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Clients in the News


Commentary authored by Gardere Attorneys Randy Gordon and Craig Florence and published in the Oil & Gas Financial Journal
Corporate governance problems facing the energy sector
July 19, 2012 11:42 pm

Oil & Gas Financial Journal:
By Craig Florence and Randy Gordon

Craig Florence and Randy Gordon are partners in the complex litigation section at the Dallas office of Gardere Wynne Sewell LLP. Florence represents clients involved in director and officer disputes, and fiduciary duty claims. Gordon is a former Chair of the State Bar of Texas Antitrust & Business Litigation Section, and is the author of the book Rehumanizing Law: A Theory of Law and Democracy.

It is a commonplace of corporate law that officers and directors owe fiduciary duties to the business entities they serve. Breaches of these duties are most often highlighted in the press when they lead to spectacular corporate failures on the order of Enron or WorldCom. But fiduciary duties do not exist solely to deter and redress massive instances of fraud; rather, as Justice Cardozo long ago held "[n]ot honesty alone, but the punctilio of an honor the most sensitive, is . . . the standard of behavior." Thus, a rule of undivided loyalty has arisen to ensure that the standard of conduct for fiduciaries is kept at a level higher than the morals of the marketplace or mere personal preference and expediency.

Most often, the duty of loyalty is implicated when a proposed act or transaction creates a conflict between the personal interests of an officer or director and the interests of the corporation. This might happen when, for instance, a transaction is contemplated directly between the director and the corporation or between a corporation and another entity in which the director has an interest or from which the director will receive a benefit.

As an example that has been much in the news of late, angry Chesapeake Energy Corp. shareholders have filed lawsuits against founder Aubrey McClendon and other Chesapeake board members after learning that McClendon had not only been granted participation rights in the company's oil and gas wells but that he had also obtained up to $1.1 billion in loans to pay for his stake in those wells. The lawsuits take aim, in particular, at McClendon's relationship with and "loans" from EIG Global Energy Partners, a private equity firm that participated in a transaction last year from which it reportedly obtained a $500 million preferred-stock interest in Chesapeake's operations in Ohio's Utica shale. One plaintiff alleges that "[s]uch huge loans raise serious conflicts of interest: they can easily cloud the CEO's judgment on key issues ranging from how quickly Chesapeake should generate cash flow, to how it operates wells, to how aggressively it can bargain with EIG on financing terms."


Commentary authored by Gardere Attorneys Randy Gordon and Craig Florence in Oil & Gas Financial Journal


Copyright 2011: PennWell Corporation

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