On Aug. 18, 2015, a divided panel of the D.C. Circuit Court of Appeals in National Ass’n of Manufacturers v. U.S. Securities and Exchange Commission (Minerals II) reaffirmed its April 2014 decision that the SEC’s conflict minerals rule, and the underlying provision of the Dodd-Frank Act, violate the First Amendment to the extent they require a company to report to the SEC, and to state on its website, that any of its products have “not been found to be ‘[Democratic Republic of the Congo] conflict free.’”[1] The panel had agreed to reconsider the case because of an intervening en banc decision of the full D.C. Circuit in another case, American Meat Institute v. U.S. Department of Agriculture (Meat II),[2] which raised a similar First Amendment challenge to USDA requirements for labeling meat products.
Taken together, these cases further muddy the landscape for compelled commercial speech jurisprudence, already the subject of doctrinal disputes and circuit splits.[3] As a result, the topic seems ripe for attention from the U.S. Supreme Court. In the meantime, however, both cases present analytical approaches that, if they survive, could open the door to First Amendment challenges to other corporate disclosure requirements and complicate the governmental agency rulemaking process.
At their heart, the Minerals II and Meat II cases present a fundamental disagreement within the D.C. Circuit as to the application of the more relaxed “rational basis” review standard for compelled commercial speech set forth by the Supreme Court in Zauderer, as opposed to the more demanding “intermediate standard” in Central Hudson.[4] In principle, the government can more easily defend a disclosure requirement from constitutional challenge under the Zauderer standard than under the Central Hudson standard.
In Minerals I, a three-judge panel of the D.C. Circuit limited the Zauderer standard to disclosure designed to prevent consumer deception. The subsequent Meat II decision then held that Zauderer applies more broadly and explicitly overruled other D.C. Circuit cases “to the extent that [they] may be read as holding to the contrary and limiting Zauderer to [...] correcting deception[.]”[5] In Minerals II, however, the majority (both senior judges who did not participate in the en banc decision in Meat II) continued to limit the reach of Zauderer to cases involving commercial or voluntary advertising (or point-of-sale disclosures). This disagreement alone may give rise to a request for a rehearing of Minerals II en banc or Supreme Court review.
But the potentially more interesting implications for corporate disclosure requirements and rulemaking arise from the alternative basis set forth in the Minerals II decision. Recognizing the “flux and uncertainty of the First Amendment doctrine of commercial speech, and the conflict in the circuits regarding the reach of Zauderer,” the Minerals II majority proceeded to consider the conflict minerals disclosure rule as if “[Meat II’s] view of Zauderer governed the analysis” and still concluded that it violates the First Amendment.[6] And here is where the doctrinal underpinnings of the Meat II and Minerals II decisions surprisingly converge.
The Meat II majority laid out several elements to be considered when applying the Zauderer standard. First, the adequacy of the government interest motivating the disclosure requirement must be assessed. The Meat II majority spent more time on this prong (ultimately finding the government has a sufficient interest in providing consumers with disclosure about a product’s origins); the Minerals II panel, despite noting that the SEC’s supplemental brief “oddly” did not address the subject, cursorily found the government’s interest in ameliorating the humanitarian crisis in the DRC to be sufficient.
Second, the relationship between the government’s identified means and its chosen ends must be assessed. This is where the Zauderer standard is more relaxed with respect to compelled commercial speech, requiring only that the disclosure requirements be reasonably related to the government interest, while the Central Hudson standard would require both that they directly advance the government interest and that they be narrowly drawn. But in Meat II, the court found the two approaches to be essentially the same, at least as applied to the meat labeling requirements at issue,[7] noting that evidence of a measure’s effectiveness “is hardly necessary when the government uses a disclosure mandate to achieve a goal of informing consumers about a particular product trait.”[8]
Following the reasoning in Meat II, the Minerals II majority analyzed the effectiveness of the conflict minerals disclosure requirement in achieving the government’s stated humanitarian interest, but found the record lacking: The SEC was unable to demonstrate that the rule in fact would alleviate the situation in the DRC to a material degree; Congress held no hearings on the likely impact of the rule; the SEC hearings on the topic included conflicting testimony about whether the rule would improve or...
