Currently before the Third Circuit is Trinity Wall Street v. Wal-Mart Stores, Inc.  The case involves whether Wal-Mart can exclude a shareholder proposal under the “ordinary business exception” to Rule 14a-8.  See prior blogs here and here.

Trinity Wall Street has now filed its brief with the Third Circuit.  It is well written and sometimes entertaining.  Predictably, its views are diametrically opposed to Wal-Mart’s views.

It begins with a statement of facts setting forth Trinity’s perceived interpretation of Wal-Mart’s changing positions on gun sales.  According to Trinity it tried to work matters out with Wal-Mart unsuccessfully, and was left with no choice but to submit a shareholder proposal.  According to the brief, “In the course of discussions with Trinity prior to the filing of this lawsuit, Wal-Mart could not explain why it had decided not to sell handguns or high capacity magazines as a separate accessory but is willing to sell rifles equipped with such high capacity magazines. Based on these exchanges, Trinity concluded that, Wal-Mart does not appear to have any policies governing these decisions or providing for transparent board oversight of their implementation.”

According to Trinity, at bottom, there is a fundamental distinction between a proposal that addresses mundane matters such as production quality or employee benefits, and one that seeks to ensure that the Board of Directors does its job of providing oversight over a subject directly impacting Wal-Mart’s brand, reputation, and commitment to good corporate citizenship. While the former has been deemed to be impracticable for shareholder involvement, the latter is undeniably of sufficient breadth and import to warrant shareholder consideration and involvement.

Trinity also believes the proposal focuses on significant policy issues.  In the context of the sale of products especially dangerous to the corporate reputation or brand value, the Board’s effective oversight and concern is itself a matter of public concern. A company that is not attentive at the Board level as to how its brand is perceived by the public is a company at great risk of damaging the public and itself.

Trinity sates SEC no-action letters are not always entitled to deference.  In this case, the no-action letter provided no reasoning to which the court could defer, instead simply offering that there appeared to be “some basis” for exclusion of the proposal. Even were the court to conclude that reasoning is not required for a bald conclusion to be persuasive, Trinity believes there is the additional problem that the letter does not even give lip service to the governance nature of the proposal or the significant policy issues that are its focus.

In Trinity’s view, inclusion of the proposal will not open the floodgates to similar proposals.  Trinity tells the court that this prediction of “proxy apocalypse” has no basis in reality, and should readily be rejected. This is not a naked “stop selling” proposal, as it does not request that Wal-Mart stop selling anything. Thus, affirmance here need not lead to a plethora of stop selling proposals. This case raises an issue of corporate governance over an important policy issue and is substantially similar to the proposals that the Division staff has blessed related to the sale of products produced through sweatshop or forced labor of people or the inhumane treatment of animals. Trinity concludes “These denials of no-action relief have not caused the sky to fall.”