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American Bar Association v. Federal Trade Commission

United States Court of Appeals, District of Columbia Circuit
430 F.3d 457 (2005)
ELI5:

Rule of Law:

A federal agency may not regulate a professional field traditionally governed by the states, such as the practice of law, unless Congress has provided an unmistakably clear statement of its intent to grant such authority within the statutory text.


Facts:

  • In 1999, Congress enacted the Gramm-Leach-Bliley Act (GLBA) to require 'financial institutions' to protect the privacy of their customers' personal information.
  • The GLBA defines a 'financial institution' as an 'institution the business of which is engaging in financial activities as described in section 1843(k) of Title 12,' a provision of the Bank Holding Company Act (BHCA).
  • The BHCA, in turn, incorporates by reference the Federal Reserve Board's 'Regulation Y,' which lists activities considered 'closely related to banking.'
  • Included in Regulation Y's list of activities are 'providing real estate settlement services' and 'providing tax-planning and tax-preparation services,' activities sometimes performed by attorneys.
  • The Federal Trade Commission (FTC), charged with enforcing the GLBA for certain institutions, issued a letter asserting that attorneys engaged in these listed activities are 'financial institutions' and therefore subject to the GLBA's privacy rule requirements.
  • The American Bar Association (ABA) and the New York State Bar Association corresponded with the FTC, questioning its authority to regulate attorneys under the Act.
  • The FTC confirmed its position that attorneys engaged in such activities are covered by the GLBA and are not exempt from its privacy regulations.

Procedural Posture:

  • The American Bar Association and the New York State Bar Association filed separate complaints in the U.S. District Court for the District of Columbia, seeking a declaratory judgment that the FTC's interpretation was unlawful.
  • The FTC filed a motion to dismiss for failure to state a claim, which the District Court denied.
  • The parties subsequently filed cross-motions for summary judgment.
  • The District Court granted summary judgment in favor of the Bar Associations, holding that Congress did not intend the GLBA to apply to attorneys practicing law.
  • The FTC, as the losing party, appealed the District Court's decision to the U.S. Court of Appeals for the D.C. Circuit.

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Issue:

Does the Federal Trade Commission have the statutory authority under the Gramm-Leach-Bliley Act to regulate attorneys engaged in the practice of law as 'financial institutions' based on their involvement in certain financial-related activities like real estate settlement or tax planning?


Opinions:

Majority - Sentelle

No. The Federal Trade Commission lacks the statutory authority under the Gramm-Leach-Bliley Act to regulate attorneys as 'financial institutions.' At Chevron Step One, the court finds no statutory ambiguity sufficient to imply a congressional delegation of authority to regulate the legal profession. The court reasons that Congress does not 'hide elephants in mouseholes,' and such a significant expansion of federal regulatory power into a traditionally state-governed area would require a clear statement, which is absent here. The attenuated statutory chain—from the GLBA to the Bank Holding Company Act to Regulation Y—which never once mentions attorneys, makes it implausible that Congress intended this result. The court holds that the term 'financial institution' is a poor fit for an attorney or law firm. At Chevron Step Two, the court concludes that even if the statute were ambiguous, the FTC's interpretation is unreasonable because it infringes on the states' traditional sovereignty over the regulation of the legal profession without an 'unmistakably clear' statement of intent from Congress.



Analysis:

This decision significantly curtails federal agency authority by reinforcing the 'elephants in mouseholes' canon of statutory interpretation and the clear statement rule. It establishes that an agency cannot leverage a complex, multi-layered statutory definition to expand its jurisdiction into an area traditionally regulated by the states, such as the legal profession. The ruling serves as a strong precedent against agency overreach through interpretive rulemaking, requiring that congressional intent for major policy shifts be explicit and unambiguous. Future cases involving agency attempts to regulate new fields based on broad or incorporated statutory language will likely face heightened scrutiny under this framework.

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