Few developments in administrative law have become as familiar in recent years as a court deciding that an agency has exceeded its statutory authority. The Supreme Court has ruled that the EPA is not authorized to require power plants to shift from coal to cleaner fuel sources, the Department of Labor is not authorized to mandate COVID vaccines or testing, and the Secretary of Education is not authorized to cancel student loans. Indeed, two of the most important developments in contemporary public law—the rise of the major questions doctrine and the demise of Chevron deference—revolve around invalidating agency action for overstepping statutory authority.
Earlier this fall, however, we witnessed something new: an agency itself disclaiming its own statutory authority. The SEC has proposed to rescind Rule 14a-8, a rule which generally forces corporations to include shareholder proxy proposals on their ballots. The consequences of rescinding this rule are not entirely clear. Anna Tionolo’s research indicates that we can expect fewer proposals to reach the shareholders at large, especially on environmental and social issues. What interests me here, however, is the strategy by which the agency is attempting to alter this rule, and what it reveals about administrative law.
It is deeply weird to see an agency deliberately taking a tool out of its own toolbox. The President, for one, should be eager to maximize agency power, since such power helps them get things done. The SEC’s announcement is further surprising because Rule 14a-8 has been a fixture for so long. The agency is essentially saying, “We were wrong all along. For decades, literally thousands of times, with appalling regularity, we were violating the law. Oops.”
It is easy to see this as of a piece with the Trump Administration’s deregulatory approach. If the President’s goal is to shrink and disempower the administrative state, and the agency is supposed to vindicate the President’s vision, then it starts to make sense that the agency would disavow its own authority. Convincing Congress to pass a statute disempowering the SEC would take significant effort, and likely require some concessions by the President. But he can get the SEC Commissioners to act with a phone call. Further, assuming the SEC does not have a “special arrangement sanctioned by history” like the Federal Reserve, the President can simply threaten to remove any of the commissioners, thereby inducing “a here-and-now subservience.”
Yet, as I explain below, the law itself—that is, administrative law doctrine—also has a hand here. By disclaiming statutory authority to make Rule 14a-8 in the first place, the SEC eases its own path to rescinding it. It also has the potential to make the recission especially durable.
The Subtle Power of Disclaiming Authority
The power of the SEC’s statutory interpretation has its basis in the “change in position doctrine,” formally recognized by the Supreme Court last year in its unanimous Wages & White Lion decision. But the idea has its roots in the foundational State Farm. When challenged, agencies must show reasons for their policy decisions. Otherwise, they will be deemed “arbitrary and capricious,” in the language of the Administrative Procedure Act, and invalidated.
Among other things, this entails explaining why the agency adopted one course of action instead of other readily apparent alternatives. When it comes to changing an extant rule, that preexisting rule is an obvious and salient alternative that must be addressed. Further, in the context of notice and comment rulemaking, the agency must contend with all the reasons it presented in favor of the rule in the first place. It is as if the agency is now faced with an extremely well-informed and respected critical commenter: its former self.
The Supreme Court has displayed ambivalence about the relevant legal standard. In Wages & White Lion, it summarized the change in position doctrine as requiring that the agency be conscious of the change, identify “good reasons” for the change, and “believes it to be better.” Evidence of a serious reliance interest also substantially increases the bar an agency must clear—if it is going to undermine “decades of industry reliance on an agency’s prior policy,” then it must show especially good reasons for the new position. But even without a special legal requirement, the agency is still going to have to explain itself. Why change course after all these years? Adequately answering this question might be especially daunting if the rule has been operating tolerably well for the better part of a century. Indeed, previous attempts by the SEC to roll back Rule 14a-8 were greeted with widespread opposition.
By claiming that the rule exceeds its statutory authority, however, the SEC is relieved of this burden. It need not show that its proposal is in any way better than the rule it seeks to rescind. No matter how brilliant Rule 14a-8 is, or how well it has operated for decades, if it exceeds the authority delegated to the SEC by Congress, then the SEC’s hands are tied. The rule must be abandoned. It would take an act of Congress to then (re-)empower the agency to enact this kind of policy.
The Stickiness is the Point
All this hinges on courts accepting the SEC’s proposed understanding of the law. Under current law, the SEC can expect no deference for its newly-minted interpretation of the Securities Exchange Act of 1934. But if it could get a court to go along with its reading, then that interpretation would bind future administrations. This would make the recission of Rule 14a-8 especially durable.
If the SEC merely rescinded the rule, then future administrations could try to reverse this change, promulgating their own version of Rule 14a-8, triggering the change in position doctrine and the usual notice and comment process. But if such a rule is deemed beyond the SEC’s authority, then that option is foreclosed. Disclaiming authority thus represents a strategy for entrenching policy positions, one that is more durable than ordinary rulemaking, the exercise of enforcement discretion, or other informal practices. This approach to statutory interpretation could become an important new piece of the administrative law playbook, a way for agencies to secure their preferred policies in place even when administrations change.
There is a concerted effort across the Trump Administration to lock in policies, insulating them from efforts to reverse them in the future. Moreover, the Administration has looked for ways to skirt the procedural requirements imposed by administrative law. (Which is hardly unique). The SEC’s “we were wrong all along” position plays into both strategies. The seemingly bizarre position adopted by the SEC is thus a product of the agency’s goals—rescind the rule, as quickly and inexpensively as possible, and protect that policy against future administrations—meeting administrative law.
