Lawsuits

The SEC’s Resource Extraction Rules Will Not Be Put On Hold

by Vanessa Schoenthaler on November 9, 2012

Yesterday the Securities and Exchange Commission issued an order denying a joint motion to stay the effectiveness of Exchange Act Rule 13q-1 and new Form SD (related to disclosure of payments by resource extraction issuers) pending the outcome of the American Petroleum Institute, Chamber of Commerce, Independent Petroleum Association of America and the National Foreign Trade Council’s petition for review filed with the U.S. Court of Appeals for the D.C. Circuit on October 10, 2012.

The Court of Appeals has directed expedited briefing and argument on the parties’ petition for review, and the Commission notes in its order that a determination on Rule 13q-1′s validity may be made as soon as this spring.

Resource extraction issuers are not required to begin complying with the new rules until the fiscal year ending after September 30, 2013.

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Inadequacy of Cost-Benefit Analysis In SEC Rulemaking – A Fall Trend?

by Vanessa Schoenthaler on October 12, 2012

On Wednesday the American Petroleum Institute (API), the largest U.S. trade association for the oil and natural gas industry, the U.S. Chamber of Commerce, the Independent Petroleum Association of America, a U.S. trade association for independent oil and natural gas producers, and the National Foreign Trade Council, the oldest and largest trade association advocating an open, rules-based international trade system, jointly filed a complaint with the D.C. District Court and petition for review with the U.S. Court of Appeals for the D.C. Circuit, seeking to vacate and enjoin the Securities and Exchange Commission from implementing and enforcing the recently adopted, and Dodd-Frank Act-mandated, rule requiring disclosure of certain payments made by resource extraction issuers to the U.S or foreign governments. The case was filed in both the District Court and the Court of Appeals pending resolution of the jurisdiction question.

Among other things, the District Court complaint alleges that the Commission failed to adequately perform a cost-benefit analysis when promulgating the final rule.

Remember it was just last year that the U.S. Court of Appeals for the D.C. Circuit vacated the Commission’s proxy access rule on the basis of the same inadequate cost-benefit analysis argument. However, shortly thereafter the Commission revamped its approach to economic analysis in rulemaking and released an internal memorandum providing guidance on the revised approach.

The disclosure rule at issue in the API et al. v. SEC suit underwent an economic analysis under the revised approach, so it’ll be interesting to see how the court which ultimately hears the case rules on the cost-benefit analysis argument.

The outcome of this case may also influence the approach of others. Compliance Week has already asked Is the Conflict Minerals Rule Next to Face a Legal Challenge?, noting that the U.S. Chamber of Commerce has not ruled out that possibility.

In an unrelated article, Reuters notes that investor groups are also making the cost-benefit analysis argument in the context of the Dodd-Frank Act-mandated proposed rule to lift the ban on general solicitation and general advertising, but that those groups feel it’s still too early to talk about filing a lawsuit.

In any event, the outcome of the API et al. v. SEC suit is one to watch, as it may determine whether the cost-benefit analysis argument becomes a trend.

Update October 24, 2012:

The National Association of Manufacturers, the largest industrial trade association in the U.S., Business Roundtable and U.S. Chamber of Commerce have filed a joint petition with the U.S. Court of Appeals for the D.C. Circuit seeking to have the conflict mineral rules modified or set aside in whole or in part, but without specifying a basis for challenging the rule.

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D.C. Circuit Court of Appeal’s Order Vacating Proxy Access Rule 14a-11

by Vanessa Schoenthaler on July 22, 2011

The U.S. Court of Appeals for the D.C. Circuit handed down its decision in the Business Roundtable and Chamber of Commerce’s challenge to proxy access today.

The Court vacated Exchange Act Rule 14a-11, finding that the Commission acted arbitrarily and capriciously when promulgating the rule, because: (1) “it neglected its statutory responsibility to determine the [Rule's] likely economic consequences … and to connect those consequences to efficiency, competition, and capital formation … [and (2) of its] decision to apply Rule 14a-11 to investment companies … .” The Court did not address the petitioner’s First Amendment challenge.

Judge Ginsburg penned a scathing opinion for the Court, and as Broc Romanek and Brian Breheny note, other than appealing the decision en banc, the Commission generally has three options going forward: revise and reapprove Rule 14a-11 now, allow Rule 14a-8 to go effective now and revise and reapprove the Rule 14a-11 later, or do nothing.

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Update: 4:30 PM

Each of the parties has now made their obligatory public statement:

The Business Roundtable and U.S. Chamber of Commerce issuing a joint statement applauding the decision as a “big win for America’s job creators and investors …” and the SEC a brief statement expressing disappointment, noting that it is exploring its options and reminding us that Rule 14a-8  remains unaffected by the decision.

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The New Proxy Access Rules Are On Hold … For Now

by Vanessa Schoenthaler on October 4, 2010

Last week the U.S. Chamber of Commerce and the Business Roundtable announced the filing of a joint lawsuit challenging the Securities and Exchange Commission’s adoption of proxy access Rule 14a-11. The groups also filed a motion requesting that the Commission stay the effect of the Rule pending resolution of the suit.

Today the Commission did just that; staying not only the effect of Rule 14a-11, but also of the amendments to Rule 14a-8. The groups’ motion didn’t actually request a stay of the effect of the amendments to Rule 14a-8, but the Commission reasoned that the amendments, “designed to complement” Rule 14a-11, were so “intertwined” that allowing them to become effective while staying Rule 14a-11 could potentially be confusing.

At this point the Commission and the groups will file a joint motion with the U.S. Court of Appeals for the District of Columbia Circuit requesting an expedited review of the suit.  However, as reported by Bloomberg, the Commission doesn’t expect the suit to be resolved until “late spring”.  So, even if the Commission prevails, it now looks like the new proxy access rules will not affect most issuers before the 2012 proxy season.

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The Battle for Proxy Access Isn’t Over Yet

by Vanessa Schoenthaler on September 30, 2010

Yesterday the U.S. Chamber of Commerce and the Business Roundtable announced the filing of a joint lawsuit challenging the Securities and Exchange Commission’s adoption of proxy access Rule 14a-11 as, among other things, arbitrary and capricious and in excess of the Commission’s authority.  In a joint press release, members of the Chamber of Commerce assert that:

The SEC’s proxy access rule empowers unions and other special interests at the expense of the vast majority of retail shareholders … [and] will give small groups of special interest activist investors significant leverage over a business’ activities. …  The SEC failed to engage in evidence-based rulemaking, and we intend to hold the SEC to its statutory obligation to conduct a thorough cost-benefit analysis.

The groups also filed a motion requesting that the Commission stay Rule 14a-11, including its November 15, 2010 effective date, pending resolution of the suit.  The Commission has until October 5, 2010 to respond, but in a preliminary statement, as reported by Bloomberg News, a spokesman for the Commission stated that:

We believe that the commission’s proxy-access rules are both lawful and in the best interests of the public and shareholders. The commission will, of course, carefully consider and timely respond to the motion for a stay.

So, unless and until the Commission or the Court of Appeals stays the effective date, if you mailed your proxy materials out on or after March 15, 2010 you should continue to anticipate Rule 14a-11 affecting your 2011 proxy season.  Also of note, the motion is not seeking a stay of the amendments to Rule 14a-8 so, regardless of its outcome, those amendments will be effective on November 15, 2010.

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