Manufacturers’ Legal Challenge of Conflict Minerals Rule May Not Hold

by Lisa Reisman on

Last week, in response to the conflict minerals rule published by the SEC in August of this year, the National Association of Manufacturers (NAM), the Business Roundtable and the US Chamber of Commerce filed a preliminary statement of issues in an effort to seek review of the rule before the D.C. Circuit Court of Appeals.

The business groups challenged the rule on a number of grounds (listed below). MetalMiner wanted to get a legal expert’s viewpoint to better understand the filing and, of course, to determine how “strong of a case” the business groups have made challenging the rule, Section 1502 of the Dodd-Frank financial reform legislation.

What are the Conflict Minerals?

“Conflict minerals” include tin, tungsten, tantalum — the 3Ts — and gold.

MetalMiner spoke with Sarah Altschuller, an attorney in the Corporate Social Responsibility practice of Foley Hoag LLP about this preliminary filing. A summary of the preliminary issues and detailed legal challenges appears below:

  • The SEC’s economic analysis of the rule was inadequate;
  • The SEC’s refusal to adopt a de minimis exception to the rule was erroneous, arbitrary and capricious, or an abuse of discretion;
  • The SEC’s application of the rule to companies that ”contract to manufacture” (as opposed to manufacture) products contain conflict minerals was erroneous, arbitrary and capricious, or an abuse of discretion;
  • The SEC’s interpretation of “did originate” in the original legislation as “reason to believe . . . may have originated” is erroneous, arbitrary and capricious, or an abuse of discretion;
  • The SEC’s standards and requirements for the “reasonable country of origin” inquiry are erroneous, arbitrary and capricious, or an abuse of discretion;
  •  The structure of the transition period established in the rule is erroneous, arbitrary and capricious, or an abuse of discretion;
  • The legislation pursuant to which the rule was drafted compels speech in violation of the First Amendment to the U.S. Constitution; and
  • The SEC, in promulgating the rule, otherwise acted in a manner that was arbitrary and capricious, an abuse of discretion, unlawful, or contrary to a constitutional right.

Access the MetalMiner Conflict Mineral Legislative Guide Here

MetalMiner: What do the petitioners (e.g. NAM/The Business Roundtable and The Chamber of Commerce) need to prove — and to what standard — for these rules to be declared invalid?

Sarah Altschuller: They basically need to show that the SEC didn’t have a basis for the determinations that it made in drafting the final rule. For many of their stated claims, they need to show, by a preponderance of the evidence, that the SEC acted arbitrarily or capriciously — or without a reasonable basis. That may be tough for petitioners to show. We have to remember that disagreement with the rule does not mean the SEC didn’t have a basis for the decisions that it made. If they had issued a final rule without all of the pages of explanation and analysis, it would be easier to argue that they didn’t consider alternatives or evaluate specific options, but the SEC’s lengthy analysis – the final rule is 356 pages! — provide quite a bit of insight as to how and why the SEC came up with the final language of the rule.

Read the second half of the interview with Sarah Altschuller here.




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