AFSCME v. AIG, Inc. case brief

AFSCME v. AIG, Inc. case brief summary
462 F.3d 121 (2d Cir. 2006)

CASE SYNOPSIS

Appellant shareholder sued appellee corporation seeking declaratory and injunctive relief against the enforcement of S.E.C. Rule 14a-8(i)(8), 17 C.F.R. § 240.14a-8, with respect to a shareholder proposal to establish a process for providing shareholders access to a corporate proxy statement. The United States District Court for the Southern District of New York entered judgment in favor of the corporation. The shareholder sought review.

CASE FACTS
The shareholder, a public service employee union, held numerous shares of the corporation's stock through its pension plan. It submitted a proposal for inclusion in a proxy statement that would amend the corporation's bylaws to require the corporation to publish the names of shareholder-nominated candidates for director positions together with any candidates nominated by the board of directors. The corporation excluded the proposal from the proxy statement, and the shareholder filed suit. Relying on a recent Securities and Exchange Commission (SEC) interpretation of this rule, the district court found that the proposal was properly excluded from the proxy statement because it related to an election.

DISCUSSION

• On appeal, the court reversed. 
• The court noted that the language of the rule was ambiguous and that the SEC had ascribed two different interpretations to this rule--one interpretation when the rule was published and the other interpretation about 16 years later. 
• However, as the SEC did not offer sufficient reasons for its changed interpretation of the rule, the court held that the controlling interpretation was the one that was made when the regulation was implemented.

CONCLUSION
The court reversed the district court's judgment and remanded the case for entry of judgment in favor of the shareholder.

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