Company Name: Pulte Homes, Inc.
Public Availability Date: February 4, 2008Document Sections:
INQUIRY LETTER
APPENDIX 1
STAFF REPLY LETTER
[INQUIRY LETTER]
December 28, 2007
By Federal Express
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of General Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Omission of Shareholder Proposal Submitted by the Amalgamated Bank LongView
Collective Investment Fund to Pulte Homes, Inc.
Ladies and Gentlemen:
We are counsel to Pulte Homes, Inc. ("Pulte" or the "Company") and, on behalf of
Pulte, we respectfully request that the staff of the Division of Corporation
Finance (the "Staff") concur that it will not recommend enforcement action if
Pulte omits a shareholder proposal and supporting statement (the "Proposal")
submitted by the Amalgamated Bank LongView Collective Investment Fund (the
"Proponent"). The Proponent seeks to include the Proposal in Pulte's proxy
materials for the 2008 annual meeting of shareholders (the "2008 Proxy"). The
Proposal requests Pulte to establish a new Compliance Committee that would
conduct a review of the Company's regulatory, litigation and compliance risks
with respect to its mortgage lending operations and report to shareholders on
the committee's findings.
Pulte received the Proponent's Proposal dated December 3, 2007. Pursuant to Rule
14a-8(j), Pulte is submitting six paper copies of the Proposal and an
explanation as to why Pulte believes that it may exclude the Proposal. A copy is
being submitted to the Proponent simultaneously. For your review, we have
attached a copy of the Proposal as Appendix A. Pulte appreciates the Staff's
consideration and time spent reviewing this no action request.
For purposes of our discussion, a key portion of the Proposal reads as follows:
RESOLVED:
The shareholders of Pulte Homes, Inc. ("Pulte" or the "Company") request that
the board of directors establish a new Compliance Committee, to be composed of
independent directors, that would conduct a thorough review of the Company's
regulatory, litigation and compliance risks with respect to its mortgage lending
operations and report to shareholders within six months of the 2008 annual
meeting as to the committee's findings and recommendations, as well as the
progress made towards implementing those recommendations. This report should be
prepared at reasonable cost and may omit confidential information.
As described below, the Company believes that the Proposal may be omitted
because (i) it relates to the Company's ordinary business operations and (ii) it
has been substantially implemented.
I. The Proposal Relates to Ordinary Business
OperationsRule 14a-8(i)(7).
The Company believes that the Proposal may be omitted under Rule 14a-8(i)(7) as
relating to Pulte's ordinary business operations for two reasons. First, the
Proposal asks Pulte, by establishing a new committee that would report to
shareholders, to provide shareholders the authority to step into the shoes of
management in order to evaluate the regulatory, litigation and compliance risks
of the Company's current mortgage lending operations. Second, the Proposal calls
on Pulte to supplant management's ordinary business judgment by allowing
participation by the Company's shareholders in the process of evaluating the
progress made in implementing recommendations with respect to such regulatory,
litigation and compliance risks relating to the Company's mortgage lending
operations.
The Proposal asks the Company to form a Compliance Committee of the Board of
Directors and produce a risk assessment report concerning its mortgage lending
operations and related regulatory, litigation and compliance risks to the
Company. Moreover, the Proposal focuses specifically on regulatory, litigation
and compliance risks to the Company's position by stating that damage to
long-term shareholder value may occur if the Company does not address these
risks.
The Staff has previously adopted the position with respect to energy efficiency
and public health issues that shareholder proposals relating to internal
assessments of risks or liabilities relating to operations that may adversely
affect the environment or the public's health are properly excludable under rule
14a-8(i)(7). In Staff Legal Bulletin No. 14C ("SLB 14C"), published on June 28,
2005, the Staff set forth guidelines for companies seeking to preserve their own
managements' ability to continue to make decisions affecting day-to-day
operations.
In pertinent part, Section D.2. of SLB 14C states:
To the extent that a proposal and supporting statement focus on the company
engaging in an internal assessment of the risks or liabilities that the company
faces as a result of its operations that may adversely affect the environment or
the public's health, we concur with the company's view that there is a basis for
it to exclude the proposal under rule 14a-8(i)(7) as relating to an evaluation
of risk.
Our understanding of the foregoing paragraph is that a proposal letter that
focuses solely on the ordinary business matters of a company (including the
assessment of risks facing the company from various business decisions) is
excludable, notwithstanding the fact that the proposal also addresses
significant energy efficiency or public health issues. Moreover, the Staff has
adopted a similar position with respect to shareholder proposals requesting a
risk assessment report on company activities outside the context of energy
efficiency and public health issues. See, e.g., Dean Foods Co. (Mar. 9, 2007)
(granting relief to exclude under Rule 14a-8(i)(7) a proposal requesting that an
independent committee of the board of directors review the company's policies
and procedures with respect to the company's organic dairy products and report
to shareholders on the adequacy of such policies and procedures to protect the
company's reputation and address consumer and media criticism of the company's
production and sourcing practices); Abbott Laboratories (Mar. 9, 2006) (granting
relief to exclude under Rule 14a-8(i)(7) a proposal requesting a report on the
economic impact of the HIV/AIDS, tuberculosis and malaria pandemics on the
company); Newmont Mining Corp. (Jan. 12, 2006) (granting relief to exclude under
Rule 14a-8(i)(7) a proposal requesting a report on the company's existing
Indonesian operations which were the subject of a criminal prosecution,
including associated financial and reputational risks); and Cinergy Corp. (Feb.
5, 2003) (granting relief to exclude under Rule 14a-8(i)(7) a proposal
requesting a report on economic risks caused by the company's operations).
In our judgment, the Staff's reasoning in granting no-action relief in the
aforementioned letters is equally applicable to the Proposal and the Proposal is
excludable because it focuses solely on the Company's mortgage lending
operations, which are part of its ordinary business operations, and the
assessment of risks facing the Company from various business judgments with
respect to such operations. The Proposal requests the Company to "conduct a
thorough review of the Company's regulatory, litigation and compliance risks"
and the supporting statement clearly indicates that the reason to do so is to
avoid or mitigate "the conflict of interest that may occur if a home builder's
mortgage affiliate issues mortgages to home buyers who may not be able to repay
their obligations." The supporting statement further states, "Given the current
public scrutiny of homebuilders and their business practices, we believe that it
is important for a new board committee to undertake a thorough investigation of
the Company's practices in this area and to avoid or mitigate any conflicts that
might arise." Moreover, the supporting statement expresses concern about "the
damage to long-term shareholder value that can result from litigation,
regulatory costs and reputational injury." All of these items clearly indicate a
focus on the Company's internal risks as opposed to an overall social policy
issue. These clearly are matters of business judgment.
Even before the issuance of SLB 14C, the Staff had granted no action relief
under Rule 14a-8(i)(7) in cases where a proponent requested an evaluation of
risk from a company. In one such no action request, Willamette Industries, Inc.
(Mar. 20, 2001), the Staff granted no action relief under Rule 14a-8(i)(7) where
the proponent requested that an independent committee of the board prepare a
report on the company's environmental problems and efforts to resolve them,
including an assessment of financial risk due to environmental issues. In the
Willamette letter, the company argued that compliance with federal, state and
local environmental laws and regulations was a matter that related to ordinary
business operations. The company also highlighted that such a report would
interfere with its day-to-day operations. Similarly, the Proposal at issue here
references existing state and federal laws affecting home builders and mortgage
originators as well as the possibility of new regulations. Like the proposal in
Willamette, the business judgment exercised by Pulte concerning regulatory risk
is inappropriate for consideration by Pulte's shareholders as a group.
Finally, Pulte believes the Proposal is distinguishable from the proposal in
Beazer Homes USA, Inc. (Nov. 30, 2007), where the Staff recently denied
no-action relief. The proposal in Beazer requested disclosure relating to the
company's mortgage practices to supplement the disclosure already made available
by the Company in its publicly-filed financial statements, including the
company's "potential losses or liabilities relating to its mortgage operations,"
and an analysis of the company's mortgage originations by specific type of
mortgage, the geographic markets that are most reliant upon specific types of
mortgages and the number of non-performing loans the company expects it will
have to repurchase during the current and upcoming fiscal year, among other
metrics. In contrast to the proposal in Beazer, the Proposal does not request
additional specific disclosures about Pulte's mortgage lending operations and
portfolio, but instead focuses on internal risk analysis relating to the
Company's mortgage lending operations, which, as discussed below, the Staff has
on numerous occasions found to relate to the Company's ordinary business
operations and be excludable pursuant to Rule 14a-8(i)(7). Additionally, certain
unique circumstances that are applicable to Beazer, cited by the proponent as
"extraordinary challenges" facing Beazer, including the internal investigation
being conducted by Beazer's Audit Committee and independent legal counsel, the
late filing of Beazer's quarterly report, the necessity of a restatement of its
recent financial statements and the allegations of federal securities law
violations, among other things, are not at all applicable to Pulte. There are no
"extraordinary challenges" in Pulte's case that would warrant characterizing a
proposal that relates to ordinary business operations as transcending day-to-day
business matters.
Based on the foregoing, Pulte respectfully urges the Staff to concur that the
Proponent's mortgage lending risk assessment proposal may be excluded.
II. The Proposal Falls Within the Staff's Precedent,
as a Proposal Which May be Omitted Because it Has Been Substantially
Implemented.
Rule 14a-8(i)(10) permits exclusion of a shareholder proposal "if the company
has already substantially implemented the proposal." According to the Securities
and Exchange Commission, the exclusion provided in Rule 14a-8(i)(10) "is
designed to avoid the possibility of shareholders having to consider matters
which have already been favorably acted upon by the management." See Exchange
Act Release No. 12598 (Jul. 7, 1976).
When a company can demonstrate that it has already adopted policies or taken
actions to address each element of a shareholder proposal, the Staff has
concurred that the proposal has been "substantially implemented" and may be
excluded as moot. See, e.g., Nordstrom Inc. (Feb. 8, 1995) (proposal that the
company commit to a code of conduct for its overseas suppliers that was
substantially covered by existing company guidelines was excludable as moot).
See also The Gap, Inc. (Mar. 8, 1996). The "substantially implemented" standard
replaced the predecessor rule allowing omission of a proposal that was "moot,"
and reflects the Staff's interpretation of the predecessor rule that the
proposal need not be "fully effected" by the company to meet the mootness test,
so long as it was substantially implemented. See Exchange Act Release No.
34-20091 (Aug. 16, 1983).
The Company believes that the Proposal has been substantially implemented and
that it may properly omit the Proposal from its Proxy Statement in accordance
with Rule 14a-8(i)(10). The Proposal calls for the Company to establish a new
Compliance Committee to review the Company's regulatory, litigation and
compliance risks with respect to its mortgage lending operations and report to
shareholders as to the committee's findings. Pulte believes the Proposal to be
substantially implemented based on Pulte's existing processes for establishing
policies and procedures with respect to the Company's mortgage lending
operations, which processes have been carefully developed by the Company under
the supervision of its Board of Directors. Pulte's subsidiary, Pulte Mortgage
LLC ("Pulte Mortgage"), has a dedicated legal and compliance department, which
establishes policies and procedures governing the Company's mortgage lending
operations, including policies and procedures relating to loan terms and
underwriting standards and the evaluation and mitigation of risks associated
with the Company's mortgage lending operations. Compliance with these policies
and procedures is regularly audited by internal and external teams and audit
results are reported to and overseen by various committees comprised of senior
Company officers, including the Company's Chief Financial Officer. Additionally,
the Company's Board of Directors, including its outside directors, already
reviews, as it deems appropriate, Pulte Mortgage's policies and procedures and
the results of compliance audits. Based on these existing processes, policies
and procedures, together with the Board of Directors' oversight, the Company
believes the Proposal has been substantially implemented.
Moreover, the Proposal specifically focuses on "the conflict of interest that
may occur if a home builder's mortgage affiliate issues mortgages to home buyers
who may not be able to repay their obligations." Higher risk loans made to
borrowers with problematic credit histories or limited ability to repay, often
referred to as "sub-prime loans," have received significant media coverage and
public attention relating to the recent adverse changes in housing and mortgage
markets. Similarly, Alt-A loans are generally recognized as loans accompanied by
a higher risk of default. Sub-prime and Alt-A loans account for only a very
small portion of Pulte's lending operations, as disclosed in Pulte's recent
periodic reports filed with the Commission, due in large part to Pulte's
existing mortgage lending policies and procedures. For example, Pulte defines
sub-prime loans as first mortgages with FICO scores below 620 and Alt-A loans as
non-full documentation first mortgages with FICO scores of 620 or higher. As
disclosed in Pulte's Form 10-Q, filed with the Securities and Exchange
Commission on November 7, 2007, only approximately 4% and 11%, respectively, of
the loans the Company originated in the third quarter of 2007 were considered
sub-prime loans and Alt-A loans. Pulte believes that these figures demonstrate
that the Company has already adopted policies that address the Proposal's
concern surrounding mortgages made to borrowers who may not be able to repay
their obligations.
Staff's Response
Pursuant to Staff Legal Bulletin 14C, in order to facilitate transmission of the
Staff's response to our request during the highest volume period of the
shareholder proposal season, our facsimile number is (312) 853-7036 and the
facsimile number for the Proponent's representative is (202) 315-3552. Further,
in appreciation of the Staff's work during the height of the proxy season, we
have included photocopies of all no-action letters cited in this no action
request as Appendix B.
Based on the foregoing, the Company respectfully requests the Staff's
concurrence that the Proposal may be omitted and that it will not recommend
enforcement action if the Proposal is excluded from the 2008 Proxy.
If you have any questions or need any additional information, please contact the
undersigned. We appreciate your attention to this request.
Very truly yours,
/s/
Michael S. Sigal
cc: Mr. Cornish F. Hitchcock
Attorney at Law
1200 G. Street N.W.
Suite 800
Washington, D.C. 20005
Mr. Steven M. Cook
Vice President, General Counsel and Secretary
Pulte Homes, Inc.
100 Bloomfield Hills Parkway
Suite 300
Bloomfield Hills, Michigan 48304
[APPENDIX 1]
3 December 2007
Mr. Steven M. Cook
Corporate Secretary
Pulte Homes, Inc.
100 Bloomfield Hills Parkway, Suite 300
Bloomfield Hills, Michigan 48304
Via courier
Dear Mr. Cook:
On behalf of the Amalgamated Bank LongView Collective Investment Fund (the
"Fund"), I submit the enclosed shareholder proposal for inclusion in the proxy
statement that Pulte Homes, Inc. plans to circulate to shareholders in
anticipation of the 2008 annual meeting. The proposal is being submitted under
SEC Rule 14a-8 and relates to the composition of the board of directors.
The Fund is an S&P 500 index fund located at 275 Seventh Avenue, New York, N.Y.
10001. The Fund has beneficially owned more than $2000 worth of Pulte Homes
common stock for more than a year. A letter confirming ownership is being
submitted under separate cover. The Fund plans to continue ownership through the
date of the 2008 annual meeting, which a representative is prepared to attend.
If you require any additional information, please let me know.
Very truly yours,
/s/
Cornish F. Hitchcock
RESOLVED: The shareholders of Pulte Homes, Inc. ("Pulte" or the "Company")
request that the board of directors establish a new Compliance Committee, to be
composed of independent directors, that would conduct a thorough review of the
Company's regulatory, litigation and compliance risks with respect to its
mortgage lending operations and report to shareholders within six months of the
2008 annual meeting as to the committee's findings and recommendations, as well
as the progress made towards implementing those recommendations. This report
should be prepared at reasonable cost and may omit confidential information.
SUPPORTING STATEMENT
The recent turmoil in the housing and mortgage markets has wiped out billions of
dollars in shareholder value at housing-related companies. During the first
eleven months of 2007, Pulte steek lost approximately 70% of its value and
performed below the S&P Homebuilding Index.
In its August 13, 2007 issue, BUSINESS WEEK suggested that certain business
practices among the nation's largest homebuilders - particularly within their
mortgage or financing affiliates - may have contributed to the recent collapse
of the mortgage and housing markets. A specific concern is the conflict of
interest that may occur if a home builder's mortgage affiliate issues mortgages
to home buyers who may not be able to repay their obligations.
Concerns about housing financing practices have prompted calls for more
regulatory and legislative action, as well as litigation. Reports in the news
media indicate an increased interest by state and federal regulators in
enforcing existing laws affecting home builders and mortgage originators, with a
possibility of new regulations. In addition, some Members of Congress have
indicated an interest in imposing a fiduciary obligation on originators and
possibly placing non-bank lenders under federal oversight. At the state level,
legislatures in a number of states are considering measures that target
deceptive lending, foreclosure or fraud.
Litigation is also pending under the Real Estate Settlement Procedures Act, the
Truth in Lending Act, and the Home Ownership Equity Protection Act, as well as
state anti-predatory lending statues.
In October 2007 Pulte was one of six home builders who paid a total of $1.4
million to settle a federal investigation into whether those companies accepted
rebates from insurers for referrals when selling homes. Pulte has denied any
wrongdoing.
As shareholders, we are concerned about the damage to long-term share- holder
value that can result from litigation, regulatory costs and reputational injury
at companies that lack adequate compliance procedures and active oversight by
the board. Although the board currently has an Audit Committee, that committee's
focus appears to be on financial reporting. Given the current public scrutiny of
homebuilders and their business practices, we believe that it is important for a
new board committee to undertake a thorough investigation of the Company's
practices in this area and to avoid or mitigate any conflicts that might arise.
We urge you to vote FOR this proposal.
[STAFF REPLY LETTER]
February 4, 2008
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Pulte Homes, Inc. Incoming letter dated December 28, 2007
The proposal requests that the board establish a compliance committee, to be
composed of independent directors, that would conduct a thorough review of the
company's regulatory, litigation and compliance risks with respect to its
mortgage lending operations and would report to shareholders its findings and
recommendations, as well as the progress made towards implementing those
recommendations.
There appears to be some basis for your view that
Pulte Homes may exclude the proposal under rule 14a-8(i)(7), as relating to
Pulte Homes' ordinary business operations (i.e., evaluation of risk).
Accordingly, we will not recommend enforcement action to the Commission if Pulte
Homes omits the proposal from its proxy materials in reliance on rule
14a-8(i)(7). In reaching this position, we have not found it necessary to
address the alternative basis for omission upon which Pulte Homes relies.
Sincerely,
/s/
Greg Belliston
Special Counsel
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