74 F.4th 627
5th Cir.2023Background
- PredictIt is an online political event-contract market launched by Victoria University in 2014; each contract pays $1 if the predicted event occurs.
- In October 2014 the CFTC Division of Market Oversight (DMO) issued a no-action letter allowing PredictIt to operate under specified terms (e.g., nonprofit operation, caps on investments and traders).
- In August 2022 DMO rescinded the no-action letter, stating only that Victoria University had not complied with its terms and ordering all contracts closed by Feb 15, 2023, with no factual or legal explanation.
- Appellants (market operators, traders, academics, and service providers) sued the CFTC and sought a preliminary injunction; the district court delayed ruling, and plaintiffs appealed as from an effective denial; this court granted an injunction pending appeal.
- The CFTC issued a March 2023 letter that purported to supersede the August rescission, provided some explanations and invited Victoria University to respond; the Fifth Circuit held the appeal was not moot and proceeded to review whether rescission was reviewable and lawfully done.
- The Fifth Circuit concluded the no-action letter was final agency action, that the August rescission was likely arbitrary and capricious for lack of reasoned explanation (and the March 2023 letter improperly attempted post hoc justification), and remanded with instructions to enter a preliminary injunction pending further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Mootness of the appeal | March 2023 letter does not moot because DMO still declares the no-action letter “void” and plaintiffs remain affected | March letter supersedes August rescission and provides relief/decision process | Not moot: plaintiffs retain a concrete interest; March letter continues to disadvantage them |
| Whether rescission is "agency action" and "final" under APA | No-action letter is a form of permission/license; its withdrawal is agency action that has legal consequences and is final | No-action letters are informal, nonbinding staff views and not final agency action | Withdrawal is final agency action: the letter is a license-like permission and DMO’s rescission consummates decisionmaking and has legal consequences |
| Whether rescission is committed to agency discretion/unreviewable | Rescission of a regulatory instrument that beneficiaries may rely on is reviewable | Withdrawing staff no-action relief is like enforcement discretion and thus unreviewable | Not committed to agency discretion; rescission is reviewable under APA |
| Standing of non-beneficiary appellees | Market operators, traders, academics suffer direct, traceable injuries from rescission; relief would redress them | Only the beneficiary (Victoria University) may rely on the letter; harms are downstream and speculative | Appellants have Article III standing: injury, traceability, redressability satisfied |
| Likelihood of success on arbitrary-and-capricious claim | August rescission gave no reasons; March letter post-dates injunction and contains post hoc rationalizations and procedural defects | Agency has discretion to rescind; March letter offers explanations and process for Victoria University | Plaintiffs likely to succeed: August rescission lacked reasoned explanation; March letter’s after-the-fact justifications are improper and procedurally deficient |
| Irreparable harm & balance of equities/public interest | Market closure and distortions harm traders, corrupt academic data, and impose unrecoverable compliance costs | Harms speculative and monetary; enjoining rescission could chill informal staff guidance practices | Irreparable harms likely (nonrecoverable compliance costs, lost research value); equities and public interest favor injunction to preserve status quo and APA compliance |
Key Cases Cited
- Carson v. American Brands, Inc., 450 U.S. 79 (1981) (court of appeals may review a district court’s effective denial of injunctive relief)
- Bennett v. Spear, 520 U.S. 154 (1997) (two-part test for final agency action)
- Motor Vehicle Manufacturers Ass'n v. State Farm, 463 U.S. 29 (1983) (arbitrary-and-capricious standard requires reasoned explanation)
- Data Mktg. P'ship v. U.S. Dep't of Labor, 45 F.4th 846 (5th Cir. 2022) (agency advisory-relief that beneficiaries may rely upon can withdraw agency discretion and be final)
- Wages & White Lion Invs., LLC v. FDA, 16 F.4th 1130 (5th Cir. 2021) (when agency changes course it must account for reliance interests)
- Encino Motorcars, LLC v. Navarro, 579 U.S. 211 (2016) (agencies must consider reliance interests when changing longstanding policies)
- DHS v. Regents of the Univ. of Cal., 140 S. Ct. 1891 (2020) (review limited to the reasons the agency invoked when it acted)
- SEC v. Chenery Corp., 318 U.S. 80 (1943) (agency decisions must rest on the grounds actually relied upon at the time of decision)
- Texas v. EEOC, 933 F.3d 433 (5th Cir. 2019) (agency withdrawal of previously held discretion can create finality and legal consequences)