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E-MailThis post is from Broc Romanek of TheCorporateCounsel.net.
Recently, I blogged about a case brought in the US District Court, Southern District of Texas, by Apache Corporation, who sought a declaratory judgment supporting its exclusion of a shareholder proposal submitted by the New York City Employees’ Retirement System. The case sought to enjoin a lawsuit brought by NYCERS in the Southern District of New York over the exclusion of a employment-related proposal by the Corp Fin Staff under the “ordinary business” basis of the SEC’s shareholder proposal rule (ie. 14a-8(i)(7)).
A few days ago, Judge Miller of the US District Court, Southern District of Texas ruled from the bench for Apache, granting Apache’s declaratory judgment. I have posted the Order and related Memo – even the trial transcript – from the court in the “Shareholder Proposals” Practice Area on TheCorporateCounsel.net.
Interestingly, Judge Miller’s opinion appears to stake out new territory from a judicial point of view. For the first time, a court has endorsed Corp Fin’s view that a proposal that involves some significant policy matters can nonetheless be excluded under Rule 14a-8(i)(7) to the extent that the proposal also deals with core ordinary business matters; here for example, advertising, marketing, sales and charitable giving. We’ll see if the Second Circuit ultimately follows suit (I believe the Texas case isn’t binding on the SDNY one, but under a res judicata theory, it’s likely the Second Circuit would recognize the SDTX’s decision and rule in favor of Apache).
Also interestingly, the Texas court didn’t take the bait offered by Apache with respect to the appropriate standard of review for SEC Staff no-action: Apache asked the court to find that a company that excludes a shareholder proposal in reliance on a no-action letter is entitled to a rebuttable presumption that such exclusion was proper. The court declined to adopt such an approach, however, concluding that Staff no-action letters are only persuasive – but not binding – authority.
The opinion is available here.
One Comment
I imagine that folks on both sides will want to spin this decision as they see fit, but it’s not much of a departure.
First, the court followed existing precedent that no-action decisions are not entitled to Chevron deference, but under Skidmore and Mead Corp. are entitled to consideration depending on how persuasive they are. No headlines there.
Second, the proposal covers more ground than did the original 1991 Cracker Barrel proposal, which asked the company to add sexual orientation to the company’s anti-discrimination policy. The proposal here goes beyond discriminatory hiring practices (which constitute a policy issue for purposes of the “ordinary business” exclusion) and tries to regulate advertising, marketing, corporate contributions, etc. The 1998 Release on this subject identified micro-management as a concern in this area.
There are few enough cases in this area, so it’s useful to know what’s out there, but I don’t see this one as much of a trailblazer one way or the other.