PUBLISHED:April 02, 2013

Martinez ’13, Community Enterprise Clinic, help client prevail before SEC in shareholder advocacy initiative

Elizabeth Martinez ’13

Duke Law School’s Community Enterprise Clinic has helped a client achieve two significant successes related to the way in which major banks are handling home foreclosures, particularly in low-income and minority neighborhoods.  The clinic assisted the Neighborhood Economic Development Advocacy Project (NEDAP), a New York City-based economic justice organization which owns stock in Wells Fargo and Bank of America, in developing two shareholder proposals that it sought to have included in each bank’s annual proxy statement.  When the banks tried to block the proposals’ inclusion under a process involving the Securities and Exchange Commission (SEC), advanced clinic student Elizabeth Martinez ’13 provided research and advocacy support to NEDAP in crafting its response and counter-arguments.  In mid-March, NEDAP learned that it prevailed before the SEC. 

“The clinic first helped us in formulating the resolutions and in ensuring they had the maximum chance of passing muster with the SEC,” said NEDAP Co-director Josh Zinner, explaining that the shareholder proposals asked for independent auditors to investigate and report on whether the companies’ mortgage servicing practices in low-income communities and communities of color violate fair housing and fair lending laws. He described the clinic’s work as “invaluable” in the SEC process that followed when the banks asked the SEC to take no action against them if they excluded NEDAP’s resolutions from their proxy statements – thus initiating a “no-action letter” process.  While the banks argued that the conduct of internal investigations and audits is an “ordinary” business practice best left to their boards of directors, NEDAP argued, with the clinic’s help, that the practices also raise social policy issues of such fundamental importance as to be of concern to shareholders.

“Elizabeth Martinez was great,” said Zinner.  “She did really high-level work, supervised by [clinic faculty members] Andrew Foster and Jeff Ward.  They did excellent drafts of our letters making counterarguments to the banks’ no-action requests and to their letters of response to ours.” 

The SEC’s ruling ensured that NEDAP’s shareholder proposals will appear on the banks’ proxy statements, giving the organization a broad-based platform for policy advocacy, said Zinner.

“Shareholder advocacy is one tool in a broader strategy to try to hold banks and financial services companies accountable for the impact of their practices on low-income communities and communities of color.  It’s an important tool, because it gives us a platform to pose questions to the CEO and Board of Directors, with media present, about the impact of the banks’ mortgage servicing practices on communities of color.  We have a lot of concern, shared by groups we work with around the city, state, and nation, that Wells Fargo may be violating fair lending and fair housing laws and failing communities through its servicing practices. There is a lot at stake here, because people continue to lose their homes due to abusive practices by mortgage servicers.  So our intention in bringing the resolution is to raise the profile of these concerns as they relate to Wells Fargo and to try to push the company to do better.”

Taking the lead

For Martinez, who handled transactional matters in the Community Enterprise Clinic in the fall semester, taking on NEDAP’s shareholder advocacy action as an advanced student represented a chance to hone skills that she will need when she joins the corporate practice of White & Case in New York after her graduation.

“Given that the work I’m going to be doing in practice is likely to involve communications with the SEC, I wanted to get some experience in that regard,” she said.  She relished the level of responsibility she was given on the matter.  It was a complex task, Martinez said, requiring her to research the body of federal no-action letter law to make the case that NEDAP’s proposal addressed a matter of fundamental social policy and thus was an appropriate matter for shareholder involvement.  She also led conference calls and strategy sessions with the client and her clinic supervisors. 

“I enjoyed being a part of the whole process, from the preliminary discussions, to the drafting of documents, and all the way through to the resolution of the case in our favor,” said Martinez, who devoted more than 75 hours to the matter in a four-week period in order to meet the tight deadlines demanded by the no-action letter process, working closely with NEDAP’s Zinner throughout.  “It was certainly a lesson in flexibility as I had to repeatedly adjust my schedule to help our clients meet tight deadlines.  I also believe the experience provided an excellent opportunity to enhance my client relations skills and fine-tune communication and other professionalism skills in interacting with our clients, my supervisors, and the SEC staff – all of which will be very useful in future practice.

“It was also interesting to be involved in policy issues on such a broad scale,” she added.  “It was a little more ‘big picture’ than some of the client-specific work that I’ve previously done through the clinic. Using legal analysis to advance social policy is fascinating in terms of its potential impact on so many people.”

Clinical Professor Foster, director of the clinic, had high praise for Martinez’ efforts in the no-action letter process.  “She shepherded it all through,” he said.  

“The goal with all clinic students is to work with them as colleagues, and this objective is most fully realized with an advanced clinic student,” Foster added.  Elizabeth had already built her skills through the traditional curriculum and through her participation in the clinic.  She picks things up quickly and is an excellent writer, so on this case, we were really interacting with her as peers.”

An opportunity for policy development

NEDAP’s Zinner connected with the Duke Law clinic through a partner organization in North Carolina that has been a longtime client, working with students on transactional matters – the vast majority of the clinic’s work – and with Foster on shareholder advocacy.  “We saw the clinic as our legal experts on this,” Zinner said.  Foster, who also directs Duke Law’s clinical program, said that in addition to helping a student develop advocacy skills, the initiative offered the clinic an opportunity to engage in policy development – a natural extension of its broader client work. 

“Institutional advocacy and policy-oriented work grows out of the direct service that we’re doing with organizations that are dealing with communities with high foreclosure rates,” he said.  “When you do that work, you learn more about the underlying realities on the ground, and you start to seek systemic change.”  During the financial crisis, he noted, the work of helping communities build wealth also has involved helping communities find strategies to protect wealth.  The foreclosure crisis has contributed to the dramatic depletion of both individual household and community wealth, he said. 

“All of our clinics are increasingly starting to look at ways of initiating systemic change through policy advocacy, whether it is public policy or, as in this case,  private-sector policy.  It reflects a new level of maturity of our clinical program,” he said.  “We have been doing our direct service work for a long time and have a good sense how you need to take what you’ve learned there and move up to the next level where you can promote systemic change, and how to involve students in that work.  An advanced clinic offers one way to do that; a policy clinic – like our Environmental Law & Policy Clinic and our AIDS Policy Clinic is another way; and having faculty members take the lead is another, as [Children’s Law Clinic Director] Jane Wettach did in helping rewrite North Carolina’s school discipline statute and engaging students in the initiative.

“In addition to helping NEDAP secure an important victory, an exciting part of this to me is how this case fits into the broader development of our clinics around doing more policy work,” he said.