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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
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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.
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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.
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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
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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
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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
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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
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