Stay current on changes and developments in corporate law with a wide variety of resources and tools.
By Yin Wilczek
May 30 — The Securities and Exchange Commission has asked the U.S. Court of Appeals for the District of Columbia Circuit to rehear a case in which it found parts of the agency's conflict minerals rule unconstitutional, depending on the outcome of an unrelated First Amendment lawsuit.
In a May 29 petition, the SEC told the court that the resolution of American Meat Institute v. USDA may have significant bearing on the court's conflict minerals decision.
“Because the en banc Court's decision in American Meat Institute may affect the important constitutional questions addressed by the panel's First Amendment ruling in this case, we respectfully request that the Court hold this case for potential panel rehearing or rehearing en banc once that decision is issued,” the SEC said.
By asking the court to hold its rehearing petition in abeyance until the outcome of Am. Meat. Inst., the commission in effect is trying to buy itself more time.
The SEC added that its petition related only to that part of the court's conflict minerals decision addressing the First Amendment issue. “[T]he Commission requests that the remainder of the panel's opinion remain the opinion of the Court,” it said.
The groups that challenged the SEC rule—the National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable—did not immediately respond to requests for comment.
The SEC's rule—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.
The rule was mandated by Section 1502 of the Dodd-Frank Wall Street Reform and the Consumer Protection Act.
In an April 14 decision, a split D.C. Circuit panel found that the SEC rule ran afoul of the First Amendment to the extent 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”.
Judge Sri Srinivasan partly disagreed, writing separately that the majority should have withheld its decision on the constitutional issue pending a ruling by the full D.C. Circuit in American Meat Institute.
American Meat Institute involves First Amendment claims filed in connection with a Department of Agriculture rule requiring country-of-origin labeling. The D.C. Circuit heard oral argument in the case May 19 but has not yet issued a decision. The pivotal issue is whether the court may apply “rational basis review”—a lower standard of scrutiny—to compelled disclosures even in cases not involving consumer deception.
In the conflict minerals case, the panel majority found that the SEC rule was not intended to prevent consumer deception, and thus applied heightened scrutiny, rather than rational basis review, to the disclosures at issue.
Michael Hermsen, a partner in Mayer Brown LLP's Chicago office, told Bloomberg BNA that the SEC's rehearing petition is “purely procedural” and “an attempt to extend the time period” for the commission to appeal the court's decision.
“If the court in the American Meat Institute appeal agrees with the reasoning in the conflict minerals opinion, then it is likely the SEC won't appeal the decision,” Hermsen said. “But if the American Meat Institute appeal results in the court saying a different standard of review applies, then the SEC will likely appeal the conflict minerals decision seeking to overturn the opinion on that one disclosure point.”
SEC spokesman John Nester declined to comment.
On the same day that the SEC filed its petition, intervenor Amnesty International filed a similar petition asking the court to rehear the case, also pending the outcome of American Meat Institute
That ruling may be dispositive to the conflict minerals case, and “will—at a minimum—clarify this Court's First Amendment jurisprudence regarding the level and application of scrutiny appropriate for comment disclosure requirements,” the human rights group said in its petition. “Rehearing is thus warranted to ensure uniformity with this Court's en banc decision in American Meat Institute.”
Meanwhile, issuers are filing their conflict minerals reports ahead of the June 2 filing deadline. Global Witness, in a review of the first 39 filings, said the Forms SD were not sufficiently detailed to show that companies were doing “credible checks” on their supply chains.
Securities attorneys told Bloomberg BNA that the SEC and Amnesty International's rehearing petitions have no immediate impact on the current disclosure requirements. In line with the SEC's partial stay order and guidance by the Division of Corporation Finance, companies must file their conflict minerals disclosures by June 2 but do not have to describe their products as “DRC conflict free,” “not been found to be `DRC conflict free,'” or “DRC conflict undeterminable.”
However, companies should continue to keep abreast of developments in the litigation, Hermsen said. “It is something for issuers to monitor in the future” given that the court's decision may be overturned, and issuers may be required “to make the challenged disclosures in future reports,” he told Bloomberg BNA.
To contact the reporter on this story: Yin Wilczek in Washington at email@example.com
To contact the editor responsible for this story: Phyllis Diamond at firstname.lastname@example.org
The SEC's petition is available at http://www.bloomberglaw.com/public/document/Natl_Assoc_of_Manufacturers_et_al_v_SEC_et_al_Docket_No_1305252_D/13.
Amnesty International's petition is available at http://www.bloomberglaw.com/public/document/Natl_Assoc_of_Manufacturers_et_al_v_SEC_et_al_Docket_No_1305252_D/14.
Notify me when updates are available (No standing order will be created).
Put me on standing order
Notify me when new releases are available (no standing order will be created)