Court Opinion

ID: 2733206
Source: CourtListenerOpinion
Date Created: 2014-09-16 15:01:02.061844+00
Date Added: 2024-06-11T13:26:49.364775
License: Public Domain

uNr‘ri-'~:r) s'r/a\'rr~;s Dis'rlzrc'i" CoUR'r
iron "ri--ns l)is'rnle"r‘ or collet/rein

)
SlliCUlli'if`lii;iS INDUS'i`RY AND FINANCIAL )
MARKI§£'I`S ASSOCIA'l`ION, el cz!., )
)
Plain.tift`s, )
)
v. ) Civil Action No. 13-1916(1’1.1*)
)
lll\ii'll`llil) S"IM`A"I`ES COMMODIVI`Y FiJ'l`LJ'Rl';'§S )
'I`RADING C()l\/fI\/TISSION, )
)
Del"eiidarit. )
l
()PINI()N

in 2010, Congress passed the Dodd»l`*`raiil< Wall Street Reform and Consuiner

Protectioii Act ("Dodd~l?rarii< Aet"), Pub. L. No. i l l-203, 124 Stat. 1376, as a legislative
response to the 2008 'linaneiail crisis. "l`itle VII o'l" the Dodd-Franl< Aet provided the United States
Coiiiniodity Futures 'Frading Connnission ("Cl`<"l`C") with jurisdiction over the previously
unregulated derivative swaps inarls 3 (2012), at)crilab!e m littp://www.sec.gov/swaps-
cliart/s\vzii)s~chart.pdf; .s'ee crl.s‘r) 7 U.S.C. § ia(47)(/-\)(ii).

'i`lie use of over~the-cotinter derivative swaps»saswaps executed bilaterally rather
than over ain exehzirige--hooiiied in the l980s and l990s. 'l`his tinprccedented growth pronipted
a debate over whether swaps should be regulated like other derivatives, such as ie`titures contracts
and stocl< options. See Irrv_ Co. first v. CIFTC, 891 F. Supp. 2d 162, l7l (i).i`).C. 2012), cg)_‘j"’d,
720 l`*`.3d 370 (D.C. Cir. 2013).] in passing the Connnodity Futures l\/ioderiiizatioii Act
("CI~"l\/IA"), Pub. L. No. 106~554, l 14 Stat. 2763, in 2000, Congress sided with the proponents of
deregulation and barred the CF'l`C and the United States Sectlrities and l;“:xcliaiige Connnission
("SILSC") from regulating most derivative swaps niarkets. See 7 U.S.C. § 2(g) (2002).

'l`he Cl"`l\/IA left the iiiarloit'i‘ or 'rzin `N/r\'r’i, CoMM’N on 'rl»il; C/»\usr~:s or rita Fii\:. /u~io EctoN. Ciusis in
'1‘1111§~: iiNI"rtf-;I) S'FA'§“I»;S at xxiv-xxv (20l l), terrell/carlile al ltttp://www.gpo.gov/fdsys/pl;g/GP()-
i*`CIC/IJdIYGPO-ITCIC.pdf. While up until the niid-2000s derivatives were "generaliy regarded as

a beneficial financial innovation that distributed financial risk more efficiently and made the

l i*`tltures coittrztcts 'are traded on exchanges regulated by the Ci`*"l`C. See 7 ti
§ Z(a)(i)(_/\). Stocl< options are traded on exchanges regulated by the linited States Securities

and l§_ixcliaiige Conmiission. See 15 U.S.C. § 77b(a)(i).
3

financial system more stable, resilient, and resistant to shock . . . [t`jlie }:finaiicial] crisis
essentially reversed this view." [nv. C`o. Irr.s‘i., 891 l`*`. Supp. 2d at 173 (citation ornitted) (internal
cjuotzitioii niarl.ni< WALL S'rrzr;ii~;'r‘ RaFoiu»/i ann
Consuiviun Pizo'rii~:c"r‘lon Aer: 'i`rri_,r~: VI`I, DnRrv/i'rlvr.s 1 (2012). 'i`hat the over~tlie~couiitei~
cierivzttive niarkets "depended on the financiaf stability of a dozen or so inajor dealers" only
compouncied the problem: ‘°|:l`jztiltire of a dealer would have resulted in the iiulli'iiczttioit of
trillions ol`dollars’ worth of contracts and would have exposed derivatives courlterpartics to
sudden risk and loss, exacerbating the cycle of deleveraging and withholding of credit that
characterized the flfinaiicial] cz'isis." Id. Althotigh derivative dealing "was not generally the
direct source of financial weakness, a collapse of the $600 trillion dollar . . . derivatives market
was imminent absent” the injection of "[li]uiidreds ofbillions of dollars in government credit."
[a'_

'l`he over-the-cotiiiter derivative markets’ contributions to the 2008 financial crisis
were not limited to swaps executed on li.S. soil between ii counterparties. As plaintiffs
recognize, "[t:|lie swaps niarket is truly global: a single swap may be negotiated and executed

between cotintcrparties located in two different countries, booked in a third country and risl<-

managed in a fourth country." Connnent 't`rorn Sll*`l\/IA on Swap l§intity Registration Rule, i~*`eb. 3,

201 l, at 2 (_'fi`ootiiote omittcd) (.loint Appendix ("JA") at l 144).

li.S.-based financial services congloinerates»~»like many of plaintif`f`s’ niembers~a
operate in global swaps inarkets not only as direct cotinterparties, but also through relationships
with their foreign branches, tiffiliates, and subsidiaries. "'l`he inodern U.S. financial services
conglomerate is a U.S. parent holding company comprised of iiundreds, if not thousands, of U.S.
and foreign branches, af`filiates, and stibsidiaries." i)eclaratioii of Sayee Srinivasan, Chief
ificoitornist, CF"I`C ("Srinivasan l)ecl."), i\/iar. 14, 20l4 [Dkt. No. 28-2] jj 5. 'l`hese inultinatiottal
firms operate "t'hotigli coinplex legal and operational structures . . . created and maintained to
efficiently serve particular purposes as part jofj the iirins’ overall profit-iriakifig business." fell
jj l6. 'l`lie iirlns’ operations through foreign subsidiaries and affiliates balance "legal,
operational, tax, and accounting considerations and facilitate the jfirriis’] ability to serve clients
in various inarkets around the world." Id.

Altliough legally distinct from their affiliates and subsidiaries, the U.S.-pareiit
firms "rotitinely commingle losses and gains front U.S. and non-ii.S. affiliates, subsidiaries and
branches on their consolidated financial statenieiits." Srinivasaii Decl. jj 5. /-\s a result_. ‘“risleiieral view that "tlie activities of a
la

16

foreign branch as the activities of tlie principal entity, and thus a foreign branch ofa U.S. person
is a U.S. person." Id.; see arise tail at 453 l7 ("['l`]lie term ‘U.S. person’ generally means that a
foreign branch ofa U.S. person would be covered by virtue of the fact that it is a part, or an
exteiisioii, ofa U.S. person.").

lii contrast to foreign branches of U.S. persons, the Cross~Border Action
enipliasizes that tlic Cl*"l`C °‘does not interpret section 2(i) to require that it treat a iioii-U.S.
person as a ‘U person’ solely because it is controlled by or tinder common control with a U.S.
iiersoii." (.fross-Bordei' Action, 78 l`*`ed. Reg. at 45312 n.2l 5. Instead, the Cross-Bordei' Action
expresses Cl'~"l`C`s view that "vvlici'e one or more U.S. owners has unlimited responsibility for
losses or iioiiperforiiiaiice by its inajority-owiied al`iiiliate"~w~a so-called "guaraiitecd al`liliate"-»~
"tliere is generally a direct and significant connection with activities i1i, or effect on, coninierce
oftlie United States within the iiieaning ofsectioii 2(i)," ial at 45312, because the "guaraiitee
creates a significant risk transfer into the United States." Ici'. at 45313.3 'l`lierefore, the Cross~

l%ordei' Action concludes that a guaranteed affiliate ofa U.S. person would itself "appropriately

be considered a ‘U jiersoii"’ subject to applicable 'l`itle Vll rules and regulations i’d. at 453l2.

D. A ggi"egcri ion
'l`he Ci'oss»Bordei' Action also addresses the aggregation requirement for the de
inirii`iiii',s' exception to Dodd-Fraiik’s "swap dealer" designation See 78 Fed. Reg. at 45320-27.
'l"lie Dodd-l~`raiil< Act exempted from its definition of "swap dealer" those swap dealers who
"ciigage[:| iii a de inininiis quantity of sectirity~based swap dealing iii connection with

transactions with or on behalf of [`tlieirj ctistoiiiers." 7 U.S.C. § la(49)(l)). 'l`lie Act also

3 lii ajoiiit final rule with the SEC, the Cli'l`C concluded that "when a swap has a
benelit of a guarantee, the gu'araiitee is an iiitegral part of that swap" because it "al"fects the price
or pricing 'attributes of tliat swa.p." l§liitity Det`iiiitioii Rule, 77 l?`ed. Reg. 48208, 48225~26 (Atig.
13, 2012) (footiiote oniitted); see ¢r!.sv) Cross~Bordei' Action, 78 Fed. Reg. at 45319 & ii.260.

17

required the Cli"l`C to "proiiiulgate regulations to establish factors with respect to the iiiakiiig of
any determination to exenipt." Id,

On May 23, 2012, the Cl"'l`C and the Sl:'lC pronitilgated such regulations in their
joint l¥§iitity Del;`iiiitioii Rule. flee 77 l*`cd. Reg. at 30626-35 (ccidificd at 17 C.l*`.l~l. § 1.3(ggg)(4)).
'l`he regulations, finer cili`ci, exempt a person otherwise iiiecting the "swap dealer" definition from
registration retjuii'eiiieiits

so loiig as the swap positions connected with those dealing activities into which
the person»or any other entity controlling, controlled by or under coninioii
control with the person~eeiiters over the course of the immediately preceding 12
iiioiitlis . . . have an ciggi'egcile gross notional amount of no more than 83
billion . . . .
17 C.l`i`.R. § l.f)(ggg)(4)(i) (enipliasis added).

'l`lie Cross~Bordei' Action construes "any other entity controlling, controlled by or
under coninioii control witli," .s'ee 17 C.l*`.l~t. § 1.3(ggg)(4), to generally iiiclude 'foreign affiliates
See Cross Border Action, 78 lied Reg. at 45326. As a restilt, when aggregating swaps positions
to determine whether to register as a swap dealer, "a person (whether U.S. or non-U.S.) should
generally include all relevant dealing swaps of all its U.S. and iion~U.S. affiliates under common
conti'ol_, except that swaps of an affiliate (eitlier U.S. or non-U.S.) that is a registered swap dealer
are excluded." Ici'. 'l"lie Cross-Bordei' Action explains:

Stated iii general ternis, the {Cli'l`€]’s iiiterpretation allows both U.S. persons and
iioii»ll.S. persons in an ali`lili'ated group to engage iii swap dealing activity up to
the de iiiiiiiniis threshold W lien the affiliated group meets the de iniiiiiiiis
threshold in the aggregate, one or iiiore affiliate(s) (inside or outside the United
States) would generally have to register  swap dealer(s) so that the relevant

swap dealing activity ofthe unregistered affiliates reniaiiis below the threshold

Ici'. at 45323.

18

E_ Ccriegoi"izcr.'ioii o_f`Cer'lci/Yn Tifi’e l/][ Rtr/e.s' .cr.s' "Eir!i`ly- " or "J"i‘cinscicifort-level "
"l`hc Cross-Bordei‘ Action also categorizes certain 'l`itle \/'II Rules as either

"entity-" or "traiisaction-levcl," to distinguish when those Rules apply extratcrritorially. "l?i:`,iitity-

level" requirements deiine the general obligations of regulated inarln entities.
la
'l`he Cross-Bordei' /~\ction clarilies, ritter i:rli'cr, that substituted compliance "would
generally not be available for l:certaiii] 'l"raiisactioii-Level Requireinents" for swaps between a
foreign registered swap dealer or ina]oi‘ swap participant and a U.S. person (other than a foreign
branch of a U.S. swap dealer or iriaioi‘ swap participant). 78 Fed. Reg. at 45353. 'l"lie Cross-
Border Action notes the Cl`*"`l`C’s "stron > interest in ensurin > that the swa full coin lies with
P
the . . . "l`raiisactioii i,,evel Retuireinents without substituted com liance," because ‘“swa s
l »
between U.S. persons and non- U .S. persons iiiherently raise the possibility of" risk inagiiificatiori

and transfer that "l`itle VII was meant to control. Id.

ln footnote 513, the Cross-Border Action adopts the "view" that "a U.S. branch of

a iiori»-U.S. swap dealer or [niajoi' swap participant] would be subject to [certain] 'l`raiisactioii-

l.,evel requirements, without stibstituted coinpliaiice available." 78 Fed. Reg. at 45350 n.5l3.

"I`lie Cross-Bordei' Action explains~as it previously had done with respect to foreign branches of`

U.S. persons-that "a branch does not have a separate legal identity apart from its principal
entity," and thus the Cl`*"`l`C "considers a U.S. branch of a non~U.S. swap dealer or iion-LJ.S.
[iii'ajoi' swap participant] to be a non~U.S. person." Id. Nonetheless, the Cross-Bordcr Action
concludes that transaction-level requirements apply to U.S. branches of lion-U.S. persons-

because the CF"I`C has a "strong supervisory interest

without substituted coinpliance available
in regulating the dealing activities that occur with[iii] the United States, irrespective of the
counterparty (iust as the [Cl*"`l"C] allows for substituted coinpliance for foreign branches in

certain instances to take into account the strong supervisory interest of local regulators)." Io'.

22

following the prornulgatiori of the Cross-Bordei' Action, some financial
institutions believed that footnote 513 contained a loophole to compliance with transaction-level
requirements: that iron-U.S. swap dealers---~~iiicltiding affiliates of U .S. persons_~could
coinpletely avoid transaction~level requirements by arranging swaps with iioii~U.S.
eouiiterpztrties using traders or brokers working f`or U.S. persons within the United States, but
then "l")ookiiig" the swaps with an overseas af`liliate.° U.S.-based firins that lacked the corporate

family structure necessary to take advantage of this supposed "loopliole" sought input from the

Cl~*"`l"C as to whether the strategy actually shielded the swaps from transaetion»level requirements

See Del;eiidaiit Cl*"l`C’s Cross-l\/lotioii 'for Sunnnary Judgment, Opposition to Plaintiffs’ l\/lotion
for Suininary .l`udgineiit, and l‘\/lotion to Disiniss in Part ("Cl""l`C Mot."), l\/lar. 14, 2014 l`_l`)kt. No.
28] at 13.
On `N`oveniber l4, 2013, the Cl*"l`C Division of Swap l)ealer and intermediary
Oversight ("DSIO") published an advisory stating that, in its view~w"wliicli do[`_es] not
iiecessarily represent the position or view of the Commission"»»-transactioii-level requirements
could not be so easily avoided:
DSlO believes that persons regularly arranging, iiegotiatirig, or executing swaps
for or on behalf of la swap dealer] are performing core, front-office activities of
that [swap dealer`j’s dealing business. "l`hus, DSIO is of the view that a rion-U
|:swap dealer] (whether an ziffiliate or not of a U.S. person) regularly using
personnel or agents located in the U`.S. to arrange, negotiate, or execute a swap
with a non»U person generally would be required to comply with the
'l`raiisactioii~l.evel Reqtiireineiits.

Applicability of 'l`rarisactioii-l_,evel Reqtiireinents to Activity in the United Statcs, Cl*"`l`C Letter

No. 13-69, 20l 3 WL 6056614, at *l (Nov. 14, 2013) (JA at 791). According to ISDA chairman

6 See Robert Sclnnidt & Silla Brtish, Bcnik.s‘ Scri`d to tS`eize ‘]i`oolrio/e 513 ’ 10 Keep
Si~vcip.s' Pri'ircrfe, BLOOMIJI;‘RG NEWS, (`)ct. 23, 201 3, http://www.bloomberg.coin/news/ZOl3-] 0-
23/lizuil»;s-sziid-to-seize-footnote~$ l 3-to-keep-swaps-privztte.htinl.

23

Steplieii O’Connor, DSlO’s advisory "was the straw that broke the cainel’s ba.ck" that ultimately
led to this leiwsiiit.l
V. PR()Cl§SDiJRAL l-~IIS'I"()RY

On Deeeinbei' 4, 2013, iilaiiitif`l"s-~tliree trade associations that represent the
interests of the financial industry and count as their members some of the world’s largest
securities lirnis, banks and asset iiianagers-filed this action. The case was initially assigned to
Judge Ellen Segai l-Iuvelle, but was later transferred by consent to the undersigned pursuant to
l.,oczil Civil Rule 40.6(a). Plaiiitil"'fs’ ainended complaint challenges the Cross-Bordei‘ Aetion and
the "l"itle \/ll Rules on several bascs. Plaiiitiffs allege that the Cross-Bordei' Action was
proinulgated in violation of the APA’s iiotiee~aiid-coniinent requirements, 5 U.S.C. § 55 B(b)-(c),
and the ClEA’s cost-benefit analysis reciuireiiieiits, 7 U.S.C. § 19(a)(2), and is an arbitrary and
capricious substantive iiiterpretation of 7 ll.S.C. § 2(i). Ainended Coinplaint ("Aiiid. Conipl."),
Dec. 27, 2013 ]il)kt. No. l ll jill 96~119. Plaintiffs siniilarly allege that the challenged 'l`itle Vll
Rules on their face lack independent extraterritorial effect and were proinulgated in violation of
the APA’s notice-and~coiniiieiit requirements and ClfiA’s cost-benefit analysis recitiireiiieiits. ]a’.
1!1| 120~33. l*`iiially, plaintiffs allege that the extraterritorial scope of the SEF Registration Rule is
an arbitrary and capricious interpretation of 7 U.S.C. § 2(i). lci’. jill 134-37.

Plaintiffs seek, iirter rii’i`ci, (l) a declaratoryjudgiiierit that the Cross-Bordei' Action
and the 'l`itle Vll Rules (as applied extraterritorially) are procedurally and substantively iiilirrii;
(2) vacatur of the Cross-Bortiei' Action in its entirety; (3) partial vacatur of the "l`itle Vll Rules to

the extent that they purport to have extraterritorial application; (4) an injiiiiction enjoining the

7 Gina Choii & Philip Stafford, CF}"(,` Stieci.’ l)y ']`rcide Group».s' over Sii».cipts' l€i.ii'es,
l*`li\i. 'l`IMl?,s, Dec. 4, 2013, littp://www.ft.coin/crns/s/0/0f998b74-5dla-11e3-a558-
00l44f`ealidc0.litiiil |p`l)kt. `No. 28-} Ex. li:].

24

Cl~"l`C froin enforcing most of the 'l`itle Vll Rules extraterritorially until the agency promulgates
a procedurally valid legislative rule regarding extraterritoriality; and (5) a perinaneiit injunction
enjoining the Cl`<"`l"C (with no apparent conditional end-dzite) "froin implementing applying, or
taking any zictioii whatsoever to enforce the Sf%lll Registratioii Rule on trading platforms
organized or iiicorporated tinder the laws of ajurisdictioii outside of the United States." Aind.
Coinpl. ll 143.

()n Deeeinbei' 27, 201 3, plaintiffs moved for stiinmary judgment Plaintiffs
sought expedited consideration of their inotion, while the CF"I`C sought to hold plaintiffs’ motion
in abeyance pending the filing of a planned motion to dismiss.g Judge l"luvelle denied the motion
to expedite and the inotion to liold the case in abeyance_. set a briefing schedule, granted ciiiii`ci'
leave to tile briefs in stipport of the parties, and ordered plaintiffs to produce declarations froin
their niembers substantiating their standing to cliallenge the Cross-Border Action and the "l`itle
\/ll Rtiles. Order, Jan. 14, 2014 [Dkt. No. 20].

Plaiiitif`fs produced their iiieriiber declarations on january 27, 2014, and the
parties completed the briefing on the CF'l"C’s motion to disiniss and the parties’ cross-niotioiis

for suinmaryjudgment on l\/lay 2, 20l 4.9 'l`he parties have filed an administrative record, ajoiiit

ll l\/lotion of Cl`r"l"C to I~~lold in Abeyance Plaintiffs’ l\/lotion for Summary Judginent
Peiiding Dispositioii of the Coiniiiissioii’s Fortlieoiniiig Motion to Disiiiiss, Dec. 30, 2013 |:Dkt.
No. 13_`]; Plaintiffs’ l\/Iotion for Expedited Consideration of Suininary .ludgment, Dec. 30, 2013
[I)kt. l\lo. 14:].

9 See Plaiiitiffs’ (Correctecl) l\/lotion for Suminary Judgineiit ("Pls.’ l\/lot."), Jan. 23,
2014 [:Dkt. l\lo. 21:]; Plaiiitiffs’ Stateinent Accoinpanying l`)eclarations Regarding Standing
("Pls.’ Standing Br."), .lan. 27, 2014 |:Dkt. l\lo. 22]; Defendant CF'i`C’s Cross-l\/lotioii for
Suininary .ludgment, Oppositioii to Plairitif`fs’ i\/lotioii for Suininary .ludgineiit, and l\/lotioii to
Disiniss in l’art ("Cli"l`C l\/lot."), l\/lar. 14, 20l_4 [Dkt. l\lo. 23:]; Plaintiffs’ Consolidzited Reply iii
Siipport of their l\/lotion for Stiiiiiiiary .liidgiiient and Response to Defendaiit’s Cross~l\/lotioii 'foi'
Suininary .ludgineiit and l\/lotion to Disiniss in Part ("Pls.’ Reply"), April 8, 2014 |Dkt. l\lo. 37]',
l)e'fendaiit Cl~"ili`C’s Consolidated Reply in Support of its Cross-Motioii for Siiininary .liielgnieiit,

25

appendix, and several notices of supplemental regulatory and legal authorities. The Chamber of
Connnerce filed an cirm'cii,s' brief iri support of plaintiffs, while nineteen current and foriner
inembers of Congress, as well as the iion-r)rolit group Better Markets, lnc., filed cii'iii`cus briefs in
stipptirt of the Cl*"`l`C . m

'l"lie case was reassigned to the undersigned on June 18, 201 4. ()n June 23, 2014,
the Court ordered the parties to submit stippleiiiental briefs regarding whether plaintiffs lacked
standing under the sliareliolder standing rule and whether the Ci'oss-Bordei' Action was an
iiiterpretive rule. ()rder, june 23, 2014 lDkt. No. 48]. 'i`he parties completed their supplemental
briefing on .luly 18, 2014.]1 'l`he parties presented oral arguments on the dispositive inotions

now pending before the Court on .luly 30, 2014.

PAR'l` TW(): STAN])ARDS OF REVIIIW
l. l\/lO'l`lON TO DlSl\/llSS
'l`lie Cl""l`C moves to disiniss plaintiffs’ complaint under Rule i2(b`)(1) of the
li`ederzil Rules of`Civil Procedure for lack of standing and, as to the Cross»Bordei' Actioii,

ripeness. Cl*"`l`C l\/lot. at 15. "On a motion to disiniss for lack of subject inatter_iurisdiction, the

plaintiff bears the burden of establishing that the Court has jurisdiction." Si'errci Clul) v. Jcicktroi'i,

813 l*`. Supp. 2d 149, 154 (D.D.C. 201 i). At the same time, the Court "‘must accept as true all

()pposition to l’laiiitif`fs’ l\/lotion for Stiiiiiiiary .ludginent, and l\/lotion to Disiniss in Part
("Ci`i"l`C’s Reply"), l\/fay 2, 2014 [:Dki. No. 40].

m iS`ee Brief`ofc`tlie Chainber of Connnerce of the United States of Ainerica as
Aiiii`ci.i.s' (ff'i./r'icie in Support of`l’iziiiitiffs’ l‘\/lotion for Stiiniiiary .ludgment, l`*`eb. 3, 2014 [Dk't. No.
25:]; liriel"of Bettei' l\/lai'kets, lnc. as /liiii`cii.s' Curi'cie iii Support of Defendant CF'I`C, l\/far. 19,
2014 [Dkt. l\lo. 33]; Briel"ofl`Curreiit and Foriiier l\/leinbers of Congress as Aiiii`ciiis' Curi'cie in
Support of`l`)efl`<~:iiclaiit Cl""l`C, l_\/lar. 21, 2014 [Dkt. No. 46].

ll See Cl"']`C’s Suppleinental I`Si'ief Filed Pursuaiit to Order Dated June 23, 2014
("Cli"l"C Siippl. `L`Sr."), july l_8_. 2014 [:I`)kt. No. 53l; Siippleiiieiital Briel" for Plaiiitiffs ("Pls.’
Stippl. Br."), .luly 18, 2014 [_`lf`)l422 U.S. 490, 501 (1975)).

'l`he Court "may consider documents outside the pleadings to assure itself that it
liasjiiristlictioii." Ai'-()ii»ficili` it A.s'ficrii_ifi, 279 l`i`. Supp. 2d 13, 21 (D.D.C. 2003); accord P{aose v.
Se.r.rii)ii.s', 835 li`.2d 902, 906 (D.C. Cir. 1987) ("lii 12(b)(1) proceedings, it has been long
accepted that the judiciary i'nay make ‘appropriate inquiry’ beyond the pleadings to ‘satisfy itself
on authority to entertain the case."’ (quoting Goi‘c;loii v. Ncii 'l l”otii!i Work/I!i'i`cii'ice, 675 l`*`.2d 3561
362~63 (D.C. Cir. 1982))). l\/loreover, the Court’s consideration of supplemental inaterials_
such as plaintiffs’ declarations in this caseedoes not convert the CF'l`C’s motion to disiniss into
one for stiinmaryjudginent. See Orcz’, 587 F.3d at 1 140; see also ffcici.s'e, 835 F.2d at 905 ("l"f]lie
plain languaige of Rule l2(b) perinits only a 12(b)(6) motion to be converted into a motion for
summary j tidgnieiit.")', Goi"doii, 675 l`*`.2d at 363 n.l8 ("[T]lie impropriety of transforming Rule
12(1))(1) inotions into suinmary-jiidgineiit inotions is well-settled."). lnstead, if the Court’s
jurisdiction "does not adequately appear froin all inaterials of record, the coinplaint must be

disniissed." l/l/oi‘lh, 422 U.S. at 502.

ll. MO“I`ION FOI{ S`Ul\/.[l\/IARY .lllDGl‘\/ll`-ENT
'l`he parties have also filed cross~iriotioiis for suinmai'y judgment. "{Wjlieii an
agency action is elialleiiged[:, t:]he entire case on review is a question of law, and only a question
oflaw." llfi'rii~slicil/ Ciiiy. filecililr Ccire Aui!i. v. Slicii’cii’ci, 988 l*`.2d 1221, 1226 (D.C. Cir. 1993`).
Wliile the general standard for sunnnary judgment set forth in Rule 56 of` the l" ederal Rules of
C` /il l’rocecliire does not ti}.iply to a review of agency actions, suinmary judgment nonetheless

"servcs as the iiieeliariisin for deciding_. as a matter of law, whether the agency action is

27

stipported by the administrative record and otherwise consistent with the APA standard of
review." Sierr'cr C.`/ul) v. Mcrine!/cr, 459 li`. Supp. 2d '76, 90 (I).D.C. 2006) (citing Ri`charci`s v. INS,
554 i*`.2ci l 173, I 177 & n.28 (D.C. Cir. 1977)); crc‘cc)i"d [f]’!l/r'(..` ]j'rcrddock v. }Icrii'rfis‘, 934

F. Supp. 2d 238, 245 (D.D.C. 201 3); Collage }Iecn'th Sy_s'. v, Sebelizr.r, 631 F. Supp. 2d 80, 89~90
(]1).1`).(§.20()9).

Under the APA, a reviewing court shall "hold unlaw'l"tll and set aside agency
action, tindings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). ""his is a ‘deferential Standal‘d’
that °presriine[:s_] the validity of agency action."’ Wc))"lct(,"r)ivv, ])“)c. v. fi`(,`C, 238 li`.3d 449, 457
(D.C. Cir. 2001) (alteration in original) (quoting tS`w Bell l"el. Cc). v. FCC, 168 F.3d 1344, 1352
(I).C. Cir. 1999)).

°‘An agency decision is arbitrary and capricious if it ‘relied on factors which
Congress has not intended it to consider, entirely failed to consider an important aspect of the
problem, offered an explanation for its decision that runs counter to the evidence before the
agcncy, or is so implausible that it could not be ascribed to a difference in view or the product of
agency expertise."’ C`c!bleviis'io)v Sys. Cc)rg). v. 1*`(§'(,`, 649 F.Sd 695, 714 (D.C. Cir. 201 i) (quoting
Mr)fr)r `i»'/elvi`cz'e M}‘i:s‘. /Ls's‘ ’)v v. Slale li`czrr')r Mw. Auto. Ins. Co., 463 U.S. 29, 43 (1983))', accord
Agc;'})e Chz.rr'c'/r, lnc. v. FCC‘, 738 li".$d 397, 410 (D.C. Cir. 2013). The Court’s "liinited" review
"foctlses on the reasonableness of the agency’s decisionmaking process" and is "particularly
de'ferential" where the agency’s decision is "priniarily predictive" and the agency has
‘“acl664 F.3d 940, 943 (D.C. Cir. 2012) (internal quotation
inarl504 U.S. 555, 560 (1992), requires that a plaintiff"sltow (l) it has
stifiered an ‘in_iury in fact’ that is (a) concrete and particularized and (b) actual or immincnt, not
conjectural or hypotheticai; (2) the injury is fairly traceable to the challenged action of the
def`endant; and (3) it is lilcl 243, 248 (D.C. Cir. 2013), "only one plaintiff must have standing" f`or
each claim to survive fn re Ncrvy Chczplczirtcy, 697 F.?>d l l7l, l 178 (D.C. Cir. 20I2); crccr)rd
Grc)cer_i» Mfi'.s. /l.s.s‘ ’n v. fi`P/l, 693 F.3d 169, 175 (D.C. Cir. 2012).

Because plaintiffs are trade associations and do not assert standing "on their own
bchalti`," I*Iaven'.s' Recn.'ly Cr))"p. v. Cr)/enicm, 455 U.S. 363, 378-79 & n.l9 (1982), they must satisfy
the standard for associational standing established in ]Jurv/ v. Wc:.s'hiriglori Slcrlc App»fe Acz’verri.sz'ng
(f'r)rriiiti.r.s'z'on, 432 U.S. 333 (1977). Undcr Hz,rnr, an association has Article lll standing "‘only if

(l) at least one ofits iiiernbers would liave standing to sue in his own right', (2) the interest it

29

seeks to protect is germane to its purpose; and (3) neither the claim asserted nor the relief
requested requires the rncinbei' to participate in the iawsuit."’ Aiii. Tr~ac'kir:g /.t.s'.s' 'n.s‘, 724 l*`.3d at
247 (qtiotir)g Rcri`)i/)c)i»v/PUS}I Cr)¢'rlitir))v v. l'i`(,.`(§', 330 F.3d 539, 542 (D.C. Cir. 2003)); crccr)rd
Na/ ’l Ais~.r ’n o_f`[“[orne B.tiildcr.s' v. IEPA, 667 `li.f’>ci 6, 12 (D.C. Cir. 201 1). Plaiiitiffs bear the burden
of specificatlly identifying at least one "ineinber fjwho] had or would suffer liarm" froin each
challenged agency action. Strriinier.s' v. Ecrrtlv l.s'lcrnd Iiist., 555 U.S. 488, 498 (2009).

'l`here is no dispute that the plaintiff associations in this case satisfy the second
and third litem prongs C_`)’.` /lm'. Tr'trcfciit(g /ls‘.s‘ ’ns‘, 724 iii/3d at 247 (describing a national trade
association’s interest in challenging a rule regulating its industry as “obviotis"). "i`lie CF'I`C
questions only whether any of plainti'fts’ inembers wouid have standing to challenge the Cross-
Border Action or the 'l`itle Vll Rules in their own right. See CF"l`C l\/lot. at 56~59', CF'I`C Suppl.
Br. at 2-8.

'l"he D.C. Circuit has noted that standing often will be "self-evideiit" where an
association’s inember is "‘an object of the [:agency} action (or foregone action) at issue’ . . . as is
the case ttsually in review ofa rulemal733 F.3d 1208, 1228 (D.C. Cir. 2013). And it
is "the burden of the piaiittifl" to atddtlcc facts showing that those [:tiiird-party`l choices have been
or will be made in such inannei' as to produce causation and perinit redressability of injury."
Ltrjcrrv, 504 U at 562. Relatediy, "|:ir]o sliareliolder~»»~iiot even a sofe sliareliolcler-~-~lias

standing in the ttsual case to bring suit in his individual capacity on a claim that belongs to the

30

corporation." /lrn. Air‘rvc:“v.s' Chcr."lcr‘.s', lnc. v. Regczr.», 746 i*`.2d 865, 873 n.14 (D.C. Cir. 1984)',
c:ccc)m' Scfrenle_i/ Dr`.s!ifr'cr.r Cor‘p. v. Ifrrited t$`{clles‘, 326 U.S. 432, 435 (1946).§2
'l`o establish standing ptirstiarit to these established principles, the plaintiff

associations must identify f`or each challenged 'l`itle VII Rule at least one rneinber' ofone of their
assoc-iatiorrs that is regulated or directly liarmed by that Rule’s extraterritorial application. For
the lintited ptirposes of its standing anafysis, the Court must assume that plaintif'fs are correct that
the Cross-Bordei' Action is a binding legisiative rule carrying the three of law. rS`ce Cr'ty of
Wcrrrkcshcr v. EI’/l, 320 li.3d 228, 235 (D.C. Cir. 2003) ("[I]ti reviewing the standing question,
the court must be careful not to decide the questions on the rnerits for or against the plainti'ff, and
must therefore assume that on the inerits the plaintiffs would be successful in their claiins.").

U nder this assumption, the Cross-Bordei' Action defines the scope of the 'l`itle Vil Rules’
extraterritorial applications under 7 ll.S.C. § 2(i). 'l`hus, plaintiffs’ standing to challenge the
extraterritorial application of array 'l"itle VI] Rufe will establish their standing to challenge the

Cross~Bordel' Act'iori.

12 ln this Circuit, the shareholder standing rule has both jurisdictional and prudential
ttnderpiiitiiiigs. Sce Cherrj) v. FC_`C`, 641 I"`.Btl 494, 497 (D.C. Cir. 201 l). Bui tree Ii`rcrrrc'h.r`se 7121/x
Bd. v. Aicczn Alrrrir:`nz`z.rnr Llci., 493 U.S. 331, 336 (1990) (describing the shareholder standing rule
as "prtideiitial"). But whether the shareholder standing rule is jurisdictional or prudential is
functionally irrelevant in this case. l~` or associational standing requires that plaintiffs rely on
their inembers to establish both Article 111 and prudential stariding. Scc Nal ’l A.r.s' 'n o_f`{alo)ric
],?tr."lci'cr.s' v. U.S. Ar‘nry Corp.s' Qf'li`rrg 'r'.s', 417 F.3d 1272, 1287-89 (D.C. Cir. 2005) (analyziiig and
denying associational prudential standing based on interests ofmenibers rather than general
interests of association); }fcrzcir"dr)zi.s' Wcr.s‘rc Tr'cci!nticril Cozuvcr`l v. Tlir)rr.rczts', 885 l`*`.2d 918, 927
(D.C. Cir. 1989) ("Because none of l~~IW'l"C’s iiiernbers would have prudential standing to pursue
this action in its own right, l~~lW'l`C does not have standing to sue on their belialf.")', sec crls'c)
ill/Icri:ri$`rr'ccl O);g. of'ltecrflor.i' v_ (f.`cifruzier Cify__ 505 F.3d 742, 745~46 (7th Cir. 2007) (corisideriiig
whether association’s tiieinbers--wlio had Article lll standing~~also had prudential third-party
standing)', Pcr. f’.syc'!ricrrricv ,S‘oc' ’y v. Grccn Spriiig }fccrllh Serv.r., ]r.'c.'., 280 l*`.3d 278, 287 (3d Cir.
2002) (sanie).

31

A, l)cclcrr'c:ti`r)ii.s in Str,r)j)or! ofthe l’lcn`nIijf`/lssr)cicrtir)n.s ’ Starici'r`ng
Based on the declarations the piaiiiti‘ff associations filed in support of their

standing, pfaiiitili`li`s’ iiiembers rnay be classified  either foreign~ or U.S.-based. '3 l’laiiitit`t`s’

foreign-l')ased iriembers Societe Cienerzile ("S i") (a Frencli coinpany and inembcr of 1113,
ISDA, and SII*`MA) and Deutsche I_Bank AG (a Gernian cornpaiiy and member of 1113 and
lSl')/a\)»sliare key characteristics. Both registered as swap dealers prior to the Cli"l`C’s
promulgation of the Cross-Border Action. Declaratioii of Fraiicois Bartheleiny, l\/lanaging
Director, SG ("SG Decl."), .lan. 27, 2014 [Dl2014 WL 3714701, at *3 (D.C. Cir. .luly 29, 2014). And third, at the summary
judgment stage, the Court rnust view the evidence in the light most favorable to the non-nioving
party. See f[crriipl»:)ii v. l/i/sack, 685 l*`.3d 1096, 1099 (D.C. Cir. 2012); sec czl.s‘c) Lr{jcrzr, 504 U.S.
at 561 ("}:l`fi_']acli eleinent lofstaiidirig] must be supported in the same way as any other matter on
which the plaintiff bears the burden of r)root`, i.e., with the tnanner and degree of evidence
required at the successive stages of the litigation."); Piivts'ozv v. Scririticl.s', -- 1Y3d ~-~, 2014 Wl`_,
3824223, at *4-5 (D.C. Cir. Aug. 5, 20!4).

32

the Sl?lli` Registration and 'l"racle l`;'lxectitioti Rules. SG Decl. 1111 8, 10; Deutschc Bank Decl. 1111 8,
10.

Plaintiffs’ U.S.-based inembers collectively address each of the challenged 'l`itle
Vll Rules. See, c,g., .lPl\/Iorgaii Decl. 1111 7-8, 10-20', Declaratiori of Thoinas Riggs, l\/Ianagiiig
Dircctor, Goldman, Sachs & Co. ("Goldinaii Decl."), .lan. 27, 2014 [Dkt. No. 22-21 1111 8-9. "l`lie
U.S.-based inembers, however, are not themselves subject to the extraterritorial application of
the 'l`itle Vll Rules, as a result ol` the Cross-Bordei' Action or otherwise. lnstead, it is the U.S.»
based iiiembers’ legally distinct foreign affiliates that are subject to the Rules’ extraterritorial
applications For example, J.P. Morgan Securities LLC and Jl’l\/lorgaii Chase & Co.-»»~riieliibers
of Sll`+`l\/lA and ISDA, respectively-are not regulated extraterritorially by the “l`itle Vll Rules
pursuant to the Cross~Bordci' Action. JPl\/lorgaii Decl. 1111 1, 7-8. Rather, their 'foreign
guaranteed afl'iliate, .I.P. l\/lorgan Securities plc, is regulated extraterritorially by many of the
'l`itle Vll Rules pursuant to the Cross-ll’»ordei‘ Action, but is not a t`ormai member listed on the
rnembership rolls of the plaintiff associations. Jl’l\/lorgan Decl. 1111 7, 9-l8. Similarly, while
Goldn'ian, Sachs & Co.---a member of lS DA and SlFl\/lAmis not regulated extraterritorially by
the 'l`itle Vll Rulcs pursuant to the Cross-Bordei' Action, severai ofits foreign ttfliliatesa
including afliliattes that act as coridtrits--~-»-are. Goldman Deci. 11114, 7.

On July 18, 2014, in support of their supplemental briefon shareholder standing,
the plaintiff associations also submitted declarations of corporate counsel regarding their
organizational structures and operations Sce Declaration of lra D. l»lannnerniarl, I';`xectitive Vice
Pl'esideiit & Gcneral Counsel, SIFMA (“SI'FMA Decl."), .luly 18, 2014 [Dkt. No. 54-1'1',
Declaratioii of Katherine 'l`ew Darris__ (ienerztl Counsel, ISDA (°‘ISDA Decl."), july 18, 2014

|:Dl814 F.2d 663, 669 (D.C, Cir. 1987); sec cil.s'o Tozzi' v. [)'..5`. Dep 7 off~ilccillfi cfc ffi,iiiiciii
Scrv.r., 271 l*`.3d 301, 309 (D.C. Cir. 2001) (PVC iiianuf`acturei' had standing to cliallenge l~ll~~lS
rule listing dioxin as a "kiiown carcinogen" because the rule would be a "substantial factor" in

liealtlicare conipanies’ decisions to stop ptn'chasiiig PVC products); l’ei'iiiripots'i l’rods., fritz v.

in connection with a stiinmary judgment motion '“‘iiitist be made on personal knowledge" and "set
out facts that would be admissible in evidencc." lied R. Civ. P. 56(c)(4). But the foreign SEFs’
rationales for denying SG’s and Deutsche Banl< AG’s ll.S.~based personnel access to their
platforms fits squarely within the then-existing state of mind exception to liearsay, which applies
to stateineiits of"iiiotive, intent, or plan" by an out-of-cotirt declarant, whether or not that
declarant is available as a witness rS`ee Fed. R. lFivid. 803(3); c;f.` (i?lekleii v. Deiiioci~ciii`c Coiig.
Cciiiipciigii Coiiiiii., Inc., 199 l"`.3d 1365, 1369 (D.C. Cir. 2000) ("While a nonmovant is not
required to produce evidence in ziforirz that would be admissible at trial, the evidence still n'iust
be capable of being converted into admissible evidence." (enipliasis in origiiial)).

36

Mcfi’trgh, ~~ l'*`. Supp. 2d --~, 2014 Wl_. 3()565()6, at ’*‘5 (D.I.).C. july 7, 2()14) (treated wood
producer had standing to cliallenge agency action increasing cost of installing treated wood
products vis-a-vis non~treated wood products, thus decreasing likelihood that third~parties would
use treated wood in the fi`titure).

Based on the record in this case_, it is clear that the extraterritorial application of
the Sll€l*` Registr'atic)ii Rule represents a "substantial factor"~wiiideed, the c)rn’y identified factor_
in the decisions of the foreign Sliil*` s to deny platibrni access to SG’s and Deutsche Bank AG’s
U.S.-based personnel Were the Court to enjoin the CF'I`C from applying the S]`;IF Registration
Ruie extraterritorially, these foreign SEFs likely would make their platforms available to SG’S
and Deutsche Bank AG’s U.S.-based personnel. Accordiiigly, the Court concludes that plaintiffs
have demonstrated standing to clialleiige the extraterritorial application of the Sl`il*` Registratioii
Rule through their inembers SG and Deutsche Banl< AG.

l,ike the SEF Reg,'istrzitioii Rtiie, the Trade I?lxecutioii Rule also regulates Slil"`s,
not swap dealers. 'i`he 'li`rade l§ixecution Rule cstablished, infer ar`fc:, a six~factor fraineworl<
under which registered Sl%§l*`s and DCMS determine whether certain types of swaps are "available
to trade." See 78 l~ied. Reg. at 336l2-l3; crccord 17 C.I*`.R. § 37.10. A determination by an SEF
or I)Cl\/I that a type of swap is "available to trade" triggers the s'tcrtaiory requirement that
registered swap dealers like SG and Deutsche Bani< AG generally must execute that type of swap
on registered Sl§§l*` or DCM platl"orms. See 7’ U.S.C. § Z(li)(S)(A)~(B) (reqtiiring "swaps subject
to the clearing requirement" of Section Z(h)(l) to be executed on S]§."ll`~`s or DCl\/is unless the
swaps are not "available to trade"); 17 C.I*`.R. § 37. lO(c) (triggeriiig Section Z(li)($)(/~\) "|ulpori a

determination that a swap is available to trade"). Bxecutiiig swaps on Slf:`,l*` s registered with the

37

CF'|`C costs more than trading swaps bilaterally. Pls.’ Standiiig Br. at 10; .s‘ee also JI»"I\/lorgait
Decl. 11 i¢)(`b).

But tinlilj) (_`.`<). v. I*‘IL`IEC, 248 l"`.3d l ]92, l 195 (D.C. Cir. 2{)0]) ("'l`liere is quite a gulf between the
antipodes of standing cloctrine_tlie ‘iiniiitinent’ injury that sul`lices and the nierely ‘conjectural’
one that cloes iiot."); see cr!.s'r) l,ci. ]E.=ivri. /icfi'on Nettrork v. Broirner, 87 l*`.3d 1379, 1383 (l).C.
Cir. ]996) (fiiidiiig that alleged injury was not imminent when it required "rrittlti-tiered
spectilatioii"). Because plaintiffs bear the burden of adducing facts that demonstrate standing,
see luz,gjcrii, 504 U.S. at 562, and have failed to do so here, the Court concludes that SG and
Deutsche Bank AG lack standing to challenge the extraterritorial application of the 'l`rade

lf§xecutioit Rttle.l?

C. I’!czz`iilt_r.`)"j‘.i‘ ' Slctncii`iig l}crsed on Thez'i' ]ilc)rrncrl U. S.-bcrsed Me)rtber.s~

Plaiiitifls’ standing to challenge the entity~level "l`itle Vll Rules the Entity
Deliiiitiori, Swap Entity Registration, Risl< Managenieiit, Chief Conipliance ()fficer, SDR
Reporting, l~listorical SDR `.Reportiiig, and Large Trader Reportirig Rtiles-~is not immediately

atpparent. 'i`liis is so because plainti'l"fs’ fornial U.S.-based inembers are not themselves stib_ject to

ll° lndeed, to date it appears that U.S.~based Slfil*`s and DCl\/ls have made all of the
"availahle to trade" determinations. See E§tt»cn).s' Made Availcrbfe 10 Trczde l)eler‘iiri)vcrlfon, Cl*"l`C,
http://sirt.cftc.gov/sirt/sirt.aspx?'i`opic=Swapsl\/l`adeAvailable'l`o'l`radeDeteriniiiation (listing live
"available to trade" cleteriniiiatioiis, all of which were inade by U.S.-biased Slfil*`s or l)Cl\/ls) (last
visited Sept. 16, 2014).

17 Even ass\.miiiig plaintiffs had standing to challenge the 'l`rade Execution Rule
through SG and Deutsche Bank AG~-~~oi‘ any other iitember-ztll of plaintiffs’ claims regarding
the 'l`rade Exectitioii Rule would fail on the inerits. Plaintiffs’ failure to identify cornments for
the 'l`rattc lf£xectitioii Rule that addressed the scope of the Rtlle’s extraterritorial application, .s'ee
.s'irj)r'cr note 2, is iiatal to their claims See Nci! ’l W."t.’dfi)‘e Fed’n v. EPA, 286 l'~`.3d 554, 562 (D.C.
Cir. 2()()2); see arise .f`:ifi"cr note 3().

39

the extraterritorial application of those Rules pursuant to the Cross~Border Action. lnstead, the
entity~level Rules apply extratterritorially to the forinal iiiembers’ legally distinct foreign
a'fl`ilia.tes. See, e.g., .lPl\/Iorgart Decl. {{1| 7~8; Goldman Decl. 1'|‘§| 4, 7`.

"As a general rule, two separate corporations are regarded as distinct legal entities
even if the stock of one is owned wholly or partly by the ot'her." l W|LLIAM l\/ll'~;/\Dl'£ lt`l-t§'l`c_“t-lt§-;tt
r;'r Ai_.., Fiuis'i"ciz-iii-:it Cvci,.oi>ii-:oia or 'ri-n: l_./\w or ConPoit/t'rions § 43 (perni. ed., rev. vol. 2013);
.s'ee also l)ole Food Co. v. l’crlr‘i`c!c.s'oii, 538 U 468, 474 (2003) ("A basic tenet of Ainerican
corporate law is that the corporation and its shareholders are distinct entities."). On this basis.
the sliarelioldei' standing rule generally precludes a parent corporation-iiideecl, any sole
shareholder~»~»~froiii having standing to bring an action on behalf of its subsidiary (foreigii or
dornestic). See ]i`i"c.'nc/ti.s'e Tclx Bd. v. /llc'cn? Alzinii'ititnii Lld., 493 U.S. 331, 336 (1990)', /lm.
Airt»vcry.s' Clicir'/e)as', 746 F.Qd at 873 n. 14. 'l`lie rule serves the noble function of preventing parent
corporations from having their cake and eating it too:

Where a parent corporation desires the legal benefits to be derived from
organization ofa subsidiary that will function separately and autonomously in the
conduct of its own distinct business, the parent must accept the legal
consequerices, including its inability later to treat the subsidiary as its alter ego
because ot`certain advantages that mi ght thereby be gained.
fn re Beelc !iici’zzs',, ]iic,, 479 F.Zd 410, 418 (2d Cir. 1973); see ols‘o Schenley Di.s'ri`llers' Corp., 326
U.S. at 437 ("While corporate entities may be disregarded where they are made the implement
for avoiding a clear legislative purpose, they will not be disregarded where those in control have
deliberately adopted the cor;_sorate form in order to secure its advantages . . . .")', l/Villi`cniis' v.
Mor"¢/fcc)_;‘.`s~/t_i), 901 F.Zd 158, 164 (D.(,`.. Cir. 1990) ("l*lacl |:the corporation] declared bankruptcy, it

is certain that the lplaiiitit"l`sj| would not be so quick to request that we disregard the corporate

foriri."); USA Intercie'tive v. Dow f.o!iiie.s‘ cfc Al!)er'/.s'oii, PLLC.`, 328 1"`. Supp, 2d 1294, 1310-l l

40

(l\/l.l). l*`la. 2004) ("[:I]t seems inequitable to allow [_ithe parent] to consciously cloak itself in the
corporate veil as a shield to the liabilities of its subsidiaries only to allow it to voluntarily
clisregzirci that separateness when it serves its iiiterest."); Pci. li`ng’g (_`.‘oi;i). v. !s'/'ip lles. }€ec'ot)e)“y
Agei~iqt», 710 F. Supp. 456, 465 (IE`,.D.N.Y. !989) ("[A] parent corporation cannot create a
subsidiary and then ignore [its] separate corporate existence whenever it would be advantageous
to the parent." (second alteration in original) (internal quotation marks omitted)); Bro.s‘s Ut:'li.ti`e.s'
Seri). Cory). v. Al’)oubs!rczi`f, 618 F. Supp. 1442, 1445 (S.D.N.Y. l985) ("["l`]lie courts will not
allow a poi~en! to pierce the corporate veil it created for its own benef`it, so as to assert the claims
of its subsidiary." (eiiiphasis in original)).ls

U nder these same principles, a subsidiary cannot bring a suit on behalf of its
parent, let alone other inembers ofits extended corporate family. See Coris'ti‘ul'oclo, SA. De C. l/.
v. Conficci.s'ct I“Io[dz`rtgs‘, ]nc., 2014 WL 427114, at *4 (S.D. 'l`ex. .lan. 31, 2014) (“A sister
corporation cannot sue on behalf of another sister corporation."); C'lcirex Ltd. v. Ncili`xi`.s Sec. A:zi.
LL(`,`, 2012 Wl,, 4849146, at "‘6 (S.D.N.Y. Oct. 12, 2012) ("lt is black~letter law that one
corporation cannot assert an affiliate’s legal ri glits."); Mi`lchell Co. v. C`oni,r;'a.s'_. 2009 WL
1758835, at *5 (S.l`). Ala. June 17, 2009) ("[A] corporation does not have standing to assert
claims belonging to a related or closely affiliated corporation simply because their businesses are

iittertvtiiiied."); R & 13 Reci!l_y G)~p. v. ffei`.ser, 322 F. Stipp. 2d 206, 210 (D. Conn. 2004) ("'l`lie

mere relation of entities is not shown to confer standing upon all."); l)i`e,sel Sy.r., L!d. v. l’i`g;~ .S`lii'ivg'

ll 'I`he shareholder standing rule is "{r]elated to" the rule against third~party
standing. See I*l'crrielvi.s'e Tcix Bci’., 493 U.S. at 336. Under the third-party standing rulc, a
"plaintifl` generally inust assert his own legal rights and interests, and cannot rest his claim to
reliefon the legal rights or interests of third parties." l/Vcrrfh, 422 U.S. at 499. "A plaintiff may
assert the rights of a third party only when there is ‘some hindrance to the third party’s ability to
protect his or her own iiitcrests."’ Goodrnci)i v. FC'C`.`, 182 F.Bd 987, 992 (D.C. Cir. l999)
(qttoting Potrei:s v. O/ir`o, 499 U.S. 400, 41 1 (1991)).

41

l)ie.s'el Eiig’g Co., 861 l*`. Supp. 179, 18l (lfi.l_).l\l.Y. 1994) ("A cort)oratioii does not have

standing to assert claims belonging to a related corporation, sirnply because their business is

iiitertwiiied."); Pz`cltrre Lczke 'crn't'jr_)grotriicil, lnc. v. l'rl'oli`dciy Iiii').s‘, Iiic., 497 F. Supp. 85 8, 863 (E.D.

Va. 1980) (concluding that the shareholder standing rule "applies with equal force to a sister
eorporatioii"). 'l`hus, in this case, the sliareholdei' standing rule would seem to preclude
;olaintit"fs’ forrnal ll.S.»bzised inembers froin asserting standing based on the extraterritorial
regulation of their legally distinct foreign affiliates
The plaintiff associations argue, however, that the shareholder standing rule does

not apply here 'for several different reasons. 'fhe Court is not persuaded by any of them. First,
the plaintiff associations contend that the shareholder standing rule does not apply because the
extraterritorial application of the 'l`itle Vll Rules to their fornial U.S.-based incmbers’ foreign
al`liliates "burdeiis the eritire corporation fainily," including the U.S.-based inembers. l’ls.’
Stippl. Br. at 2. "l`lie Supreme Court has endorsed an exception to the shareholder standing rule
"allowing a sliarelioldei' with a direct, personal interest in a cause of action to bring suit even if
the corporation’s rights are also implicated." Frciiichr`.s‘e Tox 13¢)'., 493 U.S. at 336. Under this
exccption, however, the plaintiffs injury must be distinct froin and cannot be "derivative" of
injuries sustained by the affiliated corporation. See Lcrbovifz v. Wcis'hr'ngfon Ti`nie.r Corp., 172
l*`.3d 897, 901 (D.C. Cir. 1999) (gtiarantee of eorporation’s debt obligations does not overcome
general sliareholtlei' standing rule); Wi`!/icirri.s‘, 901 1*`.2d at 164 (lost business opportunity belongs
to corporation, not shareholder). l*lere, the linancial injuries to plaintiffs’ fornial U.S.-based
inembers and their "entire corporate 'l"ziiiiil[ies]" are purely °‘derivative" ofthe costs incurred by

the legally distinct foreign affiliates when complying with the 'l`itle Vll Rules abroad

42

Second, the plaintiffassociations aver that their fornial U.S.-based iriembers have
standing because the "crciss-bordei' zipplicatioii of the "l"itle Vll rules drainatically affects how
[ their f iiieiribers must conduct business through their afliliates, including whether to guarantee
foreign affiliate transactions, engage in swaps through or with their ‘afl"iliate conduits,’ and
separately iiicorporate or capitalize foreign affiliates or branches." Pls.’ Stippl. Br. at 2. f" or this
argument, plaintiffs rely on BellSotitli Coijo. v. li`CC, 144 F.3d 58 (D.C. Cir. 1998). In that case,
the D.C. Circiiit held that BellSotitli had Article ill standing to challenge a regulation of two of
its stibsidiaries on two bases: (1) because BellSouth was the "sole shareholder of lthe`j two
aflected corporations," and (2) because, under the regulation, "BellSoutli [_“was] itself affected; it
c[:ould] engage in electronic ptiblisliiiig c)iily by iiiaiiitainiiig structural separation froin its
[subsidiariesl." Bellf>`oirlli, 144 F.Bd at 62 (emphasis added). 'l`his case is distinguishable froin
Bellf>”ouili, however, because the challenged regulations have no direct extraterritorial effect on
the plaintiff associations’ fornial U.S.~based inembers.

Altliough the 'l`itle Vll Rules undoubtedly may affect how the formal U.S.-based
iiiernbers clioose to structure their corporate faniilies and engage in swaps transactions with
foreign ali`liliates, the Rulesm-iiiilike those in llellb`oi¢ll W~aell/iei" iiioiia'cife iior_/orl)i`d any
particular corporate structure or relationship. Aiid although the formal U.S.-based inembers may
dictate the actions of their legally distinct foreign affliates, the primary burdens of the 'fitle Vll
Rules’ extraterritorial applications fall squarely on the legally distinct foreign affiliates /-\iiy
harm to the fornial U.S.~based rnembers, or the corporate faniily as a wliole, is thus purely
derivative of the burden on the foreign affiliates 'l`hese derivative injuries are precisely the type
that the sliarelioldei' standing rule precludes. See, e.g., C`heekir v. Foi"f Myei' Coii.s‘ii'. Co., 722 F.

Stipp. 2d 93, 109-10 (D.D.C. 2010) (no standing where plainti'ff~sliztreliolder "failed to allege any

43

liarnis that are independent of the iiijuries" to the cornpany); l`ei‘iiioi‘i`r) S.A. P. v.
li`lecli”i_'.`)‘iccicloi'ci Del /l.flcii'iffcr) S./l. li`.t$`.l’., 421 l". Supp. 2d 87, 92 (I).D.C. 2006) (no standing
where parent eorporation’s iiijuries arose from lost profits of its subsidiary corporation). Wlieii a
corporate fetmil y chooses to use the corporate forrn to its advantage for some ptiri)oseae.g.,
or)eratioiiztl efficiency, tax or regulation avoidance, or liniited liability-it cannot then disavow
that forni when it becomes inconvenient during litigation. See Sclienley l)i`s'fi`ller's' C,i`oi;o., 326
U.S. at 437; fn re fleck Iiiclt¢.s'., 479 F.2d at 418; USA lnlei"cicti`ve, 328 F. Supp. 2d at 1310~11.

'l`liird, the plaintiff associations argue that their fornial ll.S.-based inembers have
standing because the inembers represent the iriterests of their entire corporate fainilies, including
the regulated foreign afliliates, within the plaintifl`associations Pls.’ Suppl. Br. at 5. 'l`he
Stipreiiie Court established over a quarter century ago that an "association of zissociatioits" will
have "standing to sue on behalf of its member associations as long as those |:riieniber}
associations would have standing to bring the same cliallenge" through their individual inembers.
N. l’. Slcife Cltil) /lss" ’n v. Ci!y of`l\leii» l’oi"lc, 487 U.S. l, 9 (1988)', accord Bcr.sel Ac!i`ori Nelirork v.
Mcir. Aci’riii`ri., 370 F. Supp. 2d 57, 69 (D.D.C. 2005) ("[:A:] plaintiff association can be made up of
other associations who, iii turn, have individual iiiembers, and still meet the standing
requirements zirticulated in fluiil."). Relying on Neir l’oi'lc Siciie Clttl) /l.rs' ’n, the plaintiff
associations urge the Court to lind that their formal ll.S.-based ineinbers are themselves
ci,s;roelcizioii.s~ who can claim standing based on their legally distinct foreign afliliates, who are
like nienil)er.s'. Pls.’ Stipi")l. Br. at 5.

'l"lie problem is that the plaintiff associations’ formal U.S.-based inembers are nol
"iiieiiil“)ersliip associations” lbrmed to represent the interests of their entire corporate fainilies.

'l`liey are not "zissociatioiis" at all. (;_t'/.' AI’C`C` Sei"v.s'., liic:. v. Spi"i`iil (,,`o)ii)iic' 'ns (..`o., 418 l"`.3d

44

1238, 1253 (D.C. Cir. 2005) (Seiitelle, l., concurring in part and dissenting in part) (concludiiig
that iilaiiitif"i` corporations were "in no sense ‘rnenibership organizations.’ "I`liey are not even
‘orgaiiizatioiis.’ 'l`hey are iiicorporated entities-~legal persons~»»waiicl their clients are no inore
their ‘rnenibers’ than a law lirm’s clients are the l'irm’s inembers."),_;'aclgiiieiil vcicolea.', 550 U.S.
901 (_2007). lndeed, endorsing plaintiffs’ view that a single, for~profit corporation can act as an
"associatioii" representing the legal interests of each of member of its corporate family would
completely contradict the shareholder (and third-party) standing rules as well as the fundamental
principles ofcorporate law.

'flius, the Court concludes that, under the sliarelioldei' standing rule, the plaintiff
assoeiations’ forinal ll.S.-based members cannot demonstrate standing based on the fact that
their legally distinct l`oreigii affiliates are subject to extraterritorial regulation under the entity-
level 'l`itle Vll Rules. Aiid because the plaintif`fassociations’ fornial ll.S.-l“)ased inembers are not
themselves subject to extraterritorial regulation under the entity-level 'l`itle Vli Rules, those
menibers lack standing in their own right to challenge those Rules’ extraterritorial applications.
'l`he plaintiffassociations accordingly cannot rely on their formal U.S.-based inembers to

establish their associational standing to challenge the entity-level 'l`itle Vll Rules.

D. Ploliiti'j_‘jii‘ ’ Stoiicli`iig liosecl on i"lieir li`oi'izi¢il U.S`.~l)ci.recl Meiiil)ei~'.s" lr`oreigii A}_‘fi`li`ci!es
'l`he fact that the plaintiff associations cannot establish standing to challenge the
entity-level 'l`itle Vll Rules through their forinal U.S.-based inembers does not, however, end the
iiiqtiiry. l~*` or the plaintiffassociations also argue that their fornial ll.S.-based ineinbers’ foreign
aftiliates»~~-wlio are not listed on the zissoeiatioiis’ iiieinbersliip ro1ls-~are_fi.inctfoiicillj» inernbers
ofthe associations for purposes of an associatioiial standing analysis Pls.’ Suppl. Br. at 4~5.

And, the argument continues, because the foreign affiliates_uiilike the iformal ll.S.-»based

45

inembers~--are directly regulated by the extraterritorial application of the entity~level 'l`itle Vll
Rules, theirfiiiiclr'oiicil inembership iii the plaintiff associations would provide the plaintiff
associations standing to challenge the entity»level 'l:`itle VII Rules. lcl.

Plaintiffs are correct that the associational standing doctrine does not
fornialistieally liniit an assoeiation’s inembership to those listed on its inembership rolls. Hi.ii~if,
432 U.S. at 344~45; occorcl/lrri. Legcil Foiinc)’. v. li`CC, 808 I"`.Zd 84, 89-90 (D.C. Cir. 1987).
lnstead, inembership extends to those who "possess all of the indicia of niembership in an
organization," l-Izinl, 432 U.S. at 344~45. 'fhis Circuit has identified three indicia of
niembei'sliip: "(i) electing the entity’s leadership]`g,:] (ii) serving in the entity, and (iii) financing
the eittity’s activities." llci.s‘el /lcli`oii Nent»r)rk, 370 F. Supp. 2d at 69 (citi1ig li`irnci' l)eiiioci"eiey,
ucc t»_ sirc;i', 27a rid 21, 26 roe Cir. 2002))."’

Althoiigh flzini applied its "indieia of rneriibersliip" test to a lion-traditional
organization that lacked forinal iiieinbers, see 432 U.S. at 344-45, the Court can divine no reason
why the test should not also apply to traditional trade associations that purport to represent, in
addition to their formal inembers, the interests ofinforiiial inembers as well. /-\s i)laiiitili`fs’
declarants stated, the plaintiffassociations "iiiaiiiitaiii[:] fornial inembership rolls for
aclmiiiistrzitive ptirposes." lSDA Decl. 11 7; ciccorcl SIFMA Decl. 11 7; 1113 Decl. 11 7. "Reqtiiriiig
separate, forinal ineinbersliips 11`01'1 each |`afliliated] entity would be curnbersoiiie and confusing,
as many of |their} inembers have complex corporate structures, which are subject to change."

ISDA Decl. 11 7; cieeoit'cl SlFM/-\ Decl. 11 7; 1113 Decl. 11 7. 'I`he Court concludes that "lujiidei' the

m Oi'gaiiizatioiis purporting to represent informal iiiernbers must also "serve a
specialized segment of the eoniinuiiity" and have "l"orttiiies . . . tied closely to those ofits
constituency." l}ci.s'el /1 evrioii Neivvorlc, 370 1?`. Siir)r). 2d at 69. As trade associations representing
swaps-trading financial institutions, plaintiffs easily satisfy those rcquirenieiits. See SIFMA
Decl. 1111 1,4_; I`S`DA Decl. 1111 l, 4; 1113 Decl. 1111 l, 4.

46

circumstances presented liere, it would exalt form over substance," li’imf, 432 U.S. at 345, to
deny plaintiffs the advantages of the "indicia of niembersliip" test simply because they maintain
liniited, fornial niembersliip rolls "l`oi' administrative purposes."

'l`he question presented, then, is whether any ofplaiiitiffs’ U.S.~based iiieiiibers’
foreign affiliates--wlio CF'l`C zicknowleclges are directly affected by the extraterritorial
application of the entity-level 'l"itle Vll Rules, CF'l`C Suppl. Br. at 3W"possess all of the indicia
of iiieiiibersliip"` in the plaintiff zissocitttioiis. llii)'ii, 432 U.S. at 344-45. Applying l*lzirir, the
Court finds that plaintiffs have denionstrated that the British firm J.P. l\/lorgan Secui'ities plc
("PLC") possesses "all of the indicia of inembership" necessary to be considered a_fuzieri`o)icil
inember of SIFMA and ISDA for purposes of the associational standing analysis. Slli`l'\/lA and
ISDA extend to PI_.C all of the benefits incidental to foi'inal inembership because PLC is
affiliated with a forrnal rnember ol`each associationWJ.P. l\/Iorgan Securities I.,I_,C (Slli`l\/IA) and
.lPl\/lorgaii Chase & Co. (ISDA). Sll*`l'\/lA Decl. 11 10; ISDA Decl. 11 9; see also Jl’l\/lorgaii Decl.
11 l. ln their regulatory, legislative, and litigation roles, SIFMA and lSDA advocate on behalf of
the iiiterests of both formal members as well affiliated entities like PLC. Sll*`l\/l!\ Decl. 1111 7, 9;
ISDA l)ecl. 1111 8, 10. Likewise, PLC can participate in the associations’ decision-iiiakiiig
processes by providing input on formal regulatory or legal filings, attending associational
rneetings with regulatory officials and legislators, Sll*`l\/IA Decl. 11 9, and sitting on and voting in
association working groups, conimittees_. and task forces lSDA Decl. 11 9. lt appears to the
Court that the only distinction between PI_,C and the_for)rrcrl inembers of SII~"+`MA and ISDA is that
Pl,C is not listed on the associations’ inembership rolls. PI_,C otherwise possesses all of the
rights and obligations of forinal iiicmbersliip within the associations. "fliiis, "for all practical

ptirposes" S]l"l\/IA and lSDA "jneribriii|f] the functions of. . . traditional trade associationlsj" 

47

to PI_,C. fi'irnr, 432 U.S. at 344. 'l"liis is stiflicieiit to demonstrate that PI_,C is functionally a
ineniber ol`Sll*`l\/lA and lSDA for purposes of the associational standing analysis
Pi_,C»~~»as a foreign guaranteed ‘al"tiliate of a U.S. person that qualities as a "swap

dealer," Jl’l\/lorgaii Decl. fit 5, 7(b)m»~is the "ohject” of the extraterritorial application of the
entity-level 'l`itlc VIl Rules. iS`ee Cross-Bordei‘ Action, 78 Fed. Reg. at 45312, 45368. app. C.
PLC’s standing to clialleiigc the extraterritorial application of those Ruies is accordingly "self-
evidciit." tS`ee ,S'ier')"cr Cfal), 292 F.3d at 900.20 Tlius, the Court concludes that SII"`MA and lSDA
have associational standing to clialleiige the l:"ziitity Delinition, Swap Entity Registration__ Risk
Mztriageinent, ChiefCoiiipliaiice Officer, SDR Reportiiig, Historical SDR Reporting, and large

'l`radci' Rcportiiig Ruies on behalf of their functional ineniber PLC.

E. Sz».'ivinrctry
All three plaintiff associations have demonstrated that they have associational

standing to challenge the extraterritorial application of the transaction~level Real~"l`iiiie
Reporting, Daily 'l"radittg Records, Clearing Deteriiiiiiation, Straiglit-'I`hrougli Processiiig, and
Portfolio Reconciliatioii and Docttineiitatioii Rulcs, as weil as the SEF Registratioii Rule and the
Cross~l?>ordci' Action, through their forinal ineinbers SG and Deutsche Bank AG. Plaiiitil”l`s
SIFMA and ISDA have also demonstrated associational standing to challenge the extraterritorial
application of the entity-level Eiitity Deiinition, Swap i§ritity Registration, Risk i\/laiiageineiit,
Chiei° Coinpliance Of;ticer, SDR Reportiitg, l‘elistorical SDR Rcportiiig, and Largc T rader
ileportiiig Rules through their functionai iiientbet' PLC. Plaiiitiffs iiave failed, ltowever, to

demonstrate their standing to challenge the extraterritorial application of the 'l`r'a.de liixectttioii

29 By contrast, piaiiitif`fs’ functional ineiiibers (lil387 U.S. 136, l48-49 (1967)).

'l`he ri eness tloctrine is "drawn both from Article lll liniitatioiis on 'tidicial )ower
P l

and il`roni prudential reasons for refusing to exercise jurisdiction." Reiio v. Cmhr)lic' i_S“oc/`crl
Seri).s:, i’)rc., 509 U.S. 43, 57 n. l 3 (1993). "|:'l`:|lie doctrine ol"prudeiitial ripeness ensures that

Article lll courts niake decisions only when they have to, and then, only once." /lm. Perrc)leiini

50

]n.s'!. v. I£PA, 683 F.3d 382, 387 (D.C. Cir. 2012). in assessing the prudential ripeness of an
action, "courts consider ‘both the fitness of the issues for judicial decision and the hardship to the
parties of vvit'l'ilioldiiig court consideration."` Ani. 7`0)~1 Ref€)rm /Ls'ir’ri v. Occzrjz)cr!ioncrl Scrfel_y &
f]ecrllli Ac)')iiz`iv., 738 F.Bd 387, 396 (D.C. Cir. 20l3) (qtiotiiig /ll)!)r)ri Lal)s., 387 U.S. at 149).
"'flie fitness requirement is priinarily meant to protect ‘the agency’s interest in
crystalliziiig its policy before that policy is stibjected to judicial review and the court’s interests
in avoiding tmnecessary adjudication and in deciding issues in a concrete setting."’ Arn.
Perrr)lei,uir Iri.s't., 683 l`*`.3d at 387 (quoting W_i)o. ()z.ridor)r' Cowieil v. U.S. Fc)reis‘f Serv., 165 l`*`.3d
43, 49 (D.C. Cir. l999)). "Aiiioiig other things . . . the fitness of an issue ‘depends on whether it
is ptu'ely legal, whether consideration of the issue would benefit from a inore concrete setting,
and whether the agency’s action is sufficiently final_"’ Id. (quoting All. .S`lczleis‘ Legcil ]Fr)i,rrici'. v_
IEI)A, 325 l`<`.3d 281, 284 (D.C. Cir. 2003)); tree also Ncrl ’l Air.s' 'H qf`if-Ic)iire il$ui`lder'.s' v. US. Arrir_v
C`o:y).s' of`li`rig’r,s, 417 F.3d 1272, 1281~»82 (D.C. Cir. 2005). "A claim is not ripe for adjudication
if it rests upon contingent future events that may not occur as anticipated, or indeed may not
occur at all." ]l`exa.r v, Unitedi$`!crre.s', 523 U.S. 296, 300 (1998) (eitations oniitted) (internal
quotation inarl387 U.S. 158, 164-65 (1967).
"‘ln order to otrtvveigli institutional iriterests in the deferral of review"’ addressed under the
fitness prong, "“the hardship to those affected by the agency’s action inust be immediate and

signilicant."’ Devi`cr v. Ntrc.'.'ecrr" Regirfcrfor‘y C`r)nrrii ’n, 492 F.3d 421, 427 (D.C. Cir. 2()07)

51

{quoting Ac!i`on Alli`crr'ce r)_f`Serrior Cfli`zen.s‘ cgfGrealer‘ Plillcr. v. il-Ieckler, 789 l*`.2d 931, 940 ('D.C.
Cir. 1986)). /\n undifferentiated "tiiicertainty as to the validity" of an agency action does not
alone constitute hardship. l'c)'. at 427; cicc'or'cz’ Ncrl 7 Park f-Ic)_s‘j)z`rcrli'lj,»itl.s'.s‘ ’n, 538 U at 81 l.

ln this case, plaintil;`fs’ procedural challenges to the Cross-Bordei' Action are
"clearly ripe for review." See /ir'r i'ircrrr.sj). Ass ’n v. Dep ’1 Qf`i"ii'czii.s'jn_, 900 F.2d 369, 374 (D.C.
Cir. ]990), vcrc'cii'ecf on other grr)z.ri'rc)'.s', 498 U.S. 1077 (1991). 'l`he D.C. Circuit has often
observed that "a purely legal claim in the context of a facial challenge . . . is ‘presumptively
reviewable."’ Ncrr 7 A.s:s‘ 'rr rJ_/`]fr)r‘ne Buit'.:i'erxr, 417 l`~`.3d at 1282 (quoting Ncil 'l Mi`riz`r.'g A.szs' 'n v.
Fovvler, 324 l*`.3d 752, 757 (D.C. Cir. 2003)). Plaiiitifl"s’ procedural challenges here turn on the
legal question, requiring no further factual or contextual development, of whether the Cross-
Border Action is a legislative rule, interpretive rule, or statement of`policy. See Geri_ Elec. Co. v.
EPA, 290 F.3d 377, 380 (D.C. Cir. 2002) ("|:W}lietliei' the Guidance Document is a legislative
rule is largely a legal, not a f`actual, cjuestioii, turning as it does in this case primarily upon the
text of the Docuiiieiit."). 'l`liese challenges, which can largely be "resolved on the face of the
document," Ceriierif Kr`!ri l€ec'yc'lz`ng Coc:li`iz'orr v. EPA, 493 F.3d 207, 216 (D.C. Cir. 2007), would
not "benelit froin a more concrete setting." /lf!. Srcrtes Legcrl Fowicf., 325 l*`.3d at 284; see also
Ar‘cr'en Wr)od, lnc. v. U.S. Ci`l."zer'i.s‘lrip & I)ir)r'iigrcl{io!r Sef”v.r., 480 F. Sttpp. 2d l4l, 146-47
(D.D.C. 2007). "l`lius, plaintiffs’ procedural challenges to the Cross~Bordei' Action are
prudcntially ripe for review.

ln contrast to their procedural claims, inany ofplairitif`ifs’ substantive claims hinge
on the Cl*"`l`C’s potential future application of the Cross~Border /-\ction to a variety of factual
scenarios. Although plaintifl"s’ substantive claims also present purely legal questionsas~wlietliei'

the agency acted arbitrarily, capriciously, or contrary to law-tlie CF'fC has yet to apply the

52

Cross~Bcirclei' /-\ction in an enforcement proceeding, .s'ee CF'I`C Mot. at 27, and the issues
presented would benefit from a more concrete setting. See All. Slczreis‘ Legt:rl Fc)trncil., 325 l*`.3d at
284 ("ln sliort, we have ‘the classic iiistitutioiial reason to postpone review: we need to wait for
a rule to be applied [to see] what its effect will bc."’ (altera.tioii in original) (quoting La. Eiivfl.
Aclr`r))r Nerirork, 87 l*`.3d at 1385)). For this reason, the Court very iiutch doubts that plaintiffs’
substantive clainis are ripe. See /lin. 'i"or"l Re]‘c')rrrr /ls‘.s' ’n, 738 F.3d at 396 ("/-\ ripeness issue
iioririally arises in cases in which a regulated party faces the threat of future agency enforcement
action." (eiiiplizisis in original) (internal quotation inarl`!eel Cc). v.

Cz'rizeriis“_/é)r' ci f£erter ffnv ’r, 523 U.S. 83, 97 n.2 (1998), a court may avoid "‘diffictilt and perhaps

21 l-lad the parties been in agreeineiit, as the Court concludes r`rgj‘i"cr Section il.l3.2,
that the Cross~Bordei' Action is part interpretive rule and part policy stateinent, piaintiffs’
substantive challenges to the Cross-Border Action certainly would not be ripe for review.
Although the issues presented would reinain, for the most part, purely legal, "even purely legal
issues may be tinfit f`or review." A!f. Srcrre.s Legcrl fi`ozmci’., 325 F.3d at 284; cicc'o)~cf Toz`!et Gooa.'.s',
387 U.S. at f62»64;/lz.rler1f)crefc, Irrc. v. Feci.’. ffighi/vc)y/ldrr:rz'ri., l03 F.3d 156, l67 (D.C. Cir.
1997). "fliis is particularly the ease when parties seek judicial review of "tentative," iion~biiiding
agency positions, such as those found in iriterpretive rules and policy statements. See Af)l)olf
l,cif).s‘., 387 U.S. at l5l (distiiiguisliiiig "definitive” agency pronouncements from "tentative"
agency positions); Am. 7`0:~‘1 f€eforrii As.s' ’n_. 738 F.3d at 396-97; 'I`rtrc‘ker.s~ Untlecf_fi)r" Scgfely v.
Fecf. fi’ighrvcry/id)iviiv., 139 l"`.3d 934, 937-38 (D.C. Cir. 1998); ACLUv. FC.`(.", 823 F.2d 1554,
{576-80(1`).(§. Cir. 1987). Pre-eiil"orceiiieiit review of agency positions taken in iron-binding
interpretive rules and policy statenients "‘severely coniproinises the interests’ the ripeness
doctrine protects: "`l`lie agency is denied full opportunity to apply its expertise and to correct
errors or modify positions in the course of a proceeding, the integrity of the administrative
process is threatened by piecemeal review of the substantive underpinnings of a rule, and judicial
economy is disserved because judicial review tnight prove unnecessary if persons seeking such
review are able to convince the agency to alter a tentative position."’ Ani. I’etiv)letirii In.ri'.., 683
l~"`.3d at 387 (qtroting Pz.rl). Clflzer: fleuti/li Reis‘ecrit'c'/r Grp. v. FD/l, 740 F.2d 21, 3} (D.C. Cir.
1984)).

53

close jurisdictional arguments’ by assurniiig . . .jurisdiction when precedent hals] rendered the
‘mcrits . . . plainly iiisubstaiitial.’” S/ier"r'ocf, 720 l*`.3cl at 936-37 (quoting Nor"rori' v. Mcrllrevv.s',
427 U.S. 524, 530, 532 (1976)).22 For instance, where "‘the inerits question [is] decided in a
companion case, with the consequence that the jurisdictional question could have no effect on
the otitconie,’ courts are free to ‘decline[ ] to decide th|:e`j jurisdictional question."’ lfiirorj) v.
United /li'r Li.nes, fiic., 720 l"`.3d 915, 920 (D.C. Cir. 2013) (alteratioiis in original) (quoting Sleel
Co., 523 U.S. at 98).

Here, thc Court need not look so far away as a conipanion case or even consult
Circuit precedent l"or the Court’s consideration of plaintiffs’ ripe procedural claims reveals that
the Cross~Bordei' Action is not a "linal agency action" subject to review under the APA. See
irgfi'ci Section l1.C. 'l`his conclusion requires judgment for the Cli"l`C as to all of plaintif"fs’ pre-
enforcement clialleiiges to the Cross-Borclei' Actionm»~both procedural and substantive. 'l`htis, a
definite tleteriiiiiiatioii on whether pla.intiff`s’ substantive claims are prudentially ripe would be
inconsequential to the outcome of the case. Accordingly, the Court exercises its discretion to
avoid deciding the jurisdictional question. See l§)uc)r , 720 F.3d at 920 (bypassing difficult
inootiiess issue as to some claims when the court’s iiicrits determination as to other iion-irioot

claims squarely deterrniiied the inerits as to the potentially moot claims).

22 . . . . . . . . . . .
Althougli this rule has its genesis in doctrines involving appellate j urisdiction, see

N`r)i'ton, 427 ll.S. at 530, courts have since applied it to jurisdictional questions more generally
See, e.g., r'i`riiory v, Urir`lediflii” Li`ne.s', ]iie., 720 F.3d 915, 920 (D.C. Cir. 2013) (bypassing
mootness inquiry where cornpaiiioii case squarely addressed inerits); Nczf)crycr v. f)ucfeck, -- l"`.
Stipp. 2d »~-, 2014 Wl_. 1664964, at *6 (D.D.C. Apr. 28, 2014) (bypassing personal jurisdiction
inquiry vvhere established Circuit precedent dictated disinissal on the inerits). l\/loreover, the rule
seems particularly applicable to the prudential ripeness doctrine, which seeks to avoid
"devot|j'iiigi| judicial resources when it inight not be riecessary." Tr)vvrv r)_f`$frc.t(fé)i'c)’ v. F/lA, 292
l".3d 251, 253 (D.C. Cir. 2002).

54

]3‘. i'j,»pe o_f'Agericy Actz`oir
1. Distiiietions Among l_iegislative Rules, interpretive Rules, and Policy Stateiiients

As discussed 'above, many issues in this case turn on whether the Cross~Bordei'
Actioii is a legislative rule, an iiiterprctive rule, or a policy statenient. See .si.rprcr pp. 49-50. "'l`lie
distinction between legislative rules and interpretative rules or policy statements has been
described at various times as ‘tenuous,’ ‘l`uzzy,’ ‘blurred,’ and, perhaps most picturesquely,
‘enshrouded in considerable sniog."’ Civi/y. Nufi'ifion inst v. Youiig, 818 F.2d 943, 946 (D.C.
Cir. 1987) (citations omitted). 'l"o be sure, the distinctions between legislative rules, interpretive
rules, and policy statements iiiay be stated simply and in general terms:

An agency action that purports to impose legally binding obligations or
prr)liibitioiis on regulated parties~aiid that would be the basis for an enl"orceiiieiit
action for violations of those obligations or requirements--is a legislative
rule. . . . (As to interpretive rules, an agency action that merely interprets a prior
statute or regulation, and does not itself purport to impose new obligations or
prohibitions or requirements on regulated parties, is an interpretive rule.) An
agency action that iiierely explains how the agency will enforce a statute or
regulation-iii other words, how it will exercise its broad enforcement discretion
or perinittiiig discretion under some extant statute or rule~is a general statenient
of policy.

Nilit/f, 758 l*`.3d at 251~52.23 "But those general descriptions do not describe tidy categories and
are often oflittle help in particular cases." fail lndeed, because each agency action is unique,
determining whether a given agency action is a legislative rule, interpretive rule, or policy
statenient "is an extraordinarily case-specific endeavor." Ani. Ifo.sy). Ass ’ri v. Boweii, 834 F.2d

1037, l045(1).C.Cir. 1987).

23 'l`lie D.C. Circtiit decided NAFA on July 1 1, 2014, moiitlis after the parties

completed briefing and only weeks before oral argument. Both parties filed notices of
supplemental authority with the Court prior to oral argument. Cl""`l"C’s Second Notice of
Suppleiiieiital Authority, july 18, 2014 [l)kt. l\lo. 52]; l’laintifl"s’ Response to CFTC’S Sccond
l\lotice of Siippleiiierital Atitliority, .luly 28, 2014 |:Dl197 F.3d 543, 545 (I').C. Cir. §999)).
Both factors ultimately cut to whether "tlie agency action binds private parties or the agency
itself with the ‘force of law."’ C`r"o,r_)lif)‘é Am, 329 l`*`.3d at 883 (quoting Gen. l§le¢;'., 290 F.3d at
382). 'l"lius, "an agency pronouncement will be considered binding as a practical tnatter"-attd
thus a legislative rule»~"if it either appears on its face to be binding . . . or is applied by the
agency in a way that indicates it is binding." Gen. I;i`lec., 290 F.3d at 383 (citations oinitted).

ln distinguishing between legislative and interpretive rules, "[t]lae practical
question inherent in the distinction . . . is whether the new rule effects ‘a substantive regulatory
change’ to the statutory or regulatory reginte." li`£ec. Pr"ivcicy Ir;fi). Cl)". v. US. Dep’f of
l{c)irielanci't$`»c'., 653 l".3d l, 6-7 (I).C. Cir. 201 l) (quoting US. Tefecc)rrr Ats'.r ’n v. ]i`C»`C, 400 F.3d

29, 35 (_D.C. Cir. 2005)). Ii"so, it is a legislative rule. See US. J"et'ecr)iir A.r.s' 'n, 400 I"`.3tl at

56

34~35. To determine whether such a "stil")starttive regulatory change" has occurred, this Circuit
applies a four~iactoi' test that considers

(1) whether in the absence of the rule there would not be an adequate legislative

basis for enforcement action or other agency action to confer benefits or ensure

the pcrl"oritiaiice of oluties, (2) whether the agency has published the rule in the

Code of Federal Regttla.t'ioiis, (3) whether the agency has explicitly irivol452 F.3d 798, 808 (D.C. Cir. 2006). lt "does not ‘coiiiiiiarid[,]’ does not ‘require[,]’
does not ‘order|:,]’ and does not ‘dictate]:._`]"’ Centenl Kifn, 493 F.3d at 228 (alterations in
original) (qttoting Appcn.'cicfrz`cirr Potve.'i' C`r). v. li`P/l, 208 l`*`.3d 101 5, 1023 (D.C. Cir. 2000)).
lndeed, froin its first pages, the Cross-Border Action explicitly distinguishes itself froin a
"binding rule." 78 l"ed. Reg. 21145297. instead o'f"stztt|:ing] with precision when particular
requirements do and do not apply to particular situations," it announces the Cl*"l`C’s "general
policy regarding cross-bortlei' swap activities and allows for flexibility in application to various

situations, iiicludiiig consideration ol` all relevant facts and circumstances that are not explicitly

58

discussed in the guidance." ]d. (f`ootnote omitted). Although the Cross~Bordei' Action does
convey to inarl571 F.3d 20, 33-34 (D.C. Cir. 2009)
(guidaiice was not binding where it (l) explicitly stated it was "not binding," (2) inerely
represented the agency’s ‘°ctirrent views" on a regulatory process, (3) created only "rebuttable

presumptionl:s]," and (4) only "claritie{:d]" existing statutory duties); Ceriieril' Ki`!rr_. 493 F.3d at

59

227-28 (guidance document was not binding where (1) "notliing on the face" of the document
suggested it was binding, (2) the document declared that it "d[id] not impose legally binding
requirements," and (3) the document stated that regulators retained discretion to rely on its
policies "on a case~by~case basis"); tl`fr'. joii' Atrro Sq/ery, 452 F.3d at 808-09 (guidance
documents were not binding where they (l) were labeled "‘guidelines,’ not rules," (2) were not
published in the Code of l*`ecleral Regtllations; (3) couched obligations in conditional language
including "in general" and "itorinzilly," and (4) made clear that the agency retained discretion);
Mof_i)c:o.r;), 197 l*`.3d at 546 (gtiidance was not binding where it stated it was "intended solely to
provide information to the public and the regulated coininuiiity regarding the wastes that are
potentially subject" to statutory and regulatory requirements, and that it was "not a substitute f`or
those legal requirements; nor . . . a regulation itsell”’); Brock v. Ccilhecz'r'al Biufj‘.i' Shcr[e Oil Cc).,
796 l*`.2d 533, 538 (D.C. Cir. 1986) (guidance not binding when "replete with indications that the
Secretary retained his discretion," irrcluding qualifications that certain standards would be
applied "as a general rule" and "ordinarily").24
Plaintiffs attempt to obl"uscate the lion-binding character of the Cross-Bordei'

Action in several ways. First, plaintiffs cherry pick phrases within the Cross»Bordet' Action that
contain the words "will" and "inttst" to suggest that they create binding norms. tS`ee Pls.’ l\/Iot. at
25. Although the "use of`mandatory language suggests the ‘rigor of a rule, not the pliancy of a

policy,"’ the Cross-Bordei' Actioii’s "use of these words cannot be read in isolation." C`lr. `fi)r"

24 While the Cross~Bordei' Action cloes address legally binding iiorms, it does not
establish them. See 78 l*`ed. Reg. at 45297 (indieating "how |:the CF'l`Ci| ordinarily expects to
apply ex:`.s'!:`ng law and regt.rlcz!iolvis"’ (eiiipliasis added)). lnstead, it inerely "clarilies" the Cl~""l`C’s
position as to the ri'iarler Conrni ’n,
506 l".2d 33, 38 (D.C. Cir. 1974).

60

/fr,ilc) Sc()‘efy, lnc. v. Ncrl ’I Highi»ircry 7`)¢'¢._')_‘;"1`.¢‘Sc'gfel;.)/lci'r'iri:?., 342 l*`. Supp. 2d 1, 18 (D.D.C. 2004)
(citation ontitted} (quoting Mcl,otrlfi Sleel l)r‘r)cf.s`. Cr)/“,r_). v. Tfro)itcr.s‘, 838 F.2d 1317, 1320-21
(D.C. Cir. l988)), ci_'j_‘j"’d, 452 F.3d 798 (D.C. Cir. 2006); see crfso Gzrcrrdicrn Fed. Sav. cfc Locrn
As.s' ’n v. Fed. Scrv, & Lr)crrr inst Cor'p., 589 l".2d 658, 666 (D.C. Cir. 1978) ("'l`lle form ofa
regulation is obviously not controlling; substance and effect will determine whether a rule is a
‘general stateineiit ol"polieyf."°). Wlien placed within the broader context of the Cross-Bordei'
Action, "it is clear that [the CF'l`C’s] apparently inandatory word choices were not intended to
bind the agency." C`lr. fc`)r /lalo Scgf'ery, 342 F. Supp. 2d at 18. For instance, the CFTC’s
description of \vhat it "will consider" when determining whether an entity is a "U.S. person" is_,
in that same paragraph, ciualified both by the phrase "generally" and by the flexible, catch~all
factor including "all other relevant f`acts and cireurnstaiices." Cross-Bordei' Action, 78 l*`ed. Reg.
at 45308-09.
l’laintiffs further argue that the Cl~""l`C’s policy ofsubstituted cornpliance, as

iiitrodttced in the Cross-Border' Action, is a "safe harbor" indicative of a legislative rule. tS`ee
Pls.’ Reply at 1 1 & n.4. As the D.C. Circuit has recognized, "if the language of the document is
such that private parties can rely on it as a . . . safe ltarbor by which to shape their actions, it can
be binding as a practical inatter." Gen. li`z'ec., 290 li`.3cl at 383 (internal quotation niarl822 F.2d 1 105, 1 l 10 (I).C. Cir.

1987`). Were it otherwise, as the Cl*"l"C cogently notes, "tliere would be no point in issuing"
policy statcnie:its. Clr"l`C l\/lot. at 27.

66

conf`oriti," NM/l, 758 1*`.3d at 253, is part and parcei of many policy staternents. Policy
stateinertts provide a "'f`oririttl method by which an agency can express its views" about its
"policies prior to their actual application in particular circunistaiices." Pc:c. Gcts & Efec. Co. v.
Fea.'. Pot-ver" (..`onirn ’ii, 506 l*`.2d 33, 38 (I).C. Cir. 1974); crccom.’ Syrrcr).r, 127 F.?)d at 94. 'l`liis
actvaiicc»iiotice function "facilitzttes long range planning within the regulated industry," Pcrc.
Gcr.r, 506 1*`.2d at 38, and allows “‘the public a chance to contemplate an agency’s views before
those views are applied to particular 'factual circumstances." l’crithcrnd!e E. Pt`,"oe Liire Co. v.
FIEI€C.`, 198 F.3d 266, 269 (D.C. Cir. 1999); s'ee also Cm!y. Nnri~i`tr`orr In.s't., 818 l"`.2d at 949
(noting the "iiot inconsiderable benefits of apprising the regulated coinmuriity of the agency’s
iiiteritioiis"). "|:'ii`]lie case law is clear that [courts] lack authority to review claims under the APA
‘wliere an agency nierely expresses its view of what the law requires of a party, even if that view
is adverse to the party.’" C`/r'. for Anlo Scrj'efy, 452 F.3d at 808 (qtloting Ir?dep, fi`qtrip. l)ecrle.".s‘
A.r.s‘ ’ri v_ [EPA, 372 l"`.3d 420, 427 (D.C. Cir. 2004)).

"l`he important fact in this case is that plainti'ffs’ inembers remain completely "ti'ee
to ignore" the Cross-Bordei' Action’s "writing . . . on the wall," NMA, 758 F.3d at 253, or-as
they have to datemto coniply voluntarily "‘|‘_P]ractical consequences,’ such as the threat of
‘having to defend itself in an administrative liearing should the agency actually decide to pursue
enf`orcenieiiti"’ pursuant to the policies within the Cross-Bordei' Action "are insufficient to bring
an agency’s conduct under |:the Court’s] purview." Irrcr’ep. li`qtri]). l)ecrler'.s' /l.s‘.s‘ ’n, 372 1".3d at 427
('lirst alteration in original) (quoting Reft`crble At.rtozitcrlic i$joriiik!ei' Co. v. Con.rztr:vrei" l’rc)ci Scgfeiy
(_.`onrin ’n_, 324 1*`.3d 726, 732 (D.C. Cir. 2003)). As a trade-off, plaintiff`s’ ineinbers may take

solace in the fact that if`aiitl when the CF'l`C does apply a policy within the Cross~Bordei' Action

67

"‘in a particular situation, it must be prepared to support the policy just as if the [Cross-I:`Sordei'
Actionj liad never been issued."’ NM/l, 758 li.3d at 253 (quoting Pc!c. Gct.s‘, 506 F.2d at 38).

13 inally, the Court takes note ofa stibliriiiiial theme to all ofplainti'ffs’ arguments
regarding the Cross-Bordei' Aetioii: that the financial stakes are so high that it is impossible for
the Cli'l`C to issue a "iioii-bitidiiig" policy stateinent regarding the scope of the "l`itle Vll Rttles’
extraterritorial applications. O'f`course, it is established that "`the mere fact that fan agency
action] may have a substantial impact does not transform it into a legislative rule."’ Cerit'. Texcr.s'
Te/. Coop. v. FCTC, 402 F.3d 205, 214 (D.C. Cir. 2005) (qttotiiig/lm. l'-lc)s'p. A.r.s' ’n, 834 l*`.2d at
1046; ciccor'd Ccrf)czz`.s' v. I£gger, 690 F.2d 234, 237 (D.C. Cir. l982) (concluding that "l's:]iinply
because agency action has substantial impact does not rnean it is” a legislative rule). Plaintifl`s
nonetheless complain that, following the Cross-l?»order Action, its members "niust now make
binary decisions (to register or iiot? to report and ‘clear’ or not?) that carry significant legal
sanctions if` answered incorrectly and are essential to the agency’s administration of the
regulatory scl'ieine." Pls.’ Reply at 19. Plaiiiti'f`fs’ grievance is better addressed to Congress, for
plaintiffs would face j)i'ec'i`.s.'ely the .rcr:ne binary decisions in the absence of the Cross~Bordet'
Action because the 'l`itle Vll statutory and regulattory requirements apply extraterritorially
through the independent operation of7 U.S.C. § 2(i). iS`ee iii/ira Section lll.A.

ln the end, the Cl`t"`l`C was not required to issue any guidance (let alone binding
rules) regarding its intended en'l"orceiiteiit policies pursuant to Section 2(i). indeed, the Cli"`i`C’s
decision to provide such a trott-binding policy statement benefits rnarket participants and cannot
iiow, all other things being equai, be turned against it. C_.'f Ar.=r. Miiring Cong., 995 F.2d at 1 1 12
("'il`lie protection that Congress sought to secure by requiring notice and coinment for legislative

rules is not advanced by reading the exernptioii[sj| . . . so iiarrowly as to drive agencies into pure

68

ad hoceryfan ad hocery, inoreover, that affords less notice, or less convenient iiotice, to
ttffected joarties."). 'l`he stakes simply are not so important that the bedrock principles of
atlministrzttive law cease to apply.

'lf`he Court is thus left with a simple determination. 'l`he Cross~i?>order Action
reads like a lion-binding policy statenteitt and has been neither characterized nor treated in
practice as binding by the Cl*"l`C. 'l`he Cross-Bordei' /-\ction therefore represents "notliing more
than [the Cl`*"l`C’s_] privileged viewpoint in the legal debate" over the extraterritorial scope of the
"l"itle Vll` `Rtiles. See C‘!r". for /ltttr) Sctfery, 452 li`.3d at 808. Plaiiitiffs point to no case---and the
Court could find tione~»~-wliere a facially iion~binding document that an agency treats as non~
binding in practice has been transmogritied by the court into a legislative rule. See Cm!y.
Nzrlritr'oii fr:.sl., 818 l~*`.2d at 949 (warriing of the "peril" of courts "traiisinogrifyl:iiig:} . _ .
guidelines into binding iiorms"). 'l`his Court will not be the iirst. lnstead, the Court embraces
the wisdom of the "now~infaiiious ‘duck test"’: "Wl-ll¥lRl-EAS it looks like a duck, and
Wl~ll?§Rl-EAS it walks like a ducl<._. and WHEREAS it quacks like a duck, [:'1`1'113 COUR'l`]
'l"liel`l?il{l§§l`*`()Rl£ fl()L`D|V`S] that it is a duck." lftttsxs'cziri v. ()l)anvci, 718 l*`.3d 964, 968 (D.C. Cir.
2013) (qtiotiiig l)ole v. l/l/z'l!icr)'n.s' l§)r!e)".r., Inc., 876 F.2d 186, l88 n.2 (D.C. Cir. 1989)). Becatise
the iiiajority of the Cross-Bordei' Action looks, vva.lks, and quacks like a policy staterneiit, the
Court holds that the inajority of the Cross-Border Action is a policy stateinent.

'l"liat said, there arc some parts of the Cross-Bordei' Action that even the Cl`~"`lf`C
concedes "could reasonably be considered interpretive rules"mnaiiiely the section aptly titled
"lnterpretattioii of Section 2(i)." Cl*"l`C Stippl. Br. at 10 (citing Cross-Border Action, 78 Fed.
Reg. at 45297~»300). Within this 'fottr~page section, the Cl:""l`C undertakes a "statutory analysis"

ofthe jurisdictional nexus in 7 U.S.C. § 2(i) and, after consulting the statutory text, legislative

69

liistory, and relevant case law, rnakes discretionary determinations regarding its iiiterpretation of
the statutory standard Cross~l§ortiet' Action, 78 l*`ed. Reg. at 45297-300. ln these 'l"otlt' pages, the
Cl*"l"C’s analysis does not "inerely represent[]"" its "position with respect to how it will . . .
typically enforce" Section 2(i). See Syiicor, 127 l`*`.3d at 94. lnstead, it reflects the CF'l`C’s
construction of the statutory language in Section 2(i). 'l`his is the liallinark of an interpretive rule.
rather than a policy statement. Id.

"l`lte Cli"l"C’s interpretation of Section 2(i) in the Cross-Bordci' Action, ltowever,
does not constitute a legislative rule. 'l"lie Cross-Bordei' Action was not published in the Code of
Federal Regulatioiis, does not explicitly invoke the CI*"l`C’s general rulemaking ttuthority, and
does not effectively arnend any prior legislative rules, See Ant. Mz'nmg Cong., 995 F.2d at 1 1 12.
Aitd, most importantly, the CF'l`C’s interpretation of Section 2(i) lacks any independent "force
and effect of law.” ]d. at 1 l09. Even in the absence of the Cross~Border Action, "[t]liere would
. . . be an adequate legislative basis," :'ci’. at 1 l 12, upon which the CF'l`C could enforce the 'l"itle
Vll Rules extraterritorially: Section 2(i) itself. As already noted, Section 2(i) provides the
Cl*"l`C with the autltority--withotit iiitpleinelitiiig regulations, .s'ee infra Section lIl./-\--to enforce
the 'l`itle Vll Rules extraterritorially whenever activities "have a direct and significant connection
with activities in, or effect on, cornmerce of the United States." 7 U.S.C. § 2(i)(1). The Cl*"fC’s
key interpretations of Section 2(i)--iticltidiiig that the term "direct" requires only "a reasonably
proximate causal nexus" and that the term "activities" signals that effects and cottnectioiis could
be considered "in the aggregate"--do not stray far froin the provision’s text. See Cross-Bordet'
Action, 78 l*`ed. Reg. at 453 00. "l`liey are simply “the agency’s atternpt to iiiterpret the meaning
of [the] statutory provision." ]r"e/“fi'lizer first v. IZPA, 935 l*`.2d 1303, 1309 (D.C. Cir. }991).

Because the interpretations are so tightly "drawn linguistically from the actual language ofthe

70

statute," l’czr'crlyzed Vezerctri.s', 1 17 l`*`.3d at 588, they do not effect a "substantive regulatory
change" to Section 2(i) or to the 'l`itle Vll regime. See Elec. Privacy fnfo. C`lr., 653 F.3d at 6.
Iristead, the Cl*"l`C could rely on Section 2(i) itself to apply the 'l`itle Vll Rules extraterritorially
in the inanner anticipated by the Cross-Bordei' Action’s interpretation. See Pcrral_t)zect` Verercrrr.r,
1 17 l*`.3d at 588.27 'l`lie Court therefore concludes that the four-page section of the Cross~Border
Action dedicated to the "liiterpretzttioii of Section 2(i)," 78 I"ed. Reg. at 45297~300, is an

intcrpretivc, and not a legislative, rule.

C. Revr'et»vctbr'lz`ty Under the APA
'l`he APA subjects to judicial review only "[a]gency action[s] made reviewable by

statute and final agency action[sj for which there is no other adequate remedy in a court."

5 U.S.C. § 704. l--lere, there is no statute authorizing the review of the Cross-Bordei' Action.
And the Cross-Bordei' Action does not qualify as "linal agency aetion" because, as part
iiiterpretive rule and part policy statenient, it is not "'f'inally determinative of the issues or rights
to which [_'it is] addressed," Am. l"o)~'! Re_forrri Ass' ’n, 738 l*`.3d at 395 (D.C. Cir. 2013) (citing
Enw/utos, liii-i.to'r'i" & l_,izvv, lt`i_=.i)sa/ti. S'r/\No/ttti)s or Rnvzi:w, at 157); accord NM/l, 758 F.Sd
at 250-51 (citing Beiniel! v. Spetir', 520 U.S. 154, 178 (l997)), and does not establish any iiorms
binding on the CF'I`C or inarkct participants. See Cir. for /ltrto Sctfely, 452 F.3d at 800. 'l`lttts,

the Cross-Border‘ Action is not reviewable at this time. 'l`he Court therefore will grant sunimary

m /-\s the D.C. Circuit inade clear in /l:rvericcrn ill/lining Congre.s'.s, whether an
iiiterpretation is closely related enough to the tinderlyiiig statute to be considered an interpretive
rule is a distinct question li`rom whether the iiiterpretation is reasonable or enforceable. See 995
l`*`.2d at l 1 13 ("/-\n interpretive rule may be sufficiently within the language of a legislative rule
to be a genuine iiiterpretation . . . while at the same time being an incorrect interpretation of the
agency’s staittttory atltltority."); .ree ctr/so (.`.`crl)t:rls', 690 l~`.2d at 238 ("A statenieiit which is
iiiterpretative does not become substantive siinply because it arguably contradicts the statute it
interprets."). 'l`he Court has no occasion in this case to determine whether the Cl*"l`(`,"s
interpretations of Section 2(i) within the Cross-Bordei~ Action are reasonable or enforceable.

71

judgment to the Cl~*"l"C as to plaintiff`s’ claims~procedural and substantive regarding the

Cross-Bordei‘ _/~\ction. lf and when the CFTC applies the Cross-l%ordei‘ Action in an enforcerneiit

&{i

action or lawsuit, it will be reviewable in the context of that action and the CF'l"C must be
prepared to support the policy just as if the |j‘Cross-Bordei‘ Actionj had never been issued."’

NMA, 758 l_".3d at 253 (quoting Pcrc. Gcr.r, 506 li`.2d at 38).

111, CI~IALL]ENGES 'l`O 'l`l~-IE 'l`l'fl.l?, Vll RULIES
Plaintiffs clialleiige the 'l`itle VlI Rules on several grounds First, plaintiffs argue

that because the 'l`itle Vll Rules do not define the scope of their extraterritorial applications, they
have no extraterritorial reach. Pls.’ l\/lot. at 16~17. Second, and in the alternative, plaintiffs
argue that by refusing to define the scope of the 'l"itle Vll Rules’ extraterritorial applications in
those Rules, the Clr"l`C failed "‘to consider an irnportant aspect of the problem’ being regulated"
and otherwise failed to adequately respond to significant public comments Id. at 17-20 (quoting
Stctte f'i“i:rrn'i, 463 U.S. at 43). l`*`iiially, plaintiffs argue that the CF"I`C failed "to conduct an
adequate cost-benefit analysis" that considered the costs and benefits of extraterritorial
application of each ofthe challenged "l_`itle Vll Rules. Ia'. at 16, 20-22. For the following
reasons, the Court rejects plaintif`fs’ first two arguments, but agrees with plaintiffs that the CF'l`C
was required to consider adequately the costs and benefits of extraterritorial application for some

of` the 'l`itlc Vll Rules, but failed to do so.

A. f'r'idef)encier'il ()p~er'c:tio)r of7 U.S. C. § .Z(i)
Plaiiitil`fs’ initial arguineiit that the 'l`itle Vll Rules cannot apply extraterritorially
because they do not define the scope of their extraterritorial applications is belied by the plain
language of7 ll.S.C. § 2(i)_, the Dodd-l*`raiik Act inore generally, and established principles of

l'aw.

72

Section 2(i) provides that the 'l`it'le Vll provisions "rclating to swaps that were

enacted by the :Dotid-Fraiil< Actj] (li'.'clz.icl.z`rrg ciny rule f)r'e.rc'rrll)ecl or regulation proniulgatcd

under that Act), s'lroll not crpply to activities outside the United States zmle.s.s‘ those activities . . .
have a direct and significant connection with activities in, or effect on, coinmerce of the llnited
States." 7 U`.S.C. § 2(i)(1) (eiiiplia.ses added). 'l`he plain text ofthis provision ‘°elearly
expresse[_s:|" Congress’s "affirniative intention" to give extraterritorial effect to 'fitle Vll’s
statutory requirements, as well as to the 'l`itle Vll rules or regulations prescribed by the Cl`~"l"C,
whenever the provision’s jurisdictional nexus is satisfied See li.`li§()(§` v. Arctl)icrri Ani. Oll Co.,
499 U.S. 244, 248 (1991) (applyiiig presumption against extraterritoriality "unless there is the
affirmation intention of the Congress clearly expressed" to give the statute extraterritorial effect
(internal quotation marks oniitted)); see also Morrison v. Nm 'l Ati.561 U.S. 247,
255 (2010).
lndeed, the Stlprenie Court has explicitly addressed a sirnilarly structured

provision in the l`*`oreign 'l`rade Antitrttst linproveineitts Act. See F. lloffiriciiin-Lcr l€oelre Llo'. v.
lfnrpctgr'c:n S.A., 542 U.S. 155, 162 (2004).23 ln that context, the Court observed that the
provision’s "techiiical language initially lays down a general rule placing all (noniniport) activity
involving foreign coinmerce outside the Sherinari Aet’s reach. lt then brings such conduct back
within the Shernian Act’s reach prr)t)lclecl than the conduct" meets the provision’s jurisdictional

nexus. fcl. (ernpliases in original). So too here. Section 2(i)’s "technical language initially lays

23 See 15 U.S.C. § 6a ("Scctions 1 to 7 of` this title shall not apply to conduct
involving trade or conimerce (otliei' than irnport trade or irnport conirnerce) with foreign nations
ttnless~(l) such conduct hats a direct, substantial, and reasonably foreseeable el"fect~(A) on
trade or conimerce which is not trade or conirnerce with foreign iiations_. or on import trade or
irnport conimerce with 'f"orcigri iiations; or (B) on export trade or export cornmerce with foreign
riations, of` a person engaged in such trade or coinnierce in the United States; and (2) such e‘li`tect
gives rise to a claim under the provisions ofsections 1 to 7 of this title, other than this section.").

73

dovvii a general rule placing all [swap] activity" occurring outside of the United States beyond
'l`itle Vll’s reach. But it then expressly brings such swap activities "l')ack within" "l"itle Vll’s
purview prr)vr`ci'ed that "tliose activities . . . have a direct and signiiicaiit connection with
activities in, or effect on, coninicrcc ol`thc United States." See 7 U.S.C. § Z(i)(l).

Piaintil`i`s seem to concede the potential extraterritoriality of the 'l`itle Vll
provisions, rules, and regulations. 'l`liey instead argue that the 'l`itle Vll Rules cannot be applied
extraterritorially until the CF'I`C proinulgates a regulation defining the scope ol" the Rules’
extraterritorial applications under Seetion Z(i). See Pls.’ l\/Iot. at 43. But plaintil"fs’ "argunieiit
runs aground on bedrock administrative law, which puts ‘the choice . . . between proceeding by
general rule or by individual, ad hoc litigation . . . priniarily in the iiii"oriiied discretion of the
administrative agency."’ Nu! ’i.’ Ccrhfe & 'i"elecoriirttis. Ats'.s' ’n v. FCC, 567 F.3d 659, 670 (D.C. Cir.
2()09) (quotiiig Cherrer_v, 332 U.S. at 202-()3); cicc'c)rd Vr. Yarvkee Nuclear Pow»er~ Cc)rp. v.
Ncrl'urctl Rets‘. Dej.` Counci`!, 435 U.S. 519, 543 (1978) ("Absent constitutional constraints or
extremely compelling circumstances the zidn'iiiiistrative agencies should be free to fashion their
own rules of procedure and to pursue iricthods of inquiry capable oi` perniittiiig them to discharge
their iiiuitittidinous duties." (intenial quotation inarl504 U.S. 607, 614 (l 992) (applying Foreign Sovereign

linmunities Act directly).?‘g

29 Contrary to plaintii`l`s’ suggestion, l’ls.’ l\flot. at l3, the fact that the SEC published
a legislative rule deiining the scope of its 'l`itle Vll Rules’ extraterritorial applications, .s'ee
Application of "Sectrrity-Bzised Swap Dealer" and "l\/fajoi' Sectirity-Based Swap l’articipaiit"
Deiinitions to Cross~Bordei' Sectrrity-Based Swap Activities, 79 l*`ed. Reg. 39068 (.luly 9_, 2014),
rej)ublits‘fied, 79 Fed. Reg. 47278 (Aug. i2, 2014),  iiothiiig of the CF'l`C’s obligation lo do
so. Ageitcies are generally free to proceed differently when addressing siinilar problems in any
event, while the CFTC had discretion to address the extraterritorial applications of its 'l"itle Vll
Rules through either rulemaking or adjudication, the SEC did not have that flexibility Instead,
the SEC was ii'eqrrz`r'ed to prointifgate "rtiles or regulations" before applying its 'l`itle Vll Rules
extraterritorially. See 15 U.S.C. § 78dd(c) (statiiig that SEC’s 'l`itle Vll Rules sliall not apply
‘“witliotit thejtirisdictioii of` the United States, z.rnles.s‘ such person transacts such business in
contravention o'fsucli rtile.s‘ card r'egz.rlcirr`on.s* as the ]:SIEC:] may prescribe as necessary or
appropriate to prevent the evasion of any provision of this cliapter" (eniphases adtded)).

75

ln the absence of any congressional indication to the contrary, the Court
concludes that Section 2(i) operates iiidepeiideiitly, without the need for implementing
regulations, and that the Cl*"l`C is well within its discretion to proceed by case-by~case
adjudications rather than rulemaking, when applying Section Z(i)’s jurisdictional nexus. See
C`.'lieriery, 332 U.S. at 2()2~03. Accordingly, the 'l"itlc Vll Rules, as currently written, apply

extraterritorially to the extent that Section Z(i)’s jurisdictional nexus is satisfied

B. Tille VII Ri,ii.’e.s' ' Fcii?li,ir'e.s‘ lo Addi~'e.s'.s‘ Tliei`i' Exii‘ciiei”ri'lr)r'i'cil /lppi.’icciii'oii.s'
l’laiiitiffs’ second argumcntm~tliat by failing to address the extraterritorial
applications of the 'l"itle Vll Rules within those Rules, the CF'l`C disregarded an "iiiiportant
aspect of the problem," Slcife Fczriii, 463 U.S. at 43, and failed to respond to significant public
coinmeiits-is similarly unpersuasive.w
First, because the Cl`*"`l`C has the discretion to define the reach of Section Z(i)
through case~by-case adjudication rather than by ruleinaking, .s‘ee .s‘iij)rci Section lll.A, there
exists no absolute requirement that the Cl"'l`C address within each 'l`itle Vll Rule the scope of

that Rtile’s extraterritorial application.

30 As an initial inatter, plaintiffs fail to identify coinnients submitted for the Lzirge
'l`iadei‘ Reportirig, Straiglit-'l`lirotigli Processiiig, and Clearing Deterinination Rules that
addressed the scope of those Rules’ extraterritorial applications or the costs and benefits of
applying those Rules extraterritorially See .s'ug)r'ci notes 2 & l7; CF'l`C l\/lot. at 53 11.27', Cl`*"l`C
Reply at 13 ii.7. "lt is well established that issues not raised in coniments bel"ore the agency arc
waived and this Court will not consider them." Ncrl ’l Wi‘ldli‘/e lr`ecil’ii, 286 F.3d at 562; ciccorci'
Appcilciclii`ciii Pr)iver Co. v. IEI’A, 251 l`*`.3cl 1026, l036 (D.C. Cir. 2001) ("lt is black-letter
administrative law that ‘[zi`jbseitt special circumstances a party must initially present its
coinments to the agency cluriiig the rulemaking in order for the court to consider the issue.’”’
(alteration in original) (quotiiig ’i"ex 'i"in (f.‘r)rp. v. IEPA, 935 F,2d l32l, ]323 (D.C. Cir. 1991))`).
Accordiiigly, the Court will grant suinmary judgment to the Cl*"l`C as to all of plaint'iffs’ claims
challenging the l.arge 'l`radei' Rcporting, Straiglit~'l`lirougli Proeessiiig, and Clearing
Deteriniiiatioii Rules. See Ncii ’l l/Vi`lci'/i_",fe Feci' ’n, 286 l*`.3d at 562 (declining "to reach the inerits
ot` |:plaiiitil"l`_l’s cost estimate clialleiiges because neither [:plaiiitiff| nor any other party before the
agency raised any of these contentions during the administrative phase of the rulemaking
process").

76

Second, the extraterritorial application of the "l`itle Vll Rules was not an

"iinpoi'taiit aspect of the probleni" that the Cl*"l`C needed to address when it proiniilgated those
Rules. 'l"liis is not to say that the breadth of the "l`itle Vll Rules’ extraterritorial applications is
not "iiiiportaiit"-tlie parties agree that it is. See Pls.’ l\/lot. at l7; CF"I`C Rcply at 7; see also ()r.
Nciriii"ci/ l€e,s‘. Coir)ic'."f v. i"lir))iicr.s', 92 F.3d 792, 798 (9th Cir. 1996) ("Wlietliei' an agency has
overlooked ‘an important aspect of the problein,’ . . . turns on what a relevant substantive statute
makes ‘iiiiporttiiit."’). But it was the Cl*"l`C’s prerogative to define the ‘“probleriils]" it sought to
address within its 'l`itle Vll Rules, and it decided nor to address the "probleiii" of the Rules’
extraterritorial applications See, e.g., Swap Entity Registi'ation Rule, 77 Fed. Reg. at 2619~20
(considering the breadth of its extraterritorial application under Section 2(i) to be "beyond the
scope of th|:e] rulen'iakiiig"). lnstead, the CF'I`C lirnited the scope of its 'l`itle Vll Ruleinakiiigs to

defining the substantive and procedural reciuii'cmeiits applicable to regulated iiiarl579 F. Supp. 1407, 1418 (N.D. lll.
1984) (noting that just because iiitegratioii was an important "goal" of tlie l~`air l~lousiiig Act did
"iiot mean it is an ‘iinportaiit aspect’ of the problem of administering" housing pi'ogi‘ams).

ln any event, "as the Supreine Court has einpliasized, ‘|:iijotliiiig prohibits federal
agencies froiii moving in an iiicreiiieiital iiianiier."’ ICI, 720 l"`.3d at 378 (altei'ation iii original)
(quoting FCC v. Fox Teleiii's'i'oii Slcr!i`oii.s', ]nc., 556 U.S. 502, 522 (2009)). °‘Agencies, like
legislatures do not generally resolve massive problems in one fell regulatory swoop. 'l`hey
iiist.ead whittle away at them over time, refining their preferred approach as circumstances
cliange and as they develop a more iiuaiiced understanding of how best to proceed."
Mci.s‘.s'cichii.i'eii.s' v. IEPA, 549 U.S. 497, 524 (2007) (citation omitted) (citing Chener'y, 332 U.S. at
202-03); see cri'.i‘r) Nai ’i.’/I.740 F.2d 1 190, 1207 (D.C. Cir. 1984) ("ln
classifying economic activity, agencies . . . need not deal in one fell swoop with the entire
breadth ofa novel development; instead, ‘i‘eforiii may take place one step at a time, addressing
itself to the phase of t1ie problem which seems most acute to the [regulatory] mind."’ (alteratioii
in original) (quotiiig i/l/’i'lliciiiis'oii v, Lee Opii`ccil (,`0., 348 U.S. 483, 489 (l 955))). I--lcre, the CF'l`C
reasonably exercised its discretion to proceed in an iiicreiiieiital iriannei‘ by excluding frorii its
'l`itle Vll_ Rules any consideration of the scope of the Rules’ extraterritorial applications under 7
U.S.C. § 2(i), see IC], 720 l@`.3d at 378, and instead choosing to address the Rules’ extraterritorial
applications on a case-by-case basis through the Cross»l%order Actioii. See Ncii ’l Ccii')le &
l`elecoiriiiis‘. A.r.r ’n, 567 l`*`.3d at 670.

l"`iiially, the CF'l`C was under no obligation to respond to coinmenters raising the

issue of the Rules’ extraterritorial applications An agency "‘need not address every coniment,

78

but it must respond iii a reasoned iiiaiiiiiei' to those that raise significant problems."’ Covcici'
C`oiiiiiic' ’ns' Co. v. FCC', 450 l'*`.3d 528_. 550 (D.C. Cir. 2006) (quotiiig Rejii‘i')i.'ciit v. Niici’ecii"
l€egiilciir)rj) C'oii'iiii ’ri, 105 l"`.3d 715, 722 (D.C. Cir. 1997)). "'l`liis requirement is not ‘particularly
deiiiaiidiiig."’ Ncii ’l Mfni'iig Ass `n v. Mirie rS`ci/‘ely & Hecili!i Aci'iiiin., 1l6 F.3d 520, 549 (D.C. Cir.
1997) (quot'ing Piil)li'c C`/'iizei~i, I)ic. v. li`/lxl, 988 l3".2d 186, 197 (D.C. Cir. 1993)). lndeed, "‘ftjlie
failure to respond to comments is significant only insofar as it demonstrates that the agency’s
decision was riot based on a consideration of the relevant factors."’ Covctd Cc)iiiiiic ’iis', 450 F.3d
at 550 (qiiotiiig Tlic)iiij).soii v. C/cirk, 741 l`*`.2d 401, 409 (D.C. Cir. 1984)).

lii this case, because the issue of tlie 'l`itle Vll Rules’ extraterritorial applications
was beyond the scope of the Ruleiiiakiiigs, the coniments addressing the Rules’ extraterritorial
applications did not raise any "sigiiilicaiit problems" or "i'elevant laetoi's," see C'oiicid Coiiiiiic' "ii.i‘,
450 l*`.3d at 550, that the Cl~"l`C needed to address within the Rules. See Ncii' ’l Mi`iii'iig A.ss ’i'i, l 16
l"`.3d at 549 (substaiitive response to coiiimeiit not required where comments are "beyond the
scope of the ruieniakiiig"). Plaiiitiffs could not unilaterally expand the scope of the 'l`itle Vll
Rules through their coninients, nor could they force the CFTC to initiate a separate rulemaking to
address the Rules’ extraterritorial applications under Section 2(i). See Wi`ldEcirili Giiczi~ci’i'ciiis' v.
EI’A, 751 l<`._'id 649, 653 (D.C. Cir. 2014) (‘°[A]s we have made clear iii the past, [w]e will
overturn an ageney"s decision not to initiate a rulemaking only for compelling caiuse, such as
plain error of law or a fundamental change iii the factual premises previously considered by the
agency." (secoiid alteration iii original) (interiial quotation iiiarks omitted))', Prr)_f"l ]`)i"i`i»ei".s'
C`r)iiiici'! v. Biii"ecii.i o_f`M`orr)/r' Ccii"r'i`ei~ Scrfel_i,), 706 l~*`.2d 1216, 1223 (D.C. Cir. 1983) (private parties
liave "no right to compel the agency to hold rulemaking proceedings addressing irs s‘peei`fi`c'

recoiiiiiiei'ii:i’ciiioii.i' for amending the existing rules" (empliasis iii oi'iginal)); Wl/V}-i'l"`, Iiie. v. l*"(;`(§`,

79

656 l*`.2d 807, 818 (D.C. Cir. 1981) ("lt is only in the rarest and most compelling of
circumstances that this court li'as acted to overturn an agency judgment not to iiistitute
rulciiiakiiig."). Accordiiigly, the Court concludes that the Cl""'l"C did not act arbitrarily or
capriciously with respect to its refusal to address within the 'l`itle Vll Rules the scope of those

Rules’ extraterritorial applications.”“

C. Sii}_‘j‘i`cieiicj» ofthe Y`ili'e VH Ri.ii’e.s" Cosl~beiiefi`i Aiicily.s'e.s' Uiiclei" 7 U.S.C. § l 9(¢1)

'l`lie Court agrees with plaintiffs that the CFTC was required but failed to consider
adequately the costs and benefits of some of the 'l`itle Vll Rules by excluding froin its analyses
consideration of the costs and benefits of those Rules’ extraterritorial applicatio1is.

'l`lie CEA requires the Cl"""l`C, "[b]efore proniulgating a regulatioii," 7 U.S.C.

§ l9(a)(1), to "‘consider the costs and benefits’ of its actions and ‘evaluate[ j’ those costs and
benefits ‘in light of’ live l`actoi's: ‘(A) considerations of` protection of niarket participants and the
public; (13) considerations of t1ie e'fl"iciency“, conipetitiveiiess, and financial iiitegrity of futures
inarl748 F.3d 359, 369-70 (D.C. Cir. 2014)
(SlfiC’s reliance on Congress’s "cleteriiiiii[atioii] that [:tlie rule’sf] costs were necessary and
appropriate" was reasonable when Congress required SEC to proiiiiilgate the challenged i'ule); c_'f.'
Risk l\/laiiageiiieiit Rule, 77 l`*`ed. Reg. at 20167 (explaining that, iii applying Section 19(a), the
Cl`*"l`C considers only costs and benefits that "reflect the Cominission°s own determinations").'”
Because Congress made the deteriiiiiiatioii that "l`itle Vll rules and regulations apply
extraterritorially when the Section 2(i)’sjurisdictioiial nexus is satisfied, see s'i,ipi”ci Section lll.A,

Section 19(a) did not require the Cl*"`l"(j to reconsider whether it was ‘°iiecessary"~-or even

desirable to apply the "l`itle Vll Rules overseas, for °‘agencies surely do not have inherent
authority to second~guess Congress’ calculations." l’z.ib. Ci'ii'zeii v. FT(§`, 869 1*`.2d 1541, 1557

(l').C. Cir. 1989); see cilso NAM', 748 l*`.3d at 369»70.

33 "rii@ ii).c_ cir-adi decided iv/iMdii api-ii i¢i, 2014, due week drier iiidiiiiirrs iii@d
their opposition and reply bi'iel`, but several weeks before the Cl*"l`C filed its reply brief. 'l`lie

Cl*"l`(l addressed NAM in its reply brief, Cl*"l"(l Reply at 9~10, and the parties also filed notices of

supplemental authority with the Court. See l’laiiitiffs’ l\lotice of Suppleiiieiital Authority, l\/lay
13, 2014 l_`Dkt. l\lo. 42:1; Cl`*"l`C’s Response to Plaiiitiffs’ Notice of Suppleiiieiital Autliority, l\/lay
16, 2014 l:l)kt. l\lo. 44].

82

'l`liat said, Congress’s decision that the 'l`itie VII Rules are to have extraterritorial
appiication cz’r`d nor relieve the CI""`I"C from its duty to consider the costs and benefits of a given
'l`itle Vll Rule’s extraterritorial application when it determined affiant each Rule required of`
regulated iiiarl. FC`(,", 162 F.Bd l2l5, 1221 (D.C. Cir. 1999)));}’11[).
C`ir.‘r'ze)'.' v. Fed. Mr)lr)r' Cczr‘r*i`er“ Sc_zfe{y Adrni"n., 374 F.3d 1209, 1221 (D.C. Cir. 2004) ("'l`lie
agency’s_iob is to exercise its expertise to make tough choices about which of the competing
estimates is naost plausible, and to liazard a guess as to which is correct, even if the lack of fdata:|
means that the estimate will be imprecise."). 'l"lie CF"I`C failed to do even that inuch. lts

conipletc failure to address the extraterritorial costs and benefits--~let alone to acknowledge the

ar)plic'atioii, they are no substitute for the consideration of the c'o.s't.s' and benefits of the
extraterritorial 'applicatioiis as required under Section l‘)(a).

84

lack ofdata or identify concomitant uncertaiitties-wreiiders its cost-benefit analyses arbitrary and
capricious. See C/icr.riiber‘ r)_]"(,`orii)‘iie)"c'e, 4l 2 F._°>d at }43.

f*`iiially, the Cl*"l`C argues that "plaiiitif`fs’ primary objection . . . that 'l"itle Vll
Rules are `dtipliczttive’ and swaps ‘already are amply regulated under the laws of other iiatiolis"`
was inaccurate at the time the 'l`itle Vli Rules were prornulgated. CI*"I`C l\/lot. at 50-51 (quoting
Pls.’ Mot. at 21~22). As ISDA acknowletlgetl, even after most of the Title Vll Rules were
promulgated, foreign regulations were "still tlcvelopiiiental" and in some cases "not expected to
be in eff`ect" for years. See ISDA Connnent on Cross~Border Action, Aug. lO, 2()12, at 5~6 (.lA
at 895~96). 'l`he Cl`~"l`C thus urges that it had no obligation to consider the "‘liypothetical costs"’
of these foreign regulations that had yet to inaterialize. CF'I`C l\/lot. at 51 (quoting ICI, 720 l"~`.3d
at 378). 'l`lie Court agrees with the Cli"l`C on this point. Because the foreign regulations were
"not linalized" at the time of the Title VII Rulernakings, the costs of duplicative regulation by
both the Cl`*"l"C and foreign regulators were still "ltypotlietical" and did not have to be considered
in the Rtiies. See ICI, 720 li`.3d at 378.

'l`hat the CF'l`C had no duty to consider the costs of duplicative regulation raises
the possibility that the costs and benefits of the 'l`itle Vl`l Rules’ extraterritorial applications were
essentially identical to those of the Rules’ domestic applications. if that were the case, then the
CF'l"C functionally considered the extraterritorial costs and benefits of the Title Vll Rules by
considering the Rules’ domestic costs and benefits lndeed, Section i9(a) does not require the
separate consideration of a Rule’s domestic and extraterritorial costs and benefits, so long as the
cost»benc'lit analysis rnakes clear that the CF'l`C reasonably considered both. But there is no
indication in the Title Vll Rules that the CF'l`C’s cost-beiiefit analyses even tacitly considered

both the Rules’ tlomestic ttnd extraterritorial applicattioiis. 'l"lie Court therefore need not address

85

the possibility that the costs and benefits of the 'l`itle VII Rules’ domestic and extraterritorial
applications were functionally the same C`henei"y, 332 U.S. at 196 ("|:Aj reviewing court, in
dealing with a determination or j tidgmeiit which an administrative agency alone is authorized to
make, must jtitlge the propriety of such action solely by the grounds invoked by the agency.”).
lnstead, the record conipcls the Court to conclude that the Cl*"`l`C’s failure to
address the costs and benefits of the 'I"itle Vll Rules’ extraterritorial applications signals that the
Cl*"l`C failed to consider those costs and benefits as they relate, :`iirer alr`a, to "considerations of
protection of rnarket participants” as well as "considerations of efficiency, coinpetitiveness, and
financial integrity of futures inarl718 F.3d 974, 978 (D.C. Cir.
2013); Advc)ccr!e.sjfor' flight/vary & Awr) Sqfe!y v. Fecf. fra?)lor Ccu'rr`er Sqfery Adnir'n. , 429 F.Bd
l 136, l 151~52 (D.C. Cir. 2()05); Lcr. fi`ed. Land Bank/l.s‘s' ’n v. Fczr'iii Cr‘edz`l /fcfriiiri., 336 F.'n’d
1075, 1085 (D.C. Cir. 2003); rS`z»/gcrr' Ccine Gr‘oi»reizr C`o-op. v, Veri.enicrn, 289 l`*`.3d 89, 97-98 (D.C.
C` '. 2002). "rl`lie appropria.teriess of`vacating an inadequately explained agency action depends
on whether (l) the agency’s decision is so deficient as to raise serious doubts whether the agency
can adequately justify its decision at all; 'and (2) vacatur woufd be seriously disruptive or costly."
N. Air Cc.v'gc) it US. Pr).s‘fcrf Seri»., 674 l*`.3d 852, 860-6l (D.C. Cir. 2012) (citiiigAfli`ecf-Signczf,
I)ic. v. U.S. Ntrc'fecii" ]€egz.ricrir)i'j» (L`c)iiirii ’n, 988 F.2d 146, 150-51 (D.C. Cir. 1993)); ciccc)rdArii.

fidelity Inv. Lr']“e ]n.r. Co. v. S]E(',`_. 613 l*`.}tl 166, l79 (D.C. Cir. 20()9) (applying /lt'if'ied-f§igricrl in

case where the Sl~i;`C failed to adequately consider the costs and benefits of`a rule under l5 U.S.C.

§ 77b(b)).
Any deficiency in the 'l`itle VII Rules is not so "serious" as to favor vacatur if the

Cl*"li`C can show that it "will be able to justify a future decision to retain the l{ule[:s]" on reina.iid.

87

Fr)x 'i"e[ei»i.s'i`c)ri Src'.rtr`oiv.s', Irzc_ v. FC`(',`, 280 f*`.3d 1027, 1049, zandt/ied in j)m'l on reh 'g, 293 l`*`.3d
537 (D.C. Cir. 2()02). Here, the Court finds it plausible-iiideed, likely-~»tliat the CF"I`C will be
able comply with its obligations under 7 U.S.C. § l9(a) "while reaching the same result." B/crc'k
Ocifc i_'i`rzergv, 725 F.3d at 244 (reniand for lil;`iRC to adequately explain its orders); tree cr!.s'r) Del!cr
/lr`r' l,i`iietr, 7}8 l*`.3tl at 978 (reinand for l:§xport-Iiiiport Bank to reasonably explain a key position
taken in its economic analysis of loan guarantees); Lone Mctriilczr`n Prr)ces.s'iiig, lnc. v. Sec ’y of
l,crl)o)~, 709 I`*`.3d l l6l, l 164 (I).C. Cir. 2013) (retnand f`or l)epartinent of Labor to more clearly
justify its approach).
linportatitly, the only issues necessarily before the Cli"l`C on reinand would be the
,s`rr!)._s‘tcr.'vce of the 'l`itle Vll Rules, nor the scope of` those Rules’ extraterritorial applications under
7 tl.S.C. § 2(i).35 Plaintif"f`s raise no coinplaiiits regarding the Cl"'l`C’s evaluation of the general,
often ttnqtiaiitifiable, benefits and costs of` the doinestic application of the "fitle Vl l Rules. On
remand, the CFTC would only need to make explicit which of` those benefits and costs siniilarly
apply to the Rules’ extraterritorial applications. l\/loreover, the record before the Court highlights
some specific benefits of the extraterritorial application of the Title VII Rules, particularly
relating to the prevention of regulatory subterfuge by U.S. firms that enter into swaps
transactions through their foreign subsidi'aries and affiliates, but retain the swaps’ risk in the
United States. Se€ Srinivasan Decl.  15~38.
While the fact that some foreign jurisdictions have passed swaps regulations since

the C`l*"l`C’s proniulgation of the 'l"itle VI] Rules suggests that the Rules’ extraterritorial

applications may now raise issues of duplicative regulatory burdens, the CF'I`C may well

35 lndeed, one thing is certain: the Cl*"li`C leroy riot conclude on remand that the costs
ofextraterritorial applicattioii of a given 'l`itle Vll Rule so outweigh the benefits that the Rule is
flatly inapplicable abroad. .S'ee .rtiprci Section llI.C.

88

conclude that its policy of substituted coinpliance largely negates these costs. ln any event, it is
the Cl*"l`C’s role in the first instance to weigh those costs along with the Rules’ benefits, see Ir:v.
Co. ln.s'r., 891 l*`. Supp. 2d at 207, for which the Court’s review will be "partictilarly def`erential."
See ltzrr'crf C,`.`effz.rfczr' A.s'.s‘ ’n, 588 l`*`.3d at 1 l05. Aft`ter this analysis, the CF'l`C would need only to
provide a reasoned explanation of why its full consideration of the costs and benefits does not
justify a change in the substantive transaction- and eritity-level requirements of the 'l`itle Vll
Rtiles. Plaiiitiffs have presented no argument as to how those Rules, even after a full accounting
ofthe costs and benefits oftheir extraterritorial applications, would cliange. On this record, the
Court is "vvilliiig to assume for now that the agency’s error was one of form and not of
substance," ]Erigr`ne Mfit‘.r. /f.rs ’n v. El’/l, 20 F.3d 1177, 1184 (D.C. Cir. 1994), and thus there
exists at least a "serious possibility," Alz'ied~Sz'gi/raf, 988 I".2d at 151, that after remand the Cl*"l`C
will repromulgate 'l`itle Vll Rules contaiiiiiig the same substantive requirements.

Whether vacatur would cause disruptive consequences is "only barely relevant"
when_, as is the case here, it is apparent that the agency likely will be able to provide adequate
justification 'for retaining its rules after reinand. Fox Televr`.s*iorz t$ifczti`on.r, 280 l~`*`.3d at 1049.
l\loiietheless, it is clear to the Court that vacatur of the 'l`itle VII Rules would indeed produce a
bevy of"‘disrtiptive consequences." Affied-Signcrf, 988 l"`.2d at 151. Although the CF'l`C to date
has not acted to enforce its "fitle Vll Rules extraterritorially, there is no ctirrent Exemptive Order
for the Rules’ extraterritorial applications (;_'f.` Ani. ls`qnz`ry, 613 l".3d at 179 (concltiding that
vacatur would not "be disruptive of the agency’s regulatory program" when the challenged rule
had not yet gone into ef`fect). lndeed, the plaintiff associations’ inembers’ declarants have made
clear that the inembers (or their foreign affiliates) already have coine into coinpliarice with the

Rules as they apply extraterritorially S »e, e.g., .ll’l\/lorgan Decl. 11 l0(b) (after registering as a

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"swap dealer," .l.l’. Morgan Securities plc "lias had to follow prescriptive rules to inodify its
existing risk inanagerneiit programs" to cornply with the Risk l\/lanagement Rule); Goldinan
Decl. 11 8(d) (Goldinan Sachs’s foreign affiliates had already "take[ii'j . . . the steps and incur[reclj
the attendant costs" required by the I"iistorical SDR Reporting Rule). As the Cl"`"l"C’s declarant
explained, partially vacating the 'l`itle Vll Rules to the extent they apply extraterritorially would
reinove front the Cl`~"l`C’s purview many entities and transactions that it currently regulates and
thereby restrict the agency’s ability to inonitoi' and regulate the swaps markets to the extent
Congress intended. See Srinivasan Decl. 1111 15-1 8. Furtherriiore, after vacatur, U.S.-based swap
dealers would be able to avoid l`itle Vll regulations by engaging in transactions through their
foreign stibsidiaries and afi`filiates, even if the transactions’ risk reinained with the U.S.-based
corporation. fail 1111 19~22.

Considering 'l`itlc Vll"s purposes of reducing systemic risk and promoting niarket
transparency, the Court finds that the partial vacatur of the inadequately explained Title Vll
Rules f`or some unknown period ol`tinie while the CF'I`C conducted new cost-benefit analyses
would be unnecessarily disruptive to the Cl*"l"C’s rnissioii and the purposes of` the Dodd-f*`rztiil<
Act. tS`ee Nczf 7 Linre A.szs' ’n v. EP/f_. 233 F.Bd 625, 635 (D.C. Cir. 2000) (lcaving certain
environmental standards in place on reniand so as to not undermine the purpose of the statute);
f)crvi`.s' Cmy. Sc)!z`d Wcz.rle il/i’gmi. v_ EPA, 108 F.3d 1454, 1458-59 (D.C. Cir. 1997) (leaving
certain environmental standards in place on reinand when vacatur would "result in an eighteen
inontl"i period" of unregulated ernissions); c']‘.` Co)iiccr.rl Cc)r"j). v. FCC`, 579 F.3d l, 9 (l).C. Cir.
2009) (vacating rule where regulated parties would "reinaiii subject to, and competition will be
safeguarded by, the generally applicable atntitrust laws"); Nci/urcr[ Re.s'. f)e_]‘.` Cozrnci/ v. EPA, 489

l*`.f%ci 1364, l375 (I`).C. Cir. 2007) (vacatiiig rule where parties would reinain subject to other

90

environmental reguiations). Based on these potential disruptive consequences as well as the
high likelihood that the CF'I`C will be able to justify the substance oi` its inadequately explained
"l`itie Vll Rules on reniancl, the Court concludes that vacatur during remand is unwarranted in this

case 36

CONCLUSION

'l`he majority of plaintit`t"s’ claims fail because Congress has clearly indicated that
the swaps provisions within 'l`itle Vll of the Dodd~l°"raiik Act--includiiig any rules or regulations
prescribed by the Cli"l`C-~appiy extraterritorially whenever the jurisdictional nexus in 7 U
§ Z(i) is satisfied ln this regard, plaintifi"s’ cliallenges to the extraterritorial application o'l" the
'l`itle Vll Rules rnerely seek to delay the inevitable 'l`he Court will not question the CF'i`C’s
decision to proceed in iiiterpretiiig and applying Section Z(i) on a case-by-case basis through
adj udicatioii; nor will it set aside the CF'l`C’s decision to proinulgate the Cross~§t%ordei' Action to
announce its trott-binding policies regarding the 'l`itle Vll Rules’ extraterritorial applications
lnstead, the Court will only reniand to the Cl""`l"C those 'l`itle Vll Rules that are supported by
inadequate cost-benefit analyses

For the foregoing reasons, the Court will disiniss plaintiffs’ claims as to the 'l`rade
Executioii Rule; grant sunnnary judgment to the CFTC as to plaintiffs’ claims regarding the

Cross-Bordel' Action, as weil as the l..arge 'I"radei' lleportiiig, Straigl'it-'l`lirougli Processizig, and

36 "i"lie Court denies }Jlaintiffs’ request for an irijuiictioii enjoining the Cl`~"`l`C froin
applying the 'I"itle Vll Rules extraterritorizilly for many of the sanie reasons. "'An injunction is a
drastic and extraordinary reniedy"_iiiore drastic and extraordinary than vacatur»~a"wliicli shouid
not be granted as a matter o'f"cotirse." See /té'onsc:zvrc) Cc). v. Geer~i.s'on Seec)' Ii`cn"n»z.s', 561 U.S. 139,
165 (2010). I*’laiiitii"l"s have liaifcci to clenionstraite any "irreparable iiijury" 'l"roni the
extraterritorial aipplicatioii oi" the 'l"itle Vll Rules. See l)avz`.r v. Pen.s'z?oii Bene]'i`.l Gzrar. Cor;)., 571
l"`.fid 1288_, 1295 (D.C. Cir. 2()09) (applying "generaf rule that economic harm does not constitute
irreparable iiijtiry"). Nor have they dernonstrated that the balance oi` hardships or the public
interest favors enjoining the Cl""li`C froin zipplyiiig its "i`itle Vll Rules abroad as Congress
intended.

91

Cleariiig Deteriiiiiiatiori Rules; grant sunnnai'y judgment to piaintit"l"s as to the reniaiiiiiig 'l`itle

\/11 Rules; and reinand those l{tiles--tlie Real~'l`iiiie Reportiiig, Daily 'l"radiiig Records, Porti"oiio
Recoiiciiiation and Docuiiientatioii, l~`;`iitity Deiinition, Swap l-E`.ntity Registration, Risk

l\/laiizigeiiieiit_, Chiei"Coiiipliatice Oft'icer, SDR lleportirig, l-listorical SI‘)R Reporting litiles, and
Sl§"£l*` Registrzttiori Rtrie-~~-»~to the Cl*"l`C l`or it to conduct an adequate cost-benelit 'anaiysis under 7
U.S.C. § l9(a). An ()rder consistent with this (`)piiiioii will be issued this same day.

§ l g c , §  J»-¢-...->

PAUL L. 1*` RIEDMAN
United States District Judge

1)/\"1"113;; ¢7 \\ 5\\-1(

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