SEC v. Chenery Corp.
This the second time that this case has come to the Supreme Court. The first time, the Supreme Court held that a reviewing court must judge the "propriety of of an action solely by the grounds invoked by the action." A court cannot affirm an admin action by substituting a more adequate basis. The case was remanded and the lower courts were ordered to follow this holding.
The Federal Water Service Corporation (Federal) had a reorganization plan that that SEC did not approve of. The plan was amended to deal with the SEC's objections. The amended plan was approved by the SEC. In forcing this amendment, the SEC acted how it thought the standards were recognized by courts (it did not clearly lay out any new standards.) However, the Supreme Court ruled that the forced amendments did not conform to the current standards, and there was no rule making proscribing allowing the actions in the amended plan. The court remanded the case.
After the remand, there was another amendment to the reorganization plan, which the SEC rejected. The Court of Appeals reversed. The Supreme Court, this time, ruled that the SEC had ruled in a clear and through manner and complied with the earlier Supreme Court holding. However, plaintiffs raised the following issue:
"In the absence of finding a conscious wrongdoing on the part of Federal's management" can the Commission determine by an order in this particular case that "it was inconsistant with the statutory standards to permit Federl's management to realize a profit through the reorganization purchases?" The SEC could have promulgated a rule to outlaw the profits, but, a rule could not be retroactive in nature.
The court starts by stating that since the SEC does have the power to make prospective rules, it should generally rely on its rulemaking powers to lay out new standards of conduct. However, saying that the SEC should always use its rulemaking powers would be too rigid because not every policy can be make in the form of a rule. For a number of reasons, there are some things that cannot be dealt with by rules, and therefore an admin agency needs the flexibility to deal with problems on a case by case basis.