By Chris Bruce
The U.S. government asked a federal judge to throw out a bank group’s claim that cuts in dividend payments by the Federal Reserve breached contracts with Federal Reserve system member banks ( Am. Bankers Ass’n v. United States , Fed. Cl., 17-cv-00194, motion filed 4/7/17 ).
The American Bankers Association and Washington Federal N.A., a Seattle-based national bank, sued the government in February. The lawsuit in the U.S. Court of Federal Claims said the breach came after passage of the Fixing America’s Surface Transportation Act, which in part amended the Federal Reserve Act. In 2016, under the FAST Act, banks with more than $10 billion in assets were paid dividends at a roughly 2 percent rate—less than the approximately 6 percent rate paid in previous years, according to the ABA. The ABA and the bank have asked for reimbursement and have alleged an unconstitutional taking of private property without just compensation.
The government late April 7 urged the court to dismiss the case, or for a ruling at law that there’s no contract between the government and the plaintiffs. The alleged contract, the government said, “reflects nothing more than the parties’ statutory and regulatory obligations.”
It said the plaintiffs’ real complaint is with Congress and its decision to amend the Federal Reserve Act’s dividend provisions. “Plaintiffs’ disagreement must be directed to Congress — the only body authorized to revise the Federal Reserve Act,” the April 7 filing said.
Banks that are members of the Federal Reserve System hold stock in regional Reserve System banks and receive dividends payments on those holdings. In their February complaint, the ABA and Washington Federal said the 6 percent dividend “had been guaranteed to member bank stockholders since the Federal Reserve Act was enacted in 1913, and it is memorialized in contracts between the Federal Reserve Banks and their member bank stockholders.”
“For more than a century, the promise of a six percent dividend had induced banks to join — and to remain part of — the Federal Reserve System,” the complaint said. “By reneging on that promise and failing to pay all member bank stockholders a six percent annual dividend, the Government either breached its contracts with those banks or failed to pay just compensation for a Fifth Amendment taking.”
The government’s 72-page filing mounted several arguments in opposition. It said the ABA lacks standing to assert its contract claims, and said there’s no contract between the government and Washington Federal that would ensure payment of a 6 percent dividend. That also forecloses claims of bad faith and unfair dealing, the government said.
Nor do the plaintiffs have a claim of a regulatory “taking” requiring just compensation under the Fifth Amendment, the government said. “No member bank could possess a reasonable investment-backed expectation that their stock would receive a six-percent dividend in perpetuity,” it said.
The ABA and Washington Federal must respond by May 10.
The ABA and Washington Federal are represented by Brett A. Shumate of Wiley Rein in Washington.
To contact the reporter on this story: Chris Bruce in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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