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independent director requirement from $4,779 for large fund complexes to
$37,500 for boards overseeing only one fund. Id. at 39,392-93.
On appeal, the Commission maintains, relying on Solite, 952 F.2d at 484, and
Building Industry, 247 F.3d at 1246, that the extra-record materials simply filled
gaps in the rulemaking record and “only confirmed the findings delineated in the
[NOPR].” Respondent's Br. at 46. By this, the Commission suggests that the
neither Solite, 952 F.2d at 484, nor Building Industry, 247 F.3d at 1246, suggest
that an agency generally may rely, without affording comment, on data critical to
support a rule solely because the existing record contains a deficiency that extra-
record data might cure.
[10] Link to KeyCite Notes Rather, for extra-record data to be “supplementary,” it
study that “confirmed the findings delineated in the proposal,” was supported by
data in the record, and “provided additional support for that hypothesis.” See 247
F.3d at 1246 (emphasis added). Similarly, the Commission's reliance on the
statement in Association of Data Processing “that the ‘administrative record’
might well include crucial material that was neither shown to nor known by the
use extra-record data in its response because the Chamber has not, as we have
required, shown that it was prejudiced by its lack of opportunity to comment. See
Solite, 952 F.2d at 484 (citing Community Nutrition, 749 F.2d at 57-58, and Air
Transp. Ass'n, 732 F.2d at 224); see also Air Canada v. Dep't of Transp., 148
F.3d 1142, 1156-57 (D.C.Cir.1998) (citing 5 U.S.C. § 706). To show prejudice,
particularly robust showing of prejudice in notice-and-comment cases, holding
that “an utter failure to comply with notice and comment cannot be considered
harmless if there is any uncertainty at all as to the effect of that failure.” Sugar
Cane Growers Co-op. of Fla. v. Veneman, 289 F.3d 89, 96 (D.C.Cir.2002)
(explaining the standard of McLouth Steel Prods. Corp. v. Thomas, 838 F.2d
to show prejudice.
[12] Link to KeyCite Notes[13] Link to KeyCite Notes To be clear, the
requirement, deriving from sections 553(c) and 706 that an agency may rely on
supplemental materials to fill gaps in the rulemaking record only when there is no
prejudice to the interested parties does not mean parties can withhold relevant
comment. See Solite, 952 F.2d at 484-85. In light of the notice provided, there is
no fair-comment prejudice to interested parties under section 553(c) even if the
extra-record materials serve as the crucial confirmation of the agency's
preliminary conclusions, see Building Indus., 247 F.3d at 1246, or even as the
compelling reason for the agency's modification of its preliminary conclusion, see
during the comment period, the Commission would base its cost estimates on an
extra-record summary of extra-record survey data that, although characterized as
“a widely used survey,” was not the sort, apparently, relied upon by the
Commission during the normal course of its official business. For purposes of
section 553(c), it is one thing to suggest that members of the mutual fund
returned to the cost issue in July 2005, and during that period more funds had
adopted the Rule's conditions. See Response Release, 70 Fed.Reg. at 39,391,
39,398; see id. at 39,407 & n. 23 (Atkins, Comm'r, dissenting). When the
Commission decided not to reopen the rulemaking record, individual mutual
funds had offered to provide information on their actual implementation costs and
[14] Link to KeyCite Notes The Commission would rebut the Chamber's
assertions of prejudice by pointing out that the Chamber has not suggested the
implementation cost data would show that the Commission's cost estimates are
materially inaccurate. This is not the relevant test of prejudice under our
precedent, which does not require a showing that the Commission would have
specific and credible objections to the soundness of the Commission's estimates
and hence to its decision not to modify the two conditions. See id.; Sprint, 315
F.3d at 377. Specifically, the Chamber maintains that the Commission's cost
estimates were predicated upon an assumption that the extra-record survey
summarized in an extra-record bulletin provides information on the salaries solely
was unavailable during the comment period is relevant here as the NOPR
specifically requested cost data; the actual implementation data, however, would
either lend support or not to the Chamber's position that the Commission
understated the potential ill effects of the two conditions on smaller mutual funds.
Cf. Air Transp. Ass'n, 169 F.3d at 8. Under our precedents, the Chamber need
the Commission's acknowledgment that the rulemaking record contained gaps
and did not include reliable cost data; the availability of additional implementation
data for the period between the close of the rulemaking record and the
Commission's response to Chamber I as more funds adopted the conditions; the
Chamber's colorable claim that the Commission's failure to consider such
extra-record materials on which it relied were “publicly available.” See Response
Release, 70 Fed.Reg. at 39,391. In some instances, “publicly available”
information, such as “published literature in the fields relevant to the [agency's]
proposal,” may be so obviously relevant that requiring it be specifically noticed
and included in the rulemaking record would advance none of the goals of the
749 F.2d at 57-58, or, alternatively, go towards negating the petitioner's claims of
prejudice when such extra-record information is used to cure deficiencies in the
rulemaking record. Neither circumstance is present here.
On appeal, the Commission characterizes the extra-record survey as a “widely
used industry survey,” Response Release, 70 Fed.Reg. at 39,392 n. 28;
background source of information on the mutual fund industry, as might be true,
in other contexts, of a relevant study in a broadly cited scientific journal. See
PIERCE, ADMINISTRATIVE LAW TREATISE § 7.3, at 436-38. Although the
Commission points out that opponents of the two conditions, including the
Investment Company Institute, have cited a broad array of publications as the
Processing, 745 F.2d at 684-85; see also Int'l Union, UAW v. OSHA, 938 F.2d
1310, 1324 (D.C.Cir.1991) (citing Sierra Club v. Costle, 657 F.2d 298, 398
(D.C.Cir.1981)). Unlike the salary surveys conducted by the Securities Industry
Association, which the Commission identified as “a source on which we
commonly rely in our rulemakings,” Response Release, 70 Fed.Reg. at 39,394,
bulletins are “publicly available.” The NOPR did not indicate that the Commission
intended to rely on these bulletins if reliable cost data was not produced during
the comment period, much less indicate that the Commission considered the
bulletins to be a source of reliable data for estimating the costs of the two
conditions. The fact that the dissenting Commissioners cited a news article that
addressed. In fact, one of the bulletins was not in existence until after the
rulemaking record had closed and thus was not “publicly available” for comment.
See id. at 39,393 n. 43.
Nor does public access to the bulletins alter the fact that the Commission had
acknowledged the inadequacies of the rulemaking record with respect to
rulemaking record and the period during which more funds had adopted the
conditions, declines to reopen the record to allow the Chamber to submit actual
implementation cost data. Although the Commission's judgment in relying on
these extra-record sources may be well-founded, the bulletins themselves
acknowledge “wide divergence” among the funds represented in the summarized
Chamber's claim of prejudice.
[15] Link to KeyCite Notes[16] Link to KeyCite Notes Second, the Commission
justifies its choice to act without re-opening the record by invoking the need to act
swiftly:
We find that any further delay or ambiguity surrounding implementation of the
Id. at 39,398. The Commission's preference to proceed with the same five
Commission Members who were familiar with the rulemaking in considering the
cost estimates described in Chamber I, see id. at 39,391, is not the type of
exigent circumstance that comes within the narrow “good cause” exception of
section 553(b)(B). See Tennessee Gas Pipeline Co. v. FERC, 969 F.2d 1141,
rule itself could be expected to precipitate activity by affected parties that would
harm the public welfare, see Mobil Oil Corp. v. Dep't of Energy, 728 F.2d 1477,
1492 (Temp.Emer.Ct.App.1983). These exigent circumstances are of a far
different nature than the not uncommon circumstance facing commissions when
their membership changes during the course of a rulemaking, which may involve
exception.
Therefore, because the Commission relied on extra-record material critical to its
costs estimates without affording an opportunity for comment to the prejudice of
the Chamber, we hold that the Commission violated the comment requirement of
section 553(c).
of the rule of prejudicial error,” id. § 706. Under circuit precedent, the decision to
remand or vacate hinges upon court's assessment of “the seriousness of the ...
deficiencies (and thus the extent of doubt whether the agency chose correctly)
and the disruptive consequences of an interim change that may itself be
changed.” Allied-Signal, Inc. v. U.S. Nuclear Regulatory Comm'n, 988 F.2d 146,
46,381, were scheduled to take effect on January 15, 2006. See 17 C.F.R. §
270.0-1(a)(7)(v), (vi), & (vii) (2005). In the meantime, more mutual funds have
voluntarily adopted the challenged conditions. See Response Release, 70
Fed.Reg. at 39,407 (Atkins, Comm'r, dissenting). In other words, the two
conditions, which were part of a larger program of regulatory reforms adopted by
opportunity for comment under section 553(c). Given the circumstances
described in Part III of this opinion, a further remand to the Commission without
the opportunity for comment would be unproductive. This suggests that vacation
of the 75% independent director and independent chair conditions would be
appropriate.
that would arise within the industry, which also might sow confusion in the
investing public. Also, the Commission's decision to rely upon extra-record data
without reopening the rulemaking record for comment does not, of itself, indicate
that the Commission's cost estimates are incorrect, much less that its conclusion,
under ICA § 2(c), that the costs of implementing the two conditions do not
Rule 41(b) for ninety days. Such an approach is not unprecedented. See
Hazardous Waste Treatment Council, 886 F.2d at 371; Nat'l Coal. Against
Misuse of Pesticides, 809 F.2d at 884-85; Indep. U.S. Tanker Owners Comm.,
809 F.2d at 855; Simmons, 757 F.2d at 300; see also Rodway v. U.S. Dep't of
Agric., 514 F.2d at 817-18. This approach will afford the Commission an
challenges to the Remand Release, vacate the two conditions, but withhold the
issuance of the mandate for ninety days as set forth in this opinion.
On appeal, the Commission maintains, relying on Solite, 952 F.2d at 484, and
Building Industry, 247 F.3d at 1246, that the extra-record materials simply filled
gaps in the rulemaking record and “only confirmed the findings delineated in the
[NOPR].” Respondent's Br. at 46. By this, the Commission suggests that the
neither Solite, 952 F.2d at 484, nor Building Industry, 247 F.3d at 1246, suggest
that an agency generally may rely, without affording comment, on data critical to
support a rule solely because the existing record contains a deficiency that extra-
record data might cure.
[10] Link to KeyCite Notes Rather, for extra-record data to be “supplementary,” it
study that “confirmed the findings delineated in the proposal,” was supported by
data in the record, and “provided additional support for that hypothesis.” See 247
F.3d at 1246 (emphasis added). Similarly, the Commission's reliance on the
statement in Association of Data Processing “that the ‘administrative record’
might well include crucial material that was neither shown to nor known by the
use extra-record data in its response because the Chamber has not, as we have
required, shown that it was prejudiced by its lack of opportunity to comment. See
Solite, 952 F.2d at 484 (citing Community Nutrition, 749 F.2d at 57-58, and Air
Transp. Ass'n, 732 F.2d at 224); see also Air Canada v. Dep't of Transp., 148
F.3d 1142, 1156-57 (D.C.Cir.1998) (citing 5 U.S.C. § 706). To show prejudice,
particularly robust showing of prejudice in notice-and-comment cases, holding
that “an utter failure to comply with notice and comment cannot be considered
harmless if there is any uncertainty at all as to the effect of that failure.” Sugar
Cane Growers Co-op. of Fla. v. Veneman, 289 F.3d 89, 96 (D.C.Cir.2002)
(explaining the standard of McLouth Steel Prods. Corp. v. Thomas, 838 F.2d
to show prejudice.
[12] Link to KeyCite Notes[13] Link to KeyCite Notes To be clear, the
requirement, deriving from sections 553(c) and 706 that an agency may rely on
supplemental materials to fill gaps in the rulemaking record only when there is no
prejudice to the interested parties does not mean parties can withhold relevant
comment. See Solite, 952 F.2d at 484-85. In light of the notice provided, there is
no fair-comment prejudice to interested parties under section 553(c) even if the
extra-record materials serve as the crucial confirmation of the agency's
preliminary conclusions, see Building Indus., 247 F.3d at 1246, or even as the
compelling reason for the agency's modification of its preliminary conclusion, see
during the comment period, the Commission would base its cost estimates on an
extra-record summary of extra-record survey data that, although characterized as
“a widely used survey,” was not the sort, apparently, relied upon by the
Commission during the normal course of its official business. For purposes of
section 553(c), it is one thing to suggest that members of the mutual fund
returned to the cost issue in July 2005, and during that period more funds had
adopted the Rule's conditions. See Response Release, 70 Fed.Reg. at 39,391,
39,398; see id. at 39,407 & n. 23 (Atkins, Comm'r, dissenting). When the
Commission decided not to reopen the rulemaking record, individual mutual
funds had offered to provide information on their actual implementation costs and
[14] Link to KeyCite Notes The Commission would rebut the Chamber's
assertions of prejudice by pointing out that the Chamber has not suggested the
implementation cost data would show that the Commission's cost estimates are
materially inaccurate. This is not the relevant test of prejudice under our
precedent, which does not require a showing that the Commission would have
specific and credible objections to the soundness of the Commission's estimates
and hence to its decision not to modify the two conditions. See id.; Sprint, 315
F.3d at 377. Specifically, the Chamber maintains that the Commission's cost
estimates were predicated upon an assumption that the extra-record survey
summarized in an extra-record bulletin provides information on the salaries solely
was unavailable during the comment period is relevant here as the NOPR
specifically requested cost data; the actual implementation data, however, would
either lend support or not to the Chamber's position that the Commission
understated the potential ill effects of the two conditions on smaller mutual funds.
Cf. Air Transp. Ass'n, 169 F.3d at 8. Under our precedents, the Chamber need
the Commission's acknowledgment that the rulemaking record contained gaps
and did not include reliable cost data; the availability of additional implementation
data for the period between the close of the rulemaking record and the
Commission's response to Chamber I as more funds adopted the conditions; the
Chamber's colorable claim that the Commission's failure to consider such
extra-record materials on which it relied were “publicly available.” See Response
Release, 70 Fed.Reg. at 39,391. In some instances, “publicly available”
information, such as “published literature in the fields relevant to the [agency's]
proposal,” may be so obviously relevant that requiring it be specifically noticed
and included in the rulemaking record would advance none of the goals of the
749 F.2d at 57-58, or, alternatively, go towards negating the petitioner's claims of
prejudice when such extra-record information is used to cure deficiencies in the
rulemaking record. Neither circumstance is present here.
On appeal, the Commission characterizes the extra-record survey as a “widely
used industry survey,” Response Release, 70 Fed.Reg. at 39,392 n. 28;
background source of information on the mutual fund industry, as might be true,
in other contexts, of a relevant study in a broadly cited scientific journal. See
PIERCE, ADMINISTRATIVE LAW TREATISE § 7.3, at 436-38. Although the
Commission points out that opponents of the two conditions, including the
Investment Company Institute, have cited a broad array of publications as the
Processing, 745 F.2d at 684-85; see also Int'l Union, UAW v. OSHA, 938 F.2d
1310, 1324 (D.C.Cir.1991) (citing Sierra Club v. Costle, 657 F.2d 298, 398
(D.C.Cir.1981)). Unlike the salary surveys conducted by the Securities Industry
Association, which the Commission identified as “a source on which we
commonly rely in our rulemakings,” Response Release, 70 Fed.Reg. at 39,394,
bulletins are “publicly available.” The NOPR did not indicate that the Commission
intended to rely on these bulletins if reliable cost data was not produced during
the comment period, much less indicate that the Commission considered the
bulletins to be a source of reliable data for estimating the costs of the two
conditions. The fact that the dissenting Commissioners cited a news article that
addressed. In fact, one of the bulletins was not in existence until after the
rulemaking record had closed and thus was not “publicly available” for comment.
See id. at 39,393 n. 43.
Nor does public access to the bulletins alter the fact that the Commission had
acknowledged the inadequacies of the rulemaking record with respect to
rulemaking record and the period during which more funds had adopted the
conditions, declines to reopen the record to allow the Chamber to submit actual
implementation cost data. Although the Commission's judgment in relying on
these extra-record sources may be well-founded, the bulletins themselves
acknowledge “wide divergence” among the funds represented in the summarized
Chamber's claim of prejudice.
[15] Link to KeyCite Notes[16] Link to KeyCite Notes Second, the Commission
justifies its choice to act without re-opening the record by invoking the need to act
swiftly:
We find that any further delay or ambiguity surrounding implementation of the
Id. at 39,398. The Commission's preference to proceed with the same five
Commission Members who were familiar with the rulemaking in considering the
cost estimates described in Chamber I, see id. at 39,391, is not the type of
exigent circumstance that comes within the narrow “good cause” exception of
section 553(b)(B). See Tennessee Gas Pipeline Co. v. FERC, 969 F.2d 1141,
rule itself could be expected to precipitate activity by affected parties that would
harm the public welfare, see Mobil Oil Corp. v. Dep't of Energy, 728 F.2d 1477,
1492 (Temp.Emer.Ct.App.1983). These exigent circumstances are of a far
different nature than the not uncommon circumstance facing commissions when
their membership changes during the course of a rulemaking, which may involve
exception.
Therefore, because the Commission relied on extra-record material critical to its
costs estimates without affording an opportunity for comment to the prejudice of
the Chamber, we hold that the Commission violated the comment requirement of
section 553(c).
of the rule of prejudicial error,” id. § 706. Under circuit precedent, the decision to
remand or vacate hinges upon court's assessment of “the seriousness of the ...
deficiencies (and thus the extent of doubt whether the agency chose correctly)
and the disruptive consequences of an interim change that may itself be
changed.” Allied-Signal, Inc. v. U.S. Nuclear Regulatory Comm'n, 988 F.2d 146,
46,381, were scheduled to take effect on January 15, 2006. See 17 C.F.R. §
270.0-1(a)(7)(v), (vi), & (vii) (2005). In the meantime, more mutual funds have
voluntarily adopted the challenged conditions. See Response Release, 70
Fed.Reg. at 39,407 (Atkins, Comm'r, dissenting). In other words, the two
conditions, which were part of a larger program of regulatory reforms adopted by
opportunity for comment under section 553(c). Given the circumstances
described in Part III of this opinion, a further remand to the Commission without
the opportunity for comment would be unproductive. This suggests that vacation
of the 75% independent director and independent chair conditions would be
appropriate.
that would arise within the industry, which also might sow confusion in the
investing public. Also, the Commission's decision to rely upon extra-record data
without reopening the rulemaking record for comment does not, of itself, indicate
that the Commission's cost estimates are incorrect, much less that its conclusion,
under ICA § 2(c), that the costs of implementing the two conditions do not
Rule 41(b) for ninety days. Such an approach is not unprecedented. See
Hazardous Waste Treatment Council, 886 F.2d at 371; Nat'l Coal. Against
Misuse of Pesticides, 809 F.2d at 884-85; Indep. U.S. Tanker Owners Comm.,
809 F.2d at 855; Simmons, 757 F.2d at 300; see also Rodway v. U.S. Dep't of
Agric., 514 F.2d at 817-18. This approach will afford the Commission an
challenges to the Remand Release, vacate the two conditions, but withhold the
issuance of the mandate for ninety days as set forth in this opinion.
