CA, Inc. v. AFSCME Employees Pension Plan, No. 329, 2008, Jacobs, J. (Del. July 17, 2008)

CA, Inc. v. AFSCME Employees Pension Plan, No. 329, 2008, Jacobs, J. (Del. July 17, 2008)

The United States Securities and Exchange Commission (the “SEC”) sought certification of two questions of law pursuant to Article IV, Section 11(8) of the Delaware Constitution and Delaware Supreme Court Rule 41. The SEC asked the Court to apply Delaware law to a proposed stockholder bylaw submitted by the AFSCME Employees Pension Plan (“AFSCME”) for inclusion in the proxy materials of CA, Inc.’s (“CA”) annual stockholders’ meeting, assessing whether the provision was a proper subject for stockholder action. The proposed bylaw would provide for reimbursement of proxy expenses to stockholders “in connection with nominating one or more candidates in a contested election of directors.”  The Court held that the proposed bylaw was an appropriate subject for shareholder action but would violate Delaware law if enacted by CA’s shareholders because the bylaw mandated reimbursement of election expenses and did not reserve to CA’s directors the full discretion necessary to ensure fulfillment of their fiduciary duties.  The Court stated that the shareholders could either amend the Certificate of Incorporation to include the underlying substance of the proposed bylaw provision or seek recourse from the Delaware General Assembly in the form of revised fiduciary duty standards.