On August 29, 2025, Judge Albright of the U.S. District Court for the Western District of Texas entered preliminary injunctions against Texas Senate Bill 2337 (SB 2337) in two lawsuits challenging the law—Institutional Shareholder Services Inc. v. Paxton and Glass, Lewis & Co., LLC v. Paxton. The court’s rulings block enforcement of SB 2337 by the Texas attorney general against Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co., LLC (Glass Lewis) while the cases proceed to discovery and trial, which the court set for February 2, 2026. While the injunctions technically only apply to ISS and Glass Lewis, their market dominance in proxy advisory services renders the injunctions functionally dispositive of the Texas attorney general’s near-term ability to enforce SB 2337. However, the preliminary injunctions do not bar enforcement actions by private plaintiffs.

Overview of SB 2337

SB 2337, which took effect on September 1, 2025, imposes extensive public and directed disclosure obligations on proxy advisory firms when (1) their services or recommendations are not provided solely in the financial interest of equityholders of relevant companies, including advice wholly or partly based on environmental, social, and governance (ESG) or diversity, equity, and inclusion (DEI) considerations,[1] or (2) they provide “materially different” recommendations, with “materially different” being defined to include advising clients to vote contrary to management’s recommendations. SB 2337 applies to proposals presented to shareholders of publicly traded for-profit corporations, partnerships, and limited liability companies headquartered or domiciled in Texas or considering redomiciling in Texas. A violation of the law constitutes a deceptive trade practice under the Texas Deceptive Trade Practices-Consumer Protection Act and is actionable by the applicable company, its equityholders, the proxy advisor’s clients, and the Texas attorney general. For a discussion of SB 2337, please see prior GT Alert.

The Parties’ Positions

ISS and Glass Lewis asserted several claims in an effort to invalidate SB 2337. ISS and Glass Lewis both argued that SB 2337:

• violates the First and Fourteenth Amendments of the U.S. Constitution through compelled speech, content-based regulation of speech, and viewpoint discrimination by forcing proxy advisors to state that recommendations that are inconsistent with management’s proposals (or that incorporate DEI or ESG considerations) are not in shareholders’ financial interest;
• is unconstitutionally vague due to use of ambiguous terms, like “DEI,” “ESG,” “financial interest,” and “nonfinancial factors”; and
• violates the Dormant Commerce Clause by regulating speech of out-of-state advisors to out-of-state clients when the subject company is domiciled or headquartered in, or intends to redomicile in, Texas.

In addition, ISS argued that SB 2337 is expressly preempted by the Investment Advisers Act of 1940, and Glass Lewis argued that it is expressly preempted by the Employee Retirement Income Security Act of 1974.

Texas Attorney General Ken Paxton moved to dismiss both complaints, arguing that:

• sovereign immunity bars the suits;
• ISS and Glass Lewis lack standing because SB 2337 has not yet been enforced;
• SB 2337 is not vague and only requires factual disclosures (similar to other securities law disclosure requirements);
• proxy advisor speech is commercial in nature and, accordingly, is subject only to rational basis or intermediate scrutiny; and
• problematic provisions within SB 2337, if any, can be severed, leaving the statute largely unaltered.

On August 25, 2025, the Texas Stock Exchange (TXSE) and the Texas Association of Business (TAB) jointly intervened as defendants in the cases, arguing that (1) they have a private right of action under SB 2337, (2) they have direct and protectable interests at stake, given their representation of Texas companies (which have an interest in limiting “misleading proxy advice”), and (3) their interests diverge from those of the Texas attorney general, who may not need to defend the law on the merits. The Alliance for Corporate Excellence filed amicus briefs in both cases, generally supporting SB 2337 and characterizing it as a needed transparency requirement in a concentrated industry, rather than a speech restriction.

The Order

At the end of the hearing, the court ruled that ISS and Glass Lewis had met the standard for issuance of preliminary injunctions, citing potential harm and the likelihood of success on the merits, and, therefore, enjoined “Attorney General Paxton and his agents, employees, and all persons acting under his direction or control from taking any action to enforce S.B. 2337 against [ISS and Glass Lewis], including . . . intervention in any private right of action.” While the court issued the preliminary injunctions only with respect to ISS and Glass Lewis, which account for substantially all proxy advisory services in the U.S., the order technically is persuasive—albeit non-binding—authority for any other proxy advisor seeking to enjoin enforcement of SB 2337 against it by the Texas attorney general. Judge Albright is expected to issue a written order memorializing the rulings and setting forth his reasoning. The Texas attorney general has the option of appealing to the Fifth Circuit for an emergency stay of the injunctions while litigation proceeds on the merit.

[1] Under § 6A.101(a) of the Texas Business Organizations Code, a proxy advisory service also will not be considered provided solely in the financial interest of the shareholders of a company if the service (a) is based on “a social credit or sustainability factor or score,” (b) “is inconsistent with the voting recommendation of the board of directors or a board committee composed of a majority of independent directors” and “does not include a written economic analysis of the financial impact on shareholders of the proposal,” (c) “is not based solely on financial factors and subordinates the financial interests of shareholders to other objectives” or (d) “advises against a company proposal to elect a governing person unless the proxy advisor affirmatively states that the proxy advisory service solely considered the financial interest of the shareholders in making such advice.” (c) “is not based solely on financial factors and subordinates the financial interests of shareholders to other objectives” or (d) “advises against a company proposal to elect a governing person unless the proxy advisor affirmatively states that the proxy advisory service solely considered the financial interest of the shareholders in making such advice.”