In Battle Over Proxy Rules, Appeals Court Rules in US SEC’s Favor

By Douglas Gillison

(Reuters) – A federal appeals court on Tuesday ruled in favor of Wall Street’s chief regulator in a split decision, finding that the agency had the right to overturn parts of a Trump-era rule governing proxy advisors.

The ruling by the U.S. Court of Appeals for the Sixth Circuit marks a defeat for the U.S. Chamber of Commerce, the Business Roundtable and the Tennessee Chamber of Commerce and Industry, which filed the lawsuit in 2022.

The legal battle has underscored long-standing tensions between corporations and proxy advisers, who help investors make voting decisions in corporate elections and who companies say have amassed too much power.

An SEC spokesman said the agency welcomed the news.

“We are still reviewing this decision, but the Commission is pleased that the Sixth Circuit confirmed that the regulations issued by the Commission were consistent with its legal obligations,” the spokesperson said.

However, the U.S. Chamber of Commerce said it is considering further steps.

“We continue to consider all legal options to challenge the SEC’s unlawful withdrawal” of proxy rules, the spokesman said.

In 2022, the SEC revoked exemptions put in place by former President Donald Trump’s administration that required proxy firms to review the advice they intended to provide to investors in advance and to provide their clients with an opportunity to review the firms’ potential response.

Critics have said the requirements would undermine the independence of attorneys’ offices and President Joe Biden’s administration has blocked them from taking effect.

On Tuesday, U.S. District Court Judge Julia Gibbons, representing the majority, upheld an April 2023 lower court decision that found the SEC acted within the bounds of administrative procedure law in lifting the requirements.

The agency provided reasons for the policy change, and its “thoughtful and detailed explanation of those considerations is hardly arbitrary or capricious,” it wrote.

In a separate opinion, District Judge John Bush found that, to the contrary, the SEC was legally required to provide more time for public comment and “failed to adequately assess the costs and benefits of its drastic policy change.”

Representatives from the Business Roundtable and the Tennessee Chamber of Commerce and Industry did not immediately respond to requests for comment.

(Reporting by Douglas Gillison; Editing by Stephen Coates)