The parties to the conflict minerals case have filed in the D.C. District Court a “Joint Status Report,” which requests that the Court enter a final judgment in accordance with the decision of the Court of Appeals. As a result, it will be case closed for National Association of Manufacturers v. SEC, which decided that the requirement in the conflict minerals rule to disclose whether companies’ products were “not found to be DRC conflict free” violated companies’ First Amendment rights.

SideBar: By way of background, in April 2014, 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 requirements of the conflict minerals rule amounted to “compelled speech” in violation of companies’ First Amendment rights “to the extent the statute and the 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.”’ (See this PubCo post.) 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 regarding the appropriate standard of review for compelled disclosure in American Meat Institute v. U.S. Dept. of Agriculture. That decision concluded that the more lenient standard of review (announced in Zauderer v. Office of Disciplinary Counsel) applied and specifically overruled the conflict minerals case to the extent that its holding was inconsistent. (For a more complete discussion of these cases and legal standards, see these PubCo posts of 7/16/14, 7/29/14, 9/14/14.)

With AMI decided, the Circuit Court granted the petitions of the SEC and Amnesty to consider the effect of AMI, including whether the mandated conflict minerals disclosure could satisfy the test for “purely factual and uncontroversial” commercial information under Zauderer. In August 2015, a three-judge panel of the D.C. Circuit, by a vote of two to one, reaffirmed its initial judgment that the compelled disclosure in the conflict minerals rule (and the related sections of the Exchange Act added by Dodd-Frank to the extent they mandated the offending language) violated companies’ First Amendment rights, remanding the case back to the District Court for further proceedings consistent with its majority opinion. In its decision, that Court once again avoided application of the more lenient Zauderer standard of review (by concluding that Zauderer was limited to voluntary advertising) and determined that the mandated language “was hardly ‘factual and non-ideological’” (see this PubCo post).

In November 2015, the D.C. Circuit issued a per curiam order denying the petitions of the SEC and Amnesty International for a rehearing en banc in the case. The order left standing the August 2015 decision of the three-judge panel. In April 2016, then-Attorney General Loretta Lynch wrote to House Speaker Paul Ryan advising of her decision not to file for cert.: “[a]lthough the Commission defended the constitutionality of the conflict-minerals disclosure regime in the court of appeals, the Department of Justice has decided, in consultation with the Commission, not to file a petition for a writ of certiorari seeking review of the court of appeals’ decision.” (See this PubCo post.)

On remand from the Court of Appeals, on February 10, 2017, the District Court ordered the parties to file a Joint Status Report, and that Report has now been submitted. It provides that the “parties respectfully represent that no further proceedings are necessary and request that the Court enter a final judgment in accordance with the decisions by the Court of Appeals. The Court of Appeals remanded to this Court for any proceedings necessary to give effect to the Court of Appeals’ decisions. The parties now agree that no such proceedings are necessary. The Court of Appeals’ decisions resolved the plaintiffs’ claim in this case that the relevant portion of the Rule as currently formulated (and the statute to the extent that it compels that portion of the Rule) violates the First Amendment; no additional proceedings are necessary to assess the validity of the Rule and statute. Accordingly, final judgment in accordance with the Court of Appeals’ decisions is appropriate….For the foregoing reasons, the parties respectfully request that this Court enter a final judgment in accordance with the decisions of the Court of Appeals.”

Once the final judgment is entered, it will be up to the SEC to determine whether and how to revise the existing rules or whether to let stand, at least for the meantime, the Corp Fin guidance that was issued in 2014 and is currently in effect. That guidance requires companies to make the mandated filing on a timely basis without including a statement as to the conflict-free status of the products that could be deemed to violate the First Amendment. (See this PubCo post.)

Notably, however, in February, Acting SEC Chair Michael Piwowar issued two statements — available here and here — on the conflict minerals rules, which advise that he had directed “the staff to consider whether the 2014 guidance is still appropriate and whether any additional relief is appropriate in the interim.” In addition, one of his statements includes his observations that the impact of the rule might undermine U.S. national security interests in the region. In that regard, Reuters has reported that the President “is planning to issue an executive order targeting [the conflict minerals disclosure rule],” based on the national security waiver provision in Dodd-Frank. That provision (Exchange Act Section 13(p)(3)) requires the SEC to revise or temporarily waive the basic requirements of the conflict minerals provisions “if the President transmits to the Commission a determination that—(A) such revision or waiver is in the national security interest of the United States and the President includes the reasons therefor….” This purports to be a draft of the executive order. (See this PubCo post.) Nevertheless, there has yet been no confirmation that the executive order is legit nor has any action on it been reported.

At the end of February, Acting Corp Fin Director Shelley Parratt reminded companies that, notwithstanding the two statements issued by Acting SEC Chair Michael Piwowar and all of the Executive Orders aimed at deregulation, the conflict minerals and pay-ratio disclosure rules continue in effect (until of course they don’t). The staff is, however, reviewing comments on these rules as they are received. (See this PubCo post.)

SideBar: And on a related note, thecorporatecounsel.net blog cites this Bloomberg article, which discusses problems with third-party audits and gold-smuggling in connection with a company selling gold certified by the Conflict-Free Sourcing Initiative of the Electronic Industry Citizenship Coalition: “To renew the certification each year, [the company] hires auditors to review purchase and import records, tour the smelter, and interview employees about the source of purchased gold. The mission is to assure that no gold comes from illegal mines that give rise to prostitution, labor abuses, and environmental damage or fund illegal activities or war…. [A] former Ernst & Young auditor who specializes in researching commodity supply chains… says it’s easy to fool auditors…. ‘The problem is these audits really don’t go beyond the paperwork,’ he says.” The director of the conflict-free smelter program at the EICC responded that the “organization ‘takes allegations of wrongdoing by any smelter or refiner in its program very seriously….’”