By Sarah N. Lynch
WASHINGTON, April 26 (Reuters) - A U.S. appeals court onFriday declined to rule on a legal challenge filed by businessgroups against a Securities and Exchange Commission rule thatwould force energy and mining companies to disclose payments toforeign governments.
The unanimous decision by the three-judge panel of the U.S.Court of Appeals for the District of Columbia Circuit now meansa lower court will hear the lawsuit instead.
"We dismiss the petition for review for lack ofjurisdiction," Judge David Tatel wrote in the opinion for thecourt.
With the legal challenge now moving to a lower court, theresolution of the case could be drawn out further, creatinguncertainty for companies that are supposed to begin complyingwith the rules by early next year.
The American Petroleum Institute, the U.S. Chamber ofCommerce and two other groups are suing the SEC over a ruleknown as "resource extraction," one of three sets ofmining-related disclosure rules in the 2010 Dodd-Frank financereform law.
The resource extraction rule is championed by human rightsorganizations like Oxfam America, the U.S. State Department, anda bipartisan group of U.S. lawmakers who have said it could bean important step toward curbing corruption.
The business groups call the rule one of the most burdensomerules in the SEC's history, saying it will impose more than $14billion in costs on U.S. companies while providing no realbenefits to investors.
One of the groups' central arguments is that the SEC failedto weigh the costs and benefits of the rule and its effect oncapital formation, competition and efficiency.
In addition, the groups also say the rule violatescompanies' First Amendment free speech rights because thedisclosures would force them to engage in speech they do notwant to make and to violate their "contractual and legalcommitments."
Oxfam had challenged the appeals court's authority to hearthe case on technical grounds.
Ian Gary, senior policy manager of Oxfam America's oil, gasand 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 groundlesslawsuit" and expressed confidence that the lower court woulduphold the resource extraction rule.
But API spokesman Brian Straessle said his organizationplanned to keep up its challenge and that the resourceextraction rule constituted a "clear violation" of numerouslaws.
"The court's decision today is not a ruling in any way onthe merits of API's challenge to the rule," he said. "The court simply concluded that it does not have jurisdictionto decide the case at this time. We will continue to exploreevery avenue as our challenge moves forward in the DistrictCourt for the District of Columbia."
Both the SEC and the business groups, which are representedby Gibson Dunn lawyer Eugene Scalia, disagreed with Oxfam'sposition and urged the court during oral arguments last month toproceed with hearing the case. [ID: nL1N0CC6HJ]
However, the groups had previously filed the lawsuit in thelower court as well as the appellate court.
That means that the appeals will not need to transfer thecase, Tatel wrote. In addition, he added, the appeals court'sdismissal of the case "is without prejudice to petitioners' suitin the district court."
Jason Flemmons, a former deputy chief accountant in theSEC's enforcement division who is now with FTI Consulting,warned clients earlier this month in a newsletter thatimplementation of the rule might not be easy.
"The new disclosure mandates contain several reportinglayers that will result in most companies having to implementmajor changes in how they record, track and compile disbursementactivity that falls within the scope of this rule," he wrote inthe article.
