Hunter v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 7, 2013 Decided March 15, 2013
No. 11-1477
BRIAN HUNTER,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
COMMODITY FUTURES TRADING COMMISSION,
INTERVENOR
On Petition for Review of Orders of
the Federal Energy Regulatory Commission
Michael S. Kim argued the cause for petitioner. With him
on the briefs were Melanie Oxhorn, Leanne A. Bortner, and
Andrew C. Lourie.
Mary T. Connelly, Assistant General Counsel,
Commodity Futures Trading Commission, argued the cause
for intervenor. With her on the briefs were Dan M. Berkowitz,
General Counsel, and Jonathan L. Marcus, Deputy General
Counsel.
Robert H. Solomon, Solicitor, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
2
the brief were Lona T. Perry, Senior Attorney, and Robert M.
Kennedy, Attorney.
Before: HENDERSON and TATEL, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: Pursuant to the Energy Policy Act
of 2005, the Federal Energy Regulatory Commission fined
petitioner $30 million for manipulating natural gas futures
contracts. According to petitioner, FERC lacks authority to
fine him because the Commodity Futures Trading
Commission has exclusive jurisdiction over all transactions
involving commodity futures contracts. Because manipulation
of natural gas futures contracts falls within the CFTC’s
exclusive jurisdiction and because nothing in the Energy
Policy Act clearly and manifestly repeals the CFTC’s
exclusive jurisdiction, we grant the petition for review.
I.
Petitioner Brian Hunter, an employee of the hedge fund
Amaranth, traded natural gas futures contracts on the New
York Mercantile Exchange (NYMEX), a CFTC-regulated
exchange. For those unfamiliar with the complexities of
commodity futures trading, the Second Circuit offers a crisp
explanation:
A commodities futures contract is an executory
contract for the sale of a commodity executed at a
specific point in time with delivery of the commodity
postponed to a future date. Every commodities
futures contract has a seller and a buyer. The seller,
called a “short,” agrees for a price, fixed at the time
of contract, to deliver a specified quantity and grade
3
of an identified commodity at a date in the future.
The buyer, or “long,” agrees to accept delivery at
that future date at the price fixed in the contract. It is
the rare case when buyers and sellers settle their
obligations under futures contracts by actually
delivering the commodity. Rather, they routinely
take a short or long position in order to speculate on
the future price of the commodity.
Strobl v. New York Mercantile Exchange, 768 F.2d 22, 24 (2d
Cir. 1985). This case arises from Hunter’s alleged
manipulation of the “settlement price” for natural gas futures
contracts, which is determined by the volume-weighted
average price of trades during the “settlement period” for
natural gas futures. The settlement price may affect the price
of natural gas for the following month.
According to FERC, Hunter sold a significant number of
natural gas futures contracts during the February, March, and
April 2006 settlement periods. During these settlement
periods, Hunter’s sales ranged from 14.4% to 19.4% of
market volume. Given their volume and timing, Hunter’s
sales reduced the settlement price for natural gas. Hunter’s
portfolio benefited from these sales because he had positioned
his assets in the natural gas market to capitalize on a price
decrease—that is, he shorted the price for natural gas.
Hunter’s trades caught the attention of federal regulators.
On July 25, 2007, the CFTC filed a civil enforcement action
against Hunter, alleging that he violated section 13(a)(2) of
the Commodity Exchange Act by manipulating the price of
natural gas futures contracts. 7 U.S.C. § 13(a)(2). The next
day, FERC filed an administrative enforcement action against
Hunter, alleging that he violated section 4A of the Natural
Gas Act, which prohibits manipulation. 15 U.S.C. § 717c-1.
4
FERC claimed that Hunter’s manipulation of the settlement
price affected the price of natural gas in FERC-regulated
markets. Following a lengthy administrative process, FERC
ruled against Hunter and imposed a $30 million fine.
Hunter now petitions for review. He argues, amongst
other things, that FERC lacks jurisdiction to pursue this
enforcement action. The CFTC has intervened in support of
Hunter on this issue. In refereeing this jurisdictional turf war,
we cannot defer to either agency’s attempt to reconcile its
statute with the other agency’s statute. Because the “premise
of Chevron deference is that Congress has delegated the
administration of a particular statute to an executive branch
agency, . . . we have never deferred where two competing
governmental entities assert conflicting jurisdictional claims.”
Salleh v. Christopher, 85 F.3d 689, 691–92 (D.C. Cir. 1996).
II.
Since enacting the Future Trading Act of 1921, Congress
has regulated futures markets to prevent undue speculation.
See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran,
456 U.S. 353, 360 (1982). After its initial regulatory scheme
was declared unconstitutional, see Hill v. Wallace, 259 U.S.
44 (1922), Congress quickly responded by enacting the Grain
Futures Act of 1922, which the Court upheld, see Board of
Trade of City of Chicago v. Olsen, 262 U.S. 1 (1923). In
1936, Congress yet again revamped the regulation of futures
contracts by enacting the Commodity Exchange Act. The
CEA, however, covered only a fraction of commodity futures
and oversight responsibility was lodged in a commission
composed of the Attorney General and the Secretaries of
Commerce and Agriculture. Congress ended this hodgepodge
regulatory system in 1974 by amending the Commodity
Exchange Act and establishing the CFTC as we know it
today. See Curran, 456 U.S. at 360–65.
5
Most significantly for this case, CEA section 2(a)(1)(A)
provided, at the time of Hunter’s trades, that:
The Commission shall have exclusive jurisdiction
. . . with respect to accounts, agreements (including
any transaction which is of the character of, or is
commonly known to the trade as, an “option”,
“privilege”, “indemnity”, “bid”, “offer”, “put”,
“call”, “advance guaranty”, or “decline guaranty”),
and transactions involving contracts of sale of a
commodity for future delivery, traded or executed on
a contract market designated or derivatives
transaction execution facility registered pursuant to
section 7 or 7a of this title or any other board of
trade, exchange, or market, and transactions subject
to regulation by the Commission . . . . Except as
hereinabove provided, nothing contained in this
section shall (I) supersede or limit the jurisdiction at
any time conferred on the Securities and Exchange
Commission or other regulatory authorities under the
laws of the United States or of any State, or (II)
restrict the Securities and Exchange Commission and
such other authorities from carrying out their duties
and responsibilities in accordance with such laws.
7 U.S.C. § 2(a)(1)(A) (emphases added). Stated simply,
Congress crafted CEA section 2(a)(1)(A) to give the CFTC
exclusive jurisdiction over transactions conducted on futures
markets like the NYMEX.
In response to the California energy crisis, Congress
enacted the Energy Policy Act of 2005, which significantly
expanded FERC’s authority to regulate manipulation in
energy markets. As codified at section 4A of the Natural Gas
Act, the statute makes it
6
unlawful for any entity, directly or indirectly, to use
or employ, in connection with the purchase or sale of
natural gas or the purchase or sale of transportation
services subject to the jurisdiction of the
Commission, any manipulative or deceptive device
or contrivance . . . in contravention of such rules and
regulations as the Commission may prescribe as
necessary in the public interest or for the protection
of natural gas ratepayers.
15 U.S.C. § 717c-1. FERC subsequently promulgated
regulations prohibiting manipulative trading in natural gas.
See Prohibition of Energy Market Manipulation, 71 Fed. Reg.
4244-03 (Jan. 26, 2006) (codified at 18 C.F.R. § 1c.1).
The Energy Policy Act contains only two references to
the CFTC. As codified at section 23 of the Natural Gas Act,
the statute states:
(1) Within 180 days of . . . enactment of this section,
the Commission shall conclude a memorandum of
understanding with the [CFTC] relating to
information sharing, which shall include, among
other things, provisions ensuring that information
requests to markets within the respective jurisdiction
of each agency are properly coordinated to minimize
duplicative information requests, and provisions
regarding the treatment of proprietary trading
information.
(2) Nothing in this section may be construed to limit
or affect the exclusive jurisdiction of the [CFTC]
under the Commodity Exchange Act (7 U.S.C. 1 et
seq.).
7
15 U.S.C. § 717t-2(c). In other words, section 23 requires
FERC and the CFTC to enter into a memorandum of
understanding about information sharing. Section 23 further
provides that it has no effect on the CFTC’s exclusive
jurisdiction.
As we see it, this case reduces to two questions. First,
does CEA section 2(a)(1)(A) encompass manipulation of
natural gas futures contracts? If yes, then we need to answer
the second question: did Congress clearly and manifestly
intend to impliedly repeal CEA section 2(a)(1)(A) when it
enacted the Energy Policy Act of 2005?
A quick glance at the statute’s text answers the first
question. CEA section 2(a)(1)(A) vests the CFTC with
“exclusive jurisdiction . . . with respect to accounts,
agreements[,] . . . and transactions involving contracts of sale
of a commodity for future delivery, traded or executed” on a
CFTC-regulated exchange. 7 U.S.C. § 2(a)(1)(A). Here,
FERC fined Hunter for trading natural gas futures contracts
with the intent to manipulate the price of natural gas in
another market. Hunter’s scheme, therefore, involved
transactions of a commodity futures contract. By CEA section
2(a)(1)(A)’s plain terms, the CFTC has exclusive jurisdiction
over the manipulation of natural gas futures contracts.
Against the statute’s plain text, FERC marshals two
counterarguments. According to FERC, although it and the
CFTC “each have exclusive jurisdiction over the day-to-day
regulation of their respective physical energy and financial
markets, where, as here, there is manipulation in one market
that directly or indirectly affects the other market, both
agencies have an enforcement role.” Respondent’s Br. 21
(internal quotation marks omitted). But FERC’s contention
that the CFTC may exclusively regulate only day-to-day
8
trading activities—not an overarching scheme like
manipulation—finds no support in CEA section 2(a)(1)(A)’s
text. Moreover, as the CFTC points out, “[a]cceptance of
FERC’s jurisdictional test would allow any agency having
authority to prosecute manipulation of the spot price of a
commodity to lawfully exercise jurisdiction with respect to
the trading of futures contracts in that commodity.” CFTC
Reply Br. 3. Such an interpretation would eviscerate the
CFTC’s exclusive jurisdiction over commodity futures
contracts and defeat Congress’s very clear goal of centralizing
oversight of futures contracts. See, e.g., S. Rep. No. 93-1131,
at 6 (1974) (stating that CEA section 2(a)(1)(A) “make[s]
clear that (a) the Commission’s jurisdiction over futures
contract markets or other exchanges is exclusive and includes
the regulation of commodity accounts, commodity trading
agreements, and commodity options; [and] (b) the
Commission’s jurisdiction, where applicable, supersedes
States as well as Federal agencies”). To be sure, CEA section
2(a)(1)(A)’s second sentence preserves the jurisdiction of
other federal agencies, but its first sentence makes clear that
the CFTC’s jurisdiction is exclusive with regards to accounts,
agreements, and transactions involving commodity futures
contracts on CFTC-regulated exchanges. Thus, if a scheme,
such as manipulation, involves buying or selling commodity
futures contracts, CEA section 2(a)(1)(A) vests the CFTC
with jurisdiction to the exclusion of other agencies.
FERC also relies on our decision in FTC v. Ken Roberts
Co., 276 F.3d 583 (D.C. Cir. 2001). There, the FTC
subpoenaed a company for information concerning its
instructional courses about futures market trading. The
company argued that the FTC had no jurisdiction to
investigate instructional courses about futures markets
because only the CFTC could regulate such activities. The
odd procedural posture of the case meant that the subpoena
9
had to be enforced unless the FTC had a “patent lack of
jurisdiction.” Id. at 587 (internal quotation marks omitted).
Concluding that an instructional course about futures trading
did not qualify as a contract, agreement, or transaction on a
commodity futures market, we held that the CFTC lacked
exclusive jurisdiction and the FTC’s subpoena could be
enforced. See id. at 589. According to FERC, Ken Roberts is
significant because it draws a line between what the CFTC
may regulate and what it may regulate exclusively.
As we read Ken Roberts, the decision actually supports
Hunter’s position because it endorses a robust view of the
CFTC’s exclusive jurisdiction. For example, we remarked
that the CFTC “was invested with exclusive jurisdiction over
certain aspects of the futures trading market. The aim of
[CEA section 2(a)(1)(A)], according to one of its chief
sponsors, was to ‘avoid unnecessary, overlapping and
duplicative regulation,’ especially as between the [SEC] and
the new CFTC.” Id. at 588 (quoting 120 Cong. Rec. H34,736
(Oct. 9, 1974)) (citation omitted). “[T]he word
‘transactions,’ ” we further explained, “conveys a reciprocity,
a mutual exchange, which seem[ed] absent from the allegedly
deceptive advertising materials that the FTC [sought] to
investigate.” Id. at 589. By contrast, Hunter’s alleged
manipulation scheme involved transacting in commodity
futures contracts, thus falling on the other side of the Ken
Roberts dividing line. To be clear, there are limits to what
comes within CEA section 2(a)(1)(A)’s orbit, but once a
scheme crosses the statute’s event horizon, the CFTC has
exclusive jurisdiction.
Because any infringement of the CFTC’s exclusive
jurisdiction would effectively repeal CEA section 2(a)(1)(A),
we must next determine whether, as FERC insists, the Energy
Policy Act constitutes a repeal by implication. On this front,
10
FERC carries a heavy burden. As the Supreme Court has
frequently observed, “repeals by implication are not favored.”
Universal Interpretive Shuttle Corp. v. Washington
Metropolitan Area Transit Commission, 393 U.S. 186, 193
(1968). And as we have explained, repeals by implication
“will not be found unless an intent to repeal . . . is clear and
manifest.” Agri Processor Co. v. NLRB, 514 F.3d 1, 4 (D.C.
Cir. 2008) (emphasis added) (internal quotations marks
omitted). Moreover, “courts should not infer that one statute
has partly repealed another ‘unless the later statute expressly
contradicts the original act or unless such a construction is
absolutely necessary.’ ” Id. (quoting National Association of
Home Builders v. Defenders of Wildlife, 551 U.S. 644, 662
(2007)).
FERC argues that the Energy Policy Act of 2005
contemplates complementary jurisdiction between it and the
CFTC. Beginning with section 4A’s text, FERC contends that
it is empowered to prohibit manipulation not only in FERC-
regulated markets but also when the manipulation “coincides
with—i.e., is ‘in connection with,’ ‘directly or indirectly’—
FERC-jurisdictional gas transactions.” Respondent’s Br. 18
(quoting 15 U.S.C. § 717c-1). But section 4A’s text fails to
answer the question whether FERC may intrude upon the
CFTC’s exclusive jurisdiction. More importantly, because
FERC is free to prohibit manipulative trading in markets
outside the CFTC’s exclusive jurisdiction, there is no
“irreconcilable conflict” between the two statutes and
therefore no repeal by implication. Posadas v. National City
Bank, 296 U.S. 497, 503 (1936).
FERC next relies on section 23’s savings clause, which
states that “[n]othing in this section may be construed to limit
or affect the exclusive jurisdiction of the [CFTC] under the
Commodity Exchange Act.” 15 U.S.C. § 717t-2(c)(2). FERC
11interprets this clause as applying only to section 23’s
requirement that it and the CFTC enter into a memorandum of
understanding. In addition to section 23’s text, FERC points
to legislative history indicating that Congress rejected a
universal savings clause that would have applied to the
Energy Policy Act as a whole.
But section 23 is far more ambiguous than FERC admits.
By requiring the two agencies to enter into a memorandum of
understanding to “ensur[e] that information requests to
markets within the respective jurisdiction of each agency are
properly coordinated,” id. § 717t-2(c)(1) (emphasis added),
section 23 indicates that the CFTC and FERC regulate
separate markets. Given this ambiguity, a universal savings
clause may have been unnecessary, especially given the
strong presumption against implied repeals.
We are equally unpersuaded by FERC’s remaining
arguments. It relies on decisions from other courts addressing
the CFTC’s exclusive jurisdiction, but these cases are easily
distinguishable: for example, one involves the interaction
between the CEA’s criminal provisions and FERC’s exclusive
authority over electricity markets, see United States v. Reliant
Energy Services, Inc., 420 F. Supp. 2d 1043, 1062–65 (N.D.
Cal. 2006); another concerns antitrust statutes enacted prior to
the passage of CEA section 2(a)(1)(A), thus reversing the
implied repeal analysis that applies here, see Strobl, 768 F.2d
at 26–28. FERC also relies on out-of-circuit cases involving
the SEC, as well as the memorandum of understanding signed
by the two commissions, but none of these extra-textual
sources tells us anything about Congress’s intent in passing
the Energy Policy Act.
“[A]bsent a clearly expressed congressional intention” to
repeal CEA section 2(a)(1)(A), Morton v. Mancari, 417 U.S.
12535, 551 (1974), FERC cannot demonstrate that section 4A
encroaches upon the CFTC’s exclusive jurisdiction. Having
failed to meet the high bar of showing an implied repeal,
FERC lacks jurisdiction to charge Hunter with manipulation
of natural gas futures contracts.
III.
For the foregoing reasons, we grant the petition for
review.
So ordered.