In a development in the lawsuit brought by SIFMA, ISDA and the Institution of International Bankers (“Associations”) against the CFTC’s Cross-Border Guidance, the U.S. Circuit Court of Appeals for the District of Columbia (“Court”) granted the motion for leave to file the amicus brief in support of the CFTC that was submitted by Congressional Democrats in March 2014. Additionally, the CFTC submitted a notice of supplementary authority to “bring to the Court’s attention” the June 4, 2014 decision of the U.S. Court of Appeals for the Second Circuit (the “Second Circuit”) in Lotes Co., Ltd. v. Hon Hai Precision Industry Co., Ltd. (“Lotes“).
According to the CFTC, the Second Circuit considered the text of the Foreign Trade Antitrust Improvement Act (“FTAIA”) Section 6a, which “parallels CEA Section 2(i).” The FTAIA states that “Sections 1 to 7 of this title shall not apply to conduct involving trade or commerce (other than import trade or commerce) with foreign nations” unless such conduct has a direct, substantial and reasonably foreseeable effect on trade or commerce that is not trade or commerce with foreign nations.
The CFTC argued that the Second Circuit in Lotes read the FTAIA in the same way that the CFTC now reads CEA Section 2(i), in the sense that both describe the conduct to which the swaps provisions apply. According to the CFTC, the Associations overlooked the words “not” and “unless,” and Section 2(i) only limits and does not establish the cross-border reach of the swaps provisions.
Furthermore, the CFTC explained, while the Associations contended that the CFTC’s consideration of the meaning of the word “direct” in its Cross-Border Guidance was mistakenly reliant on the Seventh Circuit’s interpretation of “direct” in Minn-Chem, Inc. v. Agrium, Inc., the CFTC pointed out that the Second Circuit in Lotes also chose to follow Minn-Chem.
Lofchie Comment: The notion that the CEA should be interpreted by referencing an obscure provision of the antitrust laws, which (i) no one in Congress or at any regulator was aware of at the time Dodd-Frank was adopted, (ii) in terms of language, has a few words in common with the CEA, but is far from identical and (iii) is totally unrelated in policy and history, should not pass the (keep a) straight-face test. Is there a single instance historically of a provision of U.S. financial regulatory statutes being drafted or interpreted by reference to the Foreign Trade Antitrust Improvement Act? Is the CFTC arguing that Congress was looking to the FTAIA when it drafted Dodd-Frank (and that, having the FTAIA in mind, it decided to use somewhat different language)?