On October 31, the Fifth Circuit issued an opinion in Chamber of Commerce of the USA v. SEC, granting the Chamber’s petition for review of the SEC’s Share Repurchase Disclosure Modernization rule. The Court held that the “SEC acted arbitrarily and capriciously, in violation of the APA, when it failed to respond to petitioners’ comments and failed to conduct a proper cost-benefit analysis.” However, recognizing that there was “at least a serious possibility that the agency will be able to substantiate its decision given an opportunity to do so,” the Court decided that, “short of vacating the rule,” it would put the rule on life support, allowing the SEC 30 days “to remedy the deficiencies in the rule,” and remanded the matter with directions to the SEC to correct the defects in the rule.  The three-judge panel, however, “retain[ed] jurisdiction to consider the decision that is made on remand.” The deadline was set at November 30, 2023. On November 22, the SEC announced that it had issued an order postponing the effective date of the Share Repurchase Disclosure Modernization rule.  As a result, the rule was stayed pending further SEC action. (See this PubCo post.) On the same date, the SEC filed a brief motion asking the Court for an extension of time to correct the defects. In its motion, the SEC said only that, “[s]ince the remand, the Commission’s staff has worked diligently to ascertain the steps necessary to comply with the Court’s remand order and has determined that doing so will require additional time.”  The SEC said in the motion that it would provide an update within 60 days on the status of its efforts. Not surprisingly, the Chamber opposed the motion. On November 26, the Court issued an Order, refusing to grant the extension, and on December 1, at the request of the Clerk of the Court, the SEC’s Office of General Counsel submitted a letter to the Court advising that the SEC would not be able to correct the defects by the Court-imposed deadline. (See this PubCo post, this PubCo post,  this PubCo post and this PubCo post.)  On December 7,  the Chamber filed a motion to vacate the SEC’s final share repurchase rule. As recounted by the Chamber, the SEC advised the Chamber that it took no position on the Chamber’s motion. Today, acting by a quorum (with one judge recused), the Court pulled the plug, issuing an opinion vacating the repurchase rule.  Will the SEC repropose a new repurchase rule?

As the Court explained in the opinion, the APA requires the Court to “‘set aside agency action[] found to be arbitrary [or] capricious, contrary to constitutional right, or without observance  of  procedure  as  required  by  law’….. Accordingly, ‘[t]he default rule is that vacatur is the appropriate remedy.’”  For agency action “suffering from one or more serious procedural or substantive deficiencies,” the Court reasoned, remand without  vacatur would be inappropriate.  The Court could avoid vacating the rule only in “rare” circumstances if two conditions were satisfied:  first, if there was “a  ‘serious  possibility’ that the  agency  will  be  able  to  correct  the  rule’s  defects on  remand” and second, if “vacating the challenged action would produce ‘disruptive consequences.’” 

In the Court’s earlier opinion, the Court “recognized that there was at least a serious probability that the SEC would be able to substantiate its decision if given an opportunity to do so.”  Accordingly, the Court said, it provided the SEC with an opportunity to correct the defects. However, the Court continued, the time period allotted has passed and, while the “SEC claims to have ‘worked  diligently  to  ascertain  the  steps  necessary  to  comply  with  the  Court’s remand order,’” the SEC “has nothing to show for its efforts,” and has admitted it was unable to remedy the problem with the Court’s timeframe. According to the Court, the “rule remains  no less flawed—and no less unlawful—than it was on October 31, 2023. The SEC acted arbitrarily and capriciously, in violation of the APA, when  it  failed  to  respond  to  petitioners’  comments  and  failed  to  conduct  a  proper cost-benefit analysis.  The challenged rule is VACATED.”

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