Vullo v. Office of the Comptroller of the Currency

*278Plaintiff 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:

*279If, 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]

*280... 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 *281tech 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 to the Court with a proposed schedule for its motion to dismiss, and further notified the Court that the parties had failed to reach an agreement regarding DFS's contemplated motion for a preliminary injunction. (See Dkt. No. 18.)

Thereafter, on February 12, 2019, the Court held a telephone conference with the parties during which it directed them to submit a proposed motion schedule. (See Dkt. Minute Entry for 2/12/2019.) The Court subsequently So-Ordered the parties' agreed-upon briefing schedule for OCC's motion to dismiss the Complaint. (See Dkt. No. 19.)

OCC now moves to dismiss the Complaint pursuant to Rule 12(b)(1), for lack of subject-matter jurisdiction, and Rule 12(b)(6) of the Federal Rules of Civil Procedure (" Rule 12(b) (6)"), for failure to state a claim on which relief may be granted. (See Motion to Dismiss; "Defs.' Mem.," Dkt. No. 21; Dkt. No. 22.) It first argues that the Court lacks subject-matter jurisdiction over the action on several grounds: (1) DFS lacks standing because it has not suffered an injury-in-fact, as required by Article III of the United States Constitution; (2) this action is not yet ripe for adjudication because OCC has not taken any action to accept, review, or approve applications for SPNB charters for fin tech companies; and (3) the challenge to the 2003 amendment to Section 5.20(e)(1) is time-barred. (See Defs.' Mem. at 7-11.) OCC further argues that, if the Court reaches the merits of the dispute, the Complaint fails to state a claim on which relief may be granted because (1) the statutory term "business of banking" is ambiguous and, as a result, OCC's reasonable interpretation of the term is entitled to Chevron 6 deference; and (2) neither Section 5.20(e)(1) nor any SPNB charter potentially issued under the Regulation violates the Tenth Amendment. (See id. at 11-19.)

DFS opposes the Motion to Dismiss, arguing that the Court has subject-matter jurisdiction over this action and that the Complaint adequately states a claim. (See "Pl.'s Opp'n," Dkt. No. 25.) DFS first argues that the Court has subject-matter jurisdiction over the action on several grounds: (1) DFS, as an agency of New *282York State, has standing to challenge the Fin tech Charter Decision by reason of DFS's allegation of an injury-in-fact; (2) this action is ripe for adjudication because OCC decided on July 31, 2018 to begin accepting applications for SPNB charters from fin tech companies; and (3) the Complaint is timely because the causes of action accrued on July 31, 2018, and, moreover, the intermediate action and reopening doctrines apply to DFS's challenge to Section 5.20(e)(1). (See id. at 4-9.) DFS next argues that the Complaint states a sufficient claim for relief because (1) Congress' intended the statutory term "business of banking" to require deposit-receiving; (2) OCC's interpretation of the term "business of banking" is unreasonable and therefore not entitled to Chevron deference; and (3) the Complaint alleges a valid Tenth Amendment claim. (See id. at 9-25.)

In reply in further support of the Motion to Dismiss, OCC argues that the Court lacks subject-matter jurisdiction because DFS has not suffered an injury-in-fact. (See "Defs.' Reply," Dkt. No. 26.) Moreover, OCC contends that the harms alleged in the Complaint are speculative because OCC has not yet received an application for, nor granted, an SPNB charter to a non-depository fin tech company. (See id. at 2-4.) OCC also repeats its argument that a facial challenge to Section 5.20(e)(1) is untimely. (See id. at 5.) OCC further argues that the Complaint fails to state a claim on which relief may be granted because Section 5.20(e) (1) reflects a reasonable interpretation of the term "business of banking" and therefore is entitled to judicial deference. (See id. at 5-9.) Finally, OCC asserts that the issuance of SPNB charters under Section 5.20(e) (1) would comport with the Tenth Amendment because OCC's envisioned SPNB charters would not supersede traditional state bank chartering authority. (See id. at 9.)

II. JUSTICIABILITY

A. LEGAL STANDARDS

Article III, Section 2, of the United States Constitution limits the jurisdiction of federal courts to "Cases" and "Controversies" -- a requirement which is satisfied only where a plaintiff has "standing" to commence an action in federal court. Sprint Commc'ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 273-74, 128 S.Ct. 2531, 171 L.Ed.2d 424 (2008). A plaintiff can demonstrate standing by establishing three elements: (1) an injury-in-fact; (2) causation; and (3) redressability. See id. Under the injury-in-fact requirement, "the first and foremost" element, "a plaintiff must show that he or she suffered an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical." Spokeo, Inc. v. Robins, --- U.S. ----, 136 S.Ct. 1540, 1547-48, 194 L.Ed.2d 635 (2016) (internal quotation marks and alterations omitted). In evaluating a plaintiffs showing of standing, a court must accept as true all material facts alleged in the complaint and draw all reasonable inferences in the plaintiff's favor. See Cortlandt St. Recovery Corp. v. Hellas Telecommc'ns, S.à.r.l., 790 F.3d 411, 417 (2d Cir. 2015). Further, a court may consider evidence outside the pleadings to determine whether jurisdiction exists. See id.

For an injury to be "actual or imminent," either the "threatened injury must be certainly impending" or there must be a "substantial risk that the harm will occur." Clapper v. Amnesty Int'l USA, 568 U.S. 398, 409, 414 n.5, 133 S.Ct. 1138, 185 L.Ed.2d 264 (2013) (internal quotation marks omitted). The injury cannot be premised "on a highly attenuated chain of possibilities." Id. at 410, 133 S.Ct. 1138. Although the term has never been used by *283the United States Supreme Court, some courts -- including, importantly, the United States Court of Appeals for the Second Circuit -- refer to the "actual or imminent" consideration of the injury-in-fact inquiry as "constitutional ripeness." See, e.g., Entergy Nuclear Vt. Yankee, LLC v. Shumlin, 733 F.3d 393, 429 (2d Cir. 2013).

Courts have separately developed the related doctrine of "prudential ripeness" as "a more flexible doctrine of judicial prudence." Simmonds v. INS, 326 F.3d 351, 357 (2d Cir. 2003). Unlike the injury-in-fact requirement, prudential ripeness is not a "limitation on the power of the judiciary." Id. Rather, prudential ripeness encompasses whether a court should, in its discretion, decline to exercise jurisdiction because "the case will be better decided later." Id. When examining claims for prudential ripeness, courts "evaluate both the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration." New York Civil Liberties Union v. Grandeau, 528 F.3d 122, 131-32 (2d Cir. 2008) (quoting Abbott Labs. v. Gardner, 387 U.S. 136, 149, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967) ). Of course, the considerations of this prudential ripeness inquiry may ultimately overlap with the considerations of the Article III standing inquiry. See id. at 130 n.8.

Yet, to the extent that results of the prudential and constitutional ripeness inquiries yield different answers, such that a case may be constitutionally ripe but prudentially unripe, a court must proceed cautiously. A federal court's ability to decline jurisdiction on prudential grounds must be reconciled with the "virtually unflagging" obligation of a court "to hear and decide cases within its jurisdiction." Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 126, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014) (internal quotation marks omitted). Thus, following the Supreme Court's decision in Lexmark, courts have questioned the "continuing vitality" of the prudential ripeness doctrine. Susan B. Anthony List v. Driehaus, 573 U.S. 149, 167, 134 S.Ct. 2334, 189 L.Ed.2d 246 (2014) (commenting that dismissal on prudential ripeness grounds "is in some tension with" Lexmark but declining to determine the continued vitality of the prudential ripeness doctrine because its factors were "easily satisfied" in that case (internal quotation marks omitted)); see also Young Advocates for Fair Educ. v. Cuomo, 359 F. Supp. 3d 215, 236 n.14 (E.D.N.Y. 2019) ("In Susan B. Anthony List v. Driehaus, a unanimous Supreme Court cast serious doubt as to whether a court may decline to hear a case on 'prudential' ripeness grounds."). Neither the Supreme Court nor the Second Circuit has squarely addressed the continued vitality of prudential ripeness in a published opinion since Lexmark and Susan B. Anthony List.

Ripeness concerns, especially of the prudential nature, are particularly prevalent when a plaintiff challenges agency action prior to an enforcement or adjudication. See AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 386, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999) ("[T]his claim ... is not ripe. When ... there is no immediate effect on the plaintiffs primary conduct, federal courts normally do not entertain pre-enforcement challenges to agency rules and policy statements."). Courts have developed certain guidelines to prevent premature review of agency action except under certain conditions. As one example, regulated individuals or entities can typically demonstrate standing when "faced with a choice between risking likely criminal prosecution entailing serious consequences, or forgoing potentially lawful behavior." Thomas v. City of New York, 143 F.3d 31, 35 (2d Cir. 1998). Additionally, *284agency action may be ripe for judicial review to the extent the issue is a purely legal one that cannot be aided by further factual development. See, e.g., National Org. for Marriage, Inc. v. Walsh, 714 F.3d 682, 691 (2d Cir. 2013) (determining that, "[a]lthough the factual record is not yet fully developed, the dispute primarily presents legal questions and there is a concrete dispute between the parties").

State plaintiffs seeking pre-enforcement review of federal agency action present courts with unique standing considerations. State plaintiffs are entitled to "special solicitude" in the standing analysis because they "are not normal litigants for the purposes of invoking federal jurisdiction." Massachusetts v. EPA, 549 U.S. 497, 518, 520, 127 S.Ct. 1438, 167 L.Ed.2d 248 (2007). The depth of this "special solicitude" and its impact on other doctrines, such as the state's ability to bring suits on behalf of its citizens as parens patriae, is unclear. See Connecticut v. Am. Elec. Power Co., 582 F.3d 309, 336-38 (2d Cir. 2009), aff'd in part and rev'd in part, 564 U.S. 410, 131 S.Ct. 2527, 180 L.Ed.2d 435 (2011).

Regardless of the specific impact of this "special solicitude," whether a state has standing to sue the federal government "seem[s] to depend on the kind of claim that the state advances." Arizona State Legislature v. Arizona Indep. Redistricting Comm'n, --- U.S. ----, 135 S. Ct. 2652, 2664 n. 10, 192 L.Ed.2d 704 (2015) (quoting R. Fallon, J. Manning, D. Meltzer & D. Shapiro, Hart and Wechsler's The Federal Courts and the Federal System 263-266 (6th ed. 2009)).

On the one hand, states cannot sue the federal government for alleged violations of federal law merely on behalf of their citizens, even under the Tenth Amendment. See Massachusetts v. Mellon, 262 U.S. 447, 485-86, 43 S.Ct. 597, 67 L.Ed. 1078 (1923) ("It cannot be conceded that a state, as parens patriae, may institute judicial proceedings to protect citizens of the United States from the operation of the statutes thereof."); see also Virginia ex rel. Cuccinelli v. Sebelius, 656 F.3d 253, 270 (4th Cir. 2011) (finding that states have no standing to protect state law that "simply purports to immunize [state] citizens from federal law"); West Va. v. U.S. Dep't of Health & Human Servs., 145 F. Supp. 3d 94, 102 (D.D.C. 2015) (same), aff'd sub nom. West Va. ex rel. Morrisey v. U.S. Dep't of Health & Human Servs., 827 F.3d 81 (D.C. Cir. 2016).

On the other hand, states can sue the federal government to compel agency action in order to defend certain of their "sovereign" and "quasi-sovereign" interests. Massachusetts v. EPA, 549 U.S. at 520 n.17, 127 S.Ct. 1438 (finding that a state has standing to "assert its rights under federal law"). Those sovereign and quasi-sovereign interests include, among others, "the exercise of sovereign power over individuals and entities within the relevant jurisdiction -- this involves the power to create and enforce a legal code." Alfred L. Snapp & Son, Inc. v. Puerto Rico ex rel. Barez, 458 U.S. 592, 601, 102 S.Ct. 3260, 73 L.Ed.2d 995 (1982). Some cases have also reasoned that, without implicating the concerns in Mellon, states possess standing to "prevent[ ] an administrative agency from violating a federal statute" in order to "vindicate the [c]ongressional will." Abrams v. Heckler, 582 F. Supp. 1155, 1159 (S.D.N.Y. 1984) (internal quotation marks omitted) (finding New York State had standing to sue the Department of Health and Human Services for acting in excess of its statutory authority by promulgating regulation that preempted New York insurance law).

*285States can also sue the federal government if federal action "imposes" on a state an "obligation" that invades "the powers of the State" and suffices to establish standing. Mellon, 262 U.S. at 480, 43 S.Ct. 597 ; see also Texas v. United States, 787 F.3d 733, 748 (5th Cir. 2015) (finding that Texas had standing to challenge agency action in part because of the costs associated with providing additional driver's licenses), affirmed by an equally divided court, --- U.S. ----, 136 S. Ct. 2271, 195 L.Ed.2d 638 (2016) (per curiam). Even when a federal law imposes no obligation on a state, "[f]ederal regulatory action that preempts state law creates a sufficient injury-in-fact" as well. Wyoming ex rel. Crank v. United States, 539 F.3d 1236, 1242 (10th Cir. 2008) (citing Alaska v. U.S. Dep't of Transp., 868 F.2d 441, 443 (D.C. Cir. 1989) ) (finding Wyoming had standing to challenge Bureau of Alcohol, Tobacco, Firearms, and Explosives determination that Wyoming's expungement law would not restore federal firearm rights); see also Oregon v. Ashcroft, 192 F. Supp. 2d 1077, 1087 (D. Or. 2002) (finding Oregon had standing to seek declaratory and injunctive relief to invalidate non-final determination of the United States Attorney General implicating Oregon's Death with Dignity Act), aff'd, 368 F.3d 1118 (9th Cir. 2004).7 The preemption concerns in these cases, involving state laws effectively regulating citizens' conduct, differ from the Virginia law at issue in Cuccinelli, which the United States Court of Appeals for the Fourth Circuit found "regulates nothing and provides for the administration of no state program." 656 F.3d at 270 ; see also Vermont Assembly of Home Health Agencies, Inc. v. Shalala, 18 F. Supp. 2d 355, 370 (D. Vt. 1998) (finding Tenth Amendment standing "[w]hen the federal government unduly interferes with the functioning of such local bodies").

The rigor of the standing inquiry thus turns not only on the type of plaintiff, but also on the type of claim. When Congress has "accorded a procedural right," states "can assert that right without meeting all the normal standards for redressability and immediacy." Massachusetts v. EPA, 549 U.S. at 517-18,