By Sarah N. Lynch
WASHINGTON, April 26 A U.S. appeals court on
Friday declined to rule on a legal challenge filed by business
groups against a Securities and Exchange Commission rule that
would force energy and mining companies to disclose payments to
The unanimous decision by the three-judge panel of the U.S.
Court of Appeals for the District of Columbia Circuit now means
a lower court will hear the lawsuit instead.
"We dismiss the petition for review for lack of
jurisdiction," Judge David Tatel wrote in the opinion for the
With the legal challenge now moving to a lower court, the
resolution of the case could be drawn out further, creating
uncertainty for companies that are supposed to begin complying
with the rules by early next year.
The American Petroleum Institute, the U.S. Chamber of
Commerce and two other groups are suing the SEC over a rule
known as "resource extraction," one of three sets of
mining-related disclosure rules in the 2010 Dodd-Frank finance
The resource extraction rule is championed by human rights
organizations like Oxfam America, the U.S. State Department, and
a bipartisan group of U.S. lawmakers who have said it could be
an important step toward curbing corruption.
The business groups call the rule one of the most burdensome
rules in the SEC's history, saying it will impose more than $14
billion in costs on U.S. companies while providing no real
benefits to investors.
One of the groups' central arguments is that the SEC failed
to weigh the costs and benefits of the rule and its effect on
capital formation, competition and efficiency.
In addition, the groups also say the rule violates
companies' First Amendment free speech rights because the
disclosures would force them to engage in speech they do not
want to make and to violate their "contractual and legal
Oxfam had challenged the appeals court's authority to hear
the case on technical grounds.
Ian Gary, senior policy manager of Oxfam America's oil, gas
and mining program, called Friday's decision "a huge victory."
He called on oil companies such as Exxon Mobil Corp,
Chevron Corp, BP Plc and Royal Dutch Shell Plc
to "disassociate themselves from this groundless
lawsuit" and expressed confidence that the lower court would
uphold the resource extraction rule.
But API spokesman Brian Straessle said his organization
planned to keep up its challenge and that the resource
extraction rule constituted a "clear violation" of numerous
"The court's decision today is not a ruling in any way on
the merits of API's challenge to the rule," he said.
"The court simply concluded that it does not have jurisdiction
to decide the case at this time. We will continue to explore
every avenue as our challenge moves forward in the District
Court for the District of Columbia."
Both the SEC and the business groups, which are represented
by Gibson Dunn lawyer Eugene Scalia, disagreed with Oxfam's
position and urged the court during oral arguments last month to
proceed with hearing the case. [ID: nL1N0CC6HJ]
However, the groups had previously filed the lawsuit in the
lower court as well as the appellate court.
That means that the appeals will not need to transfer the
case, Tatel wrote. In addition, he added, the appeals court's
dismissal of the case "is without prejudice to petitioners' suit
in the district court."
SEC spokesman John Nester said the agency was still
reviewing the court's procedural ruling, but that it stands
ready to present its case in district court.
"SEC staff continue to believe that our legal interpretation
and economic analysis are sound and that this
congressionally-mandated rule will be affirmed," he said.
Meanwhile, companies will still be preparing to gear up for
compliance with the rules while the business groups and the SEC
continue to battle it out in court.
Jason Flemmons, a former deputy chief accountant in the
SEC's enforcement division who is now with FTI Consulting,
warned clients earlier this month in a newsletter that
implementation of the rule might not be easy.
"The new disclosure mandates contain several reporting
layers that will result in most companies having to implement
major changes in how they record, track and compile disbursement
activity that falls within the scope of this rule," he wrote in