Securities and Exchange Commission v. Chenery Corp. (Chenery II)

Supreme Court of the United States · 1947 · Administrative Law

332 U.S. 194 (1947)

Updated August 1, 2026

Administrative Lawadjudicationagency rationaleadministrative adjudicationrulemaking versus adjudicationagency discretionretroactivitysubstantial evidence

Facts

Federal was a registered holding company undergoing reorganization under the Public Utility Holding Company Act. During the reorganization, Federal's officers, directors, and controlling stockholders bought substantial amounts of Federal's preferred stock on the over-the-counter market in order to protect their interest in the new company and to obtain the voting power and profit expected from conversion under the plan. There was no fraud or lack of disclosure in those purchases. On remand from the first Chenery decision, the SEC denied an amendment that would have let management receive the same conversion treatment as public preferred holders, concluding that parity treatment was inconsistent with the statutory standards governing the reorganization.

Issue

Whether, after the first Chenery remand, the SEC could deny approval of the proposed amendment by announcing and applying a new standard in this adjudication, even though no prior judicial rule, statute-specific regulation, or general SEC rule had prohibited management's purchases during reorganization. Also, whether the order was invalid because it operated retroactively on conduct that had not previously been addressed by a general rule.

Rule

A reviewing court must judge administrative action solely by the grounds invoked by the agency, and those grounds must be stated clearly. Within its statutory authority, however, an administrative agency may develop and apply standards through case-by-case adjudication as well as through rulemaking; the choice between the two modes lies primarily in the agency's informed discretion. The retroactive effect of a first-time adjudicative standard is not necessarily invalid, but must be weighed against the mischief of reaching a result contrary to the statutory design or legal and equitable principles.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

The Coastal Energy Oversight Board in Richmond reviews a merger application under a statute requiring transactions to be consistent with the public interest and fair to investors. No regulation addresses a newly emerging financing tactic used by the applicants, and the Board denies approval in an adjudicative order after explaining why the tactic creates conflicts inconsistent with the statute.

On judicial review, the applicants argue the Board had to issue a prospective regulation before denying their application. What is the strongest response?

Explanation. The majority held that an agency may fill statutory interstices either by general rule or by individual order, and that the choice is primarily for the agency's informed discretion. The absence of a preexisting regulation does not strip the agency of power to act in the case before it, especially where it explains the statutory basis for its decision.