Tuesday, April 12, 2016

Government will not seek Supreme Court review of conflict minerals decision

By Amanda Maine, J.D.

In a letter to House Speaker Paul Ryan, Attorney General Loretta Lynch has advised that the DOJ, in consultation with the SEC, will not file a petition for a writ of certiorari of the D.C. Circuit’s opinion striking down part of the SEC’s conflict minerals disclosure regime.

Conflict minerals rule. The SEC’s conflict minerals rules, promulgated pursuant to Section 1502 of the Dodd-Frank Act, require public companies to make certain disclosures about their use of “conflict minerals” from the Democratic Republic of the Congo (DRC) and neighboring countries. Several business groups challenged the rules as contrary to the free speech protections of the First Amendment. While the district court sided with the SEC, a panel of the D.C. Circuit struck down the requirement that issuers report to the SEC and state on their website that any of their products have “not been found to be DRC conflict free,” citing First Amendment concerns.

Following the circuit court’s decision on the constitutionality of country-of-origin labels, the panel held a rehearing on the SEC’s conflict minerals disclosure rule. The majority adhered to its prior decision, but added an alternative ground due to doctrinal uncertainty and circuit conflicts. The original decision applied an intermediate level of scrutiny to determine that the requirement was unconstitutional; however, upon rehearing, the two-judge majority concluded that even under a lower standard of scrutiny, the regulation could not pass constitutional muster because the disclosures required by the rule were not limited to “purely factual and uncontroversial information.”

No cert sought. The Attorney General’s letter explained that given that the majority had concluded that the challenged disclosure requirements would be unconstitutional even under the alternative, more lenient standard as articulated in the panel’s second opinion, this would be a “poor case” to seek the clarification of the Supreme Court on the proper standard of scrutiny. The letter noted that the majority opinion and the dissenting opinion of Judge Srinivasan disagreed whether requiring issuers to state publicly that their products have “not been found to be DRC conflict free” involved “purely factual and uncontroversial information.” Guidance on such a case-specific issue may be difficult for the Supreme Court to provide, she wrote.

The letter also noted that the panel’s decision may apply only to the SEC’s rule and not to the underlying language of Dodd-Frank. It is possible that the SEC could promulgate a new rule that would fulfill Dodd-Frank’s mandate and be consistent with the majority’s view of the First Amendment or that the district court could determine that the statute does not require the use of the phrase “not been found to be DRC conflict free,” according to the Attorney General.

The deadline for filing a writ of certiorari, which had been extended twice, was April 7, 2016.

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