CPR Member Scholars to Congress: Judicial Review Provisions of CFTC Reauthorization Bill Need Another Look

by James Goodwin

May 20, 2014

Yesterday, CPR Member Scholars sent a letter to House Representatives about their concerns with Section 212 of H.R. 4413, the Consumer Protection and End-User Relief Act.  This provision would add a new Section 24 to the Commodity Exchange Act, establishing specific requirements for judicial review of rules adopted by the Commodity Futures Trading Commission (CFTC).  H.R. 4413 is on the short list for a floor vote in House.

As the letter explains, several aspects of Section 212 “raise significant problems.”  One provision would authorize courts reviewing CFTC rules to modify and enforce as modified those rules.  This is a huge departure from how judicial review of rules normally takes place, including judicial review carried out under the Administrative Procedure Act, which essentially authorizes a court to only affirm or set aside a rule in whole or in part. In other words, the Courts interpret laws, they do not write them.  Of this provision, the Scholars write, “Our system of government simply does not contemplate granting a court the regulatory power both to reject an agency’s rule and then force adoption of a different rule preferred by the court itself.”

Another provision of Section 212 would allow any parties involved in a judicial challenge to a CFTC rulemaking to apply to the court “for leave to adduce additional evidence,” provided that the party can show “that the additional evidence is material and that there was reasonable ground for failure to adduce it before the Commission.”  This change would be unprecedented and generally applies, if ever, to court challenges to agency orders. This change would open the door to special interests inserting themselves even further along in the regulatory process, slowing down implementation of needed rules even further. Given that those interested parties would be free to submit to CFTC any and all evidence they wish on a particular CFTC rule, there should be no “reasonable ground” for those parties to fail to submit such information during the rule-making process, rather than later during litigation.

So how did a bill with such peculiar judicial review provisions come to pass?  The CPR Member Scholars explain that the drafters of the bill appear to have borrowed the wrong language from an existing law governing judicial review provisions for the Securities and Exchange Commission.  Specifically, the problematic language in H.R. 4413 language appears to come from 5 U.S.C. § 78y(a), which governs judicial review of orders adopted by the SEC, rather than 15 U.S.C. § 78y(b), which governs judicial review of rules promulgated by the SEC.  As the CPR Member Scholars explain, the problematic judicial review provisions in H.R. 4413 make a great deal more sense in the context of agency orders rather than agency rules.

Whatever the origins of the judicial review provisions of H.R. 4413, one thing is clear:  If enacted, these provisions could inhibit the work of the CFTC and waste scarce judicial resources.  As the CPR Member Scholars put it:

The upshot is that [the judicial review provisions] would introduce elements of judicial review that, while arguably sensible in the context of administrative adjudications (i.e., agency actions that produce orders), would, in the context of administrative rulemakings, likely result in needless confusion, wasteful and time-consuming litigation, erroneous decisions, and, most importantly, a massive transfer of regulatory power to Article III courts.

The letter concludes by requesting the Members of the House postpone consideration of H.R. 4413 until the drafters of the bill have had a chance to take good, long second look at the judicial review provisions to address the concerns they raised.   Given the many unnecessary and avoidable problems these provisions are sure to invite, the House Members would do well to heed this advice.

 

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Also from James Goodwin

James Goodwin, J.D., M.P.P., is a Senior Policy Analyst with the Center for Progressive Reform. He joined CPR in May of 2008.

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