American Bar Ass'n v. Federal Trade Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 5, 2005 Decided December 6, 2005

No. 04-5257

AMERICAN BAR ASSOCIATION,
APPELLEE

v.

FEDERAL TRADE COMMISSION,
APPELLANT

Consolidated with
04-5258

Appeals from the United States District Court
for the District of Columbia
(No. 02cv00810)
(No. 02cv01883)

Stephanie R. Marcus, Attorney, U.S. Department of Justice,
argued the cause for appellant. With her on the briefs were
Gregory G. Katsas, Acting Assistant Attorney General, Mark B.
Stern, Attorney, Kenneth L. Wainstein, U.S. Attorney, Brian J.
Sonfield, Assistant U.S. Attorney, John D. Graubert, Acting
General Counsel, Federal Trade Commission, John F. Daly,
Deputy General Counsel, and Michael D. Bergman, Attorney.
R. Craig Lawrence and Michael J. Ryan, Assistant U.S.
Attorneys, entered appearances.
 2

David L. Roll argued the cause for appellee American Bar
Association. With him on the brief was Rhonda M. Bolton.

Steven C. Krane argued the cause and filed the brief for
appellee New York State Bar Association.

Peter Buscemi was on the brief for amici curiae State and
Local Bar Associations in support of appellees.

George T. Patton, Jr. and Bryan H. Babb were on the brief
for amicus curiae The Conference of Chief Justices in support
of appellee American Bar Association.

Before: GINSBURG, Chief Judge, and SENTELLE and
ROBERTS,1 Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge: The Federal Trade Commission
(“FTC” or “the Commission”) appeals from an order of the
District Court granting summary judgment in consolidated cases
brought by the appellees American Bar Association and the New
York State Bar Association (collectively, “ABA” or “the Bar
Associations”). The Bar Associations sought a declaratory
judgment that the FTC’s decision that attorneys engaged in the
practice of law are covered by the Gramm-Leach-Bliley Act
(“GLBA” or “the Act”) exceeded the statutory authority of the
Commission and was therefore invalid as a matter of law.
Because we agree with the District Court that the Commission’s
attempt to regulate the practice of law under the Act fell outside
its statutory authority, we affirm the judgment under review.

1
Then Judge, now Chief Justice, Roberts was a member of the
panel that originally heard this appeal. He is now recused and took no
part in the final decision.
 3

I. Background

A. Statutory Framework

Effective November 12, 1999, Congress enacted the
Gramm-Leach-Bliley Financial Modernization Act, Pub. L. No.
106-102, 113 Stat. 1338. The Act declared it to be “the policy
of the Congress that each financial institution has an affirmative
and continuing obligation to respect the privacy of its customers
and to protect the security and confidentiality of those
customers’ nonpublic personal information.” 15 U.S.C. §
6801(a). To further that goal, Congress enacted broad privacy
protective provisions, described by one Member of the House of
Representatives as “represent[ing] the most comprehensive
federal privacy protections ever enacted by Congress.” 145
Cong. Rec. H11, 544 (daily ed. Nov. 4, 1999) (statement of Rep.
Sandlin).

The privacy provisions empowered the Federal Trade
Commission, along with other federal regulatory agencies, to
“prescribe . . . such regulations as may be necessary to carry out
the purposes of this subchapter with respect to the financial
institutions subject to their jurisdiction under section 6805 of
this title.” 15 U.S.C. § 6804(a)(1). The cited section, 6805,
outlines the institutions and persons subject to the jurisdiction of
“Federal functional regulators,” and in section 6805(a)(7)
assigns enforcement “[u]nder the Federal Trade Commission
Act . . . [to] the Federal Trade Commission for any other
financial institution or other person that is not subject to the
jurisdiction of any agency or authority under” the preceding
paragraphs of the subsection. The definitional section of the
statute, section 6809, defines “financial institution” as “any
institution the business of which is engaging in financial
activities as described in section 1843(k) of Title 12.” Id. §
6809(3)(A). Other subsections of section 6809 create
 4

exceptions and modifications to the general definition of
“financial institution.” See id. § 6809(3)(B)-(D).

Title 12 U.S.C. § 1843(k), referenced in section 6809(a), is
a part of the Bank Holding Company Act of 1956, Pub. L. No.
109-41, 70 Stat. 133 (codified as amended at 12 U.S.C. §§ 1971-
1978, 1841-1850) (“BHCA”). The BHCA, in section 1843,
limits the ability of the bank holding companies regulated under
that statutory scheme to hold interests in nonbanking
organizations. Specifically, section 1843(a) provides that

[e]xcept as otherwise provided in this chapter, no bank
holding company shall . . . retain direct or indirect
ownership or control of any voting shares of any company
which is not a bank or bank holding company or engage in
any activities other than (A) those of banking or of
managing or controlling banks and other subsidiaries
authorized under this chapter or of furnishing services to or
performing services for its subsidiaries, and (B) those
permitted under [other subsections of the statute].2

12 U.S.C. § 1843(a). However, section 1843(k) limits the effect
of the general prohibition created by section 1843(a) by
providing that

[n]otwithstanding subsection (a) of this section, a financial
holding company may engage in any activity, and may
acquire and retain the shares of any company engaged in
any activity, that the [Federal Reserve] Board . . .
determines (by regulation or order)-- (A) to be financial in
nature or incidental to such financial activity; or (B) is
complementary to a financial activity and does not pose a

2
Section 1843(a) provides other exceptions and limitations not
pertinent to the present controversy.
 5

substantial risk to the safety or soundness of depository
institutions or the financial system generally.

Id. § 1843(k)(1).

The BHCA declares to be financial in nature activities listed
in section 1843(k)(4), to wit:

(A) Lending, exchanging, transferring, investing for
others, or safeguarding money or securities.

(B) Insuring, guaranteeing, or indemnifying against
loss, harm, damage, illness, disability, or death, or
providing and issuing annuities, and acting as principal,
agent, or broker for purposes of the foregoing, in any State.

(C) Providing financial, investment, or economic
advisory services, including advising an investment
company (as defined in [section 80a-3 of Title 15]).

(D) Issuing or selling instruments representing interests
in pools of assets permissible for a bank to hold directly.

(E) Underwriting, dealing in, or making a market in
securities.

Id. § 1843(k)(4).

Following the list of activities that “shall be considered”
financial in nature, the BHCA enacted the following category of
activity, which is most pertinent to the current case:

(F) Engaging in any activity that the Board has
determined, by order or regulation that is in effect on
November 12, 1999, to be so closely related to banking or
 6

managing or controlling banks as to be a proper incident
thereto (subject to the same terms and conditions contained
in such order or regulation, unless modified by the [Federal
Reserve] Board).

The phrase “order or regulation that is in effect on November
12, 1999” adopts a Federal Reserve Board (“Board”) regulation
published at 12 C.F.R. § 225.28 (2000), commonly known as
Regulation Y. Regulation Y, as is to be expected, deals with the
subject matter of section 1843(k), that is, “nonbanking activities
and acquisitions by bank holding companies”: It lists
“permissible nonbanking activities.” That list is described in the
regulation as activities that are

(a) Closely related nonbanking activities. The activities
listed in paragraph (b) of this section are so closely related
to banking or managing or controlling banks as to be a
proper incident thereto, and may be engaged in by a bank
holding company or its subsidiary in accordance with the
requirements of this regulation.

12 C.F.R. § 225.28(a). We set forth the entire text of the
relevant subsection in the footnote below not because it is all in
itself relevant, but in order to demonstrate the depths plumbed
by the Commission in order to find authority to undertake the
regulation of the practice of law, which we will discuss further,
infra.3

3
In paragraph (b), referenced above, Regulation Y sets forth
the following list:

(1) Extending credit and servicing loans. Making,
acquiring, brokering, or servicing loans or other extensions of
credit (including factoring, issuing letters of credit and
accepting drafts) for the company’s account or for the account
 7

of others.

(2) Activities related to extending credit. Any activity
usual in connection with making, acquiring, brokering or
servicing loans or other extensions of credit, as determined by
the Board. The Board has determined that the following
activities are usual in connection with making, acquiring,
brokering, or servicing loans or other extensions of credit:

(i) Real estate and personal property appraising.
Performing appraisals of real estate and tangible and
intangible personal property, including securities.

(ii) Arranging commercial real estate equity
financing. Acting as intermediary for the financing of
commercial or industrial income-producing real estate by
arranging for the transfer of the title, control, and risk of such
a real estate project to one or more investors, if the bank
holding company and its affiliates do not have an interest in,
or participate in managing or developing, a real estate project
for which it arranges equity financing, and do not promote or
sponsor the development of the property.

(iii) Check-guaranty services. Authorizing a
subscribing merchant to accept personal checks tendered by
the merchant’s customers in payment for goods and services,
and purchasing from the merchant validly authorized checks
that are subsequently dishonored.

(iv) Collection agency services. Collecting overdue
accounts receivable, either retail or commercial.

(v) Credit bureau services. Maintaining information
related to the credit history of consumers and providing the
information to a credit grantor who is considering a
borrower’s application for credit or who has extended credit
to the borrower.
 8

(vi) Asset management, servicing, and collection
activities. Engaging under contract with a third party in asset
management, servicing, and collection of assets of a type that
an insured depository institution may originate and own, if the
company does not engage in real property management or real
estate brokerage services as part of these services.

(vii) Acquiring debt in default. Acquiring debt that
is in default at the time of acquisition, if the company:

(A) Divests shares or assets securing debt in default
that are not permissible investments for bank holding
companies, within the time period required for divestiture of
property acquired in satisfaction of a debt previously
contracted under § 225.12(b);

(B) Stands only in the position of a creditor and does
not purchase equity of obligors of debt in default (other than
equity that may be collateral for such debt); and

(C) Does not acquire debt in default secured by shares
of a bank or bank holding company.

(viii) Real estate settlement servicing. Providing real
estate settlement services.

(3) Leasing personal or real property. Leasing
personal or real property or acting as agent, broker, or adviser
in leasing such property if:

(i) The lease is on a nonoperating basis;

(ii) The initial term of the lease is at least 90 days;

(iii) In the case of leases involving real property:

(A) At the inception of the initial lease, the effect of
 9

the transaction will yield a return that will compensate the
lessor for not less than the lessor’s full investment in the
property plus the estimated total cost of financing the property
over the term of the lease from rental payments, estimated tax
benefits, and the estimated residual value of the property at
the expiration of the initial lease; and

(B) The estimated residual value of property for
purposes of paragraph (b)(3)(iii)(A) of this section shall not
exceed 25 percent of the acquisition cost of the property to the
lessor.

(4) Operating nonbank depository institutions–

(i) Industrial banking. Owning, controlling, or
operating an industrial bank, Morris Plan bank, or industrial
loan company, so long as the institution is not a bank.

(ii) Operating savings association. Owning,
controlling, or operating a savings association, if the savings
association engages only in deposit-taking activities, lending,
and other activities that are permissible for bank holding
companies under this subpart C.

(5) Trust company functions. Performing functions
or activities that may be performed by a trust company
(including activities of a fiduciary, agency, or custodial
nature), in the manner authorized by federal or state law, so
long as the company is not a bank for purposes of section 2(c)
of the Bank Holding Company Act.

(6) Financial and investment advisory activities.
Acting as investment or financial advisor to any person,
including (without, in any way, limiting the foregoing):

(i) Serving as investment adviser (as defined in
section 2(a)(20) of the Investment Company Act of 1940, 15
 10

U.S.C. 80a-2(a)(20)), to an investment company registered
under that act, including sponsoring, organizing, and
managing a closed-end investment company;

(ii) Furnishing general economic information and
advice, general economic statistical forecasting services, and
industry studies;

(iii) Providing advice in connection with mergers,
acquisitions, divestitures, investments, joint ventures,
leveraged buyouts, recapitalizations, capital structurings,
financing transactions and similar transactions, and
conducting financial feasibility studies;

(iv) Providing information, statistical forecasting, and
advice with respect to any transaction in foreign exchange,
swaps, and similar transactions, commodities, and any
forward contract, option, future, option on a future, and
similar instruments;

(v) Providing educational courses, and instructional
materials to consumers on individual financial management
matters; and

(vi) Providing tax-planning and tax-preparation
services to any person.

(7) Agency transactional services for customer
investments–

(i) Securities brokerage. Providing securities
brokerage services (including securities clearing and/or
securities execution services on an exchange), whether alone
or in combination with investment advisory services, and
incidental activities (including related securities credit
activities and custodial services), if the securities brokerage
services are restricted to buying and selling securities solely
 11

as agent for the account of customers and do not include
securities underwriting or dealing.

(ii) Riskless principal transactions. Buying and
selling in the secondary market all types of securities on the
order of customers as a “riskless principal” to the extent of
engaging in a transaction in which the company, after
receiving an order to buy (or sell) a security from a customer,
purchases (or sells) the security for its own account to offset
a contemporaneous sale to (or purchase from) the customer.
This does not include:

(A) Selling bank-ineligible securities at the order of
a customer that is the issuer of the securities, or selling bank-
ineligible securities in any transaction where the company has
a contractual agreement to place the securities as agent of the
issuer; or

(B) Acting as a riskless principal in any transaction
involving a bank-ineligible security for which the company or
any of its affiliates acts as underwriter (during the period of
the underwriting or for 30 days thereafter) or dealer.

(iii) Private placement services. Acting as agent for
the private placement of securities in accordance with the
requirements of the Securities Act of 1933 (1933 Act) and the
rules of the Securities and Exchange Commission, if the
company engaged in the activity does not purchase or
repurchase for its own account the securities being placed, or
hold in inventory unsold portions of issues of these securities.

(iv) Futures commission merchant. Acting as a
futures commission merchant (FCM) for unaffiliated persons
in the execution, clearance, or execution and clearance of any
futures contract and option on a futures contract traded on an
exchange in the United States or abroad if:
 12

(A) The activity is conducted through a separately
incorporated subsidiary of the bank holding company, which
may engage in activities other than FCM activities (including,
but not limited to, permissible advisory and trading activities);
and

(B) The parent bank holding company does not
provide a guarantee or otherwise become liable to the
exchange or clearing association other than for those trades
conducted by the subsidiary for its own account or for the
account of any affiliate.

(v) Other transactional services. Providing to
customers as agent transactional services with respect to
swaps and similar transactions, any transaction described in
paragraph (b)(8) of this section, any transaction that is
permissible for a state member bank, and any other
transaction involving a forward contract, option, futures,
option on a futures or similar contract (whether traded on an
exchange or not) relating to a commodity that is traded on an
exchange.

(8) Investment transactions as principal–

(i) Underwriting and dealing in government
obligations and money market instruments. Underwriting and
dealing in obligations of the United States, general obligations
of states and their political subdivisions, and other obligations
that state member banks of the Federal Reserve System may
be authorized to underwrite and deal in under 12 U.S.C. 24
and 335, including banker’s acceptances and certificates of
deposit, under the same limitations as would be applicable if
the activity were performed by the bank holding company’s
subsidiary member banks or its subsidiary nonmember banks
as if they were member banks.

(ii) Investing and trading activities. Engaging as
 13

principal in:

(A) Foreign exchange;

(B) Forward contracts, options, futures, options on
futures, swaps, and similar contracts, whether traded on
exchanges or not, based on any rate, price, financial asset
(including gold, silver, platinum, palladium, copper, or any
other metal approved by the Board), nonfinancial asset, or
group of assets, other than a bank-ineligible security, if:

(1) A state member bank is authorized to invest in the
asset underlying the contract;

(2) The contract requires cash settlement; or

(3) The contract allows for assignment, termination,
or offset prior to delivery or expiration, and the company
makes every reasonable effort to avoid taking or making
delivery; and

(C) Forward contracts, options, futures, options on
futures, swaps, and similar contracts, whether traded on
exchanges or not, based on an index of a rate, a price, or the
value of any financial asset, nonfinancial asset, or group of
assets, if the contract requires cash settlement.

(iii) Buying and selling bullion, and related activities.
Buying, selling and storing bars, rounds, bullion, and coins of
gold, silver, platinum, palladium, copper, and any other metal
approved by the Board, for the company’s own account and
the account of others, and providing incidental services such
as arranging for storage, safe custody, assaying, and shipment.

(9) Management consulting and counseling activities–

(i) Management consulting.
 14

(A) Providing management consulting advice:

(1) On any matter to unaffiliated depository
institutions, including commercial banks, savings and loan
associations, savings banks, credit unions, industrial banks,
Morris Plan banks, cooperative banks, industrial loan
companies, trust companies, and branches or agencies of
foreign banks;

(2) On any financial, economic, accounting, or audit
matter to any other company.

(B) A company conducting management consulting
activities under this subparagraph and any affiliate of such
company may not:

(1) Own or control, directly or indirectly, more than
5 percent of the voting securities of the client institution; and

(2) Allow a management official, as defined in 12
CFR 212.2(h), of the company or any of its affiliates to serve
as a management official of the client institution, except
where such interlocking relationship is permitted pursuant to
an exemption granted under 12 CFR 212.4(b) or otherwise
permitted by the Board.

(C) A company conducting management consulting
activities may provide management consulting services to
customers not described in paragraph (b)(9)(i)(A)(1) of this
section or regarding matters not described in paragraph
(b)(9)(i)(A)(2) of this section, if the total annual revenue
derived from those management consulting services does not
exceed 30 percent of the company’s total annual revenue
derived from management consulting activities.

(ii) Employee benefits consulting services. Providing
consulting services to employee benefit, compensation and
 15

insurance plans, including designing plans, assisting in the
implementation of plans, providing administrative services to
plans, and developing employee communication programs for
plans.

(iii) Career counseling services. Providing career
counseling services to:

(A) A financial organization and individuals currently
employed by, or recently displaced from, a financial
organization;

(B) Individuals who are seeking employment at a
financial organization; and

(C) Individuals who are currently employed in or who
seek positions in the finance, accounting, and audit
departments of any company.

(10) Support services–

(i) Courier services. Providing courier services for:

(A) Checks, commercial papers, documents, and
written instruments (excluding currency or bearer-type
negotiable instruments) that are exchanged among banks and
financial institutions; and

(B) Audit and accounting media of a banking or
financial nature and other business records and documents
used in processing such media.

(ii) Printing and selling MICR-encoded items.
Printing and selling checks and related documents, including
corporate image checks, cash tickets, voucher checks, deposit
slips, savings withdrawal packages, and other forms that
require Magnetic Ink Character Recognition (MICR)
 16

encoding.

(11) Insurance agency and underwriting–

(i) Credit insurance. Acting as principal, agent, or
broker for insurance (including home mortgage redemption
insurance) that is:

(A) Directly related to an extension of credit by the
bank holding company or any of its subsidiaries; and

(B) Limited to ensuring the repayment of the
outstanding balance due on the extension of credit in the event
of the death, disability, or involuntary unemployment of the
debtor.

(ii) Finance company subsidiary. Acting as agent or
broker for insurance directly related to an extension of credit
by a finance company that is a subsidiary of a bank holding
company, if:

(A) The insurance is limited to ensuring repayment of
the outstanding balance on such extension of credit in the
event of loss or damage to any property used as collateral for
the extension of credit; and

(B) The extension of credit is not more than $10,000,
or $25,000 if it is to finance the purchase of a residential
manufactured home and the credit is secured by the home;
and

(C) The applicant commits to notify borrowers in
writing that:

(1) They are not required to purchase such insurance
from the applicant;
 17

(2) Such insurance does not insure any interest of the
borrower in the collateral; and

(3) The applicant will accept more comprehensive
property insurance in place of such single-interest insurance.

(iii) Insurance in small towns. Engaging in any
insurance agency activity in a place where the bank holding
company or a subsidiary of the bank holding company has a
lending office and that:

(A) Has a population not exceeding 5,000 (as shown
in the preceding decennial census); or

(B) Has inadequate insurance agency facilities, as
determined by the Board, after notice and opportunity for
hearing.

(iv) Insurance-agency activities conducted on May 1,
1982. Engaging in any specific insurance-agency activity if
the bank holding company, or subsidiary conducting the
specific activity, conducted such activity on May 1, 1982, or
received Board approval to conduct such activity on or before
May 1, 1982. A bank holding company or subsidiary
engaging in a specific insurance agency activity under this
clause may:

(A) Engage in such specific insurance agency activity
only at locations:

(1) In the state in which the bank holding company
has its principal place of business (as defined in 12 U.S.C.
1842(d));

(2) In any state or states immediately adjacent to such
state; and
 18

(3) In any state in which the specific insurance-
agency activity was conducted (or was approved to be
conducted) by such bank holding company or subsidiary
thereof or by any other subsidiary of such bank holding
company on May 1, 1982; and

(B) Provide other insurance coverages that may
become available after May 1, 1982, so long as those
coverages insure against the types of risks as (or are otherwise
functionally equivalent to) coverages sold or approved to be
sold on May 1, 1982, by the bank holding company or
subsidiary.

(v) Supervision of retail insurance agents.
Supervising on behalf of insurance underwriters the activities
of retail insurance agents who sell:

(A) Fidelity insurance and property and casualty
insurance on the real and personal property used in the
operations of the bank holding company or its subsidiaries;
and

(B) Group insurance that protects the employees of
the bank holding company or its subsidiaries.

(vi) Small bank holding companies. Engaging in any
insurance-agency activity if the bank holding company has
total consolidated assets of $50 million or less. A bank
holding company performing insurance-agency activities
under this paragraph may not engage in the sale of life
insurance or annuities except as provided in paragraphs
(b)(11)(i) and (iii) of this section, and it may not continue to
engage in insurance-agency activities pursuant to this
provision more than 90 days after the end of the quarterly
reporting period in which total assets of the holding company
and its subsidiaries exceed $50 million.
 19

(vii) Insurance-agency activities conducted before
1971. Engaging in any insurance-agency activity performed
at any location in the United States directly or indirectly by a
bank holding company that was engaged in insurance-agency
activities prior to January 1, 1971, as a consequence of
approval by the Board prior to January 1, 1971.

(12) Community development activities–

(i) Financing and investment activities. Making
equity and debt investments in corporations or projects
designed primarily to promote community welfare, such as
the economic rehabilitation and development of low-income
areas by providing housing, services, or jobs for residents.

(ii) Advisory activities. Providing advisory and
related services for programs designed primarily to promote
community welfare.

(13) Money orders, savings bonds, and traveler’s
checks. The issuance and sale at retail of money orders and
similar consumer-type payment instruments; the sale of U.S.
savings bonds; and the issuance and sale of traveler’s checks.

(14) Data processing.

(i) Providing data processing and data transmission
services, facilities (including data processing and data
transmission hardware, software, documentation, or operating
personnel), data bases, advice, and access to such services,
facilities, or data bases by any technological means, if:

(A) The data to be processed or furnished are
financial, banking, or economic; and

(B) The hardware provided in connection therewith
is offered only in conjunction with software designed and
 20

To recapitulate: The GLBA contains extensive privacy
protection provisions that apply to “financial institutions.” In
section 6809, the Act defines “financial institution” as “any
institution the business of which is engaging in financial
activities as described in section 1843(k) of Title 12.” The
referenced section of Title 12 is contained in the BHCA.
Specifically, that section identifies institutions engaged in
nonbanking activities that are financial in nature, such that bank
holding companies may retain ownership interests in institutions
engaged in their pursuit. The section of the BHCA defining
those activities incorporates by reference Regulation Y, which
offers an extensive list of examples of such “financial activities”
so closely related to banking as to be permissible.

B. The Commission’s Interpretation

Upon the passage of the Act, the FTC, pursuant to the

marketed for the processing and transmission of financial,
banking, or economic data, and where the general purpose
hardware does not constitute more than 30 percent of the cost
of any packaged offering.

(ii) A company conducting data processing and data
transmission activities may conduct data processing and data
transmission activities not described in paragraph (b)(14)(i) of
this section if the total annual revenue derived from those
activities does not exceed 30 percent of the company’s total
annual revenues derived from data processing and data
transmission activities.

12 C.F.R. § 225.28(b) (2001) (footnotes omitted).
 21

authority granted it in 15 U.S.C. § 6805(a)(7), undertook a
rulemaking. In May 2000, the FTC concluded the rulemaking
and issued regulations published at 65 Fed. Reg. 33,646
(codified at 16 C.F.R. pt. 313). Although the FTC relied in the
first instance on Congress’s definition of “financial institution”
as “an institution the business of which is engaging in financial
activities,” the Commission restated the definition: “An
institution that is significantly engaged in financial activities is
a financial institution.” 16 C.F.R. § 313.3(k)(1).

Like the statute, the regulations at no point describe the
statutory or regulatory scheme as governing the practice of law
as such. Indeed, the phrase “practice of law” never appears in
part 313, and the word “attorneys,” while present in two places,
appears in the context of describing persons to whom financial
institutions can make release of customer information, if
authorized, not in the context of defining “financial institutions”
as including attorneys. Nonetheless, the breadth of the FTC’s
regulation, apparently taken in conjunction with statements to or
by news media, caused concern among representatives of the
bar. Therefore, various bar associations, including the American
Bar Association, made inquiry of the Commission as to whether
the Commission was taking a position that privacy provisions of
the GLBA and the regulations made pursuant thereto governed
attorneys engaged in the practice of law.

On April 8, 2002, the Director of the Bureau of Consumer
Protection at the Commission sent a letter to the President and
the Director of Governmental Affairs of the ABA “in response
to your correspondence regarding the application of Title V,
Subtitle A, of the Gramm-Leach-Bliley Act, 15 U.S.C. 6801 et
seq. . . . and the Federal Trade Commission’s Rule, Privacy of
Consumer Financial Information . . . to attorneys at law.”
(Citations omitted.) As part of the inquiry, the ABA had also
requested exemption from the Act if the Commission purported
 22

to regulate the practice of law under the Act. That position has
been abandoned by the bar associations during the course of this
litigation, but was still a live question between the parties at the
time of the FTC’s communication to the ABA. Although
recognizing that the bar associations’ letters had “question[ed]
the appropriateness and utility of applying the GLB Act’s
privacy provisions to attorneys engaged in the practice of law,”
the Director only directly addressed the ABA’s request for
exemption. However, in rejecting that request, the Director
made it plain that the Commission was purporting to regulate
attorneys engaged in the practice of their profession and asserted
that “the GLB Act itself states that entities engaged in ‘financial
activities’ are subject to the Act.” (emphasis supplied).

After some further negotiation, the bar associations brought
the present litigation.

II. The Litigation

The New York State Bar Association and the American Bar
Association separately filed actions for declaratory judgment.
While the prayers for relief in the two complaints are differently
worded, the gist is the same, in that each seeks, inter alia, a
declaratory order that, in the words of the ABA complaint:

(a) Congress did not in the GLBA confer authority on
the FTC to regulate the confidentiality, privacy and security
of information disclosed by clients to their attorneys;

(b) The FTC’s decision that attorneys engaged in the
practice of law are covered by the GLBA is unlawful and
hereby set aside; . . . .

Although the district judge never formally ordered the two
actions consolidated, he dealt with them together and ultimately
 23

disposed of them in a single opinion and order. The FTC moved
to dismiss the actions under Federal Rule of Civil Procedure
12(b)(6), on the theory that the complaints failed to state a claim
for relief. The District Court denied the motion. N.Y. State Bar
Ass’n v. FTC, 276 F. Supp. 2d 110 (D.D.C. 2003). In that
opinion, the court reasoned that Congress did not intend
GLBA’s privacy provisions to apply to attorneys. Further, the
court reasoned, even if the GLBA were ambiguous on that point,
the court should not defer to the FTC’s interpretation applying
the Act to attorneys because the interpretation was not the
product of notice and comment rulemaking, did not appear to
have been made with any degree of deliberation, and was
supported only by post hoc rationalization. The court held that
the Commission’s attempt to regulate attorneys under the
privacy provisions of the GLBA was not only inconsistent with
the statute, but also arbitrary and capricious in violation of the
Administrative Procedure Act.

After the denial of the motion to dismiss, the parties
proceeded with cross-motions for summary judgment. The
District Court found no genuine issues as to any material fact
and, incorporating its earlier decision on the motion to dismiss,
again held that Congress in 5 U.S.C. § 706(2)(C) did not intend
the GLBA’s privacy provisions to apply to attorneys engaged in
the practice of law.

The current appeal followed.

III. Analysis

As we analyze the FTC’s arguments for the proposition that
Congress in the privacy provisions of the GLBA enabled the
Commission to regulate the practice of law, we are reminded
repeatedly of a recent admonition from the Supreme Court:
“[Congress] does not . . . hide elephants in mouseholes.”
 24

Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001).
The FTC begins its defense of its attempted turf expansion in the
correct place, that is, by recognizing that “the starting point in
any case involving the meaning of a statute[] is the language of
the statute itself.” Group Life & Health Ins. Co. v. Royal Drug
Co., 440 U.S. 205, 210 (1979). The Commission argues, as it
did before the District Court, that the language of the statute
evidences a congressional intent to empower the Commission to
regulate attorneys engaged in certain types of law practice as
“financial institutions” under the privacy regulations
promulgated pursuant to the GLBA privacy provisions. More
specifically, the Commission notes that the legislation defines
“financial institution” quite broadly as “any institution the
business of which is engaging in financial activities as described
in section 1843(k) of Title 12.” The statute in turn deems as
“financial in nature” various listed activities, together with those
not expressly listed but theretofore listed by the Federal Reserve
Board in Regulation Y. Regulation Y, set forth at its staggering
full-length above, includes the activities “[p]roviding real estate
settlement services,” and “[p]roviding tax-planning and tax-
preparation services to any person.” 12 C.F.R. §
225.28(b)(2)(viii), (b)(6)(vi) (2001). The Commission then
asserts, “[t]hus, under the terms of the statute, any institution
that is in the business of engaging in a financial activity listed in
section 4(k) of the BHCA, including those set forth in
Regulation Y, qualifies as a ‘financial institution.’” Appellant’s
Brief at 16. That statement by the Commission is unassailable:
Indeed, it does no more than restate the provisions of that
statute. That is precisely the problem. The Commission’s
reasoning, doing no more than restating the statute, leaves as
open as ever the question of whether an attorney practicing law
is an “institution engaging in the business of financial
activities.”
 25

The statute certainly does not so plainly grant the
Commission the authority to regulate attorneys engaged in the
practice of law as to entitle the Commission to what is called a
“Chevron One” disposition. That is, rather simply we cannot
hold that Congress has directly and plainly granted the
Commission the authority to regulate practicing attorneys as the
Commission attempts. See Chevron U.S.A. Inc. v. Natural Res.
Def. Council, Inc., 467 U.S. 837, 842-43 (1984). Indeed, such
professionals are subject to regulation under the words of the
statute only if they are “institutions” and if they are “engaged in
the business of financial activity.” It is not plain at all to us that
Congress has entered such a direct regulatory command by plain
language of a statute, a lengthy statute incorporated by
reference, and an even more lengthy and detailed regulation
incorporated by reference in the second statute, none of which
ever mentioned attorneys engaged in the practice of law.
Therefore, if the Commission is to prevail, it must do so under
a deferential standard of review. That is, to uphold the
Commission’s regulatory decision, we must conclude first that
the words of the statute are ambiguous in such a way as to make
the Commission’s decision worthy of deference under the
second step of Chevron. Id. at 843. If we so hold, we will then
uphold the agency’s interpretation of the ambiguous statute if
that interpretation is “permissible,” that is, if it is “reasonable.”
Id. at 845.

A. Chevron Step One

The first question, whether there is such an ambiguity, is for
the court, and we owe the agency no deference on the existence
of ambiguity. Deference to the agency’s interpretation under
Chevron is warranted only where “Congress has left a gap for
the agency to fill pursuant to an express or implied ‘delegation
of authority to the agency.’” Ry. Labor Exec. Ass’n v. Nat’l
Mediation Bd., 29 F.3d 655, 671 (D.C. Cir. 1994) (en banc)
 26

(internal citation omitted). The Commission argues along the
line suggested by the scant reasoning in the letter announcing its
decision. The opinion letter had directed its language
principally toward the question of whether the Commission
should “exempt attorneys at law from the application of the
Privacy Rule.” True, the Bar Association had requested such an
exemption, but only as a conditional request if the Commission
held in the first instance that the privacy provisions of the
GLBA covered attorneys engaged in the practice of law, a
proposition that the association resisted. The Commission’s
letter, while claiming that “[w]e have carefully considered your
concerns, and recognize the issues you have raised regarding the
application of the GLB Act to attorneys at law,” addressed only
the “significant questions as to the legal authority of the
Commission to grant the exemption you request.”

The Commission apparently assumed–without
reasoning–that it could extend its regulatory authority over
attorneys engaged in the practice of law with no other basis than
the observation that the Act did not provide for an exemption.
Before the District Court and before us, the Commission has
persisted in this style of reasoning. While there is limited post
hoc rationalization in the Commission’s brief addressing the
inclusion of attorneys in the definition of “financial institution,”
which we will discuss infra, the Commission repeatedly repairs
to the position that no language in the statute exempts attorneys
from regulation. That is not the question. As we have often
cautioned, “[t]o suggest, as the [Commission] effectively does,
that Chevron step two is implicated any time a statute does not
expressly negate the existence of a claimed administrative
power . . . is both flatly unfaithful to the principles of
administrative law . . . and refuted by precedent.” Ry. Labor
Exec. Ass’n, 29 F.3d at 671 (emphasis in original). Plainly, if
we were “to presume a delegation of power” from the absence
of “an express withholding of such power, agencies would enjoy
 27

virtually limitless hegemony . . . .” Id. (emphasis in original).
Therefore, if there is the sort of ambiguity that supports an
implicit congressional delegation of authority to the agency to
make a deference-worthy interpretation of the statute, we must
look elsewhere than the failure to negate regulation of attorneys.
That failure does not advance the Commission’s cause at all.
Otherwise put, the question is not whether the statute permits
exemption from regulation for attorneys, but whether it supports
such regulation at all. We will defer to the agency’s
interpretation on that subject only if the statute “is silent or
ambiguous with respect to the specific issue.” Barnhart v.
Walton, 535 U.S. 212, 218 (2002) (internal quotation marks and
citation omitted).

We further recognize that the existence of ambiguity is not
enough per se to warrant deference to the agency’s
interpretation. The ambiguity must be such as to make it appear
that Congress either explicitly or implicitly delegated authority
to cure that ambiguity. “Mere ambiguity in a statute is not
evidence of congressional delegation of authority.” Michigan v.
EPA, 268 F.3d 1075, 1082 (D.C. Cir. 2001) (citations omitted).
The deference mandated in Chevron “comes into play, of
course, only as a consequence of statutory ambiguity, and then
only if the reviewing court finds an implicit delegation of
authority to the agency.” Sea-Land Serv., Inc. v. Dep’t of
Transp., 137 F.3d 640, 645 (D.C. Cir. 1998) (emphasis added).
When we examine a scheme of the length, detail, and intricacy
of the one before us, we find it difficult to believe that Congress,
by any remaining ambiguity, intended to undertake the
regulation of the profession of law–a profession never before
regulated by “federal functional regulators”–and never
mentioned in the statute. To find this interpretation deference-
worthy, we would have to conclude that Congress not only had
hidden a rather large elephant in a rather obscure mousehole, but
had buried the ambiguity in which the pachyderm lurks beneath
 28

an incredibly deep mound of specificity, none of which bears the
footprints of the beast or any indication that Congress even
suspected its presence. We therefore seriously doubt that
Congress intended to empower the Commission to undertake
that regulation, and we are reluctant to even afford the
regulation the deference due agency action that survives the
analysis at the first step of Chevron. See FDA v. Brown &
Williamson Tobacco Corp., 529 U.S. 120, 160-61 (2000).

By way of comparison, in California Independent System
Operator Corp. v. FERC, 372 F.3d 395 (D.C. Cir. 2004)
(“CAISO”), we reviewed an order of the Federal Energy
Regulatory Commission (“FERC”) purporting to replace the
governing board of a nonprofit, “public benefit” corporation
created by the State of California pursuant to statutes of that
state. FERC claimed Chevron deference for its action, pointing
specifically to the language of 16 U.S.C. § 824e(a), which
empowered FERC, upon a finding that “any rule, regulation,
practice, or contract affecting [a] rate, charge, or classification
is unjust, unreasonable, unduly discriminatory or preferential,”
to “determine the just and reasonable rate, charge, classification,
rule, regulation, practice, or contract to be thereafter observed
and in force . . . .” FERC construed the word “practice” to be
sufficiently ambiguous to allow it, under the deferential formula
of Chevron, to set aside and replace the state-imposed method
for selecting the corporation’s board.

On review, we noted that the sort of ambiguity giving rise
to Chevron deference “‘is a creature not of definitional
possibilities, but of statutory context.’” 372 F.3d at 400
(quoting Brown v. Gardner, 513 U.S. 115, 118 (1994)). In
granting review and setting aside the FERC order, we
concluded, inter alia, that the intent of Congress in the statutory
section before us was “actually quite plain: the grant of
authority to regulate rates, charges, classifications, and closely
 29

related matters.” Id. We further concluded that it was “quite a
leap to move” from the context of transactional terms used in the
statute to an implication that, by the ambiguity inherent in the
word “practice,” Congress intended to grant to the Commission
not merely the power “to effect a reformation of some ‘practice’
in a more traditional sense,” but also “to reform completely the
governing structure of the utility . . . .” Id.

We further held that such an extraordinary construction of
“practice” in such a discrete regulatory context was a
“sufficiently poor fit with the apparent meaning of the statute
that the statute is not ambiguous on the very question before us,”
as would be necessary to afford Chevron deference at the first
step of the two-step inquiry. Id. at 401.

We were instructed in our CAISO reasoning by the Supreme
Court’s decision in Brown v. Gardner, 513 U.S. 115 (1994). In
Gardner, the Court considered an interpretation by the Veterans
Administration of statutory language requiring the VA to
compensate for “an injury, or an aggravation of an injury,” that
occurs “as a result of” VA treatment. 38 U.S.C. § 1151(a)
(1994) (amended 1996). The Veterans Administration, in 38
C.F.R. § 3.358(c)(3), interpreted the compensation requirement
as covering an injury only if it resulted from negligent treatment
by the VA or an accident occurring during treatment. The lower
courts held that the statute imposed no such fault-or-accident
requirement and found the regulation invalid. The Supreme
Court affirmed and, in language followed by us in CAISO, noted
the “poor fit of this language with any implicit requirement of
VA fault . . . .” 513 U.S. at 120. We find a similarly poor fit
between the statutory language and the Commission’s
interpretation in this case.

Lest it be forgotten, the basic language in which the
Commission finds the ambiguity permitting it to regulate the
 30

practice of law is that of § 6805 empowering the Federal Trade
Commission and other “federal functional regulators” to enforce
the statute and regulations prescribed under it with respect to
“financial institutions and other persons subject to [the
Commission’s] jurisdiction . . . .” 15 U.S.C. § 6805(a). That
language, even with–perhaps especially with–the layers of
incorporated statutory and regulatory language describing
financial institutions makes an exceptionally poor fit with the
FTC’s apparent decision that Congress, after centuries of not
doing so, has suddenly decided to regulate the practice of law.
This fit is helped but little, if at all, by the congressional
definition of “financial institution” as “an institution the
business of which is engaging in financial activity.” 15 U.S.C.
§ 6809(3)(A). An attorney, or even a law firm, does not fit very
neatly into the niche of a “financial institution.” Even if one
concedes–and it is quite a concession–that Congress would have
intended the word “institution” to include an attorney, or even
a law firm, it still requires quite a stretch to conclude that such
an institution is a “financial institution.” It trims the stretch
little, if at all, to read the entire statutory definition of “financial
institution” as “any institution the business of which is engaging
in financial activities as described in section 1843(k) of Title 12”
(set forth above). Without reiterating the language of the
incorporated statute, attorneys and law firms, even if viewed as
“institutions,” are not institutions “the business of which is
engaging in financial activities,” as defined in the statute. The
Commission itself seems to recognize the improbability of
Congress’s having intended to include law firms within the
designation “institutions” in the letter under review, in which it
conspicuously substituted the word “entities” for “institutions.”
Such a dramatic rewriting of the statute is not mere
interpretation. Even if we accept the inclusion of “entities” such
as law firms within the meaning of “institutions,” the “business”
of a law firm (if the practice of a profession is properly viewed
as business) is the practice of the profession of law.
 31

The Commission distorts the definition slightly but
improves the fit but little by its regulatory definition that a
financial institution is “an institution that is significantly
engaged in financial activities,” as opposed to requiring that the
institution must be one the business of which is engaging in
financial activities. Building on this stretch, the Commission, in
its brief, supplies reasoning conspicuously lacking from the
letter of determination that we review. Although we cannot
affirm an agency’s actions based on the post hoc rationale of its
litigating position, see, e.g., Motor Vehicle Mfrs. Ass’n v. State
Farm Mut. Auto. Insurance Co., 463 U.S. 29, 50 (1983), even if
we charitably construe the letter to imply the reasoning, it is still
inadequate.

The reasoning in the brief relies on the language of
Regulation Y, the second tier incorporation. As noted above,
Regulation Y, in its original application, described the “closely
related nonbanking activities” in which a bank holding company
or its subsidiaries might engage. Within that voluminous listing,
the regulation included two activities, “[p]roviding real estate
settlement services,” and “[p]roviding tax-planning and tax-
preparation services,” in which attorneys sometimes, and
apparently in the view of the Commission, significantly engage.
See 16 C.F.R. § 313.3(k)(1). Again, if Congress intended to
empower a federal financial regulator to undertake regulation of
the practice of law, this seems a strangely unclear method of
doing so. The statute after all defined a “financial institution”
as “an institution the business of which is engaging in financial
activities.” Congress did not adopt the approach of the
Commission by covering “an institution that is significantly
engaged in financial activities.” Certainly it did not extend that
definition to cover all “entities.” In sum, Congress did not leave
an ambiguity on the question before us– that is, the power of the
Commission to regulate the practice of law–sufficient to compel
 32

deference to the Commission’s determination to do so.4

We further determine that even if we err in our conclusion
that the regulation fails at Chevron Step One, we are satisfied
that the interpretation afforded by the Commission is not
sufficiently reasonable to survive that deference at Step Two.

B. Chevron Step Two

All the reasons set forth above for our determination that
Congress did not intend to leave sufficient ambiguity to support
deferential review return to convince us that the interpretation is
not reasonable even if we afford it deference. But our analysis
under Chevron Step Two need not end there. It is undisputed
that the regulation of the practice of law is traditionally the
province of the states. Federal law “may not be interpreted to
reach into areas of State sovereignty unless the language of the
federal law compels the intrusion.” City of Abilene v. FCC, 164
F.3d 49, 52 (D.C. Cir. 1999). Otherwise put, “if Congress
intends to alter the ‘usual constitutional balance between the
States and the Federal Government,’ it must make its intention
to do so ‘unmistakably clear in the language of the statute.’”
Will v. Michigan Dep’t of State Police, 491 U.S. 58, 65 (1989)
(quoting Atascadero State Hospital v. Scanlon, 473 U.S. 234,
242 (1985)). By now it should be abundantly plain that
Congress has not made an intention to regulate the practice of
law “unmistakably clear” in the language of the GLBA. In

4
We note that the bar associations have preserved on appeal
the additional argument that Chevron deference is unwarranted
because “[i]nterpretations such as those in opinion letters,” which
were not arrived at by means of a formal adjudication or notice and
comment rulemaking, “do not warrant Chevron-style deference.”
Christensen v. Harris County, 529 U.S. 576, 587 (2000). Given our
disposition of the case, we need not address that argument.
 33

Gregory v. Ashcroft, 501 U.S. 452 (1991), citing, inter alia, Will
and Atascadero State Hospital, the Supreme Court held that

[t]his plain statement rule is nothing more than an
acknowledgment that the States retain substantial sovereign
powers under our constitutional scheme, powers with which
Congress does not readily interfere.

501 U.S. at 461.

The Commission contends that this plain statement rule of
Gregory is not applicable, arguing that Gregory, which concerns
a determination of qualification for state officials, involved a
“decision of the most fundamental sort for a sovereign entity.”
Id. at 460. According to the Commission, the present regulation,
“by contrast . . . regulates the conduct of private entities or
individuals; there is no regulation of States or state officials.”
Reply Brief at 27. This response does not pass muster. Gregory
itself quoted from Will the language in which the Supreme Court
rejected an argument that the plain statement rule applied only
in an Eleventh Amendment context. “‘Atascadero was an
Eleventh Amendment case, but a similar approach is applied in
other contexts.’” Gregory, 501 U.S. at 461 (quoting Will, 491
U.S. at 65). We see no reason why the reasoning should not
apply in the present context. The states have regulated the
practice of law throughout the history of the country; the federal
government has not. This is not to conclude that the federal
government could not do so. We simply conclude that it is not
reasonable for an agency to decide that Congress has chosen
such a course of action in language that is, even charitably
viewed, at most ambiguous.

Finally, the original context of the language of Regulation
Y argues against the Commission’s application in the present
context. That regulation sets out the “[c]losely related
 34

nonbanking activities,” which “are so closely related to banking
or managing or controlling banks as to be a proper incident
thereto.” (emphasis added). The effect of the regulation was to
establish what activities “may be engaged in by a bank holding
company or its subsidiary in accordance with the requirements
of this regulation.” Granted, banks and bank holding companies
may at times engage in “providing real estate settlement
services, and providing tax planning and tax preparation
services.” We know of no instance in which banks or bank
holding companies have engaged in the practice of law. We
know of no state in which state bar regulations would permit
such practice. We know of no instances in which the
Commission has approved a bank holding company owning a
law firm as its subsidiary. We are not prepared to hold on the
basis of the present record that it would be lawful for a bank or
a bank holding company to do so; nonetheless, that result would
seem to flow from the holding the Commission seeks to have us
enter today. We cannot hold that an interpretation compelling
that result is reasonable, even if the Commission’s letter order
survives Chevron Step One and earns deference.

V. Conclusion

For the reasons set forth above, we hold that the
Commission’s interpretation is not entitled to Chevron
deference. We further hold that, even if we afford the
interpretation deference, the Commission’s interpretation is not
a reasonable one. We therefore conclude and hold that the
judgment appealed from is affirmed.

So ordered.