Business Roundtable: A New Level of Judicial Scrutiny and Its Implications in a Post-Dodd-Frank World

Abstract

Questions regarding the appropriate bounds of judicial review have recently intensified in the wake of President Obama’s controversial comments concerning the Supreme Court’s pending ruling on the constitutionality of the Affordable Care Act. A similar debate, however, has been raging in the securities law community since July 2011, when the D.C. Circuit vacated Exchange Act Rule 14a-11, the so-called “proxy access rule,” in Business Roundtable v. SEC. Throughout this scathing opinion, the court condemns the SEC for failing to adequately consider the costs and benefits of Rule 14a-11 in promulgating the regulation, as commanded by the National Securities Markets Improvement Act of 1996 (“NSMIA”).  Although the extent of cost-benefit analysis contemplated by the NSMIA—and thus how strictly the court should scrutinize the conclusions arrived at by the SEC through this analysis—is by the statute’s plain terms ambiguous, the court erroneously failed to examine the NSMIA’s legislative history, instead applying an unprecedented level of de novo-like scrutiny. This Note argues that the correct standard of judicial review envisioned by Congress in enacting the NSMIA, which such an examination would have revealed, is far more deferential to the agency’s determinations than the nearly insurmountable standard applied by the D.C. Circuit, rendering some of its holdings utterly incorrect. Business Roundtable scrutiny, this Note argues, has the potential to eliminate SEC rulemaking and undo Dodd-Frank’s sweeping financial reforms to the detriment of the national economy, absolutely demanding clarification by either Congress or the Supreme Court of the appropriate standard of judicial review by which the court is to evaluate SEC rules.