by Schulte Roth & Zabel LLP
on November 18, 2014
Now in its third year, the challenge to the SEC’s Conflict Minerals Rule (“the Rule”) continues. Today, the Court of Appeals for the D.C. Circuit issued an Order granting the SEC’s and Amnesty International’s petitions for panel rehearing and ordered the parties to file supplemental briefs, as described below.
The panel rehearing is before the three appellate court judges who originally decided the case. In a separate Order issued today, the court deferred the petitions for rehearing en banc — i.e., before the full D.C. Circuit Court of Appeals — pending disposition of the petitions for panel rehearing. Accordingly, after the panel reaches a decision, it is possible that the D.C. Circuit still may decide to rehear the case en band.
To recap, on April 14, the Court of Appeals largely upheld the Rule. However, the court concluded that the requirement to describe products as having “not been found to be DRC conflict free” is compelled speech that violates the First Amendment, under the standard articulated in a 1980 U.S. Supreme Court case, Central Hudson Gas & Electric Corp. v. Public Service Commission. The rehearing only involves the First Amendment issue, and not the other aspects of the Rule that were upheld by the court in April.
On May 29, the SEC filed its petition for rehearing of the court’s First Amendment ruling, which was the first step toward today’s Orders.
In late July, the D.C. Circuit Court of Appeals issued its decision in American Meat Institute v. U.S. Department of Agriculture, a First Amendment case involving country-of-origin product labeling. In that case, the court upheld the labeling requirement at issue, expanding beyond consumer deception the application of the more relaxed standard of scrutiny set forth in a 1985 U.S. Supreme Court case, Zauderer v. Office of Disciplinary Counsel. The Zauderer standard of review applies to certain disclosures of purely factual and uncontroversial information.
Following the AMI decision, Amnesty International submitted a supplemental brief in support of the SEC’s petition for rehearing, arguing that the label “not been found to be DRC conflict free” is constitutional under Zauderer’s First Amendment standard of scrutiny as articulated in the AMI decision. Among other things, Amnesty International argued that the disclosure requirement at issue involves purely factual and uncontroversial information.
In September, at the court’s request, the National Association of Manufacturers (“NAM”) and the other appellants submitted their brief in response to the petition for rehearing, arguing against rehearing. In its brief, NAM argued that the standards for rehearing en banc have not been met and that the disclosure requirement at issue does not involve purely factual and uncontroversial information and is therefore not eligible for Zauderer review.
In today’s panel rehearing Order, the court ordered the parties to address the following questions in their supplemental briefs:
The SEC’s and Amnesty International’s briefs are due within 20 days of the date of the Order, or December 8, and NAM’s brief is due 20 days after, or December 29, which is the first business day after the 20th day.
We will continue to provide updates as the legal challenge to the Conflict Minerals Rule further unfolds.
In the meantime, today’s Orders do not modify the SEC’s April 29 Statement concerning use of the product labels “DRC conflict free,” “DRC conflict undeterminable” or “not been found to be DRC conflict free” contained in the Rule or the stay of the mandatory audit requirement, or any of the other aspects of the Rule. Other than as set forth in the April 29 Statement, the Rule continues in effect as adopted. Accordingly, companies should continue with their 2014 compliance efforts, as well as prepare for their 2015 compliance.
Authored by Michael R. Littenberg, Farzad F. Damania and Andrea Matos.
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