Supreme Court oral arguments make case that new challenge to debit card swipe fee cap isn’t too late

The U.S. Supreme Court heard oral arguments this week in Corner Post v. Board of Governors of the Federal Reserve, a case that could have major implications for the billions of dollars in “swipe” fees merchants across the country pay banks to process debit card transactions. As counsel to Corner Post, a convenience store and truck stop in North Dakota, I was in the courtroom and can attest that the case was very ably argued for by Bryan Weir from Consovoy McCarthy in his first appearance before the court.

This lawsuit primarily argues that the Federal Reserve set its 21-cent cap on debit card swipe fees significantly higher than intended by Congress. But the suit was filed 10 years after the cap took effect in 2011 and also argues that Corner Post should still be allowed to sue despite a statute of limitations that normally cuts off claims six years after a federal regulation is adopted. It is important for retailers to know what this case is about — and what it’s not about.

The underlying merits of this case have driven Corner Post to litigate against the Fed all the way to the Supreme Court since first filing suit in U.S. District Court in North Dakota in 2021. At issue is the Fed’s interpretation of the Durbin Amendment, which was passed by Congress in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and directed the Fed to set a cap on debit card swipe fees that is “reasonable” and also “proportional” to the banks’ actual costs of authorization, clearance and settlement.

The Fed conducted a survey that found those costs averaged about 8 cents per transaction, and initially proposed a cap of 7-12 cents, a level merchants believed more or less hewed to the statute and was reasonable. However, the banks — with billions of dollars in massive fees at stake — convinced the Fed to double its original proposed cap and, in our view, include cost considerations outside those permitted by the Durbin Amendment. The final cap that took effect in 2011 was set at 21 cents plus 1 cent for fraud prevention and 0.05% for fraud loss recovery.

Several trade associations, including NRF, sued the Fed in late 2011. A U.S. District Court judge ruled in our favor, holding that the Fed had not acted reasonably under the Administrative Procedures Act. But we lost when the Fed appealed to the U.S. Circuit Court of Appeals for the D.C. Circuit. (The case, NACS v. Board of Governors of the Federal Reserve, is considered by some to have been the high-water mark of the D.C. Circuit following the Chevron doctrine, which holds that a court should defer to the judgment of federal regulatory agencies in issues not specifically spelled out by Congress.)

Fast forward to 2018, when the Corner Post opened for business and began accepting debit cards. Corner Post could not have possibly been a party to the original suit since it didn’t exist at the time and certainly wasn’t paying swipe fees yet. Once Corner Post did open for business and began paying debit swipe fees — as our argument goes — it could sue. And it did, bringing a claim in 2021 that challenged the Fed’s rule within six years of its claim “accruing.”

“Accrues” is the key word used in 28 U.S.C. 2401, which sets the six-year statute of limitations that applies to claims challenging regulations adopted under the Administrative Procedures Act and other federal laws. Not many courts have considered what “accrues” means in the statute’s 80-year history because most plaintiffs that challenge a regulation more than six years after it is promulgated do so because some action has been taken or threatened against them. But this isn’t that kind of regulation. Corner Post wasn’t affected until it started to swipe debit cards, plain and simple.

These facts should give lie to any notion that this case is part of a vast right-wing conspiracy to dismantle the “administrative state.” That’s not what’s at stake here. In fact, Corner Post is arguing for tighter regulation than what the Fed has been willing to offer. If the Supreme Court allows Corner Post’s case to go forward, similarly affected plaintiffs that want either less or more regulation could bring suit against an agency within six years of their injury occurring.

And, if Corner Post wins on the statute of limitations issue, it will still have to make it past the D.C. Circuit’s earlier decision upholding the cap, as would any plaintiff challenging an agency action that already had been litigated.

But on to Tuesday’s oral arguments. In short, I would much rather be Corner Post than the government.

During Weir’s opening, Justices Ketanji Brown Jackson and Sonia Sotomayor actively pursued whether ruling in Corner Post’s favor would be contrary to the language of the Administrative Procedures Act and whether it would lead to a “parade of horribles” in which federal agencies and thousands of regulated businesses would have their settled expectations upended by lawsuits filed far after a regulation is promulgated.

Jackson drilled into the first issue, asking whether the fact that Section 2401 says plaintiffs must bring claims when the cause of action “first accrues” limits the “accrual” period to the date the rule was finalized, and whether that means the identity of the particular plaintiff is not relevant. Weir was able to point to administrative law cases such as Lujan — which certainly does care about the particular plaintiff — as well as the structure of the section to argue against relying on “first.” Sotomayor, in a line of questioning echoed during the government’s argument, asked whether a newly functioning business can really be harmed if it was “born knowing” the regulatory environment. Weir responded that the relative sophistication of the plaintiff has nothing to do with whether it has suffered a redressable harm.

Not surprisingly, there was a lot of discussion — including comments by Chief Justice John Roberts — about the kind of case a ruling for Corner Post would affect. Corner Post’s case is an overall “facial” challenge to the Fed’s rulemaking — arguing that the Fed exceeded its statutory mandate when it promulgated the debit cap. If the Corner Posts of the world lose this case, as-applied challenges would not be affected by the ruling. If they win, the debate in the court was lively as to how vast the consequences would be. During both sides’ arguments, Roberts and Justice Neil Gorsuch seemed quite convinced that there were plenty of limiting principles to protect truly reasonable agency action.

For the government, Assistant Solicitor General Ben Snyder had his work cut out for him. Roberts started out by asking if an individual or entity is harmed by a regulation but didn’t exist at the time the regulation was adopted, “you’re saying, well that’s just too bad, you can’t do anything about it … your friend on the other side said everybody is entitled to their day in court.” And the argument proceeded from there.

Gorsuch and Justice Amy Coney Barrett seemed concerned that Snyder was arguing that who the plaintiff is, and therefore the plaintiff’s actual injury, must be separated from the analysis of when a claim under the APA “accrues.” I suspect that the opinion will ultimately contain an analysis of Article III rules on standing to sue and how they affect the interpretation of the word “accrue” — which the court has interpreted in other statutes in the past in a manner that helps Corner Post.

Perhaps the most surprising takeaway from the argument came when Justice Brett Kavanaugh asked Snyder what kind of relief would be appropriate if the Supreme Court allows the case to go forward and Corner Post wins on the merits of the underlying case at trial. Could Corner Post argue for some kind of individualized relief, even though this is a challenge to the validity of the regulation? Snyder said the “only way to provide relief” is by overturning the existing cap. I think that precludes future argument that the court is only empowered to give limited relief should Corner Post win in its argument that the cap is arbitrary and capricious under the APA.