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This "Appeal" Of Whole Foods' No-Action Letter Isn't Very Appealing

Last week, James McRitchie submitted an "appeal" of the staff's grant of no-action advice to Whole Foods Market, Inc.  As explained in this post by Broc Romanek, Whole Foods was able to obtain that staff's concurrence in excluding Mr. McRitchie's proposal in favor of its own.

I've typed "appeal" in quotes because there really is no appellate process for no-action letters issued under Rule 14a-8.  The no-action letter process is not an adversary proceeding and the SEC requires no shareholder response to a Company's request.  Even should a shareholder provide his views to the staff, this does not derogate from the informal nature of the process:

Although Rule 14a-8(k) does not require any communications from shareholders to the Commission's staff, the staff will always consider information concerning alleged violations of the statutes administered by the Commission, including argument as to whether or not activities proposed to be taken would be violative of the statute or rule involved.  The receipt by the staff of such information, however, should not be construed as changing the staff's informal procedures and proxy review into a formal or adversary procedure.

Division of Corporation Finance Informal Procedures Governing Shareholder Proposals.

Mr. McRitchie's "appeal", however, is not without precedent.  After the staff issued favorable no-action advice to Brown Group, Inc., the proponent, a union, wrote to the SEC Chairman seeking review.  After receiving a response from the company, the SEC's secretary sent the the union a letter stating: "The Commission has affirmed the Division's position that the proposal may be excluded from the Company's proxy material in reliance upon rule 14a-8(c)(7)."  The union then sought review in the U.S. Court of Appeals.  The Second Circuit Court of Appeals, however, declined to address the merits of the union's case because it concluded that it lacked jurisdiction to review the SEC's letter affirming the staff's position.  Amalgamated Clothing & Textile Workers Union v. SEC, 15 F.3d 254 (2d Cir. 1994).

There are three possible outcomes to Mr. McRitchie's "appeal", none of which would necessarily result in inclusion of his proposal in Whole Foods' proxy statement.  First, the SEC could simply decline to review the staff's determination.  In that case, Mr. McRitchie would be unable to seek review of the staff's determination in federal courts.  Kixmiller v. SEC, 492 F.2d 641, 644 (D.C. Cir. 1974).  Second, the SEC could affirm the staff's position.  In that case, there would still be no "order" for the courts to review.  ACTWU, 15 F.3d at 257.  Finally, the SEC could reject the staff's position.  However, even in that case, the determination would not be binding on Mr. McRitchie, Whole Foods or even the SEC itself.  Id.  See also Missud v. SEC, 2012 U.S. Dist. LEXIS 99178 (N.D. Cal. July 17, 2012).

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