In the latest legal assault on government regulations promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act, Sidley Austin appellate partner Peter Keisler notched a partial victory on Monday for corporate America.
In a 2-1 decision, a panel of the U.S. Court of Appeals for the D.C. Circuit ruled that the Securities and Exchange Commission can’t force stock-issuing companies to announce when their products contain minerals extracted from the war-torn Democratic Republic of Congo. The court found that requiring companies to disclose to the agency and the public that their products have “not been found to be ‘DRC conflict free’” would trample on their free speech rights.
“The label ‘conflict free’ is a metaphor that conveys moral responsibility for the Congo war,” the panel ruled. “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 2012 rule requires securities issuers whose products include four ‘conflict minerals’ to determine their provenance and report to the SEC if they’re found to originate in the DRC or its neighbors. It prompted a challenge last May by the National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable. They tapped Keisler, who argued that the extensive work involved in complying with the directive imposed a far greater cost than any potential public benefit, thereby violating the Administrative Procedure Act. Keisler also argued that the disclosure requirement violated issuers’ commercial First Amendment rights.
The groups lost at the district court level on both counts. The D.C. Circuit on Monday upheld the lower court’s determination that the rule’s due diligence requirements pass muster under the Administrative Procedure Act, finding that the SEC appropriately took its cues from Congress. But by siding with Keisler’s free speech arguments, the court struck a major a blow to human rights groups and their congressional supporters, who were counting on the disclosures to shame companies into pulling back from the turbulent region.
The case has engendered intense interest on both sides, with some 30 amici filing briefs. The American Petroleum Institute turned to appellate whiz and rule-maker’s scourge Eugene Scalia of Gibson, Dunn & Crutcher, whose winning record in Dodd-Frank rule challenges stood at 6-2 heading into the appeal. Scalia lost this time around, since the institute, touting its expertise in the extractive industries, aimed its arguments squarely on the cost of the new rule and the APA.
Both Keisler and Scalia declined to comment on the ruling. Our affiliate The Blog of Legal Times has more on the decision here.