Institution v. Sec. & Exch. Comm'n

• Decision Date: 02 July 2013
• Docket Number: Civil Action No. 12–1668 (JDB).
• Citation: 953 F.Supp.2d 5
• Parties: AMERICAN PETROLEUM INSTITUTE, et al., Plaintiffs, v. SECURITIES and EXCHANGE COMMISSION, Defendant, and Oxfam America, Inc., Intervenor–Defendant.
• Court: U.S. District Court — District of Columbia

953 F.Supp.2d 5

AMERICAN PETROLEUM INSTITUTE, et al., Plaintiffs,

v.SECURITIES and EXCHANGE COMMISSION, Defendant,andOxfam America, Inc., Intervenor–Defendant.

Civil Action No. 12–1668 (JDB).

United States District Court,

District of Columbia.

July 2, 2013.

Eugene Scalia, Gibson, Dunn & Crutcher LLP, Washington, DC, for Plaintiffs.

John Peebles Sholar, U.S. Securities & Exchange Commission, William K. Shirey, Securities and Exchange Commission, General Counsel's Office, Washington, DC, for Defendant.

Howard M. Crystal, Meyer Glitzenstein & Crystal, Jonathan Gaynor Kaufman, Earth Rights International, Washington, DC, for Intervenor–Defendant.

MEMORANDUM OPINION

JOHN D. BATES, District Judge.

Acting pursuant to a provision of the Dodd–Frank Wall Street Reform and Consumer Protection Act, § 1504, Pub. L. No. 111–203, 124 Stat. 1376, 2220 (2010), the Securities and Exchange Commission promulgated a Rule requiring certain companies to disclose payments made to foreign governments in connection with the commercial development of oil, natural gas, or minerals. Plaintiffs—associations of oil, natural gas, and mining companies whose members are subject to the Rule—raise a host of challenges to the Rule and contest both the Rule and the underlying statute on First Amendment grounds. After a sojourn to the D.C. Circuit, which held that jurisdiction over plaintiffs' challenge lay in this Court, the parties have filed cross-motions for summary judgment. For the reasons set forth below, the Court will grant plaintiffs' motion, vacate the Rule, and remand to the Commission for further proceedings.

BACKGROUND

The Dodd–Frank Act adds section 13(q), codified at 15 U.S.C. § 78m(q), to the Securities Exchange Act of 1934. Section 13(q) addresses a phenomenon known as the “resource curse,” whereby “oil, gas reserves, and minerals ... can be a bane, not a blessing, for poor countries, leading to corruption, wasteful spending, military adventurism, and instability” when “oil money intended for a nation's poor ends up lining the pockets of the rich or is squandered on showcase projects instead of productive investments.” 156 Cong. Rec. S3816 (May 17, 2010) (statement of Sen. Lugar); see also Am. Petroleum Inst. v. SEC, 714 F.3d 1329, 1331 (D.C.Cir.2013). As a result, many of the world's “most wealthy mineral countries are the poorest countries” in terms of their citizens' qualityof life. 156 Cong. Rec. S5872 (July 15, 2010) (statement of Sen. Cardin).

Before section 13(q) was enacted, key players in extractive industries developed the Extractive Industries Transparency Initiative (“EITI”) to help address this concern through increased transparency. A voluntary international initiative, the EITI provides information about payments that extractive industry companies make to governments. See Joint Appendix [Docket Entry 30] at 30 (May 10, 2013) (“J.A.”). Under the EITI, each country works with civil and industry groups to establish a protocol for reporting payments. Companies and host governments submit payment information confidentially to an independent reconciler who compiles the information and publishes a publicly accessible report, which can have varying levels of specificity. See id. at 60–62; see also SEC Br. [Docket Entry 31] at 8–9 (May 10, 2013). The EITI seeks to achieve greater transparency, while “respect[ing] ... existing contracts and laws” and “balanc[ing] the presumption of disclosure ... with the concern of companies regarding commercial confidentiality.” J.A. 62.

Unsatisfied with the EITI regime alone, Congress passed section 13(q), which directs the Commission to “issue final rules that require each resource extraction issuer”—a company listed on a U.S. stock exchange that “engages in the commercial development of oil, natural gas, or minerals,” 15 U.S.C. § 78m(q)(1)(D)—“to include in an annual report of the resource extraction issuer information relating to any payment made ... to a foreign government or the [U.S.] Government for the purpose of the commercial development of oil, natural gas, or minerals.” 15 U.S.C. § 78m(q)(2)(A). In this report, the issuers must disclose the type and total amount of payments made for each project and to each government. Id. The information must “be submitted in an interactive data format,” which includes “electronic tags” identifying certain information such as the total amount of payments, the currency used, and the project to which the payments relate. 15 U.S.C. § 78m(q)(2)(C, D). In a separate subsection entitled “Public availability of information,” section 13(q) directs that, “[t]o the extent practicable, the Commission shall make available online, to the public, a compilation of the information required to be submitted [in the annual report].” ¹15 U.S.C. § 78m(q)(3). And in a subsection called “International transparency efforts,” section 13(q) specifies that “[t]o the extent practicable,” the Commission's rules requiring payment disclosure “shall support the commitment of the Federal Government to international transparency promotion efforts relating to the commercial development of oil, natural gas, or minerals.” 15 U.S.C. § 78m(q)(2)(E).

In light of these requirements, the Commission has now promulgated a final rule. SeeDisclosure of Payments by Resource Extraction Issuers, 77 Fed.Reg. 56365 (Sept. 12, 2012) (“Rule”). The Rule spells out information that issuers must provide in the annual reports, and directs that the disclosures be made via a new form, “Form SD,” rather than in an existing Exchange Act annual report. See id. at 56390;see also id. at 56417. During the rulemaking, some commentators had argued that the annual reports should be filed confidentially with the Commission, and the Commission should make public only a compilation of the disclosed information. Rejecting those arguments because it was not persuaded “that the statute allows” confidential disclosure, id. at 56391, the Commission required public filing of the annual reports via its online “EDGAR” system. Id. at 56418.See generally U.S. Sec. & Exch. Comm'n, Important Information About EDGAR, http:// www. sec. gov/ edgar/ aboutedgar. htm (last visited June 21, 2013). In the Adopting Release, the Commission explained that it “ha[s] not yet determined the content, form, or frequency of any ... compilation” that would be available online, but noted “that users of the information will be able to compile the information in a manner that is most useful to them by using the electronically-tagged data filed by resource extraction issuers” in the annual reports themselves. 77 Fed.Reg. at 56394.

Before adopting the final Rule, the Commission conducted a cost-benefit analysis, both as to costs it ascribed to “the statutory mandate” and as to those stemming from the Commission's “exercise of discretion.” See id. at 56398. It calculated that “the total initial cost of compliance for all issuers is approximately $1 billion and the ongoing cost of compliance is between $200 million and $400 million.” Id. The Commission also found that “the rules will impose a burden on competition, but [the Commission] believe[s] that any such burden that may result is necessary in furtherance of the purposes of Exchange Act Section 13(q).” Id.

Several commentators asked the Commission to exercise its exemptive authority to waive disclosure requirements for four countries—Angola, Cameroon, China, and Qatar—which prohibit disclosure of payment information. Id. at 56370. These commentators argued that, absent an exemption, they may be forced to withdraw from those countries, losing tens of billions of dollars. Id. at 56402. Assuming (without conclusively determining) that the listed countries prohibit payment disclosure, the Commission analyzed the likely impact on three of the fifty-one issuers operating there, finding that “commentators' concerns that the impact of such host country laws could add billions of dollars of costs to affected issuers, and hence have a significant impact on their profitability and competitive position, appear warranted.” Id. at 56412. The Commission declined to adopt an exemption for foreign law prohibitions, however, explaining “that adopting such an exemption would be inconsistent with the structure and language of Section 13(q),” and that it “could undermine the statute by encouraging countries to adopt laws, or interpret existing laws, specifically prohibiting the disclosure required under the final rules.” Id. at 56372–73.

Plaintiffs filed a complaint in this Court “[o]ut of an abundance of caution” and simultaneously filed a petition for review in the D.C. Circuit, the court that both the plaintiffs and the Commission believed held original jurisdiction. See Am. Petroleum Inst., 714 F.3d at 1330 (internal quotation marks omitted). Pursuant to the parties' request, this Court stayed all proceedings in the case until the D.C. Circuit issued its final order. See December 5, 2012, Order. Disagreeing with both plaintiffs and the Commission (and agreeing with intervenor Oxfam America, Inc.), on April 26, 2013, the D.C. Circuit held that original jurisdiction lies in the district court, dismissing the petition for review “without prejudice to petitioners' suit in the district court.” Am. Petroleum Inst., 714 F.3d at 1337.

To accelerate the proceedings, plaintiffs and the Commission requested that their motions for summary judgment be decided based on the D.C. Circuit briefs. The Court granted the request, lifting the stay and allowing the parties to file their D.C. Circuit briefs and Joint Appendix. The Court also permitted Oxfam to intervene as a defendant, and to make a brief supplemental filing. Several amici filed briefs in support of the Commission. After the parties submitted their cross-motions for summary judgment, the Court held a motions hearing on June 7, 2013.

STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 56(a), summary judgment is appropriate when the pleadings and...