U.S. Supreme Court agrees to hear debit card rule challenge

Regulation II
Corner Post v. Board of Governors of the Federal Reserve System
Date: September 29, 2023

Issue: Did plaintiffs timely file their lawsuit challenging Regulation II within the six-year statute of limitations necessary to survive a motion to dismiss?

Case Summary: The U.S. Supreme Court agreed to examine Corner Post Inc.’s appeal over the timeliness of its lawsuit contesting the Federal Reserve Board’s (Fed) regulation on debit card fees.

The North Dakota Retail Association, North Dakota Petroleum Marketers Association, and Corner Post (the retailers) sued the Fed in a North Dakota federal district court, seeking to invalidate Regulation II’s standard for reasonable and proportional interchange fees. Regulation II capped the interchange fee received by large issuers ($10 billion or more in assets) to 21 cents plus 0.05% of the transaction. It also allowed a one cent adjustment if the issuer implements fraud-prevention standards. In 2014, in National Association of Convenience Stores v. Board of Governors of the Federal Reserve System, the D.C. Circuit reversed a lower court decision determining that Regulation II violated the Administrative Procedure Act (APA). However, the D.C. Circuit remanded the issue of the Fed’s treatment of transactions-monitoring costs, concluding the Fed must provide greater clarification explaining its exercise of discretion. On Aug. 14, 2015, the Fed published the clarification for transactions-monitoring costs in the interchange fee standard (the clarification).

On April 29, 2021, the retailers filed a complaint raising a facial challenge to Regulation II as a violation of the APA that is contrary to law and both arbitrary and capricious. The Fed moved to dismiss based on the statute of limitations. The district court dismissed, finding the clarification did not constitute a final agency action to renew the statute of limitations; the statute of limitations began to run with the publication of Regulation II in 2011; and the retailers’ claims did not warrant equitable tolling.

On appeal, an Eighth Circuit panel affirmed, ruling the claims were barred by the statute of limitations. The panel dismissed the retailers’ argument that the statute of limitations was renewed when the Fed published the clarification in 2015. The panel reasoned the clarification was not a final agency action because it was not the “final consummation of the agency’s decision-making process.” The panel also rejected the retailers’ argument that their facial challenge to Regulation II first accrued when Corner Post opened in 2018, rather than when Regulation II was published in 2011. The panel also ruled the retailers were not entitled to equitable tolling because they had notice of publication of Regulation II in 2011. For these reasons, the panel ruled that the retailers’ facial challenge to Regulation II remains time-barred by the six-year statute of limitations under 28 U.S.C. § 2401(a).

In its certiorari petition, Corner Post made three main arguments. First, Corner Post argued the Eighth Circuit’s opinion “deepens a square, entrenched circuit split about when APA claims accrue.” While the panel determined the limitations period begins upon publication of the regulation, the Sixth Circuit previously held the clock begins when a plaintiff is allegedly injured.

Second, Corner Post argued the majority rule adopted by the Eighth Circuit contradicts Supreme Court precedent. Under the majority rule, Corner Post explained the statute of limitations starts even for plaintiffs who cannot state a claim challenging the agency’s action. However, Corner Post pointed to Supreme Court precedent ruling an APA plaintiff who has not been harmed by agency action cannot “file suit and obtain relief.”

Finally, Corner Post argued the Eighth Circuit’s decision was wrong. According to Corner Post, the majority rule effectively ignores Section 702 of the APA, which provides that “a person suffering a legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof.” Corner Post argued a plaintiff bringing an APA claim becomes entitled to judicial review and has six years from that date to sue. Corner Post also claimed the majority rule improperly insulates agency actions from APA challenges.

Bottom Line:  Corner Post’s merits brief is due Nov. 13, 2023.

Documents: Petition