April 18, 2014

More on the Conflict Minerals Ruling: What is En Banc Review?

As I noted when the U.S. Court of Appeals decision came out earlier this week in National Association of Manufacturers, et al. v. Securities and Exchange Commission, one of the options for the SEC in light of the court’s adverse First Amendment ruling is to seek en banc review of the decision of the three-judge panel. That inevitably leads to the question, what is en banc review and how long does it take? Obviously, everyone in the issuer community is very anxious to understand whether this litigation could be resolved in time before the June 2 deadline for the first Form SD, or, alternatively, whether the SEC acts on its own to delay the deadline in light of the uncertainty created by the current state of the litigation.

Every U.S. Circuit Court of Appeals has the ability to review cases en banc. Hearing cases en banc allows the full circuit court to overturn a decision reached by a three-judge panel. Because very few cases are granted review by the U.S. Supreme Court (given the discretionary nature of the writ of certiorari), the Courts of Appeals are the courts of last resort for the vast majority of cases. Notwithstanding this status, it is very difficult to actually obtain en banc review by the Court. Most lawyers petition for en banc review as a matter of course, even though the procedure is generally disfavored. In this regard, Federal Rule of Appellate Procedure 35, which governs all of the circuits’ en banc hearing and rehearing procedures, states that an en banc hearing or rehearing “is not favored and ordinarily will not be ordered unless: (1) en banc consideration is necessary to secure or maintain uniformity of the court’s decisions; or (2) the proceeding involves a question of exceptional importance.”

Rule 35 indicates that “[a] majority of the circuit judges who are in regular active service may order that an appeal or other proceeding be heard or reheard by the court of appeals in banc,” and sets time limits and certain procedures for a party petitioning for a hearing or rehearing en banc, and provides that the court is not required to file a response to a suggestion for a hearing or rehearing en banc. The various circuits have implemented their procedures in the form of local rules. In general, a case will be heard en banc only if three conditions are met: (1) a litigant files a petition or a judge asks for a hearing or rehearing en banc; (2) a judge in active service on the circuit requests that the entire court be polled on the suggestion, and (3) a majority of the judges in active service vote to grant the petition.

In the conflict minerals case, the possibility for en banc review may be heightened given that the appropriate level of scrutiny for deciding the First Amendment question is at issue in the American Meat Institute case that is already subject to en banc review. Therefore it is possible that the SEC could argue that this case meets the “uniformity” test contemplated by Rule 35. If en banc review is granted, it can be a lengthy process, because the case has to be re-argued in front of the entire en banc court and the opinions must be circulated and considered among the much larger en banc court, resulting in the interval between oral argument and en banc disposition being five times greater, on average, as compared to a three-judge panel disposition.

Given all of this, the bottom line appears to be that we are unlikely to see anything with respect to conflict minerals litigation resolved anytime soon. Even in the best case, en banc rehearing of the case could take us into 2015 before any decision is reached, and if the three-judge panel’s decision is upheld, then the case would still be remanded back to the District Court for further proceedings consistent with the appellate decision. If review of the three-judge panel’s decision is not sought by the government, then the case would presumably go back to the District Court on remand, which in and of itself could take some significant additional time.

Section 1502 and the Museum of Unintended Consequences

One of my favorite lines from former Chairman Chris Cox (did I just write that?) was when, in the course of testimony about options backdating, he noted that while he had supported the enactment of Section 162(m) of the Internal Revenue Code as a means for controlling the rate of growth of CEO pay, everyone could now agree with the benefit of hindsight that “this tax law change deserves pride of place in the Museum of Unintended Consequences.” I have often thought about what ends up in the Museum of Unintended Consequences, and one thing that has always bugged me about Section 1502 of the Dodd-Frank Act is that given how it is such a blunt instrument, a trip to the Museum of Unintended Consequences is almost inevitable when you realize that the requirements could potentially make things worse for the DRC and its adjoining countries, rather than better.

Some of these concerns were highlighted in this Squire Sanders blog, which points to some of the briefs filed in the conflict minerals case, along with some other communications, which highlight how the law could tend to lead to an all out embargo on conflict minerals from the DRC region, which of course would end up being a classic “throwing the baby out with the bathwater” scenario.

As companies consider what they will be doing going forward, they should at least consider responsible sourcing alternatives, rather than avoiding the DRC region entirely. As time goes on and hopefully transparency increases, the ability to continue to responsibly source minerals from the region may improve, which could ultimately help continue to provide economic benefits for those engaged in the legitimate mining, smelting and refining activities.

More on our “Proxy Season Blog”

We continue to post new items regularly on our “Proxy Season Blog” for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Climate Change Issues for This Proxy Season
– Universal Proxy Cards: CII Petitions the SEC
– Shareholder Proposals: “Enhanced” Confidential Voting Policies & Interim Vote Tallies
– 2013 Foxhole of the Year Winner
– Shareholder Proposals: DTC Changes Its Participant List

– Dave Lynn