Another Court Case Regarding a Shareholder Proposal

By Cydney Posner

As discussed this morning by thecorporatcounsel.net blog, a Texas federal district court granted summary judgment to Waste Connections on the company's claim for a declaratory judgment allowing it to exclude a shareholder proposal submitted by John Chevedden on behalf of two of the company's shareholders. Waste Connections, Inc. v. Chevedden et al. As was the case in Apache Corporation v. Chevedden, discussed in the email copied below, the company notified the SEC of its court action and intent to exclude the proposal, but did not request a no-action position from the SEC. (Hard to miss the omnipresence of John Chevedden in these cases. According to the pleadings, he is "the most prolific shareholder activist for U.S. corporations in history.")

The Chevedden proposal was to eliminate board classification and instead elect all directors annually. The company argued that the proposal could be excluded on a number of procedural and substantive grounds:

• That the proposal sought to cut short the terms of directors currently serving on the WCN board, an express ground for exclusion under Rule 14a-8(i)(8)(ii).
• That Rule 14a-8 did not permit Mr. Chevedden (who owned no WCN shares) to advance a proposal based on a purported "proxy" from other purported shareholders.
• That the proposal was submitted after the deadline specified in WCN's 2012 proxy statement.
• That the defendants failed to demonstrate the necessary ownership of WCN stock to submit a proposal.

Unfortunately, there was no opinion issued, just a minute entry on the docket, so it's hard to tell at this point precisely why the court ruled in favor of the company. Interestingly, the company argued, as the second basis for its claim, that Rule 14a-8 does not permit the submission of shareholder proposals by proxy: since Chevedden was not himself a shareholder, there was no basis in the rule allowing him to act by proxy on behalf of the two shareholders other than "for the limited purpose of presenting the shareholder's proposal at the shareholders' meeting." As noted in the blog, the SEC has not looked favorably on the "proposal-by-proxy" argument as a basis for exclusion of shareholder proposals. (As some of us know from bitter experience, the SEC won't even accede to a request that Chevedden be identified as a proponent of his own proposals.) Going to court to seek exclusion (in Texas at least) may turn out to be the wave of the future, at least for those companies aggravated enough to bear the substantial expense involved. Might court action also have the effect of deterring future proposals?

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