COMMODITY FUTURES TRADING COMM'N v. SCHOR
Legal provision: 7 U.S.C. 1
ORAL ARGUMENT OF LAWRENCE G. WALLACE, ESQ., ON BEHALF OF THE PETITIONER IN NO. 85-621
Chief Justice Burger: We will hear arguments next in Commodity Futures Trading Commission against Schor and the consolidated case.
Mr. Wallace, I think you may proceed whenever you are ready.
Mr. Wallace: Mr. Chief Justice, and may it please the Court, this is a case in which the respondent is claiming a right to an Article III adjudication in a situation where he was afforded that right by the governing statute, but elected instead to use an administrative remedy provided by Congress as a convenient alternative.
In other words, it amounts to something of a claim that the Constitution should protect him against himself and against the election of remedies that he exercised.
The 1974 amendments to the Commodities Exchange Act created the Commodities Futures Trading Commission and directed it to establish a reparations procedure for administrative adjudication of disputes between brokers and their customers, and as we have shown in our brief, more than 8,000 such disputes which otherwise might have been brought in the federal courts have been disposed of through this administrative remedy since it went into effect.
From the outset, the implementing regulations provided that counterclaims arising out of the same transaction could be asserted in the course of the administrative remedy.
The counterclaim regulation was pursuant to the very broad grant of authority in the statute for the Commission to adopt regulations not only to effectuate the provisions of the Act but also to accomplish any of the Act's purposes, and as we have detailed in our brief, the Act itself referred to counterclaims.
The enforcement provision of the Act obviously contemplated that counterclaims would be heard by the Commission since it gave a right of enforcement either to the complainant or to any person for whose benefit the Commission's order was made.
The House report initially referred to counterclaims and anticipated that they would be entertained, and Congress has subsequently revisited the issue in amending the Act, and has quite explicitly ratified the counterclaim practice that the commission had developed.
All of that is set forth in our brief.
In many respects the present case is a model case demonstrating the reasons for the administrative reparations procedure and for the Commission's counterclaim rule.
The respondent here, owing a sizable debit balance to his broker, brought a fraud claim before the CFTC against the broker and one of its employees.
As is typical in such cases, the fraud claim essentially required the Commission to use its expertise in evaluating a complex set of facts rather than to resolve any purely legal issues, and perhaps the outstanding utility of the reparations procedure is that it allows the facts to be evaluated by this expert agency that understands the operation of the commodities markets and these transactions.
The counterclaim arose in the following way.
Before the broker had noticed that the reparations complaint had been filed, it had filed a diversity action in the federal court to recover the debit balance owing on its account, and the respondent, the customer filed a counterclaim repeating its fraud charges to that action, but also filed a motion to dismiss or stay the court action, claiming that it was essentially duplicative of the administrative remedy that it had asserted before the Commission, and the motion that was filed, there was a later one as well, but the more telling part of it is in the joint appendix on Page 13 in the initial motion.
We at least find this page of the joint appendix, Page 13, the most telling page in the joint appendix, and the Court will note that respondents' motion, recited in Paragraph 3, pursuant to the rules of the CFTC, the plaintiff in the federal court case could get its claim decided by filing a counterclaim before the Commission, and in Paragraph 4, that the reparations proceedings pending before the Commission will fully and completely resolve all of the rights between the parties with respect to the transactions; Number 5, that therefore the federal court suit is merely duplicative of the administrative proceeding that the respondent has filed; and Number 6, which is our Exhibit A and B, the reasons why the counterclaim rule is needed.
Respondent alleged two reasons why the court suit would undermine the viability of the administrative remedy.
One was that under the Federal Rules of Civil Procedure, it was required to assert the same claims it was asserting before the Commission as a counterclaim to the court suit, because it arose out of the same transaction, therefore the whole case would be removed into the federal court if the federal court suit went ahead, and the other one was that in any event it would be required at great cost and inconvenience to litigate the issues before two different forums, and then the final sentence of Paragraph 6, which reads like a sentence out of the brief we have filed,
"The effect therefore would be to emasculate if not destroy the purposes of the Commodity Exchange Act to provide an efficient and relatively inexpensive forum for the resolution of disputes in futures trading. "
Now, as is also typical in these cases, the counterclaim involved no additional factual issue other than the question whether the fraud alleged in the administrative complaint had occurred.
The arithmetic of the debit balance on the account was undisputed, and the counterclaim involved no disputed legal issue.
It was simply a way fully to resolve the dispute over the contested transactions in a single proceeding.
Unidentified Justice: Of course, there is no question that the counterclaim could have involved a disputed legal issue, and it still would have been before the CFTC.
Mr. Wallace: That is correct, Mr. Justice.
It is a rare occurrence for there to be a disputed issue of state law.
If there is one, of course, the Commission will resolve it, and the Commission's orders are subject to de novo review on a state legal issue in the Federal Court of Appeals, which is, of course, an Article III court.
Unidentified Justice: But, of course, a state issue involving Utah law... what Court of Appeals would that come before on review of the CFTC?
Mr. Wallace: Well, it would be the appropriate Court of Appeals, and I am not sure that I can answer the question without reference back to the statute.
This particular one wound up in the District of Columbia Circuit Court for--
Unidentified Justice: It wouldn't necessarily be the Court of Appeals where some judges from that state might be sitting?
Mr. Wallace: --It would not necessarily be that.
Justice O'Connor: I guess there also could be state law defenses to a counterclaim, could there not?
Mr. Wallace: Those would be heard by the Commission.
That is correct.
Justice O'Connor: Do you take the position that Congress can routinely give agencies pendant or ancillary jurisdiction over state law claims that relate in some way to the adjudication of a federal statutory right?
Mr. Wallace: Well, we have argued in our brief that even in the absence of consent of the parties, Congress could require the adjudication of the complete transaction in all claims between the parties in the administrative agency with authority over the claim, but we frankly do not believe that question need be reached here, because the consent of the parties was so evident.
The respondent chose to follow the administrative remedy knowing that the rules of the Commission provided for the counterclaim to be asserted there, and indeed he succeeded in persuading the broker to dismiss its federal court suit in favor of asserting the counterclaim before the agency, which is the course that respondent preferred.
So this was not merely a case in which the respondent had a right to be in an Article III court if he chose to be.
It is a case in which he actually was in an Article III court and opted out of that court in favor of having the agency adjudicate the rights between the parties with respect to the entire transaction.
So, we think that the consent of the parties is really controlling in this case, the consent to an agency adjudication.
In our view, this is not a difficult case on the consent issue, such as Thomas against Union Carbide of last term in which the question of consent was to be inferred from the participation by individuals in a statutory program that restricted the resolution of disputes arising under that program to a non-Article III forum.
Instead, this is a much more straightforward case of election of remedies.
Respondent was not so restricted.
And in our view the case is no different for Article III purposes from a simple agreement by parties to submit their dispute to an arbitrator rather than to proceed in the federal courts.
Unidentified Justice: Well, except if the parties submit their dispute to an arbitrator, there is no question of the allocation of the powers of the federal government being involved at all.
Here you are having a dispute resolution under the auspices of the federal government, and it really is not being done primarily by the judicial branch.
Mr. Wallace: That is true.
For the convenience of persons participating in the commodities market, Congress has exercised its Article I powers to provide an expert administrative tribunal which can serve by consent to resolve their disputes pursuant to administrative procedures with a greater scope of judicial review than the Article III courts and would be true of arbitrators who would be less expert in the field, and the parties have the option of going to an Article III court rather than utilizing that procedure.
Unidentified Justice: What if... in the old Habrins case, I think it was, where this Court said that judicial officers shouldn't be passing and validating pension claims where their decisions weren't final, would it have made any difference there if the legislation said, you don't have to submit it to the justices, but if you want to, go ahead?
Mr. Wallace: Well, there is no improper use of Article III judges or courts in this case.
The scheme here fully comports with the purpose of Article III in preserving the independence of the federal courts and their role as the ultimate expositors of the federal law.
Now, in this Court respondent has presented us with something of a moving target by arguing principally that it is not his own rights but states' rights that are offended by his election of the administrative remedy.
The argument, it first must be said, is particularly abstract on the facts of this case, where the counterclaim involved no additional disputed issue of fact, no issue of state law whatsoever, and arose under a statutory scheme in which in the rare instance when the Commission might decide an issue of state law, its determination would be subject to de novo review in an Article III court, as we have discussed.
And in any event, we regard the contention as misconceived.
Under our federal system, rights between persons are often governed by both federal and state law in various combinations, and it is commonplace and consistent with and serves the rule of law for federal officials of all kinds and agencies as well as Article I courts to determine applicable state law to the best of their ability and to apply it in the course of doing their business, just as state officers, agencies, and courts should apply applicable federal law.
Chief Justice Burger: We will resume there at 1:00 o'clock, Mr. Wallace.
Mr. Byman, I think you may proceed whenever you are ready.
ORAL ARGUMENT OF ROBERT L. BYMAN, ESQ., ON BEHALF OF THE PETITIONER IN NO. 85-642
Mr. Byman: Mr. Chief Justice, and if it may please the Court, although both the Commission and Conti in their briefs tried to craft a single sentence to frame the issue in this case, there really are three basic issued presented by this case: Number One, did Congress intend that the Commission have jurisdiction over common law counterclaims; Number Two, may Congress provide for non-Article III dispute resolution where the parties consent to such resolutions; and Number Three, was there consent here?
I believe that the Deputy Solicitor General has adequately covered the ground on the first and third of these issues, and I would like to only add one or two small footnotes.
It is the second issue, whether or not Congress may provide for non-Article III dispute resolution with the consent of the parties, which I think is the real meat of this case, and which I would like to address most of my remarks to.
Going back for just a moment to the first issue of Congress's intent in this case, I think it is significant to point out that this is not a case in which Congress has ratified by an off chance remark in one or two pages out of thousands of pages of legislative history.
Rather, in the 1982 reauthorization of the Commodity Futures Trading Commission, both the Senate and the House used identical language which was cited in all of the briefs, but it might get lost in the fact that we cited only one set of language because we didn't want to cite twice.
Both the House and the Senate said that the reparations program seeks to pass upon the entire controversy, including counterclaims which arise out of the same transaction.
It is also significant that both the Senate and the House versions of the bill were reported to give the Commission broad authority, and in fact the House report talked about the fact that the House wanted to exempt the Commission from the usual application of the Administrative Procedures Act, again, to give it broad authority in this case.
Turning quickly to the third issue in this case, whether there was consent here, we believe that this is a relatively easy question.
Schor did not simply consent to adjudication by a non-Article III body.
He demanded it.
He demanded that Conti dismiss its federal action.
The federal judge in that case declined to accede to that demand, but Conti voluntarily dismissed upon Schor's representation.
He only raised this issue after the Administrative Law Judge had announced his preliminary findings and directed Conti to prepare a proposed order.
Turning then to--
Justice White: Are these counterclaims compulsory?
Mr. Byman: --In the federal sense, Your Honor?
Justice White: Yes, if someone gets sued before the Commission, does the Commission say there should be a counterclaim if there is one?
Mr. Byman: No, Justice White.
In the Commission, Conti had the option of ignoring reparations or its counterclaim and going directly to federal court or filing it on a voluntary basis, but obviously the goal that was fostered by the--
Justice White: But certainly it is permitted, counterclaim is permitted.
Mr. Byman: --Absolutely.
Justice White: And Congress, you say, intended it, so anybody who sues, a plaintiff who sues before the Commission, what do you say, he brings an action, or what does he do before the Commission?
Mr. Byman: He brings a reparations action to seek redress.
Justice White: All right, he brings a reparation.
He then knows that he may face a counterclaim.
Mr. Byman: Exactly, and Schor knew that.
At the time that he filed his action in reparations, the Seventh Circuit, which is the circuit in which Conti had filed its federal action, had already held some three or four years earlier that a private right of action existed under the commodity--
Justice White: But Schor couldn't go any place else, could he?
Mr. Byman: --Pardon me?
Justice White: Schor couldn't go any place else.
Mr. Byman: He could have gone to voluntary arbitration if the parties had agreed.
Justice White: Could he go to court anywhere?
Mr. Byman: He could have gone to state court at that time.
There has been a recent amendment to the Commodity Exchange Act that creates exclusive jurisdiction in the federal courts, but at the time that he filed his claim--
Justice White: But in any event, he could have gone to court somewhere.
Mr. Byman: --That is right, and in fact he was in court.
Justice White: And he still could today if... I mean, any person in his position could now go to court.
Mr. Byman: That is right, Your Honor.
Justice White: But he would have to go to federal court.
Mr. Byman: That is right.
He still has his choice of his Article III remedy or his Congressionally created reparations remedy, but if he chooses the reparations remedy, he takes as the Arnett case called it, the bitter with the sweet.
He takes the implications of the procedure that he has decided to elect.
Justice White: Well, like now, if he goes through a federal court, he is going to have to face a counterclaim.
Mr. Byman: Well, if he were to go to a federal court now, Your Honor, he would be estopped by res judicata, since he is litigating--
Justice White: Well, I know, but I mean an ordinary plaintiff.
Mr. Byman: --That's right, Your Honor.
Justice White: He knows that he may face a state law counterclaim.
Mr. Byman: Exactly, Your Honor.
Unidentified Justice: Would there be a risk of time factor, too, in some circumstances?
Mr. Byman: There could be, Your Honor.
In this case, this contract is governed by Illinois law.
Illinois has a ten-year statute for contract claims.
I would like to turn then to that second issue, can Congress permissibly create a non-Article III remedy with the consent of the parties, add this goes to the question that Justice Rehnquist asked the Deputy Solicitor General.
In fact, it is the issue which drove, we believe, the Court of Appeals to its decision.
It is the issue which drives this case, and that is, may the federal government allocate its resources for the voluntary application of a non-Article III remedy to give litigants an option.
I would like, if I may, Your Honors, to pose a hypothetical.
We know from the Southman case, we know from the pronouncements of various members of this Court that this Court favors arbitration, favors the parties turning to alternate dispute resolution foras.
If Congress were to try to aid that arbitration process and cure one of the evils that now exist in arbitration, this case poses serious risks to that kind of a remedy.
The example that I have in mind is under Triple A arbitration, for example.
That forum, the American Arbitration Association, is a very effective one for private litigants to turn to, but litigants are often wary of it because of the unevenness of the arbitration panel.
Some arbitrators are lawyers.
Some arbitrators are associated with industry and have no legal background.
Some arbitrators, the parties simply don't know who they are.
And indeed, when the Triple A gives lists of arbitrators to the parties that have proposed arbitration, the parties are free to strike all of the names, and in that instance the Triple A will simply appoint someone with the parties having no input whatsoever as to the panel that they will have to resolve their disputes.
Congress could correct that problem by appointing a core of professional full-time qualified federal arbitrators to whom the parties would turn only on a voluntary basis, and yet if the Court of Appeals decision is upheld in this case, Congress could not do that.
The Court of Appeals decision would tell Congress that it could not use federal resources to help the citizens of this country resolve their disputes even though the citizens wished to resolve their disputes in a consensual manner.
Justice White: Well, Mr. Byman, no one thinks that the Federal Mediation Service is unconstitutional, does it?
Mr. Byman: The Mediation Service, of course, doesn't issue binding orders.
It merely aids the parties in forming their own agreement as to final resolution, so it is a slightly different situation.
There also, of course, are labor arbitrators, but that deals with a specialized area of federal law.
Here we are talking about state law concepts where the parties voluntarily go to those proceedings, and our position, Your Honor, is that the parties may do that, that Congress could permissibly create a federal corps of arbitrators to hear nothing but state law claims so long as the parties consented to go that forum.
That, we believe, is the nub of--
Justice Brennan: What is the extended judicial review, Mr. Byman?
Mr. Byman: --Under the current system, Your Honor?
Justice Brennan: Yes.
Mr. Byman: Justice Brennan, at this point, the judicial review is that after the Commission has entered a binding order, an appeal may be taken as of right to the Circuit Court of Appeals for the district... for the circuit, rather, in which the reparations proceeding was held.
Unidentified Justice: Now, the counterclaim, what is the standard of review?
Mr. Byman: The same standard, Your Honor, and it is a standard of the substantial weight of the evidence.
It is not strictly a de novo review, nor is it a clearly erroneous standard.
It is more a middle standard.
Unidentified Justice: Where does the reparations action have to be brought?
Mr. Byman: The reparations action may be brought in any location in which either the broker or the customer are located.
Typically reparations will be filed where the individual customer happens to reside.
In this case, Judge Painter, who was sitting, of course, in Washington, asked the parties, who were a customer who resided in New Jersey and a brokerage firm which was a resident of Chicago, if they would be willing to come to Washington for the hearing.
They both agreed to, and that was the reason that the D.C. circuit had jurisdiction of the appeal.
Your Honors, we believe that it is incumbent in the Constitution that the Constitution is an architecture designed to protect the citizens of this country.
It is not an architecture in and of itself, but rather, it is designed to aid the legitimate goals of people who reside in that architecture.
We are aware of no right under the Constitution granted to its citizens which cannot be waived by individuals.
This is exactly that type of situation.
If there was a Article III right for Mr. Schor in this case, he waived it.
If there is an Article III right of litigants to have their disputes heard in common law controversies in Article III courts, they waive it by going to reparations.
We believe it is as simple as that.
We would direct Your Honor's attention to the portion in our brief in which we talk about the fact that Conti's counterclaim in this case should not be affected no matter what the ultimate resolution of the broader issue is, but we respectfully suggest, unless the Court has further questions, that the judgment below be vacated.
Chief Justice Burger: Very well.
ORAL ARGUMENT OF LESLIE J. CARSON, JR., ESQ., ON BEHALF OF THE RESPONDENTS
Mr. Carson: Mr. Chief Justice, and may it please the Court, the first construction of the Commodity Exchange Act with respect to counterclaims and reparations proceedings was by the CFTC and took place when it was promulgating its proposed regulations implementing that program.
It construed the Act at that time as presenting a substantial question of whether it had any authority to entertain counterclaims other than counterclaims which alleged violations of the Commodity Exchange Act.
It answered that substantial question by promulgating a proposed regulation which restricted its jurisdiction over counterclaims to counterclaims which alleged violations of the Commodity Exchange Act.
It did so based upon a reading of the Act, based upon a reading of the Act shortly after the enacting Congress had passed it, and it did so with express recognition that the counterclaim regulation that it was proposing was a counterclaim category which would be indeed very narrow.
Now, to be sure, thereafter based upon comments received by the Commission from the industry, which basically stated that brokers commented that it would be unfair to them as brokers, the Commission promulgated the counterclaim regulation which brings us here today, but it is, I think, important to note that on the statutory construction issue, the first impression of the Commission was that it did not have this authority.
The other bases of construing this statute which were referred to by the Solicitor General, the legislative history, I just want to point out that the legislative history, while it refers to counterclaims, we have no issue with respect to counterclaims, it does not refer to counterclaims that are based other than on the Act.
The Act itself, Section 14 of the Commodity Exchange Act, the reparations section, refers not once but three times to the jurisdiction of the Commodity Exchange... or to the Commodity Futures Trading Commission as to award reparations based upon violations of the Act.
No other authority is conferred by that section.
The section has been amended in 1983, but still it does not state anything with respect to non-Act counterclaims.
Indeed, the legislative history to which Mr. Byman referred likewise makes no reference nor explicit reference to non-Act counterclaims, so that on the basis of statutory construction, when, of course, the Commission locked at this, they looked at it without any reference to any constitutional issues.
Now, of course, a constitutional issue has been raised, and based upon the fact that a fair reading, a reading the Commission itself made initially would permit avoidance of that constitutional issue; therefore the Act should be construed as not raising the issue, as limiting the Commission to the jurisdiction it said it had initially, that is, counterclaims based on Act violations.
However, if the Court feels it must reach the constitutional issue, the issue has been stated by counsel for Conticommodity Services as indicating or as being whether or not Congress may create a program in which state law created rights are adjudicated by a federal tribunal with the consent of the parties.
We submit as to the latter factor, consent of the parties, consent is irrelevant.
There is, of course, an enormous and consistent body of law that says consent of the litigants cannot vary or expand the jurisdiction of a tribunal, certainly cannot vary or expand the jurisdiction of a court, a constitutional court or a state court, and there is no reason why it should be able to expand the jurisdiction of this administrative tribunal.
Beyond that, of course--
Justice O'Connor: May I inquire, Mr. Carson, about that argument?
It does seem to me that consent of the litigants in one form or another was a factor relied upon by this Court in Thomas versus Union Carbide.
And I think that it also has been a factor in the actions of courts supporting the Magistrates Act, which permits a magistrate to adjudicate with consent of the parties even state law claims.
Mr. Carson: --That is true, Justice O'Connor.
The Magistrates Act, however, presents two distinct differences from what we have here.
Number One, the magistrates are adjuncts, employees, if you will, of an Article III court.
They exist within the court.
They are supervised by Article III judges in a very close way.
They are appointed by Article III judges.
They are, it may be stated, beholden not to the Congress but to Article III judges.
Moreover, the Magistrates Act provides in this Article III context for express consent, express consent by the parties litigant to the use of the magistrate, who, of course, is not appointed under Article III.
Thus you have explicit consent, statutorily authorized consent.
Justice O'Connor: Well, I suppose in the Thomas case the form of consent relied upon was not even as explicit as it was in this case, was it?
Mr. Carson: The form of consent--
Justice O'Connor: It was just consenting to submit to the registration scheme.
Mr. Carson: --That... while it was not explicit in the sense that there was a provision in the statute relative to consent, the statute itself called for individuals to accede to this system in order to be a part of it.
Also in Thomas I believe the decision was rendered by arbitrators, arbitrators who were themselves, if I recall correctly, not appointed by Congress or by the executive branch, so that there you may not even have a judicial power situation, but be that as it may, if the arbitrators in Thomas were the subject of consent, Thomas itself represents not a state created right of action.
It was explicitly rejected by this Court that a state law created right was being adjudicated there, and indeed the Court rejected the proposition that the rights being adjudicated there were any replacement of a state law created action, so that that is distinguished from... this case is distinguishable from Thomas as we, I think, point out in our brief, based on the fact that it is a state law created right of action, and that there is a special relationship or special protection for state law created rights of action under Article III.
Unidentified Justice: Mr. Carson, what is the evil, if I may call it that, which our Article III jurisprudence cases seem to be directed?
Perhaps we ought to know, but certainly we can ask you.
Mr. Carson: Well, of course, the objective of the tenure and salary protection provisions of Article III was to render the judges appointed thereunder as--
Unidentified Justice: Then is it to keep federal judges employed to make sure that all conceivably judicial business goes to federal judges and not somebody else in the federal system.
Mr. Carson: --It is, I believe, certainly a fair reading of Article III, in fact, the judicial power of the United States is to be exercised by judges who benefit from those tenure and salary protection provisions.
Unidentified Justice: Is that then a right that is for the benefit of the individuals who are to have their cases decided by those judges?
Mr. Carson: It certainly is.
The separation of powers and other concepts which relate to the independence of federal judges conferred by Article III are, of course, for the purpose of improving the performance of the exercise of judicial power.
Obviously, that provision of the framers was not for the benefit of federal judges.
It was for the benefit of the quality of government, particularly of judicial administration, that the new nation would offer.
Justice White: Well, maybe it was to ensure the litigants that the judges weren't being pushed around by the parties or by politicians operating under undue influence.
Mr. Carson: Absolutely, Justice White.
That, of course, was the means to better judicial administration the framers selected.
Justice Rehnquist: But insofar as it is a right of the parties, it certainly could be waived by consent.
Mr. Carson: No, I do not agree with that, Justice Rehnquist.
The right of the parties is not, I submit, a significant or relevant factor when it comes to Article III.
Article III with respect to state created rights of action is a jurisdictional article.
It determines who may hear certain kinds of controversy, subject matter jurisdiction.
Chief Justice Burger: Do you question the right of an individual to make a binding agreement to waive his right to use an Article III judge and to go final and binding nonreviewable arbitration?
Mr. Carson: I do, Mr. Chief Justice.
I submit that an individual may not confer the judicial power of the United States by consent on any person who is not the beneficiary of the protections under Article III.
In other words, while I may agree to appear before an arbitrator who is not appointed by Congress or the executive branch and not paid by Congress or the executive branch, I cannot agree to appear before a person who is employed by the federal government and who is beholden and paid by the federal government, and have that person exercise in my controversy, the judicial power of the United States.
Unidentified Justice: What does Mr. Schor lose by having Judge Painter as opposed to perhaps a New Jersey state judge, an Illinois state judge, of a federal judge decide his case?
Mr. Carson: What does he lose by having Judge Painter... what he loses by having Judge Painter decide his case is that his personal loss is perhaps not the answer to your question.
He has, of course, the loss of the independence protection features of Article III that are provided in Article III which are not accorded to Judge Painter or to his supervisors, the Commissioners.
Justice Rehnquist: But if it is the state law element of the case that is so important, he might well go before a state court judge who didn't have any great amount of tenure either.
Mr. Carson: That, I think, Justice Rehnquist, goes to the exact point that we are making here, which is that the treatment or the decision by federal authorities of state created rights, the adjudication of those rights is something that was limited by the framers in the context of the rather significant controversy over whether such authority would be conferred upon the federal judiciary, whether it could decide in the context of diversity, the narrow context of diversity, state created rights.
That controversy, we submit, was overcome, that is, that opposition was overcome in the context of the independence conferred upon the federal courts by Article III.
Obviously, any litigant is entitled to appear, or bring his controversy to a state court, and there, of course, Article III does not apply, but the part of the benefit of Article III is the preservation to the extent of its limitations on the exercise of the federal judicial power over state related or state created actions, the benefit that it confers upon the relationship between the federal government and the states.
In other words, in addition to separation of powers directly conferred upon the judges by Article III, it also indirectly renders those judges independent in their decisions with respect to state related causes of action.
Unidentified Justice: Independent of whom?
Mr. Carson: Independent of Congress.
One of the concerns that was expressed during the debates was the power of the legislature and its threat it represented to the power of the states.
While I do not believe the debate can be demonstrated to have been as focused as it is here today during the drafting of the constitution, I can point to one quotation which is quoted by Judge Friendly in the article that is cited in the briefs which... in which an anti-Federalist who styled himself Aggripa, took the position that... asked the question rhetorically, by what rule will these national courts decide diversity cases, and he answered his own question by stating, by its own rule or by that of its employer, the Congress.
Now, the implication of that answer is that of course the relationship that the Congress had to the courts as employer would in some way enable the Congress to have an unwanted influence over the national courts.
That argument, of course, would be and presumably was overcome by pointing out to Aggripa and the other anti-Federalists that there could be no such influence by Congress because these judges would have independence by virtue of their salary and tenure protection.
Turning just to consent, which seems to be the major argument of the petitioners, the consent that we have been confronted with is, of course, not consent.
We may have been... we may not be in fact consistent throughout this litigation, but the fact of the matter is that when we took the position that they have alluded to in the federal court in Chicago, we lost.
Our position was rejected, and when we then were confronted with the counterclaim in the reparations proceeding in Washington, we did at a later time to be sure raise the issue of statutory construction.
That issue was raised before the Administrative Law Judge, who commented in his initial decision on it by stating it was a neat legal point, but he was bound by agency regulations and policies.
We raised it also in our petition for review to the Commission, and we raised it again in the Court of Appeals.
Of course, it was the Court of Appeals who raised sua sponte the constitutional issue at the appellate level, so that we did raise this issue as to jurisdiction in a statutory construction manner, and therefore cannot be said to have consented.
Justice Rehnquist: But, Mr. Carson, when you are given two alternative methods of proceeding to try to get the relief that you want one by the Commission with a rule providing for counterclaims, and another going to federal court where you will get your Article III judge, you choose the first of them.
Certainly there is a lot of our doctrine that would say you consented.
Mr. Carson: Mr. Justice Rehnquist, as I have said before, consent is not relevant to the decision in this case, we submit, but in addition to that our selection was made, as Mr. Byman mentioned, prior to this Court's decision in Merrill Lynch versus Curran, and in that case that was the first case, that was the case which settled the issue of whether there was a private cause of action based on the Commodity Exchange Act and violations thereof.
Until that decision was made, there was a conflict in the circuits and a conflict in the decisions.
The lower court here collects some of those cases.
Basically, though, until five members of this Court decided there was a private cause of action, that was an issue that was up in the air, and--
Justice O'Connor: Was the circuit in which you were acting a circuit which had recognized the jurisdiction over counterclaims, however?
Mr. Carson: --The Seventh Circuit had.
Justice O'Connor: Yes, so as far as you were concerned in that circuit that was the rule.
Mr. Carson: That was the rule in the circuit, but the issue of whether or not that would have prevailed by the conclusion of the case was far from certain because there was obviously a conflict in the circuits, and clearly it was going to be dealt with ultimately by this Court, and this Court by one vote upheld a private right of action.
For the reasons we have stated, A, the statute does not authorize hearing of these state law counterclaims, and because Article III especially protects the states against the trial of state law issues in the absence of the provisions of the Constitution specifically authorizing that by other than Article III judges, and because consent here is not relevant and did not in fact take place, we submit that the judgment of the lower court should be affirmed.
Chief Justice Burger: Very well.
ORAL ARGUMENT OF LAWRENCE G. WALLACE, ESQ., ON BEHALF OF THE PETITIONER IN NO. 85-621 -- REBUTTAL
Mr. Wallace: Mr. Chief Justice, and may it please the Court, the Commission in its first notice of proposed rulemaking did propose a counterclaim rule that would be limited to claims under the CEA.
It is an overstatement, however, to say that there was anything in the notice that interpreted the Act as limiting the Commission's authority in that regard.
It did state that there was a substantial question whether a broader counterclaim rule would be authorized.
The comments, it is fair to say, in looking at this whole history... the Commission at that time, of course, was inexperienced with the administration of the reparations procedure.
The comments pointed out what the Commission's experience has later borne out, that the great bulk of counterclaims that would have to be heard in order for the transaction fully to be resolved would be counterclaims against customers that would not state a claim under the CEA unless the customer happened to be registered as a broker as well, and only one such counterclaim in the 8,000 cases that the Commission has had has arisen thus far that the Commission can recall, the Commission staff can recall.
So, the comments on the proposed rule persuaded the Commission that the scheme just would not work without a broader counterclaim rule that would dispose of the entire transaction.
Now, with respect to the election of remedies in this case, it is true as Justice O'Connor pointed out that Mr. Schor had the option under then existing Seventh Circuit precedent, and this Court had not yet precluded this, of bringing his claim in federal court.
Beyond that, he was already in federal court with his claim as a counterclaim to Conti's diversity action against him under the diversity jurisdiction of the court, so that he himself prior to Merrill Lynch had the means of getting his claim.
His counterclaim was the equivalent of his claim before the Commission, so he himself was in federal court, and said he preferred to have the Commission resolve the matter.
Now, with respect to the question that has been asked about the purposes of Article III and whether our position comports with those purposes, I think the purposes are largely to be divined from the complaint and the declaration of independence that the English king had subjected the courts in the colonies to his will.
It was largely designed to assure that independent tribunals would serve as the ultimate expositors of the law, of federal law in particular.
And there was a corresponding benefit to litigants.
It is not an absolute benefit.
Litigants have not been upheld in claims that there was something wrong with having a judge on a recess appointment sit in their case rather than one already enjoying life tenure.
But to the extent that there is a protection for the litigants, the Court has always recognized that that aspect of Article III protection can be waived in favor of what the litigant finds a more convenient means of resolution, and of course Article I courts such as the Tax Court exist.
The power to decide issues of state law resides not only in the Tax Court in the many specifications we have mentioned, but the Internal Revenue Service itself can resolve a question of state law in assessing a deficiency, and the litigant can acquiesce in that.
The taxpayer can acquiesce in that by not challenging it in court.
There is nothing wrong with having a federal official determine a state law issue.
Chief Justice Burger: Thank you, gentlemen.
The case is submitted.
We'll hear arguments next.