Yesterday, the DC Circuit handed down its ruling in National Association of Manufacturers v. SEC. The case involves a First Amendment challenge brought by the National Association of Manufacturers concerning the SEC’s conflict minerals disclosure rule, which requires companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo (DRC) or an adjoining country. “Conflict minerals” are minerals mined in conditions of armed conflict and human rights violations, particularly in the DRC.
By a 2-1 margin, the court ruled that the SEC disclosure requirement violated the First Amendment. Circuit Judge Raymond Randolph wrote the majority opinion which Judge David Sentelle joined. Judge Sri Srinivasan dissented.
The case was reheard in light of the court’s ruling in American Meat Institute v. U.S. Department of Agriculture (D.C. Cir. 2014) (en banc) and its treatment of Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio (1985).
“Using Zauderer’s relaxed standard of review,” said Judge Randolph, “AMI held that the federal government had not violated the First Amendment when it forced companies to list on the labels of their meat cuts the country in which the animal was born, raised, and slaughtered. The AMI court therefore overruled the portion of our decisions in NAM, R.J. Reynolds, and National Association of Manufacturers v. NLRB holding that the analysis in Zauderer was confined to government compelled disclosures designed to prevent the deception of consumers.” In yesterday’s ruling, the majority declared that the issue then before it was “whether Zauderer, as now interpreted in AMI, reaches compelled disclosures that are unconnected to advertising or product labeling at the point of sale.”
Judge Randolph concluded that “Zauderer has no application to this case.This puts the case in the same posture as in our initial opinion when we determined that Zauderer did not apply, but for a different reason. As we ruled in our initial decision, we need not decide whether ‘strict scrutiny or the Central Hudson test for commercial speech’ applies. For the reasons we gave in that opinion, the SEC’s ‘final rule does not survive even Central Hudson’s intermediate standard.’ We need not repeat our reasoning in this regard.” (footnotes omitted)
To buttress the majority’s First Amendment argument, Judge Randolph added: “But given the flux and uncertainty of the First Amendment doctrine of commercial speech, and the conflict in the circuits regarding the reach of Zauderer, we think it prudent to add an alternative ground for our decision. It is this. Even if the compelled disclosures here are commercial speech and even if AMI’s view of Zauderer governed the analysis, we still believe that the statute and the regulations violate the First Amendment.” (footnotes omitted) The majority thus concluded that “the Commission’s final rule, 77 Fed. Reg. at 56,362-65, violate[s] the First Amendment 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.’’”
Writing in dissent, Judge Srinivasan argued that “[i]ssuers of securities must make all sorts of disclosures about their products for the benefit of the investing public. No one thinks that garden-variety disclosure obligations of that ilk raise a significant First Amendment problem. So here, there should be no viable First Amendment objection to a requirement for an issuer to disclose the country of origin of a product’s materials—including, say, whether the product contains specified minerals from the Democratic Republic of the Congo (DRC) or an adjoining country, the site of a longstanding conflict financed in part by trade in those minerals. Such a requirement provides investors and consumers with useful information about the geographic origins of a product’s source materials. Indeed, our court, sitting en banc, recently relied on “the time-tested consensus that consumers want to know the geographical origin of potential purchases” in upholding a requirement for companies to identify the source country of food products. Am. Meat Inst. v. U.S. Dep’t of Agric. It is hard to see what is altogether different about another species of “geographical origin” law requiring identification of products whose minerals come from the DRC or adjoining countries.”
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