The rule was designed to make it easier for shareholders to nominate directors to corporate boards, but the court decided it was “arbitrary and capricious” and that the agency had failed to properly weigh the economic consequences of the new regulations.

The U.S. Chamber of Commerce and the Business Roundtable, who filed the lawsuit against the SEC, feared that the rule would give minority shareholders a disproportionate influence in board composition, and cost companies millions of dollars in contested board elections.

The rule would have required companies to include a shareholder candidate in their voting materials if the nominating shareholders had held at least 3% of the voting power in the corporate stock for three years. According to Reuters, these business groups accused the SEC of failing to adequately assess the rule’s costs.

Judge Douglas Ginsburg, who wrote the opinion for the court, said the SEC “relied upon insufficient empirical data” when it determined that the rule would “improve board performance and increase shareholder value by facilitating the election of dissident shareholder nominees.” He noted that the SEC “inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters.”