Judge Orders Stockholder To "Register" Correspondence With The SEC

Many boards operate with a high degree of collegiality, even when the directors disagree.  Some don't.  When the board of directors of Gas Natural Inc., a publicly traded natural gas holding company, voted to remove its CEO and Chairman, he allegedly "assaulted" a fellow board member and the company's outside lawyer.  I expect that readers won't be surprised to learn that the board then removed the erstwhile officer from the slate of nominees for election at the upcoming annual meeting.

According to the company, the former officer then requested a list of stockholders, filed suit in state court seeking to enjoin the annual meeting, and sent letters to the company's stockholders criticizing the company's board.  The officer dismissed his lawsuit but refiled it after the stockholder meeting and after settlement discussions broke down.  After the annual meeting, he allegedly sent another letter to the stockholders.

The company responded by filing a complaint in U.S. District court alleging violations of the proxy rules and defamation.  A week later, Judge Dan Aaron Polster held an evidentiary hearing on the company's motion for an injunction.  Before the hearing, the company dismissed its defamation claim.  After the hearing, Judge Polster concluded that so long as the former officer maintains his state court case "wherein he seeks to overturn the election of the board members at the July 30, 2014 annual meeting and seeks reinstatement to the board, he must register with the SEC any future letters to shareholders."  Gas Natural v. Osborne, Case No. 1:13-cv-2181 (N.D. Ohio, Oct. 2, 2014).  The company provides additional details regarding the litigation in this Form 10-Q.

Judge Polster's order is brief and doesn't explain why the injunction is tied to the maintenance of litigation.  Thus, one can only guess at the reasons why Judge Polster thought that continuing communications would involve a "solicitation" as defined in Rule 14a-1(l).