by Cydney Posner

Today, the D.C. Circuit issued its en banc opinion in  American Meat Institute v. U.S. Dept. of Agriculture, upholding the mandatory disclosure regulation at issue in that case.   You may recall that this case concerned the USDA’s country-of-origin labeling rule, which AMI argued compelled disclosure in violation of the First Amendment. A three-judge panel had upheld the regulation, but invited en banc review to resolve the issue for the circuit. The invitation was accepted, the opinion vacated and oral argument heard in May.  Following on the heels of AMI, in National Association of Manufacturers v. Securities and Exchange Commission (D.C. Cir. 2014), a different three-judge panel struck down a portion of the SEC’s conflict minerals rule on First Amendment grounds. In that case, the Court decided that the requirement to disclose whether companies’ products were “not found to be DRC conflict free” amounted to “compelled speech” in violation of companies’ First Amendment rights.  Both the SEC and Amnesty International (as Intervenors-Appellees) filed petitions with the D.C. Circuit requesting a rehearing en banc regarding the First Amendment issue, but requested that the Court hold the petitions in abeyance pending issuance of the AMI en banc decision on the related legal issue. We are following closely to see whether the petition for en banc review of NAM will now be granted. 

By way of background, the general test for commercial speech, a four-part test generally viewed to provide an intermediate level of scrutiny, was set forth by the USSCT in Central Hudson Gas & Electric Corp. v. Public Service Commission (1980). That test was further refined by the USSCT In Zauderer v. Office of Disciplinary Counsel (1985), where the issue involved not a restriction on speech (as in Central Hudson) but rather an affirmative obligation to disclose factual and non-controversial information. In Zauderer, the  USSCT held that compelled commercial speech “rights are adequately protected as long as disclosure requirements are reasonably related to the State’s interest in preventing deception of consumers,” provided that the requirement is not “unjustified or unduly burdensome disclosure” so as to chill protected commercial speech. (For further discussion of the applicable standards of review, see this post.) However, while both NAM and AMI involved compelled disclosure, neither involved the likelihood of consumer deception. Therefore, the precise question that was before the en banc panel in AMI was “[w]hether, under the First Amendment, judicial review of mandatory disclosure of ‘purely factual and uncontroversial’ commercial information, compelled for reasons other than preventing deception, can properly proceed under Zauderer v. Office of Disciplinary Counsel… or whether such compelled disclosure is subject to review under Central Hudson Gas & Electric v. PSC of New York….”  In effect, was the reference in Zauderer to consumer deception at the heart of the decision  and therefore a limitation on application of the test or was it incidental to the decision in that the preventing deception was the purpose of the regulation at issue in that case?

Today, the en banc panel  in AMI held (with two dissents) that “Zauderer in fact does reach beyond problems of deception, sufficiently to encompass the disclosure mandates at issue here.” The Court observed that “Zauderer itself does not give a clear answer” and that the language regarding deception “could have been simply descriptive of the circumstances to which the Court applied its new rule, or it could have aimed to preclude any application beyond those circumstances.” In the end, however, consistent with the holdings of two other circuits, the Court concluded that the Zauderer language “sweeps far more broadly than the interest in remedying deception.” Moreover, specifically citing the NAM conflict minerals case above, the Court specified that “[t]o the extent that other cases in this circuit may be read as holding to the contrary and limiting Zauderer to cases in which the government points to an interest in correcting deception, we now overrule them.” However, as noted in the concurring opinion by Judge Kavanaugh, the majority opinion “disavows that aspect of … National Association of Manufacturers without disturbing the results….”

In applying the Zauderer test, the en banc AMI Court looked to the legislative history of the rule and determined that the interest motivating the rule was a substantial one and, therefore, did not decide whether a lesser interest might be sufficient under Zauderer. (Interestingly, the use of legislative history to establish the government’s interest — as opposed to relying only on the government’s asserted interest on the record — was a matter of some controversy in this case. The government was apparently reluctant to present a stronger rationale on the record in the case because of the constraints of various trade treaties.)  The Court next assessed the relationship between the government’s identified means and its chosen ends, concluding that “a reasonably crafted mandate to disclose ‘purely factual and uncontroversial information’ about attributes of the product or service being offered…. will almost always demonstrate a reasonable means-ends relationship, absent a showing that the disclosure is ‘unduly burdensome’ in a way that ‘chill[s] protected commercial speech,’… Thus, to the extent that the pre-conditions to application of Zauderer warrant inferences that the mandate will ‘directly advance’ the government’s interest and show a ‘reasonable fit’ between means and ends, one could think of Zauderer largely as ‘an application of Central Hudson, where several of Central Hudson’s elements have already been established.’” (The Court’s suggestion, without express adoption, that Zauderer is “simply an application of Central Hudson in special circumstances” as Judge Rogers concurring opinion stated, was likewise a matter of some controversy.  She argued that this blurring of the lines ignored the Zauderer court’s intent to establish a lower standard of scrutiny where “the interests at stake were less threatened.”)

While, in AMI, the “criteria triggering the application of Zauderer” — that is, whether the required disclosures were of “purely  factual  and  uncontroversial  information” about  the product –were “either unchallenged or substantially unchallenged,” the Court pointedly contrasted the disclosure required in NAM that a product was “not found to be conflict free”:  “We also do not understand country-of-origin labeling to be controversial in the sense that it communicates a message that is controversial for some reason other than dispute about simple factual accuracy. Cf. Nat’l Ass’n of Mfrs. v. SEC, 748 F.3d at 371 (questioning but not deciding whether the information mandated was factual and uncontroversial). [Emphasis added.]  Notably, the concurring opinion by Judge Kavanaugh  expressed the view that “[u]nlike the mandated disclosures at issue in … National Association of Manufacturers, for example, a country-of-origin label cannot be considered ‘controversial’ given the factually straightforward, evenhanded, and readily understood nature of the information…. Cf. National Association of Manufacturers, 748 F.3d at 371 (disclosure requirement that in essence compelled ‘an issuer to confess blood on its hands’)….”  [Emphasis added]

Thus, while the AMI opinion clearly opens the door for application in the conflict minerals case of the (possibly) lower standard of scrutiny under Zauderer, we will have to wait to see whether the mandated conflict minerals disclosure is determined to be sufficiently controversial to slam that door shut. Clearly, the Court has highlighted the issue as an open one, notwithstanding the fairly graphic rhetoric by the Court in NAM about the ideological content of the mandated language. And some members of the Court may be using their concurrences to intimate their views.  But even if the mandated disclosure in NAM is viewed as more controversial than the disclosure required in AMI, it remains to be seen whether the courts view it to be of the same order as in other cases where laws compelling speech were invalidated  — e.g.,  New Hampshire license plates displaying the motto “Live Free or Die” or a requirement that public school students salute the flag.

Posted by Cydney Posner