SEC Sued Over Rescission of 2020 Rule on Proxy Voting Advice

The National Association of Manufacturers and the Natural Gas Services Group, Inc. ("the plaintiffs") filed a Complaint for Declaratory and Injunctive Relief against the SEC for rescinding its 2020 rulemaking governing proxy voting advice.

In the Complaint, filed in the United States District Court for the Western District of Texas, the plaintiffs alleged that the SEC's decision to rescind the 2020 rulemaking that implemented "basic safeguards" with respect to proxy voting advice was both procedurally defective and arbitrary and capricious, and must be set aside under the Administrative Procedure Act. The plaintiffs asserted that the decision (i) failed to provide a rational connection between the facts found and the decision made, (ii) failed to consider important problems facing shareholders, (iii) offered an explanation of facts contrary to previous SEC positions and (iv) "[was] the result of a preordained conclusion rather than agency 'open-minded[ness.]'"

The plaintiffs warned that removing the safeguards set forth in the 2020 rulemaking may allow for unnecessary influence over voting decisions by proxy advisory firms that may not consider the best interests of shareholders. Plaintiffs alleged that the SEC "has articulated no explanation for the very cornerstone of its action[,]" or how the rulemaking could affect "the independence and timeliness of proxy voting advice[,]" which was the agency's main justification for suspending, and eventually rescinding, the rule. The plaintiffs further alleged that the SEC provided an insufficient period for feedback, given that the 31-day comment period included the 2021 holiday season.

The plaintiffs requested relief in the form of (i) suspension of the 2022 rescission in its entirety, (ii) a declaratory judgement deeming the rescission as unlawful, (iii) enjoinment of the SEC from carrying out the 2022 rescission and (iv) repayment of attorney fees and any other interim relief.