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Thursday
Apr142016

An End to the Conflict Minerals Saga?

In a letter dated March 6th from Attorney General Loretta Lynch to House Speaker Paul Ryan the Attorney General announced that the government will not appeal the ruling in SEC v. NAM (the conflict minerals case) to the US Supreme Court—thus ending (for now) the conflict minerals saga (discussed here and here. ) To be clear, the decision not to appeal does not mean that there is no regulation of conflict minerals.  The rule remains in effect and require that covered issuers file a Form SD and make efforts to determine if their products include any conflict minerals and, if so, to carry out a "due diligence" review of their supply chain.   The only portion of the rule struck down in earlier litigation was the requirement to state that certain products had not been found to be “DRC conflict free.” 

In her letter explaining why review will not be sought the Attorney General noted that:  

  • The panel majority and the dissenting judge disagreed as to the proper standard of scrutiny for First Amendment challenges to compelled-disclosure requirements of the sort at issue here. But because the majority concluded in the alternative that the challenged requirements would be unconstitutional even under the more lenient standard, this would be a poor case in which to seek Supreme Court clarification of the proper standard of scrutiny.  

Further she stated:  

  • The panel majority and the dissenting judge also disagreed on the question whether the disclosure requirements at issue here - which compel some issuers to state publicly that their products have "not been found to be 'DRC conflict free"' - are properly characterized as involving "purely factual and uncontroversial information." The need to resolve that case-specific issue could likewise make it difficult for the Supreme Court to provide useful guidance concerning the application of the First Amendment to more typical disclosure requirements.  

Finally she observed: 

  • The panel majority also expressly recognized that its holding of unconstitutionality may apply only to the Commission's rule rather than to the underlying statute. If, after remand, it is determined that the statute itself does not require use of the specific phrase "not been found to be ' DRC conflict free,'" the Commission could promulgate an amended disclosure rule that attempts both to fulfill the statutory mandate and to comport with the court of appeals' view of the First Amendment. The decision not to seek Supreme Court review will allow the Commission or the district court to determine in the first instance, subject to further review, whether such an amended rule can and will be promulgated.  

This decision may comfort issuers who now know the parameters of their disclosure obligations under the rule.  However it should leave those who care about the regulation of commercial speech troubled.  The state of the law in this area is a mess—no one knows what standard of review will be applied to any particular regulation, nor do we know what constitutes “purely factual and uncontroversial information.”  The stakes are high—see the GMO labeling case in Vermont.  For now confusion will reign.

 

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