Pyrrhic Victory? Apache Delays Shareowner Proposal, Loses Attempt to Require Broker Letters From DTC

March 10, 2010, Press Release from the United States Proxy Exchange (USPX).

Shareowners are celebrating a dramatic win in the Apache vs. Chevedden lawsuit, which was decided in an expedited manner by Judge Lee H. Rosenthal in Federal District Court in Houston today.

Shareowners were glum when the judge’s decision first arrived. It started by announcing a “narrow” decision in Apache’s favor, but as they read on, shareowners realized just how “narrow” that decision was. On page after page of the decision, the judge rejected Apache’s evidence, its arguments, and ultimately its claim that (essentially) proponents of shareowner resolutions must document their holdings with a letter from DTC. Because it is impossible for DTC to provide such a letter, a ruling on the issue in Apache’s favor would have crippled shareowners’ ability to submit proposals. The judge’s rejection of Apache’s position transformed the lawsuit from a possible weapon of mass destruction against shareowner rights into a minor dispute over whether or not Apache may exclude John Chevedden’s proposal from its proxy materials this year. At the very end of the decision, the judge decided that minor issue in Apache’s favor. She did so on a technicality. That was the “narrow” decision.

The case was a split decision, but shareowners won. Apache got a consolation prize. Shareowners did more than dodge a bullet. We proved that we can pull together and not only present a united front, but actually win on substantive issues against expensive corporate lawyers. We learned some valuable lessons through the experience. We doubt Apache Corp. will be suing any more resolution proponents soon. If they do, shareowners will be more than ready for them.

For further information, please contact USPX Executive Director Glyn A. Holton at 617.945.2484 or

Apache was able to keep a “simple majority vote” shareowner proposal off this year’s proxy by spending tens of thousands of dollars of assets collectively owned by all shareowners in order to take a single shareowner to court, threatening him with the possibility that the judge would require him to reimburse Apache for its costs. Chevedden lost on the adequacy of the letter from his broker, not on the central contention by Apache that letters evidence ownership must be issued by the registered owner, in this case the Depository Trust Company’s Cede & Co.

However, the judge did not award attorney fees to Apache. Even more important, the judge dismissed Apache’s arguments that “record holder,” as used in SEC Rule 14a-8(b)(2), means a registerd holder whose name appears in the company’s records as a shareholder. Several of Apache’s arguments were dismissed; at least one was even called “disingenuous.” In the judge’s words, the examples provided by Apache “show that DTC will only process letter requests forwarded to it by participants, not by beneficial owners.”

Apache’s very limited victory came because “the inconsistency between the publicly available information about RTS and the statement in the letter that RTS is a ‘broker’ underscores the inadequacy of the RTS letter, standing alone, to show Chevedden’s eligibility under Rule 14a-8(b)(2).” Atlantic Financial Services of Maine, a wholly owned subsidiary of Ram Trust Services is on the SEC, FINRA, and SIPC membership lists; apparently, Ram Trust Services is not. Chevedden’s letter, from Ram Trust Services, which issues his monthly statements, was deemed inadequate by the judge.

The only issue before this court is whether the earlier letters from RTS – an unregistered entity that is not a DTC participant – were sufficient to prove elegibility under Rule 14a-8(b)(2), particularly when the company has identified grounds for believing that the proof of eligibility is unreliable. This court concludes that the December 2009 RTS letters are not sufficient.

I expect Chevedden will be back next year, again proposing “simple majority” vote requirements at Apache. Similar proposals have won from 74% to 88% support at the following companies in 2009: Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill and Macy’s. In the meantime, an important right has been upheld. Shareowners will continue to evidence ownership through their banks and brokers, not through DTC, which usually doesn’t know who they are or what shares they hold.

March 10, 2010, Memorandum and Order from Judge Lee H. Rosenthal, in the United States District Court for the Southern District of Texas, Houston Division. Apache’s response to Chevedden’s Motion for Summary Judgment. John Chevedden’s Motion for Summary Judgment.  Apache’s Reply Brief on the Merits.  United States Proxy Exchange amicus curiae brief. Apache’s Brief on the Merits. More documents at, which offers “help for people interested in challenging for corporate director seats.”

, , , ,

Comments are closed.

Powered by WordPress. Designed by WooThemes