478 U.S. 833 (1986), 85-621, Commodity Futures Trading Commission v. Schor

Docket Nº:No. 85-621
Citation:478 U.S. 833, 106 S.Ct. 3245, 92 L.Ed.2d 675, 54 U.S.L.W. 5096
Party Name:Commodity Futures Trading Commission v. Schor
Case Date:July 07, 1986
Court:United States Supreme Court

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478 U.S. 833 (1986)

106 S.Ct. 3245, 92 L.Ed.2d 675, 54 U.S.L.W. 5096

Commodity Futures Trading Commission



No. 85-621

United States Supreme Court

July 7, 1986

Argued April 29, 1986




Section 14 of the Commodity Exchange Act (CEA) provides that any person injured by a commodity broker's violation of the Act or regulations of the Commodity Futures Trading Commission (CFTC) may apply to the CFTC for an order directing the offender to pay reparations to the complainant, and may enforce that order in federal district court. The CFTC promulgated a regulation that allows it in a reparations proceeding to adjudicate counterclaims "aris[ing] out of the transaction or occurrence or series of transactions or occurrences set forth in the complaint." Respondents filed separate reparations complaints (later consolidated) with the CFTC against petitioner commodity futures broker (petitioner) and one of its employees, alleging that a debit balance in their accounts with petitioner, resulting from respondents' futures trading losses and expenses being in excess of the funds deposited in the accounts, was the result of petitioner's violations of the CEA. In the meantime, petitioner filed a diversity action in Federal District Court to recover the debit balance, but, after respondents moved to dismiss on the ground that the reparations proceeding would resolve all rights of the parties, petitioner voluntarily dismissed the action and presented its debit balance claims as counterclaims in the CFTC reparations proceeding. The Administrative Law Judge (ALJ) in that proceeding ruled in petitioner's favor on both respondents' claims and petitioner's counterclaims. Respondents then for the first time challenged the CFTC's statutory authority to adjudicate the counterclaims. The ALJ rejected the challenge, and the CFTC declined to review the decision, allowing it to become final. Respondents filed a petition for review with the Court of Appeals, which upheld the CFTC's decision on respondents' claims in most respects, but ordered dismissal of petitioner's counterclaims on the ground that the CFTC lacked authority to adjudicate common law counterclaims. The court held that, in light of the constitutional problems posed by the CFTC's adjudication of such counterclaims, the CEA should be construed

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to authorize the CFTC to adjudicate only counterclaims arising from violations of the CEA or CFTC regulations.


1. The CEA empowers the CFTC to entertain state law counterclaims in reparations proceedings. Pp. 841-847.

(a) While the Court of Appeals' reading of the CEA permitted it to avoid a potential Article III problem, it did so only by doing violence to the statute, for its distinction between common law counterclaims and counterclaims based on violations of the statute cannot be drawn from the statute's language or history, nor reconciled with the congressional purpose in creating reparations proceedings to promote [106 S.Ct. 3248] efficient dispute resolution. Pp. 841-842.

(b) Section 8(a)(5) of the CEA, which empowers the CFTC to promulgate such regulations as are reasonably necessary "to effectuate any of the provisions or to accomplish any of the purposes of [the CEA]," clearly authorizes a regulation providing for adjudication of common law counterclaims. To require a bifurcated examination of a single dispute would destroy the efficacy of the reparations remedy. Pp. 842-844.

(c) The CFTC's longstanding interpretation of the statute as empowering it to take jurisdiction over counterclaims such as petitioner's is reasonable, is well within the scope of its delegated authority, and accordingly is entitled to considerable weight, especially where Congress has twice amended the CEA since the CFTC issued its counterclaim regulation without overruling it, and indeed has explicitly affirmed the CFTC's authority to dictate the scope of its counterclaim jurisdiction. Pp. 844-847.

2. The CFTC's assumption of jurisdiction over common law counterclaims does not violate Article III of the Constitution. Pp. 847-858.

(a) As a personal right, Article III's guarantee of an impartial and independent adjudication by the federal judiciary is subject to waiver. Here, respondents indisputably waived any right they may have had to the full trial of petitioner's counterclaims before an Article III court by expressly demanding that petitioner proceed with its counterclaims in the reparations proceedings, rather than before the District Court. Even if there were no express waiver, respondents' election to forgo their right to proceed in state or federal court and to seek relief in the CFTC constituted an effective waiver. Pp. 847-850.

(b) Nor does the CFTC's common law counterclaim jurisdiction contravene the nonwaivable protections Article III affords separation of powers principles. Examination of the congressional scheme in light of a number of factors, including the extent to which the "essential attributes of judicial power" are reserved to Article III courts, and conversely, the extent to which the non-Article III forum exercises the

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range of jurisdiction and powers normally vested only in Article III courts, the origins and importance of the right to be adjudicated, and the concerns that drove Congress to depart from the requirements of Article III, yields the conclusion that the limited jurisdiction the CFTC asserts over state law claims as a necessary incident to the adjudication of federal claims willingly submitted by the parties for initial agency adjudication does not impermissibly threaten the institutional integrity of the Judicial Branch. Pp. 850-856.

(c) Even assuming that principles of federalism are relevant to Article III analysis, those principles do not require invalidation of the CFTC's counterclaim jurisdiction. The fact that petitioner's counterclaims are resolved by a federal, rather than a state, tribunal is not objectionable, because federal courts can, without constitutional hazard, decide such counterclaims under their ancillary jurisdiction. Moreover, respondents have identified no historical support for the argument that Article III embodies a compact among the Framers that all state law claims heard in a federal forum be adjudicated by judges possessing the tenure and salary protections of Article III. Pp. 856-858.

248 U.S.App.D.C. 155, 770 F.2d 211, reversed and remanded.

O'CONNOR, J., delivered the opinion of the Court, in which BURGER, C.J., and WHITE, BLACKMUN, POWELL, REHNQUIST, and STEVENS, JJ., joined. BRENNAN, J., filed a dissenting opinion, in which MARSHALL, JJ., joined, post, p. 859.

O'CONNOR, J., lead opinion

[106 S.Ct. 3249] JUSTICE O'CONNOR delivered the opinion of the Court.

The question presented is whether the Commodity Exchange Act (CEA or Act), 7 U.S.C. § 1 et seq., empowers the Commodity Futures Trading Commission (CFTC or Commission) to entertain state law counterclaims in reparation

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proceedings and, if so, whether that grant of authority violates Article III of the Constitution.


The CEA broadly prohibits fraudulent and manipulative conduct in connection with commodity futures transactions. In 1974, Congress "overhaul[ed]" the Act in order to institute a more "comprehensive regulatory structure to oversee the volatile and esoteric futures trading complex." H.R.Rep. No. 93-975, p. 1 (1974). See Pub.L. 93-463, 88 Stat. 1389. Congress also determined that the broad regulatory powers of the CEA were most appropriately vested in an agency which would be relatively immune from the "political winds that sweep Washington." H.R.Rep. No. 93-975, at 44, 70. It therefore created an independent agency, the CFTC, and entrusted to it sweeping authority to implement the CEA.

Among the duties assigned to the CFTC was the administration of a reparations procedure through which disgruntled customers of professional commodity brokers could seek redress for the brokers' violations of the Act or CFTC regulations. Thus, § 14 of the CEA, 7 U.S.C. § 18 (1976 ed.),1 provides that any person injured by such violations may apply to the Commission for an order directing the offender to pay reparations to the complainant and may enforce that order in federal district court. Congress intended this administrative procedure to be an "inexpensive and expeditious" alternative to existing fora available to aggrieved customers, namely, the courts and arbitration. S.Rep. No. 95-850, p. 11 (1978). See also 41 Fed.Reg. 3994 (1976)

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(accompanying CFTC regulations promulgated pursuant to § 14).

In conformance with the congressional goal of promoting efficient dispute resolution, the CFTC promulgated a regulation in 1976 which allows it to adjudicate counterclaims "aris[ing] out of the transaction or occurrence or series of transactions or occurrences set forth in the complaint." Id. at 3995, 4002 (codified at 17 CFR § 12.23(b)(2) (1983)). This permissive counterclaim rule leaves the respondent in a reparations proceeding free to seek relief against the reparations complainant in other fora.

The instant dispute arose in February, 1980, when respondents Schor and Mortgage Services of America, Inc., invoked the CFTC's reparations jurisdiction by filing complaints against petitioner ContiCommodity Services, Inc. (Conti), a commodity futures broker, and Richard L. Sandor, a Conti employee.2 Schor had an account with Conti which contained a debit balance because Schor's net futures trading losses and expenses, such as commissions, exceeded the funds deposited in the account. Schor alleged that this debit balance was [106 S.Ct. 3250] the result of Conti's...

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