Sanders v. Wang

In August 1995, Computer Associates International, Inc.’s (CA) shareholders adopted the Key Employee Stock Ownership Plan (KESOP). Under KESOP provision § 3.1, CA’s compensation committee had authority to grant up to six million stock shares to CA’s executives. The KESOP provided that two million shares were to be granted once the plan was adopted and then four million were to be granted once the stock reached and maintained its target price. The KESOP contained an early vesting provision, under which the six million shares could vest once the common stock reached and maintained a $180 value. The KESOP allowed for the $180 target to be adjusted based on stock splits pursuant to § 3.3. Between August 1995 and November 1997, three separate stock splits occurred, which resulted in every shareholder receiving two additional shares per every one share held. Then, in May 1998, the compensation committee determined that the early-vesting requirement had been satisfied and granted the top executives 20.25 million shares of common stock, on the ground that the six million authorized had been adjusted based on the three stock splits and appropriate dividends. Shareholders Lisa Sanders and Edward Bickel (plaintiffs) sued Wang and the other directors (defendants) for gross negligence and breach of fiduciary duty for awarding more than the amount authorized. However, Sanders and Bickel disagreed as to the excess amount awarded, with Sanders believing that the executives could be awarded stock dividends. The directors argued that they had broad discretion to interpret the KESOP and that the intent of § 3.1 was to award the executives a certain amount of equity. Therefore, the directors claimed that the six million had to be adjusted for the stock splits. The shareholders and the directors both moved for summary judgment.