The last few years has seen the rise of so-called “name and shame” laws. The aims of many these laws may be laudable, but yesterday’s decision by the Court of Appeals for the District of Columbia Circuit calls their methodology into constitutional question. Nat’l Ass’n of Mfrs. v. SEC, 2014 U.S. App. LEXIS 6840 (D.C. Cir. 2014). The case involved various challenges under the Administrative Procedure Act to the Securities and Exchange Commission’s conflict mineral rules. The SEC adopted its conflict mineral rules because the U.S. Congress ordered them to do so. See 15 U.S.C. § 78m(p)(1)(A). Congress imposed this mandate as a way to address the humanitarian catastrophe in the Democratic Republic of Congo that is financed by the mining of certain minerals. Among other things, the SEC rules require subject issuers to list “the products manufactured or contracted to be manufactured that are not DRC conflict free.”
Writing for the Court, Senior Judge A. Raymond Randolph quickly rejected the APA challenges to the SEC’s rules. However, the challengers did obtain some purchase for their First Amendment challenge to the SEC’s requirement that issuers use the terminology ”conflict free”. Judge Randolph found:
By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.
More importantly, he found that forcing speech under the guise of securities regulation does not overcome the constitutional problem:
Why, for example, could Congress not require issuers to disclose the labor conditions of their factories abroad or the political ideologies of their board members, as part of their annual reports? Those examples, obviously repugnant to the First Amendment, should not face relaxed review just because Congress used the “securities” label.
Consequently, the Court held that both the statute and the SEC’s rule “violate the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have “not been found to be ‘DRC conflict free’”.
Most of SEC regulation involves some form of forced speech, whether it is how much the CEO was paid last year or the results of the last stockholder vote. I don’t expect that the Court’s holding will eliminate all, or even most, of these. However, the Court’s holding may call into question the growing trend to impose “name and shame” disclosure requirements.