by Cydney Posner
A U.S. District Court has handed a victory to Oxfam America in its efforts to compel the SEC to complete rulemaking on the Dodd-Frank mandate regarding resource extraction disclosures (Section 1504). Unless appealed, the decision almost puts the SEC in the vicinity of where it was in 2010 when the two Dodd-Frank “specialized disclosures” requirements were signed into law: the SEC must take some action (be it an appeal or a revision of the current rule) in light of the court decision vacating a portion of the conflict minerals rule (see this PubCo post) and must now also move speedily to issue a proposal and finalize a rule for resource extraction disclosure. Whether proponents of other rules that are believed to be languishing on the SEC’s agenda also begin to look to the courts for relief remains to be seen.
You might recall that the resource extraction rule, which was adopted by the SEC in 2012 at the same time as the conflict minerals rule, requires resource extraction issuers to disclose, on Form SD, payments to foreign governments in connection with oil, gas and mineral rights. In litigation brought in 2012 by the American Petroleum Institute and the Chamber of Commerce, the U.S. District Court, in a fairly scathing opinion, tossed out the SEC’s rule, contending, among other things, that the SEC fundamentally misread the requirements of the statute and that, in rejecting companies’ request for an exemption from disclosing payments to countries that prohibited disclosure of payment information, the SEC was “arbitrary and capricious.” The SEC declined to appeal the ruling, accepting the conclusion that it would need to rewrite the rule. However, the timetable for a new rule proposal was delayed several times, with the latest projection for a proposal being April 2016. Last year, Oxfam America sued the SEC in the U.S. District Court for the District of Massachusetts to compel the SEC to complete the rulemaking.
On cross-motions for summary judgment, the Court sided, for the most part, with Oxfam. The SEC attempted to argue that, because it had already promulgated a rule under Section 1504 of Dodd-Frank, its delay in issuing another final rule did not mean that the rulemaking was “unlawfully withheld” under the Administrative Procedure Act. The Court agreed with Oxfam that the district court’s earlier decision to vacate the rule just returned matters to where they had stood before:
“Were the rule otherwise, an agency could take inadequate action to promulgate a rule and forever relieve itself of the obligations mandated by Congress. The Court concludes, therefore, that the SEC’s delay in promulgating the final extraction payments disclosure rule can be considered ‘unlawfully withheld’ as the duty to promulgate a final extraction payments disclosure rule remains unfulfilled more than four years past Congress’s deadline…. Moreover, even if the Court considers the 270-day deadline to have reset from the date of the remand order – July 2, 2013 – the SEC is now more than a year past a renewed 270-day deadline with no assurances as to when a final rule may be promulgated.”
In determining the proper remedy for agency inaction under the APA, the Court rejected the SEC’s argument that the Court should use its equitable discretion to deny the “extraordinary relief” sought by Oxfam and apply the flexible multi-factor “TRAC” guidelines to decide if injunctive relief was really appropriate. Instead, the Court, quoting prior precedent, concluded that, where a Congressional statute “sets a specific deadline for agency action, neither the agency nor any court has discretion. The agency must act by the deadline. If it withholds such timely action, a reviewing court must compel the action unlawfully withheld.” The Court did conclude, however, that it had the discretion to fashion an appropriate and reasonable remedy and ordered the SEC to file with the Court in 30 days an expedited schedule for promulgating the final rule, at which point the Court would issue further orders. The Court also indicated that it was retaining jurisdiction to monitor the schedule and ensure compliance.
In a press release issued after the decision was handed down, Oxfam contended that “Section 1504 inspired a wave of similar mandatory sunlight provisions around the world, setting a new global standard for transparency. Today, 30 countries have adopted laws requiring public, company by company disclosure for each oil, gas and mining project following the US law, including the European Union, Canada and Norway. These laws give the SEC a clear standard to follow in implementation of Section 1504.” A representative of Oxfam observed that the “task before Mary Jo White’s SEC is now crystal clear: a rule must be issued urgently.”