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DC Circuit Grants SEC’s Petition for Review of SEC Conflict Mineral Ruling

November 24, 2014 | Energy, Natural Resources & Utilities

 

On November 18, 2014, the U.S. Court of Appeals for the D.C. Circuit (the “Court”) granted the Securities and Exchange Commission’s petition for rehearing of the Court’s prior decision that invalidated portions of the Dodd-Frank conflicts-mineral rule (“Final Rule”) on First Amendment grounds. The Court has ordered the parties to submit supplemental briefs in light of the DC Court’s July 29, 2014 ruling, American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014). In that decision, the DC Court applied the “rational basis” test in upholding the U.S. Department of Agriculture’s regulations requiring country-of-origin labeling of meat products sold in the U.S. The Court specifically ordered the parties to address the following issues: (i) the effect of the DC Court’s ruling in American Meat Institute on the First Amendment issue raised regarding the Final Rule; (ii) the meaning of “purely factual and uncontroversial information” as used in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), and American Meat Institute; and (iii) whether the determination of what is “uncontroversial information” is a question of fact. The Court will need to determine whether the phrase “DRC conflict free” in the Final Rule is indeed purely factual and uncontroversial information – in which case the rational-basis test would apply – in order to allow enforcement of the controversial disclosure requirement. No date has been set for the rehearing.

On April 14, 2014, the DC Court issued an opinion1 that unanimously upheld the Final Rule under the Administrative Procedure Act, but invalidated the requirement that an issuer provide disclosure of products that have “not been found to be DRC conflict free”: that is, products containing conflicts metals mined in the Congo, or other conflict jurisdictions (see OMM April 24, 2014, Client Alert: DC Circuit Decision Holds Aspect of Conflict Minerals Disclosure Rule Violates First Amendment, Creating Uncertainty on Rule Implementation; see also OMM June 3, 2013, Client Alert: SEC Staff Publishes FAQs on Conflict Minerals Disclosure).

On April 29, 2014, the Commission’s Division of Corporation Finance issued a statement on the DC Court’s decision, implementing a partial stay in regard to those portions of the Final Rule deemed to violate the First Amendment by virtue of the DC Court’s ruling, but leaving in place the June 2, 2014 Form SD filing deadline for issuers (see OMM May 1, 2014, Client Alert: Securities and Exchange Commission Issues Statement on DC Court of Appeals Decision on Conflict Minerals rule).

On May 5, 2014, the National Association of Manufacturers, Chamber of Commerce of the United States of America, and Business Roundtable (“Petitioners”) filed an Emergency Motion requesting that the DC Court stay the Final Rule, including the June 2, 2014 Form SD filing deadline (see OMM May 12, 2014, Client Alert: Industry Groups File Motion for Full Stay of Conflict Minerals Disclosure Rule).

On May 14, 2014, the DC Court denied the Petitioners’ motion in a one-sentence per curiam order, without providing any of the reasoning behind the decision. Therefore, the June 2, 2014 deadline for issuers to file a Form SD remains in effect. To date, an estimated 1,300 filers have provided Final Rule conflict-mineral disclosures, with 1,000 filers providing a Conflict Minerals Report with the Form SD. Such disclosures may need to be revised and new disclosures may be required if the Court reverses its prior determination.

[1] National Association of Manufacturers et al. v. Securities Exchange Commission, No. 13-5252, available at http://www.cadc.uscourts.gov/internet/opinions.nsf/D3B5DAF947A03F2785257CBA0053AEF8/$file/13-5252-1488184.pdf.


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