Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-11-01477/USCOURTS-caDC-11-01477-0/pdf.json

Parties Involved:
Commodity Futures Trading Commission
Intervenor for Petitioner
Federal Energy Regulatory Commission
Respondent
Brian Hunter
Petitioner

Document Text:

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 FERCregulated 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.

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