Federal judge denies Chesapeake injunction, clearing way for Friday meeting

OKLAHOMA CITY (AP)

A federal judge today denied a shareholder request to postpone the annual meeting of Chesapeake Energy Corp., clearing the way for the nation's second-largest natural gas producer to convene the shareholder's meeting on Friday as planned.

U.S. District Judge Vicki Miles-LaGrange denied a motion that sought a preliminary injunction to prevent Oklahoma City-based Chesapeake from moving forward with the meeting to give the company more time to provide shareholders with information about CEO Aubrey McClendon's compensation and loans he secured against his stake in company wells.

Shareholders claimed they needed the information to make informed votes at the meeting and determine whether the company's board of directors has been doing its job.

During Tuesday's hearing, shareholder attorney Matthew Houston said Chesapeake's final proxy was released by the company on May 11, but had been amended four times since after a series of developments involving the compensation of board members, investor Carl Icahn's complaints about the board and the company's decision to replace four of its nine board members.

Icahn, who has acquired a 7.6 percent stake in Chesapeake, sent a letter to the company's board that said it had failed its basic function of overseeing management in "dramatic fashion."

Earlier this year, it was revealed that McClendon was allowed to borrow $846 million from a company Chesapeake did business with. The borrowing was related to a program that entitled McClendon to buy personal stakes in company wells. McClendon also ran a hedge fund that bet on oil and gas prices — commodities that Chesapeake produces.

McClendon gave up his post as board chairman on May 1.

Chesapeake has said the Securities and Exchange Commission has opened an "informal inquiry" into whether the program created potential conflicts of interest. Investors expressed concern that the transactions could have influenced the company's business decisions.

Miles-LaGrange ruled Wednesday that Chesapeake's shareholders had not proven they would suffer irreparable injury if the injunction was denied and still will have adequate legal remedies if the annual meeting is held.

"If this Court were ultimately to conclude that defendants failed to disclose material information in the 2012 proxy, the court can void the shareholders' vote on the voting items related to that material information and order that those voting items be resubmitted to the shareholders," the judge wrote in her 10-page order.

Among other things, the 2012 proxy seeks shareholder approval of the re-election of board members Richard K. Davidson and Burns Hargis as well as action on long-term and annual incentive plans for Chesapeake employees. Miles-LaGrange notes in her ruling that the re-election of Davidson and Hargis is uncontested.

A call to Houston's New York City office seeking comment was not immediately returned.

Jim Gipson, director of media relations for Chesapeake, said in an email that the company believes the judge "made the correct decision" and looks forward to holding its shareholder meeting.