Last month’s ruling by the U.S. Court of Appeals for the District of Columbia Circuit (the “Court”) in the closely watched case of Business Roundtable v. SEC1 not only overturned the landmark Securities and Exchange Commission (the “SEC”) shareholder proxy access rule, but also created a potential roadmap for businesses and industry groups seeking to challenge many other rules to be issued by the SEC and other federal regulators under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). In holding that the SEC acted “arbitrarily and capriciously” and failed to adequately assess the economic effects of the new proxy access rule, the Court put the SEC and other regulators on notice that future rulemaking by the agencies must meet a much higher standard with respect to cost-benefit analysis and justification.
Businesses and industry groups have been quick to seize on the Court’s holding as a basis for challenging other Dodd-Frank rulemaking by the SEC and the Commodity Futures Trading Commission (the “CFTC”) – especially those rules that received considerably less cost-benefit analysis than the proxy access rule.2 Observers believe that controversial rules such as the new or pending SEC conflict minerals disclosure rules,3 compensation disclosure rules4 and whistleblower rules5 may be particularly vulnerable to a challenge along the same lines as the SEC’s proxy access rule.6 Because it is generally not cost-effective or politically desirable for a single company to challenge the rules directly, it is expected that the majority of these suits will be brought by influential trade groups, such as the U.S. Chamber of Commerce.
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