USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 1 of 16 IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT COLUMBIA CIRCUIT _________________________________________ ) INTERNATIONAL SWAPS AND ) DERIVATIVES ASSOCIATION and ) SECURITIES INDUSTRY AND FINANCIAL ) MARKETS ASSOCIATION, ) ) Petitioners, ) ) v. ) ) COMMODITY FUTURES TRADING ) COMMISSION, ) ) Respondent. ) _________________________________________ ) No. 11-1469 RESPONDENT COMMODITY FUTURES TRADING COMMISSION’S MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION Respondent Commodity Futures Trading Commission (“Commission”) hereby moves this Court to dismiss the Petition for Review in the above-captioned matter, which was filed on December 2, 2011. Petitioners International Swaps and Derivatives Association (“ISDA”) and Securities Industry and Financial Markets Association (“SIFMA”) seek review of the newly promulgated Part 151 of the Commission’s Rules, 17 C.F.R. Part 151, which pertains to position limits for futures, options, and swaps. The Commission issued this rule pursuant to a mandate set forth in the Commodity Exchange Act (“CEA”), 7 U.S.C. §§ 1-26, as USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 2 of 16 modified by the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, 124 Stat. 1376 (July 21, 2010) (“Dodd-Frank Act”). Although direct review in this Court would serve the interests of judicial economy, neither the CEA nor the Dodd-Frank Act contains a direct-review statute of the type this Court has required to exercise such review. Accordingly, the Petition for Review filed by ISDA and SIFMA should be dismissed for lack of jurisdiction. BACKGROUND On October 18, 2011, the Commission voted to issue Position Limits for Futures and Swaps (“Rule”), and on November 18, 2011, the Rule and its preamble were published in the Federal Register, 76 Fed. Reg. 71626-71706. As the Commission explained, promulgation of the Rule was mandated by section 4a(a)(2) of the CEA, 7 U.S.C. § 6a(a)(2). 76 Fed. Reg. 71626. The Rule, which will be codified at 17 C.F.R. Part 151, establishes federal position limits for 28 physical commodity futures and options contracts and their economically equivalent swaps. The Rule provides for spot-month, non-spot-month and allmonth position limits, and sets forth the mechanisms for determining such limits. It also establishes account aggregation standards and a reporting regime to assist the Commission in monitoring compliance. The Rule provides an exemption from the position limits for bona fide hedging transactions, consistent with the definition of such transactions in the Dodd-Frank Act. Most of the Rule’s provisions, and all 2 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 3 of 16 of the provisions Petitioners are challenging, will not take effect at least until the Commission issues a rule, pursuant to section 721 of the Dodd-Frank Act, further defining the term “swap.” On December 2, 2011, ISDA and SIFMA filed a Petition for Review initiating this proceeding challenging the validity of the Rule. In the Petition, they allege that this Court has jurisdiction pursuant to various provisions of the CEA, 7 U.S.C. §§ 2, 8, 9, 10a, 12a, 13b, 15, 18, 21, 26; pursuant to 7 U.S.C. § 27d; and pursuant to section 712(c) of the Dodd-Frank Act. On the same day that they filed their Petition, ISDA and SIFMA also filed a complaint in the United States District Court for the District of Columbia (Case No. 1:11-cv-02146-RLW). The complaint, like the Petition, seeks invalidation of the Rule, and contains six counts alleging that the Rule violates the CEA (counts 1 and 2) and the Administrative Procedure Act (counts 3-5), and that injunctive relief is appropriate (count 6). The complaint alleges that the action arises under the Administrative Procedure Act, 5 U.S.C. §§ 500-706, and the CEA, and that 28 U.S.C. § 1331 provides a basis for the district court’s jurisdiction. As explained below, the Commission does not believe that the provisions ISDA and SIFMA have cited as conferring jurisdiction on this Court qualify as the type of direct-review statute that this Court requires as a basis for exercising jurisdiction in the first instance. While the Commission believes that this Court’s 3 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 4 of 16 precedents compel dismissal, the Commission recognizes the benefits of direct appellate review in these circumstances and would have no objection to such review but for this Court’s apparent lack of jurisdiction. ARGUMENT In several recent decisions, this Court has stressed that: [T]he normal default rule is that persons seeking review of agency action go first to district court rather than to a court of appeals. Initial review [of agency decisions] occurs at the appellate level only when a direct-review statute specifically gives the court of appeals subjectmatter jurisdiction to directly review agency action. Public Citizen, Inc. v. NHTSA, 489 F.3d 1279, 1287 (D.C. Cir. 2007) (quoting Watts v. SEC, 482 F.3d 501, 505 (D.C. Cir. 2007)) (alterations in original); see also Micei Int’l v. Dept. of Commerce, 613 F.3d 1147, 1151 (D.C. Cir. 2010) (same). The relevant statute in Public Citizen provided for direct review in a court of appeals of any order issued by NHTSA “prescribing” a motor vehicle safety standard. The petitioners argued that the statute permitted direct review of their challenge to the agency’s decision to deny a requested modification to an existing standard. This Court rejected that argument, reasoning that a decision by NHTSA to deny a requested modification of a safety standard was plainly not the same as a decision to adopt or “prescribe” a standard. Id. at 1287. In rejecting the petitioners’ argument, this Court concluded that their reliance on the Supreme Court’s decision in Florida Power & Light Company v. 4 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 5 of 16 Lorion, 470 U.S. 729 (1985), was misplaced. In that case, the Supreme Court held that this Court had initial subject matter jurisdiction to review an order of the Nuclear Regulatory Commission (NRC) denying without a hearing a citizen petition requesting suspension of a nuclear reactor’s license. The Court concluded that the NRC’s order was subject to direct appellate review under the Hobbs Act because the Hobbs Act conferred such jurisdiction over NRC final orders entered in “proceeding[s]” of a type referred to in 42 U.S.C. § 2239(a). Lorion, 471 U.S. at 733. Section 2239(a) provided that, “[i]n any proceeding under this chapter, for the granting, suspending, revoking, or amending of any license . . . the Commission shall grant a hearing upon the request of any person whose interest may be affected by the proceeding.” The Supreme Court explained that the statute’s reference to “proceeding” was “ambiguous on its face” because Section 2239(a) referred in the same sentence to “both the scope of licensing proceedings and the hearing requirement for such proceedings.” Id. at 736. To resolve the ambiguity, the Supreme Court relied on legislative history and “general principles respecting the proper allocation of judicial authority to review agency orders” to conclude that this Court had jurisdiction. Id. at 737. With respect to the allocation of review authority, the Court stated that “[a]bsent a firm indication that Congress intended to locate initial APA review of agency action in the district courts, we will not presume that 5 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 6 of 16 Congress intended to depart from the sound policy of placing initial APA review in the courts of appeals.” Id. at 745. The Court elaborated that: [t]he factfinding capacity of the district court is * * * typically unnecessary to judicial review of agency action. Placing initial review in the district court does have the negative effect, however, of requiring duplication of the identical task in the district court and in the court of appeals: both courts are to decide, on the basis of the record the agency provides, whether the action passes muster under the appropriate APA standard of review. Id. at 744; see also Midwest Indep. Transmission Sys. Operator, Inc. v. FERC, 388 F.3d 903, 910 (D.C. Cir. 2004) (same). This Court in Public Citizen concluded that Lorion was inapposite because the NHTSA review statute was “not ambiguous.” Public Citizen, 489 F.3d at 1287. In light of Public Citizen and this Court’s “normal default rule,” Micei, 613 F.3d at 1151, jurisdiction lies in this Court only if a direct-review provision “in the statute pursuant to which the agency action is taken, or in another statute applicable to [the action],” id., either clearly confers jurisdiction over this challenge or contains an ambiguity that should be resolved in favor of finding jurisdiction pursuant to Lorion. In their Petition for Review, ISDA and SIFMA cite numerous provisions of the CEA that they contend provide a basis for direct review of the Rule in this Court. Pet. at 2. Although each provides that certain Commission actions may be directly reviewed in a court of appeals, none applies to ISDA and SIFMA’s 6 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 7 of 16 challenge of the Rule, and none is sufficiently ambiguous to encompass their challenge. The statutory provisions on which ISDA and SIFMA rely to establish this Court’s jurisdiction are as follows: 1) 7 U.S.C. § 2 – Section 2(a)(1)(C)(v)(VI) of the CEA, 7 U.S.C. § 2(a)(1)(C)(v)(VI), provides that, if the Commission takes action with respect to the appropriate level of margin required for a stock index futures contract, review of that action lies in a court of appeals. Because the Rule does not regulate margin levels for stock index futures contracts, this provision does not provide this Court with jurisdiction. 2) 7 U.S.C. § 8 – Section 6(a) of the CEA, 7 U.S.C. § 8(a), provides that, if the Commission denies the application of any person seeking designation as a contract market or derivatives transaction execution facility, the unsuccessful applicant may seek review of that decision in a court of appeals. Section 6(b) of the CEA, 7 U.S.C. § 8(b), provides the Commission with the authority, in appropriate situations, to revoke or suspend the designation of any person as a contract market or derivatives transaction execution facility. Review of such a revocation or suspension is also in a court of appeals. Neither of these provisions, however, has any relevance to ISDA and SIFMA’s challenge. 3) 7 U.S.C. §§ 9, 15 – Section 6(c) of the CEA, 7 U.S.C. §§ 9, 15, provides the Commission with the authority to bring an administrative enforcement action 7 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 8 of 16 against any person who has violated the CEA by, inter alia, manipulating, or attempting to manipulate, the market price of any commodity. If, at the conclusion of the administrative proceeding, the Commission issues an order imposing an injunction or sanction, the respondent may seek review of that order directly in a court of appeals. This provision has no relevance here because ISDA and SIFMA’s challenge does not stem from an administrative adjudication. 4) 7 U.S.C. § 10a – Section 6a(a) of the CEA, 7 U.S.C. § 10a(a), authorizes the Commission to issue orders requiring that certain corporations that are engaged in a cash commodity business must be included in, or excluded from, membership in a board of trade. The section further provides that such orders be reviewed directly in a court of appeals. This section too has no application here. 5) 7 U.S.C. § 12a – Section 8a(9) of the CEA, 7 U.S.C. § 12a(9), authorizes the Commission, in emergency situations, to take certain actions to restore the orderly trading of any futures contract. These emergency actions may only be challenged in a court of appeals. This section has no application here. 6) 7 U.S.C. § 13b – Section 6(d) of the CEA, 7 U.S.C. § 13b, provides the Commission with the authority to issue administrative cease and desist orders against any person who has engaged in, or attempted to engage in, the manipulation of the price of any commodity, or who has violated other provisions of the CEA. A person subject to such an order may seek direct review in a court of 8 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 9 of 16 appeals. This provision has no relevance because ISDA and SIFMA’s challenge does not involve an administrative adjudication. 7) 7 U.S.C. § 18 – Section 14(e) of the CEA, 7 U.S.C. § 18(e), provides the Commission with the authority to issue orders requiring those who violate the CEA to provide redress to persons who have been injured as a result of the violators’ conduct. Such orders are reviewed by a court of appeals, but ISDA and SIFMA have not challenged any such order. 8) 7 U.S.C. § 21 – Section 17(i)(4), 7 U.S.C. § 21(i)(4), provides that, when the Commission issues an order reviewing a disciplinary action taken by a registered futures association, that order may be challenged in a court of appeals. This section likewise provides no basis for ISDA and SIFMA’s challenge. 9) 7 U.S.C. § 26 – Section 23(f) of the CEA, 7 U.S.C. § 26(f), provides for direct appellate review of determinations made by the Commission in whistleblower actions. No such action is involved in this challenge. 10) 7 U.S.C. § 27d – Section 406 of the Commodity Futures Modernization Act of 2000, 7 U.S.C. § 27d, provides that the Commission may not regulate certain hybrid instruments unless the Commission first issues a rule in which it determines, inter alia, that the instrument is not predominantly a banking product. Section 406(c)(1), 7 U.S.C. § 27d(c)(1), provides that, if the Board of Governors of 9 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 10 of 16 the Federal Reserve System seeks to challenge that determination, it may do so in a court of appeals. Plainly, neither ISDA nor SIFMA may invoke this provision. 11) Section 712(c) of the Dodd-Frank Act – This section, which is not codified, requires the Commission to coordinate with the Securities and Exchange Commission (“SEC”) to ensure that any rule regarding swaps does not regulate security-based swaps. If the SEC believes that any rule issued by the Commission does, in fact, regulate security-based swaps, then it may initiate a challenge in this Court asking that the rule be set aside. This provision, which authorizes the SEC to seek review in this Court, also has no application here. In sum, none of the provisions cited by ISDA and SIFMA clearly or even arguably provides for direct appellate review of their challenge to the Rule. Petitioners cite Clark v. CFTC, 170 F.3d 110 (2d Cir. 1999), as authority supporting jurisdiction in this Court, see Pet. at 2, but that case is outside of this Circuit and is distinguishable. Clark sought review of a Commission decision affirming disciplinary action taken against him by a futures exchange. The CEA specifically authorized “judicial review” of the Commission’s decision, but did not indicate in which court review should be sought. 7 U.S.C. § 12c. The Second Circuit concluded that the reference to “judicial review” was ambiguous as to the appropriate court and, applying Lorion, resolved the ambiguity in favor of direct 10 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 11 of 16 appellate jurisdiction.1 In doing so, the Second Circuit relied on a provision in the CEA that provided for judicial review of decisions regarding disciplinary actions, see 7 U.S.C. § 9, the very sort of decision Clark was challenging. Id. at 115. The court also noted “the extensive jurisdiction conferred upon courts of appeals to review other decisions and orders of the Commission relating to its regulation of exchanges.” Id. at 114. Here, by contrast, none of the provisions Petitioners have cited confer direct appellate jurisdiction over a private challenge to a Commission action that is analogous to the action at issue here.2 It is certainly true that, when Congress has addressed the issue of judicial review of Commission actions, it has repeatedly chosen to vest direct review 1 But see Jaunich v. CFTC, 50 F.3d 518 (8th Cir. 1995) (rejecting direct appellate jurisdiction over a challenge to a decision by the Commission affirming disciplinary action taken against the petitioner by an exchange under the same statutory provision involved in Clark). 2 ISDA and SIFMA also cite (Pet. 2) Investment Co. Inst. v. Board of Governors of the Fed. Reserve Sys., 551 F.2d 1270 (D.C. Cir. 1977), as supporting appellate jurisdiction, see Pet. at 2, but that case does not support this Court’s jurisdiction here. In that case, this Court interpreted various provisions of the Bank Holding Act. The Bank Holding Act authorized the Federal Reserve Board to issue orders assessing whether certain activities were closely related to banking. A different section authorized direct appellate review of those orders. The Bank Holding Act was subsequently amended to permit the Board to make the assessment either through an order or through rulemaking, but the review provision was never amended. This Court held that, where there is a special review provision authorizing direct appellate review of orders, that provision also applies to review of regulations, even if the statute does not specify that regulations may be directly reviewed. But this merely means that, where a statute authorizes direct review of orders, it is appropriate that a regulation that serves the same purpose as an order is reviewed in the same manner as that order. Petitioners do not cite any comparable provision in the CEA. 11 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 12 of 16 authority in the court of appeals. That choice serves the “sound policy” of judicial economy that the Supreme Court relied on in Lorion (470 U.S. at 745) to resolve ambiguity in favor of direct appellate review. Under this Court’s precedents, however, the choice Congress has made with respect to other, distinct forms of Commission action is insufficient to confer jurisdiction here, where there is no direct-review provision “in the statute pursuant to which the agency action [wa]s taken, or in another statute applicable to [the action].” Micei, 613 F.3d at 1151. Because there is no provision in the CEA authorizing review of the Rule, the only source of jurisdiction for review is 28 U.S.C. § 1331, and review must be sought in a district court. ISDA and SIFMA have already filed a complaint in the United States District Court for the District of Columbia. Accordingly, their Petition for Review in this Court should be dismissed. 12 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 13 of 16 CONCLUSION For the reasons stated above, this Court should dismiss ISDA and SIFMA’s Petition for Review for lack of jurisdiction. Respectfully submitted, Dan M. Berkowitz General Counsel Jonathan L. Marcus Deputy General Counsel Mary T. Connelly Assistant General Counsel Lawrence DeMille-Wagman Assistant General Counsel Ajay B. Sutaria Counsel /s/ Lawrence DeMille-Wagman Commodity Futures Trading Commission 3 Lafayette Centre 1155 21st Street, N.W. Washington, D.C. 20581 (202) 418-5970 lwagman@cftc.gov 13 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 14 of 16 CERTIFICATE AS TO PARTIES, RULINGS AND RELATED CASES Pursuant to Circuit Rules 27(a)(4) and 28(a)(1), respondent Commodity Futures Trading Commission certifies as follows: 1) Parties and Amici – The Petitioners in this case are the International Swaps and Derivatives Association, and the Securities Industry and Financial Markets Association. The respondent in this case is the Commodity Futures Trading Commission. There are no intervenors or amici. 2) Ruling under review – Petitioners have challenged the Commodity Futures Trading Commission’s Rule entitled Position Limits for Futures and Swaps, to be codified at 17 C.F.R. Part 151, and published in the Federal Register at 76 Fed. Reg. 71626-71706 (November 18, 2011). 3) Related case – On December 2, 2011, Petitioners filed a complaint in the United States District Court for the District of Columbia challenging the Rule. ISDA, et al. v. CFTC, No. 1:11-cv-02146-RLW (D.D.C.). Respectfully submitted, Dan M. Berkowitz General Counsel Jonathan L. Marcus Deputy General Counsel Mary T. Connelly Assistant General Counsel 14 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 15 of 16 Lawrence DeMille-Wagman Assistant General Counsel Ajay B. Sutaria Counsel /s/ Lawrence DeMille-Wagman Commodity Futures Trading Commission 3 Lafayette Centre 1155 21st Street, N.W. Washington, D.C. 20581 (202) 418-5970 lwagman@cftc.gov CERTIFICATE OF SERVICE I hereby certify that on January 4, 2012, I filed the Commodity Futures Trading Commission’s Motion to Dismiss for Lack of Subject Matter Jurisdiction using this Court’s CM/ECF electronic filing system. I submitted four copies of the Motion to this Court using an express overnight delivery service. Also on January 4, I served the Motion on the following counsel for Petitioners using the CM/ECF system: Miguel A. Estrada MEstrada@gibsondunn.com Eugene Scalia EScalia@gibsondunn.com Jason J. Mendro JMendro@gibsondunn.com 15 USCA Case #11-1469 Document #1350987 Filed: 01/04/2012 Page 16 of 16 Nikesh Jindal NJindal@gibsondunn.com John F. Bash JBash@gibsondunn.com Gibson, Dunn & Crutcher LLP 1050 Connecticut Ave., N.W. Washington, D.C. 20036 s/ Lawrence DeMille-Wagman 16