Two federal district courts have ruled in favor of shareholder John Chevedden in actions brought against him by reporting companies. In each case, the court dismissed a claim for declaratory relief stating the plaintiff reporting company may exclude Chevedden's Rule 14a-8 shareholder proposal from the company's 2014 proxy materials.

On March 11, 2014, the US District Court for the Southern District of New York (SDNY), in Omnicom Group, Inc. v. Chevedden, issued a memorandum and order granting Chevedden's motion to dismiss Omnicom's complaint against him for lack of subject matter jurisdiction. The SDNY did not address the substance of Chevedden's proposal (a novel proposal to prohibit Omnicom from obtaining interim votes during proxy solicitation). Instead, the court found that no justiciable case or controversy was presented because Omnicom does not face imminent injury as a result of excluding the Chevedden proposal from its proxy materials. The court noted the following facts:

On March 7, 2014, the US District Court for the District of Massachusetts, in EMC Corporation v. Chevedden, et al, issued an order granting Chevedden's motion to dismiss EMC's similar action for a declaratory judgment or an injunction. EMC sought no-action relief from the SEC staff stating it would not recommend enforcement action against EMC if the company excluded Chevedden's proposal (requesting EMC elect an independent board chairman). After the SEC staff declined to provide this relief, EMC filed suit claiming additional violations of Rule 14a-8 not raised in its no-action request.

As in Omnicom, the EMC court did not address the substance of Chevedden's proposal. A court transcript suggests the court's decision was based in part on the fact that a declaratory judgment in this action would not protect the company from legal action by non-parties to the action, including other shareholders or the SEC. The transcript also indicates the court expressed concern about encouraging companies to use the courts, as opposed to the no-action process, to settle issues regarding exclusion of Rule 14a-8 shareholder proposals.

Chevedden's shareholder proposals have been the subject of numerous lawsuits and courts have recently ruled against him. Last month, the US District Court for the Eastern District of Missouri granted a company's motion to exclude Chevedden's shareholder proposal on the grounds that the supporting statement included material misstatements and was not in compliance with SEC rules and regulations (see Legal Update, Express Scripts v. Chevedden: Missouri District Court Excludes Shareholder Proposal on Basis of Material Misstatements).

Update: On March 16, 2014, the US District Court for the District of Massachusetts released a memorandum and order in EMC Corporation v. Chevedden, et al.

For more information on shareholder proposals under Rule 14a-8, see Practice Note, How to Handle Shareholder Proposals and Rule 14a-8 Shareholder Proposal Process Flowchart.