## Facts

- A shareholder group acquired a small number of shares in a chemical company and submitted a shareholder proposal for inclusion in the company’s proxy materials.
- The proposal asked shareholders to request that the board adopt a policy limiting sales of napalm unless the buyer assured it would not be used on or against human beings.
- The company sought to omit the proposal under SEC Rule 14a-8, asserting two exclusions: (1) proposals primarily promoting political or social causes; and (2) proposals relating to ordinary business operations.
- SEC staff issued a no-action position stating it would not recommend enforcement if the company omitted the proposal.
- The shareholder group requested Commission-level review; the Commission upheld the staff position without issuing a substantive explanation or articulated findings.

## Issues

1. Whether the Commission’s approval of the staff no-action position permitting omission of a Rule 14a-8 proposal constitutes reviewable “final agency action” under the Securities Exchange Act’s judicial review provision.
2. Whether the Commission acted lawfully and non-arbitrarily by allowing omission of the proposal without an articulated rationale applying Rule 14a-8 consistently with the purposes of Exchange Act § 14(a).

## Decision

- The court held the Commission’s determination was reviewable as final agency action.
- The court rejected the view that the agency could avoid review because the decision was expressed through a staff no-action posture later sustained by the Commission.
- The court remanded to the Commission for further proceedings.
- The court did not order inclusion of the proposal; instead, it required the Commission to explain its decision and apply discernible standards tied to § 14(a).

## Legal Principles

- Agency action is reviewable when it has direct legal and practical consequences, including when it effectively authorizes regulated conduct by removing the threat of enforcement.
- The Exchange Act’s review provision for Commission “orders” is construed to reach definitive Commission determinations in the proxy-rule context, even if the agency acts through an informal procedural vehicle.
- The Commission must provide a reasoned explanation sufficient to permit judicial review when applying Rule 14a-8 exclusions, particularly where the decision affects shareholder participation in the proxy process.
- Rule 14a-8 exclusions (including “ordinary business” and “political or social cause”) must be applied in a manner consistent with § 14(a)’s objectives of fair corporate suffrage and informed shareholder decision-making.
- Courts may remand where the agency fails to articulate standards, make findings, or provide an adequate rationale, because unexplained action prevents assessment of whether relevant factors were considered.

## Conclusion

The court treated the Commission’s endorsement of a no-action position allowing omission of a shareholder proposal as reviewable final action, and it remanded because the Commission failed to give a reasoned explanation demonstrating that its application of Rule 14a-8 exclusions aligned with the purposes of Exchange Act § 14(a).


Med. Comm. for Hum. Rts. v. Sec. & Exch. Comm’n, 432 F.2d 659 (D.C. Cir. 1970)