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

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 7, 2014 Decided April 14, 2014

No. 13-5252

NATIONAL ASSOCIATION OF MANUFACTURERS, ET AL.,

APPELLANTS

v.

SECURITIES AND EXCHANGE COMMISSION, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:13-cv-00635)

Peter D. Keisler argued the cause for appellants. With him

on the briefs were Jonathan F. Cohn, Erika L. Myers, Quentin

Riegel, Rachel L. Brand, and Steven P. Lehotsky.

Eric P. Gotting and Eric G. Lasker were on the brief for

amici curiae American Chemistry Council, et al. in support of

appellants.

Eugene Scalia, Thomas M. Johnson Jr., Harry M. Ng, and

Peter C. Tolsdorf were on the brief for amicus curiae American

Petroleum Institute in support of appellants.

2

John B. Bellinger III and Sarah M. Harris were on the brief

for amicus curiae Experts on the Democratic Republic of the

Congo in support of petitioners.

Mark T. Stancil was on the brief for amici curiae Retail

Litigation Center, Inc., et al. in support in appellants.

Tracey A. Hardin, Assistant General Counsel, Securities

and Exchange Commission, argued the cause for appellee. With

her on the brief were Michael A. Conley, Deputy General

Counsel, Benjamin L. Schiffrin, Senior Litigation Counsel, and

Daniel Staroselsky, Senior Counsel.

Julie A. Murray, Adina H. Rosenbaum, and Scott L. Nelson

were on the brief for intervenors-appellees Amnesty

International USA, Inc., et al.

Dennis M. Kelleher and Stephen W. Hall were on the brief

for amicus curiae Better Markets, Inc. in support of appellee.

Agnieszka Fryszman and Thomas J. Saunders were on the

brief for amici curiae Senator Durbin, Congressman

McDermott, et al. in support of appellee.

Jodi Westbrook Flowers was on the brief for amici curiae

Global Witness, et al. in support of appellee.

Before: SRINIVASAN, Circuit Judge, and SENTELLE and

RANDOLPH, Senior Circuit Judges.

Opinion for the court filed by Senior Circuit Judge

RANDOLPH.

Opinion concurring in part filed by Circuit Judge

SRINIVASAN

3

RANDOLPH, Senior Circuit Judge:

I.

For the last fifteen years, the Democratic Republic of the

Congo has endured war and humanitarian catastrophe. Millions

have perished, mostly civilians who died of starvation and

disease. Communities have been displaced, rape is a weapon,

and human rights violations are widespread.

Armed groups fighting the war finance their operations by

exploiting the regional trade in several kinds of minerals. Those

minerals—gold, tantalum, tin, and tungsten1—are extracted from

technologically primitive mining sites in the remote eastern

Congo. They are sold at regional trading houses, smelted nearby

or abroad, and ultimately used to manufacture many different

products.2 Armed groups profit by extorting, and in some cases

directly managing, the minimally regulated mining operations.

In 2010, Congress devised a response to the Congo war.

Section 1502 of the Dodd-Frank Wall Street Reform and

Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376

(relevant parts codified at 15 U.S.C. §§ 78m(p), 78m note

(‘Conflict Minerals’)), requires the Securities and Exchange

Commission—the agency normally charged with policing

America’s financial markets—to issue regulations requiring

1

See Conflict Minerals, 77 Fed. Reg. 56,274, 56,284-85 (Sept.

12, 2012).

2

For example, tantalum is used in turbines, camera lenses,

medical devices, cell phones, and computers. Tin is used in plastics,

phones, and automobile parts. Tungsten is used in lighting, power

tools, and golf clubs.

4

firms using “conflict minerals” to investigate and disclose the

origin of those minerals. See 15 U.S.C. § 78m(p)(1)(A).

The disclosure regime applies only to “person[s] described”

in the Act. See id. A “person is described . . . [if] conflict

minerals are necessary to the functionality or production of a

product manufactured by such person.” Id. § 78m(p)(2). A

described person must “disclose annually, whether [its

necessary] conflict minerals . . . did originate in the [Congo] or

an adjoining country.” Id. § 78m(p)(1)(A). If those minerals “did

originate” in the Congo or an adjoining country (collectively,

“covered countries”) then the person must “submit [a report] to

the Commission.” Id. The report must describe the “due

diligence” measures taken to establish “the source and chain of

custody” of the minerals, including a “private sector audit” of

the report. Id. The report must also list “the products

manufactured or contracted to be manufactured that are not

DRC conflict free.” Id. A product is “DRC conflict free” if its

necessary conflict minerals did not “directly or indirectly

finance or benefit armed groups” in the covered countries. Id.

In late 2010, the Commission proposed rules for

implementing the Act. Conflict Minerals, 75 Fed. Reg. 80,948

(Dec. 23, 2010). Along with the proposed rules, the Commission

solicited comments on a range of issues. In response, it received

hundreds of individual comments and thousands of form letters.

Conflict Minerals, 77 Fed. Reg. 56,274, 56,277-78 (Sept. 12,

2012) (“final rule”) (codified at 17 C.F.R. §§ 240.13p-1,

249b.400). The Commission twice extended the comment period

and held a roundtable for interested stakeholders. Id. By a 3-2

vote, it promulgated the final rule, which became effective

November 13, 2012. Id. at 56,274. The first reports are due by

May 31, 2014. Id.

The final rule adopts a three-step process, which we outline

below, omitting some details not pertinent to this appeal. At step

5

one, a firm must determine if the rule covers it. Id. at 56,279,

56,285. The final rule applies only to securities issuers who file

reports with the Commission under sections 13(a) or 15(d) of the

Exchange Act. Id. at 56,287. The rule excludes issuers if conflict

minerals are not necessary to the production or functionality of

their products. Id. at 56,297-98. The final rule does not,

however, include a de minimis exception, and thus applies to

issuers who use very small amounts of conflict minerals. Id. at

56,298. The rule also extends to issuers who only contract for

the manufacture of products with conflict minerals, as well as

issuers who directly manufacture those products. Id. at 56,290-

92.

Step two requires an issuer subject to the rule to conduct a

“reasonable country of origin inquiry.” Id. at 56,311. The

inquiry is a preliminary investigation reasonably designed to

determine whether an issuer’s necessary conflict minerals

originated in covered countries. Id. at 56,312. If, as a result of

the inquiry, an issuer either knows that its necessary conflict

minerals originated in covered countries or “has reason to

believe” that those minerals “may have originated” in covered

countries, then it must proceed to step three and exercise due

diligence. Id. at 56,313.3

An issuer who proceeds to step three must “exercise due

diligence on the source and chain of custody of its conflict

minerals.” Id. at 56,320. If, after performing due diligence an

3

If the inquiry discloses that there is no reason to believe the

issuer’s conflict minerals came from covered countries or that there is

a reasonable basis for believing that the issuer’s conflict minerals

came from scrap or recycled sources, then the issuer need only file a

specialized disclosure report on the newly-created Form SD, briefly

describing its inquiry, 77 Fed. Reg. at 56,313, and provide a link to the

report on its website. Id. at 56,315. No due diligence is required.

6

issuer still has reason to believe its conflict minerals may have

originated in covered countries, it must file a conflict minerals

report. The report must describe both its due diligence efforts,

including a private sector audit,4 id., and those products that

have “not been found to be ‘DRC conflict free,’” id. at 56,322

(quoting 15 U.S.C. § 78m(p)(1)(A)(ii)). The report must also

provide detailed information about the origin of the minerals

used in those products. Id. at 56,320.

The final rule does offer a temporary reprieve. During a

two-year phase-in period (four years for smaller issuers), issuers

may describe certain products as “DRC conflict

undeterminable” instead of conflict-free or not conflict-free. Id.

at 56,321-22. That option is available only if the issuer cannot

determine through due diligence whether its conflict minerals

originated in covered countries, or whether its minerals

benefitted armed groups. Id. An issuer taking advantage of the

phase-in by describing its products as “DRC conflict

undeterminable” must still perform due diligence and file a

conflict minerals report, but it need not obtain a private sector

audit. Id.

The Commission analyzed in some detail the final rule’s

costs. Id. at 56,333-54. It estimated the total costs of the final

rule would be $3 billion to $4 billion initially, and $207 million

to $609 million annually thereafter. Id. at 56,334. To come up

with this estimate, the Commission reviewed four cost estimates

it received during the comment period, supplemented with its

own data. Id. at 56,350-54. Where possible, the Commission

4

To be precise, an issuer must also submit a conflict minerals

report if, as a result of its earlier inquiry, it knows that its conflict

minerals came from covered countries. 77 Fed. Reg. at 56,320. That

issuer must still perform due diligence, but the trigger for the report is

the preliminary inquiry, not the due diligence results.

7

also estimated or described the marginal costs of its significant

discretionary choices. Id. at 56,342-50.

The Commission was “unable to readily quantify” the

“compelling social benefits” the rule was supposed to achieve:

reducing violence and promoting peace and stability in the

Congo. Id. at 56,350. Lacking quantitative data on those issues,

the Commission explained that it could not “assess how

effective” the rule would be in achieving any benefits. Id.

Instead, the Commission relied on Congress’s judgment that

supply-chain transparency would promote peace and stability by

reducing the flow of money to armed groups. Id. at 56,275-76,

56,350. That judgment grounded many of the Commission’s

discretionary choices in favor of greater transparency. See, e.g.,

id. at 56,288, 56,291, 56,298.

The National Association of Manufacturers challenged the

final rule, raising Administrative Procedure Act, Exchange Act,

and First Amendment claims.5 The district court rejected all of

the Association’s claims and granted summary judgment for the

Commission and intervenor Amnesty International. See Nat’l

Ass’n of Mfrs. v. SEC, 956 F. Supp. 2d 43, 46 (D.D.C. 2013).

II.

Under the Administrative Procedure Act, a court must “hold

unlawful and set aside agency action . . . found to be[] arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law[, or] in excess of statutory jurisdiction.” 5

5

The Association initially filed a petition for review in this court.

After our opinion in American Petroleum Institute v. SEC, 714 F.3d

1329 (D.C. Cir. 2013), the Association moved to transfer the case to

the district court, and we granted the motion. See Per Curiam Order,

Nat’l Ass’n of Mfrs. v. SEC, No. 12-1422 (D.C. Cir. May 2, 2013).

8

U.S.C. § 706(2). In making these determinations, we review the

administrative record as if the case had come directly to us

without first passing through the district court. See Holland v.

Nat’l Mining Ass’n, 309 F.3d 808, 814 (D.C. Cir. 2002).

A.

The Act does not include an exception for de minimis uses

of conflict minerals. The Association claims that the rule should

have included a de minimis exception and that the Commission

erred when, during the rulemaking, it failed to recognize its

authority to create one and assumed that the statute foreclosed

any exception.

Although the Commission acknowledges that it had the

authority to create such an exception, see, e.g., 15

U.S.C. § 78mm(a)(1); Ala. Power Co. v. Costle, 636 F.2d 323,

360-61 (D.C. Cir. 1979), it stated during the rulemaking that a

de minimis exception “would be contrary to the [statute] and

Congressional purpose,” and that if Congress intended to

include such an exception it “would have done so explicitly” as

it did in a nearby section of Dodd-Frank. 77 Fed. Reg. at 56,298.

But we do not interpret that explanation the way the Association

does. Read in context, the Commission’s language addressed the

general purpose of the statute and the effects of its policy

choices. Congress knew that conflict minerals are often used in

very small quantities. The Commission, relying on text, context,

and policy concerns, inferred that Congress wanted the

disclosure regime to work even for those small uses. Id. A de

minimis exception would, in the Commission’s judgment,

“thwart” that goal. Id.

The Commission’s explanation was thus a far cry from a

mere “parsing of the statutory language,” Peter Pan Bus Lines,

Inc. v. Fed. Motor Carrier Safety Admin., 471 F.3d 1350, 1354

(D.C. Cir. 2006) (quoting PDK Labs., Inc. v. DEA, 362 F.3d

9

786, 797 (D.C. Cir. 2004)), that has caused us to set aside

agency action in other cases. See, e.g., id. at 1353 (statute’s

“plain language” “does not permit” action); Arizona v.

Thompson, 281 F.3d 248, 253-54 (D.C. Cir. 2002) (“intent of

Congress, rather than of HHS” “does not permit” action); Alarm

Indus. Commc’ns Comm. v. FCC, 131 F.3d 1066, 1068 (D.C.

Cir. 1997) (“plain meaning” of a statute was “unambiguous”).

Nothing in the Commission’s explanation suggests, as in those

cases, that the statutory text by itself foreclosed any exception.

Rather, the explanation “looks to be a quite ordinary

construction of a statute over which the agency has been given

interpretive authority.” PDK Labs., 362 F.3d at 807-08 (Roberts,

J., concurring in part and concurring in the judgment).

The Commission did not act arbitrarily and capriciously by

choosing not to include a de minimis exception. Because conflict

minerals “are often used in products in very limited quantities,”

the Commission reasoned that “a de minimis threshold could

have a significant impact on the final rule.” 77 Fed. Reg. at

56,298 (quoting U.S. Dep’t of State Responses to Request for

Comment). The Association suggests that this rationale would

not apply to de minimis thresholds measured by mineral use per-

issuer, instead of per-product. Although that sort of threshold

was suggested in a few comments, those comments did not

explain the merits of the proposal or compare it to other

thresholds. The Commission was not obligated to respond to

those sorts of comments. See Pub. Citizen, Inc. v. FAA, 988 F.2d

186, 197 (D.C. Cir. 1993); see also Alianza Fed. de Mercedes v.

FCC, 539 F.2d 732, 739 (D.C. Cir. 1976). In any event, the

Commission’s rationale still applies to a per-issuer exemption.

Having established that conflict minerals are frequently used in

minute amounts, the Commission could reasonably decide that

a per-issuer exception could “thwart” the statute’s goals by

leaving unmonitored small quantities of minerals aggregated

over many issuers. Though costly, that decision bears a “rational

10

connection” to the facts. Motor Vehicle Mfrs. Ass’n v. State

Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

B.

As we have mentioned, the final rule requires an issuer to

conduct “due diligence” if, after its inquiry, it “has reason to

believe that its necessary conflict minerals may have originated

in” covered countries. 77 Fed. Reg. at 56,313 (emphasis added).

According to the Association, that requirement contravenes the

statute, which requires issuers to “submit to the Commission a

report” only “in cases in which [their] conflict minerals did

originate” in covered countries. 15 U.S.C. § 78m(p)(1)(A)

(emphasis added).

The Association has conflated distinct issues. The statute

does require a conflict minerals report if an issuer has already

performed due diligence and determined that its conflict

minerals did originate in covered countries. But the statute does

not say in what circumstances an issuer must perform due

diligence before filing a report. The statute also does not list

what, if any, reporting obligations may be imposed on issuers

uncertain about the origin of their conflict minerals.

In general, if a statute “is silent or ambiguous with respect

to the specific issue at hand” then “the Commission may

exercise its reasonable discretion in construing the statute.”

Bldg. Owners & Managers Ass’n Int’l v. FCC, 254 F.3d 89,

93-94 (D.C. Cir. 2001) (quoting Chevron U.S.A., Inc. v. NRDC,

467 U.S. 837, 843 (1984)). And that discretion may be exercised

to regulate circumstances or parties beyond those explicated in

a statute. See, e.g., Mourning v. Family Publ’ns Serv., Inc., 411

U.S. 356, 371-73 (1973); Tex. Rural Legal Aid, Inc. v. Legal

Servs. Corp., 940 F.2d 685, 694 (D.C. Cir. 1991). Here, the

statute is silent with respect to both a threshold for conducting

due diligence, and the obligations of uncertain issuers. The

11

Commission used its delegated authority to fill those gaps, and

nothing in the statute foreclosed it from doing so.6

We also reject the Association’s argument that the

Commission’s due diligence threshold was arbitrary and

capricious. The Commission adopted a lower due diligence

threshold to prevent issuers from “ignor[ing] . . . warning signs”

that their conflict minerals originated in covered countries. 77

Fed. Reg. at 56,313. In particular, the Commission wanted

issuers who encounter red flags to “learn[] the ultimate source”

of their conflict minerals. Id. at 56,314. Requiring a good-faith

inquiry does not resolve the Commission’s concerns. A good-

faith inquiry could generate red flags but, without a further due

diligence requirement, those red flags would not give way to

“ultimate” answers, which result would “undermine the goals of

the statute.” Id.

Although the Commission adopted an expansive rule, it did

not go as far as it might have, and it declined to require due

diligence by issuers who encounter no red flags in their inquiry.

Id. By doing so, the Commission reduced the costs of the final

rule, and resolved the Association’s concern that the rule will

yield a flood of trivial information. Id.

6

The parties also disagree over a more subtle point. The

Association concedes that due diligence can be required if an issuer

has “reason to believe” its conflict minerals “did” originate in covered

countries. See Oral Arg. Tr. at 4:14-5:16. Since “reason to believe”

inherently conveys uncertainty, it is unclear how that standard would

differ in practice from the Commission’s “reason to believe . . . may”

standard. Because the statute is ambiguous we need not resolve the

issue.

12

C.

By its terms, the statute applies to “Persons Described,” or

those that “manufacture[]” a product in which conflict minerals

“are necessary to the functionality or production” of the product.

15 U.S.C. § 78m(p)(2). If those persons file a conflict minerals

report the statute requires them to describe products they

“manufacture[] or contract[] to be manufactured.” Id.

§ 78m(p)(1)(A)(i). The Commission reconciled these provisions

in an expansive fashion, applying the final rule not only to

issuers that manufacture their own products, but also to those

that only contract to manufacture. 77 Fed. Reg. at 56,290-91.

The Association claims that decision violates the statute. By

using the phrase “contracted to be manufactured” in one

provision, but only “manufactured” in another, Congress

allegedly intended to limit the scope of the latter.

The persons-described provision, though it refers expressly

to manufacturers, is silent on the obligations of issuers that only

contract for their goods to be manufactured. Standing alone, that

silence allows the Commission to use its delegated authority in

determining the rule’s scope, just as with the due diligence

provision. The Association’s argument is no more persuasive

here because Congress explicitly used the phrase “contracted to

be manufactured” in a nearby provision.

The Association invokes the canon expressio unius est

exclusio alterius. But that canon is “an especially feeble helper

in an administrative setting, where Congress is presumed to have

left to reasonable agency discretion questions that it has not

directly resolved.” Cheney R. Co., Inc. v. ICC, 902 F.2d 66, 69

(D.C. Cir. 1990); see Tex. Rural Legal Aid, 940 F.2d at 694. The

more reasonable interpretation of the statute as a whole is that

Congress simply “deci[ded] not to mandate any solution” and

left the rule’s application to contractors “to agency discretion.”

Cheney R. Co., 902 F.2d at 69 (emphasis omitted).

13

Potential “internal[] inconsisten[cy]” between the due

diligence and persons-described provisions also persuades us

that the statute is ambiguous. See 77 Fed. Reg. at 56,291. An

issuer subject to the rule must describe due diligence measures

it undertakes on the source and chain of custody of “such

minerals.” 15 U.S.C. § 78m(p)(1)(A)(i). “[S]uch minerals”

refers, in the preceding paragraph, to “minerals that are

necessary as described in paragraph (2)(B).” Id. § 78m(p)(1)(A).

Paragraph (2)(B) in turn refers to minerals “necessary to . . . a

product manufactured” by a person described. Id. § 78m(p)(2)

(emphasis added). Thus, under the Association’s reading, an

issuer would not have to describe its due diligence efforts (or

even, presumably, to conduct due diligence) for products it does

not manufacture. And yet, the statute requires that same issuer

to describe its contracted-for products as not conflict free under

§ 78m(p)(1)(A)(ii) if they do not meet the statute’s definition.

We do not understand how an issuer could describe its

contracted-for products without first conducting due diligence

on those products, or why the statute would require certain

products to be described in a report without a corresponding

explanation of the related due diligence efforts. The

Commission’s interpretation is therefore reasonable because it

reconciles otherwise confusing and conflicting provisions “into

an harmonious whole.” FDA v. Brown & Williamson Tobacco

Corp., 529 U.S. 120, 133 (2000) (internal quotation omitted).

The Commission did not erroneously assume that its

interpretation was compelled by Congress. As the district court

explained, referring once to Congress’s intent as “clear” does

not establish that the Commission believed it lacked discretion.

Nat’l Ass’n of Mfrs., 956 F. Supp. 2d at 72 (quoting Ass’n of

Private Sector Colls. & Univs. v. Duncan, 681 F.3d 427, 445

(D.C. Cir. 2012)). The balance of the Commission’s

explanation, as with the de minimis exception, falls well short of

the language on which we have relied to set aside agency action.

See supra at 8-9. Rather than merely parsing the statutory

14

language, the Commission provided policy justifications and

structural inferences supporting its decision. 77 Fed. Reg. at

56,291.

Nor did the Commission act arbitrarily or capriciously. The

final rule applies to contractors so that issuers cannot “avoid

[its] requirements by contracting out of the manufacture” of

their products. Id. at 56,291. The Association thinks the final

rule reaches too far and overstates the risk of circumvention. But

that is a question of judgment for the Commission, which we

will not second-guess. The Commission’s explanation was

“rational,” and that is enough. State Farm, 463 U.S. at 43.

D.

The final rule’s temporary phase-in period allows issuers to

describe certain products as “DRC conflict undeterminable” and

to avoid conducting an audit. 77 Fed. Reg. at 56,320-21. The

Association claims the length of the phase-in—two years for

large issuers and four years for small issuers—is inconsistent,

arbitrary, and capricious because small issuers are part of large-

issuer supply chains. All issuers, the Association says, will

therefore face the same information problems. Not so. Large

issuers, the Commission explained, can exert greater leverage to

obtain information about their conflict minerals, id. at 56,322-

23, and they may be able to exercise that leverage indirectly on

behalf of small issuers in their supply chains. Id. at 56,323

n.570. Like the district court, we can “see the trickledown logic

underlying the Commission’s approach,” even if it does not hold

in all cases. Nat’l Ass’n of Mfrs., 956 F. Supp. 2d at 73 n.24.

15

III.

Two provisions require the Commission to analyze the

effects of its rules. Under 15 U.S.C. § 78w(a)(2), the

Commission “shall not adopt any rule [under § 78m(p)] . . .

which would impose a burden on competition not necessary or

appropriate” to advance the purposes of securities laws. Also,

when the Commission “is engaged in rulemaking,” it must

“consider, in addition to the protection of investors, whether the

action will promote efficiency, competition, and capital

formation.” 15 U.S.C. § 78c(f). The Association, citing several

of our recent opinions, alleges that the Commission violated

those sections because it did not adequately analyze the costs

and benefits of the final rule. See Bus. Roundtable v. SEC, 647

F.3d 1144 (D.C. Cir. 2011); Am. Equity Inv. Life Ins. Co. v.

SEC, 613 F.3d 166 (D.C. Cir. 2010); Chamber of Commerce v.

SEC, 412 F.3d 133 (D.C. Cir. 2005).7

We do not see any problems with the Commission’s cost-

side analysis. The Commission exhaustively analyzed the final

rule’s costs. See 77 Fed. Reg. at 56,333-54. It considered its own

data as well as cost estimates submitted during the comment

period, id. at 56,350-54, and arrived at a large bottom-line figure

that the Association does not challenge. Id. at 56,334. The

Commission specifically considered the issues listed in § 78c(f)

and concluded that the rule would impose competitive costs, but

have relatively minor or offsetting effects on efficiency and

capital formation. 77 Fed. Reg. at 56,350-51. The Association

does not dispute those conclusions.

7

Dodd-Frank independently requires the Comptroller General of

the United States to submit annual reports to Congress “assess[ing ]

the effectiveness of . . . 15 U.S.C. 78m(p) in promoting peace and

security in the” covered countries. 15 U.S.C. § 78m note (‘Conflict

Minerals’).

16

Instead, the Association argues on the benefit side that the

Commission failed to determine whether the final rule would

actually achieve its intended purpose. But we find it difficult to

see what the Commission could have done better. The

Commission determined that Congress intended the rule to

achieve “compelling social benefits,” id. at 56,350, but it was

“unable to readily quantify” those benefits because it lacked data

about the rule’s effects. Id.

That determination was reasonable. An agency is not

required “to measure the immeasurable,” and need not conduct

a “rigorous, quantitative economic analysis” unless the statute

explicitly directs it to do so. Inv. Co. Inst. v. Commodity Futures

Trading Comm’n, 720 F.3d 370, 379 (D.C. Cir. 2013) (internal

quotation marks omitted); see Chamber of Commerce, 412 F.3d

at 360. Here, the rule’s benefits would occur half-a-world away

in the midst of an opaque conflict about which little reliable

information exists, and concern a subject about which the

Commission has no particular expertise. Even if one could

estimate how many lives are saved or rapes prevented as a direct

result of the final rule, doing so would be pointless because the

costs of the rule—measured in dollars—would create an apples-

to-bricks comparison.

Despite the lack of data, the Commission had to promulgate

a disclosure rule. 15 U.S.C. § 78m(p)(1)(A). Thus, it relied on

Congress’s “determin[ation] that [the rule’s] costs were

necessary and appropriate in furthering the goals” of peace and

security in the Congo. 77 Fed. Reg. at 56,350. The Association

responds that the Commission only had to adopt some disclosure

rule; Congress never decided the merits of the Commission’s

discretionary choices. True enough. But Congress did conclude,

as a general matter, that transparency and disclosure would

benefit the Congo. See 15 U.S.C. § 78m note. And the

Commission invoked that general principle to justify each of its

discretionary choices. See id. at 56,291; (contractors to

17

manufacture); id. at 56,298 (no de minimis exception); id. at

56,313-14 (due diligence standard); id. at 56,322 (phase-in).

What the Commission did not do, despite many comments

suggesting it, was question the basic premise that a disclosure

regime would help promote peace and stability in the Congo. If

the Commission second-guessed Congress on that issue, then it

would have been in an impossible position. If the Commission

had found that disclosure would fail of its essential purpose,

then it could not have adopted any rule under the Association’s

view of §§ 78w(a)(2) and 78c(f). But promulgating some rule is

exactly what Dodd-Frank required the Commission to do.

IV.

This brings us to the Association’s First Amendment claim.

The Association challenges only the requirement that an issuer

describe its products as not “DRC conflict free” in the report it

files with the Commission and must post on its website.8 15

U.S.C. § 78m(p)(1)(A)(ii) & (E). That requirement, according

to the Association, unconstitutionally compels speech. The

district court, applying Central Hudson Gas & Electric Corp. v.

8

The district court stated that the Association had limited its First

Amendment claim to product descriptions on an issuer’s “website[].”

Nat’l Ass’n of Mfrs., 956 F. Supp. 2d at 73. In this court both the

Commission and the intervenor Amnesty International understood the

Association’s claim to encompass also the not “DRC conflict free”

statement required in a company’s report to the Commission. See, e.g.,

Appellee Br. 58, 61; Intervenor Br. 31. When asked about the scope

of the claim during oral argument, counsel for the Association

clarified that the First Amendment claim also extends to labeling of

products as not conflict free in reports to the Commission. Oral Arg.

Tr. at 15:25-16:11. The Association does not have any First

Amendment objection to any other aspect of the conflict minerals

report or required disclosures. Id. at 16:11-16:25.

18

Public Service Commission, 447 U.S. 557, 564-66 (1980),

rejected the First Amendment claim. Nat’l Ass’n of Mfrs., 956

F. Supp. 2d at 73, 75-82. We review its decision de novo. Am.

Bus. Ass’n v. Rogoff, 649 F.3d 734, 737 (D.C. Cir. 2011).9

The Commission argues that rational basis review is

appropriate because the conflict free label discloses purely

factual non-ideological information. We disagree. Rational basis

review is the exception, not the rule, in First Amendment cases.

See Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 641-42

(1994). The Supreme Court has stated that rational basis review

applies to certain disclosures of “purely factual and

uncontroversial information.” Zauderer v. Office of Disciplinary

Counsel, 471 U.S. 626, 651 (1985). But as intervenor Amnesty

International forthrightly recognizes,10 we have held that

9

The concurring opinion suggests that we hold the First

Amendment portion of our opinion in abeyance and stay

implementation of the relevant part of the final rule. We do not see

why that approach is preferable, even though it might address the risk

of irreparable First Amendment harm. Issuing an opinion now

provides an opportunity for the parties in this case to participate in the

court’s en banc consideration of this important First Amendment

question. That is consistent with the court’s previous approach in

United States v. Crowder, 87 F.3d 1405, 1409 (D.C. Cir. 1996) (en

banc), cert. granted, judgment vacated, 519 U.S. 1087 (1997), on

remand 141 F.3d 1202 (D.C. Cir. 1998) (en banc), in which we

consolidated two cases presenting the same legal issue so that all

parties could participate in the en banc proceeding.

10

See Intervenor Br. 32 n.5 (“Amnesty International recognizes

that this panel is bound by R.J. Reynolds Tobacco Co. v. FDA, 696

F.3d 1205 (D.C. Cir. 2012), which circumscribed Zauderer’s rational-

basis standard.”). For its part, the Commission makes no attempt to

distinguish R.J. Reynolds; in fact, it does not even acknowledge the

holding of R.J. Reynolds regarding Zauderer, which the Commission

also fails to cite.

19

Zauderer is “limited to cases in which disclosure requirements

are ‘reasonably related to the State’s interest in preventing

deception of consumers.’” R.J. Reynolds Tobacco Co. v. FDA,

696 F.3d 1205, 1213 (D.C. Cir. 2012) (quoting Zauderer, 471

U.S. at 651); see Nat’l Ass’n of Mfrs. v. NLRB, 717 F.3d 947,

959 n.18 (D.C. Cir. 2013). But see Am. Meat Inst. v. USDA, No.

13-5281, 2014 WL 1257959, at *4-7 (D.C. Cir. Mar. 28, 2014),

vacated and en banc rehearing ordered, Order, No. 13-5281

(D.C. Cir. Apr. 4, 2014) (en banc). No party has suggested that

the conflict minerals rule is related to preventing consumer

deception. In the district court the Commission admitted that it

was not. Nat’l Ass’n of Mfrs., 956 F. Supp. 2d at 77.

That a disclosure is factual, standing alone, does not

immunize it from scrutiny because “[t]he right against

compelled speech is not, and cannot be, restricted to ideological

messages.” Nat’l Ass’n of Mfrs., 717 F.3d at 957. Rather, “th[e]

general rule, that the speaker has the right to tailor the speech,

applies . . . equally to statements of fact the speaker would rather

avoid.” Hurley v. Irish-Am. Gay, Lesbian & Bisexual Grp., 515

U.S. 557, 573-74 (1995) (citing cases). As the Supreme Court

put it in Riley v. National Federation of the Blind of North

Carolina, Inc., the cases dealing with ideological messages11

“cannot be distinguished simply because they involved

compelled statements of opinion while here we deal with

compelled statements of ‘fact.’” 487 U.S. 781, 797 (1988).

11

See, e.g., Wooley v. Maynard, 430 U.S. 705 (1977); W. Va.

State Bd. of Educ. v. Barnette, 319 U.S. 624 (1943); see also Rumsfeld

v. Forum for Academic & Institutional Rights, Inc., 547 U.S. 47, 61

(2006) (“Some of [the] Court’s leading First Amendment precedents

have established the principle that freedom of speech prohibits the

government from telling people what they must say.”).

20

At all events, it is far from clear that the description at

issue—whether a product is “conflict free”—is factual and non-

ideological. Products and minerals do not fight conflicts. The

label “conflict free” is a metaphor that conveys moral

responsibility for the Congo war. It requires an issuer to tell

consumers that its products are ethically tainted, even if they

only indirectly finance armed groups. An issuer, including an

issuer who condemns the atrocities of the Congo war in the

strongest terms, may disagree with that assessment of its moral

responsibility. And it may convey that “message” through

“silence.” See Hurley, 515 U.S. at 573. By compelling an issuer

to confess blood on its hands, the statute interferes with that

exercise of the freedom of speech under the First Amendment.

See id.

Citing our opinion in SEC v. Wall Street Publishing

Institute, Inc., intervenor Amnesty International argues that

rational basis review applies because the final rule exercises “the

federal government’s broad powers to regulate the securities

industry.” 851 F.2d 365, 372 (D.C. Cir. 1988).12 In Wall Street

Publishing the court held that the Commission could, without

running afoul of the First Amendment, seek an injunction

requiring that a magazine disclose the consideration it received

in exchange for stock recommendations. Id. at 366.

Significantly, the court chose to apply a less exacting level of

scrutiny, even though the injunction did not fall within any well-

established exceptions to strict scrutiny. Id. at 372-73.

It is not entirely clear what would result if Wall Street

Publishing did apply to this case. The opinion never states that

rational basis review governs securities regulations as such. At

one point, the opinion even suggests that the power to regulate

12

The Commission does not join this argument.

21

securities might be roughly tantamount to the government’s

more general power to regulate commercial speech. Id. at 373.

Whatever its consequences, we do not think Wall Street

Publishing applies here. The injunction at issue there regulated

“inherently misleading” speech “employed . . . to sell

securities.” Id. at 371, 373. The opinion thus concerned the same

consumer-deception rationale as did Zauderer. See id. at 374. As

explained above, consumer-deception is not an issue here, and

the “conflict free” label is not employed to sell securities.

To read Wall Street Publishing broadly would allow

Congress to easily regulate otherwise protected speech using the

guise of securities laws. Why, for example, could Congress not

require issuers to disclose the labor conditions of their factories

abroad or the political ideologies of their board members, as part

of their annual reports? Those examples, obviously repugnant to

the First Amendment, should not face relaxed review just

because Congress used the “securities” label.

Having established that rational basis review does not

apply, we do not decide whether to use strict scrutiny or the

Central Hudson test for commercial speech. That is because the

final rule does not survive even Central Hudson’s intermediate

standard.

Under Central Hudson, the government must show (1) a

substantial government interest that is; (2) directly and

materially advanced by the restriction; and (3) that the

restriction is narrowly tailored. 447 U.S. at 564-66; see R.J.

Reynolds, 696 F.3d at 445. The narrow tailoring requirement

invalidates regulations for which “narrower restrictions on

expression would serve [the government’s] interest as well.”

Cent. Hudson, 447 U.S. at 565. Although the government need

not choose the “least restrictive means” of achieving its goals,

there must be a “reasonable” “fit” between means and ends. Bd.

22

of Trs. v. Fox, 492 U.S. 469, 480 (1989). The government

cannot satisfy that standard if it presents no evidence that less

restrictive means would fail. Sable Commc’ns v. FCC, 492 U.S.

115, 128-32 (1989).

The Commission has provided no such evidence here. The

Association suggests that rather than the “conflict free”

description the statute and rule require, issuers could use their

own language to describe their products, or the government

could compile its own list of products that it believes are

affiliated with the Congo war, based on information the issuers

submit to the Commission. The Commission and Amnesty

International simply assert that those proposals would be less

effective. But if issuers can determine the conflict status of their

products from due diligence, then surely the Commission can

use the same information to make the same determination. And

a centralized list compiled by the Commission in one place may

even be more convenient or trustworthy to investors and

consumers. The Commission has failed to explain why (much

less provide evidence that) the Association’s intuitive

alternatives to regulating speech would be any less effective.

The Commission maintains that the fit here is reasonable

because the rule’s impact is minimal. Specifically, the

Commission argues that issuers can explain the meaning of

“conflict free” in their own terms. But the right to explain

compelled speech is present in almost every such case and is

inadequate to cure a First Amendment violation. See Nat’l Ass’n

of Mfrs., 717 F.3d at 958. Even if the option to explain

minimizes the First Amendment harm, it does not eliminate it

completely. Without any evidence that alternatives would be

23

less effective, we still cannot say that the restriction here is

narrowly tailored.13

We therefore hold that 15 U.S.C. § 78m(p)(1)(A)(ii) & (E),

and the Commission’s final rule, 56 Fed. Reg. at 56,362-65,

violate the First Amendment to the extent the statute and rule

require regulated entities to report to the Commission and to

state on their website that any of their products have “not been

found to be ‘DRC conflict free.’”14

The judgment of the district court is therefore affirmed in

part and reversed in part and the case is remanded for further

proceedings consistent with this opinion.

So ordered.

13

Because the statute and final rule fail the third part of the

Central Hudson test, we need not decide whether they satisfy the

second part: that the speech restrictions directly and materially

advance the government’s asserted interest.

14

The requirement that an issuer use the particular descriptor “not

been found to be ‘DRC conflict free’” may arise as a result of the

Commission’s discretionary choices, and not as a result of the statute

itself. We only hold that the statute violates the First Amendment to

the extent that it imposes that description requirement. If the

description is purely a result of the Commission’s rule, then our First

Amendment holding leaves the statute itself unaffected.

SRINIVASAN, Circuit Judge, concurring in part: I concur

fully in Parts I, II, and III of the court’s opinion, which sustain

the SEC’s Conflict Minerals Rule against challenges brought by

the National Association of Manufacturers under the

Administrative Procedure Act and the Securities Exchange Act.

Respectfully, I do not join Part IV of the court’s opinion, which

addresses the Association’s First Amendment claim. A question

of central significance to the resolution of that claim is pending

before the en banc court in another case. I would opt to hold in

abeyance our consideration of the First Amendment issue in this

case pending the en banc court’s decision in the other, rather

than issue an opinion that might effectively be undercut by the

en banc court in relatively short order.

The intersection between the two cases arises from the way

in which the court resolves the Association’s First Amendment

claim. An essential step in the majority’s First Amendment

analysis is that the relaxed standard for reviewing compelled

commercial-speech disclosures set forth in Zauderer v. Office of

Disciplinary Counsel, 471 U.S. 626, 651 (1985), applies only if

the disclosure requirement serves a governmental interest in

preventing consumer deception. Ante, at 18-19. That precise

question is currently pending before our en banc court in

American Meat Institute v. United States Department of

Agriculture, No. 13-5281. In that case, a panel of this court (of

which I was a member) issued an opinion upholding labeling

requirements for meat products under Zauderer’s standard,

which requires that disclosure mandates be “reasonably related”

to the government’s interests. __ F.3d __ (slip op. at 11)

(quoting Zauderer, 471 U.S. at 651). The panel relied on the

government’s interest in arming consumers with additional

information when purchasing food, rejecting the suggestion that

Zauderer review applies only to disclosure mandates aimed to

cure consumer deception. Id. at __ (slip op. at 10).

The full court, acting on the panel’s suggestion, id. at __

(slip op. at 14 n.1), has now voted to rehear the case en banc,

2

with oral argument set to take place on May 19, 2014. See

Order, No. 13-5281 (D.C. Cir. Apr. 4, 2014) (en banc) (per

curiam). The en banc court will receive supplemental briefing

on the question whether review of “mandatory disclosure”

obligations can “properly proceed under Zauderer” even if they

serve interests “other than preventing deception.” Id. My good

colleagues in the majority here assume the answer to that

question is no, and their decision on the First Amendment claim

rests on that assumption. Ante, at 18-19. But if the en banc

court in American Meat decides otherwise, the First Amendment

claim in this case presumably would need to be reconsidered

afresh.

To avert that possibility, a panel in such circumstances can

elect to withhold its decision until the en banc court decides the

potentially dispositive question. See, e.g., United States v.

Johnson, No. 91-3221, 1993 U.S. App. LEXIS 36925, at *1-2

(D.C. Cir. Dec. 14, 1993) (per curiam) (non-precedential);

United States v. Gerald, 5 F.3d 563, 565 (D.C. Cir. 1993);

United States v. Dockery, 965 F.2d 1112, 1113-14 & n.1 (D.C.

Cir. 1992); Pub. Citizen v. Nat’l Highway Traffic Safety Admin.,

848 F.2d 256, 259 (D.C. Cir. 1988); see also Judicial Watch,

Inc. v. Dep’t of Energy, No. 04-5204, 2004 U.S. App. LEXIS

22661, at *2 (D.C. Cir. Oct. 8, 2004) (per curiam) (on court’s

own motion, ordering parties to show cause why appeal should

not be held in abeyance pending en banc court’s resolution of

related question). The court likewise frequently withholds a

decision in analogous situations in which a case potentially

implicates a question pending before the Supreme Court. See,

e.g., Wagner v. FEC, No. 13-5162 (D.C. Cir. Sept. 11, 2013) (en

banc) (per curiam); United States v. Epps, 707 F.3d 337, 341

(D.C. Cir. 2013); Trump Plaza Assocs. v. NLRB, 679 F.3d 822,

826 (D.C. Cir. 2012); Belbacha v. Bush, 520 F.3d 452, 456-57

(D.C. Cir. 2008). Ordinarily, when resolution of a case before

a panel could turn on a question under consideration by the en

3

banc court in a separate case, the latter case would have been

pending for some time. The circumstances here are unusual in

that regard because this case was docketed shortly before, and

presented to the court essentially contemporaneously with,

American Meat. But because en banc review has now been

granted in American Meat, my own respectful preference would

be to withhold a decision on the First Amendment claim here

pending the en banc decision in that case.

To be sure, there is no certainty that the en banc decision in

American Meat will alter the panel’s resolution here. As could

always be the case when a panel addresses an issue pending

before the en banc court in a different case, the full court might

agree with the panel’s inclination—here, by concluding that

Zauderer’s “reasonably related” standard applies only to

disclosure requirements aimed to prevent consumer deception.

Moreover, even if the en banc court were to decide that

Zauderer extends more broadly, the majority suggests that the

conflict minerals disclosure requirement might fail to satisfy

another precondition to Zauderer scrutiny, i.e., that the

disclosure be factual and non-controversial. See ante, at 20. As

it stands, though, the majority’s decision on the First

Amendment challenge hinges on the premise that Zauderer

applies only to the prevention of deception—the issue now

under consideration by the en banc court.

I fully join the court’s resolution of the Association’s

remaining challenges to the SEC’s rule, however. The parties

understandably desire a final decision from this court before the

May 31, 2014, deadline for the first conflict minerals disclosure

report. See 77 Fed. Reg. 56,274, 56,305 (Sept. 12, 2012). Parts

I, II, and III of the court’s opinion address non-First Amendment

challenges bearing no connection to the en banc proceedings in

American Meat. Those parts of the court’s opinion—which

resolve the claims to which the Association devotes its principal

4

attention—should issue forthwith. See, e.g., Coke Oven Envtl.

Task Force v. EPA, No. 06-1131, 2006 U.S. App. LEXIS 23499,

at *4 (D.C. Cir. Sept. 13, 2006) (per curiam) (severing one

aspect of case and holding it in abeyance pending Supreme

Court’s decision in Massachusetts v. EPA, 549 U.S. 497 (2007));

United States v. Coles, No. 03-3113, 2004 U.S. App. LEXIS

25904, at *3-4 (D.C. Cir. Dec. 13, 2004) (per curiam) (affirming

judgment in part and holding remaining portion of case in

abeyance pending Supreme Court’s decision in United States v.

Booker, 543 U.S. 220 (2005)); Wrenn v. Shalala, No. 94-5198,

1995 U.S. App. LEXIS 8731, at *1-3 (D.C. Cir. Mar. 8, 1995)

(per curiam) (non-precedential) (affirming dismissal of certain

claims, reversing dismissal of other claims, and holding separate

claim in abeyance pending Supreme Court decision in Kimberlin

v. Quinlan, 515 U.S. 321 (1995)).

That approach would afford a resolution as to the lion’s

share of the challenges to the SEC’s rule in advance of the date

by which the parties seek a decision. It would still leave

unresolved, though, the more narrowly focused challenge under

the First Amendment to the particular requirement that

manufacturers categorize certain products as “not found to be

‘DRC conflict-free’” in a conflict minerals report. 17 C.F.R. §

249b.400, Form SD, Item 1.01(c)(2). The court, however, could

stay enforcement of that aspect of the SEC’s rule pending

disposition of the Association’s First Amendment claim.

In these unique circumstances, there would be strong

arguments supporting issuance of a stay under the governing

standards. See generally Wash. Metro. Area Transit Comm’n v.

Holiday Tours, Inc., 559 F.2d 841, 842-43 & n.1 (D.C. Cir.

1977). With regard to the likelihood of success on the merits:

the majority concludes that the disclosure requirement fails to

satisfy the test of Central Hudson Gas & Electric Corp. v.

Public Service Commission, 447 U.S. 557 (1980); and there are,

5

at the least, substantial questions concerning Zauderer’s

applicability given the grant of en banc review in American

Meat and the majority’s suggestion, ante at 20, that the

disclosure requirement may fail to qualify for Zauderer review

regardless. With regard to irreparable harm and the balance of

equities: “loss of First Amendment freedoms, for even minimal

periods of time, unquestionably constitutes irreparable injury,”

Elrod v. Burns, 427 U.S. 347, 373 (1976) (plurality); and any

adverse consequences for the SEC and the public would be

limited because a stay would leave the bulk of the SEC’s rule

(including the disclosure obligations) in place, affecting only the

requirement to use a particular phrase. The court perhaps could

enter a stay on its own motion, see Fed. R. App. P. 2; Deering

Milliken, Inc. v. FTC, 647 F.2d 1124, 1129 (D.C. Cir. 1978)

(“balance of the equities” favors a stay “so much so that we

should act sua sponte”), or at least could invite submissions

from the parties on the desirability of a stay or order the SEC to

show cause why one should not be granted.

It bears noting that there would be no evident need to stay

any part of the statute, as opposed to the SEC’s rule. The

Exchange Act requires covered manufacturers to list products

qualifying as “not DRC conflict free” under the statutory

definition. 15 U.S.C. § 78m(p)(1)(A)(ii); see id. §

78m(p)(1)(D). The Act, however, contains no mandate to use

any magic words when categorizing those products. Congress

elected to use the descriptor, “not DRC conflict free,” in the Act,

id. § 78m(p)(1)(A)(ii), but Congress imposed no requirement for

manufacturers to use that (or any) particular phrase when

describing their products. The latter obligation comes from the

SEC’s rule, not the statute. The rule, moreover, compels use of

the phrase, “not been found to be ‘DRC conflict free’”—rather

than “not DRC conflict free”—an adjustment viewed by the

agency to ameliorate any First Amendment objections by

allowing for a more “accurate disclosure.” 77 Fed. Reg. at

6

56,323. If the court were to withhold a decision on the

Association’s First Amendment claim pending the en banc

court’s decision in American Meat, but were to grant temporary

relief to the Association in the interim, any stay order

presumably would run against the SEC’s rule (not the statute)

and would correspond to the particular disclosure compelled by

that rule.