April 15, 2014
Goodbye Conflict Minerals Rule
Posted by David Zaring

The DC Circuit rather shockingly threw out the SEC's conflict minerals rule ONLY because it compelled publicly traded companies to speak about the issue in their securities filings, which it concluded violated the First Amendment.  EDIT: This means that the parts of the rule that require reporting but not a statement that goods are "not DRC conflict free," might still be okay.  Bainbridge has takes here and here, Jonathan Adler here, Matt Levine here.  

But, you are thinking, the SEC compels companies to do a million things in their securities filings!  Does the very existence of a disclosure regime violate the First Amendment?  The court's novel theory was that it is okay to mandate disclosures that aim to prevent consumer deception (so the books of publicly traded companies could be opened to investors), but any other goal must have more than a rational basis to be sustainable.

It is a crazy theory.  Warning labels, origin labels, nutrition labels, mandatory agricultural marketing schemes, they don't involve consumer deception, and they're okay.  And maybe this reveals a lack of adoration for the First Amendment, but if Congress could prohibit companies from using conflict minerals, which it surely can, then requiring them instead to disclose the use is both less burdensome and possibly more efficient.  Why would we want a legal system that does not permit disclosure regimes, thereby requiring command and control?

Some other observations:

  • One judge wanted the court to wait for a ruling in a related case going en banc before the now democratically controlled circuit, and the two majority judges declined to do so because now the SEC and the petitioners could participate in the en banc.  Unless the new Obama judges on the court cannot hear the en banc, this seems like a request for a quick reversal.
  • Also interesting, the court didn't bullet proof the opinion.  The SEC survived the adlaw challenges, and the very controversial cost-benefit analysis requirement the DC Circuit has started imposing, though that is likely to change very soon, on the agency.  There is only one ground for reversal here: disclosure is unconstitutional.
  • There is a difference between speech and conduct in the First Amendment, but the other big thing the SEC does in foreign policy is corrupt practices prosecutions (bribes paid to foreign government officials, that is).  Could that be affected by the holding of this opinion, were it to stand?  It sure isn't consumer protection.
  • One of my many pet theories about why people care about constitutional law, though they often overdo it, is the sense that stare decisis is only sort of a good way to think about the subject.  Conservative judges clearly love commercial speech, and have been using it to reverse some settled doctrines that have been in place for decades.  I doubt a single securities lawyer thought that this was a plausible holding by the Court.  Some smarter on the subject than I were clearly surprised.  Let's see if it lasts.

Administrative Law, Securities | Bookmark

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