PayServices Appellant's Supplemental Brief on Mootness — PayServices v. Frbsf (9th Cir.)

Record facts

Full text

No. 24-2355 
__________________________________________________________________ 
 
IN THE UNITED STATES COURT OF APPEALS 
FOR THE NINTH CIRCUIT 
 
 
PAYSERVICES BANK, 
 
Plaintiff-Appellant, 
 
v. 
 
FEDERAL RESERVE BANK OF SAN FRANCISCO, 
 
Defendant-Appellee. 
 
On Appeal from the United States District Court 
for the District of Idaho 
No. 1:23-cv-00305-REP 
Hon. Raymond E. Patricco, Jr. 
 
 
APPELLANT’S SUPPLEMENTAL BRIEF 
 
 
Jade A. Craig, Esq. 
Jade A. Craig, P.A. 
1048 S. Clearview Avenue, #3 
Tampa, Florida 33629 
Telephone: (813) 459-1309 
jade@jadeacraigpa.com 
 
Attorney for Appellant  
PayServices 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 1 of 12

TABLE OF CONTENTS 
INTRODUCTION…………………………………………………………………..…….2 
 
LEGAL BACKGROUND……………………………………………………………...…3 
 
ARGUMENT………………………………………………………………………...……4 
 
I. 
PayServices is still an “eligible depository institution” because it retains the 
right to present a new application for a bank charter even in Idaho………..….4 
 
II. 
The question in this case remains live because a bank does not have to already 
have a charter – preliminary or final – to apply for a master account……………6 
 
III. 
The issue of PayServices’ entitlement to an account affects PayServices’ future 
applications for a bank charter…………………………………………………8 
 
CONCLUSION……………………………………………………………………….….10 
 
 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 2 of 12

2 
 
INTRODUCTION 
On December 19, 2024, the Court issued an order directing supplemental briefing 
regarding the impact of the Idaho Department of Finance’s revocation of PayServices 
Bank’s (“PayServices”) preliminary approval for a state bank charter. During oral 
argument on December 4, 2024, counsel for the Federal Reserve Bank of San Francisco 
(“FRBSF”) mentioned that PayServices’ “charter, preliminary or otherwise, had expired 
and [Idaho] issued a cease and desist order on October 18.” See 24-2355 PayServices Bank 
v. Federal Reserve Bank of San Francisco, U.S. Court of Appeals for the Ninth Circuit, 
https://www.youtube.com/watch?v=-F27-3Oq7Z4 (Dec. 4, 2024), at 22:50. Counsel for 
FRBSF did not confer or raise the issue with the undersigned counsel for PayServices to 
obtain information regarding the issue prior to raising it during oral argument. PayServices 
appreciates the opportunity to clarify the circumstances of the expiration of its preliminary 
approval. 
PayServices’ appeal is ongoing. An administrative hearing on the appeal has been 
set for February 19-20, 2025. Regardless of the outcome in the appeal, PayServices remains 
an “eligible depository institution” under the Federal Reserve Act because it is a banking 
corporation organized under the laws of the State of Idaho in good standing. The definition 
of “depository institution” under the Act does not require the financial institution to hold a 
charter at the time it applies for a master account. The Court should not abate this case 
pending the outcome of PayServices’s appeal because the issue of whether PayServices is 
entitled to a master account will remain a live issue. The entity’s entitlement to a master 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 3 of 12

3 
 
account must be decided because the issue affects PayServices’ preliminary approval with 
Idaho and application for authority to establish a state-chartered bank in another state. The 
question of whether PayServices can obtain a master account is a factor that a state banking 
regulator may (and, in some cases, must) consider in evaluating the bank’s application. 
Legal Background 
The Court’s December 19, 2024 order indicates that it is concerned about whether 
the expiration of the preliminary approval for a bank charter in Idaho and the pending 
appeal renders the case moot. Order, p. 3. Mootness is one of the doctrines related to 
justiciability and the decision-making authority of the federal courts. See WRIGHT & 
MILLER, 33 FED. PRAC. & PROC. JUDICIAL REVIEW § 8331 (2d ed.). “A case becomes 
moot—and therefore no longer a ‘Case’ or ‘Controversy’ for purposes of Article III—when 
the issues presented are no longer ‘live’ or the parties lack a legally cognizable interest in 
the outcome.” Already, LLC v. Nike, Inc., 568 U.S. 85, 91 (2013) (quotation marks and 
citation omitted). “The standard for determining that a plaintiff has lost all personal stake 
in this manner is very high. Mootness demands that it be ‘impossible for a court to grant 
any effectual relief whatever to the prevailing party.’” WRIGHT & MILLER, 33 FED. PRAC. 
& PROC. JUDICIAL REVIEW § 8347 (2d ed.) (quoting Campbell-Ewald Co. v. Gomez, 577 
U.S. 153, 161 (2016)); see Campbell-Ewald, 577 U.S. at 161 (quoting Knox v. Serv. Emps. 
Int’l Union, Loc. 1000, 567 U.S. 298, 307 (2012)). “A case becomes moot only when it is 
impossible for a court to grant any effectual relief whatever to the prevailing party. As long 
as the parties have a concrete interest, however small, in the outcome of the litigation, the 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 4 of 12

4 
 
case is not moot.” Knox, 567 U.S. at 307–08 (internal citations, quotation marks, and 
alterations omitted). The facts in this case do not meet this high standard for dismissal. 
ARGUMENT 
I. 
PayServices is still an “eligible depository institution” because it retains 
the right to present a new application for a bank charter even in Idaho. 
 
On August 3, 2022, the Idaho Department of Finance (“IDF”) granted PayServices 
“preliminary approval of its application to establish a state-chartered bank in Idaho, 
subject to the [thirteen] conditions” outlined in the letter. Aug. 3, 2022 Letter (emphasis in 
original). After describing the thirteen conditions, the letter stated that “[o]nce PayServices 
agrees to and satisfies the above conditions, the Department will conduct a final review to 
issue final approval and coordinate issuance of a bank charter.” PayServices submitted its 
application for a master account to FRBSF on August 10, 2022. After a nine-month delay 
in a process that, until recently, only took up to seven business days, see SER-042 & 043, 
FRBSF rejected PayServices Bank’s application, citing issues with its business model, 
which Idaho had already accepted and for which Idaho had provided conditions to ensure 
PayServices’ safety and soundness as an institution. On October 16, 2023, Idaho issued a 
letter extending PayServices’s preliminary charter approval until October 15, 2024 in light 
of the fact that PayServices was “waiting on the resolution of their complaint against the 
Federal Reserve Bank of San Francisco prior to moving forward with requesting a final 
charter from the Department.” Idaho noted, however, that it would not issue a further 
extension beyond that date. Of course, this litigation continued on with the district court’s 
order dismissing the case on March 30, 2024, and this appeal is still pending.  
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 5 of 12

5 
 
On Saturday, October 12, 2024, PayServices submitted documents requesting the 
final charter approval. On Wednesday, October 16, Idaho issued a letter indicating that “as 
of [October 16, 2024], PayServices has not met all conditions outlined in the August 3, 
2022 letter. Therefore, the preliminary approval has expired and is now terminated.” 
Oct. 16, 2024 Letter (emphasis in original). The letter contained no substantive findings 
for why the October 12, 2024 submission did not meet any of the requirements. It appears 
that the agency had not reviewed the documents, particularly in light of the one business 
day that preceded the issuance of the letter.1 PayServices filed an appeal with the agency, 
which has been referred to the Idaho Office of Administrative Hearings. Idaho law provides 
for an informal contested case proceeding in which a hearing officer has been assigned to 
review PayServices’ challenge to the order to cease and desist the use of the word “bank” 
in Idaho (issued October 18, 2024) and the denial of a final bank charter. See Idaho Code 
§§ 67-5201 & 67-5242; Idaho R. Admin. P. 62.01.01.160. The hearing officer has set the 
case for hearing on February 19-20, 2025, in Boise, Idaho. 
Nonetheless, Idaho has not barred PayServices from submitting a new application 
for a bank charter. The Oct. 16, 2024 letter states that PayServices may submit a new 
application and that it “will be subject to regular processing timelines and fees, and any 
conditions deemed appropriate by the Department at that time.” Thus, PayServices remains 
eligible to submit a new application regardless of the outcome of the pending Idaho appeal. 
 
1 Columbus Day was observed on Monday, October 14, 2024. Idaho recognizes 
Columbus Day as a state holiday. Idaho State Holidays, https://sos.idaho.gov/state-
holidays/ (last visited Jan. 11, 2025). 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 6 of 12

6 
 
PayServices is not in a materially different position than when it applied to FRBSF for 
master account. A preliminary approval to establish a bank, which can expired or be 
revoked, is not a final charter and it does not make a bank any more eligible to apply for 
an account under the Federal Reserve Act. Additionally, even in the event this appeal is 
not successful, PayServices may re-apply for a bank charter in Idaho. Given that Idaho has 
not issued a written finding that would indicate PayServices would not be similarly 
successful in obtaining a preliminary approval again, since the application lapsed in large 
part due to FRBSF’s delay tactics in the application and litigation process, the parties are 
likely to be back where they started if this case is dismissed. 
II. 
The question in this case remains live because a bank does not have to 
already have a charter – preliminary or final – to apply for a master 
account. 
 
The Federal Reserve Act establish that a bank does not become an “eligible 
depository institution” by having a bank charter – preliminary or final. This contention 
misconstrues the way in which the process of applying for a state banking charter works in 
practice, a process the statute’s terms account for.  
As used in 12 U.S.C. § 248a, “[t]he term ‘depository institution’ means (i) any 
insured bank as defined in section 3 of the Federal Deposit Insurance Act or any bank 
which is eligible to make application to become an insured bank under section 5 of such 
Act . . . .” 12 U.S.C. § 461(b)(1)(A)(i) (emphasis added). Section 5 of the FDI Act refers to 
the kinds of institutions that “may become an insured depository institution” “upon 
application to and examination by the [Federal Deposit Insurance Corporation.]” 12 U.S.C. 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 7 of 12

7 
 
§ 1815(a)(1). That entity can be “any depository institution which is engaged in the 
business of receiving deposits other than trust funds[.]” Id. There is no dispute that 
PayServices Bank would be in this business and that it does not hold trust funds.  
Depository institutions that are in the process of becoming state-chartered banks are 
eligible to apply for a master account and receive a determination granting them the 
account. The Federal Reserve Act defines a “depository institution” to include “any bank 
which is eligible to make application” for FDIC insurance because it is the type of 
institution whose business involves “receiving deposits other than trust funds[.]” The entity 
does not already have to have a charter, preliminary or otherwise, yet. Indeed, in some 
states, an entity has to obtain FDIC insurance before it can operate.2 See, e.g., Fla. Stat. § 
658.38 (“A state bank must, prior to opening, obtain and thereafter maintain insurance of 
its deposits by the Federal Deposit Insurance Corporation.”) (emphasis added). Even in 
those cases, however, the bank still does not have to have the FDIC insurance before it can 
obtain the charter, which occurs “prior to opening.”  
In this case, the record indicates that at least four months before PayServices 
obtained the preliminary approval for a bank charter, PayServices communicated with 
officials at FRBSF as early as April 2022, to discuss the process of applying for a master 
account. See Compl., ER-52 & 53, §§ 16-20. The preliminary approval from Idaho was not 
 
2 PayServices filed an application in Idaho because its business model of holding 
100% of deposits in reserve – a safer form of banking that is, unfortunately, unique among 
traditional U.S. banks (see ER-053; SER-041 & 042) – did not warrant obtaining FDIC 
insurance, and Idaho does not require it for all commercial banks. 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 8 of 12

8 
 
necessary for PayServices Bank to submit the application or receive a master account 
because it needed the master account before it could receive deposits, which requires access 
to the U.S. payment system to make payments to other banks. PayServices Bank is a 
banking corporation, registered in good standing with the Idaho Secretary of State. It meets 
the definition of an entity that qualifies as a bank. Holding a charter and opening the bank 
to receive deposits are all steps that take place after the master account application process. 
III. 
The issue of PayServices’ entitlement to an account affects PayServices’ 
future applications for a bank charter. 
 
On November 23, 2024, PayServices submitted an application to establish a state-
chartered bank in California to the California Department of Financial Protection and 
Innovation. California regulators consider the issue of whether charter applicants are able 
to operate a bank on their own, without requiring the use of an intermediary bank. 
California law requires regulators to consider the terms of a charter applicant’s business 
plan. “The commissioner may give or withhold his or her approval of the application in his 
or her discretion, but he or she shall not approve the application until he or she has 
ascertained to his or her satisfaction . . . . [t]hat the proposed bank or trust company will 
have a reasonable promise of successful operation.” Cal. Fin. Code § 1023(b).  
FRBSF has suggested below and in this Court that FRBSF’s obligation to make 
Federal Reserve services available to nonmember depository institutions (12 U.S.C. § 
248a(b)) could be met through PayServices relying on a correspondent bank account from 
a bank that already holds a master account. It is well known that correspondent banking 
relationships “present several challenges” and fewer banks enter into them because of the 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 9 of 12

9 
 
compliance issues they raise. See Overview of Correspondent Banking and “De-Risking” 
Issues, Cong. Research Serv., at 1-2 (updated Apr. 8, 2022), https://crsreports.congress.gov
/product/pdf/IF/IF10873/3. A correspondent bank would present credit risks to 
PayServices’ operations as it would become more difficult to settle transactions if they are 
running through two banks. PayServices would not have complete control over the policies 
and procedures of that bank with respect to how PayServices’ customer funds would be 
treated. For example, a customer’s deposit could vanish and PayServices would have no 
control over it because the process of investigating the movement of the deposit would be 
controlled by this intermediary bank. 100% reserve banking could not be maintained with 
a correspondent bank account, but that is currently a condition of the preliminary Idaho 
charter approval and potentially a condition of a California charter. As Judge Bumatay 
observed at oral argument, PayServices could not act as a bank in its own right if it had to 
rely on an intermediary bank with a master account. That limitation presents the kind of 
risk to PayServices’ chance of successful operation that would hinder its charter application 
in California and other states that consider this factor.3 
 
3 Several states within FRBSF’s jurisdiction consider a similar factor involving 
likelihood of success. See Federal Reserve Banks, Fed. Res. Bank of S.F., 
https://www.federalreserve.gov/aboutthefed/federal-reserve-system-san-francisco.htm 
(last visited Jan. 11, 2025) (displaying map of states within FRBSF’s jurisdiction); see also, 
e.g., Alaska Stat. § 06.15.030 (considering whether “there is reasonable expectation of its 
financial success” in granting charters to mutual banks); Or. Rev. Stat. § 707.070(9) & (10) 
(applications “shall include” “[e]vidence satisfactory to the director, in the form of a 
business plan and such additional information as the director may require, demonstrating 
that the proposed banking institution is likely to be financially successful” and “[t]he 
proposed operating policies of the banking institution”). 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 10 of 12

10 
 
The pending application in California and the authority to re-file an application in 
Idaho both demonstrate that the question of whether PayServices is entitled to a master 
account remains live. It remains eligible because it is a bank within the definition set out 
in the Federal Reserve Act, whether it has a preliminary or a final approval for a charter. 
Neither of these items is an element of eligibility under the statute. FRBSF’s denial of 
PayServices’s application for a master account ran down the clock on its Idaho application. 
FRBSF’s refusal to grant an account threatens to hold up the process of obtaining a charter 
in another state. Leaving this question open also threatens to lead to denial of this pending 
California application and threatens the success of future applications. See Super Tire 
Eng’g Co. v. McCorkle, 416 U.S. 115, 126 (1974) (declining to dismiss case as moot 
because, even though strike upon which action was based had ended, the temporary end of 
the conflict “should not preclude challenge to state policies that have had their impact and 
that continue in force, unabated and unreviewed” because a court decision could 
substantially affect future labor-management negotiations). The use of intermediary bank 
would improperly require PayServices to absorb a level of credit and operational risk that 
other banks with master accounts do not have to absorb. 
CONCLUSION 
 
PayServices respectfully requests that this Court issue an opinion in this case on the 
questions presented without delay and decline to dismiss the case as moot in light of the 
expiration of the preliminary approval for a bank charter in Idaho. 
Date: January 17, 2025  
 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 11 of 12

11 
 
 
 
 
 
 
 
Jade A. Craig, P.A. 
 
 
 
 
 
 
 
s/ Jade A. Craig__________________ 
 
 
 
 
 
 
Jade A. Craig 
 
 
 
 
 
 
 
Attorney for Appellant PayServices Bank 
 
 
CERTIFICATE OF FILING AND SERVICE 
 
 
I hereby certify that on this 17th day of January, 2025, I electronically filed the 
foregoing with the Clerk of Court for the United States Court of Appeals for the Ninth 
Circuit by using the appellate CM/ECF system, and caused a copy of the foregoing to be 
electronically served on all parties registered with the system to receive service in this 
action, including the following: 
Jonathan K. Youngwood 
Meredith Karp 
Simpson Thacher & Bartlett LLP 
425 Lexington Avenue 
New York, NY 10017 
(202) 455-2000 
jyounwood@stblaw.com 
meredith.karp@stblaw.com 
managingclerk@stblaw.com 
 
Counsel for Defendant-Appellee 
 
Jade A. Craig, P.A. 
 
 
 
 
 
 
 
s/ Jade A. Craig__________________ 
 
 
 
 
 
 
Jade A. Craig 
 
 
 
 
 
 
 
Attorney for Appellant PayServices Bank 
Case: 24-2355, 01/17/2025, DktEntry: 49.1, Page 12 of 12

File and source

File

gov.uscourts.ca9.1a3878fe-2377-4c5c-b106-0563eb262821.49.0.pdf

Size

589,824 bytes

SHA-256

d23cf4fed4f27673c572ba1cd06d82ca6e45fabc77080d590a6331cb75f69bcf

Our copy

gov.uscourts.ca9.1a3878fe-2377-4c5c-b106-0563eb262821.49.0.pdf

Original

storage.courtlistener.com