National Ass'n of Manufacturers v. Securities & Exchange Commission
419 U.S. App. D.C. 158
| D.C. Cir. | 2015Background
- Congress enacted §1502 of Dodd-Frank to combat violence in the Democratic Republic of the Congo (DRC) by requiring certain issuers to investigate and disclose whether products contain “conflict minerals” (gold, tantalum, tin, tungsten) that directly or indirectly finance armed groups.
- The SEC adopted rules (Form SD and related regs) requiring covered issuers to perform a country-of-origin inquiry, conduct due diligence when warranted, file a Conflict Minerals Report, and list products that have “not been found to be ‘DRC conflict free.’ ”
- National Association of Manufacturers (NAM) challenged the SEC rule on multiple administrative and First Amendment grounds; the district court largely upheld the rule and NAM appealed.
- A D.C. Circuit panel (Randolph) initially held that the compelled description requirement violated the First Amendment; the court reheard in light of the en banc AMI decision expanding Zauderer’s scope.
- On rehearing the court reaffirmed that Zauderer does not apply here (limited to compelled commercial advertising/point-of-sale labels), held the SEC failed Central Hudson review because the government relied on speculation about effectiveness, and alternatively found the mandated phrase is not a permissible factual/uncontroversial Zauderer disclosure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Zauderer’s relaxed standard applies to the Conflict Minerals Rule | NAM: Zauderer limited to compelled disclosures curing misleading advertising; does not apply here | SEC/Amnesty: Zauderer extends to compelled commercial disclosures (incl. product-origin info) so relaxed review applies | Court: Zauderer confined to commercial advertising/point-of-sale context; does not apply to annual website/SEC-report disclosures |
| If commercial-speech standards apply, whether Central Hudson or Zauderer governs | NAM: Even assuming commercial speech, Zauderer inapplicable; Central Hudson applies and rule fails | SEC: Zauderer governs (relaxed test); rule survives | Court: Under Central Hudson the rule fails because SEC did not show reasonable fit or that disclosure would materially alleviate the humanitarian problem; alternatively, even under AMI-style Zauderer, the mandated phrase is not “purely factual and uncontroversial” |
| Whether the mandatory phrase “not been found to be ‘DRC conflict free’ ” is purely factual and uncontroversial | NAM: The phrase conveys moral stigma, is ideological/metaphorical and may be misleading; not protected by Zauderer | SEC: Phrase is defined by statute, factual in context, and issuers may clarify meaning; thus not controversial | Court: Phrase is not purely factual/uncontroversial; compels a stigmatizing message and cannot be sustained under Zauderer |
| Whether SEC rulemaking was arbitrary/capricious on costs/benefits and scope (APA issues) | NAM: Various arguments on scope, de minimis exception, and adequacy of analysis | SEC: Rulemaking was reasonable; statute left gaps for agency discretion; cost analysis adequate given limits | Court (panel majority reproduced in appendix): Rejected several APA challenges (upheld rule on many administrative grounds) but First Amendment holding invalidates the descriptor requirement as applied |
Key Cases Cited
- Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985) (permits compelled disclosures of purely factual, uncontroversial commercial advertising if reasonably related to preventing consumer deception)
- Central Hudson Gas & Elec. Corp. v. Public Service Comm’n, 447 U.S. 557 (1980) (intermediate scrutiny test for commercial speech restrictions)
- Am. Meat Inst. v. U.S. Dep’t of Agric., 760 F.3d 18 (D.C. Cir. 2014) (en banc) (applied Zauderer beyond deception context to country-of-origin labels)
- Nat’l Ass’n of Mfrs. v. SEC, 748 F.3d 359 (D.C. Cir. 2014) (panel opinion addressing SEC conflict-minerals rule; First Amendment analysis reproduced/considered)
- Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229 (2010) (applied Zauderer where disclosure was an accurate statement of factual information)
- United States v. United Foods, Inc., 533 U.S. 405 (2001) (distinguished Zauderer where compelled speech did not involve voluntary advertising/choice)
- Hurley v. Irish-American Gay, Lesbian & Bisexual Grp. of Boston, 515 U.S. 557 (1995) (outside commercial-advertising context, speakers have right to tailor factual and opinion speech)
- Edenfield v. Fane, 507 U.S. 761 (1993) (government may not rely on mere speculation to justify restrictions on commercial speech)
- Riley v. Nat’l Fed’n of the Blind of N.C., 487 U.S. 781 (1988) (compelled factual statements can implicate the same First Amendment protections as compelled opinions)
- R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205 (D.C. Cir. 2012) (treated Zauderer as circumscribed; disclosure rules tested under Central Hudson when not aimed at preventing consumer deception)