This week the U.S. Court of Appeals for the D.C. Circuit held that the Security and Exchange Commission’s (“SEC”) final rule concerning “conflict mineral” disclosures is unconstitutional. Nat’l Assoc. of Mfrs v. SEC, No. 13-5252 (D.C. Cir., decided April 14, 2014). The SEC rule requires registrants to disclose annually on a Form SD whether their products incorporate conflict minerals (i.e., tin, tungsten, tantalum, and gold, mined in war-torn Central Africa) or whether their products are “DRC Conflict Free.”
The court ruled that, by requiring companies to report whether their products are free of conflict minerals, the SEC rule improperly compelled commercial speech in violation of the First Amendment. Accordingly, the court invalidated both the SEC’s final rule and the underlying statutory provision in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), but only “to the extent the statute and 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 court reasoned that “the label ‘conflict free’ is a metaphor that conveys moral responsibility for the Congo war” and, “[b]y compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.”
With the June 2, 2014 deadline fast approaching for filing a Form SD, many manufacturers and other parties impacted by the SEC’s final rule are eager to know whether the D.C. Circuit’s decision relieves them of their upcoming filing requirement. Unfortunately, the immediate impact of the decision is not entirely clear.
The court remanded the case to the District Court for a review of whether the SEC’s rulemaking, or language in the Dodd-Frank statute itself, is at the root of the free speech conflict. In the interim, it is possible that the SEC will provide guidance indicating that issuers should file their Form SD but, per the D.C. Court’s decision, issuers may omit the declaration of whether their products are “DRC conflict free.” It is also possible that the plaintiffs will move in District Court to stay implementation of the rule, pending the court’s decision on remand. In the long term, the SEC may appeal the D.C. Circuit’s decision, putting its validity back into play once more, or it may amend its final rule in an effort to satisfy the constitutional standards articulated by the D.C. Circuit this week.