Loan Syndications and Trading Association v. Securities and Exchange Commission, 223 F. Supp. 3d 37

Background

Plaintiff Loan Syndications and Trading Association challenged joint final rules under Section 941 of the Dodd‑Frank Act requiring securitizers to retain at least 5% of credit risk for asset‑backed securities; rules issued jointly by OCC, Fed Board, FDIC, SEC, FHFA, HUD.
Central dispute concerns application of the rules to open‑market collateralized loan obligations (CLOs), specifically whether CLO managers qualify as "securitizers."
Agencies adopted a "menu" of retention options (vertical, horizontal, L‑shaped, combinations) and required fair‑value measurement for horizontal interests; they also adopted a CLO "lead arranger" option and declined a broad exemption for open‑market CLOs.
Plaintiff argued agencies acted arbitrarily and capriciously under the Administrative Procedure Act by: (1) treating CLO managers as securitizers, (2) using fair value rather than "credit risk" measures, and (3) refusing exemptions/adjustments for open‑market CLOs.
D.C. Circuit transferred the original petition to the district court; parties submitted the administrative record and cross‑motions for summary judgment.
Court applied Chevron deference, reviewed the administrative record, and granted defendants’ summary judgment, denying plaintiff’s motion.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether open‑market CLO managers fall within statutory "securitizer" definition	CLO managers merely select/advise and do not "sell or transfer" assets; thus they should be excluded	Statute is ambiguous; agencies reasonably interpreted "securitizer" to include managers who organize/initiate and indirectly transfer assets; Chevron deference applies to joint rulemaking	Court upheld agencies: Chevron applies and agencies’ inclusion of CLO managers is reasonable
Whether agencies unlawfully measured required retention by "fair value" rather than "credit risk"	"Fair value" is a market/economic measure distinct from statutory "credit risk"; agencies failed to base rules on credit risk as Congress required	Congress left method undefined; fair value is a reasonable proxy tied to economic exposure and market practice; agencies explained rationale	Court upheld use of fair value for horizontal measurement as reasonable and adequately explained
Whether agencies abused discretion in refusing exemptions/adjustments for open‑market CLOs	Agencies failed to justify denial under statutory exemption factors and ignored commenters’ evidence that CLO structure warrants exemption/adjustment	Agencies considered comments, weighed structural similarities to other troubled CDOs, assessed costs/benefits (SEC analysis), and reasonably declined exemptions	Court found agencies provided a reasoned explanation and did not act arbitrarily or capriciously
Whether Chevron deference applies to a rule jointly issued by multiple agencies	Plaintiff argued Chevron not appropriate for multi‑agency rules	Defendants: statute required a single, joint rulemaking; agencies have specialized expertise and presented a unified view	Court applied Chevron: joint, coordinated rulemaking by assigned agencies warrants deference

Key Cases Cited

Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (framework for judicial deference to reasonable agency statutory interpretations)
Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29 (agencies must not act arbitrarily or capriciously; must provide reasoned explanation)
United States v. Mead Corp., 533 U.S. 218 (when agencies may be expected to speak with the force of law; Chevron threshold)
National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (courts defer to agency interpretations of ambiguous statutes within agency jurisdiction)
Bell Atlantic Telephone Companies v. FCC, 131 F.3d 1044 (D.C. Cir. 1997) (use of statutory text, structure, purpose in statutory interpretation)