Yes, another case lost to the Trumpian world: Interfaith Center on Corporate Responsibility et al. v. SEC, U.S. District Court, District of Columbia, No. 21-01620. (Reuters) Here’s my take on this latest miscarriage of justice.
Procedural Violations
The DC Court acknowledged the SEC failed to disclose the Broadridge data, the Chief Economist’s memo, and the preliminary staff analysis during the public comment period. However, it deemed these procedural violations harmless. That was in error. Under American Radio Relay League, Inc. v. FCC, 524 F.3d 227 (D.C. Cir. 2008), and Portland Cement Ass’n v. Ruckelshaus, 486 F.2d 375 (D.C. Cir. 1973), agencies must disclose “the most critical factual material” relied upon in rulemaking. The Broadridge data influenced the SEC’s decision to reject economic modeling and avoid estimating the number of excluded shareholder proposals.
The Court’s failure undercuts the APA’s purpose of providing meaningful notice and comment. It deprived Plaintiffs and the public of an opportunity to challenge flawed assumptions in the SEC’s final rule.
SEC Measured Only Costs
The Court also wrongly accepted the SEC’s cost-benefit analysis despite the agency’s failure to quantify the rule’s economic impact. As held in Chamber of Commerce v. SEC, 412 F.3d 133 (D.C. Cir. 2005), and reaffirmed in Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011), the SEC is required to assess economic impact rigorously. Here, the SEC admitted it lacked data but disregarded the Broadridge set that could have filled that gap.
The Court accepted a projected impact range of 0–56% as sufficient, despite its speculative nature and lack of quantifiable grounding. Such deference to guesswork contradicts APA standards.
Significant Alternatives Not Considered
Under Motor Vehicle Mfrs Ass’n v. State Farm, 463 U.S. 29 (1983), an agency must consider significant alternatives and give a reasoned explanation when rejecting them. The SEC failed to explain why less restrictive alternatives weren’t considered.
In Encino Motorcars, LLC v. Navarro, 579 U.S. 211 (2016), the Supreme Court invalidated a rule change where an agency failed to account for reliance interests. Yet here, the SEC significantly restricted the use of proxies—a long-standing practice—without acknowledging or weighing the reliance interests of ICCR, AYS, and James McRitchie, who operated under prior rules for decades.
Again, Failure to Consider Benefits
Perhaps most egregiously, under the APA, a rule is arbitrary and capricious if the agency “entirely failed to consider an important aspect of the problem.” – Motor Vehicle Manufacturers Ass’n v. State Farm, 463 U.S. 29, 43 (1983)
The BENEFITS of shareholder proposals—like improved governance, ESG disclosure, risk management, and long-term value—are indisputably relevant to any rule limiting shareholder access to the proxy. Had we listened to shareholders, the 2008 global financial crisis could have been avoided. The SEC’s failure to assess or even discuss those economic benefits violated State Farm and should have been a key factor in overturning the rules promulgated by Trump’s first SEC. Where they will go now is anybody’s guess.
SEC Rule on Shareholder Proposals: Other Coverage
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