Recently, the D.C. District Court issued a decision in the case challenging various aspects of the final rule adopted by the Securities and Exchange Commission (the “SEC”) pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) pertaining to conflict minerals (the “Rule”). Nat’l Assoc. of Mfrs. v. Sec. Exch. Comm’n, No. 13-cv-635 (D.D.C. July 23, 2013), https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2013cv0635-37. In the decision, the court rejected each of the plaintiffs‟ challenges to the Rule and granted the SEC‟s motion for summary judgment. Accordingly, the Rule remains in effect and filing companies subject to the Rule must continue their efforts with respect to determining the impact of the Rule on their businesses and assessing the extent to which a specialized disclosure filing may be required by the May 31, 2014 deadline. For more information on the specifics of the Rule, please read our September 25, 2012 memorandum entitled Conflict Minerals Disclosure Adopted by SEC (Practical Steps for Compliance) and our June 18, 2013 memorandum entitled SEC Provides Additional Conflict Minerals Guidance.
The plaintiffs in the case – the National Association of Manufacturers, the Chamber of Commerce, and Business Roundtable – presented two distinct categories of claims. First, the plaintiffs challenged certain aspects of the SEC‟s final rule arguing that the SEC‟s rulemaking was arbitrary and capricious1 (and therefore, not entitled to deference by the courts). Second, the plaintiffs claimed that the disclosure requirements of the Rule infringe on the First Amendment by “improperly compel[ling] „burdensome and stigmatizing speech.‟”
After examining the SEC‟s rulemaking process, the court rejected each of the plaintiffs‟ claims, holding that the SEC‟s rulemaking was reasonable and was entitled to deference by the court. Additionally, the court held that the Rule‟s mandate that a company provide any required disclosure pursuant to the Rule on its website was not compelled speech in violation of the First Amendment.
It is unclear whether the plaintiffs will appeal the court‟s decision. However, given that the first filings pursuant to the Rule are required to be filed in approximately 10 months, the court‟s ruling effectively means there is a substantial chance that the Rule will not be overturned before any mandatory disclosure under the Rule is due in May 2014. Accordingly, the court‟s decision underscores the importance for affected companies to continue to actively assess their obligations under the Rule and to conduct the necessary legal analysis and due diligence inquiry.
Earlier this month, the D.C. District Court issued an opinion in another case challenging the SEC‟s rulemaking pursuant to a mandate in Dodd-Frank involving a rule pertaining to resource extraction issuers. In that case, the court struck down the resource extraction rule, citing deficiencies in the SEC‟s rulemaking process. For more information on the resource extraction rule, please read our June 18, 2013 memorandum entitled SEC‟s FAQs Provide Guidance on Disclosure Requirements for Resource Extraction Issuers.
Companies and industry groups are still working on “best practices” regarding the application of the Rule. We continue to support our clients as they assess the threshold requirements of the Rule, and otherwise determine the disclosure and ancillary impacts of the Rule on their businesses.