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For several decades, institutional stockholders and wealthy investors have used their position as stockholders in public companies to change corporate behavior by proposing resolutions for consideration at the meetings of such companies. Under corporate and securities laws, a company is required to include a “stockholder resolution” on the proxy statement that it sends to its stockholders in advance of a stockholders’ meeting if the resolution meets certain complex and technical legal requirements. Stockholder advocates have successfully used this process to secure significant changes in corporate governance and to promote greater social responsibility by targeted companies on a variety of issues ranging from excessive CEO pay to labor rights.

Across the nation, religious organizations and nonprofit groups are beginning to use stockholder resolutions to push for improvement in corporate practices around matters such as economic justice, tolerance of diversity and improved environmental practices. However, many such groups lack access to the legal representation needed to ensure that their resolutions comply with applicable laws and regulation and can get on the proxy. In North Carolina, the Duke Law School Community Enterprise Clinic (the “Clinic”) is providing these legal services to one nonprofit, t he Community Reinvestment Association of North Carolina (“CRA-NC”), so that it can use stockholder advocacy techniques to challenge predatory lending practices in the state and throughout the country. Most recently, the Clinic represented CRA-NC in connection with a successful stockholder advocacy campaign that targeted ACE Cash Express, Inc. (“ACE ”).

Predatory lending generally refers to lending that involves inflated fees, extremely high interest rates and/or deceptive practices that prevent consumers from understand ing the terms of their loans. Predatory lending practices are often targeted at minority, elderly, low-income and other disadvantaged populations. Payday lending specifically refers to a type of short-term consumer loan product that a consumer obtains to get the money needed to tide him or her over until his or her next payday and which is secured by a post-dated check to the lender issued by the borrower. Not all short-term extensions of credit are predatory, but legitimate concerns are raised when the loan has excessive fees or interest charges (sometimes in excess of 400% annually) or is made despite the presence of state consumer protection laws intended to prohibit such lending.

ACE is a company that engaged in what CRA-NC believed to be predatory payday lending, both in North Carolina and throughout its franchise . In order to be entitled to bring a stockholder resolution addressing the practices that raised concerns for CRA-NC, it purchased ACE stock and then sought legal assistance from the Clinic. The Clinic helped CRA-NC to research, draft and submit a resolution to ACE. The resolution specifically requested that the ACE board of directors implement a policy mandating that the corporation ACE will not, directly or indirectly, engage in any short-term consumer lending that is predatory. Following negotiations between the parties , the ACE board of directors agreed to adopt the resolution in lieu of putting it to a stockholder vote .

“This was a great success for CRA-NC and, more importantly for consumers,” said Peter Skillern, CRA-NC’s Executive Director. “It also demonstrated how important it is that nonprofits that want to engage in this type of work have access to high-quality legal services of the type provided by the Duke Law School in the Clinic.”

Nora Doolin, a third-year law student currently enrolled in the Clinic, i s helping CRA-NC to research and prepare additional stockholder resolutions that will address predatory lending activities by other financial institutions. She has found that not only does her work benefit her client, but that it also aids her work in the classroom, as well as her development as a future business lawyer. “Working on a stockholder resolution helped me tremendously with my Business Associations class because I would learn something in class and be able to apply it to my work for my client . I also learned how to review the documen ts that a public company files with the SEC and I learned a lot about the particular securities law requirements that apply to stockholder resolutions. I am confident all of this will benefit me in the future. ”

Ron Aizen, another third-year law student currently enrolled in the Clinic who is also representing CRA-NC, observed that representing CRA-NC in connection with its stockholder advocacy work helped him strengthen his advocacy skills. “ In the representation of my client, I learned how to use an adversary's words to a client's advantage. In its 10-K [Annual Report] , the [target] corporation stated that there are certain litigation and regulatory risks related to the types of lending practices that CRA-NC is trying to stop. This disclosure was intended to reduce the [target] corporation’s potential liability, but I think it helps our position. By including the corporation's language in the stockholder resolution, I believe I strengthened our argument. Namely, if the corporation itself recognizes the risks, then doesn't it follow that it should end these practices? ”

The Clinic’s representation of nonprofit stockholder advocates is funded, in part, through a grant from the North Carolina Fund of the Racial Justice Collaborative. For more information about the Clinic, please contact either Andrew Foster, director, or Noemi Flores, supervising attorney, at (919) 680-2654.

About the Clinic

The Clinic, formerly the Community Economic Development Clinic, was established in July 2002 to provide legal services to non-profit organizations seeking to improve their surrounding community. In Fall 2003, the Clinic began representing low-wealth entrepreneurs in the formation, expansion and operation of small businesses that will create economic opportunities and/or provide needed community services. The Clinic, staffed by Duke Law students and faculty, operates like a small, public interest law firm. During the 2003-04 academic year, the Clinic provided more than 3,800 hours or $565,000 worth of legal services at no cost to its clients.

About CRA-NC

CRA-NC is a non-profit advocacy agency, located in Durham , whose mission is to promote and protect community wealth by changing financial institutions’ philosophy, policy and practices to better serve low-wealth communities.