Opinion ID: 2814625
Heading Depth: 1
Heading Rank: 1

Heading: introduction

Text: “[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 8 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  (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. WalMart 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. WalMart 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. 9 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