April 21, 1975

Mr. James Guffey, Secretary
Department of Commerce and Consumer Affairs 
State Capitol Building
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 75-76

Applications for bank or branch bank charters

Dear Mr. Guffey:

You have requested an official opinion of this office based upon the follow­ing factual situation.

SDCL 51-17-15 requires in part that "the director shall cause to be completed a careful investigation and examination relative to the following: . . . The director shall submit such report, together with all other pertinent information in his possession and his recommen­dation for approval or disapproval, to the commission for its con­sideration pursuant to § 51-17-16.

Based upon the above factual situation you have asked, "when is the ap­propriate time for the director to submit his investigation report and recom­mendation to the commission as described in § 51-17-15:

1. After the investigation and before the hearing;
or,
2. After the investigation and after the hearing?

SDCL 1-26, the Administrative Procedures Act, defines contested case, license and licensing as follows:

§ 1-26-1 (2) "Contested Case," a proceeding, including but not restricted to rate-making and licensing, in which the legal rights, duties, or privileges of a party are required by law to be determined by an agency after an opportunity for hearing but the terms shall not include the proceeding relating to rule-making other than rate­making:

§ 1-26-1 (3) "License" includes the whole or part of any agency permit, certificate, approval, registration, charter, or similar form of permission required by law;

§ 1-26-1 (4) "Licensing" includes the agency process respecting the grant, denial, revocation, suspension, annulment, withdrawal or amendment of a license.

Our Supreme Court in Valley State Bank of Canton v. Farmers State Bank of Canton, 87 S.D. 614, 213 N.W. 2d 459 (1973) held that an application for a bank charter and for the approval of its articles of incorporation which was opposed by an existing bank in the community was a "contested case" before the Banking Commission. The provisions of the Administrative Pro­cedures Act, SDCL 1-26, therefore are applicable to the Banking Commis­sion when considering the granting or denial of a bank charter or branch-­bank application.

The court in Valley State Bank of Canton v. Farmers State Bank of Canton, supra also held that "the phrase 'required by law' found in § 1-26-1 (2), which establishes when the 'Contested Case' hearing is necessary, includes constitutional requirements of fair play, due process and agency rules, as well as the requirements of statutory law."

As you have pointed out, one of the statutory requirements is that the direc­tor shall cause an investigation to be conducted for each bank and branch bank application. In that SDCL 51-17-15 requires that this be a "careful in­vestigation and examination relative to the following," the director of banking and finance must use all necessary efforts and skills to obtain the information required to carefully and fully answer the enumerated areas of his report as found in § 51-17-15, with the inclusion of "facts and cir­cumstances bearing on the proposed bank and its relation to the community as in the opinion of the director or the commission may be relevant," and of course the director's recommendation. It is true such a careful report could take many months to complete; the director has 180 days to complete said investigation, but as our Supreme Court has held: Banking is affected with a "public interest" and too many banks can be a source of financial weakness. Wall v. Fenner, 76 S.D. 252, 76 N.W. 2d 722 (1956).

SDCL 1-26-21 points out that "the record" in a contested case shall in­clude:

(7) All staff memoranda or data submitted to the hearing officer or members of the agency in connection with their considera­tion of the case.

and when you couple this with the constitutional requirement of fair play I can come to only one conclusion. In that the commission has one year, SDCL 51-17-16, to reach a conclusion on a bank and branch-bank applica­tion and the director has 180 days to make his investigation, there should be little information received at a hearing that the diligent efforts of the direc­tor did not uncover.

It is therefore my opinion that the dictates of constitutional fair play and SDCL 1-26-21 require that the director's report of his investigation be com­pleted and submitted to the commission before any hearing.

Respectfully submitted,

WILLIAM J. JANKLOW
ATTORNEY GENERAL

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