Yesterday, Judge Robert Wilkins of the U.S. District Court for the District of Columbia issued a decision granting the SEC’s motion for summary judgment in a suit challenging the SEC’s conflict minerals rules, which were mandated under the Dodd-Frank Act and issued by the SEC on August 22, 2012.  As a result, the conflict minerals rules remain in effect as adopted by the SEC.  The parties have not yet indicated whether they will appeal the decision.

The National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable had challenged the rules in October 2012, arguing that the rules are arbitrary and capricious and impose undue costs on companies in violation of the Administrative Procedure Act of 1946 and the Securities Exchange Act of 1934, and compel speech in violation of the First Amendment by requiring companies to make misleading disclosures suggesting that their products promote violence and human rights abuses. 

Rejecting the petitioners’ arguments, the court found that various aspects of the conflict minerals provision in the Dodd-Frank Act were ambiguous, and it gave deference to the SEC’s judgments, including its determination not to adopt a de minimis exception and to include within the scope of the rules issuers that “contract to manufacture” products containing conflict minerals.  In regard to the First Amendment argument, the court gave deference to Congress in light of the foreign affairs aspect of the Dodd-Frank conflict minerals provision.  The district court’s opinion is available at https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2013cv0635-37.   

If the parties appeal the district court’s decision to the U.S. Court of Appeals for the D.C. Circuit, a de novo standard of review would apply, meaning that the appeals court would not afford deference to the district court’s decision.  Nevertheless, the rules remain in effect, and companies should continue to focus on compliance with the rules, as the first annual report required under the rules will be due on June 2, 2014, covering the 2013 calendar year.  For those companies that may have postponed their compliance efforts on this front, the decision serves as a sharp reminder of the impending deadline and the work that may be necessary to ensure full compliance. For additional information about the conflict minerals rules, please see our client alert discussing the rules, available at http://www.gibsondunn.com/publications/pages/ConflictMinerals-UnderstandingFinalSECRules.aspx, and our client alert on the SEC’s Frequently Asked Questions about the conflict minerals rules, available at http://www.gibsondunn.com/publications/pages/SEC-Issues-FAQs-On-Conflict-Minerals.aspx.