67 F. Supp. 3d 373
D.D.C.2014Background
- The Dodd-Frank Act (Title VII) extended CFTC authority to most swaps and provided that Title VII provisions and CFTC rules “shall not apply to activities outside the United States unless those activities … have a direct and significant connection with activities in, or effect on, commerce of the United States” (7 U.S.C. § 2(i)).
- The CFTC adopted numerous Title VII implementing rules but deferred treatment of extraterritorial scope until it issued a 2013 Interpretive Guidance and Policy Statement on cross‑border application (the “Cross‑Border Action”).
- Trade associations SIFMA, ISDA, and IIB sued the CFTC seeking vacatur of the Cross‑Border Action, partial vacatur of multiple Title VII rules as to their extraterritorial application, and injunctive relief. Plaintiffs challenged procedural defects (notice‑and‑comment and CEA § 19(a) cost‑benefit analysis) and substantive overreach under § 2(i).
- The CFTC moved to dismiss (standing, ripeness) and cross‑moved for summary judgment; the parties filed cross‑motions on the merits of the Cross‑Border Action and the challenged Title VII rules.
- Court held: dismissed plaintiffs’ Trade Execution Rule claim for lack of standing; concluded the Cross‑Border Action is mostly a nonbinding policy statement (except a 4‑page interpretive segment on § 2(i)); granted CFTC summary judgment on some rules; granted plaintiffs summary judgment on several other Title VII rules because the CFTC’s rulemaking cost‑benefit analyses failed to consider extraterritorial costs and benefits; remanded those rules to the CFTC without vacatur for further § 19(a) analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Cross‑Border Action is reviewable final agency action | Cross‑Border Action is a binding legislative rule issued without required notice/comment or cost‑benefit analysis | It is a nonbinding policy statement (and partly interpretive); not final, not subject to APA review now | Mostly a nonbinding policy statement; four‑page "Interpretation of §2(i)" is an interpretive rule but Cross‑Border Action is not final/reviewable now; summary judgment for CFTC on Cross‑Border Action claims |
| Whether CFTC must use rulemaking (vs. adjudication) to apply §2(i) extraterritorially | CFTC should have defined extraterritorial scope in each Title VII rule via rulemaking | §2(i) provides independent statutory basis; agency may apply it case‑by‑case (adjudication) | §2(i) operates independently; CFTC permissibly may apply extraterritorial reach through adjudication/policy guidance rather than rulemaking |
| Standing (associational) to challenge Cross‑Border Action and certain rules | Associations claim members (U.S. and foreign) are harmed by extraterritorial application of specific Title VII rules | CFTC contests traceability/redressability and shareholder/third‑party standing where only affiliates are directly regulated | Associations have associational standing via specific formal foreign members (SG, Deutsche Bank AG) for many transaction‑level rules and via functional member (J.P. Morgan Securities plc) for several entity‑level rules; Trade Execution Rule challenge dismissed for lack of standing |
| Adequacy of CFTC §19(a) cost‑benefit analyses for Title VII rules | CFTC failed to consider costs/benefits of extraterritorial application in agency rulemakings | Congress authorized extraterritorial application via §2(i); no duty to relitigate that decision; CFTC could not have reliable data on foreign costs | CFTC violated §19(a) for several rules by failing to consider extraterritorial costs/benefits; remand without vacatur for additional §19(a) analysis (real‑time reporting, SDR reporting, swap dealer registration, recordkeeping/risk/compliance rules, portfolio reconciliation, historical SDR, and SEF registration) |
Key Cases Cited
- F. Hoffmann‑La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004) (illustrative reading of a statutory provision that excludes foreign conduct then brings it back within reach if a specified nexus is met)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (Article III standing elements)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary and capricious review standard)
- SEC v. Chenery Corp., 332 U.S. 194 (1947) (agency discretion to choose rulemaking or adjudication; incremental policymaking)
- Nat’l Mining Ass’n v. McCarthy, 758 F.3d 243 (D.C. Cir. 2014) (distinguishing legislative rules from guidance and policy statements)
- Inv. Co. Inst. v. CFTC, 720 F.3d 370 (D.C. Cir. 2013) (CEA §19(a) cost‑benefit analysis requirements and deferential review of agency economic judgments)
- Bennett v. Spear, 520 U.S. 154 (1997) (final agency action / Bennett test)
- Chenery doctrine applied to agency choice between rulemaking and adjudication: NLRB v. Bell Aerospace Co., 416 U.S. 267 (1974) (agency discretion to adjudicate)