Opinion ID: 794466
Heading Depth: 3
Heading Rank: 3

Heading: Whether the Commission Provided Adequate Evidence of Reasoned Decisionmaking

Text: 43 Although Schiller's brief is far from clear on the matter, Schiller seems to argue that even if § 12(h) does not require a formal finding, the Commission still must provide reasons for its determination that an exemption is not inconsistent with the public interest or the protection of investors. As explained above, the agency's obligation to engage in reasoned decisionmaking, at least in the context of informal rulemaking, is typically traced to the APA requirement that the agency incorporate in the rules adopted a concise general statement of their basis and purpose. 5 U.S.C. § 553(c). Instead of relying upon § 553, however, Schiller appears to invoke § 12(h) of the Exchange Act as an independent source for the requirement that the agency articulate reasons for its actions. 15 We have already determined that § 12(h) does not mandate a statement of reasons any more detailed or specific than that required by § 553. Accordingly, we have no reason to decide the precise contours of a reasoned decisionmaking requirement derived from § 12(h) if the Commission provided an adequate statement of basis and purpose under § 553. We conclude that it did. 44 The adequacy of the Commission's statement in connection with its promulgation of Rule 3a12-3 depends in large part upon what we view as the Commission's statement and what level of detail an adequate statement requires. The answer to the first question would seem to be obvious. The plain language of the APA is clear that whatever the statement is, it must at least be incorporated into the adopted rule. See 5 U.S.C. § 553(c) (requiring the agency to incorporate in the rules adopted a concise general statement of their basis and purpose). Nevertheless, in defining the boundaries of what constitutes the statement, courts have taken a functional approach and expressed a willingness to look beyond the four corners of the agency's adopting release. Although post hoc rationalizations are never permitted, a court reviewing the adequacy of an agency's statement may take into account materials made public in the course of rulemaking. Citizens to Save Spencer County v. EPA, 600 F.2d 844, 884 (D.C.Cir.1979) (citing Automotive Parts & Accessories Ass'n v. Boyd, 407 F.2d 330, 338 (D.C.Cir.1968) (finding that the statement of basis and purpose should be considered in the light of the reasons stated by the Administrator's denial of rehearing)); see also Ala. Ass'n of Ins. Agents v. Bd. of Governors of Fed. Reserve, 533 F.2d 224, 236-37 (5th Cir.1976) (stating that in considering the adequacy of the statement of basis and purpose, the reviewing court should take into consideration extraneous material which may be available to explain the basis and purpose of the agency action), as amended by Ala. Ass'n of Ins. Agents v. Bd. of Governors, 558 F.2d 729 (5th Cir.1977). 45 Courts have likewise adopted a functional approach for determining the level of detail required in an adequate statement of basis and purpose. The D.C. Circuit has stated that [a]t the least, such a statement should indicate the major issues of policy that were raised in the proceedings and explain why the agency decided to respond to these issues as it did, particularly in light of the statutory objectives that the rule must serve. Indep. U.S. Tanker Owners Comm., 809 F.2d at 852. At the same time, however, that same court has recognized that it will `uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned.' Int'l Bhd. of Teamsters, Chauffeurs, Warehousemen and Helpers of Am. v. United States, 735 F.2d 1525, 1531 (D.C.Cir.1984) (quoting Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 286, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974)). 46 Similarly, in the Second Circuit, we have upheld regulations accompanied by statements of less than ideal clarity. See N.Y. Foreign Freight Forwarders and Brokers Ass'n, Inc. v. Fed. Maritime Comm'n, 337 F.2d 289, 296 (2d Cir.1964) (upholding a regulation where the statement explained merely that the rules have for their purpose the establishment of standards and criteria to be observed and maintained by licensed independent ocean freight forwarders, ocean freight brokers and ocean-going common carriers in the conduct of their business affairs). And on at least one occasion we have even upheld a regulation with no statement at all where the basis and purpose was obvious. See Hoving Corp. v. FTC, 290 F.2d 803, 807 (2d Cir.1961); see also Ala. Ass'n of Ins. Agents, 533 F.2d at 236-37 (citing Hoving approvingly); Tabor v. Joint Bd. for Enrollment of Actuaries, 566 F.2d 705, 710 (D.C.Cir.1977) (citing Alabama Ass'n of Insurance Agents approvingly for the same proposition); Citizens to Save Spencer County, 600 F.2d at 884 & n. 201 (citing Tabor approvingly for the same proposition); Cal-Almond, Inc. v. U.S. Dep't of Agric., 14 F.3d 429, 443 (9th Cir.1993) (citing Citizens to Save Spencer County approvingly for the same proposition). Thus, the caselaw is clear that, taking into account the adopting release as well as any materials or statements that the agency has made public in the course of the rulemaking, we can find a statement adequate if the agency's path of reasoning can be reasonably discerned. In the present case, these principles do not mean that the Commission must demonstrate that Rule 3a12-3 would confer additional protections upon investors or even leave investors with the same level of protection in the absence of the exemption. Rather, based on our reading of the statute, see Part II, supra (discussing Schiller's substantive challenge), these principles mean that at the most the Commission must indicate that the exemption serves some interest and that it leaves in place adequate investor protections. 47 Although that requirement is not particularly onerous, the Commission does not give us much to go on. The adopting release accompanying the 1966 Rule is, in the Commission's own words, fairly brief, and even that characterization is charitable. Nowhere in the adopting release does the Commission provide any reason for adopting a foreign private issuer exemption from § 14(a). The adopting release instead describes the rule that was previously in effect, reports on the amendment adopted, and then explains why the Commission decided not to adopt a sub-section of the amendment, as originally proposed. See Exemption of Certain Foreign Issuers, 31 Fed.Reg. 6705, 6705 (May 5, 1966). We reject the Commission's invitation to read the adopting release alongside statements in the legislative history of the 1964 Amendments that purportedly justify the foreign private issuer exemption. As we have already stated, we will not consider anything other than statements made by the Commission in the course of the rulemaking. 48 But that does not leave us completely in the dark as to Rule 3a12-3's basis and purpose. In 1965, the Commission issued a notice of proposed rulemaking announcing the proposed amendments to Rule 3a12-3 that were adopted later that year. Registration of Foreign Securities, 30 Fed. Reg. 14,737, 14,737 (1965) (1965 Notice). The 1965 Notice includes the Commission's underlying rationale for the proposed amendments. 49 As the 1965 Notice explains, the proposed amendments to Rule 3a12-3 were the culmination of a study, conducted by the Commission, into the state of the foreign securities markets: 50 [T]he Commission consulted with representatives of American brokers, dealers, financial analysts, and the principal banks issuing American Depositary Receipts (ADR's) who are interested in foreign securities, and received recommendations from interested domestic and foreign groups. The Commission also studied the extent of the trading market for foreign securities in the United States, the disclosure and reporting requirements and practices in many of the countries whose issuers have securities traded in the United States, the requirements of many leading foreign stock exchanges, and the nature of the information presently furnished to the Commission by foreign issuers listed . . . on a national securities exchange . . . . 51 Id. at 14,738. Importantly, the Commission explained in the 1965 Notice that [t]he study revealed continuing improvement in the reporting of financial and economic information by foreign issuers. Id. The Commission also explained that [t]his improvement has resulted from changes in foreign corporate laws, stock exchange requirements and increasing voluntary disclosure by the companies themselves. Id. 52 Based on the 1965 Notice, we are easily able to discern the Commission's decision path. In determining whether an exemption from § 14(a) was appropriate, the Commission took into account the available protections for investors in foreign securities — the quality of foreign corporate law, the nature of foreign stock exchange rules, and the amount of information voluntarily disclosed by foreign issuers — which are certainly all relevant considerations. Then, the Commission determined that these protections were adequate in light of the important goal of maintaining [] existing markets in foreign securities, a goal the Commission recognized in the 1965 Notice and that Congress identified in adopting the Securities Acts Amendments of 1964. Id. Accordingly, the Commission must have concluded that Rule 3a12-3, 17 C.F.R. § 240.3a12-3, was not inconsistent with the public interest or the protection of investors. 16 Id.