There can be no debate: The Administrative State has been scaled back. The rule-making powers of administrative agencies have clearly been curbed. Most blame the Supreme Court and particularly its decision in West Virginia v. EPA, 597 U.S. 697 (2022), which announced the Court’s adoption of the “Major Questions Doctrine.” Under it, an administrative agency cannot adopt new rules that significantly enlarge its role or powers beyond those that the agency has exercised in the past – unless Congress consents. In effect, this doctrine comes close to saying, “Stop. Do not do more – until Congress permits it.” But this attack on the Administrative State seems likely to intensify and broaden in the event of a Trump victory in the 2024 presidential election.

Much as the Supreme Court has done to enlarge its own power, judicial review is neither the only way, nor the most direct way, by which administrative agencies can be constrained and/or emasculated. Judicial activism tends to move slowly, and its direction can shift. Given the Trumpian desire to behave like a bull in a china shop, the most likely future scenario would be for a Trump Administration to simply repeal (or decline to enforce) those existing rules of which it disapproves. This could lead to a wholesale reshaping of the federal securities laws. Still, as next discussed, this may be easier said than done.

To better understand the relevant options here, let’s consider the current and important case of the SEC’s recently adopted climate change disclosures. For the last two years, the SEC under Chairman Gary Gensler has labored mightily to adopt new rules on climate change disclosures that would require, among other things, that large public companies disclose their carbon emissions.[1] The SEC’s premise here was both that investors wanted such information and that such disclosures might embarrass those public corporations forced to disclose the highest level of GHG emissions.

Nonetheless, these rules were certain to be costly, and they encountered intense opposition from the business community. Backing down substantially, the SEC withdrew some of the most controversial features in these rules just before their adoption. This compromise was an attempt to avoid lengthy litigation, but it failed. Rejecting compromise, multiple business groups, including the Chamber of Commerce, sued in a variety of courts, pleading a variety of theories, including the Major Questions Doctrine. The Judicial Panel on Multidistrict Litigation stepped in and consolidated all of these cases before the Eighth Circuit Court of Appeals, and the SEC agreed to stay the rule’s enforcement until these issues were resolved. That may take some time, and an appeal to the Supreme Court seems predictable.

From my perspective, the SEC still stands a good chance of winning this dispute because it has regulated climate disclosure for decades, but the outcome is admittedly uncertain. Still, does this matter? If Trump is elected, his administration could either settle these actions on terms favorable to the plaintiff corporations, or it could repeal those rules (after some procedural steps required by the Administrative Procedure Act). There is even a low-visibility third option: The Trump SEC could make no public announcements but broadly hint it will not enforce these rules. This may sound lawless, but a considerable body of law holds that the Executive Branch possesses unreviewable prosecutorial discretion. For example, no court can order a U.S. attorney to prosecute any specific defendant or corporation, as this would likely violate the Separation of Powers Clause of the U.S. Constitution.

But if a new Trump Administration were not to disclose which rules it would and would not enforce, transparency would be lost and legal uncertainty reign. Conceivably, in extreme cases, the Equal Protection Clause might be violated if defendants were prosecuted depending upon their political loyalties, but this would be very difficult to prove. In any event, let’s stick to the main story.

The real loss here lies in the subordination of transparency to political expediency. Essentially, a new Trump Administration will likely choose one or more of the following three options:

• announce that it is repealing the Biden climate change disclosure release (Securities Act Rule No. 33-11275) (2024); this will require that the SEC follow its standard “Notice and Comment” procedures, and this may take the SEC the better part of 2025 in soliciting, reviewing, and responding to a likely wave of comments; also, this approach invites litigation by environmental activists at virtually every stage;
• quietly tell Trump’s constituency in the business community that the Biden rules will not be enforced and few, if any, such enforcement actions will be brought (this could invite political embarrassment if inquiring journalists can find the “smoking gun” and disclose these communications); and
• the new Trump SEC could decide to settle the actions now stayed before the Eighth Circuit challenging the provisions of SEC Release No. 33-11275; indeed, the SEC could concede that the rules were invalidly adopted and possibly even accept an injunction against adopting any similar rule (this could conceivably cover the entire ESG waterfront). Environmentalists might seek to intervene and oppose such sweeping relief, but in the past the SEC reasonably has insisted on its right to exercise prosecutorial discretion – and won. See SEC v. Citigroup Global Markets, 673 F.3d 158 (2d Cir 2012) (overruling Judge Rakoff’s rejection of a settlement between the SEC and Citigroup that he considered unfair and unreasonable and agreeing with the SEC’s insistence that its prosecutorial discretion could not be judicially reviewed). The key advantages of this approach are that (i) it could be accomplished more quickly than compliance with slower “Notice and Comment” procedures and (ii) it provides more sweeping relief.

There is a deep irony here. The Major Questions Doctrine blocks bold new administrative action that has not been approved by Congress in order to make administrative agencies more accountable to Congress. But equally bold new initiatives to repeal long established SEC policies that have been accepted by Congress are permitted, without giving any deference to Congress’ acceptance or encouragement of the prior rules. This reduces accountability to Congress and is inconsistent with the Major Questions Doctrine. To be sure, Congress has other weapons, such as its control over the budget, but if these other weapons were sufficient, there would have been no need for the Major Questions Doctrine.

Assuming that the new Trump SEC dutifully follows the Administrative Procedure Act and its Notice and Comment procedures, what can be ultimately achieved by litigation brought by environmental activists? Candidly, I think it unlikely that federal courts will prevent the new Trump Administration from taking a backwards step on climate change disclosures by amending rules that have never truly been in force.[2] This is an issue likely to be much discussed during the presidential campaign, and the Trump side will frequently proclaim that the rules are too costly and do not benefit “real” investors and shareholders. Essentially, the debate is over cost vs. benefits, with Republicans saying that the former exceeds the latter and Democrats responding with the reverse conclusion. Frankly, we usually rely on the political process to resolve such issues.

So why is such litigation worth bringing? In War and Peace, Tolstoy describes how the Russians slowly defeated Napoleon and the French by sapping their strength and attacking at all junctures, even though they lacked the strength to win a decisive battle. If Trump is elected, a similar guerilla war may continue for his remaining term. Yes, the first Trump Administration did not significantly change the federal securities laws. But that was then. The new Trump seems out for revenge and eliminating any obstacles to his consolidation of power.

ENDNOTES

[1] See Securities Act Release No. 33-11275 (March 2024).

[2] Here I do need to concede that there have been cases in which courts (including even the Supreme Court) have upheld the rights of individuals protected by provisional rules that were later overturned. The most famous of these is the DACA case. See Dep’t of Homeland Security v. Regents of the Univ. of Cal., 591 U.S. 1 (2020). But the plaintiffs here were children who entered the U.S. illegally but were given rights to obtain U.S. citizenship after a period of time. Justice Roberts argued in his opinion for the court that these reliance interests outweighed all other factors, but it is hard to find true reliance interests with respect to the climate change disclosure release, which was never truly in effect as the rule was stayed immediately after being issued.

This post comes to us from John C. Coffee, Jr., the Adolf A. Berle Professor of Law at Columbia University Law School and Director of its Center on Corporate Governance. Professor Coffee received incisive guidance and assistance from professors Henry Monaghan and Thomas W. Merrill. This does not imply, however, that they agree with his conclusions.