The Federal Reserve Board of Governors will not be subject to a full discovery process in its ongoing legal battle with Custodia Bank.
On Monday, Judge Scott Skavdahl, who is overseeing the case in the U.S. District Court of Wyoming, ruled that the central bank need
In his decision, Skavdahl wrote that Custodia's assertion that the Fed must go through full discovery was "borderline nonsensical." The Federal Reserve declined to comment on the decision.
For the past two weeks, the Cheyenne, Wyoming-based digital-asset bank and the Board of Governors have been at odds over
At the end of last month, the Board notified the court that it would submit an administrative record of its actions on the matter in accordance with the standards set out in the Administrative Procedure Act.
Custodia, meanwhile, argued that the Board should have to answer a wide range of questions both directly and indirectly relevant to its master account application.
Custodia urged the court to compel the board to respond to the full range of questions submitted during discovery or face a default judgment, which would effectively hand the depository a victory in the case.
Its main argument was that the Board could not apply the limited discovery standards of the Administrative Procedure Act while simultaneously claiming no responsibility for granting master accounts. The board maintains that such decisions are handled solely by the regional reserve banks.
Skavdahl's ruling noted that Custodia's lawsuit was filed under Administrative Procedure Act and that the Fed Board is clearly an agency as defined by that statute.
He also noted that the Kansas City Fed will be subject to a full discovery process, writing that many of Custodia's questions about the board's involvement in the master account process could emerge from the reserve bank's disclosures. He added that the board's administrative record could hold the answers Custodia seeks.
Skavdahl waved off Custodia's concerns that the administrative record will lack crucial information as "premature."
"[I]f Custodia believes the administrative record is incomplete once it is submitted, mechanisms are available to correct it," he wrote.
Nathan Miller, a spokesman for Custodia, said Skavdahl's ruling will not disrupt the bank's lawsuit. He noted that Custodia can still make its case through the other methods of discovery still on the table — limited discovery from the Board and full discovery from the Kansas City Fed.
"This decision still allows Custodia Bank to pull back the curtain on a Kafkaesque decision-making process," Miller said in a written statement. "We look forward to finding out who is responsible for the undue delay in Custodia Bank's application for a Federal Reserve master account, which has been pending for more than two years and counting."
The Fed board has until Feb. 9, 2023, to submit its administrative record.
