Wal-Mart, Trinity Wall Street Spar Over Recent Remarks by SEC Commissioner

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By Michael Greene

Feb. 25 — The parties in an ongoing appeal before the Third Circuit dispute whether recent remarks by SEC Commissioner Daniel Gallagher support Wal-Mart Stores, Inc.'s position that a district ruling contradicts long-standing SEC guidance on the “ordinary business” proxy exclusion rule.

Commissioner Gallagher, in a footnote to his Feb. 19 opening statement at the SEC's proxy access roundtable, referred to a district court ruling that found that Wal-Mart couldn't properly exclude from its proxy materials a shareholder proposal seeking to provide more board oversight on its gun sales as an “erroneous decision.”

In a Feb. 23 letter to the U.S. Court of Appeals for the Third Circuit, Wal-Mart submitted Gallagher's remark as supplemental authority confirming the company's view that the district court erred in determining that SEC guidance supports its conclusion.

Wal-Mart had earlier referenced in its Feb. 13 reply brief recent remarks by Keith Higgins, director of the SEC Division of Corporation Finance, that the district court did not apply the staff's historical interpretation of the ordinary business exclusion. 

Response Letter

In response, Trinity Wall Street sent a Feb. 24 letter to the court claiming that the views of a single commissioner advocating for change at the SEC should not be viewed as SEC guidance to which the court should defer.

According to Trinity Wall Street, the “two-word excerpt” from the footnote provides no explanation for why the district court's decision is incorrect.

“Once again, Wal-Mart has proffered as SEC ‘guidance' something that comes nowhere close to being that,” Trinity states in its letter, adding that “Commissioner Gallagher speaks for himself, not the SEC.”

Ordinary Business Rule

In November, the U.S. District Court for the District of Delaware found that the SEC Staff was incorrect in permitting Wal-Mart to exclude from its proxy material a shareholder proposal submitted by Trinity Wall Street under SEC Rule 14a-8(i)(7) because it “deals with matters relating to the company's ordinary business”. 

Wal-Mart filed an appeal with the Third Circuit claiming that “[a]bsent reversal, the District Court’s erroneous ruling will leave the Rule 14a-8(i)(7) ordinary business exclusion in tatters”.

Business groups have strongly criticized the district court's ruling, and experts have given diverse predictions on how this case could impact the ongoing proxy season and other similar proposals. 

Conversely, several groups have filed amicus briefs in support of Trinity's position. 

In its Feb. 11 brief, the Robert F. Kennedy Center for Justice & Human Rights claimed that the lower court's decision should be upheld because it is necessary to protect “the growing use of Sustainable Investing factors that integrate economic, social, and governance factors into shareholders' financial objectives as a best practice.”

The non-profit claims that there is a positive relationship between corporate sustainability and financial performance. In support of this position, the brief cited CVS Healthcare's recent growth in revenues despite its decision to stop selling cigarettes as an example of a company adjusting to the trends and demands of socially aware customers.

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

To contact the editor responsible for this story: Kristyn Hyland at khyland@bna.com

Commissioner Gallagher's statement is available at http://www.sec.gov/news/statement/opening-statement-proxy-voting-roundtable-gallagher.html#.VO3x1LEo6Uk.

Wal-Mart's letter is available at http://www.bloomberglaw.com/public/document/Trinity_Wall_Street_v_WalMart_Stores_Inc_Docket_No_1404764_3d_Cir/11.

Trinity Wall Street's letter is available at http://www.bloomberglaw.com/public/document/Trinity_Wall_Street_v_WalMart_Stores_Inc_Docket_No_1404764_3d_Cir/12.