Tag Archives: First Amendment

Corp Fin provides relief on conflict minerals in light of final judgment in National Association of Manufacturers v. SEC

by Cydney Posner

Today, in light of the entry of final judgment by the D.C. District Court in National Association of Manufacturers v. SEC, Corp Fin issued an Updated Statement on the Effect of the Court of Appeals Decision on the Conflict Minerals Rule that provides substantial relief to companies subject to the rule. You may recall that, in that case, the Court held that a part of the conflict minerals rule violated the First Amendment. Corp Fin’s Updated Statement advises that companies will not face enforcement if they perform only a reasonable country-of-origin inquiry and file only a Form SD and do not conduct detailed supply-chain due diligence or prepare and file a conflict minerals report (Item 1.01(c) of Form SD) or have an audit performed — even if they would otherwise be required to do so under the rule. In a separate Statement, Acting SEC Chair Michael Piwowar commented that the “primary function of the extensive and costly requirements for due diligence on the source and chain of custody of conflict minerals set forth in paragraph (c) of Item 1.01 of Form SD is to enable companies to make the disclosure found to be unconstitutional. In light of the foregoing regulatory uncertainties, until these issues are resolved, it is difficult to conceive of a circumstance that would counsel in favor of enforcing Item 1.01(c) of Form SD.” Continue reading

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SEC proposes new resource extraction disclosure rules — will they face another legal challenge?

by Cydney Posner

This morning, the SEC voted (with Commissioner Piwowar in dissent) to propose rules, mandated by Section 1504 of the Dodd-Frank, that would require disclosure on Form SD of certain payments made to the federal and foreign governments by resource extraction issuers in connection with commercial development of oil, gas and mineral rights. The release notes that the “the legislation reflects U.S. foreign policy interests in supporting global efforts to improve transparency in the extractive industries. The goal of such transparency is to help combat global corruption and empower citizens of resource-rich countries to hold their governments accountable for the wealth generated by those resources.”  Here is the press releaseContinue reading

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U.S. Chamber of Commerce won’t challenge pay-ratio rules — at least for now — and will focus instead on conflict minerals challenge

by Cydney Posner

The WSJ is reporting that, contrary to all expectations (including my own), “the U.S. Chamber of Commerce isn’t planning to mount a legal challenge to the Securities and Exchange Commission’s pay ratio rule.” Continue reading

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Is a lot more at stake in the conflict minerals case than the conflict minerals disclosure rules?

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.” Continue reading

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Three-judge panel of D.C. Circuit again holds that mandatory disclosure requirement of conflict minerals rule violates First Amendment

by Cydney Posner

In November 2014, the D.C. Circuit Court of Appeals granted the petitions of the SEC and Amnesty International for panel rehearing in connection with the conflict minerals case, National Association of Manufacturers, Inc. v. SEC. Today, a three-judge panel of the D.C. Circuit, by a vote of two to one,  reaffirmed its 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. Is another en banc review on the horizon?  How will the SEC address the decision?  Continue reading

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Appellants file supplemental brief opposing conflict minerals disclosure requirement

by Cydney Posner

In the final week of 2014, appellants National Association of Manufacturers, U.S. Chamber of Commerce and Business Roundtable filed their supplemental brief in the conflict minerals case, National Association of Manufacturers, Inc. v. SEC. The brief was filed in response to the order of the D.C. Circuit Court of Appeals, which had granted the petitions of the SEC and Amnesty International for panel rehearing in connection with the case.  The order of the Circuit Court directed the parties to file supplemental briefs addressing the following specific questions related to the case’s First Amendment issue:

(1) What effect, if any, does this court’s ruling in American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (en banc), have on the First Amendment issue in this case regarding the conflict mineral disclosure requirement?

(2) What is the meaning of “purely factual and uncontroversial information” as used in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), and American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (en banc)?

(3) Is determination of what is “uncontroversial information” a question of fact?

The SEC, intervenor Amnesty International and amici Global Witness and Free Speech for People filed their briefs in early December.

By way of background, in April, a three-judge panel of the D.C. Circuit 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 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 en banc decision on a similar issue in American Meat Institute v. U.S. Dept. of Agriculture. 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 [the more lenient standard of] 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….” 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.” Moreover, specifically citing the NAM conflict minerals case, the Court indicated 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.” (For a more complete discussion of these cases and legal standards, see my posts of 7/16/147/29/14 and 9/14/14.)  With AMI decided, the question then was whether, under Zauderer and AMI, the mandated conflict minerals disclosure could satisfy the test for “purely factual and uncontroversial” commercial information, the focus of the Court’s questions above.

According to appellants, the principles underlying Zauderer – that Zauderer’s more lenient standard “does not apply unless the government-mandated statements are ‘of “purely factual and uncontroversial information” about the good or service being offered’”– were still intact, notwithstanding the Court’s having overruled the deception limitation. Appellants asked the Court to “amend its opinion in this case to clarify that the Securities and Exchange Commission’s (SEC’s) Conflict Minerals Rule is not a ‘purely factual and uncontroversial’ disclosure requirement within the meaning of Zauderer.”

Appellants argued there are three components to the Zauderer “purely factual and uncontroversial” requirement. “First, the compelled statement must be purely factual in nature: it cannot explicitly or implicitly convey an opinion, a political or ideological position, or a moral judgment.” Here, they contended, the compelled statement was not factual in nature: as the initial panel had stated, “the label ‘conflict free’” is not a statement of literal fact, because ‘[p]roducts and minerals do not fight conflicts.’” In addition, that the statute provides a definition of a “loaded ideological phrase does not render that phrase ‘purely factual,’” and companies may well have a completely different understanding of the term. Rather, the compelled statement is an ideological judgment that companies that “cannot confirm where the minerals in their products originated bear some ‘moral responsibility for the Congo war.’” Accordingly, the compelled statement conveys an “ideological and moral judgment,” not purely factual information. Appellants distinguished Meese v. Keene, on which appellees relied, on the basis that the argument there concerned the government’s characterization of the product, not the actual compelled statement, which was viewed as innocuous and not challenged. In this case, there is no challenge to the government’s right to characterize the products.

The second component, appellants argued, is that the “compelled statement must be ‘indisputably accurate and not subject to misinterpretation.’” In this case, however, they contended that the compelled statement “is both non-factual and controversial because it is highly misleading, susceptible to interpretations that are not factually accurate”: many companies required to make the compelled statement will have a tenuous or no connection to the region. Rather, the compelled statement obscures the “deep uncertainty” regarding the location of origin of the minerals. As a result, companies’ “compelled association with the armed conflict [is] misleading and inaccurate.” As indicated in AMI, a “statement that is untrue or misleading does not convey ‘facts,’ and a statement is not ‘uncontroversial’ if the speaker can reasonably ‘disagree with the truth of the facts required to be disclosed’ or if the ‘required factual disclosures’ are ‘one-sided or incomplete.’” The right of companies to provide further explanatory context is, as the panel had indicated, “’inadequate to cure a First Amendment violation.’”

Third, even if a compelled statement were literally accurate, it may still be “controversial” if it “’communicates a message that is controversial.’” Under the First Amendment, they contended, the government cannot compel companies to convey a “governmental position on a controversial topic” or “force companies to speak on contentious public issues, particularly where the ‘compelled recitation of a message’ risks interfering with the company’s own message or skewing the public debate.” Appellants asserted that the term “conflict free” is a loaded one, and its required use appears to “endorse the government’s view that the mineral trade is responsible for the conflict. This is a highly controversial position, with which many policy experts disagree.”  The First Amendment, they argue, prohibits the government from creating “a false appearance of consensus, and thereby skew public debate and opinion, by compelling the establishment of private echo chambers for the government’s views.” In response to the Court’s question, they argued that the question of whether a compelled statement is “uncontroversial” is a matter of law for the Court to decide.

Moreover, they asserted, the compelled statement is unconstitutional because it is not even commercial speech; rather, it is political speech that should be subject to strict scrutiny. Finally, even if Zauderer did apply, there is an insufficient relationship between means and ends to satisfy even that test: “the rule’s highly indirect and attenuated means do not reasonably further that end,” and may even be counterproductive. The rule serves only to inform consumers, which is not, they argue, the purpose of the statute. In this case, they contend, the compelled speech “conveys the government’s moral disapproval of a lawful product. This is not a substantial interest, and the compelled statement violates the First Amendment.”

Both sides having now addressed the issues raised above, it is up to the panel to decide.  Stay tuned.

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SEC, Amnesty and others file briefs in support of upholding the conflict minerals disclosure requirement

by Cydney Posner

In November, the D.C. Circuit Court of Appeals granted the petitions of the SEC and Amnesty International for panel rehearing in connection with the conflict minerals case, National Association of Manufacturers, Inc. v. SEC. The order of the Circuit Court directed the parties to file supplemental briefs addressing the following specific questions related to the case’s First Amendment issue:

(1) What effect, if any, does this court’s ruling in American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (en banc), have on the First Amendment issue in this case regarding the conflict mineral disclosure requirement?

(2) What is the meaning of “purely factual and uncontroversial information” as used in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), and American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (en banc)?

(3) Is determination of what is “uncontroversial information” a question of fact?

By way of background, in April, a three-judge panel of the D.C. Circuit 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 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 en banc decision on a similar issue in American Meat Institute v. U.S. Dept. of Agriculture. 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 [the more lenient standard of] 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….” 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.” Moreover, specifically citing the NAM conflict minerals case, the Court indicated 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.” (For a more complete discussion of these cases and legal standards, see my posts of 7/16/147/29/14 and 9/14/14.)  With AMI decided, the question then was whether, under Zauderer and AMI, the mandated conflict minerals disclosure could satisfy the test for “purely factual and uncontroversial” commercial information, the focus of the Court’s questions above.

Yesterday, the SEC, intervenor Amnesty International and amici Global Witness and Free Speech for People filed their briefs in support of upholding the conflict minerals disclosure requirement. In its supplemental brief, the SEC argued that the required disclosure at issue “is consistent with the First Amendment under either Zauderer or Central Hudson.” According to the SEC, the required disclosure is “purely factual and uncontroversial information,” as discussed in Zauderer and AMI: it is “factual” in that it is “objectively determinable rather than a statement of viewpoint or opinion, and ‘uncontroversial’ in that its expression is not tantamount to the expression of a viewpoint or opinion either because its veracity or accuracy is subject to debate or for other reasons.”  This case is not one in which significant First Amendment interests are at stake, the SEC asserted, such as requiring “Live Free or Die” on license plates or mandating recitation of the pledge of allegiance, instances “where the government attempts ‘to prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to confess by word or act their faith therein.’”  Continue reading

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