Also known as: Federal Reserves · Fed · FRS · Federal Reserve System
Written by attorneys — see sources below.
An independent federal agency established to function as the central bank of the United States. The agency conducts monetary policy, supervises banks, and maintains financial stability through a structure that insulates its leadership from at-will presidential removal.
Fernando Farrell sued Fairfield Bank after the bank denied a loan commitment recorded only in a memorandum that later disappeared. The bank argued the loss defeated any claim under the statute of frauds. The court permitted oral testimony to prove the memorandum's contents because the Federal Reserve operating rules governing the underlying transaction did not treat the statute as an evidentiary bar.
Finn Fletcher, a member of the Federal Reserve Board, faced an attempt by one house of Congress to block his reappointment through a concurrent resolution. He sued, arguing the procedure violated separation of powers. The court held that the legislative veto mechanism could not override the statutory for-cause removal protection that defines the agency's independence.
In 1966 Jagdish Rai Chadha, an East Indian born in Kenya who held a British passport, was lawfully admitted to the United States on a nonimmigrant student visa that expired on June 30, 1972. In October 1973, the District Director of the Immigration and Naturalization Service informed Chadha that he had remained longer than permitted and was therefore deportable. Chadha conceded deportability but applied for suspension under section 244(a)(1) of the Immigration and Nationality Act of 1952. On June 25, 1974, an Immigration Judge acting on behalf of the Attorney General suspended Chadha's deportation and adjusted his status to permanent resident after finding that he satisfied the statutory criteria of seven years' continuous presence, good moral character, and extreme hardship. A report of the suspension was transmitted to Congress as required by the Act. On December 16, 1975, the House of Representatives passed a resolution disapproving the suspension for Chadha and five other aliens on the ground that they did not meet the statutory requirements, particularly as to hardship. Pursuant to the House resolution, the Immigration Judge reopened the deportation proceedings. Chadha moved to terminate them on constitutional grounds, but the Immigration Judge ruled that he lacked authority to declare the resolution unconstitutional and ordered Chadha deported. Chadha appealed to the Board of Immigration Appeals, which likewise held that it had no authority to pass on the constitutionality of the resolution and dismissed the appeal. Chadha then filed a petition for review in the United States Court of Appeals for the Ninth Circuit. The Immigration and Naturalization Service appeared and urged the court to hold the House resolution unconstitutional. After inviting briefs from the Senate and House as amici curiae, the Court of Appeals held the resolution unconstitutional because it was a legislative act that failed to satisfy the requirements of Article I, sections 1 and 7, and set aside the deportation order. The Supreme Court granted certiorari in the consolidated cases to address the constitutional question.
View caseForrest Falconer, a state-chartered bank officer, invoked a state tort rule in litigation against the Federal Reserve's discount-window lending decision. The Federal Reserve argued federal common law controlled. The court applied the Erie doctrine and declined to displace state law because the Federal Reserve's internal operating rules did not create a conflicting federal standard.
Tompkins, a citizen of Pennsylvania, was injured on a dark night by a passing freight train of the Erie Railroad Company while walking along its right of way at Hughestown in that State. He claimed that the accident occurred through negligence in the operation or maintenance of the train. He asserted that he was rightfully on the premises as a licensee because he was on a commonly used beaten footpath which ran for a short distance alongside the tracks. He further alleged that he was struck by something which looked like a door projecting from one of the moving cars. To enforce that claim he brought an action in the federal court for southern New York, which had jurisdiction because the company is a corporation of that State. The Erie insisted that its duty to Tompkins was no greater than that owed to a trespasser. It contended, among other things, that its duty to Tompkins, and hence its liability, should be determined in accordance with the Pennsylvania law; that under the law of Pennsylvania, as declared by its highest court, persons who use pathways along the railroad right of way are to be deemed trespassers; and that the railroad is not liable for injuries to undiscovered trespassers resulting from its negligence, unless it be wanton or wilful. Tompkins denied that any such rule had been established by the decisions of the Pennsylvania courts. He contended that, since there was no statute of the State on the subject, the railroad's duty and liability is to be determined in federal courts as a matter of general law. The trial judge refused to rule that the Pennsylvania law precluded recovery. The jury brought in a verdict of $30,000. The judgment entered thereon was affirmed by the Circuit Court of Appeals, which held that it was unnecessary to consider whether the law of Pennsylvania was as contended, because the question was one not of local, but of general, law and that upon questions of general law the federal courts are free, in the absence of a local statute, to exercise their independent judgment as to what the law is. Because of the importance of the question whether the federal court was free to disregard the alleged rule of the Pennsylvania common law, the Supreme Court granted certiorari.
View caseFidelity Trust sought to withhold internal memos prepared during a Federal Reserve examination. The government subpoenaed the documents. The court upheld the privilege claim because the Federal Reserve's supervisory role did not strip the communications of their protected status under established privilege doctrine.
Upjohn Co. manufactures and sells pharmaceuticals in the United States and abroad. In January 1976, independent accountants conducting an audit of one of Upjohn's foreign subsidiaries discovered that the subsidiary had made payments to or for the benefit of foreign government officials in order to secure government business. The accountants informed Gerard Thomas, Upjohn's Vice President, Secretary, and General Counsel. Thomas is a member of the Michigan and New York Bars and had served as General Counsel for twenty years. Thomas consulted with outside counsel and R. T. Parfet, Jr., Upjohn's Chairman of the Board. It was decided that the company would conduct an internal investigation of what were termed questionable payments. As part of this investigation, the attorneys prepared a letter containing a questionnaire that was sent to all foreign general and area managers over the Chairman's signature. The letter noted recent disclosures that several American companies had made possibly illegal payments to foreign government officials. It stated that Thomas had been asked to conduct an investigation to determine the nature and magnitude of any such payments. Managers were instructed to treat the investigation as highly confidential and to send responses directly to Thomas. Thomas and outside counsel also interviewed the recipients of the questionnaire and thirty-three other Upjohn officers or employees. On March 26, 1976, Upjohn voluntarily submitted a preliminary report to the Securities and Exchange Commission on Form 8-K disclosing the questionable payments. A copy of the report was simultaneously submitted to the Internal Revenue Service. The IRS immediately began an investigation to determine the tax consequences of the payments. On November 23, 1976, the Service issued a summons pursuant to 26 U.S.C. § 7602 demanding production of the records described in the summons. The records included written questionnaires sent to managers of the Upjohn Company's foreign affiliates. They also included memorandums or notes of the interviews conducted in the United States and abroad with officers and employees of the Upjohn Company and its subsidiaries. Upjohn declined to produce the documents specified in the summons on the grounds that they were protected by the attorney-client privilege and constituted attorneys' work product prepared in anticipation of litigation. On August 31, 1977, the United States filed a petition in the United States District Court for the Western District of Michigan seeking enforcement of the summons under 26 U.S.C. §§ 7402(b) and 7604(a). The district court adopted a magistrate's recommendation that the summons should be enforced. Upjohn appealed to the Court of Appeals for the Sixth Circuit. The Sixth Circuit rejected the magistrate's finding of a waiver of the attorney-client privilege. However, it held that the privilege did not apply to the extent the communications were made by officers and agents not responsible for directing Upjohn's actions in response to legal advice. The court remanded to the district court for a determination of who was within the control group. In a footnote, the court stated that the work-product doctrine is not applicable to administrative summonses issued under 26 U.S.C. § 7602. The Supreme Court granted certiorari.
View caseFrancisco Frost challenged the termination of his Federal Reserve employment without a pre-termination hearing. He argued the agency's for-cause removal statute created a protected interest. The court applied the Mathews balancing test and concluded that post-termination procedures satisfied due process given the agency's independent structure.
George Eldridge was first awarded Social Security disability benefits in June 1968. In March 1972 he received a questionnaire from the state agency charged with monitoring his medical condition. He completed and returned the questionnaire, indicating that his condition had not improved and identifying recent medical sources. The state agency obtained reports from his physician and a psychiatric consultant. After reviewing those reports and other information in his file, the agency sent Eldridge a letter stating that it had made a tentative determination that his disability had ceased in May 1972. The letter included a statement of reasons for the proposed termination and advised Eldridge that he could request time to submit additional information. Eldridge responded in writing, disputing one characterization of his medical condition and asserting that the agency already possessed sufficient evidence of his disability. The state agency then made a final determination that Eldridge had ceased to be disabled in May 1972; the Social Security Administration accepted that determination. In July 1972 Eldridge received written notice that his benefits would terminate after that month and that he could seek reconsideration by the state agency within six months. Instead of requesting reconsideration, Eldridge filed suit in the United States District Court for the Western District of Virginia. He challenged the constitutionality of the Secretary's termination procedures and sought an injunction barring termination of benefits until a pretermination evidentiary hearing was provided, together with immediate reinstatement of benefits. The District Court held that the existing procedures violated the Fifth Amendment's Due Process Clause, ordered the Secretary to provide Eldridge a pretermination hearing, and directed reinstatement of benefits pending that hearing. The Court of Appeals for the Fourth Circuit affirmed. The Supreme Court noted probable jurisdiction and heard the case.
View caseFerrum Metals sued a Federal Reserve Bank for alleged mishandling of a wire transfer under state law. The bank moved to strike the jury demand. The court held that the state-law character of the claim required a jury trial because the Federal Reserve's involvement did not convert the action into one governed solely by federal procedural rules.
The petitioner, a resident of North Carolina, sued respondent, a South Carolina corporation, for damages for injuries allegedly caused by the respondent's negligence. He was employed as a lineman in the construction crew of a construction contractor. Respondent Blue Ridge Rural Electrical Cooperative, Inc., a South Carolina corporation in the business of selling electric power, had contracted with R. H. Bouligny, Inc. for $334,300 to build approximately 24 miles of new power lines, reconvert about 88 miles of existing lines to higher capacities, and construct two new substations and a breaker station. The petitioner was injured while connecting power lines to one of the new substations. Byrd first recovered full benefits under the South Carolina Workmen's Compensation Law from his direct employer Bouligny. He then filed a negligence action against Blue Ridge in the United States District Court for the Western District of South Carolina under diversity jurisdiction pursuant to 28 U.S.C. § 1332. At trial Blue Ridge asserted an affirmative defense that Byrd qualified as its statutory employee because the contracted work was part of its trade, business, or occupation. Blue Ridge's manager testified on direct examination that three of its substations had been built by its own construction and maintenance crews. His answers on cross-examination created uncertainty that prompted the trial judge to note he appeared to have changed his testimony. Blue Ridge also introduced evidence that it financed the project with a federal loan, purchased the materials, and maintained an engineering service contract with an independent firm for design and supervision. Its charter under the South Carolina Rural Electric Cooperative Act authorized it to construct generating plants, buildings, and equipment necessary for its operations. After all evidence was presented the district judge struck the affirmative defense, ruling that Blue Ridge could not be a statutory employer because its crews performed work only for its own use rather than for others. The judge then denied Blue Ridge's motion for a directed verdict and submitted the negligence claim to the jury, which returned a verdict for Byrd in the amount of $126,786.80. The Court of Appeals for the Fourth Circuit reversed, resolved uncertainties in the manager's testimony in Blue Ridge's favor, and directed entry of judgment for Blue Ridge without remanding for further proceedings. Byrd petitioned for certiorari, which the Supreme Court granted. The case had previously been dismissed on the ground that Blue Ridge enjoyed tort immunity as a nonprofit corporation, but the Court of Appeals had reversed that dismissal and remanded for trial. On the present appeal the Court of Appeals did not reach other grounds raised by Blue Ridge because its resolution of the statutory employer issue disposed of the case.
View caseThe Federal Reserve is structured as an independent agency whose leaders perform quasi-legislative functions. Congress may therefore insulate the Chair from at-will removal to protect the agency's ability to set monetary policy without executive interference.
No. Historical practice and precedent permit Congress to create independent agencies with for-cause removal protections when the officers exercise quasi-legislative or quasi-judicial authority. The Federal Reserve falls squarely within this established category.
Federal Reserve regulations and operating circulars supersede inconsistent provisions of UCC Articles 3 and 4. When a funds transfer occurs through Fedwire, the Federal Reserve rules govern settlement and liability allocation.
Absent an agreement or system rule, interest is calculated using the average Federal Funds rate published by the Federal Reserve Bank of New York, adjusted for the reserve requirement when a refund is required through no fault of the receiving bank.