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In re Sandridge Energy, Inc.

United States Court of Appeals, Tenth Circuit

November 17, 2017

IN RE: SANDRIDGE ENERGY, INC. SHAREHOLDER DERIVATIVE LITIGATION,
v.
TOM L. WARD; JIM J. BREWER; EVERETT R. DOBSON; WILLIAM A. GILLILAND; DANIEL W. JORDAN; ROY T. OLIVER, JR.; JEFFREY S. SEROTA; SPECIAL LITIGATION COMMITTEE OF SANDRIDGE'S BOARD OF DIRECTORS, Defendants - Appellees, PAUL ELLIOT, on behalf of the Paul Elliot IRA R/O, derivatively on behalf of Sandridge Energy, Inc.; LISA EZELL, derivatively on behalf of SandRidge Energy, Inc., Plaintiffs - Appellees, and SANDRIDGE ENERGY, INC., Nominal Defendant-Appellee, and TLW LAND & CATTLE, L.P.; WCT RESOURCES, L.L.C.; 192 INVESTMENTS, L.L.C., Defendants. DALE HEFNER, Objector - Appellant.

         Appeal from the United States District Court for the Western District of Oklahoma (D.C. No. 5:13-CV-00102-W)

          George C. Aguilar, Robbins Arroyo LLP (Jay N. Razzouk, Robbins Arroyo, LLP, San Diego, California, and Charles F. Alden, III, Oklahoma City, Oklahoma, with him on the briefs), for Objector-Appellant.

          Mark E. McKane, Kirkland & Ellis, LLP, San Francisco, California, and Reggie N. Whitten, Whitten Burrage, Oklahoma City, Oklahoma (Michael Burrage and Randa K. Reeves, Whitten Burrage, Oklahoma City, Oklahoma, Robert N. Kaplan and Jeffrey P. Campisi of Kaplan, Fox & Kilsheimer, LLP, New York, New York, with them on the brief), for Plaintiffs-Appellees.

          Thomas B. Snyder, Crowe & Dunlevy, Oklahoma City, Oklahoma, Mark P. Gimbel and C. William Phillips of Covington & Burling, LLP, New York, New York, for Independent Directors.

          Before KELLY, MURPHY, and MORITZ, Circuit Judges.

          KELLY, Circuit Judge.

         Objector-Appellant Dale Hefner appeals from the district court's denial of his motion for settlement-related discovery, approval of the settlement agreement, and order regarding attorneys' fees. In re Sandridge Energy Inc., No. CIV-13-102-W, 2015 WL 11899141 (W.D. Okla. Dec. 15, 2015); In re Sandridge Energy Inc., No. CIV-13-102-W, 2015 WL 11921422 (W.D. Okla. Dec. 22, 2015). Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

         Background

         This case concerns the settlement agreement and attorneys' fees related to two separate shareholder derivative suits on behalf of SandRidge Energy Inc. ("SandRidge") against its directors. The first of those actions was filed in federal district court in January 2013. The federal derivative suit alleged self-dealing, usurpation of corporate opportunities, and misappropriation by Tom Ward, SandRidge's founding CEO, and entities affiliated with him. See 2 Aplt. App. 247-343. It also claimed that certain Sandridge officers and directors were complicit and breached their fiduciary duties. Id.

         The second derivative suit was filed in Oklahoma state court in January 2013 by Mr. Hefner. 5 Aplt. App. 1310-58. The director-defendants moved the state court to stay the action pending a resolution in the federal case, or in the alternative to dismiss the suit entirely. Mr. Hefner objected, and the state court stayed the action but denied the motion to dismiss. 6 Aplt. App. 1417-18. After further briefing and a renewed motion to dismiss, the state court again denied the motion. Id. at 1487. In November 2014, the state court entered a stipulated and agreed to order granting SandRidge's motion to stay. Id. at 1492-93.

         On October 9, 2015, the federal district court granted its preliminary approval of a partial settlement in the federal suit. 4 Aplt. App. 1017-19. On October 30, 2015, Mr. Hefner filed notice of his intent to appear at the settlement hearing, object to the settlement, and request additional settlement-related discovery. Id. at 1025-26. The federal plaintiffs filed a motion for final approval of the partial derivative settlement on November 25, 2015. Key terms of the proposed settlement included (1) that the settling defendants' insurers would pay $38 million to SandRidge, "to the extent that funds remain after deducting certain Designated Litigation Expenses . . . arising from a separate Securities Litigation, " and (2) the institution of additional corporate governance measures to prevent future occurrences of misconduct. Id. at 1047-48. Additionally, the plaintiffs requested an award of attorneys' fees and expenses totaling approximately $13 million. Id. at 1069.

         In response, Mr. Hefner (1) filed a contingent motion for attorneys' fees and reimbursement of expenses, (2) objected to the settlement, and (3) requested additional settlement-related discovery. In his request for attorneys' fees, Mr. Hefner contended that without his "successful litigation in the State Action, the Settlement would not have occurred - and certainly not on the same terms." 5 Aplt. App. 1266. He also argued that after the federal case initially was dismissed, he "helped turn the tide in [the federal] litigation, beating a motion to dismiss [in state court] on demand futility grounds" and then cooperated with the federal litigation by agreeing to temporarily stay his state-court action. Id. at 1266, 1269.

         Regarding the proposed settlement, Mr. Hefner argued that the federal court lacked subject-matter jurisdiction; that the settlement was for the benefit of the attorneys and insurance companies, but not of SandRidge itself since the funds would first be used to pay attorneys, then to pay for separate litigation (which the insurance companies would otherwise pay for), and would only then - if there was anything left - accrue to SandRidge; that the request for $13 million in attorneys' fees was too large, representing over 34% of the total settlement fund; and that the proposed agreement would unfairly settle unique claims brought by Mr. Hefner in the state-court action. 6 Aplt. App. 1572- 90. In sum, Mr. Hefner contended that the benefit to SandRidge did not outweigh the value of continuing litigation and that the settlement should be rejected. Id. at 1592-93.

         The district court denied Mr. Hefner's motion for additional discovery and, after a hearing on the other matters, entered a final order and judgment approving the proposed partial settlement and denying Mr. ...


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