Natural Resources Defense Council, Inc. v. SEC

• Decision Date: 19 May 1977
• Docket Number: Civ. A. No. 409-73.
• Citation: 432 F. Supp. 1190
• 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

432 F. Supp. 1190

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.

May 19, 1977.

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Roger S. Foster, Lois J. Schiffer, Center for Law and Social Policy, J. G. Speth, Edward L. Strohbehn, Jr., Natural Resources Defense Council, Inc., Collot Guerard, Media Access Project, Washington, D. C., for plaintiffs.

Harvey L. Pitt, Irving H. Picard, Daniel L. Goelzer, S. E. C., Washington, D. C., for defendants.

James van R. Springer, Washington, D. C., for amicus curiae, American Civil Liberties Union.

Daniel R. Ferry, Washington, D. C., for amicus curiae, Southeast Legal Foundation.

MEMORANDUM OPINION

CHARLES R. RICHEY, District Judge.

I. INTRODUCTION

On December 9, 1974, this Court held that the Securities and Exchange Commission (SEC) had failed to comply with the procedural requirements of section 4 of the Administrative Procedure Act, 5 U.S.C. § 553 (1970), in adopting rules intended to comply with the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. §§ 4321 et seq. (1970), and in denying the portions of plaintiffs' rulemaking petition that sought disclosure of equal employment opportunity information.¹ Accordingly, the Court remanded the case to the Commission with directions (1) "to undertake further rulemaking action to bring the Commission's corporate disclosure regulations into full compliance with the letter and spirit of NEPA,"² and (2) to reconsider fully the denial of the equal employment portion of plaintiffs' rulemaking petition.³

As described more fully herein, the SEC has now completed the further rulemaking proceedings required by this Court's remand order and, after reconsideration in light of substantial public input, it has determined not to impose disclosure requirements in addition to those presently extant.⁴ Plaintiffs admit that the scope and conduct of the Commission's rulemaking proceeding satisfy the procedural requirements of the APA and that the Commission's statement of reasons for its rulemaking actions is adequate to permit judicial review. They now seek, pursuant to 5 U.S.C. §§ 701-06, judicial review of the Commission's final decision not to require additional disclosures. This case is now, therefore, before the Court on cross motions for summary judgment on the issue of whether the SEC's final determinations were "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). See Camp v. Pitts, 411 U.S. 138, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973); Ethyl Corp. v. EPA, 176 U.S. App.D.C. 373, 541 F.2d 1 (en banc), cert. denied, 426 U.S. 941, 96 S.Ct. 2663, 49 L.Ed.2d 394 (1976).

For the reasons hereinafter set forth, the Court rejects plaintiffs' argument that NEPA requires the Commission to impose additional environmental disclosure requirements on registrants and that the Commission's decision not to impose such additional disclosure requirements was therefore "not in accordance with law." Notwithstanding this conclusion, however, the Court concludes that NEPA requires the Commission to give serious consideration in its decisionmaking to environmental factors, and requires that the Commission neither strike an arbitrary balance of costs and benefits nor give clearly insufficient weight to environmental values in its decisionmaking. Upon review of the Commission's decision not to impose such additional environmental disclosure requirements, the Court concludes that this decision was the product of a decisionmaking process marred by serious and fundamental defects and that the Commission's rejection of certain specific disclosure alternatives was not rationally based and is not sustainable on the present administrative record. Thus, the Court concludes that the Commission's decision not to require additional environmental disclosures was "arbitrary and capricious." Finally, the Court also concludes that the Commission's decision not to impose any disclosure requirement for equal employment opportunity information was not rationally based and is not sustainable on the present administrative record, and therefore the Court concludes that this decision was also "arbitrary and capricious." Accordingly, the Court will grant plaintiffs' motion for summary judgment insofar as it seeks a declaratory judgment that the Commission's decision not to require registrants to disclose equal employment opportunity information and additional environmental information was arbitrary and capricious, and the Court will remand this case to the Commission and require it to reconsider these matters in accordance with this opinion.

II. FACTUAL BACKGROUND⁵

Pursuant to the Court's remand order, the SEC, on February 11, 1975, announced a proceeding to consider further rulemaking.⁶ Public hearings commenced on April 14, 1975, and were held on 19 separate days with the last hearing on May 14, 1975. During this time the Commission received 54 oral representations. In addition, during April and May of 1975, the Commission received 353 written comments. On October 14, 1975, the Commission announced "its conclusion and proposals for further rulemaking . . . concerning possible disclosure in registration statements, reports and other documents filed with the Commission or required to be furnished to investors pursuant to the Securities Act of 1933 and the Securities and Exchange Act of 1934 of environmental and other matters of social concern, including equal employment matters."⁷ It proposed for comment "rules which would make available to interested investors information regarding the extent to which corporations have failed to satisfy environmental standards under federal law."⁸ The Commission determined, however, that it would not be appropriate to propose either alternative environmental disclosure requirements or specific disclosure requirements regarding corporate equal employment and other practices.⁹

The Commission received approximately 210 letters of comment concerning its proposed rules on disclosure of instances of corporate noncompliance with federal environmental laws. On the basis of these comments, and after extended consideration, the Commission announced on May 6, 1976, that it had concluded not to adopt its rulemaking proposal on the disclosure of information regarding the extent of corporate noncompliance with federal environmental standards.¹⁰

III. STATUTORY BACKGROUND

The provisions of the securities laws that establish the SEC's authority to conduct the instant rulemaking proceedings are as follows: Sections 7 and 10 of the Securities Act, 15 U.S.C. §§ 77g, 77j, prescribe certain types of information that must be disclosed in registration statements and prospectuses, respectively. In addition, they authorize the Commission to require the disclosure of such other information as it "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, 77j(c). Similarly, section 14(a) of the Securities Exchange Act, 15 U.S.C. § 78n(a), authorizes the Commission to require disclosure in connection with proxy solicitations "as necessary or appropriate in the public interest or for the protection of investors." In addition, sections 19(a) of the Securities Act and 23(a) of the Securities Exchange Act, 15 U.S.C. §§ 77s(a), 78w(a), vest in the Commission general authority to promulgate such rules and regulations "as may be necessary" in administering the securities laws.¹¹

IV. THE ENVIRONMENTAL ASPECTS OF THE COMMISSION'S RULEMAKING PROCEEDING

At the time of the rulemaking proceeding, the SEC's existing disclosure rules required registrants to disclose three "categories" of environmental information. First, the general requirement of disclosure of "material" information, information "which an average prudent investor ought reasonably to be informed" about,¹² required the disclosure of the "material" effects that compliance with federal, state, and local environmental laws may have on capital expenditures, earnings, and competitive position.

Second, a specific rule required the disclosure of all litigation, commenced or known to be contemplated, against a registrant by a governmental authority pursuant to federal, state, or local environmental laws.¹³

Finally, the existing rules required the disclosure of all additional "material" information necessary to make the registrant's statements in required filings neither false nor misleading.¹⁴ Despite its consideration of various additional disclosure requirements for environmental information, the Commission decided not to adopt any new disclosure requirements.¹⁵ It stated its belief that the existing disclosure requirements "will elicit the type of environmental information in which investors appear to be interested and are more than sufficient to discharge the Commission's NEPA obligations."¹⁶

Plaintiffs challenge the Commission's decision not to compel additional corporate disclosures of environmental information on two grounds.¹⁷ First, they assert that "NEPA imposes on the Commission a mandatory obligation to develop a substantial program of corporate disclosure that will advance the act's objectives"¹⁸: Plaintiffs take the position that NEPA requires the SEC to compel substantial corporate disclosures which will (1) deter corporate activities that adversely affect the environment, and (2) provide investors with necessary information to make "environmentally responsible" investment and voting decisions.¹⁹ Second, plaintiffs argue that even if NEPA does not mandate substantial additional disclosures, the Commission's decision not to exercise its authority to compel such disclosures "in the public interest or for the protection of investors" was arbitrary and capricious.

A. NEPA Does Not Mandate That The ...