Clarke v. CFTR

Case: 22-51124 Document: 00516829997 Page: 1 Date Filed: 07/21/2023
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
____________ FILED
July 21, 2023
No. 22-51124 Lyle W. Cayce
____________ Clerk
Kevin Clarke; Trevor Boeckmann; Harry Crane; Corwin
Smidt; Aristotle International, Incorporated; Predict
It, Incorporated; Michael Beeler; Mark Borghi;
Richard Hanania; James D. Miller; Josiah Neeley;
Grant Schneider; Wes Shepherd,
Plaintiffs—Appellants,
versus
Commodity Futures Trading Commission,
Defendant—Appellee.
______________________________
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:22-CV-909
______________________________
Before Graves, Ho, and Duncan, Circuit Judges.
Stuart Kyle Duncan, Circuit Judge:
The PredictIt Market is an online marketplace that lets people trade
on the predicted outcomes of political events. Essentially, it is a futures
market for politics. In 2014, a division within the Commodity Futures
Trading Commission (“CFTC”) issued PredictIt a “no-action letter,”
effectively allowing it to operate without registering under federal law. But,
in 2022, the division rescinded the no-action letter, accusing PredictIt of
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violating the letter’s terms but without explaining how. It also ordered all
outstanding PredictIt contracts to be closed in fewer than six months.
Various parties who participate in PredictIt (collectively,
“Appellants”) challenged the no-action letter’s rescission in federal district
court and moved for a preliminary injunction. The district court has not ruled
on that motion, though, despite PredictIt’s looming shutdown. Appellants
now seek our review, treating the district court’s inaction as effectively
denying a preliminary injunction. We granted Appellants an injunction
pending our consideration of their appeal.
The CFTC has since raised a host of objections to our even hearing
the appeal, arguing that it is moot, that there has been no final agency action,
that revoking the no-action letter was within the agency’s discretion, and that
Appellants lack standing. These threshold objections are all meritless.
We now conclude that a preliminary injunction was warranted
because the CFTC’s rescission of the no-action letter was likely arbitrary
and capricious. So, we remand for the district court to enter a preliminary
injunction while it considers Appellants’ challenge to the CFTC’s actions.
I. Background
Launched in 2014 by the Victoria University of Wellington in New
Zealand, PredictIt was conceived as a data-gathering tool for academic
researchers. It allows people to make small investments based on predicting
political events, like future elections or the passage of federal legislation.
For instance, in recent markets predicting the 2024 presidential
nominees, Donald Trump “shares” were trading at $0.56, while Ron
DeSantis “shares” were trading at $0.22 (on 47.5 million shares traded). Joe
Biden was outpacing Gavin Newsom by $0.66 to $0.21 (16.4 million shares).
And in trading on whether Alexandria Ocasio-Cortez would run for president
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in 2024, “No” was beating “Yes” $0.97 to $0.03 (361,000 shares). If a
trader accurately predicts an event’s outcome, each of his shares will cash
out at $1.00. 1
Offering these sorts of “event contracts” typically requires
registering as “a designated contract market or swap execution facility”
under the Commodity Exchange Act (“CEA”) and CFTC regulations. See
7 U.S.C. § 7a-2(c)(5)(C)(i); 17 C.F.R. § 40.11. 2 But the CFTC can exempt
certain transactions from the CEA. See 7 U.S.C. § 6(c)(1)–(2). And a
division within the agency, the Division of Market Oversight (“DMO”), can
issue various “letters” concerning the CEA. See 17 C.F.R. § 140.99 (setting
out DMO authority to issue “exemptive, no-action, and interpretative
letters”). Relevant here, a “no-action letter” provides that, as to a proposed
transaction or activity, the DMO “will not recommend enforcement action
to the [CFTC] for failure to comply with a specific provision of the Act or of
a Commission rule, regulation or order.” See id. § 140.99(a)(2). Only the
division that issued the no-action letter is bound by it and “[o]nly the
Beneficiary may rely upon the no-action letter.” Ibid.
In 2014, seeking to operate PredictIt without registering under the
CEA, Victoria University sought a no-action letter. The university proposed
a small-scale, not-for-profit market that would serve as a valuable academic
tool for researchers. This market, the university explained, would abide by
certain limits, such as capping trader investment at $850 and restricting each
event contract to 5,000 total traders.
_____________________
1
See https://www.predictit.org/markets (last visited July 21, 2023).
2
The CEA describes an “event contract” in relevant part as “agreements,
contracts, transactions, or swaps in excluded commodities that are based upon the
occurrence, extent of an occurrence, or contingency.” 7 U.S.C. § 7a-2(c)(5)(C)(i).
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In October 2014, DMO issued Victoria University’s requested no-
action letter. The letter stated that “based upon [Victoria University’s]
representations” to abide by certain terms—such as maintaining nonprofit
status and allowing researchers to access generated data—the DMO would
“not recommend that the Commission take any enforcement action.” The
letter also explained that its position “represent[ed] the views of DMO only,
and d[id] not necessarily represent the positions or views of the
Commission.” And the DMO purported to “retain[] the authority to
condition further, modify, suspend, terminate or otherwise restrict the terms
of the no-action relief . . . in its discretion.”
Nearly eight years later, in August 2022, the DMO rescinded the no-
action letter. The revocation stated that “[t]he University has not operated
its market in compliance with the terms of [the no-action letter]” and that,
therefore, the no-action letter was “hereby withdrawn.” The DMO
provided no explanation about which terms of the letter had been violated.
Instead, the revocation directed that “remaining listed contracts and
positions comprising all associated open interest in such market should be
closed out and/or liquidated no later than 11:59 p.m. eastern on February 15,
2023.”
In September 2022, various parties affiliated with PredictIt
(“Appellants”) sued the CFTC in federal court. 3 They claimed the no-
action letter’s rescission was arbitrary and capricious because it failed to
explain the agency’s decision. See 5 U.S.C. § 706. They also claimed the
revocation constituted a withdrawal of a license without the necessary
procedural steps. See 5 U.S.C. § 558. Appellants moved for a preliminary
_____________________
3
Victoria University is not among those parties. Rather, Appellants consist of
various third parties—including market operators, traders, and academics—who claim to
be negatively impacted by the no-action letter’s rescission.
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injunction. In response, the CFTC moved to dismiss on the grounds that
none of Appellants’ claims was justiciable. In December 2022, a magistrate
judge recommended the case be transferred to Washington, D.C. During this
time, spanning three months, the district court did not rule on the
preliminary injunction motion, even after Appellants moved to expedite its
consideration in light of the looming deadline for closing PredictIt contracts.
Given this inaction, Appellants appealed what they deemed the
effective denial of a preliminary injunction. The CFTC moved to dismiss
the appeal for lack of jurisdiction. A motions panel of our court denied that
motion, citing Carson v. Am. Brands, Inc., 450 U.S. 79 (1981). Under Carson,
a court of appeals may review a district court’s order that, while not explicitly
denying a preliminary injunction, “nonetheless ha[s] the practical effect of
doing so” and might cause irreparable harm absent immediate appeal. Id. at
83; see also, e.g., Thomas ex rel. D.M.T. v. Sch. Bd. of St. Martin Par., 756 F.3d
380, 384 & n.7 (5th Cir. 2014); 28 U.S.C. § 1292(a)(1). The motions panel
carried with the case Appellants’ motion for an injunction pending appeal.
Our panel granted that injunction on January 26, 2023, and heard argument
in February 2023.
Less than a month later, in March 2023, the CFTC withdrew its
August 2022 rescission of the no-action letter. Notwithstanding the
injunction pending appeal, the agency substituted a new letter that
“determined as a preliminary matter that [the no-action letter] is void and
should be withdrawn.” This new letter gave some explanation for rescinding
the no-action letter and gave Victoria University a chance to respond. Given
these developments, the CFTC moved to dismiss this appeal as moot.
Appellants opposed and cross-moved for sanctions, arguing the CFTC had
violated our earlier injunction. On May 1, 2023, we denied both motions. At
the same time, we clarified that CFTC “is ENJOINED from closing the
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PredictIt Market or otherwise prohibiting or deterring the trading of Market
contracts until 60 days after a final judgment in this matter.”
II. Threshold Issues
Before addressing whether a preliminary injunction is warranted, we
consider several threshold issues raised by the CFTC. Those are:
(1) whether the appeal is moot; (2) whether withdrawal of the no-action letter
is “final agency action”; (3) whether that withdrawal is unreviewable
prosecutorial discretion; and (4) whether Appellants have standing.
A. Mootness
The CFTC contends this appeal is moot because the August 2022
rescission of PredictIt’s no-action letter is no longer in effect, having been
replaced by the March 2023 letter. And that new letter, the CFTC argues,
gives Appellants “the full extent of post-remand relief available to [them],”
by providing an explanation for the rescission and a chance for Victoria
University to be heard. Moreover, because the March 2023 letter expresses
only a “preliminary” determination, the CFTC argues there is “nothing
before this Court to review.” In opposition, Appellants invoke the doctrine
of voluntary cessation and also argue that the March 2023 letter remains
procedurally deficient.
The appeal is not moot. Post-filing events do not moot a case “[a]s
long as the parties have a concrete interest, however small, in the outcome of
the litigation.” Knox v. Serv. Emps. Int’l Union, Loc. 1000, 567 U.S. 298, 307
(2012) (citation omitted) (alteration in original). That is true here. The
parties continue to spar over whether PredictIt can operate outside the
CEA’s strictures. Although the DMO has now taken down its August 2022
rescission of the no-action letter, its March 2023 replacement continues to
say the letter “is void and should be withdrawn.” It makes no difference that
the DMO calls this new action “preliminary” and allows Victoria University
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to lodge objections. The fact that Victoria University can try to change the
DMO’s mind does not change the fact that the DMO has declared the no-
action letter “void.” A case is not moot when the government rescinds one
law only to enact a different version that “disadvantages [the plaintiffs] in the
same fundamental way.” Ne. Fla. Chapter of Associated Gen. Contractors of
Am. v. City of Jacksonville, 508 U.S. 656, 662 (1993). 4
Nor is it the true that the March 2023 letter gives Appellants all they
ask for. That letter actually gives nothing to Appellants—it lets Victoria
University object to the no-action letter’s withdrawal but says nothing about
Appellants. And, in any event, Appellants continue to assert that the March
2023 letter, despite giving some explanation for the rescission, falls short of
what the APA requires when an agency changes course. See, e.g., Wages &
White Lion Invs., LLC v. FDA, 16 F.4th 1130, 1139 (5th Cir. 2021) (“When
an agency changes course, . . . it must be cognizant that longstanding policies
may have engendered serious reliance interests that must be taken into
account.” (citation omitted)).
B. Final Agency Action
The CFTC also argues that withdrawal of the no-action letter is
unreviewable because it is neither “agency action” nor “final.” See 5 U.S.C.
_____________________
4
The voluntary cessation doctrine, invoked by Appellants, only underscores why
this appeal is not remotely moot. See, e.g., City of Mesquite v. Aladdin’s Castle, Inc., 455 U.S.
283, 289 (1982) (“[A] defendant’s voluntary cessation of a challenged practice does not
deprive a federal court of its power to determine the legality of the practice.”). If the agency
had stopped the complained-of conduct (say, by simply withdrawing the August 22
rescission and reinstating the no-action letter), the doctrine would have us consider
whether it is “absolutely clear” that the conduct would not recur. Already, LLC v. Nike,
568 U.S. 85, 91 (2013). But exactly the opposite has happened: the agency has persisted in
its conduct by reiterating that the no-action letter is “void.” See, e.g., Opulent Life Church
v. City of Holly Springs, Miss., 697 F.3d 279, 286 (5th Cir. 2012) (“Here, as in Associated
General Contractors, [the defendant] has already repeated its allegedly wrongful conduct.”).
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§ 704 (providing judicial review of “final agency action”). We disagree on
both points.
First, agency action. “Under the APA, ‘agency action’ is a defined
term, limited to an ‘agency rule, order, license, sanction, relief, or the
equivalent or denial thereof, or failure to act.’” Indep. Equip. Dealers Ass’n v.
EPA, 372 F.3d 420, 428 (D.C. Cir. 2004) (quoting 5 U.S.C. § 551(13)). The
parties joust over whether the no-action letter is a “license” under this
definition. Appellants say yes, contending the letter is a “form of
permission” to operate a proposed market. See 5 U.S.C. § 551(8) (defining
“license” as “an agency permit, certificate, approval, registration, charter,
membership, statutory exemption or other form of permission” (emphasis
added)). The CFTC says no, because “[n]othing in the CEA or any
regulation permits staff to license trading facilities” and that the no-action
letter, on its face, granted “no affirmative entitlement to do anything.” We
agree with Appellants.
The no-action letter qualifies as agency action under the APA.
“Agency action” has a broad sweep: the term “is meant to cover
comprehensively every manner in which an agency may exercise its power.”
Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 478 (2001). 5 Here, the whole
point of Victoria University’s requesting the no-action letter was to obtain
permission to operate an unregistered event futures market, and to get that
green light before plunging significant resources into it.
The no-action letter itself characterizes the university as seeking “no-
action relief that would allow Victoria University . . . to operate” the
_____________________
5
See also Abbott Lab’ys v. Gardner, 387 U.S. 136, 140–41 (1967) (explaining that the
APA is meant to “cover a broad spectrum of administrative actions” and so its “generous
review provisions must be given a hospitable interpretation” (citations and internal
quotation marks omitted)); FTC v. Standard Oil Co. of Cal., 449 U.S. 232, 239 n.7 (1980).
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proposed market. Furthermore, the letter details the proposed market, states
that operating it outside the CEA’s strictures would not be “contrary to the
public interest,” and affirmatively “allow[s]” proposed variations from a
different event market. Thus, by the letter’s own terms, the no-action relief
granted is a “form of permission.” See 5 U.S.C. § 551(8).
Courts have previously found that such grants of permission to avoid
compliance with administrative requirements constitute agency action. See,
e.g., Atl. Richfield Co. v. United States, 774 F.2d 1193, 1200 (D.C. Cir. 1985)
(discussing one such “temporary license”); Gallagher & Ascher Co. v. Simon,
687 F.2d 1067, 1072–76 (7th Cir. 1982) (reviewing withdrawal of a special
permit exempting customs brokers from ordinary requirements). Therefore,
because the no-action letter here is a “license” within the meaning of the
APA, its withdrawal constitutes agency action. Cf. 5 U.S.C. § 558(c)
(providing procedural protections for license revocations).
Next, finality. Agency action is final when it meets two requirements:
“(A) the action must mark the consummation of the agency’s
decisionmaking process—it must not be of a merely tentative or interlocutory
nature;” and “(B) the action must be one by which rights or obligations have
been determined, or from which legal consequences will flow.” Data Mktg.
P’ship v. U.S. Dep’t of Lab., 45 F.4th 846, 853 (5th Cir. 2022) (citations and
internal quotation marks omitted); see generally Bennett v. Spear, 520 U.S.
154, 177–78 (1997). “This is generally a ‘pragmatic’ inquiry.” Data Mktg., 45
F.4th at 853 (quoting U.S. Army Corps of Eng’rs v. Hawkes Co., 578 U.S. 590,
599 (2016)). And it is a pragmatic inquiry colored by the APA’s embodiment
of the “basic presumption of judicial review.” Abbott Lab’ys, 387 U.S. at 140.
The CFTC argues that neither finality prong is met. Granting or
revoking no-action relief, it claims, does not “consummate” the agency’s
decisional process because it is interlocutory—meaning, it pertains only to
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whether DMO staff will recommend enforcement action to the CFTC. Nor
does the letter’s withdrawal trigger any legal consequences. The agency
assures us that PredictIt “is free to continue unabated with or without any
staff no-action relief,” and that the CFTC can commence enforcement
“with or without a staff no-action letter.” Countering this, Appellants argue
that the no-action letter’s withdrawal is final because it is unappealable and
subjects impacted parties to enforcement proceedings. We again agree with
Appellants and find that both finality prongs are met.
As to the “consummation” prong, the key question is whether
withdrawal of the no-action letter is “subject to further agency review.” Data
Mktg., 45 F.4th at 854 (quoting Sackett v. EPA, 566 U.S. 120, 127 (2012)); see
also Louisiana v. U.S. Army Corps of Eng’rs, 834 F.3d 574, 581 (5th Cir. 2016)
(same). It is not: the DMO’s decision to issue or withdraw the letter is
unappealable. So, it does not matter that the letter pertains only to the staff’s
recommendation to the agency. Once the staff decide to issue or withdraw
the letter, there is no further appeal within the agency. Illustrating that
reality, CFTC regulations state that a beneficiary “may rely” on the
DMO’s issuing a no-action letter. 17 C.F.R. § 140.99(a)(2).
As to the “legal consequences” prong, once more our recent decision
in Data Marketing is instructive. As we explained, it is “well-established that
‘where agency action withdraws an entity’s previously held discretion, that
action alters the legal regime, binds the entity, and thus qualifies as final
agency action.’” Data Mktg., 45 F.4th at 854 (quoting Texas v. EEOC, 933
F.3d 433, 442 (5th Cir. 2019)). That condition was satisfied in Data
Marketing because the relevant regulation stated that requestors may “rely”
on an advisory opinion. Ibid. This reliance “bound the Department to some
degree and withdrew its previously held discretion.” Ibid. The same can be
said about PredictIt’s no-action letter: it withdrew some of the CFTC’s
discretion because regulations state a beneficiary “may rely” on it. 17 C.F.R
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§ 140.99(a)(2). Thus, for the same reasons as in Data Marketing, legal
consequences flowed from the 2014 no-action letter issued by the DMO. 6
None of this is changed by the fact that the DMO has now issued its
March 2023 letter. Like the August 2022 letter it supersedes, the March 2023
letter cancels PredictIt’s no-action relief. It states: “As a result of the
University’s non-compliance with the terms of [no-action letter], DMO has
determined as a preliminary matter that [no-action letter] is void and should
be withdrawn.” True, the letter purports to make that decision “as a
preliminary matter,” and it “invite[s] the University to submit any
objections it may have” by March 20, 2023. But the letter does not promise
to reconsider its decision that the no-action letter “is void and should be
withdrawn.”
But, again, the possibility that the DMO may reconsider is irrelevant
to our inquiry. “[T]he mere fact that the agency could—or actually does—
reverse course in the future does not change” an action’s finality. Data
Mktg., 45 F.4th at 854 (citing Biden v. Texas, 142 S. Ct. 2528, 2545 (2022)).
The March 2023 letter does not say the DMO is merely considering
withdrawing no-action relief; it accuses the university of violating the no-
action letter’s term in numerous ways and declares the letter “void.” This
forces Appellants “either to alter [their] conduct, or to expose [themselves]
_____________________
6
The CFTC observes, and the dissent stresses, that a no-action letter “represents
the position only of the Division that issued it” and “binds only the issuing Division . . .
and not the Commission or other Commission staff.” 17 C.F.R. § 140.99(a)(2); see post at
2. That does not change our analysis. That same regulation explains that a beneficiary “may
rely upon the no-action letter.” Ibid. This, once more, suggests that the CFTC has
withdrawn its discretion to bring enforcement proceedings against the holder of a no-action
letter, which undermines the contention that the CFTC is in no way bound through no-
action letters.
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to potential liability.” Texas v. EEOC, 933 F.3d at 446 (quoting Texas v.
EEOC, 827 F.3d 372, 383 (5th Cir. 2016)).
For these reasons, the DMO’s withdrawal of no-action relief
constitutes final agency action.
C. Committed to Agency Discretion
The CFTC briefly argues that withdrawing no-action relief is
unreviewable as “committed to agency discretion by law.” See 5 U.S.C.
§ 701(a)(2). It contends that no-action letters are like agency decisions not to
prosecute or enforce and, as such, are the “classic illustration of a decision
committed to agency discretion.” Bd. of Trade of Chi. v. SEC, 883 F.2d 525,
530 (7th Cir. 1989); see generally Heckler v. Chaney, 470 U.S. 821, 831–32
(1985) (discussing why agency decisions to refuse enforcement are generally
unsuitable for judicial review). We disagree.
This case does not challenge an agency’s discretionary decision to
enforce (or not enforce) the law. What is challenged, rather, is the withdrawal
of a regulatory instrument (the no-action letter) that ensured the DMO
would not recommend that the agency enforce the CEA against PredictIt.
And, as we have pointed out, the agency’s own regulations allow beneficiaries
to rely on such letters. See 17 C.F.R. § 140.99(a)(2). The cases the CFTC
cites involve the distinct scenario where third parties try to compel an agency
to enforce penalties against recipients of no-action letters. Cf. Chicago Bd. of
Trade, 883 F.2d at 530 (a challenge to the issuance of a no-action letter is
unreviewable as committed to agency discretion). Those cases might apply if
we had some third party challenging PredictIt’s no-action letter, arguing the
DMO should never have issued it. This case is different: the no-action letter
has been rescinded, and the affected parties claim the agency failed to do so
properly.
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We thus conclude that the decision to rescind a no-action letter is not
“committed to agency discretion by law.”
D. Standing
The CFTC also argues that Victoria University’s absence spoils
Appellants’ standing. “An individual has standing to sue if his injury is
traceable to the defendant and a ruling would likely redress it.” Tex. State
LULAC v. Elfant, 52 F.4th 248, 253 (5th Cir. 2022) (citations omitted). In
other words: (1) injury, (2) traceability, and (3) redressability. See Lujan v.
Defs. of Wildlife, 504 U.S. 555, 560–61 (1992); U.S. Const. art. III, § 2.
Appellants say they satisfy each prong. We agree.
Appellants—market operators, traders, and academics claiming to be
impacted by the no-action letter’s rescission—easily satisfy the standing
requirements. At this stage, they have shown numerous injuries stemming
from the letter’s withdrawal and the resulting impact on the PredictIt
Market. Academics will lose a research tool that was PredictIt’s raison d’être.
Traders will lose value in compromised contracts. And PredictIt’s service
providers will incur costs from having to prematurely shut down operations.
Indeed, Appellants have shown that financial harm was already ongoing
before this court issued a stay pending appeal, with “the CFTC’s
prohibition on new markets and the impending shutdown order” causing
market distortions and “a significant withdrawal of funds.”
These injuries, moreover, are directly traceable to the no-action
letter’s withdrawal. Operation of the PredictIt market depended on the 2014
no-action relief; withdrawing it would obviously imperil the market, resulting
in harms to Appellants. Finally, a favorable ruling would redress these
injuries by allowing trading to continue on the same terms as before while the
district court adjudicates Appellants’ challenge to the CFTC’s action.
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The CFTC resists these conclusions. It argues that because “[o]nly
the Beneficiary may rely on the no-action letter,” 17 C.F.R. § 140.99(a)(2),
only a no-action letter’s beneficiary (here, Victoria University) would have
standing to sue. It also observes that all of Appellants’ alleged injuries
“reflect[] a downstream harm flowing directly from Victoria University’s
hypothetical decision to continue or cease operating PredictIt.” It cites
National Wrestling Coaches Ass’n v. Department of Education, 366 F.3d 930(D.C. Cir. 2004), where several interested parties in the collegiate men’s
wrestling world (though not the universities and colleges themselves)
challenged a policy interpretation of Title IX. Id. at 934–36. The D.C. Circuit
found that the plaintiffs lacked standing because they failed to establish
causation and redressability: it was unclear that the third-party colleges
would eliminate their men’s wrestling programs in response to the Title IX
guidance’s being enjoined. Id. at 938–45. According to the CFTC, that same
deficiency is present here because Victoria University may choose to operate
or close PredictIt independent of any no-action letter.
These counterarguments miss the mark. Whatever CFTC
regulations might say, the APA permits suit by anyone “adversely affected
or aggrieved by agency action.” 5 U.S.C. § 702. Appellants fall into that
category. And National Wrestling is distinguishable. In that case, the court
reasoned that even if the challenged policy was enjoined, “Title IX and the
1975 Regulations would still be in place,” serving as an independent
obligation for federally funded schools to equally accommodate both genders
in athletics. Nat’l Wrestling, 366 F.3d at 939–40. Thus, the third-party
schools would not necessarily behave any differently than they otherwise
would. Id. at 940. Here, by contrast, enjoining the withdrawal of no-action
relief would reinstate the 2014 no-action letter, permitting PredictIt to
continue operating as before. And there would be no independent obligations
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to register with the CFTC because of the promise that Victoria University
“may rely” on its no-action relief. 17 C.F.R. § 140.99(a)(2).
In sum, Appellants have standing.
III. Preliminary Injunction
We now turn to whether the district court abused its discretion by
denying a preliminary injunction. See Moore v. Brown, 868 F.3d 398, 402 (5th
Cir. 2017) (per curiam). To obtain a preliminary injunction, Appellants must
show: (1) a substantial likelihood of success on the merits, (2) a substantial
threat of irreparable harm if the injunction does not issue, (3) that the
threatened injury outweighs any harm that will result if the injunction is
granted, and (4) that granting the injunction is in the public interest. Id. at
402–03.
A. Substantial Likelihood of Success
We first ask whether Appellants are substantially likely to show that
the no-action letter’s revocation was arbitrary and capricious. “The APA’s
arbitrary-and-capricious standard requires that agency action be reasonable
and reasonably explained.” Data Mktg., 45 F.4th at 855 (quoting FCC v.
Prometheus Radio Project, 141 S. Ct. 1150, 1158 (2021)). The court can only
consider the reasoning “articulated by the agency itself,” and cannot
consider “post hoc rationalizations for agency action.” Motor Vehicle Mfrs.
Ass’n of U.S., Inc. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 50 (1983).
“[W]e must set aside any action premised on reasoning that fails to account
for ‘relevant factors’ or evinces ‘a clear error of judgment.’” Data Mktg., 45
F.4th at 855 (quoting Univ. of Tex. M.D. Anderson Cancer Ctr. v. HHS, 985
F.3d 472, 475 (5th Cir. 2021)).
The August 2022 revocation fails these standards for the obvious
reason that it gives no explanation whatsoever. Instead of “reasonably
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No. 22-51124
explain[ing]” the withdrawal, ibid., the DMO delivered this terse missive:
“The University has not operated its market in compliance with the terms of
[the no-action letter].” Not a word discloses which terms were violated or
what evidence supports the charge. Nor is any reason given why PredictIt
must swiftly close all contracts by a certain date or why the agency rejected
less draconian measures, given the significant reliance interests in play. See,
e.g., Nat’l Shooting Sports Found., Inc. v. Jones, 716 F.3d 200, 215 (D.C. Cir.
2013) (agency action is not upheld if it fails to consider “significant and viable
and obvious alternatives” (cleaned up)). This is the epitome of arbitrary and
capricious action. See Sprint Nextel Corp. v. FCC, 508 F.3d 1129, 1132 (D.C.
Cir. 2007) (“We . . . require more than a result; we need the agency’s
reasoning for that result.” (emphasis added)).
Less than a month after oral argument, the agency tried to fix these
glaring defects by issuing the March 2023 letter. As noted, this letter purports
to “supersede” the August 2022 rescission while reaffirming the agency’s
decision that the no-action letter “is void and should be withdrawn.” It also
provides some explanation for withdrawing the no-action letter, such as the
charge that Victoria University violated the letter’s terms by allowing a for-
profit company (Aristotle, Inc.) to operate PredictIt. We have already
explained why the March 2023 letter does not moot this appeal. See supra
II(A).
The March 2023 letter should also have no bearing on whether the
withdrawal of the no-action letter is arbitrary and capricious. That is because
the letter violates the injunction pending appeal our panel previously entered.
Appellants had asked us to “enjoin the enforcement of the Commission’s
February 15, 2023, liquidation mandate and allow the PredictIt Market event
contracts that were offered as of the date of the agency’s decision . . . to
continue trading pending resolution of this appeal.” We granted that
requested injunction on January 26, 2023.
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The March 2023 letter violates that injunction by purporting to
withdraw no-action relief, thereby subjecting PredictIt—and all of its existing
contracts—to regulation. Although we exercised our discretion to deny
Appellants’ sanctions motion, we will not allow the enjoined agency to game
the system by retrofitting its previous rescission with “reasons” after oral
argument. See Texas v. Biden, 10 F.4th 538, 558–59 (5th Cir. 2021) (“It is a
fundamental precept of administrative law that an administrative agency
cannot make its decision first and explain it later.”).
But even if we were to consider the March 2023 letter, we would still
find serious problems with its reasons for voiding the no-action letter. To
begin with, we have concluded that the no-action letter qualifies as a
“license” under the APA. See supra II(B). The March 2023 letter, however,
does not purport to follow the procedural requirements for withdrawing a
license. See 5 U.S.C. § 558(c). The agency only provided Victoria University
with an opportunity to respond to objections. It offered no opportunity for
Victoria University “to demonstrate or achieve compliance” with the
requirements that were purportedly violated. Id. § 558(c)(2). The withdrawal
of no-action relief is therefore procedurally deficient on that basis alone.
Aside from that defect, there are other evident flaws in the March
2023 letter’s substance. For instance, the letter does not meaningfully
explain why the DMO rejected alternatives like allowing currently existing
markets to expire on their own terms. It says only that such alternatives
would not “be appropriate,” given the likelihood of recurrence due to past
violations. But the letter does not explain why past violations suggest a
likelihood of recurrence in the future. This is hardly the “reasoned
decisionmaking” required of administrative agencies. Michigan v. EPA, 576
U.S. 743, 750 (2015) (quoting Allentown Mack Sales & Serv., Inc. v. NLRB,
522 U.S. 359, 374 (1988)).
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Nor does the DMO justify its conclusion that monitoring future
compliance would require an “unreasonable use of taxpayer resources.” It
says nothing about the magnitude of the resources required and does not
explain why they would not be justified given longstanding reliance interests.
See Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 221–22 (2016) (“[A]n
agency must also be cognizant that longstanding policies may have
‘engendered serious reliance interests that must be taken into account.’”
(quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)));
Michigan, 576 U.S. at 750–51 (requiring consideration of both sides of the
cost-benefit ledger).
Finally, the letter engages in obvious post hoc rationalization. It tries to
partially justify the agency’s charge that Victoria University “ceded
operational control” of PredictIt to a for-profit company by referring to
remarks made by the company’s counsel at oral argument. That is verboten.
What counsel said at argument cannot justify actions the agency took months
if not years before. See DHS v. Regents of the Univ. of Cal., 140 S. Ct. 1891,
1907 (2020) (“It is a ‘foundational principle of administrative law’ that
judicial review of agency action is limited to ‘the grounds that the agency
invoked when it took the action.’” (quoting Michigan, 576 U.S. at 758)); see
also SEC v. Chenery Corp., 318 U.S. 80, 95 (1943) (“[A]n administrative order
cannot be upheld unless the grounds upon which the agency acted in
exercising its powers were those upon which its action can be sustained.”).
In sum, we conclude that the revocation of the no-action letter was
likely arbitrary and capricious because the agency gave no reasons for it. And
the agency’s attempts to retroactively justify the revocation after oral
argument—and in the face of our injunction—only underscore why
Appellants are likely to prevail.
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B. Irreparable Injury
We now turn to irreparable injury. Appellants have alleged a number
of harms they will suffer absent a preliminary injunction. First, investors and
traders will not be able to see their contracts through and realize any gains
from having predicted events correctly. Even if they wanted to cash out now,
the prices for those contracts would be distorted due to the market
disruptions that the no-action letter’s rescission engendered. Second, as
traders have attempted to salvage their investments due to a looming and
impending shutdown order, academics have had their research compromised
by the trading irregularities that corrupted the integrity of their data. Finally,
PredictIt’s operators have been saddled with heavy compliance costs given
the market’s closure.
As it did in the standing context, the CFTC claims that all of these
harms are inherently speculative. It asserts that any possible injuries could be
undone through monetary remedies. And, although the United States would
enjoy sovereign immunity, Appellants could sue the market operators. See
Dennis Melancon, Inc. v. City of New Orleans, 703 F.3d 262, 279 (5th Cir. 2012)
(“The possibility that adequate compensatory or other corrective relief will
be available at a later date . . . [weighs] heavily against a claim of irreparable
harm” (quoting Morgan v. Fletcher, 518 F.3d 236, 240 (5th Cir. 1975))).
We disagree and conclude that Appellants are likely to suffer
irreparable harm. As noted, Appellants have shown they were already
undergoing harm before we issued the stay pending appeal. Some of these
harms, such as the academic value of accurate data, would be difficult to
restore with monetary damages. And to the extent some of these harms are
economic, the United States cannot be sued due to its sovereign immunity.
See Wages & White Lion Invs., 16 F.4th at 1142 (“[C]omplying with an agency
order later held invalid almost always produces the irreparable harm of
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nonrecoverable compliance costs . . . because federal agencies generally enjoy
sovereign immunity for any monetary damages.” (cleaned up, quotation
omitted)). To the extent the CFTC argues that the market operators could
always be sued, that argument neglects the simple fact that at least some of
those operators are themselves parties to this lawsuit.
We therefore conclude that Appellants have established a substantial
likelihood of suffering irreparable harm absent a preliminary injunction.
C. Balance of the Equities and the Public Interest
Finally, we consider the remaining preliminary injunction factors: the
balance of the equities and the public interest. These factors “merge when
the Government is the opposing party.” Nken v. Holder, 556 U.S. 418, 435
(2009). When addressing these factors, “courts ‘must balance the competing
claims of injury and must consider the effect on each party of the granting or
withholding of the requested relief.’” Winter v. NRDC, 555 U.S. 7, 24 (2008)
(quoting Amoco Prod. Co. v. Village of Gambell, 480 U.S. 531, 542 (1987)).
These factors weigh in favor of granting an injunction. On Appellants’
side, the harms include all those just discussed: investor losses, corrupted
academic data due to market distortions, and heavy compliance costs on
market operators. Moreover, “[t]he public interest is served when
administrative agencies comply with their obligations under the APA.”
Northern Mariana Islands v. United States, 686 F. Supp. 2d. 7, 21 (D.D.C.
2009).
As for the other side of the ledger, the CFTC points to the systemic
harms that would arise by permitting litigation on informal no-action letters.
It argues that requiring full-dress APA litigation on these sorts of informal
letters would discourage the practice of giving them in the first place, and
result in “a net loss of far greater proportions to the average citizen than any
possible gain which would accrue.” Taylor-Callahan-Coleman Cntys. Dist.
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Adult Prob. Dep’t v. Dole, 948 F.2d 953, 959 (5th Cir. 1991) (citation omitted).
While mindful of that possibility, that sort of a high-level, systemic
consideration cuts both ways: agency decisionmaking is legitimated in part by
the agency’s providing adequate reasons. Especially where, as here,
longstanding policies have engendered serious reliance interests, agencies
must take those considerations into account before abruptly changing course.
See Encino Motorcars, 579 U.S. at 221–22.
Accordingly, we conclude that the balance of the equities and the
public interest weigh in favor of granting a preliminary injunction
IV. Conclusion
We REVERSE the district court’s effective denial of a preliminary
injunction and REMAND with instructions that the district court enter a
preliminary injunction pending its consideration of Appellants’ claims.
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James C. Ho, Circuit Judge, concurring:
Plaintiffs’ theory of final agency action admittedly conflicts with the
precedents of our sister circuits. To my knowledge, no circuit has held that
a no-action letter or its withdrawal is sufficient to constitute “final agency
action” under the Administrative Procedure Act. And some have held the
opposite. See, e.g., New York City Employees’ Retirement System v. SEC, 45
F.3d 7, 12 (2nd Cir. 1995) (“No-action letters . . . do not impose or fix a legal
relationship upon any of the parties.”); Trinity Wall Street v. Wal-Mart
Stores, Inc., 792 F.3d 323, 331 (3rd Cir. 2015) (“[N]o-action letters are not
binding—they reflect only informal views of the staff and are not decisions
on the merits.”); Bd. of Trade of City of Chicago v. SEC, 883 F.2d 525, 531 (7th
Cir. 1989) (“The petition for review of the no-action letter . . . is dismissed
for want of a reviewable order.”). Cf. Paul v. Petroleum Equipment Tools Co.,
708 F.2d 168, 174 n.5 (5th Cir. 1983) (“[T]his ‘no action’ position is not
equivalent to an exemption.”).
That said, we need not reach a definitive conclusion on this issue at
this time. As detailed in the majority opinion, the issues presented in this
case are sufficiently close that Plaintiffs have demonstrated a substantial
likelihood of success, and satisfied the remaining elements required for a
preliminary injunction as well.
“The purpose of a preliminary injunction is merely to preserve the
relative positions of the parties until a trial on the merits can be held.” Univ.
of Tex. v. Camenisch, 451 U.S. 390, 395 (1981). “[F]indings of fact and
conclusions of law made by a court granting a preliminary injunction are not
binding at trial on the merits.” Id. See also Feds for Medical Freedom v. Biden,
63 F.4th 366, 389 (5th Cir. 2023) (“We hasten to emphasize that this case
only involves a preliminary injunction.”).
Accordingly, I concur.
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James E. Graves, Jr., Circuit Judge, dissenting:
Although I agree that this case is not moot, I would not issue a
preliminary injunction in this case. As reiterated by this court on numerous
occasions, the issuance of a preliminary injunction is an exceptional remedy
that should be granted only when the moving party has clearly shown that
they can meet all four requirements. See, e.g., Guy Carpenter & Co. v.
Provenzale, 334 F.3d 459, 464 (5th Cir. 2003) (“A preliminary injunction is
an extraordinary remedy which courts grant only if the movant has clearly
carried the burden as to all four elements.”); Allied Marketing Group., Inc. v.
CDL Marketing, Inc., 878 F.2d 806, 809 (5th Cir. 1989) (stating that
preliminary injunctive relief “is an extraordinary remedy and should be
granted only if the movant has clearly carried the burden of persuasion with
respect to all four factors”). We do not grant such relief unless we find: (1) a
substantial likelihood of success on the merits; (2) a substantial threat of
irreparable injury; (3) the threatened injury to the movant outweighs the
threatened harm to the party sought to be enjoined; and (4) granting the
injunctive relief will not disserve the public interest. City of Dallas v. Delta
Air Lines, Inc., 847 F.3d 279, 285 (5th Cir. 2017).
I am not convinced that Appellants have satisfied this high burden. In
my view, Appellants have failed to demonstrate a substantial likelihood that
they will prevail on the merits, as there is no final agency action in this case.
For agency action to be “final,” two conditions must be met: (1) “the action
must mark the ‘consummation’ of the agency’s decisionmaking process”;
and (2) “the action must be one by which ‘rights or obligations have been
determined,’ or from which ‘legal consequences will flow.’” Bennett v.
Spear, 520 U.S. 154, 177–78 (1997) (citations omitted). CFTC’s no-action
letters fail to satisfy either condition: they neither mark the consummation of
the agency’s decisionmaking process nor determine Appellants’ legal rights
or obligations.
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CFTC rule 140.99 outlines the procedure for requesting Commission
staff letters. See 17 C.F.R. § 140.99. The rule, among other things, requires
that the request must be made by or on behalf of the person subject to the
request, must relate to a proposed transaction or activity, and must set forth
as completely as possible all material facts and circumstances. See id.§ 140.99(b). When the CFTC staff reviews a request, the rule makes clear
that the “[i]ssuance of a [l]etter is entirely within the discretion of
Commission staff.” Id. § 140.99(b)(1). Rule 140.99 further explains that no-
action letters are “a written statement” that the issuing staff, here DMO,
“will not recommend enforcement action to the Commission,” and that such
a statement “binds only the issuing Division . . . and not the Commission.”
Id. § 140.99(a)(2). Thus, no-action letters are informal and advisory,
inherently staff-level statements about whether the issuing staff might (or
might not) recommend to the CFTC that the Commission, at the
Commission’s sole discretion, vote to authorize civil proceedings against a
non-compliant entity. Accordingly, these letters plainly do not mark the
consummation of the agency’s decisionmaking. Nor do the letters represent a
decision determining rights or obligations, or one from which legal
consequences flow as it does not commit the CFTC to taking enforcement
action.
Despite this, the majority concludes that the 2014 no-action letter
effectively constituted a “license.” See ante at 9. Under the APA, a “license”
is defined as “an agency permit, certificate, approval, registration, charter,
membership, statutory exemption or other form of permission.” 5 U.S.C.
§ 551(8). With such a sweeping definition at hand, the majority concludes
that “by the letter’s own terms, the no-action relief granted is a form of
permission.” See ante at 9 (internal quotation marks omitted). I remain
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unconvinced by this argument, as the word “permission” is commonly
understood as a formal authorization. 1
What happened here is in stark contrast to the concept of explicit
consent. On its face, the no-action letter does not grant Appellants the right
to do anything. Instead, the letter simply expresses DMO’s intention to “not
recommend that the Commission take any enforcement action in connection
with the operation of [the] proposed market.” The DMO’s decision was
contingent upon information furnished by Appellants and was subject to
certain conditions. The letter explicitly states that any alterations, omissions,
or discrepancies in the facts or circumstances may render the granted no-
action relief null and void. Thus, to maintain that the absence of a
recommendation to prosecute equates to formal consent stretches the
bounds of credulity. See Paul v. Petroleum Equip. Tools Co., 708 F.2d 168, 174
n.5 (5th Cir. 1983) (observing that a “no-action” letter “is not equivalent to
an exemption”) (Higginbotham, J.).
I have not come across any instance where a court has ruled that a
“no-action letter” constitutes a final action taken by the agency. Tellingly,
the majority cites no such case. Contrarily, no-action letters have been
regularly found to be non-binding and devoid of legal authority, precluding
their review. See, e.g., Trinity Wall St. v. Wal-Mart Stores, Inc., 792 F.3d 323,
331 (3d Cir. 2015) (recognizing that “no-action letters are not binding—they
reflect only informal views of the staff and are not decisions on the merits”);
Board of Trade of City of Chicago v. SEC, 883 F.2d 525, 530 (7th Cir. 1989)
_____________________
1
Permission, Dictionary.com, http://www.dictionary.com/browse/permission
(last visited June 9, 2023) (first definition) (“Permission” is defined as “authorization
granted to do something; formal consent”); Permission, Merriam-Webster.com,
merriamwebster.com/dictionary/permission (last visited June 9, 2023) (second definition)
(“Permission” is defined as “formal consent: AUTHORIZATION”).
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(concluding that SEC no-action letters are not reviewable because they do
not constitute a “final” decision concerning the status of the parties); New
York City Emps.’ Ret. Sys. v. SEC, 45 F.3d 7, 12 (2d Cir. 1995) (“No-action
letters are deemed interpretive because they do not impose or fix a legal
relationship upon any of the parties.”). Because I am not persuaded that we
should be the first court to draw the conclusion that a “no-action letter”
constitutes “final agency action,” I respectfully dissent.
26