Conflict Minerals Update: D.C. Circuit Hears Oral Arguments

by Akin Gump Strauss Hauer & Feld LLP
Contact

In the Dodd-Frank Act of 2010, Congress required the Securities and Exchange Commission (SEC) to adopt a rule requiring transparency and disclosure regarding the use of “conflict minerals” sourced from the Democratic Republic of the Congo (DRC). Shortly after the rule’s August 2012 adoption, the SEC found itself defending the rule in court against the National Association of Manufacturers, the Chamber of Commerce, and Business Roundtable (“Plaintiffs”) who argued that the Final Rule is arbitrary and capricious and unconstitutional. The District Court in the District of Columbia ruled in favor of the SEC in July 2013 and the Plaintiffs appealed. A panel of three judges, consisting of Circuit Judge Sri Srinivasan, Senior Circuit Judge David Sentelle and Senior Circuit Judge A. Raymond Randolph, heard oral argument in the D.C. Circuit Court of Appeals in early January 2014.

The SEC answered pointed questions about whether the rule exceeded the scope of the underlying statute and its rule-making authority and about whether the rule’s requirements unduly burden industry. The discourse delineated three main issues:  first, the SEC’s choice not to include a de minimis exception to the rule; second, the statutory language substitution of the broader reporting requirement — “may have originated in the conflict region” rather than “did originate,” the latter of which was the language in the underlying Dodd-Frank statute; and third, whether the reporting obligations run afoul of the First Amendment by compelling private speech. Based on the exchange between the panel and counsel during argument, the panel seemed to find the Plaintiffs’ de minimis argument unpersuasive but seemed more compelled by the Plaintiff’s First Amendment challenges.

On the first issue, the panel appeared to conclude that striking down an agency’s rule for failing to include a de minimis exception, when it is not required, is improper. On the second issue, Judge Srinivasan questioned whether the “may have” language would actually expand reporting obligations; he pointed to the fact that Congress’s text includes a qualifier “reason to believe” before the “did originate” language, which went unaddressed by the Plaintiffs’ argument. The Plaintiffs reasoned that a 5% possibility that minerals may have originated in the conflict region would trigger reporting responsibilities under the SEC’s text, but not under Dodd-Frank’s “did originate” language. Judge Srinivasan countered that the “reason to believe” precursor also triggers a less than certain threshold. He questioned whether the Plaintiffs were distinguishing between tests based on probability versus possibility, rather than a steadfast test based on certainty and uncertainty. In other words, he asserted, the SEC’s Final Rule does not deviate greatly from the “less than certain” standard mandated by Dodd Frank.

After a series of questions, the Plaintiffs agreed that the Dodd-Frank language did initiate a standard based on probability. Judge Sentelle, however, seemed to suggest that the textual switch from “did originate” to “may originate” in the conflicts region imposes a much broader set of reporting requirements; his opinion reflected that of the Plaintiffs’ — that the Dodd-Frank text only creates a reporting requirement if the minerals “did originate” in the DRC.

The panel’s participation was liveliest on the constitutionality of the disclosure requirements. The Plaintiffs maintain that the rule compels companies to make ideologically-driven, rather than factual statements about their own products; they contend that labeling products as not “conflict free” is forcing companies to self-stigmatize. In response, the panel asked the SEC’s counsel sharp questions about the relevance of this disclosure requirement to investor protection. The SEC’s counsel countered that the information is relevant to the “socially conscious investor.” Judge Randolph called this rationale a “slippery slope” when it comes to compelling speech, and went on to imply that the statute is a shaming statute where the means are not tied to its purpose and objective. It must of course be emphasized that this statute was mandated by Congress.

The tenor of the dialogue at oral argument cannot necessarily be used to predict the outcome of the case. It would appear, however, that the panel is seriously considering the implications of permitting this rule to stand. It is uncertain whether the Court will issue a ruling before the first conflict minerals reports come due in late May of this year. Therefore, companies must be prepared to comply with conflict minerals due diligence and reporting obligations as they are currently defined.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Akin Gump Strauss Hauer & Feld LLP | Attorney Advertising

Written by:

Akin Gump Strauss Hauer & Feld LLP
Contact
more
less

Akin Gump Strauss Hauer & Feld LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.