D.C. District Court Upholds SEC's Conflict Mineral Rule in the Face of APA, Constitutional Challenges

This post was written by David Wagner and Brian Willett (Summer Associate)

The Securities and Exchange Commission's conflict minerals rule (the Rule) withstood a multi-pronged legal attack Tuesday, as the United States District Court for the District of Columbia granted the SEC's motion for summary judgment in a suit challenging the validity of the rule. The National Association of Manufacturers (NAM) alleged the SEC's Rule was arbitrary and capricious under the Administrative Procedure Act (APA) and that the disclosures the Rule required violated the First Amendment. However, District Judge Robert L. Wilkins concluded the Rule, codified in Section 1502 of the Dodd-Frank Act, violated neither the APA nor the Constitution and supported Congress' intent to promote stability in the war-torn Democratic Republic of the Congo (DRC).

According to the NAM, the SEC's alleged failure to properly analyze the costs and benefits of the Rule amounted to an arbitrary and capricious action. Specifically, the NAM claimed the Rule would place an unnecessary burden on business and that the SEC was required to assess whether the rule was actually needed to decrease conflict in the DRC. Judge Wilkins disagreed, noting that the relevant statutory language required the SEC only to consider effects on competition and progress toward humanitarian objectives in its rulemaking rather than undertake an in-depth investigation into the economic and social benefits Congress aimed to achieve. The court also rejected NAM's arguments that the SEC was obligated to create a de minimis threshold and that the SEC arbitrarily underestimated compliance costs associated with the Rule. With respect to the First Amendment challenge, Judge Wilkins rejected the argument that the Rule's disclosure requirements improperly compelled "burdensome and stigmatizing speech." Applying a standard of intermediate scrutiny, Judge Wilkins found the Rule's requirement that companies sourcing from the DRC disclose mineral origins on their websites (1) supported a substantial government interest; (2) directly advanced that interest; and (3) the means were a reasonable way to accomplish the desired ends.

 

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