A judge in the Federal District Court from the Southern District of Texas recently granted summary judgment to a company in a suit seeking declaratory judgment to permit the company to exclude John Chevedden's shareholder proposal from its proxy statement. Mr. Chevedden submitted the shareholder proposal to the company in December 2012 purportedly on behalf of two shareholders. Although there is no court opinion, the company argued that the proposal should be excluded for four reasons:
Rule 14a-8(i)(8)(ii) expressly permits the exclusion of proposals that would remove directors from office before their terms expire. Because Mr. Chevedden's proposal seeks to do just that, it should be excluded on this basis.
Because Mr. Chevedden does not own any shares of the company's stock, he has not satisfied the ownership requirements of Rule 14a-8(b) for shareholder proposal submission. According to the complaint, in the past decade, Mr. Chevedden has accounted for 11% of the SEC's Department of Corporate Finance's no-action letters for shareholder proposal submissions, more than anyone in history.
Rule 14a-8 does not permit shareholders to make "proxy proposals by proxy," which Mr. Chevedden, who is not a shareholder of the company, attempted here. Rule 14a-8(h) requires that the proposing shareholder attend the shareholders' meeting to present the proposal or send a qualified representative in his place in compliance with state law procedures. This is the only section of the rule that allows an appointed representative to act on a shareholder's behalf for the limited purpose of presenting the shareholder's proposal at the shareholders' meeting. The defendants' action does not fit this limited exception, because
Mr. Chevedden, who is not a shareholder, did not take the limited role of simply acting as representative of proposing shareholders, but rather he submitted the proposal itself.
The defendants did not comply with the Rule 14a-8 deadline for submission of shareholder proposals, which is no less than 120 calendar days before the company releases the proxy statement to shareholders.
Although the issue of "proxy proposals by proxy" has arisen before, the issue has been resolved through no-action letters issued by the SEC. For example, Ameriprise Financial sought a no-action letter from the SEC in 2012 for a "proxy proposal by proxy" involving Mr. Chevedden. In that instance, the SEC did not allow the shareholder proposal to be excluded.
In this instance, however, the company bypassed the SEC no-action letter process and decided to take the matter directly to federal court. The Southern District of Texas ruled in favor of the company, despite the position taken by the SEC's Department of Corporate Finance in the Ameriprise Financial no-action letter.
The Ameriprise no-action letter can be found here: http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2012/kennethsteinercheveddenameriprise122112-14a8.pdf