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By Chris Bruce
Oct. 13 — Important questions about administrative law and the role of judges will loom large when the U.S. Court of Appeals for the District of Columbia Circuit Oct. 24 considers whether MetLife Inc. should be cast as a threat to U.S. financial stability, law professors told Bloomberg BNA ( MetLife Inc. v. Financial Stability Oversight, D.C. Cir., No. 16-cv-05086, brief filed 6/6/16 ).
The U.S. government’s main systemic risk cop, the Financial Stability Oversight Council, says it should. The FSOC designated MetLife as a “systemically important financial institution,” or SIFI, in December 2014, but Judge Rosemary Collyer of the U.S. District Court for the District of Columbia rescinded that determination last March after MetLife sued to remove the SIFI label.
The case was important even before Collyer’s decision, because MetLife’s lawsuit marked the first court challenge to a systemic risk determination by the FSOC.
But the stakes are even higher now, because the case is in the hands of the D.C. Circuit, the appellate forum more frequently focused than any other on legal battles involving federal regulators and agencies.
The case, important as it is for MetLife and the FSOC, also matters for other companies that might show up on the FSOC’s radar, according to Saule T. Omarova, professor of law at Cornell University in Ithaca, N.Y.
Omarova, who criticized Collyer’s March ruling, said the decision wrongly imposed cost-related and other requirements on the FSOC’s analysis that aren’t mandated by the Dodd-Frank Act.
The D.C. Circuit’s treatment of that decision on appeal will shape how the FSOC assesses other companies, Omarova said.
“If the D.C. Circuit upholds the lower court’s judicially created quantification and compliance cost requirements, then it is virtually guaranteed that the FSOC’s next attempt to designate any firm, no matter how systemically important or risky, will take forever and face endless uphill battles,” she told Bloomberg BNA Oct. 10.
Here’s what several professors said they expect.
Prof. Gillian Metzger of Columbia Law School in New York said the Oct. 24 argument may operate on two levels. On one level, she said, the D.C. Circuit will focus on specific administrative law issues.
But on another level, the judges will have in mind the broader question of how courts approach Dodd-Frank and financial services regulation as the crisis period of recent years recedes.
“This case is an important bellwether,” Metzger told Bloomberg BNA. “It signals how much financial regulation in the post-crisis phase is becoming a field to be understood as administrative law. With a new and pro-regulatory statute like Dodd-Frank, what you’re seeing is a lot of engagement with finreg spilling over into the administrative law space.”
Another factor will be how the D.C. Circuit treats Michigan v. EPA, a June 2015 U.S. Supreme Court ruling that played a role in the district court decision.
According to Metzger, who filed a friend of the court brief in the D.C. Circuit, the district court relied on Michigan v. EPA to conclude that the FSOC wrongly failed to consider the cost that a SIFI designation would impose on MetLife.
In Michigan v. EPA, she said, the Supreme Court read a provision of the Clean Air Act requiring a determination that regulation was “appropriate and necessary” to require an assessment of costs.
“That provision is very different from the language in Dodd-Frank, where you have much more specific targeting of nonbank companies with a set of factors, all of which are risk factors, and none of which are focused on costs,” Metzger said. “I expect the D.C. Circuit to be very keyed in on how to read Michigan v. EPA.”
Court watchers also should expect attention to important questions of judicial deference. According to Omarova, the district court gave its interpretation of the FSOC’s guidance more weight than the FSOC’s reading of it. FSOC’s reading should take precedence, she said.
“It is a well-settled norm in administrative law that, even in situations where there are reasonable grounds for differing interpretations of regulatory guidance, courts should defer to the relevant agency’s own explanation of what its guidance means,” Omarova said.
According to Metzger, questions about deference are at issue in several high-profile cases, including litigation over federal guidance on transgender questions and access to bathrooms.
It might be hard to believe there’s a connection between transgender bathroom issues and this case, but there is, she said, saying both cases focus on guidance. At issue in the transgender bathroom dispute is guidance by the U.S. Department of Education, and how much room the department has to interpret governing regulations.
And in the MetLife case, the district court said the FSOC deviated from its own guidance. The district court also gave the FSOC no deference on how the guidance should be read, or on a separate question—whether it was in fact guidance or a binding rule, according to Metzger.
“The D.C. Circuit is going to see these as administrative law issues and ask what they mean not just for this case but also for cases outside the world of financial regulation,” Metzger said.
Prof. Geoffrey P. Miller of the New York University School of Law said the MetLife-FSOC case raises fundamental questions about the role of courts, and especially how they weigh questions about financial stability.
He said some judges believe they lack expertise in such cases, and that the high stakes mean that active judicial review might actually be dangerous. On the other hand, Miller said, Collyer’s March ruling effectively zeroed in on weaknesses in the FSOC’s analysis.
And some judges say they’re being marginalized and denied their proper role in some administrative law matters, Miller told Bloomberg BNA.
“They sense they are being treated like potted plants and are beginning to rebel,” he said. “Some of the judges on the panel may be sympathetic with these concerns and accordingly may be sympathetic to MetLife's arguments.”
MetLife's suit was the first direct court challenge to an FSOC systemic risk designation. Although the FSOC has tagged three other nonbanks as risks to the system—American International Group Inc., Prudential Financial Inc. and GE Capital Inc.—none of those took legal action against the FSOC.
In June, the FSOC took GE off the systemic risk listing after the company restructured its business.
The case will be argued before three D.C. Circuit judges—Sri Srinivasan, Patricia Millett, and A. Raymond Randolph. Srinivasan and Millett were both appointed by President Obama in 2013. Randolph was appointed by President George H.W. Bush in 1990.
The court has scheduled a 30-minute argument, with 15 minutes allotted to each side.
The FSOC designated MetLife by a 9-1 vote. The lone dissenter was Roy Woodall, an independent member of the council who provides insurance expertise in FSOC deliberations.
In a June brief in the D.C. Circuit, the FSOC said the district court ruling “leaves one of the largest, most complex, and most interconnected financial companies in the country without the regulatory oversight that Congress found essential.”
MetLife is represented by Eugene Scalia, Amir C. Tayrani, Ashley S. Boizelle, and Indraneel Sur in the Washington and New York offices of Gibson Dunn.
The government is represented by Mark B. Stern, Daniel Tenny, and Nicolas Riley of the Department of Justice.
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