The Federal Reserve accused Custodia Bank of "feigning ignorance" of administrative law. The Cheyenne, Wyoming-based depository said the central bank's legal arguments were "worthy of Kafka."
Custodia's lawsuit against the Fed over its long-delayed application for an account with Federal Reserve Bank of Kansas City is picking up steam and growing contentious as the two sides exchange pointed filings in the U.S. District Court of Wyoming over
Last week, the Fed Board of Governors doubled down on its assertion that it did not need to go through a full discovery process, which would require it to respond to an extensive list of inquiries from Custodia.
Instead, the central bank maintains, it only has to provide an administrative record, outlining the step-by-step of its decision-making process regarding Custodia's application for a so-called master account, which provides access to the Fed's financial services.
The board informed the court of its intention to submit this type of limited disclosure at the end of last month. In response, Custodia accused the Fed of playing by its own rules as part of an ongoing strategy of "obfuscation and delay." It urged the court to compel the Fed to go through a full discovery process or receive a default judgment.
In its response filed last Wednesday, the board noted that providing an administrative record is "indisputably a form of discovery" and is typically accepted in cases of undue delay under the Administrative Procedure Act.
The Kansas City Fed, however, would not qualify for APA exemptions and would therefore have to go through a full discovery, the board noted in its filing. A key tenet of the Board's defense in the suit is that
The Fed added that compiling an administrative record — also referred to as APA discovery — would be the quickest way to resolve the questions raised by Custodia, and far less time consuming than responding to the "extraordinarily wide-ranging discovery that Custodia seeks to impose."
Custodia
In its latest filing, the Fed argued that Custodia knew what it was getting into at the onset of the case, both because the two parties' opposing views on record review were made clear shortly after Custodia filed its lawsuit, and because of the statute invoked by the digital asset bank in its suit.
"Although now feigning ignorance of the applicable record review requirement, Custodia itself designated this as a record review case when it denominated the action as an 'Administrative Procedure Act/Review or Appeal of Agency Decision' matter against the U.S. Government and invoked 5 U.S.C. § 706 (the APA provision establishing record review) in its initial signed filing with the Court," the Fed wrote.
The central bank went so far as to turn one of Custodia's arguments for blocking APA discovery back against the bank. Custodia had argued that, by asserting APA rights for limited discovery, the Fed Board of Governors is contradicting its argument that it plays no role in granting master accounts. "The Board cannot have its cake and eat it too," Custodia argued.
In its latest filing, the Fed dismissed this as a "peculiar argument," noting that either the Fed, as Custodia argues, has administrative authority over master accounts, which would make it eligible for APA discovery, or it does not, and therefore should be dismissed from the case.
"Custodia cannot 'have it both ways' by insisting that there is a viable APA claim against the Board while simultaneously resisting the APA's provision for record review," the Fed argued.
In a response filed one day later, Custodia shot back that it was the Fed that, again, employed faulty logic.
"The Federal Reserve Board of Governors must follow the rules, and that means answering the Complaint and participating in discovery," Custodia wrote. "The Board's paradoxical justification for dodging those twin responsibilities is worthy of Kafka."
Custodia also argued that the case law cited by the Fed was flawed. One did not address the matters of discovery and another did not involve an agency that refuted having authority over the matter in question, Custodia noted.
"The Board's disavowal of any authority over the requested action distinguishes this case from every APA case cited by the Board," it wrote.
The board argues it has until Feb. 9, 2023, to provide its administrative record. Custodia wants the court to set a hearing date to establish a timeframe for expedited discovery sometime this month.
