National Association of Manufacturers v. Securities and Exchange Commission, 800 F.3d 518 (2015)

Facts

  • In 2010, Congress enacted § 1502 of the Dodd–Frank Act, directing the Securities and Exchange Commission (SEC) to issue a rule requiring certain public companies to disclose whether specified “conflict minerals” originated in the Democratic Republic of the Congo (DRC) or adjoining countries.
  • Congress enacted § 1502 in response to reports that armed groups in the DRC financed violence and humanitarian abuses through the conflict-minerals trade.
  • In 2012, the SEC issued its conflict-minerals rule requiring covered issuers to conduct a country-of-origin inquiry and, if applicable, perform due diligence and file a Conflict Minerals Report.
  • The rule required issuers, in certain circumstances, to identify products as not “DRC conflict free” (later phrased in the rule’s reporting language as “not been found to be ‘DRC conflict free’”) and to post the report on their websites.
  • Congress did not hold hearings on § 1502’s likely economic effects before enactment; earlier hearings about the DRC did not focus on the conflict-minerals reporting mechanism, and later hearings included mixed evidence about whether § 1502 improved conditions or made them worse.
  • The National Association of Manufacturers and other business groups sued the SEC, claiming (among other things) that forcing issuers to use the “not DRC conflict free” descriptor was compelled speech that violated the First Amendment.
  • In 2014, a D.C. Circuit panel held that the descriptor requirement violated the First Amendment, declining to use Zauderer review and instead applying intermediate scrutiny.
  • After the en banc D.C. Circuit decided American Meat Institute v. USDA (holding Zauderer is not limited to deception-based disclosures), the SEC sought panel rehearing on the First Amendment issue in this case.

Issues

  1. After American Meat Institute, should the SEC’s compelled conflict-minerals descriptor be evaluated under Zauderer’s standard for compelled commercial disclosures?
  2. If Zauderer does not govern, does the compelled descriptor survive heightened First Amendment scrutiny?

Decision

  • The court denied the SEC’s petition for panel rehearing and left in place the portion of the 2014 decision holding the descriptor requirement unconstitutional.
  • The court recognized that, after American Meat Institute, Zauderer can apply beyond deception-correction disclosures, but held that Zauderer still covers only compelled disclosures of “purely factual and uncontroversial” information in a commercial context.
  • The court concluded the mandated descriptor—requiring issuers to characterize products as not “DRC conflict free” or “not been found to be ‘DRC conflict free’”—was not “purely factual and uncontroversial,” because it carried a moral and political charge and functioned as a public condemnation rather than a neutral statement of fact.
  • Because the compelled statement fell outside Zauderer, the court maintained the more demanding First Amendment review used in its 2014 decision and held the government had not justified forcing issuers to use the descriptor as part of the SEC filing and website-posting regime.
  • The panel noted record materials suggesting uncertainty about whether the compelled descriptor would directly advance the government’s humanitarian objective and cited evidence that the policy could have counterproductive effects.
  • Judge Srinivasan dissented, reasoning that American Meat Institute required reconsideration under Zauderer and viewing the descriptor as factual commercial disclosure tied to mineral sourcing and due-diligence efforts.

Legal Principles

  • After American Meat Institute, Zauderer is not limited to disclosures aimed at curing misleading advertising, but it remains limited to compelled disclosure of “purely factual and uncontroversial” information in the commercial sphere.
  • A compelled disclosure that functions as a moral or political judgment, or that forces a speaker to use a stigmatizing label, may fall outside Zauderer even when placed in a regulatory reporting framework.
  • When Zauderer does not apply, compelled commercial speech is subject to heightened scrutiny (commonly framed through Central Hudson and compelled-speech cases), requiring the government to justify the mandate with a substantial interest and an adequate fit between means and ends.
  • A disclosure mandate may fail heightened scrutiny where the government cannot show the compelled wording materially advances the asserted interest, particularly when other disclosure options could convey sourcing information without forcing a value-laden characterization.

Conclusion

In National Association of Manufacturers v. SEC, the D.C. Circuit denied panel rehearing and reaffirmed that the SEC’s conflict-minerals rule could not constitutionally force issuers to label products as not “DRC conflict free” (or “not been found to be ‘DRC conflict free’”), because the compelled descriptor was not a purely factual and uncontroversial disclosure within Zauderer and was not justified under heightened First Amendment scrutiny.