The bank maintained a master account with the Federal Reserve Bank of New York (FRBNY). The FRBNY terminated the bank’s master account after a suspension and review of compliance risks. The bank responded by filing suit against FRBNY and the Board of Governors of the Federal Reserve System (the “Board”), but its initial claims were dismissed without prejudice. The bank sought to amend its complaint by adding new claims against the FRBNY. The proposed new claims alleged that the FRBNY violated the Federal Reserve Act (FRA), 12 U.S.C. § 248a, by issuing guidelines for evaluating accounts without statutory authority, and, therefore, also violated the Administrative Procedure Act (APA), 5 U.S.C. § 706 by “act[ing] arbitrarily, capriciously, and abus[ing] its discretion.” Additionally, the bank claimed that the FRBNY discriminated against it on the basis of its national origin, in violation of the Due Process Clause of the Fifth Amendment.
In Banco San Juan Internacional, Inc. v. FRB of N.Y., 23-cv-6414 (JGK), 2025 WL 753768, 2025 U.S. Dist. LEXIS 42134 (S.D.N.Y. Mar. 9, 2025) (opinion not yet released for publication), the court denied the bank the ability to amend its complaint and found that the bank failed to state a claim for relief on both of the additional counts. First, the court found that the bank’s FRA and APA claims were “futile.” The court had previously held that the FRBNY has discretion to close master accounts, Banco San Juan Internacional, Inc.v. Fed. Rsrv. Bank of N.Y. 762 F. Supp. 3d 247, 267 (S.D.N.Y. 2025) and the bank “has failed to identify cogent and compelling reasons justifying a departure from the rulings.” Further, the bank’s arbitrary and capricious argument relied on a “flawed interpretation” that FRA § 248a entitled the bank to a master account. The bank’s amendment failed to “cure the deficiencies” of the original complaint. Second, the court held that the bank’s Fifth Amendment claims were futile. The court found that the bank “failed to invoke a valid cause of action… and fail[ed] to allege plausibly any violation of [its] purported equal protection rights.” Additionally, it stated that an action with a disproportionate impact, standing alone, is not unconstitutional; rather, there must be a discriminatory purpose. The facts show that the FRBNY terminated the bank’s master account only after an account suspension, noncompliance, and review of further compliance risks. Thus, the court found both claims to be futile and dismissed the case with prejudice.
By Garrett Meier [email protected]
Edited By Hayden Mariott [email protected]
Edited By Kristin Meurer [email protected]