Amicus Curiae Brief — Monex Deposit Company, et al., Petitioners v. Commodity Futures Trading Commission

Supreme Court briefFeb 19, 2020

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No. 19-933

In the

Supreme Court of the United States

♦

MONEX DEPOSIT COMPANY, ET AL.,

Petitioners,

COMMODITY FUTURES TRADING COMMISSION,

Respondent.

♦

On Petition For Writ Of Certiorari To The

United States Court Of Appeals

For The Ninth Circuit

♦

AMICUS CURIAE BRIEF OF

MOUNTAIN STATES LEGAL FOUNDATION

IN SUPPORT OF PETITIONERS

♦

Ronald W. Opsahl

Counsel of Record

David C. McDonald

Mountain States Legal Foundation

2596 South Lewis Way

Lakewood, Colorado 80227

(303) 292-2021

ropsahl@mslegal.org

dmcdonald@mslegal.org

Counsel for Amicus Curiae

February 19, 2020

QUESTION PRESENTED

This brief will address the second question

presented in the Petition for Writ of Certiorari:

Whether

CFTC

violated

fundamental

principles of due process when it abruptly

reversed its 30-year position that petitioners’

business model was not subject to CFTC’s

regulatory authority and retroactively applied

its new and incorrect position in this $290

million enforcement action.

TABLE OF CONTENTS

Page

QUESTION PRESENTED ................................

TABLE OF AUTHORITIES ..............................

IDENTITY AND INTEREST

OF AMICUS CURIAE .......................................

INTRODUCTION AND

SUMMARY OF ARGUMENT............................

ARGUMENT ......................................................

REASONS FOR GRANTING THE

PETITION ..........................................................

I. CFTC’S REVERSAL OF ITS LONGHELD AND PUBLICLY-AFFIRMED

INTERPRETATION OF THE TERM

“ACTUAL DELIVERY” IN ORDER TO

JUSTIFY THE RETROACTIVE

ENFORCEMENT OF A $290 MILLION

JUDGEMENT AGAINST MONEX IS A

GROSS VIOLATION OF DUE

PROCESS......................................................

A. The Law Disfavors Retroactivity ............

B. CFTC’s New Interpretation of

“Actual Delivery” Represents an

Abrupt and Inadequately Explained

Departure from Agency Precedent .........

iii

II. KISOR V. WILKIE FURTHER

UNDERMINES JUSTIFICATIONS

FOR AGENCY DEFERENCE IN THIS

CASE .............................................................

CONCLUSION ...................................................

TABLE OF AUTHORITIES

CASES

Page

Ass’n of Data Processing Serv. Orgs. v.

Bd. of Governors of the Federal Reserve,

745 F.2d 677 (D.C. Cir. 1984) ..........................

6, 10

CFTC v. Worth Grp., Inc., 2014 WL

11350233 (S.D. Fla. Oct. 27, 2014) .................

Christensen v. Harris County, 529 U.S.

576 (2000) .........................................................

Christopher v. SmithKline Beecham

Corp., 567 U.S. 142 (2012) ...............................

9, 12

Connally v. Gen. Constr. Co., 269 U.S.

385 (1926) .........................................................

4, 13

Dickerson v. Colgrove, 100 U.S. 578

(1879) ................................................................

FCC v. Fox Television Stations, Inc., 567

U.S. 239 (2012) ................................................. Passim

Fuentes v. Shevin, 407 U.S. 67 (1972) .............

Greene v. U.S., 376 U.S. 149 (1964).................

4, 5

Jicarilla Apache Nation v. U.S. Dep’t of

Interior, 613 F.3d 1112 (D.C. Cir. 2010) .........

Kisor v. Wilkie, 139 S.Ct. 2400 (2019) ............. 2, 10, 12

Long Island Care at Home, Ltd. v. Coke,

551 U.S. 158 (2007) ..........................................

Monex Credit Co. v. CFTC, 931 F.3d 966

(9th Cir. 2018) ..................................................

PHH Corp. v. CFPB, 839 F.3d 1 (D.C. Cir.

2016) .................................................................

PHH Corp. v. CFPB, 881 F.3d 75 (D.C.

Cir. 2018) (en banc) .........................................

Raley v. Ohio, 360 U.S. 423 (1959) ..................

9, 10

Smiley v. Citibank, 517 U.S. 735 (1996) .........

Texas Oil & Gas Corp. v. Watt, 683 F.2d

427 (D.C. Cir. 1982) .........................................

7, 10

U.S. CFTC v. Hunter Wise Commodities,

LLC, 749 F.3d 967 (11th Cir. 2014).................

ADMINISTRATIVE MATERIALS

CFTC, Office of the General Counsel,

Interpretive Letter No. 85-2 (Aug. 6,

1985) ................................................................. 11–12

RULES

Supreme Court Rule 37.3(a) ............................

OTHER AUTHORITIES

Glenda K. Harnad, et al., Presumption

Against Retroactivity, 82 C.J.S. Statutes §

583 (Feb. 2020) .................................................

Hearing to Review Implications of the

CFTC v. Zelener Case: Hearing Before the

Subcomm. on General Farm Commodities

& Risk Mgmt. of the H. Comm. on Agric.,

111th Cong. 21 (June 4, 2009) .........................

7–8

Regulatory Reform & the Derivatives

Market: Hearing Before the S. Comm. on

Agric., Nutrition, & Forestry, 111th Cong.

42 (2009) ...........................................................

Martin H. Redish & Lawrence C. Marshall,

Adjudicatory Independence and the Values

of Procedural Due Process, 95 YALE L.J. 455

(1986) ................................................................

2–3

IDENTITY AND INTEREST

OF AMICUS CURIAE 1

Mountain States Legal Foundation (“MSLF”) is

a nonprofit, public-interest legal foundation organized

under the laws of the State of Colorado. MSLF is

dedicated to bringing before the courts issues vital to

the defense and preservation of individual liberties,

the right to own and use property, the free enterprise

system, and limited and ethical government. Since its

creation in 1977, MSLF attorneys have been involved

in numerous cases seeking to ensure that federal

agencies do not overstep their lawfully delegated

authority. Current MSLF litigation, such as Solenex,

LLC v. Bernhardt, concerns similar issues of

unexpected agency reversal of longstanding policy,

and the decision below poses a direct threat to those

interests. Because this case concerns important

matters of due process and agency authority with

profound ramifications for MSLF’s clients and

mission, MSLF respectfully submits this amicus

curiae in support of Petitioners and urging this Court

to grant certiorari.

1 Pursuant to Supreme Court Rule 37.2(a) and 37.3(a), notice of

intent to file this brief and requests for consent were submitted

February 11, 2020. Consent to file was received from all parties

by February 13, 2020. The case was docketed January 24, 2020,

with amicus curiae briefs due February 24, 2020, but Respondent

waived their right to respond on February 10, 2020. Because of

this waiver, Amicus was unable to submit requests for consent

more than ten days prior to the date on which the Petition and

supporting documents are distributed to this Court. No counsel

for a party authored this brief in whole or in part, and no person

or entity, other than MSLF, its members, or its counsel, made a

monetary contribution specifically for the preparation or

submission of this brief.

♦

INTRODUCTION AND

SUMMARY OF ARGUMENT

This case arises from a dispute over the proper

interpretation of Dodd-Frank’s regulation of

commodity futures trading. For years, the Commodity

Futures Trading Commission (“CFTC”) officially,

consistently, and explicitly stated that Monex’s

business model—selling precious metals to retail

buyers on margin, using the purchased metals

themselves as collateral on the loan—did not

constitute futures trading and was thus outside the

CFTC’s jurisdiction, only to suddenly reverse course

and declare Monex’s operations illegal. Worse still, the

CFTC chose to apply its punishment retroactively,

bringing a $290 million enforcement action against

Monex for actions the family-owned company took in

reliance on the CFTC’s previously stated position. The

district court found in favor of Monex, holding that the

CFTC clearly exceeded its statutory authority and

that, even if it wasn’t, Monex’s actions were in no way

fraudulent or manipulative in a way Dodd-Frank

prohibits. The Ninth Circuit reversed, and now Monex

is seeking this Court’s review.

The retroactive enforcement of penalties against

Monex for business activities long acknowledged and

accepted by CFTC as lawful constituted an arbitrary

and capricious violation of basic norms of due process.

Prior notice reasonably informing the regulated of the

conduct that is prohibited or required is a central

component of due process. Fuentes v. Shevin, 407 U.S.

67, 81 (1972) (describing notice and hearing as the

“central meaning of procedural due process”); Martin

H. Redish & Lawrence C. Marshall, Adjudicatory

Independence and the Values of Procedural Due

Process, 95 Yale L.J. 455, 475 (1986) (“The Supreme

Court has often stated that the core rights of due

process are notice and hearing.”). CFTC’s sudden and

unexpected reversal, in an enforcement action, of its

interpretation of the statutory term “actual delivery”

robbed Monex of any notice that their business

activities may not be legal, a gross violation of Monex’s

due process rights. This is especially true in light of

this Court’s recent decision in Kisor v. Wilkie, which

counsels that courts should not defer to agency

interpretations of their own regulations when the

provision in question is not truly ambiguous and when

the interpretation does not appear to be the product of

fair and considered judgement. 139 S.Ct. 2400, 2414

(2019).

♦

ARGUMENT

REASONS FOR GRANTING THE PETITION

CFTC’S REVERSAL OF ITS LONG-HELD

AND

PUBLICLY-AFFIRMED

INTERPRETATION

THE

TERM

“ACTUAL DELIVERY” IN ORDER TO

JUSTIFY

THE

RETROACTIVE

ENFORCEMENT OF A $290 MILLION

JUDGEMENT AGAINST MONEX IS A

GROSS VIOLATION OF DUE PROCESS.

It is “[a] fundamental principle in our legal system

. . . . that laws which regulate persons or entities must

give fair notice of conduct that is forbidden or

required.” FCC v. Fox Television Stations, Inc., 567

U.S. 239, 253 (2012). In fact, this is “the first essential

of due process of law.” Connally v. Gen. Constr. Co.,

269 U.S. 385, 391 (1926). A free people cannot be

bound to follow a law to which they have not been

made aware, and this principle applies with even

greater force when failure to follow such an

unknowable law results in substantial penalty of some

kind. CFTC’s attempt to retroactively enforce a $290

million judgment against Monex for engaging in

behavior CFTC had explicitly endorsed as legally

compliant in the past violates this basic principle of

due process.

A. The Law Disfavors Retroactivity

The D.C. Circuit Court of Appeals recently

explained American law’s hostility to retroactive

application of laws by federal agencies thusly: “a new

agency interpretation that is retroactively applied to

proscribe past conduct . . . contravenes the bedrock

due process principle that the people should have fair

notice of what conduct is prohibited.”). PHH Corp. v.

CFPB, 839 F.3d 1, 46 (D.C. Cir. 2016), restated in

relevant part, 881 F.3d 75, 83 (D.C. Cir. 2018) (en

banc). This aversion to retroactive application of law

is absolutely fundamental to the American system of

ordered liberty. See Greene v. U.S., 376 U.S. 149, 160

(1964) (“the first rule of construction is that legislation

must be considered as addressed to the future, not the

past . . . (and) a retrospective operation will not be

given to a statute which interferes with antecedent

rights . . . unless such be . . . the manifest intention of

the legislature.”) (internal quotation omitted); Glenda

K. Harnad, et al., Presumption Against Retroactivity,

82 C.J.S. Statutes § 583 (Feb. 2020) (“In the absence

of anything in the statute to overcome it, the

presumption is that a statute operates prospectively

only.”).

This Court has long held that the retroactive

enforcement of penalties based on activities that were

apparently legal at the time is unlawful. In Greene,

the Department of Defense attempted to deny

restitution to a wrongfully dismissed contractor based

on 1960 regulations rather than the 1955 regulations

in effect at the time of the incident. This Court refused

to allow the retroactive application of the 1960

regulation, reasoning that it would be unfair to hold

the contractor’s complaint to standards that did not

even exist at the time the complaint was filed. Greene,

376 U.S. at 160.

In FCC, the FCC imposed a forfeiture order

against 44 broadcast stations for airing an episode of

television that purportedly violated the FCC’s

indecency standards. The FCC had repeatedly stated,

including through formal guidance, that isolated

instances of vulgarity or nudity were not actionable,

and had failed to take enforcement action under

similar circumstances in the past. This history made

it “apparent that the Commission policy in place at the

time of the broadcasts gave no notice to Fox or ABC

that a fleeting expletive or a brief shot of nudity could

be actionably indecent; yet Fox and ABC were found

to be in violation.” FCC, 567 U.S. at 254. The Court

held that the FCC had failed to provide adequate

notice of what content was actionable, violating the

broadcasters’ due process rights. Id.

The facts in this case are analogous to those in

FCC. In FCC, the government indicated—both via

inaction and formal agency guidance—that fleeting

expletives and nudity were not actionable before

suddenly reversing and retroactively punishing such

previously non-actionable content. Here, the

government also repeatedly indicated—both through

allowing Monex to operate under essentially the same,

unchanged business model from 1987 to 2017, and

during congressional testimony prior to the

enactment of Dodd-Frank—that Monex’s operations

were perfectly legal. And just like in FCC, the

government’s reversal came without notice in the

form of an enforcement action over activities that had

previously been explicitly authorized.

B. CFTC’s New Interpretation of “Actual

Delivery” Represents an Abrupt and

Inadequately Explained Departure from

Agency Precedent.

“[A]n agency action which is supported by the

required substantial evidence may in another regard

be ‘arbitrary, capricious, an abuse of discretion or

otherwise not in accordance with law’—for example,

because it is an abrupt and unexplained departure

from agency precedent.” Ass’n of Data Processing Serv.

Orgs. v. Bd. of Governors of the Federal Reserve, 745

F.2d 677, 683 (D.C. Cir. 1984); Jicarilla Apache

Nation v. U.S. Dep’t of Interior, 613 F.3d 1112, 1120

(D.C. Cir. 2010) (“Like a court, [n]ormally, an agency

must adhere to its precedents in adjudicating cases

before it. Thus, [a]n inexcusable departure from the

essential requirement of reasoned decision making.”)

(internal quotation omitted). While federal agencies

may have some limited authority to revise their

policies or their interpretations of operative statutes

as factual and political realities change over time,

basic principles of due process enshrined in the U.S.

Constitution, the Administrative Procedure Act, and

this Court’s precedent, prohibit agencies from doing so

in an arbitrary and capricious manner. An “abrupt,”

“eleventh-hour” about-face—wherein long-established

agency precedent is thrown aside in a way that

punishes those who relied on previous agency

pronouncements—as happened here, cannot be

allowed to stand. See FCC, 556 U.S. at 683; Texas Oil

& Gas Corp. v. Watt, 683 F.2d 427, 431 (D.C. Cir.

1982) (holding that an agency’s reinterpretation of its

operative statute that constituted an “eleventh-hour”

about-face from its prior interpretation is “owed no

great degree of deference.”).

CFTC spent years repeatedly and explicitly stating

that Monex’s business model did not constitute

futures trading authorizing CFTC regulation under

the Commodity Exchange Act (“CEA”). In 2009, when

Congress was debating how to address futures

contracts with no expected delivery of goods

masquerading as ordinary spot contracts, Monex’s

business operations were discussed at length, and an

attorney for Monex even testified before a House

subcommittee alongside the acting director of

enforcement for CFTC and the president of the

National Futures Association (“NFA”). 2 The chairman

of the subcommittee stated that he “had a discussion

[with Monex] about their operation,” noted that “they

2 The NFA is a commodity futures trading industry association

with certain self-regulatory powers delegated to it by the CFTC.

sound like they are pretty straightforward,” and

confirmed that the NFA “wouldn’t have a problem

with what they do.” Hearing to Review Implications of

the CFTC v. Zelener Case: Hearing Before the

Subcomm. on General Farm Commodities & Risk

Mgmt. of the H. Comm. on Agric., 111th Cong. 21

(June 4, 2009). At another hearing, an NFA official

stated that the proposed legislation “would not

invalidate” a 1985 guidance letter from the CFTC

“which Monex and other similar firms currently rely

on to sell gold and silver to their clients.” Regulatory

Reform & the Derivatives Market: Hearing Before the

S. Comm. on Agric., Nutrition, & Forestry, 111th

Cong. 42 (2009). The guidance letter explained that

transactions like those Monex engages in were not

futures contracts because they “require payment and

transfer of ownership of the precious metals to occur.”

Id. at 2.

It was only in 2014 that CFTC first publicly

reinterpreted “actual delivery” to exclude the deposit

of precious metals in an independent depository

(Monex’s primary method of delivery). Notably, this

reversal was not the product of reasoned decisionmaking and notice-and-comment rulemaking, but

occurred in the context of an enforcement action. See

CFTC v. Worth Grp., Inc., 2014 WL 11350233, at *1

(S.D. Fla. Oct. 27, 2014). This enforcement action

against Worth Group, purportedly based on dicta in

an Eleventh Circuit opinion, U.S. CFTC v. Hunter

Wise Commodities, LLC, 749 F.3d 967 (11th Cir.

2014), was the only indication prior to CFTC’s $290

million enforcement action against Monex that

CFTC’s long-standing interpretation of the statutory

language had changed. 3 Such announcements of

interpretive changes, made “for the first time in an

enforcement proceeding” are disfavored. See

Christopher v. SmithKline Beecham Corp., 567 U.S.

142, 159 (2012).

This Court has repeatedly refused to allow

agencies to hold regulated parties liable for activities

that the agencies themselves have consistently held to

be authorized. In SmithKline Beecham, this Court

declined to defer to the Department of Labor’s newly

announced reading of the Fair Labor Standards Act

because that reading was irreconcilable with the

Department’s “very lengthy period” of “conspicuous

inaction” against the conduct it now said was

unlawful. 567 U.S. at 158–59. Earlier, in Raley v.

Ohio, this Court held that a state could not punish a

citizen for declining to answer questions at a hearing

after government officials repeatedly assured him

that he was under no legal obligation to respond.

Doing so “would be to sanction the most indefensible

sort of entrapment by the State.” 360 U.S. 423, 425–

26 (1959). And in Smiley v. Citibank (S. Dakota), N.A.,

this Court held that—while the particular facts of the

case indicated that the relied-upon statements were

not the official statements of the agency—a change in

an agency’s long-held position “that does not take

account of legitimate reliance on” the agency’s prior

expressed position may constitute arbitrary and

capricious conduct. 517 U.S. 735, 742 (1996). This is

further supported by general equitable principles. See

Dickerson v. Colgrove, 100 U.S. 578, 580–81 (1879)

3 CFTC did issue a proposed interpretive rule to that effect, but

not until after it had instituted this enforcement action against

Monex. See 82 Fed. Reg. 60,335, 60,335 (Dec. 20, 2017).

(discussing principle that “he who by his language or

conduct leads another to do what he would not

otherwise have done, shall not subject such person to

loss or injury by disappointing the expectations upon

which he acted.”).

Here, Monex operated for years in reliance upon

CFTC’s established interpretation of “actual delivery,”

operating under the reasonable assumption that

CFTC would conduct itself honestly and in good faith.

The agency’s sudden reversal of its interpretation was

a sucker punch aimed at Monex that violates basic

principles of due process.

II.

KISOR

WILKIE

FURTHER

UNDERMINES JUSTIFICATIONS FOR

AGENCY DEFERENCE IN THIS CASE

Finally, while this case concerns CFTC’s

reinterpretation of statutory language rather than its

own regulations, this Court’s recent decision in Kisor

v. Wilkie indicates that CFTC’s new interpretation of

“actual delivery” is not entitled to deference. See 139

S.Ct. 2400, 2415–16 (2019) (analogizing new, stricter

Auer analysis to Chevron analysis).

As discussed supra, deference is inappropriate in

contexts where an agency change of interpretation

represents an abrupt and unexplained or under

explained departure from agency precedent. See, e.g.,

Raley, 360 U.S. at 425–26; FCC, 567 U.S. at 254; Ass’n

of Data Processing Service Orgs., 745 F.2d at 683;

Texas Oil, 683 F.2d at 431. Deference is similarly

inappropriate here, particularly in light of this Court’s

recent guidance on the subject.

First, this Court held in Kisor that, in order for

courts to defer to agency interpretations of

ambiguities in regulatory language, the language

must be actually ambiguous—not merely difficult or

dense—“even after a court has resorted to all the

standard tools of interpretation.” 139 S.Ct. at 2414;

see also Christensen v. Harris County, 529 U.S. 576,

588 (2000) (deference under circumstances where

there is only one reasonable construction of a

regulation would “permit the agency, under the guise

of interpreting a regulation, to create de facto a new

regulation.”).

As Monex explained at length in its Answering

Brief before the Ninth Circuit below, the meaning of

“actual delivery” is not ambiguous. DefendantsAppellees’ Answering Brief at 10–26, Monex Credit

Co. v. CFTC, 931 F.3d 966 (9th Cir. 2018) (No. 1855815). Absent an explicit definition of “actual

delivery” within the statutory text, a court first looks

to the plain meaning of the words. Nothing within the

standard legal definitions of “actual” or “delivery” as

found in Black’s Law Dictionary implies that the

buyer must physically possess the commodities they

purchase. Id. at 10–11. In fact, the storing of

commodities in an independent repository is a normal

attribute of exactly the sort of leveraged transactions

Congress explicitly included the actual delivery

exception to protect. Id. at 11. As the district court

found, under CFTC’s interpretation, practically “every

financed transaction would violate Dodd-Frank.” Id.

at 12. Perhaps even more damning for CFTC’s

position, the legislative and regulatory context of the

CEA and Dodd-Frank clearly militate in favor of

Monex’s (and CFTC’s original) interpretation of

“actual delivery.” CFTC has issued two formal

interpretations—one in 1985 and one in 2011—which

both stated that leveraged metals transactions

resulting in prompt delivery to third-party

depositories would not be subject to CFTC

jurisdiction. CFTC, Office of the General Counsel,

Interpretive Letter No. 85-2 (Aug. 6, 1985),

https://www.cftc.gov/sites/default/files/idc/groups/pub

lic/@lrlettergeneral/documents/letter/85-02.pdf;

Fed. Reg. 52,426 (Aug. 23, 2013). And, as previously

discussed, supra, the application of Dodd-Frank to

Monex was directly addressed during congressional

debates.

Further, this Court elaborated in Kisor that an

agency interpretation deserves deference only when it

reflects the “agency’s authoritative, expertise-based,

‘fair[, or] considered judgment.” Id. at 2414. This

means that “agency interpretations advanced for the

first time in legal briefs” should, in general, not

receive deference, and that “a court may not defer to a

new interpretation, whether or not introduced in

litigation, that creates ‘unfair surprise’ to regulated

parties.” Id. at 2417–18 (quoting Long Island Care at

Home, Ltd. v. Coke, 551 U.S. 158, 170 (2007)).

Particularly relevant to the case at hand, this

Court recently “refused to defer to an agency

interpretation of its regulation that would have

imposed retroactive liability on parties for

longstanding conduct that the agency had never

before addressed.” Id. at 2418; SmithKline Beecham,

567 U.S. at 155–56. The Court reiterated the point

made in SmithKline Beecham that an unexpected new

interpretation may be unlawful if preceded by a long

silence. Here, CFTC is not merely announcing a new

policy for the first time where before it had remained

silent; it is directly contradicting previous longstanding statements, including those made under

oath before Congress.

Just as in Kisor, SmithKline, and other cases,

deference to the CFTC is misplaced here because the

term “actual delivery” in the regulations is not truly

ambiguous and because evidence indicates that

CFTC’s eleventh-hour reinterpretation was not the

product of fair or considered judgment.

Upholding CFTC’s interpretation, and therefore

allowing CFTC’s unjust $290 million enforcement

action against Monex to stand, would be a grave

violation of the bedrock principle that the laws under

which a free society acts must give fair notice of what

conduct is forbidden and what conduct is required.

This is, after all, “the first essential of due process of

law.” Connally, 269 U.S. at 391.

♦

CONCLUSION

For the foregoing reasons, this Court should grant

the Petition.

DATED: February 19, 2020

Respectfully submitted,