Is Victory No. 3 a Nail in the Coffin for Direct-to-Court Strategy for Shareholder Proposals...or Just a Pyrrhic Victory?

By Cydney Posner

As reported this morning in thecorporatecounsel.net blog, John Chevedden has won his third in string of court victories on a shareholder proposal. In this Colorado case, Chipotle Mexican Gill v. Chevedden, Chipotle sought a declaratory judgment that it could exclude Mr. Chevedden's proposal on the basis, among other things, that SEC rules don't permit "proposals by proxy": SEC rules allow representation by proxy only for the narrow purpose of appearing at a shareholders' meeting to present a proposal, and, therefore, Mr. Chevedden should not be permitted to act as a proponent of a shareholder proposal where he held only a proxy for shareholders but was not himself a shareholder. However, the court did not reach the issue. As he did in connection with his prior victories (see my articles of 3/13/14, 3/3/14 and 5/29/13), Mr. Chevedden "irrevocably" agreed not to sue Chipotle if the proposal were excluded. Once again, the court held that the plaintiff, Chipotle, had no standing because the agreement not to sue removed the possibility of impending injury to Chipotle, and the possibility of litigation by the SEC or other shareholders was remote. None of the three plaintiffs that lost its case to Mr. Chevedden in court has yet filed its proxy statement with the SEC. So we'll have to wait to see whether, relying on Mr. Chevedden's agreement not to sue, they ultimately exclude his proposals. If they do, is it a pyrrhic victory for Mr. Chevedden?

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