In response to the June 23, 2014 order from the U.S. District Court for the District of Columbia (the “Court”), the CFTC, as well as SIFMA, ISDA and the Institute of International Bankers (the “Associations”), submitted supplemental briefs to the Court regarding (i) shareholder standing and (ii) interpretive rules in the lawsuit against the CFTC’s Cross-Border Guidance.
According to the Associations’ supplemental brief, an association has standing to challenge government action “when at least one of its members has standing, the interests it seeks to protect are germane to the organization’s purpose, and the participation of its individual members in the suit is not otherwise required.” The Associations stated that they have standing in the Cross-Border Guidance Case, and that they can challenge the CFTC Cross-Border Rule because “their formally enrolled members and their represented affiliates could do so individually.”
By contrast, the CFTC’s supplemental brief asserted that, when the Associations disclosed the names of members allegedly injured by the Cross-Border Guidance after originally claiming that standing was “self-evident,” the employees came from two types of entities: (i) U.S.-based conglomerates, such as JPMorgan, Goldman Sachs and Morgan Stanley; and (ii) conglomerates based overseas, such as Société Générale and Deutsche Bank. The CFTC asserted that none of the relationships of the employees in these entities conferred standing.
Furthermore, the Associations’ supplemental brief explained, the Cross-Border Rule cannot be sustained as an interpretive rule because the CFTC labeled the Cross-Border Rule as a policy statement and it is plainly legislative rather than interpretative. According to the Associations, it is “absurd for the CFTC to contend that regulated entities will not consider themselves bound by interpretations that – in enforcement actions – federal courts will feel obligated to apply.” The Associations went on to say that, in any event, “treating it as interpretive would not cure the CFTC’s procedural errors.”
In the CFTC supplemental brief, the CFTC explained that the Cross-Border Guidance is “best classified as a general statement of policy,” but that certain of its statements also could be classified as interpretive rules. The CFTC stated that, regardless of classification, the Cross-Border Guidance is not final agency action or otherwise reviewable, and classifying it as interpretative would not change the conclusion that the cost-benefit requirement is inapplicable.
The CFTC also submitted a second notice of supplemental authority to bring to the Court’s attention the July 11, 2014 decision in National Mining Association v. McCarthy (“Decision”), during which the U.S. Court of Appeals for the District of Columbia Circuit reversed a decision that the Associations relied upon in their argument regarding the standard for distinguishing non-reviewable policy statements from reviewable legislative rules. The CFTC stated that the analysis of this Decision strongly supports its position in the Cross-Border Guidance Case, since it reiterates that established law and general statements of policy are not subject to pre-enforcement judicial review under the Administrative Procedure Act. Additionally, the CFTC stated that the Decision concludes that “the most important factor” in determining whether an agency action is a policy statement or legislative rule “concerns the legal effect (or lack thereof) of the agency action in question on regulated entities.” The CFTC explained that the Associations have identified no legal effect of the Cross-Border Guidance.
Lofchie Comment: Whatever one believes about the quality of the policy informing the CFTC’s Guidance, the process (or absence thereof) should be regarded as unacceptable. Government agencies diminish the moral force of government regulation when they seem to circumvent the procedures by which government agencies are “required” to act. Further, one cannot argue that the CFTC was “forced” into a procedural end-around by its inability to adopt rulemaking over the resistance of dissidents. Given the rules of the CFTC, former Chair Gensler was part of the majority during his entire tenure at the CFTC and was entirely able to obtain the votes necessary to adopt his desired measures, but he should not have been able to do so without the checks afforded by public comment and cost-benefit analysis.