Twin Rivers Paper Company LLC v. Securities and Exchange Commission

          Argued March 12, 2019

          On Petition for Review of an Order of the Securities & Exchange Commission

          Jane C. Luxton argued the cause and filed the briefs for petitioners.

          Alan W. Bakowski was on the brief for amici curiae Public and Private Companies, Nonprofit Organizations, and Labor Union in support of petitioners.

          Tracey A. Hardin, Assistant General Counsel, Securities and Exchange Commission, argued the cause for respondent. With her on the brief were Michael A. Conley, Solicitor, and Daniel E. Matro, Senior Counsel.

          Eugene Scalia, Jacob T. Spencer, and Paul S. Stevens were on the brief for amici curiae Investment Company Institute and Independent Directors Council in support of respondent.

          Before: Henderson, Rogers, and Katsas, Circuit Judges.

          KATSAS, CIRCUIT JUDGE:

         In 2018, the Securities and Exchange Commission adopted a rule allowing investment companies to post shareholder reports online and mail paper copies to shareholders upon request. The petitioners-a consumer-advocacy organization and representatives of the paper industry-argue that the SEC did not adequately consider the interests of shareholders who prefer reports in paper form. Because the consumer organization lacks constitutional standing and the paper-industry representatives assert interests beyond those protected or regulated by the securities laws, we deny the petition for review.

         I

         The Securities and Exchange Commission requires investment companies, such as mutual funds, to transmit periodic shareholder reports to their investors. See, e.g., 17 C.F.R. § 270.30e-1. Previously, the SEC required the companies to mail paper copies unless an investor affirmatively selected electronic delivery. In 2018, the Commission adopted Rule 30e-3, which allows companies to change their default method of transmission. See Optional Internet Availability of Investment Company Shareholder Reports, 83 Fed. Reg. 29, 158 (June 22, 2018) (Shareholder Reports). The rule now permits investment funds to post shareholder reports online and notify investors of their availability. See 17 C.F.R. § 270.30e-3(b)-(d). Investment companies must mail shareholder reports only to investors who expressly request a paper copy. See id. § 270.30e-3(e).

         The SEC gave two principal rationales for this change. First, it projected that the rule would save investment funds about $140 million annually. Shareholder Reports, 83 Fed. Reg. at 29, 187. It explained that because printing costs are paid from fund assets, these savings ordinarily will be "passed along to investors." Id. at 29, 183. Second, the Commission concluded that "many investors would prefer enhanced availability of fund information on the internet." Id. at 29, 165. It explained that "an investor looking for a fund's annual report is most likely to seek it out on the fund's website, rather than request it by mail or phone." Id. at 29, 165 n.96. Moreover, internet usage "has continued to increase rapidly" over the last decade, including among "households owning mutual funds." Id. at 29, 165 n.97. In short, the SEC expected the rule to match shareholder preferences and save them money.

         The Commission recognized that some investors may still prefer paper delivery of shareholder reports. See, e.g., Shareholder Reports, 83 Fed. Reg. at 29, 165-66. Several features of Rule 30e-3 accommodate that preference. The rule prescribes an extended transition period: investment companies must continue to deliver paper copies of the reports until at least January 1, 2021, and they must include with each mailing a statement advising shareholders of the coming change in the default mode of transmission. See 17 C.F.R. § 270.30e-3(i). Then, after making the switch, a fund must mail a paper notice to all shareholders for each report that it posts online. See id. § 270.30e-3(c). The notice must include a toll-free telephone number that investors may call to request a paper copy of the individual report or all future reports. See id. § 270.30e-3(c)(1)(i)-(v). The notice also may specify other ways to request paper reports, such as by e-mail or online. See id. § 270.30e-3(c)(2). Finally, once an investor requests a paper copy, the fund must mail the report within three business days at no cost to the investor. Id. § 270.30e-3(e).

         This case presents two sets of petitioners. Consumer Action is a non-profit membership organization that represents certain consumer interests. Twin Rivers Paper Company and three industry organizations-which we call the Industry Petitioners-represent the interests of the American paper industry. Together, the petitioners argue that the SEC adopted Rule 30e-3 in violation of three securities laws and the Administrative Procedure Act. ...