CA, Inc. v. AFSCME Employees Pension Plan

Computer Associates International, Inc. (CA) (plaintiff) was a Delaware corporation that elected its entire board of directors each year. AFSCME Employees Pension Plan (AFSCME) (defendant) was a CA shareholder. AFSCME proposed a new bylaw under which CA’s directors would be required to use corporate funds to reimburse shareholders for the costs associated with nominating candidates in contested director elections. Without the bylaw, the board of directors had sole discretion whether to reimburse shareholders for the costs of participating in the board’s election process, subject to the directors’ fiduciary duties and Delaware law. CA notified the Securities and Exchange Commission (SEC) of its intent to exclude AFSCME’s proposal from CA’s upcoming shareholder vote. CA requested a no-action letter stating that the SEC would not take any enforcement action if CA excluded the proposal. CA’s request was accompanied by an attorney-opinion letter claiming AFSCME’s proposal was not a permissible subject for a shareholder-proposed bylaw and violated Delaware law. CA argued that a shareholder could not use a bylaw to limit the board’s authority to decide how to spend corporate funds on a specific issue. AFSCME opposed the request with its own attorney-opinion letter arguing the proposed bylaw was a permissible shareholder proposal and legal. To obtain guidance, the SEC certified two questions to the Delaware Supreme Court about whether the bylaw was (1) a permissible subject for shareholders to propose and (2) otherwise lawful.