Wal-Mart: Opinion on Gun Sales Resolution Could Leave SEC Proxy Rule ‘in Tatters’

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By Michael Greene

Jan. 16 — Wal-Mart Stores Inc. and a Washington non-profit have expressed their opposition to a recent district court ruling against the megastore, which they argue will eviscerate the “ordinary business” proxy exclusion rule.

Wal-Mart filed an opening brief Jan. 14 with the U.S. Court of Appeals for the Third Circuit claiming that a district court ruling “threatens to undo nearly 40 years of SEC guidance on its own rule and to interfere with the business operations of public companies by creating an exception to” SEC Rule 14a-8(i)(7).

In a Nov. 26 opinion, the U.S. District Court for the District of Delaware found that Wal-Mart failed to comply with federal securities laws when it refused to include in its proxy materials shareholder Trinity Wall Street's proposal seeking to provide more oversight and reporting regarding the guns sold at the chain's stores. 

The Securities and Exchange Commission staff had earlier granted no-action relief permitting Wal-Mart to properly exclude the proposal from its proxy material under Rule 14a-8(i)(7) because it “deals with a matter relating to the company's ordinary business.”

The district court, however, disagreed with the SEC's interpretation and found that the proposal was “carefully drafted” so that it did not relate to the company's ordinary business.

Judge Thomas I. Vanaskie of the Third Circuit Dec. 29 granted Wal-Mart's unopposed motion to expedite its appeal of the lower court ruling. The opposing brief is due Feb. 4.

Ruling Would ‘Swallow' the Exclusion

In its expedited appeal, Wal-Mart argues that the SEC guidance should be given controlling weight because it was not “‘plainly erroneous' or ‘inconsistent' with Rule 14–8(i)(7).” The company claims that “[a]bsent reversal, the District Court’s erroneous ruling will leave the Rule 14a-8(i)(7) ordinary business exclusion in tatters.”

“The exceptions created by the court swallow the Rule 14a-8(i)(7) ordinary business exclusion, and threaten to open the floodgates to shareholder proposals that improperly conflate the ‘spheres of authority for the board of directors on one hand, and the company’s shareholders on the other,'” the brief further states.

‘Upsets Long-Settled Expectations.'

On Jan. 21, the Washington Legal Foundation filed an amicus brief stating that it is “deeply concerned about the enormous uncertainty that the district court’s decision in this case—if allowed to stand—would create for all publicly held companies.”

In its brief in support of reversing and vacating the district court's decision, the WLF states that it believes the lower court's decision “upsets long-settled expectations about the meaning of the proxy exclusions at issue here and exacerbates the growing uncertainty that surrounds the proxy ballot process, thereby substantially raising the costs of proxy voting for all public companies.”

The WLF claims that the shareholder proposal at issue not only concerns products that Wal-Mart sells, but also “improperly focuses on the company's evaluation of risks and benefits,” which are matters the SEC has long recognized “lie at the very heart of Rule 14a-8(i)(7)'s ordinary business exception.”

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

Wal-Mart's brief is available at http://op.bna.com/car.nsf/r?Open=mgre-9stlv5.

The WLF brief is available at http://op.bna.com/car.nsf/r?Open=rtuk-9szqwm.