Just hours after supporters of John Chevedden issued this press release predicting victory, Judge Lee Rosenthal in Federal District Court for the Southern District of Texas delivered this 30-page order and memorandum in an expedited manner allowing Apache Corporation to exclude Chevedden’s shareholder proposal by granting the company’s motion for declaratory judgment (and denying Chevedden’s motion). After the decision, Chevedden supporters issued this press release saying that the bigger picture of the order tilted the “split-decision” in Chevedden’s favor.
As noted in this blog (with follow-ups in this blog), Apache filed this novel lawsuit rather than attempt to exclude the proposal through the normal SEC channels – thereby challenging a position of the Staff regarding the use of introductory letters from brokers as evidence of ownership under Rule 14a-8(b). All the various documents filed in court during this case are in our “Shareholder Proposals” Practice Area.
Post “Apache v. Chevedden”: What Will Companies (and the SEC) Do Now?
With the Apache’s court decision now behind us, one must wonder “What do you think the SEC Staff will do now?” It’s likely that a number of companies received letters from Chevedden with proof of ownership from an introducing broker, but not all of them from the same entity involved here or with the same inadequacies that drove this judge to allow the exclusion (the judge didn’t rule on what Chevedden would have been required to submit to prove ownership under Rule 14a-8).
Since we are late into the proxy season, timing can be an issue even if a company hasn’t mailed its proxy materials yet. Although the shareholder proposal rule has a 80-day deadline for a company to submit an exclusion request, Rule 14a-8(j) provides the SEC with the ability to make an exception if a company demonstrates good cause for not filing the exclusion request earlier as follows:
Rule 14a-8(j): Question 10: What procedures must the company follow if it intends to exclude my proposal?
1. If the company intends to exclude a proposal from its proxy materials, it must file its reasons with the Commission no later than 80 calendar days before it files its definitive proxy statement and form of proxy with the Commission. The company must simultaneously provide you with a copy of its submission. The Commission staff may permit the company to make its submission later than 80 days before the company files its definitive proxy statement and form of proxy, if the company demonstrates good cause for missing the deadline.
In her order, Judge Rosenthal provides a basis for the SEC allowing companies to file late exclusion requests – since the Staff would not have decided those requests if they had submitted earlier anyway due to this pending lawsuit – but it’s possible the SEC could reject companies that file last-minute exclusion requests, partly because the SEC is behind in processing exclusion requests this year due to the snow. Remember that, five years ago, the SEC expounded on what might be “good cause” in Staff Legal Bulletin No. 14B. So this timing issue is an unknown quantity at this point.
Also, it’s unclear what application the case has beyond its specific decision, since the Judge noted her opinion is narrow – and yet it could be argued that some of her reasoning throws into question the SEC’s Hains position and other forms of proof of ownership. So the waters are a little murky here too.
The reality is that it’s too late for most companies that have received proposals from Chevedden as they have already printed or will be printing soon. We’ll be providing more analysis of this decision as it definitely has application beyond this proxy season.
How ShareGift USA Collects Odd Lots for Charity
In this podcast, Barbara Vogelstein of ShareGift USA and Andy Brownstein of Wachtell Lipton discuss how ShareGift USA collects odd lots of shares, aggregates them and gives the money to charity, including:
– What is ShareGift USA?
– How does it work in practice? How can companies get comfort that there are no securities issues?
– What can corporate secretaries and in-house counsel do to help?
– Broc Romanek