Date: 07-06-2015

Case Style: Trinity Wall Street v. Wal-Mart Stores, Inc.

Case Number: 14-4764

Judge: Ambro, Vanaskie and Shwartz

Court: United States Court of Appeals for the Third Circuit on appeal from the District of Delaware (New Castle County)

Plaintiff's Attorney: Christopher M. Foulds, Joel E. Friedlander, Jeffrey M. Gorris, Friedlander & Gorris, Counsel for Appellee

Defendant's Attorney: Theodore J. Boutrous, Jr., Gibson Dunn; Philip A. Rovern, Matthew E. Fisher, Angela C. Whitesell, Potter, Anderson & Corroon;
Adam H. Offenhartz , Aric H. Wu, Counsel for Appellant

____________________________________________

Robert A. Long, Jr.
Keir D. Gumbs,
David B. H. Martin,
Reid Hooper,
Ali Mojibi,
Covington & Burling LLP
Washington DC

Stacy Linden, Peter Tolsdorf,, American Petroleum Institute
Washington, DC Counsel for Amicus Appellants
American Petroleum Institute, Business Roundtable,
Chamber of Commerce of the United States of
America,

Cory Andrews, Richard A. Samp, Washington Legal Foundation
Washington, DC Counsel for Amicus Appellant
Washington Legal Foundation

Richard L. Wyatt, Jr., Neil K. Gilman, Steven M. Haas,
Scott H. Kimpel, J. Steven Patterson,
Hunton & Williams LLP, Washington, DC

Linda Kelly, Patrick Forrest,
National Association of Manufacturers
Washington, DC - Counsel for Amicus Appellant
National Association of Manufacturers

William B. Chandler, III, Bradley D. Sorrels, Ian R. Liston, E
Wilson, Sonsini, Goodrich & Rosati, P.C.
Wilmington, DE

Gideon A. Schor, Wilson, Sonsini, Goodrich & Rosati, P.C.
New York, NY

Deborah R. White, Retail Litigation Center, Inc.,
Arlington, VA - Counsel for Amicus Appellant
Retail Litigation Center Inc.

Paul J. Lockwood and Elisa M.C. Klein, Skadden, Arps, Slate, Meagher & Flom LLP
Wilmington, DE 19801

Brian V. Breheny and Hagen J. Ganem, Skadden, Arps, Slate, Meagher & Flom LLP
Washington, DC

Darla C. Stuckey,
Society of Corporate Secretaries
and Governance Professionals, Inc.
New York, NY Counsel for Amicus Appellant
Society of Corporate Secretaries and
Governance Professionals Inc.

Jeffrey W. Golan and Lisa M. Port, Philadelphia, PA
Counsel for Amicus Appellee

Robert F. Kennedy Center for Justice & Human Rights
Philadelphia, PA

Richard J. Davis,
New York, NY - Counsel for Amicus Appellees
Mark Barden, Jacqueline Barden, Ian Hockley,
Nicole Hockley, Bill Sherlach, Leonard Pozner,
Veronique Pozner, Gilles Rousseau,
Law Center to Prevent Gun Violence

Rolin P. Bissell, John J. Paschetto and Benjamin Potts
Young, Conaway, Stargatt & Taylor, Wilmington, DE
Counsel for Amicus Appellee (Corporate and
Securities Law Professors): Lynn Stout, Jayne
Barnard, William A. Birdthistle, Norman D. Bishara,
Margaret M. Blair, Douglas M. Branson, James D.
Cox, Michael B. Dorff, Lisa M. Fairfax, Tamar
Frankel, Brandon L. Garrett, Kent Greenfield,
Daniel J.H. Greenwood, Jon Hanson, Thomas Lee
Hazen, Robert C. Hockett, Robert J. Jackson, Jr.,
Lyman Johnson, Renee M. Jones, Thomas W. Joo,
Donald C. Langevoort, Patricia A. McCoy, Donna M.
Nagy, Lisa H. Nicholson, Charles R.T. O’Kelley,
Saule T. Omarova, Stefan J. Padfield, Alan R.
Palmiter, Frank Partnoy, Brian J.M. Quinn, Margaret
V. Sachs, Cindy A. Schipani, Jennifer Taub, Kelly Y.
Testy, Cheryl L. Wade, David H. Webber, Cynthia
Williams, Adam Winkler.

Description: “[T]he secret of successful retailing is to give your
customers what they want.” Sam Walton, SAM WALTON:
MADE IN AMERICA 173 (1993). This case involves one
shareholder’s attempt to affect how Wal-Mart goes about
doing that.
Appellant Wal-Mart Stores, Inc., the world’s largest
retailer, and one of its shareholders, Appellee Trinity Wall
Street—an Episcopal parish headquartered in New York City
that owns Wal-Mart stock—are locked in a heated dispute. It
stems from Wal-Mart’s rejection of Trinity’s request to
include its shareholder proposal in Wal-Mart’s proxy
materials for shareholder consideration.
Trinity’s proposal, while linked to Wal-Mart’s sale of
high-capacity firearms (guns that can accept more than ten
rounds of ammunition) at about one-third of its 3,000 stores,
is nonetheless broad. It asks Wal-Mart’s Board of Directors
to develop and implement standards for management to use in
9
deciding whether to sell a product that (1) “especially
endangers public safety”; (2) “has the substantial potential to
impair the reputation of Wal-Mart”; and/or (3) “would
reasonably be considered by many offensive to the family and
community values integral to the Company’s promotion of its
brand.” Standing in Trinity’s way, among other things, is a
rule of the Securities and Exchange Commission (“SEC” or
“Commission”), known as the “ordinary business” exclusion.
17 C.F.R. § 240.14a-8(i)(7) (“Rule 14a-8(i)(7)”). As its name
suggests, the rule lets a company omit a shareholder proposal
from its proxy materials if the proposal relates to its ordinary
business operations.
Wal-Mart obtained what is known as a “no-action
letter” from the staff of the SEC’s Division of Corporate
Finance (the “Corp. Fin. staff” or “staff”), thus signaling that
there would be no recommendation of an enforcement action
against the company if it omitted the proposal from its proxy
materials. See Wal-Mart Stores, Inc., SEC No-Action Letter,
2014 WL 409085, at *1 (Mar. 20, 2014). Trinity thereafter
filed suit in federal court, seeking to enjoin Wal-Mart’s
exclusion of the proposal. See Trinity Wall Street v. Wal-
Mart Stores, Inc., --- F. Supp. 3d ----, No. 14-405-LPS, 2014
WL 6790928 (D. Del. Nov. 26, 2014). The core of the
dispute is whether the proposal was excludable under the
ordinary business exclusion. Although the District Court
initially denied Trinity’s request, it handed the church a
victory on the merits some seven months later by holding
that, because the proposal concerned the company’s Board
(rather than its management) and focused principally on
governance (rather than how Wal-Mart decides what to sell),
it was outside Wal-Mart’s ordinary business operations. Wal-
Mart appeals, seeking a ruling that it could exclude Trinity’s
proposal from its 2015 proxy materials and did not err in
excluding the proposal from its 2014 proxy materials.
10
Stripped to its essence, Trinity’s proposal—although
styled as promoting improved governance—goes to the heart
of Wal-Mart’s business: what it sells on its shelves. For the
reasons that follow, we hold that it is excludable under Rule
14a-8(i)(7) and reverse the ruling of the District Court.1
II. FACTS & PROCEDURAL HISTORY
Public companies publish and circulate a proxy
statement in advance of their annual shareholders’ meeting.
The statement “includes information about items or initiatives
on which the shareholders are asked to vote[.]” Apache Corp.
v. Chevedden, 696 F. Supp. 2d 723, 727 (S.D. Tex. 2010)
(citation omitted). It can also include shareholder
proposals—a device that allows shareholders to ask for a vote
on company matters. Predictably, companies don’t easily
surrender control of their proxy statement and often lean on
an SEC rule to justify excluding a given shareholder proposal.
But doing so can trigger a protracted legal battle that escalates
from an exchange of views before the SEC to a federal
lawsuit. This is one such case.
A. Trinity Objects to Wal-Mart’s Sale of Assault
Rifles.
Trinity’s roots extend back centuries. Its St. Paul’s
Chapel is the oldest public building in continuous use in New
York City and is where George Washington worshipped after
his first inauguration. In 1705, the church was the beneficiary
of the lower Manhattan farm of Queen Anne of England,
instantly making it very wealthy.
1 Because of the time-sensitive nature of this appeal, we were
unable to give a full rationale for a ruling on the date we
entered judgment in favor of Wal-Mart. This opinion does
so.
11
The story isn’t much different today. Trinity continues
to be one of the wealthiest religious institutions in the United
States, with a balance sheet of over $800 million in assets and
real estate valued at approximately $3 billion. See Letter
from Trinity Wall Street CFO Accompanying Trinity’s 2013
Financial Statements (undated), available at
https://www.trinitywallstreet.org/sites/default/files/miscellane
ous/LetterfromtheCFOaccompanyingthe2013FinancialStatem
ents.pdf. Its strong financial footing, according to Trinity,
empowers it to “pursue a mission of good works beyond the
reach of other religious institutions.” Trinity Br. 16. Part of
that mission is to reduce violence in society.
Alarmed by the spate of mass murders in America, in
particular the shooting at Sandy Hook Elementary School in
December 2012, Trinity resolved to use its investment
portfolio to address the ease of access to rifles equipped with
high-capacity magazines (the weapon of choice of the Sandy
Hook shooter and other mass murderers). Its principal focus
was Wal-Mart.
During its review of Wal-Mart’s merchandising
practices, Trinity discovered what it perceived as a major
inconsistency. Despite the retailer’s stated mission to “make
a difference on the big issues that matter to us all,” Trinity Br.
11, it continued in some states to sell the Bushmaster AR-15
(a model of assault rifle). Trinity also perceived Wal-Mart as
taking an unprincipled approach in deciding which products
to sell. For example, despite its position on the AR-15, Wal-
Mart does not sell adult-rated movie titles (i.e., those rated
NC-17) or similarly rated video or computer games. Nor
does it sell to children under 17 “‘R’ rated movies or ‘Mature’
rated video games.” Trinity Br. 12. Wal-Mart also doesn’t
sell “music bearing a ‘Parental Advisory Label’” because of
concerns about the music containing “strong language or
depictions of violence, sex, or substance abuse.” Id. And
12
apparently due to safety concerns, it has stopped selling (1)
handguns in the United States; (2) high-capacity magazines
separate from a gun; and (3) guns through its website. Trinity
Br. 13. Trinity attributes these perceived inconsistencies to
the “lack of written policies and Board oversight concerning
its approach to products that could have momentous
consequences for both society and corporate reputation and
brand value[.]” Trinity Br. 16.2
B. Trinity’s Shareholder Proposal.
Trinity pressed Wal-Mart to explain its continued sale
of the Bushmaster AR-15. Wal-Mart’s response was as
follows:
There are many viewpoints on this topic and
many in our country remain engaged in the
conversations about the sale and regulation of
certain firearms. In areas of the country
where we sell firearms, we have a long
standing commitment to do so safely and
2 In its brief and again at oral argument, Wal-Mart answered
Trinity’s characterization of its sales practices and referred us
to its “Safe and Compliant Product Policy” and its “Product
Safety and Compliance” division, which “administers
programs to identify, mitigate, and monitor risks associated
with general merchandise.” Reply Br. 4. Wal-Mart also
noted that a Board Committee is already tasked with
“reviewing the Company’s reputation with external
constituencies and recommending to the Board any proposed
changes to the Company’s policies, procedures, and programs
as a result of such review.” Id. (citing J.A. 47) (alterations
omitted).
13
responsibly. Over the years, we’ve been very
purposeful about finding the right balance
between serving hunters and sportsmen and
ensuring that we sell firearms responsibly.
Wal-Mart’s merchandising decisions are
based on customer demand and we recognize
that most hunters and sportsmen use firearms
responsibly and wish to continue to do so . . . .
While there are some like you, Rev. Cooper,
who ask us to stop selling firearms, there are
many customers who ask us to continue to sell
these products in our stores.
J.A. 255–56.
Unmoved, Trinity drafted a shareholder proposal
aimed at filling the governance gap it perceived. The
proposal, which is the subject of this appeal,
provides:
Resolved:
Stockholders request that the Board
amend the Compensation, Nominating
and Governance Committee charter . . .
as follows:
“27. Providing oversight concerning
[and the public reporting of] the
formulation and implementation of . . .
policies and standards that determine
whether or not the Company should
sell a product that:
14
1) especially endangers public safety
and well-being;
2) has the substantial potential to
impair the reputation of the Company;
and/or
3) would reasonably be considered by
many offensive to the family and
community values integral to the
Company’s promotion of its brand.”
J.A. 268.
The narrative part of the proposal makes
clear it is intended to cover Wal-Mart’s sale of
certain firearms. It provides that the
oversight and reporting is intended to cover
policies and standards that would be
applicable to determining whether or not the
company should sell guns equipped with
magazines holding more than ten rounds of
ammunition (“high capacity magazines”)
and to balancing the benefits of selling such
guns against the risks that these sales pose to
the public and to the Company’s reputation
and brand value.
Id.
The proposal also included a supporting statement
asserting in relevant part that
[t]he company respects family and community
interests by choosing not to sell certain
15
products such as music that depicts violence
or sex and high capacity magazines separately
from a gun, but lacks policies and standards to
ensure transparent and consistent
merchandizing decisions across product
categories. This results in the company’s sale
of products, such as guns equipped with high
capacity magazines, that facilitate mass
killings, even as it prohibits sales of passive
products such as music that merely depict
such violent rampages.
. . . .
While guns equipped with high capacity
magazines are just one example of a product
whose sale poses significant risks to the public
and to the company’s reputation and brand,
their sale illustrates a lack of reasonable
consistency that this proposal seeks to address
through Board level oversight. This
responsibility seems appropriate for the
Compensation, Nominating and Governance
Committee, which is charged with related
responsibilities.
J.A. 268–69.3
3 In this context, the proposal is similar to that of a
shareholder proposal submitted to Wal-Mart in December
2000 to halt its sale of “handguns and their accompanying
ammunition, in any way (e.g.[,] by special order).” Wal-Mart
Stores, Inc., SEC No-Action Letter, 2001 WL 253625, at *1
(Mar. 9, 2001). Like Trinity, the submitting shareholder
maintained that it was “inappropriate for a ‘family store’ to
16
The purpose of the proposal, as explained by
the Reverend James H. Cooper, Trinity’s Rector, is
to
allow[] the company to make a transparent
choice considering both the business and
ethical (community impact) aspects of the
matter. Anti-violence concerns can be
broadly considered, including for example the
sale of video games glorifying violence, as
well as other merchandising decisions that are
inconsistent with the well-being of the
community and/or Wal-Mart’s brand value
and desired reputation.
Trinity Br. 18–19 (citation omitted).
C. Wal-Mart Seeks a No-Action Letter from the SEC.4
On January 30, 2014, Wal-Mart notified Trinity and
the Corp. Fin. staff of its belief that it could exclude the
sell handguns in any way.” Id. at *4. As here, the Corp. Fin.
staff issued a no-action letter allowing Wal-Mart to exclude
the proposal from its proxy materials because it related to its
“ordinary business operations (i.e., the sale of a particular
product).” Id. at *6.
4 In the words of the SEC, a “no-action letter is one in which
an authorized staff official indicates that the staff will not
recommend any enforcement action to the Commission if the
proposed transaction described in the incoming
correspondence is consummated.” Procedures Utilized by the
Division of Corporate Finance for Rendering Informal
Advice, Release No. 6,253, 1980 WL 25632, at *1 n.2 (Oct.
28, 1980).
17
proposal from its 2014 proxy materials under Rule 14a-
8(i)(7). Trinity predictably disagreed, stating that its proposal
didn’t “meddl[e] in ordinary course decision-making” but
focused on “big picture oversight and supervision that is the
responsibility of the Board.” J.A. 280. In support of that
assertion, Trinity offered three reasons why its proposal was
not excludable:
1. [it] addresses corporate governance
through Board oversight of important
merchandising policies and is
substantially removed from
particularized decision-making in the
ordinary course of business;
2. [it] concerns the Company’s standards
for avoiding community harm while
fostering public safety and corporate
ethics and does not relate exclusively
to any individual product; and
3. [it] raises substantial issues of public
policy, namely a concern for the safety
and welfare of the communities served
by the Company’s stores.
J.A. 280. Trinity also touted the proposal as: not dictating
“the specifics of how that Board oversight will operate or
how best to report publically on the policies being followed
by the Company and their implementation,” J.A. 281; not
seeking to “determine what products should or should not be
sold by the Company,” id.; allowing policy development “not
by shareholders, but by management, using its knowledge and
discretion,” id.; and addressing “the ethical responsibility of
the Company to take account of public safety and well-being,
18
and the related risks of damage to the Company’s reputation
and brand,” J.A. 283.
On March 20, 2014, the Commission’s Corp. Fin. staff
issued a “no-action” letter siding with Wal-Mart. It noted that
“there appears to be some basis for [Wal-Mart’s] view that
[it] may exclude the proposal under rule 14a-8(i)(7), as
relating to [its] ordinary business operations[,]” because
“[p]roposals concerning the sale of particular products and
services are generally excludable under [the rule].” Wal-Mart
Stores, Inc., SEC No-Action Letter, 2014 WL 409085, at *1
(Mar. 20, 2014). Consequently, the staff would “not
recommend enforcement action to the Commission if
Walmart [sic] omits the proposal from its proxy materials in
reliance on rule 14a-8(i)(7).” Id.
Because no-action letters are not binding—they reflect
only informal views of the staff and are not decisions on the
merits—Trinity’s proposal still had life.
D. Trinity Takes its Fight to Federal Court: Round
One.
On April 1, 2014, and just 17 days before Wal-Mart’s
proxy materials were due at the printer, Trinity filed a
declaratory judgment action against Wal-Mart in the District
of Delaware. It sought a declaration that “Wal-Mart’s
decision to omit the proposal from [its] 2014 Proxy Materials
violates Section 14(a) of the 1934 Act and Rule 14a-8.”
Trinity, 2014 WL 6790928, at *2 (internal citation omitted).
The relief it requested was twofold:
1. A permanent injunction to prevent
Wal-Mart from excluding its proposal
from its 2015 proxy materials; and
19
2. A preliminary injunction to prevent it
from printing, issuing, filing, mailing
or otherwise transmitting proxy
materials in connection with its 2014
Annual Meeting that do not contain the
shareholder proposal submitted by
Trinity.
Id.
Because of the April 17 deadline, the District Court
held an emergency hearing on Trinity’s preliminary
injunction request. At the hearing the Court described
Trinity’s burden as “heavy,” the remedy it was seeking as
“extraordinary,” and the time frame within which it had to
rule as “highly expedited.” Id. It didn’t help Trinity’s cause
that the SEC had already sided with Wal-Mart.
It’s very clear that the SEC has had
hundreds of opportunities to consider
questions like this. I have not. While the
SEC may only have a few hours or whatever
to put into each of these, I have roughly the
same amount of time. You come to what
you know is an extremely busy court. We
have given this expedited attention. It comes
to us with a no action conclusion from the
SEC staff . . . You come to me, you have the
burden [of] asking for extraordinary relief,
and I need to find that it’s likely that at the
end of the trial, whenever we get there, I’m
going to disagree with the SEC staff.
Id. at *3 (brackets omitted).
20
Viewing the proposal as one dealing “with guns on the
shelves and not guns in society,” the Court, in a ruling from
the bench, held that the proposal related to an “ordinary
business matter” and was thus excludable under Rule 14a-
8(i)(7). Id. It explained that
[t]he proposal [] expressly and . . .
importantly states that the requested
“oversight and/or reporting is intended to
cover policies and standards that would be
applicable [to] determining whether or not
the company should sell guns equipped with
magazines holding more than 10 rounds of
ammunitions, high capacity magazines.”
And I tried to emphasize it’s my added
emphasis on “sell.”
. . . .
While the specific proposal is crafted as one
directed solely to policy and oversight and
therefore arguably arises in the difficult and
seemingly novel perhaps intersection
between ordinary business . . . on the [one]
hand [and corporate governance] on the
other hand, ultimately I’m not persuaded
that I’m likely to conclude at the end of the
day on the merits that it therefore does not
fall within the exception given the rule for
ordinary business.
21
Id. (emphases omitted). The Court also gave weight to the
SEC’s “expertise” and “lengthy experience” involving proxy
contests. Id.5
Although the favorable ruling allowed Wal-Mart to
exclude Trinity’s proposal from its 2014 proxy materials, it
had not yet prevailed on the merits.
E. Round Two.
Wal-Mart thereafter moved to dismiss both counts of
Trinity’s amended complaint. It contended that Trinity’s
challenge to Wal-Mart’s exclusion of the proposal from the
retailer’s 2014 proxy materials (count 1) was moot, see id. at
*4, and the challenge to Wal-Mart’s “reasonably anticipated
2015 violation of Section 14(a) and Rule 14a-8” (count 2)
wasn’t ripe, id. at *5 (emphasis added). The District Court
granted Wal-Mart’s motion only in part. It disagreed on
mootness, but agreed on ripeness. Most notably, however,
and in direct tension with its earlier decision, the Court on
summary judgment held that the proposal was not excludable
under Rule 14a-8(i)(7).
With more time to deliberate, the Court concluded
that, although the proposal “could (and almost certainly
would) shape what products are sold by Wal-Mart,” it is “best
viewed as dealing with matters that are not related to Wal-
Mart’s ordinary business operations.” Id. at *8 (emphasis
added). Thus Rule 14(a)-8 could not block its inclusion in
Wal-Mart’s proxy materials. The Court fastened its holding
5 To be sure, the Court did not suggest that staff no-action
letters get automatic deference; just that “under the
circumstances, . . . some deference [was] merited.” J.A. 110
(emphasis added).
22
to the view that the proposal wasn’t a directive to
management but to the Board to “oversee the development
and effectuation of a Wal-Mart policy.” Id. at *9. In this
way, “[a]ny direct impact of adoption of Trinity’s proposal
would be felt at the Board level; it would then be for [it] to
determine what, if any, policy should be formulated and
implemented.” Id. Stated differently, the day-to-day
responsibility for implementing whatever policies the Board
develops was outside the scope of the proposal.
In the alternative, the Court held that even if the
proposal does tread on the core of Wal-Mart’s business—the
products it sells—it “nonetheless ‘focuses on sufficiently
significant social policy issues’” that “transcend[] the day-today
business matters” of the company, making the proposal
“appropriate for a shareholder vote.” Id. at *9 (brackets &
emphasis omitted). Among the policy issues the District
Court noted are “the social and community effects of sales of
high capacity firearms at the world’s largest retailer and the
impact this could have on Wal-Mart’s reputation, particularly
if such a product sold at Wal-Mart is misused and people are
injured or killed as a result.” Id.
The Court also found helpful how “Trinity [] carefully
drafted its proposal . . . to not dictate what products should be
sold or how the policies regarding sales of certain types of
products should be formulated or implemented.” Id. at *10.
It stressed the difference between Trinity’s proposal and the
generally excludable proposals that ask a company to report
on its “policies and reporting obligations regarding possible
toxic and hazardous products offered for sale.” See id.
(“Each of these proposals requested policies or information—
such as information on the companies’ efforts to minimize
exposure to toxic substances, attempts by the companies to
secure supply chains, options for alternative safer products,
and encouraging suppliers to reduce or eliminate harmful
23
substances—which directly impacted the ordinary business
operations of the companies involved far more than Trinity’s
proposal would directly impact Wal-Mart.”).6
Finally, the District Court addressed Wal-Mart’s
secondary argument that Trinity’s proposal is excludable
under Rule 14a-8(i)(3) for being “so inherently vague or
6 As to Wal-Mart’s reliance on the Corp. Fin. staff’s grant of
its no-action request, “a factor to which the Court [] accorded
significant weight at the preliminary injunction stage,” it
declined to accord the staff’s action any weight because “[i]t
is undisputed that the final determination as to the
applicability of the ordinary business exception is for the
Court alone to make.” Id. (citation omitted). It also
explained the shift from its earlier ruling:
At that earlier time Trinity was seeking
“extraordinary relief” and the Court’s analysis
was . . . rushed as well as truncated. In fact, a
mere ten days passed between the filing of the
motion and the oral argument and the Court’s
ruling on it. Under the tight time constraints,
the Court did not even permit full briefing on
the preliminary injunction motion. As . . .
noted at that time, “one hopes that if the case
proceeds, I’ll at least have more time to reflect
further on the argument.” Having now had
the benefit of that time for reflection, as well
as the invaluable assistance of additional
briefing and oral argument, the Court sees the
issues in the way it has explained here.
Id. at *11.
24
indefinite that neither the stockholders voting on the proposal,
nor the company in implementing the proposal (if adopted),
would be able to determine with any reasonable certainty
exactly what actions or measures the proposal requires.” Id.
at *11 (quoting SEC Staff Legal Bulletin No. 14B, 2004 WL
3711971, at *4 (Sept. 15, 2004)). It acknowledged that “Wal-
Mart is undoubtedly correct that the ‘broad variety of
products offered by [it] and the numerous customers,
employees and communities around the world with whom [it]
works’ mean that ‘there is no single set of ‘family and
community values’ that would be readily identifiable as being
‘integral to the company’s promotion of its brand.’” Id.
(emphasis in original, bold omitted). But it doesn’t “follow
from this that shareholders voting on the proposal, or the
Committee in implementing it (if approved), would be unable
to determine with reasonable certainty what the Committee
needs to do.” Id. “Instead, it merely illustrates . . . that the
[p]roposal properly leaves the details of any policy
formulation and implementation to the discretion of the
Committee, showing once more that [it] does not dictate any
particular outcome or micro-manage Wal-Mart’s day-to-day
business.” Id.
Wal-Mart appeals from both of the Court’s holdings
on the merits.
The District Court had jurisdiction under 28 U.S.C.
§ 1331 and 15 U.S.C. § 78aa. We have jurisdiction under 28
U.S.C. § 1291. Trinity’s request to enjoin Wal-Mart from
excluding the proposal from its 2015 proxy materials is ripe,
as Trinity resubmitted its proposal for inclusion in Wal-
Mart’s 2015 proxy materials and Wal-Mart again rebuffed its
request. We review the District Court’s order granting
Trinity’s motion for summary judgment de novo. As it did
below, Wal-Mart bears the burden of establishing as a matter
of law that it properly excluded the proposal under an
25
exception to Rule 14a-8. See AFSCME v. Am. Int’l Grp.,
Inc., 462 F.3d 121, 125 (2d Cir. 2006).
III. REGULATORY BACKGROUND
A. The Proxy Statement
A shareholder that is unable to attend a company’s
annual meeting isn’t disenfranchised. It can vote its shares by
proxy by empowering an attending shareholder to do so on its
behalf. Vote by proxy has “become an indispensable part of
corporate governance because the ‘realities of modern
corporate life have all but gutted the myth that shareholders in
large publicly held companies personally attend annual
meetings.’” Amalgamated Clothing & Textile Workers Union
v. Wal-Mart Stores, Inc., 821 F. Supp. 877, 881 (S.D.N.Y.
1993) (brackets omitted) (quoting Stroud v. Grace, 606 A.2d
75, 86 (Del. 1992)); see also Proposed Amendments to Rule
14a-8, Exchange Act Release No. 19,135, 1982 WL 600869,
at *2 (Oct. 14, 1982) (“1982 Proposing Release”) (noting that
“with the increased dispersion of security holdings in public
companies, the proxy solicitation process rather than the
shareholder’s meeting itself [] [became] the forum for
shareholder suffrage”).
As discussed above, a public company that solicits
proxies must distribute a proxy statement to each of its
shareholders in advance of the annual shareholder meeting.
The statement is an informational package that tells
shareholders “about items or initiatives on which [they] are
asked to vote, such as proposed bylaw amendments,
compensation or pension plans, or the issuance of new
securities.” Apache Corp., 696 F. Supp. at 727 (citation
omitted). “The proxy card, on which the shareholder may
submit its proxy, and the proxy statement together are the
‘proxy materials.’” Id. (citing 17 C.F.R. § 2401.14a-8(j)).
26
B. Proxy Solicitation
Through its proxy materials, a company solicits
proxies—hence the term “proxy solicitation.” Congress,
under the Securities Exchange Act of 1934, gave the SEC
oversight of the proxy context. See 3 Thomas Lee Hazen,
Treatise on the Law of Securities Regulation § 10.1[1] (6th
ed. 2009) (describing the 1934 Act as a congressional
response to the uptick of “great corporate frauds [that] had
been perpetrated through management solicitation of proxies
that did not indicate to the shareholders the nature of any
matters to be voted upon”). “Section [] 14(a) of the [1934
Act] renders unlawful the solicitation of proxies in violation
of the SEC’s rules and regulations, which are codified at 17
C.F.R. § 240.14a-1 et seq.” Amalgamated Clothing & Textile
Workers Union, 821 F. Supp. at 881; see also J.I. Case v.
Borak Co., 377 U.S. 426, 431 (1964) (“The purpose of
§ 14(a) is to prevent management or others from obtaining
authorization for corporate action by means of deceptive or
inadequate disclosure in proxy solicitation.”).
The SEC’s “proxy rules are concerned with assuring
full disclosure to investors of matters likely to be considered
at shareholder meetings.” Hazen at § 10.2[1]. To that end,
the SEC adopted “Rule 14a-9, which prohibits ‘false or
misleading’ statements made in any proxy statement, form of
proxy, notice of meeting or other communication.”
Amalgamated Clothing & Textile Workers Union, 821 F.
Supp. at 882 (citing 17 C.F.R. § 240.14a-9(a)). It has
interpreted the rule to “require companies to provide
shareholders with the opportunity to submit proposals to
management for inclusion in the corporation’s proxy
materials.” Id.
To complement Rule 14a-9, the Commission
promulgated Rule 14a-8 “to catalyze what many hoped would
27
be a functional ‘corporate democracy.’” Alan R. Palmiter,
The Shareholder Proposal Rule: A Failed Experiment in
Merit Regulation, 45 Ala. L. Rev. 879, 879 (1994). The rule
mandates subsidized shareholder access to a company’s proxy
materials, requiring “reporting companies . . . to print and
mail with management’s proxy statement, and to place on
management’s proxy ballot, any ‘proper’ proposal submitted
by a qualifying shareholder.” Id. at 886; cf. Roosevelt v. E.I.
Du Pont de Nemours & Co., 958 F.2d 416, 421 (D.C. Cir.
1992) (R.B. Ginsburg, J.) (maintaining that Rule 14a-8’s
“right to be informed” is complementary to but distinct from
Rule 14a-9’s “ban on misleading statements in proxy
solicitations”). The idea was to provide shareholders a way to
“bring before their fellow stockholders matters of
[shareholder concern]” that are “proper subjects for
stockholders’ action under the laws of the state under which
[the Company] was organized,” 1982 Proposing Release,
1982 WL 600869, at *3, and to “have proxies with respect to
such proposals solicited at little or no expense to the security
holder,” id. at *2.
C. Shareholder Proposals
A primary means to urge corporate reform is the
shareholder proposal, which “communicate[s] not only
[shareholders’] interest[] in a company’s financial
performance, but also their interests and preferences
concerning a wide range of issues, such as the board’s
structure and oversight of important policies, sustainability,
and ethical performance.” Brief of amici curiae Corporate
and Securities Law Professors 2. The hard part, however, is
soliciting votes to pass a proposal—especially where the
motivation is to raise awareness of a policy issue. See James
R. Copeland, Getting the Politics Out of Proxy Season, Wall
St. J., A11 (Apr. 23, 2015) (“Not one of the 1,150 shareholder
proposals concerning social or policy issues since 2006 got
28
the support of a majority of voting shareholders over board
opposition.”).
A shareholder can garner support in one of two ways.
It can “pay to issue a separate proxy statement, which must
satisfy all the disclosure requirements applicable to
management’s proxy statement.” Apache Corp., 696 F. Supp.
2d at 727 (citation omitted). Or the shareholder can go the
Rule 14a-8 route and have the company include its proposal
(and a supporting statement) in the proxy materials at the
company’s expense. See id. at 728.
D. Exclusion of Shareholder Proposals
Though the Rule 14a-8 option is financially
advantageous, it does not “create an open forum for
shareholder communication.” Palmiter at 886. Rule 14a-8
restricts the company-subsidy to “shareholders who offer
‘proper’ proposals.” Id. at 879; see also 17 C.F.R. § 240.14a-
8 (“This section addresses when a company must include a
shareholder’s proposal in its proxy statement and identify the
proposal in its form of proxy when the company holds an
annual or special meeting of shareholders.”). A “proper”
proposal is one that doesn’t fit within one of Rule 14a-8’s
exclusionary grounds—which are both substantive and
procedural.
The procedural exclusions of the rule “protect the
solicitation process without regard to a proposal’s content[.]”
Palmiter at 886. For example, the proponent “must have
continuously held at least $2,000 in market value, or 1%, of
the company’s securities entitled to be voted on the proposal
at the meeting for at least one year by the date [it] submit[s]
the proposal.” 17 C.F.R. § 240.14a-8(b)(1). It can “submit
no more than one proposal to a company for a particular
shareholders’ meeting.” Id. at § 240.14a-8(b)(2)(i). And the
29
“proposal, including any accompanying supporting statement,
may not exceed 500 words.” Id. at § 240.14a-8(d).
The rule’s substantive exclusions, by contrast, are “the
most frequently used (and most litigated).” Palmiter at 890.
They include (1) the “proper subjects” exclusion, which exists
“[i]f the proposal is not a proper subject for action by
shareholders under the law of the jurisdiction of the
company’s organization,” 17 C.F.R. § 240.14a-8(i)(1); (2) the
“false or misleading” exclusion, which allows companies to
bar proposals that are too vague, id. at § 240.14a-8(i)(3); (3)
the “substantially related” exclusion, which says that a
proposal is excludable if it “relates to operations which
account for less than 5 percent of the company’s total assets
[and net earnings and gross sales] at the end of its most recent
fiscal year . . . , and is not otherwise significantly related to
the company’s business,” id. at § 240.14a-8(i)(5); and, most
relevant for purposes of this opinion, (4) the “ordinary
business” exclusion, which disallows a proposal that “deals
with a matter relating to the company’s ordinary business
operations,” id. at § 240.14a-8(i)(7). See Palmiter 890.
If a company wants to invoke one of these grounds to
exclude a proposal, the process is as follows. First, it must
notify the shareholder in writing of the problem with the
proposal within 14 days of receiving it and inform the
shareholder that it has 14 days to respond. Id. at § 240.14a-
8(f)(1). If the company finds the shareholder’s response
unpersuasive and still wants to exclude the proposal, it then
must file with the Corp. Fin. staff the reasons why it believes
the proposal is excludable no later than 80 days before the
company files its proxy materials with the SEC. Id. at §
240.14a-8(j)(1). In this letter, the company may also ask the
staff for a no-action letter to support the exclusion of a
proposal. See Donna M. Nagy, Judicial Reliance on
Regulatory Interpretation in S.E.C. No-Action Letters:
30
Current Problems and a Proposed Framework, 83 Cornell L.
Rev. 921, 939 (1998) (“Although Rule 14a-8 merely
prescribes notification and filing requirements, virtually all
companies that decide to omit a shareholder proposal seek a
no-action letter in support of their decision.”). If the
shareholder wants to respond, it can file a submission noting
why exclusion would be improper. 17 C.F.R. § 240.14a-8(k).
The staff will respond in one of two ways: (1) with a
no-action letter, specifying that the company may omit the
shareholder proposal under the exclusion(s) it relied on; or (2)
that it is “unable to concur” with the company.7 A
shareholder dissatisfied with the staff’s response can, as
Trinity did here, pursue its rights against the company in
federal court.8
7 “[B]efore the SEC staff makes a decision on Rule 14a-8 noaction
requests, there are at least three levels of attorney
review by a ‘task force’ dedicated to reviewing Rule 14a-8
no-action requests[.]” See Wal-Mart Br. 37–38 (outlining
layers of review); see also Apache Corp. v. New York City
Emps.’ Ret. Sys., 621 F. Supp. 2d 444, 448 n.3 (S.D. Tex.
2008) (describing no-action review process) (citing Thomas
P. Lenke, The SEC No-Action Letter Process, 42 Bus. Law.
1019, 1027–28 (1987)).
8 Although rare, the Commission itself may choose to review
a no-action letter. Even then, its determination would become
a final order only if it “impose[d] an obligation, den[ied] a
right or fix[ed] some legal relationship as a consummation of
the administrative process.” Amalgamated Clothing &
Textile Workers Union v. S.E.C., 15 F.3d 254, 257 (2d Cir.
1994) (citations & internal quotation marks omitted); see also
31
E. SEC Interpretive Releases on the “Ordinary
Business” Exclusion
The ordinary business exclusion has been called the
“most perplexing” of all the 14a-8 bars. See Daniel E.
Lazaroff, Promoting Corporate Democracy and Social
Responsibility: The Need to Reform the Federal Proxy Rules
on Shareholder Proposals, 50 Rutgers L. Rev. 33, 94 (1997).
This stems from the opaque term “ordinary business,” which
is neither self-defining nor consistent in its meaning across
different corporate contexts. Neither the courts nor Congress
have offered a corrective. Rather, and “[f]rom the beginning,
Rule 14a-8 jurisprudence—both in quality and quantity—has
rested almost exclusively with the [SEC] . . . .” Palmiter at
880. In both its role as umpire and rule-maker, the SEC has
provided various iterations of formal interpretive guidance.9
Because they inform our analysis, we discuss each in turn.
Hazen, supra at §10.8[1][A][2] (noting that Commission
review is appropriate only where it involves “matters of
substantial importance and where the issues are novel or
highly complex”).
9 Each of the SEC’s interpretive releases was adopted after
notice and comment and thus merits our deference. As the
Supreme Court has explained, “[j]ust as we defer to an
agency’s reasonable interpretation of the statute when it
issues regulations in the first instance, . . . the agency is
entitled to further deference when it adopts a reasonable
interpretation of the regulations it has put in force.” Fed.
Express v. Holowecki, 552 U.S. 389, 397 (2008); see also
Dep’t of Labor v. E. Associated Coal Corp., 54 F.3d 141, 147
(3d Cir. 1995) (“We accord greater deference to an
32
1. The 1976 Proposing Release
The Commission’s initial frustration with the ordinary
business exclusion was management’s reliance on it to omit
proposals “that involve matters of considerable importance to
the issuer [i.e., the company] and its security holders.”
Proposed Amendments to Rule 14a-8 Under the Securities
Exchange Act of 1934 Relating to Proposals by Security
Holders, Release No. 9,343, 1976 WL 160410, at *7 (July 7,
1976) (“1976 Proposing Release”). It proposed two
modifications to address this concern. The first was a textual
alteration to clarify that a proposal is excludable “only if it
deals with a ‘routine, day-to-day matter relating to the
conduct of the ordinary business operations of the issuer.’”
Id. at *8. (The rule’s then-extant language provided that a
proposal was excludable if it consisted of a “recommendation
or request that [] management take action on a matter relating
to the conduct of the ordinary business operations of the
issuer.” Id. at *7 (internal quotation marks omitted).) The
second was a new standard to distinguish “routine”
(excludable) from “important” matters (not excludable). See
id. at *8. In the SEC’s view, management teams generally
handle “mundane matters” while boards of directors are
responsible for high level decision-making. It thus proposed
the following standard: “Will it be necessary for the board of
directors . . . to act on the matter involved in the proposal?”
Id. If the answer was no, the proposal dealt with a routine
business matter and was thus excludable. See id.
2. The 1976 Adopting Release
Commenters attacked the textual modification and new
standard as unworkable. As to the new language, the
administrative agency’s interpretation of its own regulations
than to its interpretation of a statute.”) (citations omitted).
33
criticism was that many routine, day-to-day business matters
“would necessarily deal with ordinary business matters of a
complex nature that shareholders, as a group, would not be
qualified to make an informed judgment on, due to their lack
of business expertise and their lack of intimate knowledge of
the issuer’s business.” Adoption of Amendments Relating to
Proposals by Security Holders, Release No. 12, 999, 1976
WL 160347, at *10 (Nov. 22, 1976) (“1976 Adopting
Release”). It also “would be difficult to administer because
of the subjective judgments that necessarily would be
required in interpreting it.” Id. Regarding the new standard,
the Commission relented to the criticism that “board practices
relating to the delegation of authority to management
personnel vary greatly, and there would, therefore, be no
consistency in applying such a standard.” Id. at *11; see also
id. (“The potential lack of consistency of the proposed
standard is a fatal drawback, in the Commission’s view. And,
since no other reasonable standard for making the requisite
distinctions is readily apparent, the Commission believes that
the provision would be difficult, if not impossible, to
administer on a satisfactory basis.”). It thus opted for a tweak
of the text of the exclusion and offered fresh interpretive
guidance.
For the former, it deleted any reference to
management; the exclusion thus read, much like it does now,
that a proposal is excludable if it “deals with a matter relating
to the conduct of the ordinary business operations of the
issuer.” Id. Regarding the new guidance, the SEC
maintained that the exclusion should be “interpreted
somewhat more flexibly than in the past” and reaffirmed that
the term “ordinary business operations” has been wrongly
interpreted to “include certain matters which have significant
policy, economic or other implications inherent in them. For
instance, a proposal that a utility company not construct a
nuclear power plant has in the past been [wrongly]
34
considered” to be excludable. Id. Therefore, “proposals of
that nature, as well as others that have major implications,
will in the future be considered beyond the realm of an
issuer’s ordinary business operations.” Id.
3. The 1982 Proposing Release
The SEC took a fresh look at the ordinary business
exclusion in 1982 in reviewing the staff’s then-prevailing
view on proposals that ask a company to (1) prepare a report
to shareholders or (2) recommend that a special committee be
formed to examine a particular area of its business. See 1982
Proposing Release, 1982 WL 600869, at *17. The staff
asserted that, as a category, such proposals were not
excludable even if the subject matter of the report or
examination involved an ordinary business matter because, in
its view, a company doesn’t disseminate reports to
shareholders or establish special committees as part of its
ordinary business operations. See id.
The SEC agreed to address the objection launched by
commenters that the staff’s “interpretation [] rais[es] form
over substance.” Id. It thus proposed for consideration
“whether it would be more appropriate to consider in each
instance whether the type of information sought by the
proposal involves the ordinary business operations of the
issuer and to disregard whether a proposal requests the
preparation and distribution of a report or the formation of a
special committee.” Id.
4. The 1983 Adopting Release
After notice and comment, the Commission formalized
its adoption of the proposed “significant change in the staff’s
interpretation” of the exclusion. Amendments to Rule 14a-8
Under the Securities Exchange Act of 1934 Relating to
35
Proposals by Security Holders, Release No. 20,091, 1983 WL
33272, at *7 (Aug. 16, 1983) (“1983 Adopting Release”)
(“Because [the staff’s] interpretation raises form over
substance and renders the provisions of [the ordinary business
exclusion] largely a nullity, the Commission has determined
to adopt the interpretive change set forth in the Proposing
Release.”). It thus directed the staff to “consider whether the
subject matter of a special report or the committee involves a
matter of ordinary business; where it does, the proposal will
be excludable.” Id.
5. The 1997 Proposing Release
The SEC revisited the ordinary business exclusion in
the late 1990s to tackle proposals “relating simultaneously to
both an ‘ordinary business’ matter and a significant social
policy issue.” Amendments to Rules on Shareholder
Proposals, Release No. 39,093, 1997 WL 578696, at *12
(Sept. 18, 1997) (the “1997 Proposing Release”). The
interpretive snag was that the “fairly straightforward mission”
of the rule was ill-suited to address contemporary social
issues and “provided no guidance” on how to treat proposals
raising such issues. Id. This difficulty showed itself when
the staff allowed a company (Cracker Barrel Old Country
Stores) to exclude a proposal that asked it to “prohibit
discrimination on the basis of sexual orientation.” New York
City Emps.’ Ret. Sys. v. S.E.C., 45 F.3d 7, 9 (2d Cir. 1995).
In handling the proposal, the staff espoused the view, which
the Commissioners of the SEC deemed untenable, that
employment-related proposals—regardless whether they raise
a social issue—are categorically excludable. See Cracker
Barrel Old Country Store, Inc., SEC No-Action Letter, 1992
WL 289095, at *1 (Oct. 13, 1992) (“[T]he Division has
determined that the fact that a shareholder proposal
concerning a company’s employment policies and practices
for the general workforce is tied to a social issue will no
36
longer be viewed as removing the proposal from the realm of
ordinary business operations of the registrant. Rather,
determinations with respect to any such proposals are
governed by the employment-based nature of the proposal.”).
To end this practice, the SEC declared that “employmentrelated
proposals focusing on significant social policy issues
could not automatically be excluded under the ‘ordinary
business’ exclusion.” 1997 Proposing Release, 1997 WL
578686, at *13. And going forward, “the ‘bright line’
approach for employment-related proposals established by the
Cracker Barrel position would be replaced by a case-by-case
analysis that prevailed previously.” Id.
In a final note of guidance, the Commission
summarized the two considerations that guide how to apply
the ordinary business exclusion. “The first relates to the
subject matter of the proposal. Certain tasks are so
fundamental to management’s ability to run a company on a
day-to-day basis that they could not, as a practical matter, be
subject to direct shareholder oversight.” Id. at *14.
According to the SEC, examples of this “include the
management of the workforce, such as the hiring, promotion,
and termination of employees, decisions on production
quality and quantity, and the retention of suppliers.” Id. Yet
“proposals relating to such matters but focusing on significant
social policy issues generally would not be considered to be
excludable, because such issues typically fall outside the
scope of management’s prerogative.” Id. “The second
consideration relates to the degree to which the proposal
seeks to ‘micro manage’ the company by probing too deeply
into ‘matters of a complex nature that shareholders, as a
group, would not be qualified to make an informed judgment
on, due to their lack of business expertise and lack of intimate
knowledge of the (company’s) business.’” Id. It comes into
play where “the proposal seeks intricate detail, or seeks to
37
impose specific time-frames or methods for implementing
complex policies.” Id.
6. The 1998 Adopting Release
Yet again the SEC declined to modify the language of
the rule, perhaps afraid to unleash unintended consequences.
Although “the legal term-of-art ‘ordinary business’ might be
confusing to some shareholders and companies,” it posited,
the risk that practitioners “might misconstrue [a] revision[] as
signaling an interpretive change” was too great to ignore.
Amendments to Rules on Shareholder Proposals, Release No.
23, 200, 1998 WL 254809, at *2 (May 21, 1998) (“1998
Adopting Release”); see also id. (“Indeed, since the meaning
of the phrase ‘ordinary business’ has been developed by the
courts over the years through costly litigation and essentially
has become a term-of-art in the proxy area, we recognize the
possibility that the adoption of a new term could inject
needless costs and other inefficiencies into the shareholder
proposal process.”). It elected simply to reverse the staff’s
1992 Cracker Barrel no-action letter, thus “return[ing] to a
case-by-case analytical approach,” id. at *4, and commented
that
[w]hile we acknowledge that there is no
bright-line test to determine when
employment-related shareholder proposals
raising social issues fall within the scope of
the “ordinary business” exclusion, the staff
will make reasoned distinctions in deciding
whether to furnish “no-action” relief.
Although a few of the distinctions made in
those cases may be somewhat tenuous, we
believe that on the whole the benefit to
shareholders and companies in providing
guidance and informal resolutions will
38
outweigh the problematic aspects of the few
decisions in the middle ground.
Id. It also reaffirmed that the term “ordinary business”
continues to “refer[] to matters that are not necessarily
‘ordinary’ in the common meaning of the word” and “is
rooted in the corporate law concept providing management
with flexibility in directing certain core matters involving the
company’s business and operations.” Id. at *2 (emphasis
added).
With that background, we move to the merits of Wal-
Mart’s appeal.
IV. ANALYSIS
The principal issue we address is whether Trinity’s
proposal was excludable because it related to Wal-Mart’s
ordinary business operations. In doing so, we evaluate the
District Court’s primary and alternative holdings. To repeat,
it held that Trinity’s proposal doesn’t meddle in the nuts-andbolts
of Wal-Mart’s business because it was a directive to the
Board (rather than management) to set standards to guide
certain merchandising decisions. And in the alternative the
proposal is not excludable because it implicates a significant
social policy—the sale of high-capacity firearms by the
world’s largest retailer —that transcends Wal-Mart’s ordinary
business. In this case (and we agree with the Commission
that our determination counsels a case-by-case inquiry) we
conclude that the proposal is excludable under the ordinary
business proviso and that the significant social policy
39
intended by the proposal is here no exception to that
exclusion.10
A. Trinity’s Proposal Relates to Wal-Mart’s Ordinary
Business Operations.
We employ a two-part analysis to determine whether
Trinity’s proposal “deals with a matter relating to the
company’s ordinary business operations[.]” 17 C.F.R.
§ 240.14a-8(i)(7). Under the first step, we discern the
“subject matter” of the proposal. See 1983 Adopting Release,
1983 WL 33272, at *7. Under the second, we ask whether
that subject matter relates to Wal-Mart’s ordinary business
operations. Id. If the answer to the second question is yes,
Wal-Mart must still convince us that Trinity’s proposal does
not raise a significant policy issue that transcends the nuts and
bolts of the retailer’s business.
1. What is the subject matter of Trinity’s proposal?
Beginning with the first step, we are mindful of the
Commission’s consistent nod to substance over form and its
distaste for clever drafting. As it reaffirmed in the 1982 and
1983 Releases, it matters little how a shareholder styles its
proposal; the emphasis should always be on its substance. To
10 A majority of the members of this panel (Judges Shwartz
and Vanaskie) also hold that the proposal (which Trinity
declined to divide into separate parts) is excludable for being
unduly vague under Rule 14a-8(i)(3). I decline to join that
holding. Wal-Mart’s vagueness objection was first raised in
the District Court and not before the SEC in seeking a noaction
letter. And before us it devoted little attention to the
argument. I thus think it not prudent to reach the vagueness
question in this instance.
40
illustrate its point, the SEC invoked the staff’s disparate
treatment of two proposals where the Commission thought
the outcome should have been the same:
[T]he staff, in a letter to Castle & Cooke . . .
agreed with the company that a proposal
requesting that it alter its food production
methods in underdeveloped countries could
be excluded under [the ordinary business
exclusion] since [it] specified the steps
management should take to implement the
action requested . . . . [Years later],
however, the proponent instead asked the
company to appoint a committee to review
foreign agricultural operations with
emphasis on the balance between labor and
capital intensive production. The staff
refused to apply the rule to this provision
because the appointment of a special
committee to study the company’s foreign
agricultural operations is a matter of policy.
1982 Proposing Release, 1982 WL 600869, at *17 n.49
(emphases added). In the SEC’s view, a directive to Castle &
Cooke to alter its food production methods in underdeveloped
countries was the functional equivalent of a request for
committee review of those methods. See id. Because the
staff concurred that the former was excludable, it should have
reached the same result as to the latter. Thus, even though
Trinity’s proposal asks for the development of a specific
merchandising policy—and not a review, report or
examination—we still ask whether the subject matter of the
action it calls for is a matter of ordinary business.
Applying that principle, we part ways with the District
Court. We perceive it put undue weight on the distinction
41
between a directive to management and a request for Board
action. In the District Court’s view, if the proposal had
directed management to arrange its product assortment in a
certain way, it would have been excludable. But because it
merely asked the “Board [to] oversee the development and
effectuation of a Wal-Mart policy,” it was not. Trinity, 2014
WL 6790928, at *9 (emphasis and bold in original); see also
id. (“Any direct impact of adoption of Trinity’s proposal
would be felt at the Board level; it would then be for the
Board to determine what, if any, policy should be formulated
and implemented.”). The concern with this line of reasoning
is that the SEC in its 1976 Adopting Release rejected the
proposed bright line whereby shareholder proposals involving
“matters that would be handled by management personnel
without referral to the board . . . generally would be
excludable,” but those involving “matters that would require
action by the board would not be.” 1976 Proposing Release,
1976 WL 160410, at *8. Thus, though the District Court’s
rationale and holding are not implausible, we do not adopt
them.
Distancing itself from the District Court’s formal
approach, Trinity argues that the subject matter of its proposal
is the improvement of “corporate governance over strategic
matters of community responsibility, reputation for good
corporate citizenship, and brand reputation, none of which
can be considered ordinary business,” Trinity Br. 39, and the
focus is on the “shortcomings in Wal-Mart’s corporate
governance and oversight over policy matters,” id. at 33. We
cannot agree. As the National Association of Manufacturers
points out, Trinity’s contention, like the District Court’s
analysis, relies “on how [the proposal] is framed and to
whom, rather than [its] substance.” Brief of amicus curiae
Nat’l Assoc. of Mfrs. 15. Contrary to what Trinity would
have us believe, the immediate consequence of the adoption
of a proposal—here the improvement of corporate
42
governance through the formulation and implementation of a
merchandising policy—is not its subject matter. If it were,
then, analogizing to the review context, the subject matter of
a review would be the review itself rather than the
information sought by it. See 1982 Proposing Release, 1982
WL 600869, at *17. For example, under Trinity’s position,
the subject matter of a proposal that calls for a report on how
a restaurant chain’s menu promotes sound dietary habits
would be corporate governance as opposed to important
matters involving the promotion of public health. Yet that is
the analysis the SEC disavowed in adopting the suggestions
made in the 1982 Proposing Release. The subject matter of
the proposal is instead its ultimate consequence—here a
potential change in the way Wal-Mart decides which products
to sell. Indeed, as even the District Court acknowledged, if
the company were to adopt Trinity’s proposal, then, whatever
the nature of the forthcoming policy, it “could (and almost
certainly would) shape what products are sold by Wal-
Mart[.]” Trinity, 2014 WL 6790928, at *9.
This view of the subject matter of Trinity’s proposal
finds support in a well-established line of SEC no-action
letters.11 The most instructive is the no-action letter issued to
11 Wal-Mart argues that although no-actions letters are
generally not entitled to deference, the staff’s no-action letter
here is because it is “consistent with both the SEC’s guidance
on Rule 14a-8(i)(7) and the SEC staff’s prior no-action
letters.” Reply Br.13. Although we disagree with the view
that the letter holds any persuasive value, we do give the
staff’s body of no-action letters “careful consideration as
‘representing the views of persons who are continuously
working with the provisions of the statute [the regulation in
our case] involved.” Donaghue v. Accenture Ltd., No. 03-
8329, 2004 WL 1823448, at *3 (S.D.N.Y. Aug. 16, 2004)
43
Sempra Energy in January 2012. The proposal there urged
the Board “to conduct an independent oversight review each
year of the Company’s management of political, legal, and
financial risks posed by [its] operations in any country that
may pose an elevated risk of corrupt practices.” Sempra
Energy, SEC No-Action Letter, 2011 WL 6425347, at *2
(Jan. 12, 2012). As Trinity does here, the proposing
shareholder framed the subject matter of its proposal as
targeting the company’s governance of a certain type of risk:
“the political, legal, and financial risks” inherent in the
company’s operations in countries “posing an elevated risk of
corrupt practices,” id., which could ultimately trigger a
Foreign Corrupt Practices Act prosecution. Cf. Trinity Br. 40
(maintaining that its proposal addresses the governance of the
“risks to society and Wal-Mart should a product, after it is
sold, cause harm to [its] customers or its brand and
reputation”) (quotation marks omitted). But, as here, the staff
granted no-action relief because, “although the proposal
requests the board to conduct an independent oversight
review of Sempra’s management of particular risks, the
underlying subject matter of these risks appears to involve
ordinary business matters.” Sempra Energy, 2011 WL
6425347, at *1; see also The Home Depot, Inc., SEC No-
Action Letter, 2008 WL 257307, at *1, *2 (Jan. 25, 2008)
(granting no-action relief where the proposal asked Home
Depot’s Board to publish a report outlining the company’s
product safety policies and describing what management is
(brackets, citation & quotation marks omitted); see also Nagy
supra at 1002 (maintaining that whether “the staff has
consistently maintained a particular regulatory interpretation
in no-action letters over a long period of time is relevant” to
whether the interpretation should merit some deference, as
“consistent, longstanding staff positions may signal
Commission approval of these positions”).
44
doing to address recent product safety concerns because it
related to “Home Depot’s ordinary business operations (i.e.,
the sale of particular products)”); Family Dollar Stores, Inc.,
SEC No-Action Letter, 2007 WL 3317923, at *1 (Nov. 6,
2007) (same where proposal asked for a report “evaluating
Company policies and procedures for systematically
minimizing customers’ exposure to toxic substances and
hazardous components in its marketed products” because it
relates to Family Dollar’s “ordinary business operations (i.e.,
sale of particular products)”); Walgreen Co., SEC No-Action
Letter, 2006 WL 5381376, at *1 (Oct. 13, 2006) (same for
proposal asking for a report “characterizing the extent to
which the company’s private label cosmetics and personal
care products lines contain carcinogens, mutagens,
reproductive toxicants, and chemicals that affect the
endocrine system and describing options for using safer
alternatives,” because the subject matter of the proposal
related to Walgreen’s “ordinary business operations (i.e., the
sale of particular products)”).12
The staff’s consistent focus on the underlying subject
matter of a proposal is instructive. So too is Trinity’s failure
to cite any authority for its view of the subject matter of its
proposal. See Trinity Br. 37–42. For us, the subject matter of
Trinity’s proposal is how Wal-Mart approaches
12 In keeping with its emphasis on the subject matter of a
proposal, the staff often denies no-action relief where the
proposal merely calls for the Board to establish a committee
to oversee risk generally. See, e.g., PepsiCo, Inc., SEC No-
Action Letter, 2012 WL 542708, at *1 (Feb. 16, 2012)
(denying no-action relief where the proposal merely asked the
company to establish “a Risk Oversight Committee of the
Board of Directors”).
45
merchandising decisions involving products that (1)
especially endanger public-safety and well-being, (2) have the
potential to impair the reputation of the Company, and/or (3)
would reasonably be considered by many offensive to the
family and community values integral to the company’s
promotion of the brand. A contrary holding—that the
proposal’s subject matter is “improved corporate
governance”—would allow drafters to evade Rule 14a-
8(i)(7)’s reach by styling their proposals as requesting board
oversight or review. See Reply Br. 10. We decline to go in
that direction.
2. Does Wal-Mart’s approach to whether it sells
particular products relate to its ordinary business
operations?
Reaching the second step of the analysis, we ask
whether the subject matter of Trinity’s proposal relates to
day-to-day matters of Wal-Mart’s business. Wal-Mart says
the answer is yes because, even though the proposal doesn’t
demand any specific changes to the make-up of its product
offerings—a point on which Trinity hangs its hat, see Trinity
Br. 38 (“[The proposal] is not a ‘stop selling’ proposal. Nor
does it require intricate reports on Wal-Mart’s products.”)—it
“seeks to have a [B]oard committee address policies that
could (and almost certainly would) shape what products are
sold by Wal-Mart.” Reply Br. 9 (internal quotation marks
omitted). That is, Trinity’s proposal is just a sidestep from “a
shareholder referendum on how [Wal-Mart] selects its
inventory.” Brief of amicus curiae the Nat’l Assoc. of Mfrs.
at 11. And thus its subject matter strikes at the core of Wal-
Mart’s business.
We agree. A retailer’s approach to its product
offerings is the bread and butter of its business. As amicus
the National Association of Manufacturers notes, “Product
46
selection is a complicated task influenced by economic
trends, data analytics, demographics, customer preferences,
supply chain flexibility, shipping costs and lead-times, and a
host of other factors best left to companies’ management and
boards of directors.” Id. at 12; see also Brief of amicus
curiae Retail Litig. Ctr., Inc. 11 (“The understanding of
consumer behavior and careful tailoring of product mix is
central to the success or failure of a given retailer.”). Though
a retailer’s merchandising approach is not beyond shareholder
comprehension, the particulars of that approach involve
operational judgments that are ordinary-course matters.
Moreover, that the proposal doesn’t direct
management to stop selling a particular product or prescribe a
matrix to follow is, we think, a straw man. See Trinity Br. 38;
Trinity, 2014 WL 6790928, at *10 (“Trinity has carefully
drafted its Proposal. . . . not [to] dictate which products
should be sold or how the policies regarding sales of certain
types of products should be formulated or implemented.”). A
proposal need only relate to a company’s ordinary business to
be excludable. Cf. 17 C.F.R. § 240.14a-8(i)(7) (exclusion is
proper where a proposal deals with a matter “relating to the
company’s ordinary business operations”) (emphasis added).
It need not dictate any particular outcome. To make the point
even clearer, suppose that Trinity’s proposal had merely
asked Wal-Mart’s Board to reconsider whether to continue
selling a given product. Though the request doesn’t dictate a
particular outcome, we have no doubt it would be excludable
under the SEC’s 1983 Adopting Release, as the action sought
relates to Wal-Mart’s ordinary business operations. This is so
even though it doesn’t suggest any changes. The same is true
here. In short, so long as the subject matter of the proposal
relates—that is, bears on—a company’s ordinary business
operations, the proposal is excludable unless some other
exception to the exclusion applies.
47
Failing all of this, Trinity retreats to friendlier territory.
It contends that, even if the subject matter of its proposal
concerns Wal-Mart’s ordinary business operations, it focuses
on a significant and transcendent social policy issue: Wal-
Mart’s approach to the risk that the sale of a product can
cause “harm to [its] customers or its brand and reputation.”
Trinity Br. 40; see also id. at 44 (“There are various products
especially dangerous to reputation, brand value, or the
community that a family retailer such as Wal-Mart should
carefully consider whether or not to sell, and the proposal
addresses the transcendent policy issue of under what policies
and standards and with what Board oversight Wal-Mart
handles these merchandising decisions.”). We address that
issue next.
B. Trinity’s Proposal Does Not Focus on a Significant
Policy Issue that Transcends Wal-Mart’s Day-to-
Day Business Operations.
As discussed above, there is a significant social policy
exception to the default rule of excludability for proposals
that relate to a company’s ordinary business operations. For
the SEC staff this means that when “a proposal’s underlying
subject matter transcends the day-to-day business matters of
the company and raises policy issues so significant that it
would be appropriate for a shareholder vote, the proposal
generally will not be excludable under Rule 14a-8(i)(7).”
SEC Staff Legal Bulletin No. 14E, 2009 WL 4363205, at *2
(Oct. 27, 2009).
The difficulty in this case is divining the line between
proposals that focus on sufficiently significant social policy
issues that transcend a company’s ordinary business (not
excludable) from those that don’t (excludable). Even the
Commission admits that the social-policy exception “raise[s]
difficult interpretive questions.” 1997 Proposing Release,
48
1997 WL 578696, at *13. No doubt that is because the
calculus is complex. Yet we cannot sidestep what some may
deem an unreckonable area. Thus we wade in.
We think the inquiry is again best split into two steps.
The first is whether the proposal focuses on a significant
policy (be it social or, as noted below, corporate). If it
doesn’t, the proposal fails to fit within the social-policy
exception to Rule 14a-8(i)(7)’s exclusion. If it does, we reach
the second step and ask whether the significant policy issue
transcends the company’s ordinary business operations.
1. Does Trinity’s proposal raise a significant social
policy issue?
We first turn to whether Trinity’s proposal focuses on
a “sufficiently significant” policy issue like “significant
[employment] discrimination.” 1998 Adopting Release, 1998
WL 254809, at *4. The District Court said yes because the
proposal at its core dealt with “the social and community
effects of sales of high capacity firearms at the world’s largest
retailer.” Trinity, 2014 WL 6790928, at *9. However, even
Trinity concedes its proposal “is not directed solely to Wal-
Mart’s sale of guns.” Trinity Mot. for Summ. J. 17 (ECF No.
38, filed Jun. 18, 2014). Rather it asks Wal-Mart’s Board to
oversee merchandising decisions for all “products especially
dangerous to reputation, brand value, or the community that a
family retailer such as Wal-Mart should carefully consider
whether or not to sell.” Trinity Br. 44. See also Brief of
amici curiae Corporate and Securities Law Professors 14–15
(arguing that the “ethical and social policy implications” of
“[s]elling products that endanger public safety, Wal-Mart’s
reputation, and [its] core values,” are “easily on par with
employment discrimination, which the SEC’s 1998 Release
deemed a sufficiently significant policy issue to warrant
inclusion of shareholder proposals relating to it”).
49
Wal-Mart, on the other hand, contends that neither the
Commission nor its staff has ever countenanced “such a broad
and nebulous concept of significant policy issue.” Reply Br.
21. We disagree. True enough, the Commission has adopted
what can only be described as a “we-know-it-when-we-see-it”
approach, see Palmiter at 910 (describing the Commission’s
“shifting approach to social/political proposals” as the “most
dramatic and prominent example of SEC inconstancy” under
Rule 14a-8). Yet it is hard to counter that Trinity’s proposal
doesn’t touch the bases of what are significant concerns in
our society and corporations in that society. Thus we deem
that its proposal raises a matter of sufficiently significant
policy.
Our concurring colleague, Judge Shwartz, would allow
Wal-Mart to exclude Trinity’s proposal because it doesn’t
focus on the retailer’s sale of guns with high-capacity
magazines. As she points out, it instead focuses on the
broader issue of the company’s commitment to public safety
through the sale of products that can be especially dangerous
to the community. Concurring Op. at 6–7 (“The ‘public
safety’ component of the proposal could cover many
products, especially in light of the amount of products Wal-
Mart offers, and thus might require [it] to develop policies
and standards for thousands of goods.”). And because this
policy issue has the potential to bring “thousands” of products
under its umbrella—not just guns with high-capacity
magazines—it does not “as a whole ‘focus’” on a significant
policy issue. Id. at 7 (alterations omitted).
Our colleague also believes that the second and third
parts of Trinity’s proposal do not raise issues of significant
import. She claims that Wal-Mart’s management of risk to its
brand value (the proposal’s second part) and its reputation as
a family retailer (the third part) relate to matters that, “while
certainly important to shareholders seeking a return on their
50
investment,” are “not of broad societal concern.” Concurring
Op. at 7. Thus, she posits, these parts of the proposal relate to
policy issues the exception doesn’t deem significant. The
trouble is the social-policy exception—despite its name—is
not so limited.
The good news is we come to the ultimate conclusion
of Judge Shwartz—that Trinity’s proposal is excludable under
the ordinary business bar—but take a different path. We are
more persuaded by the view that, because the proposal relates
to a policy issue that targets the retailer-consumer interaction,
it doesn’t raise an issue that transcends in this instance Wal-
Mart’s ordinary business operations, as product selection is
the foundation of retail management.
2. Even if Trinity’s proposal raises a significant
policy issue, does that issue transcend Wal-
Mart’s ordinary business operations?
To repeat, where “a proposal’s underlying subject
matter transcends the day-to-day business matters of the
company and raises policy issues so significant that it would
be appropriate for a shareholder vote, the proposal generally
will not be excludable under Rule 14a-8(i)(7).” SEC Staff
Legal Bulletin No. 14E, 2009 WL 4363205, at *2 (Oct. 27,
2009) (emphasis added). What this means is that, to shield its
proposal from the ordinary business exclusion, a shareholder
must do more than focus its proposal on a significant policy
issue; the subject matter of its proposal must “transcend” the
company’s ordinary business. See 1998 Adopting Release,
1998 WL 254809, at *4. The Commission used the latter
term, we believe, to refer to a policy issue that is divorced
from how a company approaches the nitty-gritty of its core
business. See SEC Staff Legal Bulletin No. 14E, 2009 WL
4363205, at *3 (maintaining that CEO succession-planning
“raises a significant policy issue regarding the governance of
51
the corporation that transcends the day-to-day business matter
of managing the workforce”). Thus, and contrary to the
position of our concurring colleague, we think the
transcendence requirement plays a pivotal role in the socialpolicy
exception calculus. Without it shareholders would be
free to submit “proposals dealing with ordinary business
matters yet cabined in social policy concern.” Apache Corp.
v. New York City Emps.’ Ret. Sys., 621 F. Supp. 2d 444, 451
n.7 (S.D. Tex. 2008) (rejecting the argument that “whether a
proposal implicates significant social policy is the dispositive
inquiry”).
For major retailers of myriad products, a policy issue
is rarely transcendent if it treads on the meat of
management’s responsibility: crafting a product mix that
satisfies consumer demand. This explains why the
Commission’s staff, almost as a matter of course, allows
retailers to exclude proposals that “concern[] the sale of
particular products and services.” Rite Aid Corp., SEC No-
Action Letter, 2015 WL 364996, at *1 (Mar. 24, 2015). On
the other hand, if a significant policy issue disengages from
the core of a retailer’s business (deciding whether to sell
certain goods that customers want), it is more likely to
transcend its daily business dealings.
To illustrate the distinction, a proposal that asks a
supermarket chain to evaluate its sale of sugary sodas because
of the effect on childhood obesity should be excludable
because, although the proposal raises a significant social
policy issue, the request is too entwined with the
fundamentals of the daily activities of a supermarket running
its business: deciding which food products will occupy its
shelves. So too would a proposal that, out of concern for
animal welfare, aims to limit which food items a grocer sells.
Cf., e.g., Amazon.com, Inc., SEC No-Action Letter, 2015 WL
470145, at *1 (Mar. 27, 2015) (allowing Amazon to exclude
52
proposal that asked it to “disclose to shareholders any
reputational and financial risks that it may face as a result of
negative public opinion pertaining to the treatment of
animals used to produce products it sells” because the
“proposal relates to the products and services offered for sale
by the company”); Papa John’s Int’l, Inc., SEC No-Action
Letter, 2014 WL 7406254, at *1 (Feb. 13, 2015) (same for
proposal that encouraged the pizza franchise to “expand its
menu offerings to include vegan cheeses and vegan meats in
order to advance animal welfare, reduce its ecological
footprint, expand its healthier options and meet growing
demand for plant-based foods”).
By contrast, a proposal raising the impropriety of a
supermarket’s discriminatory hiring or compensation
practices generally is not excludable because, even though
human resources management is a core business function, it is
disengaged from the essence of a supermarket’s business.
See Wal-Mart Stores, Inc., SEC No-Action Letter, 2004 WL
326494, at *1 (Feb. 17, 2004) (denying no-action relief where
proposal asked for a report documenting “the distribution of
[] equity compensation by the recipient’s race and gender and
discuss[ing] recent trends in equity compensation granted to
women and employees of color”). The same goes for
proposals asking for information on the environmental effect
of constructing stores near environmentally sensitive sites.
See, e.g., Jenny Staletovich, Developer Defends Walmart in
Rare Forest, The Miami Herald (Sept. 12, 2014), available at
http://www.miamiherald.com/news/local/environment/article
2092364.html.13
13 Our concurring colleague says our suggested test is
untenable for deciding whether a proposal fits within the
social-policy exception because she believes our test requires
that a proposal be “completely” divorced from a company’s
53
With those principles in mind, we turn to Trinity’s
proposal. Trinity says it focuses on “both corporate policy
and social policy”—specifically, the “transcendent policy
issue of under what policies and standards and with what
Board oversight Wal-Mart handles [] merchandising
decisions” for products that are “especially dangerous to [the
company’s] reputation, brand value, or the community.”
Trinity Br. 44 (emphasis in original). “In an age of mass
shootings, increased violence, and concerns about product
safety,” Trinity argues, “the [p]roposal goes to the heart of
Wal-Mart’s impact on and approach to social welfare as well
as the risks such impact and approach may have to Wal-
Mart’s reputation and brand image and its community.” Id. at
43.
But is how a retailer weighs safety in deciding which
products to sell too enmeshed with its day-to-day business?
We think it is in this instance. As we noted before, the
essence of a retailer’s business is deciding what products to
put on its shelves—decisions made daily that involve a
careful balancing of financial, marketing, reputational,
competitive and other factors. The emphasis management
places on safety to the consumer or the community is
fundamental to its role in managing the company in the best
interests of its shareholders and cannot, “as a practical matter,
be subject to direct shareholder oversight.” 1998 Adopting
ordinary business. Concurring Op. at 3. Nowhere do we
suggest that to come within the exception a proposal must
raise a policy issue that is completely unrelated to a day-today
business matter. If that were so, then a proposal relating
to a retailer’s discriminatory hiring practices would be
excludable, as hiring is a fundamental business decision. We
agree with the Commission that such a proposal is not
excludable.
54
Release, 1998 WL 254809, at *4. Although shareholders
perform a valuable service by creating awareness of social
issues, they are not well-positioned to opine on basic business
choices made by management.
It is thus not surprising that the Corp. Fin. staff
consistently allows retailers to omit proposals that address
their product menu. For example, it has indicated that a
proposal trying to stop a retailer from selling or promoting
products that connote negative stereotypes is excludable. See,
e.g., Federated Dep’t Stores, Inc., SEC No-Action Letter,
2002 WL 975596, at *13 (Mar. 27, 2002) (allowing the
retailer to omit a proposal asking for a report on its “efforts to
identify and disassociate from any offensive imagery to the
American Indian community in products, adverting [sic],
endorsements, sponsorships and promotions”). It has done
the same for proposals aiming to restrict a retailer’s
promotion of products that pose a threat to public health, see
e.g., Wal-Mart Stores, Inc., SEC No-Action Letter, 2002 WL
833445, at *1 (Apr. 1, 2002) (agreeing with Wal-Mart that it
could exclude a proposal asking it to explain “its rationale for
not adopting in developing nations the same policies
restricting the promotion and marketing of tobacco products
as in the United States”); Walgreen Co., SEC No-Action
Letter, 2006 WL 5381376, at *1–2 (Oct. 13, 2006) (same for
proposal asking for a report regarding “the extent to which
the company’s private label cosmetics and personal care
product lines contain carcinogens, mutagens, reproductive
toxicants, and chemicals that affect the endocrine system”), as
well as those proposals targeting a retailer’s approach to
product safety. See, e.g., Wal-Mart Stores, Inc., SEC No-
Action Letter, 2008 WL 670182, at *1 (Mar. 11, 2008) (Wal-
Mart may exclude a proposal requesting a “report on the
company’s policies on nanomaterial product safety”); The
Home Depot, Inc., SEC No-Action Letter, 2008 WL 257300,
at *2 (allowing company to exclude a proposal encouraging it
55
“to end its sale of glue traps because they are cruel and
inhumane to the target animals and pose a danger to
companion animals and wildlife”); The Home Depot, Inc.,
SEC No-Action Letter, 2008 WL 257307, at *7 (same for
proposal asking for an “evaluation of company policies and
practices relating to product safety”).
For further support of the view that a policy issue does
not transcend a company’s ordinary business operations
where it targets day-to-day decision-making, we look to the
difference in treatment of stop-selling proposals sent to
retailers and those sent to pure-play manufacturers. A policy
matter relating to a product is far more likely to transcend a
company’s ordinary business operations when the product is
that of a manufacturer with a narrow line. Here the staff often
will decline a no-action request. See, e.g., Phillip Morris
Companies, Inc., SEC No-Action Letter, 1990 WL 286063, at
*1 (Feb. 22, 1990) (denying no-action relief as to proposal
that requests the Board to amend the company’s charter to
provide that it “shall not conduct any business in tobacco or
tobacco products”); Sturm, Ruger & Co., Inc., SEC No-
Action Letter, 2001 WL 258493, at *1 (Mar. 5, 2001) (same
where proposal asks the Board to provide a report on
company policies and procedures focused on reducing gun
violence in the United States).
But the outcome changes where those same policy
proposals are directed at retailers who sell thousands of
products. See Wal-Mart Stores, Inc., SEC No-Action Letter,
2001 WL 253625, at *6 (Mar. 9, 2001) (allowing Wal-Mart to
exclude a proposal aimed at stopping its sale of handguns and
accompanying ammunition[] in any way (e.g. by special
order)” because it relates to “Wal-Mart’s ordinary business
operations (i.e., the sale of a particular product)”); see also
Rite Aid Corp., SEC No-Action Letter, 2009 WL 829472, at
*1 (Mar. 26, 2009) (same for proposal asking for a report on
56
the company’s response “to rising regulatory, competitive and
public pressures to halt sales of tobacco products”); Walgreen
Co., SEC No-Action Letter, 1997 WL 599903, at *1 (Sept.
29, 1997) (same for proposal requesting that Walgreen stop
the sale of tobacco in its stores, as it “is directed at matters
relating to the conduct of the Company’s ordinary business
operations (i.e., the sale of a particular product)”).
The reason for the difference, in our view, is that a
manufacturer with a very narrow product focus—like a
tobacco or gun manufacturer—exists principally to sell the
product it manufactures. Its daily business deliberations do
not involve whether to continue to sell the product to which it
owes its reason for being. As such, a stop-selling proposal
generally isn’t excludable because it relates to the seller’s
very existence. Quite the contrary for retailers. They
typically deal with thousands of products amid many options
for each, precisely the sort of business decisions a retailer
makes many times daily. Thus, and in contrast to the
manufacturing context, a stop-selling proposal implicates a
retailer’s ordinary business operations and is in turn
excludable. Although Trinity’s proposal is not strictly a stopselling
proposal, it still targets the same basic business
decision: how to weigh safety risks in the merchandising
calculus.14
14 We recognize that in “extrapolat[ing] an interpretive
rationale from a [line of] [] no-action letter[s], [we] risk[]
setting a legal precedent based on a rationale that the SEC
never in fact advocated.” Nagy at 1006. Fortunately, our
word is not the last. If our interpretation is flawed, the
Commission can issue new (binding) interpretative guidance
to correct us. Cf. Levy v. Sterling Holding Co., LLC, 544 F.3d
493, 502 (3d Cir. 2008) (explaining that a court of appeals is
not free to ignore the SEC’s interpretation of one of its
57
Trinity’s claim that its proposal raises a
“significant” and “transcendent” corporate policy is likewise
insufficient to fit that proposal within the social-policy
exception to exclusion. See Trinity Br. 47. The relevant
question to us is whether Wal-Mart’s consideration of the risk
that certain products pose to its “economic success” and
“reputation for good corporate citizenship” is enmeshed with
the way it runs its business and the retailer-consumer
interaction. We think the answer is yes. Decisions relating to
what products Wal-Mart sells in its rural locations versus its
urban sites will vary considerably, and these are
quintessentially calls made by management. Wal-Mart serves
different Americas with different values. Its customers in
rural America want different products than its customers in
cities, and that management decides how to deal with these
differing desires is not an issue typical for its Board of
Directors. Indeed, catering to “small-town America” is how
Wal-Mart built its business. See Sam Walton, SAM WALTON:
MADE IN AMERICA 50 (1993) (“It turned out that the first big
lesson we learned was that there was much, much more
business out there in small-town America than anybody,
including me, had ever dreamed of.”). And whether to put
emphasis on brand integrity and brand protection, or none at
all, is naturally a decision shareholders as well as directors
entrust management to make in the exercise of their
experience and business judgment.
We also agree with Wal-Mart’s contention (and
seemingly the position of the Corp. Fin. staff) that a company
ambiguous rules even where the court of appeals had
previously interpreted the rule and its interpretation is at odds
with that of the Commission) (citing Nat’l Cable &
Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 976
(2005)).
58
can omit a shareholder proposal concerning its reputation or
brand when what the proposal seeks is woven with the way
the company conducts its business. Cf. FedEx Corp., SEC
No-Action Letter, 2014 WL 2358714, at *1 (July 11, 2014)
(allowing FedEx to omit a proposal that asked for a report
addressing how the company “can better respond to
reputational damage from its association with the Washington
D.C. NFL franchise team name controversy” because it
“relates to the manner in which FedEx advertises its products
and services”); see also Equity Lifestyle Props., Inc., SEC
No-Action Letter, 2012 WL 6723114, at *1 (Feb. 6, 2013)
(same for proposal asking the Board to prepare a report on,
among other things, “the reputational risks associated with the
setting of unfair, inequitable and excessive rent increases that
cause undue hardship to older homeowners on fixed
incomes,” as “the setting of prices for products and services is
fundamental to management’s ability to run a company on a
day-to-day basis”); Bank of America Corp., SEC No-Action
Letter, 2010 WL 4922465, at *1 (Feb. 24, 2010) (same for
proposal asking Bank of America’s Board to publish a report
describing the bank’s policy regarding the “funding of
companies engaged predominantly in mountain top removal
coal mining and an assessment of the policy’s efficacy in
reducing [greenhouse gas] emissions and in protecting [its]
reputation,” as it “addresses matters beyond the
environmental impact of [its] project finance decisions, such
as [its] decisions to extend credit or provide other financial
services to particular types of customers”); Dean Foods Co.,
SEC No-Action Letter, 2007 WL 754960, at *1 (Mar. 9,
2007) (same for proposal requesting that an independent
committee of the Board “review the company’s policies and
procedures for its organic dairy products and report to
shareholders on the adequacy of the policies and procedures
to protect the company’s brands and reputation and address
consumer and media criticism,” because this concerns the
59
company’s “ordinary business operations (i.e., customer
relations and decisions relating to supplier relationships)”).
We thus hold that, even if Trinity’s proposal raises
sufficiently significant social and corporate policy issues,
those policies do not transcend the ordinary business
operations of Wal-Mart. For a policy issue here to transcend
Wal-Mart’s business operations, it must target something
more than the choosing of one among tens of thousands of
products it sells. Trinity’s proposal fails that test and is
properly excludable under Rule 14a-8(i)(7).
V. CONCLUSION
Although a core business of courts is to interpret
statutes and rules, our job is made difficult where agencies,
after notice and comment, have hard-to-define exclusions to
their rules and exceptions to those exclusions. For those who
labor with the ordinary business exclusion and a social-policy
exception that requires not only significance but
“transcendence,” we empathize. Despite the substantial
uptick in proposals attempting to raise social policy issues
that bat down the business operations bar, the SEC’s last
word on the subject came in the 1990s, and we have no hint
that any change from it or Congress is forthcoming. As one
former SEC commissioner has opined, “it is neither fair nor
reasonable to expect securities experts [like the Commission
and its staff] to deduce the prevailing wind on public policy
issues that have yet to be addressed by Congress in any
decisive fashion.” Commissioner Criticizes Subjectivity,
Inconsistency in SEC Review of Proposals, BNA Corp.
Couns. Wkly., 2-3 (Mar. 31, 1993) (quoting remarks of
Comm. Richard Y. Roberts). That remains true today.
We have no doubt that the Commission is equipped to
collect “relevant data and views regarding the best direction
60
for its regulatory policy.” Nagy at 993. We thus suggest that
it consider revising its regulation of proxy contests and issue
fresh interpretive guidance. In the meantime, we hold here
that Trinity’s proposal is excludable from Wal-Mart’s proxy
materials under Rule 14a-8(i)(7).
1
SHWARTZ, Circuit Judge, with whom Judge VANASKIE
joins as to Part III, concurring in the judgment.
I agree with the Majority that Wal-Mart may omit
Trinity’s proposal from the company’s proxy materials. I
write separately, however, for two reasons. First, while I
agree with my colleagues that the proposal is excludable
based on the ordinary business exclusion, I believe that the
test that it has fashioned for determining when an exception
to this exclusion applies may remove many company actions
over which shareholders should have a say from shareholder
oversight. Second, I write to explain that both the ordinary
business and the vagueness exclusions support exclusion of
the entire proposal.1
I
SEC Rule 14a-8 requires a public company to include
a shareholder proposal “in its proxy statement . . . when [the
company] holds an annual or special meeting of
shareholders,” 17 C.F.R. § 240.14a-8, in recognition of the
fact that, “with the increased dispersion of security holdings
in public companies, the proxy solicitation process rather than
the shareholder’s meeting itself ha[s] become the forum for
shareholder suffrage,” Proposed Amendments to Rule 14a-8,
Exchange Act Release No. 19135, 1982 WL 600869, at *2
(Oct. 14, 1982) (the “1982 Proposing Release”). The rule thus
1Trinity declined to omit any component of the
proposal, Tr. of Oral Arg. at 39-40, and thus sought approval
of the proposal in its entirety. Accordingly, each component
of the proposal must be nonexcludable for it to comply with
SEC Rule 14a-8.
2
“affords shareholders access to management proxy
solicitations,” both “to sound out management views and to
communicate with other shareholders on matters of major
import.” Amalgamated Clothing & Textile Workers Union v.
Wal-Mart Stores, Inc., 821 F. Supp. 877, 882 (S.D.N.Y.
1993) (internal quotation marks, citation, and alteration
omitted). Such access, however, is not unfettered. In
addition to eligibility and procedural requirements, SEC Rule
14a-8 is “limited by thirteen content-based exceptions,” id.,
two of which Wal-Mart argues apply here: Rule 14a-8(i)(7)
and Rule 14a-8(i)(3).
Rule 14a-8(i)(7) allows a company to exclude
proposals that “deal[] with a matter relating to the company’s
ordinary business operations.” 17 C.F.R. § 240.14a-8(i)(7).
The SEC has explained that the determination of whether a
particular shareholder proposal implicates a company’s
ordinary business operations “rests on two central
considerations”: (1) whether the “subject matter” of the
proposal involves “tasks . . . fundamental to management’s
ability to run a company on a day-to-day basis”; and (2) “the
degree to which the proposal seeks to ‘micro-manage’ the
company by probing too deeply into matters of a complex
nature upon which shareholders . . . would not be in a position
to make an informed judgment.” Amendments to Rules on
Shareholder Proposals, Release No. 23200, 1998 WL 254809,
at *4-5 (May 21, 1998) (“1998 Adopting Release”).
There is an exception to this exclusion. Specifically,
proposals “relating to” ordinary business operations “but
focusing on sufficiently significant social policy issues . . .
generally would not be considered excludable,”
notwithstanding their relationship to ordinary business,
3
“because the proposals would transcend the day-to-day
business matters and raise policy issues so significant that it
would be appropriate for a shareholder vote.” Id. at *4. The
Majority would limit proposals invoking the “significant
social policy exception” to only those concerning matters that
are “disengaged from the essence of” a company’s business,
Maj. Op. at 52, and reads the 1998 Adopting Release to
require a proposal that focuses on a significant social policy
issue to be completely “divorced from how a company
approaches the nitty-gritty of its core business,” Maj. Op. at
50; see also id. (“[T]o shield its proposal from the ordinary
business exclusion, a shareholder must do more than focus its
proposal on a significant policy issue; the subject matter of its
proposal must ‘transcend’ the company’s ordinary
business.”). In my view, this reading is inconsistent with the
plain text of the 1998 Adopting Release.
The 1998 Adopting Release provides that, to avoid
running afoul of the ordinary business exclusion, a proposal
“relating to” a company’s ordinary business must “focus[]
on” a “sufficiently significant social policy issue.” 1998
Adopting Release, 1998 WL 254809, at *4. If it does, “it
generally would not be considered excludable, because the
proposal[] would transcend . . . day-to-day business matters.”
Id. As this passage makes clear, whether a proposal focuses
on an issue of social policy that is sufficiently significant is
not separate and distinct from whether the proposal
transcends a company’s ordinary business. Rather, a proposal
is sufficiently significant “because” it transcends day-to-day
business matters. Id. Thus, the SEC treats the significance
and transcendence concepts as interrelated, rather than
independent.
4
The 1998 Adopting Release also does not require that
a proposal be “disengaged from the essence of” a company’s
business, Maj. Op. at 52, such that a company is insulated
from any submission relating to the “crafting [of] a product
mix that satisfies consumer demand,” Maj. Op. at 51. Indeed,
the 1998 Adopting Release expressly permits a shareholder to
submit a proposal that relates directly to ordinary business
matters, including “decisions on production quality and
quantity, and the retention of suppliers,” so long as it
“focus[es] on” an issue of “sufficiently significant social
policy.” 1998 Adopting Release, 1998 WL 254809, at *4
(acknowledging that “[c]ertain tasks,” including those related
to production and suppliers, “are so fundamental to
management’s ability to run a company on a day-to-day
basis” that they are not “subject to direct shareholder
oversight,” but recognizing that “proposals relating to such
matters but focusing on sufficiently significant social policy
issues” generally are not excludable). Thus, to “transcend”
ordinary business, as that term is used in the 1998 Adopting
Release, a proposal need not be divorced from ordinary
business, as the Majority proposes, but instead must focus on
a policy issue that in some “transcend[ent]” way trumps
ordinary business in importance. See id.; see also Adoption
of Amendments Relating to Proposals by Security Holders,
Release No. 12999, 1976 WL 160347, at *11 (Nov. 22, 1976)
(noting that proposals including “certain matters which have
significant policy, economic, or other implications,” like “the
economic and safety considerations attendant to nu[cl]ear
power plants,” are “of such magnitude” that they should be
“considered beyond the realm of an issuer’s ordinary business
operations,” despite their relationship to such operations).
5
In addition to conflicting with SEC guidance, the
Majority’s test for the “significant social policy exception” to
the ordinary business exclusion is inconsistent with the
purpose of § 14 of the Securities Exchange Act of 1934, 15
U.S.C. § 78a et seq. (the “Exchange Act”), and Rule 14a-8.
When Congress enacted the Exchange Act, it sought to ensure
“fair corporate suffrage.” J.I. Case Co. v. Borak, 377 U.S.
426, 432 (1964). One way such suffrage is protected is
through accurate proxy solicitations. Id. Congress authorized
the SEC to generate rules that would advance this goal. See
15 U.S.C. § 78n. To this end, it promulgated Rule 14 to
provide guidelines for shareholder proposals, including those
that raise social issues. As the Commission noted in the 1998
Adopting Release, “shareholder proposals on social issues
may improve investor confidence in the securities markets by
providing investors with a sense that as shareholders they
have a means to express their views to the management of the
companies in which they invest.” 1998 Adopting Release,
1998 WL 254809, at *19.
The Majority’s test, insofar as it practically gives
companies carte blanche to exclude any proposal raising
social policy issues that are directly related to core business
operations, undermines the principle of fair corporate suffrage
animating Rule 14a-8: shareholders’ “ability to exercise their
right—some would say their duty—to control the important
decisions which affect them in their capacity as . . . owners of
[a] corporation.” Med. Comm. for Human Rights v. SEC,
432 F.3d 659, 681-82 (D.C. Cir. 1970) (footnote omitted).
Section 14(a) of the Exchange Act ensures that “[a]
corporation is run for the benefit of its stockholders and not
for that of its managers,” SEC v. Transamerica Corp., 163
F.2d 511, 517 (3d Cir. 1947), and “Congress intended by its
6
enactment of [§] 14 . . . to give true vitality to the concept of
corporate democracy,” Med. Comm. for Human Rights, 432
F.3d at 676. Permitting shareholders to vote on important
social issues, including those that may be closely related to a
company’s ordinary business, is consistent with these
principles, and I would not interpret the ordinary business
exclusion to prohibit it.
II
All that said, Trinity’s proposal as written is
excludable under the ordinary business exclusion because it
lacks the focus needed to trigger the “significant social
policy” exception. To qualify for this exception, Trinity’s
proposal must focus on a significant policy issue. Trinity’s
proposal asks the Board to amend the Committee charter to
require that it create policies and standards for determining
whether Wal-Mart should sell a product that: (1) “especially
endangers public safety and well-being”; (2) “has the
substantial potential to impair” Wal-Mart’s reputation; and/or
(3) “would reasonably be considered by many to be offensive
to the family and community values integral to” Wal-Mart’s
brand. J.A. 268. Although the proposal states that it is for
“determining whether or not [Wal-Mart] should sell guns
equipped with magazines holding more than ten rounds of
ammunition . . . and [for] balancing the benefits of selling
such guns against the risk that these sales pose to the public
and to [Wal-Mart’s] reputation and brand value,” J.A. 268,
the full text shows that it is not directed solely to Wal-Mart’s
sale of guns.
The proposal has three separate components. The
“public safety” component of the proposal could cover many
7
products, especially in light of the amount of products Wal-
Mart offers, and thus might require Wal-Mart to develop
policies and standards for thousands of goods. While Wal-
Mart’s sale of guns with high-capacity magazines may raise a
significant social policy issue concerning public safety, not all
products that may fall within the proposal do so. Thus, while
the first component of Trinity’s proposal may raise a
significant issue of social policy, insofar as it touches on the
sale of guns equipped with high capacity magazines, we
cannot say that the proposal as a whole “focus[es] on” such
an issue. 1998 Adopting Release, 1998 WL 254809, at *4.
Accordingly, Trinity may not avail itself of the “significant
social policy exception” to the ordinary business exclusion.
Similarly, the second and third components of the
proposal could cover many products. They are also
problematic for other reasons. The second component seeks
standards for determining whether Wal-Mart should sell a
product that may impair the company’s reputation. How
Wal-Mart would like others to view it is a unique company
interest, and while certainly important to shareholders seeking
a return on their investment, it is not of broad societal
concern. The third component, which asks the Board to
consider whether the sale of a product would impact its brand,
also focuses on matters of interest to the company but not
society at large. Thus, these components cover matters
relating to Wal-Mart’s ordinary business operations, do not
present a social policy issue, and render the entire proposal
excludable.
III
8
There is an additional problem with the third
component of the proposal: it is vague and thus excludable
under Rule 14a-8(i)(3). Rule 14a-8(i)(3) permits a company
to exclude shareholder proposals that are “so vague and
ambiguous that the issuer and security holders would not be
able to determine what action the proposal is contemplating,”
1982 Proposing Release, 1982 WL 600869, at *13. The
rationale for excluding a shareholder proposal that is “vague
and ambiguous” is twofold: (1) shareholders are entitled to
know the breadth of the proposal on which they are asked to
vote; and (2) the company must be able to comprehend what
actions or measures the proposal requires of it. See Dyer v.
SEC, 287 F.2d 773, 781 (8th Cir. 1961); N.Y.C. Emps. Ret.
Sys. v. Brunswick, 789 F. Supp. 144, 146 (S.D.N.Y. 1992).
As previously stated, the third component of the
proposal that asks the Committee to formulate policies and
standards for the sale of products that “would reasonably be
considered by many to be offensive to the family and
community values integral to” Wal-Mart’s brand. J.A. 268.
While Trinity argues that this component simply asks the
Committee to consider whether a product may negatively
impact its brand, the proposal, as written, measures that
impact based upon what “many” view as “offensive” to
“family and community values.” Trinity attempts to link
these terms back to what Wal-Mart has said about its values,
including the “Save Money, Live Better” tag line, but these
buzz words fail to provide any concrete guidance as to what
constitutes “many” or what “family values” should be
considered. Thus, this component of the proposal does not
inform the shareholders of the breadth of the subject on which
they would be asked to vote nor does it make clear what the
Company would be required to do if it were adopted. For this
9
reason, the proposal is also excludable under Rule 14a-
8(i)(3).
IV
I therefore concur in the judgment.

Outcome: Although a core business of courts is to interpret
statutes and rules, our job is made difficult where agencies,
after notice and comment, have hard-to-define exclusions to
their rules and exceptions to those exclusions. For those who
labor with the ordinary business exclusion and a social-policy
exception that requires not only significance but
“transcendence,” we empathize. Despite the substantial
uptick in proposals attempting to raise social policy issues
that bat down the business operations bar, the SEC’s last
word on the subject came in the 1990s, and we have no hint
that any change from it or Congress is forthcoming. As one
former SEC commissioner has opined, “it is neither fair nor
reasonable to expect securities experts [like the Commission
and its staff] to deduce the prevailing wind on public policy
issues that have yet to be addressed by Congress in any
decisive fashion.” Commissioner Criticizes Subjectivity,
Inconsistency in SEC Review of Proposals, BNA Corp.
Couns. Wkly., 2-3 (Mar. 31, 1993) (quoting remarks of
Comm. Richard Y. Roberts). That remains true today.

We have no doubt that the Commission is equipped to
collect “relevant data and views regarding the best direction
for its regulatory policy.” Nagy at 993. We thus suggest that
it consider revising its regulation of proxy contests and issue
fresh interpretive guidance. In the meantime, we hold here
that Trinity’s proposal is excludable from Wal-Mart’s proxy
materials under Rule 14a-8(i)(7).

Plaintiff's Experts:

Defendant's Experts:

Comments: