In striking down the shareholder access rule, the court in Business Roundtable v. SEC ostensibly had to determine whether the SEC's position was arbitrary. In other words, the court was not allowed to substitute its view for that of the agency. See FCC v. Fox TV Stations, Inc., 129 S. Ct. 1800 (2009) ("We have made clear, however, that 'a court is not to substitute its judgment for that of the agency,' ibid., and should 'uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned,'").
Nor can the court require perfection. Instead, the court can generally strike down an agency decision only if "irrational." See Allentown Mack Sales & Serv. v. NLRB, 522 U.S. 359, 364 (1998) ("While the Board's adoption of a unitary standard for polling, RM elections, and withdrawals of recognition is in some respects a puzzling policy, we do not find it so irrational as to be "arbitrary [or] capricious" within the meaning of the Administrative Procedure Act").
The DC Circuit, in this case, did not apply a standard of irrationality. Instead, it in fact substituted its judgment for that of the SEC. This can be seen from the reasoning (the court favoring one set of studies over another, for example), but also from the lack of authority in the opinion. From pages 7 until 21, when the court actually examined the economic analysis used by the SEC, the opinion cited only two cases.
One of the cases was a Supreme Court case cited for a general proposition. The only other case citation was a pair of references to Chamber of Commerce v. SEC, 412 F.3d 133 (DC Cir. 2005). Judge Ginsburg wrote that opinion and in it struck down an SEC rule adopted under the Investment Company Act of 1940. In other words, Judge Ginsburg, for much of the legal analysis, could only cite himself as case authority for the positions taken in the decision.
We will discuss the short term implications of this opinion in the next post.