In recent months, the SEC has released a series of proposed rules relating to several different topics, including most significantly its March 2022 release of proposed rules regarding climate change and greenhouse gas emissions disclosure. These various proposed rules are still in the public comment period and it remains to be seen whether the various proposed rules will be adopted and if so in what form. Even assuming some forms of the proposed rules are adopted, the rules almost certainly will be subject to court challenge by business groups and other constituencies. As a result of the U.S. Supreme Court’s landmark decision in the last days of June in the carbon emissions rulemaking case, groups challenging the SEC’s rules have a potentially potent new tool to use to try to block the rules.
In the Court’s June 30, 2022 opinion by Chief Justice John Roberts in West Virginia v. EPA (here), a 6-3 majority of the Court struck down Environmental Protection Agency (EPA) rules on the grounds that the agency had exceeded its authority when it promulgated the Clean Power Plan, which provided requirements for utilities to reduce carbon pollution from power plants.
As its rationale for striking down the agency’s regulatory program, the Court relied on the “major questions” doctrine, which holds that in “extraordinary cases” involving matters of “great economic and political significance,” federal agencies must rely on specific Congressional authorization for their actions. Courts, the Supreme Court said, should be “skeptical,” of agencies’ assertions that they have broad policy-making authority.
As Alison Frankel discussed in her June 30, 2022 post on her On the Case blog entitled “U.S. Supreme Court Just Gave Federal Agencies a Big Reason to Worry” (here), the Supreme Court’s holding in West Virginia v. EPA could cause problems for a number of federal agencies; among other agencies she cites in her article is the Securities and Exchange Commission (SEC). Frankel quotes one academic commentator as saying that the Supreme Court’s decision is “a significant threat to agencies’ regulatory power” and as saying further that the decision is “an anti-regulatory power grab by the Court.”
And as the Wall Street Journal noted in its July 2, 2022 article entitled “Supreme Court Ruling Adds Obstacles to SEC Policies” (here), West Virginia v. EPA, by expanding the “major-questions principle,” has “created a road map for lower courts to strike down other regulations for years to come.” The Journal article quotes former Labor Secretary Eugene Scalia as saying that the SEC (and other agencies) are “making novel use of old statutes to make big sweeping policy changes – which is exactly what the Supreme Court has said it would review very, very skeptically.” The article also quotes another legal commentator as saying that “every corporate securities lawyer in America is going to now fashion their arguments against SEC rule-making to force-fit it into the Supreme Court’s EPA analysis.”
Of course, what constitutes a “major” question, and the extent of any administrative agency’s rule- making grant from Congress, are issues that will continue to be argued. In her article about the West Virginia v. EPA ruling, Frankel quotes a commentator as saying that “right now, whether a case involves a major question seems to turn on whether Chief Justice Roberts and Justice Kavanaugh think it does.” Frankel also quotes several academics as saying that the SEC’s proposed climate change disclosure rules are “vulnerable under the major questions doctrine.”
At a minimum, as Frankel notes, “you can expect a slew of challenges to Biden administration policies under the major questions doctrine.” The doctrine, according to one academic Frankel quotes in her article, is “a new arrow in the quiver” and “you will see attorneys general trot this out in every case.”
Whether or not challengers to the SEC’s new rulemaking are successful in using the “major-questions principle” to strike down the now pending rules once they are enacted, the furor surrounding the U.S. Supreme Court’s decision in the West Virginia v. EPA decision underscores the fact that, even if the now-proposed SEC rules are put in place in some form, they are likely to be subject to legal challenges that could go on for years and that potentially could block the rules altogether. These issues are among many topics that should be kept in mind in discussion about the potential impact of the SEC’s new proposed rules, including, in particular, the agency’s new climate change disclosure rules. There is a lot more of this story yet to be told.