Decision - American Petroleum Institute v. SEC

The D.C. Circuit Court of Appeals ruled that the American Petroleum Institute ("API") cannot challenge in federal appellate court an SEC rule requiring disclosure of certain payments made to foreign governments, but must first do so in federal district court. At issue is the SEC's "extraction rule," promulgated in September 2012, which requires resource extraction issuers to disclose information relating to payments made to a foreign government or the United States government that are to further the commercial development of oil, natural gas, or minerals. See Disclosure of Payments by Resource Extraction Issuers, 77 Fed. Reg. 56,365 (Sept. 12, 2012). The rule was challenged in both federal appellate and district court by API and three other trade associations (Independent Petroleum Association of America, U.S. Chamber of Commerce, and National Foreign Trade Council) on First Amendment and cost-benefit grounds. Although the SEC agreed with API that the D.C. Circuit had jurisdiction to hear the challenge, the court agreed with Oxfam America, acting as intervenor, and various public interest organizations such as Better Markets that API's challenge must first be heard by the district court.

Addressing the cost-benefit issue, the court observed that the rule would impose total initial compliance costs on resource extraction issuers of approximately $1 billion, ongoing compliance costs of between $200 million and $400 million, and, assuming that four countries (Angola, Cameroon, China, and Qatar) prohibit the disclosure of payment information, losses of over $12.5 billion if such issuers are forced to sell their assets as a result of such prohibition. These are the costs estimated by the SEC in its rulemaking.

Regarding jurisdiction, although similar direct challenges have been entertained by the D.C. Circuit in the past, see e.g., Business Roundtable v. Sec., 647 F.3d 1144 (D.C. Cir., 2011), the court held that it lacked original jurisdiction here, noting that "[i]nitial review occurs at the appellate level only when a direct-review statute specifically gives the court of appeals subject-matter jurisdiction to directly review agency action," something that the court found absent here. As for the inefficiency created by forcing the associations to proceed first in the district court, the Court of Appeals stated: "To be sure, this may not be the most efficient way to resolve such cases, and we certainly understand petitioners' desire to have these important issues addressed expeditiously. But it is Congress's job, not ours, to determine 'the court in which judicial review of agency decisions may occur.'"

Finally, the Court of Appeals addressed the impact of errors that appear in the CEA resulting from poor legal draftsmanship in Dodd-Frank, which includes an erroneous re-numbering of Section 9(h)(2). Although this error, which API did not notice, but the court did, created an ambiguity in favor of API, the court disposed of it as follows:

"In the end, section 9(h)(2)'s re-numbering does not change our analysis. Congress's failure to update section 25(b) was far more likely the result of a scrivener's error. The Dodd-Frank Act is an enormous and complex statute, and it contains other scrivener's errors - for example, the same section now has two subsections numbered 9(j). See 15 U.S.C. § 78i(j). Section 9(h)(2)'s re-numbering thus offers us no insight into whether Congress might have overlooked section 25(b). To be sure, we might well suspect that this is exactly what happened, but we have no authority to speculate about congressional intent, especially when our jurisdiction is at stake."

See: American Petroleum Institute v. SEC (U.S. Court of Appeals for the D.C. Circuit, 12-1398).

Related News Item:Trade Associations' Reply Brief to U.S. Court of Appeals for D.C. Circuit Regarding Review of SEC Rule 13q-1 (with Zwirb Comment).