NATURAL RES. DEF. COUN., INC. v. SECURITIES & EXCH. COM'N

• Decision Date: 09 December 1974
• Docket Number: Civ. A. No. 409-73.
• Citation: 389 F. Supp. 689
• Parties: NATURAL RESOURCES DEFENSE COUNCIL, INC., et al., Plaintiffs, v. SECURITIES AND EXCHANGE COMMISSION et al., Defendants.
• Court: U.S. District Court — District of Columbia

389 F. Supp. 689

NATURAL RESOURCES DEFENSE COUNCIL, INC., et al., Plaintiffs, v. SECURITIES AND EXCHANGE COMMISSION et al., Defendants.

Civ. A. No. 409-73.

United States District Court, District of Columbia.

December 9, 1974.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Roger S. Foster, J. G. Speth, Edward L. Strohbehn, Jr., Washington, D. C., for plaintiffs.

Glynn L. Mays, Washington, D. C., for SEC.

MEMORANDUM OPINION

CHARLES R. RICHEY, District Judge.

I. Introduction

This action comes before the Court on Plaintiffs' Motion for Summary Judgment. Plaintiffs are public interest groups which want information about corporations in order to make socially responsible investment decisions, to further public education, and other purposes. They wish to use the public files of the Securities Exchange Commission for those purposes. In Securities Act of 1933 Release No. 5386, the Commission modified its corporate disclosure regulations to require each reporting corporation to detail in its Commission filings (1) the material effect which compliance with environmental laws and regulations may have upon the corporation's financial condition, and (2) material litigation which involves the corporation and relates to environmental protection.

Plaintiffs want broader disclosure rules. They seek in this action to require the Commission to modify its corporate disclosure regulations so that each reporting corporation must provide to the SEC for public disclosure information concerning (1) the effect of its corporate activities on the environment, and (2) statistics about its equal employment practices. Plaintiffs claim that such regulations are in the "public interest" in light of the National Environmental Policy Act and Title VII of the Civil Rights Act of 1964. The Commission intended that Release No. 5386 would place it in full compliance with the broad mandate of the National Environmental Protection Act; those rules did not touch upon the equal employment disclosures which Plaintiffs request.

The importance of Plaintiffs' claims is underscored by a large number of "ethical investors" in this country — individuals and institutions such as our great universities and foundations which have large funds to invest and need the information that Plaintiffs seek in order to make investment and voting decisions in accordance with their high principles and societal interests.¹

The Court concludes that the Commission failed to comply with the procedural requirements of the Administrative Procedure Act in formulating and promulgating its new regulations in Release No. 5386, and in denying the equal employment portion of Plaintiffs' Rulemaking Petition. Accordingly, the Court will this date enter an order remanding² the matter to the Commission and directing it to undertake further rulemaking action to bring the Commission's corporate disclosure regulations into full compliance with the letter and spirit of NEPA. Then, the Court will review that action according to the provisions of the Administrative Procedure Act, 5 U.S.C. § 551 et seq. (hereinafter, "APA"). The Court's Order also directs the Commission to provide a statement of reasons for the denial of the equal employment portion of Plaintiffs' Rulemaking Petition.

II. The Factual Background of this Litigation

Plaintiffs in this action are Natural Resources Defense Council, Inc., (hereinafter, "NRDC"), Project on Corporate Responsibility, Inc., ("Project"), and Center on Corporate Responsibility, Inc., ("Center"). NRDC is a non-profit membership corporation organized under New York state law and is comprised of lawyers, scientists, and other private citizens who use and enjoy our natural resources and who seek to protect these resources from encroachment and destruction. The Center and Project are corporations which for tax reasons became heir to all activities of the former Project on Corporate Responsibility. The former Project engaged in public interest proxy contests, research, litigation, agency proceedings, and educational activities, in furtherance of corporate responsibility. Defendant, Securities Exchange Commission (hereinafter, "SEC"), is the federal agency charged with administration of the federal securities laws.

When the National Environmental Policy Act, 42 U.S.C. § 4321 et seq. (hereinafter, "NEPA"), became effective on 1 January 1970, the SEC's corporate disclosure regulations and forms did not require (and still do not require) corporations to disclose the environmental impact of their activities and policies. Executive Order No. 11514, 3 C.F.R. 902 (1966-70 Compilation), required all federal agencies to "initiate measures needed to direct their policies, plans and programs so as to meet national environmental goals", and directed the agencies to "develop programs and measures to protect and enhance environmental quality." The Executive Order further directed all agencies to carry out the review required by NEPA § 103³ and to submit a report on their review and corrective action to the Council on Environmental Quality (hereinafter, "CEQ") not later than 1 September 1970. Executive Order No. 11514 §§ 1, 2(a), 2(d). The 1 September 1970 deadline for submission of the report to the CEQ passed without any action by the SEC to modify its regulations in response to NEPA, or to report to the CEQ about the required review of its regulations.⁴

For over three years Plaintiffs have worked to effect changes in corporate disclosure required by the SEC. On 1 June 1971 Plaintiffs filed a Rulemaking Petition with the SEC. The purpose of the Petition was to request that the Commission implement its new environmental mandate under NEPA in the corporate disclosure area. The Petition requested the Commission to correct a situation in which Plaintiffs claimed "investors now have no available and reliable means of assessing the environmental impact of the particular corporation." As a result, they claimed, "it is difficult and perhaps impossible for investors to make either socially responsible or financially sound investment decisions." See Exhibit B to the original complaint at page 3a.

The Petition made specific proposals for new disclosure regulations. It proposed that companies which file with the SEC be required to describe with respect to each major activity or product, inter alia: (1) the nature and extent (quantified to the extent feasible) of the resulting pollution or injury to natural areas and resources, and (2) the feasibility of, and plans for, correcting the same. The Petition also requested that the SEC require disclosure of whether the registered company has changed company products, projects, production methods, policies, investments or advertising to advance environmental values.

In the equal employment opportunity area, the Petition requested that each company which makes public claims about its employment of minorities or women be required to include in its SEC filings statistical data by which the facts on this subject of major significance could be tested by interested persons. This employment information would be no more than that information required to be filed by such companies with the Equal Opportunity Commission under existing laws and regulations. The Petition further requested that the SEC modify the definition of "material litigation", for which disclosure is required in SEC forms, so as to include all proceedings against a company under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., or under the equal employment regulations covering federal contractors. In that event, the company would be further required to disclose the statistical data detailed above.

On 21 December 1971 the SEC entered an order which stated that the Commission had "declined to take the action requested" in the Rulemaking Petition. The letter to Plaintiffs which informed them of the order also stated that the Commission "will actively consider amendments to its disclosure forms in the near future."

On 16 February 1972 in Securities Act Release No. 5235,⁵ the Commission published for public consideration and comment proposed amendments to its regulations. These proposed amendments would require new disclosure in Forms S-1, S-7 and S-9 under the 1933 Act and in Forms 10, 10-K, 8-K under the 1934 Act. In sum, the amendments would require disclosure of the effects on reporting corporations of their compliance with environmental laws and regulations. As a result of this proposal-and-comment procedure, the Commission adopted amendments to its disclosure regulations. These amendments were published in Securities Release No. 5386⁶ on 20 April 1973. They in no way enlarged, and in some respects retreated from, those changes which the SEC had proposed in Release No. 5235. The Commission's answer to the original complaint in this case made it clear that the Commission views its new rules as fully meeting its obligations under NEPA.⁷ The equal employment portion of the Petition was apparently totally denied, since the SEC amendments to its disclosure rules did not deal with equal employment opportunity disclosure.

III. The Statutory Background of this Action

The federal securities acts require registration of securities with the SEC: the registration statements and periodic reports filed in the SEC by corporations provide to the public, material information so that the public can make informed investment decisions. The Securities Act of 1933 itself requires certain information to be included in the registration statements; further, the Act empowers the SEC to require inclusion of "such other information . . . as the Commission may by rules or regulations require as being necessary or appropriate in the public interest or for the protection of investors". 15 U.S.C. § 77g. Such information may also be required in the prospectus of a specific securities offering. 15 U.S.C. § 77j; see also, 15 U.S.C. § 78o(d).

These statutes grant the...