Lewis v. BT Investment Managers, Inc.

Background

A New York bank holding company wanted to open an investment-advisory subsidiary in Florida and created a Delaware subsidiary to do so. Florida’s legislature quickly amended state law to bar bank, trust, or holding companies whose main operations were outside Florida from owning or operating businesses that sell investment advice. The Federal Reserve Board rejected the proposed entry because of that state law, and the company then sued in federal court challenging the statutes as discriminating against interstate commerce.

Reasoning

The central question was whether Florida could use its laws to keep out-of-state bank holding companies from competing in the state’s investment-advisory market. The Court agreed with the lower court that the investment-advisory provision explicitly discriminated against firms based outside Florida. The Court found that the state’s stated goals — preventing concentration of financial power, guarding against fraud, and promoting local control — did not justify the heavy burden on interstate commerce. The Court also rejected the argument that the federal Bank Holding Company Act authorized Florida’s discrimination. As a result, the Court affirmed the district court’s judgment invalidating the challenged portions of the investment-advisory statute and enjoining their enforcement.

Real world impact

The ruling allows out-of-state bank holding companies greater ability to establish investment-advisory operations in Florida by removing the state law barrier. The separate Florida rule about which corporations may perform trust functions was not finally decided; the Court vacated that part of the judgment and sent it back to the lower court for further proceedings, noting also a recent federal amendment that affects trust-company approvals.