Jocelyn Near

The U.S. Court of Appeals for the D.C. Circuit on July 1, 2025, affirmed the district court’s grant of summary judgment to Institutional Shareholder Services Inc., finding that the U.S. Securities and Exchange Commission (SEC)'s expanded definition of “solicit” and “solicitation” went beyond the meaning contemplated by Congress in enacting Section 14(a) of the Securities Exchange Act of 1934 (Exchange Act).^[1]

Background

Section 14(a) of the Exchange Act prohibits “any person ... in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors, to solicit ... any proxy” regarding registered securities. Though Congress did not define “solicit” in the Exchange Act, prior to the 2020 rule, the SEC had described “solicit” and “solicitation” to include any “communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.”

In 2020, the SEC amended its rules regulating proxy voting advice, defining “solicit” and “solicitation” as:

[a]ny proxy voting advice that makes a recommendation to a security holder as to its vote, consent, or authorization on a specific matter for which security holder approval is solicited, and that is furnished by a person that markets its expertise as a provider of such proxy voting advice, separately from other forms of investment advice, and sells such proxy voting advice for a fee.

The 2020 rule meant that proxy advisory firms had to file their proxy recommendations with the SEC as proxy solicitations, unless the firm: (1) disclosed conflicts of interest and steps taken to address such conflicts; (2) adopted procedures to make their proxy advice available to the companies that are the target of that advice at least by the time the advice is disseminated to the adviser’s clients; and (3) established a mechanism to inform clients of the company’s response to the firm’s advice before the applicable shareholder meeting (“notice and awareness conditions”).

D.C. Circuit Rejects SEC’s Definition

The court held that the SEC’s definition was inconsistent with the meaning of “solicit” as Congress would have understood it to mean when adopting the Exchange Act. Specifically, the court stated that contemporaneous dictionaries suggest that “to solicit” and “solicitation” entail seeking to persuade another to take a specific action. The court stated that, while it may be reasonable to say that a client (i.e., institutional investor) “solicits” a proxy advisory firm’s recommendation on how to vote, when the proxy advisory firm provides that recommendation, it has not “solicited” the client’s vote. As such, the court stated that the SEC’s definition was inconsistent with Section 14(a) of the Exchange Act.