Respler v. Evans et al

Filing 29

MEMORANDUM. Signed by Judge Sue L. Robinson on 2/18/2014. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
MARK RESPLER, Derivatively on
Behalf of MAGNUM HUNTER
RESOURCES CORP.,
Plaintiff,
v.
GARY C. EVANS, J. RALEIGH
BAILES, BRAD BYNUM, VICTOR
CARRILLO, STEPHEN C. HURLEY,
JOE L. MCCLAUGHERTY, RON
ORMAND, STEVEN PFEIFER, JEFF
SWANSON, FRED J. SMITH and
DAVID KREUGER,
Defendants,
and
MAGNUM HUNTER RESOURCES
CORP.,
Nominal defendant.

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Civ. No. 13-1097-SLR

MEMORANDUM
At Wilmington this \tth day of February, 2014 having reviewed defendants'
motion to transfer venue or in the alternative to dismiss or stay (D.I. 4), defendants'
supplemental motion to dismiss based on collateral estoppel (D. I. 25), and the papers
submitted in connection therewith; the court issues its decision based on the following
analysis:
1. Background. On June 18, 2013, plaintiff Mark Respler ("Respler''), a
shareholder of Magnum Hunter Resources ("Magnum Hunter"), filed a derivative

shareholder action alleging various breaches of fiduciary duty by defendants Gary C.
Evans ("Evans"), J. Raleigh Bailes, Brad Bynum, Victor Carrillo, Stephen C. Hurley, Joe
L. McClaugherty, Ron Ormand ("Ormand"), Steven Pfeifer, Jeff Swanson, Fred J. Smith
and David Kreuger ("Kreuger") (collectively "defendants"). (D.I. 1) Respler is a current
shareholder and has owned shares of Magnum Hunter at all times relevant to the case
at bar. (D. I. 1 at 1f 4) Defendants are officers and directors of Magnum Hunter. (/d.

1f

6-17) Magnum Hunter is a Delaware corporation, with principal executive offices in
Houston, Texas. (/d.

1f 5)

This court has jurisdiction over this matter pursuant to 28

U.S.C. §1332.
2. Standard of Review. Federal common law imposes on the State of
Delaware a full-faith-and-credit requirement to give another State's federal judgment the
same force and effect as it would be entitled to in that State's federal or state courts.
Delaware law "requires our courts to afford the same respect to federal court judgments
that the Full Faith and Credit Clause requires them to afford to judgments from other
states." See Pyatt v. La. Mun. Police Emps.' Ret. Sys., 74 A. 3d 612, 616-17 (Del.
2013) (applying California collateral estoppel law to determine preclusive effect of prior
California federal court demand futility dismissal).
3. Under Texas law, collateral estoppel bars the relitigation of identical issues of
fact or law that were actually litigated and essential to the final judgment in a prior suit.
Tex. Dep't of Public Safety v. Petta, 44 S.W.3d 575, 579 (Tex. 2001 ). To assert

collateral estoppel, a party must establish that: (1) the facts sought to be litigated in the
second action were fully and fairly litigated in the first action; (2) those facts were

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essential to the judgment in the first action; and (3) the parties were cast as adversaries
in the first action. John G. & Marie Stella Kenedy Mem'l Found. v. Dewhurst, 90 S.W.3d
268, 288 (Tex. 2002).
4. Analysis. On December 20, 2013, the United States District Court for the
Southern District of Texas (the "Texas court") dismissed a shareholder derivative
complaint (the "Texas complaint") filed by a different shareholder, Joseph Vitellone
("Vitellone"). Vitellone v. Evans eta/., No. H-13-1887, 2013 WL 6806179 (S.D. Tex.
Dec. 20, 2013) (the "Texas action"). The Texas action and the case at bar involve the
same factual allegations against Magnum Hunter and the individual defendants. Not
only do some of the paragraphs in Respler's complaint read directly on the Texas
complaint (compare D.l. 1 at~ 28, with Civ. No. 13-1887, D.l. 1 at 9-1 0), Resper and
Villatone quote the same excerpts from the SEC filings (compare D. I. 1 at~ 30, with
Civ. No. 13-1887, D. I. 1 at 57). Notably, the Texas complaint includes more factual
allegations than the case at bar. 1 The Texas action involved causes of action for
breach of fiduciary duties and waste of corporate assets, 2 whereas Respler's complaint
alleges breach of fiduciary duties, abuse of control, and waste of corporate assets.
5. The factual basis for Respler's abuse of control claim is that "[d]efendants
abused their positions of authority by causing or allowing [Magnum Hunter] to
misrepresent material facts regarding its internal controls and operations." (D.I. 1 at~
58) Respler argues that his complaint "challenges the independence of Magnum

1

Compare 34 pages for D.l. 1, with 70 pages for Civ. No. 13-1887, D.l. 1.

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As well as violation of section 14(A) of the Exchange Act and unjust enrichment.

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Hunter's directors" based on their "entanglements and bad faith authorization of
numerous related party transactions." (D. I. 27 at 3) However, the Texas complaint
similarly challenged the directors' relationship with Green Hunter, as Green Hunter was
founded by Evans and "closely affiliated" with Ormand and Krueger. (D.I. 25, ex. Bat 1l
51) The Texas court discussed the "close ties" between Green Hunter, Evans and
Ormand. Vitellone, 2013 WL 6806179, at *7.
6. Respler uses these same facts to support his breach of fiduciary duty cause
of action, alleging that defendants "willfully ignor[ed] the obvious and pervasive
problems with [Magnum Hunter]'s internal controls and practices and procedures." (D. I.
1 at 1J54) Moreover, Villatone used the same premise in the Texas action to support
his breach of fiduciary duty contention, alleging that defendants "permitt[ed] the
Company to issue false and misleading statements ... and approv[ed] the statements
described herein which were made during their tenure on the Audit Committee, which
they knew or were reckless in not knowing contained improper statements and
omissions." (Civ. No. 13-1887, D.l. 1 at1J1J117-18) Indeed, all of Respler's causes of
action are premised on the directors' breach of fiduciary duties. Zoran Corp. Deriv.
Litig., 511 F. Supp. 2d 986, 1019 (N.D. Cal. 2007) (applying Delaware law and

dismissing claims for gross mismanagement and abuse of control because "these
claims are often considered a repackaging of claims for breach of fiduciary duties
instead of being a separate tort"); Clark v. Lacy, 376 F.3d 682, 686 (7th Cir. 2004)
(plaintiff's claim for "abuse of control" is "premised on the defendants' alleged breach of
their fiduciary duties").
7. Applying Texas and federal common law, courts have concluded that

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"because shareholder derivative suits are brought on behalf of the corporation, 'it
follows that the corporation is bound by the results of the suit in subsequent litigation,
even if different shareholders prosecute the suits."' Hanson v. Odyssey Healthcare,
Inc., C.A. No. 3:04- CV-2751-N, 2007 WL 5186795, at *4-7 (N.D. Tex. Sept. 21, 2007)
(quoting In re Son us Networks, Inc. S'holder Deriv. Litig., 499 F.3d 47, 64 (1st Cir.
2007)). While Respler was not a party to the Texas action, he is seeking recovery on
behalf of Magnum Hunter. Respler also disputes that defendants and Magnum Hunter
are "cast as adversaries" as they share representation. However, in derivative actions,
there exists no conflict of interest between a corporation and individual director
defendants at the motion to dismiss stage, therefore, a law firm may represent all
defendants without impropriety. Scattered Corp. v. Chi. Stock Exch., Inc., 1997 WL
187316, at *6-8 (Del. Ch. Apr. 7, 1997), aff'd on other grounds, 701 A.2d 70 (Del.
1997), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000).
Respler has offered no argument or evidence that Villatone was not adequately
represented in the Texas action. Henik ex rei. LaBranche & Co., Inc. v. LaBranche,
433 F. Supp. 2d 372, 381 (S.D.N.Y. 2006) (noting that preclusion might not apply
"where the plaintiff shareholder in the first action is alleged to have inadequately
represented the interest of the shareholders").
8. The Texas court concluded, on the same facts as the case at bar, that
Villatone "failed to allege with particularity legally sufficient reasons under Delaware law
to excuse [him] from making a pre-suit demand upon Magnum Hunter's Board of
Directors." Vitellone, 2013 WL 6806179, at *24. For the reasons discussed above,

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collateral estoppel applies to bar Respler from relitigating the same facts in the same
procedural posture, i.e., Respler also failed to make a pre-suit demand upon Magnum
Hunter's Board of Directors.

9. Conclusion. For the foregoing reasons, the court grants defendants'
supplemental motion to dismiss (0.1. 25), therefore, defendants' motion to transfer
venue or in the alternative to dismiss or stay (D. I. 4) is denied as moot. An order shall
issue.

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