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
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 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
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
Id. § 1843(k)(1).
The BHCA declares to be financial in nature activities listed in section 1843(k)(4), to wit:
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:
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
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.
B. The Commission's Interpretation
Upon the passage of the Act, the FTC, pursuant to the 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
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 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:
Although the district judge never formally ordered the two actions consolidated, he dealt with them together and ultimately 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
The current appeal followed.
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." Whitman v. Am. Trucking Ass'ns, 531 U.S. 457, 468, 121 S.Ct. 903, 149 L.Ed.2d 1 (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, 99 S.Ct. 1067, 59 L.Ed.2d 261 (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."
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, 104 S.Ct. 2778, 81 L.Ed.2d 694 (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
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) (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 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, 122 S.Ct. 1265, 152 L.Ed.2d 330
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 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, 120 S.Ct. 1291, 146 L.Ed.2d 121 (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, 115 S.Ct. 552, 130 L.Ed.2d 462 (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 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
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, 115 S.Ct. 552, 130 L.Ed.2d 462 (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, 115 S.Ct. 552. 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 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)
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, 103 S.Ct. 2856, 77 L.Ed.2d 443 (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 deference to the Commission's determination to do so.
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
501 U.S. at 461, 111 S.Ct. 2395.
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, 111 S.Ct. 2395. 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, 111 S.Ct. 2395 (quoting Will, 491 U.S. at 65, 109 S.Ct. 2304). 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 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.
For the reasons set forth above, we hold that the Commission's interpretation is not
12 C.F.R. § 225.28(b) (2001) (footnotes omitted).