District Courts Weigh in on Shareholder Proposal Exclusions

Key Takeaways

• Two courts denied injunctions; one granted relief with $20k bond
• All rulings hinged on Rule 14a‑8(i)(7) “ordinary business” exclusion
• Narrow, segment‑specific proposals more likely to survive exclusion challenges
• Courts described the ordinary‑business test as “perplexing” with limited precedent
• New exclusion grounds raised in litigation aren’t barred but carry risk

Pulse Analysis

The SEC’s Rule 14a‑8 framework allows issuers to exclude shareholder proposals that fall within the ordinary‑business category, a provision that has become a focal point of proxy‑season litigation. Recent district‑court opinions—*As You Sow v. Chubb*, *Fonds des Missions v. UnitedHealth*, and *DiNapoli v. BJ’s Wholesale Club*—offer the first substantive guidance of the 2026 cycle. While two courts denied preliminary injunctions, the third granted relief contingent on a $20,000 bond, illustrating that courts still apply the traditional four‑factor test and treat these cases as likelihood‑of‑success forecasts rather than final rulings on excludability.

The crux of each decision was the ordinary‑business exclusion under Rule 14a‑8(i)(7). Judges applied the SEC’s 1998 interpretive release, probing both the “focus” inquiry—whether a proposal addresses a significant social‑policy issue beyond day‑to‑day management—and the “micromanagement” inquiry—whether the proposal dictates specific operational details. In the Chubb and UnitedHealth cases, broad, enterprise‑wide proposals failed the focus test, leading to denial of relief. By contrast, BJ’s narrowly targeted deforestation risk proposal passed the focus inquiry and avoided micromanagement concerns, resulting in a limited injunction. All three judges labeled the ordinary‑business analysis “perplexing,” underscoring the scarcity of binding precedent.

For issuers, the mixed outcomes underscore the importance of precise proposal framing and thorough documentation of the ordinary‑business exclusion rationale. While courts did not categorically bar new exclusion grounds raised during litigation, they warned that such arguments carry heightened risk if not disclosed in the initial exclusion notice. Moreover, the BJ’s decision shows that irreparable harm hinges on timing and specific facts, not merely on exclusion itself. Companies should therefore anticipate potential litigation by crafting narrowly focused proposals, maintaining robust reasonable‑basis analyses, and preparing for the possibility of preliminary injunction challenges as the proxy season progresses.