DC Circuit Decision Holds Aspect of Conflict Minerals Disclosure Rule Violates First Amendment, Creating Uncertainty on Rule Implementation

4월 24, 2014 | Energy, Natural Resources & Utilities


This is a further update to our coverage of the final rules adopted by the Securities and Exchange Commission (the “Commission”) for the implementation of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires issuers who file annual reports with the Commission to provide annual disclosure regarding their use of “conflict minerals” (the “Final Rule”). For a complete discussion of the conflict minerals disclosure requirements, please see our prior client alerts (see OMM August 22, 2012, Client Alert: SEC Adopts Conflict Minerals Disclosure Requirements; see also OMM June 3, 2013, Client Alert: SEC Staff Publishes FAQs on Conflict Minerals Disclosure).

On April 14, 2014, the U.S. Court of Appeals for the D.C. Circuit (the “DC Court”) issued an opinion[1] that unanimously upheld the Final Rule under the Administrative Procedure Act, but invalidated the requirement that an issuer provide disclosure using the phrase “not been found to be DRC conflict free” if its products contain metals mined in the Congo or other conflict jurisdictions. The DC Court applied an intermediate form of scrutiny[2] in making its decision that this obligation imposed by the Commission would result in compelled speech, violating the First Amendment rights of issuers.[3] The DC Court further ruled that, because the Commission failed to present evidence that alternatives to the requirement would be less effective, the requirement is not narrowly tailored, despite an issuer’s ability to explain the meaning of “conflict free” in its own terms.

The Commission has not announced whether it will revise the Final Rule to be consistent with the DC Court’s decision. It also remains unclear whether either party will request an en banc hearing by the DC Court, which has issued an order to stay the mandate until seven days after a ruling on any petition for a rehearing, while neglecting to stay enforcement of the Final Rule.[4] Therefore, in the face of this uncertainty, it is advised that issuers be prepared to file disclosures under the Final Rule by the June 2, 2014 deadline. Some companies have already proceeded with a disclosure under the Final Rule (see April 24, 2014 Form SD filing by Siliconware Precision Industries Co., Ltd.).

We will continue to update you on any developments in the interim.

[1] National Association of Manufacturers et al. v. Securities Exchange Commission, No. 13-5252, available here.
[2] See Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980).
[3] In a concurring opinion, Judge Sri Srinivasan argues that the panel should withhold its decision on the constitutional issue until an en banc ruling by the DC Circuit is issued in American Meat Institute v. United States Department of Agriculture, No. 13-5281, which is set to address the appropriate level of scrutiny in cases where mandatory disclosure obligations imposed by federal regulations serve interests other than preventing deception.
[4] A petition for rehearing or an en banc hearing must occur within 45 days of the initial decision. See Circuit Rules of the United States Court of Appeals for the District of Columbia Circuit, Rule 35, available here.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Eric Rothenberg, an O'Melveny partner licensed to practice law in Missouri and New York, Robert Plesnarski, an O'Melveny partner licensed to practice law in the District of Columbia and Pennsylvania, Shelly Heyduk, an O'Melveny senior counsel licensed to practice law in California, and Jesse Glickstein, an O'Melveny associate licensed to practice law in New Jersey and New York, contributed to the content of this newsletter The views expressed in this newsletter are the views of the authors except as otherwise noted.

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