United States Court of Appeals, District of Columbia Circuit
March 12, 2019
Petition for Review of an Order of the Securities &
C. Luxton argued the cause and filed the briefs for
W. Bakowski was on the brief for amici curiae Public and
Private Companies, Nonprofit Organizations, and Labor Union
in support of petitioners.
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,
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:
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.
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).
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
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).
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. ...