D.C. Circuit Dismisses Oil Industry Challenge to Disclosure Rules on Jurisdictional Grounds

The D.C. Circuit Court of Appeals rejected an oil industry challenge to landmark transparency rules today.  In a unanimous decision, the court found that the American Petroleum Institute (API) cannot pursue its case, American Petroleum Institute v. SEC, in the appellate courts as it prefers, and that it is required to proceed in the district court instead.

The rules at issue in the case, referred to as “Cardin-Lugar” after the two Senators who sponsored the provision in Congress, require all extractive companies listed on U.S. exchanges to disclose the payments they make to governments for each of their extractive projects.  Citizens of resource-rich countries, such as Myanmar, need this information to hold their governments accountable for the responsible use of natural resource revenues.  In October, the API filed suit against the Securities and Exchange Commission (SEC) to block the rules and overturn the law that authorized them.  ERI represents Oxfam America, which intervened in the lawsuit to protect its interests in transparency and ensure that the Cardin-Lugar rules are well defended.

Today’s decision is the latest in a series of victories for advocates of greater transparency in the financial arrangements between oil, gas, and mining companies and the governments of the countries where they operate.  First, the two largest Canadian mining associations announced that they would work with transparency advocates to develop mandatory rules for Canada that would parallel the U.S. scheme.  Next, the SEC denied API’s request to suspend the transparency regulations pending the outcome of the litigation, ruling that companies had provided only speculative evidence that they would suffer significant or irreparable harm.  Earlier this year, the Board of the voluntary Extractive Industries Transparency Initiative announced that it would strengthen its disclosure guidelines based in part on the SEC’s mandatory disclosure rules.  And earlier this month, the various governing arms of the European Union agreed to adopt rules for all of Europe that go even further than Cardin-Lugar.

The upshot of the D.C. Circuit’s decision is that after six months of litigation, API must start over, in the district court.  The court did not address any of the substance of API’s challenge to the Cardin-Lugar rules.  Instead, it adopted a jurisdictional argument that ERI made on behalf of Oxfam – an argument that both the SEC and API opposed.   Judge David Tatel, writing for a unanimous three-judge panel, concluded that the D.C. Circuit did not have jurisdiction to consider the case because Cardin-Lugar does not fall within the limited authority that Congress has granted to appellate courts to hear petitions for review of the SEC’s rules.

Despite the D.C. Circuit’s decision, the battle over the Cardin-Lugar rules continues.  The issues in the district court, as framed by API, will most likely focus on whether the SEC carried out adequate economic analysis, whether it made proper regulatory choices, and whether companies have a constitutional right to keep their payments secret from the public.  Both Oxfam and the SEC demonstrated in the Court of Appeals that Big Oil’s claims are meritless, but the Court did not reach these issues, leaving if for the district court to decide.