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Plaintiff,
v.
Civil Case No.: _________________
FEDERAL RESERVE BOARD OF
GOVERNORS,
Constitution Ave NW & 20th St NW
Washington, DC 20551
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Defendants.
COMPLAINT
1. Plaintiff Custodia Bank, Inc. (“Custodia”) (f/k/a Avanti) brings this Complaint
against Defendants the Federal Reserve Board of Governors (“Board”) and the Federal Reserve
INTRODUCTION
bank led by experienced and respected members of the financial-services industry, specializing in
payment services and digital asset custody. For more than 19 months, Defendants have refused to
act upon Custodia’s application for a master account with the Federal Reserve. Such an account
would allow Custodia to directly access the Federal Reserve, rather than going through an
intermediary bank. This wholly unlawful delaying conduct is aggravated by the standardless
processes the Defendants have apparently adopted, which they have interpreted to allow agencies
of the federal government to act in complete secrecy whenever and however they choose with no
effect, if not the purpose, of precluding the judicial review required by the most elementary
standards of due process of law. Continued delay, in these circumstances, prevents newcomers
like Custodia from introducing innovation and competition in the financial services marketplace
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and, not coincidentally, benefits the established financial institutions whose interests are
commands and for which it is legally eligible and has met all requirements, would allow Custodia
to access directly the Federal Reserve, sharply reduce its costs, and bring new products and options
to users of financial services. 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. Custodia has devoted years
of effort by a number of skilled professionals and substantial resources to preparing its business,
including by undergoing intense review and satisfying stringent regulatory requirements imposed
by its chartering state of Wyoming—a nationwide leader in developing charters tailored for
banking in the digital asset industry. These efforts, however, are stalemated by Defendants’
detriment of potential customers who are entitled to make the decision about which financial
institutions to utilize.
taking and whose business plan includes U.S. dollar deposit-taking in the ordinary course of
business, Custodia is plainly eligible for a master account under the express terms of the governing
federal law. See 12 U.S.C. § 226 et seq. Indeed, a federal statute prohibits the Board from
discriminating against such institutions when offering financial services. Id. § 248a. Custodia has
taken the additional step of applying for Reserve System membership and its attendant supervision
and regulation by the Board and the Kansas City Fed, even though these steps are not legally
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required to obtain a master account. None of this appears to have any effect on the Defendants,
who have failed to take meaningful steps on processing and deciding Custodia’s application.
accounts. The Kansas City Fed, for its part, received Custodia’s business plan in May 2020,
months before Custodia submitted its master account application. Defendants have confirmed that
Custodia’s master account application, submitted in late October 2020, is complete. In early 2021,
a representative of the Kansas City Fed moreover informed Custodia there were “no showstoppers”
6. Upon information and belief, the Kansas City Fed’s consideration and impending
approval of Custodia’s application was derailed when, in spring 2021, the Board asserted control
over the decision-making process. The result is that Defendants have failed to meaningfully
month delay in processing Custodia’s completed application has clearly violated the 1-year
statutory deadline for doing so. See 12 U.S.C. § 4807(a). The delay also breaches the schedule
contained on the master account paperwork itself, which provides that a master account decision
ordinarily takes “5 – 7 business days.” Compl. Ex. 1 (Fed. Reserve Bank, Operating Circular 1,
Appx. 1, Master Account Agreement). Custodia’s application was submitted nearly 600 business
days ago with no action. This litigation will bring into the sunshine not only this impermissible
delay, but also the fact that the Defendants have a standardless process for deciding who can
compete in the financial services market—a process that favors incumbents in violation of federal
law.
has exhausted all informal means of obtaining a decision on its application. There is a black-box
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bureaucratic process with no clear rules or standards for processing applications, no clear lines of
accountability or responsibility between the Board and Kansas City Fed, and no clear end to
substantial, ongoing injury to Custodia. The immediate injury is that the delay has forced Custodia
to defer its solo entry into the financial services market in favor of a decidedly second-best and far
more expensive alternative: launching with a correspondent bank—which has a master account—
while Custodia awaits a decision on its long-pending application. This makeshift solution is much
costlier and introduces counterparty credit risk and settlement risk that would have been avoided
if Defendants had acted on Custodia’s master account application in a reasonable time period. It
also eliminates much of the competitive benefit that Custodia would enjoy from using the charter
that Wyoming granted it, thus benefiting existing and entrenched competitors and ignoring
Wyoming’s sovereignty as a state that has clear statutory authority to charter depository
institutions.
unreasonable and unlawful inaction on Custodia’s application. Custodia respectfully requests that
this Court require Defendants to promptly provide a decision on the application and articulate the
reasons for the decision as well as the standards that the Defendants believe are applicable. This
is, after all, a federal government agency which must operate under articulable and defined rules
to conform itself to due process of law. After more than 19 months of delay, the governing
statutes—as well as baseline administrative and constitutional principles barring unreasonable and
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PARTIES
10. Plaintiff Custodia is a Wyoming bank. It was granted a Special Purpose Depository
Institution bank charter by the Wyoming State Banking Board in October of 2020. It has its
primary place of business at 2120 Carey Avenue, Suite 300, Cheyenne, WY 82001. Custodia is
experienced executives, such as Caitlin Long (CEO), a 22-year Wall Street veteran who was a
managing director and head of Morgan Stanley’s pension solutions business until 2016 and was
appointed by then-Governor Mead to serve on the Wyoming Blockchain Task Force in 2018-2019.
11. Defendant Federal Reserve Board of Governors is the main governing body of the
Federal Reserve System. The Board is charged with overseeing the 12 regional Federal Reserve
Banks. It has its principal place of business at Constitution Ave N.W. & 20th St. N.W.,
Washington, DC 20551. The Board is an agency of the United States, and comprises seven
members, or “governors,” who are nominated by the President and confirmed by the Senate.
12. Defendant Federal Reserve Bank of Kansas City is one of 12 regional Federal
Reserve Banks that, along with the Board, make up the United States Federal Reserve System.
The Kansas City Fed serves at least portions of seven states, including the entirety of Wyoming.
In this role, it operates pursuant to statutory and regulatory authority delegated to it by the Board.
The Kansas City Fed has its principal place of business at 1 Memorial Drive, Kansas City, MO
64108. The Kansas City Fed is separately incorporated as a non-profit governmental corporation
with the capacity to sue and be sued in its own name. The Kansas City Fed is headed by a nine-
member board of directors comprising three representatives of commercial member banks, three
representatives of the public, and three representatives appointed by the Board. The Kansas City
Fed supervises and regulates bank holding companies and Federal Reserve System member banks
in its district, acts on applications within its authority, and enforces compliance with federal
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banking laws against relevant banking institutions in its district. The Kansas City Fed is an agency
of the United States for purposes of the legal causes of action Custodia asserts.
13. This Court has subject matter jurisdiction over this action under 12 U.S.C. § 632,
which provides that “all suits of a civil nature at common law or in equity to which any Federal
Reserve bank shall be a party shall be deemed to arise under the laws of the United States, and the
district courts of the United States shall have original jurisdiction of all such suits.” Additionally,
28 U.S.C. § 1331 gives this Court jurisdiction over all civil actions “arising under the Constitution,
laws or treaties of the United States.” And 28 U.S.C. § 2201(a) provides jurisdiction because
Custodia is an “interested party” for whom the Court “may declare the rights” in this “actual
controversy.”
14. Venue is proper in this District under 28 U.S.C. §1391(b)(1) because both the Board
and the Kansas City Fed reside in this District for purposes of 28 U.S.C. §1391(c)(2). The Board
and the Kansas City Fed are entities with the capacity to be sued. They are subject to this Court’s
personal jurisdiction because they have purposefully availed themselves of the privileges of
conducting business in this District, the claims herein arose in this District, many material
witnesses are located in this District, and Defendants are subject to this Court’s jurisdiction under
Wyo. Stat. Ann. § 5-1-17, Wyoming’s Long-Arm Statute. Venue is also proper under 28 U.S.C.
§1391(b)(2) because a substantial part of the events giving rise to this matter occurred in this
District. In addition, venue is proper under 28 U.S.C. § 1391(e) because Custodia resides in this
district and a substantial part of the events or omissions giving rise to its claims occurred here.
15. An actual controversy exists between the parties concerning the legality of
Defendants’ process for and delay in processing Custodia’s master account application. That
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16. A declaratory judgment will end the uncertainty and controversy between the
parties. It is presumed that if the Court were to declare the legal obligations incumbent upon the
Defendants, they would conform their conduct to the Court’s order, and injunctive relief would
not be necessary.
17. Under Federal Rule of Civil Procedure 57, this Court may order a speedy hearing
on Custodia’s request for a declaratory judgment in this matter and Custodia seeks such a hearing
as continued delay is the very injury of which Custodia complains. Allowing the Defendants to
draw this case out for years simply extends the injury that the Defendants are knowingly and
FACTUAL ALLEGATIONS
18. On October 29, 2020, Custodia, an eligible state-chartered bank, applied for a
Federal Reserve master account. As required by Federal Reserve System regulations, Custodia
submitted its application to the Federal Reserve Bank responsible for its district, the Kansas City
Fed. Despite regular meetings and thousands of pages of responses to various inquiries, more than
19 months have passed without a decision on Custodia’s master account application, and no
assurance has been provided that a decision is forthcoming at all, let alone in the near future.
19. The United States operates a dual banking system, which allows banks to be
chartered by either the state or federal government. At the founding of the United States, almost
20. It was not until the 1863 passage of the National Bank Act that nationally chartered
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21. In 1913, Congress established the federal banking system as we know it today with
22. The dual-chartering system’s division of regulatory responsibility among state and
various options to reflect their intended business plans, factoring in geographic concerns and
and costs. The availability of state charters allows for innovation in the financial services
marketplace, permitting states to develop new ideas and competitors subject, of course, to
applicable review by federal authorities. The continued existence of state bank charters allows
states to be responsive to the financial needs of their citizens and to innovate and support financial
institutions that meet the needs of their citizens as well as the needs of the state as a whole.
23. Under the current dual-chartering system, banks can apply for a national charter
from the Office of the Comptroller of the Currency (“OCC”) or for a state charter from the relevant
state’s banking authority. National banks are chartered and primarily regulated by the OCC, while
state banks are chartered and principally overseen by the state’s banking regulatory agency.
24. Once an institution is chartered, the next question is whether it will be a member of
the Federal Reserve System. Nationally chartered banks must become members of the Federal
Reserve System. 12 U.S.C. § 222. Within the Federal Reserve System, the Federal Reserve Board
25. State-chartered banks may choose to become members of the Federal Reserve
System, but, unlike nationally chartered banks, do not have to do so. While applying to become a
member of the Federal Reserve System brings additional scrutiny upon a state-chartered bank, it
carries some additional prestige, and those state banks that join the Federal Reserve System are
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known as “state member banks.” Those that do not are known as nonmember banks. As a member
of the Federal Reserve System, state member banks are regulated by both the Federal Reserve and
the relevant state banking agency, whereas state-chartered nonmember banks are regulated by the
state banking agency and may also be regulated by the Federal Deposit Insurance Corporation
(“FDIC”).
26. National banks are generally required to apply for and obtain FDIC insurance.
Most states require their state-chartered banking institutions engaged in taking deposits to be
FDIC-insured. Not every state-chartered bank, though, is required to be insured by the FDIC.
Uninsured state bank charters exist in several states and U.S. territories, such as Wyoming,
Connecticut, and Puerto Rico. Likewise, some states, such as Massachusetts, Illinois, and
Colorado, permit depository trust charters, which are eligible for Federal Reserve master accounts
27. Federal law mandates that state-chartered deposit-taking institutions like Custodia
must be allowed access to the Federal Reserve System through master accounts—regardless of
whether such institutions elect to become Federal Reserve member banks, and regardless of
whether they are FDIC-insured. The Federal Reserve System cannot discriminate against state-
chartered depository banks in the provision of Federal Reserve bank services. See 12 U.S.C.
§§ 248a(c)(2), 1831d(a).
28. In 2019, Wyoming legislated a new type of state bank charter, the Special Purpose
Depository Institution (“SPDI”). Wyo. Stat. § 13-12-101, et seq. This legislation passed the
Wyoming legislature with a veto-proof, bi-partisan majority. SPDI banks are regulated by the
Wyoming Division of Banking. Unlike traditional banks, SPDIs are generally prohibited from
making loans with customer deposits of fiat currency, and further must continually back all
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customer deposits with 100% cash on hand or high-quality liquid assets. Like traditional banks,
SPDIs must hold capital on top of the assets that back customer deposits.
29. SPDI banks do not lend money; instead, they specialize in taking deposits,
facilitating payments for customers, and other incidental services. SPDI banks were designed to
provide a bridge connecting digital asset companies to the U.S. payments system (for example, to
pay their staff in U.S. dollars). SPDI banks were also designed to provide custody services for
digital assets such as Bitcoin via their trust departments, analogous to the custody services
provided by the trust departments of custody banks for the trillions in securities held by retirement
plans and mutual funds. SPDI banks allow, for example, a customer to use his or her Bitcoin held
in the trust department of an SPDI bank to make a direct transfer, a purchase, or an investment,
rather than having to first convert that Bitcoin into U.S. dollars.
30. Having a master account means that SPDI banks do not have to use an intermediary
bank in order to access the Federal Reserve banking system for clearing U.S. dollar transactions.
Eliminating the “middleman” cuts costs, lowers risk (including counterparty credit risk), and
provides SPDI bank customers with more efficient and customizable payment services.
31. The sponsors of Wyoming’s SPDI regime recognized that access to master accounts
would be crucial for the functioning of SPDI banks. The SPDI charter accordingly was developed
to satisfy all requirements of the Federal Reserve Act. Wyoming legislators coordinated with the
federal government, holding more than 100 meetings with the Board and the Kansas City Fed. 1
1
In a Wall Street Journal Op-Ed, U.S. Senator Cynthia Lummis provided background information
on the steps that Wyoming took in passing its SPDI bank charter legislation. Despite mutual efforts
in passing this legislation, the Federal Reserve has to this point refused to grant SPDI banks access
to the Federal Reserve System. Cynthia Lummis, “The Fed Battles Wyoming on Cryptocurrency,”
The Wall Street Journal (Nov. 30, 2021), https://tinyurl.com/5xkcjpj5.
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The resulting SPDI charter offers the prospect of safe, efficient, and protected access to the Federal
32. Under the Federal Reserve Act, Federal Reserve banking services must be
accessible to “nonmember deposit institutions . . . [and] be priced at the same fee schedule
applicant must be either a member bank or a depository institution, defined as either: (1) a bank
insured by the FDIC, or (2) a bank eligible to be insured by the FDIC. Id. §461(b)(1)(A)(i).
33. Custodia currently meets the latter category because, as a state-chartered bank
authorized and expected to take deposits, it is eligible to be insured by the FDIC. The Kansas City
Fed recognizes the eligibility of SPDI banks for master accounts and has specifically confirmed
34. Custodia provided its business plan to the Kansas City Fed in May 2020. On
October 29, 2020, Custodia filed its application to open and maintain a master account with the
35. Along with its application, Custodia was required by the Federal Reserve to submit
a one-page Master Account Agreement. The standard form agreement, available from the Federal
Reserve, stated 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.” Compl. Ex. 1.
36. At the time the application was filed, Custodia’s application was complete. Neither
the Kansas City Fed nor the Board has informed Custodia of the need for additional information
necessary to complete the application. In January 2021, Tara Humston, the Kansas City Fed’s
head of Supervision and Risk Management, informed Custodia that there were “no showstoppers”
with its master account application. Yet, upon information and belief, the Kansas City Fed’s
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impending approval of Custodia’s application was stalled when, a few months later in spring 2021,
the Board asserted its control over the decision-making process. This is so even though the Kansas
City Fed has confirmed, including via a January 2022 letter, that Custodia meets the legal
37. While waiting to have its application considered, Custodia has been in regular
contact with both the Kansas City Fed and the Board through letters, calls, emails, and remote and
in-person meetings. Custodia has repeatedly offered to provide additional information about its
business plan specifically, and SPDI-chartered banks more generally, to spur consideration of its
application.
38. The Board exercises ultimate control over the decision to grant or deny a master
account, and has exercised that power to assert control over the decision-making process for
Custodia applied to become a member bank of the Federal Reserve system on August 5, 2021. As
a member bank, Custodia would be regulated and examined directly by the Federal Reserve Board
in addition to the Wyoming Division of Banking. It is not necessary to be a member bank in order
to receive a master account, and the Federal Reserve cannot discriminate against nonmember
banks in granting access to Federal Reserve Bank services. 12 U.S.C. § 248a(c)(2). Custodia,
however, took this additional step to demonstrate to the Kansas City Fed and the Board its
40. In a March 2, 2022 meeting, nearly 17 months after the submission of Custodia’s
master account application, the Kansas City Fed informed Custodia that it had not started
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41. After learning that the Kansas City Fed had not started processing its master
account application, Custodia sent a letter to Esther George, the President and Chief Executive
Officer of the Kansas City Fed. In that March 3, 2022 letter, Custodia described the steps that it
had taken to obtain approval and urged Ms. George to consider Custodia’s application.
42. Ms. George agreed to meet in person with Custodia on March 24, 2022. Prior to
that meeting, Custodia again wrote Ms. George a letter offering specific commitments Custodia
would implement if granted a master account, including holding $1.08 in cash in its master account
for every $1.00 of customer U.S. dollar deposits in its first three years of operation, providing
monthly financial statements, and agreeing to certain restrictions. These commitments are not
necessary for the grant of a master account, but Custodia offered them in an effort to encourage
the Defendants to adjudicate Custodia’s master account application. This is because Custodia’s
business model is safe and sound. Custodia plans to hold all customer deposits of U.S. dollars in
cash in a Federal Reserve master account and it plans to hold no digital assets for its own account.
This means that Custodia will not be exposed to the volatility of digital asset prices because it will
hold all digital assets in bailment on behalf of a customer in its trust department. In other words,
granting Custodia a master account would not expose the Federal Reserve System to any digital
asset risk, as Custodia would only handle U.S. dollars in its master account and Custodia’s trust
43. After the meeting, Tara Humston, the head of Supervision and Risk Management
at the Kansas City Fed, sent a letter re-confirming that “Custodia is legally eligible for a master
account.” Unfortunately, the Kansas City Fed still refused to provide any sort of timeline for a
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44. The Kansas City Fed’s refusal or inability to provide any sort of timeline reflects
the fact that the Board has asserted control over the decision-making process governing Custodia’s
45. Despite the fact that Custodia’s application was complete over 19 months ago, and
Defendants have a nondiscretionary duty to decide master account applications in a timely fashion,
neither the Board nor the Kansas City Fed has rendered an application decision. Indeed,
Defendants’ representatives have declined to provide Custodia with any timeline as to when it
might expect a decision. Nor have they identified any additional steps that Custodia could take to
hasten the process. Most importantly, they have not explained what rules they believe control their
decision-making or whether, as now appears likely, they feel that they can decide whenever and
46. Defendants’ extensive delay is unlawful on its face, as a federal statute requires all
federal banking agencies, including the Board, to process all completed applications within one
year. See 12 U.S.C. § 4807. Time limits are, of course, essential because interminable delay
allows for Kafkaesque situations where applicants have no answers and no opportunity to be heard.
Statutory mandate aside, Defendants’ delay unreasonably extends a ministerial process that is
routinely completed within one week to one which has now taken more than 80 weeks with no end
in sight.
47. While Custodia waits in this holding pattern for an indefinite period of time, it
continues to be unable to operate as designed, incurring unnecessary costs and monetary losses
and losing ground to incumbent banks. The promise of a SPDI charter remains unfulfilled, while
the substantial investment Custodia made in reliance on that charter remains unrecouped.
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48. Defendants’ method for reviewing master account applications largely remains a
black box, with the only clear feature being bureaucratic processes amounting to the proverbial
shell game. In various meetings and communications, the Kansas City Fed and the Board have
alternately cited each other as the reason Custodia’s application has yet to be processed. Amidst
Defendants’ finger pointing, it remains a mystery how the Board and individual Federal Reserve
Banks—including the Kansas City Fed here—allocate the decision-making authority for reviewing
49. The Kansas City Fed, for its part, has pinned its delay on the Board. It has cited, in
particular, the Board’s consideration of proposed guidelines that would, somewhat ironically,
establish a “tiered-review framework to provide additional clarity on the level of due diligence
and scrutiny to be applied to requests for Reserve Bank accounts and services.” See Proposed
Guidelines for Evaluating Account and Services Requests, 86 Fed. Reg. 25,865 (May 11, 2021)
(emphasis added). Most recently, in early March 2022, the Board issued supplemental proposed
guidelines for notice and comment. See Guidelines for Evaluating Account and Services Requests,
87 Fed. Reg. 12,957 (Mar. 8, 2022). This supplemental draft guidance included a new footnote
stating that “[d]ecisions on access to accounts and services are made by the Reserve Bank in whose
District the requestor is located.” Id. at n.4. That footnote is at odds with the Board’s exercise of
control over the decision-making process for Custodia’s master account application.
50. Perhaps most importantly for purposes of due process of law and judicial review,
these proposed guidelines, while purporting to provide “additional clarity,” do not even suggest
that the Federal Reserve Board will explain the criteria, processes, and procedures that would be
used to evaluate applicants at each tier of the review framework, nor do they purport to change
any statutory eligibility requirements for granting a master account (which would, in any event, be
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beyond the authority of agency action). See Pearson v. Shalala, 164 F.3d 650, 660 (D.C. Cir.
1999) (Under the APA, “[t]o refuse to define the criteria [the agency] is applying is equivalent to
51. The proposed guidelines and Federal Register notices also do not explain or provide
the present standards the Board and Reserve Banks apply for assessing and adjudicating master
account applications. Nor, to Custodia’s knowledge, are any such standards otherwise available,
if they even exist. Rather, the publicly available materials provide that the governing statute
required Defendants to grant master accounts to all eligible entities as a matter of course. See
Fourth Corner Credit Union v. Fed. Rsrv. Bank of Kan. City, 861 F.3d 1052, 1068 (Bacharach, J.)
(10th Cir. 2017) (discussing 12 U.S.C. § 248a(c)(2)). 2 And depository entities chartered by one
52. The Board has not finalized any guidelines, nor is there any guarantee it will do so
(whether in the guidelines’ present form or otherwise), and even if the Board does so, it appears
not to intend to explain what criteria it will adopt to govern agency action. If anything, the Board’s
track record indicates that any adoption will require a substantial amount of time: a review of the
most recent 20 proposed rules by the Board, stretching back to 2018, shows that there is, on
2
See also, e.g., Bd. of Governors of the Fed. Rsrv. Sys. (Fed. Rsrv. Bd.), Policies: The Federal
Reserve in the Payments System (2001), https://tinyurl.com/3ed2xu8a (“Federal Reserve payment
services are available to all depository institutions . . . .”); Fed. Rsrv. Bd., Policies: Standards
Related to Priced-Service Activities of the Federal Reserve Banks (1984),
https://tinyurl.com/2p83hmfv (“The Monetary Control Act of 1980 . . . has expanded the Federal
Reserve’s role by requiring the Federal Reserve to provide its services to all depository institutions
on an equitable basis . . . .”); Fed. Rsrv. Bd., Policies: Principles for the Pricing of the Federal
Reserve Bank Services (1980), https://tinyurl.com/mr4cbtjb (“Services covered by the fee schedule
are available to all depository institutions.”); Fed. Rsrv. Bd., Federal Reserve’s Key Policies for
the Provision of Financial Services, https://tinyurl.com/2t8cthms (last updated Oct. 28, 2016)
(noting that the Monetary Control Act gives “all depository institutions access to the Federal
Reserve’s payment services”).
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average, a nine-month delay between the close of the notice-and-comment period and the effective
date of the final rule. Three proposed rules have never, or at least not yet, been adopted. So the
current rulemaking process, which has already taken more than a year and has already been
supplemented once, could take years, after which the Board could seek notice and comment on yet
another proposed iteration. Of course, central to this process is the Board’s apparent intention not
to explain even in the new guidelines, if they are ever adopted, what substantive criteria it believes
it is entitled to apply. Judicial review of agency action becomes much more difficult where, as
here, the federal agency appears to believe that it is not required to explain the applicable standards.
all events. Basic Administrative Procedure Act (“APA”) and fair-notice requirements that are
essential to due process of law would prohibit Defendants from retroactively applying any
54. On the other side of the coin, the Board and Kansas City Fed have jointly
represented to Custodia that it will be the Kansas City Fed that communicates, if not makes, the
decision on Custodia’s master account application. Yet in response to a recent letter from
undersigned counsel for Custodia, the Defendants have taken the position that the Kansas City Fed
is not a federal agency. Defendants’ position calls into question the permissibility of allowing the
authority from the Federal Reserve Board or otherwise. If this case proceeds, and if the Defendants
maintain this position, the basic structure of the Defendants’ decision-making processes will
become the focus of this case and significant constitutional questions will be presented.
55. The broader statutory and regulatory regime only compounds the confusion over
the master account approval process. Banks like Custodia must submit their master account
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applications to individual Reserve Banks in the first instance, rather than to the Board. And
Custodia understands that the Kansas City Fed ultimately will communicate a decision on
Custodia’s master account application. To support the Reserve Banks’ role, the Board has
elsewhere relied on 12 U.S.C. § 342 as granting the Reserve Banks statutory authority to make
discretionary decisions on whether to open master accounts. See, e.g., Br. of Fed. Rsrv. Bd. of
Governors as Amicus Curiae 14-15, Fourth Corner Credit Union, 861 F.3d 1052 (July 12, 2016).
This provision, however, does not mention master accounts. Rather, it specifies, as relevant here,
that Reserve Banks “may receive from any of its member banks, or other depository institutions,
and from the United States, deposits of current funds in lawful money, national-bank notes, Federal
reserve notes, or checks, and drafts, payable upon presentation or other items.” 12 U.S.C. § 342.
56. Congress did not list the power to grant master accounts among the enumerated
powers of Reserve Banks. 12 U.S.C. § 341. Nor has the Board formally delegated to the Banks
stand in apparent conflict with other provisions indicating that the Board maintains power over
master accounts. Of note, Congress expressly gave the Board the responsibility to “authorize a
Federal Reserve Bank to open an account and provide services” for designated financial market
utilities. 12 U.S.C. § 5465. 3 Congress likewise empowered the Board with implicit authority over
master account applications for nonmember depository institutions, like Custodia, by directing the
Board to ensure that “[a]ll Federal Reserve bank services covered by the fee schedule shall be
3
While Custodia is not a designated financial market utility, this Congressional grant of authority
to the Board over master accounts implies that, absent a contrary grant of authority which does not
appear to exist, the Board would also have authority over master accounts for nonmember
depository institutions like Custodia.
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available to nonmember depository institutions.” 12 U.S.C. § 248a(c)(2). In order for these bank
58. Even if the Board’s power to grant master account applications was informally
delegated to or vested in the Reserve Banks sub silentio, which would be a truly astonishing act
without any discernable statutory support, the Board retains the power “[t]o exercise general
supervision over” the Reserve Banks, 12 U.S.C. § 248(j), and to “act in its own name . . . in
enforcing any provision of” the Federal Reserve Act, id. § 248(p). The Board’s oversight authority
extends to decisions made by the Federal Reserve Banks on master account applications. As a
practical matter, the Board controls the decision because the Kansas City Fed has consulted with
and defers to direction from the Board about Custodia’s master account application, and in this
case the Board has exercised control over the decision-making process for Custodia’s master
account application. At a minimum, then, Reserve Banks’ adjudication of master accounts would
59. The Board has also used its authority to affect the master account application review
process through the proposed guidelines for considering master account applications, discussed
above. See supra ¶¶ 48-52. That the Board proposed guidelines to standardize the Federal Reserve
Banks’ processes pursuant to Board specifications is alone prima facie evidence that the Board
believes it has control. The Reserve Banks have previously deferred to the Board with respect to
individual master account applications, too. By way of example, the New York Federal Reserve
Bank consulted with the Board on a master account application for another applicant, ultimately
delaying action so that the Board could weigh its “concerns” over that applicant’s business model.
See Mot. to Dismiss 7, 14, TNB USA, Inc. v. Fed. Rsrv. Bank of N.Y., No. 1:18-cv-7978 (ALC)
20
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(S.D.N.Y. Mar. 8, 2019), ECF No. 21. Thus, to the extent the Board disclaims authority to dictate
master account decisions here, that position would break with past practice and is inconsistent with
its actions over Custodia’s master account application—namely, it assertion of control over the
60. In short, the only thing clear about Defendants’ master account review regime is
that there are no clear rules, roles, or responsibilities. What has resulted is an unaccountable
Kafkaesque process that has and continues to inflict grave, irreparable harm on Custodia. Due
process of law and the fundamentals of judicial review of agency action require prompt decisions
and clearly articulated reasons so that this Court can weigh whether the Defendants are conducting
61. Plaintiff repeats and realleges the allegations set forth in each of the preceding
62. Under Section 706 of the APA, “[t]o the extent necessary to decision and when
presented, the reviewing court shall decide all relevant questions of law, interpret constitutional
and statutory provisions, and determine the meaning or applicability of the terms of an agency
action. The reviewing court shall . . . compel agency action unlawfully withheld or unreasonably
delayed.”
63. Both the Board and the Kansas City Fed are agencies for purposes of the APA,
which defines an agency 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). This APA definition
of agency has been interpreted to include “any administrative unit with substantial independent
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authority in the exercise of specific functions.” Soucie v. David, 448 F.2d 1067, 1073 (D.C. Cir.
1971).
64. There is no dispute that the Board is an agency of the United States government for
purposes of the APA. On its public website, the Board states that “[t]he Administrative Procedure
Act sets out the requirements for federal agencies, including the Federal Reserve Board, to follow
when issuing proposed and final regulations.” 4 The Board has substantial independent authority
in the fulfillment of its specific duties, which include supervising and regulating financial
institutions, fostering payment systems, and engaging in the rulemaking necessary to carry out its
responsibility to set the monetary policy of the United States. In fulfilling its duties, the Board
65. The Kansas City Fed is similarly an agency for purposes of the APA. See, e.g., Lee
Const. Co., Inc. v. Fed. Rsrv. Bank of Richmond, 558 F. Supp. 165, 179 (D. Md. 1982) (the Reserve
Bank of Richmond was an agency for APA purposes); Flight Intern. Group, Inc. v. Fed. Rsrv.
Bank of Chi., 583 F. Supp. 674, 680 (N.D. Ga. 1984) (same, for the Reserve Bank of Chicago).
The Kansas City Fed, along with its 11 fellow Reserve Banks, operates as a governmental
instrumentality pursuant to the Federal Reserve Act. In this capacity, the Kansas City Fed wields
significant powers delegated by statute and regulation to contribute to the operations of the United
States monetary system, to provide supervision and oversight to financial institutions, to promote
a safe and sound payment system through lending to depository institutions and providing key
financial services, and to facilitate economic development and financial understanding. 5 It acts as
4
Fed. Rsrv. Bd., What Specific Steps Does the Board Take to Issue a Regulation? (June 29, 2018),
https://tinyurl.com/3ffs8xuk (emphasis added).
5
These functions are publicly listed on the Kansas City Fed’s website. See Kansas City Fed, What
We Do (Jan. 8, 2021), https://tinyurl.com/ycksd7t4.
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a “fiscal agent for the United States” and with interests indistinguishable from the monetary
66. As an agency, the Kansas City Fed is “subject to review” by the Board. 5 U.S.C.
§ 551(1). 7 For example, the Board is permitted to review the accounts and records of Federal
Reserve Banks, 12 U.S.C. § 248(a); to remove Bank officers, 12 U.S.C. § 248(f); to suspend
operations of the Bank if it violates its promulgating statute, 12 U.S.C. § 248(h); and to approve
compensation paid to directors of the Bank, 12 U.S.C. § 307. In addition to the Kansas City Fed’s
own statutory responsibilities, the Board is also permitted “[t]o delegate, by published order or
rule and subject to the [Administrative Procedure Act], any of its functions, other than those
Reserve banks.” 12 U.S.C. § 248(k). Such delegated responsibilities include but are not limited
to deciding certain applications, requests, or petitions. See 12 C.F.R. § 265.11. This express
delegation includes the authority to decide applications for Federal Reserve membership, id.
§ 265.11(e)(1); no such delegation exists, however, with respect to master account applications,
see supra ¶ 56. The Board thus has delegated substantial, independent decision-making authority
to the Federal Reserve Banks to assist with formulating monetary policy for the United States.
67. Like all Reserve Banks, the Kansas City Fed operates on a not-for-profit basis. It
receives its funds from the national banks within its district that are required to become members
of the Federal Reserve System, from state-chartered banks that may choose to become members
of the System, and in certain cases from private individuals or entities. See 12 U.S.C. § 283. To
6
Henry Whitaker, Deputy Assistant Attorney General, Office of Legal Counsel, Appointment and
Removal of Federal Reserve Bank Members of the Federal Open Market Committee 8 n.3 (Oct.
23, 2019), https://tinyurl.com/52bzbery.
7
See also Rules of Organization of the Federal Reserve System, 26 Fed. Reg. 12638 (as revised
effective Nov. 2, 1976).
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the extent that the Kansas City Fed receives net earnings greater than those needed to pay its
dividends and supply its surplus fund, it pays those additional earnings to the United States
68. Despite all this, upon being asked by Custodia to state their position on the Kansas
City Fed’s agency status, Defendants have informed Custodia of their position that the Kansas City
Fed is not an agency for purposes of the APA. Defendants declined to offer any justification or
number of constitutional concerns. For one, if the Kansas City Fed were considered a private
entity, it would be constitutionally impermissible for the Kansas City Fed—whose Board of
officials—to wield substantial executive authority and issue final decisions over the adjudication
of master account applications on behalf of the U.S. government. Insofar as the Kansas City Fed
is exercising governmental powers to determine which institutions are able to access the United
States Federal Reserve System, the Kansas City Fed must be treated as a government agency whose
decisions, like the decisions of other adjudicatory bodies under the APA, are subject to higher-
level agency review—here, by the Board. See Lebron v. Nat’l R.R. Passenger Corp., 513 U.S.
374, 397 (1995) (concluding that Amtrak is a government agency because “[i]t surely cannot be
that government, state or federal, is able to evade the most solemn obligations imposed in the
8
Recognizing the potential constitutional issues with permitting private entities to exercise
substantial regulatory authority and make final decisions on behalf of the United States
government, the Office of Legal Counsel (“OLC”) has previously declined to address whether or
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70. Subjecting the Kansas City Fed to Board and APA review is also necessary to stave
off significant due process problems. The Due Process Clause of the U.S. Constitution prohibits
schemes that permit an “economically self-interested entity [to] exercise regulatory authority over
its rivals.” Assoc. of Am. R.R.s v. U.S. Dept. of Transp., 821 F.3d 19, 27 (D.C. Cir. 2016). Rather,
any such regulation must come through an “official or an official body” of the government, which
are considered to be “presumptively disinterested.” Id. (citation omitted). The Kansas City Fed
comprises representatives of banks with economic interests potentially in conflict with those
entities, like Custodia, seeking master accounts. Allowing these potentially “self-interested
entit[ies]” to exercise final decision-making authority outside the strictures of APA and Board
71. For all of the reasons listed above, the Kansas City Fed is an “authority of the
United States,” and thus an agency for purposes of the APA. 5 U.S.C. § 551(1). To the extent that
the Kansas City Fed is subject to review in the conduct of some of its responsibilities, it is subject
to the review of the Board, another United States agency. See id.
72. As United States government agencies, the Board and the Kansas City Fed have a
non-discretionary duty to adjudicate completed applications for master accounts. While the
Kansas City Fed may be responsible for communicating a decision, both agencies work in concert
to consider and process applications and decisions are subject to the Board’s supervision. At a
minimum, it is incumbent upon the Board to exercise its supervisory authority so as to ensure fair
not Reserve Bank presidents are “officers of the United States” or “the constitutional status of the
Reserve Banks more broadly.” Whitaker, supra n.6, at 8 n.3. As OLC explained, “Reserve Banks
exhibit some features of private enterprises, but they are fiscal agents of the United States
empowered by delegation from the Board of Governors—an establishment of the federal
government—to supervise financial institutions and activities.” Id.
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73. Custodia completed its master account application on October 29, 2020.
Defendants have acknowledged that Custodia is eligible to maintain a master account and that
there are “no showstoppers” with its master account application. To date, however, neither the
Board nor the Kansas City Fed have processed Custodia’s application or provided any indication
application for more than 19 months is patently unlawful. The Kansas City Fed and the Board
have a duty to adjudicate applications. And, Congress directed that they do so within one year.
Under 12 U.S.C. § 4807, “[e]ach 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.” (Emphasis added). The definitional provision of the statute
defines “appropriate Federal banking agency” as the “Board of Governors of the Federal Reserve,
in the case of … any state member bank.” 12 U.S.C. § 1813(q)(3)(A). It also more generally
defines “Federal banking agency” to mean “the Comptroller of the Currency, the Board of
75. By its terms, then, the one-year statutory deadline applies to the Board. The Board
cannot avoid this congressionally mandated deadline by delegating authority to the Kansas City
Fed to process master account applications. As two components of the Federal Reserve System,
the Board and the Kansas City Fed have a duty to promptly act on Custodia’s application, and
under no circumstances may they take longer than one year. Defendants’ failure to heed the
“specific, non-discretionary time” for processing applications set by statute renders their inaction
unlawfully withheld under the APA. Forest Guardians v. Babbitt, 174 F.3d 1178, 1191 (10th Cir.
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1999). Under Tenth Circuit precedent, this Court therefore “must compel the action unlawfully
76. Even apart from the one-year statutory deadline, a decision on Custodia’s master
account application has been unlawfully delayed. Pursuant to 5 U.S.C. § 555(b), “[w]ithin a
reasonable time, each agency shall proceed to conclude a matter presented to it.” The statute
further directs courts to “compel agency action . . . unreasonably delayed.” Id. § 706(1). The
Board and the Kansas City Fed have failed to decide Custodia’s master account application within
a reasonable time.
77. The Board’s form, one-page Master Account Agreement, completed by Custodia,
indicated that account “[p]rocessing may take 5 – 7 business days.” Compl. Ex. 1. Even if the
Kansas City Fed and the Board are not bound by that timeline, the statement indicates that the
decision on master account applications is routine and does not require a substantial amount of
78. Custodia has repeatedly asked both agencies if there is anything that Custodia can
do to speed up the process. Both agencies have agreed that Custodia is eligible for a master
account. Neither agency has requested any additional information necessary to decide Custodia’s
application. Nor has either agency indicated a potential timeline for decision.
79. When asked about the timing for a decision, each agency has suggested that the
other is responsible and counseled patience. The Board, for example, has identified the Kansas
City Fed as holding the final decision-making authority over the completed application even
though it has asserted control over the decision-making process for Custodia’s master account
application. The Kansas City Fed, on the other hand, is only the vehicle for communicating an
eventual decision and has attributed the delay to the fact that the Board eventually intends to issue
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further guidance. But these guidelines have not been finally promulgated, have already been
supplemented and re-opened for a new public comment period once, and may not ever be adopted.
Further, because Custodia’s application is already pending—and was submitted before the
proposed guidelines came about—the Board could not lawfully apply any forthcoming rule to
Custodia retroactively. See 5 U.S.C. § 551(4); Christopher v. SmithKline Beecham Corp., 567
U.S. 142, 156-59 (2012). At best, Defendants’ delay is unreasonable in light of their stated
justifications and prior prompt processing of master account applications. At worst, it reflects a
concerted effort to change and obfuscate the rules of the master account application process to
Custodia’s detriment.
80. In light of these facts, and the other facts alleged herein, the Board and the Kansas
City Fed’s “agency action” in adjudicating Custodia’s master account application is “unlawfully
81. Custodia is therefore entitled under the APA to an order compelling the Board
and/or the Kansas City Fed to promptly decide Custodia’s application for a master account.
82. Plaintiff repeats and realleges the allegations set forth in each of the preceding
83. Under 28 U.S.C. § 1361, “[t]he 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.” In this action, Custodia is requesting that
the Court issue a writ of mandamus to the Board and Kansas City Fed directing that they promptly
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84. This Court has jurisdiction over Custodia’s action under the Mandamus Act.
85. Based on facts already alleged, supra ¶¶ 62-71, both the Board and Kansas City
Fed are United States agencies subject to the mandamus power of this Court.
86. Mandamus is appropriate here because Custodia has a clear and certain claim to
have its master account application decided in a timely fashion. Pursuant to statute, Federal
Reserve banking services “shall be available” on an equal and non-discriminatory basis to eligible
depository institutions. 12 U.S.C. § 248a(c)(2) (emphasis added). Such services are only available
through a master account. The Kansas City Fed has confirmed that Custodia is eligible for a master
account. Yet despite its valid Wyoming charter and conceded eligibility, Custodia has not received
the standard application processing. Instead, its application has been left to languish.
87. The Board and the Kansas City Fed were statutorily required to “take final action”
on Custodia’s master account application within one year—a deadline already in the distant past.
12 U.S.C. § 4807.
88. Custodia asks the Court to enforce Custodia’s statutory right to have its application
considered and decided in a timely manner. Defendants acknowledge that accessing Federal
Reserve services requires an institution like Custodia to maintain a master account. Regardless of
any argument that the Kansas City Fed or the Board may make as to whether the granting of master
account applications is discretionary, Custodia is entitled, at a minimum, to have its master account
application adjudicated. Cf. In re Am. Rivers & Idaho Rivers United, 372 F.3d 413, 418-19 (D.C.
Cir. 2004) (agency cannot thwart court review “by withholding a reviewable decision”).
89. Mandamus is necessary in this case because there are no other adequate remedies
available. Custodia completed its master account application on October 29, 2020. Since that
time, Custodia has been in regular communication with the Board and the Kansas City Fed in an
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attempt to get its application processed. Despite its best efforts, as well as the efforts of Custodia’s
stakeholders, the Board and the Kansas City Fed have not processed Custodia’s application.
90. Without a master account, Custodia will incur unnecessary costs, encounter
otherwise avoidable risks (such as settlement risk and counterparty risk), and will lose ground to
91. Custodia is therefore entitled under the Mandamus Act to an order compelling the
Board and/or the Kansas City Fed to decide Custodia’s application for a master account.
92. Plaintiff repeats and realleges the allegations set forth in each of the preceding
93. Custodia asserts this claim under Article I, §1 and the Due Process Clause of the
Constitution, which prohibit the government from transgressing the vesting of legislative authority
in Congress and from depriving a person of property without the “due process of law.” U.S. Const.
amend. V.
94. The Board and the Kansas City Fed are governmental entities subject to separation
of powers and due process requirements when determining applicants’ ability to obtain a master
account. As a depository institution entitled to the services available to all depository institutions
master account. Cf. Goldberg v. Kelly, 397 U.S. 254, 262 & n.8 (1970). This Court’s equity
jurisdiction empowers it to enforce and provide remedies for Defendants’ violations of the
Constitution.
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95. Baseline separation of powers and due process principles prohibit agencies from
discernable standards. See Beckles v. United States, 137 S. Ct. 886, 892 (2017) (government
entities cannot, consistent with the Due Process Clause, deprive property under a law “so
standardless that it invites arbitrary enforcement” (citation omitted)); Fuentes v. Shevin, 407 U.S.
67, 80 (1972) (requiring government to “follow a fair process of decision making when it acts to
deprive a person of his possessions”); Jarkesy v. SEC, 2022 WL 1563613, at *9-11 (5th Cir. May
18, 2022) (Congress may not grant “open-ended” authority and “absolute discretion” to agencies).
96. The Board and the Kansas City Fed have run afoul of these constitutional
guarantees. They have alternatively blamed each other for their extensive delay in processing
Custodia’s master account application. It remains unclear from the regulations and from
Custodia’s communications with the Board and the Kansas City Fed who the ultimate decision-
maker is, and what role each government entity plays in the decision-making process. Custodia’s
efforts to obtain clarity have been met with obfuscation. The black-box process is devoid of any
97. It is similarly unclear what considerations and standards are used to decide when
or whether to grant a master account application. The Federal Reserve Banks are not required to
publish (on their websites or otherwise) applications by institutions seeking master account access
or decisional records indicating which institutions had their master account access granted or
revoked, when this occurred, or the reason why access was granted or revoked. The Board and
the Kansas City Fed have not provided guidance as to why some banks get their master accounts
immediately while others are forced to wait indeterminate periods of time. The lack of
transparency exacerbates the Kafkaesque nature of the master account review process—a problem
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that will be perpetuated if the Board’s recently proposed guidelines are adopted, because they do
not set or explain criteria, processes, or procedures for reviewing and evaluating master account
applications. If anything, they only raise the question of what processes and standards, if any, the
Board and the Kansas City Fed have been using and are continuing to use for processing and
98. For many of the same reasons discussed above, see supra ¶¶ 61-91, Defendants
have violated Custodia’s due process rights by subjecting Custodia to an indefinite administrative
99. Custodia submitted its application for a master account on October 29, 2020. Such
applications are typically granted as a matter of course within 5 to 7 business days. Compl. Ex. 1.
The Kansas City Fed has confirmed that Custodia is eligible for a master account. However,
despite the passage of over 19 months, Custodia’s application remains pending. Neither the Board
nor the Kansas City Fed will provide a deadline by which a decision will be made.
100. The Board and the Kansas City Fed’s “long-continued and unreasonable delay” in
processing and deciding Custodia’s application for a master account “effectively take[s]”
Custodia’s property without the fair process the Due Process Clause requires. Smith v. Illinois Bell
101. Custodia is therefore entitled under Article I and the Due Process Clause to an order
compelling the Board and/or the Kansas City Fed to decide Custodia’s application for a master
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102. Plaintiff repeats and realleges the allegations set forth in each of the preceding
103. As an alternative to Custodia’s above-pleaded claims for relief I and II, Custodia
seeks a declaratory judgment under 28 U.S.C. § 2201(a). This statute provides that, “[i]n the case
of an actual controversy within its jurisdiction . . . any court of the United States, upon the filing
of an appropriate pleading, may declare the rights and other legal relations of any interested party
104. This case presents an actual controversy. Custodia maintains that it is entitled to a
timely decision on its master account application. The Board is statutorily charged with making
banking services available to nonmember depository institutions like Custodia. These banking
services require a master account, for which Custodia has applied with the Kansas City Fed. The
Kansas City Fed and the Board have thus far refused to issue a decision, and have offered no
reasonable or sufficiently definite timeline for reaching a decision. For reasons set out above, they
do not have the discretion to simply ignore or delay consideration of completed and eligible
applications.
105. The controversy arises in this Court’s jurisdiction. Custodia resides in Wyoming.
And the Kansas City Fed and the Board both reside in Wyoming for purposes of this action because
they have availed themselves of the opportunity to conduct business in Wyoming. Additionally,
many of the events giving rise to this claim have occurred in Wyoming, including the issuance of
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106. Custodia has a right to have its master account application decided. The Federal
Reserve System is required to publish pricing principles and “to put into effect a schedule of fees
for such services which is based on those principles.” 12 U.S.C. § 248a(a). The fee schedule
promulgated by the Federal Reserve includes essential services for a depository institution like
Custodia, all of which require a master account. 12 U.S.C. § 248a(b). Under 12 U.S.C.
§ 248a(c)(2), “[a]ll Federal Reserve bank services covered by the fee schedule shall be available
107. The Board and the Kansas City Fed have a nondiscretionary statutory obligation to
decide the master account applications that are submitted to them. By statute, they must do so
within one year of receiving a completed application. 12 U.S.C. § 4807. The Board and the Kansas
City Fed have disregarded this statutory deadline in the course of delaying a decision on Custodia’s
108. Through this Complaint, Custodia has filed an appropriate pleading to have its
rights declared. The Court can resolve this controversy by declaring that Custodia has a right to
109. Custodia is therefore entitled under the Declaratory Judgment Act to a declaration
from this Court that the Board and/or the Kansas City Fed must decide Custodia’s master account
110. Plaintiff repeats and realleges the allegations set forth in each of the preceding
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111. As an alternative to Custodia’s above-pleaded claims for relief I and II, and in the
event that the Court determines that the Kansas City Fed is not an “agency” subject to APA review
and the Board’s ultimate decision-making authority, Custodia asserts this claim under the Due
112. The Kansas City Fed is a “federal instrumentalit[y]” that acts as a “fiscal agent[] of
the United States” as part of the Federal Reserve System. Mot. to Dismiss 3, TNB USA, Inc. v.
Fed. Rsrv. Bank of N.Y., No. 1:18-cv-7978 (ALC) (S.D.N.Y. Mar. 8, 2019), ECF No. 21; Whitaker,
supra n.6, at 8 n.3. It is thus “part of the Government for purposes of” complying with the
Constitution, Lebron, 513 U.S. at 399, and is subject to the Due Process Clause’s requirements
entitled to the services available to all depository institutions on a nondiscriminatory basis pursuant
to 12 U.S.C. § 248a, Custodia has a property interest in a master account. Cf. Goldberg, 397 U.S.
at 262 & n.8. This Court’s equity jurisdiction empowers it to enforce and provide remedies for
113. Under the Fifth Amendment, governmental entities must exercise “due process of
law.” U.S. Const. amend. V. The Due Process Clause requires “fairness” in the execution of the
law. Assoc. of Am. R.R.s, 821 F.3d at 27. And, fairness necessitates that “an economically self-
interested entity may [not] exercise regulatory authority over its rivals.” Id.
114. Here, the Board of Directors of the Kansas City Fed in part comprises members
“who shall be chosen and representative of the stockholding banks.” 12 U.S.C. § 302.
Stockholding banks are or may be competitors with all other banks requesting master accounts.
Stockholding banks have particular and heightened competitive incentives to ensure that novel
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banking institutions like Custodia cannot access master accounts so that stockholding “traditional”
115. To allow regulation by “private persons whose interests may be or often are adverse
to the interests of others in the same business” is anathema to the presumption that the government
acts in a fair, neutral, and disinterested fashion. See Carter v. Carter Coal Co., 298 U.S. 238, 311
(1936). To the extent that the Kansas City Fed’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 liberty and private property” by vesting
“self-interested” actors with “regulatory authority over [their] rivals.” Id.; Assoc. of Am. R.R.s,
116. If the Kansas City Fed is not an agency subject to APA review and the Board’s
ultimate decision-making authority, Custodia is entitled, under the Due Process Clause, to an order
that the Kansas City Fed’s processing and adjudication of Custodia’s application—as well as any
117. Plaintiff repeats and realleges the allegations set forth in each of the preceding
118. As an alternative to Custodia’s above-pleaded claims for relief I and II, and in the
event that the Court finds that the Kansas City Fed has final decision-making authority over
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Custodia’s master account application, the Federal Reserve System’s process for deciding master
119. “The executive Power” of the United States is vested in the President. U.S. Const.
Art. II, § 1, cl. 1. Pursuant to the Appointments Clause, the President may be assisted in carrying
out that responsibility by “Officers of the United States.” Art. II, § 2, cl. 2. The Appointments
Clause permits the vesting of the appointment of “inferior Officers” in the “President alone, in the
120. Under the Appointments Clause, only noninferior officers of the United States,
otherwise known as “principal Officers,” shall “exercis[e]” such “significant authority pursuant to
the laws of the United States” in assisting the President in his executive powers. Buckley v. Valeo,
424 U.S. 1, 126 (1976). Unlike inferior Officers, principal Officers must be nominated by the
121. The Board of Directors for the Kansas City Fed, and other regional Federal Reserve
Banks, are not principal Officers because they are not appointed by the President and confirmed
by the Senate.
122. Like all regional Federal Reserve Banks, the Board of Directors for the Kansas City
Fed is authorized and regulated by statute. The Kansas City Fed’s Board of Directors comprises
three Class A members, “who shall be chosen and representative of the stockholding banks,” three
Class B members, “who shall represent the public,” and three Class C members “who shall be
designated by the Board of Governors of the Federal Reserve System.” 12 U.S.C. § 302. No
members are appointed by the President, and no members are approved by the Senate.
123. Because the Kansas City Fed’s Board of Directors is not composed of principal
Officers, the Kansas City Fed is not constitutionally permitted to exercise “final decision making
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authority” on behalf of the United States—including rendering the decision regarding which
institutions can access the United States Federal Reserve System via a master account. United
States v. Arthrex, Inc., 141 S. Ct. 1970, 1984 (2021). Such determinations involve the adjudication
124. Only three out of the nine members of the Board of Directors for the Kansas City
Fed could even be considered inferior Officers of the United States because they are “designated
by the Board of Governors of the Federal Reserve System.” 12 U.S.C. § 302. The remaining six
members of the Board of Directors of the Kansas City Fed are not even inferior Officers of the
United States and can exercise no “significant” regulatory or decision-making authority “pursuant
to the laws of the United States.” Buckley, 424 U.S. at 125-26 (quoting United States v. Germaine,
125. Instead, determinations on master accounts must be subject to the review and
authority of a principal Officer. To allow members of the Kansas City Fed Board of Directors to
exercise “unreviewable authority” in adjudicating public rights dilutes political accountability and,
under the Appointments Clause, is “incompatible with their” status as either private-sector actors
126. Accordingly, because the members of the Kansas City Fed’s Board of Directors are
not appointed by the President or confirmed by the Senate, the Kansas City Fed cannot render a
final decision on behalf of the United States government for any master account application,
including Custodia’s application. To the extent Defendants’ current master account application
review regime permits the Kansas City Fed to exercise final decision-making authority, it violates
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127. Custodia is therefore entitled under the Appointments Clause to an order finding
the Federal Reserve System’s vesting of final master account determinations in the Reserve Banks
administrative process.
128. Plaintiff repeats and realleges the allegations set forth in each of the preceding
129. Under 28 U.S.C. § 1361, “[t]he 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
130. As an alternative to Custodia’s above-pleaded claims for relief I and II, and only in
the event that Defendants deny Custodia’s application for a master account, Custodia requests that
the Court issue a writ of mandamus to the Board and Kansas City Fed directing them to grant
131. This Court has jurisdiction over Custodia’s action under the Mandamus Act.
132. Based on facts already alleged, supra ¶¶ 62-71, both the Board and Kansas City
Fed are United States agencies subject to the mandamus power of this Court.
taking bank, has a clear and certain claim to have its master account application granted. Pursuant
to statute, Federal Reserve banking services “shall be available” on an equal and non-
added); see also Fourth Corner Credit Union, 861 F.3d at 1068 (Bacharach, J.) (opining that the
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term “shall” “indicates a congressional command,” as 1) the language was unambiguous, 2) prior
agency interpretations were consistent with this understanding, and 3) legislative history supported
this conclusion). Such services are only available through a master account. Custodia is an eligible
depository institution. Yet despite its valid Wyoming charter and conceded eligibility, Custodia
134. Custodia asks the Court to enforce Custodia’s statutory right, as an eligible, deposit-
135. Mandamus is necessary in this case because there are no other adequate remedies
136. Without a master account, Custodia will incur unnecessary costs, encounter
otherwise avoidable risks (such as settlement risk and counterparty risk), and will lose ground to
137. Custodia is therefore entitled under the Mandamus Act to an order compelling the
Board and/or the Kansas City Fed to comply with its statutory obligation to provide Custodia with
a master account.
138. Plaintiff repeats and realleges the allegations set forth in each of the preceding
139. As an alternative to Custodia’s above-pleaded claims for relief I and II, and only in
the event that Defendants deny Custodia’s application for a master account, Custodia seeks a
declaratory judgment under 28 U.S.C. § 2201(a). This statute provides that, “[i]n the case of an
actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an
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appropriate pleading, may declare the rights and other legal relations of any interested party
140. This case presents an actual controversy. Custodia maintains that, as a state-
chartered, deposit-taking bank, it is entitled to have its master account application granted.
Without a master account, Custodia will incur unnecessary costs, encounter otherwise avoidable
risks (such as settlement risk and counterparty risk), and will lose ground to competitors that
141. The controversy arises in this Court’s jurisdiction. Custodia resides in Wyoming.
And the Kansas City Fed and the Board both reside in Wyoming for purposes of this action because
they have availed themselves of the opportunity to conduct business in Wyoming. Additionally,
many of the events giving rise to this claim have occurred in Wyoming, including the issuance of
142. The Board and the Kansas City Fed have a statutory obligation to provide Custodia
with a master account. Pursuant to statute, Federal Reserve banking services “shall be available”
§ 248a(c)(2) (emphasis added); see also Fourth Corner Credit Union, 861 F.3d at 1068
(Bacharach, J.) (opining that the term “shall” “indicates a congressional command,” as 1) the
language was unambiguous, 2) prior agency interpretations were consistent with this
understanding, and 3) legislative history supported this conclusion). Such services are only
available through a master account. Custodia is an eligible depository institution. Yet despite its
valid Wyoming charter and conceded eligibility, Custodia has been denied a master account.
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143. Through this Complaint, Custodia has filed an appropriate pleading to have its
rights declared. The Court can resolve this controversy by declaring that Custodia has a right, as
144. Custodia is therefore entitled under the Declaratory Judgment Act to a declaration
from this Court that the Board and/or the Kansas City Fed has a statutory obligation to provide
a. Order a speedy hearing on this action, thereby advancing this action on the Court’s
c. Order the Kansas City Fed and the Board to process and decide Custodia’s
application for a master account within 30 days of the Court’s Order, or such other
d. Grant Plaintiff costs, fees, and other expenses under the Equal Access to Justice
e. Grant any other and further relief that the Court deems just and proper.
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CERTIFICATE OF SERVICE
I hereby certify that on June 7, 2022, I caused Custodia Bank, Inc.’s Complaint to be
Craig Zahnd
General Counsel, Federal Reserve Bank of Kansas City
craig.zahnd@kc.frb.org
(816) 881-2533
1 Memorial Drive
Kansas City, MO 64108