Source: https://www.jdsupra.com/legalnews/dc-circuit-to-re-consider-whether-sec-93175/
Timestamp: 2019-04-23 22:54:22+00:00

Document:
In an interesting and uncommon intersection between securities law, curbing human rights abuses and freedom of speech under the First Amendment, the United States Court of Appeals for the District of Columbia recently agreed to re-consider whether the SEC can require companies to disclose whether their products contain “conflict minerals.” The term “Conflict Minerals” is defined in Section 1502(e)(4) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and refers to certain minerals originating from the Democratic Republic of the Congo (“DRC”), or an adjoining country, that have been used by armed groups to help finance violent conflicts and human rights abuses in those countries. These minerals currently include gold, tin, tatalum, tungsten, and may include any other mineral the Secretary of State determines is being used to finance conflict in the DRC or an adjoining country.
In 2012, the SEC added Section 13(p) pursuant to the Dodd-Frank Act requiring about 6,000 publicly traded companies to document the source of all conflict minerals used in their products, disclosing whether they were sourced from the DRC or one of its neighbors. The SEC noted that to accomplish the goal of ending human rights abuses in the DRC by reducing the use of conflict minerals to fund armed groups contributing to the conflict, “Congress chose to use the securities laws disclosure requirements to bring greater public awareness of the source of issuers’ conflict minerals and to promote the exercise of due diligence on conflict mineral supply chains.” CFR Parts 240 and 249b [Release No. 34-67716; File No. S7-40-10, “Conflict Minerals”].
In April 2014, a divided three judge D.C. Circuit panel struck down the portion of the rule forcing companies to declare whether or not their products are “conflict free.” National Association of Manufacturers v. Securities and Exchange Commission, 748 F.3d 359 (D.C. Cir. 2014) (“NAM v. SEC” or “NAM”). The D.C. Circuit held that this provision violated the First Amendment under the heightened scrutiny review standard articulated by the Supreme Court in a 1980 decision entitled Central Hudson Gas & Electric Corp v. Public Service Commission, 447 U.S. 557 (1980). The NAM decision explained that “by compelling an issuer to confess blood on its hands, the statute interferes with that exercise of freedom of speech.” This was a partial win for business groups, led by the National Association of Manufacturers.
On November 18, 2014, the original D.C. Circuit three judge panel granted a rehearing in NAM v. SEC. The rationale for the rehearing was a July 2014 D. C. Circuit en banc opinion involving country-of-origin labeling of meat. In that case, American Meat Institute (AMI) v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (en banc), the court held that a congressionally-mandated disclosure requirement concerning where an animal is born, raised, and slaughtered does not violate commercial free speech protections. In reaching this result, the AMI court held that a “rational basis” review should be applied to First Amendment challenges regarding the commercial disclosure of “purely factual and uncontroversial” commercial information. This standard was originally set forth by the Supreme Court in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), but was limited by the D.C. Circuit in 2012 only to cases involving consumer deception. See R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205 (D.C. Cir. 2012). In American Meat, the D.C. Circuit overruled cases interpreting Zauderer narrowly, and clarified that rational basis review applicable to disclosure mandates is much broader and not limited to cases merely involving deception.
In May, while the July 2014 AMI decision was still pending, the SEC petitioned for rehearing of the NAM decision on the First Amendment disclosure issue, but requested that the Court hold the petition in abeyance pending issuance of the en banc AMI decision. After the AMI ruling, Amnesty International submitted a brief in support of the SEC’s petition in NAM, arguing that the NAM court erred in failing to apply the “rational basis” standard for commercial speech set forth in Zauderer. In particular, Amnesty argued that the conflict minerals disclosure is constitutional because it is “purely factual and uncontroversial” within Zauderer‘s scope. In opposing the petition, NAM and other appellants argued that the SEC’s conflict-free disclosure rules are neither factual nor uncontroversial; therefore, the rational basis review applied in AMI should not impact the NAM decision.
What effect, if any, does this court’s ruling in AMI have on the First Amendment issue in the NAM case regarding the conflict mineral disclosure requirement?
What is the meaning of “purely factual and uncontroversial information” as used in the Zauderer and AMI decisions?
The parties’ supplemental briefs are due in December. The D.C Circuit’s ultimate decision in NAM will likely have a significant impact on the many public companies subject to the conflict minerals rule. If NAM is reversed, companies whose products contain conflict minerals would be required to bear the costs associated with tracing the origin of minerals in their products in order to determine their country of origin. The NAM decision will also no doubt impact the controversial debate over the scope of SEC mandatory disclosure requirements, which have expanded from its original mission aimed at investor protection to include humanitarian ambitions and curbing human rights abuses like those seen in the debate emerging around conflict minerals rules.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.