We have written often about the unfriendly nature of the D.C. Circuit towards the SEC. The most glaring example was Business Roundtable v. SEC when the court struck down the shareholder access rule on spurious grounds.
The tone and degree of deference has shifted since the court was brought to full staff through the appointment of three additional members by the current President. The shift does not rule out the possibility of a panel unfriendly to the SEC but does provide a mechanism for correction through an en banc hearing.
In the conflict minerals case, the SEC largely won. It was an administrative law victory. Nonetheless, a portion of the rule was struck down on aggressive First Amendment grounds. The analysis was also notable given that the First Amendment issue had already been taken up by the D.C. Circuit en banc in another case, American Meat v. Department of Agriculture. As a result, the panel in the conflicts minerals case could have but did not wait for the outcome of that decision.
The SEC, therefore, implemented the conflicts mineral rule save only the portions struck down. With respect to that portion of the opinion, the SEC sought a stay pending the en banc hearing (for earlier posts on the SEC's strategy, see one here and here).
The en banc opinion just came down. See Am. Meat Institute v. Dept. of Agric. In a sweeping victory for administrative agencies, the court upheld "label of origin" rules with respect to certain meat products by a resounding 9-2 (there were two concurring opinions). The en banc court agreed that Supreme Court precedent was not limited to deception. Nonetheless, the government still had to show a "substantial" interest in restricting speech. On that, there was not much guidance.
- Beyond the interest in correcting misleading or confusing commercial speech, Zauderer gives little indication of what type of interest might suffice. Beyond the interest in correcting misleading or confusing commercial speech, Zauderer gives little indication of what type of interest might suffice.
The Department of Agriculture made the requisite showing.
- But here we think several aspects of the government’s interest in country-of-origin labeling for food combine to make the interest substantial: the context and long history of country-of-origin disclosures to enable consumers to choose American-made products; the demonstrated consumer interest in extending country-of-origin labeling to food products; and the individual health concerns and market impacts that can arise in the event of a food-borne illness outbreak. Because the interest motivating the 2013 rule is a substantial one, we need not decide whether a lesser interest could suffice under Zauderer.
The SEC will, therefore, have to make a "substantial" showing to justify the portions of the conflict minerals rule that were invalidated by the panel opinion.
Whatever the outcome of the conflict minerals case from here, American Meat has considerably strengthened the "disclosure" hand of administrative agencies generally and the SEC specifically. What the case really shows, however, is that the views of the circuit are shifting. There seems to be less antagonism towards the administrative process. The decision should demonstrate to administrative agencies that the litigation risk in the rule making area has undergone a significant drop.