Loan Syndications & Trading Ass'n v. Securities & Exchange Commission ( 2016 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 5, 2016 Decided March 18, 2016
No. 14-1240
THE LOAN SYNDICATIONS AND TRADING ASSOCIATION,
PETITIONER
v.
SECURITIES AND EXCHANGE COMMISSION AND BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM,
RESPONDENTS
Consolidated with 14-1304
On Petitions for Review of a Final Order of the
Securities & Exchange Commission and
the Board of Governors of the Federal Reserve System
Richard D. Klingler argued the cause for petitioner. With
him on the briefs were Peter D. Keisler and Jennifer J. Clark.
Carl J. Nichols, Stephen V. Carey, Kate Comerford Todd,
and Steven P. Lehotsky were on the brief for amicus curiae
the Chamber of Commerce of the United States in support of
petitioner.
Joshua P. Chadwick, Senior Counsel, Board of
Governors of the Federal Reserve System, argued the cause
2
for respondents. With him on the brief were Richard M.
Ashton, Deputy General Counsel, Katherine H. Wheatley,
Associate General Counsel, Michael A. Conley, Deputy
General Counsel, Securities and Exchange Commission, John
W. Avery, Deputy Solicitor, Randall W. Quinn, Assistant
General Counsel, and Nicholas J. Bronni, Senior Counsel.
Dennis M. Kelleher and Stephen W. Hall were on the
brief for amicus curiae Better Markets, Inc. in support of
respondents.
Before: GARLAND, Chief Judge, BROWN, Circuit Judge,
and WILLIAMS, Senior Circuit Judge.
Opinion filed for the Court by Circuit Judge BROWN.
BROWN, Circuit Judge: In the law, as in life, the simplest
explanation is sometimes the best one. Cf. Commodity
Futures Trading Comm’n v. Zelener, 373 F.3d 861, 868 (7th
Cir. 2004) (Easterbrook, J.) (“Best to take Occam’s Razor and
slice off needless complexity.”). So it is here. This case
concerns a challenge, brought directly in this court, to a joint
regulation implementing a section of the Securities Exchange
Act of 1934 (Exchange Act). See 15 U.S.C. § 78o-11.
Congress added that particular section to the Exchange Act in
the sprawling Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act). See Pub. L. No. 111-203,
§ 941, 124 Stat. 1376 (2010).
We have jurisdiction to hear petitions for direct review of
agency action when Congress says so. See Sierra Club v.
Thomas, 828 F.2d 783, 792 (D.C. Cir. 1987) (“[C]ourts have
just so much jurisdiction as Congress has provided by
statute.”). The Exchange Act provides a limited grant of
jurisdiction. Only rules implementing specific, enumerated
3
sections of the Act are entitled to direct review. See 15
U.S.C. § 78y(b)(1). The section at issue here is not among
them. Because Congress knew how to add sections to that
list, but chose not to do so here, we conclude that we lack
jurisdiction. See Am. Petrol. Inst. v. SEC, 714 F.3d 1329,
1333 (D.C. Cir. 2013). To escape the confines of the
Exchange Act, the parties argue that other statutes with direct
review provisions provide authority for parts of the rule. But
whatever authority those other statutes may provide, neither
party suggests those statutes could have authorized the joint
rule we are asked to review.
Unable to exercise review ourselves, we transfer the
petitions “in the interest of justice” to the United States
District Court for the District of Columbia. See 28 U.S.C.
§ 1631.
I
Enacted two years after the financial crisis of 2008, the
Dodd-Frank Act spelled a sea change in the regulation of the
nation’s financial markets. Section 941 of the Act, at issue in
this case, took aim at abuses in the packaging and sale of
asset-backed securities, which some in Congress considered
“a major contributing factor” to the financial crisis. S. Rep.
No. 111-176, at 128 (2010).
To recalibrate the incentives that fueled “excesses and
abuses,” id., Congress required “securitizers”—a term of art
generally referring to those who issue or organize asset-
backed securities—to retain at least five percent of the
underlying credit risk, see 15 U.S.C. § 78o-11(a)(3), (b)(1).
Congress tasked four agencies with responsibility for
implementation: the Securities and Exchange Commission
(Commission), the Board of Governors of the Federal Reserve
4
System (Board), the Federal Deposit Insurance Corporation
(FDIC), and the Office of the Comptroller of the Currency
(OCC). The agencies were required to “jointly prescribe
regulations to require any securitizer to retain an economic
interest in a portion of the credit risk for any asset that the
securitizer, through the issuance of an asset-backed security,
transfers, sells, or conveys to a third party.” 15 U.S.C. § 78o-
11(b)(1) (emphasis added). Pursuant to that mandate, the
agencies issued the Credit Risk Retention Rule on December
24, 2014. 79 Fed. Reg. 77602, 77602 (Dec. 24, 2014).
In this petition, a trade group, the Loan Syndications and
Trading Association (LSTA), challenges several aspects of
the rule as contrary to law or arbitrary and capricious. LSTA
takes particular issue with the agencies’ decision to extend the
credit risk retention requirement to managers of open market
collateralized loan obligations, which are “specialized
investment vehicle[s] designed to invest” in large loans issued
to companies without strong credit. Br. for Chamber of
Commerce of the United States as Amicus Curiae 5–6.
As it turns out, LSTA’s challenge on the merits will have
to wait. “They have sought review of agency action in the
‘wrong’ court.” City of Rochester v. Bond, 603 F.2d 927, 931
(D.C. Cir. 1979).
II
A
In 1946, soon after the dawn of the administrative state,
Congress passed the Administrative Procedure Act (APA), a
seminal statute that prescribes the standard of review
applicable to agency actions. See APA of 1946, 5 U.S.C.
§ 551 et seq. While the APA says how to review agency
5
actions, it says next-to-nothing about where that review
should take place (e.g., in particular district courts or courts of
appeals). 1 See Joseph W. Mead & Nicholas A. Fromherz,
Choosing a Court to Review the Executive, 67 ADMIN. L.
REV. 1, 7 (2015). Congress generally answers the “where”
question on a statute-by-statute basis. For that reason, the
U.S. Code is littered “with thousands of compromises
dividing initial review of agency decisions between district
and circuit courts.” Id. at 2.
Amidst this complicated legal landscape, we can
nevertheless deduce some general principles. “Because
district courts have general federal question jurisdiction under
28 U.S.C. § 1331, the ‘normal default rule’ is that ‘persons
seeking review of agency action go first to district court rather
than to a court of appeals.’” Watts v. SEC, 482 F.3d 501, 505
(D.C. Cir. 2007) (quoting Int’l Bhd. of Teamsters v. Pena, 17
F.3d 1478, 1481 (D.C. Cir. 1994)). Parties may proceed
directly to the courts of appeals only when authorized by a
specific direct-review statute. Id. Our “jurisdiction under a
direct review statute is strictly limited to the agency action(s)
included therein.” NetCoalition v. SEC, 715 F.3d 342, 348
(D.C. Cir. 2013).
Placing initial review of agency actions in the courts of
appeals often makes good sense. “[A]gencies typically
compile records,” rendering the district court’s “factfinding
capacity . . . unnecessary.” Fla. Power & Light Co. v. Lorion,
470 U.S. 729, 744 (1985). And because appeals are all but
guaranteed, requiring district court review may only add delay
and expense. Those factors in mind, we interpret ambiguities
1
Section 703 of Title 5 provides, somewhat unhelpfully, that
judicial review of agency action takes place in the “court specified
by statute or, in the absence or inadequacy thereof,” “in a court of
competent jurisdiction.” 5 U.S.C. § 703.
6
in direct-review statutes in favor of appellate jurisdiction,
“[a]bsent a firm indication that Congress intended to locate
APA review of agency action in the district courts.” Id. at
745. But this presumption, however helpful, cannot
overcome the commands of Congress. Ultimately, “[w]hether
initial subject-matter jurisdiction lies initially in the courts of
appeals must of course be governed by the intent of Congress
and not by any views we may have about sound policy.” Id.
at 746.
B
By its own terms, the Credit Risk Retention Rule at issue
implemented a section of the Exchange Act added by the
Dodd-Frank Act. See 79 Fed. Reg. at 77602 (explaining that
the agencies “are adopting a joint final rule . . . to implement
the credit risk retention requirements of section 15G of the
Securities Exchange Act of 1934,” codified at 15 U.S.C. §
78o-11, “as added by section 941 of the Dodd-Frank” Act).
The Exchange Act contains what we have described as a
“carefully constructed jurisdictional scheme,” codified at 15
U.S.C. § 78y. Am. Petrol. Inst., 714 F.3d at 1334.
We consider first the text and structure of that
jurisdictional scheme. The Exchange Act treats challenges to
orders and rules differently. Under section 78y(a), challenges
to orders may be heard directly in the courts of appeals. 15
U.S.C. § 78y(a)(1). Not so for rules. Section 78y(b)(1)
provides that challenges to “rule[s] of the Commission
promulgated pursuant to section 78f, 78i(h)(2), 78k, 78k-1,
78o(c)(5) or (6), 78o-3, 78q, 78q-1, or 78s of this title may”
proceed directly to the relevant court of appeal. Id. §
78y(b)(1). Challenges to rules implementing other sections
must begin in district court. See Am. Petrol. Inst., 714 F.3d at
1332–33.
7
While section 78y(b)(1) speaks of “rule[s] of the
Commission,” Congress recognized that other agencies may
be charged with rulemaking authority under the Exchange
Act. Section 78y(d) provides that “the term ‘Commission’” in
the direct review statute “includes the agencies enumerated in
section 78c(a)(34) of this title insofar as such agencies are
acting pursuant to this chapter.” 15 U.S.C. § 78y(d)(1). The
Board, FDIC, and OCC are among the agencies enumerated
in section 78c(a)(34). See id. § 78c(a)(34)(A). Of those, only
the Board is party to this case. We therefore read subsection
(b)(1)’s reference to “rule[s] of the Commission” to include
the Board, insofar as the Board exercised authority granted by
the Exchange Act. See id. § 78y(b)(1).
Because LSTA challenges a rule, the “operative
provision” is 78y(b)(1). See Am. Petrol. Inst., 714 F.3d at
1333. Under that section, only rules implementing certain
sections of the Exchange Act may proceed directly to the
courts of appeals. Here, the agencies implemented section
78o-11 of the Exchange Act. See 79 Fed. Reg. at 77602.
Section 78o-11 is not listed in section 78y(b)(1), and we treat
the Board as the Commission under subsection (d). Arguably,
the district court—not this court—has jurisdiction to hear this
challenge. See 28 U.S.C. § 1331.
A review of legislative history supports that conclusion.
“As originally enacted in 1934, the Exchange Act contained
only section [78y](a)’s grant of original appellate jurisdiction
to review Commission final orders.” Am. Petrol. Inst., 714
F.3d at 1334. “[T]he omission of rules or regulations . . . was
no mere oversight on the part of Congress.” PBW Stock
Exch., Inc. v. SEC, 485 F.2d 718, 723 (3d Cir. 1973). It
instead reflected “a clear and unequivocal intention to insulate
Commission rules or regulations from review.” Id. at 726.
8
In 1975, Congress changed course, amending the
Exchange Act to provide for direct review of rules—but not
all rules. In what is now codified at 78y(b)(1), Congress
“establish[ed] a statutory review procedure for certain SEC
rules.” S. Rep. No. 94-75, at 36 (1975) (emphasis added).
According to the legislative history of the 1975 amendments,
Congress targeted certain sections of the Act “directly relating
to the operation or regulation of the national market system, a
national clearing system, or the SEC’s oversight of the self-
regulatory organizations.” Id.In keeping with that narrow focus, Congress has only
once added a provision to the list. See Am. Petrol. Inst., 714
F.3d at 1335. In 1990, Congress enacted the Market Reform
Act which, among other things, “prohibited practices
adversely affecting market volatility.” Id. The Act
simultaneously amended section 78y(b)(1) to provide for
direct appellate review of rules implementing that prohibition.
Id.; see Market Reform Act of 1990, Pub. L. No. 101-432,
§ 6, 104 Stat. 963, 975.
By contrast, Congress did not add section 78o-11 to the
list of provisions entitled to direct review. As we concluded
in a similar case involving a section of the Exchange Act
added by the Dodd-Frank Act, that omission “suggests quite
clearly that Congress, for whatever reason, intended
challenges to section [78o-11] regulations to be brought first
in the district court.” Am. Petrol. Inst., 714 F.3d at 1335. In
light of the clarity of the Exchange Act’s direct-review
provision, the presumption in favor of appellate review does
not apply. See id. at 1336 (failing to identify any ambiguity in
the Exchange Act’s direct-review provision). Mindful that
our “jurisdiction under a direct review statute is strictly
limited to the agency action(s) included therein,” we conclude
9
that jurisdiction lies in the district court. See NetCoalition,
715 F.3d at 348.
C
In hopes of slipping that conclusion, the parties claim we
have jurisdiction based on the agencies’ invocation of other
statutes, some of which contain direct-review provisions, in
the “authority, purpose and scope” provisions of the
challenged rule. See 79 Fed. Reg. at 77764–66. We disagree.
In keeping with Congress’s requirement to “jointly”
promulgate the rule, 15 U.S.C. § 78o-11(b)(1), the agencies
developed a single, common rule. Each agency published
identical versions of the rule in its respective section of the
Code of Federal Regulations. As the parties point out, each of
those separate codifications included short appendices that
invoked a number of statutes as authority in addition to
section 78o-11. See 79 Fed. Reg. at 77764–66. Scattershot in
nature, these sections listed other statutes without explaining
their relevance. The Commission’s separate codification, for
instance, purported to rely on two other statutes, citing ten
specific sections. Id. at 77766. Not to be outdone, the Board
invoked five other statutes as sources of authority. See id. at
77764.
Based on these separate invocations, the parties suggest
we have jurisdiction under any of three statutes that provide
for direct review: (1) the Securities Act of 1933 (Securities
Act), 15 U.S.C. § 77 et seq.; (2) the Exchange Act (based on
sections 78o(c)(5) and (6)); (3) and the Bank Holding
Company Act of 1956 (BHCA), 12 U.S.C. § 1841 et seq. We
take each in turn.
10
The Securities Act authorizes direct review of
Commission “order[s]” made under that Act. 2 15 U.S.C. §
77i(a). In addition to the Dodd-Frank Act, the Commission
invoked sections 7, 10, 19(a) and 28 of the Securities Act.
The parties focus on section 7, codified at 15 U.S.C. § 77g(c),
which authorizes the agency to require the disclosure of
information. They suggest that section justifies elements of
the joint rule requiring the disclosure of information
concerning asset-backed securities. See, e.g., 79 Fed. Reg. at
77742 (directing sponsors of asset-backed securities to
provide certain disclosures).
Moving to the Exchange Act, we have established that
the Act’s direct-review provision allows limited review of
rules. The Commission’s separate codification invoked
section 78o of the Exchange Act as an additional source of
authority. Within section 78o, only subsections 78o(c)(5) and
(6) receive direct review. See 15 U.S.C. § 78y(b)(1). Those
particular subsections—neither of which the Commission
specifically invoked—give the Commission certain powers to
regulate broker-dealers. Seizing on the fact that the joint rule
potentially reaches broker-dealers who sponsor asset-backed
securities transactions, the petitioner suggests that these
jurisdictional provisions are in play. See 79 Fed. Reg. at
77611; see Pet. Resp. to Order to Show Cause 12.
2
The instant case, of course, concerns a rule, not an order. While
we need not decide the issue, we note that it is “blackletter
administrative law that, absent countervailing indicia of
congressional intent, statutory provisions for direct review of orders
encompass challenges to rules.” N.Y. Republican State Comm. v.
SEC, 799 F.3d 1126, 1129 (D.C. Cir. 2015); see also Am. Equity
Inv. Life Ins. Co. v. SEC, 613 F.3d 166 (D.C. Cir. 2009) (reviewing
a petition challenging a rulemaking pursuant to the Securities Act
without commenting on jurisdiction).
11
The parties hang most of their hopes, however, on the
BHCA. That statute “vests broad regulatory authority in the
Board over bank holding companies to . . . prevent possible
abuses related to the control of commercial credit.” Bd. of
Governors of Fed. Reserve Sys. v. Dimension Fin. Corp., 474
U.S. 361, 365 (1986) (omitting internal quotation and
citation). Orders and rules made pursuant to the BHCA may
be challenged directly in the courts of appeals. See 12 U.S.C.
§ 1848; see also Inv. Co. Inst. v. Bd. of Governors of Fed.
Reserve Sys., 551 F.2d 1270, 1278 (D.C. Cir. 1977)
(interpreting the term “order” in 12 U.S.C. § 1848 to include
rules). The parties pin jurisdiction on the assumption that the
Board could have imposed on bank holding companies risk
retention obligations similar to those in the joint rule.
None of these statutes changes our conclusion that
jurisdiction rests with the district court. The joint nature of
the rulemaking makes this case unique. Our past cases tended
to involve relatively simple rules issued by a single agency.
In Media Access Project v. FCC, for instance, we considered
a rule implementing a requirement in the Freedom of
Information Reform Act of 1986 (Reform Act) to set fees in
FOIA requests. 883 F.2d 1063, 1064–65 (D.C. Cir. 1989).
Although the Reform Act did not provide for direct review,
we found jurisdiction in the direct-review provision of the
Communications Act, which the rulemaking invoked as
additional authority. See id. at 1066. Even in the absence of
the Reform Act, the expansive grant of authority in the
Communications Act could have justified a rule reforming
FOIA practices. See id.; see also 47 U.S.C.
§ 154(i) (empowering the FCC to “make such rules and
regulations . . . as may be necessary in the execution of its
functions”).
12
Similar reasoning led this court to find appellate
jurisdiction in International Brotherhood of Teamsters v.
Pena. 17 F.3d 1478, 1481–82 (D.C. Cir. 1994). There, the
Federal Highway Administration (FHWA) issued a rule
recognizing the validity of commercial drivers’ licenses
issued by Mexico. See id. The rule relied on two general
grants of statutory authority, only one of which provided for
direct review. See id. Without any reason to doubt that either
statute colorably supported the rule, the “explicit reliance on
both” statutes supported our jurisdiction. See id. at 1482.
In Pena and Media Access Project, the agencies could
colorably rely on broad grants of organic statutory authority.
We confront a different scenario in this case. Congress
instructed the agencies to issue a joint rule—a rule that neither
party suggests the agencies had authority to promulgate on
their own. Indeed, the petitioner concedes that “none of the
individual agencies could have separately passed the entirety
of the rule.” See LSTA v. SEC, Nos. 14-1240, 14-1304, Oral
Argument Tr. 8 (D.C. Cir. Feb. 5, 2016).
Consider, for instance, the Board’s authority. At oral
argument, government counsel admitted that the Board could
“not” have issued an “identical” rule. See LSTA v. SEC, Nos.
14-1240, 14-1304, Oral Argument Tr. 61 (D.C. Cir. Feb. 5,
2016). Instead, we are told that the Board could have issued a
rule requiring bank holding companies to retain risk. Even so,
that rule is not this rule, which was promulgated jointly and
reaches “securitizers” of all kinds, not only banks. See, e.g.,
79 Fed. Reg. at 77608–09 (defining the statutory term
“securitizer” to include, broadly speaking, anyone who
“sponsor[s]” an asset-backed securities transaction). The
same holds for other statutes on which the parties rely.
Whatever their import, the parties do not suggest those
statutes colorably authorized the joint rule before the court.
13
In light of the unique nature of this joint rulemaking, and
the parties’ concession that other statutes did not justify the
final rule, we conclude that the agencies relied on the grant of
authority in section 78o-11 of the Exchange Act. See 79 Fed.
Reg. at 77602 (stating that the agencies “are adopting a joint
final rule . . . to implement the credit risk retention
requirements of section 15G of the Securities Exchange Act
of 1934”). The Exchange Act, in turn, does not permit direct
review of rules implementing section 78o-11. See 15 U.S.C.
§ 78y(b)(1); see id. § 78y(d)(1) (directing courts to treat the
Board as the Commission “insofar as” the Board “act[s]
pursuant to” the Exchange Act).
In the absence of any statute that colorably provides
jurisdiction for direct review of this joint rule, we have no
occasion to apply the doctrine of pendant appellate
jurisdiction. Discretionary in nature, that doctrine permits us
to hear claims over which we otherwise lack jurisdiction that
are “closely related” to claims over which we have
jurisdiction. See Pub. Citizen, Inc. v. NHTSA, 489 F.3d 1279,
1288 (D.C. Cir. 2007); see also Shell Oil Co. v. FERC, 47
F.3d 1186, 1195 (D.C. Cir. 1995) (“[W]here an agency order
arising from a common factual background and addressing a
common question of law relies on two statutory bases that
give rise to separate paths for judicial review, the entire order
should be reviewed . . . in the court of appeals.”). Because
none of the statutes on which the parties rely support
jurisdiction, we have nothing to which pendant jurisdiction
may attach.
In any event, we would decline to exercise pendant
appellate jurisdiction in this case. See Kilburn v. Socialist
People's Libyan Arab Jamahiriya, 376 F.3d 1123, 1136 (D.C.
Cir. 2004) (“[W]hether or not we have authority to exercise
14
pendent appellate jurisdiction in this case, there is no question
that we have discretion to decline to do so.”). Our pendant
jurisdiction must be exercised “‘sparingly’ and ‘only when
substantial considerations of fairness or efficiency demand
it.’” Pub. Citizen, Inc., 489 F.3d at 1288 (quoting Kilburn,
376 F.3d at 1133). “Discretionary considerations of ‘fairness
or efficiency’ do not authorize us, however, to disregard plain
statutory terms assigning a different court initial subject-
matter jurisdiction over a suit.” Id.Consequently, petitioners must proceed in district court.
Because the district court has jurisdiction to review the entire
regulation, our decision poses no risk of denying the parties a
“forum capable of treating the case coherently.” See Int’l
Bhd. of Teamsters, 17 F.3d at 1482.
III
In the end, the simplest explanation is the right one. The
Credit Risk Retention Rule implemented section 78o-11’s
command to craft a joint rule of wide application. For reasons
unknown, Congress failed to include that section among those
entitled to direct review. See 15 U.S.C. § 78y(b)(1). As a
result, we lack jurisdiction.
The simplest solution is not always the most satisfying.
Both parties understandably want finality. With every
passing day, the rule’s compliance deadline of December 24,
2016, marches closer. See 79 Fed. Reg. at 77602. Requiring
the parties to proceed in district court no doubt costs the
parties time and money, and leaves regulated parties in a state
of suspense. Indeed, “sound policy” may well “dictate that
judicial review of these agency actions should proceed
initially in the court of appeals.” Five Flags Pipe Line Co.,
854 F.2d at 1441.
15
But “this court simply is not at liberty to displace, or to
improve upon, the jurisdictional choices of Congress”—“no
matter how compelling the policy reasons for doing so.” Id.
By limiting direct review to certain sections of the Exchange
Act, Congress “knew it would be sending some cases to the
district court that” could be resolved more efficiently at the
appellate level. See Am. Petrol. Inst., 714 F.3d at 1337. As a
court of limited jurisdiction, we must take our cues from
Congress, not from considerations of sound policy. See Five
Flags Pipe Line Co., 854 F.2d at 1441 (“[A]s creatures of
statutes, however, courts can exercise only such power as has
been specifically granted them.”).
Congress has provided a mechanism that mitigates the
disruption and delay occasioned by our decision. Under 28
U.S.C. § 1631, when we find jurisdiction lacking, we may “in
the interest of justice, transfer such action or appeal to any
other such court in which the action or appeal could have
been brought.” In that case, the action “proceed[s] as if it had
been filed in” that court on the date on which it was filed in
this court. 28 U.S.C. § 1631. The petitioner could and should
have brought this action in the district court. See id. § 1331.
Dismissing the petitions, however, would serve no purpose
other than prolonging the litigation.
We therefore transfer the petitions “in the interest of
justice” to the United States District Court for the District of
Columbia. 28 U.S.C. § 1631.
So ordered.