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Duane and Virginia Lanier Trust v. Sandridge Mississippian Trust

United States District Court, W.D. Oklahoma

March 26, 2019

DUANE & VIRGINIA LANIER TRUST, individually and on behalf of all others similarly situated, et al., Plaintiffs,
v.
SANDRIDGE MISSISSIPPIAN TRUST I et al., Defendants.

          ORDER

          CHARLES B. GOODWIN UNITED STATES DISTRICT JUDGE

         Now before the Court is the Motion for Partial Judgment on the Pleadings filed pursuant to Federal Rule of Civil Procedure 12(c) by Defendants SandRidge Energy, Inc. (“SandRidge”), [1] Tom L. Ward, James D. Bennett, Matthew K. Grubb, and SandRidge Mississippian Trust I (“Trust I”). See Defs.' Mot. (Doc. No. 215). Lead Plaintiffs[2] have responded in opposition, see Pls.' Mem. (Doc. No. 231), and Defendants have replied, see Defs.' Am. Reply (Doc. No. 242).

         BACKGROUND

         A. Plaintiffs' Allegations

         SandRidge explored, developed, and produced natural gas and oil reserves in, among other locations, the Mississippian Formation, “a geological formation located in northern Oklahoma and south-central Kansas.” Consol. Am. Compl. ¶ 87. “[T]o finance increased capital expenditures planned for 2011, SandRidge decided to ‘monetize' certain of its existing oil and gas assets in [n]orthern Oklahoma by selling interests in those assets to the public via a royalty trust.” Id. ¶ 4. To this end, SandRidge created Trust I and conveyed to it royalty interests consisting of a share of SandRidge's revenue from (a) existing horizontal oil and gas wells in five Oklahoma counties, collectively referred to as the “Trust I Area of Mutual Interest” (“Trust I AMI”), and (b) specific horizontal oil and gas wells to be drilled in the Trust I AMI. See id. To pay for these royalty interests, Trust I committed to sell common units to investors in an initial public offering (“Trust I IPO”) and transfer the net proceeds of that sale to SandRidge. Id. ¶ 5.

         SandRidge thereafter decided to raise additional funds to finance its capital expenditures and in December 2011 formed the SandRidge Mississippian Trust II (“Trust II”). Id. ¶ 19. SandRidge conveyed to Trust II royalty interests consisting of a share of SandRidge's revenue from (a) existing horizontal wells in nine counties in Oklahoma and Kansas, collectively referred to as the “Trust II Area of Mutual Interest” (“Trust II AMI”), and (b) certain horizontal oil and gas wells to be drilled in the Trust II AMI. Id. As with Trust I, to compensate SandRidge for these royalty interests Trust II committed to sell common units in an initial public offering (“Trust II IPO”) and transfer those proceeds to SandRidge. Id. ¶ 20.

         In November 2012, SandRidge made certain statements that concerned the performance of oil and gas wells in the Mississippian Formation. In a press release dated November 8, 2012, SandRidge “reported a ‘net loss applicable to common stockholders of $184 million, or $0.39 per diluted share, for third quarter 2012 compared to net income available to common stockholders of $561 million, or $1.16 per diluted share, in third quarter 2011.'” Id. ¶ 227.

         The next day, “before markets opened, SandRidge held a conference call for analysts and investors to discuss the financial results and other information in the . . . [p]ress [r]elease.” Id. ¶ 228. During that earnings call, Defendant Ward, who was SandRidge's founder and then chief executive officer and chairman of SandRidge's Board of Directors, “disclosed that . . . SandRidge's wells in the Mississippian Formation consisted of far more gas and far [fewer] oil deposits than the market had previously been led to believe.” Id. In response to an analyst's “concern over the drop in oil production in the Mississippian Formation, ” “Defendant Ward conceded that wells in the Mississippian Formation . . . were producing less oil.” Id. ¶ 230. On that same call, Defendant Grubb, then SandRidge's president and president and chief operating officer of Trust I and Trust II, further disclosed:

“As for the Mississippian, while the gas performance has been on target, we are seeing a steeper oil decline than we previously anticipated and have made revision to our model accordingly for 2013.”

Id. ¶ 229.

         Following these disclosures, the prices of SandRidge common stock and Mississippian Trust units dropped. SandRidge's common stock declined from a close of $6.10 per share on November 8, 2012, to a close of $5.51 per share on November 9, 2012. See Decl. of Mark P. Gimbel, Ex. 1 (Doc. No. 216-1) at 11, ¶ 12.[3] “[T]he price of Trust I Units declined from a close of $18.95 per [u]nit on November 8, 2012 to a close of $17.54 per [u]nit on November 9, 2012 (a 7.4% decline and a 16.5% decline from the Trust I Offering price of $21/Unit).” Consol. Am. Compl. ¶ 232. From “November 12 [to] 15, 2012, the price of Trust I Units dropped further on each trading day to close at $14.81 on November 15, 2012-an additional decline of 15.6%, ” resulting in a total decline of 21.8%. Id. “[T]he price of Trust II Units declined from $19.36 per unit on November 8, 2012 to close at $17.70 per unit on November 9, 2012 (an 8.5% decline, and a 15.7% decline from the Trust II Offering price of $21/Unit).” Id. ¶ 233. From “November 12 [to] 15, 2012, the price of Trust II Units dropped further on each trading day to close at $15.36 on November 15, 2012-an additional drop of 13.2%, ” resulting in a total decline in the price of Trust II units of 20.7%. Id.

         B. Procedural History of In re Sandridge Energy, Inc. Securities Litigation, No. CIV-12-1341-G

         On December 5, 2012, a complaint was filed in this Court on behalf of a putative class of investors in SandRidge common stock, asserting claims against SandRidge, Ward, Grubb, and Bennett (who was executive vice president of SandRidge and chief financial officer of both SandRidge and the two Trusts). See Glitz v. SandRidge Energy, Inc., Case No. CIV-12-1341 (W.D. Okla.). Initially, no claims were asserted on behalf of Trust I or Trust II investors, and neither Trust I nor Trust II was a named defendant.

         The Complaint alleged that SandRidge, together with its officers and directors, had violated federal securities laws by “disseminati[ng] . . . false and misleading statements concerning . . . [SandRidge's] business and operational status and FY 2012 financial expectations.” Glitz, Compl. (Doc. No. 1) ¶ 1. The Complaint contended that “the truth” about defendants' conduct had “beg[un] to be revealed” on November 8, 2012, through a “publicly issued . . . letter” written by “D[i]nakar Singh, CEO of . . . TPG-Axon, which then owned 4.5% of SandRidge's stock.” Id. ¶ 52 (emphasis and capitalization omitted). This letter discussed “SandRidge's ‘disastrous performance' and over 76% decline in its stock price.” Id. To this end, the Complaint also cited a November 8, 2012 press release, in which “Defendants [had] reported a loss of $184 million, or 39 cents per share, in the 3Q 2012, compared with a profit of $561 million, or $1.16 per share, in the 3Q 2011.” Id. ¶ 54 (emphasis omitted). And it cited a November 9, 2012 conference call, during which “Defendant Ward [had] acknowledged that SandRidge had been overstating the value of its Mississippian assets . . ., disclosing that in reality, [SandRidge's] Mississippian formation assets consisted of far more low-margin natural gas deposits and far fewer high-margin oil deposits than the market had previously been led to believe.” Id.

         The Complaint also alleged that the defendants had made misstatements and omissions about “the extent and value of [SandRidge's] oil reserves” so that SandRidge could “monetize its interests in the Mississippian formation assets.” Id. ¶ 66. These misstatements and omissions, said the plaintiffs, had “[a]rtificially inflat[ed] and manipulat[ed] SandRidge's stock price, ” and when they “became apparent to the market on November 8, 2012, SandRidge's stock price fell precipitously.” Id. ¶ 67.

         Glitz was eventually consolidated with Carbone v. SandRidge Energy, Inc., No. CIV-13-19, also pending in the Western District of Oklahoma. See Glitz, Order of Mar. 6, 2013 (Doc. No. 60) (West, J.). Laborers Pension Trust Fund for Northern Nevada, Construction Laborers Pension Trust of Greater St. Louis, Vladimir Galkin, and Angela Galkin, purchasers of SandRidge common stock, were appointed Lead Plaintiffs in the re-styled consolidated action. See id. at 2, 4. In July 2013, they amended their complaint. See In re SandRidge Energy, Inc. Securities Litigation, No. CIV-12-1341-G (“SandRidge”), Doc. Nos. 67, 73, 75.[4]

         Named as additional plaintiffs in that pleading were Judith Greenberg, Charles Blackburn, and Ted Odell, who sought to assert claims on behalf of a putative class of purchasers of Trust I and Trust II Units. See SandRidge Compl. (Doc. No. 75) ¶¶ 1, 23-25. These Trust I and II Unitholders likewise alleged that Defendants' alleged misrepresentations and omissions about wells in the Mississippian Formation had artificially inflated the price of Trust I and Trust II Units. They further alleged that, “[a]s a direct result of Defendants' disclosures” on November 8 and 9, 2012, and “a materialization of the undisclosed risk of investing in . . . the SandRidge Trusts, ” the price of Trust I and Trust II Units “fell precipitously.” See id. ¶¶ 329-331, 361.[5]

         On May 11, 2015, the Court dismissed the claims brought by Greenberg, Blackburn, and Odell without prejudice for failure to comply with certain requirements of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4. See SandRidge, Order of May 11, 2015 (Doc. No. 180) (West, J.).

         C. Procedural History of Current Action, No. CIV-15-634-G

         On June 9, 2015, immediately after the dismissal of the claims of Greenberg, Blackburn, and Odell in SandRidge, Lanier brought the instant action. See Compl. (Doc. No. 1). A consolidated amended complaint followed on November 11, 2016. See Am. Compl. (Doc. No. 78).[6] In that pleading, Lanier joined with Nibur and Rath (who like Lanier had purchased Trust I units) and with Luna and Willenbucher (who also like Lanier had purchased Trust II units) to bring claims on behalf of themselves and the individuals and entities that had purchased or otherwise acquired common units of (a) Trust I pursuant or traceable to the Trust I IPO, deemed effective April 5, 2011, and/or at all other times between April 5, 2011, and November 8, 2012, inclusive (the “Class Period”), see, e.g., id. ¶¶ 2, 3; and/or (b) Trust II pursuant or traceable to the Trust II IPO, deemed effective April 17, 2012, and/or at all other times during the Class Period, see, e.g., id.

         Relief was sought under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), as amended by the PSLRA, 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5, promulgated thereunder. See 17 C.F.R. § 240.10b-5. Lead Plaintiffs also sought to hold certain defendants liable under sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77k, 77l(a)(2) and 77o.

         The Exchange Act and Rule 10b-5 claims were asserted against Trust I and nominal Defendant SandRidge as well as against Defendants Ward, Bennett, and Grubb. The Securities Act claims were asserted against both Trust I and Trust II, SandRidge, Ward, Bennett, and Grubb. Also named as Defendants were Randall D. Cooley, who served as SandRidge's senior vice president-accounting, members of SandRidge's Board of Directors (Jim J. Brewer, Everett R. Dobson, William A. Gilliland, Daniel W. Jordan, Roy T. Oliver, Jr., and Jeffrey S. Serota), and certain entities that had underwritten the Trusts' offerings and/or had helped draft and disseminate prospectuses for the two offerings.[7]

         On August 30, 2017, the Court, without objection, dismissed Lead Plaintiffs' Securities Act claims. See Order of Aug. 30, 2017 (Doc. No. 129) (Miles-LaGrange, J.). Judgment on those claims was thereafter entered pursuant to Federal Rule of Civil Procedure 54(b) on December 5, 2017. See J. (Doc. No. 146) (Palk, J.). The Court also dismissed Luna's and Willenbucher's claims against Trust I on January 18, 2019. See Order of Jan. 18, 2019 (Doc. No. 282) (Goodwin, J.). What remains are the individual claims of Lanier, Nibur, and Rath and the claims they have asserted on behalf of putative ...


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