United States Court of Appeals, District of Columbia Circuit
October 10, 2017
from the United States District Court for the District of
Columbia (No. 1:16-cv-00652)
Richard D. Klingler argued the cause for LSTA. With him on
the briefs were Peter D. Keisler, Jennifer J. Clark, and
Daniel J. Feith.
P. Chadwick, Senior Counsel, Board of Governors of the
Federal Reserve System, argued the cause for appellees. With
him on the brief were Katherine H. Wheatley, Associate
General Counsel, Michael A. Conley, Solicitor, Securities and
Exchange Commission, and Sarah Ribstein Prins, Senior
J. Nichols, Kate Comerford Todd, and Steven P. Lehotsky, were
on the brief for amicus curiae The Chamber of Commerce of the
United States of America in support of LSTA.
Before: Kavanaugh, Circuit Judge, and Williams and Ginsburg,
Senior Circuit Judges.
Williams, Senior Circuit Judge
wake of the 2007- 2008 financial crisis, Congress enacted the
Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. No. 111-203, 124 Stat. 1376 (2010), including
provisions aimed at redressing the "complexity and
opacity" of securitizations that it saw as preventing
investors from adequately assessing risks in a securitized
portfolio. S. Rep. No. 111-176, at 128-29 (2010). In §
941 of the act, 15 U.S.C. § 78o-11, Congress
directed the defendant agencies (plus two other banking
agencies) to prescribe regulations to require
"any securitizer" of an asset-backed security to
retain a portion of the credit risk for any asset that the
securitizer "transfers, sells, or conveys" to a
third party, specifically "not less than 5 percent of
the credit risk for any asset." 15 U.S.C. §
78o-11(c)(1)(B)(i). The reasoning was that
"[w]hen securitizers retain a material amount of risk,
they have 'skin in the game, ' aligning their
economic interests with those of investors in asset-backed
securities." S. Rep. No. 111-176, at 129. The agencies
responded with the Credit Risk Retention Rule, 79 Fed. Reg.
77, 601 (Dec. 24, 2014).
Loan Syndications and Trading Association (the
"LSTA") represents firms that serve as investment
managers of open-market collateralized loan obligations
("CLOs") (a type of security explained in some
detail below). It challenges the agencies' decision,
embodied in the rule, to apply § 941's credit risk
retention requirements to the managers of CLOs ("CLO
managers"). See 12 C.F.R. § 244.9; 17 C.F.R. §
246.9. The LSTA's primary contention is that, given the
nature of the transactions performed by CLO managers, the
language of the statute invoked by the agencies does not
encompass their activities. We agree.
by way of background that the LSTA initially petitioned for
review of the rule in this court. We held that we lacked
jurisdiction and transferred the case to the district court.
Loan Syndications & Trading Ass'n v. SEC,
818 F.3d 716, 724 (D.C. Cir. 2016). The district court
granted summary judgment in the agencies' favor, finding
that they could reasonably read § 941 to treat CLO
managers as "securitizers." Loan Syndications
& Trading Ass'n v. SEC, 223 F.Supp.3d 37, 54- 59
(D.D.C. 2016). The district court also rejected the
LSTA's argument that the rule's methods for
determining credit risk were arbitrary and capricious.
Id. at 59-66. The case has now returned to us on
appeal of both rulings. Because we agree with the CLO
managers that they are not "securitizers" under
§ 941, the managers need not retain any credit risk; we
therefore need not address the risk calculation issue.
* * *
review the Credit Risk Retention Rule for reasonableness
under the familiar standard of Chevron, USA, Inc. v.
NRDC, Inc., 467 U.S. 837 (1984), "which . . . means
(within its domain) that a 'reasonable agency
interpretation prevails.'" Northern Natural Gas
Co. v. FERC, 700 F.3d 11, 14 (D.C. Cir. 2012) (quoting
Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208,
218 n.4 (2009)). Of course, "if Congress has directly
spoken to an issue then any agency interpretation
contradicting what Congress has said would be
unreasonable." Entergy, 556 U.S. at 218 n.4.
LSTA, rightly, does not suggest that Chevron is
inapplicable due to the multiplicity of agencies. As they
were authorized only to act jointly, and have done so, there
is no risk that Chevron deference would lead to
conflicting mandates to regulated entities. See Collins
v. NTSB, 351 F.3d 1246, 1252- 53 (D.C. Cir. 2003). And
there is nothing special to undermine Chevron's
premise that the grant of authority reflected a congressional
expectation that courts would defer to the agencies'
reasonable statutory interpretations. See Smiley v.
Citibank (S.D.), N.A., 517 U.S. 735, 740-41 (1996).
are reviewing the district court's grant of summary
judgment to the agencies and denial of summary judgment to
the LSTA, our review of the district court is de
novo. District Hosp. ...