The Center News is a monthly publication that highlights significant cases affecting manufacturers. The NAM’s Manufacturers' Center for Legal Action becomes involved in many of these cases to provide the judicial branch with an important perspective it might not otherwise hear. The NAM provides a voice for all manufacturers working to remain competitive amid the complexities of today’s legal system.
April 16, 2014
By Linda Kelly, Senior Vice President and General Counsel
In a clear win for free speech and a partial win for the National Association of Manufacturers (NAM) and our affected member companies, the U.S. Court of Appeals for the D.C. Circuit ruled this week in NAM v. SEC that the Securities and Exchange Commission’s (SEC) conflict minerals rule violates the free speech rights of covered companies. The rule requires companies that incorporate certain minerals into their products, processes or supply chains—in even minute amounts—to disclose in public reports to the SEC and on their own websites whether or not their products are “Democratic Republic of the Congo conflict free.” The requirement—an ornament on the massive 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act legislative Christmas tree—has no impact whatsoever on financial services companies and a major one on manufacturers. While it had the well-intended purpose of seeking to address the terrible conflict in the Congo, the requirement took the questionable path of trying to do so through reporting of information that is very difficult to collect and confirm as factual.
In a 2–1 opinion drafted by Senior Judge Raymond Randolph, the D.C. Circuit held that compelling companies to report whether their products are “conflict free” violates their First Amendment rights. The opinion notes that “(p)roducts and minerals do not fight conflicts. The label ‘conflict free’ is a metaphor that conveys moral responsibility for the Congo war.”
The court upheld the underlying due-diligence requirements of the rule as well as the cost-benefit analysis applied to the rule. Only the reporting requirement itself was held to be deficient. Arguably, the gutting of the reporting requirement undermines the chief objective of the rule, which was to use the public disclosure requirement to shame manufacturers that used materials that originated or may have originated from the Congo in order to discourage them from doing so, under the notion that this would somehow bring the conflict in the region to an end.
The next move belongs to the SEC, which will hopefully stay the scheduled June 2 reporting deadline pending a resolution of the path forward on the rule’s constitutional deficiencies. The SEC also has 45 days in which to decide whether to appeal the ruling.
In addition to being a victory for manufacturers’ First Amendment rights, the NAM also hopes that this outcome will discourage future efforts to address foreign policy and other issues unrelated to the capital markets through SEC reporting.
Federal Appeals Court Opens Door to Additional Liability for Federally Approved Actions: Some private property owners sued a power company under common law tort claiming damages arising from emissions and particulates from the operation of a coal-fired power plant, which had permits from the EPA for the emissions. A trial court threw the case out, finding it preempted by the Clean Air Act, but the Third Circuit Court of Appeals reversed the lower court. The NAM led a group of 11 other industry associations in filing an amicus brief supporting review by the Supreme Court.
Punitive Damages in Asbestos Cases Back in Play Thanks to Empire State Judge: New York state courts haven’t ruled on punitive damages in asbestos cases since 1996. That changed earlier this month when a judge issued a ruling lifting the “deferral” of punitive damages. As the American Tort Reform Association notes, “The mere availability of punitive damages will inflate settlement values in every case and place even greater pressure on companies named as defendants to settle even questionable cases, needlessly depleting resources available to future claimants.”
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