In a summary order handed down yesterday, November 9, 2015, the Court of Appeals for the D.C. Circuit rejected the petitions of the SEC and Amnesty International for a rehearing en banc of the Court’s August 2015 opinion (which reaffirmed its prior ruling that a small portion of the Conflict Minerals Rule violates the First Amendment). So, is the legal challenge over? The short answer is “no.”
Possible Appeal to Supreme Court — In its pleadings, the SEC argued that the Court of Appeals rulings (both the one from April 2014 and the one from August 2015) conflict with Supreme Court precedent on compelled commercial speech and expressed concern about the impact of the rulings on other SEC disclosure requirements. In light of those concerns (but not because of any overall support for social-goal oriented disclosure requirements), it seems likely that the SEC will appeal the ruling to the Supreme Court. Since the August 2015 decision, there has been a lot of commentary by non-governmental organizations (NGO’s) and other advocates expressing disagreement with the First Amendment ruling. But, interestingly that commentary focuses more on the impact of the First Amendment ruling on SEC disclosure requirements in general than on the importance of the specific product descriptor that was found to be unconstitutional.
Remand to the District Court — If yesterday’s ruling is not appealed or if the appeal is rejected, the matter would go back to the U.S. District Court “for further proceedings.” Those proceedings could be a simple recognition that one problematic product descriptor is not required, along with a remand of the rule to the SEC for revision in accordance with the rulings. However, some are proposing that when the case is remanded to the U.S. District Court, the parties might seek to have other issues considered, a fight that would extend the legal challenge even further.
Timing? — What is clear is that whether or not the case is successfully appealed to the Supreme Court, a conclusion to the legal challenge of the Conflict Minerals Rule is still a long way off. But, note that the rejection of the petitions for rehearing en banc is not a reason for companies to slow their inquiry or diligence efforts. The April 2014 SEC Statement (as implemented by the SEC’s partial stay of the rule) continues to express the SEC disclosure requirements for the year 3 reporting due by May 31, 2016.
Problematic Product Descriptor Here To Stay? — While the legal challenge was underway, a number of NGO’s made it clear that they expect companies to use the very product descriptor that the Court of Appeals determined to be unconstitutional. NGO groups that have scored and reported on some or all of last year’s SEC conflict minerals filings have stated that they will award “points” in their scoring systems to companies that use the problematic product descriptor in their disclosures. So, even if the SEC is ultimately required to change the rule to remove that specific disclosure requirement, the NGO’s will likely continue to pressure companies to use that product descriptor. The NGO’s are requiring what the Government cannot.