statement that the court's decision disappointed him. "FNB has always put its customers first and will continue to pursue all means to do so," he said, declining to elaborate further.
In the Barnett case, the bank filed its appeal more than a month before the due date, substantially increasing the chance the justices will hear the case this year.
Also, it puts added pressure on the insurance industry, which must decide by June 13 if it wants to appeal the Cincinnati court's decision. It also must file by June 8 a brief either supporting or opposing Barnett's request.
Insurance industry advocates said they are prepared. Ann M. Kappler, who represents several insurance trade groups, said the industry will appeal the Cincinnati case. It hasn't decided whether it will oppose Barnett's request, she said.
"We are anxious to move forward," she said. "It is going to be a busy summer."
Banking advocates counter that they are just as ready. "The long years of litigation are now coming to a final closure," Mr. Roderer said. "It is reasonable to assume that these very needlesome problems will be put to rest. That's good for all parties."
The Barnett case began in 1993 when the bank purchased an insurance agency in Belleview, Fla., a town with 2,666 residents, and started selling insurance. Four days later, the state intervened, ordering the agency to stop selling most of its products.
Barnett filed suit, but lost at the trial court after the judge ruled that the McCarran-Ferguson act gives states the right to regulate - and thus ban - bank insurance sales. The U.S. Court of Appeals for the 11th Circuit upheld the decision earlier this year.
In its petition for review, the bank gave several reasons why the Supreme Court should accept the case. First, it said the decision conflicts with the Owensboro decision from the U.S. Court of Appeals for the Fifth Circuit. That court struck down a similar prohibition, ruling that the National Bank Act clearly gives national banks the right to sell insurance in towns with fewer than 5,000 residents.
Additionally, Barnett said in its writ that the decision increases confusion about the law, contradicts interpretations from the Comptroller of the Currency, and is based on erroneous legal reasoning.
