October 2, 2015 marked another step in the continuing legal challenge of the conflict minerals rule. The SEC and Amnesty International filed petitions requesting an en banc rehearing of the April 2014 and the August 2015 D.C. Court of Appeals panel decisions, in an effort to reverse the ruling that struck down portions of the conflict minerals rule as unconstitutional.
- In April 2014, a panel of the D.C. Court of Appeals, in a split-decision, ruled that the portion of the conflict minerals rule that requires reporting companies to describe their products as having “not been found to be DRC conflict free” violates reporting companies’ First Amendment rights.
- In August 2015, the same panel of the D.C. Court of Appeals, again in a split-decision, reaffirmed the April 2014 decision.
- The SEC and Amnesty International requested an en banc rehearing (a rehearing in front of all of the judges of the D.C. Circuit Court of Appeals) of the portions of the panel opinions that address the First Amendment.
- The request for the en banc rehearing will be granted if the active members of the D.C. Circuit Court of Appeals decide that all of the D.C. Circuit judges should weigh in on whether the August 2015 decision is inconsistent with American Meat Institute and other commercial speech First Amendment cases.
The real question being considered here is: What is the right standard of review when determining whether the conflict minerals rule description requirement violates reporting companies’ First Amendment rights?
An important argument made by both the SEC and Amnesty International in support of their requests for an en banc rehearing is that the prior opinions address “issues of exceptional importance.” They go on to say that if an element of the conflict minerals rule is found to be unconstitutional, other securities disclosure requirements will also be at risk for constitutional challenge. In its petition, the SEC observes that the First Amendment holding in this case could have “far-reaching implications for governmental disclosure requirements, including those in the securities laws.” The SEC is eager to assure that all securities disclosure laws (including the conflict minerals rule) will be subject to the relaxed or limited scrutiny of Zauderer, and would therefore be more likely to withstand First Amendment challenges, both in this case and for other cases in the future.
Those focusing on the conflict minerals rule may be disappointed that the decision on the request for rehearing, and the rehearing itself if granted, will have more to do with a line of First Amendment cases and arguments about the future of securities disclosure laws than the conflict minerals rule itself.
In the meantime, of course, reporting companies and all of their suppliers should continue to gather information about the smelters and refiners that process the conflict minerals in their products, and the country of origin, source, and chain of custody of the conflict minerals in their products. Until there is new guidance from the SEC, reporting companies should continue to look to the April 2014 SEC Statement for guidance on what to include in their reports.