Corporate & Securities Law

By Jim Hamilton

In the first test of a new process allowing the SEC to certify questions to the Delaware Supreme Court, the Court quickly agreed to answer the question of whether a shareholder proxy proposal seeking to require the company to reimburse the reasonable expenses incurred by stockholders running a slate of director nominees for election is a proper subject for action by shareholders under Delaware law. The Court will also consider the question of whether the proposal?s adoption would cause the company to violate Delaware law.

Evidencing its intent to move quickly on the questions, the Court, in an order signed by Chief Justice Myron Steele, asked for briefs to be filed by close of business on July 7 and set oral argument for July 9. A change in the Delaware Constitution allows the SEC to certify questions to the Court. The provision is effected by Rule 41 of the Court?s rules. As required by the rule, the Court found that there were important and urgent reasons for an immediate determination of the questions the SEC certified. The Court cited Rule 41(b), which suggests that unsettled questions relating to a state statute should be certified.

The company asserts that it can exclude the shareholder proposal from its 2008 proxy materials in reliance on two bases provided by the SEC proxy rules. The first ground for exclusion is that the proposal is an improper subject for shareholder action under Delaware law. (Rule 14-8(i)(1), which allows exclusion if the proposal is not a proper subject for shareholder action under laws of the state of the company?s organization). The second basis for exclusion is that, if adopted, the proposal would cause the company to violate Delaware law. (Rule 14a-8(i)(2), which allows exclusion if the proposal?s implementation would cause the company to violate any state law to which it is subject).

Full post as published by Jim Hamilton's World of Securities Regulation on July 02, 2008 (boomark / email).