In the case of Securities & Exchange Commission v. Chenery Corporation et al., 1946, the U.S Supreme Court ruled that an administrative agency must clearly state its reasons for a decision so that it can be reviewed by a court. The SEC had rejected a reorganization plan proposed by Federal Water Service Corporation (later renamed Chenery Corp) during bankruptcy proceedings because it unfairly benefited insiders at the expense of public stockholders. However, this reasoning was not stated in their original order but only later in litigation. The Supreme Court held that courts could not affirm an administrative action on grounds other than those considered by the agency at the time of making its decision and sent back to SEC for reconsideration with instructions to articulate clear reasons if they decided again to reject the plan.

In the dissenting opinion for SECURITIES & EXCHANGE COMMISSION v. CHENERY CORPORATION ET AL., Justice Frankfurter argued that the court majority erred in allowing administrative agencies to make policy decisions on a case-by-case basis, rather than through general rules and regulations. He contended that this approach undermines legal predictability and fairness as it allows agencies to change their policies without warning or explanation, leaving regulated parties unsure of how to comply with the law. Furthermore, he expressed concern about potential abuses of discretion by administrative officials who might use this flexibility to favor certain parties over others. In his view, such an approach is inconsistent with fundamental principles of American jurisprudence which require laws be announced in advance so individuals can conform their behavior accordingly.