CA hears Meralco-GSIS case, to decide on jurisdiction issue soon
abs-cbnnews.com | 06/24/2008 9:32 AM
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By JUDITH BALEA
abs-cbnNEWS.com
In fifteen days, the Court of Appeals will decide which body had jurisdiction over the issues surrounding the treatment of proxy votes cast at the disputed May board election of Manila Electric Company (Meralco).
The appellate court’s decision will determine who of the two warring shareholders—the Lopez family, the legacy owner of Meralco, and the government, led by state pension fund Government Service Insurance System (GSIS)—will control the country’s biggest power distribution company.
The ruling from the Court of Appeals will determine which body—the regular courts or the Securities and Exchange Commission (SEC)—will hear the merits of the Lopez vs GSIS case.
Their much publicized boardroom war has spilled over the legal arena after the Lopez family, who had incumbent control of Meralco board and management, snubbed a Securities and Exchange Commission (SEC) order favoring GSIS’s quest to exert control over the coveted utility.
Solicitation or validation?
Marcelo of 'The Firm' is Meralco's lawyer
To the surprise of many, former Ombudsman Simeon "Sonny" Marcelo turned up at the Court of Appeals Monday as private legal counsel of the embattled Manila Electric Company (Meralco).
Marcelo is one of the senior partners and co-founders of one of the country's most influential law firms, Villaraza Cruz Marcelo & Angangco, also known as "The Firm" because of its previous close ties to President Arroyo and her family.
He was also the lead prosecutor in the impeachment trial against former President Joseph Estrada, who was convicted of plunder but was later given a presidential pardon.
Since his resignation from government as Ombudsman in 2005, Marcelo had generally shied away from high-profile cases.
"It was upon request that I take the Meralco case. I studied the records for one week and I thought it had merit, so I accepted it," he said.
He explained that his law firm had been counseling Lopez-owned media conglomerate ABS-CBN Broadcasting Corp. even before he worked for the government.
Describing his latest case as "easy and simple", Marcelo expressed confidence in winning, saying he had not lost a single case since 1995.
On Monday, the Lopez group and rival Government Service Insurance System (GSIS) faced off in a three-hour long hearing at the Court of Appeals over control of Meralco, the country's largest power distributor.
The two parties argued on the jurisdiction of the Securities and Exchange Commission over the solicitation and validation of proxies cast in favor of the Meralco management in the run-up to the company's annual stockholders meeting last May 27.
The appellate court ordered the two camps to submit their memoranda containing their arguments within 15 days for resolution. - Judith Balea
At the core of the exchanges between the lawyers of the two camps during the Monday hearing is whether the issue being contested is about the solicitation or validation process of the proxy votes.
GSIS senior vice president and spokesperson Estrella Elamparo, citing Section 20 of the Securities Regulation Code (SRC), said that matters concerning the issuance and solicitation of proxy votes fall within the backyard of the SEC.
Although conceding to Elamparo's statement, Meralco's lawyer, former Ombudsman Simeon Marcelo, said that disputes on validation of proxies and board elections, which are intra-corporate in nature, belong to the courts.
Marcelo, a senior partner at one of the country's most influential law firms, Villaraza Cruz Marcelo & Angangco, noted that quasi-judicial powers of the SEC had already been transferred to the regional trial courts. In 2001, the SRC unloaded the mandate to hear and decide on corporate disputes from the overburdened SEC to designated special commercial courts.
On May 27, during Meralco's stockholders meeting, the SEC issued a cease-and-desist order (CDO), prohibiting the casting of proxy votes in favor of the Lopez-led management. The CDO favored GSIS, which filed a complaint regarding alleged irregularities in the solicitation and validation of the proxies a day before the meeting itself.
However, Meralco declared the CDO null and void and pushed through with the elections. Nominees of the Lopez family clinched a majority of the 11-man board. The company then secured a 60-day temporary restraining order that barred the SEC from taking any action against the company.
During the appellate court's hearing Monday, the two parties reiterated their arguments and were asked to submit memoranda within 15 days, after which the court would issue a resolution.
SEC and GSIS 'connivance'
The SEC "skewed" the law "to suit the needs of GSIS," Marcelo said, referring to the SEC's hasty issuance of the CDO.
"Instead of preventing the conduct of the stockholders meeting until final determination of the validity of the proxies, the SEC was stopping only the casting of disputed proxy votes for the Lopezes and allowing those for GSIS to be voted, even if these were also disputed," Marcelo said.
There were 4,483 proxies, of which 99.66 percent were disputed and most of these were in favor of the Lopez-led management. Only 15 of the total were uncontested.
Apart from what Marcelo described as the apparent lack of jurisdication by the SEC, Marcelo argued that SEC committed grave abuse of discretion when it issued the CDO without due process.
"The best evidence was provided by GSIS itself. In all the CDOs annexed in its petition that I myself reviewed, it was noted that a CDO can only be issued after proper investigation and verification. But still, they issued the order without giving notice or conducting a hearing," he said.
However, Elamparo rebutted that GSIS had no choice but to file the complaint on the solicitation and validation of the proxies only on May 26 since then Meralco acting corporate secretary Anthony Rosete, who was deciding on the validity of the proxies, delayed his rulings.
"I have been asking him (Rosete) everyday since May 23 but he refused to give even unofficial rulings. We were given the report only in the morning of the 26th," she said.
The deadline for submission to the corporate secretary’s office of all proxies solicited by both camps was last May 17, while the validation period, which started on May 22, extended up to May 26, a day before the board election itself. Lawyers from both camps debated over each of the 4,000-plus disputed proxies.
Elamparo defended the SEC’s CDO, which she said could be issued without the necessity of a prior hearing if the regulatory body considered that a further delay would likely cause “grave or irreparable injury or prejudice to the investing public."
Elamparo was saying GSIS’s investment in Meralco might be at risk if there was indeed fraud in the solicitation of the proxies.
She stressed that conducting a hearing was no longer possible since the stockholders meeting was already to push through the next day.
She said that the SEC was verifying the report on the challenged proxies, which Meralco claimed it already submitted to the regulator on May 26. "The SEC checked its records, right then and there, but apparently, nothing was submitted contrary to what Meralco said," said Elamparo.
Timing of GSIS complaint
If GSIS filed its complaint during the solicitation and submission of proxies and not during the validation process, which started on May 22, the case would have fallen within the jurisdiction of the SEC, said Marcelo.
"But why did they file the complaint only when we were validating already and not before? The jurisdiction now belongs to the courts," Marcelo stressed.
Elamparo explained, however, that they only knew about violations in proxy solicitation during the validation process itself when they saw the actual proxy forms. She said, among others, that forms used by the management did not indicate on whose behalf the proxies were being assigned.
Marcelo said it was not Meralco’s management that solicited proxies but First Philippine Holdings Corp. (FPHC), which strictly complied with SEC rules. The Lopez-controlled FPHC holds 33.4 percent stake in Meralco, almost on equal footing as the government’s combined 35 percent.
What Elamparo was referring as "management proxy forms", Marcelo said, were not actually solicited but were voluntarily submitted by some public shareholders, who themselves wrote the names of nominees they were electing.
Legal battle to drag
Even as the two lawyers were anticipating a quick resolution from the Court of Appeals, which no longer set another hearing on the case, the legal battle over control of Meralco is still expected to drag.
If the appellate court decides that the regular court, not the SEC, had jurisdiction over proxy solicitation and validation, then the Lopez group would retain upper hand in Meralco’s board and the choice of company’s management. If it decides otherwise, then the board election would be nullified and the government, through GSIS, could end up controlling Meralco.
Whichever of the two possibilities happens, the aggrieved party is well expected to seek other legal remedies.
Disclosure: The Lopez family controls ABS-CBN, the parent company of this Web site.
