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Wal-Mart appealed the United States District of Delaware’s decision that denied Wal-Mart the right to exclude a shareholder proposal submitted by Trinity Wall Street.  The District Court held that the SEC was incorrect when it rendered a no-action letter permitting exclusion of a shareholder proposal submitted under Rule 18a-8 in Trinity Wall Street v Wal-Mart Stores, Inc.  Wal-Mart had argued to the SEC that the proposal was excludable under Rule 14a-8(i)(7) as a matter related to ordinary business operations.

Wal-Mart has now filed its brief with the Third Circuit.  In the brief Wal-Mart explains:

  • The District Court opined that “Trinity’s Proposal was not properly excluded from Wal-Mart’s 2014 proxy materials” because it does not “dictate to management,” but instead “seeks to have Wal-Mart’s Board oversee the development and effectuation of a Wal-Mart policy.”  Nearly 40 years ago, however, the SEC rejected a standard under which shareholder proposals involving “matters that would be handled by management personnel without referral to the board of directors generally would be excludable,” but proposals involving “matters that would require action by the board would not be.”
  • The District Court decided that “Trinity’s 2014 Proposal is best viewed as dealing with matters that are not related to Wal-Mart’s ordinary business operations,” even though the Proposal sought to have a board committee address policies regarding “whether or not the Company should sell” certain products.  More than 30 years ago, however, the SEC explained that a shareholder proposal is excludable under Rule 14a-8(i)(7) if the underlying “subject matter” that it seeks to have a committee review “involves a matter of ordinary business.”
  • The District Court determined that Trinity’s Proposal was not excludable under Rule 14a-8(i)(7) because it “implicates significant policy issues,” including the potential “impact” to “Wal-Mart’s reputation” from “sales of high capacity firearms.”  More than 15 years ago, however, the SEC made clear that a proposal must focus on, not merely “implicate,” a significant policy issue to avoid exclusion.  Where a proposal “implicates” a significant policy issue, but also addresses ordinary business matters, the proposal is excludable.

Of course, Wal-Mart argues the SEC’s guidance on Rule 14a-8(i)(7) “‘must be given controlling weight unless it is plainly erroneous or inconsistent with the regulation.’” According to Wal-Mart,  the District Court did not find that the SEC’s guidance was “plainly erroneous” or “inconsistent” with Rule 14a-8(i)(7). Instead, Wal-Mart says:

  • The District Court wholly ignored the SEC’s guidance from 1976 and 1983 making clear that it is the underlying subject matter of a shareholder proposal, not the form of requested action, that is dispositive in determining whether a proposal is excludable under Rule 14a-8(i)(7).
  • The District Court  recited, but misconstrued, the SEC’s guidance from 1998 on what it means for a proposal to “focus” on a significant policy issue.

Wal-Mart also claims the shareholder proposal is hopelessly vague and indefinite and excludable under Rule 14a-8(i)(3).


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