Custodia Bank, Inc. v. Federal Reserve Board of Governors, No. 1:22-cv-00125-SWS, Order granting in part and denying in part motions to dismiss (ECF 102)
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Research, not advice. Part of the Bitcoin research archive (October 2026). Claims labelled unverified, contested or fringe are reported, not endorsed; statuses of bills and rules are as of the date checked. Government, court and patent records are public domain; the research notes are CC BY 4.0.
Case 1:22-cv-00125-SWS Document 102 Filed 11/11/22 Page 1 of 38
UNITED STATES DISTRICT COURT
DISTRICT OF WYOMING
CUSTODIA BANK, INC.,
Plaintiff,
Case No. 22-CV-125-SWS
v.
FEDERAL RESERVE BOARD OF
GOVERNORS, and FEDERAL RESERVE
BANK OF KANSAS CITY,
Defendants.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’
12(b)(6) MOTIONS TO DISMISS
This matter comes before the Court on Defendants’ motions to dismiss (ECF 48,
50). Plaintiff filed a consolidated opposition to both motions (ECF 58), and Defendants
replied (ECF 96, 97). Plaintiff supplemented its opposition (ECF 98), and Defendant
Board of Governors responded to the supplement (ECF 99). The Court has also reviewed
and considered the amici briefs from the State of Wyoming (ECF 88), State Senator
Rothfuss and State Representative Olsen (ECF 89), and Members of the U.S. Senate
Banking Committee and U.S. House of Representatives Financial Services Committee
(ECF 92), all of which oppose Defendants’ motions to dismiss. The Court heard arguments
from counsel on October 28, 2022. (ECF 100.) Having considered the parties’ arguments,
reviewed the record herein, and being otherwise fully advised, the Court determines the
motions to dismiss must be granted in part and denied in part.
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BACKGROUND
Plaintiff Custodia Bank is a Wyoming depository institution that is unlike a
traditional bank because it is “designed to provide custody services for digital assets such
as Bitcoin via their trust departments” and “provide a bridge connecting digital asset
companies to the U.S. payments system,” which would allow, for example, a Custodia
customer to use a cryptocurrency like Bitcoin “to make a direct transfer, a purchase, or an
investment, rather than having to first convert the” cryptocurrency into U.S. Dollars.
(Compl. (ECF 1) ¶ 29.) Custodia is state-chartered as a Special Purpose Depository
Institution (SPDI), a unique-to-Wyoming financial institution intended to facilitate
cryptocurrency banking that is prohibited from making loans. (Compl. ¶ 28.) It is also
chartered to allow the traditional banking service of U.S. Dollar deposit-taking. (Id. ¶ 4.)
As a state-chartered institution, it is subject to Wyoming’s banking regulatory system and
is not required to be insured by the Federal Deposit Insurance Corporation (FDIC). (Id. ¶¶
2, 18, 23, 26.) In August 2021, Custodia also applied to Defendant Federal Reserve Board
of Governors for membership in the Federal Reserve, which would subject Custodia to
oversight and regulation by the Federal Reserve Board (in addition to the state’s banking
regulatory system). (Id. ¶¶ 4, 24.)
On October 29, 2020, Custodia applied to Defendant Federal Reserve Bank of
Kansas City (FRBKC) to obtain a Federal Reserve “master account,” which is “put simply,
a bank account for banks” that “gives deposit institutions access to the Federal Reserve
System’s services, including its electronic payments system.” Fourth Corner Credit Union
v. Fed. Rsrv. Bank of Kansas City, 861 F.3d 1052, 1053 (10th Cir. 2017) (Moritz, J.).
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“Without such access, a depository institution is nothing more than a vault.” Id. at 1053
(Moritz, J.) (internal quotation marks omitted).
The master account is both a record of financial transactions that reflects the
financial rights and obligations of an account holder and the Reserve Bank
with respect to each other, and the place where opening and closing balances
are determined. For each institution, all credits and debits resulting from the
use of Federal Reserve services at any Federal Reserve office are booked to
this single master account at one Reserve Bank.
Id. at 1064 n.1 (Bacharach, J.). A master account also enables its holder to access various
services promised by 12 U.S.C. § 248a beyond deposit and withdrawal services, including
wire transfer services, automated clearinghouse services, settlement services, securities
safekeeping, and Federal Reserve float services. Except for certain unique circumstances,
any financial institution can have only one master account with its Federal Reserve Bank.
Custodia asserts, “Direct access to the Federal Reserve is vital to Custodia’s ability
to operate effectively and efficiently in pursuit of its core mission to offer a secure,
compliant bridge between digital assets and the United States dollar payment system.”
(Compl. ¶ 3.) Custodia currently accesses the Federal Reserve through an intermediary
(“correspondent”) bank that has a master account, but this arrangement “is much costlier
and introduces counterparty credit risk and settlement risk that would” be avoided with its
own master account. (Id. ¶ 8.) A master account “would allow Custodia to access directly
the Federal Reserve, sharply reduce its costs, and bring new products and options to users
of financial services.” (Id. ¶ 3.)
Now two years later, FRBKC has yet to grant or deny Custodia’s application for a
master account. Custodia alleges, “Upon information and belief, the [FRBKC’s]
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consideration and impending approval of Custodia’s application was derailed when, in
spring 2021, the [Defendant Federal Reserve Board of Governors] asserted control over
the decision-making process.” (Compl. ¶ 6.) Custodia sues for an order compelling
Defendants to “promptly decide” the application. (Id. ¶ 81.) Alternatively, Custodia also
says that if FRBKC denies the application, the Court should “issue a writ of mandamus”
ordering Defendants to grant the application. (Id. ¶ 130.) Defendants have moved to
dismiss Custodia’s complaint in its entirety under Federal Rule of Civil Procedure 12(b)(6),
asserting Custodia has failed to state any claim on which the Court can grant relief.
STANDARD FOR 12(b)(6) MOTION TO DISMISS
“The court’s function on a Rule 12(b)(6) motion is not to weigh potential evidence
that the parties might present at trial, but to assess whether the plaintiff’s complaint alone
is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start,
Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (citations and quotation marks omitted). To
survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint’s factual
allegations, assumed to be true, must “raise a right to relief above the speculative level”
and must contain “enough facts to state a claim to relief that is plausible on its face.” Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In the context of a 12(b)(6) motion
to dismiss, this plausibility standard requires the plaintiff to plead facts that allow “the court
to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court accepts the nonmoving party’s
well-pled factual allegations as true and construes them in the light most favorable to the
nonmoving party, but it is not bound to accept an asserted legal conclusion as true. Hall v.
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Bellmon, 935 F.2d 1106, 1109 (10th Cir. 1991); Iqbal, 556 U.S. at 678 (citing Twombly,
550 U.S. at 555).
DISCUSSION
The Court starts with Custodia’s primary causes of action before moving to its
alternative claims.
1. Claim I - Violation of Administrative Procedure Act (APA) for Unreasonable
Delay of Agency Action
In its first claim for relief, Custodia contends the Administrative Procedures Act
(APA) allows it to “compel agency action unlawfully withheld or unreasonably delayed,”
5 U.S.C. § 706(1), and Defendants have unlawfully withheld or unreasonably delayed the
decision on Custodia’s application for a master account. (Compl. ¶¶ 61-81.) Defendant
FRBKC argues it is not an “agency” for purposes of the APA, but even if it was, Custodia
has not suffered an “unreasonable delay” under the APA. (ECF 51 pp. 25-32.1) Defendant
Federal Reserve Board of Governors argues that while it is an “agency” for APA purposes,
it is not the entity that decides Custodia’s application and Custodia has not suffered an
unreasonable delay under the APA. (ECF 49 pp. 32-41.)
1.1 Whether FRBKC is an Agency Subject to the APA
The APA defines an agency, with certain exceptions not applicable here, as “each
authority of the Government of the United States, whether or not it is within or subject to
review by another agency.” 5 U.S.C. § 551(1); 5 U.S.C. 701(b)(1). Simply put, the law is
1
Pinpoint citations to documents in the court record are to the page number assigned by the CM/ECF
system at the top of each page rather than the page number assigned by counsel at the bottom of the pages.
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currently unsettled on whether a Federal Reserve Bank is an “agency” for APA purposes.
Neither the Tenth Circuit nor the U.S. Supreme Court have decided the question, and other
federal district courts are divided on the matter. For example:
• Fourth Corner Credit Union v. Fed. Rsrv. Bank of Kansas City, 154 F. Supp. 3d
1185, 1187 (D. Colo. 2016) (“Despite its name, the Bank is not a federal agency.
Rather, it is a private corporation created by an Act of Congress and run by its own
board of directors.”), reversed and remanded with instructions on other grounds,
861 F.3d 1052 (10th Cir. 2017).
• Lee Const. Co. v. Fed. Rsrv. Bank of Richmond, 558 F. Supp. 165, 179 (D. Md.
1982) (“All in all, while the issue is a close one, it would seem that a consideration
of each and every one of the relevant factors tips the balance in favor of holding that
the Bank is an ‘agency’ for purposes of judicial review under the APA. For the
most part, that conclusion comports with the decisions of other Courts which have
held that Federal Reserve Banks are agencies or instrumentalities of the United
States for other purposes.”)
• Flight Int’l Grp., Inc. v. Fed. Rsrv. Bank of Chicago, 583 F. Supp. 674, 678 (N.D.
Ga.) (“There can be no doubt that the Federal Reserve Bank of Chicago is an
‘authority’ of the government of the United States. As a member bank of the Federal
Reserve System, it performs important governmental functions and exercises
powers entrusted to it by the United States government. [Collecting cases.] Because
the Bank is an authority of the United States government and is not listed among the
exclusions of section 551, the Court determines that the Bank is an agency subject
to review of its action under the Administrative Procedure Act. How the Bank can
contend otherwise in good faith escapes the Court.”), vacated sub nom. Flight Int’l,
Inc. v. Fed. Rsrv. Bank of Chicago, 597 F. Supp. 462 (N.D. Ga. 1984) (expressly
stating the prior opinion carries no precedential value).
There is no controlling precedent and precious little persuasive authority on the question
in the Tenth Circuit. Moreover, the “law on the simple question of what is an agency is
quite complex.” McKinney v. Caldera, 141 F. Supp. 2d 25, 31 (D.D.C. 2001).
But in Lee Const. Co., the District of Maryland persuasively concluded that to
determine whether the Federal Reserve Banks were APA agencies, it would be necessary
for a court “to review the organizational structure of Federal Reserve Banks and their
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function within the Federal Reserve System in order to determine whether or not such
Banks possess sufficient indicia of ‘agency’ status to be considered agencies for purposes
of the APA.” Lee Const. Co., 558 F. Supp. at 176; see New York v. Atl. States Marine
Fisheries Comm’n, 609 F.3d 524, 531 (2d Cir. 2010) (“courts have emphasized ‘the need
to examine the structure, function, and mandate’ of the entity in question in determining
whether it falls within the definition set out in the APA”) (quoting McKinney, 141 F. Supp.
2d at 33). This Court agrees those factors, and others, weigh on the decision of whether
FRBKC is an “agency” for APA purposes. However, that level of information and detail
is not part of the record at this stage of the proceedings. At this point, the Court is confident
in stating FRBKC exercises, at the least, quasi-agency functions that may render it subject
to the APA, but a definitive decision on the matter must wait for further factual
development addressing the various factors the Court will have to examine to determine
whether FRBKC is a federal agency for APA purposes. For now, the Court has little
trouble concluding that, accepting the allegations of the complaint as true and construing
them in the light most favorable to the non-moving party, Custodia has stated a plausible
claim that FRBKC is subject to the APA.
1.2 Whether the Board of Governors is a Proper Defendant
The Board of Governors contends the decision on Custodia’s master account
application rests with FRBKC. Custodia asserts, “Upon information and belief,
[FRBKC’s] consideration and impending approval of Custodia’s application was derailed
when, in spring 2021, the Board [of Governors] asserted control over the decision-making
process.” (Compl. ¶ 6.) While this allegation is made “upon information and belief,” the
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plausibility standard of 12(b)(6) “does not prevent a plaintiff from pleading facts alleged
upon information and belief where the facts are peculiarly within the possession and control
of the defendant or where the belief is based on factual information that makes the inference
of culpability plausible.” Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010)
(internal quotation marks and citations omitted). Here, several factors combine to make it
reasonable to infer the Board of Governors has involved itself in some manner to interfere
with or delay Custodia’s application:
(1) More than a year and a half has passed since “Tara Humston, [FRBKC’s]
head of Supervision and Risk Management, informed Custodia that there
were ‘no showstoppers’ with its master account application.” (Compl. ¶ 36.)
(2) FRBKC confirmed in a January 2022 letter “that Custodia meets the legal
eligibility requirements for receiving a master account.” (Id.; see also
Compl. ¶ 43.)
(3) In a March 2022 meeting (i.e., after FRBKC asserted there were “no
showstoppers” and confirmed Custodia was legally eligible for a master
account), FRBKC then “informed Custodia that it had not started processing
Custodia’s master account application.” (Compl. ¶ 40.)
See also 12 U.S.C. § 248 (setting forth the broad authority of the Board of Governors to
oversee and supervise the Federal Reserve Banks).
Custodia has plausibly alleged the Board of Governors has participated in or
interfered with the consideration and decision of Custodia’s master account application.
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1.3 Whether Custodia has Stated a Plausible Claim of Unreasonably
Delayed Agency Action
Knowing that the Board of Governors is an agency subject to the APA and accepting
for purposes of this Order that FRBKC is likewise, the next question is whether Custodia
has stated a plausible claim of unreasonable delay under the APA against the Defendants.
This inquiry breaks down into multiple sub-inquiries.
1.3.1 A one-year statutory deadline does not apply to deciding Custodia’s
master account application, but such decision can still be “unreasonably
delayed” under the APA.
Custodia contends a one-year statutory deadline from 12 U.S.C. § 4807(a) applies
to its master account application, which the Defendants have exceeded. (Compl. ¶¶ 6, 46,
74, 87, 107.) Defendants argue § 4807 does not apply, and therefore Custodia cannot state
a claim for unreasonable delay under the APA.
Section 4807 provides:
(a) In general: Each Federal banking agency shall take final action on any
application to the agency before the end of the 1-year period beginning on
the date on which a completed application is received by the agency.
(b) Waiver by applicant authorized: Any person submitting an application to a
Federal banking agency may waive the applicability of subsection (a) with
respect to such application at any time.
12 U.S.C. § 4807. Section 4801(1) says the term “Federal banking agencies” has the
definition given to it by 12 U.S.C. § 1813. And § 1813 says “Federal banking agency”
means “the Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, or the Federal Deposit Insurance Corporation.” 12 U.S.C. § 1813(z). It does not
include a Federal Reserve Bank as a “Federal banking agency.”
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Here, it is undisputed that Custodia submitted its application to FRBKC, not to one
of the “Federal banking agencies” identified in 12 U.S.C. § 1813(z). Accordingly,
Custodia’s application for a master account submitted to FRBKC is not bound by the one-
year limitation of § 4807(a). Custodia’s arguments that Federal Reserve Banks must be
inherently included as “Federal banking agencies” is unpersuasive and would require the
Court to read words into § 4801 or § 1813(z) that do not exist, which the Court may not
do. Chapter 48 of Title 12 was codified as part of the Riegle Community Development
and Regulatory Improvement Act of 1994, Pub. L. No. 103-325, 108 Stat. 2160 (“Riegle
Act”), and when it was passed, Congress certainly knew what Federal Reserve Banks were
and could have included them in the definition of “Federal banking agencies” as part of §
4801 if it wanted to. Indeed, it referenced “Federal reserve bank” several times in other
parts of the Riegle Act. “[W]here Congress includes particular language in one section of
a statute but omits it in another section of the same Act, it is generally presumed that
Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Nken
v. Holder, 556 U.S. 418, 430 (2009). Custodia’s assertion that deciding its master account
application is subject to the one-year limitation of § 4807(a) is legally unsustainable and
fails to state a claim on which relief can be granted.
Nonetheless, again presuming the application of the APA to this issue for now, the
decision may be subject to a “reasonable time” deadline; the expiration of a concrete
statutory deadline is not necessary for agency action to be unreasonably delayed. “[I]f an
agency has no concrete deadline establishing a date by which it must act, and instead is
governed only by general timing provisions—such as the APA’s general admonition that
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agencies conclude matters presented to them ‘within a reasonable time,’ see 5 U.S.C. §
555(b)—a court must compel only action that is delayed unreasonably.” Forest Guardians
v. Babbitt, 174 F.3d 1178, 1190 (10th Cir. 1999). Section 555(b) provides, “With due
regard for the convenience and necessity of the parties or their representatives and within
a reasonable time, each agency shall proceed to conclude a matter presented to it.” 5 U.S.C.
§ 555(b); see also Telecomm. Research & Action Ctr. v. F.C.C., 750 F.2d 70, 77 (D.C. Cir.
1984) (“section 706(1) coupled with section 555(b) does indicate a congressional view that
agencies should act within reasonable time frames”). Under this “within a reasonable time”
standard, it rests in the Court’s “discretion to decide whether agency delay is
unreasonable.” Forest Guardians, 174 F.3d at 1190.
Custodia has stated a plausible claim of unreasonable delay that survives dismissal.
Specifically, the “Master Account Agreement” completed by Custodia and submitted to
FRBKC notes that “[p]rocessing may take 5-7 business days. Please contact the Federal
Reserve Bank to confirm the date that the master account will be established.” (ECF 1-2.)
This suggests that a standard financial institution can expect a decision on their master
account application in a matter of days, whereas Custodia’s application has been pending
for two years. Further, Custodia alleges in its complaint, “In early 2021, a representative
of [FRBKC] moreover informed Custodia there were ‘no showstoppers’ with Custodia’s
application” (Compl. ¶¶ 5, 36), thus suggesting the application had been considered and
was on track to be granted. Custodia also alleges FRBKC confirmed in a January 2021
letter that Custodia was legally eligible for a master account. (Id. ¶¶ 36, 43.) After all that,
FRBKC then informed Custodia in March 2022 that it had not even started processing the
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master account application (which may or may not have occurred due to the Board of
Governors’ involvement). (Id. ¶ 40.) Considered together, the Court has little difficulty
concluding Custodia has asserted a plausible cause of action for unreasonable delay against
both Defendants.
1.3.2 Only legally-required action can be compelled under the law, and
Custodia has stated a plausible claim to compel legally-required action.
“[A] claim under § 706(1) can proceed only where a plaintiff asserts that an agency
failed to take a discrete agency action that it is required to take.” Norton v. S. Utah
Wilderness All., 542 U.S. 55, 64 (2004). The Defendants argue that issuing a master
account is discretionary and, therefore, cannot be compelled. This issue, too, is unsettled
in the law and, at least at this juncture, the Court concludes Custodia has stated a legally
valid claim to relief.
The Defendants contend FRBKC has complete discretion to issue or deny a master
account pursuant to 12 U.S.C. § 342, which says in part:
Any Federal reserve bank may receive from any of its member banks, or other
depository institutions, … deposits of current funds in lawful money,
national-bank notes, Federal reserve notes, [etc.].
Section 342 is located in Subchapter IX of Chapter 3 of Title 12 of the U.S.C. Subchapter
IX is titled, “Powers and Duties of Federal Reserve Banks.” To effectuate this deposit-
taking function, Federal Reserve Banks use the master account to keep a record of each
institution’s debits and credits. No provision of the Federal Reserve Act, including § 342,
“imposes upon reserve banks any obligation to receive” deposits. Farmers’ & Merchants’
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Bank of Monroe, N.C. v. Fed. Rsrv. Bank of Richmond, Va., 262 U.S. 649, 662 (1923).
“The act merely confers authority to do so.” Id.
The Defendants contend the discretion to receive or reject deposits necessarily
carries with the discretion to grant or deny master accounts. (ECF 51 p. 33; ECF 49 pp.
32-35.) This argument presents as logical and may yet carry the day, but at least one judge
of the Tenth Circuit has disagreed in a published opinion.
In Fourth Corner Credit Union v. Fed. Rsrv. Bank of Kansas City, 861 F.3d 1052
(10th Cir. 2017), Judge Bacharach determined 12 U.S.C. § 248a requires Federal Reserve
Banks to issue master accounts to eligible depository institutions that apply. That section
(part of the Depository Institutions Deregulation and Monetary Control Act of 1980), says
in part:
(a) Publication of Pricing Principles and Proposed Schedule of Fees;
Effective Date of Schedule of Fees.
Not later than the first day of the sixth month after March 31, 1980, the Board
shall publish for public comment a set of pricing principles in accordance
with this section and a proposed schedule of fees based upon those principles
for Federal Reserve bank services to depository institutions, and not later
than the first day of the eighteenth month after March 31, 1980, the Board
shall begin to put into effect a schedule of fees for such services which is
based on those principles.
…
(c) Criteria applicable.
The schedule of fees prescribed pursuant to this section shall be based on the
following principles:
…
(2) All Federal Reserve bank services covered by the fee schedule
shall be available to nonmember depository institutions and such
services shall be priced at the same fee schedule applicable to member
banks, except that nonmembers shall be subject to any other terms,
including a requirement of balances sufficient for clearing purposes,
that the Board may determine are applicable to member banks.
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12 U.S.C. § 248a(a), (c)(2). Judge Bacharach concluded the only way the “Federal Reserve
bank services covered by the fee schedule” can be made available to nonmember
depository institutions is by granting them a master account. See Fourth Corner, 861 F.3d
at 1071 (Bacharach, J.) (“The plain text of § 248a(c)(2) indicates that nonmember
depository institutions are entitled to purchase services from Federal Reserve Banks. To
purchase these services, a master account is required. Thus, nonmember depository
institutions, such as Fourth Corner, are entitled to master accounts.”). In distinguishing §
342 from § 248a, Judge Bacharach opined:
Section 342 addresses the types of monetary instruments that Federal
Reserve Banks may receive for deposit or collection…. But § 342 does not
address which institutions can access Federal Reserve services; that subject
is governed instead by § 248a(c)(2), which establishes open access to Federal
Reserve services for all nonmember depository institutions. As a result, §
342 does not affect Fourth Corner’s entitlement to a master account.
Fourth Corner, 861 F.3d at 1074. That is, he agreed § 342 affords to a Federal Reserve
Bank the discretion to take or refuse deposits, but concluded such discretion was separate
and apart from the issuance of master accounts. See id. at 1073-74 (“But this discretion
does not encompass the issuance of master accounts.”); see also Mot. Dismiss Hr’g Tr.
31:1-17 (ECF 101 p. 31) (counsel for the Board of Governors affirming the deposits of
funds with Federal Reserve Banks and the services of § 248a are distinct), 57:7-58:9 (ECF
101 pp. 57-58) (counsel for FRBKC agreeing that § 342 allows FRBKC discretion over
deposit-taking even after a master account is opened).
The Defendants spill much ink explaining why Judge Bacharach’s opinion in Fourth
Corner cannot win the day in this case. (ECF 49 pp. 37-41; ECF 51 pp. 33-36.) They
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point out Fourth Corner was a three-way split decision between the three-judge panel, and
Judge Bacharach was effectively the odd man out as he voted to reverse the dismissal of
the complaint while the other two judges voted to uphold the dismissal. See Fourth Corner,
861 F.3d at 1053. All true. Nonetheless, it’s worth noting that the other two judges did
not reach the merits of the § 248a versus § 342 statutory interpretation question (because
they found dismissal warranted), so we don’t currently know if they would have seen it the
same as Judge Bacharach or not.
The Defendants also note that Section 248a is found in Subchapter II of Chapter 3
of Title 12, and Subchapter II is titled “Board of Governors of the Federal Reserve System.”
Indeed, § 248 begins, “The Board of Governors of the Federal Reserve System shall be
authorized and empowered: [list of duties].” 12 U.S.C. § 248. Thus, Judge Bacharach
appears convinced that Congress effectively mandated Federal Reserve Banks to
automatically grant master accounts to all eligible nonmember institutions that apply in a
Subchapter that sets forth the duties of a completely different entity (the Board of
Governors). The Court agrees it appears a strange place for Congress to stick such a
requirement that would seemingly govern the Federal Reserve Banks. Of course, the title
of a statute, along with the title of the subchapter the statute resides in, might matter only
if the Court first determines the statute is ambiguous, and even then it might matter only
very little. “[U]nder the general rules of statutory interpretation, the title to a statutory
provision is not part of the law itself, although it can be used to interpret an ambiguous
statute.” Griffin v. Steeltek, Inc., 160 F.3d 591, 594 n.4 (10th Cir. 1998) (quoting Johnston
v. Commissioner of Internal Revenue, 114 F.3d 145, 150 (10th Cir. 1997), and giving “little
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weight” to the title of the Americans With Disabilities Act); see Brotherhood of R. R.
Trainmen v. Baltimore & O. R. Co., 331 U.S. 519, 529 (1947) (“For interpretative purposes,
[statutory headings and titles] are of use only when they shed light on some ambiguous
word or phrase. They are but tools available for the resolution of a doubt. But they cannot
undo or limit that which the text makes plain.”). Thus, the title of Subchapter II and the
location of § 248a within the statutory code likely offer relatively little toward refuting
Judge Bacharach’s opinion.
To cut short what could become an unnecessarily long recap of the Defendants’
objections to Judge Bacharach’s opinion in Fourth Corner, the Court concludes Custodia
has stated a plausible claim to compel legally-required action for two reasons. First, Judge
Bacharach’s opinion may plausibly be the law on this matter in this case. See Mot. Dismiss
Hr’g Tr. 31:1-17 (ECF 101 p. 31) (counsel for the Board of Governors affirming the
deposits of funds with a Federal Reserve Bank and the services of § 248a are distinct),
57:7-58:9 (ECF 101 pp. 57-58) (counsel for FRBKC agreeing that § 342 allows FRBKC
discretion over deposit-taking even after a master account is opened).
Second, and more immediately significant, a full statutory interpretation of the
matter is better left for another day. In this particular case, the facts alleged by Custodia
could weigh heavily on the Court’s analysis of whether Congress afforded FRBKC
complete discretion (under § 342) or no discretion (under § 248a) in granting Custodia’s
master account application. For example, if discovery reveals the Board of Governors in
fact inserted itself into FRBKC’s consideration of Custodia’s application, the level of
discretion held by FRBKC under the law may matter little because it may be that FRBKC
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failed to exercise any such discretion (if, that is, the Board of Governors was pulling the
puppet strings behind the scenes, as Custodia has plausibly suggested). Thus, because the
development of facts underlying or refuting certain allegations may prove particularly
relevant to any statutory interpretation of § 342 versus § 248, the Court will not undertake
a complete analysis at this stage of the proceedings without further development of those
facts.
The Defendants’ requests to dismiss Custodia’s “Claim for Relief I - Violation of
APA, 5 U.S.C. § 706(a) Claim for Unreasonable Delay of Agency Action Against All
Defendants” will be denied.
2. Claim II - Compel Action under the Mandamus Act
Custodia’s second cause of action seeks a writ of mandamus compelling action
from the Defendants under 28 U.S.C. § 1361, which provides:
The district courts shall have original jurisdiction of any action in the nature
of mandamus to compel an officer or employee of the United States or any
agency thereof to perform a duty owed to the plaintiff.
“Mandamus is the traditional writ designed to compel government officers to perform
nondiscretionary duties.” Simmat v. U.S. Bureau of Prisons, 413 F.3d 1225, 1234 (10th
Cir. 2005). In a mandamus action, the Court should
measure the allegations in the complaint against the statutory and
constitutional framework to determine whether the particular official actions
complained of fall within the scope of the discretion which Congress
accorded the administrators.... In other words, even in an area generally left
to agency discretion, there may well exist statutory or regulatory standards
delimiting the scope or manner in which such discretion can be exercised. In
these situations, mandamus will lie when the standards have been ignored or
violated.
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Carpet, Linoleum & Resilient Tile Layers, Loc. Union No. 419, Bhd. of Painters & Allied
Trades, AFL-CIO v. Brown, 656 F.2d 564, 566 (10th Cir. 1981) (quoting Davis Associates,
Inc. v. Sec., Dep’t of Housing and Urban Development, 498 F.2d 385, 389 & n.5 (1st Cir.
1974)).
Under Judge Bacharach’s view in Fourth Corner, Custodia has stated a claim of
both unreasonable delay of a decision on its master account application and legal
entitlement to a master account. Therefore, the Court finds Custodia’s request for
mandamus relief should not be dismissed. In short, “there may well exist statutory or
regulatory standards delimiting the scope or manner in which” the Defendants may
exercise their discretion (if any) over Custodia’s master account application, and assuming
the truth of Custodia’s allegations, those standards may have been ignored or violated in
this case. That is, applying Judge Bacharach’s reasoning, Custodia has plausibly alleged
the Defendants have “failed to discharge a duty owed to plaintiffs which Congress has
directed them to perform.” Carpet, Linoleum & Resilient Tile Layers, etc. v. Brown, 656
F.2d 564, 567 (10th Cir. 1981).
Custodia’s claim for mandamus relief plausibly functions in a complementary
fashion to § 706(1) of the APA, which allows the Court to compel agency action that is
unlawfully withheld or unreasonably delayed. Additionally, Custodia’s claim for
mandamus relief plausibly functions as an alternative claim to its APA claim as it relates
to FRBKC, if the Court ultimately determines FRBKC is not an agency for APA purposes
(as FRBKC currently asserts).
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After having found Custodia stated a plausible claim for relief under the APA
against both Defendants, it finds Custodia’s claim for mandamus relief is also plausible
and should not be dismissed.
3. Claim III (in part) - Violation of Due Process Based on Entitlement to Master
Account and Unreasonable Delay
As part of its third claim, Custodia contends it has been denied due process because
it has a legal entitlement to and property interest in a master account. The Defendants
disagree and argue Custodia cannot prevail on a due process claim as a matter of law
because it lacks a property interest in a master account. (ECF 51 pp. 41-42; ECF 49 p. 48.)
“[T]o prevail on either a procedural or substantive due process claim, a plaintiff
must first establish that a defendant’s actions deprived plaintiff of a protectible property
interest.” Teigen v. Renfrow, 511 F.3d 1072, 1078 (10th Cir. 2007) (quoting Hyde Park
Co. v. Santa Fe City Council, 226 F.3d 1207, 1210 (10th Cir. 2000)). “An individual has
a property interest in a benefit for purposes of due process protection only if he has a
‘legitimate claim of entitlement’ to the benefit, as opposed to a mere ‘abstract need or
desire’ or ‘unilateral expectation.’” Id. at 1078-79 (quoting Bd. of Regents of State Colls.
v. Roth, 408 U.S. 564, 577 (1972)). The Court determined above that if Judge Bacharach’s
opinion in Fourth Corner is a correct interpretation of the law, then Custodia appears
entitled to a master account under 12 U.S.C. § 248a.
Therefore, at this early stage of the proceedings, Custodia has plausibly alleged a
legitimate claim of entitlement to a master account sufficient to support a due process
claim. Similarly, because Custodia has plausibly alleged an unreasonable-delay claim
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under the APA, it has stated a sufficient due process claim. (See Compl. ¶ 100; ECF 49
pp. 4-50.)
4. Claim III (in part) - Violation of Separation of Powers (Nondelegable Doctrine)
Also within its third cause of action, Custodia contends that if Defendants’ claim is
true that the Federal Reserve Banks have unbounded and unreviewable discretion under 12
U.S.C. § 342 to issue or deny master accounts, then Congress violated the nondelegation
doctrine (separation of powers) by delegating its legislative power to the Federal Reserve
Banks with no guidance (“intelligent principles”). Article I of the U.S. Constitution begins,
“All legislative Powers herein granted shall be vested in a Congress of the United States,
which shall consist of a Senate and House of Representatives.” U.S. Const. art I, § 1.
“Accompanying that assignment of power to Congress is a bar on its further delegation.”
Gundy v. United States, 139 S. Ct. 2116, 2123 (2019). That is, the people’s representatives
in Congress must make the law rather than delegate that power to the executive or judicial
branches. The U.S. Supreme Court has long “recognized, however, that the separation-of-
powers principle, and the nondelegation doctrine in particular, do not prevent Congress
from obtaining the assistance of its coordinate Branches.” Mistretta v. United States, 488
U.S. 361, 372 (1989). In particular, Congress “may confer substantial discretion on
executive agencies to implement and enforce the laws.” Gundy, 139 S. Ct. at 2123 (citing
Mistretta, 488 U.S. at 372). “[A] statutory delegation is constitutional as long as Congress
‘lay[s] down by legislative act an intelligible principle to which the person or body
authorized to [exercise the delegated authority] is directed to conform.’” Id. (quoting
Mistretta, 488 U.S. at 372).
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Because the nondelegation doctrine bars Congress from delegating “powers which
are strictly and exclusively legislative,” Wayman v. Southard, 23 U.S. (10 Wheat.) 1, 42-
43 (1825), to the other Branches, it’s not uncommon for a court facing a delegation
challenge to first ask “whether the statute has delegated legislative power to the agency.”
Whitman v. Am. Trucking Associations, 531 U.S. 457, 472 (2001). “Whether the statute
delegates legislative power is a question for the courts[.]” Id. at 473. The Defendants
argue a decision on a master account application is not the exercise of legislative authority.
(ECF 51 pp. 42-43; ECF 49 pp. 52-54.)
Black’s Law Dictionary defines “legislative power” as “[t]he power to make laws
and to alter them.” Legislative Power, Black’s Law Dictionary (11th ed. 2019); see Gundy,
139 S. Ct. 2116, 2133 (Gorsuch, J., dissenting) (“When it came to the legislative power,
the framers understood it to mean the power to adopt generally applicable rules of conduct
governing future actions by private persons—the power to ‘prescrib[e] the rules by which
the duties and rights of every citizen are to be regulated,’ or the power to ‘prescribe general
rules for the government of society.’”) (footnotes omitted). Similarly, “legislation” is
“[t]he process of making or enacting a positive law in written form.” Legislation, Black’s
Law Dictionary (11th ed. 2019); see Loving v. United States, 517 U.S. 748, 758 (1996)
(“the lawmaking function belongs to Congress”).
The Court starts where Custodia’s Claim III starts—presuming the Defendants’
interpretation of § 342 is correct for purposes of this discussion. Even with such a
presumption, the boundless discretion to grant or deny a master account application is not
“legislative power.” Decisions on master account applications do not involve lawmaking
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or rulemaking or enacting generally applicable regulations. Under Defendants’
interpretation of § 342, Congress has passed a law instructing Federal Reserve Banks they
may grant or deny master applications as they see fit, and granting or denying master
applications, even with unbridled discretion, is not legislative action. It simply does not
result in the passage of a generally applicable pronouncement governing future actions.
See United States v. Hutchinson, 573 F.3d 1011, 1032 n.4 (10th Cir. 2009) (“Additionally,
he claims that 21 U.S.C. § 851(a), the statute that allows the prosecutor to establish a prior
conviction by information, violates the constitutional doctrine prohibiting the delegation
of legislative power because it does not prescribe an ‘intelligible principle’ for the
executive to follow in deciding whether to seek a sentencing enhancement on this basis.
But allowing prosecutors discretion to seek (or not seek) sentencing enhancements involves
no delegation of legislative power: such a decision is an exercise of the prerogative power
committed to the executive department, and is no different than the discretion possessed by
prosecutors to bring (or not bring) criminal charges in the first instance.”) (internal citations
omitted). Therefore, Congress cannot be said to have trespassed upon the nondelegation
doctrine by enacting § 342 because the decision on a master account application is not a
legislative function.
Custodia has not set forth a plausible separation-of-powers claim based on violation
of the nondelegation doctrine, and this claim must be dismissed under Rule 12(b)(6).
5. Claim IV - Declaratory Judgment Based on Unreasonable Delay
In its fourth claim for relief, Custodia seeks a judgment declaring the Board of
Governors “and/or” FRBKC “must decide Custodia’s master account application within a
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reasonable period of time.” (Compl. ¶ 109.) FRBKC accurately argues the Declaratory
Judgment Act provides a remedy for valid federal causes of action and does not offer a
separate cause of action. (ECF 51 p. 47); see Nero v. Oklahoma, No. 22-6121, 2022 WL
14423872, at *2 (10th Cir. Oct. 25, 2022) (unpublished) (“the Declaratory Judgment Act
does not provide an independent federal cause of action”) (citing Skelly Oil Co. v. Phillips
Petrol. Co., 339 U.S. 667, 671–74 (1950)). “To maintain an action for a declaratory
judgment, then, [Custodia] must assert a valid federal cause of action—one that exists
independent of any request for declaratory relief.” Nero, 2002 WL 14423872, at *2. As
the Court determined above Custodia has asserted plausible claims of unreasonable delay
under the APA and the Mandamus Act, its action for a declaration that a master account
application must be decided within a reasonable period of time is valid.
Therefore, while Custodia’s claim for declaratory judgment is not properly
understood as a stand-alone cause of action (and cannot truly be an “alternative” to Claims
I and II, despite Custodia’s pleading), it is a viable request for relief that will not be
dismissed at this time.
6. Claim V - Violation of Due Process Based on Decision-Making by Interested
Parties (Bias)
Next, Custodia asserts that FRBKC’s Board of Directors is comprised of officials
from other banks who “are or may be competitors with all other banks requesting master
accounts.” (Compl. ¶ 114.) Custodia says:
To the extent that [FRBKC’s] Board of directors finally adjudicates the rights
of would-be competitors like Custodia, the current master application review
regime works “an intolerable and unconstitutional interference with personal
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liberty and private property” by vesting “self-interested” actors with
“regulatory authority over [their] rivals.”
(Compl. ¶ 115 (quoting Carter v. Carter Coal Co., 298 U.S. 238, 311 (1936), and Assoc.
of Am. R.R.s v. U.S. Dep’t of Transp., 821 F.3d 19, 27 (D.C. Cir. 2016)).
The Defendants assert the decision on a master account application is made by the
president of FRBKC, not its Board of Directors. (ECF 49 p. 50; ECF 51 p. 44.) Custodia’s
factual allegations agree. Custodia alleges that after learning in March 2022 that FRBKC
had allegedly not started processing Custodia’s master account application (despite it being
almost a year-and-a-half old at that point), Custodia sent a letter to FRBKC’s president,
Esther George, in which it “urged Ms. George to consider Custodia’s application.”
(Compl. ¶¶ 40-41.) Custodia has not alleged Ms. George is biased against it or is an official
from a competing bank. Statutory law precludes six of the nine FRBKC directors from
being officers, directors, or employees of any bank. See 12 U.S.C. § 303. These six
directors are the Class B and Class C directors. See id. More importantly, these six Class
B and Class C directors select FRBKC’s president (having selected Ms. George as relevant
here), with the approval of the Board of Governors. 12 U.S.C. § 341. Thus, six non-
officers, non-directors, and non-employees of any bank chose Ms. George to be FRBKC’s
president, and it is Ms. George (who is not alleged to be biased or Custodia’s competitor)
who the complaint’s well-pled allegations plausibly suggest is to make the decision on
Custodia’s master account application.
Moreover, even if FRBKC’s Board of Directors was making the decision on
Custodia’s master account application, two-thirds of the directors (the Class B directors
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and the Class C directors) are not potential competitors of Custodia (because they are not
officers, directors, or employees of a bank).
Custodia has not stated a plausible claim of violation of due process based on bias
or regulation by a competitor. This cause of action is not tethered to the relevant factual
allegations or the statutory law. Accordingly, it will be dismissed under Rule 12(b)(6) for
failure to state a claim on which relief can be granted.
7. Claim VI - Violation of the Appointments Clause
In its sixth cause of action, which it identifies as an alternative claim to Claims I and
II, Custodia asserts “the Federal Reserve System’s process for deciding master account
applications violates the United States Constitution’s Appointments Clause.” (Compl. ¶
118.)
Under the Constitution, “[t]he executive Power” is vested in the President,
who has the responsibility to “take Care that the Laws be faithfully
executed.” Art. II, § 1, cl. 1; § 3. The Appointments Clause provides that he
may be assisted in carrying out that responsibility by officers nominated by
him and confirmed by the Senate [“principal officers”], as well as by other
officers not appointed in that manner but whose work, we have held, must be
directed and supervised by an officer who has been [“inferior officers”]. §
2, cl. 2.
United States v. Arthrex, Inc., 141 S. Ct. 1970, 1976 (2021) (first alteration in original).
The Appointments Clause states:
[The President] shall nominate, and by and with the Advice and Consent of
the Senate, shall appoint Ambassadors, other public Ministers and Consuls,
Judges of the Supreme Court, and all other Officers of the United States,
whose Appointments are not herein otherwise provided for, and which shall
be established by Law: but Congress may by Law vest the Appointment of
such inferior Officers, as they think proper, in the President alone, in the
Courts of Law, or in the Heads of Departments.
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U.S. Const. art. II, § 2 cl. 2. The Appointments Clause thus “lays out the permissible
methods of appointing ‘Officers of the United States,’ a class of government officials
distinct from mere employees.” Lucia v. S.E.C., 138 S. Ct. 2044, 2049 (2018).
Essentially, Custodia alleges that a decision on its master account application
constitutes the exercise of executive power, which must be done by the U.S. President, or
a principal officer appointed by the President upon the advice and confirmation of the
Senate.
Under this framework, only principal officers—people with presidential
appointments and Senate confirmation—can render final decisions about
master accounts. Adjudicating master account applications unquestionably
involves exercising “significant authority pursuant to the laws of the United
States,” Buckley, 424 U.S. at 126, because such adjudications “bind[] the
government or third parties for the benefit of the public.” Officers of the
U.S., 31 Op. O.L.C. at 77.
(ECF 58 p. 43.) As neither the president of FRBKC nor its board of directors are appointed
by the U.S. President with Senate confirmation, Custodia asserts the Appointments Clause
precludes them from deciding master account applications. As noted above, the factual
allegations in Custodia’s complaint support that the master account application is decided
by the president of FRBKC as opposed to FRBKC’s board of directors.
Similar to the nondelegation doctrine discussed earlier, the first question to address
for this claim is whether a decision on a master account application constitutes the exercise
of “executive power.” FRBKC contends it is not, arguing the decision is “an essentially
commercial decision,” and “Custodia can point to no court that has held that a Reserve
Bank’s grant or denial of a master account—a bank account—somehow implicates []
‘executive Power.’” (ECF 51 p. 46.) The Supreme Court has described executive power
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as the authority to administer and enforce laws “or appoint the agents charged with the duty
of such enforcement.” Buckely v. Valeo, 424 U.S. 1, 139 (1976) (quoting Springer v.
Philippine Islands, 277 U.S. 189, 202 (1928)), superseded by statute on other grounds as
recognized in McConnell v. Fed. Election Comm’n, 540 U.S. 93 (2003). Relatedly, the
Supreme Court has said the executive power of the government is “the general
administrative control of those executing the laws, including the power of appointment and
removal of executive officers.” Myers v. United States, 272 U.S. 52, 164 (1926); see also
U.S. Const. art. II, § 3 (assigning the U.S. President the responsibility to “take Care that
the Laws be faithfully executed”).
As applied here, the Court finds Custodia has plausibly alleged that FRBKC’s
president is exercising executive power when deciding a master account application.
Whether deciding the application under § 342 (as the Defendants claim) or under § 248a
(as Custodia claims), the complaint sufficiently asserts the decision constitutes the
execution and enforcement of the Federal Reserve Act (and other laws and federal
regulations with the force of law) when granting or denying a master account. See Arthrex,
141 S. Ct. at 1979 (“Today, thousands of officers wield executive power on behalf of the
President in the name of the United States.”); but see United States v. Wells Fargo & Co.,
943 F.3d 588, 597–98 (2d Cir. 2019) (“Although, in the intervening decades, Congress has
transferred functional ownership and control of the [Federal Reserve Banks] to the
Treasury and to the Board … Congress has carefully retained the formal separation of the
[Federal Reserve Banks] from the executive branch.”) (internal citations and footnotes
omitted). The Court does not here decide as a matter of law whether decisions on master
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account applications are executive functions, but it finds Custodia has plausibly alleged
such.
Next, the Court considers whether a plausible violation of the Appointments Clause
has been alleged concerning the master account decision by the FRBKC president. That
largely depends on whether the FRBKC president is a principal officer (requiring
appointment by the U.S. President with confirmation by the Senate), an inferior officer
(who, by appropriate law, may be appointed directly by the President, courts, or department
heads), or a nonofficer (a government employee not subject to the Appointments Clause).
“The exercise of ‘significant authority pursuant to the laws of the United States’ marks, not
the line between principal and inferior officer for Appointments Clause purposes, but
rather, as we said in Buckley, the line between officer and nonofficer.” Edmond v. United
States, 520 U.S. 651, 662 (1997); see Buckley, 424 U.S. at 126 (“any appointee exercising
significant authority pursuant to the laws of the United States is an ‘Officer of the United
States,’ and must, therefore, be appointed in the manner prescribed by § 2, cl. 2, of that
Article”). Under the circumstances of this case, Custodia has plausibly alleged FRBKC’s
president (who also serves as its CEO) exercises significant authority pursuant to the laws
of the United States. See, e.g., 12 U.S.C. § 341 (Federal Reserve Bank president shall also
be the chief executive officer of the Federal Reserve Bank); Job Description: President
and CEO, Fed. Rsrv. Bank of Kansas City (May 2022) (“The President and CEO of the
Federal Reserve Bank of Kansas City is responsible for the overall performance of the
Bank and represents the Tenth District economy in national policy discussions…. The
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President’s responsibilities fall into three broad areas: a policymaker and policy advisor;
the CEO of the organization; and a contributor to Federal Reserve System leadership.”)2.
Indeed, that FRBKC’s president holds final decision-making authority over the master
account application demonstrates her exercise of significant authority. See Bandimere v.
Sec. & Exch. Comm’n, 844 F.3d 1168, 1183-84 (10th Cir. 2016) (“final decision-making
power is relevant in determining whether a public servant exercises significant authority”);
(ECF 51 p. 46 (FRBKC noting the decision on a master account application is “one with
significant implications”)). It’s fair to say Federal Reserve Bank presidents “perform more
than ministerial tasks.” Freytag v. Comm’r, 501 U.S. 868, 881 (1991). Accordingly, the
FRBKC president is plausibly a principal officer or an inferior officer subject to the
Appointments Clause.
The Board of Governors says that to the extent the master account application
decision is an executive function, FRBKC’s president is an inferior officer appointed in
conformity with the Appointments Clause. (ECF 49 pp. 57-59; ECF 96 p. 30.) “Our cases
have not set forth an exclusive criterion for distinguishing between principal and inferior
officers for Appointments Clause purposes.” Edmond, 520 U.S. at 661. Custodia’s
argument that only a principal officer may exercise final decision-making authority (and,
correspondingly, that the exercise of final decision-making authority establishes someone
as a principal officer) is misplaced. See Bandimere, 844 F.3d at 1183-84 (stating final
2
Available at: https://www.kansascityfed.org/about-us/presidential-search/. The Court takes judicial
notice of this document prepared by Defendant FRBKC. See S.E.C. v. Goldstone, 952 F. Supp. 2d 1060,
1192 (D.N.M. 2013) (court has discretion to take judicial notice of adjudicative facts, which are simply the
facts of a particular case, at any stage of the proceeding, including a motion to dismiss without conversion
to summary judgment).
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decision-making authority weighs on whether a public servant is an officer versus a
nonofficer and describing how inferior officers can have final decision-making power).
Therefore, that FRBKC’s president has final say over Custodia’s master account
application does not singularly determine whether she is or must be a principal officer as
opposed to an inferior officer for purposes of the Appointments Clause.
We held in Edmond v. United States, 520 U.S. 651, 662–663, 117 S.Ct. 1573,
137 L.Ed.2d 917 (1997), that “[w]hether one is an ‘inferior’ officer depends
on whether he has a superior,” and that “‘inferior officers’ are officers whose
work is directed and supervised at some level” by other officers appointed
by the President with the Senate’s consent.
Free Enter. Fund v. Pub. Co. Acct. Oversight Bd., 561 U.S. 477, 510 (2010).
The Board of Governors, which is appointed by the U.S. President and confirmed
by the Senate, argues that it supervises FRBKC’s president and was required to approve
her appointment, thus making her an inferior officer. The law accords with this contention.
Federal Reserve Bank presidents are appointed by the Federal Reserve Bank’s board of
directors, and their appointment requires the approval of the Board of Governors. 12
U.S.C. § 341 (Fifth) (“The president shall be the chief executive officer of the bank and
shall be appointed by the Class B and Class C directors of the bank, with the approval of
the Board of Governors of the Federal Reserve System, for a term of 5 years[.]”). The
Board of Governors supervises the Federal Reserve Banks, including their presidents, and
has the authority to suspend or remove a Federal Reserve Bank president. See, e.g., 12
U.S.C. § 248(a), (f), (j); 12 U.S.C. § 248b; but see Scott v. Fed. Rsrv. Bank of Kansas City,
406 F.3d 532, 535 (8th Cir. 2005) (FRBKC “is a private, independent entity independently
run by its own board of directors. It is not run by the Federal Reserve Board of Governors
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or any other part of the executive branch.”). Thus, FRBKC’s president’s “work is directed
and supervised at some level” by other officers appointed by the President and confirmed
by the Senate. Accordingly, assuming for purposes of this Order that she is an “officer” of
the Executive Branch, she is an inferior officer.
Finally, assuming the FRBKC president is an inferior officer, her appointment by
the FRBKC’s board of directors with approval by the Board of Governors accords with the
Appointments Clause. Giving Custodia’s cause of action every reasonable inference, the
Court assumes for purposes of this Order that the Federal Reserve System is a “department”
because it is a “free-standing, self-contained entity in the Executive Branch.” Free Enter.
Fund v. Pub. Co. Acct. Oversight Bd., 561 U.S. 477, 511 (2010). The Court further assumes
that the Board of Governors is the “head” of the Federal Reserve System.3 See Individual
Reference Servs. Grp., Inc. v. F.T.C., 145 F. Supp. 2d 6, 16 (D.D.C. 2001) (“The Board
administers the Federal Reserve System”), aff’d sub nom. Trans Union LLC v. F.T.C., 295
F.3d 42 (D.C. Cir. 2002)); Free Enter. Fund, 561 U.S. at 512-13 (a multimember body
may be the head of a department for purposes of the Appointments Clause). With that
foundation of inferences in Custodia’s favor, appointment of FRBKC’s president by the
board of directors with approval of the Board of Governors satisfies the Appointments
Clause. See Free Enter. Fund, 561 U.S. at 512 n.13 (“We have previously found that the
department head’s approval [as opposed to direct appointment by the department head]
satisfies the Appointments Clause[.]”) (collecting cases). Therefore, Custodia has failed
3
Determining the Federal Reserve System is not a “department” and the Board of Governors is not its
“head” would arguably render the Appointments Clause inapplicable, thus eliminating this cause of action.
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to state a plausible claim for relief based on the Appointments Clause, and Claim VI will
be dismissed.
8. Claims I through VI are justiciable but Claims VII and VIII are not.
The Court will next discuss the Defendants’ arguments that Custodia’s lawsuit is
not justiciable, at least not currently. (See ECF 49 pp. 41-47; ECF 51 pp. 49-57.) This
analysis will build off the prior examinations of Claims I through VI (which are justiciable)
and then address Claims VII and VII (which are not justiciable).
In this case, justiciability refers to Custodia’s legal standing to bring its lawsuit and
whether its causes of action are ripe for adjudication. See Flast v. Cohen, 392 U.S. 83, 95
(1968) (explaining justiciability is “a concept of uncertain meaning and scope” and
concerns a variety of subjects). “[J]usticiability implicates the court’s jurisdiction.”
Morgan v. McCotter, 365 F.3d 882, 887 (10th Cir. 2004).
A motion to dismiss for lack of subject matter jurisdiction pursuant to Fed.
R. Civ. P. 12(b)(1) may take one of two forms. A facial attack looks only to
the factual allegations of the complaint in challenging the court’s jurisdiction.
A factual attack goes beyond the factual allegations of the complaint and
presents evidence in the form of affidavits or otherwise to challenge the
court’s jurisdiction.
Muscogee (Creek) Nation v. Oklahoma Tax Comm’n, 611 F.3d 1222, 1227 n.1 (10th Cir.
2010) (citing Stuart v. Colorado Interstate Gas Co., 271 F.3d 1221, 1225 (10th Cir. 2001)).
The Defendants here present a facial challenge to justiciability based on the allegations of
the complaint. Therefore, the Court applies “the same standards under Rule 12(b)(1) that
are applicable to a Rule 12(b)(6) motion to dismiss for failure to state a cause of action.”
Id.
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8.1 Custodia has standing to assert Claims I through VI.
The Court’s authority to adjudicate live cases and controversies “includes the
requirement that litigants have standing.” Kerr v. Polis, 20 F.4th 686, 692 (10th Cir. 2021)
(quoting California v. Texas, ––– U.S. ––––, 141 S. Ct. 2104, 2113 (2021)).
To have standing, a plaintiff must establish three things: (1) he suffered an
“injury in fact”—“an invasion of a legally protected interest which is (a)
concrete and particularized and (b) actual or imminent, not conjectural or
hypothetical”; (2) the injury is “fairly traceable to the challenged action of
the defendant”; and (3) it is likely the injury will be “redressed by a
favorable decision.”
Id. (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61(1992) (internal quotation
marks and citations omitted)). “The party invoking federal jurisdiction has the burden of
establishing the elements of standing.” Southwest Envtl. Ctr. v. Sessions, 355 F. Supp. 3d
1121, 1128 (D.N.M. 2018).
Custodia’s complaint satisfies the elements for standing to sue as to Claims I
through VI (all considered above). First, it alleges Custodia’s continued need to use the
master account of an intermediary (“correspondent”) bank to access the Federal Reserve
System while waiting for the last two years for a decision on its own master account
application “is much costlier and introduces counterparty credit risk and settlement risk
that would” be avoided with its own master account. (Compl. ¶ 8.) The complaint asserts
that Custodia’s own master account “would allow Custodia to access directly the Federal
Reserve, sharply reduce its costs, and bring new products and options to users of financial
services.” (Id. ¶ 3.) These allegations of increased costs due to the delay of its own master
account adequately assert a concrete, particularized, actual, and currently ongoing injury-
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in-fact to Custodia. “For standing purposes, a loss of even a small amount of money is
ordinarily an ‘injury.’” Czyzewski v. Jevic Holding Corp., 580 U.S. 451, 137 S. Ct. 973,
983 (2017) (citing McGowan v. Maryland, 366 U.S. 420, 430–431 (1961)).
Second, the complaint sufficiently alleges Custodia’s injury is fairly traceable to the
challenged delay. Specifically, as the Court already determined Custodia has stated a
plausible claim for unreasonable delay under the APA and if Judge Bacharach’s statutory
interpretation in Fourth Corner applies here and entitles Custodia to a master account,
Custodia’s increased costs from having to use an intermediary bank during the
unreasonable delay would be fairly traceable to one or both Defendants’ actions causing
the unreasonable delay.
Third, Custodia has adequately asserted its injury of increased costs would be
redressed by a court decision in its favor. That is, if the Court ruled in Custodia’s favor on
Claim I (APA), Claim II (Mandamus) or Claim III (Due Process entitlement) and
compelled FRBKC to issue a master account as the remedy, Custodia would then be saved
the additional costs it is currently incurring. Accordingly, Custodia has carried its burden
of establishing the elements of standing at this stage of the proceedings.
FRBKC relies on the unpublished case of TNB USA Inc. v. Fed. Rsrv. Bank of New
York, No. 1:18-CV-7978 (ALC), 2020 WL 1445806 (S.D.N.Y. Mar. 25, 2020), in support
of its argument against Custodia’s legal standing. (ECF 51 pp. 50-57.) Similar to this case,
the plaintiff’s master account application in TNB was still pending at the time suit was
filed. TNB, 2020 WL 1445806, at *6. Dissimilar to this case, the plaintiff there argued the
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Federal Reserve Bank had constructively denied the application by reason of the delay. Id.
Significantly, the district court in TNB said:
As discussed above, I do not think that the FRBNY has constructively or
formally decided on TNB’s application. Accepting this premise, the current
injuries TNB is enduring are those emanating from the FRBNY’s delay in
deciding on the application. But the FRBNY’s delay is not TNB’s cause of
action. TNB is suing the FRBNY specifically over its refusal to provide
TNB an account….
Because the alleged injury is the FRBNY’s denial, not delay, the current
delay-induced injuries TNB cites are not the relevant injuries for the standing
analysis. Further, because the denial has not occurred, TNB has no
qualifying imminent injury and thus this case must be dismissed on standing
grounds.
Id. at *7. TNB is materially different from this case. Here, Custodia has specifically alleged
a claim for the delay in deciding its application. Further, as set forth above, Custodia has
asserted delay-induced injuries sufficient for constitutional standing. The Court finds the
decision in TNB carries little applicability to this case.
Custodia has carried its burden of establishing the elements of Article III standing
concerning Claims I through VI, and dismissal of those causes of action on standing
grounds is not warranted.
8.2 Claims I through VI are constitutionally and prudentially ripe for
adjudication.
The Defendants’ arguments that this lawsuit is constitutionally unripe largely echo
their arguments as to standing. (See ECF 49 pp. 44-45; ECF 51 pp. 49-52.) FRBKC further
argues Custodia’s claims are prudentially unripe. (ECF 51 pp. 52-57.)
The ripeness doctrine originates “both from Article III limitations on judicial power
and prudential reasons for refusing to exercise jurisdiction.” N. Mill St., LLC v. City of
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Aspen, 6 F.4th 1216, 1224 (10th Cir. 2021) (quoting Utah Republican Party v. Cox, 892
F.3d 1066, 1092 (10th Cir. 2018)). “The purpose of the ripeness doctrine is to prevent the
premature adjudication of abstract claims.” United States v. Cabral, 926 F.3d 687, 693
(10th Cir. 2019) (quoting Tex. Brine Co. v. Occidental Chem. Corp., 879 F.3d 1224, 1229
(10th Cir. 2018)). “Article III and prudential ripeness are both “concerned with whether a
case has been brought prematurely, but they protect against prematureness in different
ways and for different reasons.” N. Mill St., 6 F.4th at 1224-25 (quoting Simmonds v.
I.N.S., 326 F.3d 351, 357 (2d Cir. 2003)). “A claim is not constitutionally ripe for
adjudication pursuant to Article III “if it rests upon contingent future events that may not
occur as anticipated, or indeed may not occur at all.” Los Alamos Study Grp. v. U.S. Dep’t
of Energy, 692 F.3d 1057, 1065 (10th Cir. 2012) (quoting Texas v. United States, 523 U.S.
296, 300 (1998)).
Even where a claim is ripe under Article III’s requirement of a live case or
controversy, the Court may decline to consider the issue under the prudential ripeness
doctrine. This doctrine requires the Court to balance “the fitness of the issue for judicial
review” against “the hardship to the parties from withholding review.” Texas Brine Co.,
LLC & Occidental Chem. Corp., 879 F.3d 1224, 1229 (10th Cir. 2018)
Claims I through VI are ripe for consideration. Based on Custodia’s plausible claim
of injury due to unreasonable delay, combined with the over two-year period since
Custodia applied for a master account, Custodia’s first six causes of action are grounded in
events that have already transpired along with injuries that have occurred and continue to
occur. Claims I through VI do not concern contingent future events. Moreover, their
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current fitness for judicial review is weighty (see discussions above) and the hardship to
Custodia from withholding review would be severe. Consequently, the Court concludes
Claims I through VI are both constitutionally and prudentially ripe for adjudication at the
current time.
8.3 Custodia lacks standing to pursue Claims VII and VIII, and these causes
of action are not ripe for adjudication.
The result is different concerning Claims VII and VIII. In these causes of action,
Custodia seeks mandamus relief (Claim VII) and declaratory judgment (Claim VIII) “only
in the event that Defendants deny Custodia’s application for a master account.” (Compl.
¶¶ 130, 139.) Custodia does not allege such a denial has occurred, even constructively.
Thus, Custodia has not suffered an injury of having its master account application denied,
and these claims expressly rest upon a future event that may never come to pass.
Consequently, Custodia lacks standing to sue the Defendants on Claims VII and VIII, and
these claims are not constitutionally ripe for adjudication. Claims VII and VIII must be
dismissed as non-justiciable.
CONCLUSION AND ORDER
In Claim I, Custodia alleges a plausible claim of unreasonable delay under the APA.
In part of Claim III, Custodia alleges a plausible violation of due process based on an
alleged property interest in and legal entitlement to a master account. Claims II and IV
complement these causes of action in seeking mandamus and declaratory judgment.
Consequently, these claims survive dismissal.
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In the remainder of Claim III, Custodia does not allege a plausible separation-of-
powers violation based on the nondelegable doctrine, which will be dismissed. Likewise,
Claim V fails to state a plausible violation of due process based on bias and Claim VI fails
to state a plausible violation of the Appointments Clause, both of which will be dismissed.
Finally, Claims VII and VIII will be dismissed because Custodia does not have standing to
pursue them and they are not ripe for adjudication.
IT IS THEREFORE ORDERED that Defendants’ motions to dismiss (ECF 48,
50) are GRANTED IN PART AND DENIED IN PART for the reasons discussed herein.
Claims I, II, IV, and part of Claim III (alleging a due process violation) state plausible
causes of action for relief. Claims V, VI, VII, VIII, and the remainder of Claim III (alleging
a nondelegable doctrine violation) do not state plausible claims on which relief can be
granted and are hereby dismissed.
DATED: November 11th, 2022.
_________________________________
Scott W. Skavdahl
United States District Court Judge
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