## Facts

- A federal statute historically limited national banks’ insurance sales to banks “located and doing business” in places with populations not exceeding 5,000.
- Magna Bank operated as state-chartered banks in areas with populations over 5,000 and, before conversion, owned insurance-agency subsidiaries selling life, health, disability, and related insurance products.
- Magna sought to convert to a national bank under 12 U.S.C. § 35 and requested permission to retain its existing assets, including the insurance subsidiaries.
- The Comptroller of the Currency approved the conversion and permitted Magna to retain and continue operating the insurance subsidiaries.
- A life insurance trade association sued to set aside the approval under the Administrative Procedure Act (APA), arguing § 35 required divestiture of “nonconforming” insurance subsidiaries that a national bank could not newly acquire or conduct directly in larger communities.
- The court denied motions to dismiss but resolved the merits on cross-motions for summary judgment.

## Issues

1. Whether 12 U.S.C. § 35 authorizes the OCC to approve a state bank’s conversion to a national bank while allowing retention and continued operation of preexisting insurance-agency subsidiaries that conduct insurance activity a national bank generally could not initiate directly in communities over 5,000.
2. Whether the OCC’s approval was contrary to law or arbitrary and capricious under the APA.

## Decision

- The court denied the motions to dismiss but granted summary judgment for the Comptroller, the OCC, and Magna.
- The court held § 35 does not expressly require divestiture of preexisting insurance subsidiaries upon conversion.
- Finding statutory ambiguity on the treatment of “nonconforming” activities at conversion, the court deferred to the OCC’s reasonable interpretation permitting retention subject to oversight.
- The court rejected the argument that retention unlawfully circumvented the national bank insurance limitation, concluding the statute did not clearly reach every preexisting subsidiary of a converting state bank.
- The court found the OCC provided a rational explanation and the approval was not arbitrary, capricious, or otherwise unlawful under the APA.

## Legal Principles

- When a banking statute is ambiguous on a specific conversion consequence, a court may defer to the OCC’s reasonable construction of the statute in administering the National Bank Act and related provisions.
- 12 U.S.C. § 35 does not, without clear statutory direction, impose an implied, automatic divestiture requirement for assets or activities a national bank could not newly undertake, where the OCC reasonably permits retention during a state-to-national conversion.
- Under APA review, an agency action is sustained when the agency offers a rational explanation grounded in statutory materials and regulatory practice and acts consistently with its delegated authority.

## Conclusion

The court upheld the OCC’s approval of a state-to-national bank conversion that allowed the bank to retain and continue operating preexisting insurance subsidiaries, concluding that § 35 did not mandate divestiture and that the OCC’s interpretation and decision-making satisfied APA standards.


Am. Council of Life Ins. v. Ludwig, 1 F. Supp. 2d 24 (D.D.C. 1998)