Document Type

Article

Publication Date

2024

Publication Citation

26 U. of Pennsylvania Journal of Business Law 1142

Abstract

Nearly two years ago, in the wake of the Supreme Court’s formal adoption of what it termed the “major questions doctrine,” the Wall Street Journal reported a prediction that “‘every corporate securities lawyer in America is going to now fashion their arguments against SEC rulemaking to force-fit it into [that doctrine].’” As articulated by the sharply divided 6- 3 majority in West Virginia v. EPA, major questions doctrine (MQD) analysis is warranted in certain “extraordinary cases” involving a “transformative expansion” in a federal agency’s regulatory authority that is premised on “a merely plausible textual basis for the agency action.” Extraordinariness, however, is to be determined not only by the extent of the ambiguity that plausibly allows for the “‘breadth of the authority that [the agency] has asserted.’” It is also a function of the assertion’s absence of “history” and its vast “‘economic and political significance.’” In such MQD cases, to overcome a court’s “skepticism” as to whether Congress intended to delegate the asserted authority, the agency must point to a “‘clear congressional authorization’ to regulate in that manner.”

This prediction about the influx of MQD challenges to SEC rulemaking has already proven correct, and because many recently adopted SEC rules require public companies to disclose information about financial risks involving certain hot-button environmental, social, and governance (ESG) matters, much of the force-fitting is directed at new ESG disclosure rules. After examining the MQD in Part I of this Article, Part II identifies and analyzes two important questions relating to the SEC and the doctrine: (A) Is it likely that SEC disclosure rules will survive MQD challenges? and (B) Will other types of SEC rules and orders be more vulnerable to the MQD? To both questions, my answer is yes.

The heart of the Article is therefore Part II—analysis of the MQD in the context of SEC disclosure rules—in line with this symposium’s focus on “The Future of ESG.” My principal argument is that the Supreme Court’s reasoning in West Virginia does not warrant a federal court’s application of the MQD to a disclosure rule that the SEC adopts to further its trifold mission—namely, to protect investors; maintain fair, orderly, and efficient markets; and promote capital formation. In view of the explicit disclosure authority that the SEC has been exercising in specified contexts for ninety years, SEC disclosure rules cannot fairly be said to involve the assertion of any “highly consequential power beyond what Congress could reasonably be understood to have granted.” I therefore conclude in Part II.A that the SEC’s disclosure determinations do not constitute “extraordinary cases” that warrant MQD analysis.

Yet, as I explain in Part II.B, other SEC rules, adopted pursuant to congressional authorizations unrelated to securities disclosure, could be more vulnerable to MQD challenges. SEC rules will be at their most vulnerable when the SEC’s delegated authority stems from open-ended statutory provisions that are not confined to particular contexts. Accordingly, if a future SEC were ever to issue a “transformative” rule premised on the broad general exemptive authority that Congress granted in 1996, a principled application of the MQD should result in the invalidation of such a sweeping deregulatory measure.

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