Section 25018 of the California Corporations Code provides a definition of several of the better known federal securities laws:
“Securities Act of 1933,” “Securities Exchange Act of 1934,” “Public Utility Holding Company Act of 1935,” “Investment Advisers Act of 1940,” and “Investment Company Act of 1940” mean the federal statutes of those names as amended before or after the effective date of this law.
There is nothing remarkable about Section 25018 and it hardly seems to be at risk of constitutional infirmity. And yet there is a problem.
The problem has to do with the incorporation of provisions of these federal statutes into the Corporate Securities Law of 1968. And yet the incorporation of a federal statute does not necessarily give rise to a constitutional question.
The constitutional question arises because the legislature purports to incorporate not just present statutes, but future legislative changes. As the California Supreme Court long ago explained:
“It is, of course, perfectly valid to adopt existing statutes, rules or regulations of Congress or another state, by reference; but the attempt to make future regulations of another jurisdiction part of the state law is generally held to be an unconstitutional delegation of legislative power.”
Brock v. Superior Court, 9 Cal.2d 291, 297 (1937) (emphasis in original).
Brock is an old case, but it hasn’t stopped breathing. In People v. Kruger, 48 Cal. App. 3d Supp. 15 (1975), a defendant’s criminal conviction for exceeding catch limits on yellow fin tuna was overturned based in part on the future incorporation:
Whether or not the Legislature intended that the [Fish & Game] commission adopt prospective federal regulations, the state regulations have done just that. Section 108 of title 14 of the California Administrative Code declares that the state adopts the federal regulations at issue herein as they were then “and as such regulations may be revised or amended in the future.” While existing statutes may be incorporated by reference, prospective incorporation has never been approved by a California court.
As one commentator has observed:
As incorporation by reference outgrew its humble origins as a simple space saving technique and was transformed into a device used to adopt the future legislation of other governmental entities, the legal doctrines governing its use took on infinitely greater importance. Incorporation by reference doctrine implicates nothing less than the fundamental allocation of governmental power in our society and is worthy of far more attention by courts and legislative bodies than it has usually received.
F. Scott Boyd, Looking Glass Law: Legislation by Reference in the States, 68 La. L. Rev. 1201 (2008). Cornell University Law Professor Michael C. Dorf’s has also emphasized the reality of concerns about incorporation by reference:
Regardless of whether that other jurisdiction contains, is contained within, or is wholly outside of the incorporating jurisdiction, the act of incorporation cedes some measure of political accountability to actors answerable to a different polity. This practice can sometimes be justified by the benefits it confers, and the concerns it raises can be mitigated by a variety of procedural mechanisms, but the concerns cannot simply be dismissed.
Dynamic Incorporation of Foreign Law, 157 U. Pa. L. Rev. 103, 169 (2008).
Section 25018 also demonstrates that a problem can arise even when the legislature incorporates existing federal laws. The statute defines the Public Utility Holding Company Act of 1935, but that act was repealed nearly eight years ago by Section 1263 of the Energy Policy Act of 2005, P.L. 109-58. Does anyone remember giving opinions about whether the company is a holding company under the P.U.H.C.A.?
Constitutional questions haven’t deterred the legislature from incorporating future law changes into the General Corporation Law. See, for example, Corporations Code Sections 421, 1501(a)(4), and 1400.