The Securities and Exchange Commission’s conflict minerals rule could be headed to the Supreme Court.
On Monday afternoon, the U.S. Court of Appeals for the D.C. Circuit denied petitions filed by the SEC and Amnesty International seeking an en banc rehearing—one argued before a full complement of the court’s judges—of an earlier decision that found certain disclosure requirements in the rule to be unconstitutional. In response, the SEC has 90 days to file a petition for a writ of certiorari seeking a review of the appellate court’s decision by the Supreme Court.
In August, a judicial panel, with a 2-1 decision, upheld an earlier ruling that prohibited the SEC from requiring companies to publicly report whether their products are "not found to be DRC conflict free" on the grounds that doing so violates free speech protections. The decision resolved, albeit temporarily, a lawsuit against the SEC brought by the National Association of Manufacturers, U.S. Chamber of Commerce, and the Business Roundtable.The SEC, in response, issued a partial stay of the rule that maintained required Form SD disclosures and supply chain due diligence without requiring a declarative admission of conflict minerals use.
The rejection of SEC’s petition for a rehearing, filed last month, leaves the Supreme Court as its last remaining legal option for keeping the rule intact and as drafted.It has not yet been announced if the Commission will pursue that option.
In a client alert, Michael Littenberg of the law firm Schulte Roth & Zabel expressed his surprise regarding “the speed with which the court ruled on the petitions…as well as the court’s decision. “
The Nov. 9 order likely means that “the status quo is likely to be maintained for at least the current compliance period [calendar year 2015 and the related filing due on May 31, 2016]” making it unlikely that independent private sector audits will be required, although companies may want to be “audit-ready” if the requirement is reestablished, he says.