Stay current on changes and developments in corporate law with a wide variety of resources and tools.
By Yin Wilczek
Dec. 9 — The Securities and Exchange Commission Dec. 8 told a panel of the U.S. Court of Appeals for the District of Columbia that it should uphold the entirety of the agency's conflict minerals rule.
The D.C. Circuit's July en banc ruling in American Meat Institute v. Dep't of Agriculture, 746 F.3d 1065, 2014 BL 86913 (D.C. Cir. 2014), “makes clear that the conflict minerals disclosure is consistent with the First Amendment,” the SEC said in a filing.
In a joint same-day statement, SEC Commissioners Daniel Gallagher and Michael Piwowar said they oppose the position taken in the SEC's brief.
“Requiring persons to presume their guilt by association with the current tragedy in the Congo region unless proven otherwise is neither factual nor uncontroversial,” the Republican commissioners said. “Other alternatives might effectively convey the message as to which products contain conflict minerals without this assumption.”
The commissioners urged the court to remand the matter to the SEC for further consideration and “suspend the effectiveness of the rule pending completion of such proceedings.”
Gallagher and Piwowar previously asked the commission to stay the rule.
The provision—1934 Securities Exchange Act Rule 13p-1—requires companies and foreign private issuers in the U.S. to disclose their use of so-called “conflict minerals”—gold, tantalum, tin and tungsten from the Democratic Republic of Congo and adjacent countries—if those minerals are “necessary” to a product made by the companies.
In April, the D.C. Circuit panel found that the rule ran afoul of the First Amendment to the extent that it requires issuers to report to the commission and to state on their website that any of their products have not been found to be “DRC conflict free”. The panel concluded that the lower standard of First Amendment scrutiny under Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), didn't apply to the case because Zauderer review is limited to disclosures that are reasonably related to the government's interest in preventing consumer deception.
In July, however, the full D.C. Circuit concluded in American Meat that Zauderer review may apply to “government interests” as well as “correcting deception.”
In light of American Meat, the panel—comprising Judges A. Raymond Randolph, Sri Srinivasan and David Sentelle—Nov. 18 granted the SEC and Amnesty International's rehearing petitions. The panel asked the SEC and the other parties in the case to submit supplemental briefs explaining what impact American Meat has on the case's First Amendment issue.
In its brief, the SEC said that Zauderer review applies to the conflict minerals case, and its rule does not violate the First Amendment based on that standard.
“The en banc court held that Zauderer applies to commercial disclosures of ‘purely factual and uncontroversial information about the good or service being offered' so long as they are supported by any sufficient governmental interest,” the SEC said. It added that the government's interest in “promoting peace and security in the DRC is substantial, even compelling.”
The commission also noted that a conflict minerals report discloses the steps issuers have taken to exercise due diligence on the source and chain of custody of the minerals used in their products, and the results of that due diligence.
The requirement that issuers describe the products that “have not been found to be ‘DRC conflict free’” is made “in the context of those disclosures and merely measures the results of that due diligence against an objectively defined standard,” the SEC said. “It is therefore ‘factual and uncontroversial'” and the “disclosure otherwise survives Zauderer review.”
The D.C. Circuit panel has called for an expedited briefing schedule, and the business groups challenging the SEC rule—the National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable—have 20 days from the filing of the SEC's brief to file their brief.
Once the panel issues a decision, that may not be the end of the case for the SEC. The full D.C. Circuit Nov. 18 said it would consider the SEC and Amnesty's petitions for rehearing en banc “pending disposition of the petitions for panel rehearing.” That could mean that after the panel issues a decision, the full court may decide to take up the case.
To contact the reporter on this story: Yin Wilczek in Washington at mailto:%firstname.lastname@example.org
To contact the editor responsible for this story: Ryan Tuck at email@example.com
The SEC's brief is available at http://www.bloomberglaw.com/public/document/Natl_Assoc_of_Manufacturers_et_al_v_SEC_et_al_Docket_No_1305252_D/21.
The full D.C. Circuit's order is available at http://www.bloomberglaw.com/public/document/Natl_Assoc_of_Manufacturers_et_al_v_SEC_et_al_Docket_No_1305252_D/22.
The American Meat decision is available at http://www.bloomberglaw.com/public/document/Am_Meat_Inst_v_Dept_of_Agriculture_No_135281_2014_BL_86913_DC_Cir.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)