This post yesterday by Broc Romanek alerted me to Judge Leonard P. Stark's recent opinion in Trinity Wall Street v. Wal-Mart Stores, Inc., 2014 U.S. Dist. LEXIS 165431 (D. Del. Nov. 26, 2014). The case involved Wal-Mart's decision to exclude a shareholder proposal from its 2014 proxy statement after receiving favorable no-action advice from the staff of the Securities and Exchange Commission. Judge Stark concluded:
- The Court has jurisdiction to hear the shareholder's claim with respect to Wal-Mart's 2014 proxy statement. Even though the meeting has already been held, the claim "presents a type of dispute that would otherwise evade review yet is capable of repetition".
- The Court lacks jurisdiction with respect to the shareholder's challenge to the 2015 proxy statement because the dispute is not ripe.
- The shareholder's proposal should not have been excluded from Wal-Mart's 2014 proxy statement.
In addressing the merits of the shareholder's claim with respect to the 2014 proxy statement, Judge Stark seemed to sidestep the question of the degree of deference, if any, a court should pay to the SEC staff's determination. In an earlier post, I described the strong deference, known as Chevron deference, that the Supreme Court applies to an agency's construction of a statute that it administers. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Why wasn't Chevron deference required here?
The courts generally apply Chevron deference to interpretations adopted after either notice-and-comment rulemaking or formal adjudication. The Rule 14-8 process is a staff decision that does not involve the formalities of either notice-and-comment or formal adjudications. This lack of formality does not automatically debar Rule 14a-8 no-action letters from receiving Chevron deference. In Mead v. United States, 533 U.S. 218 (2001), the Supreme Court enunciated the following test for the application of strong deference:
administrative implementation of a particular statutory provision qualifies for Chevron deference when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.
533 U.S. at 226-27. Mead involved ruling letters classifying goods for tariff purposes. The Customs Service issued thousands of these letters each year. Although the Supreme Court found that they were not entitled to Chevron deference, it did not hold that no deference was due at all. Instead, it held, in an opinion by Justice Souter, that the tariff letters were entitled to the weak deference described in Skidmore v. Swift & Co., 323 U.S. 134 (1944):
We consider that the rulings, interpretations and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.
323 U.S. at 140. Justice Antonin Scalia was not at all happy with Mead. Below are some choice excerpts from his dissent:
Today's opinion makes an avulsive change in judicial review of federal administrative action. The principal effect will be protracted confusion. Another practical effect of today's opinion will be an artificially induced increase in informal rulemaking. Buy stock in the GPO. Worst of all, the majority's approach will lead to the ossification of large portions of our statutory law.
Surprisingly, Judge Stark's opinion makes no mention of Chevron, Skidmore or Mead.