Wednesday, March 24, 2010

Apache Corp.'s lawsuit

One of the big issues that is developing within the anual-meeting season this year is the disputation of supermajority requirements.

As of February 15, I'm reliably informed, there have been 26 proposals filed by investors that would repeal existing supermajority requirements as they apply to bylaws, corporate transactions, and other matters. Some supermajority requirements go as high as 80%. John Chevedden, a California-based shareholder activist, has made this a particular crusade.

One issuer, Apache Corp., filed a lawsuity against Chevedden in federal court in an effort to exclude his supermajority proposal. Apache, an energy company headquartered in Houston, contends that he failed to provide sufficient proof of ownership. A federal judge held a hearing in the case and the parties submitted their briefs earlier this month. The judge, on March 10, ruled in Apache's favor, though narrowly. Apache can exclude Chevedden's proposal.

But it could have been much worse for Chevedden and shareholder activists in general. Apache employed for the purpose of this lawsuit an SEC rule, 14a-8, about documenting share ownership for the purpose of submitting a proposal, requiring a letter from the record holder of the securities, usually a broker or a bank.

The United States Proxy Exchange filed an amicus brief on March 5 taking Cheveden's side, arguing that Apache has interpreted the rule, and the phrase "record holder," too narrowly.

USPX is a non-government organization, incorporated in Massachusetts, structured in the manner of a Chambver of Commerce, and dedicated to facilitating shareowner rights, primarily through the proxy process.

The judge's opinion rejected Apache's arguments about the SEC rule, and the decision will allow shareholders who want to raise issues such as the amendment of a supermajority rule to do so in the same way they have long done so, without having to document the decision via a letter from the DTC, as per Apache's theory.

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