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An Inter-Agency Turf War Winds Up In Federal Court

9:26 AM, Apr 26, 2012 • By ADAM J. WHITE
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"Independent agencies" occupy an odd corner of American government. The Consumer Financial Protection Bureau, National Labor Relations Board, Federal Communications Commission, and others are nominally "independent" of the president's control—usually thanks to limits on the president's power to fire the agencies' leaders—and thus enjoy seemingly unlimited discretion to regulate American industry.  

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We saw this most clearly last year, when President Obama loudly ordered "executive" (i.e., non-independent agencies) to subject their existing regulations to rigorous cost-benefit review, and then meekly asked the independent agencies to consider doing the same. (I outline this episode, and independent agencies generally, in the current issue of National Affairs.)

Things get all the more interesting when an independent agency also has independent litigating authority, allowing it to file lawsuits free from the control of the Justice Department. Especially on days like yesterday, when one federal agency filed a brief in federal court, arguing that the court should strike down another agency's handiwork.

Hunter v. FERC, in the U.S. Court of Appeals for the D.C. Circuit, is the latest battleground in an ongoing turf war between the Commodity Futures Trading Commission and the Federal Energy Regulatory Commission, over which agency has the power to prosecute alleged misconduct by energy-trading hedge funds.

The "Hunter" is Brian Hunter, a Calgary-based hedge fund trader who lost a staggering $5 billion in one week, trading natural gas futures in 2006. Very quickly both the CFTC and the FERC descended upon him: The CFTC asserted authority under the longstanding Commodities Exchange Act, while the FERC asserted new authority under the Energy Policy Act of 2005.

In fact, the FERC asserted its new authority with particular gusto, seeking nearly $300 million in fines. Five years later, when the agency issued its final order, it levied a final penalty of $30 million on Hunter.

Throughout those proceedings, the CFTC consistently challenged the FERC's very authority over Hunter, arguing instead that the CFTC—whose own action against Hunter is still pending—had exclusive jurisdiction over Hunter's actions.

And so yesterday, the CFTC reasserted that point one more time in the D.C. Circuit, filing a brief in support of Hunter's own challenge to the FERC's authority. The FERC's own brief is due in June; Hunter and the CFTC will reply a few weeks later.  Most likely, the court will hear oral arguments in the fall and decide the case late in the year.

This isn't the first time one federal agency has sued another; in 1992, the D.C. Circuit decided a case between the Interior Department and FERC. As Congress and the president enact more and more overlapping statutory schemes, and create still more "independent agencies," we can rest assured that Hunter v. FERC won't be the last of its kind. Energy regulation, with myriad "executive" and "independent" agencies, is particularly ripe for these types of disputes.

Witnessing this odd spectacle, some might blame the administration for failing to rein in the two warring agencies. That's a fair point, but fault truly lies with the Congress that failed to clarify whether its new grant of power to the FERC in 2005 superseded the CFTC's "exclusive jurisdiction" over natural gas, which has been the law since 1974.

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