Natural Resources Defense Council, Inc. v. S.E.C.

Citation606 F.2d 1031
Decision Date20 July 1979
Docket NumberNo. 77-1761,77-1761
Parties19 Fair Empl.Prac.Cas. 724, 13 ERC 1321, 19 Empl. Prac. Dec. P 9219, 196 U.S.App.D.C. 124, Fed. Sec. L. Rep. P 96,832, 9 Envtl. L. Rep. 20,367 NATURAL RESOURCES DEFENSE COUNCIL, INC., et al. v. SECURITIES AND EXCHANGE COMMISSION, et al., Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Harvey L. Pitt, Gen. Counsel, Securities and Exchange Commission, Washington, D. C., with whom Jacob H. Stillman, Principal Asst. Gen. Counsel, Linda W. Jarett and Daniel L. Goelzer, Securities and Exchange Commission, Washington, D. C., were on the brief, for appellants.

Bruce J. Terris, Washington, D. C., with whom Lonnie C. Von Renner, Philip G. Sunderland, Roger S. Foster, and Lois J. Schiffer, Washington, D. C., were on the brief, for appellees.

Daniel R. Ferry and John E. Rogers, Washington, D. C., were on the brief, for amicus curiae, Southeastern Legal Foundation, urging reversal.

John K. Tabor, Washington, D. C., was on the brief, for amicus curiae, The Business Roundtable, urging reversal.

Ralph J. Temple and James vanR. Springer, Washington, D. C., were on the brief, for amicus curiae, The American Civil Liberties Union Fund of the National Capital Area, urging affirmance.

Lawrence B. Kraus, Gen. Counsel, Chamber of Commerce of the United States, and Stanley T. Kaleczyc, Jr., Director, National Chamber Litigation Center, Washington, D. C., Donald E. Egan, Francis X. Grossi, Jr., Chicago, Ill., were on the brief, for amicus curiae, Chamber of Commerce of the United States, urging reversal.

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

Opinion for the court filed by McGOWAN, Circuit Judge.

McGOWAN, Circuit Judge:

This appeal, from a District Court order directing the Securities and Exchange Commission (SEC or Commission) to conduct further proceedings incident to a petition for rulemaking, raises issues intersecting three important federal statutory schemes: the Securities Acts, the Administrative Procedure Act (APA), and the National Environmental Policy Act (NEPA). It involves in particular a request made of the Commission and denied by it after seven years of proceedings, to promulgate rules requiring comprehensive disclosures by corporations of their environmental and equal employment policies.

The District Court held that the Commission had acted arbitrarily and capriciously in denying the petition. Because we find the Commission's action sustainable under the scope of judicial review applicable to this case, we reverse.

I

Appellees 1 are organizations dedicated to inducing more responsive attitudes among American corporations towards the problems of environmental degradation and inequality of employment opportunity. To this end they participate in so-called "corporate responsibility campaigns," which typically involve proposals to corporate management and shareholders, demands for disclosure, media campaigns, lobbying, educational efforts and litigation.

Appellees believe that such campaigns have achieved positive results in some cases, but that their usefulness is currently limited by a shortage of information available to stockholders and an imbalance in the information that is distributed. Stockholders receive considerable lobbying by management through annual reports, selective disclosure, image advertising, and other mechanisms involving large corporate expenditures. In contrast, groups such as appellees find it expensive to compile and disseminate information even when managements are cooperative, and often difficult or impossible when managements are not. Institutional investors in particular, so it is claimed, are naturally reluctant to vote against management in the absence of full and balanced information, whatever their position would be if they were fully informed.

Appellees believe that this impediment to corporate responsibility campaigns could be considerably reduced if corporations were forced to disclose comprehensive information about their environmental and equal employment policies. They expect, further, that such disclosure would aid the public in making sound investments and would deter corporations from taking actions likely to result in significant public disapproval. With these goals in mind, appellees naturally turned to the SEC, which is, of course, the agency charged with administering the federal statutes mandating disclosure of corporate information.

On June 7, 1971, appellees petitioned the SEC to promulgate rules requiring corporate disclosure of environmental and equal employment information. These proposed rules were comprehensive in scope. In the words of the District Court,

The petition . . . 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, that 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 Employment 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 Acts 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.

NRDC I, supra, 389 F.Supp. at 694. As authority for this petition, appellees relied, Inter alia, on NEPA, 42 U.S.C. § 4321 Et seq., which was alleged to support strongly, if not to mandate, SEC environmental disclosure rules, See Sonde & Pitt, Utilizing the Federal Securities Laws to "Clean the Air! Clean the Sky! Wash the Wind! ", 16 Howard L.J. 831 (1971), and on the call by the U.S. Commission on Civil Rights for SEC civil rights disclosure requirements "as a means of stimulating greater concern in civil rights and related areas." Ex. C at 786.

The SEC declined to propose the rules they advocated, while proposing other rules requiring more limited forms of corporate disclosure. Securities Act Release No. 5235 (Feb. 16, 1972), 37 Fed.Reg. 4365 (1972). After a preliminary jurisdictional misstep, 2 appellees commenced this suit in District Court on March 2, 1973, as a challenge to the Commission's failure to propose the rules they sought.

After receiving and analyzing written comments on the Commission's rulemaking proposals in Release No. 5235, the SEC adopted part of the proposed rules in Securities Act Release No. 5386 (April 20, 1973), 38 Fed.Reg. 12100 (1973). The adopted rules required disclosure only of the Material financial effects of corporate compliance with environmental laws. 3 Appellees thereupon supplemented their suit in District Court with challenges to the proceedings leading to Release No. 5386, and moved for summary judgment. The District Court agreed with appellees' position and held that the SEC's proceedings had been inadequate under the APA and NEPA. NRDC I, supra. It remanded with instructions that fuller proceedings be conducted and issued instructions as to the resolution of two key factual issues, 389 F.Supp. at 701-02 (footnote omitted):

When the SEC reconsiders its rules in accordance with this opinion, it should develop a record and resolve two overriding factual issues. The first is the extent of "ethical investor" interest in the type of information which Plaintiffs have requested. The second issue is what avenues of action are available which ethical investors may pursue and which will tend to eliminate corporate practices that are inimical to the environment and equal employment opportunity.

On remand, the SEC issued Securities Act Release No. 5569 (Feb. 11, 1975, 40 Fed.Reg. 7013 (1975), giving notice of renewed proceedings to fulfill the District Court's instructions. The interest of the public in these proceedings was considerable. In nineteen days of public hearings, fifty-four oral presentations were made and three hundred fifty-three written comments received, creating a record over ten thousand pages long. 40 Fed.Reg. 51657-58 (1975). In large measure, the views expressed were polarized as either in favor of, or in opposition to, appellees' proposal. The comments favoring the proposals generally declared that greater disclosure of information by corporations was essential both to sound voting on corporate policies and to informed consideration of corporate financial positions, in light of what the disclosed information would show with respect to environment and equal employment costs, and, generally speaking, the quality of the corporate management. 4 On the other hand, hundreds of corporations submitted comments opposing the disclosure proposals on the ground that the cost of gathering the required information would be inordinately high, that shareholders were not seriously interested in the information, and that the benefits would be small. 5 In October, 1975, and May, 1976, the SEC announced that it would not...

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