KBR Bellies Up To The Bar
January 21, 2011 in General
On January 14, KBR sued shareowner activist John Chevedden in Federal District Court in Houston to challenge a proposal he submitted for inclusion in the company’s 2011 proxy materials. As Yogi Bear would say, it feels like Déjà vu all over again. Last year, Apache Corp similarly sued Chevedden for the same reason. With KBR, the contrived issues are the same. The lawyers bringing the case are the same. The court is the same. It is even the same judge.
But much is different. Last year’s suit was widely perceived as a SLAPP (strategic lawsuit against public participation) suit intended to squeeze Chevedden financially. It failed. Chevedden successfully defended himself, with a big assist from the USPX. He didn’t spend a dime on lawyers, and the judge did not allow Apache to claim the $2,176 they sought in legal expenses.
So this time around, it is just a case about the issues, and the issues are flimsy. It appears the lawyers are trotting out the same contrived arguments reinterpreting SEC Rule 14a-8(b)(2) that they used last year. Unfortunately for them, the judge flatly rejected those arguments last year, so there is every reason to believe she will reject them again this year.
In Apache vs. Chevedden, the judge did allow Apache to exclude Chevedden’s proposal, but that was due only to uncertainties over the status of Ram Trust, the bank that wrote a letter evidencing Chevedden’s ownership of shares for the purpose of submitting a proposal. In the wake of Apache vs. Chevedden, the USPX released standards for drafting evidentiary letters—standards that explicitly address the concerns the court raised. This year’s letter from Ram Trust was written in accordance with those standards.
Finally, KBR never gave Chevedden proper notice of the issues they are contesting. They are required to do so under Rule 14a-8. That may sound like a technicality, but that same technicality has been decisive in a number of SEC no-action decisions. On these grounds alone, the judge should rule against KBR.
The USPX is in close communication with Chevedden and will likely petition the court for permission to submit an amicus curiae.