## Facts

- AFSCME, a CA stockholder, proposed a bylaw requiring CA to reimburse a stockholder’s reasonable proxy-contest expenses when specified conditions were met, including election of at least one of the stockholder’s nominees.
- The proposal defined reimbursable “Expenses” broadly (e.g., printing, mailing, legal, solicitation, travel, advertising, and public relations costs).
- CA’s certificate of incorporation vested management of the corporation’s business and affairs in the board and did not address proxy-expense reimbursement.
- CA asserted the proposal was not a proper subject for stockholder action and, if adopted, would be unlawful because it could force expenditures inconsistent with directors’ fiduciary duties.
- After CA sought to exclude the proposal from its proxy materials, the SEC certified two Delaware-law questions to the Delaware Supreme Court: (1) whether the proposal was a proper subject for stockholder action, and (2) whether adoption would cause CA to violate Delaware law.

## Issues

1. Whether a stockholder-proposed bylaw mandating reimbursement of reasonable expenses for successful dissident nominees in a contested director election is a proper subject for stockholder action under Delaware law.
2. Whether adopting that mandatory reimbursement bylaw would cause the corporation to violate Delaware law by restricting the board’s statutory authority and fiduciary duties.

## Decision

- The court answered the first certified question **yes**: the bylaw was a proper subject for stockholder action because it related to the director election process, an area of legitimate stockholder interest.
- The court answered the second certified question **yes**: the bylaw, as drafted, would violate Delaware law because it imposed mandatory reimbursement without preserving the board’s ability to act consistently with fiduciary duties.
- The court reasoned that DGCL § 109 authorizes stockholder bylaws regulating corporate procedures, but bylaws cannot conflict with DGCL § 141(a) or prevent directors from fully discharging fiduciary obligations.

## Legal Principles

- Stockholders may adopt bylaws under DGCL § 109 addressing procedural matters, including rules governing the election of directors.
- DGCL § 141(a) vests corporate management in the board; stockholder bylaws may regulate board processes but may not dictate substantive decisions in a manner inconsistent with board authority.
- A bylaw is invalid if it requires board action that could force directors to breach fiduciary duties by removing their ability to exercise judgment in particular circumstances.
- Election-related reimbursement bylaws can be permissible in concept, but they must be drafted to allow directors to comply with fiduciary duties when determining whether corporate reimbursement is appropriate.

## Conclusion

The Delaware Supreme Court held that stockholders may propose bylaws regulating aspects of director elections, including expense reimbursement, but invalidated the specific proposal because its mandatory reimbursement command could compel directors to act contrary to fiduciary duties and statutory board authority.


CA, Inc. v. AFSCME Emps. Pension Plan, 953 A.2d 227 (Del. 2008)