Commodity Futures Trading Commission v. Schor
(1986)
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Rule of Law:
Congress may constitutionally authorize a non-Article III administrative agency to adjudicate state-law counterclaims that are ancillary to a federal claim within the agency's jurisdiction, so long as the delegation of authority is narrow and does not impermissibly intrude on the institutional integrity of the Judicial Branch.
Facts:
- William Schor maintained a commodity futures trading account with ContiCommodity Services, Inc. (Conti), a professional commodity futures broker.
- Over time, Schor's account accumulated a significant debit balance, meaning he owed money to Conti.
- Schor alleged that this debit balance was the result of Conti's fraudulent conduct and numerous violations of the Commodity Exchange Act (CEA).
- Conti contended that the debit balance was not due to any violation on its part, but was a simple debt owed by Schor resulting from his own trading losses and expenses.
Procedural Posture:
- ContiCommodity Services, Inc. (Conti) filed a diversity action in U.S. District Court to recover a debit balance from William Schor.
- Schor filed a reparations complaint with the Commodity Futures Trading Commission (CFTC) against Conti, alleging the debit balance resulted from violations of the Commodity Exchange Act (CEA).
- Schor moved to dismiss the District Court action, arguing the CFTC proceeding would resolve all issues between the parties.
- Although the court denied the motion, Conti voluntarily dismissed its federal suit and brought its debit-balance claim as a counterclaim in the CFTC proceeding.
- A CFTC Administrative Law Judge (ALJ) ruled in Conti's favor on both Schor's claim and Conti's state-law counterclaim.
- After the adverse ruling, Schor challenged the CFTC's authority to adjudicate the counterclaim; the Commission declined to review the ALJ's final decision.
- Schor, as petitioner, sought review in the U.S. Court of Appeals for the D.C. Circuit.
- The Court of Appeals held that the CFTC lacked statutory authority to adjudicate common law counterclaims, construing the statute narrowly to avoid what it saw as a serious Article III constitutional problem.
- After an initial grant of certiorari and remand by the Supreme Court, the Court of Appeals reinstated its prior judgment.
- The U.S. Supreme Court granted certiorari for a second time to address the issue.
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Issue:
Does the Commodity Futures Trading Commission's (CFTC) assumption of jurisdiction over a state common law counterclaim violate Article III of the Constitution?
Opinions:
Majority - Justice O’Connor
No. The CFTC's limited jurisdiction over state law counterclaims does not violate Article III. The constitutionality of delegating adjudicative functions to a non-Article III body is assessed by reference to the purposes of Article III, considering both the personal right of litigants and the structural principle of separation of powers. A litigant's right to an Article III forum is a personal right that can be waived, which Schor did by choosing the CFTC reparations proceeding and demanding Conti bring its counterclaim there. While the structural component cannot be waived, the CFTC's jurisdiction here poses no threat to the institutional integrity of the judiciary. The Court weighed several factors: 1) the essential attributes of judicial power are largely reserved to Article III courts (e.g., CFTC orders are not self-enforcing and are subject to judicial review); 2) the CFTC's jurisdiction is narrow and limited to a particularized area of law; 3) the counterclaim jurisdiction is incidental to the primary, undisputed federal regulatory scheme and necessary for its efficacy; and 4) the parties consented to the forum. This limited intrusion on the Judicial Branch is de minimis and justified by the need for an efficient, expert administrative forum.
Dissenting - Justice Brennan
Yes. The CFTC's assumption of jurisdiction over a state common law counterclaim violates Article III. The Constitution's mandate to vest the judicial power in Article III courts is absolute, with only a few long-established exceptions (territorial courts, courts-martial, and public rights cases), none of which apply to a common law contract claim. The majority's balancing test dangerously pits legislative convenience against judicial independence, a contest in which the long-term, prophylactic benefits of Article III will always lose to short-term efficiency, leading to an incremental erosion of the judiciary's role. The structural and individual protections of Article III are inseparable, meaning a litigant's consent cannot waive the constitutional requirement of an Article III tribunal. Just as legislative convenience was rejected as a justification for violating separation of powers in cases like INS v. Chadha and Bowsher v. Synar, it should be rejected here.
Analysis:
This decision marks a significant shift from the more formalistic approach of Northern Pipeline Construction Co. v. Marathon Pipe Line Co. to a flexible, pragmatic balancing test for Article III challenges to non-Article III tribunals. By emphasizing factors like litigant consent, the narrow scope of jurisdiction, and the practical needs of a regulatory scheme, the Court provided Congress with greater leeway to create specialized adjudicative bodies within administrative agencies. This holding blesses the use of such forums for resolving certain ancillary state-law claims, promoting efficiency, but it also raises concerns, as noted by the dissent, about the potential for gradual erosion of the judiciary's constitutional role in favor of executive branch agencies.
