As recent deals by financial heavyweights J.P. Morgan Chase & Co. and Citigroup Inc. have shown, consumer activists critical of banking companies and their lending policies can turn up the heat in a very public and often embarrassing way.

Yet a July 9 decision by New York State's third-highest court rejecting an attack on Chase Manhattan Corp.'s purchase of J.P. Morgan & Co. may reduce the flood of legal fights over bank deals, several legal experts said.

Matthew Lee, the executive director of the Bronx-based group Inner City Press/Community on the Move, filed a lawsuit in December on behalf of his group seeking to block the Morgan-Chase deal. The suit named the state Banking Department, the state Banking Board, both of which approved the deal in December, as well as the companies involved.

Mr. Lee had told the Banking Board that the Banking Department was relying on flawed and dated estimates of the companies' federally mandated lending to lower-income neighborhoods.

The state Supreme Court, however, did not address this issue. Rather, it denied standing to Inner City Press to sue under the state's banking law. Supreme Court Justice Eileen Branston ruled that the plaintiff had failed to show that it had suffered the needed "identifiable, specific injury from the administrative action, different in kind from that of the general public."

Justice Branston did grant standing to Mr. Lee's group under the state's open-meetings law, but found against it under that law. The group had objected to the board's letting members who were not present at the approval meeting vote on the deal.

As a result of the ruling, activists like Mr. Lee may have a more difficult time challenging mergers between companies based in New York, according to legal experts.

"This decision helps eliminate the risk and uncertainty when an organization like Inner City Press goes to court to second-guess" a bank regulator, said an industry source who requested anonymity. "It doesn't deprive [Mr. Lee] of visibility or of the ability to express his views. It just says that if he disagrees, he can't run into court and get a judge to hold up, make it more difficult, or delay a transaction that the Banking Board has approved."

Not surprisingly, Mr. Lee disagrees with that assessment.

In his 14 years as a community activist, he has gone to court to try to stop several high-profile mergers, including Citigroup's purchase of Associates First Capital Corp. last year and Chemical Banking Corp.'s 1995 acquisition of Chase.

Mr. Lee noted that his group had received standing under the open-meetings law. It failed to do so under the banking law, he said, only because he had had to rush to file pleadings by the end of last December. The judge "did not rule that Inner City Press cannot have standing under the banking law," he said in an e-mail.

Mr. Lee had also tried to block the 1995 Chase-Chemical merger. He was denied standing to do so at the federal level; state Supreme Court Justice Beatrice Shainswit gave Mr. Lee's group standing under New York banking law, but he lost the case.

Rodgin Cohen, an industry attorney with the New York firm of Sullivan & Cromwell, said last month's decision could serve as a precedent, at least for the short term.

"Until we have a definitive decision from the New York Court of Appeals," which is the state's highest court, the next time the state Supreme Court took a case like Mr. Lee's "it would look at the more recent of the two decisions, because that is considered the more informed decision," Mr. Cohen said.

The ruling shows that the mergers were "handled by the agency that was set up to handle them, which is the societally correct way to deal with it," Mr. Cohen said.

In his comments to the Banking Board relating to the merger, Mr. Lee relied on the Community Reinvestment Act, which requires lenders to offer credit, such as home loans, to low-income communities considered underserved by banks. He also pointed to the Home Mortgage Disclosure Act, which requires lenders to report where they make mortgage loans.

In a comment document addressed to the New York State Banking Board, Inner City Press said that Chase and J.P. Morgan did not live up to their CRA requirements and in fact were involved in predatory lending in underserved communities.

Instead of serving these areas, Mr. Lee said in a recent interview, Chase targeted them with subprime loans, which can carry higher interest rates and less favorable terms than conventional credit.

Chase hid this practice from regulators by not specifying how many of its loans are subprime, either in each area or overall, and its CRA exam gave it credit for subprime loans without distinguishing them from prime loans, he said.

Mr. Lee said that he had informed the Banking Department of these concerns during the comment period, but that the department did not "sufficiently inquire" into the claims. Instead, he said, the Banking Department said during the hearing on the deal that Chase's 1998 CRA examination proved the company was doing its job.

Mr. Lee said last month that he had not decided whether to the appeal the decision. The New York State Supreme Court is outranked by the Appellate Division of the State Supreme Court, as well as the Court of Appeals.

Charlotte Gilbert-Biro, vice president of media relations at J.P. Morgan Chase, said, "There is no merit to Inner City Press' arguments, and we are pleased that our position was vindicated in connection with the approval of the merger by the Banking Board and the dismissal of the court case."

Mr. Lee said the decision does offer some positive implications for consumer groups. Justice Branston did not award Morgan Chase any legal fees, nor did she impose sanctions against Inner City Press, as the company had requested, he said.

"That was an attempt to make it impossible for community groups to raise issues, because they can't afford to 'pay to play,' " Mr. Lee said.

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