July 29, 2016
I am an attorney in private practice in Irvine, California. I am writing in my individual capacity and not on behalf of my law firm or any of my law firm's clients.
I previously served as California's Commissioner of Corporations and in that capacity administered and enforced California's securities laws. I have taught as an adjunct professor at the University of California, Irvine and Chapman School of Law. I have also served as Co-Chairman of the Corporations Committee of the Business Law Section of the California State Bar and Chairman of the Business and Corporate Law Section of the Orange County (California) Bar Association. As indicated above, this letter is written in my individual capacity and not on behalf of either of these groups. These comments supplement my earlier comments.
The Commission has improperly relied upon the "good cause" exception to the publication requirement of the Administrative Procedure Act (5 U.S.C. 553(b)(3)(B)). This exception requires that the Commission find (and incorporate the finding and a brief statement of reasons therefor in the rules issued) that "notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest. The courts have repeatedly stated that this good cause exception must be narrowly construed and reluctantly countenanced. State of New Jersey v. Environmental Protection Agency, 626 F.2d 1038, 1045 (D.C. Cir. 1980).
The adopting release does not include a finding that public notice was either impracticable or contrary to the public interest. The release includes only a finding that notice and public comment are unnecessary because "the amendment conforms the specified form to the requirements of a newly enacted statute, the FAST Act, and involves minimal exercise of discretion". This finding, however, is belied by the fact that the adopting release includes requests for public comment on a number of different issues. The Commission's position that public comment is unnecessary is simply not credible. Accordingly, a reviewing court would likely conclude that the Commission's finding is arbitrary, capricious and an abuse of discretion. 5 U.S.C. Sec. 706.