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As John blogged last week, in National Center for Public Policy Research v. SEC, (5th Cir.; 11/24), the 5th Circuit rejected a conservative advocacy group’s challenge to the legality of the SEC’s Rule 14a-8 no-action letter process. Since Kroger ultimately included the proposal in its proxy statement, the Court found the claim was moot, but nonetheless ruled that the SEC’s no-action process under Rule 14a-8 did not involve a formal SEC order subject to judicial review under the Administrative Procedure Act.

Over on the Business Law Prof Blog (which has a new home, by the way, for those who follow directly), Tulane Prof Ann Lipton pointed to the dissent — from the panel’s only GOP nominee, Judge Jones — and said the panel’s decision may not be the final word because, if the full Court took up the case after a petition for rehearing en banc, Judge Jones’s dissent may be “a template for how the full Fifth Circuit would view the matter.” And while the dissent’s position “threatens to scramble the 14a-8 process,” that shake up may be “in a manner that the incoming Trump Administration would find amenable.”

Judge Jones argued that no-action letters are final orders because they constrain agency – SEC – discretion in a particular way, namely, they limit the SEC’s ability to bring an enforcement action.  And, further, she claimed that the SEC conceded that if they are final orders, they are arbitrary and capricious as a matter of law, because they do not state their reasoning.

Now, assuming the entire Fifth Circuit agrees, the upshot, as I understand it, is that the SEC would be required to offer more detailed reasoning in each and every no-action letter it issues under 14a-8.  That would be incredibly burdensome for the staff. … If the Fifth Circuit functionally mandates that the SEC either not act at all, or act with a full explication of its reasons, I assume that the Trump SEC would choose not to act at all in most cases.

Ann notes the below in her discussion — which is a good reminder that the no-action process may be in for a procedural shakeup under the Trump Administration regardless of any potential twists and turns in this case.

Meanwhile, under the first Trump Administration, the SEC adopted a policy of not issuing letters at all – instead, it switched to oral rulings, and often declined to weigh in on no-action requests (a policy the Biden SEC reversed).

– Meredith Ervine