In a memorandum and order issued yesterday, Judge Louis L. Stanton, of United States District Court for the Southern District of New York, ruled John Chevedden’s motion to dismiss is granted. Omnicom’s motion for summary judgment is denied. “The clerk is requested to enter judgment dismissing the complaint, with costs and disbursements in favor of Mr. Chevedden according to law.”
I wasn’t involved in this case but it is important to all retail shareowners who submit proposals and to everyone concerned with shareowner rights. Excellent coverage prior to yesterday’s decision can be found at Omnicom Sues Stockholder to Protect Management Edge and Lawsuits Said to Threaten Corporate Democracy. Like EMC v. John Chevedden and James McRitchie decided last Friday (see EMC v. John Chevedden and James McRitchie: Case Dismissed), this was another action by a $20B company, similar to a SLAPP suit, designed to intimidate retail shareowners who dare to file proxy proposals.
In this case, Chevedden’s proposal is to keep voting on shareholder proposals confidential until the annual meeting. Currently, the way corporate elections operate, management can typically access voting results as the votes come in and can then contact those voting against them trying to get them to change their vote; shareholders cannot.
Omnicom argued that even though Chevedden promised not to sue if it rejects his proposal, they might face legal consequences from others if they fail to includes his proposal without summary judgment from the court. Judge Stanton observed that “any speculative future ‘legal consequences’ are not certainly ‘actual or imminent,'” the standards required under law. He cites precedent in other cases:
An issue is ripe for judicial resolution only if it presents a real, substantial controversy, not a mere hypothetical question… A federal court lacks the power to render advisory opinions.
Judge Stanton’s decision was certainly not as thorough as Judge Mark L. Wolf’s. Judge Wolf pointed out “it is the plaintiff’s burden to prove the existence of subject matter jurisdiction,” indicating the defendent would be awarded any reasonable doubt. His record of the hearing is a virtual law class.
Even if there were evidence that indicated a risk, a genuine risk, of an enforcement action by the SEC or other shareholders, declaratory judgment issued by this court would not bar such suits because those parties would not be collaterally estopped by such a declaration. Due process requires that for collateral estoppel to operate the party against whom the prior judgment is asserted must have had a ‘full and fair opportunity’ to litigate its claim in the earlier action, as the Supreme Court wrote in Parklane, 439 U.S. 322, at 328.
Further, he expressed his view that
dealing with this matter on declaratory judgment on an expedited basis, when, as here, EMC has not presented all of its arguments to the SEC first, would be essentially reversing the statutory scheme and not be in the interests of the administration of justice… In addition it would abet what I regard as an inappropriate practice of depriving the SEC of the opportunity to perform its proper role of considering all the grounds that in this case have been argued to me and giving informed advice.
I also have in mind Mr. McRitchie’s last argument, that permitting — or where there’s a legitimate discretion or abetting an end run around the SEC deprives shareholder of a relatively inexpensive opportunity to get claims dispute resolved in their favor and by forcing them into court keeps them from really, as a practical matter, having an appropriate opportunity to have their positions evaluated on an informed basis as the SEC’s in a better position to do quickly and relatively inexpensively.
In contrast, Judge Louis L. Stanton’s order is only slightly longer than no-action letters from the SEC – brief and to the point. Hopefully, both decisions will carry weight in an upcoming judgment involving a similar suit filed by Chipotle Mexican Grill against John Chevedden, James McRitchie and my wife, Myra K. Young, in United States District Court for Colorado.
Additional coverage by Reuters (Ross Kerber) at U.S. courts dismiss two suits against shareholder activist Chevedden and Hilary Johnson, The American Lawyer at Shareholder Activists Chalk Up a Win Against EMC. And here’s one by Don Seiffert of the Boston Business Journal claiming that John Chevedden enlisted my help in filing the proposal at EMC. It was the other way around. EMC loses round 1 in fight to block vote to seperate CEO, chairman roles. A lazy, expensive way to intimidate shareholders by Eleanor Bloxham reflects her knowledge of the issues.