Securities Regulation and Corporate Governance

:

Securities Regulation and Corporate Governance > Posts > D.C. Circuit Issues Conflict Minerals Decision, but Uncertainty Remains
D.C. Circuit Issues Conflict Minerals Decision, but Uncertainty Remains

On August 18, 2015, following a panel rehearing, the U.S. Court of Appeals for the D.C. Circuit issued an opinion affirming its April 2014 decision in National Association of Manufacturers, et al. v. SEC, et al. (“NAM”) that the conflict minerals disclosure rule violates the First Amendment to the extent it requires companies to report that any of their products have “not been found to be ‘DRC conflict free.’”  The NAM panel had granted a petition for rehearing in light of a July 2014 ruling in American Meat Institute v. U.S. Department of Agriculture (“AMI”), in which an en banc panel of the D.C. Circuit upheld the constitutionality of compelled speech in the form of Department of Agriculture rules requiring country-of-origin labeling for meat products and raised issues regarding the standard of review to be applied by the court in reviewing the First Amendment challenge in NAM.  Because the opinion also addressed the appropriate standard of review to be applied by courts in reviewing compelled speech in the regulatory arena, the NAM panel saw fit to reconsider its decision in light of AMI.

On rehearing, the panel affirmed its decision, explaining that while the AMI decision construed the Supreme Court’s opinion in Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626 (1985) to expand the applicability of rational basis review to compelled disclosures for purposes other than curing consumer deception, that standard of review did not apply to the facts of NAM and therefore did not render the conflict minerals statutory provision (Section 1502 of the Dodd-Frank Act) or the SEC conflict minerals rule constitutional.  The panel also explained that the statutory provision and SEC rule would violate the First Amendment even if it applied the same analysis employed in the AMI decision.  In its opinion, the court said the government’s stated purpose for the conflict minerals disclosure rule rested on “speculation or conjecture,” that the compelled disclosure was stigmatizing, and that, although “‘[r]equiring a company to publicly condemn itself is undoubtedly a more ‘effective’ way for the government to stigmatize and shape behavior than for the government to have to convey its views itself’” that makes the disclosure requirement all the more “constitutionally offensive.”

While the D.C. Circuit has now issued its second, and possibly final, opinion in NAM, the future of conflict minerals reporting requirements remains in question.  It is possible the SEC will ask the D.C. Circuit to grant rehearing en banc, or even seek review in the Supreme Court. 

In response to the D.C. Circuit’s original decision in NAM, the SEC had issued guidance explaining that, “[p]ending further action,” companies are not required to describe their products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict undeterminable.” The SEC at the same time stated that a company is only required to obtain an independent private sector audit (IPSA) if it voluntarily elects to describe its products as “DRC conflict free.”  Importantly, this guidance appears to continue to apply, unless modified by the SEC, even though the conflict minerals rule otherwise would have required companies (other than smaller reporting companies) to obtain an IPSA for their 2015 conflict minerals reports.  Nevertheless, with the uncertainty that remains in the wake of this week’s decision as to the future of conflict minerals reporting, additional guidance from the SEC on the future scope of the reporting requirements may be forthcoming.

‭(Hidden)‬ Blog Tools


© Copyright 2019 Gibson, Dunn & Crutcher LLP.
Attorney Advertising. Prior results do not guarantee a similar outcome. All information provided on this site is for informational purposes only, does not constitute legal advice, is not confidential, and does not create an attorney-client relationship. Statements and content posted to this site do not represent the opinion of Gibson Dunn & Crutcher LLP ("Gibson Dunn"). Gibson Dunn makes no representations as to the accuracy, completeness, currentness, suitability, or validity of any information on this site and will not be liable for any errors or omissions therein, nor for any losses, injuries, or damages arising from its display or use.