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Staff Guidance - What Would California Do?

Recently, Securities and Exchange Commission Chairman Jay Clayton released a public statement emphasizing that "all staff statements are nonbinding and create no enforceable legal rights or obligations of the Commission or other parties."  The Chairman's statement can be seen as part of a broader reevaluation of the deference owed by courts to administrative agencies whether acting formally or informally.

In California, it is clear that informal agency positions are not enforceable.  The Administrative Procedure Act prohibits state agencies from issuing, utilizing, enforcing, or attempting to enforce any guideline, criterion, bulletin, manual, instruction, order, standard of general application, or other rule, that is a “regulation” under the APA unless it has been adopted as a regulation and filed with the Secretary of State pursuant to the APA. Cal. Gov't Code § 11340.5.  This ban on so-called "underground regulations" prevents state agencies from issuing binding interpretations or guidelines without complying with the notice and comment procedures of the APA.

The fact that state agencies are not permitted to enforce underground regulations does not mean that they don't try.  Underground regulations can be found in forms, written or unwritten policies, standards, manuals, bulletins, and instructions.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...