United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 15, 2010 Decided March 4, 2011
No. 10-5057
AMERICAN BAR ASSOCIATION,
APPELLEE
v.
FEDERAL TRADE COMMISSION,
APPELLANT
Appeal from the United States District Court
for the District of Columbia
(No. 1:09-cv-01636)
Michael D. Bergman, Attorney, Federal Trade
Commission, argued the cause for appellant. With him on the
briefs were Willard K. Tom, General Counsel, and John F. Daly,
Deputy General Counsel for Litigation.
Mark D. Harris argued the cause for appellee. With him
on the brief was James F. Segroves.
Jack R. Bierig was on the brief for amici curiae
American Medical Association, et al. in support of appellee.
Matthew M. Wright was on the brief for amici curiae
State and Local Bar Associations in support of appellee.
2
Daniel E. Loeb was on the brief for amicus curiae
American Institute of Certified Public Accountants in support of
appellee.
Before: ROGERS and GRIFFITH, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
Opinion for the Court by Senior Circuit Judge
EDWARDS.
EDWARDS, Senior Circuit Judge:
The Fair and Accurate Credit Transactions Act of 2003
(“FACT Act”), Pub. L. No. 108-159, 117 Stat. 1952, amended
the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., and
authorized the Federal Trade Commission (“FTC” or
“Commission”) to promulgate regulations requiring financial
institutions and creditors to establish internal procedures to
prevent identity theft. In November 2007, following notice-and-
comment rulemaking, the FTC adopted Identity Theft Rules (the
“Red Flags Rule” or “Rule”), 16 C.F.R. § 681 et seq., requiring
financial institutions and creditors to implement and maintain
programs to protect consumers from identity theft. Id. § 681.1.
The Red Flags Rule incorporated, without amplification, the
FACT Act’s definitions of “credit” and “creditor.” See id.
§ 681.1(b)(4) & (5). Neither the Rule nor the statute indicated
whether lawyers or law firms were covered.
In April 2009, in response to some public confusion over
the Rule’s coverage, the FTC issued an Extended Enforcement
Policy, explaining that “professionals, such as lawyers or health
care providers, who bill their clients after services are rendered,”
would be considered “creditors” under the statute and, therefore,
subject to the Rule’s requirements. FTC, FTC Extended
Enforcement Policy: Identity Theft Red Flags Rule, 16 CFR
681.1 (“Extended Enforcement Policy” or “Policy”) at 1 n.3
(Apr. 30, 2009), reprinted in Joint Appendix (“J.A.”) 76. In
3
August 2009, appellee American Bar Association (“ABA”) filed
suit in the District Court challenging the Commission’s
Extended Enforcement Policy. The ABA claimed that the
Commission had “intruded upon an area of traditional state
regulation,” Compl. ¶ 57 (Aug. 27, 2009), reprinted in J.A. 22-
23, and that the Policy was unlawful absent “a clear statement
from Congress” authorizing federal regulation over the practice
of law, id. ¶ 41, J.A. 19. The District Court agreed with the
ABA and enjoined the FTC from enforcing the Red Flags Rule
against lawyers. ABA v. FTC, 671 F. Supp. 2d 64 (D.D.C.
2009). The FTC appealed to this court.
Oral arguments were heard by this court on November
15, 2010. Shortly thereafter, Congress passed the Red Flag
Program Clarification Act of 2010 (“Clarification Act”), Pub. L.
No. 111-319, 124 Stat. 3457 (to be codified at 15 U.S.C.
§ 1681m(e)(4)). On December 18, 2010, the President signed
the act into law. The Clarification Act expressly amended the
FACT Act, changed the definition of “creditor,” and made it
clear that a creditor’s allowance of deferred payments alone
could not trigger the identity theft protection requirements.
The enactment of the Clarification Act moots this case.
It is well established that a case must be dismissed as moot if
new legislation addressing the matter in dispute is enacted while
the case is still pending. See, e.g., Dep’t of Treasury v. Galioto,
477 U.S. 556, 559-60 (1986) (holding that when intervening
legislation “alters the posture” of a pending case, “it is the duty
of the appellate court” to vacate the judgment of the district
court and dismiss the case as moot) (quotation omitted); Clarke
v. United States, 915 F.2d 699 (D.C. Cir. 1990) (en banc)
(same). In its current posture, this case concerns: (1) the
enforcement of statutory provisions in the FACT Act that have
been amended; and (2) a complaint that challenges an agency
policy statement that purports to interpret a rule that was
promulgated before the statute was amended. Because the new
4
legislation has clearly altered the posture of the case, there is no
longer a live “case or controversy” before this court.
Accordingly, we are constrained to vacate the District Court’s
judgment and opinion, and remand the case to the District Court
with directions to dismiss the case as moot.
I. Background
Congress enacted the FACT Act to “prevent identity
theft, improve resolution of consumer disputes, improve the
accuracy of consumer records, [and] make improvements in the
use of, and consumer access to, credit information.” Pub. L. No.
108-159, 117 Stat. 1952, 1952. As noted above, the FACT Act
amended the Fair Credit Reporting Act, 15 U.S.C. § 1681 et
seq., and, among other things, authorized the FTC to “prescribe
regulations requiring each financial institution and each creditor
to establish reasonable policies and procedures” to prevent
identity theft. 15 U.S.C. § 1681m(e)(1)(B). Acting pursuant to
its delegated authority under the FACT Act, the FTC conducted
notice-and-comment rulemaking proceedings, which resulted in
the agency’s promulgation of the Red Flags Rule. Identity Theft
Red Flags and Address Discrepancies Under the Fair and
Accurate Credit Transactions Act of 2003, 72 Fed. Reg. 63,718
(Nov. 9, 2007) (codified at 16 C.F.R. § 681 et seq.). The Red
Flags Rule did not address whether lawyers or law firms were
covered by the statute or the Rule.
The FTC initially set November 1, 2008, as the deadline
for compliance with the Red Flags Rule. This deadline was
extended to May 1, 2009, due to uncertainty regarding the
Rule’s coverage. Press Release, FTC, FTC Will Grant Six-
Month Delay of Enforcement of ‘Red Flags’ Rule Requiring
Creditors and Financial Institutions to Have Identity Theft
Prevention Programs (Oct. 22, 2008), reprinted in J.A. 70-71.
In April 2009, the FTC issued the Extended Enforcement Policy
to explain the Rule’s coverage and delayed the compliance
deadline to August 1, 2009. Extended Enforcement Policy, J.A.
5
76-78. The Extended Enforcement Policy stated that, in the
agency’s view, the term “creditor,” as used in the Red Flags
Rule and the FACT Act, included “all entities that regularly
permit deferred payments for goods or services,” including
professionals “such as lawyers or health care providers, who bill
their clients after services are rendered.” Id. at 1 n.3, J.A. 76.
This amplification of the statute and the Rule was never the
subject of notice-and-comment rulemaking.
The ABA filed a three-count complaint against the FTC
in the District Court, seeking injunctive and declaratory relief
against the Commission. In Count I, the ABA alleged that the
Extended Enforcement Policy was unlawful under the “clear
statement doctrine,” because “the regulation of the practice of
law is traditionally the province of the [S]tates” unless Congress
grants the agency regulatory authority through clear and
unambiguous statutory language. See Compl. ¶¶ 55-59, J.A. 22-
23 (alteration in original) (quoting ABA v. FTC, 430 F.3d 457,
471 (D.C. Cir. 2005)). Count II sought an injunction on the
grounds that the FTC’s action was arbitrary and capricious.
Count III sought a declaratory judgment. The ABA moved for
summary judgment on Count I, urging the trial court to “set
aside the Extended Enforcement Policy to the extent the FTC
purports to apply the Red Flags Rule to lawyers engaged in the
practice of law, as well as any other application of the Red Flags
Rule to lawyers engaged in the practice of law.” Id. ¶ 60, J.A.
23.
The District Court granted the ABA’s motion for
summary judgment. ABA v. FTC, 671 F. Supp. 2d 64 (D.D.C.
2009). Following the ABA’s voluntary dismissal of Counts II
and III, the District Court issued a final judgment enjoining the
Commission from enforcing the Red Flags Rule “against
lawyers engaged in the practice of law.” Judgment at 1, J.A.
218. The District Court found that,
6
[g]iven the plain-meaning and statutorily assigned
definitions of the terms interpreted by the Commission,
the aim of the legislation, and the ill-adapted application
of these terms to the legal profession, it becomes clear
that the intent of Congress is unambiguous: it did not
grant to the Commission the broad authority to exercise
regulatory control over attorneys pursuant to the FACT
Act, and accordingly the Red Flags Rule similarly
cannot be properly promulgated in such a broad manner.
ABA, 671 F. Supp. 2d at 82. The District Court further noted
that, even if the statutory language were ambiguous, the
agency’s broad interpretation of “creditor” as including any
lawyer who bills clients on a monthly basis would be
unreasonable, “and therefore not ‘entitled to respect’ because it
lacks the ‘power to persuade.’” Id. at 83 (footnote omitted)
(quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).
The FTC appealed the judgment of the District Court,
and oral arguments were heard by this court on November 15,
2010. On November 30, 2010, the United States Senate passed
the Red Flag Program Clarification Act, S. 3987, 111th Cong.
(2010), to amend section 1681m(e)(4) of the FACT Act. 156
CONG. REC. S8289 (daily ed. Nov. 30, 2010). The same bill was
passed by voice vote in the House of Representatives on
December 7, 2010. 156 CONG. REC. H8060 (daily ed. Dec. 7,
2010). On December 18, 2010, the legislation was signed into
law by the President. Clarification Act, Pub. L. No. 111-319,
124 Stat. 3457 (2010).
II. Analysis
A. The ABA’s Claims Have Been Rendered Moot
by the Clarification Act
The mootness doctrine, deriving from Article III,
limits federal courts to deciding actual, ongoing
controversies. Even where litigation poses a live
7
controversy when filed, the doctrine requires a federal
court to refrain from deciding it if events have so
transpired that the decision will neither presently affect
the parties’ rights nor have a more-than-speculative
chance of affecting them in the future.
Clarke, 915 F.2d at 700-01 (quotations omitted). In this case,
the intervening event that ended the ongoing controversy
between the ABA and the FTC was Congress’ enactment of the
Clarification Act. The portions of the Commission’s Extended
Enforcement Policy that were the subject of the ABA’s
complaint have been effectively vitiated by the Clarification
Act. The ABA’s claims were thus rendered moot by the
intervening legislation. See, e.g., Galioto, 477 U.S. 556
(dismissing challenge to statute denying access to firearms based
on prior mental institutionalization as moot due to intervening
redraft of statute providing an administrative remedy for those
affected); Nat’l Black Police Ass’n v. Dist. of Columbia, 108
F.3d 346 (D.C. Cir. 1997) (finding challenge to voter initiative
capping campaign contribution levels moot due to subsequent
legislation raising the caps above the voter initiative levels);
Defenders of Wildlife, Inc. v. Endangered Species Scientific
Auth., 725 F.2d 726 (D.C. Cir. 1984) (holding that congressional
amendments to Endangered Species Act mooted challenge to
guidelines issued under the previous version of the statute).
There can be no confusion here that the Clarification Act
served to moot the ABA’s claims in this case. The new
legislation is clearly aimed at the precise matter in dispute.
Before the enactment of the new legislation, a “creditor”
under the FACT Act was defined as
any person who regularly extends, renews, or continues
credit; any person who regularly arranges for the
extension, renewal, or continuation of credit; or any
8
assignee of an original creditor who participates in the
decision to extend, renew, or continue credit,
15 U.S.C. § 1691a(e), and credit was defined as
the right granted by a creditor to a debtor to defer
payment of debt or to incur debts and defer its payment
or to purchase property or services and defer payment
therefor.
Id. § 1691a(d). These provisions were materially altered by the
Red Flag Program Clarification Act.
Under the Clarification Act, a “creditor” is now defined
as follows:
(4) DEFINITIONS.–As used in this subsection, the term
‘creditor’–
(A) means a creditor, as defined in section 702 of
the Equal Credit Opportunity Act (15 U.S.C.
1691a), that regularly and in the ordinary course
of business–
(i) obtains or uses consumer reports,
directly or indirectly, in connection with
a credit transaction;
(ii) furnishes information to consumer
reporting agencies, as described in
section 623, in connection with a credit
transaction; or
(iii) advances funds to or on behalf of a
person, based on an obligation of the
person to repay the funds or repayable
from specific property pledged by or on
behalf of the person;
9
(B) does not include a creditor described in
subparagraph (A)(iii) that advances funds on
behalf of a person for expenses incidental to a
service provided by the creditor to that person;
and
(C) includes any other type of creditor, as
defined in that section 702, as the agency
described in paragraph (1) having authority over
that creditor may determine appropriate by rule
promulgated by that agency, based on a
determination that such creditor offers or
maintains accounts that are subject to a
reasonably foreseeable risk of identity theft.
Pub. L. No. 111-319, § 2(a), 124 Stat. at 3457 (internal quotation
marks omitted). The Clarification Act thus clarifies that, to be
a “creditor” subject to the Red Flags Rule requirements, one
must not only regularly extend, renew, or continue credit under
§ 1691a(e), but must also “regularly and in the ordinary course
of business,” (i) obtain or use consumer reports, (ii) furnish
information to consumer reporting agencies, or (iii) advance
funds with an obligation of future repayment. Id.
Most importantly, at least with respect to the matters in
dispute in this case, the Clarification Act makes it plain that the
granting of a right to “purchase property or services and defer
payment therefore” is no longer enough to make a person or
firm subject to the FTC’s Red Flags Rule – there must now be
an explicit advancement of funds. In other words, the FTC’s
assertion that the term “creditor,” as used in the Red Flags Rule
and the FACT Act, includes “all entities that regularly permit
deferred payments for goods or services,” including
professionals “such as lawyers or health care providers, who bill
their clients after services are rendered,” Extended Enforcement
Policy at 1 n.3, J.A. 76, is no longer viable.
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The legislative history of the new Clarification Act also
confirms Congress’ intention to bar the regulation of lawyers
based solely on deferred billing practices. Representative John
Adler, who introduced the legislation in the House, stated that
“[w]hen I think of the word ‘creditor,’ dentists, accounting
firms, and law firms do not come to mind . . . . It is clear when
Congress wrote the [FACT Act], they never contemplated
including these types of businesses within the broad scope of
that law.” 156 CONG. REC. H8059 (daily ed. Dec. 7, 2010)
(statement of Rep. Adler). See also 156 CONG. REC. S8289
(daily ed. Nov. 30, 2010) (statement of Sen. Dodd) (“The
legislation also makes clear that lawyers, doctors, . . . an[d] other
service providers will no longer be classified as ‘creditors’ for
the purposes of the red flags rule just because they do not
receive payment in full from their clients at the time they
provide their services, when they don’t offer or maintain
accounts that pose a reasonably foreseeable risk of identity
theft.”) (commenting as chairman of the Senate Banking
Committee regarding “what the Red Flag Program Clarification
Act of 2010 will accomplish”).
The parties’ supplemental briefs to this court trade
arguments as to whether attorneys might be subject to regulation
by the FTC under the amended statute. But this question was
not raised in the ABA’s complaint, nor could it have been. The
complaint focused on the FTC’s Extended Enforcement Policy,
which purported to amplify a rule that was promulgated
pursuant to a statute that has since been amended. In these
circumstances, there is no “live” case or controversy before this
court. Why? Because the policy, rule, and statute that gave rise
to this suit are no longer in the same posture.
It does not matter that the FTC might hereafter pursue
notice-and-comment rulemaking to promulgate new rules
pursuant to which the agency may seek to regulate lawyers and
law firms. Nor does it matter that the agency may pursue a new
11
enforcement policy against lawyers and law firms. These are
merely hypothetical possibilities – indeed, the parties may even
view them as likely possibilities. But they are nothing more
than possibilities regarding regulations and enforcement policies
that do not presently exist. This is not enough to give rise to a
live dispute. “The mootness doctrine, deriving from Article III,
limits federal courts to deciding actual, ongoing controversies.”
Clarke, 915 F.2d at 700-01 (quotation omitted). The case now
before the court is moot.
B. No Exceptions to Mootness Are Present in This
Case
The only remaining question is whether there are any
exceptions to mootness that are applicable to this case.
There are two [principal] exceptions to mootness.
The first pertains to situations in which “the challenged
action was in its duration too short to be fully litigated
prior to its cessation or expiration,” yet there is a
“demonstrated probability that the same controversy will
recur involving the same complaining party.” Murphy
v. Hunt, 455 U.S. 478, 482 (1982) (per curiam).
....
The second exception involves a party’s
“voluntary cessation” of the challenged activity. As a
general rule, a defendant’s “voluntary cessation of
allegedly illegal conduct does not deprive [a court] of
power to hear and determine the case.” County of Los
Angeles v. Davis, 440 U.S. 625, 631 (1979). Voluntary
cessation will only moot a case if “there is no reasonable
expectation . . . that the alleged violation will recur” and
“interim relief or events have completely and
irrevocably eradicated the effects of the alleged
violation.” Id. The defendant carries the burden of
demonstrating “that there is no reasonable expectation
12
that the wrong will be repeated,” and “[t]he burden is a
heavy one.” United States v. W. T. Grant Co., 345 U.S.
629, 633 (1953).
HARRY T. EDWARDS & LINDA A. ELLIOTT, FEDERAL
STANDARDS OF REVIEW – REVIEW OF DISTRICT COURT
DECISIONS AND AGENCY ACTIONS 114-15 (2007) (second and
third alterations in original). Neither exception applies in this
case.
This case does not fall within the “capable of repetition,
yet evading review” exception, Murphy v. Hunt, 455 U.S. 478,
482 (1982) (per curiam), because recurrence of the challenged
activity will not “evade review” should the parties’ dispute
recur. Even if the Commission were to adopt a revised
regulatory scheme under the amended statute that purports to
regulate attorneys, the new regulation will be subject to judicial
review at that time. As we noted in National Wildlife
Federation v. Hodel, 839 F.2d 694 (D.C. Cir. 1988), any new
“regulations [will be] in no danger of expiring before judicial
review is complete[, and i]t would be entirely inappropriate for
this court to . . . issue an advisory opinion to guide the
[agency’s] rulemaking.” Id. at 742 (refusing to find the
Secretary of the Interior’s withdrawal of a challenged regulation
to be an exception to mootness).
Likewise, the “voluntary cessation” exception to
mootness has no play in this case. The FTC’s abandonment of
the Extended Enforcement Policy was not voluntary. The
agency most assuredly did not alter its definition of “creditor”
in order to avoid litigation. Rather, intervening legislation
simply nullified the FTC’s policy statement that all lawyers who
bill their clients after services are rendered are covered by the
Red Flags Rule and the FACT Act. This scenario is not within
the compass of the voluntary cessation exception to mootness.
Cf. Campbell v. Clinton, 203 F.3d 19, 34 n.14 (D.C. Cir. 2000)
(“The President’s cessation of the attack on Yugoslavia was not
13
‘voluntary’ within the [Supreme] Court’s [mootness doctrine]
meaning; the war ended because the United States won, not
because the President sought to avoid litigation.”).
In sum, this case is moot due to the enactment of
intervening legislation. And no exceptions to mootness are
present in this case.
C. Vacatur of the District Court’s Decision
In United States v. Munsingwear, Inc., 340 U.S. 36, 40
(1950), the Supreme Court noted that vacatur is normally
appropriate once a case is determined to be moot, because it
“clears the path for future relitigation of the issues between the
parties and eliminates a judgment, review of which was
prevented through happenstance.” Thus, in a matter such as
this, in which intervening legislation “alters the posture” of a
pending case, the Court has held that “it is the duty of the
appellate court” to vacate the judgment of the district court and
dismiss the case as moot. Galioto, 477 U.S. at 559-60.
The Supreme Court later clarified that vacatur is an
equitable matter and not automatic in all situations in which a
pending case is rendered moot. U.S. Bancorp Mortg. Co. v.
Bonner Mall P’ship, 513 U.S. 18, 23-25 (1994). Bancorp
indicates that vacatur is usually inappropriate when “the party
seeking relief from the judgment below caused the mootness by
voluntary action.” Id. at 24. The Bancorp presumption is
inapposite here because the FTC – the party who would get
relief from the judgment below – did nothing to render this case
moot. The case is moot because of the congressional enactment
of the new Clarification Act.
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Furthermore, we have held that the Bancorp presumption
rarely applies in situations when, as here, a case is rendered
moot by intervening legislation.
Clearly, the passage of new legislation represents
voluntary action, and thus on its face the Bancorp
presumption might seem to govern. We believe,
however, that application of the Bancorp presumption in
this context is not required by the Bancorp opinion’s
rationale and would be inappropriate, at least if there is
no evidence indicating that the legislation was enacted
in order to overturn an unfavorable precedent. The
rationale underlying the Bancorp presumption is that
litigants should not be able to manipulate the judicial
system by rolling the dice in the district court and then
washing away any unfavorable outcome through use of
settlement and vacatur. The mere fact that a legislature
has enacted legislation that moots an appeal, without
more, provides no grounds for assuming that the
legislature was motivated by such a manipulative
purpose. The legislature may act out of reasons totally
independent of the pending lawsuit, or because the
lawsuit has convinced it that the existing law is flawed.
In American Library Association v. Barr, 956 F.2d 1178
(D.C. Cir. 1992), we rejected the argument that vacatur
was not appropriate where a case had become moot on
appeal due to Congress’ passage of new legislation,
arguing that Congress’ action “to repair what may have
been a constitutionally defective statute . . . represents
responsible lawmaking, not manipulation of the judicial
process.” Id. at 1187.
....
The presumption of integrity that attaches to legislative
action and the difficulties that separation of powers
creates for attributing one branch’s actions to another
15
support not applying the Bancorp rule to situations
where the party seeking vacatur is the government and
mootness results on appeal because of legislative action.
In this context, absent additional evidence of an
illegitimate motive, we believe the general rule in favor
of vacatur still applies.
Nat’l Black Police Ass’n, 108 F.3d at 351-52, 354 (citations,
quotations, ellipsis, and brackets omitted).
National Black Police Ass’n directly controls the
disposition of this case on the matter of vacatur. We therefore
adhere to the law of the circuit in our decision to vacate the
judgment of the District Court.
III. Conclusion
The judgment and opinion of the District Court is hereby
vacated. The case is remanded to the District Court with
instructions to dismiss the case as moot.