Volume 34, Issue 1 (forthcoming Winter 2017)
Stephen Choi & A.C. Pritchard, The SEC’s Shift to Administrative Proceedings: An Empirical Assessment, 34 Yale J. on Reg. ____ (2017).
Congress has repeatedly expanded the authority of the SEC to pursue violations of securities laws in proceedings adjudicated by the SEC’s own administrative law judges, most recently through the Dodd-Frank Act. We report the results from an empirical study of SEC enforcement actions against non-financial public companies to assess the impact of the Dodd-Frank Act on the balance between civil court and administrative enforcement actions. We show a general decline in the number of court actions and an increase in the number of administrative proceedings post-Dodd-Frank. At the same time, we show an increase in average civil penalties post-Dodd-Frank for both court actions and administrative proceedings involving non-financial public companies. Companies were also more willing to cooperate with the SEC, consistent with an increase in the SEC’s leverage in administrative proceedings.
We also provide evidence that the mix of cases the SEC brings in administrative proceedings has changed post-Dodd-Frank. We show an increase in the disgorgement amount and the number of years during which the violation allegedly took place, which are two proxies for the complexity and cost of prosecution of the alleged underlying securities law violation. At the same time, administrative proceedings following Dodd-Frank tended to be weaker (i.e., less likely to prevail) and less salient (i.e., less likely to garner media attention). These findings are consistent with the SEC attempting to maximize the monetary penalties it imposes as well as positive media attention from its enforcement actions, while allocating its limited resources between administrative proceedings and civil court actions in a cost-effective way. Although we cannot measure the deterrent impact of the additional cases that the shift to administrative proceedings has allowed the SEC to bring, it does appear that the SEC is using administrative proceedings to expand its enforcement efforts against public companies.
Cary Coglianese & Jennifer Nash, The Law of the Test: Performance-Based Regulation and Diesel Emissions Control, 34 Yale J. on Reg. ____ (2017).
The Volkswagen diesel emissions scandal of 2015 not only pushed that company’s stock and retail sales into freefall, but also raised serious questions about the efficacy of existing regulatory controls. The same furtive actions taken by Volkswagen had been taken nearly twenty years earlier by other firms in the diesel industry. In that previous scandal, the U.S. Environmental Protection Agency (EPA) discovered that diesel truck engine manufacturers had, like Volkswagen would later do, programmed on-board computers to calibrate their engines one way to satisfy the required emissions test but then to re-calibrate automatically to achieve better fuel economy and responsiveness when the trucks were on the road, even though doing so increased emissions above the mandated level. This Article provides an in-depth retrospective study of the federal government’s efforts to regulate diesel emissions. In particular, it chronicles the earlier saga over heavy-duty diesel truck engines to reveal important lessons for regulators who use a regulatory strategy known as performance-based regulation. Endorsed around the world and used in many settings, performance-based regulation mandates the attainment of outcomes—the passing of a test—but leaves the means for doing so up to the regulated entities. In theory, performance standards are highly appealing, but their actual performance in practice has remained virtually unstudied by scholars of regulation. This Article’s extensive analysis of U.S. diesel emissions control provides a new basis to learn how performance-based regulation works in action, revealing some of its previously unacknowledged limitations. Precisely because performance-based regulation offers flexibility, it facilitates, if not invites, private-sector firms to innovate in ways that allow them to pass mandated tests while confounding regulators’ broader policy objectives. When regulating the diesel industry or any other aspect of the economy, policymakers should temper their enthusiasm for performance standards and, when they use them, maintain constant vigilance for private-sector tactics that run counter to proper regulatory goals.
Scott Hirst, Frozen Charters, 34 Yale J. on Reg. ____ (2017).
In 2012, the New York Stock Exchange changed its policies to prevent brokers from voting shares on corporate governance proposals when they have not received instructions from beneficial owners. Although the change was intended to protect investors and improve corporate governance, it has had the opposite effect: a significant number of U.S. public companies are no longer able to amend important parts of their corporate charters, despite the support of their boards of directors and overwhelming majorities of shareholders. Their charters are frozen.
This Article provides the first empirical and policy analysis of the broker voting change and its significant unintended consequences. I provide empirical evidence that the broker voting change has resulted in the failure of more than fifty charter amendments at U.S. public companies, despite board approval and overwhelming shareholder support, and that hundreds more companies have frozen charters as a result of the change. The rule change has also made it more difficult to amend corporate bylaws and given some insiders a de-facto veto in proxy voting contests. These costs substantially outweigh the negligible benefits of the broker voting change. I compare a number of solutions to address these problems and identify several that would be preferable to the current approach.
Jerry L. Mashaw & David L. Harfst, From Command and Control to Collaboration and Deference: The Transformation of Auto Safety Regulation, 34 Yale J. on Reg. ____ (2017).
Created in 1966 primarily as a rulemaking body empowered to force the technology of motor vehicle safety, the National Highway Safety Administration (NHTSA) had by the mid-1980s largely abandoned rulemaking in favor of aggressively recalling defective vehicles. Devastating losses in pre-enforcement judicial review of rules combined with judicial embrace of recalls to drive that first-period adaptation. Congressional reaction mimicked the signals from the courts, and the Reagan administration’s regulatory reform and relief programs of the 1980s further solidified NHTSA’s rulemaking retreat. Prodded by congressional mandates, beginning in 1991, but largely of 21st century origin, NHTSA returned to rulemaking in the last two decades, but in a radically revised form. Rather than forcing new technologies, the agency has largely required the diffusion of technologies already in widespread use—technologies that may well have reached near universal deployment in the absence of the agency’s efforts. As the protracted airbag case makes clear, deferring to industry’s priorities and timetable in this manner may well have cost lives. But the transformation also largely insulated NHTSA from judicial and political challenge. Industry had little reason to contest rules requiring technologies it was already implementing, and courts were unlikely to invalidate such measures in any event.
Motor vehicle fatality rates have indeed decreased dramatically since NHTSA’s formation. Yet the agency’s own research suggests that much of that reduction would have occurred anyway, due to factors other than safety technology. In the meantime, recalls (which have no demonstrable systemic effect on motor vehicle safety) have continued at increasingly high (sometimes astounding) levels, and have been combined with consumer information campaigns, promotion of motorists’ behavior modification efforts, non-binding “guidance” documents, and agency-industry voluntary agreements, to round out NHTSA’s emerging model of cooperative regulation. Whether or not this strategy has substantial effects in promoting motor vehicle safety, NHTSA’s accommodating posture has resulted in congressional and OMB approval and industry acceptance without litigation.
This Article describes the evolution of motor vehicle safety regulation and interprets the agency’s transformation as an almost perfect adaptation to a legal culture that is skeptical of ex ante coercive restraints on individual or firm conduct and accepting of post hoc compensatory or punitive action when that conduct fails to satisfy broad social norms. And that process of adaptation is very much a work in progress. Today, NHTSA finds itself in a world that was unimaginable in 1966. Then, it was assumed that safety did not sell; that motorists’ misbehavior was intractable and accidents hence unavoidable; and that optimal innovation, in particular to make vehicles more “crashworthy,” required government to step in. Fast forward to the present, it appears that safety, at least in some forms, does sell, motorists are at last buckling up in response to mandatory seat belt use laws, and highly automated (“self-driving”) vehicles, combined with smart infrastructure, promise a near accident free utopia. Meanwhile, innovation is advancing at a torrid pace, as the automotive, advanced electronics, and software sectors converge. These changes in NHTSA’s operational context have reinforced the agency’s rulemaking reticence and promoted a preference for statements of “policy,” that the agency asserts are non-binding yet potentially enforceable by means of recalls. The agency’s attempts to straddle the murky legal boundary between guidance and rulemaking may well be the next arena in which it encounters the constraints of legal culture—a culture that defines the conditions of legitimate administrative action, but not the details of its implementation.
Bijal Shah, Interagency Transfers of Adjudication Authority, 34 Yale J. on Reg. ____ (2017).
Agencies sometimes give away their legislatively delegated decision-making power of their own accord. More specifically, agencies make agreements in order to transfer their entire jurisdiction to adjudicate administrative decisions to other agencies. This Article is the first to explore these mostly informal, endogenous interagency arrangements.
One example of this dynamic involves the authority to adjudicate the legality of pharmaceutical imports and exports, initially delegated by Congress to the Department of Treasury. Treasury has since transferred this authority to the U.S. Customs and Border Patrol via interagency agreement, which then retransferred this authority to the Food and Drug Administration (FDA) by means of another interagency agreement. The FDA does not have clear statutory authority to make these decisions. However, transferring this set of adjudications to the FDA allows it to bring its superior technocratic expertise to bear, which may lead to higher quality decision making.
On the one hand, these arrangements could be harbingers of a future in which agencies take advantage of opportunities to shirk, deteriorate rule of law values, and usurp the legislative branch’s power to define agency jurisdiction and make the law. On the other hand, interagency transfers of adjudication authority represent agencies’ potential to improve administrative decision making by sharing or even transferring power based on their on-the-ground knowledge of their own varying capacity to implement an efficient and effective regime of administrative adjudication.
This Article argues that that there is a way to ensure these interagency transfers of power and responsibilities are both beneficial to the quality of administrative decision making and also constitutional—in particular, by allowing those agreements that benefit the quality of administrative decision making to be deemed legitimate if grounded in statutory language authorizing interagency coordination. Finally, it proposes that courts play a primary role in shaping the development of high-quality interagency transfers of adjudication authority and ensuring that they remain within permissible constitutional bounds.
John C. Brinkerhoff Jr., Note, Ropes of Sand: State Antitrust Statutes Bound by Their Original Scope, 34 Yale J. on Reg. ____ (2017).
Many state antitrust statutes passed around the turn of the twentieth century contain language that ostensibly limits their jurisdiction to their state’s borders. Courts typically equate this language, as well as the jurisdictional limits of some early antitrust statutes without explicit limits, to the dormant Commerce Clause boundaries present during these statutes’ enactment. However, courts disagree considerably on the historical limits of state antitrust jurisdiction and thus, promulgate a variety of standards that purportedly limit state antitrust statutes to their original scope. This Note argues that these standards, which focus on the goods, transactions, or effects related to trade restraints, are ill-suited for determining the original scope of these statutes. When analyzing state antitrust statutes, early courts frequently held that the fate of state enforcement turned on whether the restraint itself crossed state borders, even when it exclusively affected interstate transactions. Accordingly, this Note argues that modern courts should adopt a “restraint-focused” standard as a more historically faithful approach to understanding the scope of early antitrust statutes.