Texas Attorney General Ken Paxton has launched a new lawsuit against a major proxy advisor, alleging that the firm misled clients about the basis of its voting recommendations.

The lawsuit is notably different. Rather than relying on Senate Bill 2337 (SB 2337), the state's proxy advisor disclosure law, Texas is pursuing claims under the Texas Deceptive Trade Practices Act (DTPA), arguing that the firm's representations about the independence and objectivity of its advice were misleading.

After repeated constitutional obstacles to SB 2337, Texas is attempting to achieve similar policy objectives through a broader consumer-protection framework, a shift that could reshape future state challenges to proxy advice.

A Shift in Legal Tactics

The lawsuit, lodged in Collin County, alleges that the proxy advisor had "prioritize[d] its own environmental, social and governance agenda over the fiscal wellbeing of its clients". Texas argues that the firm engaged in "false, deceptive and misleading practices" by advertising independent and objective advice while allegedly pursuing a separate agenda.

The DTPA is a broad consumer protection statute designed to prohibit false, misleading or deceptive business practices. Unlike SB 2337, which was drafted specifically to regulate proxy advisors, the DTPA applies across sectors and is being deployed here to challenge how proxy voting advice is described and marketed.

Yet the consumer-protection framing sits awkwardly with the nature of the market. The clients said to have been misled are institutional investors — asset managers, pension funds and other professional fiduciaries — who subscribe to proxy research precisely to inform their own voting decisions and who retain full discretion to accept, reject or override any recommendation. Whether a statute designed to shield ordinary consumers can be stretched to cover such sophisticated buyers is likely to be a central point of contention.

Texas' move follows significant legal challenges to SB 2337. The law requires proxy advisors that "deviate" from acting in shareholders' financial interests to disclose that fact, particularly where recommendations are influenced by ESG, DEI, sustainability measures or social credit scores. A federal injunction substantially limited Texas' ability to enforce the statute against the two firms challenging it. The new lawsuit instead centres on alleged misrepresentations made to clients.

Not everyone is convinced the legal theory represents a meaningful departure from earlier arguments.

"This recent suit by the Texas Attorney General, Ken Paxton, simply uses the same flawed arguments and uses them in a consumer protection suit sensing he might have more legal leverage there," Timothy Smith, Senior Policy Advisor at the Interfaith Center on Corporate Responsibility, told Minerva Analytics.

"These attacks against proxy advisors are based on an erroneous premise that they are pushing political positions in their proxy voting recommendations when in fact they are simply assessing whether an issue and a resolution deserve voting support since they have an impact on a company financially," he added. "These suits ignore the fact that thousands of companies and investors recognize that issues like climate change have profound financial impacts on their bottom lines."

The timing is also notable. Paxton is the Republican nominee for a US Senate seat, ensuring that debates around ESG, DEI and shareholder voting are likely to remain politically salient in the months ahead.

Investor Implications Extend Beyond One Case

The lawsuit forms part of a wider effort by Texas and several other Republican-led states to challenge proxy advisors through litigation, legislation and regulatory pressure.

In May, Paxton filed a separate consumer-protection suit against another proxy advisor, alleging that it had misrepresented the independence and objectivity of its voting recommendations by incorporating ESG and DEI considerations. Nebraska, Iowa and West Virginia launched similar actions the same day, while Florida, Missouri and Indiana have also pursued measures aimed at the sector.

The campaign has expanded beyond state-level litigation. Last week, 18 Republican members of the Texas congressional delegation requested updates from the Federal Trade Commission and the Acting US Attorney General regarding investigations into proxy advisors initiated under Executive Order 14366, issued by Donald Trump in December 2025. Updates on actions under the order have been sparce, with the letter likely an attempt to reinvigorate the momentum behind the anti-proxy advisor push.

The implications extend beyond the firms named in current litigation. Minerva Analytics previously filed a Texas Public Information Act request seeking communications between the Texas Attorney General's office, the Texas Stock Exchange and related parties concerning proxy advisory services and SB 2337. The request sought to clarify whether coordination had occurred and to safeguard investors' access to independent analysis.

“The real casualties of laws like SB 2337 are investors; they are attempts to reach past analysts to dictate what investors are permitted to think and believe about the companies they own,” warned Sarah Wilson, Chief Executive of Minerva Analytics. “They strip investors of independent choice, constrain expression in financial analysis, and fragment oversight of US markets along state lines.”

Courts Continue to Push Back

The lawsuit arrives after a series of legal setbacks for state efforts to regulate ESG and responsible investment practices.

Last July, the DC Circuit held that proxy voting advice is not a solicitation under federal proxy rules. A month later, a federal judge granted a preliminary injunction preventing Texas from enforcing SB 2337 against the two proxy advisors challenging the law after finding that they were likely to succeed in their constitutional claims. Texas later abandoned near-term efforts to lift the injunction while the litigation continues.

More recently, federal judges blocked Kansas' Proxy Advisory Transparency Act and Indiana's HB 1273, reinforcing a pattern of constitutional challenges to state efforts aimed at proxy recommendations.

What Happens Next?

The case will test whether courts are prepared to scrutinise proxy advisory services through general consumer-protection statutes rather than sector-specific regulation. The outcome could influence how states approach disputes over independent investment research, disclosure standards and the presentation of proxy voting advice.

More broadly, the lawsuit suggests that political and legal pressure on proxy advisors is evolving rather than diminishing. While previous efforts focused on creating bespoke regulatory regimes, the latest challenges are increasingly centred on broader questions of business practice, disclosure and consumer protection.