Walmart will no longer be required to include a controversial shareholder proposal regarding its sale of firearms in its 2015 proxy statement, now that the U.S. Court of Appeals for the Third Circuit has overturned an earlier opinion on the matter.
A November decision by the U.S. District Court for the District of Delaware went against a no-action letter from the Securities and Exchange Commission that sided with Walmart’s exclusion of a shareholder proposal at its 2014 annual meeting. That case involved a battle between the retailer and Trinity Wall Street, an organization associated with New York City’s Trinity Church.
In December 2013, Trinity submitted a proposal aimed at pressuring Walmart’s board of directors to decide whether the company should keep selling guns with magazines able to hold more than 10 rounds of ammunition. Walmart asked the SEC for a no-action letter that would allow it to omit the proposal on the basis it “deals with matters relating to the company’s ordinary business operations.” The SEC agreed and granted the no-action letter. Trinity turned to the court in protest.
Walmart’s argument was that the “broad variety of products” it offers and the many customers, employees, and communities around the world it works with shows “there is no single set of family and community values” readily identifiable as being “integral to the company’s promotion of its brand.” It also argued that the proposal was “impermissibly vague and ambiguous.”
The court, however, sided with Trinity and declared that social issues can “transcend the day-to-day business matters” and be appropriate for a shareholder vote. The sale of high-capacity firearms, it said, meets that standard. The court also ruled that the proposal was properly drafted as it steered clear of dictating that specific products not be sold, leaving those decisions to the board.
The Court of Appeals for the Third Circuit, however, reversed that opinion and will allow Walmart to withhold the proposal from its 2015 proxy materials, according to a terse decision released on Tuesday. A full, detailed opinion will be released by the court at a later date.
The legal reasoning behind the decision will be eagerly dissected by companies and their legal teams for insight into how courts, in the future, may decide on similar situations involving the SEC’s “ordinary business exception,” as laid out in Rule 14a-8(i)(7) of the Exchange Act.