Oklahoma County judge dismisses lawsuit disputing $75M bonus awarded to Chesapeake Energy CEO

Judge tosses suit disputing Chesapeake CEO’s bonus

OKLAHOMA CITY — An Oklahoma County judge has dismissed a shareholders’ lawsuit against Chesapeake Energy Corp. and its directors that disputed a $75 million bonus awarded to CEO Aubrey McClendon even as the company was losing billions in stock value.

District Judge Twyla Mason Gray dismissed the lawsuit for procedural reasons Friday, and said the plaintiffs could file an amended claim within 90 days, according to Oklahoma County court records online.

New York-based attorney Marc Gross and Oklahoma City-based attorney John Barbush, who represented the shareholders’ groups, did not immediately return an e-mail message seeking comment.

Henry Hood, Chesapeake’s senior vice president for land and legal and general counsel, said in a statement that “Chesapeake believes the ruling is appropriate under the facts and applicable law.”

Oklahoma City-based Chesapeake is one of the nation’s leading producers of natural gas. Chesapeake’s stock stood at $26.68 after trading Monday, up 11 cents.

The shareholders’ groups had filed a derivative action against the company and its board complaining that the board failed in its fiduciary duties when it awarded McClendon, Chesapeake’s co-founder, the $75 million bonus on Dec. 31, 2008. The bonus came two months after McClendon was forced to sell more than 31 million shares of Chesapeake stock — valued at $550 million and down from a peak of $2.2 billion only three months earlier — to cover bank demands for repayment of loans.

In her ruling, the judge said the shareholders’ groups did not make a demand on the defendants before the lawsuit was filed, which is required in a derivative action. The groups argued such a demand would have been pointless.

The New Orleans Employees’ Retirement System filed an initial lawsuit last April, which was later merged with similar lawsuits filed by shareholders’ groups from Louisiana, Pennsylvania and Ontario.

Chesapeake’s stock went on a roller coaster ride in 2008, dipping to $9.84 in December, its lowest since August 2003. Shares of Chesapeake had reached as high as $74 the previous summer. The company posted a $5.7 billion loss in the first quarter of 2009 as natural gas prices plunged.

The bonus raised McClendon’s pay package for 2008 to $112.5 million, which an Associated Press calculation determined to be the highest that year for a CEO among Standard & Poor’s 500 companies. It also was more than four times higher than his $25.5 million pay package in 2007.

After the deduction of required federal and state tax withholdings, the bonus was worth about $43.5 million, according to a company filing in January 2009 with the Securities and Exchange Commission. When he received the bonus, McClendon agreed to a five-year contract with Chesapeake that caps his annual salary at the 2008 level of $975,000 and limits his annual cash bonuses to $1.95 million.

In the SEC filing, Chesapeake said its compensation committee considered the role McClendon played in several major transactions in 2008 involving agreements with Plains Exploration, BP America and StatoilHydro.

On the Net:

Oklahoma State Courts Network, www.oscn.net