Adam Pritchard is the Frances and George Skestos Professor of Law at the University of Michigan Law School. This post is based on a working paper by Prof. Pritchard, Professor Joseph Grundfest, the William A. Franke Professor of Law and Business, Emeritus, Stanford Law School; Professor Yuliya Guseva, the Kevin Wood and Mary Jo Peed Professor of Law, Florida State University College of Law; and Professor Irena Hutton, the Gene Taylor/Bank of America Professor of Finance, Florida State University College of Business.
The Administrative Procedure Act (APA) provides the procedural framework for both rulemaking and its subsequent judicial review. Stakeholders participate throughout this process as commenters, meeting participants, and, sometimes, litigants. Judicial review represents not a separate regulatory stage, but the culmination of the rulemaking process. Most empirical scholarship, however, does not connect the two stages.
Our empirical paper examines the relationship between the comment process, rulemaking, and litigation in the context of Securities and Exchange Commission (SEC) rulemaking. SEC rules have drawn attention in recent years as rulemaking accelerated significantly during the tenure of Chair Gary Gensler, with a parallel increase in litigation activity challenging those rules. Our paper not only makes empirical contributions but also offers an important policy insight. Namely, public comments and meetings with the SEC are not background noise filled with boilerplate objections, form-letter campaigns, lobbying activity, and industry groups posturing. The process produces reliable signals about which rules are more likely to attract future litigation from stakeholders. If the SEC reads the comments and meeting memoranda carefully enough, it can detect those signals before lawsuits are filed. In contrast, proceeding with a rule past this early-warning system may suggest a deliberate choice to face a higher litigation risk.
