IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

Transcription

1 EFiled: Jul 0 :AM EDT Transaction ID 0 Case No. 0-VCL IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN RE CHENIERE ENERGY, INC. : CONSOLIDATED STOCKHOLDERS LITIGATION : C.A. 0-VCL IN RE CHENIERE ENERGY, INC. : C.A. -VCL Chancery Courtroom No. C New Castle County Courthouse 00 North King Street Wilmington, Delaware Wednesday, June, : p.m BEFORE: HON. J. TRAVIS LASTER, Vice Chancellor IN-COURT SCHEDULING CONFERENCE and RULINGS OF THE COURT New Castle County Courthouse 00 North King Street - Suite 00 Wilmington, Delaware 0 (0) -0

2 0 APPEARANCES: PETER B. ANDREWS, ESQ. Andrews & Springer LLC -and- CYNTHIA A. CALDER, ESQ. Grant & Eisenhofer, P.A. -and- JEFFREY W. GOLAN, ESQ. JULIE B. PALLEY, ESQ. MICHAEL A. TOOMEY, ESQ. of the New York Bar Barrack, Rodos & Bacine -and- MARK LEBOVITCH, ESQ. of the New York Bar Bernstein, Litowitz, Berger & Grossmann LLP for Plaintiffs EDWARD P. WELCH, ESQ. EDWARD B. MICHELETTI, ESQ. Skadden, Arps, Slate, Meagher & Flom LLP -and- SUSAN L. SALTZSTEIN, ESQ. JOSEPH N. SACCA, ESQ. of the New York Bar Skadden, Arps, Slate, Meagher & Flom LLP for Defendant Cheniere Energy, Inc. ALBERT H. MANWARING, IV, ESQ. Morris James LLP for Defendants Charif Souki, Meg A. Gentle, R. Keith Teague, Greg W. Rayford, and Jean Abiteboul DAVID E. ROSS, ESQ. Seitz Ross Aronstam & Moritz LLP for Defendant H. Davis Thames DAVID C. McBRIDE, ESQ. EMILY V. BURTON, ESQ. ROLIN P. BISSELL, ESQ. Young, Conaway, Stargatt & Taylor LLP for Defendants Charif Souki, Vicky A. Baily, G. Andrea Botta, Nuno Brandolini, Keith F. Carney, John M. Deutch, David I. Foley, Randy A. Foutch, Paul J. Hoenmans, David B. Kilpatrick, and Walter L. Williams

3 THE COURT: Welcome, everyone. MR. WELCH: Good afternoon, Your Honor. 0 THE COURT: So first of all let's thank the court staff for the quick switcheroo. We were supposed to be downstairs, so none of the ordinary mechanics of courtroom setup were dealt with. So thanks to Donna and the court reporter and everybody else for doing that so quickly, and you-all for moving up here. But we will still try to maintain the comfortable, relaxed environment of the conference room, even though we're all here. MR. WELCH: Understood, Your Honor. With permission, may I make an introduction to the Court, too? THE COURT: You may, sure. MR. WELCH: Your Honor, to my right is my partner and friend, Susan Saltzstein, from our New York office. MS. SALTZSTEIN: Good afternoon, Your Honor. MR. WELCH: Your Honor has admitted her pro hac vice. And also, at the end of the table, is my partner and friend Joe Sacca, and we'll be

4 0 submitting his pro hac papers shortly. And Jeff Geier is with us, he is in the back of the courtroom, and Your Honor, I'll be submitting pro hac papers for Jeff as well. THE COURT: Okay. Welcome. MR. WELCH: Thank you, Your Honor. MR. ANDREWS: Good afternoon, Your Honor. Peter Andrews, Andrews & Springer. To my left is Mr. Jeffrey Golan from Barrack, Rodos & Bacine. MR. GOLAN: Good afternoon, Your Honor. MR. ANDREWS: Obviously, you're aware of Ms. Calder from Grant & Eisenhofer. MS. CALDER: Good afternoon, Your Honor. MR. ANDREWS: Mr. Lebovitch from BLBG. In the back row, Julie Palley from Barrack Rodos, and Mike Toomey, also. THE COURT: Great. Good to see everyone. MR. ANDREWS: And also, with Your Honor's permission, we have admitted Mr. Golan pro hac vice, and I believe he will take the lead today. THE COURT: All right. Well, there's

5 0 three things on my agenda to talk about. The first thing is finding out if the plaintiffs are organized for purposes of the proceeding, and what, if anything, we need to do on that. The second thing is which case should go forward, and third thing is schedule. So let me first look to the right-hand side from my perspective, the left-hand side from your perspective, and ask you-all. I have, in the case, I have the Grant & Eisenhofer folks. In the derivative case I have you-all working as a team. Is there any reason why that same harmony and team spirit shouldn't be employed in the case, as well? MR. GOLAN: Your Honor, Jeffrey Golan. THE COURT CLERK: I'm sorry. Please come to the podium. MR. GOLAN: The four co-lead firms in the consolidated action also intend, with Your Honor's permission, to jointly participate in the action. And we had submitted a motion to intervene on behalf of plaintiffs Jones and Maguire, in addition to the Shenker group. THE COURT: Yeah. I saw the motion to intervene. That's actually what worried me a little

6 0 bit, because it suggested to me that there wasn't a common front, and that there were actually separate desires. And what I would prefer not to have is similarly situated people giving me multiple submissions. MR. GOLAN: No, Your Honor. The three plaintiffs and the four co-lead firms are a group for purposes of that action, as well. THE COURT: So I will grant your-all's motion to intervene. And then why don't you-all submit some little stipulation to the effect that, you know, you'll be submitting single briefs. Something that reflects that I'm not expecting three parties to be litigating separately in the action. MR. GOLAN: Yes, sir. THE COURT: All right. Great. So second thing, let's talk about which cases go first. And here I am limiting myself to the concept of the stay. So, Mr. Welch, do you want to raise that first, since I think you have a definite preference? MR. WELCH: We do, Your Honor. I think, from our perspective, we think the case ought to go forward. It's the case in which the broadest relief, in terms of opportunities, is

7 0 available to the Court. Certainly we believe that under Count I, that Cheniere did it right. No doubt about it from our perspective. We're prepared to brief that on a very prompt basis, Your Honor. With respect to Count II, obviously that's a fallback count to be available to the parties and to the Court should the Court disagree with Count I but, at the same time, that's not available in the stockholder action. So we would suggest and submit that the right thing to do here is to stay the stockholder action. And we've obviously put in a brief on that, which Your Honor is aware of. So we would submit staying that and moving forward on the action really involves the best use of judicial economy and the parties' -- you know, parties' opportunities to deal with the issues as they've been raised. I'm comfortable pressing Your Honor, should Your Honor want to hear it, our view as to why we think that -- and perhaps that comes in with the third issue on scheduling -- but why we think that the bringing on a Count I motion makes a lot of sense. But I'll defer to Your Honor. THE COURT: You've talked a couple

8 0 times about motions, so that's one of the things I want to know, is what do you believe that the action will look like? MR. WELCH: Well, I mean to start with, Your Honor, it's our view that this was not a vote controlled by the bylaw, and obviously, plaintiffs' focus is not only on the bylaw, but also on Proposals and. And as I'm sure Your Honor is aware, Proposals and have now been withdrawn. This was a vote that was controlled by NYSE Market. The certificate of incorporation didn't require anything in terms of a vote, the bylaws didn't. Certainly none of the organizational structural documents of Cheniere required a vote. Rather, the vote was required by the rules we've identified in our brief, by the NYSE market. THE COURT: There is this concept -- MR. WELCH: Yes, sir. THE COURT: -- in, I guess it's paragraph of your brief, that it may have been controlled by the plan. So in the section you quote in paragraph, "the Plan further provided that..." and you say in its discretion the board may do blah, blah, blah. Then you say "... provided,

9 0 however, to the extent necessary to comply with the Code, including (m) and of the Code..." and I'm going to leave out some text "... the Company shall obtain Stockholder approval of any plan amendment in such manner and to such degree as required." MR. WELCH: Yes, sir. THE COURT: So I wasn't sure whether that plus footnote created an obligation to seek this standard that included abstentions. MR. WELCH: Well, Your Honor, I'll go a couple of ways on that. Number one, I think that with respect to the plan, the plan did, in fact, direct -- and I think that's the language that you're quoting. The plan did, in fact, direct that a vote take place. I think Rule.0 and. of the NYSE market rules did the same thing. Of course, Rule. also -- pardon me,.0 specifically specified the votes-cast approach, which was used by Cheniere. And our position is that, again, without a doubt -- from our perspective, in any event -- Cheniere got it right. Not only did it tell stockholders, you know, what was going to happen with -- with

10 0 0 abstentions -- a point that was, I think, underscored in the Licht case, which is cited by plaintiffs in their brief, the fact that that was disclosed to stockholders was critical. If a stockholder wanted to vote yes, stockholder could vote yes. If a stockholder wanted to vote no, they could do that and if a stockholder wanted to abstain, they were specifically told that that abstention would not count with respect to the vote, consistent with the concept of votes cast under the Licht case, and I think that's important. So not only were stockholders told, Your Honor, but beyond that, the Exchange was told, as well, what had transpired. THE COURT: Look, the Exchange requirement, I get. MR. WELCH: Yes, sir. THE COURT: As I say -- and this is what's odd about. I mean, we don't really know how it works, but it seems to me that if a company is going to come forward and say, "Court, bless this," you have something of an obligation to come forward and inform the Court about everything that one is blessing. And I thought you did a nice job of that by, you know, giving me this plan language, and then

11 0 you got a couple footnotes in here that suggest that there are a couple of warts on this. And so one of the warts that I thought you might be adverting to was this idea that there perhaps was a tax code vote that, while otherwise optional, was in fact made mandatory by the plan. But what I hear you saying now is, no, that's not one of the things that you are articulating. You think it's purely a New York stock market thing? MR. WELCH: No, sir. I don't believe it was required by the plan. There were some tax advantages to doing it. (m) also, Your Honor, references the votes cast standard, and obviously alludes to state law as appropriate. But there's nothing about Delaware law that would suggest that on a votes-cast standard that you count abstentions. Indeed, the emphasis in the Licht case, Your Honor, couldn't be more clearly to the contrary. They identify -- I think Vice Chancellor Noble, if I'm remembering correctly, identifies a whole host of circumstances where that votes-cast standard is applied and does not involve counting abstentions. So again, as I said, Your Honor, not only did we tell stockholders about what the effect of

12 0 abstention would be, we also forwarded the Inspectors of Election report to NYSE Market, told them what the for votes were, the against votes were, and what the abstention votes were. And at that point NYSE Market decided to list the shares. So, I mean, in that sense I think -- to turn just briefly to the scheduling issue, Your Honor -- and there's a lot more we can say, and I'm happy to address any issues that the Court has about this. But, you know, I think, from our perspective, the right thing to do is to move forward with the action. It's the one with the broadest potential sources of remedies available to the Court. We don't think we're going to need Count II, we think Count I will do it. I would suggest, Your Honor, that the right thing to do would be first to bring on, you know, our brief on Count I. I think we could file that in -- in two weeks, Your Honor. We can do that. And then as quickly as the plaintiffs want to respond, we will respond equally quickly with a reply. We can cue that up for decision by Your Honor. Again, it's a powerful -- THE COURT: Let me understand. MR. WELCH: Yes, sir.

13 0 THE COURT: You've used the term "motion," you've used the term "brief." Is this summary judgment? Is this judgment on the pleadings? What is it? MR. WELCH: Your Honor, I would say -- THE COURT: You need to make a decision. MR. WELCH: I understand. seems to me, at least in some circumstances, to not contemplate even an adversarial proceeding. It seems to say -- and I think there's a very limited Chancery precedent to this effect -- that a corporation can come in, can present its arguments and views, and the Court can make a decision based upon whatever presentation the Court feels is appropriate. Now, here, I'm mindful that Your Honor's already admitted our friends at Grant & Eisenhofer and have indicated that you'll do the same with respect to our other colleagues. So there's nothing that tells us (b)() applies,. applies, or how it goes, but it seems to me that that's the typical approach that's used, and I don't know why we couldn't brief that up. It's a question of law, we think, Your

14 0 Honor. We think that -- we think we got it right. Cheniere got it right. We think it's a question of law. We think it's something that can be laid out very quickly, very promptly, efficiently, for Your Honor's decision on the question of law. THE COURT: Let me ask you something about that. Because -- and one of the things that (d) contemplates is this list of factors -- MR. WELCH: Yes, sir. THE COURT: -- that the Court is empowered to consider. MR. WELCH: Yes. THE COURT: "May." It's permissive. One of which is the expansively phrased "any other factors or considerations the court deems just and equitable." So what happens with those five factors? Is that a discovery issue? So if you have a situation where -- and I think it's safe to say that Mr. Golan is going to oppose your claims that this is validly done. MR. WELCH: I think Your Honor is not going out on a limb on that one. THE COURT: Yeah. So -- MR. WELCH: We so anticipate, Your

15 Honor. 0 THE COURT: So when he does that, does he get to take discovery to try to develop a record to show me things that I should take into account under these five factors? MR. WELCH: Well, Your Honor, it seems to me that if we present the legal question in Count I, I don't think it's a whole lot different than it would be if we were moving to dismiss from a procedural standpoint. Often times we seek to stay discovery, as Your Honor well knows. In a. motion the Court will sometimes routinely stay discovery and consider the question of law. So I think in the first instance there is a question of law here. I think Your Honor can address it readily and quickly. And I think Your Honor will find as -- I don't mean to be repetitive, but I think you will find that Cheniere called it right. Cheniere called it dead right with respect to the application of the NYSE rules, with respect to Rule.0,., with respect to what they told stockholders about the effect on abstentions. As I said, the Licht case -- I think it's footnote, if my recollection is right -- really bears down on that

16 0 and makes the case that, you know, stockholders were told. And that's really an important factor here. And when you add to that that they also went to the Exchange and told the Exchange what happened, told the Exchange about abstentions and the Exchange listed the shares, I think that's pretty good corroborative evidence and support for the proposition that, as I said, Cheniere called it right. Now, if we get beyond that, Your Honor, again, I'm -- you're not going out on a limb in saying they're going to be looking for discovery. They will. If I had to guess, I would say Your Honor is going to award some discovery if we get to the Count II proceedings. I don't think we need to rush into that now. Points and were taken off the table. We moved the meeting off. I think what we did was the kind of things that a responsible corporate citizen, in the face of these arguments, should do. So that's been done. I don't think there's a crisis here. I think they may say that there is, but we'll respond to that if and when they do. But I think the right thing is to -- perhaps Your Honor could consider cueing up the

17 0 question of law, presenting that. We'll get our brief filed in two weeks. We'll get it filed sooner if Your Honor wants, but I think we can easily get it done in two weeks, and let's bring it on and let's decide that issue. Much as you would, I think, in class or derivative litigation. This is a question of law. So -- THE COURT: I see. And I hadn't focused as closely on the distinction that you're drawing, but in your view count I is the one where you've teed it up as a matter of law? MR. WELCH: Yes, sir. And I -- THE COURT: And Count II is the one where you say hey, look, we don't know what the problem conceivably could be, but if for some reason there is some need -- notwithstanding Count I -- Count II is the one where we'll get into these factors and do validation notwithstanding. MR. WELCH: Your Honor, having looked at the statute, that's what I would suggest is the right approach. I think plaintiffs' claims, by and large, all rise and fall with the allegation that we got the vote wrong. I mean, if you look at their disclosure claims, for example, in the Shenker case,

18 0 they say we falsely told stockholders that abstentions wouldn't be counted. We think that's wrong. Cheniere got it right. They say -- and I think that would be solved by a decision by Your Honor with respect to the narrow legal issue. They say the -K falsely said that Cheniere got majority stockholder approval when in fact it didn't. Well, again, I think that can be readily resolved by addressing the legal question. I think their fiduciary duty claims suggest that -- in a very conclusory and nonspecific way, I would emphasize -- but they suggest that, you know, this was somehow driven by some desire to pick the wrong standard or something. And I think -- I think the record, to a limited extent in our stay brief, but to a broader extent in our brief that we will file in support of Count I, I think will make the point very clearly that when you look at what happened here, and when we look at what was done and you look at the NYSE Market rules and you look at the factor that none of this is driven by either the charter, the bylaws, or the operative corporate governance documents of Cheniere but, rather, was driven by the rules of the Exchange on which this company trades and

19 0 with which it has to comply, I think Your Honor will find that that question of law only goes one way. THE COURT: Yeah. What I'm hearing you saying -- and I had come into this thinking that we were going to talk about essentially one culminatory merits event. MR. WELCH: Yes, sir. I understand. THE COURT: And that would be essentially both counts. Maybe you'd win as a matter of law, maybe you'd win as a matter of validation. But what I hear you saying -- and what I'll now ask Mr. Golan to respond to -- is this idea that we'll do first a motion-based as-a-matter-of-law phase, and then if it turns out that as a matter of law you are not correct, then we'll do some discretionary -based validation phase? MR. WELCH: Your Honor, I would think that's -- THE COURT: That's what I'm hearing you suggest. MR. WELCH: I have ever confidence that my friends on the other side will not want to have that question of law presented in isolation. It's too easy to focus on, it's too easy to rule on.

20 0 I don't think they'll want that. I'll respect their views, however asserted and whatever asserted. But that said, I have little doubt about the response to that. But I think it's a powerful argument. THE COURT: How imminent, at all -- and I know you've taken it off for this annual meeting -- is a return of Proposals and? MR. WELCH: Your Honor, I have no basis to believe it's imminent at all. THE COURT: But I mean in terms of -- MR. WELCH: There's no -- pardon me, Your Honor. THE COURT: In terms of thinking this whole thing through, is it something that is in the earliest -- like a event? MR. WELCH: I can't say that, Your Honor. I can't say that with it having come off the table -- I just am not aware of any consideration that's been given to that by the board. I would not suggest that there's anything imminent about that happening. So I don't think Your Honor ought to feel any urgency or pressure related to that. And, indeed, that was not our intention in taking it off the table. Our goal here really was --

21 THE COURT: Yeah. You were removing the urgency. 0 MR. WELCH: We were trying to remove the urgency and trying to simplify -- THE COURT: I get it. In terms of the schedule, obviously we don't want to make this a manana thing, where it goes on for a year. MR. WELCH: No. It -- THE COURT: We could take -- let's say you take two weeks, they come back and say something -- however many. We could take 0 to 0 days, 0 days on the as-a-matter-of-law portion, and it wouldn't cause you -- MR. WELCH: No, sir. THE COURT: -- discomfort. MR. WELCH: No, sir. Not at all. And there's no intention whatever to bring that back at the scheduled September meeting and, as far as I know, no intention at all with respect to scheduling at all at this point. I'm not saying it could never come up, I couldn't do that, but at the same time, Your Honor may well reach conclusions that at some point might make it appropriate. But we're not trying to pressure the Court. We do think -- however, I am

22 0 mindful of Your Honor's admonition just a moment ago that could we bring on a prompt legal presentation about the question of law? We absolutely can. And with Your Honor's permission, we absolutely will. THE COURT: All right. Well, let me hear from Mr. Golan. MR. WELCH: Yes, sir. MR. GOLAN: Your Honor, I think we have to look a little bit at -- THE COURT: Remind me what you were -- we had like another long case where we saw each other a lot, and I'm blanking on now what it was. MR. GOLAN: We had the Allergan case. THE COURT: That's what it was. You were in that. Okay. I knew you looked tremendously familiar to me. I remembered you and I remembered us interacting before, but I couldn't remember which exact case it was. MR. GOLAN: Yes, Your Honor. And unfortunately, the -- THE COURT: That's one I got wrong. I -- MR. GOLAN: Well, not in our view, Your Honor.

23 THE COURT: I get a lot of these things wrong. MR. GOLAN: Not in our view, Your Honor. THE COURT: I can tell you, all I do is try. 0 MR. GOLAN: I think we have to look at how we got here, because I don't think that this action is really what this statute was intended for. was intended to cure technical defects so that the whole capital structure or stock issuances were not upset when, for example, one out of twelve directors didn't get their unanimous consent form back in time. Here, Your Honor, in February, there was a vote taken on an amendment to increase the shares by million in the plan. I can go into all the reasons why the bylaws and this -- the bylaws required that abstentions count as "no" votes. Delaware law, the default rule required it, Section (m) of the tax code required it. Even the New York Stock Exchange Market rules themselves only show them as minimum votes, and specifically allow that states -- state law or bylaws can require more stringent voting requirements.

24 0 But what happened was that in this case, percent of the shareholders said yes and the rest either abstained or said no. And under Delaware law, that would -- and under the bylaws at the time, that was not sufficient to allow this company to issue million shares. So we have that. Then, come April of, this company's board wants to add another 0 million shares into the plan, which they are planning to do under these Proposals and. They change the bylaws. If my friend Mr. Welch was right, they wouldn't have needed to change the bylaws. But they do. They change it to try to sweep under the rug that the prior vote really didn't pass, and to make it much easier this time to get the votes that they need to get another 0 million shares into the plan. And, Your Honor, just for a little comparison's sake, if that had occurred, over percent of this company's stock, by the end of the awards of those shares, would have been in the hands of insiders, which is an enormous percentage unless you have a company like a -- you know, a founding partner. So you have that. You have in April they also announce the compensation to be paid, that

25 0 was paid in to their chief executive officer, which is $0 million, which is $0 million more than any other CEO in this country gained in compensation last year. And you have another -- in fact, they award million shares out of this plan to the CEO, and that's not enough. They have to go back and add another 00,000 shares from a 0 plan, so that he gets. million shares last year. The five next-senior officials, including the general counsel, get stock awards equaled to something over $0 million worth of stock. And that's the context of this case. Looking at the compensation that was awarded, when it was disclosed at the end of April, and looking at the bylaws and looking at the vote totals and looking at how they wanted to change the bylaws, we recognized that the prior vote had not passed based on Delaware law and based on the then-existing bylaws. We caught them. And it was through a lot of analysis that a -- I mean, they raised in their brief this laches or acquiescence. No shareholder could have figured this out at the time, because shareholders are entitled to assume that a board is acting in compliance with its bylaws. That's part of the contract.

26 0 So here we are. We filed this case at the end of May. We filed a brief in support of our motion for expedited proceedings, and the following Monday I got a call from Mr. Welch and Ms. Saltzstein giving me a head's up that the company is postponing its vote, and they file a form -K that specifically identifies the filing of the complaint and the motion to expedite as a reason for postponing the shareholder vote for three months. And then we start to negotiate for expedited discovery. We speak the next day. We had a conference call with Your Honor that day to advise the Court that there was no absolute immediate need for a hearing on that motion. THE COURT: Thank you again for letting me know. MR. GOLAN: You advised counsel that they should try to work through a schedule if possible. We had discussions on that next day. The following Thursday I received a proposed case management schedule from Cheniere's counsel. I responded the next Monday, and the next Tuesday, which was the th, I believe. And then the next day after that we were told that there was some representation

27 0 issues. So I asked if Cheniere's counsel would make sure that any other counsel coming into the case see our proposed case scheduling order so that by the end of that week we could have something jointly submitted to Your Honor. I don't know what happened after that. Maybe they started going through documents, maybe they started brainstorming other ideas, but the next thing we saw -- having been told that there would be significant movement the next Monday and that I should not submit something to Your Honor -- we got hit with the petition, which now seeks to -- and a motion to stay the consolidated action. And clearly the petition was not brought because this company had recognized that they had a defect, like a unanimous consent was missing. What they did was that they filed the action hoping that it would take precedence and completely undercut the need for discovery and expedited proceedings in this matter. But I don't think it does that, Your Honor. Even with the postponement of the hearing until September and even with the abrupt withdrawal of Proposals and, there's still going to be a

28 0 shareholder vote, Your Honor. And there is still good reason for this Court to allow the consolidated stockholder actions to go forward so that we can seek whatever appropriate injunctive relief is necessary prior to that shareholder vote. If the Cheniere corporate board violated the bylaws, if the Cheniere corporate board -- one of the factors Your Honor mentioned under is that you look at other factors, but you can also look at intent and belief at the time. And we believe, especially based on the amendment to the bylaws in April, -- which would have been superfluous if Cheniere really believed at the time that the vote could legitimately be based on New York Stock Exchange Market rules rather than their own bylaws -- we believe that discovery into those matters should progress in the stockholder case and, really, that this petition should be viewed as a tag-along case. At some point we can get back to briefing whatever issues might be involved in that case that may be different from the consolidated action, but the defendants didn't file a -- instead, they're seeking to stay the consolidated action, which we think is very good reason to deny and to allow us to conduct

29 0 discovery at least on the same track as any other briefing that the Court may wish to hold. And that -- and there's no reason not to do that. It's a -- THE COURT: So what is the pre-meeting relief that you would envision? MR. GOLAN: Your Honor, we may envision further disclosures about the prior vote. We may envision further disclosures about the compensation committee members who approved these stock awards. We may envision that -- I -- those are the kinds of things, obviously, if the Proposal and -- we may envision -- THE COURT: You're talking -- MR. GOLAN: We may envision -- oh, excuse me, Your Honor. Just one more thing. We may envision seeking to invalidate the bylaw amendment if it was done for an improper purpose, because one of the things that that bylaw seems to allow the board to do is decide on a vote-by-vote basis, depending whether they have a shareholder proposal or a board proposal, whether or not they're going to count abstentions as "no" votes or whether they're going to count abstentions as non-votes. THE COURT: But is there anything on

30 0 0 the agenda for the annual meeting that would implicate the bylaw? Is there anything where they have -- MR. GOLAN: Nothing has been filed with the SEC. The last thing that's on the agenda is Proposals and. The revelation that Proposals and were going to come out from the September meeting were done through the brief in support of a stay and done through the separate letter that Cheniere's counsel wrote to Your Honor. THE COURT: And do you know off the top of your head whether Cheniere's standard for director elections was plurality or whether they have something higher? MR. GOLAN: I'm afraid I haven't looked at that, Your Honor. But I do know in the old bylaw, abstentions would not have been counted for director elections, but they would have been counted for every other vote that was -- that went to shareholders. And, I mean, we're very comfortable with our position that the bylaws held and that there is no such exception. But we don't think that our case -- which we started two weeks, three weeks before this petition that was filed only in reaction and, really, is sort of a backtracking effort to avoid

31 0 discovery -- we don't think that Your Honor should allow that to have precedence in favor of the consolidated action. THE COURT: All right. Thank you. MR. GOLAN: Thank you, Your Honor. THE COURT: Mr. Welch, anything else you'd like to add? MR. WELCH: Yes, sir, Your Honor, there is. I guess I would start, Your Honor, simply by noting that I think this case is exactly what Section contemplates. I mean, it makes very clear in the statute that the Court can determine the validity -- as we asked the Court to do in Count I -- of the vote tabulation, or that can validate any defective corporate act. It seems to me this is exactly what the legislature had in mind. It provided huge flexibility to the Court. They want to oppose the stay, Your Honor, but there's really no basis that they've spelled out for opposing the stay. There's no disclosure that they're challenging. They say, "We might come up with some disclosures," but there's no disclosures that they've come up with so far that would be applicable in this circumstance, where

32 0 Proposals and have been taken off the table. They have the speculative claims about the bylaw amendment, but all that's really left on the table, Your Honor, is election of directors in September. There's a selection of auditors, and beyond that, a nonbinding say on pay. And that's it. And there's nothing wrong with the content of Section. of the bylaws with respect to those issues. Absolutely nothing. And they've identified nothing. What they've tried to do is make some arguments about Proposals and. We think they're wrong about those. Another reason, Your Honor, why we took them off the table. I would emphasize, Your Honor, that this is not a breach of loyalty case. There's no pleading, except on a conclusory basis, of knowing or intentional wrongdoing. There's some conclusory statements, but that's about it. Again, the directors here get -- it's an independent board, Your Honor. The directors get about -- and plaintiffs plead these facts to a degree. Particularly in the Shenker case there's a chart that identifies how much directors get. And it's about 0,000 a year, and they have a right to take some of

33 0 that in stock. But the notion that this is some clandestine conspiracy to use the wrong vote -- and Cheniere did not use the wrong vote -- but to achieve some benefit for stockholders just doesn't compute. It doesn't make sense. There's no allegations that cause it to make sense. So again, this is not a loyalty case. They criticize the loyalty -- the officers for making too much money. The last time I checked, I don't think that states any claims under Delaware law. But that's the innuendo. That's the inference. Beyond that, they did delay in bringing on the case. I think, as we said before, demand in their case was not futile. Had they made a demand, Your Honor, we would have done -- I have to presume -- just what Cheniere did, which is postpone the meeting, drop certain proposals, and try to accommodate the Court, and them, in an effort to try to get this done and get it done right. There are no disclosures that they've identified that aren't tied to, Your Honor, the vote. This case rises or falls with the tabulation of the vote, which stockholders were told about, the NYSE Market system was told about, NYSE Market listed the

34 0 shares. And I think that's why I think cueing this up on the question-of-law basis, Your Honor, is the right thing to do. THE COURT: All right. Thank you. MR. GOLAN: Your Honor, may I be heard for two minutes? THE COURT: Sure. Looks like Mr. Manwaring is inspired to add something as well. So why don't we hear from him first, and that way, if you want to do cleanup all at once, you can. MR. MANWARING: Good afternoon, Your Honor. Albert Manwaring from Morris James for the officer defendants excepts for Mr. Thames, who is represented by Mr. Ross. I rise briefly just to make one point on behalf of the officer defendants, that regardless of whether Your Honor concurs and rules that the proceeding should go forward as a matter of law -- and we certainly concur in that position as well -- and view that something like an advancement proceeding where the record is the bylaws and the pleadings, if you will. So a judgment on the pleadings, or cross motions for summary judgment, and we're certainly in favor and concur with that position here.

35 0 But regardless of whether you allow discovery can proceed in the derivative or not, no discovery should proceed against the officer defendants. The plaintiffs here rely on four predicate acts: Not counting abstentions in violation of the bylaws, issuing shares, proxies, and amending bylaws. All those facts, as alleged in the operative complaint, the Jones complaint, are alleged as director defendant acts and not officer acts. Nor under the Delaware General Corporation Law is an officer capable of performing those acts. So accordingly, we believe that the Grant & Eisenhofer firm, which is cocounsel here, actually got it right. They did not allege contract and fiduciary duty claims against the officer defendants and, instead, have relegated those claims against the director defendants, which leaves one last claim against the officer defendants, and that's unjust enrichment. And unjust enrichment is basically an alternative theory to a contract claim. All their claims are based on a breach of the bylaws, a contract between the board, the stockholders, and the company, not the officers. It would only be in the absence of

36 0 that contract that you could assert an unjust enrichment claim. So accordingly, there are no claims against the officers, and so the default rule of a customary stay in the face of a motion to dismiss should be adhered to, at least with respect to the officers. Thank you, Your Honor. THE COURT: Thank you. MR. GOLAN: Thank you, Your Honor. Regarding your earlier question, in the previous bylaw it was unclear what was required for election of directors. In the current amended April, bylaw, it's a plurality of the votes cast. In terms of the argument that we should just allow this to go forward just with a legal question first, first of all, there are issues, we think, to be decided before the next shareholder vote, even for the election of directors. But also, Your Honor, as far as we know, if Your Honor is inclined to allow the action to proceed, as far as I know, this is the first time that that new Delaware corporate provision would be interpreted by a court. THE COURT: The second time. MR. GOLAN: Second?

37 0 THE COURT: Vice Chancellor Noble did one, but it wasn't a challenged action. MR. GOLAN: Okay. I stand corrected, Your Honor. THE COURT: No, that's fine. MR. GOLAN: In -- THE COURT: I don't know everything that goes on. There's no reason for you to know everything that goes on. Except for Mr. Wagner. Mr. Wagner is probably the only one that knows everything that goes on. MR. GOLAN: I'll have to consult with him next time, Your Honor. In Native American, Your Honor wrote that "Courts should tread cautiously when asked to validate shares." In the Starr case, the Supreme Court said that "The law properly requires certainty in such matters." And it emphasized that "A court must act with caution and restraint when granting equitable relief in derogation of established principles of corporate law." Your Honor, we believe that before there is a ruling on this petition, the Court should have a full record. The Court should have

38 0 discovery. I'm happy to talk to Mr. Manwaring about the discovery that we've issued to the officer directors as part of the overall defendants, but we think that there has to be discovery, especially because the consolidated action presents colorable claims. We demonstrated that in our motion brief, it presents good cause, and there's no reason why the consolidated action should not be allowed to go forward, even with expedited discovery, whatever Your Honor wants to do with the action. So we would urge the Court not to give the action precedence and not to stay discovery in the consolidated action. THE COURT: All right. Thank you. I understand where everyone's coming from. I appreciate your thoughts, and I appreciate everyone coming in and getting together so we could chat about this. I am going to proceed essentially as Mr. Welch suggests. My reasons are as follows: First of all, I do think that in this case the Section action logically takes precedence and is designed to take precedence. The idea of fixing things through ratification and the idea that you could moot challenges by engaging in ratification is something that is long-standing. When things can be ratified by

39 0 the board level, the board can come in and ratify them. When things can be ratified by the stockholders, the stockholders can come in and ratify them. There has, however, been this area of our law, as Mr. Golan adverts, where, given Supreme Court precedent -- including the eponymously named but unrelated Laster v. Waggoner decision -- where you just couldn't do it in this context for shares and other things that were classically ultra vires. So we have Section. I think Section should take precedence, just like a board decision or a stockholder vote that ratifies and potentially eliminates an issue should take precedence. I also think that equity acts when there isn't an otherwise adequate remedy. Here, there is an adequate remedy in the form of Section. I guess technically it is a remedy at law because it's a statute, but it's a remedy at law that gives this Court jurisdiction over. Now, the outcome of the case may or may not moot the derivative case -- and I actually should call it a breach of fiduciary duty case. I

40 0 0 think that it's not at all clear to me that, assuming the plaintiffs are correct that the directors acted contrary to the bylaws and/or contrary to a stock option plan, that that is a derivative claim. I rather think that is a claim for breach of a contract obligation between the directors, the stockholders, the corporation and, therefore, it is best viewed as a direct claim. That's something that our Chief Justice was adverting to in a case that I took over from him involving another New York Stock Exchange vote on a plan requirement. I think it really does make sense. But I don't have to rule on that today. All I'm going to say is I think that the nomenclature for the derivative action may not be aptly chosen. But, again, it may not moot that. What is clear from and what is clear from is that it addresses legal validity. So if you go back to the Adolf Berle distinction between validity -- whether you can do something and have the power to do it -- versus equity, what Section and address is validity. Let's assume that these shares are validated, but they're validated at great expense and cost to the company. There is still a potential wrong out there. It doesn't necessarily mean that that

41 0 wrong is moot. That wrong might be de minimis, such that nobody feels that it's worth pursuing, but it may or may not be that there is, nevertheless, a claim against the humans who caused the corporation to engage in particular behavior or who acted contrary, it is alleged, to potential contract rights as part of the constitutive agreement between the corporation and stockholders. That would still remain live. But what does make the most sense is to take care of the validity claim first. Because if it turns out that Cheniere got it right and all it cost them was 00,000 bucks to come in and do a proceeding -- and, granted, I'm sure Mr. Welch is far more valuable than that. I don't mean to insult you, Mr. Welch, by positing that amount. MR. WELCH: I make no such claim, Your Honor. THE COURT: All I'm saying is that if that's what it ends up being, that's a de minimis amount and there wouldn't be much to fix in terms of a continuing harm to be addressed by the plenary action. We ought to figure out first whether these shares are, in fact, valid. I don't think there

42 0 is any reason proffered that persuades me to continue with the plenary action on some path that would allow disposition in advance of the annual meeting. Nothing that I've heard about the annual meeting suggests that there's anything on the agenda where that would be required. The reason I asked about the director vote -- and I think Mr. Golan may have misspoke. I think the new bylaw does have it be the affirmative vote of "... holders of a majority in voting power of the shares entitled to vote, present or by proxy, with abstentions counting as votes against." Regardless, what I was wondering is assuming a situation where these shares were invalid, such that the vote on directors turns out to be called into question because it took into account some portion of these shares, the question I was toying with was whether that was the type of thing such that we ought to move to get this done in advance of the meeting so as to avoid any problem with that. I don't think that is a problem, and I don't think that is a problem because one of the things that and contemplate is chain reaction validation. So, in other words, if you go back and validate the cause of the fissure in the corporate

43 0 governance structure, it plays through and anything that flows from that is validated. So assume there was, in theory, some problem with the director election as a result of these shares. If ones go back and validates the shares, that plays through and validates everything else. If for some reason we otherwise find out that these shares really are invalid, well, then we can take it into account as part of the remedy, if we have to, either as part of the validation or as part of something else. So I don't think there's any need to move on a rapid pace. Certainly I haven't heard anything about any disclosures that I think would be necessary or anything like that. For present purposes I am staying the plenary action so that we can proceed with the action. I would ask the parties to submit something to that effect. The plaintiffs may seek to lift the stay for good cause shown. If, for example, there is a proxy statement that comes out that does contain disclosure issues or something like that, I'm not precluding you from seeking to take that step, but think it over first. In terms of the action, I do think

44 0 it makes sense to proceed first with the as-a-matter-of-law question. If Cheniere's right, we're all done. The action is over, people can go home. If they're not right, then we have this multi-factor discretionary validatory analysis in which I have to engage. And it does seem to me that that will likely require some discovery. It certainly might require some type of presentations and some type of merits hearing. I just don't know. If we get there, we'll get there. I will take Mr. Welch up on his offer to put in his opening brief in two weeks. From the plaintiffs' side, what is a reasonable amount of time for you-all to put in an answering brief? MR. GOLAN: Your Honor, we're satisfied with two weeks, as well. THE COURT: Two weeks is fine? MR. GOLAN: Yes. THE COURT: All right. Two weeks it is. And then one week for the reply? MR. WELCH: Yes, sir, Your Honor. THE COURT: And then you-all can contact my assistant. I actually don't know where

45 0 that puts us in terms of calendaring, but if you-all can work that out with her, that would be great. Mr. Welch, any questions from you or your team? MR. WELCH: Not from me, Your Honor. THE COURT: Okay. Mr. Golan, any questions from you or anyone on your team? MR. GOLAN: No questions, Your Honor. Just given the stay, there has been a lot that has happened. Under that stay, would the plaintiffs be allowed to file a consolidated amended complaint? THE COURT: Do you want to do that now or do you want to wait? I mean -- Mr. Lebovitch, you can stand up. I mean, I'm happy to hear from you. I mean, I can hear from both of you. That's fine. MR. LEBOVITCH: I'm sorry, Your Honor. THE COURT: This is what would happen if we were downstairs just sitting around the conference table. Everyone would feel more comfortable speaking up. So imagine that we're there and that it is no slight to Mr. Golan and/or to me or anyone else.

46 0 MR. LEBOVITCH: I appreciate that, Your Honor. And I -- THE COURT: Why don't you come over to the podium anyway. MR. LEBOVITCH: Okay. Your Honor, what I was hoping to communicate to Mr. Golan, but I'll communicate straight to the Court, is there's been a lot of statements made, a lot of changes of facts since complaints were filed. The defendants have made some comments about the differences between complaints. If there's not going to be a ruling on the substance before the election, we may -- whether it's in a week or at some point before the election, you know, we may conclude that it's part of our duty or strategy to file an amended complaint that challenges the current state of affairs, rather than events that happened in the past. And so I think all I wanted to clarify is if, while the action is being addressed, you know, on whether the board can ratify what would be -- THE COURT: The Court. The Court is validating. I'm engaging. They're petitioning me for validation. MR. LEBOVITCH: Yes, Your Honor.

47 0 THE COURT: It's a whole new terminology. It's something we all got to get used to, but -- MR. LEBOVITCH: Well, I guess we'll brief it. It would be ironic that bylaws or contracts could be used as weapons against shareholders, but boards that violate them can go get ratification of their own briefs. But we're not there yet. THE COURT: They want to be -- MR. LEBOVITCH: Yeah. THE COURT: You know, it's more than just patted on the back. It's told like, hey, you did it right. MR. LEBOVITCH: Well, if they did it right, I guess they did it right. We don't think they did it right. We'll find out if was meant to say that Williston on Contracts applies to bylaws against shareholders and it doesn't apply -- and you can actually say, well, we just breached it. But, the Court is going to say it's okay. It's validated to breach the contract when it's the directors breaching the contract. That, obviously, we'll brief out in the future. THE COURT: We'll talk about that, but

48 0 I don't think posits that. I think what says -- and this is the Count II concept. The Count II concept contemplates that the grant of validation can be, you know, conditioned on things. It's a very open-ended equitable thing. So I don't think it prevents you from -- first of all, I don't think, as I said, I don't think it moots the idea of if there's harm to the company, you could potentially still get a remedy. But I also don't think it causes any difficulty, like let's say that shares are invalid and you want to say something like, well, Your Honor, we understand that it's likely that the Court is going to validate them because there are all these nasty consequences for employees and things if you don't, and it creates these deep fissures going to the heart of the company's governance structure and it just doesn't make sense to have nobody ever be able to opine again on shares being duly authorized. But there ought to be some condition on that, like X, Y, and Z. Doesn't seem to me like it prevents you from doing that. It's not just a free-wheeling license. MR. LEBOVITCH: Well, I would hope not, because that would be a very one-sided view of what's supposed to be a contract. I don't think