dccircuitIn an April 14, 2014 Opinion (here), the D.C. Circuit struck down a portion of the SEC’s conflicts minerals rules as violative of the First Amendment, while at the same time upholding the other challenged portions of the Rules. A majority of the appellate panel found that the rules’ requirement that companies must disclose in their SEC filings and on their website that their product is not “conflict free” – by compelling “an issuer to confess blood on its hands” – violates the First Amendment’s free speech protections.



As discussed here, Section 1502 of the Dodd Frank Act required the SEC to promulgate rules requiring companies to annually disclosure their of conflict minerals originating in the Democratic Republic of Congo (DRC) or an adjoining country. On August 22, 2012, the SEC adopted the conflict mineral disclosure rules. The SEC’s August 22, 2012 press release can be found here and the rules themselves can be found here.


The specific minerals at issue are tantalum, tin, tungsten and gold. The countries covered by the disclosure rules are, in addition to the DRC, Angola, Burundi, Central African Republic, the Republic of Congo, Rwanda, South Sudan, Tanzania, Uganda and Zambia. Companies are required to comply with the new disclosure rules for the calendar year beginning January 1, 2013, with the first disclosures due May 31, 2014 and subsequent disclosures due annually each year after that.


Several business organizations including the National Association of Manufacturers challenged the rules in Court, arguing that the way that the SEC adopted the rules violated the Administrative Procedures Act, the Exchange Act and the First Amendment. In July 2013, the district court granted summary judgment in the SEC”s favor, rejecting the various challenges to the rules. The business organizations appealed the district court ruling to the D.C. Circuit.


The April 14 Opinion 

On April 14, 2014, in an Opinion by Senior Judge A. Raymond Randolph for a three judge panel, the D.C. Circuit affirmed the district court’s ruling in part, but reversed the district court with respect to its ruling on the First Amendment challenge. Judge Sri Srinivasan wrote a separate opinion in which he concurred with the court’s opinion in all other respects but dissented from the majority on the First Amendment issue. Judge Srinivasan contended that the Court should have held the First Amendment portion of its opinion in abeyance while an en banc panel of the D.C. Circuit considered the same First Amendment issues in a separate case involving rules relating to the labeling requirements for meat products.  


All three judges on the panel agreed in rejecting the business groups’ challenges to the conflict minerals rules based on argument that the rules are “arbitrary and capricious” under the Administrative Procedure Act and the argument that the SEC had failed to establish that the benefits of the Rules outweighed the substantial costs they are likely to impose. Essentially the court upheld the rules’ requirements for companies to investigate whether their products include the minerals and file public reports on their investigations beginning in June.


However, with respect to the business groups’ contention that the rules’ requirement that issuers must in their SEC filings and on their websites list specific products as not “DRC conflict free” unconstitutionally compels speech in violation of the First Amendment, a majority of the appellate court upheld the business group’s arguments. The appellate court said:


The label “conflict free” is a metaphor that conveys the moral responsibility for the Congo war. It requires an issuer to tell consumers that its products are ethically tainted even if they only indirectly finance armed groups… By compelling an issuer to confess blood on its hands, the statute interferes with their exercise of the freedom of speech under the First Amendment.


The court held that the conflict minerals provisions of the Dodd Frank Act and the SEC’s rules violate the First Amendment “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.’” The appellate court remanded the case to the district court for “further proceedings consistent with this opinion.”


In a footnote, the majority opinion addressed the concurring opinion’s suggestion that the panel should have stayed the First Amendment portion of its ruling in order to allow the en banc consideration of the First Amendment issues in the meat labeling case. The majority opinion states that issuing the opinion rather than holding the First Amendment issue in abeyance, “issuing an opinion now provides an opportunity for the parties in this case to participate in the court’s en banc consideration of this important First Amendment question.”



The SEC’s conflicts minerals rules have been highly controversial. As discussed here, the rules could prove difficult for many companies to put into effect and the implementation of the rules could create a host of problems for companies, including in particular even litigation risks. However, though a portion of the rules was struck down, the other portions were upheld. 


The SEC now has some decisions to make, and in particular it will have to decide whether or not it wants to seek en banc review of the appellate court’s First Amendment ruling.  By the same token, the business groups will have to consider whether they want to seek en banc review of the portions of the appellate court ruling upholding the rules. Either way, an en banc review of the case could create procedural complications. Among other things, there is the question of whether or not the en banc panel, the district court or the SEC itself will stay in the implementation of the rules during the en banc review.  


The SEC will also have to consider whether, on remand to the district court, it wants to go forward now with implementation of the portion of the rules that the appellate court upheld, without the disclosure requirements that were a key component of the transparency objectives of the Dodd Frank conflict minerals provisions.


In an April 14, 2014 Reuters article about the D.C. Circuit’s ruling (here), at least one legal commentator suggested that the ruling and the current state of play will put pressure on the SEC’s to grant companies more time to comply with the rules. In any event, it seems like there is more of this story to be told before the court challenge phase is complete.


It would seem that in light of the fact that the appellate court upheld the other portions of the rules and that for now at least the implementation of the rules has not been stayed that companies should prepare themselves to meet the rules’ requirements and deadlines in all respects other than the specific portion of the rules that the appellate court struck down.


I welcome comments from any readers who can shed any further light on where things stand with the implementation of the conflicts minerals rules now given the D.C. Circuit’s rulings and the current procedural posture of the case.