In considering the wisdom of access, there are strong arguments on both sides. In the end, access is a policy decision and one that has been thoroughly vetted by commentators and the Commission.
The DC Circuit's job in all of this is not to substitute its views on the wisdom of the policy but to largely determine whether the SEC used proper process in making the decision. The standard for review -- arbitrary and capricious -- provides an agency considerable room. The agency need not be perfect; it can even be sloppy. What it can't be is irrational.
In examining the decision in Business Roundtable, the decision contains a dearth of law to support the panel's decision that the Commission acted in an arbitrary manner. See Section 706 of the APA. The arbitrary and capricious standard is probably the most litigated issue in administrative law. A quick search through the Supreme Court file of Lexis-Nexis showed that there were 294 cases using the phrase “arbitrary and capricious.” A search through the appellate court file came up with almost 3000 references to arbitrary and capricious in just the last ten years. In short, there is plenty of law on the applicable standard.
DC Circuit cited almost none of it. The opinion contained only one cite to a Supreme Court decision. It referenced Motor Vehicle Mfrs. Ass'n v. State Farm, 463 US 29 (1983) for the broad proposition that an agency must have "examine[d] the relevant data and articulate[d] a satisfactory explanation for its action including a rational connection between the facts found and the choices made." In other words, it stands for the proposition that an agency cannot act in an irrational manner in adopting a rule.
A reading of the case itself does not help the court's analysis in Business Roundtable. As Justice Rehnquist put it in his concurring opinion, this was not a case involving the failure to adequately explain a study or reconcile purported inconsistencies in 73 pages of analysis. It was a case where the agency "gave no explanation at all."
The remaining authority used by the DC Circuit? Of the thousands of opinions on the subject they relied on three DC appellate cases: Chamber of Commerce v. SEC, 412 F.3d 133 (DC Cir. 2005); Pub. Citizen v. Fed. Motor Carrier Safety Admin., 374 F.3d 1209 (DC Cir. 2004); and American Equity Investment Life Insurance Co. v. SEC, 613 F.3d 166 (DC Cir. 2010). The three decisions have two things in common. They all involve the SEC and they were all written by judges on the panel in Business Roundtable.
Judge Ginsburg wrote Chamber of Commerce, Judge Sentelle wrote American Equity (with Judge Ginsburg on the panel) and Public Citizen. In other words, they found no judicial authority for their opinion in Business Roundtable beyond their own opinions.
Moreover, the primary decision relied upon by the panel -- Chamber of Commerce -- does not really support its analysis. First, Chamber of Commerce contains a detailed review of the law and includes about 20 citations to other decisions. Second, it declined to accept arguments that entailed a second guessing of the SEC's analysis of data submitted during the comment process. See Id. ("Although a more detailed discussion of the study might have been useful, the Commission made clear enough the limitations of the study, and we have no cause to disturb its ultimate judgment that the study was 'unpersuasive evidence.'").
The court invalidated the rule not because the economic analysis could have been better but because the economic analysis was entirely absent. The SEC in the rule under consideration in Chamber of Commerce had proposed three methods of conforming to the new requirements but entirely omitted any discussion of the costs of the different methods. See Id. ("That particular difficulty may mean the Commission can determine only the range within which a fund's cost of compliance will fall, depending upon how it responds to the condition but, as the Chamber contends, it does not excuse the Commission from its statutory obligation to determine as best it can the economic implications of the rule it has proposed.").
Business Roundtable uses a very different analysis as we will discuss. It did fault the SEC for not adequately discussing the limitations of various studies. Nor did it find a complete absence of costs but instead found that the SEC's 73 page assessment was not thorough enough. In doing so, the court chided the SEC for failing to assess costs that largely presupposed a breach of fiduciary obligations.
To find the Commission irrational in this case, given the sweeping nature of the court's analysis, one would expect to find greater reliance on judicial precedent than what occurred in the opinion.
Primary materials on the case, including the relevant briefs, can be found at the DU Corporate Governance web site. For more thoughts on the court's opinion in Business Roundtable, see Shareholder Access and Uneconomic Economic Analysis: Business Roundtable v. SEC.