National Association of Manufacturers v. Securities and Exchange Commission
956 F. Supp. 2d 43
D.D.C.2013Background
- NAM, Chamber of Commerce, and Business Roundtable sue the SEC over the Conflict Minerals Rule under the APA and challenge its First Amendment implications.
- Rule requires reporting issuers to disclose whether conflict minerals originated in the DRC or nearby countries and to file a Form SD and potentially a Conflict Minerals Report with an independent audit.
- Rule comprises three steps: determine coverage (Step One), perform a reasonable country of origin inquiry (Step Two), and, if needed, conduct due diligence and prepare a Conflict Minerals Report (Step Three).
- Legislation at issue is Dodd-Frank § 1502; Congress aimed to curb financing of armed groups in the DRC; public disclosure on companies’ websites is mandated.
- Plaintiffs argue the Rule is arbitrary and capricious under the APA, and contend the Rule violates the First Amendment by compelled disclosure on websites.
- Court adopts Chevron Step Two analysis for statutory interpretation, upholds the Rule, and denies Plaintiffs’ summary judgment motion while granting the SEC and intervenors’ cross-motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| APA standard of review | Plaintiffs say SEC failed to assess costs/benefits under Exchange Act. | SEC properly considered Section 3(f) and 23(a)(2) but not a broader social-benefit analysis; Congress legislated benefits, not required economic quantification. | APA review upheld; no violation found. |
| De minimis threshold authority | SEC had authority to create a de minimis exception; statute silent/ambiguous. | Statute silent but SEC exercised discretion; de minimis would undermine purposes; Chevron Step Two supports | SEC's decision not to adopt a de minimis threshold upheld. |
| Reasonable country of origin inquiry scope | Statute requires origin determination only for minerals that originated in Covered Countries. | Statute silent on method; SEC gap-filled via reasonable country of origin inquiry; deference to agency construction. | SEC's reasonable country of origin inquiry sustained as permissible construction. |
| Coverage of issuers that contract to manufacture | Statute limits coverage to manufacturers; contracts should not be covered. | Statute ambiguous about inclusion; SEC reasonably concluded coverage extends to maintain efficacy and avoid loopholes. | SEC's application to contract-to-manufacture issuers upheld. |
| First Amendment - public website disclosures | Public posting of disclosures on websites compels speech in violation of the First Amendment. | Regulation targets commercial disclosures; intermediate scrutiny applies; fits Central Hudson framework. | Disclosures pass Central Hudson intermediate scrutiny; no First Amendment violation. |
Key Cases Cited
- Int'l Swaps & Derivatives Ass’n v. CFTC, 887 F. Supp. 2d 259 (D.D.C. 2012) (APA record-review framework for agency actions)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (U.S. 1983) (arbitrary-and-capricious review requires rational connection)
- Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (U.S. 1984) (two-step framework for agency statutory interpretation)
- Pub. Citizen v. FTC, 869 F.2d 1541 (D.C. Cir. 1989) (agency deference to Congress’ intended purposes)
- Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011) (economic considerations in rulemaking; costs and benefits analysis)
- Am. Equity Inv. Life Ins. Co. v. SEC, 613 F.3d 166 (D.C. Cir. 2010) (cost-benefit and economic impact in rulemaking)
- Chamber of Commerce v. SEC, 412 F.3d 133 (D.C. Cir. 2005) (evaluation of costs and competition in SEC rules)
- Peter Pan Bus Lines v. FMSCA, 471 F.3d 1350 (D.C. Cir. 2006) (ambiguity and Chevron Step Two deference)
- Nat’l Cement Co. v. Sec’y of Labor, 494 F.3d 1066 (D.C. Cir. 2007) (ambiguity/deference in statutory interpretation)