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Federal appeals court gives Colorado marijuana credit union another chance

Fourth Corner Credit Union first formed in late 2014 with the goal of serving licensed marijuana-related businesses, but was denied a master account by the Federal Reserve Bank of Kansas City

A federal appeals court has breathed life into a plan hatched in Colorado to open a credit union for the marijuana industry.

A three-judge panel for the 10th U.S. Circuit Court of Appeals on Tuesday vacated a district court ruling that nixed Denver-based Fourth Corner Credit Union’s bid to receive a master account with the Federal Reserve Bank of Kansas City.

Fourth Corner Credit Union first formed in late 2014 with the goal of serving licensed marijuana-related businesses, which have had trouble accessing financial services from traditional banking institutions. Any credit union or bank needs a Federal Reserve master account to operate.

During the district court proceedings, Fourth Corner officials had stated an amended plan to serve marijuana-related businesses if authorized by state and federal law. In absence of a change in federal law, the credit union would serve solely marijuana-legalization supporters such as nonprofits and advocates.

The judges remanded the case to the district court with instructions to dismiss the amended complaint without prejudice.

“By remanding with instructions to dismiss the amended complaint without prejudice, our disposition effectuates the judgment of the two panel members who would allow the Fourth Corner Credit Union to proceed with its claims,” the judges wrote in the June 27 opinion.

Previously, the district court dismissed Fourth Corner’s case with prejudice, meaning that the credit union could not refile. The 10th Circuit panel decision allows for Fourth Corner to reapply to the Federal Reserve for a master account, and — if it were to be denied again — the credit union could take the case back to court, said Tom Downey, a Denver-based attorney who specializes in cannabis regulations and law with Ireland Stapleton Pryor & Pascoe P.C.

Downey said Fourth Corner should be in a better position this time around because of the direction from the 10th Circuit panel, which stated that the Federal Reserve does not have the discretion to deny the application as long as the applicant meets all of the standards.

Officials for Fourth Corner and the legal counsel for the Federal Reserve could not be immediately reached late Wednesday for comment.

“The district court dismissed the amended complaint, reasoning that Fourth Corner would use the master account to violate federal drug laws. This ruling was erroneous,” U.S. Circuit Judge Robert E. Bacharach wrote in one of three opinions published Tuesday. “The district court should have presumed that Fourth Corner would follow the court’s determination that servicing marijuana-related businesses is illegal. And in the amended complaint, Fourth Corner essentially promised to obey the law that would be set out in the eventual declaratory judgment.

“In these circumstances, the district court had little reason to jettison the standard on a motion to dismiss and rely instead on suspicions about what Fourth Corner would do.”

It’s unclear whether the Federal Reserve would want to appeal or request that the entirety of the 10th Circuit judges hear the case in an en banc session. If this were to continue to the U.S. Supreme Court, Downey said it’s unlikely that the nation’s high court would take the case.

Next steps aside, the 10th Circuit’s decision is telling about the progression of the marijuana industry, Downey said.

While “core issues” like states’ rights and federal drug scheduling dominate, he said the battles are being fought on the margins: zoning, civil RICO lawsuits, banking, employment law and intellectual property.

“I think that this ruling is an example of the normalization of this issue — that this is about banking, not about the federal-state conflict about marijuana,” Downey said.

Fourth Corner received a state credit union charter in November 2014, which allowed it to acquire a bank routing number and apply to the Federal Reserve Bank of Kansas City. The regional bank for the Federal Reserve System denied the application, prompting Fourth Corner’s lawsuit.