A miner works in a mine in Mbuji Mayi, Congo, Monday, July 31, 2006. (Photo: Schalk van Zuydam/AP)
A Washington federal appeals court on Tuesday held for the second time that a part of the U.S. Securities and Exchange Commission’s conflict mineral labeling rule violates the First Amendment.
The rule, which requires companies to report to the SEC and note on their websites whether any products “have not been found to be [Democratic Republic of the Congo] conflict free,” was initially struck down in April 2014. The panel agreed to rehear the case after the full appeals court handed down an intervening decision that upheld a similar challenge to the Food and Drug Administration’s country-of-origin meat labeling rule.
The rehearing did not change the position of the panel’s majority. “We adhere to our original judgment,” wrote Senior Judge A. Raymond Randolph, joined by Senior Judge David Sentelle, in National Association of Manufacturers v. SEC. Randolph quoted liberally from last year’s decision, also joined by Sentelle.
“Products and minerals do not fight conflicts. The label ‘[not] conflict free’ is a metaphor that conveys moral responsibility for the Congo war. It requires an issuer to tell consumers that its products are ethically tainted, even if they only indirectly finance armed groups. An issuer, including an issuer who condemns the atrocities of the Congo war in the strongest terms, may disagree with that assessment of its moral responsibility. And it may convey that ‘message’ through ‘silence.’ By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment,” the majority wrote in April 2014.
The panel split 2-1 over the First Amendment issue, with Judge Sri Srinivasan dissenting. In the earlier case, he withheld judgment because the the FDA meat-labeling case was pending en banc review. Srinivasan wrote on Tuesday:
There should be no viable First Amendment objection to a requirement for an issuer to disclose the country of origin of a product’s materials—including, say, whether the product contains specified minerals from the [DRC] or an adjoining country, the site of a longstanding conflict financed in part by trade in those minerals. Such a requirement provides investors and consumers with useful information about the geographic origins of a product’s source materials. Indeed, our court, sitting en banc, recently relied on ‘the time-tested consensus that consumers want to know the geographical origin of potential purchases’ in upholding a requirement for companies to identify the source country of food products.
In American Meat Institute v. FDA, the full court split down largely ideological lines, with the court’s four active conservative judges dissenting over the majority’s application of a key 1986 Supreme Court precedent to provide a more relaxed First Amendment review of disclosure mandates.
Randolph and Sentelle, however, said that precedent, from the case Zauderer v. Office of Disciplinary Counsel attaches only to advertising and therefore “has no application to this case.” SEC disclosures, however important for investors, do not amount to advertising, the majority concluded.
The majority also inserted a couple acerbic literary references. To respond to Srinivasan’s argument, Randolph deployed a quote from Charles Dickens’ “A Tale of Two Cities”: “‘Whatever is is right’; an aphorism that would be as final as it is lazy, did it not include the troublesome consequence, that nothing that ever was, was wrong.”
Later in the opinion, the majority likens the SEC’s labeling to “governmental redefinition” such as “WAR IS PEACE” that litters George Orwell’s novel 1984.
The D.C. Circuit Decision in National Association of Manufacturers v. SEC is posted below.