Four business groups on Wednesday filed a lawsuit against the U.S. Securities and Exchange Commission's new rule requiring oil, mining and gas companies to disclose payments they make to foreign governments.
The lawsuit marks the latest in a string of legal challenges against regulators still struggling to finalize dozens of rules included in the 2010 Dodd-Frank Wall Street reform law.
A key argument in the suit - filed by the U.S. Chamber of Commerce, the American Petroleum Institute, and two other groups - is that the SEC failed to adequately weigh the rule's costs and benefits.
Problems with economic analysis have proven to be a successful tool for the industry in combating prior SEC rules, including its "proxy access" rule that would have empowered shareholders to nominate directors to corporate boards.
"The rule as written would impose enormous costs on U.S. firms and put them at a competitive disadvantage against government-owned oil giants not subject to the rule," said API Chief Executive Officer Jack Gerard in a statement late Wednesday.
"Not only will the rule hurt the millions of Americans who own shares in oil and natural gas companies, it will also cost jobs and damage America's energy security by making it more difficult for U.S. firms to gain access to resources abroad."
SEC spokesman John Nester said the agency is still reviewing the lawsuit, but that the SEC thinks it is on solid legal ground.
"We believe our legal interpretation and economic analysis are sound and we look forward to defending the rule that Congress directed us to write," Nester said.
The SEC's resource extraction rule is one of the most controversial Dodd-Frank requirements.
Championed by humanitarian organizations, the rule aims to combat bribery abroad by U.S. energy companies. But industry groups have argued the rule is far too costly and would give rivals sensitive business information.
The challenge to the SEC's rule is being headed up by Gibson Dunn attorney Eugene Scalia, the son of Supreme Court Justice Antonin Scalia. He has a winning-streak in knocking down other SEC regulations, such as the proxy access rule last year.
Late last month, Scalia also helped other trade groups win a court battle against the Commodity Futures Trading Commission over another Dodd-Frank rule that would have imposed "position limits" on commodity speculators.
In addition to challenging the rule on the basis of flawed economic analysis, Wednesday's lawsuit deploys three other legal arguments.
It alleges, for instance, that the SEC "grossly misinterpreted its statutory mandate" in claiming that Dodd-Frank gave the agency no choice but to adopt the rule in the form that it did.
The groups say the law only requires companies to provide a "compilation" of the payment data - and not a detailed list of every payment, as the SEC's final rule calls for.
Scalia used a similar type of argument that helped him win the position limit case last month, after a federal district court judge ruled that the CFTC could not simply claim Dodd-Frank mandated position limits without first showing why they were necessary.
Wednesday's lawsuit also says the SEC is violating companies' First Amendment rights because the forced disclosure would be "in violation of their contractual and legal commitments."
The disclosure required by the rule "does not further the investor protection purposes of the securities laws," it says.
A First Amendment argument was similarly waged in the battle against proxy access, but the Washington D.C. circuit court did not take it up and based its decision to strike down the rule on the cost-benefit argument.
In addition, the Chamber and API's case makes use of a legal argument not used in recent challenges to SEC rules - that the agency could have used its discretion to provide an exemption from its rule and failed to consider it.
"The commission arbitrarily rejected any exemption from the rule's disclosure requirements," the suit says.
The SEC adopted the resource extraction rule in August in a 2-1 vote, with Republican Commissioner Daniel Gallagher voting no and two other commissioners recused from participating.
In his dissent, Gallagher said the SEC had failed to determine the benefits of the rule and disregarded the "significant costs" to companies and shareholders.
The other two groups to challenge the rule on Wednesday were the Independent Petroleum Association of America and the National Foreign Trade Council.
The case was filed in both the District Court for the District of Columbia and the United States Court of Appeals for the District of Columbia until it can be determined which court will have jurisdiction to hear the case.
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