By Benjamin Goad - 01/08/14 06:00 AM EST
A federal appeals court appeared receptive Tuesday to a request that it strike down regulations requiring companies to disclose whether their products contain minerals from the war-torn Democratic Republic of Congo.
The National Association of Manufacturers (NAM) pressed the D.C. Circuit of Appeals to toss the rule, which the group argues is a costly and unconstitutional mandate meant to portray their wares in a negative light.
Two of three members of a three-judge panel hearing the case appeared sympathetic to portions of Keisler’s argument, signaling they could overturn a lower court’s decision in favor of the contentious “conflict mineral” regulation.
An obscure provision of the 2010 Dodd-Frank financial reform law, the rule requires manufacturers to determine whether any gold, tantalum, tin or tungsten in their products comes from the Democratic Republic of Congo or adjoining nations.
Warring factions are battling for control of the Central African nation’s valuable mineral supply, and proponents say more scrupulous sourcing would lead to lowered demand and decreased violence.
“The objective is to promote peace and security in the Democratic Republic of the Congo,” argued Tracey A. Hardin, an attorney for the Securities and Exchange Commission (SEC), which wrote the rules.
Hardin argued that the SEC drafted the rule in accordance with language set out in the Dodd-Frank financial reform law.
The regulations would apply to roughly 6,000 U.S. businesses, carrying an overall price tag estimated to exceed $1 billion.
The rules are set to take effect in May. It is unclear whether the court — considered the second most powerful in the land, behind only the Supreme Court — would hand down a ruling by then.
Opponents of the regulations, which also include the U.S. Chamber of Commerce and Business Roundtable, say the regulation is a violation of their constitutional protection from compelled speech.
Specifically, the business groups object to a mandate requiring they publicly report that their products as not “conflict-free.”
“The First Amendment precludes us from having to denounce our own products,” Keisler said.
Business groups have used similar arguments in other recent legal challenges to regulations drafted during the Obama administration.
The manufacturers association, for instance, used a compelled speech argument in its successful challenge to a National Labor Relations Board (NLRB) rule requiring companies to display posters informing their workers about union rights.
After a pair of federal court defeats, the NLRB dropped the case last week.
The North American meatpacking industry is making a similar free speech case in its ongoing challenge to regulations requiring new “country of origin” labels on cuts of beef.
In each of the cases, opponents charge that the regulators have failed to prove that compelling private sector speech would directly advance a government interest.
The judges also questioned whether the SEC drafted a rule that goes beyond the intent of Congress. Senior U.S. Circuit Judge David Sentelle repeatedly grilled Hardin on the issue, questioning whether the SEC followed the letter of the law.
“This is regulated speech, and it has some standard higher than, ‘this is what we think Congress would like us to
do,’ ” he said, adding that any absence of instructions does not amount to an invitation for the agency to take liberties.
“Silence does not empower,” he said.
Keisler argued that the SEC overstepped its authority by changing language in the statute from requiring companies to source and disclose information about minerals that “did” originate in one of the covered countries to those that “may” have.
Senior U.S. Circuit Judge Arthur Raymond Randolph also appeared uncomfortable with some of the regulation’s final language, saying, “none of the detail is in the statute.”
The court gave no signal of when it might rule on the regulations, which were upheld this summer in federal district court.
The conflict mineral rule is among hundreds of regulations required by Dodd-Frank. Roughly half have been enacted, and several remain the subjects of litigation.