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E-MailI filed earlier this week an amici curiae brief — on behalf of forty-six corporate and securities law professors from twenty-eight law schools around the country — in the case of Lucian Bebchuk vs. Electronic Arts, Inc.. The case is pending before the United States District Court for the Southern District of New York. The professors’ amici curiae brief is available here.
The case focuses on a shareholder proposal that was submitted by Lucian Bebchuk to Electronic Arts (EA). The proposal is precatory and recommends that the board submit to a shareholder vote a charter or bylaw amendment that, if adopted, would require the company (to the extent permitted by law) to include in the company’s proxy materials qualified proposals for a bylaw amendment. For a proposal to be qualified, the proposal would have to meet certain significant requirements, including being submitted by a shareholder(s) with more than 5% of the company’s stock. The proposal is available here.
EA excluded the proposal from the company’s ballot, and the case focuses on whether the SEC’s shareholder proposal rule (Rule 14a-8) allows the company to do so. The U.S. Chamber of Commerce weighed in, filing an amicus curiae brief in support of EA. The Chamber’s amicus brief is available here and EA’s brief is available here. The response brief filed by Bebchuk’s counsel is available here.
The professors’ amici curiae brief, filed in support of Bebchuk’s position, focuses on two central arguments made in defense of excluding the proposal whose acceptance could have significant implications far beyond the current case:
(1) Preemption Argument: EA and the Chamber argue that Rule 14a-8 preempts the field in determining access to the issuer’s proxy statement and thus would invalidate an internal corporate governance arrangement otherwise permissible under state law that would require a company to include some proposals that the Rule permits the company to include or exclude.
Acceptance of the preemption argument would have far-reaching consequences, invalidating any charter or by-law provisions that provide shareholders with access to the company’s proxy materials. As the professors’ brief points out, this argument is directly opposite to the Chamber’s position in its submission to the SEC last year that “state law defines the rights of shareholders, including…the extent to which they have access to the company’s proxy…” This argument is also directly opposite to the view expressed by the Second Circuit in AFSCME vs. AIG. In this case, taking as settled law that a bylaw expanding shareholder access to the company’s proxy beyond Rule 14a-8’s minimum requirements is permissible, the Court stated that such bylaws “are certainly allowed … under the federal securities laws.”
The professors’ brief explains that Rule 14a-8 sets minimum requirements as to which proposals must be included, leaving companies with discretion whether to include other proposals, and that state law arrangements may regulate how companies use this discretion. Furthermore, the brief explains that, rather than preempt state law in this area, Rule 14a-8 in fact co-exists with and critically relies on state law to regulate how issuers operate within the zone of discretion the Rule leaves them.
(2) Indirect Consequences Argument: EA argues that the proposal may be excluded under the election exclusion provision of Rule 14a-8(i)(8) because the recommended charter or by-law provision, if adopted, could one day, after a sequence of steps which may or may not occur, lead to the inclusion of a bylaw related to director nomination or election.
Acceptance of the indirect consequences argument would lead to substantial expansion in companies’ ability to exclude shareholder proposals. EA essentially asks the Court to rewrite the election exclusion to apply not only to proposals that relate to director election and nomination procedures but also to proposals related to by-law amendment procedures. The professors’ brief explains that the Court should not accept this invitation to expand considerably companies’ power to exclude proposals.
The corporate and securities law professors joining this brief as amici, listed alphabetically, are:
Robert Ashford
Professor of Law
Syracuse University College of Law
Ian Ayres
William K. Townsend Professor
Yale Law School
Laura N. Beny
Assistant Professor of Law
University of Michigan Law School
Lisa E. Bernstein
Wilson-Dickinson Professor of Law and
Co-Director, Institute for Civil Justice
University of Chicago Law School
Bernard S. Black
Professor of Law
University of Texas Law School
Professor of Finance
McCombs School of Business
Stephen Choi
Murray and Kathleen Bring Professor of Law
New York University School of Law
John C. Coffee
Adolf A. Berle Professor of Law
Columbia Law School
James D. Cox
Brainerd Currie Professor of Law
Duke University School of Law
George W. Dent, Jr.
Schott-van den Eynden Professor of Business Organizations Law
Case Western Reserve University School of Law
John J. Donohue
Leighton Homer Surbeck Professor of Law
Yale Law School
Melvin A. Eisenberg
Koret Professor of Law
Boalt Hall
University of California at Berkeley
Charles M. Elson
Edgar S. Woolard, Jr., Chair
Professor of Law
Director of the John L. Weinberg Center for Corporate Governance
Lerner College of Business & Economics
University of Delaware
Lisa M. Fairfax
Professor of Law and Director, Business Law Program
University of Maryland School of Law
James A. Fanto
Professor of Law
Brooklyn Law School
Allen Ferrell
Greenfield Professor of Securities Law
Harvard Law School
Jill E. Fisch
Professor of Law
University of Pennsylvania Law School
Merritt B. Fox
Michael E. Patterson Professor of Law
NASDAQ Professor for the Law and Economics of Capital Markets
Columbia Law School
Tamar Frankel
Professor of Law
Michaels Faculty Research Scholar
Boston University School of Law
Jesse M. Fried
Professor of Law and Co-Director
of the Berkeley Center for Law, Business and the Economy
Boalt Hall
University of California at Berkeley
Jon D. Hanson
Alfred Smart Professor in Law
Harvard Law School
Claire Hill
Professor and Director, Institute for Law and Rationality
Associate Director, Institute for Law and Economics
Vance K. Opperman Research Scholar
University of Minnesota Law School
Peter H. Huang
Harold E. Kohn Chair Professor of Law
Temple University James Beasley School of Law
Marcel Kahan
George T. Lowy Professor of Law
New York University School of Law
Ehud Kamar
Professor of Law
University of Southern California – Gould School of Law
Vikramaditya S. Khanna
Professor of Law
University of Michigan Law School
Reinier H. Kraakman
Ezra Ripley Thayer Professor of Law
Harvard Law School
Donald C. Langevoort
Thomas Aquinas Reynolds Professor of Law
Georgetown University Law Center
Louis Lowenstein
Simon H. Rifkind Professor Emeritus of Finance & Law
Columbia Law School
Stephen Marks
Professor of Law
Boston University School of Law
Brett McDonnell
Professor of Law
Associate Dean for Academic Affairs
University of Minnesota Law School
Richard W. Painter
S. Walter Richey Professor of Corporate Law
University of Minnesota Law School
Frank Partnoy
Professor of Law
University of San Diego School of Law
Arthur R. Pinto
Professor of Law and Co-Director of the Dennis J. Block Center
for the Study of International Business Law
Brooklyn School of Law
Robert A. Ragazzo
University of Houston Law Foundation Professor of Law
University of Houston Law Center
Mark J. Roe
David Berg Professor of Law
Harvard Law School
Kenneth E. Scott
Ralph M. Parsons Professor of Law and Business, Emeritus
Stanford Law School
David Arthur Skeel
S. Samuel Arsht Professor of Corporate Law
University of Pennsylvania Law School
D. Gordon Smith
Glen L. Farr Professor of Law
J. Reuben Clark Law School
Brigham Young University
James C. Spindler
Associate Professor of Law and Business
University of Southern California – Gould School of Law
Marc I. Steinberg
Rupert and Lillian Radford Professor of Law and
Senior Associate Dean for Research
Dedman School of Law
Southern Methodist University
Guhan Subramanian
Joseph Flom Professor of Law and Business
Harvard Law School
Douglas Weaver Professor of Business Law
Harvard Business School
Eric Talley
Professor of Law and Faculty Co-Director of the
Berkeley Center for Law, Business and the Economy
Boalt Hall
University of California at Berkeley
Randall S. Thomas
John S. Beasley II Professor of Law and Business
Vanderbilt University Law School
Frederick Tung
Professor of Law
Emory University School of Law
David I. Walker
Professor of Law
Boston University School of Law
Elliott J. Weiss
Charles E. Ares Professor Emeritus
Rogers College of Law
University of Arizona
