''Commodity Futures Trading Commission v. Schor'', 478 U.S. 833 (1986), was a case in which the Supreme Court of the United States held an

administrative agency A government or state agency, sometimes an appointed commission, is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an administratio ...

may, in some cases, exert

jurisdiction Jurisdiction (from Latin 'law' + 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels. J ...

over state-law

counterclaim In a court of law, a party's claim is a counterclaim if one party asserts claims in response to the claims of another. In other words, if a plaintiff initiates a lawsuit and a defendant responds to the lawsuit with claims of their own against th ...

Background

The Commodity Exchange Act (CEA), ''et seq.'', prohibits fraudulent conduct in the trading of

futures contract In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...

s. In 1974,

Congress A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...

amended the Act to create a more comprehensive regulatory framework for the trading of future contracts. To that end, Congress created an administrative agency called the Commodity Futures Trading Commission (CFTC). One of the duties assigned to the CFTC was the administration of a quasi-judicial reparations procedure by which customers of commodities brokers could seek legal redress for brokers’ alleged violations of the Act or other CFTC regulations. One of the CFTC's regulations also provided the agency to adjudicate counterclaims “arising out of the same transaction or occurrence or series of transactions or occurrences set forth in the complaint”. The section of the statute and the CFTC regulation at issue in this case, both of which were intended to provide an inexpensive and expeditious method for the settlement of futures contract-related claims, were challenged by the customers of a broker as being violative of Article III of the United States Constitution.

Facts & procedural history

In February 1980, respondents Schor and Mortgage Services of America, Inc. filed complaints with the CFTC against brokerage firm ContiCommodity Services, Inc. (Conti) and Richard L. Sandor, one of the firm's employees, alleging violations of the CEA. Meanwhile, Conti filed an action under

diversity jurisdiction In the law of the United States, diversity jurisdiction is a form of subject-matter jurisdiction that gives U.S. federal courts the power to hear lawsuits that do not involve a federal question. For a U.S. federal court to have diversity jurisd ...

in the

United States District Court for the Northern District of Illinois The United States District Court for the Northern District of Illinois (in case citations, N.D. Ill.) is the federal trial-level court with jurisdiction over the northern counties of Illinois. Appeals from the Northern District of Illinois ar ...

to recover the debit balance in Schor's account. Schor filed a counterclaim in the federal suit, asserting the same charges against Conti it had made in its complaint to the CFTC. Schor moved to dismiss the district court action, but the judge declined. Conti then voluntarily dismissed the suit, in order to present its counterclaim against Schor for the debit balance as a defense in the CFTC action. The

Administrative Law Judge An administrative law judge (ALJ) in the United States is a judge and trier of fact who both presides over trials and adjudicates claims or disputes involving administrative law. ALJs can administer oaths, take testimony, rule on questions of evi ...

(ALJ) in the CFTC reparations proceeding ruled in Conti's favor on both claims, and it was at that point Schor challenged the CFTC's jurisdiction to hear Conti's counterclaim against him. The ALJ rejected this contention, and the CFTC declined to review the decision. Schor then petitioned the

United States Court of Appeals for the District of Columbia Circuit The United States Court of Appeals for the District of Columbia Circuit (in case citations, D.C. Cir.) is one of the thirteen United States Courts of Appeals. It has the smallest geographical jurisdiction of any of the U.S. federal appellate co ...

for review. The Court of Appeals held that the CFTC had jurisdiction over Schor's claim against Conti, but not over Conti's state-law based counterclaim against Schor for the debit balance, seeking to avoid the constitutional problems faced in '' Northern Pipeline Construction Co. v. Marathon Pipe Line Co.'' The U.S. Supreme Court granted '' certiorari'', vacated the judgment, and remanded the case back to the Court of Appeals for further consideration under ''Thomas v. Union Carbide Agricultural Products Co.'' The Court of Appeals reinstated its previous judgment, and the Supreme Court granted ''certiorari'' again.

Majority opinion

Justice O’Connor, joined by

Chief Justice Burger Warren Earl Burger (September 17, 1907 – June 25, 1995) was an American attorney and jurist who served as the 15th chief justice of the United States from 1969 to 1986. Born in Saint Paul, Minnesota, Burger graduated from the St. Paul Colleg ...

and Justices White, Blackmun, Powell,

Rehnquist William Hubbs Rehnquist ( ; October 1, 1924 – September 3, 2005) was an American attorney and jurist who served on the U.S. Supreme Court for 33 years, first as an associate justice from 1972 to 1986 and then as the 16th chief justice from ...

and Stevens, authored the opinion of the Court, addressing the

statutory A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by le ...

interpretation issue first. She held that the D.C. Circuit created a false distinction between the CFTC's jurisdiction over state law counterclaims and counterclaims arising under the CEA, simply to avoid a constitutional problem, and ignored the legislative intent of Congress in doing so. The situation faced by the litigants here was common: a claim and counterclaim arising out of the same transaction and occurrence, and it was well within the statutory jurisdiction of the CFTC to adjudicate such both actions. This is in keeping with Congress’ intent to create a more efficient means of adjudicating such disputes, as well as the administration's interpretation of the statute. She then turned to the Article III issue. Justice O’Connor chose to interpret Article III liberally, examining the underlying purposes of adjudication of cases by an independent judiciary. The right to be heard by an

Article III tribunal Federal tribunals in the United States are those tribunals established by the federal government of the United States for the purpose of resolving disputes involving or arising under federal laws, including questions about the constitutionality ...

is not absolute, and is subject to waiver by the parties. In this case, Schor waived his right to a trial with respect to Conti's counterclaim, and elected to have the entire dispute resolved before the CFTC. It was only after the CFTC ruled against him that he challenged the agency's jurisdiction. To Justice O’Connor, Schor's actions constituted an express waiver of his right to a civil trial. Additionally, Justice O’Connor held that Congress’ grant of judicial power to the CFTC for the adjudication of state-law counterclaims did not intrude on the powers of the judiciary. She concluded that while Congress could not vest administrative agencies with ancillary or

pendent jurisdiction Supplemental jurisdiction, also sometimes known as ancillary jurisdiction or pendent jurisdiction, is the authority of United States federal courts to hear additional claims substantially related to the original claim even though the court would la ...

of all claims, it was not outright forbidden for Congress to vest an agency with such jurisdiction over some claims. Unlike the situation in ''Northern Pipeline'', not only were the CFTC's orders reviewable in the U.S. district courts, the CFTC was not granted the full powers of an Article III court, and the parties were given the option of invoking the agency's jurisdiction, rather than being compelled to use it. Furthermore, any issue of intrusion upon the powers of state courts was irrelevant, Justice O’Connor reasoned, because federal courts may exercise ancillary jurisdiction over state law claims anyway.

Dissent

Justice Brennan, joined by Justice Marshall, dissented on the grounds that allowing Congress to grant such jurisdictional powers to administrative agencies eroded the powers of Article III courts, and deprived litigants of the impartial decision-making authority of an independent judiciary. He accused the majority of putting concerns of convenience and

judicial economy Judicial economy or procedural economy is the principle that the limited resources of the legal system or a given court should be conserved by the refusal to decide one or more claims raised in a case. For example, the plaintiff may claim that the ...

ahead of

separation of powers Separation of powers refers to the division of a state's government into branches, each with separate, independent powers and responsibilities, so that the powers of one branch are not in conflict with those of the other branches. The typic ...

. Also, because the individual and structural/separation of powers issues served by Article III were “coextensive”, Brennan reasoned that the consent of the litigants to appear before a non-Article III tribunal should have no bearing on the legal analysis in this case.''Schor'', 478 U.S. at 867 (Brennan, J., dissenting).

References

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