Corporate Governance

As Predicted: The SEC and the Further Denial of Shareholder Access (Delaware Supreme Court and the Lack of Jurisdiction)(Part 4)

By J. Robert Brown

We take a moment to point out that the decision by the Delaware Supreme Court to consider the certified question in this case violates its own rule.  Rule 41 of the rules of the Supreme Court lays out the standard for certifying questions of law.  The rule provides that the United States Securities and Exchange Commission may certify "a question or questions of law arising in any matter before it prior to the entry of final judgment or decision if there is an important and urgent reason for an immediate determination."

The certification was approved by the entire Commission, so that element is met.  The subject matter of the petition, however, is not "before" the Commission.  The question comes up in the context of a no action letter request directed towards the Division of Corporation Finance.  No action letters represent requests for "informal" advice from the staff of the SEC.  The advice is not attributable to the Commission.  See 17 CFR 202.1(d)("opinions expressed by members of the staff do not constitute an official expression of the Commission's views").   The rules do provide that in some cases the views of the entire Commission can be obtained.  Id. ("The staff, upon request or on its own motion, will generally present questions to the Commission which involve matters of substantial importance and where the issues are novel or highly complex, although the granting of a request for an informal statement by the Commission is entirely within its discretion."). 

In this case, however, the staff has not requested the Commission's views.  The staff has merely requested that the Commission certify a question to the Supreme Court.  See SEC Petition (noting that certification submitted by the Commission at "the Division's request . . . ").  The petition likewise provides that the answer "will determine whether the Division will ultimately concur in CA's view that it may exclude the AFSCME Proposal . . . "  Id.  (emphasis added).  In other words, it will be the staff that rules once the answer has been received, not the entire Commission.

These things matter.  The fact that a no action letter is not a position of the Commission means that it can be easily disavowed (by the Commission or the staff) and cannot be challenged as a final action under the APA.  See Board of Trade v. SEC, 883 F.2d 525, 529 (7th Cir. 1989)("Second, the futures markets seek review of a decision that by its terms is tentative. The Division won't recommend prosecution just now, and just so long as conditions are satisfied. Director Ketchum could change his mind tomorrow, or the Commissioners might elect to proceed no matter what the Director recommends. The SEC has not, in other words, issued a 'final' decision concerning the status of the System.").  Unless and until the Commission indicates that it will make the final decision with respect to the AFSCME no action letter, this issue is not a proper subject for the Delaware Supreme Court. 

Full post as published by The Race to the Bottom on July 08, 2008 (boomark / email).