Oral Argument in Case Challenging Conflict Minerals Rules Offers Mixed Signals

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By Cydney Posner

This article from Reuters recaps Monday's oral arguments in the case challenging the SEC's conflict minerals rules. Here, the article begins with the judge "question[ing] whether U.S. courts should intervene" in this case: "During roughly three hours of oral arguments, Judge Robert Wilkins of the U.S. District Court for the District of Columbia suggested to an attorney for the trade groups that federal courts should consider deferring to Congress on the matter. ‘This is a circumstance where a court should really defer to Congress and the executive in an area of foreign policy where the court has no expertise,' he said." To the extent we can surmise that the author opened with her view of the most significant take-away from the oral argument, the article suggests a different result than in the resource extraction case reported earlier today.

However, the article also indicates that the judge did "question whether the SEC properly used its powers to minimize any negative impacts when drafting the rule." The article reports that the three business trade groups (the Chamber of Commerce, National Association of Manufacturers and the Business Roundtable) challenging the conflict minerals rule argued that "it is nearly impossible to track minuscule amounts of such minerals in their supply chains." When the SEC attorneys contended that the SEC's hands were tied in that regard "because Congress did not intend to give a broad exemption from the rule for ‘de minimis' amounts of conflict minerals," the judge "challenged this view, at one point telling the SEC attorney that the agency ‘seems to have not really performed the legal analysis correctly' and that the agency has an ‘inherent authority in every case' to issue an exemption." When the SEC attorney countered that the SEC might consider exempting companies on a case-by-case basis, the judge joked that "such a policy would be a ‘win-win' for… the business groups' attorney, because he could get more legal business from individual companies seeking regulatory relief."

The trade groups also argued that "the rule violates companies' free speech rights because it makes them engage in ‘politically charged' speech" and that it "unfairly tarnish[es] companies' reputations by forcing them to make political statements about their products….." According to an attorney for these groups, "'[w]hat gives this such bite ... is the fact ... we have to characterize our products as tainted by the human rights violations….We are required to wear this scarlet letter.'" According to the article, "the SEC counters that the rule merely requires companies to disclose factual information about their findings, similar to the same kinds of regulations that require restaurants to disclose calorie counts….The rule is championed by human rights groups, which say disclosing this kind of information will help socially conscious investors."

The trade groups challenging the rule also argued that the SEC did not properly assess the costs and benefits, an argument that was successful in the proxy access case. Opponents of the conflict minerals rule contend that it is a "compliance nightmare that will cost billions."

The article indicates that the "case is not expected to end at the district court, because experts believe it will be appealed, whatever the decision."

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