OLATHE, Kan. (CN) - The billionaire Koch brothers, shareholders in the Cato Institute, asked a federal judge to decertify the results of a board of directors election, in a power struggle for control of the right-wing Libertarian think tank.
Charles and David Koch sued the Cato Institute, and four of its directors: John Malone, Lewis Randall, Donald Smith and William Dunn. The Kochs claim the four men were improperly added to the board at the March 22 shareholders meeting, which expanded the board from 16 to 20 members.
Central to the case is a battle between Cato's remaining shareholders - the Koch brothers and Edward Crane, who is not named as an individual defendant.
The Kochs claim they have battled for years against Crane, Cato's president, and Cato Chairman of the Board Robert Levy's attempts to turn Cato from a shareholder corporation to a membership organization.
The Kochs, who provided seed money that helped create Cato in the 1970s, claim that Crane and Levy called a special directors meeting on March 22, to stack the board in their favor.
"Indeed, at the time the agenda was circulated, Cato's Board did not have the power to fill newly created directorships," the complaint states. "It had the power to fill 'vacancies' caused by the death, resignation, or incapacity of a director on an interim basis; but the creation of new directorships does not result in 'vacancies' as that term is understood under Kansas law.
"Thus, as of March 22, 2012, the right to fill newly created directorships rested solely with the shareholders, not the board.
"Moreover, for well over a decade, Cato's board has had a standing 'Governance and Nominating Committee' charged with the responsibility of 'manag[ing] and mak[ing] decisions regarding the governance of the Institute and ... mak[ing] recommendations for new directors and committee assignments.'
"There is no indication that this committee had met in advance of the special meeting to discuss any of the resolutions put forward on March 22 - resolutions that plainly were within the committee's jurisdiction.
"Nor is there any indication that the committee vetted the qualifications of potential nominees to fill any newly created directorships, as it is required to do so under the charter.
"Despite the seemingly noncommittal wording of Agenda Item V, it quickly became apparent that Crane and Levy had a preconceived plan expand the size of the board and to fill the newly created directorships with additional Crane/Levy supporters and that they were prepared to railroad the plan through without adequate notice, discussion, or debate."
The Kochs claim Crane and Levy did this to keep control of Cato the December 2013 directors meeting, and to deprive the Kochs of selecting at least 50 percent of the board, as required by Cato's bylaws.
The Kochs say Levy sent them an email the day after the contested meeting, which "conceded the obvious: that the board-packing scheme had nothing to do with donor outreach but instead was a so-called 'defensive measure,' plainly aimed at disenfranchising Charles and David Koch." (Brackets as in complaint.)
The Kochs claim that Levy threatened to take similar measures in the future, unless the Kochs gave up their rights under the shareholders agreement.
The Kochs say this is just the latest attempt by Crane and Levy to improperly take over Cato.
The first attempt, according to the Kochs, came after the death of original shareholder William Niskanen. The Kochs claim that according to Cato's shareholders agreement, Cato has first right of refusal to buy Niskanen's shares and if it declines, the shareholders have the right to buy those shares - which would leave David Koch, Charles Koch and Crane each with a one-third share. Instead, the Kochs say, Crane and Levy tried to transfer Niskanen's shares to his widow. The Kochs filed a separate action asking for a declaratory judgment to keep Crane and Levy from depriving them of the right to buy Niskanen's shares.
In the latest action, the Kochs asked a federal judge to invalidate the results of the March 22 election, or in the event that the court upholds the election, to require that the four new directorships remain vacant until the next meeting of Cato's shareholders, and prohibiting the calling of that meeting until after the Koch's declaratory judgment action has been decided.
The Kochs are represented by Daniel Crabtree, with Stinson Morrison Hecker, of Kansas City, Mo.
The Koch brothers, heirs of an oil magnate, have given hundreds of millions of dollars to "free market" right wing groups, including to institutes they founded and to anti-union groups. An Aug. 30, 2010 article by Jane Mayer in The New Yorker put them in the public spotlight, as they try to unseat President Obama.