Vullo v. Office of the Comptroller of the Currency

Decision Date02 May 2019
Docket Number18 Civ. 8377 (VM)
Citation378 F.Supp.3d 271
Parties Maria T. VULLO, in her official capacity as Superintendent of the New York State Department of Financial Services, Plaintiff, v. OFFICE OF the COMPTROLLER OF the CURRENCY, and Joseph M. Otting, in his official capacity as U.S. Comptroller of the Currency, Defendants.
CourtU.S. District Court — Southern District of New York

Eamon Gilroy Rock, New York State Department of Financial Services, Albany, NY, James Francis Caputo, Nathaniel John Dorfman, Matthew Lore Levine, New York State Department of Financial Services, Matthew William Grieco, Steven Chiajon Wu, NYS Office of The Attorney General, New York, NY, for Plaintiff.

Christopher Kendrick Connolly, United States Attorney's Office, New York, NY, for Defendants.

DECISION AND ORDER

VICTOR MARRERO, United States District Judge.

Plaintiff Maria T. Vullo ("Vullo"), in her official capacity as Superintendent of the New York State Department of Financial Services ("DFS"), brings this action against defendants Office of the Comptroller of the Currency ("OCC") and Joseph M. Otting ("Otting"), in his official capacity as United States Comptroller of the Currency,1 to challenge the decision made by OCC to begin accepting applications for -- and thereafter potentially granting -- special-purpose national bank ("SPNB") charters to "financial technology" ("fin tech")2 companies. (See "Complaint," Dkt. No. 1.)

On February 26, 2019, OCC moved to dismiss the Complaint for lack of subject-matter jurisdiction or, alternatively, for failure to state a claim upon which relief can be granted. (See "Motion to Dismiss," Dkt. No. 20.) For the reasons set forth below, OCC's Motion to Dismiss is DENIED as to Counts I and II and GRANTED as to Count III.

I. BACKGROUND 3
A. FACTUAL BACKGROUND

Vullo is the Superintendent of DFS, which is the New York State agency charged with enforcing the state's insurance, banking, and financial services laws. DFS has licensed 229 state and international banks, and the agency also regulates and supervises approximately 600 non-bank financial services firms. In total, DFS supervises approximately $ 7 trillion in assets across the insurance, banking, and financial services industries.

OCC is an office of the United States Department of the Treasury that is charged with regulating and supervising federally chartered national banks. Otting is the United States Comptroller of the Currency, a role for which he was confirmed by the United States Senate on November 27, 2017. In his official capacity, Otting is thus the chief regulatory and administrative officer of OCC.

The National Bank Act ("NBA"),4 codified at 12 U.S.C. Section 21 et seq., vests OCC with authority to charter national banks. To receive a national charter, a bank must satisfy certain prerequisites:

If, upon a careful examination of the facts so reported, and of any other facts which may come to the knowledge of the Comptroller, whether by means of a special commission appointed by him for the purpose of inquiring into the condition of such association, or otherwise, it appears that such association is lawfully entitled to commence the business of banking, the Comptroller shall give to such association a certificate, under his hand and official seal, that such association has complied with all the provisions required to be complied with before commencing the business of banking, and that such association is authorized to commence such business.

12 U.S.C. § 27 (" Section 27"). A national bank -- i.e., one that is chartered by OCC -- is granted

all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes.

12 U.S.C. § 24 (Seventh) (" Section 24 (Seventh)"). OCC also promulgates regulations regarding national banks.

In 2003, OCC amended its regulations to allow it to issue SPNB charters -- i.e., to charter "a special purpose bank that limits its activities to fiduciary activities or to any other activities within the business of banking." 12 C.F.R. § 5.20 (e) (1) (i) (" Section 5.20(e)(1)" or "the Regulation"). Under Section 5.20(e)(1), a so-called special purpose bank "that conducts activities other than fiduciary activities must conduct at least one of the following core banking functions: Receiving deposits, paying checks, or lending money." Id. Because Section 5.20(e) (1) makes an entity eligible for an SPNB charter if it conducts "at least one" of those three functions, it contemplates that an SPNB charter could go to an entity that pays checks and/or lends money, but does not receive deposits. The current action concerns whether OCC can lawfully issue SPNB charters pursuant to Section 5.20(e) (1) to fin tech companies that do not receive deposits ("non-depository fin tech companies").

According to the Complaint, OCC first began considering whether to accept applications for SPNB charters from non-depository fintech companies in March 2016. At that time, OCC published a white paper in which it "identifie[d] the impact of fast-paced developments in financial services technology as a much needed subject of regulatory inquiry." (Complaint ¶ 28; see also Dkt. No. 1-1.) As recounted in the Complaint, OCC subsequently took numerous steps towards deciding whether to issue SPNB charters to non-depository fin tech companies, including: publishing an additional white paper; receiving comments opposing the agency's white paper; issuing a response to the comments on the white paper; and issuing a draft supplement to the Comptroller's Licensing Manual, titled "Evaluating Charter Applications from Financial Technology Companies." Furthermore, OCC reached out to fin tech companies to discuss the possibility of issuing SPNB charters.

On July 31, 2018, OCC announced its allegedly final decision to issue SPNB charters -- namely, OCC, acting under the authority of Section 5.20(e) (1), announced that it would begin to accept and review applications for SPNB charters submitted by non-depository fin tech companies (the "Fin tech Charter Decision"). According to DFS, the Fin tech Charter Decision undermines DFS's -- and therefore New York's -- ability to regulate and protect its financial markets and consumers by "exempt[ing] ... new fin tech chartered entities from existing federal standards of safety and soundness, liquidity and capitalization." (Complaint ¶ 49.)

DFS asserts three counts seeking declaratory and injunctive relief. Count I asks the Court to find that the Fin tech Charter Decision was unlawful because it exceeded OCC's authority under the NBA, to set that decision aside, and to enjoin OCC from taking any further actions to implement its provisions. (See id. ¶¶ 55-58.) Count II asks the Court to find Section 5.20(e)(1) "null and void" because OCC exceeded its statutory authority in promulgating the Regulation, to set it aside, and to enjoin OCC from taking any further actions to implement its provisions.5 (See id. ¶¶ 59-62.) Finally, Count III asks the Court to find that the Fin tech Charter Decision violates the Tenth Amendment of the United States Constitution (the "Tenth Amendment") because it creates a conflict with state law that Congress did not authorize, and to "declare it null and void." (See id. ¶¶ 63-68.)

B. PROCEDURAL POSTURE

This litigation is not DFS's first action challenging the Fin tech Charter Decision: it previously contested OCC's authority to issue SPNB charters to non-depository fin tech companies by filing a lawsuit in this district on May 12, 2017. See Vullo v. Office of the Comptroller of the Currency, Dkt. No. 17 Civ. 3574 (S.D.N.Y.). On December 12, 2017, that action was dismissed without prejudice by the Honorable Naomi Reice Buchwald, who granted OCC's motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) (" Rule 12(b)(1)") for lack of subject-matter jurisdiction because, in her determination, the action was not yet ripe for adjudication. See Vullo v. Office of Comptroller of the Currency, No. 17 Civ. 3574, 2017 WL 6512245, at *10 (S.D.N.Y. Dec. 12, 2017) (hereafter, " Vullo I"). Specifically, Judge Buchwald determined that OCC -- at that time -- "ha[d] not yet determined whether it will issue SPNB charters to fin tech companies, nor ha[d] it received or reviewed any applications for any such charter." Id. at *5. As a result, Judge Buchwald found both that DFS had not suffered an injury-in-fact and that DFS's claims were not ripe for adjudication. See id. at *8-10.

Following OCC's July 31, 2018 announcement, which the Complaint characterizes as "constitut[ing] the agency's final decision to proceed with the unlawful Fin tech Charter [Decision]," DFS filed the Complaint in this action on September 14, 2018. (Complaint ¶ 39.)

OCC wrote to the Court, requesting on November 16, 2018 that the Court either endorse the parties' proposed briefing schedule for OCC's contemplated motion to dismiss or schedule a pre-motion conference regarding the contemplated motion. ("November 16 Letter," Dkt. No. 13.) OCC also set forth the bases for its contemplated motion to dismiss the Complaint. (See id. at 2.)

DFS responded to the November 16 Letter, joining in OCC's request for a pre-motion conference regarding "not only the Defendants' baseless motion to dismiss, but Plaintiff's anticipated motion for a preliminary injunction." ("November 26 Letter," Dkt. No. 15, at 1.) DFS also set forth the bases both for opposing OCC's contemplated motion to dismiss and for its contemplated motion for injunctive relief. (See id. at 2-3.)

The Court held a telephone conference on December 10, 2018, during which it directed the parties to update the Court regarding a motion schedule. (See Dkt. Minute Entry for 12/10/2018.) On December 14, 2018, OCC again wrote...

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