The defendant in the proxy battle lawsuit filed by Texas Pacific Land Trust last week denied TPL’s allegations and lobbed back accusations of his own in a countersuit filed by his lawyers Tuesday.
In a 71-page countersuit that surely took up the bulk of a few Gibson Dunn lawyers’ holiday weekend, TPL trustee hopeful Eric Oliver and a group of dissident shareholders accuse their courtroom opponents, incumbent TPL trustees David E. Barry and John A. Norris III, of fighting “tooth-and-nail” and engaging “in a no-holds-barred campaign” to defeat Oliver’s nomination as TPL’s new trustee.
Oliver says in his countersuit that this campaign includes “squandering enormous amounts of TPL’s money on pricey consultants and private investigators,” misleading investors, misrepresenting the “words and actions of federal regulators,” attacking Oliver “personally and professionally, and – once it became clear that TPL’s shareholders overwhelmingly supported Mr. Oliver’s candidacy – [engaging] in a course of unlawful conduct intended to prevent TPL’s shareholders from casting their votes in favor of Mr. Oliver.”
In the countersuit, Oliver and three principal shareholders who supported his candidacy seek a declaratory judgment to enforce the results of a May 22 shareholder meeting that elected Oliver as TPL’s third trustee. The countersuit also seeks an injunction prohibiting the incumbent trustees from conducting any official TPL business without Oliver plus monetary damages.
“To be frank, we’re utterly mystified by the actions of the entrenched trustees,” Oliver’s lead lawyer, Gibson Dunn partner Rob Walters, told The Texas Lawbook in an email. “By all indications, they seem intent on squandering the trust’s money and reputation to deny shareholders their right to choose a third trustee and to keep them in the dark.”
TPL, in an amended complaint, calls the May 22 meeting invalid and asks a court to declare it as such.
The proxy – and now legal – battle stems from a vacancy in TPL’s board of trustees that opened after Maurice Meyer III resigned in late February for health reasons. TPL trustees enjoy lifetime appointments, which certain shareholders, including the dissident group, have opposed. The dissident group nominated Oliver as trustee in hope that he would help address shareholder concerns about many of the problems they say TPL has, including its antiquated corporate governance, harmful business decisions and lack of transparency.
“The shareholders have spoken unambiguously: They want Eric Oliver to free this trust from the 19th century, bring to it transparency and modern governance, and reveal any past misdeeds,” Walters said. “The shareholders and Mr. Oliver will not quit until they do.”
In the original suit filed last week, TPL alleged Oliver refused to answer a questionnaire that the trust says is critical to his candidacy – a questionnaire that, as they point out, General Donald Cook, the incumbents’ endorsed candidate, more than willingly filled out. It also alleged Oliver and the group of dissident shareholders violated parts of the Exchange Act by making multiple misstatements and omissions relevant to shareholders in their press releases, presentations, blog articles and letters related to the proxy battle.
The Oliver group calls these claims “baseless and unfounded” in the countersuit.
But Sidley Austin’s Yvette Ostolaza, TPL’s lead attorney, called Oliver’s own claims baseless.
“We believe the claims are without merit and appear to be yet another attempt to not fill out a trustee questionnaire that the other trustee candidate, General Cook, completed,” Ostolaza told The Lawbook in an email. “You have to ask yourself why. The Trust outperformed 99% of the NYSE in the past five years.”
According to the incumbent trustees’ lawsuit, TPL originally scheduled a special meeting for May 8 to fill the trustee vacancy. That, however, got moved to May 22 upon receiving notice of Oliver’s nomination “and the commencement of an unannounced campaign by the dissident group,” which includes SoftVest LP (the oil and gas hedge fund that Oliver runs), ART-FGT Family Partners Limited and Horizon Kinetics, which is the largest shareholder of the group.
Together, the three companies own more than 25 percent of all outstanding TPL shares. Horizon and SoftVest have been TPL shareholders for 24 years and 14 years, respectively. ART-FGT has been an investor since 2015.
TPL said in its lawsuit that it moved the meeting to May 22 “in order to meet the newly expected, longer time period for preparing and mailing proxy materials in a contested situation.” The meeting was to take place in the Dallas office of TPL’s law firm, Sidley Austin.
But then, General Cook announced April 30 he was willing to meet shareholders’ concerns and resign as a trustee after “no more than” three years should he be elected, as opposed to serving a lifetime appointment, TPL’s lawsuit says.
That prompted the U.S. Securities & Exchange Commission to inform TPL that General Cook’s statement may constitute a “fundamental change” in accordance to certain rules under the Exchange Act, which would require the mailing of a supplement to the trust’s proxy statement, TPL’s lawsuit says. The SEC asked TPL for a legal analysis on the issue, and when TPL’s lawyers were unable to come to a conclusive answer, TPL decided to prepare, file and mail a proxy supplement to all shareholders to err on the side of caution.
Due to those developments, TPL announced on May 8 it would convene and adjourn at the May 22 meeting without conducting any business, and reschedule the special meeting on June 6 so that shareholders had time to review the proxy supplement and “cast their votes on a fully informed basis,” its lawsuit says. The day TPL filed its suit against Oliver, the trust announced it would postpone the shareholder’s meeting until further notice.
But in the Oliver group’s countersuit, they claimed the postponement of the meeting was only done when it became apparent that Oliver would win the election. They made public announcements that they would hold a meeting anyway, claiming they reserved the right to move forward with voting.
“The real reason for this ‘convene and adjourn’ gambit was obvious: the incumbent trustees were trying to postpone the inevitable,” the countersuit says. “Delaying a shareholder vote is a tactic companies may try to employ when they are losing a proxy fight. But under the Declaration of a trust, neither TPL nor the incumbent trustees are empowered to adjourn, postpone, or otherwise delay a shareholder vote once they vote has been scheduled; only the shareholders have that power.”
The dissident group held a shareholder meeting anyway on May 22 in Dallas on a different floor of the building Sidley’s Dallas offices are located, where Oliver got elected.
“The moves by this management team is [sic] unfathomable,” TPL investor Craig Hodges of Hodges Capital Management said at the shareholder meeting, which someone videotaped. “What are they hiding? Why don’t they want one person from the outside in? Answer that.”
The room of shareholders, some of whom traveled from as far as London to attend, erupted in applause.
The Oliver group argues in their countersuit that the law does not permit TPL nor its trustees to “adjourn, postpone, or otherwise delay a shareholder vote once the vote has been scheduled; only shareholders have that power.”
They also called TPL’s lawsuit, which was filed a day before the May 22 meeting, questionable, pointing out that the allegations TPL made in its lawsuit are hardly new.
“The incumbent trustees did not file this lawsuit to correct some alleged lack of disclosure,” the countersuit says. “They filed it for one reason and one reason only: To manufacture an excuse for trying to cancel the May 22 shareholder meeting, because they knew if that meeting went forward, Eric Oliver was certain to be elected as trustee.”
TPL contends that the dissident group did not inform the trustees or their counsel about their plan to hold the meeting and that TPL did not receive a response despite reaching out 90 minutes before the meeting commenced. The trustees say in their lawsuit that the meeting is invalid because the Declaration of Trust requires the chairman to preside over the meeting and neither of their co-chairmen were present.
They also called the election a “sham vote” and pointed out that at least one shareholder in attendance asked for an adjournment and another requested the opportunity to ask questions before the vote. Plus, TPL argues, the “invalid meeting” failed to meet the quorum requirement.
In addition to the declaratory judgment confirming the validation of Oliver’s election to the board of trustees, Oliver’s is also asking a court to find breach of fiduciary duty, gross negligence and negligence against TPL. The countersuit also seeks an order that makes the incumbent trustees personally liable to reimburse TPL for all the trust’s money they have allegedly wasted, including the “upwards of $5 million” of shareholder capital they have spent to date on the current proxy contest.
“As the unnecessary spending on each side escalates, the investor group again calls on David Barry and John Norris to welcome Eric Oliver as a fellow trustee, to work with him collaboratively to create value for all shareholders and to finally move forward,” a press release issued by Oliver’s group said.
In addition to Walters, the Dallas-based Gibson, Dunn & Crutcher team representing the Oliver group includes associate Russell Falconer.
In addition to Ostolaza, the Sidley Austin team representing TPL in the litigation includes Yolanda Garcia, Tiffanie Limbrick and Mason Parham in Dallas and Andrew Stern, Alex Kaplan, Isaac Lara and Jon Muenz in New York.
A separate Sidley team in New York is representing TPL in the proxy battle.
The case is 3:19-cv-01224-B in U.S. District Judge Jane Boyle’s court in the Northern District of Texas.
Editor’s Note: An earlier version of this article misidentified the man speaking in the video of the May 22 shareholder meeting as Oliver.