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Securities Regulation and Corporate Governance > Posts > Massachusetts District Court Orders the SEC to Issue Final Resource Extraction Rule
Massachusetts District Court Orders the SEC to Issue Final Resource Extraction Rule

On September 2, 2015, following a briefing by Oxfam America, Inc. (“Oxfam”) and the Securities and Exchange Commission (the “SEC” or the “Commission”), the U.S. District Court for the District of Massachusetts granted Oxfam’s motion for summary judgment and ordered the SEC to file with the Court within 30 days “an expedited schedule for promulgating the final [resource extraction] rule.”

Section 1504 of the Dodd-Frank Act requires a resource extraction issuer, defined as an issuer that “(i) is required to file an annual report with the [SEC] . . . and (ii) engages in the commercial development of oil, natural gas, or minerals,” to disclose, in annual reports made to the SEC, payments made to the federal government or to foreign governments “for the purpose of the commercial development of oil, natural gas or minerals . . . .”  Under Section 1504, the SEC had until April 17, 2011 (270 days after the enactment of Dodd-Frank) to issue final resource extraction rules.  The SEC originally proposed a resource extraction rule on December 15, 2010, but received numerous comments between December 17, 2010 and August 21, 2012, resulting in several meetings with commentators and delays in proposing a final disclosure rule.

Background

More than three years ago, on May 11, 2012, Oxfam filed suit under the Administrative Procedure Act (the “APA”) alleging that the SEC’s rulemaking on the final resource extraction disclosure rule had been unreasonably delayed and unlawfully withheld by the Commission.  Shortly thereafter, on August 22, 2012, the SEC issued a final rule implementing Section 1504, prompting Oxfam to stipulate to a dismissal of the action.  Less than two months later, in litigation handled by Gibson Dunn, the American Petroleum Institute filed suit requesting that the U.S. District Court for the District of Columbia vacate the final disclosure rule.  Then on July 2, 2013, the Court vacated the rule, concluding that the SEC’s interpretation of Section 1504, which required public disclosure of annual reports even in cases where foreign governments prohibited disclosure of such payments, was arbitrary and capricious.  The matter was remanded to the SEC for a redesign of the rule, and the SEC announced a projected proposed rule date of March 2015, which was later postponed until October 2015.

Oxfam filed suit once more on September 18, 2014, again alleging that the SEC had “unlawfully withheld” promulgation of the final disclosure rule under the APA.  The SEC argued that it had already complied with the APA by promulgating the final disclosure rule on August 22, 2012, but the District Court for the District of Massachusetts agreed with Oxfam’s position that the July 2, 2013 decision vacating the rule and remanding the matter to the SEC restored matters to where they were prior to promulgation of the final disclosure rule.  The Court explained that if an agency in the SEC’s position is not required under the circumstances to re-issue a final rule, such an agency could “take inadequate action to promulgate a rule and forever relieve itself of the obligations mandated by Congress.” 

With respect to remedies, the SEC argued that the Court should use equitable discretion to deny Oxfam’s request to compel the rulemaking and asked the Court to apply the “six-factor” test set forth in Telecommunications Research & Action Center v. FCC, 750 F.2d 70 (D.C. Cir. 1984), to determine whether agency action should be compelled in the current situation.  The Court rejected the SEC’s argument, declining to apply the “six-factor” test and instead determined that while it has discretion to apply an appropriate remedy when action is “unlawfully withheld” under the APA, such discretion does not include declining to take any action at all, thus requiring the Court to impose a remedy under the circumstances here.  Accordingly, as noted above, the District Court required the SEC to submit “an expedited schedule for promulgating the final rule” within 30 days of the order and has declared that it “will make further orders as necessary” to advance the promulgation of the final rule. 

Looking Forward

In the aftermath of the Court’s decision, the SEC may appeal the case to the U.S. Court of Appeals for the First Circuit, but we expect the Commission to file an expedited schedule with the Court.  In addition to prompting the SEC to issue a new resource extraction rule, this decision could incentivize other interest groups to pursue similar actions to spur progress on ongoing rulemaking projects under Dodd-Frank and the JOBS Act.  We will provide an update on the status of the resource extraction rulemaking upon the SEC’s filing of an expedited schedule with the Court.

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