Appeal from a judgment of the United States District Court for the Western District of New York, Curtin, C.J., granting the defendants' motion for summary judgment and dismissing the plaintiffs' complaint. Affirmed.
Meskill, Kearse and Mahoney, Circuit Judges.
This is an appeal from a judgment of the United States District Court for the Western District of New York, Curtin, C.J., granting the summary judgment motion of the Federal Reserve Bank of New York (Fed NY) and John T. Keane and dismissing the complaint.
The suit also included as a defendant Marine Midland Bank, N.A. (Marine). Marine's own motion for dismissal was granted by the district court; plaintiffs do not appeal from this decision. The sixty-five plaintiffs alleged that they had suffered injury because of defendants' participation in the processing of checks belonging to the plaintiffs.
A. Federal Reserve Banks and the Process of Check Collection
Federal Reserve Banks play a major role in the nation's system of check collection. See The Comptroller General, Report to the Congress: The Federal Reserve Should Move Faster to Eliminate Subsidy of Check Clearing Operations 4 (1982) (the Federal Reserve collects over forty percent of the checks written in the United States), J. App. 935, 936; Clarke, Check-Out Time for Checks, 21 Bus. Law. 931, 932 (1966) (one-third of checks are sent to Federal Reserve Banks), J. App. 793, 795. The check collection process, or specifically Fed NY's participation in it, is at the center of this dispute. For that reason, we briefly examine some background. See generally H. Hutchinson, Money, Banking, and the United States Economy 117-27 (5th ed. 1984); Baxter and Patrikis, The Check-Hold Revolution, 18 U.C.C. L.J. 99, 114-17 (1985), J. App. 751, 766-69.
When payment is made by means of a check, a payor draws the check against an account at his or her bank, the payor bank. Upon receiving the check, the payee will often deposit it in his or her own bank, the depositary bank. At this point, two processes must occur. First, the check itself must be physically transported from the depositary bank to the payor bank. Second, payment must be made from the payor bank back to the depositary bank.
One option available to the depositary bank is to utilize the check clearing services of the Federal Reserve System. In order to do so, the depositary bank must send the check to the Federal Reserve Bank for its district. If the payor bank is in the same district, then the Federal Reserve Bank can present the check directly to the payor bank. If the payor bank is located in a different district, the Federal Reserve Bank receiving the check will forward it to the Federal Reserve Bank for the payor bank's district. That Federal Reserve Bank will then present the check to the payor bank.
In addition to effecting the physical delivery of the check, the Federal Reserve System also serves to facilitate payment between the payor and depositary banks. After sending a check to its Federal Reserve Bank for processing, the depositary bank will receive credit for the check in its reserves account with the Federal Reserve. This credit will be given usually within one or two days, depending on how long it is expected to take the check to reach the payor bank for payment. After the check reaches the payor bank, the Federal Reserve System uses transfers of credit through an Interdistrict Settlement Fund to achieve payment.
If there is an unexpected delay in transporting the check to the payor bank, then the credit for the check will be given by the Federal Reserve to the depositary bank before payment can be received from the payor bank. This so-called "float" in effect gives the depositary bank an interest-free advance at the expense of the Federal Reserve. Thus, delays in processing not only adversely affect Federal Reserve Banks with respect to the competitive attractiveness of their check clearing services, but also result in direct economic costs, see Baxter and Patrikis, supra at 117, J. App. at 769.
Throughout most of its history, the Federal Reserve has provided these check clearing services only to member banks, or other banks that maintained reserve accounts with the Federal Reserve. See Jet Courier Services, Inc. v. Federal Reserve Bank of Atlanta, 713 F.2d 1221, 1222-23 (6th Cir. 1983); Carson v. Federal Reserve Bank of New York, 254 N.Y. 218, 172 N.E. 475, 478 (N.Y. 1930) (Cardozo, C.J.); 14 Fed. Reserve Bull. 80 (1928). These services were provided at no charge, apparently to promote Federal Reserve membership by compensating member banks for the costs associated with having to maintain non-interest bearing reserves with the Federal Reserve. See Oversight on the Payments Mechanism, the Federal Reserve's Role in Providing Payments Services, and the Pricing of Those Services: Hearings Before the Senate Comm. on Banking, Housing, and Urban Affairs, 95th Cong., 1st Sess. 120-21 (1977) (testimony of Philip E. Coldwell) (hereinafter Coldwell testimony), J. App. 944, 954-55. In 1980, however, Congress enacted the Monetary Control Act of 1980, Pub. L. 96-221 tit. I, 94 Stat. 132, 132-41. This Act provided, inter alia, that all banks in the United States would be required to maintain reserves with the Federal Reserve. Additionally, check clearing services were now to be made available to all banks, regardless of whether or not they were member banks, but all banks would henceforth have to pay for the service. See Jet Courier Services, 713 F.2d at 1222-23; McNeill and Rechter, The Depository Institutions Deregulation and Monetary Control Act of 1980, 66 Fed. Reserve Bull. 444, 444-48 (1980), J. App. 908, 908-12.
B. The Facts Leading to This Litigation
In 1977, the sixty-five plaintiffs-appellants were all supplier-creditors of Neisner Brother's, Inc. (Neisner), a retail department store chain. The dispute in this case arises from seventy-five checks drawn by Neisner, in October and November of 1977, on its account at Lincoln First Bank of Rochester (Lincoln) and made payable to the appellants. After receiving the checks, the appellants deposited them at their various depositary banks around the country. Greater Buffalo Press, for example, maintains that it deposited one check for $43,537.66 on November 21, 1977 and one check for $109,671.55 on November 23, 1977 in its account at Marine.
After receiving the checks, the various depositary banks forwarded them for collection to the defendant-appellee Fed NY, either directly or indirectly, through other Federal Reserve Banks. The district court accepted Fed NY's contentions as to the dates it received the checks.*fn1 The court found that Fed NY received three of the seventy-five checks between November 19-22, nine of the checks between November 24-25 and sixty-three of the checks on or after November 26.
The next step in the collection process called for Fed NY's Buffalo Branch to forward the checks to the payor bank, Lincoln, for payment. The parties are in substantial agreement as to the days the checks were finally received by Lincoln, and Fed NY concedes that there were delays due to an "unprecedented" increase in the volume of checks requiring processing, Br. of Defendants-Appellants at 12. For example, the $43,537.66 check payable to Greater Buffalo Press was received by Fed NY on either November 21 or 22, but was not presented to Lincoln until December 5, J. App. at 566.
Neisner filed a petition for bankruptcy December 1, 1977. The district court found that Lincoln had begun to dishonor the checks of Neisner on November 29, but the appellants maintain that Lincoln only began to dishonor Neisner's checks after learning of the filing of the bankruptcy petition on the morning of December 1.*fn2 When the checks were presented for payment, Lincoln dishonored them. The checks were returned to Fed NY, and from there back to the appellants' depositary banks. In at least some cases, a second attempt at collection was made, but the checks were again dishonored by Lincoln.
We briefly summarize the prolonged history of this litigation. The plaintiffs filed their first complaint on January 11, 1978, naming as defendants Fed NY, John T. Keane, manager of Fed NY's Buffalo Branch, and other unnamed officers of that bank. Generally, the plaintiffs' claim was that their checks were dishonored because of deficiencies in the defendants' check processing. An amended complaint was filed on May 8, 1978, adding Marine, Greater Buffalo Press' depositary bank, as a defendant, and dropping the reference to unnamed officers. Discovery began, and the plaintiffs subsequently moved for class certification and summary judgment in April 1980. The motion for ...