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SB 1145: Curbing the Overreach of The Corporation Commission over Private Companies

February 19, 2019

The Arizona Corporation Commission currently has authority to issue a subpoena to a business—and demand sensitive, proprietary information—“simply to assure itself that the law is being obeyed.” Not only is that an extraordinary power to subpoena anyone at any time, but under current law, someone who receives a subpoena has no right to challenge the subpoena before obeying it. That means a business must turn over private information even if it’s done nothing wrong—information the Commission can then release to the public whenever a single, unelected official decides doing so is in the “public interest.”

If a business that gets a subpoena wants to challenge it in court, current law only allows the business to a) disregard it and risk the Commission seeking enforcement in court, and then raise the argument that it’s not subject to the Commission’s jurisdiction—which means risking being the defendant and possible contempt charges—or b) file a “special action,” in court. But special actions are “discretionary,” meaning that the judge isn’t required to hear it—she can reject it for any reason or no reason at all.

That’s what happened in the case of Chandler, Arizona company Kadima Ventures, a business that the Commission suspected of selling securities. Kadima says it isn’t, and that it’s therefore not under the Commission’s jurisdiction. Employees of the Commission sent them a subpoena anyway, and Kadima had no way of challenging that subpoena prior to complying with it, except by trying a special action. They tried that—but the court rejected it, leaving Kadima with no choice but to submit to the Commission’s authority. And when Kadima asked the Commission to promise not to release their proprietary information, the Commission refused.

In two recent cases involving the federal EPA, the U.S. Supreme Court has said people must be given an opportunity to challenge an order from an administrative agency before being forced to comply. The EPA, like the Corporation Commission, argued that citizens could just ignore their orders and wait for an enforcement action in court, and then have a hearing. But the Supreme Court said that wasn’t enough to protect people’s rights. The same is true of subpoenas issued by the Commission. People shouldn’t have to risk breaking the law in order to have a day in court.

To make matters worse, current law enables the Commission to publicly release information obtained through a subpoena, even if it’s confidential, proprietary information, such as valuable trade secrets. The Commission’s executive director has unilateral authority to disclose this private information to the public with no oversight at all. When Kadima asked the Commission to keep its valuable business information private, the Commission refused. So even if the business was later found to have not broken the law, its proprietary information would be made public—including to Kadima’s competitors.

SB1145 Sponsored by Senator Vince Leach, beings the subpoena powers of the Arizona Corporation Commission into alignment with that legal courts. It does two things:

  1. Allows businesses a way to challenging subpoenas in court before being forced to comply.
  2. Requires the Commission to keep valuable business information confidential—by allowing businesses to protect their trade secrets and by requiring the Commission to create clear rules governing when it will release private information, instead of letting the Commission’s director make that decision without any oversight.

SB 1145 is now headed to the Senate floor, where members will be able to vote to protect business like Kadima while still allowing the Corporation Commission to issue subpoenas. This does not change the Commission’s jurisdiction or limit its legitimate authority to investigate and regulate corporations in any way—but simply provides a way for people to challenge a subpoena if they think they’re not under the Commission’s jurisdiction—and keeps trade secrets from being publicized in ways that can harm law-abiding businesses.

To learn more about Kadima’s story, check out our blog post here.



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