Banking and Finance Law Daily Wrap Up, FEDERAL RESERVE SYSTEM—D. Wyo.: Court declines to deny costs in suit by bank against Federal Reserve, (May 31, 2024)

By Ursula Furi-Perry, J.D., MBA

There were no recognized “valid reasons” applied that would prevent costs from being granted, the court said.

The U.S. District Court for the District of Wyoming denied the motion filed by Custodia Bank for court review of the taxation of costs in its unsuccessful suit against the Federal Reserve, holding that no recognized “valid reasons” applied that would prevent costs from being granted. Custodia Bank, a special purpose depository institution, had filed suit against the Federal Reserve after its application for a master account was denied. After granting judgment for the defendants, the court assessed costs, and Custodia Bank filed a motion for court review of the taxation of costs. The court rejected Custodia Bank’s argument on judicial economy and its argument that an award of costs was premature if Custodia Bank prevails on appeal; the court also rejected the argument that awarding costs to the defendants could chill legitimate lawsuits against the Federal Reserve. (Custodia Bank, Inc. v. Federal Reserve Board of Governors, et al., No. 22-CV-125-SWS (D. Wyo. May 30, 2024)).

Background. Custodia Bank was established under new legislation in Wyoming in 2019 and termed a Special Purpose Depository Institution, which includes institutions that do not lend money, but specialize in taking deposits, facilitating payments for customers, and other incidental services. Custodia Bank applied for a master account with the Federal Reserve in October 2020 because such an account means that the bank would not have to use an intermediary bank to access the Federal Reserve banking system for clearing U.S. dollar transactions. In June 2022, Custodia filed suit to try to compel the Fed to act on its application (see Banking and Finance Law Daily, June 8, 2022).

After denial of its application in 2023, Custodia argued that the Fed’s actions were arbitrary, capricious, or an abuse of discretion and that the Court should compel the Fed to issue the master account, and that Custodia was entitled to a writ of mandamus from the Federal Reserve Bank of Kansas City granting the master account. On cross motions in the matter, the U.S. District Court for the District of Wyoming ruled for the Fed, holding that Custodia Bank was not entitled to the master account and that the Fed was actually entitled to summary judgment upholding its prior ruling (see Banking and Finance Law Daily, April 1, 2024). After an award of costs was entered for the defendants, Custodia filed a motion for court review of the taxation of costs with the U.S. District Court for the District of Wyoming.

Analysis. The Wyoming federal court held that the defendants in this case were indisputably the prevailing party. The court noted recognized “valid reasons” for denying costs, including cases where the party was only partially successful, damages were nominal, costs were unreasonably high or unnecessary, recovery was insignificant, or the issues were close or difficult.

None of those valid reasons applied in this case, the court held. Custodia was not partially successful in the case. The issues in the case did not involve constitutional deprivations, but focused upon money, banking, and finance. The court rejected Custodia’s “David versus Goliath” argument, noting that in this case, there were direct financial incentives attached to the success of “David’s” pursuit. “This hyperbole is not well taken,” the court stated.

Moreover, the court noted regarding issues of judicial economy, the court’s decision was final and subject to appeal, not at some intermediate stage. If Custodia’s appeal were successful, it could be entitled to pursue its costs under the appellate rules. The court rejected Custodia’s argument on judicial economy and its argument that an award of costs was premature if Custodia prevails on appeal; the court also rejected the argument that awarding costs to the defendants could chill legitimate lawsuits against the Federal Reserve.

The case is No. 22-CV-125-SWS.

Judge: Skavdahl, S.

Attorneys: John K. Villa (Williams & Connolly LLP) for Custodia Bank Inc. Joshua Paul Chadwick, Board of Governors of the Federal Reserve System, for Federal Reserve Board of Governors.

Companies: Custodia Bank, Inc.

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