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UNITED CHURCH BD. FOR WORLD MINISTRIES v. SEC

November 25, 1986

UNITED CHURCH BOARD FOR WORLD MINISTRIES, et al., Plaintiffs,
v.
SECURITIES AND EXCHANGE COMMISSION, Defendant



The opinion of the court was delivered by: GREEN

This matter is before the Court on plaintiffs' application for costs and attorney fees pursuant to the Equal Access to Justice Act ("EAJA"), 28 U.S.C. § 2412 (1985). For the reasons set forth below, the Court awards plaintiffs $17,908.75 in attorneys' fees and costs.

 I. Background

 On October 25, 1984, plaintiff filed the instant action for declaratory and injunctive relief, challenging the procedures used by defendant Securities and Exchange Commission ("SEC") in revising its Rule 14a-8. Plaintiffs alleged that the SEC adopted a specific amendment to Rule 14a-8 without adequate notice, without adequate explanation or analysis of public comments, and without adequate support in the record. Complaint para. 1.

 Rule 14a-8 regulates the inclusion of shareholder requests in proxy materials. 17 C.F.R. § 240.14a-8. This action involves the amendment of Rule 14a-8(c)(12) which allows issuers to omit a shareholder proposal from their proxy material under certain circumstances. Before the SEC revised Rule 14a-8(c)(12), it provided in relevant part:

 
If substantially the same proposal has previously been submitted to security holders in the issuer's proxy statement and form of proxy relating to any annual or special meeting of security holders held within the preceding 5 calendar years, it may be omitted from the issuer's proxy materials relating to any meeting of security holders held within 3 calendar years after the latest such previous submission:
 
Provided, That -- (i) If the proposal was submitted at only one meeting during such preceding period, it received less than 3 percent of the total number of votes cast in regard thereto; or
 
(ii) If the proposal was submitted at only two meetings during such preceding period, it received at the time of its second submission less than 6 percent of the total number of votes cast in regard thereto; or
 
(iii) If the proposal was submitted at three or more meetings during such preceding period, it received at the time of its latest submission less than 10 percent of the total number of votes cast in regard thereto. . . .

 17 C.F.R. § 240.14a-8(c)(12).

 The SEC published a notice of proposed rulemaking that proposed amendments to, or the abolition of, Rule 14a-8 on October 26, 1982. See 47 Fed. Reg. 47,420 (1982). The notice consisted of a two-sentence request for comments on "appropriate levels" for percentage thresholds. Specifically, the SEC stated: "From time to time, the Commission has received suggestions from proponents and issuers alike that the percentage tests reflected in Rule 14a-8(c)(12) should be revised. The Commission is requesting comment on the question of the appropriate levels for the percentage tests." 47 Fed. Reg. at 47,430. In response to the overall notice, the SEC received 397 comments. SEC Division of Corporate Finance, Summary of Comments: Shareholder Proposal Release at 1.

 Sometime later, the SEC issued a final rule on August 16, 1983, amending Rule 14a-8. The final rule adopted two specific amendments to subsection (c)(12). First, the opening phrase was changed to read, "If the proposal deals with substantially the same subject matter as a prior proposal." Second, the final rule raised two of the three threshold percentages which must be obtained for a shareholder proposal to be published in subsequent years. The 3 percent threshold required of a first-time proposal was raised to 5 percent and the 6 percent threshold required for a second-time proposal was raised to 8 percent. The 10 percent threshold required for a third-time proposal was retained. 48 Fed. Reg. 38,218, 38,223 (1983).

 According to the SEC, the percentage thresholds were raised because of "the increased voting activities of institutional investors with respect to security holder proposals and the greater potential support for such proposals." Id. at 38,221. The new rule applied to shareholder proposals submitted for inclusion in proxy materials that were filed preliminarily with the SEC on or after January 1, 1984. Id. at 38,183.

 Plaintiffs initiated this suit in response to the raising of the percentage thresholds and subsequently moved for summary judgment. Plaintiffs stated that but for the revision in the threshold percentages, their individual proposals would have garnered enough votes to permit resubmission of a new vote the following year. For example, plaintiffs The American Baptist Home Mission Society; General Synod of the Reformed Church in America; Sisters of St. Dominic of Blauvelt, New York; and Oregon Province of the Society of Jesus submitted a proposal in the spring of 1983 to American Telephone & Telegraph Company. The proposal received 4.08 percent of the shareholders votes cast on its first submission. Plaintiffs' Statement of Material Facts as to Which There is No Genuine Issue, paras. 17-20. Under the new rule, plaintiffs would have to wait at least three years before resubmitting their proposals.

 Plaintiffs requested that the Court vacate the revision of the threshold percentages because they were denied administrative due process as required under the Administrative Procedure Act ("APA"), 5 U.S.C. § 553 (1977). On September 16, 1985, the Court granted plaintiffs' motion for summary judgment and held that notice of the proposed rulemaking was inadequate to support the ...


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