Commodity Futures Trading Commission v. Schor
Encyclopedia
Commodity Futures Trading Commission v. Schor, 478 U.S. 833 (1986), was a case in which the Supreme Court of the United States
held an administrative agency may, in some cases, exert jurisdiction
over state-law counterclaim
s.
(CEA), et seq., prohibits fraudulent conduct in the trading of futures contract
s. In 1974, Congress
amended the Act to create a more comprehensive regulatory framework for the trading of futures contracts. To that end, Congress created an administrative agency called the Commodity Futures Trading Commission
(CFTC). One of the duties assigned to the CFTC was the administration of a quasi-judicial reparations procedure by which customers of commodities brokers could seek legal redress for brokers’ alleged violations of the Act or other CFTC regulations. One of the CFTC’s regulations also provided the agency to adjudicate counterclaims “arising out of the same transaction or occurrence or series of transactions or occurrences set forth in the complaint
”. The section of the statute and the CFTC regulation at issue in this case, both of which were intended to provide an inexpensive and expeditious method for the settlement of futures contract-related claims, were challenged by the customers of a broker as being violative of Article III of the United States Constitution.
in the United States District Court for the Northern District of Illinois
to recover the debit balance in Schor’s account. Schor filed a counterclaim in the federal suit, asserting the same charges against Conti it had made in its complaint to the CFTC. Schor moved to dismiss
the district court action, but the judge declined. Conti then voluntarily dismissed
the suit, in order to present its counterclaim against Schor for the debit balance as a defense in the CFTC action.
The Administrative Law Judge
(ALJ) in the CFTC reparations proceeding ruled in Conti’s favor on both claims, and it was at that point Schor challenged the CFTC’s jurisdiction to hear Conti’s counterclaim against him. The ALJ rejected this contention, and the CFTC declined to review the decision. Schor then petitioned the United States Court of Appeals for the District of Columbia Circuit
for review. The Court of Appeals held that the CFTC had jurisdiction over Schor’s claim against Conti, but not over Conti’s state-law based counterclaim against Schor for the debit balance, seeking to avoid the constitutional problems faced in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). The U.S. Supreme Court granted certiorari
, vacated the judgment
, and remanded the case back to the Court of Appeals for further consideration under Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568 (1985). The Court of Appeals reinstated its previous judgment, and the Supreme Court granted certiorari again.
, writing for the majority, addressed the statutory
interpretation issue first. She held that the D.C. Circuit created a false distinction between the CFTC’s jurisdiction over state law counterclaims and counterclaims arising under the CEA, simply to avoid a constitutional problem, and ignored the legislative intent of Congress in doing so. The situation faced by the litigants here was common: a claim and counterclaim arising out of the same transaction and occurrence, and it was well within the statutory jurisdiction of the CFTC to adjudicate such both actions. This is in keeping with Congress’ intent to create a more efficient means of adjudicating such disputes, as well as the administration’s interpretation of the statute.
She then turned to the Article III issue. O’Connor chose to interpret Article III liberally, examining the underlying purposes of adjudication of cases by an independent judiciary. The right to be heard by an Article III tribunal is not absolute, and is subject to waiver by the parties. In this case, Schor waived his right to a trial with respect to Conti’s counterclaim, and elected to have the entire dispute resolved before the CFTC. It was only after the CFTC ruled against him that he challenged the agency’s jurisdiction. To O’Connor, Schor’s actions constituted an express waiver of his right to a civil trial.
Additionally, O’Connor held Congress’ grant of judicial power to the CFTC for the adjudication of state-law counterclaims did not intrude on the powers of the judiciary. She concluded that while Congress could not vest administrative agencies with ancillary or pendent jurisdiction
of all claims, it was not outright forbidden for them to do so. Unlike the situation in Northern Pipeline, not only were the CFTC’s orders reviewable in the U.S. district courts, the CFTC was not granted the full powers of an Article III court, and the parties were given the option of invoking the agency’s jurisdiction, rather than being compelled to use it. Furthermore, any issue of intrusion upon the powers of state courts was irrelevant, O’Connor reasoned, because federal courts may exercise ancillary jurisdiction
over state law claims anyway.
Justice O'Connor's majority opinion was joined by Burger, Ch. J., and White, Blackmun, Powell, Rehnquist, and Stevens, JJ.
ahead of separation of powers
. Also, because the individual and structural/separation of powers issues served by Article III were “coextensive”, Brennan reasoned that the consent of the litigants to appear before a non-Article III tribunal should have no bearing on the legal analysis in this case.
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
held an administrative agency may, in some cases, exert jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
over state-law counterclaim
Counterclaim
In civil procedure, a party's claim is a counterclaim if the defending party has previously made a claim against the claiming party.Examples of counterclaims include:...
s.
Background
The Commodity Exchange ActCommodity Exchange Act
Commodity Exchange Act is a federal act passed in 1936 by the U.S. Government ....
(CEA), et seq., prohibits fraudulent conduct in the trading of futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s. In 1974, Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
amended the Act to create a more comprehensive regulatory framework for the trading of futures contracts. To that end, Congress created an administrative agency called the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
(CFTC). One of the duties assigned to the CFTC was the administration of a quasi-judicial reparations procedure by which customers of commodities brokers could seek legal redress for brokers’ alleged violations of the Act or other CFTC regulations. One of the CFTC’s regulations also provided the agency to adjudicate counterclaims “arising out of the same transaction or occurrence or series of transactions or occurrences set forth in the complaint
Complaint
In legal terminology, a complaint is a formal legal document that sets out the facts and legal reasons that the filing party or parties In legal terminology, a complaint is a formal legal document that sets out the facts and legal reasons (see: cause of action) that the filing party or parties In...
”. The section of the statute and the CFTC regulation at issue in this case, both of which were intended to provide an inexpensive and expeditious method for the settlement of futures contract-related claims, were challenged by the customers of a broker as being violative of Article III of the United States Constitution.
Facts & procedural history
In February 1980, respondents Schor and Mortgage Services of America, Inc. filed complaints with the CFTC against brokerage firm ContiCommodity Services, Inc. (Conti) and Richard L. Sandor, one of the firm’s employees, alleging violations of the CEA. Meanwhile, Conti filed an action under diversity jurisdictionDiversity jurisdiction
In the law of the United States, diversity jurisdiction is a form of subject-matter jurisdiction in civil procedure in which a United States district court has the power to hear a civil case where the persons that are parties are "diverse" in citizenship, which generally indicates that they are...
in the United States District Court for the Northern District of Illinois
United States District Court for the Northern District of Illinois
The United States District Court for the Northern District of Illinois is the trial-level court with jurisdiction over the northern counties of Illinois....
to recover the debit balance in Schor’s account. Schor filed a counterclaim in the federal suit, asserting the same charges against Conti it had made in its complaint to the CFTC. Schor moved to dismiss
Involuntary dismissal
Involuntary dismissal is the termination of a court case despite the plaintiff's objection.In United States Federal courts, involuntary dismissal is governed by Federal Rules of Civil Procedure Rule 41....
the district court action, but the judge declined. Conti then voluntarily dismissed
Voluntary dismissal
Voluntary dismissal is when a lawsuit is terminated by voluntary request of the plaintiff . A voluntary dismissal with prejudice is the modern descendant of the common law procedure known as retraxit.In the United States, voluntary dismissal...
the suit, in order to present its counterclaim against Schor for the debit balance as a defense in the CFTC action.
The Administrative Law Judge
Administrative law judge
An administrative law judge in the United States is an official who presides at an administrative trial-type hearing to resolve a dispute between a government agency and someone affected by a decision of that agency. The ALJ is usually the initial trier of fact and decision maker...
(ALJ) in the CFTC reparations proceeding ruled in Conti’s favor on both claims, and it was at that point Schor challenged the CFTC’s jurisdiction to hear Conti’s counterclaim against him. The ALJ rejected this contention, and the CFTC declined to review the decision. Schor then petitioned the United States Court of Appeals for the District of Columbia Circuit
United States Court of Appeals for the District of Columbia Circuit
The United States Court of Appeals for the District of Columbia Circuit known informally as the D.C. Circuit, is the federal appellate court for the U.S. District Court for the District of Columbia. Appeals from the D.C. Circuit, as with all the U.S. Courts of Appeals, are heard on a...
for review. The Court of Appeals held that the CFTC had jurisdiction over Schor’s claim against Conti, but not over Conti’s state-law based counterclaim against Schor for the debit balance, seeking to avoid the constitutional problems faced in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). The U.S. Supreme Court granted certiorari
Certiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
, vacated the judgment
Vacated judgment
A vacated judgment makes a previous legal judgment legally void. A vacated judgment is usually the result of the judgment of an appellate court which overturns, reverses, or sets aside the judgment of a lower court....
, and remanded the case back to the Court of Appeals for further consideration under Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568 (1985). The Court of Appeals reinstated its previous judgment, and the Supreme Court granted certiorari again.
Majority opinion
Justice O’ConnorSandra Day O'Connor
Sandra Day O'Connor is an American jurist who was the first female member of the Supreme Court of the United States. She served as an Associate Justice from 1981 until her retirement from the Court in 2006. O'Connor was appointed by President Ronald Reagan in 1981...
, writing for the majority, addressed the statutory
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
interpretation issue first. She held that the D.C. Circuit created a false distinction between the CFTC’s jurisdiction over state law counterclaims and counterclaims arising under the CEA, simply to avoid a constitutional problem, and ignored the legislative intent of Congress in doing so. The situation faced by the litigants here was common: a claim and counterclaim arising out of the same transaction and occurrence, and it was well within the statutory jurisdiction of the CFTC to adjudicate such both actions. This is in keeping with Congress’ intent to create a more efficient means of adjudicating such disputes, as well as the administration’s interpretation of the statute.
She then turned to the Article III issue. O’Connor chose to interpret Article III liberally, examining the underlying purposes of adjudication of cases by an independent judiciary. The right to be heard by an Article III tribunal is not absolute, and is subject to waiver by the parties. In this case, Schor waived his right to a trial with respect to Conti’s counterclaim, and elected to have the entire dispute resolved before the CFTC. It was only after the CFTC ruled against him that he challenged the agency’s jurisdiction. To O’Connor, Schor’s actions constituted an express waiver of his right to a civil trial.
Additionally, O’Connor held Congress’ grant of judicial power to the CFTC for the adjudication of state-law counterclaims did not intrude on the powers of the judiciary. She concluded that while Congress could not vest administrative agencies with ancillary or pendent jurisdiction
Pendent jurisdiction
Pendent jurisdiction is the authority of a United States federal court to hear a closely related state law claim against a party already facing a federal claim, described by the Supreme Court as "jurisdiction over nonfederal claims between parties litigating other matters properly before the...
of all claims, it was not outright forbidden for them to do so. Unlike the situation in Northern Pipeline, not only were the CFTC’s orders reviewable in the U.S. district courts, the CFTC was not granted the full powers of an Article III court, and the parties were given the option of invoking the agency’s jurisdiction, rather than being compelled to use it. Furthermore, any issue of intrusion upon the powers of state courts was irrelevant, O’Connor reasoned, because federal courts may exercise ancillary jurisdiction
Ancillary jurisdiction
Ancillary jurisdiction allows a United States federal court to hear certain claims sufficiently related to the original claim that would otherwise defeat the court's jurisdiction...
over state law claims anyway.
Justice O'Connor's majority opinion was joined by Burger, Ch. J., and White, Blackmun, Powell, Rehnquist, and Stevens, JJ.
Dissent
Justice Brennan dissented on the grounds that allowing Congress to grant such jurisdictional powers to administrative agencies eroded the powers of Article III courts, and allowed deprived litigants of the impartial decision making authority of an independent judiciary. He accused the majority of putting concerns of convenience and judicial economyJudicial economy
Judicial economy refers broadly to the principle that the limited resources of the legal system or a given court should be conserved.-Multiple causes of action in a given case :...
ahead of separation of powers
Separation of powers under the United States Constitution
Separation of powers is a political doctrine originating from the United States Constitution, according to which the legislative, executive, and judicial branches of the United States government are kept distinct in order to prevent abuse of power. This U.S...
. Also, because the individual and structural/separation of powers issues served by Article III were “coextensive”, Brennan reasoned that the consent of the litigants to appear before a non-Article III tribunal should have no bearing on the legal analysis in this case.
See also
- List of United States Supreme Court cases, volume 478
- List of United States Supreme Court cases
- Lists of United States Supreme Court cases by volume
- List of United States Supreme Court cases by the Rehnquist Court