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Thursday, August 25, 2011

Congress and jurisdictional confusion

George Conway of Wachtell, in response to my recent posts on jurisdictionality, e-mails with another example of jurisdiction/merits confusion and misunderstanding, this time coming from Congress: Section 929P of Dodd-Frank. Congress (or at least Dodd-Frank's drafters) wanted to overturn Morrison v. National Australia Bank, which in 2010 narrowed the extraterritorial reach of federal securities fraud laws. But Congress did so by amending the statute-specific jurisdictional grants from the '33 Act, '34 Act, and '40 Act; the amendment to each gives the district courts jurisdiction over actions initiated by the SEC or the United States under the respective acts involving "conduct occurring outside the United States that has a foreseeable effect within the United States" or conduct occurring within the United States, even if the violation is committed by a foreign adviser or involves only foreign investors.

As Conway argued last year, as written, this change does not do what Congress thinks it does (or intended it to do). The Morrison Court held, properly, that extraterritoriality is a matter of the substantive reach of the statute and what actors and conduct it regulates. Expanding the district courts' jurisdiction does not change that conclusion, since Morrison was not about judicial jurisdiction. So, under Dodd-Frank, federal courts can hear cases involving charges of non-U.S. conduct. But courts cannot find violations of federal law in those cases, because substantive securities fraud law is not violated by extraterritorial conduct under the current text as interpreted in Morrison. It is as if Congress granted district courts jurisdiction to hear civil actions brought under Title VII for discrimination because of sexual orientation, but did not amend Title VII itself to actually prohibit discrimination because of sexual orientation. Several scholars made similar arguments to OLC while Dodd-Frank was being debated, but apparently to no avail.

In my most recent jurisdictionality piece, I argued that Congress is often as responsible as courts for jurisdiction/merits confusion. Congress bears just as much responsibility to avoid enacting drive-by jurisdictional statutes and to exercise caution when it uses "jurisdiction" in its statutes. Dodd-Frank seems to be a clear example of Congress failing to exercise care in drafting, trying to achieve substantive results by addressing judicial jurisdiction. The result is that its intent--to prohibit foreign securities fraud as a matter of U.S. law--is not achieved by its actual enactment, which amends only the text of expressly jurisdictional provisions with no corresponding change to any other law.

There has been some discussion, including in Conway's post, as to whether the courts can bail Congress out of its drafting error by looking to intent. Even if the courts ever should do that, this does not seem like an appropriate case. This is not a situation in which Congress tried to amend Provision A to prohibit X, but used language that only prohibited Y; courts might read the one provision broadly to achieve that intent. Here, on the other hand, Congress simply amended the wrong statutory provisions. A court would have to conclude that a change to one provision of the code (the various jurisdictional grants) also means an amendment to entirely separate provisions (the substantive prohibitions of the securities acts).

On the other hand, the jurisdictional and substantive provisions all part of the same statutes (the '33, '34, and '40 Acts). So perhaps a court will read, for example, the '34 Act as a whole and treat the whole thing as having been amended. Alternatively, a court may just be fooled by the statutory misuse of the jurisdiction discussions and treat the jurisdictional rule as a merits rule--if courts have jurisdiction over extraterritorial cases, the law must reach extraterritorial cases. That would be unfortunate, although it illustrates how legislative confusion about jurisdictionality leads to judicial confusion about it. But it also demonstrates the importance of the Court's recent, and repeated, warnings about drive-by jurisdictional rulings. Courts must look not at statutory labels but at essential concepts and ideas to get to the correct characterization of any provision.

One last point on the irony of all of this. The fact that Congress focused at all the Acts' jurisdictional provisions shows how pervasive the tendency to talk about scope-of-law in jurisdictional terms, and to focus on jurisdiction at the expense of all else, has become. All Congress had to do to overturn Morrison was amend the substantive provisions of the acts and they automatically would have amended the jurisdictional provisions to allow courts to hear these extraterritorial cases. Because the district courts have jurisdiction over all civil actions "arising under" the laws of the United States, whatever the scope of those laws. And district courts already have exclusive jurisdiction, under the '34 Act, over "violations of this chapter or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder," again whatever the scope of that chapter is.

Posted by Howard Wasserman on August 25, 2011 at 09:31 AM in Civil Procedure, Constitutional thoughts, Howard Wasserman | Permalink


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