by Cydney Posner
An amicus brief filed in the conflict minerals case, National Association of Manufacturers, Inc. v. SEC, was submitted this week by a group of anti-smoking and other organizations dedicated to protecting public health: Truth Initiative, Public Health Law Center, National Association of County and City Health Officials, Campaign for Tobacco-Free Kids, American Cancer Society Cancer Action Network and Tobacco Control Legal Consortium. If you’re like me, you did a double-take when you saw the list of amici, wondering why they have any interest in the conflict minerals case. It turns out that they believe they have a significant interest: they argue that the case involves important questions, “not just to those concerned about conditions in the Democratic Republic of the Congo, but also to organizations (like amici) that rely on disclosures to foster public health, warn of environmental hazards, and protect the public in a variety of important contexts.”
The conflict minerals case, decided two-to-one in August of this year by a three-judge panel of the D.C. Circuit, reaffirmed that Court’s initial judgment that the requirement in the conflict minerals rule to disclose whether companies’ products were “not found to be DRC conflict free” amounted to “compelled speech” in violation of companies’ First Amendment rights. For a discussion of that case, see this PubCo post. As discussed in this PubCo post, the SEC and Amnesty International have filed petitions for en banc rehearing, and this amicus brief supports those petitions.
The brief contends that the “panel decision includes three novel holdings that, if broadly adopted, would significantly interfere with existing law….” First, the panel held that the applicable standard of review for compelled factual commercial disclosures under the First Amendment announced in Zauderer v. Office of Disciplinary Counsel applies only to disclosures in connection with voluntary advertising or product labeling. However, the brief argues, the panel’s limitation of Zauderer would put in jeopardy all kinds of mandatory commercial disclosures required in many other contexts, such as OSHA warnings to employees about workplace hazards, environmental notifications and mandatory disclosures to consumers in financial transactions. According to the panel, these would all “be reviewed under standards at least as stringent as those of Central Hudson Gas & Electric Corp. v. Public Service Commission,… a test under which no regulation has survived Supreme Court review for two decades.”
Sidebar: Compare the two standards of review:
Central Hudson test: Central Hudson provided for a four-part analysis: “At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest.”
Zauderer test: In Zauderer, SCOTUS addressed, not a restriction on speech, but rather an affirmative obligation to disclose factual and non-controversial information. SCOTUS 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. Observing that the protection of commercial speech under the First Amendment is premised principally on “the value to consumers of the information such speech provides,” the Zauderer Court viewed the more lenient “reasonable-relationship” standard to be justified because the “constitutionally protected interest in not providing any particular factual information …. is minimal.” Note that, in July 2014, in American Meat Institute v. United States Dept. of Agriculture, the D.C. Circuit, sitting en banc, held that “Zauderer in fact does reach beyond problems of deception, sufficiently to encompass the disclosure mandates at issue” in that case. (See this PubCo post for a discussion of that case.)
Second, the brief maintained, the panel held that “Zauderer does not apply to disclosures relating to any issue around which there is public controversy, even if there is no controversy about the truth of the required disclosures.… Under the panel majority’s rule, the requirement that automobile manufacturers disclose mileage ratings and affix a label to the fuel compartment of vehicles capable of operating on alternative fuels,… would apparently be subject to heightened scrutiny because of public controversies about climate change… and disagreements about mandatory vaccinations would support heightened scrutiny of requirements that schools report immunization rates.”
Third, the brief argues, the panel held that, to “establish under Zauderer that ‘disclosure requirements are reasonably related to the state’s interest’ the state must show – subject to a high burden of proof – that the requirements are effective in achieving the state’s interest.” The brief contends that this proof-of-effectiveness standard would curtail the use of “such basic warning label regimes as those governing the presence of allergens in food, …. the safety of children’s toys,… and the serious side effects of prescription drugs.”
According to the brief, all of these conclusions are inconsistent with the positions taken in other circuits and conflict with the decision of the DC Circuit in American Meat Institute. The brief concludes that the far-reaching implications of these holdings make en banc review particularly appropriate: “Taken together, the three holdings drastically narrow the scope of applicability of Zauderer review and equally drastically ratchet up its stringency. If generally followed, they would expose to unprecedented scrutiny not just the full array of required disclosures crucial to regulation of securities, but also the myriad disclosure regimes that allow the public to make informed decisions in the marketplace as in the workplace.”
In an article in Compliance Week last year, a former co-chief counsel of the SEC’s Division of Risk, Strategy, and Financial Innovation, maintained that, with regard to the conflict minerals decision rendered at that time, he did not see “grander implications. ‘Does this have the potential to swallow up all securities laws because they force companies to speak? Not at all; this is an extremely tiny, narrow First Amendment holding at the tag end of a big rule that was 99 percent upheld’….” (See this PubCo post.) While that conclusion may or may not have been true of the initial panel opinion, could it be that, in this recent opinion, that “tiny, narrow First Amendment holding” might have mushroomed into a decision with sweeping consequences?