CA issues TRO in favor of Meralco board

abs-cbnnews.com | 05/30/2008 7:11 PM

In a new twist to the ongoing legal battle between the warring major shareholders of the Manila Electric Company (Meralco), the Court of Appeals issued a temporary restraining order (TRO) in favor of Lopez-controlled Meralco board.

The 9th Division of the Court of Appeals on Friday issued a 60-day temporary restraining order (TRO) in favor of Lopez-controlled Manila Electric Company (Meralco). The TRO effectively stifles a quick resolution of the dispute between the Lopez family and government shareholders led by Goverment Service Insurance System (GSIS) President Winston Garcia over the election of a new Meralco board. A new board was elected during the May 27 annual stockholders meeting of Meralco.

The appellate court's TRO nullified two SEC orders on the Meralco board election. A SEC official read out SEC's cease and desist order after a quorum was confirmed early into the 12-hour long meeting Tuesday. When the Meralco board snubbed SEC's cease and desist order after a nine of the 11 incumbent board members favored the Lopez family, proceeded with the meeting and eventually won more seats in the new board, the SEC issued Wednesday a show cause order addressed to the new Meralco board.

On Thursday, Meralco questioned the complaint lodged by the GSIS and the SEC orders in its 56-page petition for a temporary restraining order (TRO) with the CA. Aside from asking the CA to nullify the orders, Meralco asked the court to also stop the SEC from further issuing orders related to the stockholders' meeting.

SEC was in a hearing Friday with both GSIS and Meralco officials explaining their positions during the Tuesday meeting. But the hearing already adjourned when the TRO from the Court of Appeals reached the SEC officials.

The SEC panel gave Meralco and GSIS three days to submit documents to support their arguments. But with the TRO, these may not be necessary.

CA set the hearing on Meralco's petition for June 23 and 24 at 10 a.m. The CA gave SEC and GSIS 10 days to submit their comments.

Valid board
The May 27 election allowed the Lopez family to retain control of the power distribution firm after fending off an attempt by government shareholders to nominate more directors in the Meralco board and, thereforem control Meralco.

With the TRO from the CA, the Lopez family effectively remains the valid board.

"As long as the final ruling disqualifying them as duly elected board members is absent, then they are the valid board," acknowledged SEC Secretary Gerard Lukban, who said they were already anticipating the TRO since there were rumors that it would be issued today.

"The TRO orders that status quo be maintained. As far as SEC is concerned, everything will be suspended. There will be no hearings for the duration of the TRO."

Lucban said that it will abide by the CA's order for now and will suspend sending the summons and copies of petitions to the respondents. "If a higher body, like the Supreme Court, orders otherwise, I guess that's the time we can resume the hearings."

"For this round, it's the Lopezes who won. They retained status quo. And whoever sits on the board and has control of the management has the responsibility to run the business even if hearings are ongoing."

Meanwhile, Estrella Elamparo, GSIS chief legal counsel, told reporters that they will comply with the TRO but will question it.

"Actually, we already filed for a motion to lift the TRO around 1:30 p.m. today. We will attend [the hearings] and present our evidence."

Elamparo said that if the TRO is not lifted, they have the option to file a motion for reconsideration with the CA or will elevate the case to the Supreme Court. "But what we really want to do is to exhaust all remedies at the lower courts before we go to the SC," she said.

"This delay, of course, is to their advantage. But for us, it's not over until it's over."

Jurisdiction
Last Tuesday, Meralco's corporate secretary gave 10 reasons why the Lopez-dominated board decided to consider SEC's cease and desist order null and void. Among others, the company pointed out that the order lacked a date, the SEC seal, and signatures on the document.

Of the 10 reasons, however, the most crucial was about SEC's jurisdiction over the issues of the Meralco board.

Monico Jacob, Meralco's Regulatory Management Office head and himself a former SEC chairman said the SEC had no jurisdiction over intra-corporate disputes or controversies because the agency's quasi-judicial functions have been transferred to the regular courts.

In Meralco's petition to the CA, they cited Presidential Decree 902-A, which gives the power to settle such disputes to the regional trial courts (RTCs).

Jacob and other Meralco officials said they were confident that Meralco could defend their position in court. "We are not defying anything because SEC has no power over what happened here," Jacob told reporters Tuesday.

Meralco added that the company was not given due process by the SEC because there was no investigation or hearing done prior to the issuance of the orders.

It said the agency merely relied on the GSIS's allegations against the proxy votes of Meralco.

Meralco said the SEC also committed grave abuse of discretion when it released the CDO, as shown in the irregularities in the order itself.

Meralco also said Commissioner Jesus Martinez had a bias against the power company.

The CA, according to Meralco, had the power to resolve the issue. Meralco said that the majority of the company's stockholders will be disenfranchised in voting for the company's board if the CA does not nullify the alleged questionable orders.

Investors rights or board control
Since the board dispute between the two major shareholders who each own about one-third of the company was not settled before and during the stockholders meeting Tuesday, it has been expected that the next battle would be in the courts.

The legal battle will be on whether the issue was about protecting the rights of investors or, as Meralco alleged, about board control.

SEC Secretary Gerard Lukban said Wednesday that the SEC had the authority to intervene in the Meralco stockholders' meeting since the issue involved determination of qualified proxies.

The proxy votes, or written instructions of stockholder to authorize either the GSIS or the Lopez family to vote on their behalf, were crucial in determining whose representatives would outnumber the other. Because the board snubbed SEC's cease and desist order Tuesday, the nominees of the Lopez family won five out of the 11 board seats while the government nominees had four. Two slots were reserved for independent directors.

It took Meralco's nomination and election committe seven hours to canvass the votes for board of directors.

If SEC's Order was followed, SEC compliance and enforcement official should have supervised the validation and counting of the proxy votes and nullified those that favored the Lopez-nominated directors.

Lucban acknowledged that intra-corporate disputes are no longer under the SEC, but stressed that proxy voting, which was the issue raised by Garcia in his petition, still falls under the SEC.

Lukban said the May 26 cease and desist order (CDO) was issued without giving Meralco the opportunity to air its side since time was "of the essence" given that the Meralco stockholders meeting was to be held the following day.

"We had to be swift in acting on this," Lukban said, adding that not issuing the CDO would have caused "irreparable injury."

Contrary to Meralco officials' claim, Lukban said the CDO had a date. The date was written on every page of the 7-page CDO under the signature of SEC officer-in-charge Jesus Martinez.

Malacanang's hand
Lukban denied that the CDO was hastily issued since the Office of the President is allegedly behind the move to get the Lopezes out of the Meralco board.

"As the secretary of the SEC, I can say this (CDO) was not dictated by Malacanang," he said. "This is SEC acting as an independent body."

Meanwhile, the GSIS also filed a request at the CA to re-raffle the Meralco petition, which was earlier assigned to the 9th division.

GSIS lawyer Estrella Amparo said they are asking for a re-raffle in front of all parties concerned to remove any doubt in the proceedings.

In a phone interview, press secretary Ignacio Bunye told ABS-CBN that the palace accepts the CA's decision. "We are leaving this issue in the hands of the court. We are only finding ways to lower electricity rates and not out to get the Lopez family out of Meralco."

Earlier, President Gloria Arroyo formed a cabinet study group that will dialogue with Meralco officials. The study group already met with Meralco officials Thursday and a technical working group was assigned to look into the suggestions of the Lopez owned utility firm. -- with reports from Marieton Pacheco of ABS-CBN News and Judith Balea of abs-cbnNEWS.com

ABS-CBN News Online Beta