TLDR: The appeal will take place on March 28th, 2019 at 2 pm. https://twitter.com/A78gnstNYDFS/status/1105572458403368961
Contrary to criminal cases, a lawyer in an Article 78 doesn't have to accept the case.
When the New York Department of Financial Services (NYDFS) promulgated the Bitlicense regulation in July 2015, a four month clock to submit a lawsuit starts. When I filed the lawsuit, I could not find a lawyer that knew bitcoin, even less file lawsuit. I filed the latest week possible in October 2015. It took 6 month for the State of New York to do a reply, and then another 6 month for my lawyer to understand it. The reason my lawyer took the case is that the State of New York sent me a reply of 26 pages. A frivolous lawsuit answer is usually a few pages.
The arguments on the original lawsuit became so convoluted for everyone, including to the the judge that they all agree to start a brand new document and the Standing question was addressed.In May 2017, my lawyer rewrote the complaint, in June 2017 the State argue for the dismissal, we replied in July 2017, and in August 2017 we asked for discovery and in October 2017 we are in front of a new judge and she decided that I did not have standing.
(Someone who understand lawsuits - he has about 3,500 - explains what will happen: https://youtu.be/CKvipt04g8s?t=13)
Dear All,
I received this analysis from one of the group that wanted to file an Amicus Brief but their lawyer advised against. I will keep the name of the firm hidden because it's doesn't add anything to the story. Their analysis is worth discussing. The expertise needed in this case is Administrative Law but this firm expertise is in other areas.
According US News best law firms https://bestlawfirms.usnews.com, they are a tier 1 in Bankruptcy and Creditor, Commercial Litigation and Bankruptcy (in the New York and National categories.)
All I can say is that I see that their crypto unit depend on the Bitlicense to exist, the first question I have is whether it make sense to them to advise that I am weak case? At the end of the day, the administrative question is simply whether I have the right to sue. Do I have standing?
In their analysis they write:
rather than its application, the four-month statute of limitations for Article 78 proceedings is not even applicable. See Westhampton Beach Assoc., LLC v. Incorporated Village of Westhampton Beach, 151 A.D.3d 793, 795 (2d Dep't 2017).
But wait! That analysis is based on a 2017 decision. I started my lawsuit in 2015 when that decision did not exist.
The only positive thing about that rule is that the four-month status of limitation is not applicable. According to that ruling of 2017, it's now six-year statute of limitations. Anyone who was affected by the New York decision back in 2014 can potentially challenge the Bitlicense.
Anyway, the appeal oral arguments are scheduled for March 28, 2019 at 2:00 pm. I hope this thread spark a good discussion.
The raw documents are here: http://www.article78againstnydfs.com/raw.php
Regards,
Theo Chino
The lawyers expertise in the Crypto World according to their website:
Digital Smart Contracts, Initial Coin Offerings (ICOs), Token Generation Events (TGEs), Digital Transfer of Property, Digital Currency Regulations, International Regulatory Compliance, Blockchain, Digital Disputes, Tokenization of Assets, Taxation of Tokens, Securities Law Analysis, Data Protection and Data Privacy, Investment and Acquisitions in Cryptocurrencies
The analysis:
We have analyzed the Theo Chino appeal to determine what policy arguments might be addressed to support an amicus brief being submitted by YYYY on behalf of the XXXX. While we very much look forward to working with the XXXX to advance its policy objectives, we are concerned that the facts and circumstances of the Theo Chino appeal are extremely weak and may be suboptimal for any amicus brief being filed on behalf of the XXXX. In particular, it appears that Theo Chino and his company lack standing to prosecute the appeal, and as a result, this appeal appears to not address any significant policy issues that we assume the XXXX is keen on advancing. We are of course available to discuss this further with the XXXX in the event there are any considerations that we may have overlooked.
In connection with our analysis, we have reviewed Appellants' opening brief, the Supreme Court's decision and order that was appealed from, and the parties’ briefing before the Supreme Court o the Defendants-Respondent's motion to dismiss the complaint and Article 78 petition for lack of standing. We also have reviewed key legal authorities cited in Appellants' brief and the briefing below on the motion to dismiss and conducted some further independent research on the issues involved. Our preliminary conclusion is that, based on the factual circumstances of this case - in particular, the fact that the Plaintiffs-Appellants did not complete corporate entity's application to DFS or receive any determination that the challenged regulations even apply to the business - the appeal is not meritorious and does not present an opportunity for a compelling amicus argument, public-policy oriented or otherwise.
I. Factual and Procedural Background
Theo Chino ("Theo") and his company Chino Ltd. ("Chino") challenge the DFS's "virtual currency" regulation (the "Regulation"), which went into effect in June 2015 and, inter alia, required virtual currency businesses to acquire a license and abide by other mandates, such as maintenance of adequate books and records and minimum capitalization requirements. In 2013, prior to the enactment of the Regulation, Theo established a small business to process Bitcoin payments on behalf of convenience stores. Upon the Regulation's enactment, Theo filed for a license under the Regulation on August 7, 2015. He then initiated a pro se proceeding on October 16, 2015 challenging the Regulation, before receiving any response from DFS regarding his application. On January 4, 2016, DFS returned the application stating that it could not be processed because it contained "extremely limited" information and, among other things, did not describe the business in which Chino was or would be engaged and did not specify in what respect, if any, the business involve virtual currency. Thus, DFS explained that it could not determine whether Chino was subject to the Regulation. In response to the DFS letter, Theo discontinued Chino's Bitcoin-related services, although Chino continued as a non-operating business. Thereafter, Theo and Chino retained counsel, which filed an amended complaint and Article 78 petition challenging the Regulation. Defendants-Respondents moved to dismiss for lack of standing.
II. Order Appealed From
On these facts, the Supreme Court, we think correctly, held that the Plaintiffs-Petitioners lacked standing both with respect to the Article 78 petition and the challenge to the constitutionality of the Regulation. With respect to the Article 78 Petition, the Court observed that CPLR 7803(3) allows a petitioner to challenge "whether a determination was made in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion" and here, because DFS did not reach a decision on Chino's application, there is no "determination" for the Court to review. Moreover, the Court explained that a petitioner must exhaust available administrative remedies before permitted to litigate in a Court of law. The Court considered the "exceptions" to this exhaustion principle, which Appellants claim in their appellate brief are applicable here, but determined that the exceptions are not applicable, again because of the petitioner's failure to complete the DFS application. Because of this failure, DFS did not take any action - constitutional or otherwise - that the petitioner could challenge in an Article 78 proceeding. With respect to the plaintiffs' standing on the constitutional challenge, the Court found this was a "much closer issue," but again found that plaintiffs lacked standing. This determination also came down to plaintiffs' failure to complete the DFS application: the Court concluded that the plaintiffs did not show "injury in fact" required for standing because they did not properly apply for the DFS license required by the Regulation. The Court also rejected plaintiffs' economic loss argument because Chino never made a profit before the Regulation and its losses after enactment of the Regulation were consistent with its prior financial history.
III. Merits of the Appeal
In their Appellate brief, the Appellants do not engage, at all, with the Court's determination that their failure to complete an application for a license under the Regulation or submit enough information to allow DFS to determine whether the Regulation applies to their business deprives them of standing. Nor do the Appellants cite any authority that demonstrates that such a failure is not fatal to their standing.
With respect to Article 78 standing, Appellants argue why each of the exceptions to the "exhaustion" principle apply to their action without addressing the fact that, in the first instance, DFS never made a regulatory determination with respect to their business. Setting aside this threshold issue, the authority cited by the Appellants to support the applicability of these exceptions to their circumstances are extremely weak. On their argument that their action is excepted because DFS acted beyond its legislative power, they cite to Bankers Trust, which acknowledges this exception, but found that, in that case that the relevant agency had acted within its statutory authority. For the constitutional exception, Appellants cite only to Martinez 2001 and incorrectly state that, in that case, the First Department found that the exhaustion doctrine was inapplicable. In Martinez 2001, the First Department explicitly found that the exhaustion doctrine was applicable, stating that it was "not convinced that plaintiffs' procedural due process argument is the type of unconstitutional agency action that is exempted from the exhaustion doctrine." Martinez 2001 v. N.Y. City Campaign Fin. Bd., 36 A.D.3d 544, 548-49 (1st Dep't 2007). The cases cited by Appellants on the futility exception are equally inapposite. In fact, Lehigh, seems to demonstrate why, under the circumstances here, exhaustion would not be futile. Cf. Lehigh Portland Cement Co. v. N.Y. State Dep't of Environ. Conservation, 87 N.Y.2d 136, 141 (1995) (finding exhaustion of administrative remedies futile where the agency had "arrived at a definitive position which concretely affected the status of plaintiff's BUD petitions and then communicated that position to the plaintiff" (emphasis added)); see also N.Y. Inst. for Educ. of Blind v. United Federation Teachers' Comm., 83 A.D.2d 390 (1st Dep't 1981) (affirming dismissal of complaint for failure to exhaust administrative remedies where the Labor Relations Board had not passed on the issue of whether the plaintiff was a "public employer" within the meaning of the challenged regulation). Finally, with respect to the irreparable harm exception, Appellant's argument rests on the flawed assumption that the statute of limitations on their Article 78 challenge would expire if they waited for DFS to make a decision on their application. It is the DFS's decision on the application, however, that would trigger the statute of limitations for the Article 78 proceeding, so there is no way that, in awaiting this decision, the statute of limitations for the Article 78 proceeding would expire. In fact, when challenging the actual substance of the regulation, as the Appellants do here, rather than its application, the four-month statute of limitations for Article 78 proceedings is not even applicable. See Westhampton Beach Assoc., LLC v. Incorporated Village of Westhampton Beach, 151 A.D.3d 793, 795 (2d Dep't 2017).
Appellants' argument that they can demonstrate "injury in fact," as required to challenge the constitutionality of the Regulation, is equally problematic. Their argument here rests on the assumption that the Regulation applies to their business; but, as set forth above, DFS never made this determination. As Respondents pointed out in their motion to dismiss, Appellants voluntarily shut down the business before DFS processed Chino's application or issued any sort of rejection, direction or mandate. Thus, any injury to Appellants was not caused by the Regulation. Appellants also rely upon the $5,000 application fee and the costs of compliance with the Regulation to support their claim of injury. As observed by the Court below, however, Appellants did not actually pay the $5,000 application fee (instead submitting a handwritten request for fee waiver). Moreover, as argued by the Respondents on their motion to dismiss, Chinos never ascertained whether the business would need a license to operate under the Regulation, so any claim with respect to the cost of compliance is entirely speculative.
IV. Considerations Relevant to a Potential Amicus Brief
In light of the above, we don't think that we want to submit an amicus brief in this action. Issues related to the regulation of cryptocurrencies that have been percolating as of late (and are presumably of great interest to the XXXX) are not really implicated by this appeal. The issue here is of the Appellant's standing, and the Supreme Court's determination on this issue is based on the fact that, here, Appellants were not the subject of any DFS action or determination, rather than any legal principle that would be applicable to other cryptocurrency businesses. The Supreme Court did not address, and the appeal does not implicate, issues that would be relevant to other cryptocurrency businesses other than the Appellants, such as (i) whether virtual currencies are a financial product or service subject to regulation by DFS; (ii) whether the Regulation is arbitrary or capricious; or (iii) whether the Regulation is preempted by Federal Law. Thus, we do not see a public-policy/interest angle that we could compellingly sponsor in this appeal.
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