NY Federal Court Remands NY AG’s Suit Against Payment Processor Due to Lack of a Federal Issue

The U.S. District Court for the Southern District of New York rejected a payment processor’s attempt to remove a suit by the New York Attorney General (NY AG) to federal court since the case did not turn on a question of federal law.

The NY AG sued the payment processor in 2025 in state court claiming that the company released its product despite allegedly knowing that it lacked sufficient anti-fraud measures and that the company allegedly made false representations to consumers that the product was secure when in fact it had many security flaws.  The suit was originally filed in NY state court and included claims solely under a NY state law which allowed the AG to pursue companies which engaged in repeated fraudulent acts or otherwise demonstrated persistent fraud in the conduct of their business.

The NY AG’s suit was based on factual allegations similar to those in a separate prior suit against the company filed by the CFPB in 2024 under the prior presidential administration.  The CFPB’s suit alleged violations of a federal law which prohibits unfair, deceptive, or abusive acts or practices (UDAAP), as well as violations of the Electronic Funds Transfer Act (EFTA).  The CFPB voluntarily dismissed its suit in 2025 after the new administration took office.

The payment processor sought to remove the NY AG’s suit to federal court by claiming that it was effectively a “redo” of the CFPB’s case “styled as a state law action” and therefore presented embedded questions of federal law.

The court rejected the payment processor’s argument and remanded the case to NY state court.  Removal is allowed for a case brought under state law in narrow circumstances where vindication of the state right necessarily turns on a question of federal law.  In these situations, the federal issue must be necessarily raised, actually disputed, substantial, and capable of resolution in federal court without disrupting the federal-state balance approved by Congress.

Here, the court found that a federal issue was neither necessarily raised nor actually disputed.  The court found that it would not have to determine in the NY AG’s suit—under NY state anti-fraud law—whether federal UDAAP requirements or the EFTA mandated certain conduct by the payment processor.  The NY AG also would not need to prove either a UDAAP or EFTA violation as a predicate to proving the state law claim, and the court would not otherwise need to examine UDAAP or EFTA compliance.  The court held that the NY AG was free to draft its complaint in a manner which avoided raising an issue of federal law and that federalism did not demand otherwise.