National Ass'n of Manufacturers v. Securities & Exchange Commission

Court of Appeals for the D.C. Circuit
44 Envtl. L. Rep. (Envtl. Law Inst.) 20087, 748 F.3d 359, 409 U.S. App. D.C. 210 (2014)

ELI5:

Rule of Law:

Compelling a commercial entity to state on its website and in government filings that its products have "not been found to be 'DRC conflict free'" violates the First Amendment because it is a form of compelled speech that is not narrowly tailored to achieve the government's interest.

Facts:

For many years, the Democratic Republic of the Congo (DRC) has been afflicted by a devastating war and humanitarian crisis.
Armed groups fighting in the war finance their operations by exploiting the regional trade in certain minerals: gold, tantalum, tin, and tungsten (collectively, "conflict minerals").
These minerals are used in the manufacture of a wide variety of consumer products worldwide.
In 2010, the U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act to address this issue.
Section 1502 of the Act directed the Securities and Exchange Commission (SEC) to promulgate rules requiring companies to investigate their supply chains for conflict minerals.
The goal was to reduce the flow of money to armed groups in the DRC by increasing supply-chain transparency.
In 2012, the SEC issued a final rule requiring issuers to conduct due diligence and report on the origin of their conflict minerals.
The rule requires an issuer, if it cannot determine that its minerals did not finance armed groups, to describe its products as having "not been found to be 'DRC conflict free'" in a report filed with the SEC and posted on its website.

Procedural Posture:

The National Association of Manufacturers (NAM) challenged the final rule promulgated by the Securities and Exchange Commission (SEC).
NAM initially filed a petition for review in the U.S. Court of Appeals for the D.C. Circuit, which was then transferred to the U.S. District Court for the District of Columbia.
The district court, a court of first instance, granted summary judgment in favor of the SEC and intervenor Amnesty International, upholding the rule against all challenges.
NAM, as the appellant, appealed the district court's judgment to the U.S. Court of Appeals for the D.C. Circuit.

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Issue:

Does Section 1502 of the Dodd-Frank Act and the corresponding SEC rule, which require an issuer to label its products as having "not been found to be 'DRC conflict free,'" violate the First Amendment's protection against compelled speech?

Opinions:

Majority - Senior Circuit Judge Randolph

Yes, the requirement violates the First Amendment. A government rule compelling an issuer to label its products as having "not been found to be 'DRC conflict free'" is unconstitutional compelled speech. The court rejected the application of the less stringent rational basis review under Zauderer, holding that this standard is limited to cases where the state's interest is in preventing consumer deception, which is not the purpose of the conflict minerals rule. The court determined that the label "conflict free" is not purely factual and non-ideological, but rather a metaphor that conveys moral responsibility and requires an issuer to effectively confess to being ethically tainted. Applying intermediate scrutiny under Central Hudson, the court found the rule fails the narrow tailoring requirement. The government did not provide evidence showing that less speech-restrictive alternatives, such as the government compiling its own list of non-compliant products or allowing issuers to use their own descriptive language, would be less effective in achieving its goal of promoting peace in the Congo.

Concurring - Circuit Judge Srinivasan

Judge Srinivasan concurred with the majority's opinion on the Administrative Procedure Act and Exchange Act claims but did not join the First Amendment analysis. He reasoned that a central question in the First Amendment analysis—the scope of the Zauderer test for compelled commercial speech—was currently pending before the en banc court in a different case, American Meat Institute v. USDA. He argued that the panel should have held its decision on the First Amendment claim in abeyance pending the en banc court's ruling to avoid issuing an opinion that might be quickly undercut or contradicted. He suggested the court could instead stay the enforcement of the specific labeling requirement while awaiting the en banc decision.

Analysis:

This decision significantly limits the government's ability to compel commercial speech for social policy purposes. By confining the lenient Zauderer test to disclosures aimed at preventing consumer deception, the court subjected other forms of compelled commercial speech to a higher level of scrutiny. The ruling establishes a strong precedent that the government cannot force companies to adopt specific, morally-laden language about their own products, even in pursuit of laudable humanitarian goals, if less speech-restrictive means are available. This impacts future legislative and regulatory efforts that might seek to use corporate disclosures as a tool to influence corporate behavior on issues like human rights, labor practices, or environmental impact.

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