|April 21, 2014|
Previously published on April 17, 2014
On April 14, 2014, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit (the "Circuit Court") issued its "conflict minerals" opinion in National Association of Manufacturers, et al. v. Securities and Exchange Commission, et al. The Circuit Court held that requiring entities to report to the Securities and Exchange Commission (the "SEC") and state on their websites that any of their products have "not been found to be 'DRC conflict free'" violates the First Amendment. The Circuit Court noted in a footnote that, if the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") requires the descriptor "not been found to be 'DRC conflict free,'" then such portion of the Dodd-Frank Act is unconstitutional. If the description is purely a result of the SEC's rulemaking, then the SEC's final rule violates the First Amendment, and the statute is unaffected. The Circuit Court remanded the case to the United States District Court for the District of Columbia (the "District Court") for further proceedings consistent with its opinion.
The National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable challenged the SEC's final conflict minerals rules, which were issued on August 22, 2012, under Administrative Procedure Act, Securities Exchange Act of 1934 and First Amendment claims. The plaintiffs claimed, among other things, that the SEC acted arbitrarily and capriciously in not having a de minimis exception and in formulating the due diligence threshold. On July 23, 2013, the District Court rejected all of plaintiffs' claims and granted summary judgment for the SEC and Amnesty International, as intervenor. The Circuit Court upheld the District Court's ruling with respect to all claims other than the First Amendment claim and noted that the SEC "exhaustively analyzed" the final rule's costs and did not act "arbitrarily and capriciously" with respect to various provisions. The Circuit Court believes, however, that forcing companies to state that their products "have not been found to be 'DRC conflict free'" is compelled speech that violates the First Amendment. According to the Circuit Court:
"The label 'conflict free' is a metaphor that conveys moral responsibility for the Congo war. It requires an issuer to tell consumers that its products are ethically tainted, even if they only indirectly finance armed groups. An issuer, including an issuer who condemns the atrocities of the Congo war in the strongest terms, may disagree with that assessment of its moral responsibility. And it may convey that 'message' through 'silence.'[Citation omitted.] By compelling an issuer to confess blood on its hands, the statute interferes with the exercise of the freedom of speech under the First Amendment."
The deadline for filing the initial Conflict Minerals Reports and Forms SD is May 31, 2014 (effectively June 2, 2014 due to the Saturday deadline), and issuers are eagerly awaiting additional clarification from governmental authorities as to the status and parameters of the conflict minerals rules. The District Court or the SEC may stay implementation of the rules, pending resolution of the First Amendment issue. Given the centrality of the "DRC conflict free" concept in the final rules, though, a mere tweak to the rules would probably be insufficient to address the underlying issue. To complicate matters, on May 19, 2014, the full Circuit Court (en banc) is scheduled to hear oral arguments on compelled speech in American Meat Institute v. United States Department of Agriculture. A concurring opinion in National Association of Manufacturers, et al. v. Securities and Exchange Commission, et al. argued for holding in abeyance the consideration of the First Amendment issue pending the en banc Circuit Court's decision in American Meat Institute v. United States Department of Agriculture.