New York City Employees' Retirement System v. Securities and Exchange Commission
United States Court of Appeals for the Second Circuit
45 F.3d 7 (1995)
After Cracker Barrel announced it would no longer employ homosexual workers and fired several gay employees, shareholder-investors including the New York City Employees' Retirement System (NYCERS) (plaintiff) proposed a shareholder vote on a policy barring sexual-orientation discrimination, invoking SEC Rule 14a-8(c)(7)'s requirement that shareholder proposals be included in proxy materials unless they concern ordinary business operations. The SEC (defendant) had said in a 1976 rule that this exception could not be used to exclude proposals with significant social policy implications, but issued Cracker Barrel a no-action letter stating that employment-policy proposals touching on social issues would no longer automatically fall outside the ordinary-business exception. NYCERS sued, arguing the SEC had effectively adopted a new legislative rule without complying with the Administrative Procedure Act's notice-and-comment requirements; the district court agreed and enjoined further inconsistent no-action letters, and the SEC appealed.
Whether an agency's no-action letter that departs from the agency's own prior interpretive guidance constitutes a legislative rule requiring notice-and-comment rulemaking under the Administrative Procedure Act.