Am. Bankers Ass'n v. United States

• Decision Date: 30 October 2017
• Docket Number: No. 17-194,17-194
• Parties: AMERICAN BANKERS ASSOCIATION, and WASHINGTON FEDERAL, N.A., Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. THE UNITED STATES, Defendant.
• Court: U.S. Claims Court

AMERICAN BANKERS ASSOCIATION, and WASHINGTON FEDERAL, N.A.,Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. THE UNITED STATES, Defendant.

No. 17-194

United States Court of Federal Claims

October 30, 2017^*

Associational Standing;

Breach of Contract;

Duty of Good Faith and Fair Dealing;

Federal Reserve Act of 1913, Pub. L. No. 63-43, ch. 6, 38 Stat. 251; 12 U.S.C. §§ 222, 226, 241, 247(a), 248, 261, 282, 287, 289, 301-305, 321, 341, 391 (2012); 12 U.S.C. § 289 (2012 & Supp. III 2016);

Fixing America's Surface Transportation Act, Pub L. No. 114-94, 129 Stat. 1312 (2015);

Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, 107 Stat. 312 (1993);

U.S. CONST. amend. V, Taking Clause.

Stephen J. Obermeier, Wiley Rein LLP, Washington, D.C., Counsel for Plaintiff.

Eric Peter Bruskin, United States Department of Justice, Civil Division, Washington, D.C., Counsel for the Government.

MEMORANDUM OPINION AND FINAL ORDER GRANTING THE GOVERNMENT'S MOTION TO DISMISS

BRADEN, Chief Judge.

In 2015, without any hearings, Congress enacted the Fixing America's Surface Transportation Act ("FAST Act") to provide $2.7 billion over five years for national transportation infrastructure and other related surface transportation issues that was signed by former President Obama on December 5, 2015. To help fund the, aptly named, FAST Act, Congress amended theFederal Reserve Act of 1913, by substantially reducing the historic statutory six percent dividend paid to certain member banks on their Federal Reserve stock.

For the reasons discussed herein, as a matter of law, Washington Federal, N.A. ("Washington Federal"), individually and on behalf of other national banks similarly situated, have no contractual or statutory entitlement to a dividend at any specific rate nor a property interest in which to assert a Taking Clause claim under the Fifth Amendment to the United States Constitution. The remedy for the understandable grievances alleged in this case lies within the exclusive jurisdiction of the Congress.

I. FACTUAL BACKGROUND.¹

A. The Federal Reserve Act.

On December 23, 1913, Congress enacted the Federal Reserve Act of 1913 ("the Federal Reserve Act"), Pub. L. No. 63-43, ch. 6, 38 Stat. 251 (codified as amended at 12 U.S.C. §§ 221-522), to establish the Federal Reserve System. Therein, a seven-member Board of Governors ("the Federal Reserve Bank Board") was established, including the Secretary of the Treasury and the Comptroller of the Currency, to set monetary policy through discount rates, reserve requirements, and open market operations, with advice about general business conditions from the Federal Advisory Council and twelve regional Federal Reserve Banks. See §§ 10-12, 14, 38 Stat. at 260-65 (codified as amended at 12 U.S.C. §§ 241, 247a, 248, 261, 353).

Each of the twelve Federal Reserve Banks has authority to exercise certain enumerated powers within its assigned geographic area and is governed by a nine-member board of directors that reports directly to the Federal Reserve Bank Board. See § 13, 38 Stat. at 254-56 (codified as amended at 12 U.S.C. §§ 301-305, 341). The Federal Reserve Banks also serve as deposit institutions for United States Treasury funds. See § 13, 38 Stat. at 265 (codified as amended at 12 U.S.C. § 391).

In addition, the Federal Reserve Act requires that all banks with national charters ("national banks") must become members of "the Federal Reserve System by subscribing and paying for stock in the Federal [R]eserve [B]ank," in an amount "equal to six [percent] of the bank's paid-up capital stock and surplus," at a price set at $100 per share. See §§ 2, 5, 38 Stat. at 252-53, 257 (codified as amended at 12 U.S.C. §§ 222, 282, 287). The Federal Reserve Act also allows banks with state charters to convert to national banks, with approval from a majority of shareholders andthe Comptroller of the Currency. See § 7, 38 Stat. at 258 (codified as amended at 12 U.S.C. § 321).

The Federal Reserve Act also provides that

[a]fter all necessary expenses of a Federal [R]eserve [B]ank have been paid or provided for, the stockholders shall be entitled to receive an annual dividend of six [percent] on the paid-in capital stock, which dividend shall be cumulative.

§ 7, 38 Stat. at 258 (codified as amended at 12 U.S.C. § 289).

Since 1913, Congress has amended the Federal Reserve Act over 200 times, including by the Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, 107 Stat. 312 (1993). No change was ever made to the annual dividend rate of six percent.

Section 30 of the Federal Reserve Act, however, "expressly reserved" to Congress the right to "amend, alter, or repeal" the Federal Reserve Act. See § 30, 38 Stat. at 275, renumbered § 31, Pub. L. No. 95-630, title I, § 101, 92 Stat. 3641 (1978) (codified at 12 U.S.C. § 226 note (2012) (Separability; Right to Amend, Alter or Repeal)).

B. In 2012, Washington Federal Was Rechartered As A National Bank And Joined The Federal Reserve System.

Washington Federal, a federal savings and loan association in Seattle, Washington entered into discussions with representatives of the State of Washington and the Federal Reserve Bank of San Francisco ("FRBSF") in 2011 to learn about the application process to become a chartered bank. Whitehead Decl. ¶¶ 9, 13, 21.² Washington Federal was informed by state regulators "that chartering as a state bank would save Washington Federal nearly $1 million per year" in premiums and regulatory fees. Whitehead Decl. ¶ 11. As a federally-chartered savings and loan association, however, Washington Federal was more familiar with the regulators at the Office of the Comptroller of the Currency ("OCC") and believed that investors and prospective customers "perceived the OCC to be the 'gold standard[.]'" Whitehead Decl. ¶ 12.

Washington Federal, however, was concerned about the requirement to subscribe to Federal Reserve Bank stock, "an illiquid, long-term asset" that cannot be traded, pledged as collateral, or used to acquire other investments. Whitehead Decl. ¶ 18. In addition, at that time, "the Federal Reserve was undergoing an unprecedented change to its own balance sheet, as it had attempted to stabilize the economy from the recession of the late-2000s by acquiring [certain assets] and debt and equity positions . . . as part of responding to the nation's financial crisis." Whitehead Decl. ¶ 21. In addition, balance sheet changes "materially increase[d] the potential risk of stock ownership in the Federal Reserve System." Whitehead Decl. ¶ 21. The Chief Financial Officer of Washington Federal was dispatched to contact the Federal Reserve Bank Board to confirm that the Federal Reserve Bank Board "retained the right to demand additional capitalinfusions from member banks in the event of a national banking crisis," but he was assured that the Board had never done so. Whitehead Decl. ¶ 21.

In the end, Washington Federal agreed to become a national bank and pay half of the par value of its Federal Reserve Bank stock to the Federal Reserve Bank, but was required to hold the remaining half in reserve, subject to call by the Federal Reserve Bank. See 12 U.S.C. § 282 (2012). As a result, Washington Federal assumed a "double liability," i.e., a capital call of double the stock's par value, or four times the amount that Washington Federal paid for Federal Reserve Bank stock. Whitehead Decl. ¶¶ 20-21.

Nevertheless, Washington Federal elected to recharter as a national bank, because "based on . . . over one hundred years of precedent, . . . it was guaranteed a [six percent] return [by the Federal Reserve Bank] on its paid-in capital stock." Whitehead Decl. ¶ 23. In addition, the dividend income would defray the regulatory fees that Washington Federal would have to pay to the OCC—"a significant factor [in] recommending that the Board of Directors approve . . . conversion to a national bank." Whitehead Decl. ¶ 23.

On September 24, 2012, the Washington Federal's Board of Directors unanimously approved of Washington Federal's conversion. Whitehead Decl. ¶ 24; Whitehead Decl. Ex. A (9/24/12 meeting minutes). Thereafter, Washington Federal submitted an application to the OCC to convert that was approved by the OCC on May 29, 2013.³ Whitehead Decl. ¶ 24.

On July 8, 2013, Washington Federal submitted an application to FRBSF to purchase Federal Reserve Bank stock, "in accordance with the provisions of the act of Congress approved December 23, 1913, as amended, and known as the Federal Reserve Act." Whitehead Decl. ¶ 25; Am. Compl. Ex. A.

On July 17, 2013, the FRBSF's Director of District Accounting sent a letter to inform Washington Federal that

We have processed your application to purchase 479,610 shares of Federal Reserve Bank Stock. This letter is to advise you of the charge of $24,048,444.75 processed on July 17, 2013, for payment amounting to 50% of the par value of the shares of Federal Reserve Bank Stock, plus accrued dividends from July 1, 2013 to July 17, 2013.

* * *

Additionally, dividends will be paid semi-annually on the last business day of June and December. Dividends are paid at the statutory rate of [six] percent per annum, or $1.50 per share semi-annually. Dividend payments are documented by an advice that will be mailed to you.

Am. Compl. Ex. B; Whitehead Decl. ¶ 27.

C. The Fixing America's Surface Transportation Act.

On December 4, 2015, Congress enacted the FAST Act. See Pub. L. No. 114-94, 129 Stat. 1312 (codified in scattered sections of 5, 7, 12, 15, 23, 31, 42, and 49 U.S.C. (2012 & Supp. III 2016)). The FAST Act authorized substantial appropriations for surface transportation infrastructure through fiscal year 2020. See, e.g., § 3016, 129 Stat. at 1479 (codified at 49 U.S.C. § 5338 (2012 & Supp. III 2016)). To pay for this increased spending, in part, Congress required the Federal Reserve Banks, effective January 1, 2016, to decrease the dividend paid to member banks with total consolidated assets of more than $10...