CFTC v. Schor
478 U.S. 833 (1986)

Annotate this Case

U.S. Supreme Court

CFTC v. Schor, 478 U.S. 833 (1986)

Commodity Futures Trading Commission v. Schor

No. 85-621

Argued April 29, 1986

Decided July 7, 1986*

478 U.S. 833

Syllabus

Section 14 of the Commodity Exchange Act (CEA) provides that any person injured by a commodity broker's violation of the Act or regulations of the Commodity Futures Trading Commission (CFTC) may apply to the CFTC for an order directing the offender to pay reparations to the complainant, and may enforce that order in federal district court. The CFTC promulgated a regulation that allows it in a reparations proceeding to adjudicate counterclaims "aris[ing] out of the transaction or occurrence or series of transactions or occurrences set forth in the complaint." Respondents filed separate reparations complaints (later consolidated) with the CFTC against petitioner commodity futures broker (petitioner) and one of its employees, alleging that a debit balance in their accounts with petitioner, resulting from respondents' futures trading losses and expenses being in excess of the funds deposited in the accounts, was the result of petitioner's violations of the CEA. In the meantime, petitioner filed a diversity action in Federal District Court to recover the debit balance, but, after respondents moved to dismiss on the ground that the reparations proceeding would resolve all rights of the parties, petitioner voluntarily dismissed the action and presented its debit balance claims as counterclaims in the CFTC reparations proceeding. The Administrative Law Judge (ALJ) in that proceeding ruled in petitioner's favor on both respondents' claims and petitioner's counterclaims. Respondents then for the first time challenged the CFTC's statutory authority to adjudicate the counterclaims. The ALJ rejected the challenge, and the CFTC declined to review the decision, allowing it to become final. Respondents filed a petition for review with the Court of Appeals, which upheld the CFTC's decision on respondents' claims in most respects, but ordered dismissal of petitioner's counterclaims on the ground that the CFTC lacked authority to adjudicate common law counterclaims. The court held that, in light of the constitutional problems posed by the CFTC's adjudication of such counterclaims, the CEA should be construed

Page 478 U. S. 834

to authorize the CFTC to adjudicate only counterclaims arising from violations of the CEA or CFTC regulations.

Held:

1. The CEA empowers the CFTC to entertain state law counterclaims in reparations proceedings. 478 U. S. 841-847.

(a) While the Court of Appeals' reading of the CEA permitted it to avoid a potential Article III problem, it did so only by doing violence to the statute, for its distinction between common law counterclaims and counterclaims based on violations of the statute cannot be drawn from the statute's language or history, nor reconciled with the congressional purpose in creating reparations proceedings to promote efficient dispute resolution. Pp. 478 U. S. 841-842.

(b) Section 8(a)(5) of the CEA, which empowers the CFTC to promulgate such regulations as are reasonably necessary "to effectuate any of the provisions or to accomplish any of the purposes of [the CEA]," clearly authorizes a regulation providing for adjudication of common law counterclaims. To require a bifurcated examination of a single dispute would destroy the efficacy of the reparations remedy. Pp. 478 U. S. 842-844.

(c) The CFTC's longstanding interpretation of the statute as empowering it to take jurisdiction over counterclaims such as petitioner's is reasonable, is well within the scope of its delegated authority, and accordingly is entitled to considerable weight, especially where Congress has twice amended the CEA since the CFTC issued its counterclaim regulation without overruling it, and indeed has explicitly affirmed the CFTC's authority to dictate the scope of its counterclaim jurisdiction. Pp. 478 U. S. 844-847.

2. The CFTC's assumption of jurisdiction over common law counterclaims does not violate Article III of the Constitution. Pp. 478 U. S. 847-858.

(a) As a personal right, Article III's guarantee of an impartial and independent adjudication by the federal judiciary is subject to waiver. Here, respondents indisputably waived any right they may have had to the full trial of petitioner's counterclaims before an Article III court by expressly demanding that petitioner proceed with its counterclaims in the reparations proceedings, rather than before the District Court. Even if there were no express waiver, respondents' election to forgo their right to proceed in state or federal court and to seek relief in the CFTC constituted an effective waiver. Pp. 478 U. S. 847-850.

(b) Nor does the CFTC's common law counterclaim jurisdiction contravene the nonwaivable protections Article III affords separation of powers principles. Examination of the congressional scheme in light of a number of factors, including the extent to which the "essential attributes of judicial power" are reserved to Article III courts, and conversely, the extent to which the non-Article III forum exercises the

Page 478 U. S. 835

range of jurisdiction and powers normally vested only in Article III courts, the origins and importance of the right to be adjudicated, and the concerns that drove Congress to depart from the requirements of Article III, yields the conclusion that the limited jurisdiction the CFTC asserts over state law claims as a necessary incident to the adjudication of federal claims willingly submitted by the parties for initial agency adjudication does not impermissibly threaten the institutional integrity of the Judicial Branch. Pp. 478 U. S. 850-856.

(c) Even assuming that principles of federalism are relevant to Article III analysis, those principles do not require invalidation of the CFTC's counterclaim jurisdiction. The fact that petitioner's counterclaims are resolved by a federal, rather than a state, tribunal is not objectionable, because federal courts can, without constitutional hazard, decide such counterclaims under their ancillary jurisdiction. Moreover, respondents have identified no historical support for the argument that Article III embodies a compact among the Framers that all state law claims heard in a federal forum be adjudicated by judges possessing the tenure and salary protections of Article III. Pp. 478 U. S. 856-858.

248 U.S.App.D.C. 155, 770 F.2d 211, reversed and remanded.

O'CONNOR, J., delivered the opinion of the Court, in which BURGER, C.J., and WHITE, BLACKMUN, POWELL, REHNQUIST, and STEVENS, JJ., joined. BRENNAN, J., filed a dissenting opinion, in which MARSHALL, JJ., joined, post, p. 478 U. S. 859.

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Primary Holding

The Commodity Exchange Act permits the CFTC to create regulations governing the adjudication process of common-law counterclaims arising from the same transactions as a reparations complaint.

Facts

The CFTC was an independent agency that had the authority to implement the Commodity Exchange Act, which provides grounds for prosecuting fraudulent and manipulative conduct with regard to commodity futures transactions. The agency was tasked with administering a reparation procedure that allowed customers of professional brokers to seek a remedy for a broker's violations of the Act or the agency's regulations. The CFTC created a regulation under which it could adjudicate counterclaims that arose from the same transaction as the original complaint, although counterclaimants also were allowed to use another forum to seek a remedy against the complainant in the reparations proceeding.

Schor sued his future broker, Conti, in a CFTC proceeding. In Schor's account with Conti, there was a debit balance because his net futures trading losses and expenses were greater than the funds that had been deposited in the account. Schor argued that this debit balance had resulted from Conti's violations of the Act, while Conti brought a counterclaim against Schor in the same administrative proceeding. He argued that the debit balance was merely a debt owed by Schor that had resulted from Schor's trading rather than any violation of the Act. Conti prevailed on all of the claims and counterclaims in the CFTC proceeding. Schor argued on appeal that the CFTC lacked authority to adjudicate Conti's counterclaim against him, but he was unsuccessful. Once the CFTC refused to review that ruling, Schor sought review from a court of appeals. That court ruled that Congress lacked the explicit intention of giving the agency jurisdiction over state common-law counterclaims, and it dismissed Conti's counterclaims.

Opinions

Majority

  • Sandra Day O'Connor (Author)
  • Warren Earl Burger
  • Byron Raymond White
  • Harry Andrew Blackmun
  • Lewis Franklin Powell, Jr.
  • William Hubbs Rehnquist
  • John Paul Stevens

If the approach taken by the court of appeals is used, the dispute may not be resolved completely in the administrative forum. This would result in a court hearing the entire dispute when the broker seeks to recover the debit balance. This is because the broker's customer will be required to abandon the reparations remedy and litigate the full claim in court, either by compulsory counterclaim rules or because of the cost and inconvenience of litigating the same issues in two forums. The purpose of the Commodity Exchange Act would be undermined if this litigation always resulted in a double investigation of the same dispute.

Dissent

  • William Joseph Brennan, Jr. (Author)
  • Thurgood Marshall

Convenience does not provide a sufficient justification for a decision that goes well beyond long-standing doctrines in this area. The Constitution is not designed to promote efficiency at the expense of freedom.

Case Commentary

When determining whether Congress properly assigned the power to adjudicate to a non-judicial entity, courts will balance its reasons for making that decision against the values of Article III of the Constitution. In general, courts will defer to Congress if it acted in a manner that was reasonably related to a valid goal of the statute, and the means can be considered necessary and proper to achieving that goal.

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