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Natural Resources Defense Council v. Securites & Exchange Comm'n

ELR Citation: 9 ELR 20367
Nos. No. 77-1761, 606 F.2d 1031/13 ERC 1321/(D.C. Cir., 04/20/1979) Rev'd

The United States Court of Appeals for the District of Columbia Circuit reverses a lower court's order, 7 ELR 20434, that directed the Securities and Exchange Commission (SEC) to conduct further rulemaking in response to a petition for the promulgation of rules requiring comprehensive disclosure by corporations of the environmental effects of their activities and policies. After chronicling the lengthy administrative proceedings which culminated in the SEC's rejection of plaintiffs' proposal, the court of appeals rules that plaintiffs have standing because they or their members own shares in corporations subject to SEC regulation. The court then determines that questions of the Commission's compliance with the procedural dictates of the National Environmental Policy Act (NEPA) and the rationality of its substantive decision not to adopt the suggested rules are subject to judicial review. Although certain practical considerations militate against review, they are not sufficiently compelling to rebut the presumption of reviewability established by §10 of the Administrative Procedure Act (APA). The court articulates separate standards of review for plaintiffs' procedural and substantive challenges, determining that it will exercise "exacting" scrutiny to ensure that the Commission has scrupulously followed the procedural mandates of NEPA but will review the Commission's substantive decision under the more circumscribed "arbitrary and capricious" test. As to the SEC's procedural compliance with NEPA, the court concludes that the Commission fulfilled its obligation to consult with the Council on Environmental Quality and that under the "rule of reason" it was not obligated to consider the alternative of requiring disclosure of environmental information to shareholders solely in connection with proxy solicitations. Turning to the SEC's substantive decision not to adopt the suggested rules, the court upholds its rationality on the basis of the Commission's determination that the costs of comprehensive environmental disclosure would be excessive and would outweigh its benefit to shareholders. In the court's view, the administrative determination was a quasi-legislative policy judgment for which hard factual support was not necessary. The district court's order is reversed, and the case is remanded with instructions that the complaint be dismissed.

Counsel for Plaintiffs-Appellees
Bruce J. Terris, Philip G. Sunderland
1526 18th St. NW, Washington DC 20036
(202) 332-1882

Roger S. Foster, Lois J. Schiffer
Center for Law and Social Policy
1751 N St. NW, Washington DC 20036
(202) 872-0670

Counsel for Defendants-Appellants
Harvey L. Pitt, General Counsel; Jacob H. Stillman, Ass't General Counsel; Linda W. Jarett
Securities and Exchange Commission, Washington DC 20549
(202) 755-4833

Counsel for Amicus Curiae Southeastern Legal Foundation
Daniel R. Ferry, John E. Rogers
1700 Pennsylvania Ave. NW, Washington DC 20006
(202) 393-7126

Counsel for Amicus Curiae Business Roundtable
John K. Tabor
Purcell & Helson
Suite 300, 1776 F St. NW, Washington DC 20006
(202) 331-0800

Counsel for Amicus Curiae Chamber of Commerce of the United States
Lawrence B. Kraus, General Counsel; Stanley T. Kaleczye Jr.
1615 H St. NW, Washington DC 20006
(202) 659-6000

Before TUTTLE*, United States Senior Circuit Judge for the United States Court of Appeals for the Fifth Circuit, McGOWAN and ROBB, Circuit Judges.