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

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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

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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.

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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.

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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

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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.).

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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

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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

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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,

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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

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interprets 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.

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535, 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.