CA Inc. v. AFSCME Employees Pension Plan
953 A.2d 227 (Del. 2008)
- AFSCME was a CA shareholder. They submitted a shareholder proposal to amend CA’s bylaws.
- The proposal would require that CA reimburse the reasonable expenses incurred by a dissident nominating a rival slate of directors, provided that at least one nominee from the dissident slate was victorious.
- The directors of CA objected to this proposal and asked the SEC to exclude it from the proxy statement.
- CA argued that the shareholder proposal was improper because under Delaware law (8 Del. §141(a)), the decision as to whether or not to reimburse election expenses was at the discretion of the directors. Securities Exchange Act of 1934 Rule 14a-8 allows the exclusion of shareholder proposals that would be illegal.
- AFSCME argued that a different section of Delaware law (8 Del. §109) grants shareholders the right to adopt bylaws. So their shareholder proposal was not illegal under Delaware law and Rule 14a-8 did not apply.
- The SEC certified the question to the Delaware Supreme Court and asked them what to do.
- The Delaware Supreme Court found for CA.
- The Delaware Supreme Court found that in general, the proposed bylaw related to director elections and, thus, was a proper subject for a shareholder proposal under Rule 14a-8.
- However, the Court found that a shareholder proposal to amend the bylaws in the way AFSCME proposed would violate Delaware law because it “mandates reimbursement of election expenses in circumstances that a proper application of fiduciary principles could preclude” and, thus, if adopted, could cause CA to violate Delaware law.