SFF-TIR, LLC et al v. Stephenson et al

Filing 274

OPINION AND ORDER by Judge James O Browning (Re: 157 MOTION for Partial Summary Judgment , 191 MOTION to Strike Affirmative Defenses , 154 Second MOTION for Summary Judgment , 86 MOTION to Strike Document(s) Affidavit of Randall Lorett, 83 MOTION for Summary Judgment on Acquiescence Defense, 182 MOTION in Limine to Preclude Evidence of Plaintiff's Conduct ) (kjp, Dpty Clk)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
SFF-TIR, LLC; STUART FAMILY
FOUNDATION, INC.; ALAN STUART
2012 GST FAMILY TRUST; STUART
2005 GST FAMILY TRUST;
CELEBRATION, LLC; ANURAG
AGARWAL; PETER BUCKLEY; VINCENT
SIGNORELLO and RODNEY M. REYNOLDS,
Plaintiffs,
vs.

No. CIV 14-0369 JB/FHM

CHARLES C. STEPHENSON, JR.;
CYNTHIA A. FIELD; PETER BOYLAN, III;
LAWERENCE FIELD; CYPRESS
ENGERGY PARTNERS-TIR, LLC;
CEP CAPITAL PARTNERS, LLC;
CYPRESS ENERGY HOLDINGS, LLC and
TULSA INSPECTION RESOURCES, LLC,
Defendants.
MEMORANDUM OPINION AND ORDER
THIS MATTER comes before the Court on: (i) the requests in the Plaintiffs’ Motion to
Strike Affirmative Defenses, filed November 4, 2015 (Doc. 191)(“Plaintiffs’ Motion to Strike
Affirmative Defenses”); (ii) the requests in the Defendants’ Motion for Summary Judgment on
Acquiescence Defense and Brief in Support, filed April 3, 2015 (Doc. 83)(“Defendants’
Acquiescence MSJ”); (iii) the requests in the Defendants’ Second Motion for Summary
Judgment and Brief in Support Thereof, filed September 14, 2015 (Doc. 154)(“Defendants’
Estoppel MSJ”); (iv) the requests in the Plaintiffs’ Memorandum of Law in Support of Motion
for Partial Summary Judgment on Breach of Fiduciary Duty Claims, filed September 14, 2015
(Doc. 157)(“Plaintiffs’ MSJ”); (v) the requests in the Plaintiffs’ Motion to Strike, filed April 20,

2015 (Doc. 86), and the requests in the Plaintiffs’ Motion to Strike Affidavit of Randall Lorett
and Memorandum of Law in Support Thereof, filed April 20, 2015 (Doc. 87)(collectively
“Motion to Strike Lorett Affidavit”); and (vi) the requests in the Plaintiffs’ Motion in Limine to
Preclude Evidence of Plaintiffs’ Conduct, and Brief in Support, filed October 26, 2015 (Doc.
182)(“Motion in Limine”). The Court held a hearing on December 27 and 28, 2016.
The Court sua sponte assesses whether it has jurisdiction over the case. The primary
issues that the parties raise and that the Court resolves in this Memorandum Opinion are
whether: (i) the Court should strike, or not allow evidence at trial regarding, the Defendants’
affirmative defenses of acquiescence, unclean hands, estoppel, and waiver; (ii) Delaware or
Oklahoma law governs the Plaintiffs’ claims and the Defendants’ affirmative defenses; (iii) the
Plaintiffs’ claims are barred under the theory of acquiescence; (iv) the Oklahoma common-law
clean hands doctrine bars the Plaintiffs’ claims; (v) the Oklahoma common law of waiver bars
the Plaintiffs’ claims; (vi) the Oklahoma common law of estoppel bars the Plaintiffs’ claims;
(vii) the Court should expand Securities Exchange Commission rule 10b-5 to include the forceseller doctrine; (viii) the entire fairness standard governs the Plaintiffs’ claims for breach of
fiduciary duty; (ix) the Defendants bear the burden of proof that the cash-out merger was entirely
fair to the minority shareholders; (x) the Defendants are liable for breaching their duty of entire
fairness; (xi) the Court should strike the affidavit of Randall Lorett; (xii) the Court should
preclude evidence at trial of the Akin Gump Letter and other letters that the Plaintiffs and the
Plaintiffs’ counsel exchanged with the Defendants between September, 2013, and December,
2013; (xiii) the Court should preclude evidence at trial of letters sent to and received from the
Triangle Capital mezzanine lenders; and (xiv) the Court should preclude the Defendants from
mentioning during trial that the Plaintiffs’ are residents of states other than Oklahoma.

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The Court finds it advisable, because of this opinion’s length and complexity, to
summarize and clarify its holdings before it lays out the case’s facts in the next section. In the
Court’s analysis’ first section, as a preliminary threshold issue, the Court examines sua sponte
whether it has jurisdiction over this case. The Court concludes that it exercises federal question
jurisdiction over the federal securities claims. The Court further concludes that it exercises
federal diversity jurisdiction over the case’s entirety even if the securities claims do not survive a
motion for summary judgment against the securities claims.
In the Court’s analysis’ second section, the Court examines Oklahoma choice-of-law
rules to determine whether it should apply Delaware or Oklahoma law to the claims and defenses
in the case.

The Court concludes that: (i) Delaware law applies to the Plaintiffs’ claims

regarding the cash-out merger, which entails consideration of the defense of acquiescence in
accordance with Delaware law; and (ii) Oklahoma law applies to the Defendants’ other contract
defenses of equitable estoppel, waiver, and unclean hands.
In the Court’s analysis’ third section, the Court evaluates the Defendants’ Acquiescence
MSJ. The Court concludes that: (i) the Defendants did not set up a well-functioning committee
of independent directors to examine and approve the merger; (ii) a fully-informed majority of the
minority shareholders never voted to approve the merger; (iii) the evidentiary burden to prove
the merger’s entire fairness remains with the Defendants; (iv) when the Court interprets the facts
in the light most favorable to the Plaintiffs, the Defendants do not meet this evidentiary burden;
and (v) Delaware common law requires the Court to allow any case where the Defendant bears
the burden to prove entire fairness to proceed to trial so that the entire fairness of the transaction
can be evaluated. Accordingly, the Court denies the Defendants’ Acquiescence MSJ.
Because the Court denies the Defendants’ Acquiescence MSJ, in the Court’s analysis’

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fourth section, the Court assesses the Defendants’ Estoppel MSJ. The Court concludes that: (i)
the Defendants’ Estoppel MSJ largely duplicates the Defendants’ Acquiescence MSJ’s facts; (ii)
the Defendants fail to demonstrate that they reasonably relied on the Plaintiffs’ merger
acceptance or that the alleged reliance caused the Defendants to suffer a detrimental change of
position; (iii) the Defendants fail to demonstrate that the Plaintiffs waived their right to challenge
the entire fairness of the contested merger transaction; (iv) the Defendants fail to demonstrate
that the Plaintiffs undertook the allegedly fraudulent and deceitful conduct of which they
complain, thereby failing to show that the Plaintiffs have unclean hands; (v) the Tenth Circuit is
unlikely to support the Plaintiffs’ contention that the forced-seller doctrine is good law within the
Tenth Circuit, and therefore the Court should not expand SEC rule 10b-5 to include the forcedseller doctrine and should dismiss the Plaintiffs’ federal securities claims; and (vi) the Supreme
Court of Oklahoma likely would dismiss the Plaintiffs’ state securities claims and the Court,
under the Erie doctrine’s required deference to a state’s supreme court, should dismiss the
Plaintiffs’ state securities claims. Accordingly, the Court: (i) denies the Defendants’ Estoppel
MSJ in part as it relates to the Oklahoma common-law clean hands doctrine, the Oklahoma
common law of waiver, and the Oklahoma common law of estoppel; and (ii) grants the
Defendants’ Estoppel MSJ in part as it relates to securities claims, dismissing the securities
claims.
Because the Court only grants in part the Defendants’ Estoppel MSJ, in the Court’s
analysis’ fifth section, the Court adjudges the Plaintiffs’ MSJ. The Court concludes that (i) the
entire fairness standard governs the Plaintiffs’ claims for breach of fiduciary duty; (ii) the
Defendants bear the burden of proof that the merger was entirely fair to the minority
shareholders; and (iii) the Defendants are liable for breaching their duty of entire fairness,

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because the undisputed material facts show that the Defendants did not put into place sufficient
safeguards protecting minority shareholder rights to meet this burden. Accordingly, the Court
grants in part the Plaintiffs’ MSJ with respect to liability under the entire fairness standard. The
Court, however, leaves determination of damages -- and only damages -- to be resolved at trial.
The Court sixth investigates and adjudges the Plaintiffs’ Motion to Strike Affirmative
Defenses. The Court concludes that: (i) rule 12(f) motions to strike are disfavored and should be
denied unless the challenged allegations have no possible relation or logical connection to the
controversy’s subject matter; and (ii) the Court will not “strike” Defendants’ affirmative defenses
of acquiescence, unclean hands, estoppel, and waiver have a possible relation or logical
connection to the controversy’s subject matter. Accordingly, the Court denies the Plaintiffs’
Motion to Strike Affirmative Defenses. Nevertheless, given the unique procedural history and
posture of this case, the Court further concludes that, because the entire fairness doctrine applies,
the Defendants are precluded from raising these defenses at trial.
Further, because the Court grants the Plaintiffs’ MSJ with respect to the Defendants’
liability under the entire fairness standard, leaving only the determination of damages for the
trial, in the Court’s analysis’ seventh section, the Court appraises the Plaintiffs’ Motion to Strike
Lorett Affidavit. The Court concludes that: (i) the Lorett Affidavit is not a pleading; (ii) the
Lorett Affidavit is not redundant, immaterial, impertinent, or scandalous; and (iii) that the Court
therefore cannot strike the Lorett Affidavit under rule 56 of the Federal Rules of Civil Procedure.
Accordingly, the Court denies the Plaintiffs’ Motion to Strike Lorett Affidavit.
Again, because the Court leaves only the determination of damages for trial, in the
Court’s analysis’ eighth and final section, the Court also evaluates the Plaintiffs’ Motion in
Limine. The Court concludes that: (i) the Akin Gump letter’s plain language and other letters

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that the Plaintiffs and the Plaintiffs’ counsel exchanged with the Defendants between September,
2013, and November, 2013, reflect that they are compromise offers under rule 408 of the Federal
Rules of Evidence; (ii) the Akin Gump letter and other letters that the Plaintiffs and the
Plaintiffs’ counsel exchanged with the Defendants between September, 2013, and November,
2013 do not fall into any of the rule 408(b) exceptions that permit a court to admit compromiseoffer evidence; (iii) letters sent to and received from Triangle Capital are not compromise offers
between the Plaintiffs and the Defendants; and (iv) the Triangle Capital correspondence is not
irrelevant to a determination of the TIR shares’ fair price and is not likely to mislead or confuse
the jury. Accordingly, the Court: (i) grants the Plaintiffs’ Motion In Limine in part, precluding
entry into evidence of the Akin Gump letter and other letters that the Plaintiffs and the Plaintiffs’
counsel exchanged with the Defendants between September, 2013, and November, 2013; and (ii)
denies the Motion In Limine in part, allowing letters sent to and received from Triangle Capital
to come into evidence during the trial.
FACTUAL BACKGROUND
“Charles Stephenson is the owner of Regent Private Capital.” Defendants’ Acquiescence
MSJ ¶ 1, at 7 (stating this fact).1

See Plaintiffs’ Memorandum of Law in Opposition to

1

During the hearing, both parties agreed that there is significant overlap between the
factual sections in the Defendants’ Acquiescence MSJ and the Defendants’ Second MSJ. See Tr.
at 370:7-374:14 (DeMuro, Kagen, Court). The Defendants indicated at the hearing that they do
not object, in the light of this fact, to the Court writing the factual sections for the Defendants’
two motions for summary judgment together. See Tr. at 374:9-14 (DeMuro). The parties also
agreed that they approved of the Court’s proposal to fold the facts from Plaintiffs’ MSJ into a
single factual section along with the facts from the Defendants’ Acquiescence MSJ and the
Defendants’ Estoppel MSJ. The Court, therefore: (i) refers to facts common to both the
Defendants’ Acquiescence MSJ and the Defendants’ Estoppel MSJ collectively by referring to
the paragraph in the Defendants’ Acquiescence MSJ; and (ii) places all facts from across the
three summary judgment motions into a preliminary biographical section followed by facts
reported in as near to chronological order as overlapping time periods permit.
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Defendants’ Motion for Summary Judgment on Acquiescence Defense ¶ 1, at 8, filed April 20,
2015 (Doc. 84)(“Response to Defendants’ Acquiescence MSJ”)(not disputing this fact).
“Defendant Cynthia Field is the daughter of Defendant Charles Stephenson.”

Plaintiffs’

Memorandum of Law in Support of Motion for Partial Summary Judgment on Breach of
Fiduciary Claims ¶ 1, at 3, filed September 14, 2015 (Doc. 157)(“Plaintiffs’ MSJ”)(stating this
fact).

See Defendants’ Response in Opposition to Plaintiffs’ Motion for Partial Summary

Judgment on Breach of Fiduciary Duty Claims (Doc. 157), at 2, filed October 5, 2015 (Doc.
170)(“Response to Plaintiffs’ MSJ”)(not disputing this fact). “Defendant Lawrence Field is the
husband of Defendant Cynthia Field and the son-in-law of Defendant Charles Stephenson.”
Plaintiffs’ MSJ ¶ 2, at 3 (stating this fact). See Response to Plaintiff’s MSJ at 2 (not disputing
this fact). “Defendant CEP-TIR, LLC[‘s] . . . principals are Defendants Stephenson, Cynthia
Field and Peter Boylan, [sic] III.” Plaintiffs’ MSJ ¶ 3, at 3 (stating this fact).2 “In 2009, Regent
and Mr. Stephenson individually became together TIR Inc.’s largest shareholder owning
approximately 40% of the TIR Inc. shares.” Defendants’ Acquiescence MSJ ¶ 1, at 7 (stating
this fact).3 “At the same time a number of the Plaintiffs associated with Alan Stuart acquired a

2

In the Plaintiffs’ MSJ, the Plaintiffs word the fact as follows: “Defendant CEP-TIR,
LLC is a Delaware corporation whose principals are Defendants Stephenson, Cynthia Field and
Peter Boylan, III.” Plaintiffs’ MSJ ¶ 3, at 3. The Defendants dispute that CEP-TIR, LLC is a
corporation, maintaining that it “is a limited liability company, not a corporation.” Response to
Plaintiffs’ MSJ at 2. The Defendants do not dispute that Stephenson, Field, or Boylan is a
principal of CEP-TIR. See Response to Plaintiffs’ MSJ at 2. Because the Defendants do not
dispute this latter assertion, the Court deems it to be undisputed and amends the fact’s text to
reflect that the fact’s elements that are undisputed.
3

In Response to Defendants’ Acquiescence MSJ ¶ 2, at 8, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
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minority interest in TIR Inc.” Defendants’ Acquiescence MSJ ¶ 3, at 7 (stating this fact).4 “Alan
Stuart is a ‘seasoned, successful, long-term investor with more than 40 years’ experience in
business development, investment management, and corporate governance.’”

Defendants’

Acquiescence MSJ ¶ 4, at 7 (stating this fact).5 “The Defendant Lawrence Field, the son-in-law
of Mr. Stephenson and an officer of Regent, became the chairman, and Alan Stuart became a
member of the board of directors of TIR Inc.” Defendants’ Acquiescence MSJ ¶ 5, at 7 (stating

judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
4

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
5

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
-8-

this fact). See Response to Defendants’ Acquiescence MSJ ¶ 1, at 8 (not disputing this fact). “In
February 2013, Alan Stuart prepared a proposal for Mr. Field, which he named ‘Project Poirot’
to acquire control of TIR, Inc. at $369,507 per share which he later increased to $385,175.”
Defendants’ Acquiescence MSJ ¶ 6 (stating this fact).6 “On February 11, 2013, Stuart purchased
individual shareholder J.W. Lorett’s TIR Inc. shares for $275,000 per share.” Defendants’
Acquiescence MSJ ¶ 7, at 7 (stating this fact).7 “On March 21, 2013, Stuart presented an offer to
the TIR board for TIR Inc. shares of $380,382 per share.” Defendants’ Acquiescence MSJ ¶ 8,
at 7 (stating this fact).8 “On May 16, 2013, Alan Stuart revised his offer to the board, increasing

6

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
7

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
8

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
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the repurchase price to $413,143 per share.” Defendants’ Acquiescence MSJ ¶ 9, at 8 (stating
this fact).9 “The Defendants [Charles C.] Stephenson, [Peter] Boylan, and [Cynthia A.] Field
were principals in Cypress Energy Partners-TIR, LLC (“Cypress Energy Partners”). Defendants’
Acquiescence MSJ ¶ 10, at 8 (stating this fact). See Response to Defendants’ Acquiescence MSJ
¶ 1, at 8 (not disputing this fact). “In 2013, two TIR Inc. directors (Alan Stuart on the one hand
and Lawrence Field on the other hand) [sought] to acquire control of TIR Inc.” Defendants’
Acquiescence MSJ ¶ 11, at 8 (stating this fact)(relying on Videotape Deposition of Rodney
Reynolds Taken on Behalf of the Defendants (taken Nov. 17, 2014), filed Apr. 3, 2015 (Doc. 8311)(“Reynolds Depo.”).10 “In June 2013, the Defendants [completed] the bidding process to

Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
9

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
10
The Defendants state in the Defendants’ Acquiescence MSJ that in 2013, “two TIR Inc
directors (Alan Stuart on the one hand and Lawrence Field on the other hand) engaged in a
competition to acquire control of TIR Inc.” Defendants’ Acquiescence MSJ ¶ 11, at 8. The
Plaintiffs purport to dispute this fact, relying on a June 14, 2013, email from the Special
Committee attaching a proposed Standstill and Indemnity Agreement that depicts a series of
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acquire control of TIR Inc.” Defendants’ Acquiescence MSJ ¶ 13, at 8 (stating this fact)(relying
on Affidavit of Randall Lorett, filed Apr. 3, 2015 (Doc. 83-2)(“Lorett Aff.”).11
“On June 26, 2013, Defendant CEP-TIR, LLC acquired 26.45 shares of TIR from certain
other shareholders, known as the Pooled Shareholders, in voluntary sales transactions.”
Plaintiffs’ MSJ ¶ 4, at 3 (emphasis in the original)(stating this fact). See Response to Plaintiffs’
MSJ at 2 (not disputing this fact). “Defendants subsequently referred to this share acquisition as
the ‘Control Acquisition.’” Plaintiffs’ MSJ ¶ 5, at 3 (stating this fact). See Response to
Plaintiff’s MSJ at 2 (not disputing this fact). “Between June 2013 and October 2013, CEP-TIR
LLC also [acquired] certain other outstanding shares of TIR.” Plaintiffs’ MSJ ¶ 6, at 3 (stating
this fact). See Response to Plaintiffs’ MSJ at 2 (not disputing this fact).12 “As a result of these

direct, independent offers to shareholders rather than a competition between Stuart and Field to
acquire control of TIR, Inc. See Response to Defendants’ Acquiescence MSJ ¶ 3, at 8. The
Court concludes that, whether the bids were competitive or independent, they indicate that Stuart
and Field both sought to acquire control of TIR, Inc. The Court therefore amends the fact as the
Defendants state it in the Defendants’ Acquiescence MSJ to reflect the elements of the fact that
the parties do not dispute.
11

The Defendants state in the Defendants’ Acquiescence MSJ that in “June 2013, the
Defendants won the bidding process to acquire control of TIR Inc.” Defendants’ Acquiescence
MSJ ¶ 13, at 8. The Plaintiffs purport to dispute this fact, relying on a June 14, 2013, email from
the Special Committee attaching a proposed Standstill and Indemnity Agreement that depicts a
series of direct, independent offers to shareholders rather than a competition between Stuart and
Field to acquire control of TIR, Inc. See Response to Defendants’ Acquiescence MSJ ¶ 3, at 8-9.
The Court does not find in the fact as written any indication that the Defendants here assert any
competitive bidding between the two camps, aside perhaps from the Plaintiffs’ use of the verb
“won.” To reflect the factual elements that are undisputed, the Court therefore amends the fact
as the Defendants state it in the Defendants’ Acquiescence MSJ.
12

In the Plaintiffs’ MSJ, the Plaintiffs word the fact as follows: “Between June 2013 and
October 2013, CEP-TIR LLC also certain other outstanding shares of TIR.” Plaintiffs’ MSJ ¶ 6,
at 3. The fact is written as a sentence fragment without any verb. The Defendants purport to
dispute the fact solely on the basis of “avoidance of doubt,” and add the word “acquired” to the
fact. Response to the Plaintiffs’ MSJ at 2. Because of (i) the obvious scrivener’s error; and (ii)
the Plaintiffs’ repeated assertions elsewhere that CEP-TIR LLC acquired the outstanding TIR
shares, the Court deems the fact -- with the Defendants’ interpolation of the verb “acquired” -- to
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transactions, Defendants CEP-TIR, LLC, Stephenson, and Cynthia Field . . . became,
collectively, the majority shareholders of TIR, owning at least 69.4% of the outstanding shares.”
Plaintiffs’ MSJ ¶ 7, at 3 (stating this fact). See Response to Plaintiffs’ MSJ at 2 (not disputing
this fact). CEP-TIR, LLC, Stephenson, and Field “thereby collectively gained control of TIR.”
Plaintiffs’ MSJ ¶ 8, at 4 (stating this fact). See Response to Plaintiffs’ MSJ at 2 (not disputing
this fact).
“From June 2013 through December 23, 2013, the Plaintiff SFF-TIR, LLC was
represented by legal counsel.” Defendants’ Acquiescence MSJ ¶ 14, at 8 (stating this fact).13
“From June 2013 through December 23, 2013, the Plaintiffs Stuart Family Foundation, Inc.;
Alan Stuart 2012 GST Family Trust; Stuart 2005 GST Family Trust; and Celebration, LLC were
represented by legal counsel.” Defendants’ Acquiescence MSJ ¶ 15, at 8 (stating this fact).14

be undisputed.
13

In the Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
14
In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
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“Each of the individual Plaintiffs executed and delivered a proxy to SFF-TIR, LLC to act on his
or her behalf with respect to his or its TIR Inc. shares which proxies were in effect on November
2, 2013.” Defendants’ Acquiescence MSJ ¶ 16, at 8 (stating this fact).15 “[T]he Plaintiffs, led
by Alan Stuart, attempted to negotiate a sale of their minority block of shares to Cypress for a
substantially higher share price.” Defendants’ Acquiescence MSJ ¶ 19, at 9 (stating this fact).16
“Following the June 26, 2013 Control Acquisition, and after certain resignations, TIR’s

1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
15

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
16

The Plaintiffs purport to dispute this fact “to the extent that it suggests that there was a
winner-take-all competition in 2013 to acquire control of TIR.” Response to Defendants’
Acquiescence MSJ ¶ 6, at 9. The Plaintiffs then continue, “Plaintiffs otherwise admit that
Plaintiffs attempted to negotiate a substantially higher sale price for their shares, except that
Plaintiffs object to this fact as immaterial and irrelevant.” Response to Defendants’
Acquiescence MSJ ¶ 6, at 9. The Court sees no evidence in the fact, as the Defendants state it,
that the Defendants suggest the existence of a winner-take-all competition in 2013. Furthermore,
contending that a fact is immaterial is not disputing a fact, nor is it specifically controverting a
fact by directing the Court with particularity to the record. See N.D. Okla. LCvR56.1(c). The
Court has previously noted that arguing a proposed fact at summary judgment is immaterial to
the Court’s disposition of the summary judgment motion is not effective to contest a fact:
“Materiality is not proper grist for the statement of facts and is considered properly in the Court’s
legal analysis.” Lowery v. City of Albuquerque, 2011 WL 1336670, at *4 n.8 (D.N.M. Mar. 31,
2011)(Browning, J.). The Plaintiffs’ assertion that the entire fairness standard is the operative
standard is a legal conclusion, and not a factual assertion, and so does not materially affect the
Plaintiffs’ admission of the fact.
- 13 -

Board of Directors had three members as of October 31, 2013: Defendant Lawrence Field,
Defendant Peter Boylan, and Randall Lorett, the President and CEO of TIR.” Plaintiffs’ MSJ ¶
10, at 4 (stating this fact).17

“On September 20, 2013, Cypress Energy Partners Limited

Partnership filed a Registration Statement (including the prospectus) for the public offering of
partnership units of TIR shares, pursuant to the confidentiality provisions of the Jumpstart Our
Business Startups Act.” Defendants’ Acquiescence MSJ ¶ 20, at 9 (stating this fact). See
Response to Defendants’ Acquiescence MSJ ¶ 1, at 8 (not disputing this fact). “As of November
2, 2013, all plaintiffs had granted proxies to Plaintiff SFF-TIR to vote their TIR Inc. shares and
agreed among themselves not to sell their TIR Inc. shares for less than $654,632.” Defendants’
Acquiescence MSJ ¶ 21, at 9 (stating this fact).18 “On October 31, 2013, Cypress and TIR Inc.
made a Tender Offer [Letter from Cypress Energy Partners to Shareholders of Tulsa Inspection
17

The Defendants purport to dispute this fact “[f]or avoidance of doubt,” indicating that
TIR, Inc.’s board of directors “had three member -- Mr. Field, Mr. Boylan, and Mr. Lorett -- and
two vacant positions as of October 31, 2013.” Response to Plaintiffs’ MSJ at 3 (relying on
Letter from Cypress Energy Partners to Shareholders of Tulsa Inspection Resources, Inc. (dated
Oct. 31, 2013), at 3, filed Sept. 15, 2015 (Doc. 158-3)). The Court notes that this observation is
a difference without a distinction. Analogously, if one says that a person is holding up three
fingers on one hand, that statement is the equivalent of saying that one is holding up three fingers
on one hand and that the other two fingers on the hand are not being held up. Furthermore, the
Defendants do not dispute that L. Field., Boylan, and R. Lorett were the only three sitting TIR,
Inc. board members as of October 31, 2013; the Court deems this fact to be undisputed.
18

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
- 14 -

Resources, Inc. (dated Oct. 31, 2013), filed Sept. 15, 2015 (Doc. 158-3)(“Tender Offer”)] to TIR
Inc.’s remaining shareholders, including the Plaintiffs, for $451,000.”

Defendants’

Acquiescence MSJ ¶ 22, at 9 (stating this fact). See Response to Defendants’ Acquiescence MSJ
¶ 1, at 8 (not disputing this fact).
The Tender Offer disclosed (i) that the Registration Statement had been filed, (ii)
that Cypress Energy intended to enter into an underwriting agreement for the
public offering of master limited partnership units and that the equity of TIR Inc.
might be dropped into the new publicly traded entity, and (iii) the purchase of
shares (and share prices) by which the Defendants acquired TIR Inc. shares.
Defendants’ Acquiescence MSJ ¶ 23, at 9 (stating this fact)(relying on Exhibit 1 to Videotaped
Deposition of Anurag Agarwal (taken Sept. 29, 2014), filed Apr. 3, 2015(Doc. 83-20)(“Agarwal
Depo. Ex. 1”).19 In a section called “Certain Conflicts of Interest,” the Tender Offer stated:

19

The Plaintiffs purport to dispute this fact. According to the Plaintiffs, the Tender Offer

contains material misstatements and omissions:
First, the Tender Offer failed to disclose (i) the value Defendants would receive
for their interests in TIR as a result of the MLP IPO; (ii) the fact that Defendants
had projected internally, and to third parties (including underwriters for the MLP
IPO), that TIR would reach $21 million adjusted EBITDA by the end of 2013;
(iii) and TIR’s substantial growth in revenues, headcount and EBITDA monthover-month. See Kagen Decl. Ex. L. While the Tender Offer included financials
for September 2012 and September 2013, it did not include any financials
showing the unprecedented growth the Company was experiencing on a monthly
basis. The Tender Offer also included affirmative misstatements: (i) it claimed
certain issues with accounts receivable for TIR Canada were “material,” even as
just days earlier internal documents show Defendants had concluded the impaired
accounts receivable amounted to less than the $300,000 reserve Defendants had
set aside to address the issue (which can hardly be described as “material” in light
of TIR’s projected $21M adjusted EBITDA for 2013) (see id. Ex. D and Ex. M [.
[find what this is...it appears to be mis-cited or missing from the docket]); and (ii)
to support the offer price of $451,000 per share, it claimed Defendants had
purchased TIR shares from 13 unnamed shareholders at a price of $451,000 or
lower in October 2013. Not only did this conflict with Defendants’ earlier
promise on June 26, 2013 that it would buy out all TIR shareholders at the same
price, but also with numerous internal statements by Defendants that they in fact
had purchased from only 4 TIR shareholders at a price of $451,000 or less in
- 15 -

“As a result of the June Acquisition, Mr. Boylan, and Mr. Field (who is affiliated
with Mr. Stephenson and Ms. Field) may each be deemed to have a conflict of
interest related to this Offer.” Id. [Tender Offer] at 2.
“As a result of the foregoing potential conflicts of interest, the TIR Board has not
been asked to and is not making any recommendation to you regarding this
Offer.” Id. [Tender Offer at 2]
“None of the Purchasers, nor any of their respective affiliates has performed or
commissioned any appraisal, or engaged any independent financial advisor or
other third party to perform any valuation analysis or provide any opinion
respecting the value of the Shares in connection with this Offer.” Id. [Tender
Offer at 2]
Plaintiffs’ MSJ ¶ 12, at 4 (stating this fact). See Response to Plaintiffs’ MSJ at 2 (not disputing
this fact). The merger between TIR, Inc. and TIR, LLC “enabled the Controlling Shareholder
Defendants to exchange their own TIR shares for equity in the new entity, Defendant TIR LLC,
in proportion to their prior shareholders in TIR.” Plaintiffs’ MSJ ¶ 15, at 4 (stating this fact).
See Response to Plaintiffs’ MSJ at 2 (not disputing this fact). “The Merger was approved and
carried out by the following Defendants: [(i)] The Controlling Shareholder Defendants, i.e.,
Defendants CEP-TIR, LLC, Stephenson, and Cynthia Field; and [(ii)] TIR Directors Lawrence
Field and Peter Boylan III . . . .” Plaintiffs’ MSJ ¶ 16, at 4-5 (bullets and internal citations
omitted)(stating this fact). See Response to Plaintiffs’ MSJ at 2 (not disputing this fact). “TIR’s

October 2013. See, e.g., Kagen Decl. Exs. Q, R . at 91412, April 3, 2015 Austin
Aff. [Affidavit of G. Les Austin, filed Apr. 3, 2015 (Doc. 83-19)(“Austin Aff.”)]
¶3.
Response to Defendants’ Acquiescence MSJ ¶ 7, at 9. The Court notes, however, that the fact as
the Defendants word it in their Defendants’ Acquiescence MSJ, asserts certain items that were
disclosed; it does not touch on items that the Plaintiffs may have failed to disclose. See
Defendants’ Acquiescence MSJ ¶ 22, at 9. Moreover, alleged misstatements in the disclosure
about other issues does not fall within this asserted fact’s scope. Because the Plaintiffs do not
dispute the assertion that the tender offer disclosed that (i) the Registration Statement had been
filed; (ii) that Cypress Energy intended to enter into an underwriting agreement for the public
offering of master limited partnership units and that the equity of TIR Inc. might be dropped into
the new publicly traded entity; and (iii) the purchase of shares (and share prices) by which the
Defendants acquired TIR Inc. shares, the Court deems this fact to be undisputed.
- 16 -

Rule 30(b)(6) witness, Dan O’Keefe, admitted that because the Board composition had not
changed, the same conflicts of interest that existed at the time of the Tender Offer also existed at
the time of the Merger.” Plaintiffs’ MSJ ¶ 18, at 5 (stating this fact). See Response to Plaintiffs’
MSJ at 2 (not disputing this fact).
“On November 13, 2013, Cypress Energy’s SEC Registration Statement containing the
prospectus for the sale of partnership units in the master limited partnership became public.”
Defendants’ Acquiescence MSJ ¶ 24, at 9 (stating this fact). See Response to Defendants’
Acquiescence MSJ ¶ 1, 8 (not disputing this fact). “Shortly after November 13, 2013, the
Plaintiffs analyzed or had analyzed by one or more of their representatives the Registration
Statement.” Defendants’ Acquiescence MSJ ¶ 25, at 9 (stating this fact).20 “By November 26,
2013, the Plaintiffs had received and either personally reviewed the October 31 Tender Offer or
had had the October 31 Tender Offer reviewed by legal counsel or SFF-TIR, LLC on their
behalf.” Defendants’ Acquiescence MSJ ¶ 26, at 9 (stating this fact).21 “The Plaintiffs did not

20

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
21

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
- 17 -

accept the October 31 Tender Offer.” Defendants’ Acquiescence MSJ ¶ 27, at 9 (stating this
fact). See Response to Defendants’ Acquiescence MSJ ¶ 1, at 8 (not disputing this fact). “The
Plaintiffs could not have tendered their shares in response to the Tender Offer no matter what the
Offer said or did not say; the Plaintiffs had contractually agreed prior to the Tender Offer not to
sell their TIR Inc. shares for less than $654,632.” Defendants’ Acquiescence MSJ ¶ 28, at 9
(stating this fact).22 “By November 26, 2013, the Plaintiffs had received and either (i) personally
reviewed or (ii) had had reviewed by legal counsel or SFF-TIR, LLC on their behalf the Cypress
Energy Partners Limited Partnership registration Statement.” Defendants’ Acquiescence MSJ ¶
29, at 10 (stating this fact).23

judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
22

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
23

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
- 18 -

The SEC Registration Statement included the following information respecting
Cypress Energy Partners Limited Partnership and the Initial Public Offering: (a)
Prospectus; (b) List of risks to its business; (c) Capitalization; (d) Cash
distribution policy, projections and partnership agreement provisions relating to
cash distributions; (e) Historical and projected financial data: (f) Management
discussion and analysis of financial condition; (g) detailed descriptions of the
industries in which Cypress Energy Partners was engaged, Cypress’ business and
Cypress’ management; (h) Cypress Energy Partners’ partnership agreement; (i)
Underwriting information; (j) complete audited financial statements (as of
September 30, 2013).
Defendants’ Acquiescence MSJ ¶ 30, at 10 (stating this fact)(relying on Austin Aff.) .24 “As of
November 2013, TIR had (a) revenues of $346.6 million, which was and [sic] 28 percent higher
than TIR’s budgeted figure; (b) pretax profits of $1.6 million; and (c) $9 million year to date,
which were all were [sic] the ‘highest numbers [TIR] had had historically’ as of that time.”
Plaintiffs MSJ ¶ 26, at 6 (last set of bracketed material in the original)(stating this fact)(citing
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
24

The Plaintiffs purport to dispute this fact. According to the Plaintiffs, the

S-1 Registration Statement (the “S-1”) did not disclose material information in
Defendants’ possession, including the pricing information for the IPO and how
many limited liability company units in the Merger Sub Defendants would receive
in exchange for their TIR shares, or the value of such equity merger
consideration. Moreover, the projected financial data contained in the S-1 was
incomplete as it did not include yearend 2013 EBITDA projections for TIR, or the
fact that Defendants had projected internally that year-end 2013 revenues would
exceed $360 million (and by year-end, they in fact reached nearly $380 million).
Response to Defendants’ Acquiescence MSJ ¶ 8, at 10. The Court notes that the fact, as the
Defendants word it, indicates what information the Registration Statement included -- not what it
excluded. See Defendants’ Acquiescence MSJ ¶ 30, at 10. One might argue that the canon of
construction expressio unius est exclusio alterius suggests that the Defendants’ choice to list ten
items that they assert the Registration Statement contains means that other items were not
included. Whether accurate or inaccurate, such an interpretation is irrelevant; the Plaintiffs do
not dispute the inclusion of the ten items that the Defendants assert are in the Registration
Statement. Because the Plaintiffs do not dispute this fact, the Court deems it to be undisputed.
- 19 -

O’Keefe Depo. at 297:16-299:13). See Response to Plaintiffs’ MSJ at 2 (not disputing this fact).
“TIR did not do a valuation [to inform] its merger consideration offer.” Plaintiffs’ MSJ ¶ 27, at 6
(internal quotation marks omitted)(stating this fact).25 “Defendants did not disclose to Plaintiffs
TIR’s internal October and November 2013 financial statements . . . showing record-breaking
revenues or TIR’s November 16, 2013 management projections . . . of even higher revenues
through 2018.” Plaintiffs’ MSJ ¶ 28, at 6 (internal citations omitted)(stating this fact). See
Response to Plaintiffs’ MSJ at 2 (not disputing this fact). “On November 26, 2013, the plaintiffs
claimed each share of TIR Inc. was worth $650,000.” Defendants’ Acquiescence MSJ ¶ 32, at
10 (stating this fact).26 “On November 29, 2013, Defendants advised that the Defendants could

25

The Defendants purport to dispute this fact, indicating:

TIR offered the same or higher share price to Plaintiffs than TIR had offered
Pooled Shareholders and other selling shareholders in the intervening months. No
appraisal was appropriate. Aware of its performance through October and
November 2013, TIR nonetheless stated in the Merger Notice that it believed
$451,000 per share “represents a premium over the fair value of such shares.”
Response to Plaintiffs’ MSJ at 3 (quoting Notice to Former Shareholders of Tulsa Inspection
Resources, Inc. of Shareholder Action and Appraisal Rights 2, filed Sept. 15, 2015 (Doc. 1585))(internal citation omitted). The Defendants’ assertion that an appraisal was not appropriate is
a legal question, and not a factual question. The Defendants do not dispute the Plaintiffs’
assertion in this fact that the Defendants did not commission another valuation to inform their
merger consideration offer. Because the Defendants do not dispute this fact, the Court deems it
to be undisputed.
26
In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
- 20 -

not negotiate any purchase during the tender offer period.” Defendants’ Acquiescence MSJ ¶ 33,
at 10 (stating this fact).27
“The TIR Board unanimously approved the Merger in a consent dated December 9, 2013
signed by all three Directors.” Plaintiffs’ MSJ ¶ 19, at 5 (stating this fact). See Response to
Plaintiffs’ MSJ at 2 (not disputing this fact). “CEP-TIR, LLC, Stephenson, and Cynthia Field,
the majority shareholders in TIR, approved the Merger in a similar consent dated December 9,
2013 signed by all three of the majority shareholders.” Plaintiffs’ MSJ ¶ 20, at 5 (stating this
fact). See Response to Plaintiffs’ MSJ at 2 (not disputing this fact). “Plaintiffs were all minority
shareholders of TIR at the time of the Merger, owning the 32.882 outstanding shares that were
canceled by the Merger.” Plaintiffs’ MSJ ¶ 21, at 5 (stating this fact). See Response to
Plaintiff’s MSJ at 2 (not disputing this fact). “The Merger Agreement stated in its ‘Governing
Law’ provision . . . that ‘the provisions of this Agreement relating to mechanics or the effects of
the Merger under Delaware law shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware.’” Plaintiffs’ MSJ ¶ 22, at 5 (stating this fact)(quoting
Merger Agreement at § 8.04).28

and so does not materially affect the Plaintiffs’ admission of the fact.
27

In Response to Defendants’ Acquiescence MSJ ¶ 2, the Plaintiffs do not dispute this
fact, but they contend that this fact is “immaterial and irrelevant under the entire fairness
standard of review that governs the Tender Offer and Merger.” Response to Defendants’
Acquiescence MSJ ¶ 2, at 8. Contending that a fact is immaterial is not disputing a fact, nor is it
specifically controverting a fact by directing the Court with particularity to the record. See N.D.
Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at summary
judgment is immaterial to the Court’s disposition of the summary judgment motion is not
effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
28
The Defendants purport to dispute this fact “[f]or avoidance of doubt,” insisting that the
- 21 -

“On December 9, 2013, Cypress and TIR exercised their statutory right to cash-out the
Plaintiffs . . . .” Defendants’ Acquiescence MSJ ¶ 34, at 10 (stating this fact)(relying on Notice
to Former Shareholders of Tulsa Inspection Resources, Inc. of Shareholder Action and Appraisal
Rights, filed Apr. 3, 2015(Doc. 83-27)(“Agarwal Depo. Ex. 7”).29 “On December 11, 2013, the
Plaintiffs received timely after-the-fact notice of the Merger and their appraisal rights in
accordance with the Oklahoma statutes.” Defendants’ Acquiescence MSJ ¶ 37, at 11 (stating this
fact). See Response to Defendants’ Acquiescence MSJ ¶ 1, at 8 (not disputing this fact). “The
Merger Agreement (dated December 9, 2013), filed Apr. 3, 2015 (Doc. 83-27), provides that:
For the avoidance of doubt, any former shareholder who surrenders his, her or its
share certificate (or acceptable evidence of share ownership for payment of
Merger Consideration pursuant to Section 2.02 [payment provisions], shall be
deemed to have (a) accepted the Merger Consideration and (b) forever waived any
appraisal rights pursuant to this Section 2.03 [provisions respecting dissenting
share], Section 1091 of the [Oklahoma General corporation Act], or otherwise.
Defendants’ Acquiescence MSJ ¶ 38, at 11 (citing Agarwal Depo. Ex. 7)(stating this fact). See
“laws of the State of Oklahoma are applicable to Plaintiffs’ breach of fiduciary duty claims . . .
and unjust enrichment claim . . . .” Response to Plaintiffs’ MSJ at 3. This objection is legal
rather than factual. The Defendants do not dispute that the merger agreement language is as the
Plaintiffs’ report it in this fact. Because the Defendants do not dispute this fact, the Court deems
the fact to be undisputed.
29

In the Defendants’ Acquiescence MSJ, the Defendants word this fact as follows: “On
December 9, 2013, Cypress and TIR exercised their statutory right to cash-out the Plaintiffs at
$451,000 per share.” Defendants’ Acquiescence MSJ ¶ 34, at 10. The Plaintiffs purport to
dispute this fact, asserting that they dispute it “to the extent it suggests that Defendants had any
right to cash-out Plaintiffs for an unfair price,” adding that the fact “is otherwise admitted.”
Response to Defendants’ Acquiescence MSJ ¶ 9, at 10. The Court notes that the Plaintiffs do not
contest the Defendants’ assertion that the Defendants’ statutory rights included cashing out the
Plaintiffs -- only that these statutory rights did not also encompass the right to cash the Plaintiffs
out at “an unfair price.” Response to Defendants’ Acquiescence MSJ ¶ 9, at 10. Whether
$451,000.00 is a fair share price for TIR, Inc. shares at the time the merger was effected is a
legal question rather than a factual question -- a legal question that the Court will discuss at
length infra in its analysis of the Defendants’ Acquiescence MSJ and the Plaintiffs’ Estoppel
MSJ. The Court therefore amends the fact as the Defendants state it in the Defendants’
Acquiescence MSJ to reflect the factual elements that are undisputed.
- 22 -

Response to Defendants’ Acquiescence MSJ ¶ 1, at 8 (not disputing this fact). “On December
18-20, 2013, each Plaintiff delivered his or its TIR Inc. share certificates to the Defendant CEPTIR, along with stock powers, pursuant to the provisions of the Merger Agreement.”
Defendants’ Acquiescence MSJ ¶ 39, at 11 (stating this fact).30 “On December 23, 2013, the
Defendant TIR LLC paid . . . Plaintiffs . . . the $451,000 per share Merger Consideration.”
Defendants’ Acquiescence MSJ ¶ 40, at 11 (stating this fact).31 As of December 9, 2013 (the
date on which the Merger was consummated) and as of December 18-20, 2013 (the date on
which the Plaintiffs surrendered their TIR Inc. shares . . . ), the Plaintiffs knew the Defendants
had acquired control of TIR Inc.” Defendants’ Acquiescence MSJ ¶41, at 11 (stating this fact).32

30

The Plaintiffs purport to dispute this fact, indicating that they dispute the fact “to the
extent Defendants suggest Plaintiffs’ delivery of their shares pursuant to the Merger Agreement
was a voluntary choice. Rather, Plaintiffs as minority shareholders were forcibly squeezed out of
TIR, as evidenced by the ‘after-the-fact’ December 11, 2013 Merger Notice, which informed
Plaintiffs that their shares had already been cancelled.” Response to Defendants’ Acquiescence
MSJ ¶ 12, at 10 (relying on Agarwal Depo. Ex. 7). Because (i) the fact as the Defendants assert
it does not speak to whether the share certificate delivery was voluntary or involuntary; and (ii)
the Plaintiffs do not dispute the asserted fact that each Plaintiff delivered his or its share
certificates, along with stock powers, to CEP-TIR between December 18 and December 20,
2013, the Court deems the fact to be undisputed.
31
In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows: “On
December 23, 2013, the Defendant TIR LLC paid, and the Plaintiffs accepted, the $451,000 per
share Merger Consideration.” Defendants’ Acquiescence MSJ ¶ 40, at 11. The Plaintiffs purport
to dispute the entire fact as the Defendants assert it, maintaining that the “Plaintiffs did not
‘accept’ the $451,000 per share merger consideration, but were forcibly cashed out.” Response
to Defendants’ Acquiescence MSJ ¶ 13, at 10. As is true for Defendant’s undisputed fact 39, the
dispute with respect to this fact centers on the transaction’s voluntariness, and not whether the
transaction took place for the amount that the Plaintiffs indicate. Consequently, the Court
amends the fact as the Defendants assert it to reflect the fact’s elements that are undisputed.
32

In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows: “As of
December 9, 2013 (the date on which the Merger was consummated) and as of December 18-20,
2013 (the date on which the Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration), the Plaintiffs knew the Defendants had acquired control of TIR Inc.”
Defendants’ Acquiescence MSJ ¶ 41, at 11 (relying on Videotaped Deposition of Nathan Allen
(taken Feb. 25, 2015), filed Apr. 3, 2015, at 73:17-74:2 (Doc. 83-23)(“Allen Depo.”). The
Plaintiffs dispute this fact only insofar as it “incorrectly states that ‘Plaintiffs surrendered their
- 23 -

“As of December 9, 2013 (the date on which the Merger was consummated) and as of December
18-20, 2013 (the date on which the Plaintiffs surrendered their TIR Inc. shares . . . ), the
Plaintiffs knew the transactions by which the Defendants acquired controlling shares of TIR, Inc.
and the prices paid for those shares.” Defendants’ Acquiescence MSJ ¶ 42, at 11 (stating this
fact).33

TIR Inc. shares to obtain the Merger consideration.’” Response to Defendants’ Acquiescence
MSJ ¶ 14, at 10 (quoting Defendants’ Acquiescence MSJ ¶ 41, at 11). The Plaintiffs clarify that
they received cash merger consideration but did not receive equity merger consideration in the
Merger Sub, “which was the ‘Merger consideration’ that the controlling shareholder Defendants
received.” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10. Regarding the second half
of the asserted fact’s sentence, the Plaintiffs object that it is “immaterial as what ‘Plaintiffs
knew’ concerning the Merger process has no bearing upon the entire fairness of the Merger.”
Response to Defendants’ Acquiescence MSJ ¶ 14, at 10. The Court has amended this asserted
fact’s text to reflect the fact’s elements that are undisputed. Contending that a fact is immaterial
is not disputing a fact, nor is it specifically controverting a fact by directing the Court with
particularity to the record. See N.D. Okla. LCvR56.1(c). The Court has previously noted that
arguing a proposed fact at summary judgment is immaterial to the Court’s disposition of the
summary judgment motion is not effective to contest a fact: “Materiality is not proper grist for
the statement of facts and is considered properly in the Court’s legal analysis.” Lowery v. City
of Albuquerque, 2011 WL 1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The
Plaintiffs’ assertion that the entire fairness standard is the operative standard is a legal
conclusion, and not a factual assertion, and so does not materially affect the Plaintiffs’ admission
of the fact.
33

In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows: “As of
December 9, 2013 (the date on which the Merger was consummated) and as of December 18-20,
2013 (the date on which the Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration), the Plaintiffs knew the transactions by which the Defendants acquired controlling
shares of TIR, Inc. and the prices paid for the shares.” Defendants’ Acquiescence MSJ ¶ 42, at
11 (relying on Allen Depo. at 73:17-74:2). The Plaintiffs purport to dispute this fact only insofar
as it “incorrectly states that ‘Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration.’” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10 (quoting Defendants’
Acquiescence MSJ ¶ 42, at 11). The Plaintiffs clarify that they received cash merger
consideration but did not receive equity merger consideration in the Merger Sub, “which was the
‘Merger consideration’ that the controlling shareholder Defendants received.” Response to
Defendants’ Acquiescence MSJ ¶ 14, at 10. Regarding the second half of the asserted fact’s
sentence, the Plaintiffs object that it is “immaterial[,] as what ‘Plaintiffs knew’ concerning the
Merger process has no bearing upon the entire fairness of the Merger.” Response to Defendants’
Acquiescence MSJ ¶ 14, at 10. The Court has amended this asserted fact’s text to reflect the
fact’s elements that are undisputed. Contending that a fact is immaterial is not disputing a fact,
- 24 -

“Defendants admit that they did not: [(i)] Form a special committee of disinterested
directors or other disinterested persons to consider the proposed merger; [(ii)] Engage any
independent financial advisor or other third party valuation analysis; or [(iii)] Require a majorityof-the-minority vote for the Merger to be approved.” Plaintiffs’ MSJ ¶ 23, at 5-6 (bullets and
internal citations omitted)(stating this fact). See Response to Plaintiffs’ MSJ at 3 (not disputing
this fact). “There is no other evidence that Defendants employed any of the above devices at the
time of, and in connection with, the Merger.” Plaintiffs’ MSJ ¶ 24, at 6 (stating this fact). See
Response to Plaintiffs’ MSJ at 3 (not disputing this fact).
As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares . . . ), the Plaintiffs knew the Defendants’ conflicts of interest between
their positions as officers, directors and shareholders of TIR Inc. and their
positions as officers, directors, and equity owners of Cypress Energy and its
Affiliates.
Defendants’ Acquiescence MSJ ¶ 43, at 11 (stating this fact)(relying on Allen Depo. at 108:3112:3).34

nor is it specifically controverting a fact by directing the Court with particularity to the record.
See N.D. Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at
summary judgment is immaterial to the Court’s disposition of the summary judgment motion is
not effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
34

In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows:

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares to obtain the Merger consideration), the Plaintiffs knew the
Defendants’ conflicts of interest between their positions as officers, directors and
shareholders of TIR Inc. and their positions as officers, directors, and equity
owners of Cypress Energy and its Affiliates.
- 25 -

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares . . . ), the Plaintiffs knew the intentions of the Defendants respecting
the organization of a master limited partnership, the exchange of shares of TIR
Inc. for units of ownership in the master limited partnership, and an initial public
offering of units of ownership in the master limited partnership.
Defendants’ Acquiescence MSJ ¶ 44, at 12 (stating this fact)(relying on Allen Depo. at 191:8193:4).35

Defendants’ Acquiescence MSJ ¶ 43, at 11. The Plaintiffs dispute this fact only insofar as it
“incorrectly states that ‘Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration.’” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10 (quoting Defendants’
Acquiescence MSJ ¶ 43, at 11). The Plaintiffs clarify that they received cash merger
consideration but did not receive equity merger consideration in the Merger Sub, “which was the
‘Merger consideration’ that the controlling shareholder Defendants received.” Response to
Defendants’ Acquiescence MSJ ¶ 14, at 10. Regarding the second half of the asserted fact’s
sentence, the Plaintiffs object that it is “immaterial[,] as what ‘Plaintiffs knew’ concerning the
Merger process has no bearing upon the entire fairness of the Merger.” Response to Defendants’
Acquiescence MSJ ¶ 14, at 10. The Court has amended this asserted fact’s text to reflect the
fact’s elements that are undisputed. Contending that a fact is immaterial is not disputing a fact,
nor is it specifically controverting a fact by directing the Court with particularity to the record.
See N.D. Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at
summary judgment is immaterial to the Court’s disposition of the summary judgment motion is
not effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
35

In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows:

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares to obtain the Merger consideration), the Plaintiffs knew the intentions
of the Defendants respecting the organization of a master limited partnership, the
exchange of shares of TIR Inc. for units of ownership in the master limited
partnership, and an initial public offering of units of ownership in the master
limited partnership.
Defendants’ Acquiescence MSJ ¶ 44, at 11. The Plaintiffs purport to dispute this fact only
insofar as it “incorrectly states that ‘Plaintiffs surrendered their TIR Inc. shares to obtain the
Merger consideration.’” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10 (quoting
Defendants’ Acquiescence MSJ ¶ 44, at 11). The Plaintiffs clarify that they received cash
- 26 -

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares . . . ), the Plaintiffs knew the Defendants had not performed or
commissioned any appraisal, or engaged any independent financial advisor or
other third party to perform any valuation analysis or provide any opinion
respecting the value of the TIR, Inc. shares.
Defendants’ Acquiescence MSJ ¶ 45, at 12 (stating this fact)(relying on Allen Depo. at 99:5104:24, Agarwal Depo. at 42:1-44:17, and Agarwal Depo. Ex. 1).36

merger consideration but did not receive equity merger consideration in the Merger Sub, “which
was the ‘Merger consideration’ that the controlling shareholder Defendants received.” Response
to Defendants’ Acquiescence MSJ ¶ 14, at 10. Regarding the second half of the asserted fact’s
sentence, the Plaintiffs object that it is “immaterial[,] as what ‘Plaintiffs knew’ concerning the
Merger process has no bearing upon the entire fairness of the Merger.” Response to Defendants’
Acquiescence MSJ ¶ 14, at 10. The Court has amended this asserted fact’s text to reflect the
fact’s elements that are undisputed. Contending that a fact is immaterial is not disputing a fact,
nor is it specifically controverting a fact by directing the Court with particularity to the record.
See N.D. Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at
summary judgment is immaterial to the Court’s disposition of the summary judgment motion is
not effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiff’s assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
36

In Defendants’ Acquiescence MSJ, the Defendants word the fact as follows:

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares to obtain the Merger consideration), the Plaintiffs knew the
Defendants had not performed or commissioned any appraisal, or engaged any
independent financial advisor or other third party to perform any valuation
analysis or provide any opinion respecting the value of the TIR, Inc. shares.
Defendants’ Acquiescence MSJ ¶ 45, at 12. The Plaintiffs dispute this fact only insofar as it
“incorrectly states that ‘Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration.’” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10 (quoting Defendants’
Acquiescence MSJ ¶ 45, at 12). The Plaintiffs clarify that they received cash merger
consideration but did not receive equity merger consideration in the Merger Sub, “which was the
‘Merger consideration’ that the controlling shareholder Defendants received.” Response to
Defendants’ Acquiescence MSJ ¶ 14, at 10. Regarding the second half of the asserted fact’s
sentence, the Plaintiffs object that it is “immaterial[,] as what ‘Plaintiffs knew’ concerning the
Merger process has no bearing upon the entire fairness of the Merger.” Response to Defendants’
- 27 -

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares . . . ), the Plaintiffs knew the Defendants had not obtained the approval
of a majority of the minority in effecting the Merger: the Plaintiffs were the
remaining TIR Inc. minority shareholders. As a group, the Plaintiffs had
demanded in September to sell their shares for a price in excess of $600,000 per
share, and in November had agreed amongst themselves not to accept the Tender
Offer.
Defendants’ Acquiescence MSJ ¶ 46, at 12 (stating this fact).37 “As of December 9, 2013 (the
date on which the Merger was consummated) and as of December 18-20, 2013 (the date on

Acquiescence MSJ ¶ 14, at 10. The Court has amended this asserted fact’s text to reflect the
fact’s elements that are undisputed. Contending that a fact is immaterial is not disputing a fact,
nor is it specifically controverting a fact by directing the Court with particularity to the record.
See N.D. Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at
summary judgment is immaterial to the Court’s disposition of the summary judgment motion is
not effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
37

In Defendants’ Acquiescence MSJ, the Defendants word the fact as follows:

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares to obtain the Merger consideration), the Plaintiffs knew the
Defendants had not obtained the approval of a majority of the minority in
effecting the Merger: the Plaintiffs were the remaining TIR Inc. minority
shareholders. As a group, the Plaintiffs had demanded in September to sell their
shares for a price in excess of $600,000 per share, and in November had agreed
amongst themselves not to accept the Tender Offer.
Defendants’ Acquiescence MSJ ¶ 46, at 12. The Plaintiffs dispute this fact only insofar as it
“incorrectly states that ‘Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration.’” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10 (quoting Defendants’
Acquiescence MSJ ¶ 46, at 12). The Plaintiffs clarify that they received cash merger
consideration but did not receive equity merger consideration in the Merger Sub, “which was the
‘Merger consideration’ that the controlling shareholder Defendants received.” Response to
Defendants’ Acquiescence MSJ ¶ 14, at 10. Regarding the second half of the asserted fact’s
sentence, the Plaintiffs object that it is “immaterial as what ‘Plaintiffs knew’ concerning the
Merger process has no bearing upon the entire fairness of the Merger.” Response to Defendants’
Acquiescence MSJ ¶ 14, at 10. The Court has amended this asserted fact’s text to reflect the
- 28 -

which the Plaintiffs surrendered their TIR Inc. shares . . . ), the Plaintiffs knew the Defendants
had not formed a special committee to consider the proposed Merger.”

Defendants’

Acquiescence MSJ ¶ 47, at 12 (stating this fact)(relying on Allen Depo. at 272:3-273:17).38

fact’s elements that are undisputed. Contending that a fact is immaterial is not disputing a fact,
nor is it specifically controverting a fact by directing the Court with particularity to the record.
See N.D. Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at
summary judgment is immaterial to the Court’s disposition of the summary judgment motion is
not effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
38

In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows:

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares to obtain the Merger consideration), the Plaintiffs knew the
Defendants had not formed a special committee to consider the proposed Merger.
Defendants’ Acquiescence MSJ ¶ 47, at 12. The Plaintiffs dispute this fact only insofar as it
“incorrectly states that ‘Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration.’” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10 (quoting Defendants’
Acquiescence MSJ ¶ 47, at 12). The Plaintiffs clarify that they received cash merger
consideration but did not receive equity merger consideration in the Merger Sub, “which was the
‘Merger consideration’ that the controlling shareholder Defendants received.” Response to
Defendants’ Acquiescence MSJ ¶ 14, at 10. Regarding the second half of the asserted fact’s
sentence, the Plaintiffs object that it is “immaterial[,] as what ‘Plaintiffs knew’ concerning the
Merger process has no bearing upon the entire fairness of the Merger.” Response to Defendants’
Acquiescence MSJ ¶ 14, at 10. The Court has amended this asserted fact’s text to reflect the
fact’s elements that are undisputed. Contending that a fact is immaterial is not disputing a fact,
nor is it specifically controverting a fact by directing the Court with particularity to the record.
See N.D. Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at
summary judgment is immaterial to the Court’s disposition of the summary judgment motion is
not effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
- 29 -

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares . . . ), the Plaintiffs had been provided the financial statements of TIR
Inc. for 2011 and 2012, and for the nine month period ending September 30,
2013.
Defendants’ Acquiescence MSJ ¶ 48, at 12 (stating this fact)(relying on Allen Depo. at 83:1884:1, 223:21-224:3).39

“As of December 9, 2013 (the date on which the Merger was

consummated) and as of December 18-20, 2013 (the date on which the Plaintiffs surrendered
their TIR Inc. shares to obtain the Merger consideration), the Plaintiffs had received the
Registration Statement.” Defendants’ Acquiescence MSJ ¶ 49, at 12 (stating this fact)(relying on

39

In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows:

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares to obtain the Merger consideration), the Plaintiffs had been provided
the financial statements of TIR Inc. for 2011 and 2012, and for the nine month
period ending September 30, 2013.
Defendants’ Acquiescence MSJ ¶ 48, at 12. The Plaintiffs dispute this fact only insofar as it
“incorrectly states that ‘Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration.’” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10 (quoting Defendants’
Acquiescence MSJ ¶ 48, at 12). The Plaintiffs clarify that they received cash merger
consideration but did not receive equity merger consideration in the Merger Sub, “which was the
‘Merger consideration’ that the controlling shareholder Defendants received.” Response to
Defendants’ Acquiescence MSJ ¶ 14, at 10. Regarding the second half of the asserted fact’s
sentence, the Plaintiffs object that it is “immaterial[,] as what ‘Plaintiffs knew’ concerning the
Merger process has no bearing upon the entire fairness of the Merger.” Response to Defendants’
Acquiescence MSJ ¶ 14, at 10. The Court has amended this asserted fact’s text to reflect the
fact’s elements that are undisputed. Contending that a fact is immaterial is not disputing a fact,
nor is it specifically controverting a fact by directing the Court with particularity to the record.
See N.D. Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at
summary judgment is immaterial to the Court’s disposition of the summary judgment motion is
not effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
- 30 -

Allen Depo. at 194:2-11).40
As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares . . . ), the Plaintiffs believed that the Defendants did not believe (and
had no reasonable basis to believe) that $451,100 per TIR Inc. share represented a
premium over the fair value of such shares.
Defendants’ Acquiescence MSJ ¶ 50, at 13 (stating this fact)(relying on Allen Depo. at 206:11208:25).41

40

In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows: “As of
December 9, 2013 (the date on which the Merger was consummated) and as of December 18-20,
2013 (the date on which the Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration), the Plaintiffs had received the Registration Statement.”
Defendants’
Acquiescence MSJ ¶ 49, at 12. The Plaintiffs dispute this fact only insofar as it “incorrectly
states that ‘Plaintiffs surrendered their TIR Inc. shares to obtain the Merger consideration.’”
Response to Defendants’ Acquiescence MSJ ¶ 14, at 10 (quoting Defendants’ Acquiescence MSJ
¶ 49, at 12). The Plaintiffs clarify that they received cash merger consideration but did not
receive equity merger consideration in the Merger Sub, “which was the ‘Merger consideration’
that the controlling shareholder Defendants received.” Response to Defendants’ Acquiescence
MSJ ¶ 14, at 10. Regarding the second half of the asserted fact’s sentence, the Plaintiffs object
that it is “immaterial[,] as what ‘Plaintiffs knew’ concerning the Merger process has no bearing
upon the entire fairness of the Merger.” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10.
The Court has amended this asserted fact’s text to reflect the fact’s elements that are undisputed.
Contending that a fact is immaterial is not disputing a fact, nor is it specifically controverting a
fact by directing the Court with particularity to the record. See N.D. Okla. LCvR56.1(c). The
Court has previously noted that arguing a proposed fact at summary judgment is immaterial to
the Court’s disposition of the summary judgment motion is not effective to contest a fact:
“Materiality is not proper grist for the statement of facts and is considered properly in the Court’s
legal analysis.” Lowery v. City of Albuquerque, 2011 WL 1336670, at *4 n.8 (D.N.M. Mar. 31,
2011)(Browning, J.). The Plaintiffs’ assertion that the entire fairness standard is the operative
standard is a legal conclusion, and not a factual assertion, and so does not materially affect the
Plaintiffs’ admission of the fact.
41

In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows:

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the date on which the Plaintiffs surrendered their TIR
Inc. shares to obtain the Merger consideration), the Plaintiffs believed that the
Defendants did not believe (and had no reasonable basis to believe) that $451,100
per TIR Inc. share represented a premium over the fair value of such shares.
Defendants’ Acquiescence MSJ ¶ 50, at 13. The Plaintiffs dispute this fact only insofar as it
- 31 -

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the dates on which the Plaintiffs surrendered their TIR
Inc. shares . . . ), Plaintiffs believed both Plaintiffs’ financial presentations and
Defendants’ financial presentations showed the TIR Inc. shares were worth
several multiples of $451,000.
Defendants’ Acquiescence MSJ ¶ 51, at 13 (stating this fact)(relying on Complaint, filed July 3,
2014 (Doc. 1)).42

“incorrectly states that ‘Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration.’” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10 (quoting Defendants’
Acquiescence MSJ ¶ 50, at 13). The Plaintiffs clarify that they received cash merger
consideration but did not receive equity merger consideration in the Merger Sub, “which was the
‘Merger consideration’ that the controlling shareholder Defendants received.” Response to
Defendants’ Acquiescence MSJ ¶ 14, at 10. Regarding the second half of the asserted fact’s
sentence, the Plaintiffs object that it is “immaterial[,] as what ‘Plaintiffs knew’ concerning the
Merger process has no bearing upon the entire fairness of the Merger.” Response to Defendants’
Acquiescence MSJ ¶ 14, at 10. The Court has amended this asserted fact’s text to reflect the
fact’s elements that are undisputed. Contending that a fact is immaterial is not disputing a fact,
nor is it specifically controverting a fact by directing the Court with particularity to the record.
See N.D. Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at
summary judgment is immaterial to the Court’s disposition of the summary judgment motion is
not effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
42

In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows:

As of December 9, 2013 (the date on which the Merger was consummated) and as
of December 18-20, 2013 (the dates on which the Plaintiffs surrendered their TIR
Inc. shares to obtain the Merger consideration), Plaintiffs believed both Plaintiffs’
financial presentations and Defendants’ financial presentations showed the TIR
Inc. shares were worth several multiples of $451,000.
Defendants’ Acquiescence MSJ ¶ 51, at 13. The Plaintiffs dispute this fact only insofar as it
“incorrectly states that ‘Plaintiffs surrendered their TIR Inc. shares to obtain the Merger
consideration.’” Response to Defendants’ Acquiescence MSJ ¶ 14, at 10 (quoting Defendants’
Acquiescence MSJ ¶ 51, at 13). The Plaintiffs clarify that they received cash merger
consideration but did not receive equity merger consideration in the Merger Sub, “which was the
‘Merger consideration’ that the controlling shareholder Defendants received.” Response to
Defendants’ Acquiescence MSJ ¶ 14, at 10. Regarding the second half of the asserted fact’s
sentence, the Plaintiffs object that it is “immaterial[,] as what ‘Plaintiffs knew’ concerning the
- 32 -

On February 4, 2014, Plaintiff SFF-TIR, LLC by its Managing Member, Alan
Stuart, sent a letter to the investors in Plaintiff SFF-TIR in the form and content of
Ex. 26, Allen Deposition, Ex. 116 [Letter to SFF-TIR, LLC Investors (dated Feb,
12, 2014), filed Apr. 3, 2015 (Doc. 83-31)(“Letter to SFF-TIR, LLC Investors”)],
which stated, in part, as follows
“We are pleased to inform our investors in SFF-TIR, LLC (‘SFF[]TIR’) we were able to liquidate our equity position in Tulsa
Inspection Resources, Inc. (‘TIR’). On December 23, 2013 we
received cash consideration of $451,000 per share for a total cash
consideration of $5,763,780. The investment in TIR has generated
2.47x our original investment with a net annualized IRR of
40.42%.”
Defendants’ Acquiescence MSJ ¶ 53, at 13 (stating this fact)(quoting Letter to SFF-TIR, LLC
Investors 1, filed April 3, 2015 (Doc. 83-32)).43
After . . . December 18-20, 2013, Defendants CEP-TIR, Charles Stephenson, and
Cynthia Field, believing the Plaintiffs to have waived all claims to additional
consideration for their shares, contributed 50.1% of the member interest in TIR
LLC to Cypress Energy Partners Limited Partnership, and Cypress Energy
Partners Limited Partnership effected a sale of partnership units to the public
Merger process has no bearing upon the entire fairness of the Merger.” Response to Defendants’
Acquiescence MSJ ¶ 14, at 10. The Court has amended this asserted fact’s text to reflect the
fact’s elements that are undisputed. Contending that a fact is immaterial is not disputing a fact,
nor is it specifically controverting a fact by directing the Court with particularity to the record.
See N.D. Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed fact at
summary judgment is immaterial to the Court’s disposition of the summary judgment motion is
not effective to contest a fact: “Materiality is not proper grist for the statement of facts and is
considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011 WL
1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). The Plaintiffs’ assertion that the
entire fairness standard is the operative standard is a legal conclusion, and not a factual assertion,
and so does not materially affect the Plaintiffs’ admission of the fact.
43

The Plaintiffs do not dispute this fact, but they maintain that it is “immaterial and
irrelevant.” Response to Defendants’ Acquiescence MSJ ¶ 16, at 11. Contending that a fact is
immaterial is not disputing a fact, nor is it specifically controverting a fact by directing the Court
with particularity to the record. See N.D. Okla. LCvR56.1(c). The Court has previously noted
that arguing a proposed fact at summary judgment is immaterial to the Court’s disposition of the
summary judgment motion is not effective to contest a fact: “Materiality is not proper grist for
the statement of facts and is considered properly in the Court’s legal analysis.” Lowery v. City
of Albuquerque, 2011 WL 1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.).
Accordingly, the Court does not deem the Defendants’ asserted fact to be disputed.
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pursuant to the Registration Statement.
Defendants’ Acquiescence MSJ ¶ 54, at 13 (stating this fact)(relying on Austin Aff. ¶ 5, at 2-3).44
“On July 3, 2014, the Plaintiffs filed this action.” Defendants’ Acquiescence MSJ ¶ 55, at 13
(stating this fact)(relying on Complaint). See Response to Defendants’ Acquiescence MSJ ¶ 1, at
8 (not disputing this fact).
PROCEDURAL BACKGROUND
With this Memorandum Opinion, the Court resolves and decides six of the motions that
the parties have filed in this case and that the parties argued during motion hearings on
December 27-28, 2016. The Court’s analysis, infra, will reorder the motions so that they
progress logically from one argument to the next argument. To increase reader comprehension,
however, the Court orders the motions in this part based on the order in which the parties argued
44

In the Defendants’ Acquiescence MSJ, the Defendants word the fact as follows:

After the acceptance of the Merger consideration by the Plaintiffs on December
18-20, 2013, Defendants CEP-TIR, Charles Stephenson, and Cynthia Field,
believing the Plaintiffs to have waived all claims to additional consideration for
their shares, contributed 50.1% of the member interest in TIR LLC to Cypress
Energy Partners Limited Partnership, and Cypress Energy Partners Limited
Partnership effected a sale of partnership units to the public pursuant to the
Registration Statement.
Defendants’ Acquiescence MSJ ¶ 54, at 13. The Plaintiffs dispute this fact only insofar as it
states that the Plaintiffs accepted the merger consideration of $451,000 per share rather than
being “forcibly cashed out at that price. Response to Defendants’ Acquiescence MSJ ¶ 17, at 11.
The Court has amended this asserted fact’s text to reflect the fact’s elements that are undisputed.
The Plaintiffs further contend that this fact is “immaterial and irrelevant.” Response to
Defendants’ Acquiescence MSJ ¶ 17, at 11. Contending that a fact is immaterial is not disputing
a fact, nor is it specifically controverting a fact by directing the Court with particularity to the
record. See N.D. Okla. LCvR56.1(c). The Court has previously noted that arguing a proposed
fact at summary judgment is immaterial to the Court’s disposition of the summary judgment
motion is not effective to contest a fact: “Materiality is not proper grist for the statement of facts
and is considered properly in the Court’s legal analysis.” Lowery v. City of Albuquerque, 2011
WL 1336670, at *4 n.8 (D.N.M. Mar. 31, 2011)(Browning, J.). Accordingly, the Court does not
deem the Defendants’ asserted fact to be disputed.
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them at the hearing. First, the Defendants’ Acquiescence MSJ asks the Court to grant the
Defendants summary judgment on the theory that the Plaintiffs acquiesced to the merger when
the Plaintiffs took merger consideration. Second, the Defendants’ Estoppel MSJ asks the Court
to grant the Defendants summary judgment on the theory that (i) the Oklahoma common-law
clean hands doctrine; (ii) the Oklahoma common law of waiver; or (iii) the Oklahoma common
law of estoppel bars the Plaintiffs’ claims.

Third, the Plaintiffs’ Motion to Strike Lorett

Affidavit moves for the Court to strike the Lorett Aff. on the grounds of alleged inconsistencies
between the Lorett Aff. and the Lorett Depo. Fourth, the Plaintiffs’ Motion to Strike Affirmative
Defenses petitions the Court to strike the Defendants’ affirmative defenses from their two
summary judgment motions -- acquiescence, unclean hands, waiver, and estoppel -- under rule
12(f) of the Federal Rules of Civil Procedure. Fifth, the Plaintiffs’ MSJ asks the Court to grant
the Plaintiffs partial summary judgment on breach of fiduciary duty claims. Sixth and last, the
Plaintiffs’ Motion in Limine moves for the Court to preclude evidence of (i) a letter from Akin
Gump and all letters between the Plaintiffs’ and Plaintiffs’ counsel and the Defendants from
September, 2013, to December, 2013; (ii) all letters sent to or received from Triangle Capital;
and (iii) any mention during trial that the Plaintiffs reside outside of Oklahoma. In this section’s
remainder, the Court will summarize each motion and the response and reply to it, along with the
transcript of two days of hearings that the Court heard on these six motions.
1.

Defendants’ Motion for Summary Judgment on Acquiescence Defense and
Brief in Support.

On April 3, 2015, the Defendants filed Defendants’ Acquiescence MSJ. According to the
Defendants, the dispositive facts are relatively simple. See Defendants Acquiescence MSJ at 1.
The Defendants say that six months after having obtained and accepted payment of the Merger
consideration, the Plaintiffs filed this action. See Defendants’ Acquiescence MSJ at 2. The
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Defendants maintain that all eight claims alleged in the Plaintiffs’ Complaint are predicated on
four core allegations “repeated time after time throughout the Complaint’s 212 paragraphs . . . .”
Defendants’ Acquiescence MSJ at 2. As the Defendants distill them, these four core allegations
are as follows:
(i) in June 2012, the Defendants
misled a group of minority shareholder (the
“Pooled Shareholders”) to gain control of the TIR, Inc.; (ii) in November, 2013,
the Plaintiffs were misled by a Tender Offer, which the Plaintiffs rejected; (iii) in
December, 2013, the Merger Notice contained false representations upon which
the Plaintiffs relied; and (iv) the Defendants did not obtain an independent
appraisal of TIR Inc. or the approval of a majority of the minority shareholders or
take other steps to protect the Plaintiffs.
Defendants’ Acquiescence MSJ at 2-3. The Defendants respond that the equitable doctrine of
acquiescence precludes the Plaintiffs from challenging the merger on these four core allegations
for six different reasons. See Defendants’ Acquiescence MSJ at 14. First, the Defendants insist,
the Plaintiffs “engaged in an agreed competition with the Defendants to acquire control of TIR
Inc.” Defendants’ Acquiescence MSJ at 14. Second, the Defendants contend, the Plaintiffs “lost
the competition.” Defendants’ Acquiescence MSJ at 14. Third, the Defendants assert, the
Plaintiffs “were represented by legal counsel.” Defendants’ Acquiescence MSJ at 14. Fourth,
the Defendants aver, the Plaintiffs “were fully advised of all material facts, including all TIR Inc.
financial information and the organization of, and initial public offering of limited partnerships
in, Cypress Energy Partners Limited Partnership.” Defendants’ Acquiescence MSJ at 14. Fifth,
the Defendants asseverate, the Plaintiffs “surrendered their shares in order to obtain the Merger
consideration.”

Defendants’ Acquiescence MSJ at 14.

Sixth, the Defendants argue, the

Plaintiffs “surrendered their shares pursuant to a Merger Agreement that expressly provided that
the Plaintiffs would be deemed, by such surrender, to have accepted the Merger consideration
and waived all appraisal rights, whether pursuant to the appraisal statute or otherwise.”

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Defendants’ Acquiescence MSJ at 14.
The Defendants further insist that, even assuming that all of the Plaintiffs’ allegations are
true “no matter how untrue they may be,” the acquiescence defense “renders the questions
whether the merger process was fair and whether the value paid to the Plaintiffs was fair moot.”
Defendants Acquiescence MSJ at 15. Moreover, the Defendants insist, acquiescence bars all
claims that the Plaintiffs allege in the Complaint, see Defendants’ Acquiescence MSJ at 15,
including unjust enrichment claims and implied causes of action that the Plaintiffs brought
pursuant to SEC Rule 10b-5, see Defendants’ Acquiescence MSJ at 15-16. The Defendants
highlight three options that they believe the Plaintiffs had vis-à-vis the merger: (i) surrender their
shares and receive the merger consideration in accordance with the merger agreement’s terms
and conditions; (ii) keep their shares and exercise their statutory appraisal rights as the merger
agreement provides; or (iii) keep their shares and, as the Plaintiffs have done in this action, sue
for an appraisal. See Defendants’ Acquiescence MSJ at 16. According to the Defendants, the
acquiescence doctrine makes options 1 and 3 mutually exclusive; the Plaintiffs could not
surrender their shares for merger consideration and then sue. See Defendants’ Acquiescence
MSJ at 16. The Defendants finally observe that the merger agreement expressly provides that
any shareholder who surrenders his or her shares shall be deemed to have waived appraisal
rights, “whether pursuant to the appraisal statute or otherwise.” Defendants’ Acquiescence MSJ
at 16.
2.

Plaintiffs’ Response to the Defendants’ Acquiescence MSJ.

On April 20, 2015, the Plaintiffs filed the Plaintiffs’ Memorandum of Law in Opposition
to Defendants’ Motion for Summary Judgment on Acquiescence Defense.

See Plaintiffs’

Memorandum of Law in Opposition to Defendants’ Motion for Summary Judgment on

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Acquiescence Defense, filed April 20, 2015 (Doc. 84)(“Response to Defendants’ Acquiescence
MSJ).

Abstracting their argument, the Plaintiffs start by asserting that, under settled law,

“acquiescence plays no role in the self-interested cash-out merger, which is scrutinized solely
under Delaware’s ‘entire fairness’ standard -- its most exacting standard of review.” Response to
Defendants’ Acquiescence MSJ at 1 (quoting Kahn v. Lynch Communications, Inc., 638 A.2d
1110, 1116-17 (Del. 1994)(“Kahn v. Lynch”)). According to the Plaintiffs, the entire fairness
doctrine imposes on the Defendants a fiduciary duty to ensure that the transaction is entirely fair
to the Plaintiffs in two respects: (i) the use of fair procedure to protect the minority shareholders’
interests; and (ii) offer of a price that is entirely fair to minority shareholders. Response to
Defendants’ Acquiescence MSJ at 1.

That doctrine, the Plaintiffs insist, imposes on the

Defendants the evidentiary burden of proving, at trial, each of these aspects of entire fairness.
See Response to Defendants’ Acquiescence MSJ at 1. The Plaintiffs maintain that this showing
is a threshold legal burden that the Defendants must satisfy. See Response to Defendants’
Acquiescence MSJ at 1. As the Plaintiffs see it, the Defendants admit in the Defendants’
Acquiescence MSJ that they cannot satisfy this exacting burden. See Response to Defendants’
Acquiescence MSJ at 2.
According to the Plaintiffs, the Defendants ignore settled law when they assert that the
Plaintiffs forewent statutory appraisal rights and acquiesced in the Defendants’ “self-dealing
conduct” when they received merger consideration. Response to Defendants’ Acquiescence MSJ
at 2. The Plaintiffs maintain that this assertion is incorrect and that the entire fairness standard
still applies for two reasons. See Response to Defendants’ Acquiescence MSJ at 2. First, under
settled law as the Plaintiffs read it, the Defendants cannot relieve themselves of their burden to
establish the transaction’s entire fairness by pointing to the Plaintiffs’ conduct, as such conduct

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cannot establish fair procedure or fair price as Kahn v. Lynch requires. See Response to
Defendants’ Acquiescence MSJ at 2 (citing Kahn v. Lynch, 638 A.2d at 1110). The Plaintiffs
insist that the doctrine of acquiescence has no role to play in the determination of fair procedure
or fair price, particularly with respect to shareholders who had no say in the cash-out decision
and were presented with a fait accompli. See Response to Defendants’ Acquiescence MSJ at 2.
Second, under settled law as the Plaintiffs read it, statutory appraisal against a corporation is only
a non-exclusive remedy, i.e., by foregoing appraisal, the Plaintiffs did not forego their separate
claims against the Defendants for breach of their duties of entire fairness. See Response to
Defendants’ Acquiescence MSJ at 2.
The Plaintiffs further maintain that the Defendants do not address and cannot establish
the elements of acquiescence, which the Defendants insist require a clear and decisive showing
that (i) the Defendants disclosed all material facts; (ii) the Defendants gave the Plaintiffs a
meaningful choice; and (iii) the Plaintiffs unequivocally approved the challenged conduct. See
Response to Defendants’ Acquiescence MSJ at 2. To the contrary, the Plaintiffs assert, in
addition to giving the Plaintiffs no say in the merger, the Defendants omitted material
information required for an informed decision, e.g., the equity value in the Merger Sub45 that
they received on cancelling the Plaintiffs’ shares. See Response to Defendants’ Acquiescence
MSJ at 2. The Plaintiffs conclude that the foregoing facts “doom” the Defendants’ Acquiescence
MSJ. See Response to Defendants’ Acquiescence MSJ at 3.
3.

Reply to the Defendants’ Acquiescence MSJ.

The Defendants filed the Defendants’ Reply in Support of Motion for Summary
45

“Merger Sub” is an abbreviation that the Agreement and Plan of Merger, (dated Dec. 9,
2013), filed Apr. 3, 2015 (Docs. 83-27 & -28) uses to signify CEP-TIR, the surviving entity after
the merger. See Agreement and Plan of Merger 1, (dated Dec. 9, 2013), filed Apr. 3, 2015
(Docs. 83-27 & -28)(“Merger Agreement”).
- 39 -

Judgment on Acquiescence Defense on April 24, 2015. See Defendants’ Reply in Support of
Motion for Summary Judgment on Acquiescence Defense, filed April 24, 2015 (Doc. 93)(“Reply
to Defendants’ Acquiescence MSJ”). The Defendants assert that the undisputed facts present the
Court with a question of law regarding the acquiescence defense. See Reply to Defendants’
Acquiescence MSJ at 1. Asserting that the Plaintiffs respond to a motion that the Defendants did
not file -- “a motion for summary judgment on the question whether the TIR Inc. merger process
was fair” -- the Defendants assert that all of the Plaintiffs’ arguments in the response are for
naught. Reply to Defendants’ Acquiescence MSJ at 1-2.
As the Defendants see it, the only relevant facts with regard to the Defendants’
Acquiescence MSJ are the facts establishing the Plaintiffs’ knowledge when they surrendered
their shares in exchange for merger consideration on December 18-20, 2013. See Reply to
Defendants’ Acquiescence MSJ at 2. The Defendants insist that the acquiescence defense bars
the Plaintiffs’ claims if the Plaintiffs had knowledge of the facts they allege in their Complaint
on the date when the Plaintiffs surrendered their shares. See Reply to Defendants’ Acquiescence
MSJ at 2. The Defendants’ further insist that the single issue before the Court is one of
Oklahoma common law, viz. whether the Plaintiffs may both surrender their shares “in order to
induce payment of the Merger consideration by the Defendants,” and “sue for rescission and
rescissionary damages.” Reply to Defendants’ Acquiescence MSJ at 2. The Defendants assert
that Delaware law applies only to provisions relating the merger’s mechanics or effects. See
Reply to Defendants’ Acquiescence MSJ at 3. As the Defendants see it, none of the Plaintiffs’
eight claims relates to the merger’s mechanics or effects, and, consequently, all eight claims are
subject to the acquiescence defense. See Reply to Defendants’ Acquiescence MSJ at 3-4.
The Defendants maintain that the Plaintiffs can challenge the applicability of neither

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Oklahoma law nor the acquiescence defense. See Reply to Defendants’ Acquiescence MSJ at 8.
According to the Defendants, the Plaintiffs obtained the merger consideration “knowing every
fact material to their decision and intending to obtain payment.”

Reply to Defendants’

Acquiescence MSJ at 8. The Defendants aver that the Plaintiffs knew, thanks to the Merger
Agreement, that the merger consideration would not be paid unless they surrendered their stock
certificates along with executed powers of attorney. See Reply to Defendants’ Acquiescence
MSJ at 8. Thus, the Defendants assert, the Plaintiffs had only four options open to them. See
Reply to Defendants’ Acquiescence MSJ at 8. The Plaintiffs could (i) obtain payment of the
merger consideration; (ii) have their shares appraised; (iii) simultaneously seek a statutory
appraisal of their share and sue for rescission and rescissionary damages; or (iv) file suit seeking
rescission and rescissionary damages. See Reply to Defendants’ Acquiescence MSJ at 8. The
Defendants argue that the Plaintiffs could not “deceitfully obtain payment of the Merger
consideration pursuant to the Merger Agreement and, after eight months’ delay, file suit seeking
rescission and rescissionary damages.” Reply to Defendants’ Acquiescence MSJ at 8 (emphasis
in the original)(citing Bershad at 848 (Del. 1987)). According to the Defendants, because the
Plaintiffs “voluntarily rejected each of the four [options] in order to inequitably obtain payment
of the Merger consideration prior to filing this action,” the Plaintiffs acquiesced in the
transaction, and the Defendants are entitled to summary judgment.

Reply to Defendants’

Acquiescence MSJ at 10 (emphasis in the original).
4.

The Defendants’ Estoppel MSJ.

The Defendants filed the Defendants’ Estoppel MSJ on September 14, 2015.

The

Defendants argue that the Plaintiffs delivered their share certificates to induce the Defendants to
pay the merger consideration once the Plaintiffs discovered that they had no legal ability to block

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the merger. See Defendants’ Estoppel MSJ at 16. The Defendants then argue that: (i) they
established an independent committee, which secured neither an appraisal nor a majority vote of
the minority shareholders necessary for the cash out to satisfy fair process. See Defendants’
Estoppel MSJ at 17. Furthermore, the Defendants contend, the Plaintiffs engaged in “legal
blackmail to extract a premium price” after having failed to acquire control of TIR in a
competitive bidding war, and then bragging about the price they received as a result of the cash
out. Defendants’ Estoppel MSJ at 17.
According to the Defendants, the Defendants had a statutory right to effect a cash-out
merger with after-the-fact notice, and the Plaintiffs received notice of their appraisal rights. See
Defendants’ Estoppel MSJ at 17. The Defendants insist that the Plaintiffs’ claims regarding the
Defendants’ alleged breach of fiduciary duty and unjust enrichment therefore fail under settled
Oklahoma law, because: (i) the Oklahoma common-law clean hands doctrine bars the claims; (ii)
the Oklahoma common law of waiver bars the claims; and (iii) the Oklahoma common law of
estoppel bars the claims. See Defendants’ Estoppel MSJ at 17-18. The Defendants further assert
that the Plaintiffs’ claims under the Oklahoma Securities Act fail, because: (i) the Plaintiffs have
no private right of action; and (ii) the Oklahoma common law of unclean hands, waiver, and
estoppel bar the claims. See Defendants’ Estoppel MSJ at 18. Finally, the Defendants maintain
that the Oklahoma common law of unclean hands, waiver, and estoppel also bar the Plaintiffs’
claims under the Securities Exchange Act of 1934. See Defendants’ Estoppel MSJ at 18.
Circling back through these sets of claims, the Defendants argue that the Oklahoma
common law of unclean hands bars the Plaintiffs’ claims on the grounds that Stuart orchestrated
this litigation despite (i) having attempted to seize control of TIR, Inc.; (ii) having entered into an
agreement with the other Plaintiffs to attempt to extract an unjustified premium for the Plaintiffs’

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shares; and (iii) filing false allegations against the Defendants in an attempt to justify a trial on
their surrendered shares’ value. See Defendants’ Estoppel MSJ at 19-20. The Defendants then
argue that Oklahoma common law of waiver indicates that a contract may achieve waiver
provided that the contract is founded on a valuable consideration and made by a party whose
benefit is being waived. See Defendants’ Estoppel MSJ at 20. According to the Defendants, the
Plaintiffs delivered their share certificates to the Defendants to induce the Defendants to pay the
merger consideration, and in accordance with the merger agreement’s express provision that any
former shareholder who surrendered his or her share certificates would be deemed to have
forever waived any appraisal rights or quasi-appraisal rights pursuant to the Oklahoma appraisal
statute or otherwise. See Defendants’ Estoppel MSJ at 21. The Defendants then argue that the
Plaintiffs are equitably estopped from unwinding the merger, because, in reliance on the
Plaintiffs’ voluntary and knowing surrender of their share certificates, the Plaintiffs: (i)
consummated the merger of TIR, Inc. and TIR LLC; (ii) contributed 50.1% of their member
interests in TIR LLC to Cypress Energy Partners L.P.; and (iii) effected a sale of partnership
units to the public pursuant to the Registration Statement. See Defendants’ Estoppel MSJ at 22.
With regard to the Plaintiffs’ federal securities claims, the Defendants assert that the Plaintiffs
must allege and prove both a misleading statement or omission of a material fact and reliance to
have a claim under Securities and Exchange Act § 10(b) and rule 10b-5. See Defendants’
Estoppel MSJ at 23-24. According to the Defendants, the Plaintiffs’ federal securities claims
fail, because the Plaintiffs do not satisfy the reliance requirement. See Defendants’ Estoppel
MSJ at 23-24.
5.

The Plaintiffs’ Response to Defendants’ Estoppel MSJ.

The Defendants filed the Plaintiffs’ Memorandum of Law in Opposition to Defendants’

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Second Motion for Summary Judgment on October 12, 2015. See Plaintiffs’ Memorandum of
Law in Opposition to Defendants’ Second Motion for Summary Judgment, filed October 12,
2015 (Doc. 171)(“Response to Defendants’ Estoppel MSJ”).

The Defendants argue that,

separate and apart from the fact that the Defendants’ affirmative defenses are barred as a matter
of law, the Defendants fail to establish any of the elements of waiver, estoppel, or unclean hands.
Responding to the Defendants’ arguments out of order, the Plaintiffs first contend that the
Defendants cannot satisfy waiver elements, because the Plaintiffs did not voluntarily and
intentionally release each of the Defendants from personal liability either under common law or
under securities law. See Response to Defendants’ Estoppel MSJ at 13. According to the
Plaintiffs, the Defendants ignore settled law that “a stockholder who . . . accepts the
consideration from . . . a merger effected by a controlling stockholder is not barred by the
doctrine of . . . waiver . . . from challenging the fairness of the merger in an equitable action.”
Response to Defendants’ Estoppel MSJ at 13 (emphasis in the original)(quoting In re JCC
Holding Co., Inc., 843 A.2d 713, 723 (Del. Ch. 2003)(Strine, V.C.)). The Plaintiffs argue that
the Defendants’ argument also fails on its own terms, because (i) waiver requires the “voluntary
and intentional relinquishment of a known right,” Response to Defendants’ Estoppel MSJ at 13
(quoting Barringer v. Baptist Healthcare of Oklahoma, 22 P.3d 965, 700-01 (Okla. 2001)); and
(ii) a contractual waiver requires a “‘contract . . . made by the party whose benefit is being
waived.’”

Response to Defendants’ Estoppel MSJ at 13 (quoting Smith v. Minneapolis

Threshing Mach. Co., 214 P.2d 178, 180 (Okla. 1923)). The Plaintiffs maintain that they did not
enter a contract with the Defendants; rather, the Defendants unilaterally cancelled the Plaintiffs’
shares. See Response to Defendants’ Estoppel MSJ at 13-14. Moreover, the Plaintiffs say, 18
O.S. § 1091 leaves the Plaintiffs free to exercise, or decline to exercise, statutory appraisal rights,

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a decision not to exercise the appraisal rights has no effect with regard to waiver. See Response
to Defendants’ Estoppel MSJ at 14. In summary, the Plaintiffs contend that the waiver defense
fails on three grounds: (i) nothing in the merger notice declared such a broad waiver; (ii) 18 O.S.
§ 1091 does not impose a waiver; and (iii) settled law holds that foregoing an appraisal does not
immunize the Defendants from liability for any breach of their duty of entire fairness in
undertaking a self-interested merger transaction. See Response to Defendants’ Estoppel MSJ at
15.
The Plaintiffs argue that the Defendants’ estoppel argument also fails. See Response to
Defendants’ Estoppel MSJ at 16-17. Again invoking In re JCC Holding Co., Inc., the Plaintiffs
say that settled law is that acceptance of merger consideration does not allow an estoppel defense
to bar challenges to a self-interested merger’s entire fairness. See Response to Defendants’
Estoppel MSJ at 16.

Furthermore, the Plaintiffs maintain, the Defendants cannot satisfy

estoppel’s core elements: (i) that the Plaintiffs intended to induce a detrimental chance of
position; (ii) that a detrimental chance of position in fact occurred; and (iii) that reasonable
reliance upon a belief that the Plaintiffs inculcated induced the detrimental change.

See

Response to Defendants’ Estoppel MSJ at 16 (citing Spaulding v. United Transp. Union, 279
F.3d 901, 909-10 (10th Cir. 2002)). First, according to the Plaintiffs, the Defendants were
committed to paying the merger consideration upon demand regardless what the Defendants
believed or did not believe about their personal liability. See Response to Defendants’ Estoppel
MSJ at 17. Second, according to the Plaintiffs, 18 O.S. § 1090.2(B)(3) required the Defendants
to fix the merger consideration as part of any freeze-out merger. See Response to Defendants’
Estoppel MSJ at 17. The Plaintiffs assert that these two facts left Defendants with no choice
whether to pay the merger consideration, and the Plaintiffs therefore could have induced neither

- 45 -

belief nor reasonable reliance in the Defendants See Response to Defendants’ Estoppel MSJ at
17.
Turning to the Defendants’ unclean-hands argument, the Plaintiffs contend that the
Defendants cannot show unclean hands, because (i) the Plaintiffs’ conduct did not cause the
Defendants’ unilateral adoption, execution, and implementation of the freeze-out merger; and (ii)
the Plaintiffs did not commit fraud or deceit. See Response to Defendants’ Estoppel MSJ at 18.
As a threshold argument, the Plaintiffs again invoke In Re JCC Holding, saying that case
disallows defendants from asserting any equitable doctrine to avoid entire fairness review, a
prohibition that the Plaintiffs insist includes the unclean hands defense.

See Response to

Defendants’ Estoppel MSJ at 18. Regardless, the Plaintiffs continue, the Defendants’ argument
fails on its own merits. See Response to Defendants’ Estoppel MSJ at 18. First, the Plaintiffs
insist, the Defendants make no showing that the Plaintiffs tainted the transaction that they are
challenging by undertaking the very “fraudulent and deceitful conduct” of which they
complain. Response to Defendants’ Estoppel MSJ at 18 (quoting Yeager v. Fort Know Sec.
Products, 602 F. App’x 423, 429 (10th Cir. 2015))(emphasis added in Response to Defendants’
Estoppel MSJ). According to the Plaintiffs, they did not induce the Defendants’ payment of the
required merger consideration, through fraud and deceit or otherwise.

See Response to

Defendants’ Estoppel MSJ at 18. Consequently, the Plaintiffs say, the unclean hands doctrine
cannot apply or block an entire fairness review. See Response to Defendants’ Estoppel MSJ at
18-19.
The Plaintiffs then attack the Defendants’ securities claim arguments as a straw man. See
Response to Defendants’ Estoppel MSJ at 19. The Plaintiffs assert that their securities claims
rest only on the forced-seller doctrine, which the Plaintiffs maintain provides a cause of action

- 46 -

under securities laws to plaintiffs who are forced to convert their shares or to sell their shares for
consideration, and there has been deception in the transaction. See Response to Defendants’
Estoppel MSJ at 19-20. According to the Plaintiffs, the Defendants practiced deception when
they omitted material facts concerning the MLP IPO when inducing the pooled shareholders to
sell their shares to the Defendants. See Response to Defendants’ Estoppel MSJ at 21-22.
Furthermore, the Plaintiffs assert, the Defendants materially misrepresented (i) the Plaintiffs’
competing offer to the pooled shareholders; and (ii) the payments and employment provisions
offered to TIR, Inc. management. See Response to Defendants’ Estoppel MSJ at 22-23. The
Plaintiffs contend that the misrepresentations amassed the Defendants enough shares to enact the
cash-out merger of the Plaintiffs, thereby making the Defendants guilty of securities fraud and
liable to the Plaintiffs under the forced seller doctrine. See Response to Defendants’ Estoppel
MSJ at 22-24.
6.

The Defendants’ Reply to the Defendants’ Estoppel MSJ.

The Defendants filed the Defendants’ Reply in Support of Second Motion for Summary
Judgment (Doc. 154) on October 23, 2015. See Defendants’ Reply in Support of Second Motion
for Summary Judgment (Doc. 154), filed October 23, 2015 (Doc. 178)(“Reply to Defendants’
Estoppel MSJ”). The Defendants repeat their assertion that the merger process was fair, that the
Plaintiffs engaged in legal blackmail in an attempt to block the merger they opposed, and that the
Plaintiffs

bragged about how good the merger price they received was.

See Reply to

Defendants’ Estoppel MSJ at 3. Furthermore, the Defendants assert, the Plaintiffs were fully
informed and knowingly induced the Defendants to pay the merger consideration. See Reply to
Defendants’ Estoppel MSJ at 3. As a consequence, the Defendants maintain, the Oklahoma
clean-hands doctrine, equitable estoppel, and waiver all bar the Plaintiffs from attacking the

- 47 -

merger’s entire fairness. See Reply to Defendants’ Estoppel MSJ at 3. The Defendants then
seem to make a concession to the Plaintiffs:
Plaintiffs’ only response [to the Defendants’ Oklahoma equity and waiver
arguments] is to argue this well-settled Oklahoma law is an acquiescence defense
in another dress. So be it. To the extent this Court determines Oklahoma law
should follow Delaware law, Bershad v. Curtis-Wright Corp., 525 A.2d 840,
842, 848 (Del. 1987) is controlling.
Reply to Defendants’ Estoppel MSJ at 3-4 (emphasis added). The Defendants then shortly
restate acquiescence defense arguments from the Defendants’ Acquiescence MSJ and Reply to
Defendants’ Acquiescence MSJ. See Reply to Defendants’ Estoppel MSJ at 3.
The Defendants then tackle the Plaintiffs’ securities arguments, highlighting that the
Plaintiffs concede that their securities claims rest entirely on the forced-seller doctrine -- a
doctrine that the Defendants insist the United States Court of Appeals for the Tenth Circuit twice
has declined to apply and that does not apply under the Oklahoma Uniform Securities Act. See
Reply to Defendants’ Estoppel MSJ at 4-6 (citing Katz v. Gerardi, 655 F.3d 1212, 1221 n.8 (10th
Cir. 2011), and Anderson v. Dixon, 86 F.3d 1166, **2-3 (10th Cir. 1996)(unpublished)).
Moreover, the Defendants assert, the United States Court of Appeals for the Seventh Circuit, in
an opinion that then-Chief Judge Posner wrote and Judges Cummings and Manion joined, held
that the forced-seller doctrine is inconsistent with basic federal securities precedents, because it
penalizes conduct that is too remote from the fraud to be actionable, i.e., does not induce a third
party to do anything. See Reply to Defendants’ Estoppel MSJ at 5-6 (citing Isquith v. Caremark
International, Inc., 136 F.3d 531 (7th Cir. 1998)). The Defendants also note that the forced-seller
doctrine appears to be losing credence among the district courts even in circuits in which it
previously has been recognized. See Reply to Defendants’ Estoppel MSJ at 6 n. 8 (citing Howe

- 48 -

v. Bank for Intern. Settlements, 194 F. Supp. 2d 6, 11 (D. Mass. 2002)(Lindsay, J.)46; Koppel v.
4987 Corp., 1999 WL 608783, at *4 (S.D.N.Y. Aug. 11, 1999)(Carter, J.); Sarafianos v.
Shandong Tada Auto-Parking Co., Ltd., 2014 WL 7238339, at *4 (S.D.N.Y. Dec. 19,
2014)(Scheindlin, J.); and Gunther v. Ridgewood Energy Corp., 32 F. Supp. 2d 166, 178 (D.N.J.
1998)(Walls, J.)). The Defendants say that the Plaintiffs’ securities claims also fail, because the
Plaintiffs premise them on the pooled shareholders’ implausible and demonstrably false
allegations. See Reply to Defendants’ Estoppel MSJ at 7. According to the Defendants, rule
10b-5 requires that the Defendants failed to advise the pooled shareholders of their business plan
with scienter. See Reply to Defendants’ Estoppel MSJ at 7. The Defendants assert that they
“disclosed and openly advocated their business plan to the Pooled Shareholders as they
competed with Plaintiffs to acquire control of TIR.” Reply to Defendants’ Estoppel MSJ at 10.
Consequently, the Defendants maintain, (i) there is no rule 10b-5 material misrepresentation or
omission; (ii) there is no rule 10b-5 scienter; and (iii) the pooled shareholders had a proven
ability to know of the Defendants business plan. See Reply to Defendants’ Estoppel MSJ at 10.
The Defendants argue that they therefore are entitled to summary judgment in the Defendants’
Estoppel MSJ. See Reply to Defendants’ Estoppel MSJ at 11.
7.

The Plaintiffs’ Motion to Strike Lorett Affidavit.

The Plaintiffs filed Plaintiffs’ Motion to Strike Lorett Affidavit on April 20, 2015. The
Plaintiffs argue that the Defendants’ Acquiescence MSJ
relies on an Affidavit by Randall Lorett, the President and CEO of Defendant
Tulsa Inspection Resources, LLC containing numerous sworn statements which,
by the affiant’s own admission under oath at his deposition nine days after
swearing the Affidavit, were in fact wholly beyond his personal knowledge, and
46

The Defendants incorrectly cite the starting page and pincite for this case. See Howe v.
Bank for Intern. Settlements, 194 F. Supp. 2d 6 (D. Mass 2002)(Lindsay, J.). The Court corrects
this error in the main body text.
- 49 -

about which he was not competent to testify.
Motion to Strike at 1. According to the Plaintiffs, the Lorett Aff. purports to provide the Court
with testimony concerning critical issues, including that: (i) $451,000.00 was the fair value for
TIR’s shares, including as of June 26, 2013; October 2013; and December 2013, when the
Plaintiffs were cashed out; (ii) TIR was experiencing slow collections in Canada at the time of
the October, 2013, Tender Offer; (iii) around the same time, TIR also continued to contend with
a large amount of factoring debt, which created a drag on the company’s value; (iv) the Plaintiffs
did not tender their share in response to a tender offer issued October 21, 2013; and (v) the
Plaintiffs were promptly paid $451,000.00 per share.

See Motion to Strike at 1 (internal

quotation marks and citations omitted). The Plaintiffs assert that, in his deposition, R. Lorett
admitted that he had no personal knowledge of any of these statements. See Motion to Strike at
1. The Plaintiffs therefore urge the Court (i) to strike these statements; (ii) to disregard them in
deciding the Defendants’ Acquiescence MSJ; and (iii) to award the Plaintiffs expenses and
attorney fees related to filing this motion. See Motion to Strike at 2.
Delving into their argument, the Plaintiffs insist that the Federal Rules of Civil Procedure
require any affidavit to be considered with regard to a motion for summary judgment to “be
made on personal knowledge, [to] set out facts that would be admissible in evidence, and [to]
show that the affiant or declarant is competent to testify on the matters stated.” Motion to Strike
at 2 (citing Fed. R. Civ. P. 56(c)(4))(emphasis added in the Motion to Strike). According to the
Plaintiffs, the Lorett Aff. satisfies none of the three requirements. See Motion to Strike at 2. The
Plaintiffs assert that R. Lorett has no personal knowledge regarding: (i) TIR shares’ fair value,
see Motion to Strike at 3-6; (ii) TIR’s purportedly slow collections in Canada, see Motion to
Strike at 6-7; (iii) factoring debt, see Motion to Strike at 7-8; or (iv) how much the Plaintiffs

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were paid for their shares, see Motion to Strike at 9. The Defendants therefore urge the Court to
strike the statements in Lorett Aff. ¶¶ 19, 23, 24, 25, and 27, together with such other and further
relief as the Court deems just. See Motion to Strike at 9.
8.

The Defendants’ Response to Plaintiffs’ Motion to Strike Lorett Affidavit.

The Defendants filed the Defendants’ Response to Plaintiffs’ Motion Strike Affidavit of
Randall Lorett on May 7, 2015. See Defendants’ Response to Plaintiffs’ Motion Strike Affidavit
of Randall Lorett, filed May 7, 2015 (Doc. 101)(“Response to Motion to Strike Lorett
Affidavit”). The Defendants dismiss the Motion to Strike as a vain attempt to defeat the
Defendant’s Acquiescence MSJ in roundabout fashion. Response to Motion to Strike Lorett
Affidavit at 2. According to the Defendants, the Lorett Aff. supports only four of the undisputed
facts on which the Defendants’ acquiescence defense is bottomed, and the Motion to Strike
implicates only limited parts of five of the Lorett Aff.’s twenty-seven paragraphs. See Response
to Motion to Strike Lorett Affidavit at 2. Furthermore, the Defendants maintain, none of the
Plaintiff’s five challenges to the Lorett Aff. implicate facts specifically material to the
Defendants’ Acquiescence MSJ. See Response to Motion to Strike Lorett Affidavit at 3-5.
In any event, the Defendants argue, none of the limited parts of those paragraphs that the
Plaintiffs challenge contradict R. Lorett’s deposition testimony. See Response to Motion to
Strike Lorett Affidavit at 5 (referring to R. Lorett Dep. 51:11-22 (taken Apr. 9, 2015), filed
MMDDYY). According to the Defendants, the deposition testimony is not incompatible with
the Aff. ¶ 19, which states: “Knowing all that I knew about TIR, I believed $451,000 was more
than fair value for a share of TIR stock at that time. I believe it was a premium over fair value
resulting from the competition between the Cypress and Stuart groups to gain control of TIR.”
Response to Motion to Strike Lorett Affidavit at 6. The Defendants highlight that R. Lorett

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spoke of his “belief,” which the Defendants maintains is almost inescapably what others have
said to someone. See Response to Motion to Strike Lorett Affidavit at 6. Casting R. Lorett’s
statements in a more favorable light, the Defendants insist “that Mr. Lorett does not express an
opinion of fair value as contemplated by the Oklahoma appraisal statute is not probative whether
Mr. Lorett believed $451,000 represented a premium over fair value in the colloquial sense.”
Response to Motion to Strike at 6. In the Defendants’ estimation, the “Plaintiffs’ counsel has
hoisted himself by his own petard.” Response to Motion to Strike Lorett Affidavit at 6.
The Defendants also insist that nothing in R. Lorett’s deposition is at odds with ¶ 23 of
his affidavit, which states:
During the same time period, TIR became aware of serious problems with Trent
Foley and the TIR-Canada/Foley Inspection Services management team. I and
U.S. management learned that in addition to continuing slow collections in
Canada, Mr. Foley had been focusing much of his attention on his own company,
which shared office space with TIR-Canada and Foley. Extended involvement
with TIR counsel was needed to negotiate a solution and resolve those disputes.
Response to Motion to Strike Lorett Affidavit at 7. The Defendants insist that the “paragraph 23
challenge occurs when there is no issue before the Court with respect to which the Court can
determine whether the paragraph is or is not prohibited hearsay.” Response to Motion to Strike
Lorett Affidavit at 7.

The Defendants indicate that the Lorett Aff. “provides the general

background of, and puts in context, the substantive matters of which Mr. Lorett does have
personal knowledge. Mr. Lorett testified to the matters which management learned. That
management learned those matters is separate and apart from the question whether what they
learned was true.” Response to Motion to Strike Lorett Affidavit at 8 (emphases in the original).
Lest they be misunderstood, the Defendants concede that the Plaintiffs have every right to
challenge the truth of what management learned if and when the truth of what management
learned is challenged before the Court. See Response to Motion to Strike Lorett Affidavit at 8.
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At the same time, the Defendants remind the Court that the Plaintiffs bear a burden to prove that
the belief of those tendering the offer was false. See Response to Motion to Strike Lorett
Affidavit at 8. As the Defendants see it, to the extent that R. Lorett’s belief can establish the
belief of those who tendered the offer, what R. Lorett learned from others is “clearly probative
and admissible.” Response to Motion to Strike Lorett Affidavit at 8.
Turning then to ¶ 24, the Defendants insist that paragraph is unrelated to any issue before
the Court. See Response to Motion to Strike Lorett Affidavit at 8. The Defendants assert that R.
Lorett testified that he knew what factoring is, but does not know what factoring debt is. See
Response to Motion to Strike Lorett Affidavit at 8.

The Defendants’ adjudge that “[t]he

squabble is not worth the Court’s time. Whether TIR is burdened by ‘factoring its receivables’
or burdened by ‘factoring debt’ is immaterial, and hardly serves as a matter deserving of the
attention of this Court, much less an order striking the Lorett Affidavit.” Response to Motion to
Strike Lorett Affidavit at 8.
The Defendants’ next tackle ¶ 25, which states:
In October 2013, Cypress came to agreement with Triangle Capital[47] and
purchased the mezzanine lenders’’ ordinary shares of TIR for $451,000 each. The
$451,000 share price had been more than the share value in June, and given the
personnel, accounting and financing issues the company faced, the price
47

Triangle Capital Corporation (“Triangle Capital”), according to its website, aims “to be
the premier provider of capital to companies operating in the lower middle market.” Triangle
Capital Corporation: Profile, http://www.tcap.com/profile (last visited Apr. 21, 2017). Triangle
Capital typically invests five to fifty million dollars for (i) acquisition financings; (ii) leveraged
buyouts; (iii) management buyouts; (iv) recapitalizations; (v) growth financings; and (vi)
employee stock ownership plans. See Triangle Capital Corporation: Profile, http://www.tcap
.com/profile (last visited Apr. 21, 2017). Triangle Capital’s portfolio includes energy sector
investments alongside investments in other sectors. See Triangle Capital Corporation: Profile,
http://www.tcap.com/profile (last visited Apr. 21, 2017). Triangle Capital ran a consortium of
mezzanine lenders that held shares and waivers in TIR, Inc. before the contested merger. The
Court will refer to the entire consortium of mezzanine lenders that Triangle Capital ran,
collectively, as Triangle Capital from this point forward in this Memorandum Opinion and
Order.
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continued to be more than fair in October.
Response to Motion to Strike Lorett Affidavit at 9. The Defendants assert that, in context, “it is
perfectly clear that, in this paragraph, Mr. Lorett is referring to the $451,000 price to which
reference is made twice in line three of the paragraph.” Response to Motion to Strike Lorett
Affidavit at 9. The Defendants also insist that it “is also clear that that price continued to be
fair.”

Response to Motion to Strike Lorett Affidavit at 9 (emphasis in the original).

Disregarding “the difference between Mr. Lorett’s belief as to the fairness of $451,000 as a price,
and Plaintiffs’ questioning concerning fair value in an appraisal action discussed with respect to
paragraph 19,” the Defendants assert that the Motion to Strike is “an absurd abuse of the Court’s
time.” Response to Motion to Strike Lorett Affidavit at 9.
Turning to ¶ 27, the Defendants note that it states:
After the plaintiffs did not tender their shares in response to a tender offer issued
October 31, 2013, Tulsa Inspection Resources, Inc. merged with Tulsa Inspection
Resources, LLC, and the plaintiffs were offered $451,000 for each of their shares.
The plaintiffs returned their shares to the company, and they were promptly paid
$451,000 per share just as the other shareholders had been. I believe this price
was more than fair value for the shares. I was very surprised, six months later, to
see that the plaintiffs filed this lawsuit.
Response to Motion to Strike Lorett Affidavit at 9. The Defendants portray the Plaintiffs as
arguing that, because R. Lorett was not involved in the tender offer pursuant to which the
Plaintiffs were offered $451,000.00 per share for their shares, the Court should strike each
sentence in ¶ 27. See Response to Motion to Strike Lorett Affidavit at 9. According to the
Defendants, that argument is “frivolous” for five reasons. Response to Motion to Strike Lorett
Affidavit at 9. First, the Defendants contend, the Plaintiffs admit and all accept that the tender
offer was made. See Response to Motion to Strike Lorett Affidavit at 9. Second, the Defendants
aver, the Plaintiffs admit and all accept that the tender price was $451,000.00 per share. See

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Response to Motion to Strike Lorett Affidavit at 9. Third, the Defendants maintain, the Plaintiffs
admit and all accept that the Plaintiffs returned their shares to the company. See Response to
Motion to Strike Lorett Affidavit at 9. Fourth, the Defendants attest, the Plaintiffs admit and all
accept that the Plaintiffs were promptly paid $451,000.00 per share. See Response to Motion to
Strike Lorett Affidavit at 9. Fifth, the Defendants avouch, the Plaintiffs do not and cannot
challenge that R. Lorett was surprised when the Plaintiffs filed this action six months after they
had accepted the merger consideration. See Response to Motion to Strike Lorett Affidavit at 910. Broadly speaking, the Defendants assert that, when R. Lorett expressed his belief that
$451,000.00 per share was a fair price, he is entitled to state both what he learned, and what all
generally know and accept to be true. See Response to Motion to Strike Lorett Affidavit at 10.
As the Defendants see it, the Plaintiffs can cross-examine R. Lorett at trial in an effort to
impeach his credibility if they believe he lacks personal knowledge of any fact. See Response to
Motion to Strike Lorett Affidavit at 10. To challenge R. Lorett’s credibility at this stage in the
case, the Defendants pronounce, it both irrelevant and quixotic. See Response to Motion to
Strike Lorett Affidavit at 10. Quickly recapitulating their argument, the Defendants close with
an observation that none of the Plaintiffs’ five challenges to the Lorett Aff. implicate any
undisputed fact material to the Defendants’’ Acquiescence MSJ. See Response to Motion to
Strike Lorett Affidavit at 10. Moreover, the Defendants assure the Court, nothing in the ¶¶ that
the Plaintiff challenge contradicts anything in R. Lorett’s Depo. testimony. See Response to
Motion to Strike Lorett Affidavit at 11. The Defendants, therefore, conclude that the Motion to
Strike “lacks sufficient merit to be worth the Court’s attention and should be summarily denied.”
Response to Motion to Strike Lorett Affidavit at 11.

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9.

Plaintiff’s Reply to the Motion to Strike Lorett Affidavit.

The Plaintiffs filed Reply Memorandum of Law in Further Support of Plaintiffs’ Motion
to Strike Affidavit of Randall Lorett on May 21, 2015. See Reply Memorandum of Law in
Further Support of Plaintiffs’ Motion to Strike Affidavit of Randall Lorett, filed May 21, 2015
(Doc. 108)(“Reply to Motion to Strike Lorett Affidavit”). The Plaintiffs reiterate their position
that, “despite swearing under penalty of perjury to his personal knowledge of certain facts in an
Affidavit submitted in support of Defendants’ motion for summary judgment,” R. Lorett “in fact
lacked any personal knowledge with regard to a series of those averments.” Reply to Motion to
Strike Lorett Affidavit at 1. The Plaintiffs, believing that they have exposed the Defendants
submitting an improper affidavit, ridicule the Defendants’ defense that the challenged statements
are irrelevant and do not implicate the facts on which their summary judgment lies. See Reply to
Motion to Strike Lorett Affidavit at 1. Although the Plaintiffs concede that a court ordinarily
should not decide witness credibility on a motion to dismiss, the Plaintiffs insist that a court
cannot credit a witness’ testimony for purposes of summary judgment if it had been exposed as
incompetent or false. See Reply to Motion to Strike Lorett Affidavit at 1.
Expanding on this core argument, the Plaintiffs assert that R. Lorett admitted in his Depo.
that he did not have an opinion -- or even the tools to formulate such an opinion -- about the TIR
stock’s fair value. See Reply to Motion to Strike Lorett Affidavit at 2. The Defendants’
assertions to the contrary notwithstanding, the Plaintiffs contend that R. Lorett’s belief cannot be
based on what other told him, for two reasons. See Reply to Motion to Strike Lorett Affidavit at
2.

First, the Plaintiffs aver, the Defendants’ response is directly contrary to R. Lorett’s

testimony. See Reply to Motion to Strike Lorett Affidavit at 3. Second, the Defendants press,
for a statement to be considered on summary judgment, it must be shown to rest on concrete

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facts “grounded in the affiant’s own observation, perception, and recollection.” Reply to Motion
to Strike Lorett Affidavit at 3 (citing Tavery v. United States, 32 F.3d 1423, 1427 n.4 (10th Cir.
1994)(“[S]tatements of mere belief must be disregarded[.]”)). The Defendants, therefore, argue
that the Court should strike Lorett Aff. ¶¶ 19, 25, and 27 and preclude R. Lorett from testifying
on the fair price issue. See Reply to Motion to Strike Lorett Affidavit at 3.
Regarding Lorett Aff. ¶ 23, the Plaintiffs contend that the Defendants admit in their
Response to the Motion to Strike Lorett Affidavit that R. Lorett’s statement is hearsay. Reply to
Motion to Strike Lorett Affidavit at 3. Accordingly, the Plaintiffs assert, the statement (i) has no
bearing on the factual issues; (ii) cannot be used to establish the absence of any disputed factual
issue for summary judgment purposes; and (iii) must be stricken. See Reply to Motion to Strike
Lorett Affidavit at 4-5. Regarding Lorett Aff. ¶ 24, the Plaintiffs purport that R. Lorett admitted
at his deposition that he had never heard the phrase “factoring debt” and that he does not know
what it means. Reply to Motion to Strike Lorett Affidavit at 5. The Plaintiffs argue that,
because ¶ 24 uses the term despite R. Lorett’s professed ignorance of it, the Court should strike
Lorett Aff. ¶ 24 and prevent R. Lorett from testifying on the issue of factoring debt. See Reply
to Motion to Strike Lorett Affidavit at 5. Turning to ¶ 27, the Plaintiffs assert that the Court
should strike R. Lorett’s reference to a tender offer, because R. Lorett admitted in his deposition
that he was not involved in the tender offer and does not understand the tender offer. See Reply
to Motion to Strike Lorett Affidavit at 6. Also with regard to paragraph 27, the Plaintiffs urge
the Court to strike R. Lorett’s statement concerning how much the Plaintiffs were paid for their
shares. See Reply to Motion to Strike Lorett Affidavit at 6. According to the Plaintiffs, R.
Lorett lacks any personal knowledge concerning the merger consideration paid for the shares and
admitted during his Depo. that he relied on Boylan for this information. See Reply to Motion to

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Strike Lorett Affidavit at 6. The Defendants insist that the Court therefore strike R. Lorett’s
statement about the payment amount and preclude R. Lorett from testifying at trial about the
issue. See Reply to Motion to Strike Lorett Affidavit at 6.
Telescoping out, the Plaintiffs then contend that the Court should strike the Lorett Aff. in
its entirety, because R. Lorett’s multiple incompetent and potentially false statements impeach
his credibility. See Reply to Motion to Strike Lorett Affidavit at 7. The Plaintiffs characterize
R. Lorett’s affidavit as “untrue” and “without personal knowledge,” and insist that it is basic
hornbook law that the Court must deny summary judgment and allow the case to proceed to trial
if “‘the credibility of the movant’s witnesses is challenged the by the [sic] opposing part and
specific bases for possible impeachment are shown . . . .’” Reply to Motion to Strike Lorett
Affidavit at 7 (quoting 10A Wright, Miller & Kane, Federal Practice and Procedure 2726, at 446
(3d ed. 1998).
10.

Plaintiffs’ Motion to Strike Affirmative Defenses.

The Plaintiffs filed Plaintiffs’ Motion to Strike Affirmative Defenses on November 4,
2015. The Plaintiffs ask the Court to strike the affirmative defenses that the Defendants raise in
their two motions for summary judgment: (i) unclean hands; (ii) accord and satisfaction; (iii)
acquiescence; (iv) acceptance; (v) waiver; (vi) laches; (vii) estoppel; (viii) and release. See
Plaintiffs’ Motion to Strike Affirmative Defenses at 3. According to the Plaintiffs, each defense
fails as matter of law, because and cannot succeed under any circumstances, because each
depends on a false premise that the Plaintiffs voluntarily relinquished the right to bring breach of
fiduciary duty claims when the Plaintiffs accepted the merger consideration in lieu of statutory
appraisal. See Plaintiffs’ Motion to Strike Affirmative Defenses at 3. The Plaintiffs argue that
the Delaware Court of Chancery held in In re JCC Holding Co. that a corporations’ controlling

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shareholders, directors, and officers cannot invoke any of the equitable defenses that the
Defendants adduce if they have adopted a self-interested merger at the minority shareholders’
expense. See Plaintiffs’ Motion to Strike Affirmative Defenses at 3. Invoking In re Best Lock,
the Plaintiffs contend that plaintiffs “who cho[o]se to forego the statutory appraisal remedy were
entitled to receive the merger consideration for their shares regardless of the resolution of any
equitable claims they cho[o]se to bring.” See Plaintiffs’ Motion to Strike Affirmative Defenses
at 3 (quoting In re Best Lock, 845 A.2d 1057, 1078 (Del. Ch. 2001)(Chandler, V.C.)(emphases
omitted). Moreover, the Plaintiffs maintain, the Plaintiffs’ did not waive their state and federal
securities law claims, and Oklahoma common-law principles of equity and estoppel do not bar
the Plaintiffs’ securities claims. See Plaintiffs’ Motion to Strike Affirmative Defenses at 5.
Consequently, the Plaintiffs say, the Court should not only deny the Defendants’ Acquiescence
MSJ and Defendants’ Estoppel MSJ, but also strike the Defendants’ affirmative defenses as
insufficient as a matter of law under rule 12(f)(1) of the Federal Rules of Civil Procedure. See
Plaintiffs’ Motion to Strike Affirmative Defenses at 5-6.
11.

Defendants’ Response to Motion to Strike Affirmative Defenses.

The Defendants responded on November 5, 2015.

See Defendants’ Response to

Plaintiffs’ Motion to Strike Affirmative Defenses (Doc. 191), filed November 5, 2015 (Doc.
192)(“Defendants’ Response to Motion to Strike Affirmative Defenses”). The Defendants take
issue with what the Defendants characterize as the Motion to Strike Affirmative Defense’s
untimeliness. See Defendants’ Response to Motion to Strike Affirmative Defenses 1-2. The
Defendants maintain that the Plaintiffs seek to eliminate defenses that have been part of the case
since August 5, 2014 -- even though the rule 12(f)(2) deadline for challenging pleadings’
sufficiency was August 26, 2014 -- by resetting the clock with an amended complaint. See

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Defendants’ Response to Motion to Strike Affirmative Defenses at 2. The Defendants argue that
the Plaintiffs “cannot reopen the long shut window to file a motion to strike by looking to
Defendants’ Amended Answer (containing exactly the same affirmative defenses as pled in the
August 2014 Original Answer),” and request that the Court “not permit such a manipulation of
the Rules of Civil Procedure.” Defendants’ Response to Motion to Strike Affirmative Defenses
2-3.
The Defendants then highlight and heartily agree with the Plaintiffs’ characterization that
the Motion to Strike Affirmative Defenses is “unnecessary.” Defendants’ Response to Motion to
Strike Affirmative Defenses at 3 (quoting Motion to Strike Affirmative Defenses at 5 n.2).
According to the Defendants, the Plaintiffs’ Motion to Strike Affirmative Defenses merely
recites arguments that the Plaintiffs already made in opposing the Defendants’ summary
judgment motions. See Delaware Limited Liability Company Act at 3. The Defendants posit
that the Court can strike the Defendants’ affirmative defenses “on its own” when addressing the
summary judgment motions. Defendants’ Response to Motion to Strike Affirmative Defenses at
3 (citations omitted). The Defendants thus contend that the “Plaintiffs’ current Motion repeats
points already argued, needlessly wastes the time of both parties and the Court, and should be
denied for these reasons.” Defendants’ Response to Motion to Strike Affirmative Defenses at 3
(citing E.E.O.C. v. Unit Drilling Co., 2014 WL 2211011, at *1 (N.D. Okla. 2014)(Kern,
J.))(internal quotation marks omitted in Response). The Defendants add that “a motion to strike
is strongly disfavored as a means of resolving disputes where, as here, facts outside the
pleadings, such as those on which Plaintiffs’ summary judgment briefs rest, need to be
considered.” Defendants’ Response to Motion to Strike Affirmative Defenses at 4.
Dovetailing with this latter argument, the Defendants contend that the Plaintiffs’ Motion

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to Strike Affirmative Defenses “impermissibly relies on matters outside the pleadings.”
Defendants’ Response to Motion to Strike Affirmative Defenses at 4. The Defendants note that
the Plaintiffs rely on their earlier arguments in response to the summary judgment motions, and
assert that, under rule 12(f), a motion to strike defenses “must be based solely on the matters set
forth in the pleadings themselves.” Defendants’ Response to Motion to Strike Affirmative
Defenses at 4-5 (emphasis in original)(citing 5C Wright & Miller, Federal Practice and
Procedure, § 1380, at 404). According to the Defendants, “Plaintiffs’ reliance on the facts they
sought to marshal in opposition to Defendants’ summary judgment motions flouts this rule, and
their Motion should be denied for this reason as well.” Defendants’ Response to Motion to
Strike Affirmative Defenses at 5.
Finally, the Defendants aver that, should the Court consider the Motion to Strike
Affirmative Defense’s merits, the Court should nevertheless deny it. See Defendants’ Response
to Motion to Strike Affirmative Defenses at 5. The Defendants posit that “Rule 12(f) permits the
Court to strike only a defense that cannot succeed, as a matter of law, under any circumstances.”
Defendants’ Response to Motion to Strike Affirmative Defenses at 5 (citing E.E.O.C. v. Unit
Drilling Co., 2014 WL 2211011, at *1). The Defendants note that their answer includes fortyfive pages of factual allegations and say that, “[w]here factual allegations sufficient to support a
defense have been made, it cannot be stricken.” Defendants’ Response to Motion to Strike
Affirmative Defenses at 5 (citing Baum v. Faith Technologies, Inc., 2010 WL 2365451, at *2
(N.D. Okla. 2010)(Eagan, C.J.)).

In the Defendants’ view, their lengthy factual allegations

“more than adequately support the ten affirmative defenses asserted.” Defendants’ Response to
Motion to Strike Affirmative Defenses at 6.

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12.

Plaintiffs’ Reply to Motion to Strike Affirmative Defenses.

The Plaintiffs replied on November 19, 2015. See Plaintiffs’ Reply Memorandum of
Law in Further Support of Plaintiffs’ Motion to Strike Affirmative Defenses, filed November 19,
2015 (Doc. 200)(“Reply to Motion to Strike Affirmative Defenses”). The Plaintiffs contend that
the Defendants’ affirmative defenses are foreclosed under Delaware law, because a stockholder
who accepts merger consideration in which they had no say “‘is not barred by the doctrine of
acquiescence, or any other related equitable doctrine such as waiver, from challenging the
fairness of the merger.’” Reply to Motion to Strike Affirmative Defenses at 1 (quoting In re JCC
Holding Co., 843 A.2d 713, 721 (Del. Ch. 2003)(emphasis omitted). Accordingly, the Plaintiffs
contend, the Defendants’ affirmative defenses “are ‘legally unsupported,’ and ‘cannot succeed
under any circumstances’ as a defense to Plaintiffs’ claims.”

Reply to Motion to Strike

Affirmative Defenses at 1 (quoting Birabent v. Hudiburg Auto Grp., Inc., 2012 WL 1438921, at
*2-3 (W.D. Okla. 2012)(Miles-LaGrange, C.J.)). The Plaintiffs assert that the Defendants are
“[u]nable to refute that showing” and posit that, as a result, the Defendants instead focus on the
Motion to Strike Affirmative Defenses’ timeliness and factual bases, while asserting that the
Motion to Strike Affirmative Defenses is “properly suited for decision via Defendants’ two
summary judgment motions.” Reply to Motion to Strike Affirmative Defenses at 2 (quoting
Response to Motion to Strike at 1-2)(internal quotation marks omitted). The Plaintiffs address
these arguments in turn.
First, the Plaintiffs contend that they timely filed the Motion to Strike Affirmative
Defense. See Reply to Motion to Strike at 2. The Plaintiffs note that the Defendants answered
the Amended Complaint on October 14, 2015, and that the Plaintiffs moved to strike on
November 4, 2015, within the 21-day window that rule 12(f)(2) allows for such a motion to be

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filed. See Reply to Motion to Strike Affirmative Defenses at 2. Contrary to the Defendants’
objection, the Plaintiffs assert that rule 12(f) does not qualify the 21-day window in the event
that an answer to an amended complaint contains the same affirmative defenses as an answer to
an original complaint, and that “the federal courts have resoundingly rejected Defendants’
contention.” Motion to Strike Affirmative Defenses at 2 (citing, among others, F.D.I.C. v.
Bayer, 2015 WL 686952, at *1 (M.D. Fla. 2015)(Steele, J.)).
Second, the Plaintiffs contend that the Court “need not decide any factual issues to strike
Defendants’ defenses as legally insufficient.” Reply to Motion to Strike Affirmative Defenses at
3. Rather, the Plaintiffs argue, the Defendants’ affirmative defenses “must be stricken because
they are facially insufficient as a matter of settled and authoritative law” under rule 12(f). Reply
to Motion to Strike Affirmative Defenses at 3. The Plaintiffs argue that the Court need only
consider (i) the Answer; and (ii) the Merger Agreement and Tender Offer, because those
documents’ authenticity is “undisputed” and “are deemed incorporated by reference and properly
considered in deciding the motion.” Reply to Motion to Strike Affirmative Defenses at 3 (citing,
among others, Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)). The Plaintiffs
assert that these documents, along with the pleadings, “show that as a matter of law, all of
Defendants’ defenses are foreclosed.” Reply to Motion to Strike Affirmative Defenses at 4. The
Plaintiffs reason, for example, that the acquiescence defense is foreclosed under the Answer’s
factual allegations, because the “Plaintiffs’ receipt of the merger consideration unilaterally set by
the Defendants cannot eliminate their claims against the controlling shareholders and directors
charged with a fiduciary duty to protect Plaintiffs’ interests as minority shareholders when they
adopted and approved the transaction.” Reply to Motion to Strike Affirmative Defenses at 4-5
(relying on In re JCC Holding Co., 843 A.2d at 721)(italics in the original). The Plaintiffs

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contend that “[n]one of the ‘facts’ that Defendants purport to adduce in the pending motions”
change that, in these circumstances, Delaware law forecloses equitable defenses such as
acquiescence. Reply to Motion to Strike Affirmative Defenses at 5. The Plaintiffs conclude that
“what goes for acquiescence and waiver goes for ‘any other equitable doctrine’ such as unclean
hands, accord and satisfaction, acceptance, laches, estoppel, and release.” Reply to Motion to
Strike Affirmative Defenses at 6 (bolding omitted)(italics in the original)..
Finally, the Plaintiffs argue that the Court should strike the Defendants’ defenses at this
stage “to simplify trial.” Reply to Motion to Strike Affirmative Defenses at 7. The Plaintiffs
assert that the Defendants’ motions for summary judgment “rest upon the same unsustainable
legal contention as the affirmative defenses set forth in their Answer,” and that, consequently,
“the same law requires striking these defenses also requires denial of Defendants’ motions.”
Reply to Motion to Strike Affirmative Defenses at 7 (citations omitted). At the same time, the
Plaintiffs contend that “[i]t is not sufficient . . . merely to deny the motions.” Reply to Motion to
Strike Affirmative Defenses at 7. The Plaintiffs request that the Court “strike the defenses at this
juncture under Rule 12(f) to eliminate any jury confusion at trial.” Reply to Motion to Strike
Affirmative Defenses at 7 (citing, among others, New England Health Care Emp. Welf. Fund v.
iCare Mgmt., LLC, 792 F. Supp. 2d 269, 288 (D. Conn. 2011)(Haight, J.)).
13.

Plaintiffs’ Motion for Partial Summary Judgment on Breach of Fiduciary
Duty Claims.

The Plaintiffs filed Plaintiffs’ Memorandum of Law in Support of Motion for Partial
Summary Judgment on Breach of Fiduciary Duty Claims on September 14, 2015. See Plaintiffs’
Memorandum of Law in Support of Motion for Partial Summary Judgment on Breach of
Fiduciary Duty Claims, filed September 14, 2015 (Doc. 157)(“Plaintiffs’ MSJ”). With this
motion, the Plaintiffs seek partial summary judgment on two claims: (i) the Plaintiffs’ First
- 64 -

Claim for Relief against the Controlling Shareholder Defendants; and (ii) the Plaintiffs’ Second
Claim for Relief against the Director Defendants, for breach of fiduciary duty. See Plaintiffs’
MSJ at 7.
In relation to these claims, the Plaintiffs first petition the Court to grant partial summary
judgment holding that the entire-fairness standard governs the merger, because the merger was a
self-dealing transaction.48 See Plaintiffs’ MSJ at 9-10. The Plaintiffs insist that a showing of
self-dealing suffices to require the Court to apply the entire-fairness doctrine, see Plaintiffs’ MSJ
at 11, and that the undisputed material evidence shows that the merger was self-dealing, as
corporate fiduciaries stood on both sides of the transaction and -- the Plaintiffs assert -- did
nothing to disable themselves from this conflict, see Plaintiffs’ MSJ at 12-13. The need for the
entire-fairness standard to apply is especially acute in this case, the Plaintiffs contend, because (i)
the Defendants had a direct interest in making the “fair value” as low as possible as owners and
directors of the surviving entity, Plaintiffs’ MSJ at 13; and (ii) the Defendants made a
determination to allocate different consideration to themselves and to the Plaintiffs when they

48

The entire-fairness standard, the Plaintiffs assert, imposes both a substantive and a
procedural requirement on directors and controlling shareholders. See Plaintiffs’ MSJ at 9.
Substantively, the Plaintiffs maintain, the entire-fairness standard requires proof that the merger
was the product of both fair dealing and fair price. See Plaintiffs’ MSJ at 9. Procedurally, the
Plaintiffs contend, the entire-fairness standard imposes the burden of persuasion on the defendant
directors and controlling shareholders, throughout the trial, to prove that the challenged merger
met the entire-fairness test’s substantive requirements. See Plaintiffs’ MSJ at 9.
The Plaintiffs define “fair dealing” by reference to Weinberger v. UOP, Inc., 457 A.2d
701 (Del. 1983), indicating that fair dealing “‘embraces questions of when the transaction was
timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the
approvals of the directors and the stockholders were obtained.’” Plaintiffs’ MSJ at 10 (quoting
Weinberger v. UOP, Inc., 457 A.2d at 711). The Plaintiffs also define “fair price” by reference
to Weinberger v. UOP, Inc., indicating that fair price “‘relates to the economic and financial
considerations of the proposed merger, including all relevant factors: assets, market value,
earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a
company’s stock.’” Plaintiffs’ MSJ at 10 (quoting Weinberger v. UOP, Inc., 457 A.2d at 711)).
- 65 -

obtained for themselves the benefit of TIR’s rapidly increasing cash flow as qualified income for
the profitable MLP49 IPO they planned to conduct and to award themselves equity in that public
entity while denying the same benefit to the Plaintiffs, see Plaintiffs’ MSJ at 13-14.
The Defendants also petition the Court to grant partial summary judgment holding that
the Defendants bear the burden throughout the trial to prove the merger’s entire fairness, because
they used no procedural mechanisms to cure their conflict of interest. See Plaintiffs’ MSJ at 910, 15. As the Plaintiffs read Delaware law, the Defendants may shift the burden of persuasion
on the entire-fairness issue only by either (i) showing that a well-functioning committee of
independent directors approved the transaction; or (ii) showing that a majority of the minority
shareholders approved the merger transaction via an informed vote. See Plaintiffs’ MSJ at 15.
The Plaintiffs insist that the Defendants took neither of these curative measures. See Plaintiffs’
MSJ at 15-17. Accordingly, the Plaintiffs seek for the Court to grant summary judgment that the
Defendants bear the burden to prove entire fairness at trial. See Plaintiffs’ MSJ at 17.
Under the entire-fairness standard, the Plaintiffs argue, the undisputed material facts
49

An MLP, a master limited partnership, is a state law entity that has publicly traded
securities listed on major exchanges, but that differ from corporations in that revenue is passed
through to the shareholders for tax purposes. See Michael Cumming, Morningstar. What Is a
Master Limited Partnership?, August 9, 2007, http://news.morningstar.com/articlenet/article
.aspx?id=203288 (last visited April 22, 2017). MLPs typically are found only in the energy
sector. See David T. Kwon, Vanguard Research, User’s Guide to Master Limited Partnerships,
Sept. 2014, https://personal.vanguard.com/pdf/ISGPMLP.pdf (last visited April 3, 2017). At the
time of the case’s merger, companies formed MLPs to secure a variety of benefits, including the
following: (i) monetization of assets at fair market value; (ii) high value of assets in a separate
company; (iii) lower cost of capital; (iv) tax benefits upon contribution and ongoing tax benefits;
(v) retention of control over assets; (vi) incentive distribution rights; (vii) ability to limit
fiduciary duties to public unitholders; (viii) high-yield security with reliable distributions; (ix)
one taxation level, leaving more cash available for distribution; (x) expected increases in
distributions; (xi) potential unit appreciation; (xii) limited liability similar to corporate common
stock; (xiii) tax shield typically equivalent to 80-90% of cash distributions; and (xiv) taxdeferred portion not taxable until unitholder sells securities. See Paul Hastings LLP, Master
Limited Partnership Overview: August 2013, slide 5, https://www.paulhastings.com/docs/default
-source/PDFs/mlp-primer.pdf (last visited April 22, 2017).
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show that the Defendants breached their fiduciary duty of fair dealing. See Plaintiffs’ MSJ at 17.
The Plaintiffs allege that the Defendants intentionally structured the merger so that it was not
negotiated with the Plaintiffs and never obtained the Plaintiffs’ approval. See Plaintiffs’ MSJ at
18. The Plaintiffs assert that the Defendants intended the merger transaction to eliminate the
Plaintiffs as stockholders to prevent them from receiving any benefit from the planned Cypress,
L.P. IPO, and that the Defendants forced the Plaintiffs out at a price which greatly
underestimated the true share value. See Plaintiffs’ MSJ at 18-20. As the Plaintiffs see it, the
Defendants’ alleged failure to use any procedures to independently determine fair value, by
itself, establishes their breach of duty, even if the Defendants believed that the price they offered
was fair.

See Plaintiffs’ MSJ at 20-21.

The Defendants reject the proposition that the

Defendants could have discharged their duties simply by following the statutory merger
procedure and offering the Plaintiffs an appraisal. See Plaintiffs’ MSJ at 21. The Defendant,
therefore, reiterate their request that the Court grant partial summary judgment that: (i) the entire
fairness standard governs the Plaintiffs’ claims for breach of fiduciary duty; and (ii) the
Defendants bear the burden of proving that the merger satisfies the entire fairness standard. See
Plaintiffs’ MSJ at 22. The Defendants further ask the Court to grant partial summary judgment
holding that Defendants CEP-TIR, LLC, Stephenson, C. Field, L. Field, and Boylan are liable for
breaches of the duty of entire fairness, reserving for trial the issue of damages. See Plaintiffs’
MSJ at 22.
14.

The Defendants’ Response to the Plaintiffs’ MSJ.

The Defendants filed Defendants’ Response in Opposition to Plaintiffs’ Motion for
Partial Summary Judgment on Breach of Fiduciary Duty Claims (Doc. 157) on October 5, 2015.
See Defendants’ Response in Opposition to Plaintiffs’ Motion for Partial Summary Judgment on

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Breach of Fiduciary Duty Claims, filed October 5, 2015 (Doc. 170)(“Response to Plaintiffs
MSJ”). The Defendants argue that the Court should deny the Plaintiffs’ MSJ for four reasons: (i)
the Plaintiffs, being fully informed, acquiesced in the merger and cannot now be heard to
challenge it; (ii) the undisputed facts establish that the merger process was fair as a result of the
statutory appraisal which was the Plaintiffs’ exclusive remedy; (iii) Oklahoma common law
clean hands doctrine and the Oklahoma common law of estoppel bar the Plaintiffs’ breach-offiduciary-duty claims; and (iv) the Plaintiffs have waived their breach-of-fiduciary-duty claims
contractually and by conduct under the Oklahoma common law of waiver. See Response to
Plaintiffs’ MSJ at 7.
The Defendants insist, first, that the Plaintiffs, being fully informed, acquiesced in the
merger and cannot now be heard to challenge it. See Response to Plaintiffs’ MSJ at 7-9.
Referring the Court to its discussion on this point in the Defendants’ Acquiescence MSJ, the
Defendants maintain that the only facts relevant to this proposition are the facts establishing the
Plaintiffs’ knowledge when they surrendered their share in exchange for the payment of the
merger consideration pursuant to the merger agreement’s terms. See Response to Plaintiffs’ MSJ
at 8. According to the Defendants, if the Plaintiffs had knowledge of the facts they allege in their
Complaint on the date that the Plaintiffs surrendered their shares, the defense of acquiescence
bars their claims. See Response to Plaintiff’s MSJ at 8. The Defendants then contend that the
Plaintiffs admit to having had such knowledge at that time. See Response to Plaintiff’s MSJ at 8.
Revisiting a taxonomy that they had used in earlier briefings, the Defendants indicate that
the Plaintiffs had only four choices regarding how to proceed when they confronted a merger
which they opposed: (i) obtain payment of the merger consideration; (ii) have their shares
appraised; (iii) seek a statutory appraisal of their shares, and sue for rescission and rescissionary

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damages; or (iv) file suit seeking rescission and rescissionary damages.

See Response to

Plaintiffs’ MSJ at 8-9. The Defendants emphasize that the Plaintiffs did not have the option to
obtain the merger consideration, and then file suit seeking rescission and rescissionary damages.
See Response to Plaintiffs’ MSJ at 9.
Switching gears, the Defendants then assert that the undisputed facts establish that the
merger process was fair, and that the alleged lack of an independent committee or appraisal does
not “support a claim for a quasi-appraisal trial on the Merger price.” Response to Plaintiffs’ MSJ
at 9-10. The Defendants argue that the Plaintiffs fundamentally misconceive the entire fairness
doctrine, which the Defendants say shifts the burden to a defendant to prove both fair process
and fair price. See Response to Plaintiffs’ MSJ at 10. By definition, the Defendants maintain,
entire fairness cannot apply where the undisputed facts show that the merger process was fair.
See Response to Plaintiffs’ MSJ at 11. The Defendants insist yet again that it was fair under
Oklahoma law, which expressly grants the majority the right to cash out a merger without the
consent of, or even prior notice to, the minority shareholders. See Response to Plaintiffs’ MSJ at
11. According to the Defendants, minority shareholders have a right under Oklahoma law to
have a court appraise their shares but not to the formation of an independent committee. See
Response to Plaintiffs’ MSJ at 11.
After walking the Court through a condensed chronology of the merger and the events
leading to it, see Response to Plaintiffs’ MSJ at 11-15, the Defendants turn their attention to the
clean-hands doctrine, see Response to Plaintiffs’ MSJ at 16.

As the Defendants read the

doctrine, Oklahoma common law requires that, to receive equity, a person must do equity. See
Response to Plaintiffs’ MSJ at 16 (citing Krumme v. Moody, 910 P.2d 993 (Okla. 1995)).50 The

50

The Defendants cite this case as Krumme v. Moody, 810 P.2d 1262, 1269 (1995). See
- 69 -

Defendants insist that Stuart orchestrated the litigation after having (i) illicitly vied for control of
TIR in 2012 and 2013; (ii) directly solicited TIR’s shareholders; (iii) attempted to hold the
merger hostage with the end of extracting a higher price; and (iv) delivering his shares -- with
braggadocio -- when he discovered that he lacked veto power over the merger. See Response to
Plaintiffs’ MSJ at 17. The Defendants urge the Court not to lend its aid to one who allegedly
“has been guilty of such inequitable conduct.” Response to Plaintiffs’ MSJ at 17.
The Defendants then insist that the Oklahoma common law of estoppel also bars the
Plaintiffs’ breach-of-fiduciary-duty claims. See Response to Plaintiffs’ MSJ at 17. As the
Defendants read the law, equitable estoppel prevents a party from taking a legal position
inconsistent with an earlier statement or action that places the counterparty at a disadvantage.
See Response to Plaintiffs’ MSJ at 17 (citing W. Keeton et al., Prosser and Keeton on the Law of
Torts § 05, at 733 (5th ed. 1984)). Drawing on a 1956 case from the Supreme Court of
Oklahoma, the Defendants explain that “[e]quitable estoppel holds a person to . . . a position
assumed, where otherwise inequitable consequences would result to another, who, having a right
to do so under the circumstances, has in good faith relied thereon.” Response to Plaintiffs’ MSJ
at 17-18 (quoting Apex Siding and Roofing Co. v. First Federal Savings and Loan Ass’n, 1956
OK 195, 195, 301 P.2d 352, 355)(internal quotation marks omitted)(ellipses in the Response to
Plaintiffs’ MSJ). According to the Defendants, the Plaintiffs are estopped to unwind the merger,
because the Defendants, in reliance on the Plaintiffs’ “voluntary and knowing surrender of their
share certificates,” (i) contributed 50.1% of their member interests in TIR LLC to Cypress
Energy Partners Limited Partnership; and (ii) effected a sale of partnership units to the public

Response to Plaintiffs’ MSJ at 16. This citation appears to have been an incorrect citation one,
which directs the Court to McDonald v. Humphries, located at 810 P.2d 1262, 1269 (1995).
McDonald v. Humphries is the case that the Supreme Court of Oklahoma overruled in Krumme
v. Moody.
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pursuant to the Registration Statement. Response to Plaintiffs’ MSJ at 18.
As the Defendants see it, the Plaintiffs also waived their breach-of-fiduciary-duty claims
contractually and by conduct under the Oklahoma common law of waiver. See Response to
Plaintiffs’ MSJ at 18. Under Oklahoma law, the Defendants say, waiver is the “intentional
relinquishment of a known right.” Response to Plaintiffs’ MSJ at 18 (citing Barringer v. Baptist
Healthcare of Okla., 2001 OK 29, 22 P.3d 695, 700). Dusting off a Supreme Court of Oklahoma
case from nearly a century ago, the Defendants explicate that waiver “may be achieved
contractually, provided that the contract is founded on a valuable consideration and made by the
party whose benefit is being waived.” Response to Plaintiffs’ MSJ at 18 (citing Smith v.
Minneapolis Threshing Mach. Co., 1923 OK 84, 214 P.2d 178, 180). The Defendants then
intone their earlier repeated assertion that, in December, 2013, the Plaintiffs delivered their share
certificates to the Defendants “to induce the Defendants to pay the Merger consideration,” and in
accordance with a merger agreement that expressly provided that any former shareholder who
surrendered share certificates would be deemed to have forever waived any appraisal rights
“pursuant to the Oklahoma appraisal statute or otherwise.” Response to Plaintiffs’ MSJ at 18.
Extending their argument on this point, the Defendants insist that the Plaintiffs even waived their
right to a quasi-appraisal under Oklahoma common law, as delivering the share certificates and
accepting merger consideration for them constitutes an implied waiver in Oklahoma.

See

Response to Plaintiffs’ MSJ at 19 (citing Barringer v. Baptist, 22 P.3d at 701).
15.

The Plaintiffs’ Reply to the Plaintiffs’ MSJ.

The Plaintiffs filed the Plaintiffs’ Reply Memorandum of Law in Further Support of
Motion for Partial Summary Judgment on Breach of Fiduciary Duty Claims on October 19,
2015. See Plaintiffs’ Reply Memorandum of Law in Further Support of Motion for Partial

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Summary Judgment on Breach of Fiduciary Duty Claims, filed October 19, 2015 (Doc.
177)(“Reply to Plaintiffs’ MSJ”). The Plaintiffs first assert that the undisputed material facts
establish that the Plaintiffs are entitled to judgment as a matter of law that the controlling
shareholders and director defendants breached their fiduciary duty of fair dealing. Reply to
Plaintiffs’ MSJ at 3. According to the Plaintiffs, the Defendants could have created a level
playing field designed to protect the Plaintiffs’ interests as minority shareholders by (i)
appointing an independent special committee; (ii) engaging an independent financial advisor or
other third party to perform a valuation analysis; (iii) condition merger approval on a fullyinformed vote of the majority of minority shareholders; or (iv) providing an “opportunity for
genuine negotiations regarding the merger.” Reply to Plaintiffs’ MSJ at 3 (quoting In re Sunbelt
Beverage Corp. S’Holder Litig., 2010 WL 26539, at *5 (Del. Ch. January 5, 2010)(Chandler,
C.). The Plaintiffs assert that the Defendants undertook none of these protections and that
“[l]iability inexorably follows” where the Defendants “approved a squeeze out merger, devoid of
procedural protections, as a final means of forcing [the Plaintiffs] out of the company and
obtaining [their] . . . stake . . . .” Reply to Plaintiffs’ MSJ at 4-5 (bracketed material and first set
of ellipses in the Reply to Plaintiffs’ MSJ)(quoting Sunbelt, 2015 WL 5052214, at *5).
According to the Plaintiffs, the Defendants admit that they did not go through the motions of
establishing fair dealing and that there is no fact left warranting a trial on the issue, because the
“Defendants cannot possibly prove the independence of measures they never took.” Reply to
Plaintiffs’ MSJ at 5 (emphatic italics removed).
Turning to the fair price issue, the Plaintiffs insist that fair price is relevant only to the
amount of damages which the Defendants must pay on account of their failure to deal fairly with
the Plaintiffs. See Reply to Plaintiffs’ MSJ at 6. For three reasons, the Plaintiffs insist, the fair

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price issue is not before the Court on the Plaintiffs’ MSJ or on any other pending motion, and
must abide trial. See Reply to Plaintiffs’ MSJ at 6. First, the Plaintiffs note, neither the Plaintiffs
nor the Defendants has moved for summary judgment on fair price, and fair value is “a
quintessentially factual -- and sharply-disputed -- issue, which can only be resolved at trial by
expert testimony.” Reply to Plaintiffs’ MSJ at 6. Second, the Plaintiffs contend, the Defendants
fail to address the underlying procedure used to adopt the merger. See Reply to Plaintiffs’ MSJ
at 6. Third, the Plaintiffs emphasize, fiduciaries employing grossly inadequate process can be
found liable even if the transaction price might otherwise be considered fair. See Reply to
Plaintiffs’ MSJ at 6 (citing In re Nine Sys. Corp. S’Holders Litig., 2014 WL 4383127, at *47
(Del. Ch. Sept. 4, 2014)).
The Plaintiffs then dismiss the Defendants’ frequent invocation of the Plaintiffs’ merger
consideration acceptance, arguing that the acceptance is irrelevant to and does not meet the
Defendants’ burden to prove fair dealing. See Reply to Plaintiffs’ MSJ at 7. According to the
Plaintiffs, fair dealing required the Defendants to take prophylactic measures to remove the taint
of their own conflict; post-merger conduct, e.g., share surrender when fully informed, is
irrelevant to a showing of fair dealing. See Reply to Plaintiffs’ MSJ at 7-8. Likewise, the
Plaintiffs insist, the limited exception to entire fairness for short-form mergers that the
Defendants invoke -- the availability of a statutory appraisal -- has no application to this
conflicted long-form merger. See Reply to Plaintiffs’ MSJ at 8. According to the Plaintiffs,
statutory appraisal, unlike the entire fairness doctrine, does not provide a complete remedy for
unfair dealing. See Reply to Plaintiffs’ MSJ at 8-9. Furthermore, the Plaintiffs insist, statutory
appraisal applies only to short-form mergers, and the Defendants admit that the merger in this
case was effected pursuant to 18 O.S. § 1090.2 -- the long-form merger statute. See Reply to

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Plaintiffs’ MSJ at 9.
In concluding, the Plaintiffs assert that the Defendants cannot escape their personal
liability by mischaracterizing the Plaintiffs’ fiduciary duty claims as claims for “quasi-appraisal.”
Reply to Plaintiffs’ MSJ at 10. Distinguishing quasi-appraisal from statutory appraisal, the
Plaintiffs maintain that the former is a damages award at the conclusion of a trial in which a
defendant’s liability for breach of fiduciary duty has been established. See Reply to Plaintiffs’
MSJ at 10 (citing In re Orchard Enters., Inc., 88 A.3d 1, 42, 47-48 (Del. Ch. 2014)). The
Defendants’ lexical legerdemain, the Plaintiffs assert, is “merely a variant of their failed
arguments of acquiescence, estoppel, waiver and unclean hands.” Reply to Plaintiffs’ MSJ at 10.
Accordingly, the Plaintiffs repeat their petition from the Plaintiffs’ MSJ that the Court grant
partial summary judgment that: (i) the entire fairness standard governs the Plaintiffs’ claims for
breach of fiduciary duty; (ii) the Defendants bear the burden of proving that the merger satisfies
the entire fairness standard; and (iii) the Defendants CEP-TIR, LLC, Stephenson, C. Field., L.
Field, and Boylan are liable for breaching their duty of entire fairness, reserving for trial the
damages issue. See Reply to Plaintiffs’ MSJ at 10.
16.

The Plaintiffs’ Motion in Limine to Preclude Evidence of the Plaintiffs’
Conduct.

The Plaintiffs filed Plaintiffs’ Motion In Limine to Preclude Evidence of Plaintiffs’
Conduct, and Brief in Support on October 26, 2015. See Plaintiffs’ Motion In Limine to
Preclude Evidence of Plaintiffs’ Conduct, and Brief in Support, filed October 25, 2015 (Doc.
182)(“Plaintiffs’ Motion in Limine”). The Plaintiffs argue that the Court should preclude the
Defendants from offering any evidence, testimony, or argument concerning: (i) the Plaintiffs’
offers to sell their TIR shares to the Defendants, and Triangle Capital’s sales of TIR shares; (ii)
alleged “blackmail” or “threats”; (iii) prices the Plaintiffs paid for their TIR shares and post- 74 -

merger Plaintiff communications; (iv) “certain irrelevant and pejorative facts about plaintiffs
contained in Defendants’ pretrial briefs”; and (v) improper evidence or argument based on the
fact that the Plaintiffs were from the New York area rather than from Oklahoma. Plaintiffs’
Motion in Limine at 1. The Plaintiffs assert that the Court should exclude material related to
these issue, because: (i) it is irrelevant under rule 402 of the Federal Rules of Evidence; (ii) it has
a prejudicial effect that outweighs its probative value under rule 403 of the Federal Rules of
Evidence; or (iii) in the alternative on the specific issue of share sale price offers, it represents a
compromise offer under rule 408 of the Federal Rules of Evidence. See Plaintiffs’ Motion in
Limine at 1. As a codicil to this request, the Plaintiffs also ask the Court to exclude any
settlement evidence that the Defendants may seek to introduce, under rule 408 of the Federal
Rules of Evidence. See Plaintiffs’ Motion in Limine at 1-15.
17.

The Defendants’ Response to the Plaintiffs’ Motion in Limine.

The Defendants filed Defendants’ Response to Plaintiffs’ Motion in Limine to Preclude
Evidence of Plaintiff’s Conduct (Doc. 193) on November 16, 2015. See Defendants’ Response
to Plaintiffs’ Motion in Limine to Preclude Evidence of Plaintiff’s Conduct (Doc. 182), filed
November 16, 2015 (Doc. 193)(“Response to Plaintiffs’ Motion in Limine”). The Defendants
deride the Plaintiffs’ motion as an attempt to engineer a “one-sided trial in which Plaintiffs are
entitled to accuse Defendants of inequitable conduct while Defendants are barred from
presenting any evidence of Plaintiffs’ inequitable conduct.” Response to Plaintiffs’ Motion in
Limine at 1. As the Defendants see it, the Plaintiffs’ security law claims require the Plaintiffs to
establish their reliance on an alleged material misrepresentation, which necessarily involve an
examination of the Plaintiffs’ actions, knowledge, and motives before, during, and immediately
after the merger. See Response to Plaintiffs’ Motion in Limine at 2. The Defendants therefore

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diagnose the Plaintiffs’ Motion in Limine as “dead on arrival,” as each of the broad evidentiary
categories that the Plaintiffs seek to exclude is probative of the Plaintiffs’ actions, knowledge, or
motives surrounding the Plaintiffs’ acceptance of the merger consideration.

Response to

Plaintiffs’ Motion in Limine at 2. According to the Defendants, the Court should refrain from
granting a motion in limine unless the moving party meets its burden of showing that the
evidence in question is clearly inadmissible on all potential grounds -- a burden that the
Defendants insist the Plaintiffs do not meet. See Response to Plaintiffs’ Motion in Limine at 3.
Turning first to rule 408 of the Federal Rules of Evidence, the Defendants assert that that
rule is inapplicable, because the communications at issue were between arm’s-length commercial
parties engaged in business negotiations, i.e., not in settlement discussions in lieu of pending or
imminent claims. See Response to Plaintiffs’ Motion in Limine at 4. If the Court were to adopt
the Plaintiffs’ proposed scope of rule 408, the Defendants maintain, the Court would allow the
exclusion to swallow the rule, creating a result in which the exclusion would apply to “virtually
all contested commercial negotiations.”

Response to Plaintiffs’ Motion in Limine at 4.

Specifically regarding the Triangle Capital’s51 sale of TIR shares for $451,000.00, the
Defendants say that the Plaintiffs cannot wield rule 408 to exclude the material, because: (i) the
Plaintiffs were not a party to that transaction; (ii) the issues involved are not being litigated in
this case; and (iii) Triangle Capital’s purchase of TIR shares in an arms-length commercial
transaction for the same price and near the same time as the merger is probative of the fair value

51

Mezzanine financing is a popular investment vehicle, especially for smaller companies.
See William J. Torpey & Jerry A. Viscione, Mezzanine Money for Smaller Businesses, Harv.
Bus. Rev. (May 1987), available at https://hbr.org/1987/05/mezzanine -money-for-smallerbusinesses (last visited Apr. 22, 2017)(“Harvard Business Review”). It is called mezzanine
financing, because companies in the intermediate sales range ($5 million to $100 million) are the
primary market and, because the risk level is intermediate, falling midway between low-risk
senior debt and high-risk equity financing. See Harvard Business Review at 1.
- 76 -

analysis. See Response to Plaintiffs’ Motion in Limine at 4 (citing Towerridge, Inc. v. T.A.O.,
Inc., 111 F.3d 758, 770 (10th Cir. 1997)). Specifically regarding the letters from September,
2013, and November, 2013, the Defendants assert that the Plaintiffs mischaracterize the letters
when they call them settlement discussions in lieu of litigation. See Response to Plaintiffs’
Motion in Limine at 5. The Defendants maintain that, even though the parties staked out certain
legal positions in the letters, neither side threatened to file a lawsuit or even mentioned the
possibility of filing a lawsuit. See Response to Plaintiffs’ Motion in Limine at 6. As the
Defendants see it, the Plaintiffs simply are trying to keep the letters out of the Court’s sight,
because the letters: (i) represent a price for TIR shares dramatically lower than the Plaintiffs’
trial expert’s $1.2 million per share estimate for fair price; and (ii) show that the Plaintiffs acted
as a group under Stuart’s leadership. See Response to Plaintiffs’ Motion in Limine at 6. The
latter fact, according to the Defendants, is important in that it negates the Plaintiffs’ argument
that the Defendants improperly failed to obtain input from the majority of the minority
shareholders, because the entire minority was contractually bound to speak as a single voice
under Stuart’s control. See Response to Plaintiffs’ Motion in Limine at 6. Specifically regarding
Triangle Capital’s sale of TIR shares in December, 2013, the Defendants argue that the
agreement by which Triangle Capital sold its shares and warrants to Cypress Energy Partners is a
typical commercial transaction document, not a classic settlement agreement, and is completely
separate and distinct from the Plaintiffs’ claims in this case. See Response to Plaintiffs’ Motion
in Limine at 7-11. Accordingly, the Defendants maintain, any letters about Triangle Capital’s
transactions fall far outside rule 408’s scope. See Response to Plaintiffs’ Motion in Limine at
11.
The Defendants further object to the Plaintiffs’ attempts to exclude and “censure any

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language more colorful than milk toast.” Response to Plaintiffs’ Motion in Limine at 12. The
Defendants maintain that the Court easily can police the parties’ alleged inflammatory language
at trial, and the Defendants insist that any attempt to enforce milquetoast language would “strip
the trial of all evidence of the human motives that underlie every commercial dispute.”
Response to Plaintiffs’ Motion in Limine at 12-13. “To assess the quality and credibility of the
parties’ positions,” the Defendants contend, “the jury is entitled to hear the entire story, not the
one sided version Plaintiffs hope to peddle.” Response to Plaintiffs’ Motion in Limine at 13.
Penultimate, the Defendants assert that evidence of the price that the Plaintiffs paid for
their shares and evidence of Stuart’s post-merger report to his investors, both are relevant to
valuation and impeachment.

See Response to Plaintiffs’ Motion in Limine at 14.

The

Defendants flag Stuart’s announcement after the merger that he was “pleased” to liquidate SFFTIR’s position in TIR at $451,000.00 per share as an assertion that undermines the Plaintiffs’
current assertion that the merger process and price were unfair. See Response to Plaintiffs’
Motion in Limine at 14. The jury, the Defendants contend, is entitled to consider Stuart’s
investor communications when assessing not only fair value and fair price, but also the
Plaintiffs’ credibility in general. See Response to Plaintiffs’ Motion in Limine at 14. Moreover,
the Defendants argue, evidence of when and for what price the Plaintiffs acquired their TIR
shares is relevant background information, and are relevant data points for the valuation analysis
-- and possibly even relevant to impeach the Plaintiffs’ trial testimony regarding their satisfaction
or dissatisfaction with the result. See Response to Plaintiffs’ Motion in Limine at 14.
Last, the Defendants seek to disabuse the Court of any notion that any reference to the
Plaintiffs’ out-of-state residency will unduly inflame the jury.

See Response to Plaintiffs’

Motion in Limine at 15. For one thing, the Defendants contend that references to the location of

- 78 -

relevant events and general background information about the parties are permissible and
necessary to give the jury context to the evidence. See Response to Plaintiffs’ Motion in Limine
at 14. For another thing, the Defendants insist, the Plaintiffs do not give Oklahomans enough
credit; the Defendants assure the Court that Oklahomans will not “hiss with prejudicial bias”
with every passing reference to New York. Response to Plaintiffs’ Motion in Limine at 14.
18.

The Plaintiffs’ Reply to the Plaintiffs’ Motion in Limine.

The Plaintiffs filed Plaintiffs’ Reply Memorandum of Law In Further Support of
Plaintiffs’ Motion In Limine to Preclude Evidence of Plaintiffs’ Conduct on November 30, 2015.
See Plaintiffs’ Reply Memorandum of Law In Further Support of Plaintiffs’ Motion In Limine to
Preclude Evidence of Plaintiffs’ Conduct, filed November 30, 2015 (Doc. 204)(“Reply to
Plaintiffs’ Motion in Limine”). The Plaintiffs take issue with the Defendants’ assertion that the
Plaintiffs’ offers and the Triangle Capital sales are admissible, because they are not settlement
offers and are merely business negotiations. Reply to Plaintiffs’ Motion in Limine at 1-2.
According to the Plaintiffs, the text and context of the Defendants’ letters clearly establishes that
the letters were offers to compromise a claim -- for less than its fair market value -- under rule
408 of the Federal Rules of Evidence. See Reply to Plaintiffs’ Motion in Limine at 2-4. For
example, the Plaintiffs note, the Plaintiffs’ September 26, 2013, letter52 proposes to “forego the
long-term future value of TIR’s shares that they would receive in litigation, and instead settle
their claim for a lower share value, calculated solely on the basis of TIR’s historic, backward-

52

The Plaintiffs do not specifically identify the letter to which they refer at this point in
their Reply to Plaintiffs’ Motion in Limine. See Plaintiffs’ Motion in Limine at 4. The Court
notes that there is only one letter that either party has submitted in its case filings that is dated
September 26, 2013, and that the Plaintiffs wrote: Letter from Tulsa Inspection Resources, Inc.
to Regent Private Capital, LLC (Sept. 26, 2013), filed April 3, 2015 (Doc. 83-18)(“Sept. 26,
2013, Letter”). The Court therefore interprets the Plaintiffs’ mention of the Plaintiffs’
“September 26 letter” to refer to the Sept. 26, 2013 Letter.
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looking financial performance data as of the date of the proposed sale.” Reply to Plaintiffs’
Motion in Limine at 4 (emphasis in the Reply to Plaintiff’s Motion in Limine). The Plaintiffs
insist that rule 408 mandates that parties who attempt settlement should be guaranteed that
unsuccessful attempts at compromise will not be used to their detriment, and that, accordingly,
the Could should exclude settlement offers that, the Plaintiffs allege, the Defendants wish to
introduce at trial to the Plaintiffs’ detriment. See Reply to Plaintiffs’ Motion in Limine at 5.
The Plaintiffs further maintain that the Plaintiffs’ letters, the Defendants’ assertions
notwithstanding, are irrelevant to any trial issue. See Reply to Plaintiffs’ Motion in Limine at 7.
According to the Plaintiffs, their letters predate the merger by months and reject the Defendants’
offer. See Reply to Plaintiffs’ Motion in Limine at 7. Consequently, the Plaintiffs aver, the
letters cannot possibly supply “the nonexistent proof Defendants need that during the Merger
process, Defendants adopted any such procedures to ensure that the Offer Price was fair.” Reply
to Plaintiffs’ Motion in Limine at 7 (internal quotation marks omitted)(emphasis in the original).
In summary on this point, the Defendants urge the Court to preclude the allegedly “irrelevant”
letters from evidence on the grounds that admitting them would run counter to rule 408’s
fundamental purpose. See Reply to Plaintiffs’ Motion in Limine at 7-8.
As the Plaintiffs see it, the Court also should preclude Triangle Capital’s’ sale from trial.
See Reply to Plaintiffs’ Motion in Limine at 8. The Plaintiffs insist that they have shown that
Triangle Capital’s sales did not represent the highest true estimate of the TIR shares’ value. See
Reply to Plaintiffs’ Motion in Limine at 8. Instead, the Plaintiffs maintain, the sales were made
to resolve the ongoing dispute that Triangle Capital had with the Defendants -- a dispute in
which, the Plaintiffs allege, Boylan had threatened Triangle Capital with litigation and had
promised to reserve for Triangle Capital the right to” gross-up” to fair value after the sale. Reply

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to Plaintiffs’ Motion in Limine at 8. For that reason, the Plaintiffs contend, it would violate rule
408’s rationale to admit Triangle Capital’s sales for less than fair value as evidence of fair value.
See Reply to Plaintiffs’ Motion in Limine at 8.
The Plaintiffs then conclude by attempting to dispatch a number of the Defendants’
points in short order. See Reply to Plaintiffs’ Motion in Limine at 9-10. The Plaintiffs assert
that any evidence concerning alleged blackmail or threats is inadmissible under rules 401-403 of
the Federal Rules of Evidence, because such allegations are not probative of any fact, are
irrelevant, and would unduly prejudice the jury against the Plaintiffs. See Reply to Plaintiffs’
Motion in Limine at 9-10. The Plaintiffs insist that, the Defendants’ accusation notwithstanding,
they do not seek to hide or shield any relevant evidence from the jury, seeking instead to avoid
wasting trial time, confusing the jury, and suffering prejudice to themselves. See Reply to
Plaintiffs’ Motion in Limine at 10. Last, the Plaintiffs dismiss the Defendants’ proposal that the
Court “‘police the parties’ use of alleged inflammatory language at trial,’” urging the Court to
preclude irrelevant evidence entirely so that the trial is focused on presentation of proof of
legally valid claims and defenses. Reply to Plaintiffs’ Motion in Limine at 10 (quoting Response
to Plaintiffs’ Motion in Limine at 12).
19.

The Hearing.

The Court held a hearing on December 27-28, 2016. See Transcript of Motion Hearing
Before the Honorable James O. Browning United States Judge (taken December 27, 2016), filed
January 17, 2017 (Doc. 248)(“Tr.”); Transcript of Motion Hearing Before the Honorable James
O. Browning United States Judge (taken December 28, 2016), filed January 23, 2017 (Doc.
250)(“Tr.”).53 The hearing was quite long, but the parties largely stuck to their briefing. The

53

The hearing lasted two days and the court reporter filed a separate transcript for each
- 81 -

parties raised a few new issues, however.
Cognizant that all the district court judges from the United States District Court for the
Northern District of Oklahoma had recused themselves from the case, the Court -- in from
Albuquerque, New Mexico to hear the case -- made some disclosures to the parties about
possible conflicts of interest before assuring that parties that it believed it could be fair and
impartial in this case. See Tr. at 4:6-5:10 (Court). The Court noted that there were eleven
outstanding motions to hear, and it suggested to the parties that they concentrate their initial
arguments on the motions for summary judgment and motions to strike, informing the parties
that the Court had thoroughly reviewed those materials. See Tr. at 5:11-6:4 (Court). The Court
also oriented the parties by revealing that its early inclinations were that (i) Delaware law applies
to this case; (ii) Delaware Court of Chancery opinions after Bershad had limited its scope but not
overruled it; (iii) a number of factual issues preclude the Court from saying as a matter of law
that the claims are barred or that the affirmative defenses should be stricken, whether under the
theory of acquiescence, waiver or estoppel; and

(iv) it would not strike the Defendants’

proffered expert’s affidavit. See Tr. at 6:5-7:11 (Court). After the Court and the parties sorted
through sundry housekeeping issues, the Court invited the Defendants to discuss their Motion for
Summary Judgment on Acquiescence. See Tr. at 7:12-11:2 (Court, Kagen, DeMuro).
The Defendants started by saying that, if the Court determines that Bershad’s holding
applies to this case, then the outcome is already determined in the Defendants’ favor on the
Motion for Summary Judgment on Acquiescence. See Tr. at 11:3-8 (DeMuro). When the Court
asked the Defendants how it then should handle “a bundle of lower court opinions” since

day of the hearing. The pagination between the two documents is, however, continuous. In light
of this fact and for readers’ ease, the Court refers to both transcript documents as though they
were a single, continuously-paginated document.
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Bershad that “seem to have carved back and chopped at Bershad,” Tr. at 11:9-21 (Court), the
Defendants suggested multiple ways for the Court to handle them, see Tr. 11:22- (DeMuro).
First, the Defendants said, under the Erie doctrine -- from Erie R. Co. v. Tompkins, 304 U.S. 64
(1938) -- a federal court sitting in diversity only ought to consider intermediate court cases if
there is no clear decision from the relevant state’s highest court on an issue. See Tr. at 11:2312:13 (DeMuro). Applying the Erie doctrine to this case, the Defendants asserted, the Court
will see that, the Plaintiffs’ contentions notwithstanding, the Delaware Courts of Chancery
cannot “implicitly overrule[]” the Supreme Court of Delaware’s holding in Bershad. Tr. at
12:14-20 (DeMuro).
The Court agreed with the Defendants that it would feel uncomfortable writing an
opinion that says the lower courts can overturn the Supreme Court of Delaware, but it asked the
Defendants whether it would be accurate to hold that the lower courts have limited, refined, or
clarified Bershad’s scope over the last three decades.

See Tr. at 13:12-18 (Court).

The

Defendants adamantly insisted that such a holding both would violate the Erie doctrine and
would ride roughshod over the Supreme Court of Delaware’s authority. See Tr. at 13:19-14:11
(DeMuro). A better approach to determining Bershad’s continued applicability and scope, the
Defendants suggested, is to take a look at In Re Celera Corp. Shareholder Litigation, 59 A.3d
418 (Del. 2012)(“In Re Celera Corp.”); which the Defendants said is the last case in which the
Supreme Court of Delaware -- rather than lower courts -- spoke of Bershad in terms of its
acquiescence defense. See Tr. at 14:11-22 (DeMuro, Court). As the Defendants read In Re
Celera Corp., the Supreme Court of Delaware applied Bershad as recently as 2012. See Tr. at
14:23-16:13 (DeMuro). The Defendants found it inconceivable that a federal court sitting in
diversity could need to look at lower state court opinions if the Supreme Court of Delaware’s last

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word on the subject applied the Bershad rule. See Tr. at 16:14-19 (DeMuro). Moreover, the
Defendants emphasized, the same judge authored three of the Delaware Court of Chancery
opinions that “discard” Bershad: then-Chancellor Leo E. Strine, whom the Defendants
characterize as a lower-court judge simply discontent with the Supreme Court of Delaware’s
rule. See Tr. at 16:20-17:7 (DeMuro).54 According to the Defendants, other Delaware Court of
Chancery cases -- and recently the United States District Court for the Northern District of
California and the United States Court of Appeals for the Fourth Circuit -- applied the Bershad
rule. See Tr. at 17:14-18:24 (DeMuro)(citing without referring by case name to Kaul v. Mentor
Graphics Corp., 2016 WL 6249024 (N.D. Cal. Oct. 26, 2016)(Labson-Freeman, J.);55 Schwartz
v. Blum, 309 Fed. Appx. 718 (4th Cir. 2009)(per curiam)(Traxler, J., Shedd, J., and Hamilton,
S.J.)(“Schwartz”)). It is especially noteworthy, the Defendants added, that the Schwartz court
applied Bershad in a case that involved a self-dealing transaction, which then-Chancellor Strine
surmised in lower court Delaware cases was outside of Bershad’s scope. See Tr. at 19:13-22
(DeMuro).
Telescoping from such granular details, the Defendants reemphasized that the Supreme
Court of Delaware has never expressly overruled Bershad. See Tr. at 20:4-14 (DeMuro). The
Defendants averred that, despite the Plaintiffs’ assertions, the Supreme Court of Delaware did
not even mention Bershad in its 1994 case Kahn v. Lynch, let alone overturn Bershad. See Tr. at

54

Leo E. Strine, Jr. has been the Chief Justice of the Supreme Court of Delaware since
February 28, 2014. See Delaware Court, Supreme Court: Judicial Officers, http://courts
.delaware.gov/supreme/justices.aspx (last visited Apr. 22, 2017).
55

The Plaintiffs did not provide the Court with the name of the case to which they were
referring at this point. See Tr. at 17:22-18:5 (DeMuro). The Plaintiffs identified, however, the
decision’s author, district, and year, and they mentioned that the decision applied Bershad. See
Tr. at 17:22-18:5 (DeMuro). Kaul v. Mentor Graphics Corp. is the only case available in
Westlaw that satisfies these criteria.
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20:15-21:22 (DeMuro). Twenty years later, the Defendants said, the Supreme Court of Delaware
heard Kahn v. M.F. Worldwide, 88 A.3d 635 (Del. 2014), another case on a self-dealing merger,
and again failed to even mention Bershad’s acquiescence defense. See Tr. at 21:23-24:10
(DeMuro). Both Kahn v. Lynch and Kahn v. M.F. Worldwide, the Defendants asserted, simply
set out what the proper standard of review is in a conflicted merger situation: the business
judgment rule if the defendants employed certain procedures to protect minority shareholders’
rights and entire fairness review if the defendants did not employ those procedures. See Tr. at
25:3-15 (DeMuro).
Realizing that the discussion had meandered in a few different directions up to that point,
the Defendants closed their argument with a clarification of the core position that they were
arguing. In short, that argument was that: (i) entire fairness review normally applies under
Bershad and both Kahn v. Lynch and Kahn v. M.F. Worldwide when, as the Defendants admit
was the case in the merger at issue in this case, there is a self-dealing merger and the defendants
do not follow certain standard procedures to safeguard the minority shareholders; but, (ii) under
Bershad, entire fairness review does not apply even under those circumstances if a fully
informed minority shareholder accepted the merger consideration, i.e., acquiesced to the merger..
See Tr. at 25:22-27:6 (DeMuro). Any attempt that the Plaintiffs might make to read In re Celera
Corp., In re Best Lock Corp. Shareholder Litigation, 845 A.2d 1057 (Del. Ch. 2001)(“Best
Lock”), or any other case in a lower court to have expressly overturned the Bershad rule, the
Defendants asserted, is an act of “great contortionism” and a fundamental misreading of the law.
See Tr. at 27:7-30:17 (DeMuro).
The Court then turned to the Plaintiffs to ask whether they were arguing that: (i) “the
Supreme Court of Delaware has overruled, or impliedly overruled” Bershad; or that “Bershad

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doesn’t have to be read as broadly as the Defendants are reading it and that the . . . lower courts
in Delaware are reading it more narrowly but without overruling Bershad[.]” Tr. at 31:16-24
(Court). The Plaintiffs indicated that they were arguing the latter, saying that Bershad still is
good law but does not apply in the context of a self-dealing merger. See Tr. at 31:25-32:15
(Kagen, Court). Beginning to unpack their argument on this point, the Plaintiffs chose to “begin
at the beginning,” telling the Court that, under Delaware law, the merger in this case was a longform merger, because the minority shareholders who were cashed out held more than ten percent
of the outstanding shares. Tr. at 32:18-34:8 (Kagen). In the long-form merger context, the
Defendants explained, the Delaware courts have sought to safeguard minority shareholders rights
to not be summarily cashed out against their will by giving minority shareholders a right either to
sue or to seek an appraisal. See Tr. at 34:9-35:1 (Kagen). The Plaintiffs asserted that these
protections are self-evident even in Bershad, which they argued requires courts to determine
whether entire fairness review with respect to transactions that involve self-dealing. See Tr. at
35:1-36:13 (Kagen). According to the Plaintiffs, the Supreme Court of Delaware in Bershad
only allowed an acquiescence defense to apply for three reasons.

See Tr. at 36:14-37:12

(Kagen). First, the Plaintiffs contended, the Supreme Court of Delaware in that case determined
that the merger had not been tainted with self-dealing. See Tr. at 36:14-37:1 (Kagen). Second,
the Plaintiffs maintained, the plaintiff in Bershad was fully apprised; everything concerning the
transaction had been disclosed to him and he had voted on the merger. See Tr. 37:7-10 (Kagen).
Third, the Plaintiffs noted, the plaintiff in Bershad took the merger consideration. See Tr. at
37:11-12 (Kagen).
Having acknowledged the importance of Bershad for setting an analytical framework, the
Plaintiffs nevertheless insisted that three decades of subsequent cases have clarified its scope.

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See Tr. at 37:13-15 (Kagen). The Plaintiffs asserted that, in Kahn v. Lynch, in 1994, the
Supreme Court of Delaware put forth a more stringent standard for the very issue that Bershad
did not consider: a merger completed in a self-dealing context. See Tr. at 37:16-20 (Kagen).
Rather than defaulting to the business judgment rule, the Plaintiffs insisted, Kahn v. Lynch
requires courts to apply entire fairness review in cases that involve self-dealing, as there is a
rebuttable assumption that the majority shareholders acted improperly. See Tr. at 37:21-38:15
(Kagen). According to the Plaintiffs, the mandatory entire fairness review has two parts: fair
dealing and fair price. See Tr. at 28:15-18 (Kagen). Fair dealing, the Plaintiffs explained,
requires that the majority shareholders: (i) put into place a special committee of disinterested
directors to review the process and make sure that it is fair to the minority shareholders who are
to be cashed out; (ii) hold a vote in which the majority of the minority shareholders agree to
complete the merger; or (iii) get a fairness opinion from a respected investment bank. See Tr. at
38:19-39:9 (Kagen).

Fair price, the Plaintiffs explained, requires that the cash-out price

represent all future value discounted to the present value. See Tr. at 39:10-18 (Kagen). As the
Plaintiffs read Kahn v. Lynch, entire fairness is not satisfied in the absence of such fair process
and fair price even if the majority shareholders pay the minority shareholders the merger
consideration despite the latter’s desire not to be cashed out. See Tr. at 39:24-41:1 (Kagen).
The Plaintiffs then proposed that In re Celera Corp., contrary to the Defendants’ reading
of the case, actually supports the Plaintiffs’ argument on this point. See Tr. at 41:2-42:17
(Kagen). In that case, the Plaintiffs said, a minority shareholder holding six percent of Celera
Corporation’s shares was dissatisfied with a proposed merger between Celera Corporation and
another company. See Tr. at 42:18-43:5 (Kagen). The merger proposal was self-dealing insofar
as it was conditioned on Celera Corporation’s Chief Executive Office (“CEO”) being paid

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$800,000.00 a year and receiving a one-time cash payment of $2.3 million. See Tr. at 43:5-44:2
(Kagen). The Plaintiffs said that the minority shareholders were cashed out. See Tr. 44:9-45:17
(Kagen). The lead plaintiffs in the resulting class action on the minority shareholders’ behalf
settled the case, but the other plaintiffs were dissatisfied with the settlement. See Tr. at 47:2-13
(Kagen). The Supreme Court of Delaware, the Plaintiffs said, determined that the other minority
shareholder plaintiffs had not acquiesced to the settlement. See Tr. at 47:6-52:1 (Kagen).
Rather, the Plaintiffs maintained, the Supreme Court of Delaware held that the plaintiff minority
shareholders aside from the lead plaintiff had a supportable claim for substantial monetary
damages. See Tr. at 46:15-55:4 (Kagen). Referring to the Delaware Court of Chancery case
Best Lock, the Plaintiffs say, the Supreme Court of Delaware in In re Celera Corp. held that,
where minority shareholders face a choice between accepting an inadequate merger buyout or
pursing an adequate appraisal, the shareholders did not acquiescence to the merger. See Tr. at
52:2-14 (Kagen).
The Plaintiffs then mentioned that four esteemed Delaware Chancery Judges all come to
the same conclusion in the years since In re Celera Corp. See Tr. at 55:19-56:23 (Kagen). In
contrast, the Plaintiffs noted, the Defendants do not cite any Delaware case aside from 1989’s
Bershad in support of their position on the acquiescence defense, relying instead on cases from
outside Delaware. See Tr. at 56:24-57:4 (Kagen). The Plaintiffs said that even those out-of-state
cases do little, however, to support the Defendants’ position. See Tr. at 57:5-58:21 (Kagen).
According to the Plaintiffs, the Fourth Circuit case Schwartz predates In re Celera Corp. by three
years and so offers no insight into how to read self-dealing merger law in a post-In re Celera
Corp. world. See Tr. at 57:11-58:8 (Kagen). The Plaintiffs contended that none of the parties in
the 2016 case out of the Northern District of California, Kaul v. Mentor Graphics Corp., 2016

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WL 6249024 (N.D. Cal. Oct. 26, 2016), appeal filed sub nomine Sanjiv Kaul et al. v Mentor
Graphics Corp. (9th Cir. Nov. 22, 2016), cited In re Celera Corp. in its briefings. See Tr. at 58:916 (Kagen). The Plaintiffs extrapolated from that fact that the judge deciding Kaul v. Mentor
Graphics Corp. was unaware that the Supreme Court of Delaware had even handled a case on the
acquiescence defense since Bershad. See Tr. at 58:17-19 (Kagen). Moreover, the Plaintiffs
stated, Kaul v. Mentor Graphics Corp. is currently being appealed. See Tr. at 58:20 (Kagen).
Turning then to the Delaware Court of Chancery cases that they asserted had applied
Bershad and Kahn v. Lynch in tandem -- unlike the Fourth Circuit and Northern District of
California cases -- the Plaintiffs maintained that a large share of the Delaware Chancellors has
taken the same position on acquiescence in self-dealing merger contexts as the Plaintiffs have
taken. See Tr. at 59:3-10 (Kagen). The Plaintiffs first mentioned In re Ezcorp Inc. Consulting
Agreement Derivative Litigation, 2016 WL 301245 (Del. Ch. Jan., 25, 2016)(Laster, V.C.),
decided just last year,56 in which, the Plaintiffs asserted, Vice Chancellor J. Travis Laster held
that the doctrine of acquiescence does not apply to cases with a self-dealing merger context. See
Tr. at 59:11-19 (Kagen). The Plaintiffs then referred to In re Best Lock, in which, the Plaintiffs
contend, Chancellor Chandler indicated that acceptance of merger consideration does not
automatically mean merger acquiescence.

See Tr. at 59:20-60:1 (Kagen).

The Plaintiffs

thereafter adduced Gesoff v. IIC Industries, Inc., 902 A.2d 1130 (Del. Ch. 2006)(Lamb, C.), in
which, the Plaintiffs maintain, Chancellor Lamb agreed with Chancellor Chandler’s position in
In re Best Lock. See Tr. at 60:2-4 (Kagen). Last, the Plaintiffs marshal In re JCC Holding Co,

56

At the hearing on December 27, 2016, the Plaintiffs stated that the Delaware Court of
Chancery decided the case last year, i.e., 2015. See Tr. at 59:11-19 (Kagen). This chronology is
incorrect, as the Delaware Chancery Court decided the case on January 25, 2016. See In re
Ezcorp Inc. Consulting Agreement Derivative Litigation, 2016 WL 301245, at *1. The Court
nevertheless, in the main body text, reports the chronology as the Plaintiffs asserted it.
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Inc. Shareholders Litigation, 843 A.2d 713 (2003)(Strine, C.), and In re PNB Holding Co.
Shareholder Litigation, 32 Del. J. Corp. L. 654 (not reported in A.2d)(Strine, C.), in which, the
Plaintiffs asserted, then-Chancellor Strine held that it is nonsensical to apply Bershad in an entire
fairness scenario under Kahn v. Lynch simply by the mere acceptance of merger consideration.
See Tr. at 60:6-10 (Kagen). Distilling and combining the holdings in these cases, the Plaintiffs
asserted that the current rule in Delaware is that entire fairness applies in any merger case that
involves self-dealing, because the minority shareholders rights must be protected and the courts
need to replicate the protections found in cases that do not involve self-dealing. See Tr. at 60:1569:7 (Kagen, Court).
Beginning to draw their argument on the Defendants’ Acquiescence MSJ to a close, the
Plaintiffs contended that it is not sufficient under Delaware law to adjudge whether entire fairness
was satisfied by looking at actions the dissenting minority shareholders took after the merger.
See Tr. at 69:8-16 (Kagen). The only period of time that the Court should consider, according to
the Plaintiffs, is the time of the merger itself. See Tr. at 69:17-70:20 (Kagen). According to the
Plaintiffs, even if the Court determines that the price was fair, the absence of fair process requires
that the Plaintiffs prevail and are to be awarded attorney fees under In Re Nine Systems
Corporation Shareholders Litigation, 2014 WL 4383127 (Del. Chan. Sept. 4, 2014)(Noble,
V.C.)(“In re Nine Systems”). See Tr. at 70:21-71:3 (Kagen). The Plaintiffs thereafter repeated
their earlier contention that the Delaware Courts of Chancery have held multiple times in the
years since In re Celera Corp. that the acquiescence defense does not apply in self-dealing
mergers without fair process and fair price, see Tr. at 71:8-73:12 (Kagen), and that there is no
convincing evidence that the Supreme Court of Delaware would hold to the contrary, see Tr. at
73:13-74:4 (Kagen).

Accordingly, the Plaintiffs said, the Court must apply the law of the

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Delaware Courts of Chancery under the Erie doctrine. See Tr. at 73:13-25 (Kagen).
Detouring into a discussion on Oklahoma law, the Plaintiffs asserted that Oklahoma law
follows Delaware law on these points, because the Oklahoma statute “is patterned, copied from
the Delaware statute, and judges in . . . Oklahoma says that where there is a question we follow
the decisional law of the state where the statute is from,” i.e., Delaware. Tr. at 75:11-16 (Kagen).
The Plaintiffs also indicated that Oklahoma has no statute that specifically concerns self-dealing
merger transactions, and that the Oklahoma courts have applied Delaware law to such scenarios.
See Tr. at 75:22-76:2 (Kagen)(citing Woolf v. Universal Fidelity Life Ins. Co., 849 P.2d 1093
(Okla. Civ. App. 1992)(Enos, J.), which the Plaintiffs alleged applied Cavalier Oil Corp. v.
Harnett, 564 A.2d 1137 (Del. 1989)). After lurching into a short discussion about (i) how
Norberg v. Security Storage Co. of Washington, 2000 WL 1375868 (Del. Ch. 2000)(Steele, J.) is
easy to distinguish from this case, because the plaintiffs in that case took merger consideration
after filing suit; and (ii) how entire fairness and appraisal are not identical concepts, see Tr. at
76:3-77:16 (Kagen), the Plaintiffs concluded by answering the Court’s original question as to
what an opinion that agreed with the Plaintiffs’ position would look like:
So to conclude, if I were the judge, what would I write with regard to this
matter? I would apply the Delaware law as Celera has applied it, as we have
discussed, and what I would say is, in a case involving entire fairness and selfdealing allegations and breaches of the duty of loyalty, such as are present here, in
those cases where Bershad by its terms does not reach and as Celera teaches and
applies and holds, that case does not state that the mere acceptance of
transactional consideration in which the plaintiffs have no choice to set it, no
choice to participate, the mere taking of money that was mandated by statute does
not work a forfeiture upon them, does not work an acquiescence upon them, and
no case holds so.
I would cite in support Celera, PNB, Gesoff, which I didn’t talk about[57]
but is another case on the same point, Best Lock, and all the other cases that I
57

The Plaintiffs misremembered this fact, as they had discussed Gesoff v. IIC Industries,
Inc. earlier in the hearing. See Tr. at 60:2-4 (Kagen).
- 91 -

mentioned. I think it’s actually not a difficult issue to deal with given the
holdings of those cases and the holding of Celera itself, it’s a factual holding.
Tr. at 77:17-78:11 (Kagen).
The Court then offered the Defendants an opportunity to reply on Plaintiffs’
Acquiescence MSJ. See Tr. at 78:14-16 (Court). Taking a festive lexical cue from the holiday
season that had just finished, the Defendants notified the Court that they “bring tidings of good
news to the Court, and those tidings are that we’ve now cleared away the underbrush of
Plaintiffs’ opposition to the Bershad rule.” Tr. at 78:19-22 (DeMuro). Cf. Lk. 2:10 (KJV).
Seeking to buttress this assertion, the Defendants maintained that the Plaintiffs had just admitted
that Bershad is still valid law, thereby relegating all contrary Delaware Court of Chancery
opinions to the dustbin. See Tr. at 78:23-79:7 (DeMuro). Further good news, the Defendants
declared, arose from the agreement between the parties that In re Celera Corp. is the controlling
case on acquiescence with regard to contested merger transactions.

See Tr. at 79:8-12

(DeMuro).
The Court interrupted the Defendants at this point, indicating that it understood the
Plaintiffs to have argued that Bershad still is good law but that subsequent Delaware Court of
Chancery decisions had chalked out its boundaries. See Tr. at 79:14-21 (Court). The Defendants
replied that they interpret the Delaware Courts of Chancery in a much less favorable light, viz. as
“a direct assault on Bershad in an attempt to impose . . . these few judges’ view of what the law
ought to be.” Tr. at 79:22-80:1 (DeMuro). Furthermore, the Defendants said, the Plaintiffs build
a straw man when they assert that the Defendants believe mere acceptance of the merger
consideration qualifies as acquiescence.

See Tr. at 80:3-8 (DeMuro).

According to the

Defendants, this rule is not what they assert or what Bershad held. See Tr. at 80:8-9 (DeMuro).
On the contrary, the Defendants contended, they argue that Bershad has a two-pronged test to
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determine whether a minority shareholder has acquiesced to a contested merger transaction. See
Tr. at 80:9 (DeMuro). As the Defendants interpret those two prongs, the minority shareholder
has to be fully informed and has to have accepted the merger consideration. See Tr. at 80:10-12
(DeMuro). The Defendants noted that the Plaintiffs had spoken at length about the second prong
but had not mentioned the first prong. See Tr. at 80:12-13 (DeMuro).
The Defendants then argued that In re Celera Corp., which concerned a merger case
tainted with self-dealing, applied Bershad. See Tr. at 80:14-82:5 (DeMuro). The Plaintiffs’
alternative reading of the case, the Defendants asserted, constitutes little more than mental
gymnastics and contortionism of first rank. See Tr. at 82:6-10 (DeMuro). The Court asked the
Defendants whether instead of contortionism, the Plaintiffs had identified decisions from the
Delaware Courts of Chancery that had sorted out a doctrine in Bershad, which is an old case.
See Tr. at 82:12-20 (Court). The Court suggested that it might be “a little bit dangerous under
Erie just to say . . . we’re going to take the broad language in Bershad and not look at maybe the
case development underneath it.” Tr. at 82:22-25 (Court). The Defendants sought to allay the
Court’s concern by proposing that the Court divide the Delaware Court of Chancery cases into
two groups: pre-In re Celera Corp. cases and post-In re Celera Corp. cases. See Tr. at 83:1-10
(DeMuro). When the Court observed that In re Celera Corp. did not do anything with the
intermediate court cases, just saying that they exist, the Defendants countered that the Bershad
acquiescence rule was not doomed in In re Celera Corp. merely on the basis that the Supreme
Court of Delaware did not discuss it. See Tr. at 83:14-84:16 (DeMuro). The Defendants
maintained that it is wrongheaded to infer that a rule was overturned just because no party in In
re Celera Corp. argued that plaintiff BVF Partners L.P. had acquiesced to the merger contested in
that case. See Tr. at 85:13-23 (DeMuro). The Defendants then asserted that: (i) Bershad says

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that a court does not even reach the entire fairness decision if the minority shareholder contesting
the merger was a fully informed shareholder who accepted the merger transaction’s benefits, see
Tr. at 86:16-87:8 (DeMuro); and (ii) In re Celera Corp. did not expressly limit this holding from
Bershad, see Tr. at 87:9-18 (DeMuro).
The Defendants closed their argument on law regarding the Plaintiffs’ Acquiescence MSJ
on that point, and the Court advised the parties of its initial take on how it would rule on the
motion. See Tr. at 87:19-89:1 (DeMuro, Court). The Court said:
I obviously will take this issue under advisement and try to get you an
opinion and we’ll talk about timing in a moment or before we all leave the next
couple of days. So I really need to immerse myself in Delaware law and try to get
a feel for both the tune as well as the melody of what they’re doing in Delaware.
But I am still inclined to think that there is a way to square what -- and
maybe I’m more optimistic in my abilities than the case law will allow -- that I
can square these lower court opinions with Bershad without saying that it’s
overruled or impliedly overruled and that, in fact, there’s more consistency there
than at least the Defendants believe.
So I’m inclined to think that these claims go forward, at least to this
defense, and that Bershad does not preclude all eight claims on the basis of
acquiescence. There may be some other reason for the claims not to proceed, but
at least after reviewing the briefs and reviewing the law and then hearing the
arguments today, I’m still inclined to think that Bershad doesn’t preclude these
claims.
Tr. at 88:8-89:1 (Court).
The Court then invited the Defendants, as a follow-up to their arguments thus far on the
law regarding acquiescence in contested merger transactions, to discuss the facts related to the
Plaintiffs’ alleged acquiescence in this case:
All right. Let’s tackle the facts. Let me ask you this. Let’s say I went your way
after I sit down and I write this opinion. How does a court grant summary
judgment to you on the basis . . . that the Plaintiffs were fully-informed
shareholders? How do you . . . do that with a summary judgment? How do you
take the ability of the Plaintiffs to go to trial on that issue even if I find that
Bershad, as you read it, is correct?
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Tr. at 89:2-11 (Court).

The Defendants responded that the Court could render summary

judgment, because the Defendants had presented “extraordinary evidence.” Tr. at 89:12-13
(DeMuro). The Defendants first feinted that they were going to speak about Nate Allen’s
deposition testimony, noting that Nate Allen is the lead financial adviser on behalf of the Stuart
plaintiffs, including all of the corporate entities. See Tr. at 89:16-19 (DeMuro). The Defendants
immediately thereafter, however, went in a different direction, arguing that this case concerns
“highly unique” facts the like of which no Delaware Court of Chancery or any other court that
the Defendants had identified has seen.

See Tr. at 89:25-90:3 (DeMuro).

This case’s

uniqueness, the Defendants maintained, was evident from the very start, when, the Defendants
alleged, Cypress Energy Partners and the Stuart group engaged in an internecine bidding war for
control of the company.

See Tr. at 90:5-19 (DeMuro).

When the Stuart group lost, the

Defendants recounted, Stuart received all the other Plaintiffs’ proxy agreement to (i) negotiate on
their behalf with respect to the selling of their shares; and (ii) not accept any merger price below
approximately $641,000.00 per share. See Tr. at 90:20-91:4 (DeMuro).
Making the case yet more idiosyncratic, the Defendants argued, is the Plaintiffs’
misapprehension that Delaware law -- rather than Oklahoma law -- applied to the merger. See
Tr. at 91:9-11 (DeMuro).

The Defendants asserted that this erroneous belief had led the

Plaintiffs astray, giving them the impression that they had blocking rights over the merger,
because they controlled approximately thirty percent of the shares.

See Tr. at 91:12-16

(DeMuro). Under Oklahoma law 71 O.S. 1081(c), the Defendants said, such blocking rights do
not exist in the case of a long-form merger, because a long-form merger requires only the

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approval of fifty percent plus one of the shareholders.58 See Tr. at 91:17-20 (DeMuro).
Nodding back in the direction of Nate Allen’s testimony, the Defendants then told the
Court that Allen’s deposition is important as an exemplar of the full information that all the
Plaintiffs had at the time of the merger.

See Tr. at 91:21-92:12 (DeMuro, Court).

The

Defendants argued that other Plaintiffs also were demonstrably fully informed, including
Reynolds -- who was an inside director in the company for years and was a member of the
special committee that was formed before the control acquisition -- and Stuart -- who had been a
member of TIR’s board for years and “knew . . . fully well about the IPO plans, the merger plans
before . . . the June bidding.” Tr. at 92:13-20 (DeMuro).
Treating the discussion about deposition testimony from Allen and others as more of a
parenthetical than as their argument’s main thrust, the Defendants then reverted to recounting the
unique characteristics that hallmark this case. See Tr. at 93:3-23 (DeMuro). As the Defendants
remembered it, the Cypress Energy Partners group met with the Stuart group in April, 2013, in
Stuart’s Connecticut home to discuss Cypress Energy Partners’ IPO plan. See Tr. at 93:3-6
(DeMuro). Cypress Energy Partners’ plan, as the Defendants described it, was to merge Cypress
Energy Partners’ saltwater disposal company with TIR’s pipeline inspection company, using the
merger to: (i) recapitalize TIR; and (ii) use TIR as a pass-through entity to go public through a
master limited partnership (“MLP”) -- a corporate form that were a “big deal” at the time in the

58

Later in the hearing, the Defendants indicated that 18 O.S. § 1081(c) requires “more
than 50 percent of the consent of the shareholders,” which the Defendants interpreted to mean at
least fifty-one percent of the shareholders. Tr. at 125:14-19 (DeMuro). The Court believes that
the Defendants simply made a mathematical error during their second reference to what “more
than 50 percent” means. An illustration should make this clear. Assume that a company has
1,000 shareholders. Fifty percent of that total is 500 shareholders, and fifty-one percent of that
total is 510 shareholders. If 501 shareholders are in favor of the merger, they make up more than
fifty percent of all shareholders even though they are only 50.1% of all shareholders, i.e., less
than fifty-one percent.
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energy sector. Tr. at 93:6-15 (DeMuro). The Defendants said that Cypress Energy Partners’
plan did not convince Stuart, and spawned a bidding contest for company control. See Tr. at
93:19-23 (DeMuro).
As the Defendants tell it, after the Cypress Energy Partners group won the bidding war
and gained the company’s control, it started to negotiate with Triangle Capital to try to acquire
their shares and to plan the IPO. See Tr. at 95:1-5 (DeMuro). The Defendants argued that, a few
months later on October 31, 2013, the tender notice was issued. See Tr. at 94:16-24; 95:5-7
(DeMuro, Court). The Defendants asserted that, at the time of the tender offer, the Plaintiffs
were attempting to negotiate a higher price for their shares than the $451,000. 00 per share price
offered to the pooled shareholders, based on their allegedly erroneous belief that they could
block the transaction. See Tr. at 95:8-24 (DeMuro). According to the Defendants, the Cypress
Energy Partners group went ahead with the tender offer, disclosing fully and completely the IPO
plans, what they intended to do with the merged entity’s shares, and that a registration statement
had been filed. See Tr. at 100:23-101:2 (DeMuro).
The Court interjected at that point to ask the Defendants how one could conclude that the
Plaintiffs were fully informed just because they received the tender offer. See Tr. at 101:16-21
(Court). The Defendants repeated its point that all information about the merger and IPO was
fully disclosed, and then continued to recite the merger’s history. See Tr. at 101:22-102:5
(DeMuro). According to the Defendants, after they sent out the tender offer, they filed an S-1 on
November 19, 2013 for Cypress Energy Partners, LP, detailing “in excruciating degree” the
plans to merge and the IPO. Tr. at 102:5-12 (DeMuro). Combined with the Plaintiffs’ history as
inside directors and the tender offer notice, the Defendants argued, the 600-page S-1 filing
proves beyond a shadow of a doubt that the Plaintiffs were fully informed about the merger and

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IPO plans. See Tr. at 102:13-20 (DeMuro).
Flipping back to Allen’s deposition testimony, the Defendants highlighted that Allen
said, after some deliberation and reflection, that he was not lacking any information he thought
he should have had at the time that he accepted the merger consideration about the merger or the
IPO plans. See Tr. at 103:1-105:10 (DeMuro). The Defendants also noted that Allen and
Reynolds in his deposition testimony acknowledge that there had been a competitive bidding
process between the two groups of shareholders, and that Allen had pegged $451,000.00 per
share as a fair price at the time of the purported bidding war. See Tr. at 105:12-107:22 (DeMuro,
Court). Under questioning, the Defendants insisted that these details are irrelevant, because it
reveals that the $451,000.00 per share offer price was a fair price that competing shareholder
groups had been bid up and selected. See Tr. at 107:23-108:13 (Court, DeMuro). According to
the Defendants, the Court can grant summary judgment for the Defendants on acquiescence
defense grounds in that Allen and Reynolds’ deposition testimony proves that $451,000.00 per
share exceeded the fair price -- as it built in a control premium -- at which a fully informed Stuart
group arrived.

See Tr. at 108:24-112:5 (DeMuro).

The Defendants further stated that

$451,000.00 per share remained within the range of fair value for the shares six months later
when the shareholders were cashed out at that price. See Tr. at 110:25-111:2 (DeMuro).
Spotlighting Allen’s deposition testimony from another angle, the Defendants then noted
that Allen had mentioned that he had not done an appraisal on the shares for reasons dealing with
tax advice and legal advice. See Tr. at 112:20-115:13 (DeMuro). Arguing that they have
discovered a dog that did not bark, the Defendants argue that Allen’s failure to assert that he
lacked sufficient information is proof that he had sufficient information. See Tr. at 113:1-6
(DeMuro).

Consequently, the Defendants said, the Plaintiffs’ disputation of their full

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knowledge, captured in their objection for the Defendants’ undisputed facts 41-51 from the
Response to Defendants’ Acquiescence MSJ, do not carry any water, and the Plaintiffs’ full
knowledge ought to be deemed undisputed. See Tr. at 115:14-118:10 (DeMuro). Putting a finer
point on it, the Defendants asserted that “this whole notion that they weren’t fully informed is a
bit of a hoax . . . .” Tr. at 119:5 (DeMuro).
After lunch, the Defendants gave the Court a short biographical sketch of each listed
Plaintiff and Defendant. See Tr. 122:11-125:4 (DeMuro). The Defendants then returned to the
pre-lunch discussion whether the Plaintiffs were fully possessed of the facts regarding the
merger. See Tr. at 125:24-126:4 (DeMuro). Referencing undisputed fact 6 from the Defendants’
Acquiescence MSJ, the Defendants noted that Stuart first prepared a proposal to acquire control
of TIR in February, 2013, that he named “Project Poirot.”59

Tr. at 126:5-21 (DeMuro).

According to the Defendants, Stuart offered to buy the pooled shareholder shares -- and the
shares of whomever else wished to sell to him -- at approximately $369,000.00 per share. See
Tr. at 126:21-24 (DeMuro). That same month, the Defendants said, Stuart purchased some
shares from Lorrett, who was one of the founding shareholders, for $275,000.00 per share. See
Tr. at 127:6-10 (DeMuro).60

The Defendants argued that R. Lorett then became the lead

spokesman -- along with his son, J.W. Lorett -- for the group of pooled shareholders who were
59

The Court asked the Defendants why Stuart had called the proposal by this name. See
Tr. at 126:25 (Court). The Defendants responded that they thought “it’s because he -- he has a
fascination or an affinity for the Agatha Christie novels and the detective in her novels whose
name is Poirot. I think that’s -- it had no other significance other than that as I recall from his
deposition.” Tr. at 127:1-5 (DeMuro). Cf. Agatha Christie, Hercule Poirot: The Complete Short
Stories (2013). The Plaintiffs have a different interpretation for why Stuart chose this proposal
title, as the Court notes in a separate footnote infra.
60

The Court asked the Defendants why Lorett would sell at a price lower than what Stuart
had offered to other shareholders. See Tr. at 127:12-13 (Court). The Defendants responded that
there was a prior agreement for Stuart to buy Lorett out at a certain price, and Lorett was
honoring that prior agreement. See Tr. at 127:14-18 (DeMuro).
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looking at them to negotiate with both the Stuart group and the Cypress Energy Partners group.
See Tr. at 128:1-7 (DeMuro).
Then referencing undisputed facts 8 and 9 from the Defendants’ Acquiescence MSJ, the
Defendants said that, from March to June, 2013, Field brought in Cypress Energy Partners and
Boylan, who was that firm’s principal. See Tr. at 128:8-13 (DeMuro). The Defendants asserted
that TIR was looking to recapitalize at that time, because some of its debt obligations were
coming due and the pooled TIR shareholders wanted liquidity, so “we had these underlying
events that were going on in the capital structure of the corporation.”
(DeMuro).

Tr. at 128: 13-18

From March to May, 2013, the Defendants contended, the Stuart group was

submitting their offers and then the Cypress Energy Partners group started to submit their offers,
which led to Stuart and Boylan competing for control of the company. See Tr. at 128:19-24
(DeMuro). According to the Defendants, there is no evidence to refute that this competition was
a bidding process, and the proof that it was competitive is that the Cypress Energy Partners
group wanted to possibly take the company into an MLP structure through an IPO. See Tr. at
128:25-129:14 (DeMuro). The Defendants indicated that the Cypress Energy Partners group
wished to convert to the new structure, because an MLP is taxed on a pass-through basis. See
Tr. at 129:16-130:2 (DeMuro).
In June, the Defendants maintained, the Stuart group and the Cypress Energy Partners
group submitted competing bids -- both bids with the same price of $451,000.00 per share. See
Tr. at 130:3-5 (DeMuro). The Defendants noted that, leading to the bidding process, TIR formed
a special committee to look at the $451,000.00 per share price. See Tr. at 130:3-7 (DeMuro).
According to the Defendants, both Reynolds and Foley were on that special committee, see Tr. at
130:7-10 (DeMuro), and counsel represented everyone during the bidding process, see Tr. at

- 100 -

130:11-14 (DeMuro). The Defendants also contended that, leading to the bidding process, there
was a gentlemen’s agreement between the Stuart group and the Cypress Energy Partners group
that the side that lost in the bidding war would sell its shares to the winning side at the winning
price. See Tr. at 130:15-22 (DeMuro). The two groups, the Defendants said, also drafted an
agreement that attempted to put that gentlemen’s agreement into writing, but that the draft
agreement was never signed. See Tr. at 130:23-131:6 (DeMuro).
Clarifying that they were walking the Court through all these facts as a way to build to
the relevant question whether the Plaintiffs were fully informed shareholders, the Defendants
noted that the Stuart group attempted to block the sale of the shares for a substantially higher
price instead of letting the winner-take-all deal come into effect. See Tr. at 131:25-132:10
(DeMuro). The Defendants brought the Court’s attention to a letter that Stuart wrote on all the
Plaintiffs’ behalf on September 30, 2013, just two and half months after he had been removed
from the TIR board. See Tr. at 132:11-16 (DeMuro). In that letter, the Defendants said, Stuart
used an EBITDA61 valuation methodology to arrive at an estimate of $20.26 million of projected
EBITDA by the end of 2013. See Tr. at 132:16-133:17 (DeMuro).
The Plaintiffs interjected at this point to object that the Stuart letter is a rule 408
settlement communication that is inadmissible and one which the Court should not rely for
61

EBITDA is an acronym standing for “earnings before interest, taxes, depreciation, and
amortization.” Benton Gup & Rawley Thomas, The Valuation Handbook: Valuation Techniques
from Today’s Top Practitioners 526 (2010)(“Gup and Thomas”). EBITDA became popular in
the mid-1980s among leveraged buyout sponsors and bankers to evaluate cash flow, and to
calculate multiples for companies in a near-bankruptcy state, on the theory that noncash
depreciation and amortization charges should be available to service debt if large-scale capital
expenditure programs would not be necessary for the foreseeable future. See Pamela Strup,
Moody’s Investors Service, Inc., Putting EBITDA in Perspective: 10 Critical Failings of
EBITDA as the Principal Determinant of Cash Flow (June 2000). During the dot-com bubble
era of the mid-1990s until the 2001 recession, EBITDA became a widely used profitability and
performance measure for most companies, and was used to calculate companies’ enterprise
value, because it is easy to understand and to calculate. See Gup and Thomas at 527-28.
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summary judgment.

See Tr. at 133:22-134:1 (Kagen).

The Defendants rejoined that the

Plaintiffs were trying to tactically get rid of anything that hurts them in any way. See Tr. at
134:4-6 (DeMuro). The Defendants clarified that the exhibit is the subject of a Plaintiffs’ motion
in limine, where -- as the Defendants characterize it -- the Plaintiffs “essentially . . . move in
limine to get any evidence out of the case of anything we ever did.” Tr. at 134:7-9 (DeMuro).
The Defendants contended that the letter had been an exhibit in almost every deposition
throughout the case, and that the Plaintiffs had not objected to the letter’s use on the deposition
trail or in the summary judgment papers as a settlement offer. See Tr. at 134:7-17 (DeMuro).
The Defendants asserted that it is clear that the letter is not a settlement offer, as it does not
reflect any of a settlement offer’s intricacies. See Tr. 134:15-17 (DeMuro). To the contrary, the
Defendants asserted, the Plaintiffs want to exclude the letter, because it shows that the Plaintiffs
already were sufficiently aware and informed by September, 2013, to be able to make projections
that TIR would grow to over twenty million dollars in EBITDA by the end of that year. See Tr.
at 134:18-22 (DeMuro). As the Defendants read the tea leaves, the Plaintiffs also do not want
the Court to see the letter, because the Plaintiffs want to be able to assert to a jury -- should the
case ever reach the trial stage -- that the shares’ fair price is $1.2 million per share. See Tr. at
134:22-135:5 (DeMuro).
Continuing with their chronology, the Defendants turned to the tender offer. See Tr. at
135:14-18 (DeMuro). The Defendants said that they decided to move forward with the merger
and to make a preceding tender offer on October 31, 2013, after the Stuart group attempted to
extract the higher share price in its letter. See Tr. at 135:19-136:7 (DeMuro). According to the
Defendants, Douglas Vaughn, Triangle Capital’s representative and a member of the TIR board,
voted to approve the tender price of $451,000.00 per share. See Tr. at 136:15-19 (DeMuro). The

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tender offer, the Defendants maintained, contained a “very accurate” discussion of the planned
merger, the MLP, the conflict of interest, and that the Cypress Energy Partners group purchased
other shareholders’ shares at prices from $437,000.00 per share to $451,000.00 per share. See
Tr. at 137:6-138: 5 (DeMuro). The Defendants further noted that the tender offer disclosed the
fact that the Cypress Energy Partners group had not gotten an appraisal from a third party. See
Tr. at 138: 10-12 (DeMuro). After all, the Defendants declaimed, TIR had just received an
appraisal from the Halifax Group,62 a national search firm, a few months earlier in December,
2012, and had just gone through a competitive bidding process where two inside directors were
bidding up the share price.

See Tr. at 138:12-19 (DeMuro).

The Court interjected,

acknowledging that the Defendants had at hand the price at which the market had valued TIR
shares a few months before the tender offer, but inquiring why the Defendants did not get
another appraisal done to get ready for the tender offer. See Tr. at 138:22-25 (DeMuro). The
Defendants asserted that: (i) they had not considered it necessary to have a second appraisal so
soon after the first appraisal; (ii) “the appraisal isn’t the sine qua non of value”; and (iii)
appraisers tell client companies whatever the companies want to hear. Tr. at 139:1-9 (DeMuro).
Continuing their argument’s main line, the Defendants recounted how every arm’s-length
transaction for shares in October, 2013, had resulted in a per-share price at or below
62

The Halifax Group describes itself as “a private investment firm dedicated to partnering
with founders and managers of lower middle-market businesses with total enterprise values
generally between $50 million and $250 million.”
The Halifax Group, About Us,
http://www.thehalifaxgroup.com/us/about-overview/ (last visited Apr. 22, 2017). The Halifax
Group’s primary areas of expertise are in three primary industry areas: Business Services, Health
and Wellness, and Infrastructure. See The Halifax Group, FAQs, http://www.thehalifaxgroup
.com/us/faqs/ (last visited Apr. 22, 2017). The Halifax Group’s current portfolio has included at
least one pipeline manufacturer -- PolyPipe, Inc. from February 2005 to April 2012 -- that
produces pipes for oil and gas production and natural gas distribution. See The Halifax Group,
Our Portfolio: PolyPipe, http://www .thehalifaxgroup.com/portfolio/polypipe/ (last visited Apr.
22, 2017).
- 103 -

$451,000.00. See Tr. at 139:10-21 (DeMuro). The Defendants contended that the Plaintiffs
quibble with this assertion on the basis that Triangle Capital had a gross-up provision. See Tr. at
139:22-23 (DeMuro). The Defendants seemed to characterize the gross-up provision as a future
option to retroactively receive a higher sale price if TIR had “to pay these disgruntled
shareholders anything more than” $451,000.00 per share for the latter group’s shares. Tr. at
139:24-140:3 (DeMuro).
Backtracking for a moment in their chronology, the Defendants said that TIR hired Duff
& Phelps Corp. (“Duff & Phelps”)63 to do a market search when TIR was considering a different
capital structure at the end of 2012. See Tr. at 140:6-8 (DeMuro). According to the Defendants,
Duff & Phelps solicited more than two-hundred potential offers to buy the company, and TIR
picked the best one -- from The Halifax Group -- at around $371,000.00 per share. See Tr. at
140:8-11 (DeMuro).

The Defendants asserted that they believed it would be a waste of

shareholder money -- to the tune of $300,000.00 -- to commission a second independent price
assessment so soon after the first assessment, especially when the bidding war had led to the
exact price per share in the tender offer. See Tr. at 140:14-22 (DeMuro).
The Defendants then pushed forward again in their timeline, noting that Cypress Energy
Partners then filed the S-1 registration statement, albeit confidentially. See Tr. at 140:23-141:5
(DeMuro). The Defendants asserted that the S-1 fully set forth their plans for the IPO, even
though the Plaintiffs had contended that it misled them by failing to disclose the share value that
63

Duff & Phelps describes itself as “the premier global valuation and corporate finance
advisor with expertise in complex valuation, disputes and investigations, M&A [mergers and
acquisitions], real estate, restructuring, and compliance and regulatory consulting.” Duff &
Phelps, About Us, http://www.duffandphelps.com/about-us/index (last visited Apr. 22, 2017).
Duff& Phelps says that it also “advise[s] the world’s leading standard setting bodies on valuation
issues and best practices,” leveraging more than two thousand professionals located in seventy
offices in twenty countries. Duff & Phelps, About Us, http://www.duffandphelps.com/aboutus/index (last visited Apr. 22, 2017).
- 104 -

ultimately would become part of the MLP. See Tr. at 141:6-16 (DeMuro). The Defendants
protested that, when the S-1 registration was published in October, 2013, the MLP shares’ value
was completely unknowable for two reasons: (i) markets price IPOs; and (ii) there were still
many intermediate steps where everything needed to fall into place before the IPO, e.g., getting a
roadshow, lining up investors, and obtaining United States Securities and Exchange Commission
(“SEC”) approval. See Tr. at 141:17-142:6 (DeMuro).
In November, 2013, the Defendants said, the Plaintiffs bound themselves together to
reject any share price offer below $654,000.00 per share, on the belief that they had sufficient
shares to block the merger. See Tr. at 142:18-22 (DeMuro). The Defendants interpreted this
pact as proof that the Plaintiffs were “as fully informed as they needed or wanted to be because
all they did was look at the price, and if [it is not $654,000.00 per share,] I don’t care what’s in
the tender notice, I don’t care what’s in the S-1.”

Tr. at 143:14-144:11 (DeMuro).

Not

convinced on this last point, the Court indicated that it was wary to suppose that “the minute
somebody makes an offer, they’re no longer interested in the truth.” Tr. at 145:18-23 (Court).
The Defendants seemed to hem in their response, before indicating to the Court that they
understood its point but did not think that the point implicates whether the Stuart group
shareholders were as fully informed as they thought they needed to be. See Tr. at 145:24-148:1
(Court, DeMuro).
The Defendants, continuing along their timeline, began to observe that their S-1 was
made public on November 13, 2013. See Tr. at 148:2-4 (DeMuro). The Court interjected,
however, noting that reliance is a big issue in securities law, and asking the Defendants whether
there needs to be reliance as the Defendants read Bershad’s take on fully informed shareholders.
See Tr. at 150:17-21 (Court). The Defendants indicated that Bershad was a fiduciary duty case

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and that -- even though reliance is not technically one of fiduciary duty’s listed elements -reliance plays a part in causation in fiduciary duty: “I mean, you can’t just make abstract
breaches that aren’t causally related to the harm so I think reliance plays a part.” Tr. at 150:22151:2 (DeMuro). Getting at the same issue from another angle, the Court then proposed a
scenario in which TIR had prospected out what it thought in June, 2013, would be a good well,
but that it became a gusher after Stuart was ousted from the TIR board. See Tr. at 151:10-24
(Court, DeMuro). The Court asked the Defendants whether the mere fact that Stuart, in this
example, would know about the well -- but not the change in its expected output -- still make
him and the rest of the Stuart group fully informed shareholders. See Tr. at 151:10-16 (Court).
The Defendants argued that the Stuart group still would be fully informed, as (i) the underlying
geology of a place is known before a company begins to drill, leading to some approximate
guess of its reserves’ size; and (ii) wells do not get drilled overnight. See Tr. at 151:25-152:10
(Court).
The Plaintiffs interrupted, indicating that they are not contesting that they were fullyinformed shareholders and that the Defendants’ prolonged discussion about the issue was
entirely irrelevant: “[W]e’re going to say if fully informed is the issue, we’re not contesting it.
So none of this has any bearing at all on anything that’s at issue today. I understand [the
Defendants want] to go great length on it and we’ve heard lots about it but it’s irrelevant.” Tr. at
158:7-159:8 (Kagen). The Plaintiffs then cabined this concession, saying that it did not apply to
the pooled shareholders on the forced seller theory.

See Tr. at 159:23-25 (Kagen).

The

Defendants’ counsel closed his notebook at that point, leading the Court to surmise that the
Plaintiffs had given the Defendants what they wanted. See Tr. at 159:19-20 (Court). The
Defendants confirmed that they believed the Plaintiffs’ stance to be “wonderful news” that

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“shortened things up.” Tr. at 160:5-15 (DeMuro). According to the Defendants, because the
Defendants conceded that they were fully informed minority shareholders at the time that they
accepted the merger consideration, the only inquiry for the Court is whether the Bershad rule, as
In re Celera Corp. perpetuated it, still is the law. See Tr. at 160:16-21 (DeMuro).
Bringing the discussion home by using this new concession to recolor its previous
arguments about Bershad, the Defendants said that no Delaware Court of Chancery case suggests
that there should be a carve out to the Bershad rule. See Tr. at 160:22-25 (DeMuro). The
Defendants speculated that no Delaware Court of Chancery -- even under now-Justice Strine -would have hesitated to apply the Bershad rule if there had been an admission that the minority
shareholders were fully informed at the time of the merger transaction. See Tr. at 161:1-9
(DeMuro). The Defendants end with that thought, noting that the admission of full information
was one for which the Defendants had been fighting, had spent hundreds of thousands of dollars
getting, and knew all along is case dispositive. See Tr. at 161:10-166:7 (DeMuro).
The Court then allowed the Plaintiffs another chance to speak to the foregoing issues,
asking them first to concentrate on what the boundaries are inside which a court should apply
Bershad’s plain language. See Tr. at 166:11-167:5 (Court, Kagen). The Plaintiffs submitted to
the Court that the answer to that question lies in In re Celera Corp. See Tr. at 167:6-9 (Kagen).
The Plaintiffs reminded the Court that In re Celera Corp. started in the Delaware Court of
Chancery and that the Supreme Court of Delaware affirmed the Delaware Court of Chancery in
pertinent part. See Tr. at 167:9-16 (Kagen). The Plaintiffs directed the Court’s attention to one
specific passage in In re Celera Corp., in which then-Vice Chancellor Donald F. Parsons wrote
that “the mere act of tendering one’s shares while simultaneously pursuing an equitable claim is
not sufficient to show acquiescence.”

Tr. at 168:11-19 (Kagen)(internal quotation marks

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removed). The Plaintiffs then pointed the Court to footnote 44 in In re Celera Corp., in which
then-Vice Chancellor Parsons cited In Re Best Lock. See Tr. at 168:22-24 (Kagen). According
to the Plaintiffs, the In re Celera Corp. court also cited In re Best Lock in footnote 38, where the
Delaware Court of Chancery found that a shareholder’s acceptance of freeze-out merger
consideration did not operate as acquiescence, because, in part, the plaintiff did no more than
accept the amount about which she was powerless to do anything. See Tr. at 170:5-9 (Kagen).
Drawing an analogy to the case before the Court, the Plaintiffs indicated that they likewise took
no voluntary act and did not even make the decision about the merger consideration: “All we did
. . . is what Celera itself says is not acquiescence; we just took the cash.” Tr. at 170:12-15
(Kagen). For the Plaintiffs to have acquiesced under In re Celera Corp., the Plaintiffs said, they
would have needed to take an affirmative action such as voting in the merger’s favor,
participating in the merger discussions, sitting on the board of directors, participating in a
shareholder vote, or taking some other meaningful role where they have a say in the merger and
could affect its outcome. See Tr. at 171:12-19 (Kagen).
The Plaintiffs asserted that the Defendants get close to grasping this point, but then
misconstrue the requirement as fully informed consent, which the Plaintiffs contended is off
point. See Tr. at 172:19-20 (Kagen). According to the Plaintiffs, informed disclosure implies
some decision that is voluntary and that has a reliance causation effect. See Tr. at 172:20-23
(Kagen). The Plaintiffs contended that acquiescence -- and waiver, which the Plaintiffs asserted
are synonyms for acquiescence in this case -- requires a clear relinquishment of a known right,
and that acquiescence therefore cannot by committed by inaction. See Tr. at 172:25-173:6
(Kagen). As another synonym of acquiescence in this case, the Plaintiffs purported, estoppel
requires detrimental reliance, and there was no detrimental reliance in this case. See Tr. at

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173:7-11 (Kagen). According to the Plaintiffs, no Delaware Court of Chancery has held that
acquiescence arises where there is nothing but a victim.

See Tr. at 173:12-16 (Kagen).

Contrariwise, the Plaintiffs asserted, the Plaintiffs in this case are just victims,
who took no action, who had no choice, certainly no meaningful choice, who
w[ere] merely the victim of a cash-out, and received a notice. The notice on
December 9th, [which] said that you shares are canceled, your rights are
dissolved, if you want your check, just send us your canceled certificates.
Tr. at 173:17-22 (Kagen). The Plaintiffs contended that the Defendants had to pay the merger
consideration regardless what the Plaintiffs did. See Tr. at 173:23-24 (Kagen).
Turning to explain why they dropped their claims related to whether they had been fully
informed shareholders, the Plaintiffs indicated that the question of full information only arises in
cases where the minority shareholders took some action or had a role in the merger process. See
Tr. at 174:14-175:6 (Kagen).

The Plaintiffs argued that, in cases where the minority

shareholders do not have a role or a say in the merger process, as they maintain happened in the
merger transaction underlying this case, this basic threshold is not met and, accordingly, the
question of full information is irrelevant. See Tr. at 174:14-177:23 (Kagen).
After a short break, the Court permitted the Plaintiffs to continue their argument. See Tr.
at 177:24-178:5 (Court, Kagen). The Plaintiffs verbally provided the Court with an outline for
how they would structure their points. See Tr. at 178:6-9 (Kagen). First, the Plaintiffs said, they
wanted to talk a little more about the law, what acquiesce is and what it is not. See Tr. at 178:1011 (Kagen). Second, the Plaintiffs foreshadowed, they wanted to talk about the facts of this
matter so the Court could get an overall picture of them. See Tr. at 178:12-20 (Kagen). Third,
the Plaintiffs adumbrated, they wanted to talk about this hearing’s procedure. See Tr. at 178:21179:1 (Kagen). Fourth, the Plaintiffs telegraphed, they wanted to talk about the securities claim
that they have in this case, because the Defendants also had moved for summary judgment on
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that issue. See Tr. at 179:2-6 (Kagen). The Defendants immediately objected that the Plaintiffs
were hijacking the Defendants’ Estoppel MSJ, advising that the Court and the parties tackle one
issue at a time, sticking with the acquiescence defense at that point. See Tr. at 179:8-11
(DeMuro). The Court acknowledged the objection but noted that the Defendants themselves had
floated freely among the eight claims during the hearing and that it would listen to what the
Plaintiffs had to say on their projected fourth point. See Tr. at 179:12-14 (Court).
The Plaintiffs began their discussion on the first point -- about the law regarding
acquiescence -- by noting that in In re PNB Holding Company, then-Vice Chancellor Strine held
that acquiescence -- based on mere transactional acceptance of merger consideration in a freezeout merger where the party taking the money played no role and took no act -- is not enough.
See Tr. at 180:15-25 (Kagen). Seguing prematurely64 from there into their second point -- on the
case’s facts -- the Defendants reported that the Defendants had dissolved TIR on December 9,
2013, and merged it into another company without a shareholder meeting or even notifying the
Plaintiffs in advance. See Tr. at 181:7-13 (Kagen). The Plaintiffs asserted that, pursuant to
Oklahoma statute, the Defendants were required to fix and pay merger consideration, meaning
that the payment cannot be imputed to the Plaintiffs as an action on their part. See Tr. at 181:23182:2 (Kagen). Making three quick observations on other legal issues before wrapping up this
section, the Plaintiffs also noted that: (i) for the purposes of entire fairness, the only actions that
matter are those that were undertaken at the time of the merger, and not any actions that
happened beforehand; (ii) Delaware allows insiders to complain about a merger transaction
despite their status as insiders; and (iii) the Defendants could have satisfied the entire fairness
64

The Court uses this adverb in its positive rather than its normative sense, because the
Plaintiffs began talking about the case’s facts before they should have if they had been following
their advertised structure, zigzagging for a brief time period between their first and second
points.
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requirement for the merger transaction if they had constituted a special committee of
disinterested directors to review the merger or had obtained an independent fairness opinion at
the time of the merger. See Tr. at 182:9-187:3 (Kagen).
Moving to their second point, the Plaintiffs began with a jab to the Defendants, saying
that they had objected to the Defendants’ factual discussion, because the facts which the
Defendants had adduced were irrelevant.

See Tr. at 187:11-12 (Kagen).

The Defendants

therefore began to outline their version of the relevant facts. See Tr. at 188:1-3 (Kagen).
According to the Plaintiffs, the company at hand was a company called Tulsa Inspection
Resources (“TIR”), a pipeline inspection company. See Tr. at 188:4-9 (Kagen). The Defendants
reported that TIR hired pipeline inspectors, possessing no assets but charging a fee to inspect
pipelines. See Tr. at 188:11-15 (Kagen). The recent boom in fracking, the Plaintiffs asserted,
had resulted in a corresponding boom in the general construction of pipelines nationwide. See
Tr. at 188:16-20 (Kagen). The Plaintiffs contended that the pipelines need to be inspected
constantly and rigorously for structural integrity. See Tr. at 188:21-25 (Kagen). TIR, the
Plaintiffs maintained, had a virtually monopoly supply in the niche field of pipeline inspectors,
leading to enormous business success. See Tr. at 189:1-7 (Kagen). Fortuitously, the Plaintiffs
continued, the United States Department of Energy (“DOE”) put into place stringent new safety
controls and protocols at the same time as the fracking boom in response to pipeline explosions.
Tr. at 189:8-15 (Kagen). According to the Plaintiffs, the new DOE regulations were so onerous - and required such constant pipeline inspection -- that they may as well have been giftwrapped
for TIR; TIR became “a phenomenal -- a phenomenal -- success.” Tr. at 189:16-190:6 (Kagen).
In 2012, as the Plaintiffs read TIR’s financials, company revenue and earnings in 2012 exceeded
revenue and earnings from 2011 by sixty percent.

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See Tr. at 190:14-17 (Kagen).

Some

shareholders other than the Plaintiffs wanted to cash out already in 2012, the Plaintiffs said, but
ultimately TIR was not sold at that time. See Tr. at 190:17-24 (Kagen).
In 2013, the Plaintiffs remembered, they put forth Project Poirot.65 See Tr. at 190:25191:2 (Kagen). Every month that year, the Plaintiffs asserted, TIR’s profits were “blowing past
how it had done in the past.” Tr. at 191:22-24 (Kagen). The Plaintiffs were removed from the
board in July, 2013, so they did not see financials for August through December, 2013, until
discovery, but the Plaintiffs maintained that phenomenal profit growth continued throughout that
time period as well. See Tr. at 192:2-14 (Kagen).
As the Plaintiffs recounted it, the merger was one of unequal partners: TIR, the
terrifically successful pipeline inspection company, with Cypress Energy Partners, a very
unprofitable company that supplied water for fracking operations. See Tr. at 192:25-193:8
(Kagen).

The reason that the Cypress Energy Partners group wanted to merge the two

companies, the Plaintiffs alleged, was that Cypress Energy Partners has insufficient qualifying
income to qualify for the tax-advantaged MLP structure and Cypress Energy Partners needed a
cash cow to meet the IRS income requirements. See Tr. at 193:8-17 (Kagen). Stuart, the
Plaintiffs said, did not want TIR to be merged with a mediocre, or even substandard and inferior,
company such as Cypress Energy Partners, thereby chaining a racehorse to a donkey. See Tr. at
196:22-197:3 (Kagen). Switching metaphors, the Plaintiffs parenthetically explained that the
Plaintiffs’ assertions that the merged company’s unprofitability since the merger is an oblique

65

The Defendants earlier had speculated, in response to the Court’s inquiry, that Stuart
had christened the plan “Project Poirot” on the basis of his “affinity for the Agatha Christie
novels . . . .” Tr. at 127:2-3 (DeMuro). The Plaintiffs advertised that Stuart had put more
thought into the title. See Tr. at 191:5-6 (Kagen). Hercule Poirot, the Plaintiffs noted, is an
inspector in Agatha Christie’s novels. See Tr. at 191:5-6 (Kagen). The Plaintiffs thought, they
reminisced, that it “was a nice touch to indicate how successful this business was” by referring
“to ‘Project Poirot.’ It was an inspection company.” Tr. at 7-9 (Kagen).
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way to get to the same point: that Stuart was correct that the “shotgun marriage” between TIR
and Cypress Energy Partners would dampen TIR’s core business profits.

Tr. at 197:4-12

(Kagen).
According to the Plaintiffs, they were kept in the dark from July to December, 2013,
about TIR’s continued levels of profitability even us the Defendants had ready access to TIR’s
financials. See Tr. at 197:13-17 (Kagen). The Plaintiffs asserted that TIR was projecting that its
shares would be worth $1,436,000.00 each by 2017. See Tr. at 197:17-201:9 (Kagen). The
pooled shareholders sold their shares in June, 2013, however, for $451,000.00 per share. See Tr.
at 201:21-203:14 (Kagen). Based on the pooled shareholders’ testimony, the Plaintiffs asserted
that the pooled shareholders had sold at such a low price, because (i) they needed liquidity; and
(ii) none of them knew what TIR’s financials were or what TIR’s plans for an IPO were. See Tr.
at 203:15-23 (Kagen). A few of the pooled shareholders, the Plaintiffs noted, sold their shares at
$451,000.00 per share only after TIR signed long-term agreements with them in which these
shareholders were paid substantial amounts of money. See Tr. at 204:2-13 (Kagen). Once the
pooled shareholders had sold their shares, the Plaintiffs asserted, the Defendants had control over
more than fifty percent of TIR shares and, consequently, had the ability to enact the freeze-out
merger. See Tr. at 204:23-25 (Kagen).
The Defendants and the Plaintiffs then engaged in an extended back and forth whether
the Plaintiffs’ table of undisputed facts -- which it had handed to the Court earlier that day -correctly re-characterized Plaintiffs’ objections to facts as “immaterial” or “irrelevant” as
meaning that those facts were deemed undisputed, Tr. at 208:10-215:4 (Kagen, DeMuro, Court).
The Plaintiffs believed the re-characterization to be inaccurate, e.g., the Plaintiffs asserted that
they dispute that they agreed to sell their shares to the Defendants if the Plaintiffs lost the share

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bidding war. See Tr. at 215:5-12 (Kagen). The Plaintiffs asserted that, rather than there being
such an agreement, the Defendants refused to sign onto such an agreement, on the grounds that
the agreement could not work without Triangle Capital signing it as well. See Tr. at 216:3217:11 (Kagen). According to the Plaintiffs, the Defendants are being “dishonest” when they
assert that their undisputed fact on this matter is “deemed admitted” on the grounds that the
Plaintiffs do not dispute it, because the Plaintiffs have five pieces of evidence disputing it. Tr. at
217:12-218:2 (Kagen). The Plaintiffs lamented that they dislike such dishonesty and entreated
the Court not to put any stock in the Defendants’ table of undisputed facts. See Tr. at 218:3219:12 (Kagen).
The jeremiad against the Defendants’ purported dishonesty seemed to trigger a memory
for the Plaintiffs, who then cited the Defendants assertion that Triangle Capital sold its shares for
$451,000.00 per share as one example of such dishonesty. See Tr. at 220:23-221:4 (Kagen).
According to the Plaintiffs, the mezzanine lenders were a consortium of entities that Triangle
Capital mostly ran. See Tr. at 221:5-6 (Kagen). The Plaintiffs asserted that those mezzanine
lenders had two categories of equity: shares and warrants. See Tr. at 221:11-12 (Kagen). As the
Plaintiffs described the latter, warrants have the ability to be turned into shares on a one-to-one
basis, and the mezzanine lenders’ warrants also had the right to be used to block self-interested
transactions. See Tr. at 221:12-15 (Kagen). The Plaintiffs maintained that this second right -- to
block self-interested transactions -- forced the Defendants’ hand, because “the defendants
realized that they couldn’t continue with their scheme to expropriate this business away from
[the Plaintiffs] unless they got the mezzanine lenders to sign off.” Tr. at 221:16-18 (Kagen).
Accordingly, as the Plaintiffs told it, the Defendants offered the mezzanine lenders $650,000.00
per share for their warrants but only $451,000.00 per share for their shares. See Tr. at 221:20-21

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(Kagen). The Plaintiffs asserted that at least some of the mezzanine lenders considered the share
price to be too low, but that they had accepted the price on four grounds: (i) it was a group deal;
(ii) these mezzanine lenders felt that the $650,000.00 per warrant that they received compensated
somewhat for the purported underpriced shares; (iii) the Defendants threatened to sue one of the
resisting mezzanine lenders -- who also was a board member -- for breach of fiduciary duty if he
failed to sign off on the deal; and (iv) the deal with the mezzanine lenders provided a prospective
gross-up option. See Tr. at 221:22-223:7 (Kagen). The Plaintiffs then accused the Defendants of
having shrouded the deal’s particulars from the Stuart group’s eyes, writing into the terms that
“nobody can mention it to Mr. Stuart . . . .” Tr. at 223:8-11 (Kagen). According to the Plaintiffs,
when the board member cum mezzanine lender, Vaughn, indicated that he would tell Stuart
about the deal, because he was worried that the minority shareholders were getting frozen out
and mistreated, Boylan threatened him with suit and dereliction of his board duties. See Tr. at
223:11-18 (Kagen).
The Plaintiffs maintained that they attempted to compromise their claims after they were
ousted from the board in June. See Tr. at 224:5-6 (Kagen). The Plaintiffs argued that those were
settlement discussions inadmissible as testimony -- discussions in which the Plaintiffs engaged -because they did not want to have to sue a company on whose board they recently had served.
See Tr. at 225:1-229:4 (Kagen). According to the Plaintiffs, the Defendants knowingly use
inadmissible material and then have the gall to try to secure summary judgment based on it. See
Tr. at 228:7-12 (Kagen). The Plaintiffs further asserted that the Defendants then double down on
their deceit by mischaracterizing the Plaintiffs as persons dashing to a jury for relief. See Tr. at
228:12-16 (Kagen). According to the Plaintiffs, the Letter from Akin Gump to Richard M.
Carson, Vice President and General Counsel of Cypress Energy Partners -- TIR, LLC, Nov. 26,

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2013, filed April 3, 2015 (Doc. 83-25)(“Akin Gump letter”), also is related to settlement
negotiations and therefore is inadmissible. See Tr. at 229:5-231:18 (Kagen). If one combines
the two documents, the Plaintiffs contended, they show that:
We wanted to settle. We were willing to be reasonable. We understood the risks
of litigation, the concerns, the combative nature of these entities. . . . We know
who we were getting into bed with here. We understood what they were going to
be doing. We wanted to settle. We weren’t given that opportunity. We were
shown the door and thrown out in the cold.
Tr. at 231:20-232:10.
Wrapping this section of their arguments -- the section on the facts -- the Plaintiffs
adduced a letter from John O’Connor, TIR’s general counsel in May, 2013, in which O’Connor,
according to the Plaintiffs, specifically advised the board that the entire fairness standard (i)
would apply to the merger transaction under Delaware law; and (ii) has two components: fair
dealing and fair price. See Tr. at 232:20-234:7 (Kagen). The Plaintiffs maintained, therefore,
that TIR knew the legal standard long before the Plaintiffs filed suit, but that they “just chose to
ignore it.” Tr. at 234:8-10 (Kagen). The Plaintiffs then noted that the only securities claim that
they bring against the Defendants is based on the following position:
The third parties who sold, the pooled shareholders, we did not drop disclosure
duties for them. I said we’re not arguing for us but we are for them. The pooled
shareholders who sold were not told of an IPO. They did not receive the tender in
the merger, and the reason they didn’t is because they sold in . . . June 26th, they
sold a month earlier, so they didn’t get it in those disclosures.
When they sold in June, they weren’t looking to be cashed out. I told Your Honor
most of them said that liquidity was their primary reason for the sale. Defendants
did not tell them of the projections that they had, which was their special
knowledge that they had a dut[y] to disclose as directors. They didn’t tell them.
Defendants didn’t tell them about an IPO.
Tr. at 242:10-22 (Kagen). The Plaintiffs asserted that they have proof in the form of statements
that TIR made to the pooled shareholders in which TIR did not inform the pooled shareholders of

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internal value projections. See Tr. at 243:8-14 (Kagen). The Plaintiffs therefore characterized
the statements as misstatements -- misstatements that caused the Plaintiffs harm when they
induced the pooled shareholders to sell their shares and thereby allow the Cypress Energy
Partners group to obtain the majority of shares needed to orchestrate a freeze-out merger. See
Tr. at 243:14-17 (Kagen).
After the Court took a break to help reduce the risk of the court reporter developing
rapid-onset carpal tunnel and working out the second day’s schedule with the parties, the Court
reminded the parties that there are many motions to argue and that they should be mindful of
their use of time if they wanted to fully argue any of them before the Court had to return to
Albuquerque, New Mexico. See Tr. at 243:19-247:12 (Court). The Court then permitted the
Plaintiffs to continue with their argument. See Tr. at 247:13-14 (Court). The Plaintiffs returned
to their argument that the Defendants could not have qualified for a freeze-out merger had they
not acquired the pooled shareholders’ shares and thereby gained a majority of TIR shares. See
Tr. at 250:23-251:2 (Kagen). This argument means that the Plaintiffs suffered harm as a result of
the Defendants’ alleged misstatements to the pooled shareholders. See Tr. at 251:2-25 (Kagen).
The Plaintiffs termed this harm as one that arose under the forced-seller doctrine, which the
Plaintiffs asserted is equivalent to the damage provisions of the state law claims under Delaware
of Oklahoma law. See Tr. at 252:5-8 (Kagen). The Plaintiffs then reasserted that this forced
seller theory is the extent of their securities claims; the issue of disclosure, according to the
Plaintiffs, is outside the scope of and unrelated to their claim. See Tr. at 252:16-22 (Kagen).
Breaking from the argument structure that they had signposted during the hearing earlier
that afternoon, the Plaintiffs then indicated that the last issue that they wished to address was the
proper share valuation. See Tr. at 252:23-24 (Kagen). The Plaintiffs first recapitulated on what

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they allege the Defendants to have focused: the price at which other shareholders willingly sold
their shares. See Tr. at 252:24-25 (Kagen). According to the Plaintiffs, these sales are not the
relevant criterion. See Tr. at 253:1 (Kagen). Under clear Delaware law, the Plaintiffs contended,
the one method of share valuation that is allowed requires the shares to be priced with a
discounted cash flow method on the date that unwilling minority shareholders were forcibly
removed. See Tr. at 253:2-7 (Kagen). The Plaintiffs asserted that Delaware requires the DCF
model,66 because it looks at the company’s future earning value in a systematic and methodical
way, and then discounts that value to net present value, discounting for money’s time value and
capital’s weighted average cost. See Tr. at 253:8-254:3 (Kagen). The DCF analysis, which, the
Plaintiffs maintained, is based on known and knowable data from the valuation date, and based
on what people knew at the time, results in a TIR share value of $1.2 million per share. See Tr.
at 254:10-16 (Kagen). Acknowledging that the $1.2 million per share figure is much higher than
other figures that the Court had seen in the briefing and heard to that point during the hearing,
the Plaintiffs noted that the reason that the number does not match any other prior number is that
nobody did a DCF analysis before. See Tr. at 254:19-255:24 (Kagen).
The Plaintiffs having completed their argument, the Court allowed the Defendants to
have the last word on their motion for summary judgment on acquiescence. See Tr. at 257:1-2
(Court). The Defendants’ counsel told the Court that he felt uncannily like the protagonist in My
Cousin Vinny, feeling that he could stand and say that everything the Plaintiffs had just told the

66

Discounted cash flow (“DCF”) refers to a basket of related valuation approaches of
greater or lesser complexity that calculate value using the four factors of (i) investments; (ii) cash
flows; (iii) assets’ economic life; and (iv) the cost of capital. See Daniela Venanzi, Financial
Performance Measures and Value Creation: The State of the Art 1-15 (Springer Briefs in
Business 2012).
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Court is hogwash.67

See Tr. at 257:3-14 (DeMuro).

Resisting the temptation to be so

reductionist, the Defendants’ counsel said that he would stick with the Court’s question with
respect to the Bershad motion. See Tr. at 257:15-17 (DeMuro). According to the Defendants,
the Plaintiffs never answered the Court’s question what is left of Bershad if the Delaware Courts
of Chancery have modified or cabined it. See Tr. at 257:18-22 (DeMuro). Referring to the way
that the Defendants read the case in the context of the Plaintiffs’ proposed standard, the
Defendants argued that nothing at all remains of the Bershad rule if the Court adopts the
Plaintiffs’ interpretation of Bershad and subsequent Delaware Court of Chancery opinions. See
Tr. at 257:22-258:24 (DeMuro).
The Defendants then said that, under Bershad, an informed shareholder who either votes
or accepts the merger consideration, the Supreme Court of Delaware has equated those acts as
affirmative action and that the shareholder cannot subsequently attack the merger price’s
fairness. See Tr. at 259:7-12 (DeMuro). The Court pushed back on this point, suggesting that
the verb “accept” is an active verb, and so a person who is not either voting in favor of or
voluntarily accepting the benefits does not really have a choice. See Tr. at 259:19-24 (DeMuro).
The Defendants, referring to In re Celera Corp., noted that the Supreme Court of Delaware had
not narrowed Bershad in such a way, observing that Westlaw headnote 7 in In re Celera Corp.
did not limit Bershad to situations where there is something more than merger consideration.
See Tr. at 261:20-262:1 (DeMuro). The Defendants saw this alleged decision not to limit
Bershad as probative, as the In re Celera Corp. court had a full opportunity to clarify Bershad but
only applied a two-step rule: if you accept the consideration or vote for the merger. See Tr. at

67

The Plaintiffs appear to have been referring to My Cousin Vinny at 1:15:40-1:15:48
(Palo Vista Productions & Peter V. Miller Investment Corp. 1992)(“Everything that guy just said
is [hogwash]. Thank you.”).
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262-6-9 (DeMuro). The Defendants said that, not only did the In re Celera Corp. court not
expressly overrule Bershad, but that the court did not even narrow Bershad. See Tr. at 263:12264:9 (DeMuro). The court in Kaul, the Defendants maintained, also faithfully applied Bershad
as a district court sitting in diversity. See Tr. at 263:16-28 (DeMuro). The Defendants then
rhetorically asked in which case the Supreme Court of Delaware limited Bershad in the manner
in which the Plaintiffs suggest, so that Bershad applies only if the shareholder does more than
accept, namely both accept and vote. See Tr. at 264:20-25 (DeMuro). The Defendants wrapped
their argument by recommending that, rather than attempting to divine how the Delaware Courts
of Chancery have changed Bershad’s contours, the Court would be on steadier ground by
looking In re Celera Corp.’s plain language. See Tr. at 265:8-11 (DeMuro).
Drawing the day’s hearing to a close, the Court gave the parties insight into its
inclinations how it intended to rule on the motion for summary judgment on acquiescence. See
Tr. at 266:5-6 (DeMuro). The Court indicated:
I think that Mr. Kagen’s version of what Delaware law is [is] closer to it than
what the Defendants are, but I’ll take a hard look at that.
It doesn’t seem to me that there are any factual issues here. I know that you are
arguing around the edges, and I’ll have to sort that out. In doing so, maybe I’ll
give you some 408 rulings as to whether I think some of this evidence can come
in or not. So I’ll be -- but I don’t think there’s any factual issues that are going to
keep me from reaching a legal conclusion on this, and we’ve already had pretty
much an agreement that the Plaintiffs are not arguing that they’re not fully
informed.
I’m a little -- trying to figure out exactly how the securities claim fits in to this,
but I think that it’s unlikely I’m going to find that there’s a securities claim here.
I’m familiar enough with Vine in the Ninth Circuit, Seventh Circuit, the Fifth
Circuit, and also the Tenth Circuit opinions on this, that I don’t think in 2016 that
either I or the Tenth Circuit will expand 10b-5 to include this doctrine. I will take
a hard look at the cases that have been cited, but I do think that the trend had not
been favorable to Vine, even though it’s still controlling law in the Second Circuit
and I understand why.

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But the cases from the Fifth and from the Ninth, I believe the oldest one -- or the
newest, youngest one is 1995. I think the Seventh Circuit case is probably a more
accurate reflection of where 10b-5 law has developed, so I’m unlikely to find that
that claim exists. I’m not sure how to -- whether that will really be necessary to
say that in this motion but it’s likely the end result.
So I’m inclined to deny this motion, but I probably will say a few things along the
way on some of these issues along the lines that I’ve said.
Tr. 266:7-267:13 (Court).
The Defendants asked for permission to respond briefly to what the Court had just said.
See Tr. at 267:15 (DeMuro). The Court granted this permission. See Tr. at 267:16 (Court). The
Defendants then said that they never had a chance to respond to the rule 408 issue. See Tr. at
267:17-18 (DeMuro). As the Defendants saw the issue, the rule 408 issue is “completely
misplaced,” as the Plaintiffs never objected to the letters when the Defendants filed their motion
for summary judgment on acquiescence. Tr. at 267:18-20 (DeMuro). The Plaintiffs insisted that
the proper procedure for the Plaintiffs to follow would have been to move to strike, which the
Defendants insisted the Plaintiffs had not done.

See Tr. at 267:20-21 (DeMuro). As the

Defendants reported the timeline, the Plaintiffs waited for months before filing the motions in
limine. See Tr. at 267:21-23 (DeMuro). The Defendants asserted that the rule 408 issue was not
framed as part of the motion for summary on acquiescence and that, consequently, it would be
improper for the Court to entertain that issue as part of the motion. See Tr. at 268:4-6 (DeMuro).
The Court responded that, “since I can’t consider on summary judgment things that are not
admissible at trial, I think I’m going to have to tackle the issue.” Tr. at 268:12-14 (Court). The
first day of hearings thus concluded. See Tr. at 270:1.
The Court held a second day of hearings on December 28, 2016. See Transcript of
Motion Hearing Before the Honorable James O. Browning United States Judge (taken December
28, 2016), filed January 23, 2017 (Doc. 250)(“Tr.”). After working with the parties to schedule a
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trial date, the Court invited the parties to begin discussing the Defendants’ second motion for
summary judgment. See Tr. at 274:3-282:21 (Court, DeMuro, Kagen). The Plaintiffs first asked
the Court for permission to ask a question before the Defendants presented their argument, and
the Court granted them permission.

See Tr. at 283:10-13 (Kagen, Court).

The Plaintiffs

contended that the Defendants’ second motion for summary judgment is a repetitive motion, and
they requested that the Defendants and Court therefore, for the purpose of efficiency, also deal
with the rule 12(f) motion to strike, as the same issues underlie both motions. See Tr. at 283:14284:1 (Kagen). The Court asked the Defendants whether they objected to the change, and the
Defendants indicated that they objected, saying that they preferred that the parties address the
motions one at a time. See Tr. at 284:2-12 (Court, DeMuro). The Court decided to allow the
Defendants to put on their motions the way that they wanted. See Tr. at 284:13-15 (Court).
As a preliminary, the Court told the parties what its initial thoughts were with regard to
the rule 408 issue. After reading the briefs, the Court divulged: “I’m inclined to agree with the
Plaintiff on the Akin Gump letter, but my thoughts were on the triangular -- or Triangle
mezzanine consideration I would not exclude it. So after looking at that 408, that was my initial
tentative reaction to that material.” Tr. at 286:4-8 (Court). The Defendants reiterated their belief
that there is not a rule 408 issue, because rule 408 was never meant to reach business
negotiations, even as to price, and consequently that the letters do not constitute a settlement
offer or a compromise of a disputed claim. See Tr. at 287:9-288:14 (DeMuro). The Defendants
asserted that it was important to admit the letter, because it is evidence of the Plaintiffs’
mistaken belief that they could hold us up for a higher price, number one; and
then when Mr. Stuart found out that he was wrong, he had to report back to his
powers-to-be and he was embarrassed by the fact that he was wrong and he ends
up six months later suing.
So it’s important, number one, that we see these in a course of
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communications. In other words, there’s a stream of correspondence that
reflect[s] that dynamic, the Plaintiffs attempting to hold us up for a higher price in
which they make certain admissions and so it goes to the course of dealing. So
we can’t just pull out one letter and say, why do I want this?
Why do I specifically want this? Number one, I wanted to show that they
were presented by capable counsel during this entire time period, which goes to
show that they are sophisticated, that they understood the information they were
getting, they understood how to ask for information if they weren’t getting it. So
that’s an important fact for us, that they were represented by counsel.
Tr. at 289:22-290:1 (DeMuro). The Defendants argued that the Akin Gump letter does not even
contain a threat of litigation, which the Defendants maintained United States Court of Appeals
for the Tenth Circuit has set as a clear cut-off line between evidence admissible versus
inadmissible under rule 408. See Tr. at 291:8-22 (DeMuro). Moreover, according to the
Defendants, the letter was written eight months before the Plaintiffs filed suit under a different
counsel. See Tr. at 291:23-292:2 (DeMuro).
Turning to another letter, filed as exhibit 18 to the Defendants’ motion for summary
judgment on acquiescence, the Defendants said that the letter follows the bidding war in which
Stuart lost and what the Defendants asserted was Stuart’s subsequent inequitable course of
conduct. See Tr. at 292:6-11 (DeMuro). The letter, as the Defendants read it, also demonstrates
the Stuart group’s sophistication, and their ability in late September, 2013, to do their own
analysis and arrive at numbers about which they insisted earlier in the hearing that they had been
kept in the dark. See Tr. at 292:12-293:4 (DeMuro). Moving to a third letter, filed as exhibit 16
to the Defendants’ Acquiescence MSJ, the Defendants noted that letter likewise contained no
hallmarks of settlement or litigation. See Tr. at 293:5-20 (DeMuro). To the contrary, the
Defendant contended, the letter talks about the history of the Halifax Group offer in 2012, which
the Defendants assert the Plaintiffs are using as a benchmark for a fair price. See Tr. at 293:21294:6 (DeMuro). Returning to the Akin Gump letter, the Defendants say that the letter was the
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next letter in the series of these other letters and that the Court should interpret it in these other
letters’ context. See Tr. at 294:14-16 (DeMuro). The Defendants then referenced the next letter
in the series, filed as exhibit 26 to Defendants’ Acquiescence MSJ, as further proof that the Akin
Gump letter was part of a larger continuum. See Tr. at 295:15-16 (DeMuro).
The Court then asked the Defendants whether the Defendants could get the points they
needed out of letters if the Court admitted everything from the letters aside from the discussions
of share price. See Tr. at 298:18-22 (Court). The Defendants argued that they could not extract
this needed information, saying that the share price discussion is “part and parcel of the
inequitable conduct . . . .” Tr. at 298:23-25 (DeMuro). Recounting the related events from their
perspective, the Defendants said that:
Mr. Stuart first attempted to steal the company from the pooled shareholders out
of way below market price. You’ll remember that $275,000 price. He offered
them lowball offers. And this is in the May time frame. He tried to saddle the
company with hugely expensive new mezzanine debt to benefit himself. He tried
to put his friends on the board. He was doing all these things that were contrary
to the interests of the company during the June time frame.
He assured everybody that he was going to win. He assured . . . the other
Plaintiffs, I think we’ve got this, we’re going to win, and the loss was a huge
stinging blow to his ego. This whole case . . . the fountainhead of this whole case
is Mr. Stuart’s bruised ego over the fact that he lost the bid.
And so what did he do after that? He embarked on this unequitable
attempt to interfere with the IPO. We would have gone -- we would have had the
merger consummated way earlier if it wasn’t for Mr. Stuart’s efforts. We would
have had a road that was much simpler to the IPO if it wasn’t for Mr. Stuart’s
efforts, and his efforts were designed around this false notion that he could block
the IPO and so he started throwing out these share prices.
Tr. at 299:4-25 (DeMuro). The Defendants asserted that there is no law to support a contention
that a letter is a settlement discussion in the classic rule 408 sense just because it states a share
price. See Tr. at 300:1-4 (DeMuro). Summarizing and ending their argument on the rule 408
issue, the Defendants told that Court that it “would be really, really fundamentally prejudicial to
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the Defendants’ case to not -- to keep from the jury what we believe was this shakedown attempt
that was going on post-bidding and almost ten months before litigation was filed.” Tr. at 300:23301:2 (DeMuro).
Before allowing the Plaintiffs to respond on the rule 408 issue, the Court revealed to them
its inclination:
If you weren’t thinking about litigation in that . . . October, November time frame,
then I guess it would seem to me that [the letters are] just offers and counteroffers
and that sort of stuff that goes along in the business community rather than trying
to compromise a claim, which is what 408 talks about.
Tr. at 302:4-9 (Court). The Court then asked the Plaintiffs whether they were thinking about
litigation during that time period. See Tr. at 302:11-12 (Court). The Plaintiffs did not directly
answer that question, saying that every letter which the Defendants had mentioned talks about
claims in the language of the law about claims. See Tr. at 302:17-22 (DeMuro). According to
the Plaintiffs, a communication does not need to have a header that marks it as a rule 408
communication to fall under rule 408, and the letters show that the Plaintiffs are seeking to
compromise. See Tr. at 302:25-303:15 (DeMuro). The Plaintiffs maintained that, whatever
minimal prejudice the Defendants might sustain as a result of the letter being inadmissible under
rule 408 is outweighed by the prejudice that admitting it would cause to the Plaintiffs. See Tr. at
304:4-14 (Kagen). The Plaintiffs contended that the letter was written on Akin Gump letterhead,
that it was written by a trial lawyer, and that it “is as plain as one can reasonably be that a legal
claim is in the offing and actively being contemplated and discussed with opposing parties. See
Tr. at 304:15-307:16 (Kagen).

The Plaintiffs ended this portion of their argument with a

reference to fair process. See Tr. at 307:17-19 (Kagen). According to the Plaintiffs, Delaware
case law is clear that fair process is only about one thing: “When the self-dealing, controlling
shareholder made the decision to effectuate the merger, that’s fair process, that’s when it kicks
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in.” Tr. at 308:2-8 (Kagen).
The Defendants interjected at that point to confirm with the Court that the Court had
signaled that its inclination was to admit all the letters possibly aside from the Akin Gump letter.
See Tr. at 308:25-309:2 (Kagen). The Court elucidated as follows:
I guess when I was reading the . . . Plaintiffs’ motion in limine to preclude
evidence of Plaintiffs’ conduct, I guess I focused on the Akin Gump [letter. But I
don’t see . . . a material difference. But I’m inclined to . . . keep these out. They
look to me like they’re trying to settle claims.
I’ll say this: I realize that when I’m trying to decide the acquiescence
motion, it’s a little bit putting the cart before the horse in the sense that I’m trying
to decide what evidence is admissible at trial to determine the motion that real[ly]
defines the scope of the trial. So it’s a difficult task and it’s a little bit awkward,
but I don’t know of any other way to do it. I think that is what the Tenth Circuit
requires, is that I look at it to determine whether the evidence would be
admissible at trial.
And it just looks to me like when you got lawyers writing letters like this,
Akin Gump could have written a stronger letter. They could have written a letter
saying we’re going to sue you if you don’t take this offer. But some lawyers have
different styles and some of the very best litigators have a light touch when
they’re doing settlement negotiations, so I’m a little bit reluctant to say this isn’t
an offer to compromise just because of the style that a particular lawyer has.
....
I guess part of it boils down to the parties here have a fundamental
disagreement about Delaware law. I mean, you felt that you could make an offer
or do a cash-out without them having the ability to go to court and they felt like
you couldn’t. And so they may have been -- well, you were thinking they
couldn’t go to court and they’re thinking they are going to go to court.
Tr. at 309:3-311:9 (Court). The Defendants took umbrage with this assessment, which the
Defendants characterized as “a little bit of a misstatement. . . .” Tr. at 311:10-11 (DeMuro).
According to the Defendants, it is not the law that any communication in which the parties
haggle over price implicates rule 408. See Tr. at 312:4-22 (DeMuro). The Defendants further
argues that the merger transaction was a process, and not just a singular event on December 9.

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2013 -- a process in which Cypress Energy Partners initially sought to involve the Stuart group in
a collaborative process that “would allow them to come along, exchange shares, and to join in
the IPO with us.” Tr. at 313:20-24 (DeMuro). The Defendants asserted that the
entire theory that somehow we kicked them to the curb out in the cold is another
falsehood. We discussed this business plan. We said . . . our presentation is we
want to do an IPO. We’re going to have to do a new company to do this. We
want you to come along, if you want to, and exchange your shares . . . in TIR for
the shares in this new IPO entity.
Tr. at 313:25-314:7 (DeMuro). The Defendants contended that the merger process started when
the negotiations regarding the IPO, the MLP, and the merger were discussed, i.e., not when the
Plaintiffs received merger notice. See Tr. at 314:8-12 (DeMuro). This timeline is important, the
Defendants said, because entire fairness embraces questions when the merger transaction is
timed. See Tr. at 314:13-315:1 (DeMuro). If the Court does not permit the Defendants to admit
the contested letters, the Defendants averred, the ruling would “leave a huge hole in our case and
the jury will be left wondering . . . what Cypress was doing between July 1st and December[.]
What were they doing, twiddling their thumbs?”

Tr. at 315:2-16 (DeMuro).

Last, the

Defendants maintained that -- if nothing else -- the letters are relevant to show fair process under
controlling Delaware law and that it would be unfair to the Defendants to hold them to the
standard of proving fair process while simultaneously excluding the letters from evidence. See
Tr. at 315:20-316:8 (DeMuro). The Court responded: “I may let some of the letters in without
the price, but the price makes me very nervous. I’ll review it with that in mind, but I just don’t
think that price is going to come in on those letters.” Tr. at 316:9-12 (Court).
The Defendants then shifted their argument to the Defendants’ Estoppel MSJ. See Tr. at
316:16-318:8 (DeMuro). The Defendants first signaled their chagrin with the Plaintiffs’ frequent
suggestions that they were disingenuous, were dishonest, and made misrepresentations in the

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merger notice upon which the Plaintiffs relied. See Tr. at 318:9-15 (DeMuro). Seeing a direct
link between this point and the forced seller doctrine, the Defendants diagnosed that doctrine as
being on life support. See Tr. at 318:16-19 (DeMuro). The Defendants quoted Judge Posner of
the United States Court of Appeals for the Seventh Circuit as calling the doctrine “esoteric” and
a “dubious judge-made doctrine,” and noted that no circuit has adopted the doctrine since 1977.
See Tr. at 318:23-319:6 (DeMuro). According to the Defendants, the whole notion of the forced
seller doctrine “offends the purpose of the securities law,” which the Defendants characterize as
not being to police every act of corporate misconduct.

Tr. at 319:7-11 (DeMuro).

The

Defendants’ then spelled out this last point in more detail, indicating that the purpose is “not to
police what are quintessentially claims of oppression by the majority shareholders over the
minority, it’s to govern fraud in a purchase and sale of securities.” Tr. at 319:11-14 (DeMuro).
The Defendants then introduced a Tenth Circuit case that also, as the Defendants
interpreted it, sought to bury the forced seller doctrine.

See Tr. at 320:24-25 (DeMuro).

According to the Defendants, in Melnyk68 v. Consonus, Inc., 2005 WL 2263950 (D. Utah
2005)(Benson, J.) the United States District Court for the District of Utah demonstrated that it
would not adopt the forced-seller doctrine. See Tr. at 320:24-322:11 (DeMuro). According to
the Defendants, the Ninth Circuit also signaled, in Jacobson v. AEG Capital Corp., 50 F.3d 1493
(9th Cir. 1995), a decision that Judge Poole wrote and Judges Beezer and Nelson joined, that the
forced seller doctrine only applies in “exceedingly narrow instances.”

Tr. at 322:16-18

(DeMuro). The Defendants maintained that two cases out of the United States District Court for
the Southern District of New York also question the forced seller doctrine’s validity that the
Second Circuit adopted in Vine approximately fifty years ago. See Tr. at 322:19-23 (DeMuro).
68

The hearing transcript incorrectly transcribes the case’s Plaintiff’s name as “Melnick.”
See Tr. at 320:25 (DeMuro).
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The Defendants were confident that, “if the Supreme Court ever gets a chance to, I’m certain that
it’s going to pull the plug on it.” Tr. at 322:24-25 (DeMuro).
The Defendants identified three consequences of what they characterized as nationwide
ebbing from the forced-seller doctrine. See Tr. at 323:1-324:4 (DeMuro). First, the Defendants
contended, a court sitting in diversity trying to apply Oklahoma’s state law -- as the Defendants
asserted the Court is doing -- “should be loathe to create and adopt a new doctrine, hesitant and
reluctant to create new law in a state law case, in a diversity case, particularly in the face of such
hostile precedent.” Tr. at 323:1-10 (DeMuro). Second, the Defendants asserted, there is an even
stronger basis to not apply the forced-seller doctrine if the Court looks at the Oklahoma
Securities Act claims, which are the Plaintiffs’ fifth and sixth claims for relief, as the Defendants
know of no case that has applied the forced-seller doctrine to state securities law. See Tr. at
323:11-20 (DeMuro). Third, the Defendants contended, the Court should be even more reluctant
to apply the forced seller doctrine, as the state statute’s language is materially different than the
10b-5 statute and does not lend itself to any suggestion that anything other than a purchase, sale,
and fraud in connection with a purchase and sale should be actionable. See Tr. at 323:21-324:1
(DeMuro).
The Defendants then began to speak to the facts with respect to the forced-seller doctrine.
See Tr. at 324:2-3 (DeMuro). According to the Defendants, the Plaintiffs err when they assert
that the Defendants defrauded the pooled shareholders, relying on miscitations or incomplete
recitations of pooled shareholders’ testimony.

See Tr. at 324:18-325:7 (DeMuro).

The

Defendants asserted that there is “no fraud on these pooled shareholders because all they wanted
was the cash as each and every one of them say.”

Tr. at 325:16-20 (DeMuro).

As the

Defendants read pooled shareholders’ testimony, they did not care whether the Defendants

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disclosed the planned IPO or about the future increase in the shares’ value before buying their
shares. See Tr. at 325:24-327:12 (DeMuro). The one exception, the Defendants noted, was
Foley, a former president of TIR’s Canadian division. See Tr. at 327:13-328:3 (DeMuro). As
the Defendants read Foley’s testimony, he accused TIR of fraud on the grounds that “the
Defendants should have told him that they had, quote, presold the shares allegedly to go public at
the time of the sale.” See Tr. at 328:1-3 (DeMuro). The Defendants described this assertion as
complete “gibberish,” based on what it divined was Foley’s apparent belief that American
companies need to sell their shares to the stock exchange in advance of an IPO. Tr. at 328:4-10
(DeMuro).
The Defendants then turned to the issue whether the Defendants did not disclose the IPO.
See Tr. at 328:11-13 (DeMuro). According to the Defendants, Dan O’Keefe, who at the time
was TIR’s financial official, was circulating to some of the Plaintiffs the board presentation for
the board meeting at which both the Cypress Energy Partners group and the Stuart group were
going to present their proposals for the company in the bidding war. See Tr. at 328:21-330:2
(DeMuro). The Defendants asserted that the presentation contained an executive summary of
what Cypress Energy Partners’ offer was going to be, who Cypress Energy Partners was, and
that they sought to form a new company. See Tr. at 330:3-5 (DeMuro). The board presentation,
the Defendants continued, included: (i) the CEP offer and valuation; (ii) a discussion about the
MLP; (iii) notice that that Cypress Energy Partners was actively working an MLP IPO; and (iv)
notice that Cypress Energy Partners already had obtained a private letter ruling. See Tr. at
330:7-14 (DeMuro).
In a verbal parenthetical, the Defendants then took umbrage with the Plaintiffs’ assertion
earlier in the hearing that Cypress Energy Partners added no value to TIR, i.e., that it had been a

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mule chained to a racehorse. See Tr. at 331:11-13 (DeMuro). The truth, the Defendants averred,
was that Cypress Energy Partners had conceived of the idea that TIR’s pipeline inspection
services might be able to obtain IRS approval to qualify for profit pass-through treatment as part
of an MLP. See Tr. at 330:15-331:10 (DeMuro). The preferential tax structure, the Defendants
asserted, proved to be of “huge value” to TIR. Tr. at 331:6 (DeMuro). Furthermore, the
Defendants contended, Cypress Energy Partners independently always had been a profitable
entity, even if it had a different cash flow than TIR did. See Tr. at 331:17-21 (DeMuro).
Returning to their argument’s main thread, the Defendants said that the board presentation
offered all TIR shareholders a choice between immediate liquidation or continued exposure to
TIR equity via the merged company structured as an MLP. See Tr. at 332:8-12 (DeMuro).
According to the Defendants, Stuart received the same offer to join the tax-advantaged MLP
structure.

See Tr. at 332:13-18 (DeMuro).

The Defendants assessed these facts as very

important in that they allegedly “demolishes the suggestion . . . that we kept the IPO secret from
the pooled shareholders” and “shows very clearly . . . that this merger process didn’t start with
sending out a merger notice on December 9th.” Tr. at 332:19-333:3 (DeMuro).
After a short break, the Defendants returned to their arguments on the forced-seller
doctrine and on the Plaintiffs’ securities claims. See Tr. at 333:19-335:12 (DeMuro). According
to the Defendants, the securities claims impact Defendants’ Motion in Limine. See Tr. at
335:12-21 (DeMuro). If the securities claims are out, the Defendants reasoned, the Court also
should grant the Defendants’ motion in limine. See Tr. at 335:22-336:5 (DeMuro).
Taking one step back in their discussion, the Defendants returned to their presentation of
the relevant event timeline. See Tr. at 337:19 (DeMuro). The Defendants asserted that the TIR
board of directors had a meeting on May 13, 2013, at which they appointed a special committee

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to evaluate the competing Stuart and Cypress Energy Partners offers. See Tr. at 337:21-338:1
(DeMuro). According to the Defendants, Reynolds was committee chair; Stuart, Vaughn, R.
Lorett, and O’Connor all attended the meeting in person; and Foley conferenced via telephone.
See Tr. at 338:3-12; id. at 339:24-340:12; id. at 341:11-13 (DeMuro).

The Defendants

contended that the special committee considered both the Cypress Energy Partners and the Stuart
proposals, but that the special committee deemed Stuart’s proposal as “very vague about how he
was going to get funding to do his deal.”

Tr. at 340:12-14 (DeMuro).

The Defendants

contrasted the purportedly vague Stuart proposal with the Cypress Energy Partners proposal,
which the Defendants asserted: (i) showed how the Cypress Energy Partners group had obtained
a private letter ruling; (ii) that they proposed forming an MLP; and (iii) that the pooled
shareholders had an option to join the MLP if they so desired.

See Tr. at 341:14-342:2

(DeMuro).
The Defendants then segued into a discussion how the offer price accompanying these
competing bids rose “with no relation to economics” from $371,000.00 per share to $451,000.00
per share from May, 2013, to June, 2013. Tr. at 342:3-11 (DeMuro). The Defendants read this
price spike as evidence that the Cypress Energy Partners and Stuart groups were adding a control
premium to their bids, a reading that the Defendants said later deposition testimony confirms.
See Tr. at 342:12-343:9 (DeMuro). The Defendants posited that the existence of a control
premium is relevant, because it shows that the Stuart group -- now the Plaintiffs -- believed that
$451,000.00 per share was higher than fair market value in June, 2013, but are now saying that
the share value should have been $1.2 million per share. See Tr. at 344:22-345:4 (DeMuro).
Trying to force the Plaintiffs to navigate between Scylla and Charybdis, the Defendants then
rhetorically asked the Plaintiffs “why did you offer 451 to the shareholders? Is that a fair price?

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Or were you . . . shortchanging your shareholders to whom you had a fiduciary duty at the time
because you were the director?” Tr. at 345:5-8 (DeMuro).
The Defendants then abruptly changed course to discuss a number of apparently
unrelated issues. See Tr. at 345:9 (DeMuro). First, the Defendants sought to explain why it took
months for the merger transaction to be completed. See Tr. at 345:9-16 (DeMuro). According to
the Defendants, there were two reasons for the delay: (i) the Plaintiffs were attempting to block
the merger; and (ii) immediately following the control process, the Plaintiffs aligned themselves
with Triangle Capital. See Tr. at 345:17-22 (DeMuro). Second, the Defendants spotlighted one
case complexity that they asserted had not yet been discussed adequately -- the blocking rights
attached to Triangle Capital’s warrants. See Tr. at 345:25-346:13 (DeMuro). As the Defendants
described the blocking rights, Triangle Capital had to approve any transaction that changed
TIR’s corporate structure -- a right that the Defendants stated is a common feature in financing
agreements with mezzanine lenders. See Tr. at 346:14-22 (DeMuro). The Defendants contended
that these blocking rights meant that TIR needed Triangle Capital’s approval to effectuate the
proposed merger, but that Stuart went to Triangle Capital and asked it to negotiate on the Stuart
group’s behalf for the best possible price under the threat of having the merger blocked. See Tr.
at 346:23-347:4 (DeMuro).
The Defendants interjected at this point, questioning when the Defendants would begin to
discuss the motion that he was supposed to be arguing. See Tr. at 347:6-17 (Kagen). The Court
revealed that it also was having difficulty following the Defendants’ arguments:
I guess this just seems to be throwing a lot of facts at the Court, and I’m sitting
here thinking that I just don’t know how much of this is going to come into the
trial. So if it’s not going to come into the trial, I guess I’m having a hard time
figuring out why . . . I would use this material to dismiss the Plaintiffs’ claims.
Tr. at 347:21-348:1 (DeMuro). The Court continued:
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I just think this is going back way too far in ancient history. I’m going to have to
cut it off at some point and just say, here’s the transaction we’re talking about.
When I look at Bershad and what they’re talking about, they talk about the
transaction. I don’t think . . . we’re going back to Genesis . . . . I think the
transaction is the merger, the tender, and the freeze-out. That’s what we’re
talking about here.
Tr. at 348:3-13 (Court). The Court and the Defendants thereafter engaged in a dialogue that the
Court, with an eye toward rendering this account as comprehensible as possible, here reproduces
verbatim:
[MR. DEMURO:] I’m talking about the merger. And as I quoted the Delaware
law, if the Court’s going to apply the entire fairness law about the timing of the
transaction, which is the merger, the timing of the merger was interrupted,
interfered with, and delayed because of these facts.
THE COURT: Well, I’m going to let you argue it, but I must say I probably am
not agreeing with it. I think that’s way too far back.
MR. DEMURO: Your Honor, the facts I’m talking about are in September,
October, and November of 2013.
THE COURT: Well, when you’re talking about -- you [have] got up on the screen
right now a control premium. I think that’s the period of time in May, isn’t it?
MR. DEMURO: That’s the bidding war, June 26th. That’s what tipped this whole
thing off.
THE COURT: And I’m having a hard time seeing how that would come into trial.
MR. DEMURO: Is Your Honor saying that you’re having a hard time seeing how
the whole bidding process would come into trial?
THE COURT: I don’t think so.
MR. DEMURO: Well, then we have a major disagreement with that.
THE COURT: I understand.
MR. DEMURO: And all of the -- all of the documents that I’ve shown Your
Honor demonstrate that we were talking about the merger well before that. So I
really think that that’s going to inject a real problem into this record if we’re cut
off that way.

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THE COURT: I’m letting you make your record. I’m not cutting you off, but I
am -MR. DEMURO: No. I meant if the evidence at trial cuts us off -THE COURT: I am sitting here thinking that a lot of this is probably not coming
into trial.
Tr. at 348:18-350:2 (DeMuro, Court)(capitalization in the transcript). The Court then told the
parties that it had expected to hear about “the difference between the first motion and the second
motion” for summary judgment that the Defendants had filed,
and I thought we would be talking about helping me to write the opinion, is there
any way I can merge the first motion and the second one together, because the
facts do seem to overlap a lot. I guess another question I was going to have was,
why -- I understand you all have some unique rules here in the Northern District
about filing one motion, but was this motion filed before the first motion; and if
so, why was that the case? That sort of tips the hand that this was the important
motion, because you filed it first rather than the one we argued yesterday, and
then I thought we would probably have a little clean-up on . . . because of the
overlap with some of the Delaware law that we were talking about.
Tr. at 350:21:351-8 (Court). The Defendants protested that the Plaintiffs had been allowed to
range freely over a large number of tenuously connected topics during the hearing’s first day,
and that the event timeline that they were presenting mirrored arguments contained in
Defendants’ Estoppel MSJ. See Tr. at 351:13-23 (DeMuro). The Defendants asserted that they
had only deviated from their motion by discussing Triangle Capital’s warrants and blocking
rights more in depth than they had discussed them in the motion. See Tr. at 351:24-352:1
(DeMuro). In response to the Court’s second question, the Defendants contended that they filed
Defendants’ Acquiescence MSJ first, because they believed that it was case dispositive. See Tr.
at 352:11-18 (DeMuro). According to the Defendants, the fact that the parties were arguing both
Defendants’ Acquiescence MSJ and Defendants’ Estoppel MSJ during the same set of hearings
was “simply a function of the judicial reassignments that we had no control over.” Tr. at 352:20-

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21 (DeMuro). Distinguishing Defendants’ Acquiescence MSJ from Defendants’ Estoppel MSJ,
the Defendants stated that Defendants’ Acquiescence MSJ (i) rides on a particularized
application of the Bershad acquiescence defense in the context of a cash-out merger; and (ii)
relies on Delaware law, given that there is no Oklahoma line of cases addressing acquiescence in
a cash-out merger. See Tr. at 353:1-12 (DeMuro). The Defendants contrasted this focus with
Defendants’ Estoppel MSJ’s focus, which the Defendants maintained is asserting Oklahoma law
on estoppel, waiver, and unclean hands, as Oklahoma has a well-developed body of law on those
points and the Defendants conclude that Oklahoma law applies to those defenses. See Tr. at
353:13-19 (DeMuro).
The Defendants and the Court then discussed whether the forced-seller doctrine could be
applied in a state securities context, which the Defendants asserted would be “a big step and
unwarranted.” Tr. at 356:21 (DeMuro). Furthermore, the Defendants alerted the Court that 71
O.S. § 1-509(c) diverges from 10b-5’s language. See Tr. at 356:22-25 (DeMuro). Unlike 10b-5,
the Defendants asserted, the Oklahoma statute does not encompass indirectly fraudulent activity;
it is expressly limited to fraud on the seller, i.e., is limited to a material misrepresentation to the
seller.

See Tr. at 357:1-8 (DeMuro).

Sinking a stake into the ground on this point, the

Defendants argued that “respectfully, . . . it would be a tremendous overreach by a court sitting
in diversity to come into Oklahoma and apply something that’s never been applied nationwide
that has its roots in a doctrine that belongs in the dustbin.” Tr. at 357:23-358:2 (DeMuro).
Expressly pushing back at that point on the Court’s instinct that the extended bidding
process is irrelevant, the Defendants chose to “move forward with the presentation, which is
coming to a close.” Tr. at 358:4-5 (DeMuro). According to the Defendants, this chronology is
important insofar as it makes the case unique. See Tr. at 358:8 (DeMuro). Not fully convinced

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that the case is indeed sui generis, the Court pushed back slightly as well, generating another
rapid-fire exchange between the Court and the Defendants:
THE COURT: Well, I guess when I hear that, that sort of sends my antennas up.
I mean, these sort[s] of mergers are done all the time and you’re trying to make it
unique. It’s really not unique if we exclude all that prior history. Then it’s just
another Delaware freeze-out.
MR. DEMURO: I don’t’ understand how you could defrock a case of its facts and
then apply the law. The law is made by facts.
THE COURT: Well, but you’re saying it’s unique because it’s got this enormous
history before it. If I say I don’t think that’s very relevant to the fairness of the
transaction that occurred in November or December, then it’s not terribly unique.
I mean, it seems to me to fit into the sort of normal facts of the Delaware cases
that deal with these sort[s] of cash-out transactions.
MR. DEMURO: Sure. Obviously, if Your Honor neutered all the facts and took
out all the unique facts and just focused on the merger, then it becomes more like
those other cases. But that is not fair to the Defendants and it’s not fair to the jury
when they need to understand how did we get here, particularly when . . . the
whole timing of the merger . . . was interfered with and elongated because of the
conduct of the Plaintiffs.
Tr. at 358:10-359:7 (Court, DeMuro). The Defendants asserted that they were surprised that,
among other things, the Court would prevent the jury from hearing that the Plaintiffs believed
$451,000.00 per share to represent a control premium in June, 2013, but that the fair market
value had shot up to approximately $1.2 million per share five months and one week later. See
Tr. at 359:8-13 (DeMuro). According to the Defendants, such an exclusion would thwart any
attempt that the Defendants could make to tell the jury what the Defendants allege to be the
merger’s fair story. See Tr. at 359:13-16 (DeMuro). The Defendants insisted that Delaware
cases such as Bershad and In re Celera Corp. are dense with factual history, that law is not an
abstract concept untethered to facts, and that the Court does not have the discretion to limit the
transaction to the time that the Defendants sent the tender notice. See Tr. at 359:17-361:19
(DeMuro). Moreover, the Defendants asserted, they see no practical way to discuss the rationale
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behind the share price in the tender offer without providing the jury with historical context. See
Tr. at 361:23-364:21 (DeMuro).
The Court responded to the Defendants concerns with an analogy:
Well, let’s say I have a securities case and somebody’s alleging a
misrepresentation in the S-1. The S-1 may come into evidence, 10-K may come
into evidence, and we focus on a tiny amount. But . . . if somebody then started
trying to prove . . . some background information in the 10-K separate and apart
from the misrepresentation, I’d probably say we don’t need to get into that, that’s
going to take way too much time with the jury, and it doesn’t really have anything
to do with the misrepresentations made sometimes in just a sentence or two.
....
But you’re saying I should let you talk about everything in the tender offer if I
allow the tender offer to come in. I guess I’m saying . . . I don’t’ think so.”
Tr. at 364:22-365:18 (Court). Unsatisfied with the analogy, the Defendants remonstrated that
what Your Honor is saying is the Plaintiff gets to put their [sic] view of the
process on, we don’t get to put ours. I’m not asking for things out of left field.
Everything in this tender offer is about the merger process and how we got there,
everything. So I’m having a hard time understanding what in here Your Honor
would let us get into and what you wouldn’t to be fair to us.
....
I think the Court taking the view that the transaction that’s under issue somehow
started . . . within a couple days before the merger notice is completely
inconsistent with the . . . entire fairness standard, the Delaware case law that looks
at all of the facts, as I’ve talked about, basic principles of equitable . . . estoppel
under Oklahoma law, and would really resort to a fundamentally unfair trial. I
really think that you’d be injecting some real risk in this record that we have to
come back here and do the whole thing again if we’re not allowed to tell our side
of the story.
Tr. at 366:10-367:21 (DeMuro).
The Defendants, indicating a desire not to argue with the Court, began to conclude their
argument by speedily addressing a number of outstanding points.

See Tr. at 375:18-19

(DeMuro). First, the Defendants contended that the Plaintiffs, ironically, had misrepresented the

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Defendants’ position the previous day when they asserted that the Defendants misrepresented
whether the parties dispute whether there exists a winner-take-all agreement between the Cypress
Energy Partners group and the Stuart group. See Tr. at 374:15-19 (DeMuro). Presenting the
Court with a table of undisputed facts, the Defendants asserted that they clearly show that the
Defendants acknowledge this dispute to exist. See Tr. at 374:19-375:17 (DeMuro). Last, the
Defendants argued that no Delaware case of which they know -- either from the Delaware Courts
of Chancery or from the Supreme Court of Delaware -- suggests that the Court should take the
narrow view about which the Court earlier had suggested when the merger transaction began.
See Tr. at 375:18-377:8 (DeMuro).
After lunch, the Plaintiffs began their response to the Defendants’ Estoppel MSJ
indirectly, first focusing on to what they referred as housekeeping matters. See Tr. at 377:22378:3 (Kagen). The Plaintiffs first rhetorically repeated the Court’s earlier question to the
Defendants why they filed two motions for summary judgment. See Tr. at 378:4-10 (Kagen).
The Plaintiffs suggested a reason that differed from the reason which the Defendants provided to
the Court that morning. See Tr. at 378:11-381:3 (Kagen). The Plaintiffs noted that, early on in
the case, the Defendants offered the Plaintiffs judgment under Oklahoma law. See Tr. at 378:1012 (Kagen). The Plaintiffs noted that the applicable Oklahoma law allows fee-shifting if a party
loses, which introduces an element of financial risk for the Plaintiffs should the Court rule
against them.

See Tr. at 378:12-23 (Kagen).

As the Plaintiffs remembered it, when the

Defendants informed the Plaintiffs that they wanted to bring another motion for summary
judgment under the theory of acquiescence -- which would be decided under Delaware law -- the
Plaintiffs immediately agreed to the new motion for summary judgment in hopes of an expedited
trial. See Tr. at 378:24-379:6 (Kagen). The Defendants lamented that “the vagaries of this

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judicial system” left the fully briefed motions for summary judgment languishing in limbo since
April, 2015, undermining the Plaintiffs desire for an expedited trial. Tr. at 379:7-24 (Kagen).
When Judge Kern, United States District Judge for the Northern District of Oklahoma, later set a
date for all summary motions to be filed by September 14, 2015, the Plaintiffs said, the
Defendants refiled the same motion for summary judgment again. See Tr. at 379:25-380:9
(Kagen).

As the Plaintiffs saw it, the Defendants’ Estoppel MSJ is as meritless as the

Defendants’ Acquiescence MSJ, and it is results in a waste of the court’s time and resources.
See Tr. at 380:17-18 (Kagen).
The Plaintiffs then turned to a second housekeeping issue: factual representations. See
Tr. at 381:4-5 (Kagen). Defending their metaphor the previous day that Cypress Energy Partners
was a mule chained to TIR’s racehorse, the factuality of which the Defendants had contested
earlier in the day, the Plaintiffs showed the Court Cypress Energy Partners’ S-1, which it filed
with the SEC on November 14, 2013.

See Tr. at 381:11-382:3 (Kagen).

The Plaintiffs

contrasted TIR, whose revenues in 2013 were $300 million, with Cypress Energy Partners,
whose revenues for 2013 were $12.2 million. See Tr. at 382:11-16 (Kagen). Like the Aesop
fable, the Plaintiffs asserted that the horse in this case bore the weight of a dead donkey after
Cypress Energy Partners and TIR, Inc. merged, as a company that could not even make a profit
bought the one with nearly $20 million in profits in 2012. See Tr. at 382:5-384:23 (Kagen). Cf.
Aesop, Aesop’s Fables 34-35 (Laura Gibbs trans. 1787).
Then pivoting to speak directly to the Defendants’ Estoppel MSJ, the Plaintiffs asserted
that both the factual section and the legal analysis in the Defendants’ Estoppel MSJ are
substantively identical to the factual section and the legal analysis in the Defendants’
Acquiescence MSJ.

See Tr. at 384:24-387:18 (Kagen).

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According to the Plaintiffs, the

Defendants for the most part “cut and paste[d]” these sections from Defendants’ Acquiescence
MSJ into the Defendants’ Estoppel MSJ.

Tr. at 387:20-389:3 (Kagen).

The Plaintiffs

maintained that there are six new things in the Defendants’ Estoppel MSJ. See Tr. at 389:4-5
(Kagen). First, the Plaintiffs contended, the Defendants assert in Defendants’ Estoppel MSJ that
TIR valued its stock at Stuart’s request. See Tr. at 389:14-15 (Kagen). The Plaintiffs stated that
this fact is irrelevant and that the Defendants failed to mention it during their argument. See Tr.
at 389:18-390:2 (Kagen). Second, the Plaintiffs maintained, the Defendants assert that Stuart did
not agree with their plans to take TIR into an MLP. See Tr. at 390:3-6 (Kagen). The Plaintiffs
told the Court that fact also is irrelevant and that the Defendants had made no argument about it.
See Tr. at 390:6-21 (Kagen). Third, the Plaintiffs said, the Defendants assert that Stuart rejected
a standstill agreement that the special committee proposed. See Tr. at 391:16-18 (Kagen). The
Plaintiffs confessed that this fact confused them, because, the Plaintiffs averred, the Defendants
had just argued the opposite, i.e., that Stuart agreed to the standstill agreement. See Tr. at
391:25-392:6 (Kagen). Fourth, the Plaintiffs contended, the Defendants assert a new fact about
the pooled shareholders in a footnote, but the Plaintiffs said that the Defendants made no
argument at the hearing about this fact. See Tr. at 392:7-18 (Kagen). Fifth, the Plaintiffs
maintained, the Defendants add one new sentence to paragraph 11 -- which, the Plaintiffs
contended otherwise replicates paragraph 13 in the Defendant’s Acquiescence MSJ -- in which
the Defendants assert that Stuart lost the competition to control TIR. See Tr. at 392:19-25
(Kagen). According to the Plaintiffs, this fact is new to the Defendants’ Estoppel MSJ, but the
Defendants already had covered it as part of their argument on the Defendants’ Acquiescence
MSJ the previous day. See Tr. at 392:25-393:7 (Kagen). Sixth and last, the Plaintiffs averred,
the Defendants collapse all the materials that they assert they provided to the Plaintiffs as part of

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the SEC registration statement into a catchall category called “all material information.” Tr. at
394:25-395:15 (Kagen). The Plaintiffs saw no substantive difference between the two isotopes
of this same factual element. See Tr. at 395:15-22 (Kagen). Aside from combining, subdividing,
and differentially distributing some other facts in various ways, the Plaintiffs argued, the
Defendants repeat the remaining facts almost word for word across their two motions for
summary judgment. See Tr. at 395:23-398:20 (Kagen).
Turning its and the Court’s attention to the legal arguments that the Defendants make in
Defendants’ Estoppel MSJ, the Plaintiffs then contended that the Defendants first premise their
legal argument on five false core allegations that the Plaintiffs withdrew by the time they filed
the Complaint. See Tr. at 399:24-401:1 (Kagen). According to the Plaintiffs, the Defendants
three legal arguments -- on unclean hands, waiver, and estoppel -- also are unconvincing and
largely duplicative of their acquiescence defense from Defendants’ Acquiescence MSJ. See Tr.
at 401:3-21 (Kagen). The Plaintiffs distilled the Defendants’ argument about unclean hands to as
assertion that Stuart had acted inequitably by bragging about the share price and return he was
able to obtain for his TIR shares when he tendered them. See Tr. at 402:25-403:15 (Kagen). As
the Plaintiffs read Oklahoma law, conduct needs to involve fraudulent and deceitful acts if it is to
be rightly adjudged as being inequitable. See Tr. at 403:17-25 (Kagen). The Plaintiffs made a
similar contention about the Defendants’ estoppel argument, saying that estoppel requires
evidence of deceitful, fraudulent conduct by Stuart that does not exist. See Tr. at 404:3-406:11
(Kagen).
The Plaintiffs also maintained that the Defendants’ waiver argument is unavailing. As
the Defendants remembered it, the Defendants assert that Smith v. Minneapolis Threshing, a
hoary case from 1923, defined waiver as a known right’s relinquishment. See Tr. at 407:1-6

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(Kagen). The Plaintiffs stated that the Defendants then assert that the Plaintiffs acceptance of the
merger consideration constitute such a waiver. See Tr. at 407:7-11 (Kagen). The Plaintiffs saw
this as just a doppelganger for the Defendants acquiescence defense. See Tr. at 407:11-24
(Kagen). According to the Plaintiffs, the only right that they ever waived with respect to the
merger transaction was the right to seek appraisal, which they asserted the Oklahoma statute
permits them to waive. See Tr. at 408:1-6 (Kagen). Furthermore, the Plaintiffs contended: (i)
Delaware case law precludes a waiver argument from challenging an equitable action’s fairness,
see Tr. at 408:14-410:3 (Kagen)(citing JCC Holding, In re Best Lock and Clements); and (ii) the
Plaintiffs never even entered into a contract with the Defendants to which contractual waiver
could apply, see Tr. at 411:4-415:3 (Kagen).
Wrapping up their response to the Defendants’ legal arguments pertaining to Defendants’
Estoppel MSJ, the Plaintiffs sought to discredit the Defendants’ assertion that the Plaintiffs are
equitably estopped from challenging the merger transaction, because the Defendants “relied on
our voluntary and knowing surrender of the share certificates.”

Tr. at 415:4-17 (Kagen).

According to the Plaintiffs this estoppel argument is simply new wine in an old bottle, the
acquiescence defense repeated with a different nom de guerre. See Tr. at 415:18-417:3 (Kagen).
The Plaintiffs maintained that Delaware case law and, they believed, also the Federal Rules of
Civil Procedure, clearly forbid such claim duplication. See Tr. at 416:5-417:5 (Kagen). Even if
the Defendants were making an estoppel claim rather than another acquiescence claim
masquerading as an estoppel claim, the Plaintiffs contended, the that hypothetical claim would
fail, as the Plaintiffs never induced the Defendants to detrimentally rely on anything the
Plaintiffs did. See Tr. at 417:6-419:11 (Kagen).
Satisfied that they had fully responded to all the legal arguments the Defendants had

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presented in the Defendants’ Estoppel MSJ, the Plaintiffs touched briefly on whether the forced
seller doctrine has any viability in common law or under state securities statutes. See Tr. at
420:9-23 (Kagen). The Plaintiffs maintained that the doctrine has purchase under common law,
because (i) “this is minority shareholder impression in its most classic form,” Tr. at 420:25-421:1
(Kagen); and (ii) the forced seller doctrine is incorporated into the entire fairness doctrine, see
Tr. at 421:7-10 (Court, Kagen). Responding to a question from the Court, the Plaintiffs then
conceded that they were unaware of any state blue sky law that similarly has incorporated the
forced seller doctrine. See Tr. at 421:11-16 (Court, Kagen). Turning back to the common law
point, the Plaintiffs ridiculed the Defendants’ argument against the forced seller doctrine as “old,
ancient, high-bound [sic], and decrepit” because the case is sixteen years old, contending that
such an argument is inconsistent with the Defendants’ reliance on Bershad, which is nearly twice
as old. See Tr. at 422:10-24 (Kagen). Expressing bemusement, the Plaintiffs inquired whether
old law “is no good when we cite it, but old law that’s contradicted by the very state that
originally had it is fine when they want it?” Tr. at 423:3-4 (Kagen). Such asymmetry, the
Plaintiffs argued, “doesn’t work.” Tr. at 423:6 (Kagen). The Plaintiffs then noted that the forced
seller doctrine is still good law in the Second, Fifth, and Ninth Circuits, which the Plaintiffs
maintained demonstrates that the Defendants’ reports of the forced seller doctrine’s death are
premature. See Tr. at 423:24-424:6 (Kagen).
Tying up loose ends, the Plaintiffs then insisted that the Defendants’ assertions about
what certain pooled shareholders’ mean when they speak about what they considered material
information regarding the merger transaction are wrongheaded for two reasons.

First, the

Plaintiffs said, the pooled shareholders’ intended meaning behind quotations is a question for a
jury, not an issue that a court can dispose of at the summary judgment stage. See Tr. at 424:23-

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426:4 (Kagen). Second, the Plaintiffs continued, the pooled shareholders’ subjective conceptions
of what information about the merger transaction was material are not binding; under Amgen,
Inc. v. Connecticut Retirement Plans and Trust Funds, 133 S, Ct. 1184 (2013), the Plaintiffs
argued, the materiality determination turns on an objective standard -- the significance of an
omitted or misrepresented fact to a reasonable investor. See Tr. at 426:15-427:16 (Kagen).
Following an afternoon break, the Defendants began their reply to the Plaintiffs’ response
on the Defendants’ Estoppel MSJ. See Tr. at 433:6-8 (DeMuro). Brushing off what they
characterized as the Plaintiffs’ “feigned outrage about the second motion,” the Defendants
explained that they had filed a second motion, with court leave, after unanticipated delays in
getting the Defendants’ Acquiescence MSJ heard.

Tr. at 433:9-23 (DeMuro).

In the

Defendants’ Estoppel MSJ, the Defendants told the Court, “we had to assert all other defenses
that were then available based on the same facts” as those facts that the Defendants had asserted
in Defendants’ Acquiescence MSJ
So that part of the motion, which is similar in the facts, is just a function of the
fact that you have one set of undisputed facts that can give rise to several different
legal theories, and we were all hoping that the acquiescence motion would have
been ruled on first. So that’s . . . the reason for how it came out.
Tr. at 433:21-434:4 (DeMuro). In addition, the Defendants stated, they had filed a second
motion for summary judgment to address the Plaintiffs’ securities claims. See Tr. at 434:5-11
(DeMuro).
The Defendants then turned their sights onto the Plaintiffs’ assertion that the Defendants
objected to the forced seller doctrine on account of its age. See Tr. at 434:12 (DeMuro).
According to the Defendants, such an assertion grotesquely oversimplifies the Defendants’
position on Vine and the forced seller doctrine. See Tr. at 434:12-17 (DeMuro). The Defendants
asserted that Vine did not enfeeble with age; the Supreme Court of the United States kneecapped
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it in Blue Chip and Santa Fe, the Defendants argued, in which the Supreme Court of the United
States noted that securities law’s antifraud provisions are not to be used “when the case is really
about minority oppression and a fiduciary duty claim.” Tr. at 434:18-435:1 (DeMuro). In Blue
Chip and Santa Fe’s wake, the Defendants asserted, all the United States Courts of Appeals
started to recognize that there was a new test they needed to apply to such claims. See Tr. at
435:2-9 (DeMuro).

According to the Defendants, the contrast between this history and

Bershad’s history could not be starker. See Tr. at 435:10-12 (DeMuro). The Defendants said
that, unlike with Vine, neither the Supreme Court of the United States nor the Supreme Court of
Delaware ever has called the doctrine in Bershad into question. See Tr. at 435:12-15 (DeMuro).
The Defendants asserted that the exact opposite is the case, i.e., that subsequent authority from
the Supreme Court of Delaware, including In re Celera Corp., applied the Bershad rule rather
than abrogating it. See Tr. at 435:15-19 (DeMuro).
Turning to their second motion for summary judgment’s merits, the Defendants then
argued that the Supreme Court of Delaware’s decision in Kahn v. Lynch shows that the Court
should grant Defendants’ Estoppel MSJ. See Tr. at 436:19-437:17 (DeMuro). The facts in Kahn
v. Lynch, the Defendants suggested, are strikingly similar to the facts in this case. See Tr. at
437:15-17 (DeMuro). In Kahn v. Lynch, the Defendant said, the company and its directors and
the shareholders started to talk about a possible takeover acquisition in the spring of 1986. See
Tr. at 437:18-20 (DeMuro). The Defendants chronicled the rest of the case’s factual history in
the following manner:
There were several different ups and downs and bumps in the road and directors
who voted for it, committees that were formed, new committees that were formed
over the ensuing months, disputes about what directors believed what and who
was independent and who wasn’t. There was a number of those type of disputes
among and between the interested parties from September -- the actual vote to
approve the merger, the cash-out merger, wasn’t until November 24th and the
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actual transaction didn’t occur until after that so it’s a remarkably similar time
period. The court considered that whole process, didn’t limit it, considered the
whole process.
Tr. 437:20-438:5 (DeMuro). Focusing on the Kahn v. Lynch court’s consideration of the “whole
process,” Tr. at 438:5 (DeMuro), the Defendants contended that they are entitled to show that
there were “arm’s length negotiations going on, that there was [sic] these back-and-forth
communications about this entire process,” Tr. at 438:18-19 (DeMuro). Putting it less abstractly,
the Defendants clarified that they are entitled to show “the facts about when it [the merger
process] started, about Mr. Stuart not wanting to join the MLP, about bidding up the value of the
company,” because “all of those facts have to do with their position vis-à-vis . . . the controlling
shareholders.” Tr. at 438:22-439:1 (DeMuro). Precedent constrains the Court, the Defendants
maintained, to consider “all the facts . . . not at the point it’s voted to do it, but at the beginning
of the time that the [merger] idea begins to be discussed by the relevant parties.” Tr. at 439:4-7
(DeMuro). With that, the Defendants reasserted their overall contention that the entire merger
process was fundamentally and entirely fair to the Plaintiffs and then closed their argument on
the Defendants’ Estoppel MSJ. See Tr. at 439:19-23 (DeMuro).
The Court followed up on the Defendants’ argument with a question
probing their position on Bershad’s limits. See Tr. at 439:24-440:4 (Court). If
the Court were to adopt the Defendants’ position that subsequent chancery court
decisions have not limited Bershad, the Court inquired, why would a corporation
that’s cashing out its minority shareholders ever have an incentive to set up an
appraisal process, disinterested committee, anything along that line? Because in
this case you admitted you didn’t want to spend the $300,000 to do the appraisal.
So doesn’t your sort of rule just disincentivize corporations from ever doing those
things?
Tr. 440:5-11 (Court). The Defendants did not subscribe to Court’s hypothetical’s logic. The
Defendants first questioned the Court’s hypothetical’s premise, asserting that the expense
associated with an appraisal had not been the sole reason they had foregone one:

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We didn’t do the appraisal -- and it’s set out clear in the tender offer, by the way - . . . the reason we didn’t do the appraisal is the whole process. We had this
bidding war. It bid up to a premium. We had arm’s length sales. . . . We had all
that data to say that this was a fair price.
Tr. at 440:14-21 (DeMuro).

The Defendants also challenged the Court’s hypothetical’s

conclusion, indicating that corporations are entitled to make a business judgment as to whether
they need to get an appraisal or set up an independent committee to make the process fair ex ante
or whether they, instead, will be subjected to the entire fairness standard from Bershad ex post.
See Tr. at 440:23-441:10 (DeMuro).
In response, the Court posited an “extreme example,” in which (i) a corporation’s merger
negotiations with fully-informed shareholders reach an impasse; (ii) the corporation forcibly
cashes the opposed shareholders out for one dollar for each of their shares; and (iii) the
corporation maintains that any shareholder who accepts the Washingtons loses his or her right to
come to court. Tr. at 441:20-25 (Court). In such a scenario, the Court asked the Defendants,
“[d]oesn’t that just impose sort of a disincentive for the corporation to do anything to sort of set a
different price?”

Tr. at 442:1-2 (Court).

The Defendants caveated that, in some private

companies, a cash-out price of one dollar per share could be a good deal for the opposed
shareholders. See Tr. at 442:3-7 (DeMuro). Assuming, however, that the fair market share value
exceeds one dollar per share, the Defendants continued, “I don’t think that shareholders who
were getting $1 for $100 wouldn’t exercise . . . their statutory right to an appraisal.” Tr. at
442:7-10 (DeMuro). Furthermore, the Defendants pointed out, other colorable claims would
exist in such a case, such as bad faith. See Tr. at 442:10-12 (DeMuro).
The Court thereupon asked the Defendants whether they had any more comments on
Defendants’ Estoppel MSJ, and the Defendants indicated that they did. See Tr. at 442:13-14
(DeMuro).

The Defendants divulged that they were struggling to understand what they
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perceived
to be the Court’s unease with the fact that these shareholders were squeezed out to
begin with, discomfort with that, which is what my perception is, both in you and
in the Court’s willingness to look at the Chancery Court opinions because the -particularly now-Chief Justice Strine is uncomfortable with that notion, that you
can squeeze people out, and I wanted to address that.
There’s a reason for that, there’s a flip side to that, it’s very important in
this case, and that’s embraced in this concept of tyranny of the minority. These
securities law, these corporate laws, are designed to encourage the accumulation
of talent and capital, encourage growth of corporations, encourage change and
innovation. And if you have a situation where the minority shareholders -- like in
this case, only 30 percent of the owners of this company were trying to block this
completely inventive and creative idea of getting a private letter ruling from the
IRD on inspection revenue, dropping an inspection company into an MLP
structure, which was on the cutting-edge, if 30 percent of a company could
prevent that type of innovation, that’s not good for anyone . . . .
Tr. at 442:16-443:10 (DeMuro). The Court rejoined that “that’s more of a justification for cashout options . . . which we’re well beyond.” Tr. at 443:12-15 (Court). The Defendants agreed
with the statement’s main clause, but not with its subordinate clause. See Tr. at 443:14-16
(DeMuro). Mirroring the Defendants’ question, the Court inquired whether
the flip side . . . what these rules in Delaware advance is that they put the burden
on the person cashing out, either going through some of these procedural
safeguards . . . or to the entire fairness to force really the parties to deal with this
out of court, because if you don’t deal with it out of court, then you get a court
deciding whether there was entire fairness. So the burden, it’s meant to be a little
bit onerous on the people that are cashing out the minority, isn’t it?
Tr. at 443:17-444:2 (Court). The Defendants indicated their full-throated support of this idea:
“Yes. You better be sure, agreed.” Tr. at 444:3 (DeMuro). According to the Defendants, the
controlling shareholders or directors who are effectuating the cash-out merger have to be very
confident that they are offering the minority shareholders a fair price if they choose not to use
protective devices such as a special committee or a minority shareholder vote. See Tr. at 444:316 (DeMuro). Sensing an opportunity to leverage this concession to their advantage on a point

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they earlier had discussed, the Defendants closed this colloquy by insisting that this very need for
corporate confidence in a fair price is
why, Your Honor, it’s so vital that we be able to prove by the history of dealings
why we thought the . . . 451 price was a premium price in June, why we thought
that, why we were so confident of that, because we were confident because there
was a bidding process of two inside directors, followed by arm’s length sales,
followed by all the things we talked about.
Tr. at 444:17-23 (DeMuro).
The Court then tipped its hand to the parties on what its inclination were with regard to
the Defendants’ Estoppel MSJ. See Tr. at 445:4-5 (Court). The Court revealed at the time that:
I’m inclined to deny it, I think, largely for the reasons I mentioned yesterday. I
don’t see a great deal of difference between the defense of acquiescence and the
defenses of waiver and estoppel [that] are being advanced here. They seem to me,
and Delaware law seems to suggest, they’re very similar. So I’m not on at least
the fairness issue inclined to grant the motion.
I’m a little unfamiliar with the claims here, breach of fiduciary duty. I
think that probably is the merger process unfairness. Controlling shareholder
liability and not just enrichment, I’m not sure what those additional claims are.
But I think I can fairly say that I don’t think that the evidence has been presented
here, whether it’s the long version or short version, is going to preclude as a
matter of law those claims from going forward.
As far as the securities claims, I don’t have the feel for Oklahoma
Supreme Court an securities that I might in my own state, but I don’t have any
reason to think that Oklahoma would ingraft [sic] the forced seller doctrine on to
its blue sky or state securities law, and to the extent that that’s really what the fifth
and sixth claims are, I would be inclined to dismiss those and grant the motion in
part.
Same with the seventh claim and the eighth claim, I don’t see that the
Tenth Circuit would adopt the forced seller doctrine in the federal securities
context. I’d be inclined to grant the motion to the seventh and eighth claim.
So I think it’s probably a grant in part and deny in part, leaving the first
four claims for trail or further work and dismissing the state and federal securities
claims.
Tr. at 445:6-446:9 (Court).

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The Court then invited the parties to take up the motion to exclude Randall Lorett’s
affidavit. See Tr. at 446:10-11 (Court). To give the parties a sense of how the Court was
inclined to decide the issue after having read the briefing materials, the Court said that its
impression [after] going through the Lorett motion was that I would need to
probably take those things that he . . . testified about one at a time.
Some of the things he said I thought probably were admissible, some
things were not. For example, some things that he was trying to say seemed to me
he lacked personal knowledge of those things, and so he really didn’t offer
anything that would be admissible at trial.
But in any case, I was inclined to think that probably in the writing of the
motions for summary judgment -- and I am -- have at least convinced myself that
I think I can put the two motions we’ve argued so far . . . into one opinion -- I
may have to work with these additional facts and some of the additional discovery
. . . I think I can probably write one opinion, and then largely in the footnotes
figure out what I’m going to do with Randall Lorett’s testimony.
Tr. at 446:16-447:7 (Court). The Plaintiffs indicated that they were happy to rest on their written
submissions and have the Court proceed in conformity with its inclination on the Motion to
Strike. See Tr. at 447:10-14 (Kagen). The Defendants had more to say. According to the
Defendants, the Plaintiffs’ argument’s essence is that R. Lorett’s affidavit lacks foundation,
because R. Lorett admits in his deposition that he does not know what the TIR fair market share
value is. See Tr. at 448:12-21 (DeMuro). The Defendants maintained that this argument is
wrongheaded, in that R. Lorett is “absolutely qualified” to testify about what he believed a fair
price for his shares was. Tr. at 448:22-25 (DeMuro). After all, the Defendants reminded the
Court, R. Lorett “was the CEO, the president of the company. He operated the company for a
number of years. He was deeply involved in the bidding process, the pooled shareholder
process, etcetera, and so he was obviously competent to say that he believed that it was a good
price.” Tr. at 449:1-5 (DeMuro).
The crux of the Plaintiffs’ argument in support of their Motion to Strike, as best the
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Defendants could discern it, is that there is a distinction between fair price and fair value. See
Tr. at 449:6-11 (DeMuro). The Defendants argued that such hair-splitting has no basis; as the
Defendants saw it, fair value and fair price, in this case’s context at least, are synonymous, and
R. Lorett offers in his deposition that he believes the tender offer to have represented the fair
value of TIR shares. See Tr. at 449:11-14 (DeMuro). When it comes to the other sticking point
of “factoring receivables,” the Defendants espied a similar, purely phraseological issue at the
core of the apparent contradiction between R. Lorett’s affidavit and his deposition testimony;
according to the Defendants’, R. Lorett knows what “factoring debt” is, but was unfamiliar with
the synonymous term “factoring receivables” means. See Tr. at 449:15-22 (DeMuro). In both
these issues, the Defendants asserted, the Plaintiffs’ attempts to split hairs does nothing but
reveal a bald truth that no real contradiction exists between R. Lorett’s affidavit and his
deposition testimony.

See Tr. at 449:23-450:2 (DeMuro).

Consequently, the Defendants

maintained, the Court should not strike R. Lorett’s affidavit.
With the ball back in their court, the Plaintiffs decided to argue their motion despite their
earlier position that they simply would reset on the papers. See Tr. at 450:5-7 (Kagen). Despite
indicating that they “[d]on’t have much to say here,” the Plaintiffs alleged that the Defendants’
presentation had just completely mischaracterized what the Motion to Strike concerns. See Tr.at
450:7-9 (Kagen). According to the Plaintiffs, they attack R. Lorett’s affidavit not because it is an
expert opinion, but rather because R. Lorett
had no such opinion, his affidavit is not true, and we found it troubling that . . .
the defendants filed such a thing. Because what happened is, during the course of
the deposition . . . Mr. Lorett . . . stated as if it were his opinion in this affidavit
that he swore to be true under penalty of perjury that 451,000 was more than fair
value.
Tr. at 450:19-451:1 (Kagen). As the Plaintiffs recounted R. Lorett’s deposition testimony, the

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Plaintiffs asked R. Lorett if he had any idea what TIR’s share value was, and the R. Lorett
responded that he did not. See Tr. at 451:2-7 (Kagen). Contrasting that testimony with R.
Lorett’s affidavit, in which R. Lorett expressed an opinion on TIR share value, the Plaintiffs
asserted that the decision whether to strike R. Lorett’s affidavit centers on honesty and not on
qualification. See Tr. at 451:8-16 (Kagen).
The Court asked the Plaintiffs whether any doctrine exists that “allows me to just strike
something because a guy is inconsistent? Let’s say at the deposition he said on page 1, my name
is John Brown; and on page 10, he said, well it’s John Less. I mean, you don’t strike that, you
just go, that’s odd.” Tr. at 452:9-13 (Court). The Plaintiffs replied that they find the purported
inconsistencies between R. Lorett’s affidavit and deposition testimony to be “terrifically
disquieting.” Tr. at 452:14-21 (Kagen). Furthermore, the Plaintiffs contended, Tenth Circuit law
holds that one cannot make statements for summary judgment purposes unless it pertains to
personal knowledge -- and R. Lorett indicated at his deposition that he has no knowledge related
to important parts of his affidavit. See Tr. at 452:22-24 (Kagen). As the Plaintiffs saw it, “Lorett
properly should be precluded from testifying on these issues when he says one thing under a
written statement of oath, an affidavit, and then in deposition on cross admits not only that it’s
not his position[, but also that] he has no opinion on it at all.” Tr. at 453:15-19 (Kagen). The
Plaintiffs perceived R. Lorett’s purportedly contradictory statements about fair valuation as part
of a disturbing larger pattern of equivocation rooted in passing off hearsay as his own personal
knowledge, with respect to issues ranging even to factoring debt. See Tr. at 453:20-456:24
(Kagen).
After discussing with the parties hearing and trial scheduling, and a special jury
questionnaire, see Tr. at 456:25-468:1 (Court, Kagen, DeMuro, Wild), the Court invited the

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Plaintiffs to finish their argument on their Motion to Strike, see Tr. at 468:2-3 (Court).
Returning to their argument that the Lorett Aff. and the R. Lorett Dep. did not match on the fair
value issue, the Plaintiffs quoted at length from the R. Lorett Dep. See Tr. at 468:22-474:3
(Kagen). The Court will repeat much of that quotation here, eliding wherever doing so increases
readability without doing injury to the substance, because (i) the Motion to Strike relies so
heavily on what transpired during the exchange; and (ii) the rapid-fire question and answer
format becomes byzantine when transcribed using indirect speech and summary. In the R. Lorett
Dep., which took place a few weeks after R. Lorett signed the Lorett Aff., the Plaintiff’s counsel
reported that he engaged in the following exchange with Lorett:
QUESTION: I’m talking about December of 2013. Remember that time?
ANSWER:

I know when December 2013 was.

QUESTION: In that time period, did you have an opinion as to what the fair
value of the price for . . . TIR shares was?
ANSWER:

No opinion.

Tr. at 468:22-469:3 (Kagen). The Plaintiffs highlighted at that point when reciting R. Lorett’s
testimony that R. Lorett’s attestation that he had no opinion as to fair share price contradicted his
affidavit. See Tr. at 469:4-6 (Kagen). The Plaintiffs then returned to their recitation:
QUESTION: No opinion at all; is that right?
ANSWER: No.
QUESTION: So you didn’t believe that $451,000 was fair value for a TIR share
at that time; right?
....
ANSWER: I didn’t say that.
QUESTION: I’m asking you.
ANSWER: I will tell you 451 is an excellent price for a share in Tulsa Inspection.
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QUESTION: Okay. So I wasn’t asking excellent; I was asking fair. Did you
think $451,000 in December of 2013 was a fair value for TIR stock?
ANSWER: I have no valuation. I don’t know.
Tr. at 469:7-20 (Kagen). After emphasizing that R. Lorett apparently “[d]idn’t even know what I
was talking about,” Tr. at 469:25 (Kagen), the Plaintiffs continued:
QUESTION: You would never testify about fair value for TIR shares in
December 2013 given you have no knowledge of it; right?
....
THE WITNESS: I told you, I don’t know the value. I don’t. I have no opinion.
....
QUESTION: Right. So you wouldn’t come to a federal court, would you, and
testify about something you have no opinion about, like fair value, would you?
THE WITNESS: Not a deal guy. I don’t know how to do the value. That’s how
it is. I don’t know.
QUESTION: You understand you’re under oath?
ANSWER: I understand that.
QUESTION: And you understand your testimony under oath can be used in
federal court; right?
ANSWER: I understand that.
QUESTION: Would you -- okay. Would you give testimony under oath in
federal court about fair value of TIR shares at any time period?
....
ANSWER: I don’t know. I don’t know. I don’t know. I don’t’ understand the
question you’re asking me.
QUESTION: What don’t you understand about it?
ANSWER: You’re asking me, will I give testimony? Are they asking me if I’m
sitting in the witness stand? I’ll tell you the truth, I don’t know.

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QUESTION: Got it. So if a judge were to ask you now, do you have any
understanding, sir, of TIR’s fair value for its shares in 2013 at any time, what
would your answer be?
....
THE WITNESS: All I have is an opinion. I don’t have the wherewithal to tell
you the value.
Tr. at 470:1-471:21 (Kagen). According to the Plaintiffs, Plaintiffs’ counsel then asked R. Lorett
whether he thought that the $451,000.00 per share price for TIR shares incorporated a premium
over fair value and discovered that R. Lorett did not understand the phrase “premium over fair
value.” Tr. at 471:23-474:3 (Kagen). In response to the Defendants’ assertions that R. Lorett (i)
had the qualifications to make a fair value assessment; and (ii) had context for such a fair value
determination, even if (iii) he did not have personal knowledge of the fair share value, the
Plaintiffs contended that the Federal Rules of Civil Procedure do not have a context exception to
them: “He either knows it or he doesn’t.” Tr. at 474:16-25 (Kagen). The Plaintiffs repeated this
same point in a few other ways and then concluded their argument. See Tr. at 475:1-476:11
(Kagen).
At that point, the Court tipped its hand to the parties on how it likely would decide the
Motion to Strike, indicating:
I’m inclined to deny the Motion to Strike. I’m not probably going to use a motion
to strike in this case to strike testimony or briefing or things like that. I think it’s
reserved for pleadings and so I’ll probably limit my motions to strike.
As I indicated, though, there were some things about Lorett, particularly
whether he had knowledge to testify about certain things. I’ll try to sort it out. I
guess I’m inclined to think that if a witness says one time he didn’t know and at
another time he said he did, it’s not the summary judgment stage to sort that out.
There is some testimony.
I don’t think it’s going to make any difference if I consider Lorett’s
testimony because if I understood what was going on in the motions for summary
judgment, there was other testimony to support the factual statements. But I will
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try to sort it out and so I’ll deal with this motion.
In the motion we’re going to write, there might be some nicking and
excluding of some things or I’m not considering some of Lorett’s testimony, but
I’ll sort that out when I write the opinion.
Tr. at 476:13-477:7 (Court). The Court then invited the parties to argue the Plaintiff’s Motion to
Strike the Affirmative Defenses, and asked the Plaintiffs whether it could roll the facts from the
Motion to Strike the Affirmative Offense into one comprehensive factual section along with the
facts from the other motions that the parties had argued over the previous day and a half. See Tr.
at 477:8-15 (Court). The Plaintiffs assured the Court that they had no objection to the Court
economizing in such a way, indicating that they indeed preferred to have “it all handled in one
fell swoop,” as they thought that “this issue is the same issue all over again.” Tr. at 477:16-19
(Kagen).
The Plaintiffs stated that they did not plan to rehash the factual bases for the Motion to
Strike Affirmative Defenses, as they were convinced that they mapped perfectly onto the facts as
the parties had adduced them in earlier motions. See Tr. at 477:20-25 (Kagen). The Plaintiffs
agreed with the Court’s distillation of the Motion to Strike Affirmative Defenses, explaining that
they wanted the Court to preclude the Defendants from mentioning affirmative defenses they had
raised in Defendants’ Acquiescence MSJ and Defendants’ Estoppel MSJ in the event that the
Court denies these two MSJs. See Tr. at 479:1-10 (Court, Kagen). The Court told the parties
that its position on whether to strike affirmative defenses had evolved over the years, but that it
presently “seems to me that in the face of these two motions for summary judgment, it’s hard for
me to say that under no circumstances could those affirmative defenses have any merit and since
those go to really the pleading stage, affirmative -- motions to strike, I shouldn’t strike them.”
Tr. at 479:11-480:16 (Court). The Court clarified, however, that

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it’s a different issue as to what we do at trial after I . . . deny the motions for
summary judgment, if I continue to do that. But sticking strictly with the
standards for motions to strike, even if you win [in your opposition to] these two
motions for summary judgment, I shouldn’t strike the affirmative defenses.
Tr. at 480:17-22 (Court). Giving a hint at where it then stood, the Court then offered:
I guess I’m thinking that I shouldn’t grant this motion. I should leave them there
and then sort out at trial what I think is your real concern, not that you care what’s
in the pleadings at this stage. What you really care about is what’s going to occur
at the trial, and that I ought to sort out later on rather than going back and
sanitizing pleadings.
Tr. at 480:23-481:3 (Court). Expanding on these thoughts, the Court continued:
[L]et’s say I had picked up this motion before they ever filed a motion for
summary judgment. I don’t think I’d have granted it. I couldn’t have imagined a
situation in which they could not have raised these equitable defenses. I would
have said no.
Is it really any different now? We spent two days on these things. I can’t
sit here and say they’re not in good faith, there’s no possible way I’m going to
grant them. I’m going to take them back to Albuquerque and think about them.
So should my standard be any different? Just because I’m leaning toward
denying their motion, I shouldn’t change the standard for a motion to strike.
Tr. 482:2-13 (Court). In response, the Plaintiffs acknowledged that courts typically disfavor rule
12(f) motions, but they emphasized that they were concerned about the trial. See Tr. at 483:1416 (Kagen). According to the Plaintiffs, the Defendants keep trying to stretch the timeline for
what constituted the merger transaction beyond what the law allows, which the Plaintiffs averred
should be solely the process whereby the Defendants kicked them out of the company. See Tr. at
484:1-13 (Kagen). Wielding an analogy, the Defendants told the Court that the Defendants’
position is akin to saying that the relevant action in a battery case in which the tortfeasor and his
victim long have known each other is the entire background story of their relationship rather than
the one instance of battery. See Tr. at 484:14-24 (Kagen). Otherwise, the Plaintiffs maintained,
the court in such a case ends up adjudging a multigenerational vendetta rather than a tort. See

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Tr. at 484:24-485:3 (Kagen). The Plaintiffs argued that none of the four defenses that the
Defendants offer their two motions for summary judgment -- acquiescence, unclean hands,
waiver, and estoppel -- are “out as a matter of law,” and should not inhabit some liminal space in
which they are considered out for summary judgment purposes but in for trial purposes. Tr. at
485:4-487:1 (Kagen).
The Plaintiffs assured the Court that they understood that the Court would not deign to
strike the Defendants’ affirmative defenses sua sponte. See Tr. at 487:17-20 (Kagen). At the
same time, however, the Plaintiffs maintained that they had timely moved to strike the
affirmative defenses twenty-one days after the Defendants filed their amended answer. See Tr.
at 487:21-488:21 (Kagen). The Plaintiffs also acknowledged the Court’s hesitation to prevent
new information about these affirmative defenses from emerging during the trial, but they were
confident that the Court already had heard these defenses in their entirety. See Tr. at 488:22489:7 (Kagen).
After a short break, the Court offered the Defendants an opportunity to respond to the
Motion to Strike Affirmative Defenses. See Tr. at 491:25-492:1 (Court). The Defendants agreed
with the Plaintiffs that the Court could combine the facts from the Motion to Strike Affirmative
Defenses with the facts from the Defendants’ two summary judgment motions. See Tr. at 492:912 (DeMuro). The Defendants otherwise disagreed with the Plaintiffs’ positions in the Motion to
Strike Affirmative Defenses, asserting that the Plaintiffs themselves introduce facts that start in
2003 in support of their own points but then chide the Defendants for wanting to introduce
events that occurred in 2013.

See Tr. at 492:25-501:16 (DeMuro).69

69

According to the

The hearing transcript is ambiguous as to the earliest date to which the Defendants are
referring. The transcription reads as follows: “The relevant fact background, here it starts in
2000 -- 2000 -- (discussion held off the record) . . . . So here’s the background of the relevant
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Defendants, the Plaintiffs cannot soundly seek a double standard, whereby they are allowed to
submit evidence concerning events that occurred years before the merger was culminated and the
Defendants are not allowed to introduce evidence of events that occurred only months before the
merger was consummated. See Tr. at 501:10-16 (DeMuro). The Defendants asserted that
applying the same standard to both parties means ipso facto denying the Motion to Strike
Affirmative Defenses. See Tr. at 501:25-502:12 (DeMuro).
The Plaintiffs argued in their reply on the Motion to Strike Affirmative Defenses that the
Defendants correctly note that the Plaintiffs’ arguments mention events that reach back years in
their Complaint, but not in their causes of action. See Tr. at 504:6-12 (Kagen). In their claims,
the Plaintiffs maintained, they talk only about the self-dealing merger and not events that took
place before it. See Tr. at 504:13-24 (Kagen). Furthermore, the Plaintiffs asserted, the timeline
issue is an argument that the Defendants do not make in their filing opposing the Motion to
Strike Affirmative Defenses, which means that it is out of place in a motion hearing, where the
Plaintiffs asserted “you argue the arguments you make in your motion or your opposition. You
don’t get at oral argument to concoct new theories or fabricate new arguments.” Tr. at 504:25505:15 (Kagen).

Quickly tackling each of what they contended are the Defendants’ sole

arguments in opposition to the Motion to Strike Affirmative Defenses, the Plaintiffs argued that
(i) they did not file the motion in an untimely fashion -- a contention so weak, the Plaintiffs

facts and you see it starts in 2013, there’s some background -- 2003.” Tr. at 495:2-7 (DeMuro).
The transcription makes it appear that the Defendants first assert that the Plaintiffs’ timeline
begins in 2000 and then contradict themselves by saying that it begins in 2003. The Court
concludes that such a contradiction did not occur. In spoken English, one begins saying 2003
with the words “two thousand.” The Defendants repetition of these two words, the hesitation
between the repetitions, and the Defendants’ immediate discussion off the record all suggest that
the Defendants were searching for the precise year within the decade of the Aughts to which they
wished to refer. The Defendants follow-up reference to “2003” most naturally reads as the year
that the Defendants originally intended to say before hemming. The Court therefore reports the
year as 2003 here.
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contended, that the Defendants did not even mention it earlier during their oral argument; (ii) the
motion need not be denied as being duplicative of the Plaintiffs’ papers related to the
Defendants’ two summary judgment motions; (iii) the Defendants did not raise in oral argument
their argument that the Plaintiffs impermissibly relied on matters outside the pleadings; and (iv)
the Defendants argue that the Motion to Strike Affirmative Defenses should fail, because of what
the Defendants say in their Answer -- an assertion that the Plaintiffs protest the Defendants
manufactured “on the fly.” Tr. at 505:16-506:21 (Kagen).
The Court then shared with the parties that its inclination at that point was that it probably
would need to be consistent and
hold motions to strike affirmative defenses to the highest standards, and I don’t
think that -- I think these are . . . issues that have to be sorted out largely with the
facts or law, and so I can’t just looking at the pleadings make that determination.
So I think that they don’t meet the highest standards.
I think what the Plaintiffs are really trying to achieve is to limit the
evidence at trial. I think that’s probably at this stage going to be done more with
motions for summary judgment or with motions in limine but not motions to
strike. And if you start encouraging motions to strike to be used for those
purposes, I think you’re going to get some disfavored motions being brought later
in the case. I realize the timing on this one is a little different, but I’m inclined to
deny that motion. I’ll give some thought to what Mr. Kagen has said, but I’m
inclined to deny the motion.
Tr. at 506:25-507:15 (Court). The Court then invited the Plaintiffs to discuss Plaintiffs’ MSJ.
See Tr. at 507:16-18 (Court). Noting that the Court had a hard deadline for closing arguments
that day and that the deadline was only an hour away, the Plaintiffs conveyed that they were
hesitant to begin discussion on a motion that the parties might not have sufficient time to argue
fully. See Tr. at 507:19-508:3 (Kagen). The Court then asked whether it could ask the Plaintiffs
a few questions about the Plaintiffs’ MSJ then instead of hearing a full-blown argument, and the
Plaintiffs readily agreed. See Tr. at 508:4-8 (Court, Kagen).

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The Court first asked the Plaintiffs what the factual basis is for the Plaintiffs’ MSJ. See
Tr. at 508:10-12 (Court). The Plaintiffs responded that the Plaintiffs’ MSJ is based entirely on
undisputed facts, but they did not immediately accept the Court’s invitation to describe what
those facts are. See Tr. at 508:21-509:25 (Kagen). Instead, the Plaintiffs summarized for the
Court the three orders that they were seeking to obtain in Plaintiffs’ MSJ. See Tr. at 509:1-510:5
(Kagan). First, the Plaintiffs said, they wanted an order that says that the entire fairness standard
governs the Plaintiffs’ claims for breach of fiduciary duty -- a standard that the Plaintiffs asserted
the Defendants have conceded applies. See Tr. at 509:1-9 (Kagen). Second, the Plaintiffs
indicated, they want an order that the Defendants bear the burden of proof that the merger was
entirely fair to the minority shareholders, i.e., that it was the product of both fair dealing and fair
price. See Tr. at 509:10-15 (Kagen). Third, the Plaintiffs stated, they want an order that the
Defendants are liable for breaching their duty of entire fairness, because the undisputed material
facts shows that the Defendants have not and cannot meet their burden to show fair dealing. See
Tr. at 509:22-510:2 (Kagen). According to the Plaintiffs, they seek to reserve for trial the issue
of damages resulting from that breach of fiduciary duty. See Tr. at 510:2-5 (Kagen).
The Defendants, seemingly returning full circle to their assertion early in the morning of
the hearing’s first day that they were bearing tidings of good news, see supra, told the Court:
I think I can simplify this because Mr. Kagen is correct. We’ve got an area of
agreement, which is a great way to end the day for anybody in the courtroom.
And that is, we agree that if Your Honor denies the acquiescence motion outright
and says it’s no longer an issue, or even if you submit that to the trial, which we
think you should, the trial court at a minimum, that if we don’t get dismissed on
acquiescence, okay, and it’s a trial issue, we agree that the entire fairness standard
applies to the fiduciary duty claims.
Tr. at 510:10-19 (DeMuro). To ensure that it correctly interpreted what the Defendants were
saying, the Court probed the Defendants with a collection of short questions. See Tr. at 510:23-

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511:19 (Court, DeMuro). Because of the exchange’s importance, the Court recites the exchange
verbatim here:
THE COURT: But you would agree with his statement that the entire fairness
standard governs Plaintiffs’ claims for breach of fiduciary duty if the
acquiescence motion is denied?
MR. DEMURO: Correct.
THE COURT: And would you also agree that the Defendants bear [the] burden of
proving that the merger satisfies the entire fairness standard if the acquiescence
motion for summary judgment is denied?
MR. DEMURO: As it pertains to the fiduciary duty claim, yes.
Tr. at 510:23-511:8 (Court, DeMuro). Inquiring about the Defendants’ assertion that they might
still quibble what the jury instruction looks like regarding the entire fairness standard and from
what specific case law the jury instruction would be pulled, the Court asked the Defendants
whether their quibble would just be about the Defendants’ liability under the entire-fairness
standard. See Tr. at 511:9-10 (Court). The Defendants responded that “that’s the claim, yes.”
Tr. at 511:11 (DeMuro). The Court then turned to the Plaintiffs and asked whether, in writing its
opinion, it could subsume all the facts relevant to the Plaintiffs’ MSJ into the factual sections
combined from the Defendants’ two summary judgment motions so that it might write one
opinion to decide all the motions the Court had heard over the previous two days. See Tr. at
511:18-513:7 (Court). The Defendants asserted that the Court could not glean sufficient facts
about the merger’s history from the Defendants’ summary judgment motions to accomplish that
feat; the Court, the Plaintiffs asserted, needed also to incorporate facts from Plaintiffs’ MSJ. See
Tr. at 512:8-516:24 (Kagen). As one example, the Plaintiffs said, if entire fairness rather than
the business-judgment rule applies, then the burden to prove entire fairness shifts to the
Defendants from the beginning of the case to its end. See Tr. at 518:10-521:4 (Kagen)(citing In

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re Nine Systems, affirmed in Fuchs v. Wren Holdings, LLC, 129 A.3d 882 (Del. 2015).

70

As

another example, the Plaintiffs continued, the facts in the Defendants’ two summary judgment
motions do not provide sufficient detail about the parties involved for the Court to see -- or in the
Plaintiffs’ opinion, to show -- how none of the individual Defendants was a disinterested actor in
the merger transaction. See Tr. at 521:5-523:19 (Kagen).
Veering a bit from the question at that point, the Plaintiffs began to delve into their legal
arguments regarding the liability issue in Plaintiffs’ MSJ. See Tr. at 523:20 (Kagen). The
Plaintiffs asserted that, because the Defendants were not disinterested actors in the merger
transaction, Delaware law required them to put into place protections to safeguard minority
shareholders’ rights at the time of the merger on December 9, 2013. See Tr. at 524:4-546:13
(Kagen)(citing In re Cornerstone Therapeutics Inc., Stockholder Litig., 115 A.3d 1173 (Del.
2015); In re Sunbelt Beverage Corp. S’holder Litig., 2010 WL 26539 (Del. Ch. Jan. 5,
2010)(Chandler, C.), as revised Feb. 15, 2010; Weinberger v. UOP, Inc., 457 A.2d 701 (Del.
1983); Zutrau v. Jansing, 2014 WL 3772859 (Del. Ch. July 31, 2014)(Parsons, V.C.); and
Rice71). The Plaintiffs maintained that the Defendants did not “have to follow a particular
recipe” when it came to designing or implementing these protections, but that the Defendants
needed to take some protections to avoid entire-fairness review. Tr. at 526:14-18 (Kagen). The
Plaintiffs alleged, however, that the Defendants took no prophylactic actions to protect minority
shareholders’ rights at all. See Tr. at 526:18-24 (Kagen). On account of this lack of prophylactic
action and what the Plaintiffs asserted is the Defendants’ inability to demonstrate fair process,
70

At the hearing, the Plaintiffs did not provide the case name or citation for the case they
alleged affirmed In re Nine Systems. The Court has backfilled the case name and citation based
on Westlaw’s report of In re Nine Systems’ subsequent history.
71

It is not clear from the Plaintiffs’ motion filings or from the hearing transcript to which
case “Rice” refers.
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the Plaintiffs contended that Delaware law says that liability attaches to the Defendants. See Tr.
at 527:10-528:23 (Kagen)(citing In re Trados Inc. S’holder Litig., 73 A.3d 17 (Del. Ch.
2013)(Laster, V.C.); Owen v. Cannon, 2015 WL 3819204 (Del. Ch. June 17, 2015)(Bouchard,
C.); In re Celera Corp.; and Lampton Welding Supply Co. v. Stobaugh, 2012 WL 5398790 (N.D.
Okla. Nov. 2, 2012)(Kern, J.))). After offering the Court their thoughts on how the opinion
should be structured, the Plaintiffs then concluded their argument. See Tr. at 530:1 (Kagen).
The Court then asked the Defendants the same question it had asked the Plaintiffs -- whether the
Defendants objected to the Court’s plan to pull the facts from the Plaintiffs’ MSJ into one factual
pool along with the facts from the Defendants’ two summary judgment motions. See Tr. at
530:5-13 (Court). The Defendants responded that this approach is identical to the approach that
they would take were they the Court. See Tr. at 530:14-533:2 (DeMuro).
The Court then permitted the Defendants to present their argument on the liability issue
that the Plaintiffs raise in the Plaintiffs’ MSJ, asking first whether the Defendants could point to
any case that disputes the Plaintiffs’ assertion that the Defendants’ failure to take prophylactic
protections is a per se violation of entire fairness See Tr. at 533:8-13 (Court). The Defendants
went even further, indicating that no case exists that supports the Plaintiffs’ position. See Tr. at
533:14-25 (DeMuro). The Defendants insisted that having a burden-shifting rule in entirefairness standard cases would be nonsensical if failure to take steps to protect the minority
shareholders resulted in per se violation of the entire fairness standard. See Tr. at 534:18-535:24
(DeMuro).
The Court asked the Defendants what they would emphasize as proof that their merger
process was entirely fair if the burden only shifts rather than there being a per se violation. See
Tr. at 535:25-536:16 (Court). The Defendants adduced (i) the bidding process, by which, the

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Defendants said, they had established a premium value for the TIR shares; (ii) the arm’s-length
share sales that the Defendants disclosed to shareholders; and (iii) the Plaintiffs’ concession that
they were fully informed of all the material facts regarding the merger. See Tr. at 536:19-537:25
(DeMuro). The Plaintiffs then quickly argued a reply to Plaintiffs’ MSJ, noting that the Court
only had twelve minutes left before it would be forced to stop argumentation for the day. See Tr.
at 539:14-17 (Kagen). According to the Plaintiffs, their belief that the merger price was fair is
insufficient to prevent liability from attaching if the merger transaction and cash-out were not
procedurally fair.

See Tr. at 539:18-540:24 (Kagen).

The Plaintiffs maintained that this

insufficiency is evident from In re Nine Systems, in that the minority shareholders in that case
“got an amazing price” for their shares, but that the defendant company directors had not
provided sufficiently fair process. Tr. at 540:25-541:6 (Kagen). The court in that case, the
Plaintiffs contended, decided that the defendant directors still were liable, because of the lack of
fair process, ultimately holding that there were no damages to award on account of the fair price
but still awarding the plaintiffs millions of dollars in attorney fees. See Tr. at 541:7-13 (Kagen).
The Plaintiffs then closed their argument by reiterating and summarizing some of their previous
points. See Tr. at 541:22-543:2 (Kagen).
Starting to draw the hearing to a close, the Court divulged to the parties:
I got to look at these cases, . . . but I’m inclined to agree what I have read so far
with Mr. Kagen, that you got to point to something more than the bidding process
and those sort of things, you got to have some reasonable substitute for probably
the things that pass for procedural fairness. I’m not seeing them here.
So I think if I stick with the inclinations I’ve had on the two other motions,
motions for summary judgment, it’s going to lead me to probably grant the
motion that the Plaintiff has here on breach of fiduciary duty, leaving us . . . really
a valuation trial. So that’s what I’m envisioning right at the present time as I head
back to Albuquerque to work on this opinion.
Tr. at 543:4-17 (Court). Engaging in some housekeeping regarding its inclinations on other
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motions that the parties had discussed in their briefs and during the two days of hearing, the
Court further intimated:
I went back and reviewed . . . [the] Plaintiffs’ Motion in Limine to Preclude
Evidence of Plaintiffs’ Conduct. I think I gave a . . . tentative ruling . . . on what I
though on the Akin Gump [letter], that those types of letters would be out. I
thought that the letters as to the . . . Triangle mezzanine . . . group, I thought that
price should come in.
I went back and looked and there was some more materials there, and
without prejudging anything, I wasn’t inclined to keep that out. I don’t . . .
sanitize a trial that much and so I was not inclined to grant those portions of it.
I also spent some time on the . . . Plaintiffs’ Motion to Exclude the
Defendants’ Proffered Expert. . . . In a case called Trujillo[ v. Rio Arriba County].
. . I had to make a critical use about whether I was going to allow the police
officer to testify about a particular test that was administered for a DWI.
In New Mexico, they said a police officer cannot testify that way. I said,
well, that’s all nice and good, but this is federal court, I’m bound by Daubert [v.
Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), I think he can testify to
this. And so I think that may be a little bit relevant. Even if Delaware might have
a little bit of an issue as to whether this person could testify, I think the evidence
may be more procedural.
So I was inclined -- and I need to study this more -- but I was inclined to
think that that was a denial to exclude the Defendants’ proffered expert, because it
seemed to me most of the criticism in a federal court would go to sort of crossexamination, the weight of the evidence, rather than excluding the expert entirely.
But you might want to take a look at that opinion in the footnotes there
where I dealt with that tension between what New Mexico would allow and what
I as a federal judge would allow under Daubert. I think they were taking a
restricted view and more so than a federal court would as to what an expert could
testify to.
Tr. at 543:21-545:16 (Court). Therewith, the second day of hearings ended. See Tr. at 546:2-4
(Court).
LAW REGARDING DIVERSITY JURISDICTION
“Subject-matter jurisdiction under 28 U.S.C. § 1332(a)(1) requires: (i) complete diversity
among the parties; and (ii) that ‘the matter in controversy exceeds the sum or value of $75,000,
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exclusive of interest and costs.’”72 Thompson v. Intel Corp., No. CIV 12-0620 JB/LFG, 2012

72

The Constitution of the United States of America permits -- but does not
mandate -- Congress to authorize an even broader scope of federal subject-matter jurisdiction
than Congress has chosen to enact: “The judicial power shall extend to all cases, in law and
equity, . . . between citizens of different states.” U.S. Const. art. III, § 2, cl. 1. This clause
permits federal jurisdiction: (i) in cases with minimum diversity -- those in which any one party
is a citizen of a different state than any opposing party -- in addition to cases with complete
diversity; and (ii) in cases in which the amount in controversy is below the statutory amount-incontroversy requirement. See State Farm Fire & Cas. v. Tashire, 386 U.S. 523 (1967).
For the federal courts to have jurisdiction over a matter, however, jurisdiction must be
both constitutionally empowered and congressionally authorized. The Honorable John J. Sirica,
then-Chief United States District Judge for the District of Columbia, has stated:
For the federal courts, jurisdiction is not automatic and cannot be presumed.
Thus, the presumption in each instance is that a federal court lacks jurisdiction
until it can be shown that a specific grant of jurisdiction applies. Federal courts
may exercise only that judicial power provided by the Constitution in Article III
and conferred by Congress. All other judicial power or jurisdiction is reserved to
the states. And although plaintiffs may urge otherwise, it seems settled that
federal courts may assume only that portion of the Article III judicial power
which Congress, by statute, entrusts to them. Simply stated, Congress may impart
as much or as little of the judicial power as it deems appropriate and the Judiciary
may not thereafter on its own motion recur to the Article III storehouse for
additional jurisdiction. When it comes to jurisdiction of the federal courts, truly,
to paraphrase the scripture, the Congress giveth, and the Congress taketh away.
Senate Select Comm. on Pres. Campaign Activities v. Nixon, 366 F. Supp. 51, 55 (D.D.C. 1973)
(footnotes omitted). The complete-diversity and amount-in-controversy requirements are two
ways in which Congress has authorized a narrower scope of subject-matter jurisdiction than the
full measure that the Constitution permits. Congress has similarly narrowed federal-question
jurisdiction. Congress may authorize federal “arising under” jurisdiction over all cases in which
“the constitution[] forms an ingredient of the original cause” of action. U.S. Const. art. III, § 2,
cl. 1 (“The judicial power shall extend to all cases, in law and equity, arising under this
Constitution . . . .”).
We think, then, that when a question to which the judicial power of the Union is
extended by the constitution, forms an ingredient of the original cause, it is in the
power of Congress to give the Circuit Courts jurisdiction of that cause, although
other questions of fact or of law may be involved in it.
Osborn v. Bank of U.S., 22 U.S. 738, 822 (1824)(Marshal, C.J.). The federal-question
jurisdiction statute, however, requires that a substantial, actually disputed question of federal law
be present on the face of the well-pleaded complaint, and that its resolution be necessary to the
disposition of the claim over which jurisdiction is being asserted. See 28 U.S.C. § 1331; Grable
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WL 3860748, at *12 (D.N.M. Aug. 27, 2012)(Browning, J.)(citing 28 U.S.C. § 1332(a)). As the
Court has previously explained, “[t]he Supreme Court of the United States has described this
statutory diversity requirement as ‘complete diversity,’ and it is present only when no party on
one side of a dispute shares citizenship with any party on the other side of a dispute.” McEntire
v. Kmart Corp., No. CIV 09-0567 JB/LAM, 2010 WL 553443, at *3 (D.N.M. Feb. 9, 2010)
(Browning, J.)(citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267-68 (1806), overruled in
part by Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149 (1908); McPhail v. Deere &
Co., 529 F.3d 947, 951 (10th Cir. 2008)).

The amount-in-controversy requirement is an

“estimate of the amount that will be put at issue in the course of the litigation.” Valdez v. Metro.
Prop. & Cas. Ins. Co., No. CIV 11-0507 JB/KBM, 2012 WL 1132374, at *15 (D.N.M. March 19,
2012)(Browning, J.)(citing McPhail v. Deere & Co., 529 F.3d at 956). The Court will discuss
the two requirements in turn.
1.

Diversity of Citizenship.

For diversity jurisdiction purposes, a person’s domicile determines citizenship. See
Crowley v. Glaze, 710 F.2d 676, 678 (10th Cir. 1983). “A person’s domicile is defined as the
place in which the party has a residence in fact and an intent to remain indefinitely, as of the time
of the filing of the lawsuit.” McEntire v. Kmart Corp., 2010 WL 553443, at *3 (citing Crowley
v. Glaze, 710 F.2d at 678). See Freeport-McMoRan, Inc. v. KN Energy, Inc., 498 U.S. 426, 428
(1991)(“We have consistently held that if jurisdiction exists at the time an action is commenced,
such jurisdiction may not be divested by subsequent events.”). If neither a person’s residence
nor the location where the person has an intent to remain can be established, the person’s
domicile is that of his or her parents at the time of the person’s birth. See Gates v. Comm’r of

& Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 312 (2005); Louisville &
Nashville R.R. Co. v. Mottley, 211 U.S. 149, 154 (1908).
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Internal Revenue, 199 F.2d 291, 294 (10th Cir. 1952)(“[T]he law assigns to every child at its
birth a domicile of origin. The domicile of origin which the law attributes to an individual is the
domicile of his parents. It continues until another domicile is lawfully acquired.”). Additionally,
“while residence and citizenship are not the same, a person’s place of residence is prima facie
evidence of his or her citizenship.” McEntire v. Kmart Corp., 2010 WL 553443, at *3 (citing
State Farm Mut. Auto. Ins. Co. v. Dyer, 19 F.3d 514, 520 (10th Cir. 1994)). A corporation, on
the other hand, is “deemed to be a citizen of any State by which it has been incorporated and of
the State where it has its principal place of business.” Gadlin v. Sybron Int’l Corp., 222 F.3d
797, 799 (10th Cir. 2000)(quoting 28 U.S.C. § 1332(c)(1)).
In this case, two of the Plaintiffs and four of the Defendants are organized as limited
liability companies (“LLC”). See Complaint at 1. The Supreme Court of the United States
concluded in Carden v. Arkoma Assoc., 494 U.S. 185 (1990) that LLCs do not qualify as
corporations under 38 U.S.C. § 1332(c)(1) for personhood separate from their members. See 494
U.S. at 190. The United States Court of Appeals for the Tenth Circuit has not yet addressed the
question how an LLC’s citizenship should be determined for diversity jurisdiction purposes.
Every other United States Court of Appeals has decided, however, that for diversity jurisdiction
purposes, an LLC shares its members’ citizenship. See Pramco, LLC ex rel. CFSC Consortium,
LLC v. San Juan Bay Marina, Inc., 435 F.3d 51, 54-55 (1st Cir. 2006)(“Every circuit to consider
this issue has held that the citizenship of a limited liability company is determined by the
citizenship of all of its members.”; Handelsman v. Bedford Vill. Assocs. Ltd. P’ship, 213 F.3d
48, 51-52 (2d Cir. 2000)(“ [F]or purposes of diversity jurisdiction, a limited liability company
has the citizenship of its membership.”)(citing Cosgrove v. Bartolotta, 150 F.3d 729, 731 (7th
Cir.1998)); Zambelli Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010)(“[T]he

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citizenship of an LLC is determined by the citizenship of its members.”); Gen. Tech.
Applications, Inc. v. Exro Ltda, 388 F.3d 114, 121 (4th Cir. 2004)(“A limited liability company
organized under the laws of a state is not a corporation and cannot be treated as such under
section 1332 until Congress says otherwise. It is an unincorporated association, akin to a
partnership for diversity purposes, whose citizenship is that of its members.”)(internal citations
omitted); Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1080 (5th Cir. 2008)(“All federal
appellate courts that have addressed the issue have reached the same conclusion: like limited
partnerships and other unincorporated associations or entities, the citizenship of a LLC is
determined by the citizenship of all of its members.”); Delay v. Rosenthal Collins Grp., LLC,
585 F.3d 1003, 1005 (6th Cir. 2009)(“The general rule is that all unincorporated entities -- of
which a limited liability company is one -- have the citizenship of each partner or member.”);
GMAC Commercial Credit, LLC v. Dillard Dep’t. Stores, Inc., 357 F.3d 827, 829 (8th Cir.
2004)(“Holding an LLC’s citizenship is that of its members for diversity jurisdiction purposes,
we are unable, from this record, to determine the citizenship of GMAC’s members.”); Johnson v.
Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006)(“We therefore join our sister
circuits and hold that, like a partnership, an LLC is a citizen of every state of which its
owners/members are citizens.”); Rolling Greens MHP, LP v. Comcast SCH Holdings, LLC, 374
F.3d 1020, 1022 (11th Cir. 2004)(“The federal appellate courts that have answered this question
have all answered it in the same way: like a limited partnership, a limited liability company is a
citizen of any state of which a member of the company is a citizen. We join them in this
holding.”) Wright and Miller agree that a given LLC has the combined citizenship of every
member of that LLC. See 13F Charles Alan Wright et al., Federal Practice & Procedure: Juris. §
3630 (3d ed. 2017).

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2.

Amount in Controversy.

The statutory amount-in-controversy requirement, which presently stands at $75,000.00,
must be satisfied as between a single plaintiff and a single defendant for a federal district court to
have original jurisdiction over the dispute; “a plaintiff cannot aggregate independent claims
against multiple defendants to satisfy the amount-in-controversy requirement,” nor can multiple
plaintiffs aggregate their claims against a single defendant to exceed the threshold. Martinez v.
Martinez, No. CIV 09-0281 JB/KBM, 2010 WL 1608884, at *18 (D.N.M. Mar. 30, 2010)
(Browning, J.). If multiple defendants are jointly liable, or jointly and severally liable, on some
of the claims, however, the amounts of those claims may be aggregated to satisfy the amount-incontroversy requirement as to all defendants jointly liable for the claims. See Alberty v. W. Sur.
Co., 249 F.2d 537, 538 (10th Cir. 1957); Martinez v. Martinez, 2010 WL 1608884, at *18.
Similarly, multiple plaintiffs may aggregate the amounts of their claims against a single
defendant if the claims are not “separate and distinct.” Martin v. Franklin Capital Corp., 251
F.3d 1284, 1292 (10th Cir. 2001)(Seymour, C.J.), abrogated on other grounds by Dart Cherokee
Basin Operating Co. v. Owens, 135 S. Ct. 547 (2014). Multiple claims by the same plaintiff
against the same defendant may be aggregated, even if the claims are entirely unrelated. See
14AA Charles A. Wright, Arthur R. Miller, Edward H. Cooper, Vikram D. Amar, Richard D.
Freer, Helen Hershkoff, Joan E. Steinman, & Catherine T. Struve, Federal Practice and
Procedure, Jurisdiction § 3704, at 566-95 (4th ed. 2011). While the rules on aggregation sound
complicated, they are not in practice: if a single plaintiff -- regardless whether he or she is the
only plaintiff who will share in the recovery -- can recover over $75,000.00 from a single
defendant -- regardless whether the defendant has jointly liable co-defendants -- then the court
has original jurisdiction over the dispute between that plaintiff and that defendant. The court can

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then exercise supplemental jurisdiction over other claims and parties that “form part of the same
case or controversy under Article III,” 28 U.S.C. § 1367(a), meaning that they “derive from a
common nucleus or operative fact,” United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725
(1966).
Satisfaction of the amount-in-controversy requirement must be established by a
preponderance of the evidence. See McPhail v. Deere & Co., 529 F.3d at 953. In the context of
establishing an amount-in-controversy, the defendant seeking removal could appear to be bound
by the plaintiff’s chosen amount of damages in the complaint, which would seem to allow a
plaintiff to avoid federal jurisdiction “merely by declining to allege the jurisdictional amount [in
controversy].” McPhail v. Deere & Co., 529 F.3d at 955. The United States Court of Appeals
for the Tenth Circuit’s decision in McPhail v. Deere & Co. has foreclosed such an option from a
plaintiff who wishes to remain in state court. McPhail v. Deere & Co. holds that a defendant’s
burden in establishing jurisdictional facts is met if the defendant proves “jurisdictional facts that
make it possible that $75,000 is in play.” 529 F.3d at 955.
The Supreme Court recently clarified that a defendant seeking removal to federal court
need only include in the notice of removal a plausible allegation that the amount in controversy
exceeds the jurisdictional threshold. See Dart Cherokee Basin Operating Co. v. Owen, 135 S.
Ct. 547, 554 (2014).

The district court should consider outside evidence and find by a

preponderance of the evidence whether the amount in controversy is satisfied “only when the
plaintiff contests, or the court questions, the defendant’s allegation.” Dart Cherokee Basin
Operating Co. v. Owen,. 135 S. Ct. at 554.
LAW REGARDING FEDERAL-QUESTION JURISDICTION
A federal district court has “original jurisdiction of all civil actions arising under the

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Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331.

Federal-question

jurisdiction exists when “a federal question is presented on the face of the plaintiff’s properly
pleaded complaint.” Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987)(citing Gully v. First
Nat’l Bank, 299 U.S. 109, 112-13 (1936)). As “the master of the claim,” the plaintiff may
choose to sue in state court rather than in federal court “by exclusive reliance on state law.”
Caterpillar, Inc. v. Williams, 482 U.S. at 392.
The defendant may not try to sneak a federal question through the back door by raising a
federal defense, for “it is now settled law that a case may not be removed to federal court on the
basis of a federal defense . . . even if the defense is anticipated in the plaintiff’s complaint, and
even if both parties concede that the federal defense is the only question truly at issue.”
Caterpillar, Inc. v. Williams, 482 U.S. at 393 (citing Franchise Tax Bd. v. Constr. Laborers
Vacation Trust, 463 U.S. 1, 12 (1983)). See Nicodemus v. Union Pac. Corp., 318 F.3d 1231,
1236 (10th Cir. 2003)(“It is well settled that ‘[a] defense that raises a federal question is
inadequate to confer federal jurisdiction.’”

(quoting Merrell Dow Pharmaceuticals, Inc. v.

Thompson, 478 U.S. 804, 808 (1986))). While a plaintiff is free to plead a federal question in his
complaint, “a defendant cannot, merely by injecting a federal question into an action that asserts
what is plainly a state-law claim, transform the action into one arising under federal law, thereby
selecting the forum in which the claim shall be litigated.” Caterpillar, Inc. v. Williams, 482 U.S.
at 399. Even the plaintiff can only go so far in attempting to invoke federal-question jurisdiction,
because “[a]ny statements in the complaint which go beyond a statement of the plaintiff’s claim
and anticipate or reply to a probable defense are to be disregarded” in deciding whether federalquestion jurisdiction exists. Mescalero Apache Tribe v. Martinez, 519 F.2d 479, 481 (10th Cir.
1975).

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In addition to the requirement that the federal question appear on the complaint’s face, a
“plaintiff’s cause of action must either be (i) created by federal law, or (ii) if it is a state-created
cause of action, ‘its resolution must necessarily turn on a substantial question of federal law.’”
Nicodemus v. Union Pac. Corp., 318 F.3d 1231, 1235 (10th Cir. 2003)(quoting Merrell Dow
Pharmaceuticals, Inc. v. Thompson, 478 U.S. at 808). As for the second method, beyond the
requirement of a substantial question of federal law at the case’s heart, the federal question must
also be “contested.” Grable & Sons Metal Prods. v. Darue Eng’g & Mfg., 545 U.S. 308, 313
(2005). Finally, the exercise of federal-question jurisdiction must also be “consistent with
congressional judgment about the sound division of labor between state and federal courts
governing the application of § 1331.” Grable & Sons Metal Prods. v. Darue Eng’g & Mfg., 545
U.S. at 313. In particular, the court must determine whether recognition of federal-question
jurisdiction will federalize a “garden variety” state law claim that will overwhelm the judiciary
with cases traditionally heard in state courts. Grable & Sons Metal Prods. v. Darue Eng’g &
Mfg., 545 U.S. at 318-19 (explaining that “there must always be an assessment of any disruptive
portent in exercising federal jurisdiction” in accepting “garden variety” state law claims).
In Bar J Sand & Gravel, Inc. v. w. Mobil N.M. Inc., No. Civ. 05-800JBWPL, 2005 WL
3663689 (D.N.M. Sept. 29, 2005)(Browning, J.), the plaintiff’s complaint stated causes of action
for breach of contract, breach of the covenant of good faith and fair dealing, and unfair trade
practices. See 2005 WL 3663689, at *7. The defendants argued that a federal question was
apparent on the face of the complaint
because, as a necessary first step in proving a breach of contract, Bar J [Sand and
Gravel, Inc.] must show that a valid contract actually exists between Bar J and the
Defendants. To establish that the parties entered into a valid contract, Bar J must
show that all conditions precedent were met, including Bar J’s possession of a
valid [Sand and Gravel] Permit [that the Pueblo of San Felipe issued to Bar J
Trucking, Inc.]. In turn, whether Bar J [Sand and Gravel, Inc.] acquired a valid
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Permit requires reference to the federal regulations governing the issuance of
those permits. Reaching the last link in their chain of argument, the Defendants
assert that the federal question is whether the creation of the Permit complied with
those regulations.
2005 WL 3663689, at *8 (internal citations omitted). The Court determined that the defendants’
argument confused “a condition precedent to contract performance with a condition precedent to
contract formation” and that the argument was raising an issue of federal law as a potential
defense, rather than as an element of the plaintiff’s case; as such, the issue did not appear on the
face of the plaintiff’s complaint. 2005 WL 3663689, at *8-9 (emphasis in original). The
defendants also argued that whether the plaintiffs validly assigned the Permit to the defendants
raised an issue of federal law, because, “[u]nder federal regulations, an assignment of the Permit
would be invalid without approval by the Secretary of the Interior”; the Court rejected this
argument, because the plaintiff did not request “vindication of any assignment” in the complaint,
and the Court determined the plaintiff was justified in that choice. 2005 WL 3663689, at *9.
The Court further determined that the Supreme Court’s decision in Grable & Sons Metal Prods.
v. Darue Eng’g & Mfg. did not change the result, because,
[u]nlike Grable, Bar J does not premise its breach of contract claim on any point
of federal law. Bar J does not assert that it has a right to recover from the
Defendants because of the existence of some federal law. Bar J argues neither
that the Defendants violated a federal statute nor that the [contract’s] validity
requires the interpretation or application of any provision of the United States
Code.
2005 WL 3663689, at *12 (internal citations omitted). The Court concluded that, because the
plaintiff grounded its right to relief in “basic contract law,” without “referencing any federal
law,” the well-pleaded complaint did not raise an issue of federal law and, thus, the Court did not
have federal-question jurisdiction. 2005 WL 3663689, at *13.
In Olsen v. Quality Continuum Hospice, Inc, 380 F. Supp. 2d 1225 (D.N.M.

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2004)(Browning, J.), the Court determined that the plaintiff’s claims did not present any federal
questions; although the plaintiff asserted that the defendant violated the “United States Social
Security Act of 1965 [and] . . . the Medicare program,”73 the Court concluded that those
provisions do not create a private right of action and, thus, did not create the plaintiff’s causes of
action. 380 F. Supp. 2d at 1229. The Court also determined that, because the plaintiff’s causes
of action were essentially medical malpractice claims and arose under New Mexico common law
or New Mexico statutes, they would not depend on resolution of a question of federal law. See
380 F. Supp. 2d at 1230-31.
OKLAHOMA CHOICE OF LAW
As the Court previously has noted, where “a plaintiff invokes a federal district court’s
diversity jurisdiction, the district court looks to the forum state’s choice-of-law rules to
determine which state’s substantive law to apply.” Hunt v. North Carolina Logistics, Inc., 193 F.
Supp. 3d 1253 (D.N.M. 2016)(Browning, J.)(citing Pepsi-Cola Bottling Co. v. PepsiCo, Inc., 431
F.3d 1241, 1255 (10th Cir.2005)). Oklahoma’s contractual choice-of-law jurisprudence is rooted
in a directive from 15 Okla. Stat. § 162, which provides: “A contract is to be interpreted
according to the law and usage of the place where it is to be performed, or, if it does not indicate
a place of performance, according to the law and usage of the place where it is made.” 15 Okla.
Stat. § 162. Remarkably, this statutory text has remained unchanged since Oklahoma’s territorial
days. See Stat. 1890, § 864; R.L. 1910, § 956; Comp. Stat. § 5049 (1921)(“A contract is to be
interpreted according to the law and usage of the place where it is to be performed, or, if it does
not indicate a place of performance, according to the law and usage of the place where it is
made.”). The Supreme Court of Oklahoma held in Panama Processes v. Cities Serv. Co., 1990
73

Social Security Act of 1965, Pub. L. 89-97, 79 Stat. 286, and Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173, 117 Stat. 2066.
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OK 66, 796 P.2d 276, that 15 Okla. Stat. § 162 does not default to the hoary lex loci contractus
rule,74 but rather that the state Legislature intended to make the default rule lex loci solutionis,75
with lex loci contractus only becoming the interpretive rule when a contract does not specify
where performance is supposed to occur. See Panama Processes v. Cities Serv. Co., 1990 OK
66, ¶ 26, 796 P.2d at 287. The Supreme Court of Oklahoma has stated:
Section 162 is not a declaration of the rule of lex loci contractus, as [the Plaintiff]
maintains, but instead is a declaration that generally a contract is to be interpreted
under the rule of lex loci solutionis, the law of the place of performance. It is only
when there is no indication in the contract where performance is to occur that the
interpretation would apply the lex loci contractus rule. In this situation, we look
to the contract to determine if there is a place of performance indicated; if there is,
the law of the place of performance controls under our statute, and there is no
need to determine the law of the place where the contract was made, nor to adopt
any other approach to determine the applicable law.
Panama Processes v. Cities Serv. Co., 1990 OK 66, ¶ 26, 796 P.2d at 287. The Supreme Court
of Oklahoma later carved out two -- but only two -- exceptions to this interpretive hierarchy: (i)
contracts for sales of goods under Article II of the Uniform Commercial Code; and (ii) motor
vehicle insurance contracts. See Bohannan v. Allstate Ins. Co., 1991 OK 64, 820 P.2d 787, 795.
Oklahoma recognizes parties’ selection of a particular state’s law to control a contract

74

Black’s Law Dictionary defines this rule as “[t]he law of the place where a contract is
executed or to be performed. See Black’s Law Dictionary 995 (10th ed. 2014). Black’s Law
Dictionary then explains:
“The lex loci contractus controls the nature, construction, and validity of the
contract; and on this broad foundation the law of contracts, founded on necessity
and commercial convenience, is said to have been originally established. If the
rule were otherwise, the citizens of one country could not safely contract, or carry
on commerce, in the territories of another.”
Black’s Law Dictionary 995 (10th ed. 2014)( quoting 2 James Kent, Commentaries on American
Law 454 (George Comstock ed., 11th ed. 1866).
75

Black’s Law Dictionary defines this term as “[t]he law of the place where a contract is
to be performed (esp. by payment).” Black’s Law Dictionary 995 (10th ed. 2014).
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agreement as long as the selected law is not contrary to Oklahoma’s established public policy.
See, e.g., Dean Witter Reynolds, Inc. v. Shear, 1990 OK 67 ¶ 6 n.12, 796 P.2d at 299 n.12
(stating choice-of-law clause may be invalidated if: (i) application of the chosen law is “contrary
to a fundamental policy” of a state with a greater interest in the controversy; (ii) that state’s law
would govern absent a choice-of-law provision in the contract)(emphasis omitted)(citing
Restatement (Second) of Conflict of Laws § 188 (1971))). The selection of a particular state’s
laws can be implicit, see Atchison, T. & S. F. Ry. Co. v. Smith, 1913 OK 162, ¶ 16, 132 P. 494,
497, or explicit, see Carmack v. Chem. Bank N.Y. Trust Co., 1975 OK 77, 536 P.2d 897. On the
flip side, if another state’s law would be repugnant to Oklahoma’s established law or public
policy, Oklahoma law will govern the contract, trumping the parties’ choice of law. See Pate v.
MFA Mut. Ins. Co., 1982 OK CIV APP 36, ¶ 11, 649 P.2d 809, 811 (stating that “general rule”
does not apply if the law of that place is “contrary to the law or public policy of the state where
enforcement of the contract is attempted”)(citing Telex Corp. v. Hamilton,76 576 P.2d 767 (1978)
and Clark v. First. Nat. Bank, 59 Okla. 2, 157 P. 96 (1916)).
Oklahoma law on what state’s law Oklahoma requires federal courts to apply when a
contract has multiple places of performance remains scarce, but it points in the direction of
applying the law of the state of the principal place of performance. In 1913, just six years after
Oklahoma became a state, Atchison, T. & S.F. Ry. Co. v. Smith, 38 Okla. 157, 132 P. 494, the
Supreme Court of Oklahoma concluded that the law of the principal place of performance should
govern an agreement when a contract’s parties contemplate more than one place of performance.
See Atchison, T. & S.F. Ry. Co. v. Smith, 132 P. at 496. In 1990, the Supreme Court of
76

At least in the Westlaw version of its opinion in Pate v. MFA Mut. Ins. Co. as of April
11, 2017, the Court of Appeals of Oklahoma miscites this case as “Telex Corp. v. Hamilton,
Okl.,” but cites the correct reporter information. See Pate v. MFA Mut. Ins. Co., 1982 OK CIV
APP 36, ¶ 11, 649 P.2d 809, 811. The Court makes a correction to the citation in the body text.
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Oklahoma revisited this question for the first time in seventy-seven years in Panama Processes v.
Cities Serv. Co. In that case, the Supreme Court of Oklahoma needed to decide whether the laws
of Brazil or New York should govern a letter of agreement between a minority shareholder and
the majority shareholder of a Brazilian corporation. See Panama Processes v. Cities Serv. Co.,
796 P.2d at 278-79. The parties had negotiated and signed the agreement in New York at the
majority shareholder’s principal place of business, but the Supreme Court of Oklahoma
concluded that the contract was to be performed in major part in Brazil even though some of the
contract was to be performed in New York. See Panama Processes v. Cities Serv. Co., 796 P.2d
at 288. The Supreme Court of Oklahoma held that Brazil’s law should govern, because Brazil
was the principal place of performance. See Panama Processes v. Cities Serv. Co., 796 P.2d at
287-88.
LAW REGARDING MOTIONS FOR SUMMARY JUDGMENT
Rule 56(a) of the Federal Rules of Civil Procedure states: “The court shall grant summary
judgment if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “The movant bears the
initial burden of ‘show[ing] that there is an absence of evidence to support the nonmoving
party’s case.’”

Herrera v. Santa Fe Pub. Sch., 956 F. Supp. 2d 1191, 1221 (D.N.M.

2013)(Browning, J.)(quoting Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th
Cir. 1991)). See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Before the court can rule on a party’s motion for summary judgment, the moving party
must satisfy its burden of production in one of two ways: by putting evidence into the
record that affirmatively disproves an element of the nonmoving party’s case, or by
directing the court’s attention to the fact that the non-moving party lacks evidence on an
element of its claim, “since a complete failure of proof concerning an essential element of
the nonmoving party’s case necessarily renders all other facts immaterial.” Celotex, 477
U.S. at 323-25. On those issues for which it bears the burden of proof at trial, the
nonmovant “must go beyond the pleadings and designate specific facts to make a
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showing sufficient to establish the existence of an element essential to his case in order to
survive summary judgment.” Cardoso v. Calbone, 490 F.3d 1194, 1197 (10th Cir. 2007).
Plustwik v. Voss of Norway ASA, 2013 WL 1945082, at *1 (D. Utah May 9, 2013)(Sam, J.)
(emphasis added). “If the moving party will bear the burden of persuasion at trial, that party
must support its motion with credible evidence -- using any of the materials specified in Rule
56(c) -- that would entitle it to a directed verdict if not controverted at trial.” Celotex Corp. v.
Catrett, 477 U.S. at 331 (Brennan, J., dissenting)(emphasis in original).77 Once the movant
meets this burden, rule 56 requires the nonmoving party to designate specific facts showing that
there is a genuine issue for trial. See Celotex Corp. v. Catrett, 477 U.S. at 324; Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 256 (1986).
The party opposing a motion for summary judgment must “set forth specific facts
showing that there is a genuine issue for trial as to those dispositive matters for which it carries
the burden of proof.” Applied Genetics Int’l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238,
1241 (10th Cir. 1990).

See Vitkus v. Beatrice Co., 11 F.3d 1535, 1539 (10th Cir. 1993)

(“However, the nonmoving party may not rest on its pleadings but must set forth specific facts
showing that there is a genuine issue for trial as to those dispositive matters for which it carries
the burden of proof.”)(internal quotation marks omitted). Rule 56(c)(1) provides: “A party
asserting that a fact . . . is genuinely disputed must support the assertion by . . . citing to
particular parts of materials in the record, including depositions, documents, electronically stored
information, affidavits or declarations, stipulations (including those made for purposes of the
77

Although the Honorable William J. Brennan, Jr., Associate Justice of the Supreme
Court of the United States of America, dissented in Celotex Corp. v. Catrett, this sentence is
widely understood to be an accurate statement of the law. See 10A Charles Allen Wright &
Arthur R. Miller, Federal Practice and Procedure § 2727, at 470 (3d ed. 1998)(“Although the
Court issued a five-to-four decision, the majority and dissent both agreed as to how the
summary-judgment burden of proof operates; they disagreed as to how the standard was applied
to the facts of the case.”).
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motion only), admissions, interrogatory answers, or other materials.” Fed. R. Civ. P. 56(c)(1). It
is not enough for the party opposing a properly supported motion for summary judgment to “rest
on mere allegations or denials of his pleadings.” Anderson v. Liberty Lobby, Inc., 477 U.S. at
256. See Abercrombie v. City of Catoosa, 896 F.2d 1228, 1231 (10th Cir. 1990); Otteson v.
United States, 622 F.2d 516, 519 (10th Cir. 1980)(“[O]nce a properly supported summary
judgment motion is made, the opposing party may not rest on the allegations contained in his
complaint, but must respond with specific facts showing the existence of a genuine factual issue
to be tried.”)(citation and internal quotation marks omitted).
Nor can a party “avoid summary judgment by repeating conclusory opinions, allegations
unsupported by specific facts, or speculation.” Colony Nat’l Ins. Co. v. Omer, No. CIV 07-2123
JAR, 2008 WL 2309005, at *1 (D. Kan. June 2, 2008)(Robinson, J.)(citing Argo v. Blue Cross &
Blue Shield of Kan., Inc., 452 F.3d 1193, 1199 (10th Cir. 2006); Fed. R. Civ. P. 56(e)). “In
responding to a motion for summary judgment, ‘a party cannot rest on ignorance of facts, on
speculation, or on suspicion and may not escape summary judgment in the mere hope that
something will turn up at trial.’” Colony Nat’l Ins. Co. v. Omer, 2008 WL 2309005, at *1
(quoting Conaway v. Smith, 853 F.2d 789, 794 (10th Cir. 1988)).
To deny a motion for summary judgment, genuine factual issues must exist that “can be
resolved only by a finder of fact because they may reasonably be resolved in favor of either
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. at 250. A mere “scintilla” of evidence will
not avoid summary judgment. Vitkus v. Beatrice Co., 11 F.3d at 1539 (citing Anderson v.
Liberty Lobby, Inc., 477 U.S. at 248). Rather, there must be sufficient evidence on which the
fact finder could reasonably find for the nonmoving party. See Anderson v. Liberty Lobby, Inc.,
477 U.S. at 251 (quoting Schuylkill & Dauphin Improvement Co. v. Munson, 81 U.S. 442, 448

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(1871)); Vitkus v. Beatrice Co., 11 F.3d at 1539. “[T]here is no evidence for trial unless there is
sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If
the evidence is merely colorable . . . or is not significantly probative, . . . summary judgment may
be granted.” Anderson v. Liberty Lobby, Inc., 477 U.S. at 249 (citations omitted). Where a
rational trier of fact, considering the record as a whole, could not find for the nonmoving party,
there is no genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986).
When reviewing a motion for summary judgment, the court should keep in mind certain
principles. First, the court’s role is not to weigh the evidence, but to assess the threshold issue
whether a genuine issue exists as to material facts requiring a trial. See Anderson v. Liberty
Lobby, Inc., 477 U.S. at 249. Second, the ultimate standard of proof is relevant for purposes of
ruling on a summary judgment, such that, when ruling on a summary judgment motion, the court
must “bear in mind the actual quantum and quality of proof necessary to support liability.”
Anderson v. Liberty Lobby, Inc., 477 U.S. at 254. Third, the court must resolve all reasonable
inferences and doubts in the nonmoving party’s favor, and construe all evidence in the light most
favorable to the nonmoving party.

See Hunt v. Cromartie, 526 U.S. 541, 550-55 (1999);

Anderson v. Liberty Lobby, Inc., 477 U.S. at 255 (“The evidence of the non-movant is to be
believed, and all justifiable inferences are to be drawn in his favor.”). Fourth, the court cannot
decide any issues of credibility. See Anderson v. Liberty Lobby, Inc., 477 U.S. at 255.
There are, however, limited circumstances in which the court may disregard a party’s
version of the facts. This doctrine developed most robustly in the qualified immunity arena. In
Scott v. Harris, 550 U.S. 372 (2007), the Supreme Court concluded that summary judgment was

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appropriate where video evidence “quite clearly contradicted” the plaintiff’s version of the facts.
550 U.S. at 378-81. The Supreme Court explained:
At the summary judgment stage, facts must be viewed in the light most favorable
to the nonmoving party only if there is a “genuine” dispute as to those facts. Fed.
Rule Civ. Proc. 56(c). As we have emphasized, “[w]hen the moving party has
carried its burden under Rule 56(c), its opponent must do more than simply show
that there is some metaphysical doubt as to the material facts . . . . Where the
record taken as a whole could not lead a rational trier of fact to find for the
nonmoving party, there is no ‘genuine issue for trial.’” Matsushita Elec.
Industrial Co. v. Zenith Radio Corp., 475 U.S. [at] 586-587 . . . (footnote
omitted). “[T]he mere existence of some alleged factual dispute between the
parties will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact.”
Anderson v. Liberty Lobby, Inc., 477 U.S. [at] 247-248 . . . . When opposing
parties tell two different stories, one of which is blatantly contradicted by the
record, so that no reasonable jury could believe it, a court should not adopt that
version of the facts for purposes of ruling on a motion for summary judgment.
That was the case here with regard to the factual issue whether respondent was
driving in such fashion as to endanger human life. Respondent’s version of
events is so utterly discredited by the record that no reasonable jury could have
believed him. The Court of Appeals should not have relied on such visible
fiction; it should have viewed the facts in the light depicted by the videotape.
Scott v. Harris, 550 U.S. at 380-81 (emphasis in original).
The Tenth Circuit applied this doctrine in Thomson v. Salt Lake County and explained:
[B]ecause at summary judgment we are beyond the pleading phase of the
litigation, a plaintiff’s version of the facts must find support in the record: more
specifically, “[a]s with any motion for summary judgment, when opposing parties
tell two different stories, one of which is blatantly contradicted by the record, so
that no reasonable jury could believe it, a court should not adopt that version of
the facts.” York v. City of Las Cruces, 523 F.3d 1205, 1210 (10th Cir. 2008)
(quoting Scott, 550 U.S. at 380); see also Estate of Larsen ex rel. Sturdivan v.
Murr, 511 F.3d 1255, 1258 (10th Cir. 2008).
Thomson v. Salt Lake Cty., 584 F.3d at 1312 (brackets omitted). “The Tenth Circuit, in Rhoads
v. Miller, [352 F. App’x 289 (10th Cir. 2009)(Tymkovich, J.)(unpublished),78] explained that the

78

Rhoads v. Miller is an unpublished opinion, but the Court can rely on an unpublished
opinion to the extent its reasoned analysis is persuasive in the case before it. See 10th Cir. R.
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blatant contradictions of the record must be supported by more than other witnesses’
testimony[.]” Lymon v. Aramark Corp., 728 F. Supp. 2d 1222, 1249 (D.N.M. 2010)(Browning,
J.)(citation omitted), aff’d, 499 F. App’x 771 (10th Cir. 2012).
In evaluating a motion for summary judgment based on qualified immunity, we
take the facts “in the light most favorable to the party asserting the injury.” Scott
v. Harris, 550 U.S. 372, 377 (2007). “[T]his usually means adopting . . . the
plaintiff’s version of the facts,” id. at 378, unless that version “is so utterly
discredited by the record that no reasonable jury could have believed him,” id. at
380. In Scott, the plaintiff’s testimony was discredited by a videotape that
completely contradicted his version of the events. 550 U.S. at 379. Here, there is
no videotape or similar evidence in the record to blatantly contradict Mr. Rhoads’
testimony. There is only other witnesses’ testimony to oppose his version of the
facts, and our judicial system leaves credibility determinations to the jury. And
given the undisputed fact of injury, Mr. Rhoads’ alcoholism and memory
problems go to the weight of his testimony, not its admissibility . . . . Mr. Rhoads
alleges that his injuries resulted from a beating rendered without resistance or
provocation. If believed by the jury, the events he describes are sufficient to
support a claim of violation of clearly established law under Graham v. Connor,
490 U.S. 386, 395-96 (1989), and this court’s precedent.
Rhoads v. Miller, 352 F. App’x at 291-92 (internal quotation marks omitted). See Lymon v.
Aramark Corp., 728 F. Supp. 2d at 1249-50 (quoting Rhoads v. Miller, 352 F. App’x at 291-92).
In a concurring opinion in Thomson v. Salt Lake County, the Honorable Jerome A. Holmes,
United States Circuit Judge for the United States Court of Appeals for the Tenth Circuit, stated

32.1(A) (“Unpublished opinions are not precedential, but may be cited for their persuasive
value.”). The Tenth Circuit has stated:
In this circuit, unpublished orders are not binding precedent, . . . and we have generally
determined that citation to unpublished opinions is not favored. However, if an
unpublished opinion or order and judgment has persuasive value with respect to a
material issue in a case and would assist the court in its disposition, we allow a citation to
that decision.
United States v. Austin, 426 F.3d 1266, 1274 (10th Cir. 2005)(citations omitted). The Court
concludes that Rhoads v. Miller, Lobozzo v. Colo. Dep’t of Corr., 429 F. App’x 707 (10th Cir.
2011), United States v. Ceballos, 355 F. App’x 226 (10th Cir. 2009), and United States v.
Aragones, 483 F. App’x 415 (10th Cir. 2012), have persuasive value with respect to material
issues, and will assist the Court in its preparation of this Memorandum Opinion and Order.
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that courts must focus first on the legal question of qualified immunity and “determine whether
plaintiff’s factual allegations are sufficiently grounded in the record such that they may
permissibly comprise the universe of facts that will serve as the foundation for answering the
legal question before the court,” before inquiring into whether there are genuine issues of
material fact for resolution by the jury. 584 F.3d at 1326-27 (Holmes, J., concurring)(citing
Goddard v. Urrea, 847 F.2d 765, 770 (11th Cir. 1988)(Johnson, J., dissenting))(observing that,
even if factual disputes exist, “these disputes are irrelevant to the qualified immunity analysis
because that analysis assumes the validity of the plaintiffs’ facts”).
LAW REGARDING MOTIONS TO STRIKE
Rule 12(f) of the Federal Rules of Civil Procedures provides:
(f)

Motion to Strike. The court may strike from a pleading an insufficient
defense or any redundant, immaterial, impertinent, or scandalous matter.
The court may act:
(1)

on its own; or

(2)

on motion made by a party either before responding to the
pleading or, if a response is not allowed, within 21 days
after being served with the pleading.

Fed. R. Civ. P. 12(f). Professors Charles Wright and Arthur Miller have recognized, however,
that such motions are not favored and, generally, should be denied:
The district court possesses considerable discretion in disposing of a Rule 12(f)
motion to strike redundant, impertinent, immaterial, or scandalous matter.
However, because federal judges have made it clear, in numerous opinions they
have rendered in many substantive contexts, that Rule 12(f) motions to strike on
any of these grounds are not favored, often being considered purely cosmetic or
“time wasters,” there appears to be general judicial agreement, as reflected in the
extensive case law on the subject, that they should be denied unless the
challenged allegations have no possible relation or logical connection to the
subject matter of the controversy . . . .

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5C C. Wright & A. Miller, Federal Practice & Procedure § 1382, at 433-36 (3d. ed.
2004)(footnotes omitted). Accord Burget v. Capital W. Sec., Inc., No. CIV-09-1015-M, 2009
WL 4807619, at *1 (W.D. Okla. December 8, 2009)(Miles-LaGrange, C.J.)(citing Scherer v.
U.S. Dep’t of Educ., 78 F. App’x 687, 689 (10th Cir. 2003)(unpublished))(“While motions to
strike are generally disfavored, the decision to grant a motion to strike is within the discretion of
the court.”).
“Allegations will not be stricken as immaterial under this rule unless they have no
possible bearing on the controversy.” Estate of Gonzales v. AAA Life Ins. Co., No. CIV 110486 JB/WDS, 2012 WL 1684599, at *5 (D.N.M. May 8, 2012)(Browning, J.)(quoting Sai
Broken Arrow C, LLC v. Guardian Emergency Vehicles, Inc., No. 09-CV-0455-CVE-FHM,
2010 WL 132414, at *5 (N.D. Okla. January 8, 2010)(Egan, J.). “The Court must be convinced
that there are no questions of fact, that any questions of law are clear and not in dispute, and that
under no set of circumstances could the defenses succeed.” Friends of Santa Fe Cnty. v. LAC
Minerals, Inc., 892 F. Supp. 1333, 1343 (D.N.M. 1995)(Hansen, J.)(quoting Carter-Wallace, Inc.
v. Riverton Lab., Inc., 47 F.R.D. 366, 368 (S.D.N.Y. 1969)(Cannella, J.)(internal quotation
marks omitted).

Professors Wright and Miller have also commented on what constitutes

“immaterial” matter in the context of a motion to strike. “‘Immaterial’ matter is that which has
no essential or important relationship to the claim for relief or the defenses being pleaded, or a
statement of unnecessary particulars in connection with and descriptive of that which is
material.” 5C Wright & Miller, supra, § 1382, at 458-60 (footnotes omitted).
Moreover, “[o]nly material included in a ‘pleading’ may be the subject of a motion to
strike, and courts have been unwilling to construe the term broadly. Motions, briefs, . . .
memoranda, objections, or affidavits may not be attacked by the motion to strike.” Dubrovin v.

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Ball Corp. Consol. Welfare Ben. Plan for Emps., No. 08-CV-00563-WYD-KMT, 2009 WL
5210498, at *1 (D. Colo. Dec. 23, 2009)(Wiley, J.). Accord Ysais v. N.M. Judicial Standard
Comm’n, 616 F. Supp. 2d 1176, 1184 (D.N.M. 2009)(Browning, J.)(citing Searcy v. Soc. Sec.
Admin., 956 F.2d 278, 1992 WL 43490, at *1, *4 (10th Cir. 1998)(unpublished table
decision))(“Generally . . . motions, briefs, and memoranda may not be attacked by a motion to
strike.”). “The Federal Rules of Civil Procedure define ‘pleadings’ as a complaint or third-party
complaint; an answer to a complaint, a third-party complaint, a counterclaim, or a crossclaim;
and, ‘if the court orders one, a reply to an answer.’” Ysais v. N.M. Judicial Standard Comm’n,
616 F. Supp. 2d at 1184 (quoting Fed. R. Civ. P. 7(a)).
“Striking a pleading or part of a pleading is a drastic remedy and because a motion to
strike may often be made as a dilatory tactic, motions to strike under Rule 12(f) generally are
disfavored.” Estate of Gonzales v. AAA Life Ins. Co., 2012 WL 1684599, at *5 (quoting Sai
Broken Arrow C, LLC v. Guardian Emergency Vehicles, Inc., 2010 WL 132414, at *5)(internal
quotation marks omitted)). “The exception to this principle is that a Court may ‘choose to strike
a filing that is not allowed by local rule, such as a surreply filed without leave of court.’” Ysais
v. N.M. Judicial Standard Comm’n, 616 F. Supp. 2d at 1184 (citing In re Hopkins, 162 F.3d
1173, 1998 WL 704710, at *3 n.6 (10th Cir. 1998)(unpublished table decision)).
For example, in Skyline Potato, Co., Inc. v. Hi-Land Potato, Co., Inc., No. CIV 10-698, 2012
WL 6846386 (D.N.M. December 31, 2012)(Browning, J.), the Court denied a motion to strike a
letter filed with the Court, because the letter was not a pleading and did not pertain to either
party’s legal defenses or arguments -- the letter expressed one party’s position regarding whether
the Court should rule on summary judgment motions pending at the close of a bench trial. See
2012 WL 6846386, at *6. Similarly, in Great Am. Ins. Co. v. Crabtree, No. CIV 11-1129

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JB/KBM, 2012 WL 3656500 (D.N.M. August 23, 2012)(Browning, J.), the Court denied a
plaintiff’s motion to strike exhibits attached to the defendant’s motion to dismiss, because they
were neither pleadings nor irrelevant. See 2012 WL 3656500, at *18. In Applied Capital, Inc. v.
Gibson, 2007 WL 5685131 (D.N.M. September 27, 2007)(Browning, J.), the Court refused the
plaintiff’s request to strike a motion to dismiss because rule 12(f) applies only to pleadings, and
not to a motion to dismiss. See 2007 WL 5685131, at *18. In Estate of Anderson v. Denny’s,
Inc., No. CIV 12-0605 JB/GBW, 2013 WL 690809 (D.N.M. February 7, 2013)(Browning, J.),
the Court denied the plaintiff’s request to strike a notice of completion of briefing for similar
reasons. See 2013 WL 690809, at *12.
DELAWARE MERGER LAW
For the first century after Delaware’s 1792 state constitution authorized it to charter
corporations, see Del. Const. art. VIII, § 8 (1792), the state did so at a glacial pace. For four
decades, an average of only one business per year incorporated in the state.79 Then, feeling that
even this small number disadvantaged the state in business contracts,80 the state legislature nearly
brought the glacier to a standstill by imposing onerous regulations on corporate certification.81

79

This rate is based on the Court’s calculation. One incorporation took place over the
time period 1792 to 1800. See 2 Del. Laws 1025-1379; 3 Del. Laws 3-113. Twelve
incorporations took place 1800-1810. See 3 Del. Laws 119-399; 4 Del. Laws 3-343. Eighteen
incorporations took place before enactment of a new state constitution in 1831. See 6-8 Del.
Laws.
80

In 1819, the Supreme Court of the United States held in the landmark case Dartmouth
College v. Woodward, 17 U.S. (4 Wheat) 518 (1819), that a corporate charter is a contract
between the state and the corporation, and that the state cannot unilaterally change a corporate
charter without running afoul of Article I, Section 10 of the Constitution of the United States of
America, which bars states from enacting laws which would impair the obligations of contract.
See U.S. Const. art. I § 8. In response, states became warier about granting corporate charters.
81

Under the Delaware General Incorporation Act of 1875, 15 Del. Laws 3, for instance, a
business that wished to incorporate in the state needed to have at least two Delawareans sign a
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The state climate began to change vis-à-vis corporations at the turn of the twentieth
century. See generally Russell Carpenter Larcom, The Delaware Corporation 4 (2013)(1937).
The citizenry was the first to warm to welcoming more corporations into the state, using the state
constitutional convention of 1897 to supplant the state legislature’s exclusive authority to
incorporate businesses via specific state acts with a general corporation law. See Del. Const. art.
IX, § 2 (1897). The legislature did not, however, lag too far behind. Enacting Delaware’s first
version of the General Corporation Law the following year, the legislature simplified
incorporation procedures, lowered corporate taxes, and granted corporations broad powers. See
Act of March 10, 1899, 21 Del. Laws 303.
The change’s timing, from Delaware’s perspective, could not have been more propitious.
A quarter century of economic development since the Civil War had interlinked regional
American economies as never before,82 a truth first hammered home via a golden spike
connecting east and west at Promontory Point in Utah in 186983 and then increasing with the rise
of the first nationwide monopolies and trusts in American history. See, e.g., H.W. Brands,

certificate of incorporation that the business then could submit to an associate judge of the
Superior Court in the county where the aspirant corporation planned to be situated. The business
could submit the certificate to a judge only during a court vacation and only after having
published advanced notice of this action in the country newspaper for at least thirty days. See 15
Del. Laws 3. If the associate judge found nothing objectionable or detrimental to the
commonweal in the aspirant corporation’s objects, articles, or conditions, then the would-be
corporation needed to post notice of this action in the country newspaper for at least three weeks.
See 15 Del. Laws 3. If no one raised an objection to the incorporation over that time period, then
the judge -- in the next term of court -- had the option to file the incorporation certificate with the
Delaware Secretary of State. See 15 Del. Laws 3.
82
See, e.g., H.W. Brands, American Colossus: The Triumph of Capitalism, 1865-1890, at
43-69 (Oxford History of the United States)(2011).
83

At the culmination of a three-day ceremony at Promontory Point stretching May 8-10,
1869, Civil War veterans from both the Union and the Confederacy collectively tapped a golden
spike into the last tie on the transcontinental railroad. See Stephen E. Ambrose, Nothing Like It
in the World: The Men Who Built the Transcontinental Railroad 356-368 (2000).
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American Colossus: The Triumph of Capitalism, 1865-1890, at 43-69 (Oxford History of the
United States)(2011). For the first few years, Americans seemed to get a rise out of vertical
integration.84 By the late 1880s, however, this golden age started to lose its luster for many
Americans as monopolists -- in a move at least as old as Aristotle85 and one about which Adam
Smith more recently had forewarned86 -- used monopoly power to raise prices far above the
marginal costs of production.87
A backlash against monopolies and trusts began in the several states, fifteen of which had
incorporated antitrust provisions into their constitutions by 1890. See 2 Report of the United
States Industrial Commission 264 (1900-1902)(on file with the University of California)(scanned
version available via Google Books at https://archive.org/details/reportsindustri29clargoog).
Under the spur of then-President Benjamin Harrison, Congress took up the antitrust crusade as
well, clamping down on monopolies and corporate collusion that restrained interstate commerce
in the Sherman Antitrust Act of 1890, 26 Stat. 209 (1890), codified at 15 U.S.C. §§ 1-7.88 One

84

A common belief, indebted in part to an industrial application of the then-prevalent
theory of Social Darwinism, was that vertical integration and national monopolization increased
overall supply and the local market penetration of many consumer goods while decreasing prices
thanks to economies of scale. See, e.g., Louis M. Hacker & Helene S. Zahler, 2 The Shaping of
the American Tradition 809 (quoting Andrew Carnegie to this effect).
85

See Aristotle, Politics 1259a.

86

See Adam Smith, The Wealth of Nations 128.

87

See, e.g., Gerald Leinwand, A History of the United States Federal Bureau of
Corporations (1903-1914), at 13 (1962)(unpublished Ph.D. dissertation, New York University).
88

For an overview of the radically different federal regulatory stance toward corporations
in the years just before the Sherman Antitrust Act, see Theodore L. Taron, Congressional
Concepts of Competition, 1865-1890 (1961)(unpublished Ph.D. dissertation, Yale
University)(microfilmed by University Microfilms International), available with subscription via
ProQuest Dissertations & Theses Global, https://search.proquest.com/docview/302130098. For
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weapon in the antitrust arsenal to defeat collusion became a prohibition on any corporation
acquiring stock in another corporation incorporated in another state.89
To sidestep state diversity, large numbers of businesses began to feel the urge to
incorporate in just a few states, and the early beneficiary of this trend was New Jersey, which
had rushed a statute through the state legislature shortly after the Sherman Antitrust Act was
enacted that authorized New Jersey corporations to buy and sell other corporations’ stock and to
issue their own stock as payment.

See Edward Q. Keasbey, New Jersey and the Great

Corporations, 13 Harv. L. Rev. 198, 200-04 (1899). Thousands of corporations flocked to New
Jersey from New York and other states over the course of the 1890s. See Edward Q. Keasbey,
New Jersey and the Great Corporations, 13 Harv. L. Rev. at 200-02.
When an ascendant Progressive Party in New Jersey began to more tightly regulate New
Jersey corporations, Delaware sensed an opportunity to transplant corporations from its Garden
State neighbors. See Joel Seligman, A Brief History of Delaware’s General Corporation Law of
1899, 1 Del. J. of Corp. L. 271 (1976)(“Seligman”). The Delaware state legislature passed its
1899 General Corporation Law. An Act to Raise Revenue for This State By Taxing Certain
Corporations, 22 Del. Laws 22 (1899). The 1899 law, like the New Jersey laws it used as a
template, was broadly affirmative in its statement of corporate powers. See Seligman at 273. It
greatly simplified the process of incorporation and substantially lowered corporate taxes. Cf.

an introduction to how much of a paradigm shift the Sherman Antitrust Act was and how quickly
it captured the fancy and channeled the energy of federal politicians from then- President
Benjamin Harrison on down, see Charles W. Calhoun & Arthur M. Schlesinger, Benjamin
Harrison 92-94 (2005).
89

The intellectual progeny of John D. Rockefeller and the general counsel of Standard
Oil, large stock purchases in other corporations had become the hallmark of trusts in the last
decades of the nineteenth century, because they enabled corporations to evade state chartering
restrictions on corporation size. See Harold Underwood Faulkner, Consolidation of Business in
Roosevelt, Wilson, and the Trusts 1-18 (Edwin C. Rozwenc ed. 1950).
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Seligman at 273. Even more importantly, both because of its vivid counterpoint to Sherman
Antitrust Act and for this case’s purposes, the 1899 law also granted to Delaware corporations (i)
the express power to conduct business in any other state, territory, colony, or foreign country; (ii)
the power to hold stocks and bonds of other companies; and (iii) the power to merge. A wave of
incorporation requests quickly rolled in from New Jersey over to Dover. When Woodrow
Wilson assumed the governorship of New Jersey in 1910 and allied himself with legislators from
the Progressive Party to cinch the state’s corporate regulations even tighter, the wave swelled yet
further. 90 By 1932, approximately forty-two thousand corporations -- including one third of the
corporations listed on the New York Stock Exchange -- called Delaware home. See John T.
Flynn, Why Corporations Leave Home, Atlantic Monthly 270 (Sept. 1932).
After World War II, more than thirty states revised their corporate laws to bite into
Delaware’s incorporation market share. See William L. Cary, Federalism and Corporate Law:
Reflections Upon Delaware, 83 Yale L.J. 663, 665-68 (1974). Delaware responded by revising
its own General Corporation law in 1963 to make it more corporation-friendly. See, e.g., Law of
90

Wilson made corporate regulation a cornerstone of his gubernatorial years, noting in his
Message to the New Jersey Legislature on January 17, 1911, the day that he assumed the
governorship:
Corporations are no longer hobgoblins which have sprung at us out of some
mysterious ambush, not yet unholy inventions of rascally rich men, not yet the
puzzling devices by which ingenious lawyers build up huge rights out of a
multitude of small wrongs; but merely organizations of a perfectly intelligible sort
which the law has licensed for the convenience of extensive business;
organizations which have proved very useful but which have for the time being
slipped out of the control of the very law that gave them leave to be and that can
make or unmake them at pleasure. We have now set ourselves to control them,
soberly but effectively, and to bring them thoroughly within the regulation of the
law. . . . No man who wishes to enjoy the public confidence dare hold back, and,
if he is wise, he will not resort to subterfuge.
Woodrow Wilson, Message to the New Jersey Legislature, January 17, 1911, reprinted in
Thomas F. Fitzgerald, Manual of the Legislature of New Jersey 572 (1911).
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December 31, 1963, 54 Del. Laws 724 (“WHEREAS, the General Assembly of the State of
Delaware declares it the public policy of the State to maintain a favorable business climate and to
encourage corporations to make Delaware their domicile . . . .”). The legislative committee
tasked with drafting the revisions even directly solicited suggestions from General Foods, Shell
Oil, and at least 125 other major corporations of the day. See Comment, Law for Sale: A Study
of the Delaware Corporation Law of 1967, 117 U. Pa. L. Rev. 861, 867-68 (1969). Barely a
decade after the 1963 revisions, Delaware was home to approximately half of the thousand
largest industrial corporations in the country. See Ralph Nader, Mark Green & Joel Seligman,
Constitutionalizing the Corporation: The Case for the Federal Chartering of Giant Corporations
501-05 (1976). The proportion has grown even larger over time; today approximately two out of
every three corporations in the United States -- more than one million business entities in all -have chosen Delaware as their legal home. See State of Delaware, Division of Corporations,
About Agency, http://corp.delaware.gov/aboutagency.shtml (last visited Apr. 4, 2017).
REGULATORY TEXT OF 1934 SECURITIES AND EXCHANGE ACT RULE 10B-5
It shall be unlawful for any person, directly or indirectly, by the use of any means
or instrumentality of interstate commerce, or of the mails or of any facility of any
national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were
made, not misleading, or
(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5.

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RELEVANT FEDERAL SECURITIES LAW
In the aftermath of Black Tuesday, the infamous Wall Street crash of 1929, see generally
Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World 307-373 (2009),
Congress enacted the Securities Act of 1933, 48 Stat. 74, and the Securities Exchange Act of
1934, 48 Stat. 881. These two Acts sought to ensure legitimacy in the securities market by,
among other things, regulating and preventing deceptive conduct in securities transactions.”
Nathan Lee, The Extraterritorial Reach of United States Securities Actions After Morrison v.
National Australian Bank, 13 Rich. J. Global L. & Bus. 623, 623 (2015).
The [Securities] Act was described as an Act “to provide full and fair disclosure
of the character of securities sold in interstate and foreign commerce and through
the mails, and to prevent frauds in the sale thereof, and for other purposes.” The
Securities Exchange Act . . . was described as an Act “to provide for the
regulation of securities exchanges and of over-the-counter markets operating in
interstate and foreign commerce and through the mails, to prevent inequitable and
unfair practices on such exchanges and markets, and for other purposes.”
Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 727-28 (1975). The Securities Act deals
with the initial issuance of securities, and with the required contents of registration statements
and prospectuses. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. at 728. The Exchange
Act, on the other hand, is primarily known for prohibiting fraud in connection with the purchase
or sale of securities. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. at 728-29.
“The principal difference between § 17(a) and § 10(b) lies in the element of scienter,
which the SEC must establish under § 17(a)(1), but not under § 17(a)(2) or § 17(a)(3). By
contrast, § 10(b) always requires a showing of scienter.” SEC v. Wolfson, 539 F.3d at 1256-57
(citing Aaron v. SEC, 446 U.S. 680, 697 (1980))(citation omitted)(footnote omitted).
Additionally, under § 17(a) of the Securities Act, the SEC must prove that the fraud occurred
“‘in the offer or sale of any securities,’” rather than “‘in connection with the purchase or sale of

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any security.’” SEC v. Wolfson, 539 F.3d at 1256 n.12 (quoting 15 U.S.C. § 77q(a); 15 U.S.C.
§ 78j(b)).
“The purpose of both [§ 10(b) and § 17(a)] is protection of investors from fraudulent
practices.” SEC v. Int’l Chem. Dev. Corp., 469 F.2d 20, 26 (10th Cir. 1972). “In cases of
alleged misstatements in public filings submitted to the Commission, the scope of the two
sections is essentially coextensive because the fraudulent conduct touches upon both purchases
and sales of publicly-traded securities.” SEC v. Wolfson, 539 F.3d at 1257 (citing SEC v.
Power, 525 F. Supp. 2d 415, 419-20 (S.D.N.Y.2007)(Sweet, J.)).
a.

Material Statements or Omissions.

“To satisfy the first element of a 10b-5 claim, a plaintiff must allege facts showing the
defendant made an untrue statement of material fact, or failed to state a material fact necessary
for make the statements that were made not misleading.” Grossman v. Novell, Inc., 120 F.3d
1112, 1119 (10th Cir. 1997)(citing 17 C.F.R. § 240.10b-5). The statement or omission must not
merely be false now; rather, it must have been false at the time that the document containing it
was created. See Grossman v. Novell, Inc., 120 F.3d at 1124 (“What makes many securities
fraud cases more complicated is that often there is no reason to assume that what is true at the
moment plaintiff discovers it was also true at the moment of the alleged misrepresentation . . . .”
(quoting In re GlenFed, Inc. Sec. Litig., 42 F.3d 1548-49 (9th Cir. 1994)(en banc), superseded by
statute as recognized in SEC v. Todd, 642 F.3d 1207, 1216 (9th Cir. 2011)).
A statement of fact is material if “‘a reasonable person would consider it important in
determining whether to buy or sell’” securities. Genesee Cnty. Emps. Ret. Sys. v. Thornburg
Mortg. Sec. Trust, 825 F. Supp. 2d 1082, 1126 (D.N.M. 2011)(Browning, J.)(quoting Schaffer v.
Evolving Sys., Inc., 29 F. Supp. 2d 1213, 1220-21 (D. Colo. 1998)(citing Grossman v. Novell,

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Inc., 120 F.3d at 1119). In a similar context -- a claim under § 14 of the Exchange Act -- the
Supreme Court has said that a statement or omission is material if there is a “substantial
likelihood that the disclosure of the omitted fact would have been viewed by the reasonable
investor as having significantly altered the ‘total mix’ of information made available” to the
public. TSC Indus., Inc. v. Northway, Inc., 426 U.S. at 449. Courts in the Tenth Circuit should
“not hesitate to dismiss securities claims pursuant to Rule 12(b)(6) where the alleged
misstatements or omissions are plainly immaterial.” McDonald v. Kinder-Morgan, Inc., 287
F.3d 992, 997 (10th Cir. 2002)(quoting Grossman v. Novell, Inc., 120 F.3d at 1118). The Tenth
Circuit, in the context of securities fraud claims under § 10b-5 and rule 10b-5 of the Exchange
Act, has identified two categories of statements that are, as a matter of law, not materially
misleading: vague statements of corporate optimism and “statements considered immaterial
because other documents available to the investing public ‘bespoke caution’ about the subject
matter of the alleged misstatement at issue.” Grossman v. Novell, 120 F.3d at 1120. The
Supreme Court, however, has recently emphasized that “[a]ny approach that designates a single
fact or occurrence as always determinative of an inherently fact-specific finding such as
materiality, must necessarily be overinclusive or underinclusive.” Matrixx Initiatives, Inc. v.
Siracusano, 131 S. Ct. 1309, 1318 (2011)(quoting Basic, Inc. v. Levinson, 485 U.S. at 236).
Likewise, the Supreme Court reiterated that it was “careful not to set too low a standard of
materiality, for fear that management would bury the shareholders in an avalanche of trivial
information.” Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. at 1318 (internal quotation
marks omitted)(quoting Basic, Inc. v. Levinson, 485 U.S. at 231). In analyzing materiality in the
context of a 12(b)(6) motion to dismiss, a court should consider whether the “allegations suffice
to ‘raise a reasonable expectation that discovery will reveal evidence’ satisfying the materiality

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requirement, and to ‘allo[w] the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.’” Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. at 1323
(citations omitted)(quoting Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009); Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 556 (2007)).
“Alleged omissions create another hurdle for the plaintiff. Unlike statements, omissions
are actionable only if the plaintiff can establish that the defendant had a duty to disclose the
omitted information.” Genesee Cnty. Emps.’ Ret. Sys. v. Thornburg Mortg. Sec. Trust, 825
F. Supp. 2d at 1127 (citing McDonald v. Kinder-Morgan, Inc., 287 F.3d at 998 (stating that, in
the context of the Exchange Act, “a duty to disclose arises only where both the statement made is
material, and the omitted fact is material to the statement in that it alters the meaning of the
statement.”)). See Basic v. Levinson, 485 U.S. 224, 239 n.17 (1988)(“To be actionable, of
course, a statement must also be misleading. Silence, absent a duty to disclose, is not misleading
under Rule 10b-5.”); United States v. Nacchio, 519 F.3d 1140, 1161-62 (10th Cir.
2008)(“Information is material if it adds materially to the mix of information already available to
investors.” (citing TSC Indus. v. Northway, 426 U.S. at 449), vacated in part 555 F.3d 1234
(10th Cir. 2009); Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1202 (1st Cir. 1996)(stating that,
in the context of §§ 11 and 12(a)(2) of the Securities Act, “[t]he proposition that silence, absent a
duty to disclose, cannot be actionably misleading, is a fixture in federal securities law”),
abrogated on other grounds by 15 U.S.C. § 78u-4(B)(2)). That principle is also found in the
language of the sections of the Exchange Act at issue here. Section 10(b) of the Exchange Act
makes unlawful “any omission to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading,” 15 U.S.C. §
78j(b), and § 17(a) of the Securities Act makes it unlawful “to omit to state a material fact

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necessary in order to make the statements made, in the light of the circumstances under which
they were made, not misleading,” 15 U.S.C. § 77q(a). A defendant can therefore be liable under
these sections only if he or she omitted material information or made incomplete disclosures that
would leave the reader with a false impression that is material. See Genesee Cnty. Emps.’ Ret.
Sys. v. Thornburg Mortg. Sec. Trust, 825 F. Supp. 2d at 1127.
“The ‘bespeaks caution’ rule is an application of the common-sense principle that the
more a speaker qualifies a statement, the less people will be misled if the statement turns out to
be false.” United States v. Nacchio, 519 F.3d at 1161-62. “At bottom, the ‘bespeaks caution’
doctrine stands for the ‘unremarkable proposition that statements must be analyzed in context’
when determining whether or not they are materially misleading.” Grossman v. Novell, Inc., 120
F.3d at 1120 (quoting Rubinstein v. Collins, 20 F.3d 160, 167 (5th Cir. 1994)). See Halperin v.
eBanker USA.com, Inc., 295 F.3d 352, 357 (2d Cir. 2002)(holding that, under the bespeaks
caution doctrine, “[c]ertain alleged misrepresentations in a stock offering are immaterial as a
matter of law because it cannot be said that any reasonable investor could consider them
important in light of adequate cautionary language set out in the same offering”). Plaintiffs can
overcome cautionary language if the “language did not expressly warn or did not directly relate
to the risk that brought about plaintiffs’ loss.” Halperin v. eBanker USA.com, Inc., 295 F.3d
at 359.

See Panther Partners, Inc. v. Ikanos Commc’ns, Inc., 538 F. Supp. 2d 662, 669

(S.D.N.Y. 2008)(Crotty, J.)(“[G]eneral risk disclosures in the face of specific known risks which
border on certainties do not bespeak caution.”). Furthermore, the bespeaks caution doctrine
normally applies only to forward-looking statements such as projections or forecasts, and not to
representations of present fact. See Plumbers’ Union Local No. 12 Pension Fund v. Nomura
Asset Acceptance Corp., 632 F.3d 762, 773 (1st Cir. 2011); Iowa Pub. Emps. Ret. Sys. v. MF

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Global, Ltd., 620 F.3d 137, 142 (2d Cir. 2010). Similarly, the bespeaks caution doctrine does not
apply to statements which “may be construed as indicating the speakers’ beliefs concerning thenpresent factual conditions.” Grossman v. Novell, Inc., 120 F.3d at 1123. A court may properly
apply the bespeaks caution doctrine when considering a motion to dismiss. See Grossman v.
Novell, Inc., 120 F.3d at 1120 n.7.
b.

Scienter.

Scienter “refers to the mental state embracing intent to deceive, manipulate, or defraud.”
Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12 (1976). When asserting a claim under
§ 17(a)(1) of the Securities Act or § 10(b) of the Exchange Act, the SEC must establish at least
recklessness, but the SEC must establish only negligence for a claim under §§ 17(a)(2) or
17(a)(3) of the Securities Act. See SEC v. Smart, 678 F.3d 850, 857 (10th Cir. 2012)(“Section
10(b) and § 17(a)(1) require the SEC to establish at least recklessness, whereas negligence is
sufficient for § 17(a)(2) and § 17(a)(3).”); SEC v. Wolfson, 539 F.3d at 1256; C.E. Carlson, Inc.
v. SEC, 859 F.2d 1429, 1435 (10th Cir. 1988)).
The Tenth Circuit has defined recklessness sufficient to state a claim under § 10(b) of the
Exchange Act as “‘conduct that is an extreme departure from the standards of ordinary care, and
which presents a danger of misleading buyers or sellers that is either known to the defendants or
is so obvious that the actor must have been aware of it.’” Dronsejko v. Grant Thornton, 632 F.3d
at 665 (quoting City of Phila. v. Fleming Cos., Inc., 264 F.3d at 1457-58). The Tenth Circuit has
emphasized that it “‘is the danger of misleading buyers that must be actually known or so
obvious that any reasonable man would be legally bound as knowing.’” City of Phila. v.
Fleming Cos., 264 F.3d at 1260 (emphasis in original)(quoting Schlifke v. Seafirst Corp., 866
F.2d 935, 946 (7th Cir. 1989). In other words, when asserting a defendant’s liability for an

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omission,
to establish scienter . . . the plaintiff must demonstrate: (1) the defendant knew of
the potentially material fact, and (2) the defendant knew that failure to reveal the
potentially material fact would likely mislead investors. The requirement of
knowledge in this context may be satisfied under a recklessness standard by the
defendant’s knowledge of a fact that was so obviously material that the defendant
must have been aware both of its materiality and that its non-disclosure would
likely mislead investors.
City of Phila. v. Fleming Cos., 264 F.3d at 1261. The Tenth Circuit has held that “‘divergence
between internal reports and external statements on the same subject’ and ‘disregard of the most
current factual information before making statements’ can be factors supporting scienter.” In re
Level 3 Commc’ns, Inc. Sec. Litig., 667 F.3d at 1345 (quoting Frank v. Dana Corp., 646 F.3d
954, 959 n.2 (6th Cir. 2011)(holding that inconsistencies between internal reports and
defendants’ public statements did not evidence scienter, because “some of the critical terms at
issue” in the reports were “open to multiple interpretations,” and, therefore, the “strongest
inference” the Tenth Circuit could “draw is that defendants were negligent in failing to put
together the pieces”)). See Ind. Elec. Workers’ Pension Trust Fund IBEW v. Shaw Grp., Inc.,
537 F.3d 527, 540 (5th Cir. 2008)(holding that corporate officers’ receipt of internal reports did
not demonstrate scienter because the reports did not necessarily include information inconsistent
or at odds with the corporation’s public statements).
c.

Primary Liability.

Primary liability under § 10(b) of the Exchange Act is “limited in its reach to ‘only the
making of a material misstatement (or omission) or the commission of a manipulative act.’”
SEC v. Wolfson, 539 F.3d at 1257 (quoting Cent. Bank of Denver, N.A. v. First Interstate Bank
of Denver, N.A., 511 U.S. 164, 177-178 (1994)). “There is no requirement that the alleged
violator directly communicate misrepresentations to plaintiffs for primary liability to attach.”

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Anixter v. Home-Stake Prod. Co., 77 F.3d at 1226 (citing SEC v. Holschuh, 694 F.2d 130, 142
(7th Cir. 1982)). Secondary actors, however, such as “accountants, lawyers, or bankers” may be
liable for a primary violation of § 10(b) of the Exchange Act in “certain cases.” SEC v.
Wolfson, 539 F.3d at 1257.
Any person or entity, including a lawyer, accountant, or bank, who employs a
manipulative device or makes a material misstatement (or omission) on which a
purchaser or seller of securities relies may be liable as a primary violator under
10b-5, assuming all of the requirements for primary liability under Rule 10b-5 are
met.
Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. at 191 (emphasis
in original). Secondary actors, therefore, may be liable under § 10(b) of the Exchange Act “so
long as they themselves made a material misstatement or omission (or committed some other
fraudulent act), and each of the remaining elements of liability under § 10(b) are satisfied.” SEC
v. Wolfson, 539 F.3d at 1257-58 (citing Cent. Bank of Denver, N.A., v. First Interstate Bank of
Denver, N.A., 511 U.S. at 191; Anixter v. Home-Stake Prod. Co., 77 F.3d at 1226). See Anixter
v. Home-Stake Prod. Co., 77 F.3d at 1226-27 (“[I]n order for accountants to [be primarily liable
under § 10(b)], they must themselves make a false or misleading statement (or omission) that
they know or should know will reach potential investors.”).
i.

Liability for Makers of Misstatements or Omissions.

“[T]he maker of a statement is the entity with authority over the content of the statement
and whether and how to communicate it.” Janus Capital Grp., Inc. v. First Derivative Traders,
131 S. Ct. 2296, 2303 (2011). In Janus Capital Group, Inc. v. First Derivative, the Supreme
Court discussed the scope of liability under rule 10b-5 for those who, “‘directly or indirectly, . . .
make any untrue statement of a material fact’ in connection with the purchase or sale of
securities.” 131 S. Ct. at 2301 (quoting 17 C.F.R. § 240.10b-5(b)). Looking to the usage and

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definition of the verb “make,” the Supreme Court determined that, in rule 10b-5(b), “‘[t]o make
any . . . statement’ is thus the approximate equivalent of ‘to state.’” 131 S. Ct. at 2302. The
Supreme Court reasoned that a person or entity’s control over the statement proscribes liability,
because, without control over the statement, “a person or entity can merely suggest what to say,
not ‘make’ a statement in its own right.” 131 S. Ct. at 2302. The Supreme Court stated that this
interpretation is “supported by our recent decision in Stoneridge [Investment Partners, LLC v.
Scientific-Atlanta, Inc., 552 U.S. 148 (2008)],” in which the Supreme Court concluded that
entities which agreed to arrangements which allowed another company to mislead its auditor and
investors could not be liable for the false statements, because “‘nothing [the defendants] did
made it necessary or inevitable for [the company] to record the transactions as it did.’” Janus
Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct. at 2303 (emphasis added in
original)(quoting Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. at 152-53).
In Janus Capital Group, Inc. v. First Derivative Traders, the Supreme Court ruled that an
investment adviser and administrator that was “significantly involved in preparing” a prospectus
which contained fraudulent statements and omissions could not be liable for those misstatements
and omissions under Exchange Act § 10(b) and rule 10b-5(b). 131 S. Ct. at 2299, 2305. The
Supreme Court held that only the company which issued the prospectus could be liable for
misstatements and omissions, because any assistance the investment advisor provided was
subject to the company’s ultimate control. See 131 S. Ct. at 2304-05. The Supreme Court noted
that the company was legally independent from the investment advisor and administrator, and
had its own board of trustees.91 See 131 S. Ct. at 1204-05. In contrast, in a case which predates

91

The Supreme Court also discussed in Janus Capital Group, Inc. v. First Derivative
Traders the relevance of to whom a statement is attributed when determining who its “maker” is.
131 S. Ct. at 2302. “[I]n the ordinary case, attribution within a statement or implicit from
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Janus Capital Group, Inc. v. First Derivative Traders, the Tenth Circuit held that an accountant
could be primarily liable under § 10(b) of the Exchange Act for issuing opinions and certifying
financial statements which contained false and misleading statements that were ultimately
incorporated into a company’s prospectus. See Anixter v. Home-Stake Prod., Co., 77 F.3d
at 1227. The Supreme Court cited Anixter v. Home-Stake Prod., Co. with approval in Janus
Capital Group, Inc. v. First Derivative Traders, emphasizing that the accountant’s signature on
an “Auditor’s Report” supported the Tenth Circuit’s conclusion that the accountant committed a
primary securities law violation. Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct.
at 2305 n.11 (internal quotation marks omitted)(citing Anixter v. Home-Stake Prod. Co., 77 F.3d
at 1220 & n.4).
Before Janus Capital Group, Inc. v. First Derivative Traders, the Tenth Circuit stated that
a person may be primarily liable for an alleged misstatement or omission if the person was “so
involved in creating or communicating the offending misstatement (or omission) that he can
fairly be said to have caused it to be made,” and he “knew or should have known that the
statements would reach investors.” SEC v. Wolfson, 539 F.3d at 1261, 1261 n.18 (citing Anixter
v. Home-Stake Prod. Co., 77 F.3d at 1226 n.10). It is unclear whether this standard still applies
after Janus Capital Group, Inc. v. First Derivative Traders. In Janus Capital Group, Inc. v. First

surrounding circumstances is strong evidence that a statement was made by -- and only by -- the
party to whom it is attributed.” 131 S. Ct. at 2302. Janus Capital Group, Inc. v. First Derivative
Traders was a case in which a private plaintiff asserted a right under rule 10b-5(b), a cause of
action which requires a private plaintiff to demonstrate reliance upon a fraudulent misstatement
or omission. See 131 S. Ct. at 2301, 2301, n.3. Neither reliance, nor attribution, are necessary
elements in an SEC enforcement action. See SEC v. Wolfson, 539 F.3d at 1259-60. The Tenth
Circuit does not require the SEC to plead and prove reliance in an action under § 10(b) of the
Exchange Act. See Geman v. SEC, 334 F.3d at 1191. The Tenth Circuit has reasoned that the
attribution is related to a private plaintiff’s need to prove reliance on an allegedly fraudulent
statement, and, therefore, “given the unambiguous connection between reliance and attribution,
and the fact that the SEC need not prove reliance, we decline to impose an attribution element in
an SEC enforcement action.” SEC v. Wolfson, 539 F.3d at 1260, 1260 n.17.
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Derivative Traders, the Supreme Court rejected an interpretation of rule 10b-5(b) that would
impose liability for misstatements and omissions on those who “create” the statements. 131
S. Ct. at 2303. The Supreme Court determined that this interpretation would conflict with its
previous decisions by allowing “private plaintiffs to sue a person who provides the false or
misleading information that another person then puts into the statements.” 131 S. Ct. at 2303.
In SEC v. Wolfson, the Tenth Circuit held that a non-employee consultant could be primarily
liable under § 17(a) of the Securities Act and § 10(b) of the Exchange Act, because the
consultant “played an integral role in preparing those filings that contained the misstatements
and omissions at issue,” through drafting the filings which contained the misstatements and
omissions that a company filed without modifications, and because the consultant knew from his
previous experience that the filings “were calculated to reach investors.” 539 F.3d at 1261. The
Tenth Circuit reasoned that the consultant “caused [the company] to make the relevant
statements,” even though the filings were issued in the name of the company. 539 F.3d at 1261.
This holding is similar to the theory of liability that the Supreme Court rejected in Janus Capital
Group, Inc. v. First Derivative Traders -- an interpretation of rule 10b-5(b) which would allow a
plaintiff to sue those who provide misleading information that another entity incorporates into a
statement. See Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct. at 2303. On the
other hand, the facts before the Tenth Circuit in SEC v. Wolfson may have been sufficient to
satisfy Janus Capital Group, Inc. v. First Derivative Traders’ standard of “control” over the
statement. In a footnote, the Tenth Circuit noted that it did not rely on the defendant’s title as a
“consultant” in its decision. SEC v. Wolfson, 539 F.3d at 1261 n.19. The Tenth Circuit
explained that the defendant was “[f]ar from being a typical outsider to the company,” but,
rather, “played a central role in the management of [the company] akin to that of a core member

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of management.” 539 F.3d at 1261 n.19. The Tenth Circuit noted that the defendant negotiated
with note holders, analyzed potential business opportunities in the industry, and “regularly
interfaced with [the company’s] independent auditors as a representative of the company.” 539
F.3d at 1261 n.19. These facts may have demonstrated that, in addition to contributing to the
creation of misstatements and omissions, the defendant controlled their communication. Were
SEC v. Wolfson before the Tenth Circuit today, the Tenth Circuit, therefore, may very well reach
the same conclusion as it has in the past, although with a different rationale.
ii.

Liability for Manipulative and Deceptive Conduct.

Section 10(b) of the Exchange Act makes it unlawful to “use or employ, in connection
with the purchase or sale of any security . . . any manipulative or deceptive device.” 15 U.S.C.
§ 78(j)(b). “[C]onduct itself can be deceptive,” and there is no requirement that “there must be a
specific oral or written statement before there could be liability under § 10b or Rule 10b-5.”
Stoneridge Inv. Partners v. Scientific-Atlanta, Inc., 128 S. Ct. at 769. “Fraud by conduct is a
violation of Rule 10b-5(a) and (c).” O’Connor v. R.F. Lafferty & Co., 965 F.2d 893, 898 (10th
Cir. 1992). Although the Supreme Court has rejected a private cause of action for aiding and
abetting securities violations, the Supreme Court has expressly reserved a cause of action for
secondary actors based upon deceptive and manipulative conduct.
The absence of § 10(b) aiding and abetting liability does not mean that secondary
actors in the securities markets are always free from liability under the securities
Acts. Any person or entity, including a lawyer, accountant, or bank, who employs
a manipulative device or makes a material misstatement (or omission) on which a
purchaser or seller of securities relies may be liable as a primary violator under
10b-5.
Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. at 191 (emphasis
added). See Stoneridge Inv. Partners v. Scientific-Atlanta, Inc., 128 S. Ct. at 772-73 (discussing
the scope of the implied private right of action under § 10(b) of the Exchange Act, and stating
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that it “continues to cover secondary actors who commit primary violations” (citing Cent. Bank
of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. at 191)). Manipulation in this
context is “virtually a term of art,” and “refers generally to practices, such as wash sales,
matched orders, or rigged prices, that are intended to mislead investors by artificially affecting
market activity.” Santa Fe. Indus., Inc. v. Green, 430 U.S. 462, 476 (1977).
Although the Tenth Circuit has not used the term “scheme liability,” “the two circuit
courts that traditionally see the most securities cases[,] the Second and Ninth Circuits,” along
with a majority of the other circuits, have adopted the term to describe the liability rule 10b-5(a)
and (c) creates. Nicholas Fortune Schanbaum, Scheme Liability: Rule 10b-5(a) and Secondary
Actor Liability after Central Bank, 26 Rev. Litig., 183, 197 (Winter 2007). See Pub. Pension
Fund Grp. v. KV Pharm. Co., 679 F.3d 972, 987 (8th Cir. 2012)(“Claims brought under Rules
10b-5(a) and (c) are generally referred to as ‘scheme liability’ claims.”); In re DVI, Inc. Sec.
Litig., 639 F.3d 623, 643 n.29 (3d Cir. 2011)(“We refer to claims under Rule 10b-5(a) and (c) as
‘scheme liability claims’ because they make deceptive conduct actionable, as opposed to Rule
10b-5(b), which relates to deceptive statements.”), abrogated on other grounds by Amgen Inc. v.
Conn. Ret. Plans & Trust Funds, 133 S. Ct. 1184 (2013); Pac. Inv. Mgmt. Co. v. Mayer Brown,
LLP, 603 F.3d 144, 151 (2d Cir. 2010)(addressing whether a plaintiff’s “allegations in the
complaint are sufficient to state a claim for ‘scheme liability’ under Rule 10b-5(a) and (c)”);
Desai v. Deutsche Bank Sec. Ltd., 573 F.3d 931, 938 (9th Cir. 2009)(“Misrepresentations and
most omissions fall under the prohibition of Rule 10b-5(b), whereas manipulative conduct
typically constitutes ‘a scheme . . . to defraud’ in violation of Rule 10b-5(a) or a ‘course of
business which operates . . . as a fraud or deceit upon any person’ in violation of Rule 10b5(c).”); Pugh v. Tribune Co., 521 F.3d 686, 696 (7th Cir. 2008)(finding that a private plaintiff

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may not assert a claim of “scheme liability” under § 10(b) of the Exchange Act against a
defendant who “participated in a fraudulent scheme but had no role in preparing or disseminating
Tribune’s financial statements or press releases”); Regents of Univ. of Ca. v. Credit Suisse First
Boston (USA), Inc., 482 F.3d 372, 378-79 (5th Cir. 2007)(recognizing a claim of scheme
liability under rule 10b-5(a) for a defendant’s allegedly deceptive conduct, but finding that the
plaintiffs failed to demonstrate reliance).
The Second, Eighth, and Ninth Circuits have held that scheme liability encompasses only
actions which include deceptive conduct beyond assistance with a material misstatement or
omission. See Pub. Pension Fund Grp. v. KV Pharm. Co., 679 F.3d at 987 (“We join the Second
and Ninth Circuits in recognizing a scheme liability claim must be based on conduct beyond
misrepresentations or omissions actionable under Rule 10b-5(b).”); WPP Luxembourg Gamma
Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1057 (9th Cir. 2011)(“A defendant may only be
liable as part of a fraudulent scheme based upon misrepresentations and omissions under Rules
10b-5(a) or (c) when the scheme also encompasses conduct beyond those misrepresentations or
omissions.”); Lentell v. Merill Lynch & Co., 396 F.3d 161, 177 (2d Cir. 2005)(“[W]here the sole
basis for such claims is alleged misrepresentations or omissions, plaintiffs have not made out a
market manipulation claim under Rule 10b-5(a) and (c).”). This formulation is consistent with
the Supreme Court’s sharp division between those who may be liable as primary violators of the
securities laws, and those who may be liable for only aiding and abetting the violation of another.
In Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., the Supreme
Court highlighted the distinction between primary violators, and “those who do not engage in the
manipulative or deceptive practice.” 511 U.S. at 167. The Supreme Court explained that, unlike
primary liability under § 10(b) of the Exchange Act, “aiding and abetting liability reaches

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persons who do not engage in the proscribed activities at all, but who give a degree of aid to
those who do.” 511 U.S. at 176. The Supreme Court held in Central Bank of Denver, N.A. v.
First Interstate Bank of Denver, N.A. that §10(b) of the Exchange Act did not include a cause of
action for aiding and abetting. See 511 U.S. at 176. In response to this holding, Congress
created a cause of action for aiding and abetting through the PSLRA exclusively for the SEC’s
enforcement.

See 15 U.S.C. § 78t(e).

Subsequently, in Stoneridge Investment Partners v.

Scientific-Atlanta, Inc., the Supreme Court rejected a theory of scheme liability which would
allow private plaintiffs to hold secondary actors liable absent any evidence that the private
plaintiffs relied upon the secondary actors’ deceptive or manipulative conduct, a required
pleading element for private plaintiffs. See 552 U.S. at 159. Although the Supreme Court’s
decision was dispositive on the plaintiffs’ inability to prove reliance, the Supreme Court
reasoned that, to hold the secondary actors liable for another’s misrepresentations would run
afoul of Congress’ “specific response to Central Bank in § 105 of the PSLRA,” which authorizes
the SEC, but not private plaintiffs, to bring claims of aiding and abetting a securities violation.
552 U.S. at 162-63.

In Stoneridge Investment Partners v. Scientific-Atlanta, Inc., without

evidence of reliance upon the secondary actors’ deceptive conduct, the only primary securities
violation which the plaintiffs could allege was that a company made material misstatements and
omissions in its financial statements and to its auditors.

Although the secondary actors’

agreements with the company facilitated the company’s misstatements and omissions, the
Supreme Court determined that assisting the company’s violation of § 10(b) of the Exchange Act
alone was insufficient to demonstrate that the plaintiffs relied on the secondary actors’ conduct.
To hold otherwise would allow the plaintiffs to bring a claim for aiding and abetting, contrary to
Congress’ specific statutory intent in the PSLRA. See 128 S. Ct. at 770-72. Similarly, the

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Second, Eighth, and Ninth Circuits’ formulation of scheme liability differentiates between those
who engage in manipulative or deceptive conduct, and those who merely help others to
manipulate or deceive.

Just as the Supreme Court would not allow the plaintiffs to hold

secondary actors liable for another’s misstatements and omissions, absent evidence that the
secondary actors engaged in deceptive conduct upon which the plaintiffs relied, the Second,
Eight, and Ninth Circuits require the plaintiffs to demonstrate that a scheme to defraud included
manipulative or deceptive conduct beyond a primary actor’s misrepresentation or omission.
Liability under § 10(b) of the Exchange Act, therefore, does not attach to secondary actors by
“repackaging a fraudulent misrepresentation [as] a ‘scheme to defraud.’” SEC v. St. Anselm
Exploration Co., 936 F. Supp. 2d at 1298 (citing Pub. Pension Fund. Grp. v. KV Pharm. Co., 679
F.3d at 987).
Consistent with the Supreme Court’s description of manipulative conduct in the context
of § 10(b) of the Exchange Act as a “term of art,” Santa Fe. Indus., Inc. v. Green, 430 U.S. at
463, “scheme liability requires proof of participation in an illegitimate, sham, or inherently
deceptive transaction where the defendant’s conduct or role has the purpose and effect of
creating a false appearance,” SEC v. St. Anselm Exploration Co., 936 F. Supp. 2d at 1299 (citing
SEC v. Daifotis, No. C 11-00137 WHA, 2011 WL 2183314, at *9 (N.D. Cal. June 6, 2011)).
See Pub. Pension Fund Grp. v. KV Pharm. Co., 679 F.3d at 987 (finding that the plaintiffs’
allegations that corporate officers were aware of misrepresentations and omissions that a
company made is insufficient to state a claim for scheme liability). This restriction on scheme
liability recognizes “the importance of maintaining a distinction among the various Rule 10b-5
claims from one another, [and] that the lines dividing the different claims are . . . ‘carefully
maintained’ and are ‘well-established.’” WPP Luxembourg Gamma Three Sarl v. Spot Runner,

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Inc., 655 F.3d at 1057 (quoting Desai v. Deutsche Bank Sec. Ltd., 573 F.3d 931, 941 (9th Cir.
2009)).
For example, in SEC v. Kelly, the Honorable Colleen McMahon, United States District
Judge for the Southern District of New York, determined that a claim of scheme liability failed
because, apart from the defendant’s public representations about its advertising transactions, the
transactions were not inherently deceptive. See 817 F. Supp. 2d at 344. Similarly, in SEC v.
Lucent Techs., Inc., the Honorable William H. Walls, Senior United States District Judge for the
District of New Jersey, held that, because the sales at issue “were legitimate business
transactions and the customers purchased the product from [defendants] with every intention of
using it or selling it to end customers,” the SEC’s allegation that the defendants schemed to
defraud by not disclosing certain details of the transactions was an improper attempt to re-cast a
rule 10b-5(b) claim as one for scheme liability. 610 F. Supp. 2d at 360-61. Additionally, as long
as inherently deceptive conduct is present, a claim for scheme liability does not fail, because the
alleged scheme was in furtherance of a misrepresentation or omission. In SEC v. Familant, 910
F. Supp. 2d 83 (D.D.C. 2012), the Honorable James E. Boasberg, United States District Judge
for the District of the District of Columbia, held that allegations that the defendants had used
false transactions to overstate a company’s performance sufficiently pleaded scheme liability,
notwithstanding that the goal of the scheme was a misrepresentation in accounting statements.
See 910 F. Supp. 2d at 100. Judge Boasberg expressly rejected a reading of scheme liability
which would preclude allegations of a scheme to make a misrepresentation or omission. See 910
F. Supp. 2d at 94. Judge Boasberg based this conclusion on his finding that: (i) neither § 10(b)
nor rule 10b-5 of the Exchange Act’s language precluded liability for a scheme to defraud
through public misrepresentations: (ii) the Supreme Court has interpreted the nearly-identical

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language of § 17(a) of the Securities Act as creating multiple forms of liability which are not
limited by one another: and (iii) the SEC wrote rule 10b-5 specifically and unambiguously to
create liability for schemes, as well as for misstatements and omissions. See 910 F. Supp. 2d
at 94-95 (citing United States v. Naftalin, 441, U.S. 768, 773 (1979)); United States v. Naftalin,
441 U.S. at 773 (discussing Securities Act Section 17(a) and stating that “[e]ach succeeding
prohibition is meant to cover additional kinds of illegalities -- not to narrow the reach of the prior
sections.

There is, therefore, no warrant for narrowing alternative provisions which the

legislature has adopted with the purpose of affording added safeguards.”); SEC v. Lucent Techs.,
Inc., 610 F. Supp. 2d at 359 (rejecting an argument that “a defendant cannot be liable if his
course of conduct was merely participation in a scheme whose purpose was to make a
misstatement. There is no support for such a reading and such a rule would be nonsensical.”).
Accordingly, scheme liability does not preclude, outright, claims based upon a scheme to
misrepresent or omit material facts. See IBEW Local 90Pension Fund v. Deutsche Bank AG,
2013 WL 1223844, at *8 (finding that a plaintiff may allege “a fraudulent scheme without being
tethered to whether specific statements were themselves material misstatements or omissions;
such statements may simply be part of the fabric of the fraudulent scheme alleged”).
OKLAHOMA LAW REGARDING WAIVER
“Waiver is the voluntary and intentional relinquishment of a known right.” Barringer v.
Baptist Healthcare of Oklahoma, 2001 OK 29, 22 P.3d 695, 701 (Okla. 2001)(citing
Faulkenberry v. Kansas City Southern Ry. Co., 1979 OK 142, 602 P.2d 203, 206-07). “The
doctrine is essentially a matter of intention, focusing on the intent of the party against whom
waiver is asserted.” Barringer v. Baptist Healthcare of Oklahoma, 2001 OK 29, 22 P.3d at 701
(citing State ex rel. Gaines v. Beaver, 1945 OK 318, 166 P.2d 776; Archer v. Wedderien, 1968

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OK 186, 446 P.2d 43). “Waiver can be accomplished either expressly or implicitly.” Barringer
v. Baptist Healthcare of Oklahoma, 2001 OK 29, 22 P.3d at 701 (citing Crowell v. Thoreau
Center, Partnership, 1981 OK 85, 631 P.2d 751, 752).
“An implied waiver can be established by action or conduct which warrants an inference
of intent to relinquish.” Barringer v. Baptist Healthcare of Oklahoma, 2001 OK 29, 22 P.3d at
701 (Okla. 2001)(citing Crowell v. Thoreau Center, Partnership, 1981 OK 85, 631 P.2d at 752).
“When the evidence concerning waiver is conflicting or disputed, or when more than one
reasonable inference may be drawn from the evidence, the existence of waiver is a question of
fact for the jury.” Murphy Oil USA, Inc. v. Wood, 438 F.3d 1008 (10th Cir. 2006)(in an opinion
that Judge Kelly wrote and Judge Seymour joined)(quoting Kincaid and Associates v. Black
Angus Motel, Inc., 1999 OK 54, 983 P.2d 1016, 1021). When, however, the facts are not
disputed and are subject to only one interpretation, the waiver question becomes one of law for
the court to decide. General Finance Corp. v. Jackson, 1956 OK 129, 296 P.2d 141, 143.
OKLAHOMA LAW REGARDING EQUITBLE ESTOPPEL
“Although waiver and estoppel are closely akin, and the terms ‘estoppel’ and ‘waiver’ are
often loosely used interchangeably, nevertheless, they are separate doctrines. Indeed, there are
well-recognized distinctions between the two, and one of them may exist without or apart from
the other.” 28 Am. Jur. 2d Estoppel and Waiver § 35.
The essential elements necessary to establish equitable estoppel are: first, there
must be a false representation or concealment of facts; second, it must have been
made with actual or constructive knowledge of the real facts; third, the party to
whom it was made must have been without knowledge, or the means of
discovering the real facts; fourth, it must have been made with the intention that it
should be acted upon; and fifth, the party to whom it was made relied on, or acted
upon it to his or her detriment.
Sullivan v. Buckhorn Ranch Partnership, 119 P.3d 192, 202 (Okla. 2005). Accord Board of

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County Com’rs of Marshall County v. Snellgrove, 428 P.2d 272, 276 (Okla. 1967); Poteau Ford
Mercury, Inc. v. Zurich American Ins. Co., 2009 WL 9508739, at *15 (Okla. Civ. App. May 8,
2009)(Adams, J.).
OKLAHOMA LAW REGARDING THE UNCLEAN HANDS DOCTRINE
“He who seeks equity must do equity and come into court with clean hands.” Story v.
Hefner, 540 P.2d 562 (Okla. 1975). Accord Manufacturers Guild, Inc. v. City of Enid, 239 P.3d
986 (Okla. Civ. App. 2010). “An unclean hands defense requires showing that Plaintiffs tainted
the transaction that they are challenging by undertaking the very ‘fraudulent and deceitful
conduct’ of which they complain.” Yeager v. Fort Knox Sec. Products, 602 F. App’x 423, 429
(10th Cir. 2015). “Oklahoma law declares that ‘to receive equity, [a person] must do equity.”
Krumme v. Moody, 1995 OK 140, 910 P.2d 993, 996 (1995). “Equity provides no relief when
its aid becomes necessary through the party’s own fault.” McDonald v. Humphries, 1990 OK
1262, 810 P.2d 1262, 1269 (1990).
Under the maxim, [h]e who comes into equity must come with clean hands, a
court of equity will not lend its aid in any manner to one who has been guilty of
unlawful or inequitable conduct in a transaction from which he seeks relief, nor to
one who has been a participant in a transaction the purpose of which was to
defraud a third person, to defraud creditors, or to defraud the government . . . .
Camp v. Camp, 196 Okla. 199, 163 P.2d 970, 972 (1945)(internal quotation marks omitted).
RELEVANT TEXT OF RULE 56 OF THE FEDERAL RULES OF CIVIL PROCEDURE
Rule 56(d) provides:
(d) When Facts Are Unavailable to the Nonmovant. If a nonmovant shows by
affidavit or declaration that, for specified reasons, it cannot present facts essential
to justify its opposition, the court may:
(1) defer considering the motion or deny it;
(2) allow time to obtain affidavits or declarations or to take
discovery; or
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(3) issue any other appropriate order.
Fed. R. Civ. P. 56(d). Before 2010, this rule was rule 56(f); rule 56(d) “carries forward without
substantial change the provisions of former subdivision (f).” Fed. R. Civ. P. 56(d) advisory
committee committee’s notes to the 2010 amendments.

“A party who seeks relief under

subdivision (d) may seek an order deferring the time to respond to the summary judgment
motion.” Fed. R. Civ. P. 56(d) advisory committee committee’s notes to the 2010 amendments.
The rule permits a nonmovant to show by affidavit or declaration the need for additional
discovery; a formal affidavit is thus not required. See Fed. R. Civ. P. 56(d). The rule permits a
“written unsworn declaration, certificate, verification, or statement subscribed in proper form as
true under penalty of perjury to substitute for an affidavit.” Fed. R. Civ. P. 56(c) advisory
committee committee’s notes to the 2010 amendments.
When a party files an affidavit or declaration, and moves for additional discovery time
under rule 56(d), the party invokes the court’s discretion. See Jensen v. Redevelopment Agency
of Sandy City, 998 F.2d 1550, 1553-54 (10th Cir. 1993). “Unless dilatory or lacking in merit,” a
party’s 56[(d)] application “should be liberally treated.” Jensen v. Redevelopment Agency of
Sandy City, 998 F.2d at 1554 (citations omitted)(internal quotation marks).

“The general

principle of Rule 56(d) is that summary judgment should be refused where the nonmoving party
has not had the opportunity to discover information that is essential to opposition.” Price ex rel.
Price v. W. Res., Inc., 232 F.3d 779, 783 (10th Cir. 2000). Rule 56(d) does not require, however,
that summary judgment not be entered until discovery is complete. See Price ex rel. Price v. W.
Res., Inc., 232 F.3d at 784.
“Rule 56[(d)] is not a license for a fishing expedition . . . .” Lewis v. Ft. Collins, 903
F.2d 752, 758 (10th Cir. 1990). To invoke rule 56(d), the party filing the affidavit or declaration

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must state with specificity how the desired time would allow it to meet its burden in opposing
summary judgment. See Jensen v. Redevelopment Agency of Sandy City, 998 F.2d at 1554. A
party opposing summary judgment may not invoke rule 56(d) based solely upon the assertion
that discovery is incomplete or that specific facts necessary to oppose summary judgment are
unavailable. See Jensen v. Redevelopment Agency of Sandy City, 998 F.2d at 1554. Moreover,
while the summary-judgment movant’s exclusive control of information weighs heavily in favor
of relief under 56(d), see Price ex rel. Price v. W. Res., Inc., 232 F.3d at 783, merely asserting
such is insufficient to justify denial of summary judgment, see Jensen v. Redevelopment Agency
of Sandy City, 998 F.2d at 1554. Furthermore, “if the party filing the Rule 56[(d)] affidavit has
been dilatory, or the information sought is either irrelevant to the summary judgment motion or
merely cumulative, no extension will be granted.” Jensen v. Redevelopment Agency of Sandy
City, 998 F.2d at 1554 (denying a rule 56(d) request and stating that “the record reflect[ed] that
plaintiffs were dilatory in pursuing discovery prior to the filing of their 56[(d)] affidavit”). See
Johnson v. Holmes, 377 F. Supp. 2d 1039, 1044-45 (D.N.M. 2004)(Browning, J.)(denying a
56(d) request where plaintiff did not explain why, during the discovery period that the court
allowed, he did not obtain the discovery sought in his motion).

The Tenth Circuit has

summarized rule 56(d)’s requirements as follows:
A prerequisite to granting relief pursuant to Rule 56[(d)] is an affidavit
furnished by the nonmovant. Although the affidavit need not contain evidentiary
facts, it must explain why facts precluding summary judgment cannot be
presented. This includes identifying the probable facts not available and what
steps have been taken to obtain these facts. In this circuit, the nonmovant also
must explain[, with specificity,] how additional time will enable him to rebut
movant’s allegations of no genuine issue of fact.
Price ex rel. Price v. W. Res., Inc., 232 F.3d at 783 (internal quotations and citations omitted).
See Tadlock v. Lahood, 550 F. App’x 541, 547 (10th Cir. 2013)(unpublished)(citing Price ex rel.

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Price v. W. Res., Inc. for rule 56(d)’s requirements after the 2010 amendment); Douglass v.
United Auto Workers Local Union 31, 188 F. App’x 656, 658 (10th Cir. 2006)(unpublished)
(stating that the affidavit must state how the additional time would enable the party to meet its
burden “with specificity”). A rule 56(d) affidavit or declaration must state, with specificity, what
additional discovery is believed necessary. See Burke v. Utah Transit Auth. & Local 382, 462
F.3d 1253, 1264 (10th Cir. 2006); Chavez v. Perry, 142 F. App’x 325, 334 (10th Cir. 2005)
(unpublished)(“To resist summary judgment on this basis (56[(d)]), a party must specifically
identify what facts it seeks to discover and show how those facts would materially aid its case on
the dispositive issues.”). If a party does not file an affidavit or declaration, a district court does
not abuse its discretion in denying discovery. See Tadlock v. Lahood, 550 F. App’x at 547.
RELEVANT SECTIONS OF THE DELAWARE MERGER STATUTE
Any stockholder of a corporation of this State who holds shares of stock on the
date of the making of a demand pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares through the effective
date of the merger or consolidation, who has otherwise complied with subsection
(d) of this section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to § 228 of this title shall
be entitled to an appraisal by the Court of Chancery of the fair value of the
stockholder’s shares of stock under the circumstances described in subsections (b)
and (c) of this section. As used in this section, the word “stockholder” means a
holder of record of stock in a corporation; the words “stock” and “share” mean
and include what is ordinarily meant by those words; and the words “depository
receipt” mean a receipt or other instrument issued by a depository representing an
interest in 1 or more shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
Del. Code tit. 8, § 262(a).
LAW REGARDING STATING AFFIRMATIVE DEFENSES
Rule 8(c) of the Federal Rules of Civil Procedure requires that a responsive pleading
must set forth certain enumerated substantive defenses as well as “any other matter constituting
an avoidance or affirmative defense.” 5 Charles Alan Wright et al., Federal Practice & Procedure
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§ 1270 (3d ed. 2017). Modelled off the English and New York rules in force when the Federal
Rules of Civil Procedure first were drafted, see Judicature Act (The Annual Practice, 1937) O.19,
r. 15; N.Y.C.P.A. (1937) § 242, rule 8(c) makes no attempt to define the concept of affirmative
defense. Instead, it obligates a defendants to plead affirmatively any of nineteen defenses that
rule 8(c)(1) lists that the defendant wishes to assert. See Fed. R. Civ. P. 8(c). If the district court
or jury hearing a case accepts that case’s defendant’s affirmative defense, the defense defeats
that case’s plaintiff’s claim. See 5 Charles Alan Wright et al., Federal Practice & Procedure §
1270 (3d ed. 2017); Rural Water Dist. No. 2 v. City of Glenpool, 698 F.3d 1270 (10th Cir. 2012)
(“[O]nce the court’s jurisdiction has been properly invoked in the plaintiff’s complaint, the
assertion of such a defense is relevant only to whether the plaintiff can make out a successful
claim for relief, and not to whether the court has original jurisdiction over the claim itself.”),
quoting Southern New England Telephone Co. v. Global NAPs Inc., 624 F.3d 123, 132 (2d Cir.
2010)).
Although affirmative defenses must generally be pled in the defendant’s answer, not argued on a
motion to dismiss, see Fed. R. Civ. P. 8(c), there are exceptions: (i) where the defendant asserts
an immunity defense -- the courts handle these cases differently than other motions to dismiss,
see Glover v. Gartman, 899 F. Supp. 2d 1115, 1137-39, 1141 (D.N.M. 2012)(Browning, J.)(citing
Pearson v. Callahan, 555 U.S. 223 (2009); Robbins v. Oklahoma, 519 F.3d 1242 (10th Cir.
2008)); and (ii) where the facts establishing the affirmative defense are apparent on the face of
the complaint, see Miller v. Shell Oil Co., 345 F.2d 891, 893 (10th Cir. 1965)(“Under Rule 12(b),
a defendant may raise an affirmative defense by a motion to dismiss for the failure to state a
claim. If the defense appears plainly on the face of the complaint itself, the motion may be
disposed of under this rule.”). The defense of limitations is the affirmative defense most likely to

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be established by the uncontroverted facts in the complaint. See 5 CHARLES ALAN WRIGHT ET
AL., FEDERAL PRACTICE AND PROCEDURE

§ 1277 (3d ed. 2014). If the complaint sets forth dates

that appear, in the first instance, to fall outside of the statutory limitations period, then the
defendant may move for dismissal under rule 12(b)(6). See Rohner v. Union Pac. R.R. Co., 225
F.2d 272, 273-75 (10th Cir. 1955); Gossard v. Gossard, 149 F.2d 111, 113 (10th Cir. 1945);
Andrew v. Schlumberger Tech. Co., 808 F. Supp. 2d 1288, 1292 (D.N.M. 2011)(Browning, J.).
The plaintiff may counter this motion with an assertion that a different statute of limitations or an
equitable tolling doctrine applies to bring the suit within the statute; the Tenth Circuit has not
clarified whether this assertion must be pled with supporting facts in the complaint or may be
merely argued in response to the motion. Cf. Kincheloe v. Farmer, 214 F.2d 604 (7th Cir.
1954)(holding that, once a plaintiff has pled facts in the complaint indicating that the statute of
limitations is a complete or partial bar to an action, it is incumbent upon the plaintiff to plead,
either in the complaint or in amendments to it, facts establishing an exception to the affirmative
defense). It appears, from case law in several circuits, that the plaintiff may avoid this problem
altogether -- at least at the motion-to-dismiss stage -- by simply refraining from pleading specific
or identifiable dates, see Goodman v. Praxair, Inc., 494 F.3d 458, 465-66 (4th Cir. 2007);
Hollander v. Brown, 457 F.3d 688, 691 n.1 (7th Cir. 2006); Harris v. New York, 186 F.3d 243,
251 (2d Cir. 1999); Honeycutt v. Mitchell, 2008 WL 3833472 (W.D. Okla. Aug. 15,
2008)(West, J.), and, although the Tenth Circuit has not squarely addressed this practice, the
Court has permitted this avoidance practice, see Anderson Living Trust v. WPX Energy Prod.,
LLC, 27 F. Supp. 3d 1188, 1208–09, 1234–38 (D.N.M. 2014)(Browning, J.).
LAW REGARDING RULE 56(d)
Rule 56(d) of the Federal Rules of Civil Procedure provides:

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(d)

When Facts Are Unavailable to the Nonmovant.
If a nonmovant shows by affidavit or declaration that, for specified
reasons, it cannot present facts essential to justify its opposition, the court
may:
(1)

defer considering the motion or deny it;

(2)

allow time to obtain affidavits or declarations or to take
discovery; or

(3)

issue any other appropriate order.

Fed. R. Civ. P. 56(d). Before 2010, this rule was rule 56(f); rule 56(d) “carries forward without
substantial change the provisions of former subdivision (f).” Fed. R. Civ. P. 56(d) advisory
committee’s notes to the 2010 amendments. “A party who seeks relief under subdivision (d)
may seek an order deferring the time to respond to the summary-judgment motion.” Fed. R. Civ.
P. 56(d) advisory committee’s notes to the 2010 amendments. The rule permits a nonmovant to
show by affidavit or declaration the need for additional discovery; a formal affidavit is thus not
required. See Fed. R. Civ. P. 56(d). The rule permits a “written unsworn declaration, certificate,
verification, or statement subscribed in proper form as true under penalty of perjury to substitute
for an affidavit.” Fed. R. Civ. P. 56(c) advisory committee’s notes to the 2010 amendments.
When a party files an affidavit or declaration, and moves for additional discovery time
under rule 56(d), the party invokes the court’s discretion. See Jensen v. Redevelopment Agency
of Sandy City, 998 F.2d 1550, 1553-54 (10th Cir. 1993). “‘Unless dilatory or lacking in merit,’”
a party’s 56[(d)] application “‘should be liberally treated.’” Jensen v. Redevelopment Agency of
Sandy City, 998 F.2d at 1554 (quoting Comm. for 1st Amend. v. Campbell, 962 F.2d 1517, 1522
(10th Cir. 1992)). “The general principle of Rule 56(d) is that summary judgment should be
refused where the nonmoving party has not had the opportunity to discover information that is
essential to [its] opposition.” Price ex rel. Price v. W. Res., Inc., 232 F.3d 779, 783 (10th Cir.
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2000). Rule 56(d) does not require, however, that summary judgment not be entered until
discovery is complete. See Price ex rel. Price v. W. Res., Inc., 232 F.3d at 784.
“Rule 56[(d)] is not a license for a fishing expedition . . . .” Lewis v. Ft. Collins,
903 F.2d 752, 758 (10th Cir. 1990). To invoke rule 56(d), the party filing the affidavit or
declaration must state with specificity how the desired time would allow it to meet its burden in
opposing summary judgment. See Jensen v. Redevelopment Agency of Sandy City, 998 F.2d
at 1554. Rule 56(d) may not be invoked based solely upon the assertion that discovery is
incomplete or that specific facts necessary to oppose summary judgment are unavailable. See
Jensen v. Redevelopment Agency of Sandy City, 998 F.2d at 1554. Moreover, while the
summary judgment movant’s exclusive control of information weighs heavily in favor of relief
under 56(d), see Price ex rel. Price v. W. Res., Inc., 232 F.3d at 783, merely asserting that the
movant has the evidence is insufficient to justify denial of summary judgment, see Jensen v.
Redevelopment Agency of Sandy City, 998 F.2d at 1554. Furthermore, “if the party filing the
Rule 56[(d)] affidavit has been dilatory, or the information sought is either irrelevant to the
summary judgment motion or merely cumulative, no extension will be granted.” Jensen v.
Redevelopment Agency of Sandy City, 998 F.2d at 1554 (denying a 56(d) request stating “the
record reflect[ed] that plaintiffs were dilatory in pursuing discovery prior to the filing of their
56[(d)] affidavit”).

See Johnson v. Holmes, 377 F. Supp. 2d 1039, 1044-45 (D.N.M.

2004)(Browning, J.), aff’d, 455 F.3d 1133 (10th Cir. 2006)(denying a 56(d) request where
plaintiff did not explain why, during the discovery period that the court allowed, he did not
obtain the discovery sought in his motion). The Tenth Circuit has summarized rule 56(d)’s
requirements as follows:
A prerequisite to granting relief pursuant to Rule 56[(d)] is an affidavit furnished
by the nonmovant. Although the affidavit need not contain evidentiary facts, it
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must explain why facts precluding summary judgment cannot be presented. This
includes identifying the probable facts not available and what steps have been
taken to obtain these facts. In this circuit, the nonmovant also must explain[, with
specificity,] how additional time will enable him to rebut movant’s allegations of
no genuine issue of fact.
Price ex rel. Price v. W. Res., Inc., 232 F.3d at 783 (quoting Comm. for 1st Amend. v. Campbell,
962 F.2d at 1522). See Tadlock v. Lahood, 550 F. App’x at 547 (citing Price ex rel. Price v. W.
Res., Inc. for the requirements of rule 56(d) after the 2010 amendment); Douglass v. United Auto
Workers Local Union 31, 188 F. App’x at 658 (stating that the affidavit must state “with
specificity” how the additional time would enable the party to meet its burden). A rule 56(d)
affidavit or declaration must state, with specificity, what additional discovery is believed
necessary. See Burke v. Utah Transit Auth. & Local 382, 462 F.3d 1253, 1264 (10th Cir. 2006);
Chavez v. Perry, 142 F. App’x at 334 (“To resist summary judgment on this basis, a party must
specifically identify what facts it seeks to discover and show how those facts would materially
aid its case on the dispositive issues.”). If a party does not file an affidavit or declaration, a
district court does not abuse its discretion in denying discovery. See Tadlock v. Lahood, 550 F.
App’x at 547.
In determining whether a party has been dilatory in pursuing discovery, courts should
consider: (i) “the length of the pendency of the case prior to the Rule 56[(d)] request”;
(ii) ”whether and when plaintiff could have anticipated its need for the requested discovery”;
(iii) ”the previous efforts, if any, made by plaintiff to obtain the needed information either
through Rule discovery or otherwise”; (iv) “the degree and nature of discovery already
undertaken”; (v) “any limitations placed upon discovery previously by the trial court”; (vi) “any
prior solicitations of or provisions for discovery by the trial court”; (vii) “any warning which
plaintiff might have had that, absent a speedier request, discovery might be denied and his claim

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be dismissed”; and (viii) “whether the requested information was inaccessible to plaintiff, e.g. as
when within defendant’s exclusive control, or whether alternative, accessible sources existed but
were foregone.” Paul Kadair, Inc. v. Sony Corp. of Am., 694 F.2d 1017, 1031 (5th Cir. 1983).
See Jensen v. Redevelopment Agency of Sandy City, 998 F.2d at 1555 n.7 (noting that the “Fifth
Circuit enumerates eight factors to be considered in determining whether a party has been
dilatory in seeking discovery” (citing Paul Kadair, Inc. v. Sony Corp. of Am., 694 F.2d at
1031)); Klick v. Hercules, Inc., No. 90-C-1067-B at *4 n.3 (stating that Paul Kadair, Inc. v. Sony
Corp. of America enumerates “eight factors which should be considered by the court before
determining whether a party has been dilatory in conducting discovery”); Patty Precision v.
Brown & Sharpe Mfg. Co., 742 F.2d 1260, 1264 n.4 (1984)(same).
LAW REGARDING EXPERT TESTIMONY
“Since the Supreme Court of the United States decided Daubert v. Merrell Dow
Pharmaceuticals, Inc.[, 509 U.S. 579, 594-95 (1993)(“Daubert”)], trial courts have had the
responsibility to make certain that proffered experts will assist the jury in understanding the
evidence and in determining the factual issues it must decide.” United States v. GutierrezCastro, 805 F. Supp. 2d 1218, 1224 (D.N.M. 2011)(Browning, J.). “The Court now must not
only decide whether the expert is qualified to testify, but, under Daubert v. Merrell Dow
Pharmaceuticals, Inc., whether the opinion testimony is the product of a reliable methodology.”
United States v. Gutierrez-Castro, 805 F. Supp. 2d at 1224.

“Daubert v. Merrell Dow

Pharmaceuticals, Inc. requires a court to scrutinize the proffered expert’s reasoning to determine
if that reasoning is sound.” United States v. Gutierrez-Castro, 805 F. Supp. 2d at 1224.
1.

Rule 702.

Rule 702 of the Federal Rules of Evidence governs the admissibility of expert testimony:

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A witness who is qualified as an expert by knowledge, skill, experience, training,
or education may testify in the form of an opinion or otherwise if:
(a)

the expert’s scientific, technical, or other specialized knowledge
will help the trier of fact to understand the evidence or to
determine a fact in issue;

(b)

the testimony is based on sufficient facts or data;

(c)

the testimony is the product of reliable principles and methods; and

(d)

the expert has reliably applied the principles and methods to the
facts of the case.

Fed. R. Evid. 702. Rule 702 thus requires the trial court to “determine whether the expert is
proposing to testify to (1) scientific, technical, or other specialized knowledge that (2) will assist
the trier of fact to understand or determine a fact in issue.” United States v. Muldrow, 19 F.3d
1332, 1337 (10th Cir. 1994).
Rule 702 uses a liberal definition of “expert.” Fed. R. Evid. 702 advisory committee’s
note to 1972 proposed rules (“[W]ithin the scope of this rule are not only experts in the strictest
sense of the word, e.g. physicians, physicists, and architects, but also the large group sometimes
called ‘skilled’ witnesses, such as bankers or landowners testifying to land values.”). An expert
is “required to possess such skill, experience or knowledge in that particular field as to make it
appear that his opinion would rest on substantial foundation and would tend to aid the trier of
fact in his search for truth.” LifeWise Master Funding v. Telebank, 374 F.3d 917, 928 (10th Cir.
2004).
The proponent of expert testimony has the burden of establishing by a preponderance of
the evidence that the pertinent admissibility requirements are met. See Morales v. E.D. Etnyre &
Co., 382 F. Supp. 2d 1252, 1266 (D.N.M. 2005)(Browning, J.)(citing Bourjaily v. United States,
483 U.S. 171, 175 (1987)). Once the trial court has determined that expert testimony would be

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helpful to the trier of fact, a witness “may qualify as an expert by knowledge, skill, experience,
training, or education and . . . the expert . . . should not be required to satisfy an overly narrow
test of his own qualifications.” Gardner v. Gen. Motors Corp., 507 F.2d 525, 528 (10th Cir.
1974)(internal quotation marks omitted). Courts should, under the Federal Rules of Evidence,
liberally admit expert testimony, see United States v. Gomez, 67 F.3d 1515, 1526 (10th Cir.
1995)(describing rule 702 as a “liberal standard”), and the trial court has broad discretion in
deciding whether to admit or exclude expert testimony, see Werth v. Makita Electric Works,
Ltd., 950 F.2d 643, 647 (10th Cir. 1991)(noting the trial court’s decision will not be overturned
“unless it is manifestly erroneous or an abuse of discretion”).
2.

The Standard in Daubert.

In its gatekeeper role, a court must assess the reasoning and methodology underlying an
expert’s opinion, and determine whether it is both scientifically valid and relevant to the facts of
the case, i.e., whether it is helpful to the trier of fact. See Daubert at 594-95; Witherspoon v.
Navajo Ref. Co., LP, No. 03-1160 BB/LAM, 2005 WL 5988649, at *2 (D.N.M. July 18,
2005)(Black, J.)(citing Dodge v. Cotter Corp., 328 F.3d 1212, 1221 (10th Cir. 2003)). The
Supreme Court articulated a non-exclusive list of factors that weigh into a district court’s firststep reliability determination, including: (i) whether the method has been tested; (ii) whether the
method has been published and subject to peer review; (iii) the error rate; (iv) the existence of
standards and whether the witness applied them in the present case; and (v) whether the witness’
method is generally accepted as reliable in the relevant medical and scientific community. See
Daubert, 509 U.S. 594-95. The court is also to consider: (i) whether the witness’ conclusion
represents an “unfounded extrapolation” from the data; (ii) whether the witness has adequately
accounted for alternative explanations for the effect at issue; (iii) whether the opinion was

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reached for the purposes of litigation or as the result of independent studies; or (iv) whether it
unduly relies on anecdotal evidence. See Witherspoon v. Navajo Ref. Co., LP, 2005 WL
5988649, at *3 (citing Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997)). The Tenth Circuit
stated the applicable standard in Norris v. Baxter Healthcare Corp., 397 F.3d 878 (10th Cir.
2005):
Rule 702 requires the district court to “ensure that any and all scientific testimony
or evidence is not only relevant, but reliable.” [Bitler v. A.O. Smith Corp., 391
F.3d 1114, 1120 (10th Cir. 2004)](quoting Daubert, 509 U.S. at 589 . . .). This
obligation involves a two-part inquiry. Id. “[A] district court must [first]
determine if the expert’s proffered testimony . . . has ‘a reliable basis in the
knowledge and experience of his [or her] discipline.’” Id. (quoting Daubert, 509
U.S. at 592 . . . .). In making this determination, the district court must decide
“whether the reasoning or methodology underlying the testimony is scientifically
valid. . . .” Id. (quoting Daubert, 509 U.S. at 592-93 . . .). Second, the district
court must further inquire into whether proposed testimony is sufficiently
“relevant to the task at hand.” Daubert, 509 U.S. at 597.
Norris v. Baxter Healthcare Corp., 397 F.3d at 883-84 (footnote omitted). “The second inquiry
is related to the first. Under the relevance prong of the Daubert analysis, the court must ensure
that the proposed expert testimony logically advances a material aspect of the case . . . . The
evidence must have a valid scientific connection to the disputed facts in the case.” Norris v.
Baxter Healthcare Corp., 397 F.3d at 884 n.2 (citing Daubert, 43 F.3d 1311, 1315 (9th Cir.
1995)(on remand from the Supreme Court)); Daubert, 509 U.S. at 591)).

If the expert’s

proffered testimony fails on the first prong, the Court does not reach the second prong. See
Norris v. Baxter Healthcare Corp., 397 F.3d at 884.
In Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999), the Supreme Court expanded the
rules under Daubert v. Merrell Dow Pharm., Inc., to non-scientific expert testimony. See Kumho
Tire Co. v. Carmichael, 526 U.S. at 141 (“We conclude that Daubert’s general holding -- setting
forth the trial judge’s general ‘gatekeeping’ obligation -- applies not only to testimony based on

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‘scientific’ knowledge, but also to testimony based on ‘technical’ and ‘other specialized’
knowledge.”). The Supreme Court recognized in Kumho Tire Co. v. Carmichael that the factors
from Daubert v. Merrell Dow Pharm., Inc., will not apply to all cases:
Our emphasis on the word ‘may’ thus reflects Daubert’s description of the Rule
702 inquiry as a flexible one. Daubert makes clear that the factors it mentions do
not constitute a definitive checklist or test. And Daubert adds that the
gatekeeping inquiry must be tied to the facts of a particular case.
Kumho Tire Co. v. Carmichael, 526 U.S. at 150 (internal quotation marks omitted).
In conducting its review under Daubert, the court must focus generally on “principles and
methodologies, and not on the conclusions generated.” Armeanu v. Bridgestone/Firestone N.
Am., Tire, LLC, No. CIV 05-0619 JB/DJS, 2006 WL 4060665, at *11 (D.N.M. Sept. 26,
2006)(Browning, J.)(citing Daubert, 509 U.S. at 595). “Despite this focus on methodology, an
expert’s conclusions are not immune from scrutiny . . . and the court may conclude that there is
simply too great an analytical gap between the data and the opinion proffered.” Armeanu v.
Bridgestone/Firestone N. Am., Tire, LLC, 2006 WL 4060665, at *11 (alterations
omitted)(internal quotation marks omitted).
The proponent of the expert’s opinion testimony bears the burden of establishing that the
expert is qualified, that the methodology he or she uses to support his or her opinions is reliable,
and that his or her opinion fits the facts of the case and thus will be helpful to the jury. See
Norris v. Baxter Healthcare Corp., 397 F.3d at 881. The United States Court of Appeals for the
Ninth Circuit noted in Claar v. Burlington Northern Railroad Co., 29 F.3d 499 (9th Cir. 1994):
Coming to a firm conclusion first and then doing research to support it is the
antithesis of this method. Certainly, scientists may form initial tentative
hypotheses. However, scientists whose conviction about the ultimate conclusion
of their research is so firm that they are willing to aver under oath that it is correct
prior to performing the necessary validating tests could properly be viewed by the
district court as lacking the objectivity that is the hallmark of the scientific
method.
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29 F.3d at 502-03 (citation omitted).
Once reliability is established, however, it is still within the district court’s
discretion to determine whether expert testimony will be helpful to the trier of
fact. In making that determination, the court should consider, among other
factors, the testimony’s relevance, the jurors’ common knowledge and experience,
and whether the expert’s testimony may usurp the jury’s primary role as the
evaluator of evidence.
Ram v. N.M. Dep’t of Env’t, No. CIV 05-1083 JB/WPL, 2006 WL 4079623, at *10 (Dec. 15,
2006)(Browning, J.)(citing United States v. Rodriguez-Felix, 450 F.3d 1117, 1123 (10th Cir.
2006)).
An untested hypothesis does not provide a scientific basis to support an expert opinion.
See Norris v. Baxter Healthcare Corp., 397 F.3d at 887 (“[A]t best, silicone-associated
connective tissue disease is an untested hypothesis. At worst, the link has been tested and found
to be untenable. Therefore, there is no scientific basis for any expert testimony as to its specific
presence in Plaintiff.”); In re Breast Implant Litig., 11 F. Supp. 2d at 1228 (“An untested
hypothesis cannot be a scientifically reliable basis for an opinion on causation.”). A court is not
required “to admit opinion evidence that is connected to existing data only by the ipse dixit of
the expert. The court may conclude that there is simply too great an analytical gap between the
data and the opinion proffered.” Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997). See
Hollander v. Sandoz Pharm. Corp., 289 F.3d 1193, 1209 (10th Cir. 2002)(noting a lack of
similarity between animal studies and human studies); Tyler v. Sterling Drug, Inc., 19 F. Supp.
2d 1239, 1244 (N.D. Okla. 1998)(“Test results on animals are not necessarily reliable evidence
of the same reaction in humans.”).
Courts have also excluded experts’ opinions when the experts depart from their own
established standards. See Truck Ins. Exch. v. MagneTek, Inc., 360 F.3d 1206, 1213 (10th Cir.

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2004)(“The district court noted that [the expert]’s opinion did not meet the standards of fire
investigation [the expert] himself professed he adhered to.”); Magdaleno v. Burlington N. R.R.
Co., 5 F. Supp. 2d 899, 905 (D. Colo. 1998)(“In sum, [the expert]’s methodology is not
consistent with the methodologies described by the authors and experts whom [the expert]
identifies as key authorities in his field.”).
3.

The Necessity of Evaluating an Issue Under Daubert.

Daubert’s restrictions apply to both “novel” expert testimony and “well-established
propositions.” Daubert, 509 U.S. at 593 n.11 (“Although the Frye[92] decision itself focused
exclusively on ‘novel’ scientific techniques, we do not read the requirements of Rule 702 to
apply specially or exclusively to unconventional evidence.”).

“Of course, well-established

propositions are less likely to be challenged than those that are novel, and they are more handily
defended.” Daubert, 509 U.S. at 593 n.11. “Indeed, theories that are so firmly established as to
have attained the status of scientific law, such as the laws of thermodynamics, properly are
subject to judicial notice under Federal Rule of Evidence 201.” Daubert, 509 U.S. at 593 n.11.
“[W]hen experts employ established methods in their usual manner, a district court need
not take issue under Daubert . . . .” Attorney Gen. of Okla. v. Tyson Foods, Inc., 565 F.3d 769,
780 (10th Cir. 2009). “[H]owever, where established methods are employed in new ways, a
district court may require further indications of reliability.” Attorney Gen. of Okla. v. Tyson
Foods, Inc., 565 F.3d at 780. Whether courts have accepted theories underlying an expert’s
opinion is a relevant consideration in determining whether expert testimony is reliable. See
Attorney Gen. of Okla. v. Tyson Foods, Inc., 565 F.3d at 780 (“The case law indicates that the
92

Frye v. United States, 293 F. 1013 (D.C. Cir. 1923), superseded by rule Fed. R. Evid.
702, held that, for an expert opinion to be admissible, “the thing from which the deduction is
made must be sufficiently established to have gained general acceptance in the particular field in
which it belongs.” Frye v. United States, 293 F. at 1014.
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courts are not unfamiliar with the [polymerase chain reaction] methodology, and in fact some
courts have indicated their acceptance of it.”).
LAW REGARDING EXPERT TESTIMONY ON ULTIMATE ISSUES
Rule 704 of the Federal Rules of Evidence states:
(a)

In General -- Not Automatically Objectionable. An opinion is not
objectionable just because it embraces an ultimate issue.

(b)

Exception. In a criminal case, an expert witness must not state an opinion
about whether the defendant did or did not have a mental state or
condition that constitutes an element of the crime charged or of a defense.
Those matters are for the trier of fact alone.

Fed. R. Evid. 704. “Traditionally, there was a general doctrine that witnesses could not give
their opinion or conclusions on an ultimate issue of fact.” Vondrak v. City of Las Cruces, No.
05-0172, 2009 WL 3241555, at *10 (D.N.M. Aug. 25, 2009)(Browning, J.).

“The stated

justification was sometimes that such testimony usurps the function or invades the province of
the jury.” Vondrak v. City of Las Cruces, 2009 WL 3241555, at *10 (quoting 1 K. Broun,
McCormick on Evidence § 12 (6th ed. 2006 update)). The Federal Rules of Evidence reflect that
the ultimate-issue rule no longer applies. See United States v. Smith, 156 F.3d 1046, 1054 (10th
Cir. 1998). Although rule 704(a) permits an expert to testify about areas that embrace an
ultimate issue, there are some other limitations, aside from those that rule 704(b) expresses,
regarding testimony on ultimate issues.
Expert witnesses are permitted to testify regarding a broad scope of matters. First,
experts may testify regarding ultimate questions of fact. See Fed. R. Evid. 704 (“An opinion is
not objectionable just because it embraces an ultimate issue.”); United States v. Richter, 796 F.3d
1173, 1195 (10th Cir. 2015)(“Federal Rule of Evidence 704 allows an expert witness to testify
about an ultimate question of fact.”). Second, experts may refer to the law in expressing their

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opinions. See United States v. Bedford, 536 F.3d 1148, 1158 (10th Cir. 2008); Specht v. Jensen,
853 F.2d 805, 809 (10th Cir. 1988)(“We recognize that a witness may refer to the law in
expressing an opinion without that reference rendering the testimony inadmissible.”). Third,
experts may testify “to facts or opinions from which the jury could conclude or infer that the
defendant had the requisite mental state.” United States v. Ganadonegro, No. 09-0312, 2012 WL
592170, at *5 (D.N.M. Feb. 17, 2012)(Browning, J.)(citing United States v. Torres, 53 F.3d
1129, 1141-42 (10th Cir. 1995)). In short, “[p]ermissible testimony provides the jury with the
tools to evaluate an expert’s ultimate conclusion and focuses on questions of fact that are
amenable to the scientific, technical, or other specialized knowledge within the expert’s field.”
United States v. Richter, 796 F.3d at 1195.
The Tenth Circuit has also barred numerous forms of expert testimony. “Rule 704(b)
prohibits an expert from expressly stating the final conclusion or inference as to a defendant’s
mental state[.]” United States v. Ganadonegro, 2012 WL 592170, at *5. “[Rules 701, 702, and
403] afford ample assurances against the admission of opinions [under rule 704] which would
merely tell the jury what result to reach, somewhat in the manner of the oath-helpers of an earlier
day.” United States v. Barile, 286 F.3d 749, 759-60 (4th Cir. 2002). Expert testimony is
similarly inadmissible when a jury can evaluate the matter itself. In U.S. Rodella, No. CR 142783 JB, 2014 WL 6634154, (D.N.M. Nov. 18, 2014)(Browning, J.), the United States alleged
that the defendant used unreasonable force during an unlawful arrest. See 2014 WL 6634154, at
*1.

The defendant attempted to introduce expert testimony that the arrestee’s booking

photograph did not show evidence of bruising. See 2014 WL 6634154, at *18. The Court
rejected this evidence, explaining:
While Dr. Sanders’ methodology is detailed, his methodology boils down to
looking at the photograph and deciding whether Tafoya’s face appears to be
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bruised. Whether a person’s face appears to be bruised or swollen falls within a
juror’s common knowledge and experience, and permitting expert testimony on
the issue would usurp the jury’s primary role as the evaluator of evidence.
2014 WL 6634154, at *18 (quotations omitted). Expert testimony is likely inadmissible when
the expert’s testimony tracks the language of the legal principle or statute at issue or when terms
employed have a specialized legal meaning. See United States v. Perkins, 470 F.3d at 158. In
Vondrak v. City of Las Cruces, for example, the defendant sought to introduce testimony from
an experienced police officer to show that a police officer reasonably handcuffed the plaintiff
during an arrest for driving under the influence. See 2009 WL 3241555, at *1. The police
officer stated in his report that the defendant acted reasonably and that the amount of time the
plaintiff spent in handcuffs was reasonable. See 2009 WL 3241555, at *18. The Court rejected
this evidence, explaining that it impermissibly applied the law to the facts:
Tipton may not say that McCants acted reasonably, because such testimony
involves the application of a legal standard to the facts. . . . [W]hile the ultimate
evidence rule has been abolished outside of the context of rule 704(b), experts still
are not allowed to express opinions involving the application of legal standards to
facts. Okland Oil Co. v. Conoco Inc., 144 F.3d 1308, 1328 (10th Cir.
1998)(“Generally, an expert may not state his or her opinion as to legal standards
nor may he or she state legal conclusions drawn by applying the law to the
facts.”). Tipton therefore may not express an opinion that the length of time that
Vondrak spent in handcuffs was reasonable.
2009 WL 3241555, at *18.
The distinction between permissible and impermissible expert testimony is not always
obvious. See United States v. McIver, 470 F.3d 550, 562 (4th Cir. 2006)(“The line between a
permissible opinion on an ultimate issue and an impermissible legal conclusion is not always
easy to discern.”); United States v. Simpson, 7 F.3d 186, 189 (10th Cir. 1993)(“In this case,
defense counsel sought to admit testimony by the expert as to whether the transactions in
question constituted misapplication or concealment. Whether or not this proffered testimony
amounts to a legal conclusion, devoid of helpfulness to the trier of fact, is a close question.”); 3- 232 -

704 Federal Rules of Evidence Manual § 704.02 (2015)(“Despite the … Court’s effort to
distinguish ultimate factual conclusions from ultimate legal conclusions, the distinction can be
blurry.”). In 1991, for example, the Tenth Circuit stated that “an expert may not state legal
conclusions drawn by applying the law to the facts.” A.E. By & Through Evans v. Indep. Sch.
Dist. No. 25, of Adair Cty., Okl., 936 F.2d 472, 476 (10th Cir. 1991). More recently, however, it
has explained that witnesses “are permitted to testify about how the law applies to a certain set of
facts, so long as they provide adequate explanations for their conclusions.” United States v.
Richter, 796 F.3d at 1196. It is unclear how an expert witness could describe “how the law
applies to a certain set of facts” without reaching a “legal conclusion.” Cases discussing these
issues are not always clear. In United States v. Buchanan, 787 F.2d 477 (10th Cir. 1986), an
officer with the Bureau of Alcohol, Tobacco and Firearms testified that a firebomb would “have
to be registered” with his agency. 787 F.2d at 483. The defendant objected on the grounds that
the testimony “constituted an improper legal conclusion.” 787 F.2d at 484. The Tenth Circuit
noted that “[t]he question before the jury involved the consideration of a particular homemade
device against an array of statutory definitions,” but nonetheless affirmed the district court’s
decision to admit the testimony. 787 F.2d at 483. It explained:
While unadorned legal conclusions are impermissible, see Frase v. Henry, 444
F.2d 1228, 1231 (10th Cir. 1971), courts have allowed the expression of expert
opinions on ultimate issues of fact. See, e.g., United States v. Logan, 641 F.2d
860, 863 (10th Cir. 1981). Experts are allowed to testify that certain drugs come
within a particular statutory classification, see United States v. Carroll, 518 F.2d
187, 188 (6th Cir. 1975), and that certain expenses are deductible under the
federal tax laws, see United States v. Fogg, 652 F.2d 551, 556–57 (5th Cir. 1981),
cert. denied, 456 U.S. 905, 102 S.Ct. 1751, 72 L.Ed.2d 162 (1982).
787 F.2d at 484. The Tenth Circuit placed the officer’s testimony into the “ultimate issues of
fact” category. 787 F.2d at 484. See United States v. Bedford, 536 F.3d 1148, 1158 (10th Cir.
2008)(“[W]e agree that a properly qualified IRS agent may analyze a transaction and give expert
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testimony about its tax consequences.”)(quotation omitted).
“Rule 704(b) prohibits an expert from expressly stating the final conclusion or inference
as to a defendant’s mental state; it does not prevent an expert from testifying to facts or opinions
from which the jury could conclude or infer that the defendant had the requisite mental state.”
United States v. Ganadonegro, 2012 WL 592170, at *5 (D.N.M. Feb. 17, 2012)(Browning,
J.)(citing United States v. Torres, 53 F.3d 1129, 1141-42 (10th Cir. 1995)). The restrictions in
rule 704(b) do not apply to lay witnesses, see United States v. Goodman, 633 F.3d 963, 968
(10th Cir. 2011), although the lay witnesses’ testimony must still be helpful to the trier of fact to
satisfy rule 701, see Fed. R. Evid. 701(b). “[Rules 701, 702, and 403] afford ample assurances
against the admission of opinions [under rule 704] which would merely tell the jury what result
to reach, somewhat in the manner of the oath-helpers of an earlier day.” United States v. Barile,
286 F.3d 749, 759-60 (4th Cir. 2002). Pursuant to rule 704, it is the Court’s task “to distinguish
[helpful] opinion testimony that embraces an ultimate fact from [unhelpful] opinion testimony
that states a legal conclusion.” United States v. Perkins, 470 F.3d at 158 (internal quotation
marks omitted). In making that determination, a court should consider whether the question
tracks the language of the legal principle or statute at issue, and then consider whether any terms
employed have a specialized legal meaning. See United States v. Perkins, 470 F.3d at 158.
LAW REGARDING RULE 401 OF THE FEDERAL RULES OF EVIDENCE
The threshold issue in determining the admissibility of evidence is relevance. As a
baseline, under the Federal Rules of Evidence, all evidence that is relevant is admissible -- unless
another law or rule excludes the evidence -- and any evidence that is not relevant is not
admissible. See Fed. R. Evid. 402. The standard for relevance is liberal. See United States v.
Leonard, 439 F.3d 648, 651 (10th Cir. 2006)(“Rule 401 is a liberal standard.”)(citing United

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States v. McVeigh, 153 F.3d 1166, 1190 (10th Cir. 1998)). The evidence need only have “any
tendency to make the existence of any fact that is of consequence to the determination of the
action more probable or less probable than it would be without the evidence.” Fed. R. Evid. 401.
See United States v. Leonard, 439 F.3d at 651. “[A] fact is ‘of consequence’ when its existence
would provide the fact-finder with a basis for making some inference, or chain of inferences,
about an issue that is necessary to a verdict,” but it only needs to have “any tendency” to do so.
United States v. Jordan, 485 F.3d 1214, 1218 (10th Cir. 2007). See United States v. Leonard,
439 F.3d at 651; United States v. McVeigh, 153 F.3d at 1190. Although the threshold burden is
low, the rules do “not sanction the carte blanche admission of whatever evidence a defendant
would like. The trial judge is the gatekeeper under the Rules of Evidence.” United States v.
Jordan, 485 F.3d at 1218.
LAW REGARDING RULE 403 OF THE FEDERAL RULES OF EVIDENCE
Rule 403 provides: “The court may exclude relevant evidence if its probative value is
substantially outweighed by a danger of one or more of the following: unfair prejudice,
confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting
cumulative evidence.” Fed. R. Evid. 403. Under rule 403, the trial court must weigh the
proffered evidence’s probative value against its potential for unfair prejudice. See United States
v. Record, 873 F.2d 1363, 1375 (10th Cir. 1989). “[I]t is only unfair prejudice, substantially
outweighing probative value, which permits exclusion of relevant matter [under rule 403].”
United States v. Pettigrew, 468 F.3d 626, 638 (10th Cir. 2006)(quoting United States v. Sides,
944 F.2d 1554, 1563 (10th Cir. 1991)). The United States Court of Appeals for the Tenth Circuit
has reminded district courts that they should be “mindful” that “exclusion of evidence under
Rule 403 that is otherwise admissible under the other rules is an extraordinary remedy and

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should be used sparingly.” United States v. Smalls, 605 F.3d 765, 787 (10th Cir. 2010).
The decision to admit or exclude evidence pursuant to rule 403 is within the trial court’s
discretion, see United States v. Lugo, 170 F.3d 996, 1005 (10th Cir. 1999), and the trial court’s
discretion to balance possible unfair prejudice against probative value is broad, see United States
v. Bice-Bey, 701 F.2d 1086, 1089 (4th Cir. 1983); United States v. Masters, 622 F.2d 83, 87-88
(4th Cir. 1980). As the Supreme Court of the United States has noted:
In deference to a district court’s familiarity with the details of the case and
its greater experience in evidentiary matters, courts of appeals afford broad
discretion to a district court’s evidentiary rulings . . . . This is particularly true
with respect to Rule 403 since it requires an “on-the-spot balancing of probative
value and prejudice, potentially to exclude as unduly prejudicial some evidence
that already has been found to be factually relevant.”
Sprint/United Mgmt. Co. v. Mendelsohn, 552 U.S. 379, 384 (2008)(omission in case but not
quoted treatise)(quoting 1 Steven A. Childress & Martha S. Davis, Federal Standards of Review
§ 4.02, at 4-16 (3d ed. 1999)). See United States v. Abel, 469 U.S. 45, 54 (1984)(“Assessing the
probative value of [proffered evidence], and weighing any factors counseling against
admissibility is a matter first for the district court’s sound judgment under Rules 401 and
403 . . . .”).
Evidence may be unfairly prejudicial if it would likely provoke an emotional response
from the jury or would otherwise tend to adversely affect the jury’s attitude toward a particular
matter. See United States v. Rodriguez, 192 F.2d 946, 951 (10th Cir. 1999). Evidence is not
unfairly prejudicial merely because it damages a party’s case. See United States v. Caraway, 543
F.3d 1290, 1301 (10th Cir. 2008); United States v. Curtis, 344 F.3d 1057, 1067 (10th Cir. 2003);
United States v. Martinez, 938 F.2d 1078, 1082 (10th Cir. 1991). Rather, “[t]o be unfairly
prejudicial, the evidence must have ‘an undue tendency to suggest decision on an improper basis,
commonly, though not necessarily, an emotional one.’” United States v. Caraway, 453 F.3d at
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1301 (quoting Fed. R. Evid. 403 advisory committee’s notes).
LAW REGARDING RULE 408 OF THE FEDERAL RULES OF EVIDENCE
Rule 408 of the Federal Rules of Evidence reads as follows:
(a) Prohibited Uses. Evidence of the following is not admissible -- on behalf of
any party -- either to prove or disprove the validity or amount of a disputed claim
or to impeach by a prior inconsistent statement or a contradiction:
(1) furnishing, promising, or offering -- or accepting, promising to
accept, or offering to accept -- a valuable consideration in
compromising or attempting to compromise the claim; and
(2) conduct or a statement made during compromise negotiations
about the claim -- except when offered in a criminal case and when
the negotiations related to a claim by a public office in the exercise
of its regulatory, investigative, or enforcement authority.
(b) Exceptions. The court may admit this evidence for another purpose, such as
proving a witness’s bias or prejudice, negating a contention of undue delay, or
proving an effort to obstruct a criminal investigation or prosecution.
Fed. R. Evid. 408. Various United States Courts of Appeals have interpreted rule 408 to make
inadmissible only statements that (i) are made in settlement negotiations, see, e.g., Mendelovitz
v. Adolph Coors Co., 693 F.2d 570 (5th Cir. 1982); Trans Union Credit Information Co. v.
Associated Credit Services, Inc., 805 F.2d 188 (6th Cir. 1986); General Leaseways, Inc. v.
National Truck Leasing Ass’n, 830 F.2d 716 (7th Cir. 1987); Vulcan Hart Corp. (St. Louis Div.)
v. N.L.R.B., 718 F.2d 269 (8th Cir. 1983); (ii) relate to issues involved in the proceedings, see,
e.g., Southern Pacific Transp. Co. v. Chabert, 973 F.2d 441 (5th Cir. 1992); Vulcan Hart Corp.
(St. Louis Div.) v. N.L.R.B., 718 F.2d at 269; and (iii) offer to compromise or settle any claim in
the action being litigated, see, e.g., Mendelovitz v. Adolph Coors Co., 693 F.2d at 570; General
Leaseways, Inc. v. National Truck Leasing Ass’n, 830 F.2d at 716.
[E]ven where the settlement relates to prior claims that arguably arose out of
different events and transactions, where these claims are related inasmuch as they
arose in the course of the same large scale project operated by the defendant, and
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the claims sued upon are similar enough to be relevant, there is a sufficient basis
for bringing the evidence concerning the compromises and settlements under the
umbrella of Fed. R. Evid. 408.
12 John Bourdeau et al., Federal Procedure § 33:238 (2017)(citing Bradbury v. Phillips
Petroleum Co., 815 F.2d 1356 (10th Cir. 1987), an opinion that Judge Barrett wrote and thenChief Judge Holloway and Judge Logan joined, in which seven prior claims brought by
landowners arose in the course of the same large scale uranium exploration project conducted by
the defendant). “Fed. R. Evid. 408 does not prevent the same party who submitted the material
in the course of settlement discussions from using the material later at trial, because Fed. R.
Evid. 408 is designed to avoid one party using material against the party who submitted the
material for settlement purposes.”

12 John Bourdeau et al., Federal Procedure § 33:238

(2017)(citing Hulter v. C.I.R., 83 T.C. 663 (1984)). The 2006 amendment to rule 408 “excludes
compromise evidence even when a party seeks to admit its own settlement offer or statements
made in settlement negotiations. See 12 John Bourdeau et al., Federal Procedure § 33:238
(2017)(citing Advisory Committee Notes to Fed. R. Evid. 408 (2006 Amendment)).
Courts have regarded discussions between two parties as settlement negotiations if: (i) the
parties met to talk about their interpretation of the disputed matter, with outside counsels’
assistance, after the plaintiff filed an action, see Trans Union Credit Information Co. v.
Associated Credit Services, Inc., 805 F.2d at 189-93; Olin Corp. v. Insurance Co. of North
America, 603 F. Supp. 445 (S.D.N.Y. 1985), on reargument, 607 F. Supp. 1377 (S.D.N.Y.
1985); (ii) parties’ counsel agreed that the discussions in the meeting would not be later used for
any purpose, see Trans Union Credit Information Co. v. Associated Credit Services, Inc., 805
F.2d at 189-93; and (iii) parties’ counsel conceded in a written communication between
themselves that litigation was possible, see Olin Corp. v. Insurance Co. of North America, 603 F.

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Supp. at 445.
If litigation has not yet been threatened, communications between the parties are not
considered compromise negotiations. See Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber
Co., 561 F.2d 1365 (10th Cir. 1977)(an opinion that then-Chief Judge Lewis wrote and Judges
Pickett and Barrett joined). In business communications between companies which have not
crystallized to such a point of threatened litigation, “an admission in a conversation during an
informal investigation, an effort to head off a criminal prosecution rather than resolve a civil
claim, and a mere effort to buy time in which to pay an obligation, even though the validity of
the obligation is later disputed[,] have been considered admissible as outside the rule.” 12 John
Bourdeau et al., Federal Procedure § 33:239 (2017)(citations omitted). An itemized bill or a
demand for payment, even under threat of legal action, is not a settlement offer that rule 408
excludes. See Winchester Packaging, Inc. v. Mobil Chemical Co., 14 F.3d 316 (7th Cir. 1994).
RELEVANT TEXT FROM THE OKLAHOMA STATUTES
CONSENT OF SHAREHOLDERS IN LIEU OF MEETING
A. Except as provided in subsection B of this section or unless otherwise
provided for in the certificate of incorporation, any action required by the
provisions of the Oklahoma General Corporation Act to be taken at any annual or
special meeting of shareholders of a corporation or any action which may be
taken at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take the action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office in this state, its principal place of
business, or an officer or agent of the corporation having custody of the book in
which proceedings of meetings of shareholders are recorded. Delivery made to a
corporation’s registered office shall be by hand or by certified or registered mail,
return receipt requested.

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18 O.S. § 1073A
MERGER OR CONSOLIDATION OF DOMESTIC CORPORATIONS
A. Any two or more corporations existing under the laws of this state may merge
into a single corporation, which may be any one of the constituent corporations or
may consolidate into a new corporation formed by the consolidation, pursuant to
an agreement of merger or consolidation, as the case may be, complying and
approved in accordance with the provisions of this section.
B. The board of directors of each corporation which desires to merge or
consolidate shall adopt a resolution approving an agreement of merger or
consolidation and declaring its advisability. The agreement shall state:
1. The terms and conditions of the merger or consolidation;
2. The mode of carrying the same into effect;
3. In the case of a merger, the amendments or changes in the
certificate of incorporation of the surviving corporation as are
desired to be effected by the merger, or, if no amendments or
changes are desired, a statement that the certificate of
incorporation of the surviving corporation shall be its certificate of
incorporation of the surviving or resulting corporation;
4. In the case of a consolidation, that the certificate of
incorporation of the resulting corporation shall be as is set forth in
an attachment to the agreement;
5. The manner, if any, of converting the shares of each of the
constituent corporations into shares or other securities of the
corporation surviving or resulting from the merger or
consolidation, or of canceling some or all of the shares, and, if any
shares of any of the constituent corporations are not to remain
outstanding, to be converted solely into shares or other securities
of the surviving or resulting corporation or to be canceled, the
cash, property, rights, or securities of any other corporation or
entity which the holders of the shares are to receive in exchange
for or upon conversion of the shares and the surrender of any
certificates evidencing them, which cash, property, rights, or
securities of any other corporation or entity may be in addition to
or in lieu of shares or other securities of the surviving or resulting
corporation; and
6. Other details or provisions as are deemed desirable, including
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without limiting the generality of the foregoing, a provision for the
payment of cash in lieu of the issuance or recognition of fractional
shares, interests or rights, or for any other arrangement with
respect thereto, consistent with the provisions of Section 1036 of
this title. The agreement so adopted shall be executed and
acknowledged in accordance with the provisions of Section 1007
of this title. Any of the terms of the agreement of merger or
consolidation may be made dependent upon facts ascertainable
outside of the agreement; provided, that the manner in which these
facts shall operate upon the terms of the agreement is clearly and
expressly set forth in the agreement of merger or consolidation.
The term “facts” as used in this paragraph, includes, but is not
limited to, the occurrence of any event, including a determination
or action by any person or body, including the corporation.
C. The agreement required by the provisions of subsection B of this section shall
be submitted to the shareholders of each constituent corporation at an annual or
special meeting thereof for the purpose of acting on the agreement. Due notice of
the time, place, and purpose of the meeting shall be mailed to each holder of stock
whether voting or nonvoting, of the corporation at the address which appears on
the records of the corporation, at least twenty (20) days before the date of the
meeting. The notice shall contain a copy of the agreement or a brief summary
thereof, as the directors shall deem advisable; provided, however, the notice shall
be effective only with respect to mergers or consolidations for which the notice of
the shareholders meeting to vote thereon has been mailed after November 1, 1988.
At the meeting the agreement shall be considered and a vote taken for its adoption
or rejection. If a majority of the outstanding stock of the corporation entitled to
vote thereon shall be voted for the adoption of the agreement, that fact shall be
certified on the agreement by the secretary or the assistant secretary of the
corporation. If the agreement shall be so adopted and certified by each
constituent corporation, it shall then be filed and shall become effective in
accordance with the provisions of Section 1007 of this title. In lieu of filing an
agreement of merger or consolidation required by this section, the surviving or
resulting corporation may file a certificate of merger or consolidation executed in
accordance with the provisions of Section 1007 of this title and which states:
1. The name and state of incorporation of each of the constituent
corporations;
2. That an agreement of merger or consolidation has been
approved, adopted, certified, executed, and acknowledged by each
of the constituent corporations in accordance with the provisions of
this section;
3. The name of the surviving or resulting corporation;

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4. In the case of a merger, the amendments or changes in the
certificate of incorporation of the surviving corporation, which
may be amended and restated, that are desired to be effected by the
merger, or, if no amendments or changes are desired, a statement
that the certificate of incorporation of the surviving corporation
shall be its certificate of incorporation;
5. In the case of a consolidation, that the certificate of
incorporation of the resulting corporation shall be as is set forth in
an attachment to the certificate;
6. That the executed agreement of consolidation or merger is on
file at the principal place of business of the surviving corporation,
stating the address thereof; and
7. That a copy of the agreement of consolidation or merger will be
furnished by the surviving corporation, on request and without
cost, to any shareholder of any constituent corporation. For
purposes of Sections 1084 and 1086 of this title, the term
“shareholder” shall be deemed to include “member”.
D. Any agreement of merger or consolidation may contain a provision that at any
time prior to the time that the agreement, or a certificate filed with the Secretary
of State in lieu thereof, becomes effective in accordance with Section 1007 of this
title, the agreement may be terminated by the board of directors of any constituent
corporation notwithstanding approval of the agreement by the shareholders of all
or any of the constituent corporations; provided, if the agreement of merger or
consolidation is terminated after the filing of the agreement, or a certificate filed
with the Secretary of State in lieu thereof, but before the agreement or certificate
has become effective, a certificate of termination of merger or consolidation shall
be filed in accordance with Section 1007 of this title. Any agreement of merger
or consolidation may contain a provision that the boards of directors of the
constituent corporations may amend the agreement at any time prior to the time
that the agreement, or a certificate filed with the Secretary of State in lieu thereof,
becomes effective in accordance with Section 1007 of this title; provided, that an
amendment made subsequent to the adoption of the agreement by the
shareholders of any constituent corporation shall not:
1. Alter or change the amount or kind of shares, securities, cash,
property, or rights to be received in exchange for or on conversion
of all or any of the shares of any class or series thereof of the
constituent corporation;
2. Alter or change any term of the certificate of incorporation of
the surviving corporation to be effected by the merger or
consolidation; or
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3. Alter or change any of the terms and conditions of the
agreement if an alteration or change would adversely affect the
holders of any class or series thereof of the constituent corporation.
If the agreement of merger or consolidation is amended after the
filing of the agreement, or a certificate in lieu thereof, with the
Secretary of State, but before the agreement or certificate has
become effective, a certificate of amendment of merger or
consolidation shall be filed in accordance with Section 1007 of this
title.
E. In the case of a merger, the certificate of incorporation of the surviving
corporation shall automatically be amended to the extent, if any, that changes in
the certificate of incorporation are set forth in the certificate of merger.
F. Notwithstanding the requirements of subsection C of this section, unless
required by its certificate of incorporation, no vote of shareholders of a
constituent corporation surviving a merger shall be necessary to authorize a
merger if:
1. The agreement of merger does not amend in any respect the
certificate of incorporation of the constituent corporation;
2. Each share of stock of the constituent corporation outstanding
immediately prior to the effective date of the merger is to be an
identical outstanding or treasury share of the surviving corporation
after the effective date of the merger; and
3. Either no shares of common stock of the surviving corporation
and no shares, securities, or obligations convertible into such stock
are to be issued or delivered under the plan of merger, or the
authorized unissued shares or the treasury shares of common stock
of the surviving corporation to be issued or delivered under the
plan of merger plus those initially issuable upon conversion of any
other shares, securities, or obligations to be issued or delivered
under the plan do not exceed twenty percent (20%) of the shares of
common stock of the constituent corporation outstanding
immediately prior to the effective date of the merger. No vote of
shareholders of a constituent corporation shall be necessary to
authorize a merger or consolidation if no shares of the stock of the
corporation shall have been issued prior to the adoption by the
board of directors of the resolution approving the agreement of
merger or consolidation. If an agreement of merger is adopted by
the constituent corporation surviving the merger, by action of its
board of directors and without any vote of its shareholders
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pursuant to the provisions of this subsection, the secretary or
assistant secretary of that corporation shall certify on the
agreement that the agreement has been adopted pursuant to the
provisions of this subsection and:
a.
if it has been adopted pursuant to paragraph 1
of this subsection, that the conditions specified have
been satisfied, or
b.
if it has been adopted pursuant to paragraph 2
of this subsection, that no shares of stock of the
corporation were issued prior to the adoption by the
board of directors of the resolution approving the
agreement of merger or consolidation.
The agreement so adopted and certified shall then
be filed and shall become effective in accordance
with the provisions of Section 1007 of this title.
Filing shall constitute a representation by the person
who executes the certificate that the facts stated in
the certificate remain true immediately prior to
filing.
G.
1. Notwithstanding the requirements of subsection C of this
section, unless expressly required by its certificate of
incorporation, no vote of shareholders of a constituent corporation
shall be necessary to authorize a merger with or into a single direct
or indirect wholly owned subsidiary of the constituent corporation
if:
a. the constituent corporation and the direct or
indirect wholly owned subsidiary of the constituent
corporation are the only constituent entities to the
merger,
b. each share or fraction of a share of the capital
stock of the constituent corporation outstanding
immediately before the effective time of the merger
is converted in the merger into a share or equal
fraction of share of capital stock of a holding
company having the same designations, rights,
powers, and preferences, and the qualifications,
limitations, and restrictions thereof, as the share of
stock of the constituent corporation being converted
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in the merger,
c.
the holding company and the constituent
corporation are corporations of this state and the
direct or indirect wholly owned subsidiary that is
the other constituent entity to the merger is a
corporation or limited liability company of this
state,
d. the certificate of incorporation and bylaws of the
holding company immediately following the
effective time of the merger contain provisions
identical to the certificate of incorporation and
bylaws of the constituent corporation immediately
before the effective time of the merger, other than
provisions, if any, regarding the incorporator or
incorporators, the corporate name, the registered
office and agent, the initial board of directors, and
the initial subscribers of shares and provisions
contained in any amendment to the certificate of
incorporation as were necessary to effect a change,
exchange, reclassification, subdivision, combination
or cancellation of stock, if a change, exchange,
reclassification, or cancellation has become
effective,
e. as a result of the merger, the constituent
corporation or its successor corporation becomes or
remains a direct or indirect wholly owned
subsidiary of the holding company,
f. the directors of the constituent corporation
become or remain the directors of the holding
company upon the effective time of the merger,
g. the organizational documents of the surviving
entity immediately following the effective time of
the merger contain provisions identical to the
certificate of incorporation of the constituent
corporation immediately before the effective time of
the merger, other than provisions, if any, regarding
the incorporator or incorporators, the corporate or
entity name, the registered office and agent, the
initial board of directors and the initial subscribers
for shares, references to members rather than
shareholders, references to interests, units or the
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like rather than stock or shares, references to
managers, managing members or other members of
the governing body rather than directors and such
provisions contained in any amendment to the
certificate of incorporation as were necessary to
effect a change, exchange, reclassification,
subdivision, combination or cancellation of stock, if
such
change,
exchange,
reclassification,
subdivision, combination or cancellation has
become effective; provided, however, that:
(1)
if
the
organizational
documents of the surviving entity do
not contain the following provisions,
they shall be amended in the merger
to contain provisions requiring that:
(a)
any act or
transaction by or
involving
the
surviving entity, other
than the election or
removal of directors
or
managers,
managing members or
other members of the
governing body of the
surviving entity, that
requires
for
its
adoption under this
act
or
its
organizational
documents
the
approval
of
the
shareholders
or
members
of
the
surviving entity shall,
by specific reference
to this subsection,
require, in addition,
the approval of the
shareholders of the
holding company (or
any successor by
merger), by the same
vote as is required by
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this act and/or by the
organizational
documents of the
surviving
entity;
provided,
however,
that for purposes of
this subdivision, any
surviving entity that is
not a corporation shall
include
in
such
amendment
a
requirement that the
approval
of
the
shareholders of the
holding company be
obtained for any act
or transaction by or
involving
the
surviving entity, other
than the election or
removal of directors
or
managers,
managing members or
other members of the
governing body of the
surviving
entity,
which would require
the approval of the
shareholders of the
surviving entity if the
surviving entity were
a corporation subject
to this act,
(b)
any
amendment of the
organizational
documents
of
a
surviving entity that is
not a corporation,
which
amendment
would, if adopted by a
corporation subject to
this act, be required to
be included in the
certificate
of
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incorporation of such
corporation, shall, by
specific reference to
this
subsection,
require, in addition,
the approval of the
shareholders of the
holding company, or
any successor by
merger, by the same
vote as is required by
this act and/or by the
organizational
documents of the
surviving entity, and
(c)
the business
and affairs of a
surviving entity that is
not a corporation shall
be managed by or
under the direction of
a board of directors,
board of managers or
other governing body
consisting
of
individuals who are
subject to the same
fiduciary
duties
applicable to, and
who are liable for
breach of such duties
to the same extent as,
directors
of
a
corporation subject to
this act, and
(2)
the organizational documents
of the surviving entity may be
amended in the merger:
(a)
to reduce the
number of classes and
shares of capital stock
or
other
equity
interests or units that
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the surviving entity is
authorized to issue,
and
(b)
to
eliminate
any
provision
authorized
by
subsection
D
of
Section 1027 of this
title; and
h. the shareholders of the constituent corporation do
not recognize gain or loss for federal income tax
purposes as determined by the board of directors of
the constituent corporation.
neither division (1) of subparagraph g of paragraph
1 of this subsection nor any provision of a surviving
entity’s organizational documents required by
division (1) of subparagraph g of paragraph 1 of this
subsection shall be deemed or construed to require
approval of the shareholders of the holding
company to elect or remove directors or managers,
managing members or other members of the
governing body of the surviving entity.
(2) As used in this subsection, the
term “holding company” means a
corporation
which,
from
its
incorporation until consummation of
a merger governed by this
subsection, was at all times a direct
or indirect wholly owned subsidiary
of the constituent corporation and
whose capital stock is issued in a
merger.
(3) As used in this subsection, the
term “organizational documents”
means, when used in reference to a
corporation, the certificate of
incorporation of the corporation and,
when used in reference to a limited
liability company, the articles of
organization and the operating
agreement of the limited liability
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company.
(4) From and after the effective time
of a merger adopted by a constituent
corporation by action of its board of
directors and without any vote of
shareholders pursuant to this
subsection:
(a)
to the extent
the restriction of
Section 1090.3 of this
title applied to the
constituent
corporation and its
shareholders at the
effective time of the
merger, restrictions
shall apply to the
holding company and
its
shareholders
immediately after the
effective time of the
merger as though it
were the constituent
corporation, and all
shareholders of stock
of
the
holding
company acquired in
the merger shall for
purposes of Section
1090.3 of this title be
deemed to have been
acquired at the time
that the shares of
stock
of
the
constituent
corporation converted
in the merger were
acquired; provided,
that any shareholder
who
immediately
before the effective
time of the merger
was not an interested
shareholder within the
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meaning of Section
1090.3 of this title
shall not solely by
reason of the merger
become an interested
shareholder of the
holding company,
(b)
if
the
corporate name of the
holding
company
immediately
following
the
effective time of the
merger is the same as
the corporate name of
the
constituent
corporation
immediately before
the effective time of
the merger, the shares
of capital stock of the
holding company into
which the shares of
capital stock of the
constituent
corporation
are
converted
in
the
merger
shall
be
represented by the
stock certificates that
previously
represented the shares
of capital stock of the
constituent
corporation, and
(c)
to the extent a
shareholder of the
constituent
corporation
immediately before
the
merger
had
standing to institute or
maintain
derivative
litigation on behalf of
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the
constituent
corporation, nothing
in this section shall be
deemed to limit or
extinguish
such
standing.
(5) If any agreement of merger is
adopted by a constituent corporation
by action of its board of directors
and without any vote of shareholders
pursuant to this subsection, the
secretary or assistant secretary of the
constituent corporation shall certify
on the agreement that the agreement
has been adopted pursuant to this
subsection and that the conditions
specified in paragraph 1 of this
subsection have been satisfied. The
agreement so adopted and certified
shall then be filed and become
effective in accordance with Section
1007 of this title.
Filing shall
constitute a representation by the
person who executes the agreement
that the facts stated in the certificate
remain true immediately before the
filing.
18 O.S. § 1081
§ 1-501. General fraud
It is unlawful for a person, in connection with the offer, sale, or purchase of a
security, directly or indirectly:
1. To employ a device, scheme, or artifice to defraud;
2. To make an untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statement made, in the light of the circumstances
under which it is made, not misleading; or
3. To engage in an act, practice, or course of business that operates or would
operate as a fraud or deceit upon another person.

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Oklahoma Uniform Securities Act of 2004 § 1-501 (emphasis in the original).
LAW REGARDING THE FORCED-SELLER DOCTRINE
SEC rule 10b-5, as the Supreme Court confirmed in Blue Chip Stamps v. Manor Drug
Stores, 421 U.S. at 723, requires that one be a purchaser or seller of securities to pursue a private
claim alleging fraud under Securities and Exchange Act of 1934’s § 10(b). See Blue Chip
Stamps v. Manor Drug Stores, 421 U.S. at 727-28. The forced-seller doctrine, as the United
States Court of Appeals for the Second Circuit first enunciated it in Vine v. Beneficial Finance
Co., 374 F.2d 627, cert denied 389 U.S. 970 (1967), was a particularized response to the
difficulties many dissenting shareholders face when a short form merger situation requires
dissenters to cash out -- constructively sell -- their shares. In the years since Vine v. Beneficial
Finance Co., the federal courts gradually expanded the forced-seller doctrine to encompass
situations where the fundamental nature of the plaintiff’s investment has changed even in the
absence of a sale as a consequence of circumstances beyond the plaintiff’s control. In 1976, the
Second Circuit reconfirmed its position from Vine v. Beneficial Finance Co. in Green v. Santa
Fe Industries, Inc., 533 F.2d 1283 (1976), rev’d on other grounds in 430 U.S. 462 (1977), ruling
that minority shareholders in a company dissolved as part of a short-form merger have standing
to bring suit under SEC rule 10b-5, alleging that the corporation’s majority shareholders had
breached their fiduciary duty to them by undervaluing the minority shares for purposes of the
cash-out share price. See Santa Fe Industries, Inc., 533 F.2d at 1292. Two years later, the
Delaware Court of Chancery held, in Valente v. Pepsico, Inc., 454 F. Supp. 1228 (Del. Ch.
1978), that shareholders confronted with an allegedly deceptive tender offer which resulted in the
defendants obtaining sufficient stock to effect a short-form merger were forced sellers with
standing on a rule 10b-5 claim. See Valente v. Pepsico, Inc., 454 F. Supp. at 1236.

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Other courts’ positions on the forced-seller doctrine have been mixed. In Securities
Investor Protection Corp. v. Vigman, 803 F.2d 1513 (9th Cir. 1986), the United States Court of
Appeals for the Ninth Circuit, in an opinion that Judge Wright authored and Judges Nelson and
Kozinski joined, held that there is an equivalent of a forced sale whenever a shareholder’s
investment substantially changes in character or when a shareholder is forced to accept a
liquidated value for the shareholder’s shares. See 803 F.2d at 1518-19. Multiple United States
District Courts have followed the Ninth Circuit’s lead, concluding that there is the equivalent of
a forced sale when an interest in an ongoing enterprise is converted to a right only to receive
money for that interest. See, e.g., Brewer v. Lincoln Intern. Corp., 148 F. Supp. 2d 792, 806
(W.D. Ky. 2000)(Simpson, C.J.); Umstead v. Durham Hosiery Mills, Inc. 578 F. Supp. 342
(M.D.N.C. 1984)(Ward, C.J.).
Multiple United States Courts of Appeals also adopted the forced-seller doctrine in the
1970s. In Dudley v. Southeastern Factor and Finance Corp., 446 F.2d 303 (5th Cir.), cert denied
sub nom. McDaniel v. Dudley, 404 U.S. 858 (1971), in an opinion that Judge Davis wrote and
Judges Wisom and Goldberg joined, and again in Coffee v. Permian Corp., 434 F.2d 383 (5th
Cir.), cert denied, 412 U.S. 920 (1973), in a case that Judge Adams wrote and Judges Gewin and
Morgan joined, the Fifth Circuit adopted and applied the forced-seller doctrine as it found the
doctrine in Vine v. Beneficial Finance Co. See 446 F.2d at 307; 434 F.2d at 386. The Sixth
Circuit, in Marsh v. Armada Corp., 533 F.2d 978 (6th Cir. 1976), cert denied, 430 U.S. 954
(1977), relied heavily upon the reasoning in Vine v. Beneficial Finance Co. when it recognized
the forced-seller doctrine.
Courts have become increasingly split over the forced-seller doctrine over the last few
decades. Reviewing the forced-seller doctrine in 1995, the Ninth Circuit, in Jacobson v. AEG

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Capital Corp., concluded that “the forced sale doctrine does not cut a wide swath. Although
recognized by the Ninth Circuit, we have rarely encountered instances where it applies.” 50 F.3d
at 1499 (citing Stitt v. Williams, 919 F.2d 516, 525 (9th Cir. 1990)(refinancing which damaged
underlying equity of limited partnership but not the ownership interest not a forced sale);
Securities Investor Protection Corp. v. Vigman, 803 F.2d 1513, 1519 (9th Cir.
1986)(reimbursements to defrauded investors not a forced sale); Mosher v. Kane, 784 F.2d at
1389 (stating that no forced sale where plaintiffs failed to allege actual liquidation or a
fundamental change in the nature of their investments); Shivers v. Amerco, 670 F.2d 826, 830
(9th Cir.1982)(stating that 100–1 reverse stock split to eliminate fractional shares followed by
new but lower permissive repurchase agreement from majority shareholder not a forced sale)).
The Ninth Circuit did not, however, kill the forced-seller doctrine in Jacobson v. AEG Capital
Corp. or at any time since.
The Second, Fifth, Eighth, and Eleventh Circuits also still recognize the forced-seller
doctrine as Vine v. Beneficial Finance Co. envisioned it. The Second Circuit, in Rand v.
Anaconda-Ericsson, Inc., 794 F.2d 843 (2d Cir. 1986), in an opinion that Judge Winter wrote,
and Judges Oakes and Newman joined, confirmed the forced-seller doctrine’s existence, even
though the court said that the doctrine was inapplicable given the case’s facts. See 794 F.2d at
847-48. The Fifth Circuit, in 7547 Corp v. Parker & Parsley Dev. Partners, L.P., 38 F.3d 211
(5th Cir. 1994), in an opinion that Judge King wrote, and Judges Jolly and Stewart joined,
concluded that a forced-seller exception exists to the purchaser-seller requirement that the
Supreme Court of the United States announced in Blue Chip Stamps. See 38 F.3d at 226-27.
The Eighth Circuit, in Bold v. Simpson, 802 F.2d 314 (8th Cir. 1986), in an opinion that Senior
Judge Bright wrote, and Chief Judge Lay and Judge Ross joined, noted the forced-seller

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doctrine’s existence even though it refused to apply it to the case before the court. See 802 F.2d
at 320-21. The Eleventh Circuit has never spoken directly to the forced-seller doctrine, but the
Eleventh Circuit was part of the Fifth Circuit before October 1, 1981, and the Eleventh Circuit
has adopted opinions that the Fifth Circuit issued before September 30, 1981 as binding
precedent. See Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir. 1981). Because the
Fifth Circuit affirmed the existence of forced- seller doctrine after Blue Chip Stamps and before
September 30, 1981, multiple United States District Courts within the Eleventh Circuit have held
that the Eleventh Circuit has binding precedent affirming the validity of the forced-seller
doctrine. See, e.g., Badger v. Southern Farm Bureau Life Ins., 2008 WL 1884887, at *10 (M.D.
Fla. Apr. 25, 2008)(Spaulding, M.J.)(“The forced seller doctrine was adopted and expanded by
the United States Court of Appeals for the Fifth Circuit in Coffee v. Permian Corporation . . .,
which decision is binding on this Court.”); APA Excelsior III, L.P. v. Windley, 348 F. Supp. 2d
1357, 1360 n.2 (N.D. Ga. 2004)(“The Eleventh Circuit itself has not addressed the application of
the forced seller doctrine. Consequently, this Court is forced to rely on Fifth Circuit authorities
predating the creation of the Eleventh Circuit for binding appellate precedent regarding the
doctrine’s application.”).
The First, Third, Fourth, and Sixth Circuits, and the United States Court of Appeals for
the District of Columbia Circuit have not decided the forced-seller doctrine’s continuing validity
since the Supreme Court decided Blue Chips, but district courts within those Circuits have held
that the forced-seller doctrine remains good law. The United States District Court for the District
of Massachusetts, in Jacobs v. Winthrop Financial Assocs., 77 F. Supp. 2d 206 (D. Mass.
1999)(Young, C.J.), held that the First Circuit’s district courts have “collectively articulate[d] a
sound and consistent application of the forced seller doctrine” even though the First Circuit has

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not spoken to the doctrine. 77 F. Supp. 2d at 209. Accord Dowling v. Narragansett Capital
Corp., 735 F. Supp. 1105, 1120-21 (D.R.I. 1990)(Torres, J.)(applying the forced-seller doctrine
despite acknowledging that the First Circuit has never considered the doctrine’s availability);
Batchelder v. Northern Fire Lites, Inc., 630 F. Supp. 1115, 1120-21 (D.N.H. 1986) (adopting the
forced-seller doctrine but declining to apply it on the grounds of the case’s facts); Rodriguez
Cadiz v. Mercado Jimenez, 579 F. Supp. 1176, 1180-81 (D.P.R. 1983) (same). The United
States District Court for the Eastern District of Pennsylvania, in Goldberg v. Hankin, 835 F.
Supp. 815 (E.D. Pa. 1993)(Giles, J.), concluded that the forced-seller doctrine is good Third
Circuit law even though it did not apply to that case’s facts, see 835 F. Supp. at 818,
reconfirming a position that the same court had taken in two separate cases seven years earlier in
Carapico v. Enflo Corp., 1986 WL 14202, at *5 (E.D. Pa. 1986) and Herskowitz v. Nutri/System,
Inc., 1986 WL 5561, at *2 (E.D. Pa. 1986)(Weiner, J.). The United States District Court for the
Western District of Pennsylvania agreed with its Keystone State sister district in Engl v. Berg,
511 F. Supp. 1146 (W.D. Pa. 1981)(Huyett, J.), where the court held that “Blue Chip did not
refute the ‘forced seller’ doctrine.” 511 F. Supp. at 1152. The United States District Court for
the District of Delaware also recognized the forced-seller doctrine in Valente v. PepsiCo, Inc.,
454 F. Supp. 1228 (D. Del. 1978)(Wright, S.J.), in which the court noted that a “shareholder who
retains his shares at the time of a tender offer, but who is required at the time of a subsequent
short form merger either to surrender them in exchange for cash or to request appraisal, is a
‘forced seller.’” 454 F. Supp. at 1236.93 In the Fourth Circuit, the United States District Court

93

The widespread support within the Third Circuit for the forced-seller doctrine seems to
have subsided somewhat since the Third Circuit signaled in Scattergood v. Perelman, 945 F.2d
618 (3d Cir. 1991), in an opinion that Judge Stapleton wrote and Judge Hutchinson and Senior
Judge Rosenn joined, that there are some limits to the doctrine in the case of fraudulent mergers.
See, for instance, Gunter v. Ridgewood Energy Corp., 32 F. Supp. 2d 166, 178 (D.N.J.
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for the Eastern District of Virginia, in Arnold v. Moran, 687 F. Supp. 232 (E.D. Va.
1988)(Cacheris, J.), concluded that the forced-seller doctrine’s scope is limited, but that the
doctrine still is viable. See 687 F. Supp. at 234 n.5 (“This court finds that the ‘forced seller’
doctrine remains a viable, though limited, exception to the 10b-5 ‘purchaser-seller’
requirement.”). The United States District Court for the Western District of North Carolina, in
FDIC v. Kerr, 637 F. Supp. 828 (W.D.N.C. 1986)(Potter, C.J.), held that Blue Chip Stamps did
not invalidate the forced-seller doctrine. See 637 F. Supp. at 836. In the Sixth Circuit, the
United States District Court for the Western District of Kentucky, in Brewer v. Lincoln Int’l
Corp., 148 F. Supp. 2d 792 (W.D. Ky. 2000)(Simpson, C.J.), concluded that the forced-seller
doctrine as Vine v. Beneficial Finance Co. proposed it remained valid. See 148 F. Supp. 2d at
806 (“[W]e believe that the central holding of Vine remains relevant . . . .”). The United States
District Court for the Southern District of Ohio, in Matthey v. KDI Corp., 699 F. Supp. 135 (S.D.
Ohio 1988)(Rubin, C.J.), held that the forced-seller doctrine exists within the Sixth Circuit even
though it did not apply to the facts of that case. See 699 F. Supp. at 139-140. Last, in the D.C.
Circuit, the United States District for the District of Columbia, in Houlihan v. Anderson-Stokes,
Inc., 434 F. Supp. 1330 (D.D.C. 1977)(Richey, J.), concluded that the forced-seller doctrine
applies when some of a limited partnership’s partners are involuntarily cashed out. See 434 F.
Supp. at 1337-39.
The Tenth Circuit and the United States Courts of Appeals for the Seventh Circuit are the
only United States Courts of Appeals never to have endorsed the forced-seller doctrine in any
form or at any level. The Tenth Circuit, in Katz v. Gerardi, 655 F.3d 1212 (10th. Cir. 2011), in
an opinion that then-Judge and now Chief Judge Tymkovich wrote, and Judges Brorby and

1998)(Walls, J.)(“[T]he ‘forced seller’ concept has been criticized and recently described as
defunct.”).
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Matheson joined, noted that “[w]e have previously declined to adopt the fundamental change
doctrine[94] and we decline to do so again here for several reasons.” 655 F.3d at 1221. One of
these reasons was that “the doctrine only applies to claims under the 1934 Act, where Katz’s
claims here arise under the 1933 Act.” 655 F.3d at 1221. The second reason is that the forcedseller doctrine is something of a misnomer, insofar as it only applies when the plaintiff purchases
shares -- not when the plaintiff sells them. See 655 F.3d at 1221. Because that case’s defendants
had cashed Katz’ shares out against Katz’ will and Katz had not purchased new units in the postmerger entity, the Tenth Circuit held that the forced-seller doctrine did not apply. See 655 F.3d
at 1221-22. The Tenth Circuit insisted that is was on solid ground on this second point, quoting
from a Seventh Circuit opinion on the same case and facts when the Seventh Circuit heard the
case’s appeal regarding removal to federal court:
Katz depicts himself as a buyer by characterizing the supposed failure to honor
the terms of the A-1 Units as if he had sold those securities and “bought” what
Katz calls “new A-1 Units,” which he then sold for cash. (A “purchase” of “new
A-1 Units” would have been involuntary, but an involuntary purchase is still a
purchase.)
What Katz calls the “fundamental change doctrine” that turns a sale into a
purchase is word play designed to overcome the actual text of the securities laws,
and this circuit follows the statutes rather than trying to evade them with legal
fictions. Katz sold his units for cash; he did not buy any new security. The “new
A-1 Units” are figments of a lawyer’s imagination. Using legally fictitious (and
factually nonexistent) “new A–1 Units” to nullify a legislative decision that only
buyers have rights under the 1933 Act would be wholly unjustified.
Katz v. Gerardi, 552 F.3d 558, 560 (7th Cir. 2009)(Easterbrook, J.,95 joined by Kanne and Skyes,

94

Earlier in the opinion, the Tenth Circuit noted that other courts variously have referred
to the same doctrine as either the “forced seller doctrine” or the “fundamental change doctrine.”
Katz v. Gerardi, 655 F.3d at 1221. The Tenth Circuit then chose to refer to the doctrine as the
“fundamental change doctrine” through the opinion’s remainder. See Katz v. Gerardi, 655 F.3d
at 1221-23.
95

At the time that the Seventh Circuit decided Katz v. Gerardi, Judge Easterbrook was the
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JJ.)(citations omitted in Katz v. Gerardi, 655 F.3d at 1221).
In the Seventh Circuit the doctrine’s rejection in two Seventh Circuit cases in 1998 in
some ways was a seismic rejection of the position that the United States District Court for the
Northern District of Illinois had taken in at least seven cases over two decades endorsing the
forced-seller doctrine.96 Seen in the light of the limitations that the Northern District of Illinois
frequently had placed on the forced-seller doctrine even when recognizing its existence,
however, the Seventh Circuit’s rejection of the forced-seller doctrine was not a complete bolt
from the blue. In Isquith v. Caremark Int’l, Inc., 136 F.3d 531 (7th Cir. 1998), in an opinion that
then-Chief Judge Posner wrote and Judges Cummings and Manion joined, and to which the
Defendants referred repeatedly in the Defendants’ Estoppel MSJ and at the motion hearing, the
Seventh Circuit pilloried the forced-seller doctrine as “esoteric and dubious judge-made
doctrine” that was “defunct.” 136 F.3d at 535-36. The Seventh Circuit reaffirmed this position --

Seventh Circuit’s Chief Judge.
96
See Issen v. GSC Enters., Inc., 508 F. Supp. 1278, 1285 (N.D. Ill. 1981)(“It appears to
be settled that a minority shareholder forced to exchange his shares in a corporation pursuant to a
merger or going private transaction is a ‘seller’ within the meaning of the securities laws.”);
Ridings v. Canadian Imperial Bank of Commerce Trust Co. (Bahamas) Ltd., 94 F.R.D. 147, 151
n.4 (N.D. Ill. 1982)(Aspen, J.)(“It is well settled ... that a minority shareholder forced to
exchange his shares in a corporation pursuant to a merger is a ‘seller’ within the meaning of the
securities laws entitled to assert a cause of action for securities fraud.”); Grossman v. Waste
Mgmt. Inc., 589 F. Supp. 395, 413 (N.D. Ill. 1984)(Marshall, J.)( forced-seller doctrine exists but
is not applicable to the case’s facts); Yabsley v. Conover, 644 F. Supp. 689, 699 (N.D. Ill.
1986)(Kocoras, J.)(“[N]umerous cases have found that minority shareholders forced to exchange
shares in a corporation pursuant to a merger or ‘going private’ transaction are ‘sellers’ within the
meaning of the securities laws, even if the shareholders have not yet tendered their shares at the
time the suit is brought.”); Gault v. Foster, 1990 WL 17145, at *2-3 (N.D. Ill. Jan. 19,
1990)(recognizing existence of the forced-seller doctrine but not applying it in that case); Beale
v. EdgeMark Fin. Corp., 164 F.R.D. 649, 655 (N.D. Ill. 1995)(“The ‘forced seller’ doctrine
broadly construes the term ‘sale’ in Rule 10b-5 and considers shareholders to be sellers under the
Act when the nature of the investment had been fundamentally and involuntarily changed even
though they had not actually sold or purchased shares of stock.”); Gilford Partners, L.P. v.
Sensormatic Elecs. Corp., 1997 WL 757495, at *9 (N.D. Ill. Nov. 12, 1997)(forced-seller
doctrine exists but does not apply to the case’s facts);
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albeit in less strident tones -- a few months later in SEC v. Jakubowski, 150 F.3d 675 (7th Cir.
1998), in an opinion that Judge Easterbrook wrote, and Judge Cudahy and then-Judge and now
Chief Judge Wood joined, holding that the Seventh Circuit “reject[s] . . . the forced-seller
doctrine and the fundamental-change doctrine and insist[s] that the wrongdoing affect an
investment decision . . . .” 150 F.3d at 680.
ANALYSIS
The Court disposes of six different motions with this Memorandum Opinion: (i) the
Plaintiffs’ Motion to Strike Affirmative Defenses; (ii) the Defendants’ Acquiescence MSJ; (iii)
the Defendants’ Estoppel MSJ; (iv) the Plaintiffs’ MSJ; (v) Plaintiffs’ Motion to Strike Lorett
Affidavit; and (vi) the Plaintiffs’ Motion in Limine to Preclude Evidence of Plaintiffs’ Conduct.
The Court: (i) denies the Plaintiffs’ Motion to Strike Affirmative Defenses, but also will not
allow evidence of those defenses at trial; (ii) denies the Defendants’ Acquiescence MSJ; (iii)
denies in part and grants in part the Defendants’ Estoppel MSJ, dismissing only the securities
claims; (iv) grants the Plaintiffs’ MSJ as to liability with respect to entire fairness (leading to the
Court’s conclusion that it will not allow evidence of the Defendants’ affirmative defenses at
trial), and leaving only a damages determination to be resolved at trial; (v) denies Plaintiffs’
Motion to Strike Lorett Affidavit; and (vi) grants in part and denies in part the Plaintiffs’ Motion
in Limine to Preclude Evidence of Plaintiffs’ Conduct, granting the motion as to the Akin Gump
letter and as to the letters that the Plaintiffs and Plaintiffs’ counsel exchanged with the
Defendants between September, 2013, and November, 2013, and denying the motion as to the
letters sent to and received from Triangle Capital. The Court will now analyze each motion.

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I.

THE COURT EXERCISES FEDERAL-QUESTION JURISDICTION OVER THE
FEDERAL
SECURITIES
CLAIMS
AND
FEDERAL
DIVERSITY
JURISDICTION OVER THE CASE.
The Constitution of the United States of America limits federal courts’ jurisdiction under

Section 2 of Article III, which provides that “[t]he judicial Power shall extend to all Cases, in
Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties
made, or which shall be made, under their Authority . . . .” U.S. Const., art III, § 2, cl. 1.
Congress gave the federal courts general original jurisdiction over federal question cases in 1875.
See Act of March 3, 1875, § 1, 18 Stat. 470, codified at 28 U.S.C. § 1331. The statute confers
original jurisdiction on the federal courts over federal-question cases in language that is
substantially identical to the language in Section 2 of Article III of the Constitution of the United
States. See 13D Charles Alan Wright et al., Federal Practice and Procedure § 3562 (3d ed.
2017).
The Supreme Court has imposed three restrictions on the phrase in 28 U.S.C. § 1331 that
confers original jurisdiction to federal courts over claims “arising under” the Constitution and the
laws of the United States. First, the well-pleaded complaint rule requires that a case’s claim
contains the federal element; the federal element may not be found in a defense or a
counterclaim. See 13D Charles Alan Wright et al., Federal Practice and Procedure § 3562 (3d
ed. 2017). Second, the federal question that the plaintiff’s complaint poses must be sufficiently
substantial to justify the exercise of federal district courts’ original jurisdiction. See 13D Charles
Alan Wright et al., Federal Practice and Procedure § 3562 (3d ed. 2017). Third, the federal law
that the plaintiff’s well-pleaded complaint injects must be sufficiently central to the dispute to
justify federal question jurisdiction. See 13D Charles Alan Wright et al., Federal Practice and
Procedure § 3562 (3d ed. 2017). The Plaintiffs satisfy all three elements with respect to their

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federal securities claims. First, the Plaintiffs plead these claims in their Complaint as their
seventh and eighth claims for relief. See Complaint ¶¶ 192-211, at 37-41. Second, the federal
question that the Plaintiffs pose of alleged securities fraud in the millions of dollars is
sufficiently substantial to justify the Court’s exercise of federal original jurisdiction. Third,
federal Securities Exchange Act of 1934 and SEC rule 10b-5, see Complaint ¶¶ 25, 192-211, and
federal laws are central to the claim, and not a mere ingredient in the claim, see 13D Charles
Alan Wright et al., Federal Practice and Procedure § 3562 (3d ed. 2017). Accordingly, the Court
concludes that it has federal-question jurisdiction over the Plaintiffs’ federal securities claims.
Again, the Constitution limits federal courts’ jurisdiction under Section 2 of Article III,
which provides that “[t]he judicial Power shall extend to all Cases . . . between citizens of
different states.” U.S. Const., art. III, § 2, cl. 1. Federal courts have had diversity jurisdiction
since the Judiciary Act of 1789, 1 Stat. 73 (Sept. 24, 1789), which allowed a case to be removed
from state court if “a suit be commenced in any state court against an alien, or by a citizen of the
state in which the suit is brought against a citizen of another state, and the matter in dispute
exceeds the aforesaid sum or value of five hundred dollars, exclusive of costs . . . .” An Act to
Establish the Judicial Courts of the United States, 1 Stat. 79 (1789). The Supreme Court
clarified twenty years later, in Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806), that party
diversity for purposes of federal jurisdiction means complete diversity, i.e., diversity jurisdiction
is not available if any party to the case has the same citizenship as the adverse party.
Strawbridge v. Curtiss, 7 U.S. (3 Cranch) at 267. In the two centuries since, Congress has
amended the “amount in controversy” threshold that the Judiciary Act of 1789 sets forth, with
the requirement now set that the amount in controversy exceed $75,000.00, exclusive of interests
and costs, for a federal district court to have jurisdiction. 28 U.S.C. § 1332(a). The complete

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diversity requirement, on the other hand, has remained unchanged. See 13E Charles Alan
Wright et al., Federal Practice and Procedure § 3605 (3d ed.)(2017).
Neither the Plaintiffs nor the Defendants have challenged federal diversity jurisdiction in
this case. Rule 12(h)(3) of the Federal Rules of Civil Procedure allows, however, for the Court
to raise this question sua sponte. See, e.g., Transatl. Marine Claims Agency, Inc. v. Ace
Shipping Corp., 109 F.3d 105, 108 (2d Cir. 1997)(construing the rule). The Court finds it
advisable to interrogate the diversity jurisdiction question, because: (i) there is a large number of
parties in this case -- including six LLCs; and (ii) undiscovered non-diversity risks vacatur, a
result that would implicate poor stewardship of the parties’ and the Court’s time and resources.
Parties’ citizenship for federal diversity jurisdiction purposes is determined at the time of filing.
See 13E Charles Alan Wright et al., Federal Practice and Procedure § 3522 (3d ed. 2017)(“In
diversity of citizenship cases . . . jurisdiction is assessed as of the time the case is commenced,
and thus cannot be ousted by post-filing changes of citizenship.”)(footnote omitted); Mollan v.
Torrance, 22 U.S. (9 Wheat) 537, 539 (1824). Accordingly, the Court refers to the Complaint to
establish the parties’ residency/citizenship when the Plaintiffs filed the case on July 3, 2014.
When an LLC’s members themselves are unincorporated associations such as additional
LLCs or limited partnerships, the citizenship of the LLC party is determined by a complete
upstream analysis of its organizational structure. See, e.g., Bayerische Landesbank, N.Y. Branch
v. Aladdin Capital Management, LLC, 692 F.3d 42, 49 (2d Cir. 2012). Such upstream analysis
is not immediately straightforward in this case, as some of the LLCs in this case are arranged
structurally like Russian nesting dolls, and a non-overlapping subset of LLCs has multiple
principals per LLC. To avoid confusion, the Court therefore captures all these structures and
principals into the flow chart found below at figure 1.

- 264 -

Figure 1. LLC Principals’ Structure and Residency

In this flow chart, every principal in an LLC is found at the base of an arrow that ends at
that LLC. For example, CEP Capital Partners, LLC’s three principals are C. Stephenson, C.
Field, and Boylan. Under the rule from Bayerische Landesbank, N.Y. Branch v. Aladdin Capital
Management, LLC, the Court completes the upstream citizenship analysis by following the
arrows until they reach every Defendant listed in the Complaint. Accordingly, for example, CEP
Capital Partners, LLC has Oklahoma citizenship for federal diversity jurisdiction purposes,
because all three of its principals have Oklahoma citizenship. The Court conducts the same
analysis for all LLC in the flow chart, and tabulates the resulting residency data along with the
Plaintiffs’ residency data in figure 2 below. Based on that analysis, which shows complete party
diversity, the Court concludes that it has diversity jurisdiction to hear this case.
Plaintiff

Incorporation state/
Principals’ residency

- 265 -

Defendant

(Principals’)
Residency

SFF-TIR, LLC

CT, FL, MA, NY, OH,
RI, England97

Charles C.
Stephenson, Jr.

OK

Stuart Family
Foundation, Inc

CT

Cynthia A. Field

OK

Alan Stuart 2012
GST family trust

CT

Peter Boylan III

OK

Celebration, LLC

CA, CT, MA98

Lawrence Field

OK

Anurag Agarwal

NY

Cypress Energy
Partners-TIR, LLC

OK

97

Neither the English residency of an SFF-TIR, LLC principal nor Reynolds’ Canadian
residency frustrates the Court’s jurisdiction over the case. Section 2 of Article III of the
Constitution of the United States of America indicates that the federal “judicial Power shall
extend . . . to Controversies . . . between a State, or the Citizens thereof, and foreign States,
Citizens or Subjects.” U.S. Const. art. III, § 2. In apportioning this judicial power among the
Article III courts, 28 U.S.C. § 1332(a)(2) clarifies:
The district courts shall have original jurisdiction of all civil actions where the
matter in controversy exceeds the sum or value of $75,000, exclusive of interest
and cost, and is between . . . citizens of a State and citizens or subjects of a
foreign state, except that the district courts shall not have original jurisdiction
under this subsection of an action between citizens of a State and citizens or
subjects of a foreign state who are lawfully admitted for permanent residence in
the United States and are domiciled in the same State . . . .
28 U.S.C. § 1332(a)(2)(emphasis added). See generally 13E Charles Alan Wright et al., Federal
Practice and Procedure § 3604 (3d. ed 2017)(listing cases and explaining possible rationales why
the federal courts have jurisdiction over cases involving foreign citizens). The Court cannot
determine, based on the case filings, whether the United States has lawfully admitted either the
SFF-TIR, LLC principal or Reynolds for permanent residence. It need not, however, make this
determination, because of the statutory conjunctive in 28 U.S.C. § 1332(a)(2) that the Court
above emphasizes. It is sufficient for the SFF-TIR, LLC principal and Reynolds to be domiciled
anywhere other than Oklahoma for the Court to have federal diversity jurisdiction over the case.
The SFF-TIR, LLC principal’s residence in England and Reynolds’ residence in Canada meet
this sufficiency requirement.
98

Celebration, LLC is a Delaware LLC, Secretary of State file number 3032610, that
Celebration II, L.P. owns. See https://icis.corp.delaware.gov/Ecorp/EntitySearch/NameSearch
.aspx. (last visited Apr. 12, 2017). Celebration II, L.P.’s general partner is a trust whose trustees
are Connecticut citizens. See Complaint ¶ 34, at 7. Celebration II, L.P.’s limited partners are
citizens of Massachusetts and California. See Complaint ¶ 34, at 7.
- 266 -

Peter Buckley

CEP Capital
Partners, LLC

OK

Vincent
Signorello

FL

Cypress Energy
Holdings, LLC

OK

Rodney M
Reynolds
II.

CT

Canada

Tulsa Inspection
Resources, LLC

OK

THE COURT DETERMINES THAT OKLAHOMA CHOICE OF LAW RULES
INDICATE THAT: (i) DELAWARE LAW APPLIES TO THE PLAINTIFFS’
CLAIMS REGARDING THE CASH-OUT MERGER; (ii) OKLAHOMA LAW
WOULD APPLY TO THE DEFENDANTS’ CONTRACT DEFENSES OF
EQUITABLE ESTOPPEL, WAIVER, AND UNCLEAN HANDS IF THE
MERGER PROCESS IS ENTIRELY FAIR; AND (iii) OKLAHOMA LAW
APPLIES TO THE PLAINTIFFS’ STATE SECURITIES CLAIMS.
The parties in this case present arguments under both Delaware and Oklahoma law. The

Court has not found any place in the briefings -- and did not hear at the hearing -- a systematic
justification why the Court should apply Delaware law when deciding some issues and
Oklahoma law when it is deciding other issues. The Court therefore precedes its analysis of the
motions’ requests by evaluating under Oklahoma choice-of-law rules which state’s law it should
apply to each claim. The Court concludes that: (i) Delaware law applies to the Plaintiffs’ claims
regarding the entire fairness of the cash-out merger: (ii) Oklahoma law applies to the
Defendants’ contract defenses of equitable estoppel, waiver, and unclean hands if the merger
process was entirely fair; and (iii) Oklahoma law applies to the Plaintiffs’ state securities claims.
A.

DELAWARE LAW APPLIES TO THE PLAINTIFFS’ CLAIMS.

Distilled to its essence, the Plaintiffs’ claims challenge the merger’s entire fairness. After
examining a concatenation of choice-of-law rules, the Court determines that it must adjudicate
these claims under Delaware law. First, the Erie doctrine requires a federal court sitting in
diversity to apply the substantive law of the state in which it sits. See Erie R. Co. v. Tompkins,
304 U.S. at 64. See also Yavuz v. 61 MM, Ltd., 576 F.3d 1166, 1178 (10th Cir. 2009)(then- 267 -

Judge and now Chief Judge Tymkovich writing the opinion, and Judges Murphy and Seymour
joining); Vitkus v. Beatrice Co., 127 F.3d 936, 941 (10th Cir. 1997)(then-Chief Judge Seymour
writing the opinion, and Judges Porfilio and Tacha joining). Second, the Supreme Court held in
Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941), that a state’s choice of law rules
are substantive law for Erie purposes. See 313 U.S. at 498. Oklahoma choice-of-law rules
therefore apply to the Plaintiffs’ claims.
Third, as the United States District Court for the Northern District of Oklahoma
previously has noted, Oklahoma follows the Restatement (Second) of Conflicts of Laws when a
corporation is one party to a contract. See Yale South Corp. v. Eclipse Servs., Inc. 2010 WL
2854687 (N.D. Okla. July 19, 2010)(Eagen, C.J.)(citing Robert A. Wachsler, Inc. v. Florafax,
Int’l, Inc., 778 F.2d 547, 549 (10th Cir. 1985)(“Because the issue in this case concerns a peculiar
question of a contract affirmation that arises only when a corporation is one party to the contract,
Delaware law should govern this issue.”)) Fourth, under Restatement (Second) of Conflict of
Laws § 302(2), the local law of the state of incorporation will be applied to determine choice-oflaw rules, “except in the unusual case in where, with respect to the particular issue, some other
state has a more significant relationship to the occurrence and the parties.” Yale South Corp. v.
Eclipse Services, Inc., 2010 WL 2854687, at *2. The Tenth Circuit has determined that the
Supreme Court of Oklahoma would follow Restatement (Second) Conflict of Laws § 302(2), and
that “the law of the state of incorporation shall be applied to determine . . . the liabilities of a
corporation, unless it is shown that some other state has a more significant relationship to the
occurrence and the parties.” Yale South Corp. v. Eclipse Servs., Inc., 2010 WL 2854687, at *2
(citing Robert A. Wachsler, Inc. v. Florafax, Int’l, Inc., 778 F.2d at 550). The Plaintiffs’ claim
involves the liability of the surviving Delaware entity. No other state has a more significant

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relationship to the occurrence and the parties: (i) Cypress Energy Partners is a Delaware entity;
(ii) the merger agreement states Delaware law applies to the mechanics and effects of the
merger: and (iii) the merger was effected pursuant to Section 18-214 of the Delaware LLC Act,
Del. Code Ann. tit. 18, § 214, which covers the conversion of corporations and “other entit[ies]”
to a limited liability company. See Merger Agreement § 1.01 (“in accordance with the Delaware
Limited Liability Company Act”).99 Accordingly, the Court must apply Delaware law to the
Plaintiff’s claims regarding the cash-out merger.
B. OKLAHOMA LAW APPLIES TO THE DEFENDANTS’ CONTRACT
DEFENSES OF EQUITABLE ESTOPPEL, WAIVER, AND UNCLEAN
HANDS THAT THE DEFENDANTS ARGUE IN THE DEFENDANTS’
ESTOPPEL MSJ IF THE MERGER PROCESS WAS ENTIRELY
FAIR.
As it must, the Court assesses what law to apply to the Defendants’ contract defenses by
first returning to Erie. Under the Erie doctrine, a federal court sitting in diversity must apply the
substantive law of the state in which it sits. See Erie R. Co. v. Tompkins, 304 U.S. at 64. See
also Yavuz v. 61 MM, Ltd., 576 F.3d at 1178 (10th Cir. 2009). Under Klaxon Co. v. Stentor
Electric Mfg. Co., a state’s choice-of-law rules are substantive law for Erie purposes, and
Oklahoma’s choice-of-law rules therefore apply to this case. See 313 U.S. at 498. See Yavuz v.
61 MM, Ltd., 576 F.3d at 1178. In Oklahoma, the state choice-of-law rule for contracts is that
the Oklahoma courts will enforce a contract’s choice-of-law clause whenever that choice-of-law
clause is valid under ordinary Oklahoma contract law principles. See Tucker v. Cochran FirmCriminal Defense Birmingham L.L.C., 2014 OK 112, 341 P.3d 673, 688 (Okla. 2014). Merger
Agreement § 8.04 states the following choice-of-law rule to govern the Merger Agreement:
99

The Merger Agreement references the merger being subject to the conditions that the
Delaware Limited Liability Act, which spans Del. Code. Ann. tit. 18, §§101-1109, sets forth.
See Merger Agreement § 1.01. The only subsection in that range which relates to the conversion
of corporate entities into LLCs is Del. Code. Ann. tit. 18m § 214.
- 269 -

Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of Oklahoma without giving effect to any
choice or conflict of law provision or rule (whether of Oklahoma or any other
jurisdiction) that would cause the application of Laws of any jurisdiction other
than those of Oklahoma; provided, however, the provisions of this Agreement
relating to mechanics or the effects of the Merger under Delaware law shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
Merger Agreement § 8.02 (emphasis in the original). Oklahoma law is the basis of law and the
default. See Merger Agreement § 8.02, at 10 (“The Agreement shall be governed by and be
construed in accordance with the internal laws of Oklahoma . . . .”) The Court is to ignore,
however, choice-of-law rules, whether they are Oklahoma’s or some other state’s that would lead
to a result that some state’s law -- other than Oklahoma law -- would apply. See Merger
Agreement § 8.04, at 10 (“without giving effect to any choice or conflict of law provision or rule
(whether of Oklahoma or any other jurisdiction) that would cause the application of Laws of any
jurisdiction other than those of Oklahoma . . . .”).

There is an exception, however: “the

provisions of this Agreement relating to mechanics or the effects of the Merger under Delaware
law shall be governed by and construed and enforced in accordance with the laws of the State of
Delaware.” Merger Agreement § 8.04, at 10.
Under the Merger Agreement’s terms, therefore, the Court is to apply Oklahoma law
when adjudicating any claim other than a claim that arises out of the Merger’s “mechanics or
effects.” Merger Agreement § 8.02. The core jurisdictional question regarding the Defendants’
defenses of unclean hands, waiver, and estoppel thus becomes whether these defenses relate to
the merger’s mechanics or effect. The Court concludes that they do not relate to the merger’s
mechanics. The Plaintiffs acceptance of the merger consideration occurred after the merger was
effected, making it temporally impossible for the Plaintiffs’ alleged unclean hands, estoppel, or
waiver to have impacted the merger’s mechanics.
- 270 -

The Plaintiffs alleged unclean hands, which the Defendants contend extended long before
the date the merger took effect, centered on Plaintiff Stuart’s alleged attempts to blackmail TIR,
Inc., and extort a higher price than the $450,000.00 per whole share that the Plaintiffs were
offered in the Tender Offer and the cash-out price that they eventually received. Such conduct
did not generate any effects on the merger of the capital stock as Merger Agreement § 2.01
describes these effects. CEP-TIR, CCS, and CAF all were able to convert their pre-merger
shares into TIR LLC membership units under Merger Agreement § 2.01(b). Other non-dissident
shareholders, e.g., the Pooled Shareholders, were able to cash out their pre-merger shares under
Merger Agreement § 2.01(a). Further, all equity in the Merger Sub that CEP-TIR owned before
the merger was immediately cancelled at the time the merger took effect. The Plaintiffs’ conduct
in which the Defendants see unclean hands also did not prevent or impede the rights,
responsibilities, assets, and liabilities of TIR and the Merger Sub from vesting in the Surviving
Entity at the time the merger took effect, thereby not having an effect on the merger or the
merger mechanics as Merger Agreement § 1.04 presents them.
The Plaintiffs’ estoppel argument, in theory, should be the most likely of the four
affirmative defenses to implicate merger mechanics or effects. The Plaintiffs allege detrimental
reliance on the Plaintiffs’ voluntary and knowing surrender of their share certificates when they:
(i) contributed 50.1% of their member interests in TIR LLC to Cypress Energy Partners; (ii) and
effected the sale of partnership units to the public pursuant to the Registration Statement. See
Response to Plaintiffs’ MSJ at 18. If such detrimental reliance actually occurred, then the
Plaintiffs’ conduct that motivates the estoppel defense would be intricately intertwined with the
merger’s mechanics. The undisputed facts, however, represent that such detrimental reliance did
not occur. As the Defendants have conceded, the Plaintiffs did not have veto power over the

- 271 -

merger.

See Defendants’ Estoppel MSJ at 20.

The Merger Agreement’s plain language

emphasizes this lack of detrimental reliance, indicating that the existence of Dissenting
Shareholders will have no effect on TIR, Inc.’s merger plans and no effect on the merger’s
capital stock. See Merger Agreement §§ 2.01 -.03. The Tender Offer that the Plaintiffs received
likewise indicates a lack of detrimental reliance, simply notifying the Dissenting Shareholders
that the merger was effected without their input, their shares were extinguished, and the
Dissenting Shareholders can cash the extinguished shares out if they wish. See Notice to Former
Shareholders at 1. The Plaintiffs’ lack of detrimental reliance on the Plaintiffs’ conduct or lack
of conduct translated into no impact on the merger mechanics or effects.
Section 1090.2(B)(3) of title 18 of the Oklahoma Statutes required the Defendants to fix
the merger consideration as part of the cash-out merger process. See 18 O.S. § 1090.2(B)(3).
The Plaintiffs’ alleged unclean hands, estoppel, and waiver also do not relate to the merger’s
effect. The Merger Agreement defines what the merger’s effects were to be
Effects of the Merger. The Merger shall have the effects set forth herein and in
the applicable provisions of the DLLCA and the OGCA. Without limiting the
generality of the foregoing, and subject thereto, from and after the Effective Time,
all assets, property, rights, privileges, immunities, powers, franchises, licenses and
authority of each of the Company and the Merger Sub shall vest in the Surviving
Entity, and all debts liabilities, obligations, restrictions and duties of each of the
Company and Merger Sub shall become the debts, liabilities, obligations,
restrictions and duties of the Surviving Entity.
Merger Agreement § 1.04. None of the Plaintiffs’ conduct impaired or prevented the Defendants
from completing a transfer of all the “assets, property, rights, privileges, immunities, powers,
franchises, licenses[,] . . . authority[,] . . . debts, liabilities, obligation, restrictions and duties of
each of the Company and the Merger Sub” from vesting in the Surviving Entity. Merger
Agreement § 1.04. The merger took place as contracted. Merger Agreement § 2.01 speaks the
specific effects of the merger on capital stock:
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Effect of the Merger on Capital Stock. At the Effective Time, as a result of the
Merger and without any action on the part of parties hereto or the holder of any
capital stock or limited liability company interest of the parties hereto or any other
Person:
(a) Each issued and outstanding share of the Company Common
Stock, or fractional share thereof, held by each Company
shareholder other than (i) CEP-TIR, (ii) CCS, (iii) CAF, and (IV
the Dissenting Shares shall, by virtue of the Merger, be
automatically canceled and extinguished and be converted
automatically into a right to receive an amount in cash equal to
$451,000 per whole share of Company Common Stock plus
interest in the amount of 4%, compounded daily, from the effective
date of the Merger until the date of payment of the Cash Merger
Consideration pursuant to Section 2.02 below. Payments to each
shareholder will be rounded up to the nearest whole cent (the
“Cash Merger Consideration”).
(b) Each issued and outstanding share of Company Common
Stock, or fractional share thereof, held by CEP-TIR, CCS, and
CAF shall be automatically cancelled and each of CEP-TIR, CCS
and CAF shall automatically receive, in exchange for such
cancelled shares, such number of newly issued, fully paid and nonassessable membership units representing limited liability
company interest (each, a “TIR LLC Unit”) in the Surviving
Entity (the “Equity Merger Consideration” and, collectively with
the Cash Merger Consideration, the “Merger Consideration”) as
set forth in Section 2.01(d) below and CCS and CAF shall each be
admitted as a member of the Surviving Entity. CEP-TIR shall
remain a member of the Surviving Entity.
(c) All equity in Merger Sub owned by CEP-TIR immediately
before the Effective Time shall be automatically cancelled in
consideration of CEP-TIR’s right to receive the Equity Merger
Consideration set forth in Section 2.01(d) below.
(d) On the Effective Time, after giving effect to the transactions
contemplated herein, there shall be 85.059899 TIR LLC Units
issued and outstanding of which CEP-TIR shall own 59.90579 (or
70.43%), Mr. Stephenson, individually, shall own 18.26636 (or
21.47%), and Ms. Field, individually, shall own 6.88775 (or
(8.10%), respectively.
Merger Agreement § 2.01. None of the Plaintiffs’ conduct impaired or prevented the Defendants
from timely completing any of the effects of the merger on capital stock. CEP-TIR, CCS, and
- 273 -

CAF exchanged their cancelled shares for newly issued membership units in the Surviving
Entity. The other shareholders other than the dissenting shareholders -- the Plaintiffs -- had their
shares automatically canceled and extinguished, and converted into a right to receive an amount
of cash equal to $451,000.00 per whole share. Equity that CEP-TIR owned in Merger Sub was
automatically cancelled in consideration of CEP-TIR’s right to receive the Equity Merger
Consideration in Merger Agreement § 2.01(d). In short, the Plaintiffs’ conduct did not have
impair the effect of the merger on capital stock. Because the Plaintiffs’ alleged acquiescence,
unclean hands, estoppel, and waiver also do not relate to the merger’s effect, Oklahoma law by
default applies to these defenses.
One aspect of the Plaintiffs’ conduct implicated, however, the merger’s effects under the
Merger Agreement’s terms. Before the Plaintiffs’ decision to cash out their dissenting shares,
those shares fell under Merger Agreement § 2.03’s provision for dissenting shares.

That

provision states that dissenting shares “shall not be converted into a right to receive the Merger
Consideration, but instead shall be entitled to only such rights as are granted by Section 1091 of
the OGCA . . . .” Merger Agreement § 2.03 When the Plaintiffs cashed out their shares, they
caused a change to the merger’s effect on capital stock by then falling under Merger Agreement
§ 2.01(a) and having their shares automatically converted into a right to receive an amount in
cash equal to $451,000.00 per whole share plus interest in the amount of four percent,
compounded daily, from the merger’s effective date.

See Merger Agreement § 2.01(a).

Moreover, the cash out also implicated the Merger Agreement’s effects under Merger Agreement
§ 2.02, which obligated CEP-TIR to fund and pay the cash merger consideration due under
Merger Agreement § 2.01 to the Dissenting Shareholders who cashed out their shares. See
Merger Agreement § 2.02. By thus implicating the Merger Agreement’s effect, the cash out

- 274 -

action made Delaware law govern the cash out and all the Plaintiffs’ conduct related under the
cash out. See Merger Agreement § 8/02 (“This Agreement shall be governed by and construed
in accordance with the internal laws of Oklahoma without giving effect to any choice or conflict
of law provision or rule . . . ; provided, however, the provisions of this Agreement relating to
mechanics or the effects of the Merger under Delaware law shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware.”
Under Delaware law, as the Delaware Court of Chancery enunciated it in 2003 in In re
JCC Holding, when it summarized two earlier Delaware Court of Chancery decisions:
a stockholder who cases a vote in favor of, or later accepts the consideration from,
a merger effected by a controlling stockholder is not barred by the doctrine of
acquiescence, or any other related equitable doctrine such as waiver, from
challenging the fairness of the merger in an equitable action.
In re JCC Holding Co., Inc., 843 A.2d at 724 (citing Clements v. Rogers, 790 A.2d at 1222 & In
re Best Lock Corp. Shareholder Litig., 2001 WL 1398580, at *1078).

Furthermore, the

Defendants admit that they engaged in a self-interested merger. Under Delaware law, defendants
to a claim that involves a self-interested merger cannot shield the merger from entire fairness
review by invoking equitable defenses. See In re JCC Holding Co., Inc., 843 A.2d at 724. Once
the Court determines -- as it has here -- that the Defendants did not engage in what Delaware
considers procedural fairness, the only issue left to decide is whether the Defendants gave the
Plaintiffs’ fair value. Delaware law decides whether the Oklahoma equitable defenses apply.
The Oklahoma equitable defenses do not apply under Delaware merger value. In short, the
Court concludes that Oklahoma law would govern the Defendants’ defenses of acquiescence,
estoppel, waiver, and unclean hands if the Delaware law governing the merger allowed the Court
to consider these defenses. It does not; under Delaware law, a defendant cannot escape entire
fairness review by invoking an equitable defense -- under Oklahoma law or the law of any other
- 275 -

state.100
C.

OKLAHOMA LAW GOVERNS THE PLAINTIFFS’ STATE SECURITIES
CLAIMS.

The Plaintiffs raise two state securities claims against the Defendants. See Amended
Complaint ¶¶ 161-173, at 30-32. First, they assert that the Defendants violated the Oklahoma
Uniform Securities Act of 2004 by making material misrepresentations to the pooled
shareholders under the Pooled Shareholders by not disclosing to them the Defendants’ IPO plans.
See Amended Complaint ¶ 162, at 30. Second, the Plaintiffs contend that the Defendants
Stephenson, C. Field, and CEP-TIR, as TIR’s controlling shareholders, violated Oklahoma
Uniform Securities Act of 2004 § 1-509(G) -- regarding control person liability for the same
alleged material misrepresentations that the Plaintiffs allege the Defendants made to the Pooled
Shareholders. See Amended Complaint ¶¶ 166-173, at 31-32. Under the Erie doctrine, a federal
court sitting in diversity must apply the substantive law of the state in which it sits. See Erie R.
Co. v. Tompkins, 304 U.S. at 64. Oklahoma’s state securities law is part of Oklahoma’s
substantive law, and the Court concludes that Oklahoma law governs the Plaintiffs’ state
securities law claims.
III.

THE COURT DENIES
ACQUIESCENCE MSJ.

THE

REQUESTS

IN

THE

DEFENDANTS’

The Court denies the Defendants’ request for summary judgment on the basis of the
Plaintiffs’ alleged acquiescence to the merger when they accepted the merger consideration. The
Court concludes that (i) the Defendants did not set up a well-functioning committee of
independent directors to examine and approve the merger; and (ii) a fully informed majority of
the minority shareholders never voted to approve the merger, and that the evidentiary burden to
100

Latter in this opinion, the Court will conclude that these defenses also are not available
for trial under Delaware law.
- 276 -

prove the entire fairness of the merger remains with the Defendants. See, e.g., Kahn v. Lynch
Communication Systems, Inc., 638 A.2d 1110 (Del. 1994). The Court further concludes that,
when the Court interprets the facts in the light most favorable to the Plaintiffs, the Defendants do
not meet this evidentiary burden. Delaware common law requires the Court to allow any case
where the Defendant bears the burden to prove entire fairness to proceed to trial so that the entire
fairness of the transaction can be evaluated. See, e.g., In re Cornerstone Therapeutics Inc.
Stockholder Litigation, 2014 WL 4418169, at *8 (Del. Ch. 2014), rev’d on other grounds in In re
Cornerstone Therapeutics Inc. Stockholder Litigation, 115 A.3d 1173 (Del. 2015)
A.

BERSHAD, AND SUBSEQUENT SUPREME COURT OF DELAWARE
AND DELAWARE COURT OF CHANCERY CASES, REQUIRE THE
COURT TO APPLY THE ENTIRE-FAIRNESS STANDARD TO THE
CONTESTED MERGER, WITH THE DEFENDANTS REQUIRED TO
SHOULDER THE BURDEN TO PROVE ENTIRE FAIRNESS.

When the Court sits in a diversity case, the Erie doctrine requires the Court to interpret
state law as the state’s highest court would interpret it. See Erie R. Co. v. Tompkins, 304 U.S. at
64. Both parties agree that the Court should begin its analysis with the Supreme Court of
Delaware’s decisions in Weinberger v. UOP, Inc. and Bershad, which combined to set the
template for how Courts are to adjudicate cash-out mergers. In 1983, the Supreme Court of
Delaware planted itself firmly as a guardian of minority shareholder’s rights during corporate
mergers in Weinberger v. UOP, Inc. Delaware historically usually had applied the business
judgment rule to corporate actions. In Weinberger v. UOP, Inc., however, the Supreme Court of
Delaware found a case where the company to be subsumed in the merger made no “attempt to
structure th[e] transaction on an arm’s length basis.” 457 A.2d at 710. The Defendants had
allowed interested directors to have input into the special committee the company had
established to examine the merger and had not provided disinterested directors with important

- 277 -

financial data. See 457 A.2d at 707-10. Concluding that the lack of structures or procedures that
would keep the merger decision at arm’s length violated the company’s fiduciary duty to its
minority shareholders, the Delaware Supreme Court decided that such “divided loyalties” had no
safe harbor in the state. Weinberger v. UOP, Inc., 457 A.2d at 710. Instead of reviewing such
mergers under the deferential business-judgment rule, the Supreme Court of Delaware said that it
would review them under the entire-fairness rule. See 457 A.2d at 710-11.
The Supreme Court of Delaware disserted at length on what this test needs to capture:
The concept of fairness has two basic aspects: fair dealing and fair price. The
former embraces questions of when the transaction was timed, how it was
initiated, structured, negotiated, disclosed to the directors, and how the approvals
of the directors and the stockholders were obtained. The latter aspect of fairness
relates to the economic and financial considerations of the proposed merger,
including all relevant factors: assets, market value, earnings, future prospects, and
any other elements that affect the intrinsic or inherent value of a company’s stock.
457 A.2d at 711. Lest this description be misinterpreted, the Supreme Court of Delaware then
clarified that “the test for fairness is not a bifurcated one as between fair dealing and price. All
aspects of the issue must be examined as a whole since the question is one of entire fairness.”
457 A.2d at 711.
Four years later, the Supreme Court of Delaware saw a different fact pattern in the cashout merger of minority shareholders in Bershad. In contrast with the defendants in Weinberger
v. UOP, Inc., the defendant company in Bershad took multiple steps to safeguard minority
shareholders’ rights during the merger process before they were cashed out. See Bershad, 535
A.2d passim. At the same meeting in which the Curtiss-Wright board of directors decided that a
merger might be beneficial, it hired a nationally recognized investment bank to evaluate the
fairness of the proposed cash-out share offer price. See Bershad, 535 A.2d at 842. After the
investment bank had reported its independent opinion that the cash-out share offer price was fair,

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see 535 A.2d at 843, the Curtiss-Wright board of directors scheduled a shareholder meeting at
which a large majority of Curtiss-Wright’s minority shareholders approved of the merger, see
535 A.2d at 843.
The Bershad court did not diverge from Weinberger v. UOP, Inc.’s rule that the entire
fairness test should apply in cash-out mergers, concluding that the entire fairness standard is
necessary to “protect those rights of minority shareholders which have been tainted with
unfairness.” 535 A.2d at 848. The Supreme Court of Delaware added a twist, however. In a
merger case in which the defendant company put substantial structures and processes in place to
ensure that a controlling shareholder did not simply steamroll minority shareholders, the
defendants “retain the burden of proving complete disclosure of all material facts relevant to the
merger vote.” 535 A.2d at 846. If the defendants prove complete disclosure, however, by an
informed vote of a majority of the minority shareholders, they shift the entire-fairness burden
onto the plaintiffs. See 535 A.2d at 846. In other words, the plaintiff must then bear the burden
of proving that the merger was not entirely fair. See 535 A.2d at 846. If the plaintiff was fully
informed, and then either voted in favor of the merger or accepted the transaction’s benefits, the
Supreme Court of Delaware continued, the plaintiff (i) would not meet its evidentiary burden;
(ii) would be deemed to have acquiesced to the merger; and (iii) would no longer be able to
attack the merger in court. See 535 A.2d at 848.
Were Weinberger and Bershad the last two statements that the Delaware courts made on
the issue of minority rights in cash-out mergers, the parties likely would not have much of a
disagreement over what law the Court should apply to the Defendants’ Acquiescence MSJ. Like
in baseball, however, plaintiffs and defendants whose arguments run through the same two bases
oftentimes still only bring the Court halfway home. This observation is decidedly true in this

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case, as the Plaintiffs correctly assert that the Supreme Court of Delaware and the Delaware
Courts of Chancery have implicitly revisited and cabined Weinberger and especially Bershad
over the past three decades. The Defendants, on the other hand, state that Weinberger and
Bershad remain good law.
The Court agrees with the Defendants that the Court must be careful not to hold that
subsequent Delaware Court of Chancery decisions can implicitly overrule the Supreme Court of
Delaware’s decision in Bershad. Such Chancery chicanery incontrovertibly would violate the
Erie doctrine, which precludes federal courts sitting in diversity from cherry-picking cases from
state intermediate courts to circumvent what a state’s highest court had determined to be state
law. At the same time, nothing in the Erie doctrine suggests that a state’s intermediate courts
cannot clarify the contours of a state supreme court’s decisions. The Court indeed concludes that
ignoring three decades of Supreme Court of Delaware and Delaware Court of Chancery cases
that seem to sketch Bershad’s limits would itself amount to the very cherry-picking that the Erie
doctrine forbids. Insofar as Erie requires a federal court sitting in diversity to apply a state’s
common law, it demands that the Court aim to understand precisely what the contours and limits
(if any) are of the Supreme Court of Delaware’s position on minority shareholder acquiescence
in cash-out mergers.
The Delaware Courts of Chancery’s unique stature fortifies the Court’s conclusion that
examining their decisions related to Bershad is wise and prudent. Legal scholars and even the
Supreme Court of Delaware hold Delaware’s Court of Chancery decisions in unique esteem. As
one former longtime chief justice of the Supreme Court of Delaware expressed this regard in a
law review article after his retirement:
The Court of Chancery makes much of our corporate law. The judges of that
court perform prolifically and promptly in an extraordinary manner on the ground,
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daily, as the world’s most respected business trial court. . . . About 85% to 90%
of the court’s final judgments in corporate cases are never appealed. The low rate
of appeal is due to several factors, including the extraordinarily high international
respect for the expertise of the court; the fact that those judgments are mostly
correct; the fact that they usually are affirmed on appeal anyway; the fact that
many cases are decided by interlocutory order . . . ; and the practical reality that
business must move on from the answer provided by the Court of Chancery. This
phenomenon is a high tribute to that court and is the chief reason that Delaware is
the prevailing corporate domicile of choice.
E. Norman Veasey, 153 U. Pa. L. Rev. at 1408. In light of such respect, the Court concludes that
consideration of Delaware Court of Chancery decisions related to Bershad, rather than imperiling
its attempts to understand and apply state common law in conformity with the Erie doctrine,
contribute to that understanding and application. Accordingly, the Court considers both Supreme
Court of Delaware and Delaware Court of Chancery cases, subordinating the latter to the former
wherever and whenever they irreconcilably conflict.
To that end, the Court has examined twenty-eight Supreme Court of Delaware and
Delaware Court of Chancery decisions related to cash-out mergers since 1987, the year in which
the Supreme Court of Delaware handed down Bershad. Three decades in, Bershad largely has
withstood the test of time. The Supreme Court of Delaware has issued nine decisions over that
time that relate to minority shareholder rights in cash-out mergers. See Kahn v. M.F. Worldwide
Corp., 88 A.3d 635 (Del. 2014); In Re Celera Corp. Shareholder Litigation, 59 A.3d 418 (Del.
2012); Montgomery Cellular Holding Co., Inc. v. Dobler, 880 A.2d 206 (Del. 2005); Aspen
Advisors LLC v. United Artists Theatre CO., 861 A.2d 1251 (Del. 2004); Skeen v. Jo-Ann
Stores, Inc., 750 A.2d 1170 (Del. 2000); M.P.M. Enterprises, Inc. v. Gilbert, 731 A.2d 790 (Del.
1999); Cede & Co., v. Technicolor, Inc., 684 A.2d 289 (Del. 1996); Kahn v. Lynch
Communication Systems, Inc., 638 A.2d 1110 (Del. 1994); Cavalier Oil Corp. v. Harnett, 564
A.2d 1137 (Del. 1989). As the Defendants argue and as the Court discussed earlier in this

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Memorandum Opinion’s section on law regarding cash-out mergers after Bershad, supra, the
Supreme Court of Delaware has never expressly overturned Bershad. Tellingly, however, the
Supreme Court of Delaware also has not dismantled limits on Bershad that nineteen Delaware
Courts of Chancery read into the Bershad opinion over a span of thirty years. The Court
interprets this silence as a textbook example of the dog that did not bark.101 The Supreme Court
of Delaware’s choice not to flag Delaware Courts of Chancery’s limits as misinterpretations,
despite repeated opportunities to flag them as such, overwhelmingly suggests that the Delaware
Courts of Chancery did not in fact misidentify Bershad’s limits. Accordingly, both the Bershad
frame and subsequent Delaware Court of Chancery decisions that filled in the jigsaw puzzle of
Delaware cash-out merger law indicate that the Court must apply the entire-fairness standard
when it assesses the merger contested in this case.
Under Delaware’s entire-fairness standard, the burden of proving that the merger
transaction was the product of both fair price and fair dealing defaults to the Defendants. The
Court may shift the burden of evidence for proving entire fairness to the plaintiff under the
following conditions: (i) the defendants set up a well-functioning committee of independent
directors to examine and approve the merger; and (ii) a fully informed majority of the minority
shareholders voted to approve the merger. See, e.g., Kahn v. Lynch Communication Systems,
Inc., 638 A.2d 1110 (Del. 1994); In re PNB Holding Co. Shareholder Litigation, 32 Del. J. Corp.
L. 654 (2006)(Strine, J.); Clements v. Rogers, 790 A.2d 1222 (2001)(Strine, J.)
101

The “dog didn’t bark” canon derives from a short story from Sir Arthur Conan Doyle,
in which Sherlock Holmes deduces the identity of the villain after realizing that the dog of the
house did not bark when the individual came to the house. See Sir Arthur Conan Doyle, The
Adventure of Silver Blaze, The Complete Sherlock Holmes 347 (A.C. Doyle Memorial ed.
1960). The Supreme Court of the United States repeatedly has invoked this unofficial canon of
statutory construction. See, e.g., Zuni Pub. Sch. Dist. No. 89 v. Dep’t of Ed., 550 U.S. 81, 88,
127 S. Ct. 1534, 167 L. Ed. 2d 449 (2007); Scheidler v. National Organization for Women, 547
U.S. 9, 20, 126 S. Ct. 1264, 164 L.Ed.2d 10 (2006).
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In this case, the Defendants satisfied neither criterion needed to shift the evidentiary
burden. The Defendants did not form a special committee to consider the merger, nor did they
schedule and hold a minority shareholder vote on the merger. Instead, the Defendants informed
minority shareholders after the merger had been consummated that their shares had been
“automatically canceled and extinguished,” and “converted into a right to receive an amount in
cash equal to $451,000” a share. Merger Agreement § 2.01(a). The Plaintiffs asserted at the
motion hearing that, under what they interpret as Kahn v. M.F. Worldwide Corp.’s modification
of Kahn v. Lynch’s burden shifting elements, they could make the Plaintiffs shoulder the
evidentiary burden if even one -- but not both -- of the Kahn v. Lynch’s criteria were to hold. See
Tr. at 23:6-10 (DeMuro). Even were the Court to accept this argument as a correct interpretation
of Delaware common law, doing so would not shift the burden, for the Defendants failed to
implement either safeguard to protect minority shareholder rights.

The Court therefore

concludes that the evidentiary burden for proving the merger’s entire fairness remains with the
Defendants.
B.

INTERPRETING THE FACTS IN THE LIGHT MOST FAVORABLE TO
THE PLAINTIFFS, THE COURT (I) CONCLUDES THAT THE
DEFENDANTS DO NOT PROVE THE ENTIRE FAIRNESS OF THE
MERGER TRANSACTION; AND, THEREFORE, (II) DENIES THE
DEFENDANTS’ ACQUIESCENCE MSJ.

That the Defendants retain the burden of proving the merger’s entire fairness does not
end the analysis that the Court must conduct when adjudging the Defendants’ Motion for
Summary Judgment.

Under Weinberger, Bershad, and subsequent Delaware case law, the

Defendants still can prove that the Plaintiffs acquiesced in the transaction if the following
conditions were met: (i) there was fair dealing; (ii) the share price at which the minority
shareholders were cashed out was fair; (iii) the minority shareholders who were cashed out were

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fully informed; and (iv) the minority shareholders who were cashed out voluntarily accepted the
merger consideration. See Weinberger v. UOP, Inc., 457 A.2d at 710-13, Bershad, 535 A.2d at
845-48; Kahn v. Lynch Communication Systems, Inc., 638 A.2d at 1115-18. If the Defendants
successfully prove each of these conditions, then the Plaintiffs lose their right to challenge the
merger in court, and the Court must grant the Defendants’ Acquiescence MSJ.
As the Court noted in the law regarding section on Delaware merger law, supra, the
Supreme Court of Delaware discoursed at length about how the courts should interpret the terms
“fair dealing” and “fair price” in cash-out merger cases in Weinberger v. UOP, Inc. In that
court’s words
[t]he concept of fairness has two basic aspects: fair dealing and fair price. The
former embraces questions of when the transaction was timed, how it was
initiated, structured, negotiated, disclosed to the directors, and how the approvals
of the directors and the stockholders were obtained. The latter aspect of fairness
relates to the economic and financial considerations of the proposed merger,
including all relevant factors: assets, market value, earnings, future prospects, and
any other elements that affect the intrinsic or inherent value of a company’s stock.
457 A.2d at 711. The Supreme Court of Delaware then clarified that “the test for fairness is not
a bifurcated one as between fair dealing and price. All aspects of the issue must be examined as
a whole since the question is one of entire fairness.” 457 A.2d at 711.
Reviewing the facts in the light most favorable to the Plaintiffs, the Court concludes that
fair dealing was not a hallmark of the merger transaction. Weinberger v. UOP, Inc. does not
provide a court with an algorithm to weigh each of the six components it categorizes under fair
process. The Court concludes that each component in fact points in unfairness’ direction. First,
TIR initiated the merger with Cypress Energy Partners after a TIR board of directors purge.
Second, TIR and Cypress Energy Partners structured and negotiated the merger in a way that
certain shareholder subgroups received sweeteners alongside the tender price, such as promises

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of lucrative future employment or the option to gross up at a later date. Third, TIR and Cypress
Energy Partners failed to disclose significant financial information and projections. Fourth, TIR
did not seek minority shareholders’ approval -- by vote or otherwise -- before it cancelled their
shares and presented the opposed minority shareholders with a fait accompli. Accordingly,
because (i) every component points in in the direction of the absence of fair dealing; and (ii) the
resulting sum axiomatically cannot therefore point in the direction of fair dealing, the Court
concludes that the Defendants have not proven fair dealing in the merger.
Examining the facts in the light most favorable to the Plaintiffs, the Court also concludes
that this merger transaction was not a paragon of fair pricing. As with its multifactor test for fair
dealing, the Supreme Court of Delaware in Weinberger does not provide the Court with an
algorithm to weigh the four specified and ambiguous number of unspecified “other” elements
that it categorizes under fair pricing. The Court interprets “any other elements” to solely be
financial factors that “affect the intrinsic or inherent value of a company’s stock” in the same
manner that “assets, market value, earnings, [and] future prospects” affect its intrinsic or inherent
value. To the Court, as to the Plaintiffs during the motion hearing, see Tr. at 68:10-12 (Kagen),
this factor list intones a discounted cash flow model that uses EBITDA inputs -- the very model
that the Delaware Code strongly prefers for a corporation to employ when it or a respected
investment bank it hires calculates the corporation’s shares’ fair price.
The Defendants did not hire an investment bank to conduct a discounted cash flow
analysis at the time of the merger. Cf. Tr. at 536:19-537:25 (DeMuro). Indeed, the Defendants
did not contend that it hired an investment bank to calculate a fair price at the time of the merger
at all. Cf. Tr. at 536:19-537:25 (DeMuro). The Defendants asserted at the motion hearing that
this was a fiduciary choice, as the Defendants did not wish to pay a substantial amount of money

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for an investment bank fairness opinion that (i) would duplicate the Halifax Group’s December
2012 appraisal; and (ii) would solicit whatever valuation the Defendants “want[ed] to hear.” Tr.
at 138:10-139:6 (DeMuro). Were this case about the merger of a mature corporation with little
change in its market capitalization over short periods of time, the Defendants’ argument might
withstand some scrutiny. As corporate financials demonstrate, however, revenues grew rapidly
in the year after the December, 2012, appraisal, sprinting forward at an uneven pace month by
month but generally running at a sixty percent year-on-year YTD growth. See Defendants’
Acquiescence MSJ ¶ 51, at 13. To borrow a management consulting term, TIR was a rare
corporate “star.” Bruce Henderson, Boston Consulting Group, The Product Portfolio (1970),
available at https://www.bcgperspectives.com/content/Classics/strategy_the_product_portfolio/
(last visited Apr. 5, 2017); Martin Reeves et al., Boston Consulting Group, BCG Classics
Revisited:

The

Growth

Share

Matrix

(June

4,

2014),

available

at

https://www.bcgperspectives.com/content
/articles/corporate_strategy_portfolio_management_strategic_planning_growth_share_matrix_bc
g_classics_revisited/ (last visited Apr. 5, 2017)(estimating that only five percent of companies in
2012 qualified as BCG “stars”).
TIR’s choice not to commission an updated investment bank fairness opinion kept even
the Defendants in the dark about a fair cash-out share price even if the Court were to interpret the
facts in the light most favorable to the Defendants. A fortiori, interpreting the facts, as the Court
must when considering the Defendants’ Acquiescence MSJ, in the light most favorable to the
Plaintiffs -- including the Plaintiff’s assertions that the Defendants’ internal metrics and
valuations not disclosed to the minority shareholders showed much higher valuations than the
$451,000.00 a share tender offer -- the Court must conclude that the Defendants have not met

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their burden to prove that the tender price was fair.
The Court need not do extensive analysis of the third condition. At the hearing, the
Plaintiffs conceded that they were fully informed. See Tr. at 158:20-159:5 (Court, Kagen). The
Court made certain that it understood this concession correctly, particularly because the
Defendants considered it to be a considerably important concession. See Tr. at 159:2-3 (Court);
id. at 160:16-21 (DeMuro). The Plaintiffs left no room for misinterpreting their position:
THE COURT: Well, I think what he’s [Defendants’ counsel] arguing is that you
were . . . a fully-informed shareholder. You’re not willing to concede that yet, are
you?
MR. KAGEN: We’re saying that we’re not contesting that issue, and we’re
further saying that for the Bershad analysis that’s irrelevant.
THE COURT: Well, I know you’re saying it’s legally irrelevant, and I’ve got to
write an opinion on that. But are you conceding that you’re wholly -MR. KAGEN: We’re not contesting informed. We’re not contesting disclosure.
It’s not an issue.
Tr.at 158:20-159:5 (Court, Kagen).

Accordingly, the Court concludes that the

Defendants have satisfied the third condition. The parties strenuously differ on whether the
Plaintiffs voluntarily accepted the merger consideration and, correspondingly, whether the
Defendants satisfied the fourth condition. The Court need not resolve this issue, because the four
conditions that Weinberger and Bershad require are conjunctive. The Defendants failure to meet
either of the first two conditions precludes the Court from granting the Defendants’
Acquiescence MSJ under Delaware common law, and the Court accordingly denies the
Defendants’ Acquiescence MSJ.
IV.

THE COURT DENIES IN PART AND GRANTS IN PART THE DEFENDANTS’
ESTOPPEL MSJ.
The Court denies in part and grants in part the Defendants’ Estoppel MSJ, dismissing the

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Plaintiffs’ securities claims but rejecting the Defendants’ arguments that they are entitled to
summary judgment on the basis of Oklahoma common law of equitable estoppel, waiver, or
unclean hands. The Court concludes that: (i) the Defendants’ Estoppel MSJ largely duplicates
the Defendants’ Acquiescence MSJ’s facts; (ii) the Defendants do not demonstrate that they
reasonably relied on the Plaintiffs’ merger acceptance or that the alleged reliance caused the
Defendants to suffer a detrimental change of position; (iii) the Defendants do not demonstrate
that the Plaintiffs waived their right to challenge the entire fairness of the contested merger
transaction; (iv) the Defendants do not demonstrate that the Plaintiffs undertook the allegedly
fraudulent and deceitful conduct of which they complain, thereby failing to show that the
Plaintiffs have unclean hands; (v) the Tenth Circuit is unlikely to support the Plaintiffs’
contention that the forced-seller doctrine is good law within the Tenth Circuit, and the Court will
not expand SEC rule 10b-5 to include the forced-seller doctrine, and the Court will dismiss the
Plaintiffs’ federal securities claims; and (vi) the Supreme Court of Oklahoma likely would
dismiss the Plaintiffs’ state securities claims and the Court, under the Erie doctrine’s required
deference to a state’s supreme court, should dismiss the Plaintiffs’ state securities claims. The
Court will expand upon its reasoning for each of these conclusions in the pages to follow.
A.

OKLAHOMA LAW APPLIES TO THE ISSUES OF ACQUIESCENCE,
EQUITABLE ESTOPPEL, WAIVER, AND UNCLEAN HANDS.

The Court conducted a choice-of-law analysis in section II of its analysis, supra, in which
the Court concluded that Oklahoma law applies to the acquiescence, estoppel, waiver, and
unclean hands defenses. In addition to the Court’s previous analysis, the Court notes that for
contract claims, Oklahoma choice-of-law requires federal courts to apply the law of that state
which is the principal place of performance, see Panama Processes v. Cities Serv. Co., 796 P.2d
at 287-88, unless that state’s law is repugnant to Oklahoma’s establish law or public policy, see
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Pate v. MFA Mut. Ins. Co., 649 P.2d at 811. The purchase agreements that the Defendants
entered into with the pooled shareholders and the tender offer that the Defendants made to the
Plaintiffs both indicate that the law governing the agreements and offers is “the laws of the State
of Oklahoma without regard to any conflicts of law principles.” E.g., Purchase Agreement
between Celebration, LLC and J.W. Lorett 1 (Feb. 11, 2013), filed Apr. 3, 2015 (Doc. 83-6).
The Defendants’ Notice to Former Shareholders of Tulsa Inspection Resources, Inc. of
Shareholder Action and Appraisal Rights (dated Dec. 11, 2013), filed Apr. 3, 2015 (Doc. 8327)(“Notice to Former Shareholders”), by which the Defendants notified the Plaintiffs that the
merger had been effected and the Plaintiffs retained no shares in the surviving entity and offering
the Plaintiffs an option to accept the merger consideration of $451,000.00 per share, also invokes
Oklahoma law. See Notice for Former Shareholders at 1. Oklahoma is the principal place of
performance for the purchase agreements, tender offer, and the cash-out option mentioned in
Notice to Former Shareholders. Moreover, the Court sees no sound reason to conclude that
Oklahoma would consider parties’ choice to apply Oklahoma law to be repugnant to established
Oklahoma public policy. The Court therefore reconfirms its previous analysis that it should
apply Oklahoma law to the equitable estoppel, waiver, and unclean hands defenses.
B.

THE DEFENDANTS’ ESTOPPEL MSJ LARGELY DUPLICATES THE
FACTS OF THEIR FIRST MOTION FOR SUMMARY JUDGMENT.

When the Court asked the Defendants at the motion hearing to explain the differences
between Defendants’ Acquiescence MSJ and Defendants’ Estoppel MSJ, see Tr. at 350:21-351:8
(Court), the Defendants stated that Defendants’ Acquiescence MSJ (i) rides on a particularized
application of the Bershad acquiescence defense in the context of a cash-out merger; and (ii)
relies on Delaware law, given that there is no Oklahoma line of cases addressing acquiescence in
a cash-out merger. See Tr. at 353:1-12 (DeMuro). The Defendants contrasted this focus with
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Defendants’ Estoppel MSJ’s focus, which the Defendants maintained is asserting Oklahoma law
on estoppel, waiver, and unclean hands, as Oklahoma has a well-developed body of law on those
points and the Defendants conclude that Oklahoma law applies to those defenses. See Tr. at
353:13-19 (DeMuro).
When the Plaintiffs responded to the Defendants’ Estoppel MSJ later during the hearing,
they could find much less daylight separating Defendants’ Estoppel MSJ from Defendants’
Acquiescence MSJ. See Tr. at 384:24-398:20 (Kagen). According to the Plaintiffs, both the
factual section and the legal analysis in the Defendants’ Estoppel MSJ are substantively identical
to the factual section and the legal analysis in the Defendants’ Acquiescence MSJ. See Tr. at
384:24-387:18 (Kagen). The Plaintiffs admitted that there seem to be six new numbered facts in
Defendants’ Estoppel MSJ, but argued that the difference is illusory, as the Defendants merely
subdivide facts that they assert in Defendants’ Acquiescence MSJ. See Tr. at 395:23-398:20
(Kagen). The Court has studied the factual sections of both Defendants’ Acquiescence MSJ and
Defendants’ Estoppel MSJ and agrees with the Plaintiffs that the second largely duplicates the
first, down to the word choice, syntax, sentence structure, and punctuation. Assessing whether
the Defendants’ arguments of equitable estoppel, waiver, and unclean hands are, as the Plaintiffs
maintain, identical to the Defendants’ acquiescence argument requires more intense study than
the Plaintiffs seem ready to concede, and the Court turns to that next.
C.

THE DEFENDANTS FAIL TO DEMONSTRATE THAT THEY
REASONABLY
RELIED
ON
THE
PLAINTIFFS’
MERGER
ACCEPTANCE OR THAT THIS RELIANCE CAUSED THE
DEFENDANTS TO SUFFER A DETRIMENTAL CHANGE OF
POSITION, PRECLUDING THE COURT FROM GRANTING SUMMARY
JUDGMENT ON EQUITABLE ESTOPPEL GROUNDS.

Oklahoma law requires a defendant to establish five essential elements for a defense of
equitable estoppel to succeed. The Supreme Court of Oklahoma clearly enumerated these five
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elements in 2005 in Sullivan v. Buckhorn Ranch Partnership, which itself recited the same
elements that the Supreme Court of Oklahoma had listed in 1967 in Board of County Com’rs of
Marshall County v. Snellgrove:
The essential elements necessary to establish equitable estoppel are: first, there
must be a false representation or concealment of facts; second, it must have been
made with actual or constructive knowledge of the real facts; third, the party to
whom it was made must have been without knowledge, or the means of
discovering the real facts; fourth, it must have been made with the intention that it
should be acted upon; and fifth, the party to whom it was made relied on, or acted
upon it to his or her detriment.
Sullivan v. Buckhorn Ranch Partnership, 119 P.3d 192, 202 (Okla. 2005). Accord Board of
County Com’rs of Marshall County v. Snellgrove, 428 P.2d 272, 276 (Okla. 1967). The Court
highlights that the five elements are conjunctive; in other words, the Defendants may not invoke
the equitable estoppel defense if they fail to prove any of the five elements.
The Defendants do not prove any of the five elements, let alone prove all of them as the
equitable estoppel defense requires. Indeed, it appears to the Court that the Defendants misread
Oklahoma law on the five elements needed to prove equitable estoppel to be disjunctive rather
than conjunctive -- interpreting “and” as “or” -- as the Defendants rest their argument on their
alleged reliance on the Plaintiffs’ delivery of their share certificates. Defendants’ Estoppel MSJ
at 21. According to the Defendants, the share certificate delivery induced the Defendants to: (i)
pay the merger consideration; (ii) consummate the merger; (iii) and effect the sale of partnership
units to the public pursuant to the Registration Statement. See Defendants’ Estoppel MSJ at 21.
Even if the Defendants successfully proved reliance, which the Court does not agree they have
proved, such reliance on its own would not suffice to establish equitable estoppel under Sullivan
v. Buckhorn Ranch Partnership.

The facts show that the Defendants were bounds and

determined to cash out the Plaintiffs; they were not waiting or relying on the Plaintiffs for

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anything. The Court cannot conclude even based even based on the Defendants’ own statement
of undisputed facts, that the Defendants have proven that they satisfied the reliance element. The
Defendants already had consummated the merger before they cashed out the Plaintiffs, and the
Defendants were statutorily required to pay the merger consideration. The assertion that the
Plaintiffs induced detrimental reliance by causing the Defendants to effect the sale of partnership
units to the public pursuant to the Registration Statement does not hold water, because this
transaction was the very action that the Defendants wished to take regardless the Plaintiffs’
actions. By the Defendants’ own admission, the Plaintiffs did not have veto power over the
merger. See Defendants’ Estoppel MSJ at 20.
The Court, interpreting the facts in the light most favorable to the Plaintiffs, therefore
does not conclude that such detrimental reliance existed. This determination is dispositive by
itself. The Defendants do not, however, prove any of the five elements that Oklahoma law
requires them to prove to be able to successfully put forth an equitable estoppel defense. The
Court therefore denies the Plaintiffs’ request for summary judgment on the grounds of equitable
estoppel.
D.

THE DEFENDANTS FAIL TO DEMONSTRATE THAT THE
PLAINTIFFS WAIVED THEIR RIGHT TO CHALLENGE THE ENTIRE
FAIRNESS OF THE CONTESTED MERGER TRANSACTION.

The Defendants assert that the Plaintiffs delivered their share certificates to the
Defendants to induce the Defendants to pay the merger consideration, and in accordance with the
Merger Agreement’s express provision that any former shareholder who surrendered his or her
share certificates would be deemed to have forever waived any appraisal rights or quasi-appraisal
rights pursuant to the Oklahoma appraisal statute or otherwise. See Defendants’ Estoppel MSJ at
21. The Plaintiffs counter that: (i) the Defendants’ waiver defense is barred as a matter of law;

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and (ii) even if the waiver defense were not barred, the Defendants fail to establish any of the
waiver elements that Oklahoma law requires. See Response to Defendants’ Estoppel MSJ at 13.
According to the Plaintiffs, the waiver defense fails on three grounds: (i) nothing in the merger
notice declared such a broad waiver; (ii) 18 O.S. § 1091 does not impose a waiver; and (iii)
settled law holds that foregoing an appraisal does not immunize the Defendants from liability for
any breach of their duty of entire fairness in undertaking a self-interested merger transaction.
See Response to Defendants’ Estoppel MSJ at 15.
Under Oklahoma law, the waiver question only becomes one for the court to decide as a
matter of law if the fact of the waiver is undisputed and is subject to only one interpretation. See
General Finance Corp. v. Jackson, 296 P.2d at 143. If, on the other hand, the evidence of alleged
waiver is conflicting or disputed, or if the Court can draw more than one reasonable inference
about the existence of waiver from the evidence, then the waiver question becomes a question of
fact for the jury. See Murphy Oil USA, Inc. v. Wood, 438 F.3d at 1008. Because the parties
unquestionably dispute whether the Plaintiffs waived their right to challenge the merger when
they accepted the merger consideration, the Court need not resolve the second question whether
the evidence likewise if sufficiently conflicted that the Court would be able to draw more than
one reasonable inference from the evidence. Nevertheless, the Court comes to this second
conclusion as well. The Defendants make a reasonable case for their position that the Plaintiffs
waived their right to challenge the merger when they accepted the merger consideration when
they invoke the Merger Agreement to argue that its provision that a shareholder could cash out or
seek an appraisal. See Defendants’ Estoppel MSJ at 21. See also Notice to Former Shareholders
at 1. On the other hand, the Plaintiffs also make a reasonable case that they did not waive their
right to challenge the merger when they received the merger consideration on the grounds that (i)

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a contractual waiver in Oklahoma requires a contract; and (ii) the Plaintiffs never had a contract
to be cashed out; rather, the Defendants unilaterally cancelled the Plaintiffs shares.

See

Response to Defendants’ Estoppel MSJ. Section 1091 of title 18 of the Oklahoma Statutes
favors the Plaintiffs’ position, in that it does not expressly impose a waiver on shareholders if
they accept merger consideration. The Court concludes that, in addition to the existence of a
party dispute over whether the Plaintiffs waived their right to challenge the price at which they
were cashed out, the Court can draw more than one reasonable inference from the evidence.
Indeed, the Court concludes that the Supreme Court of Oklahoma would find that its law does
not allow for waiver merely from taking the cash-out consideration. Accordingly, while under
Oklahoma law, the question of waiver is one for the jury, the Court finds that, as a matter of law,
waiver of Delaware merger rights is not available from the mere taking of the cash-out
consideration, and the Court consequently denies the Defendants summary judgment on their
waiver defense.
E.

THE DEFENDANTS FAIL TO DEMONSTRATE THAT THE
PLAINTIFFS UNDERTOOK THE ALLEGEDLY FRAUDULENT AND
DECEITFUL CONDUCT OF WHICH THEY COMPLAIN, THEREBY
FAILING TO SHOW THAT THE PLAINTIFFS HAVE UNCLEAN
HANDS.

The Defendants argue that the Oklahoma common law of unclean hands bars the
Plaintiffs’ claims on the grounds that Stuart orchestrated this litigation despite: (i) having
attempted to seize control of TIR, Inc.; (ii) having entered into an agreement with the other
Plaintiffs to attempt to extract an unjustified premium for the Plaintiffs’ shares; (iii) filing false
allegations against the Defendants in an attempt to justify a trial on their surrendered shares’
value; and (iv) bragging about the cash-out share price that the Plaintiffs received.

See

Defendants’ Estoppel MSJ at 19-20. The Plaintiffs counter that they do not have unclean hands,

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because (i) the Plaintiffs’ conduct did not cause the Defendants’ unilateral adoption, execution,
and implementation of the cash-out merger; and (ii) the Plaintiffs did not induce the Defendants’
merger consideration payment by committing the very fraudulent and deceitful conduct of which
they complain.
In Oklahoma, an unclean-hands defense requires a defendant to show that the plaintiff
tainted the transaction that they are challenging by undertaking “the very fraudulent and deceitful
conduct of which they complain.” Yeager v. Fort Knox Sec. Products, 602 F. App’x at 429
(internal quotation marks omitted). The Defendants’ allegation that Stuart attempted to extract a
price premium does not support a sound conclusion that the Plaintiffs challenge the very
fraudulent and deceitful conduct of which they complain; the Plaintiffs challenge the involuntary
cash out of their shares and the fair price. The Defendants’ allegation that the Plaintiffs filed
false allegations against them is now moot, because the Plaintiffs withdrew these allegations in
their Amended Complaint, which they filed more than fifteen months before the hearing in
December, 2016. Even if they were not moot and even if the allegations were false, such
conduct does not constitute the very fraudulent and deceitful conduct of which the Plaintiffs
complain. Last, Stuart’s alleged braggadocio in the Letter from Alan L. Stuart to Investors
(dated Feb. 4, 2014), filed September 14, 2015 (Doc. 154-31), in no way demonstrates that the
Plaintiffs now challenge the very fraudulent and deceitful conduct of which they complain;
bragging about a sale is not the same conduct as cashing out minority shareholders or paying an
unfair price. The Court accordingly concludes that the Defendants have offered insufficient
proof for summary judgment on the theory that the Defendants have unclean hands.

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F.

THE COURT CONCLUDES THAT IT SHOULD NOT EXPAND SEC
RULE 10(b)(5) TO INCLUDE THE FORCED-SELLER DOCTRINE, AS
THE SECOND CIRCUIT DISCUSSED IT IN VINE V. BENEFICIAL
FINANCE CO., AND THAT THE COURT THEREFORE SHOULD
GRANT THE DEFENDANTS’ REQUEST FOR SUMMARY JUDGMENT
ON THE PLAINTIFFS’ FEDERAL SECURITIES CLAIMS.

The Defendants contend that the Plaintiffs, under SEC rule 10(b)(5), must allege and
prove both (i) a misleading statement or omission of a material fact; and (ii) reliance, if the
Plaintiffs are to prevail on their securities claims. See Defendants’ Estoppel MSJ at 23-24. The
Defendants argue that the Plaintiffs fail to prove that the Defendants made any misleading
statement or omitted any material fact about the merger in their communications with the
Plaintiffs, and correspondingly fail to prove any reliance on nonexistent misleading or omission.
See Defendants’ Estoppel MSJ at 24. The Defendants therefore ask the Court to grant summary
judgment on the Plaintiffs’ securities claims.
In response, the Plaintiffs assert that the Defendants misunderstand the claims they
challenge, maintaining that the Plaintiffs bottom their securities claims on the forced-seller
doctrine that the Second Circuit recognized in Vine v. Beneficial Finance Co. The Plaintiffs
maintain that triable factual issues exist concerning what the Plaintiffs characterize as the
Defendants’ misrepresentations and omissions of material fact to the pooled shareholders. See
Response to Defendants’ Estoppel MSJ at 20. Vine v. Beneficial Finance Co., the Plaintiffs
maintain, held that, in securities cases where the defendant deceives a third party and then forces
it to convert or sell its shares, a plaintiff has automatically stated a securities fraud claim -- even
if that plaintiff did not personally rely on the alleged misrepresentation -- as long as the fraud
practiced on the third party caused the plaintiff’s loss. See Response to Defendants’ Estoppel
MSJ at 20 (citing Vine v. Beneficial Finance Co., 374 F.2d at 635; Jacobson v. AEG Capital
Corp., 50 F.3d 1493, 1498 (9th Cir. 1995); Brown v. Kinross Gold, U.S.A., 343 F. Supp. 2d 957,
- 296 -

962 (D. Nev. 2004)). The Plaintiffs contend that the plaintiff in Vine v. Beneficial Finance Co.
was similarly situated to them, because (i) the Vine v. Beneficial Finance Co. defendants had
pushed through a cash-out merger by fraudulently inducing shareholders other than the plaintiff
to tender their shares; and (ii) the Defendants in this case allegedly deceived the pooled
shareholders to obtain shares without which they would have controlled insufficient shares to
enable a cash-out merger. See Response to Defendants’ Estoppel MSJ at 20-22.
The Court recognizes that the Defendants in this case would have been unable to cash out
the Plaintiffs had they not obtained the pooled shareholders shares. Even if the Plaintiffs are
correct that the Defendants greased the skids for obtaining the pooled shareholders’ shares with
all varieties of snake oil, a question that the Court does not need to address or resolve at this
time, the Court is not convinced that the Tenth Circuit would expand SEC Rule 10(b)(5) to
capture the forced-seller doctrine that the Second Circuit applied in Vine v. Beneficial Finance
Co. fifty years ago. The Plaintiffs, in a footnote to their Response to Defendants’ MSJ, introduce
the Court to the Tenth Circuit’s decision in Katz v. Gerardi, an opinion that then-Judge and now
Chief Judge Tymkovich wrote, and Judges Brorby and Matheson joined, asserting that the Tenth
Circuit recognized the forced-seller doctrine’s existence, but then did not reach the question
whether to apply the doctrine in that case, because the plaintiff’s claims arose under the
Securities Act of 1933, rather than under the Securities Exchange Act of 1934 and SEC Rule
10(b)5. See Response to Defendants’ Estoppel MSJ at 20 n.11.
The Court reads Katz v. Gerardi differently. The Tenth Circuit in Katz v. Gerardi noted
that “[w]e have previously declined to adopt the fundamental change doctrine and we decline to
do so again here for several reasons.” 655 F.3d at 1221. One of these reasons, which the
Plaintiffs correctly identify, is that “the doctrine only applies to claims under the 1934 Act,

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where Katz’s claims here arise under the 1933 Act.” Katz v. Gerardi, 655 F.3d at 1221. The
second reason, however, is that the forced-seller doctrine is something of a misnomer, insofar as
it applies only when the plaintiff purchases shares -- not when the plaintiff sells them. See 655
F.3d at 1221. Because that case’s defendants had cashed Katz’ shares out against Katz’ will and
Katz had not purchased new units in the post-merger entity, the Tenth Circuit held that the
forced-seller doctrine did not apply. See 655 F.3d at 1221-22. The Tenth Circuit insisted that it
was on solid ground on this second point, quoting from a Seventh Circuit opinion on the same
case and facts when the Seventh Circuit heard the case’s appeal regarding removal to federal
court:102
Katz depicts himself as a buyer by characterizing the supposed failure to
honor the terms of the A-1 Units as if he had sold those securities and “bought”
what Katz calls “new A-1 Units,” which he then sold for cash. (A “purchase” of
“new A-1 Units” would have been involuntary, but an involuntary purchase is still
a purchase.)

102

The Tenth Circuit recounts Katz v. Geradi’s unusual case history:

In May 2008, Katz filed a class action in Cook County, Illinois state court
asserting securities fraud claims in connection with the merger. That case was
removed to federal court, where the defendants requested it be transferred to the
District of Colorado. Katz opposed removal and the transfer. The district court
remanded the case to state court, which defendants challenged.
On appeal, the Seventh Circuit vacated the district court’s decision and
remanded for a hearing on issues regarding removal. See Katz v. Gerardi, 552
F.3d 558 (7th Cir. 2009). On remand to the district court, both parties sought to
transfer the case to Colorado. The case was transferred in June 2009.
....
In August 2010, the district court dismissed the amended complaint. . . .
The court dismissed Katz’s 1933 Act claims because he was not a purchaser of
securities and therefore lacked standing under the statute. Katz and Infinity
appeal this decision.
655 F.3d at 1216.
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What Katz calls the “fundamental change doctrine” that turns a sale into a
purchase is word play designed to overcome the actual text of the securities laws,
and this circuit follows the statutes rather than trying to evade them with legal
fictions. Katz sold his units for cash; he did not buy any new security. The “new
A-1 Units” are figments of a lawyer’s imagination. Using legally fictitious (and
factually nonexistent) “new A-1 Units” to nullify a legislative decision that only
buyers have rights under the 1933 Act would be wholly unjustified.
Katz v. Gerardi, 655 F.3d at 1223 (quoting Katz v. Gerardi, 552 F.3d 558, 560 (7th Cir. 2009))..
At the motion hearing, the Court indicated that it did not “have any reason to think that
Oklahoma would []graft the forced seller doctrine on to its blue sky or state securities law, and to
the extent that that’s really what the fifth and sixth claims are, I would be inclined to dismiss
those and grant the motion in part.” Tr. at 445:6-446:9 (Court). The Court also indicated at the
hearing that it was inclined to grant the Defendants’ request that it dismiss the Plaintiffs’ federal
securities claims, because “I don’t see that the Tenth Circuit would adopt the forced seller
doctrine in the federal securities context.” Tr. at 446:7-9 (Court). Further reflection has fortified
the Court’s earlier inclinations. As in Katz v. Gerardi, the Plaintiffs in this case were cashed out
against their will, but did not purchase any shares in the new merged company. Although the
Plaintiffs are correct that Katz v. Gerardi did not definitively decide the question whether the
forced-seller doctrine applies in the Tenth Circuit, the case’s dicta suggests that the doctrine is
inapplicable when a plaintiff is only a seller, i.e., not also a buyer.
The Court concludes that the Tenth Circuit’s choice to decline to apply the forced-seller
doctrine is the right call. As the Seventh Circuit reasoned in Isquith v. Caremark Intern., Inc., a
cashed out shareholder sells his or her shares, but the very nature of this sale as a forced sale
means that the seller has not been induced to sell based on a misrepresentation, a misleading
omission, or a compulsion of any kind. See 136 F.3d at 535. Especially in a post-Blue Chip
Stamps world, where it is clear that the relevant portions of the forced-seller doctrine are limited

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to purchases and sales, the rationale behind the forced-seller doctrine appears to be at odds with
securities’ laws purpose: “to protect investors from being induced to make unsound sales or
purchases by misrepresentations or misleading omissions.” Isquith by Isquith v. Caremark
Intern., Inc., 136 F.3d at 536.
The Tenth Circuit, in Katz v. Gerardi, 655 F.3d 1212 (10th Cir. 2011), in an opinion that
then-Judge and now Chief Judge Tymkovich wrote, and Judges Brorby and Matheson joined,
noted that “[w]e have previously declined to adopt the fundamental change doctrine[103] and we
decline to do so again here for several reasons.” 655 F.3d at 1221. One of these reasons is that
“the doctrine only applies to claims under the 1934 Act, where Katz’s claims here arise under the
1933 Act.” 655 F.3d at 1221. The second reason is that the forced-seller doctrine is something of
a misnomer, insofar as it applies only when the plaintiff purchases shares -- not when the
plaintiff sells them. See 655 F.3d at 1221. Because that case’s defendants had cashed Katz’
shares out against Katz’ will, and Katz had not purchased new units in the post-merger entity, the
Tenth Circuit held that the forced-seller doctrine did not apply. See 655 F.3d at 1221-22. The
Tenth Circuit insisted that is was on solid ground on this second point, quoting from a Seventh
Circuit opinion on the same case and facts when the Seventh Circuit heard the case’s appeal
regarding removal to federal court:
Katz depicts himself as a buyer by characterizing the supposed failure to
honor the terms of the A-1 Units as if he had sold those securities and “bought”
what Katz calls “new A-1 Units,” which he then sold for cash. (A “purchase” of
“new A-1 Units” would have been involuntary, but an involuntary purchase is still
a purchase.)
What Katz calls the “fundamental change doctrine” that turns a sale into a
103

Earlier in the opinion, the Tenth Circuit noted that other courts variously have referred
to the same doctrine as either the “forced seller doctrine” or the “fundamental change doctrine.”
Katz v. Gerardi, 655 F.3d at 1221. The Tenth Circuit then chose to refer to the doctrine as the
“fundamental change doctrine” through the opinion’s remainder. See 655 F.3d at 1221-23.
- 300 -

purchase is word play designed to overcome the actual text of the securities laws,
and this circuit follows the statutes rather than trying to evade them with legal
fictions. Katz sold his units for cash; he did not buy any new security. The “new
A-1 Units” are figments of a lawyer’s imagination. Using legally fictitious (and
factually nonexistent) “new A–1 Units” to nullify a legislative decision that only
buyers have rights under the 1933 Act would be wholly unjustified.
Katz v. Gerardi, 655 F.3d at 1223 (quoting Katz v. Gerardi, 552 F.3d at 560). The Tenth Circuit
ultimately held that the forced-seller doctrine is inconsistent with basic federal securities
precedents, because it penalizes conduct that is too remote from the fraud to be actionable, i.e.,
does not induce a third party to do anything. See Reply to Defendants’ Estoppel MSJ at 5-6
(citing Isquith v. Caremark International, Inc., 136 F.3d 531 (7th Cir. 1998)). For a fifty-yearold doctrine that the Defendants at the hearing correctly assessed as “being on life-support,” Tr.
at 322:23-24 (DeMuro), the Court sees no sound reason to ignore the Tenth Circuit’s guidance
and revivify the doctrine. The Court accordingly grants the Defendants the summary judgment
they seek on the Plaintiffs’ securities claims, dismissing those claims.
G.

THE COURT GRANTS THE DEFENDANTS SUMMARY JUDGMENT
ON THE PLAINTIFFS’ STATE SECURITIES CLAIMS.

The Plaintiffs raise two state securities claims against the Defendants. See Amended
Complaint ¶¶ 161-173, at 30-32. First, they assert that the Defendants violated the Oklahoma
Uniform Securities Act of 2004 by making material misrepresentations to the pooled
shareholders under the Pooled Shareholders Agreement by not disclosing to them the
Defendants’ IPO plans. See Amended Complaint ¶ 162, at 30. Second, the Plaintiffs contend
that Stephenson, C. Field, and CEP-TIR, as TIR’s controlling shareholders, violated Oklahoma
Uniform Securities Act of 2004 § 1-509(G) -- regarding control person liability for the same
alleged material misrepresentations that the Plaintiffs allege the Defendants made to the Pooled
Shareholders. See Amended Complaint ¶¶ 166-173, at 31-32.

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The Defendants ask the Court to grant summary judgment on these state securities claims
on four grounds. See Defendants’ Estoppel MSJ at 22-23. First, the Defendants assert, 71 O.S.
§ 1-509M provides that no private right of action arises under 71 O.S. § 1-501. See Defendants’
Estoppel MSJ at 23. Second, the Defendants maintain, the Plaintiffs’ Oklahoma Securities Act
claims are bottomed solely on three false allegations that the Plaintiffs included in their
Complaint but removed from their Amended Complaint. See Defendants’ Estoppel MSJ at 23.
Third, the Defendants contend, the Plaintiffs have waived their Oklahoma Securities Act claims
by contract and conduct. See Defendants’ Estoppel MSJ at 23. Fourth, the Defendants argue,
the Oklahoma common-law principles of equity and estoppel bar the Plaintiffs’ Securities Act
claims. See Defendants’ Estoppel MSJ at 23. The Plaintiffs respond that: (i) the forced-seller
doctrine establishes a prima facie case of securities fraud; and (ii) the Plaintiffs’ “securities fraud
claims rest solely on the forced seller doctrine, based on Defendants’ material misrepresentations
and omission to the Pooled Shareholders.” Response to Defendants’ Estoppel MSJ at 19-20.
As the Court noted in its analysis of the Plaintiffs’ federal securities claims, infra, the
Court concludes that the Tenth Circuit twice has declined to apply the forced-seller doctrine, one
of those times adopting the Seventh Circuit’s reasoning that the forced-seller doctrine “turns a
sale into a purchase [and] is word play designed to overcome the actual text of the securities
laws, and this circuit follows the statutes rather than trying to evade them with legal fictions.”
Katz v. Gerardi, 655 F.3d at 1223 (quoting Katz v. Gerardi, 552 F.3d at 560). The Court also has
been unable to locate any Supreme Court of Oklahoma case that applies the forced-seller
doctrine to state securities laws. Under the Erie doctrine, a federal court sitting in diversity must
apply the laws of the state in which it sits. The Court considers it doubtful that the Supreme
Court of Oklahoma would now adopt the forced-seller doctrine when: (i) the Supreme Court of

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Oklahoma never has adopted the doctrine in the past: (ii) no federal court has adopted the forcedseller doctrine for the first time for decades; and (iii) the force-seller doctrine appears to violate
the core purpose of securities law: to protect investors from fraudulent practices. See SEC v.
Int’l Chem. Dev. Corp., 469 F.2d 20, 26 (10th Cir. 1972). The Court has not, in its independent
review of the record, located any state law that has interpreted its state securities laws as
allowing the forced-seller doctrine. The Court doubts the Supreme Court of Oklahoma would be
the first state supreme court -- especially in 2017 -- to graft the doctrine to its state securities law.
Accordingly, the Court concludes that the Supreme Court of Oklahoma would be unlikely to
apply the forced-seller doctrine to Oklahoma state securities claims. Because the Plaintiffs rest
their entire opposition to the Defendants’ request for summary judgment on the state securities
claims on the forced-seller doctrine, the Court grants the Defendants request for summary
judgment on the Plaintiffs’ state securities claims.
V.

THE COURT GRANTS THE REQUESTS IN THE PLAINTIFFS’ MSJ, BUT
LEAVES A DETERMINATION OF DAMAGES TO BE RESOLVED AT TRIAL.
The Court grants the Plaintiffs’ request for summary judgment. The Court concludes that

(i) the entire fairness standard governs the Plaintiffs’ claims for breach of fiduciary duty; (ii) the
Defendants bear the burden of proof that the merger was entirely fair to the minority
shareholders; and (iii) the Defendants are liable for breaching their duty of entire fairness,
because the undisputed material facts show that the Defendants did not put into place sufficient
safeguards protecting minority shareholder rights to meet this burden.

The Plaintiffs’ and

Defendants’ competing valuation assumptions, models, projections, and experts do not allow the
Court to calculate damages at this time, and the Court accordingly leaves a determination of
damages to be resolved at trial.

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A.

THE ENTIRE FAIRNESS STANDARD GOVERNS THE PLAINTIFFS’
CLAIMS FOR BREACH OF FIDUCIARY DUTY.

The Court discussed the entire fairness doctrine at length in its analysis of the
Defendants’ Acquiescence MSJ supra and will not needlessly rehash the analysis it completed
there. The Court highlights, however, that the Defendants agreed with the Plaintiffs at the
motion hearing:
We’ve got an area of agreement, which is a great way to end the day for anybody
in the courtroom. And that is, we agree that if Your Honor denies the
acquiescence motion outright and says it’s no longer an issue, or even if you
submit that to the trial, which we think you should, the trial court at a minimum,
that if we don’t get dismissed on acquiescence, okay, and it’s a trial issue, we
agree that the entire fairness standard applies to the fiduciary duty claims.
Tr. at 510:10-19 (DeMuro). To ensure that it correctly interpreted what the Defendants were
saying, the Court probed the Defendants at that time with a collection of short questions. See Tr.
at 510:23-511:19 (Court, DeMuro). Because of the exchange’s importance, the Court recites the
exchange verbatim here:
THE COURT: But you would agree with his statement that the entire fairness
standard governs Plaintiffs’ claims for breach of fiduciary duty if the
acquiescence motion is denied?
MR. DEMURO: Correct.
THE COURT: And would you also agree that the Defendants bear [the] burden of
proving that the merger satisfies the entire fairness standard if the acquiescence
motion for summary judgment is denied?
MR. DEMURO: As it pertains to the fiduciary duty claim, yes.
Tr. at 510:23-511:8 (Court, DeMuro). Inquiring about the Defendants’ assertion that they might
still quibble what the jury instruction looks like regarding the entire fairness standard and from
what specific case law the jury instruction would be pulled, the Court asked the Defendants
whether their quibble would just be about the Defendants’ liability under the entire-fairness

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standard. See Tr. at 511:9-10 (Court). The Defendants responded that “that’s the claim, yes.”
Tr. at 511:11 (DeMuro).
As the Court concluded in its analysis of the Defendants’ Acquiescence MSJ supra, the
Court has denied the requests in the Defendants’ Acquiescence MSJ. The Court sees no sound
reason to manufacture a controversy or disagreement between the parties about whether (i) the
entire fairness standard should apply to the Plaintiffs’ fiduciary duty claim when both parties
agree that it does apply; or (ii) the Defendants bear the burden of proving that the merger
satisfies the entire fairness standard with respect to the Plaintiffs’ fiduciary duty claim when both
parties agree that the Defendants bear this burden. The Court accordingly concludes that: (i) the
entire fairness standard applies to the Plaintiffs’ fiduciary duty claims; and (ii) the Defendants
bear the burden of proving that the merger satisfies the entire fairness standard with respect to
the Plaintiffs’ fiduciary duty claims.
B.

THE DEFENDANTS ARE LIABLE FOR BREACHING THEIR DUTY OF
ENTIRE FAIRNESS, BECAUSE THE UNDISPUTED MATERIAL FACTS
SHOW THAT THE DEFENDANTS DID NOT PUT INTO PLACE
SUFFICIENT
SAFEGUARDS
PROTECTING
MINORITY
SHAREHOLDER RIGHTS.

At the hearing, the Plaintiffs argued that the Defendants have not and cannot meet their
burden to show the entire fairness of the merger transaction. See Tr. at 509:22-510:2 (Kagen).
Even looking at the undisputed facts in the light most favorable to the Defendants, the Court
agrees with the Plaintiffs’ position. Under Delaware law, a breach of fiduciary duty requires
proof of two elements: (i) that a fiduciary duty existed; and (ii) that the defendant breached that
duty.

See, e.g., In re Mobilactive Media, LLC, 2013 WL 297950 (Del. Ch. Jan. 25,

2013)(Parsons, V.C.). See also Palmer v. Reali, __ F. Supp. 3d __, 2016 WL 5662008, at *8 (D.
Del. Sept. 29, 2016)(Robinson, J.)(applying Delaware law). The entire fairness standard satisfies

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the first element by requiring a company to ensure that minority shareholders receive fair dealing
and a fair price if the company cashes out their shares in a merger’s wake. The Defendants can
only avoid satisfying the second element in this case if they plausibly can show that they offered
the Plaintiffs both fair dealing and fair price in the merger transaction. Under the entire fairness
standard, the Defendants could show fair dealing under the following conditions: (i) the
Defendants set up a well-functioning committee of independent directors to examine and
approve the merger; or (ii) a fully-informed majority of the minority shareholders voted to
approve the merger. See, e.g., Kahn v. Lynch Communication Systems, Inc., 638 A.2d 1110
(Del. 1994); In re PNB Holding Co. Shareholder Litigation, 32 Del. J. Corp. L. 654
(2006)(Strine, J.); Clements v. Rogers, 790 A.2d 1222 (2001)(Strine, J.)
In this case, the Defendants satisfied neither criterion needed to shift the evidentiary
burden. The Defendants did not form a special committee to consider the merger, nor did they
schedule and hold a minority shareholder vote on the merger. Instead, the Defendants informed
minority shareholders after the merger had been consummated that their shares had been
“automatically canceled and extinguished” and “converted into a right to receive an amount in
cash equal to $451,000” a share. Merger Agreement § 2.01(a). The Plaintiffs asserted at the
hearing that, under what they interpreted as Kahn v. M.F. Worldwide Corp.’s modification of
Kahn v. Lynch’s burden shifting elements, they could make the Plaintiffs shoulder the
evidentiary burden if even one -- but not both -- of the Kahn v. Lynch’s criteria were to hold.
See Tr. at 23:6-10 (DeMuro).

Even were the Court to accept this argument as a correct

interpretation of Delaware common law, doing so would not shift the burden to the Plaintiffs, for
the Defendants failed to implement either safeguard to protect minority shareholder rights. The
Court therefore concludes that the undisputed facts demonstrate that the Defendants failed to

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meet their burden to prove that they satisfied their fiduciary duty of fair dealing. The Court
therefore grants the Plaintiffs’ request for summary judgment on the Defendants’ liability for
breaching their fiduciary duty of fair dealing with respect to the merger transaction.
C.

THE PLAINTIFFS’ AND DEFENDANTS’ COMPETING VALUATION
ASSUMPTIONS, MODELS, PROJECTIONS, AND EXPERTS DO NOT
ALLOW THE COURT TO CALCULATE DAMAGES AT THIS TIME,
AND THE COURT ACCORDINGLY LEAVES A DETERMINATION OF
DAMAGES TO BE RESOLVED AT TRIAL.

The Plaintiffs finally request in the Plaintiffs’ MSJ that the Court leave a determination of
damages to be determined at trial. See Plaintiffs’ MSJ at 1-2. As the Defendants disclosed in the
tender offer and conceded at the hearing, no investment bank was hired to appraise TIR shares’
fair value at the time the merger was effected and the Plaintiffs involuntarily cashed out their
shares. See Tr. at 138: 10-12 (DeMuro). The Defendants insist that such a valuation was
unnecessary, because (i) the Halifax Group had appraised TIR shares a few months before the
merger; (ii) the pooled shareholders had sold their shares at or below $451,000.00 per share; and
(iii) TIR had just gone through a competitive bidding process where two inside directors were
bidding up the share price. See Tr. at 138:12-19 (DeMuro). Were this case about the merger of
a mature corporation with little change in its revenue streams over short periods of time, the
Defendants’ argument might withstand some scrutiny. As the Court discussed in its analysis of
Defendants’ Acquiescence MSJ supra, TIR’s corporate financials demonstrate that revenues
grew rapidly in the year after the December 2012 appraisal. See Defendants’ Acquiescence MSJ
¶ 51, at 13. Furthermore, pooled shareholders’ testimony indicates that the Plaintiffs asserted
that the pooled shareholders had sold their shares at or below $451,000.00 per share, because
they needed liquidity or did not know what TIR’s financials or plans for an IPO were. See Tr. at
203:15-23 (Kagen).

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At the hearing, the Plaintiffs contended that the one method of share valuation that
Delaware allows for pricing shares in a cash out merger is a discounted cash flow model on the
date that unwilling minority shareholders were forcibly removed. See Tr. at 253:2-7 (Kagen).
Delaware requires the discounted cash flow model, because it looks at the company’s future
earning value in a systematic and methodical way, and then discounts that value to net present
value, discounting for money’s time value and capital’s weighted average cost. See Weinberger
457 A.2d 701, passim. In this case, however, the share valuation math is less clear cut than the
share valuation law. The DCF model incorporates substantial amounts of math complete with a
fraternity’s worth of Greek letters to camouflage relatively straightforward computation. The
final summation is at best only as precise, however, as its least precise input. Moreover,
precision is not the same as accuracy. See, e.g., Nate Silver, The Signal and the Noise: Why So
Many Predictions Fail--But Some Don’t 45-46 (2015)(“Silver”)(discussing, in the context of the
2008 financial crisis, how even extremely precise predictions can be wildly inaccurate). This
lack of equivalence between precision and accuracy is especially probable when a model uses
multiple inputs, the parameters, values, or weights of which incorporate an element of subjective
choice. See Silver at 120-123; Mark M. Meerschaert, Mathematical Modeling 41-49 (4th ed.
2013)(discussing need for rigorous sensitivity analyses in multivariate models).
The valuation issue in this case therefore presents an analytical challenge, because (i)
each variable in the DCF model leaves an appraiser with a degree of discretion to choose rates or
coefficients that he or she concludes best fits present data and future trends; and (ii) TIR’s status
as a pipeline inspection company within the oil and gas industry leaves some reason as to the
proper SIC code for appraisers to use when computing TIR’s cost of capital. The Defendants’
and Plaintiffs’ dueling valuations, which result under certain scenarios with valuations that vary

- 308 -

by almost $800,000.00 per share, attest to the degree of subjectivity that calculating DCF entails.
The Court cannot pin down the correct assumptions upon which to build the model based on the
undisputed facts and, accordingly, must leave the determination of damages for the Defendants’
breach of their fiduciary duty to be decided at trial.
VI.

THE COURT DENIES THE REQUESTS IN PLAINTIFFS’ MOTION TO
STRIKE DEFENDANTS’ AFFIRMATIVE DEFENSES OF ACQUIESCENCE,
ESTOPPEL, WAIVER, AND UNCLEAN HANDS.
The Court denies the Plaintiff’s Motion to Strike Affirmative Defenses. The Court

concludes that the Motion to Strike Affirmative Defenses does not prove that the Defendants’
affirmative defenses of acquiescence, unclean hands, estoppel, and waiver will have no possible
relation or logical connection to the controversy’s subject matter, as the standards for striking
under rule 12(f) of the Federal Rules of Civil Procedure require. See 5C C. Wright & A. Miller,
Federal Practice & Procedure § 1382, at 433-36 (3d. ed. 2004). As the Court said in another
case, “[s]triking a pleading or part of a pleading is a drastic remedy and . . . [is] generally
disfavored.” Estate of Gonzales v. AAA Life Ins. Co., 2012 WL 1684599, at *5 (D.N.M.
2012)(Browning, J.)(quoting Sai Broken Arrow C, LLC v. Guardian Emergency Vehicles, Inc.,
2010 WL 132414, at *5)(N.D. Okla. 2010)(Eagan, C.J.)(internal quotation marks omitted)). The
Court sees no sound reason to prescribe such a drastic remedy as regards the Defendants’
affirmative defenses.
The Court supra denies the Defendants summary judgment on the grounds of the
Plaintiffs’ alleged acquiescence, waiver, or unclean hands, or on the defense of equitable
estoppel. The Plaintiffs argue that the Court should take the further step of precluding the
Defendants from raising these defenses in any form at the trial. See Motion to Strike Affirmative
Defenses at 6. Unpacking this argument further at the hearing, the Plaintiffs argued that if the

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Court were to deny the Defendants’ Acquiescence MSJ and the Defendants’ Estoppel MSJ, then
the Defendants’ affirmative defenses are “out totally.” Tr. at 410:10-11 (Kagen). Continuing in
the same vein, the Plaintiffs contended:
They’re not out and then they can raise them at trial. These are legal issues. It’s a
purely legal issue as to whether we’ve acquiesced, waived, estopped, and Your
Honor is going to decide that one way or the other. If they win, we’ll have
consequences; it they lose, [the affirmative defenses are] gone. They don’t get to
resuscitate them at trial. They’re not fact issues.
Tr. at 410:11-17 (Kagen). The Plaintiffs acknowledged that courts typically disfavor rule 12(f)
motions to strike, but they emphasized that they were concerned about the trial. See Tr. at
483:14-16 (Kagen). According to the Plaintiffs, the Defendants keep trying to stretch the
timeline for what constituted the merger transaction beyond what the law allows, which the
Plaintiffs averred should be solely the process whereby the Defendants ejected them from TIR.
See Tr. at 484:1-13 (Kagen). Otherwise, the Plaintiffs maintained, the court in such a case ends
up adjudging a multigenerational vendetta rather than a tort. See Tr. at 484:24-485:3 (Kagen).
The Plaintiffs argued that none of the four defenses that the Defendants offer their two motions
for summary judgment -- acquiescence, unclean hands, waiver, and estoppel -- are “out as a
matter of law,” and should not inhabit some liminal space in which they are considered out for
summary judgment purposes but in for trial purposes. Tr. at 485:4-487:1 (Kagen). The Plaintiffs
also acknowledged the Court’s hesitation to prevent new information about these affirmative
defenses from emerging during the trial, but they were confident that the Court already had heard
these defenses in their entirety. See Tr. at 488:22-489:7 (Kagen).
The Defendants opposed the Plaintiffs’ Motion to Strike Affirmative Defenses, asserting
that the Plaintiffs themselves introduce facts that start in 2003 in support of their own points but
then chide the Defendants for wanting to introduce events that occurred in 2013. See Tr. at

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492:25-501:16 (DeMuro).

According to the Defendants, the Plaintiffs’ Motion to Strike

Affirmative Defenses seeks a double standard, whereby the Plaintiffs are at liberty to refer to
events from the distant past but the Defendants are forbidden from referring to events that
occurred only months before the merger took effect. See Tr. at 501:10-16 (DeMuro). The
Defendants asserted that applying the same standard to both parties means ipso facto denying the
Motion to Strike Affirmative Defenses. See Tr. at 501:25-502:12 (DeMuro).
The Court does not fully embrace the Defendants’ argument about geese and ganders.
Even if the Plaintiffs’ causes of action reach to dates as far back as the Defendants maintain -- an
assertion that the Plaintiffs denied at the hearing, see Tr. at 504:6-12 (Kagen) -- justice does not
necessarily always oblige the Court to force-fit every claim in a given case into the same
timeline; conduct relevant to one claim may occur at a time that is either earlier or later than the
conduct relevant to another claim occurs. The Court nevertheless concurs with the Defendants’
conclusion. At the hearing, the Court acknowledged that its position on whether to strike
affirmative defenses had evolved over the years, but that it presently “seems to me that in the
face of these two motions for summary judgment, it’s hard for me to say that under no
circumstances could those affirmative defenses have any merit and since those go to really the
pleading stage, affirmative -- motions to strike, I shouldn’t strike them.” Tr. at 479:11-480:16
(Court). The Court clarified that
I guess I’m thinking that I shouldn’t grant this motion. I should leave them there
and then sort out at trial what I think is your real concern, not that you care what’s
in the pleadings at this stage. What you really care about is what’s going to occur
at the trial, and that I ought to sort out later on rather than going back and
sanitizing pleadings.
Tr. at 480:23-481:3 (Court). Expanding on these thoughts, the Court continued:
[L]et’s say I had picked up this motion before they ever filed a motion for
summary judgment. I don’t think I’d have granted it. I couldn’t have imagined a
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situation in which they could not have raised these equitable defenses. I would
have said no.
Is it really any different now? We spent two days on these things. I can’t
sit here and say they’re not in good faith, there’s no possible way I’m going to
grant them. I’m going to take them back to Albuquerque and think about them.
So should my standard be any different? Just because I’m leaning toward
denying their motion, I shouldn’t change the standard for a motion to strike.
Tr. 482:2-13 (Court).
After further research, the Court concludes that there is no sound reason for it to vary
from the inclination it divulged to the parties at the hearing. As Professors Charles Wright and
Arthur Miller recognize, rule 12(f) motions to strike are disfavored and should be denied unless
the challenged allegations have no possible relation or logical connection to the subject matter of
the controversy. See 5C Charles Alan Wright et al., Federal Practice & Procedure § 1382 (3d.
ed. 2017)(footnotes omitted). See also Estate of Gonzales v. AAA Life Ins. Co., No. CIV 110486 JB/WDS, 2012 WL 1684599, at *5 (D.N.M. May 8, 2012)(Browning, J.)(“Allegations will
not be stricken as immaterial under this rule unless they have no possible bearing on the
controversy.”). Generally, a court can only strike a defense only if it concludes that there is no
set of circumstances under which the defense could succeed at trial. See Friends of Santa Fe
Cnty. v. LAC Minerals, Inc., 892 F. Supp. at 1343. The Court cannot reach this conclusion
based on the pleadings as rule 12(f) requires. The Court consequently will not take the drastic
action that the Plaintiffs request in their Motion to Strike Affirmative Defenses, and it denies the
Plaintiffs’ Motion to Strike Affirmative Defenses.
The Court recognizes that the Plaintiffs filed their motion to strike on November 4, 2015,
early in the case. The Court also recognizes that, because the judges in Oklahoma recused
themselves, and this Judge did not come into the case until October 26, 2016, a lot of work had
been done before the Court’s entry into the case. The Court and the parties are now into
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summary judgments and trial preparations. So the Motion to Strike is a bit antiquated and
obsolete now, but stands in more as a motion in limine with respect to the import of the equitable
defenses at trial. The Court certainly would not have granted Plaintiffs’ Motion to Strike
Affirmative Defenses at the very beginning of the case. It does not appear appropriate now, after
summary judgments have been filed, and the Memorandum Opinion and Order prepared, to
strike those same affirmative defenses. After all of this work, the Court could not have said then,
nor could it say today, that there is no set of circumstances under which the defense could
succeed at trial. See Friends of Santa Fe Cnty. v. LAC Minerals, Inc., 892 F. Supp. at 1343.
Seeing that problem, the Plaintiffs now try to connect their Motion to Strike Affirmative
Defenses, which is usually filed early in a case -- as was done here -- in the pleadings phase, to a
motion in limine, which is typically filed after motions for summary judgment or before trial.
Given the case’s history, the Court is not unsympathetic to the Plaintiffs’ effort to get
some guidance on what evidence will come in at trial. The trial is near. Thus, while the Court
will deny the Plaintiffs’ Motion to Strike Affirmative Defenses, the Court will nonetheless
preclude the Defendants from raising the affirmative defenses at trial. Earlier in this opinion, the
Court granted the Plaintiffs’ request for summary judgment that: (i) the entire fairness standard
applies to the Plaintiffs’ fiduciary duty claims; (ii) the Defendants bear the burden of proving
that the merger satisfies the entire fairness standard with respect to the Plaintiffs’ fiduciary duty
claims; (iii) the Defendants failed to meet their burden to prove that they satisfied their fiduciary
duty of fair dealing; and (iv) the Defendants therefore are liable for breaching their fiduciary
duty of fair dealing with respect to the merger transaction.

The Court left, however, the

determination of damages for trial. Under Anderson v. Liberty Lobby, Inc., 477 U.S. 242
(1986), the Court’s summary judgment decision implicates the substantive evidentiary standard

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of proof that would apply at trial on the damages determination. See 477 U.S. 242, 242 (1986).
As Justice White wrote in the Supreme Court’s opinion in that case, judges no longer
are required to submit a question to a jury merely because some evidence had
been introduced by the party having the burden of proof, unless the evidence be of
such a character that it would warrant the jury in finding a verdict in favor of that
party. Formerly it was held that if there was what is called a scintilla of evidence
in support of a case the judge was bound to leave it to the jury, but recent
decisions of high authority have established a more reasonable rule, that in every
case, before the evidence is left to the jury, there is a preliminary question for the
judge, not whether there is literally no evidence, but whether there is any evidence
upon which a jury could properly proceed to find a verdict for the party producing
it, upon whom the onus of proof is imposed.
Anderson v. Liberty Lobby, Inc., 477 U.S. at 251 (emphases in original). Under this standard,
the Court must decide, as a preliminary question, whether there is any evidence that the
Defendants’ affirmative defenses of acquiescence, waiver, unclean hands, and estoppel, if
presented at trial, could cause a jury to reasonably proceed to find a verdict in favor of the
Defendants on the fair price issue and determination of damages, despite its grant of the
Plaintiff’s request for summary judgment on entire fairness. The Court concludes that there is
thus not a scintilla of evidence that the affirmative defenses could have such an effect on the
jury, as none of the defenses sheds light on what the fair price for TIR, Inc. shares was at the
time of the merger. Accordingly, the Court decides that the Defendants will not be allowed to
present their affirmative defenses of acquiescence, waiver, unclean hands, and estoppel at trial.
Ultimately, the Court has decided that, under Delaware’s merger and cash-out law, once it is
clear that the Defendants did not provide procedural fairness, they cannot raise affirmative
equitable defenses to the fairness of value issue. Cf. Petition of Rubenstein, 637 A.2d 1131,
1134 n.2 (Del. 1994); Turner v. Bernstein, 776 A.2d 530, 530 (Del. Ch. 2000)(Strine, V.C.); In
re Best Lock Corp. Shareholder Litigation, 845 A.2d 1057, 1080-83 (Del. Ch. 2001)(Chandler,
C.); Kahn v. Household Acquisition Corp., 1982 WL 8778, at **3-4 (Del Ch. Jan. 19,
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1982)(Brown, V.C.). Thus, the Defendants cannot raise or discuss at trial the equitable defenses,
which relate more to the procedural fairness side than to the fairness of value side.
Consequently, the Court will exclude evidence related to these equitable defenses. Furthermore,
all evidence admissible at trial should be relevant to the remaining issue -- whether the price paid
to the Plaintiffs is fair. Evidence that is not relevant to that sole issue is not admissible.
VII.

THE COURT DENIES THE REQUESTS IN PLAINTIFFS’ MOTION TO
STRIKE LORETT AFFIDAVIT.
The Court denies the requests in the Plaintiff’s Motion to Strike Lorett Affidavit. At

issue is what the Plaintiffs contend are material inconsistencies between the Lorett Depo. And
the Lorett Aff. According to the Plaintiffs, Lorett Aff. ¶¶ 23-27 contain R. Lorett’s testimony
that (i) $451,000.00 was a fair value for TIR shares when the Plaintiffs were cashed out in
December, 2013; (ii) TIR was experiencing slow collections in Canada at the time of the
October, 2013 tender offer; (iii) TIR was hobbled by a large amount of “factoring debt” in late
2013; (iv) the Plaintiffs did not tender their shares in response to the October, 2013 tender offer;
and (v) the Plaintiffs were “promptly paid $451,000 per share.”

Motion to Strike Lorett

Affidavit at 2. The Plaintiffs allege that Lorett admitted in his Depo. that he had no personal
knowledge about any of these five assertions that he made in his affidavit. See Motion to Strike
Lorett Affidavit at 2. As the Plaintiffs read the law, the Court consequently must strike the
Lorett Aff., because rule 56(c)(4) of the Federal Rules of Civil Procedure requires every
submitted affidavit to “be made on personal knowledge, set out facts that would be admissible in
evidence, and show that the affiant or declarant is competent to testify on the matters stated.”
Motion to Strike Lorett Affidavit at 2 (emphasis in the original).
The Defendants respond that the Plaintiffs’ challenges to the Lorett Aff. do not implicate
any of the four undisputed facts material to the Defendants’ acquiescence defense, which the
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Lorett Aff. supports. See Response to Motion to Strike Lorett Affidavit at 3. According to the
Defendants, the Lorett Aff. supports only four undisputed facts: (i) “Regent and Stephenson
individually became together TIR Inc.’s largest shareholder owning approximately 40% of the
TIR Inc. shares”; (ii) “Lawrence Field, the son-in-law of Mr. Stephenson and an office of
Regent, became the chairman, and Alan Stuart became a member, of the board of directors of
TIR Inc.”; (iii) “In June 2013, the Defendants won the bidding process to acquire control of TIR
Inc.”; and (iv) “The $451,000 per share price was equal to or in excess of the prices paid to, and
accepted by, the founding shareholders, management, the mezzanine debt holders, and other
selling shareholders during the second half of 2013.” Response to Motion to Strike Lorett
Affidavit at 3-4. The Defendants contend that the Plaintiffs admit these first two facts and do not
challenge the corresponding assertions in the Lorett Aff., and cite no Lorett Aff. portion that is
inconsistent with the Lorett Depo. respecting those two facts. See Response to Motion to Strike
Lorett Affidavit at 3-4. The Defendants further maintain that the Plaintiffs deny the third fact,
but that the Plaintiffs do not challenge the Lorett Aff.’s corresponding assertion, and cite no
Lorett Aff. portion that is inconsistent with the Lorett Depo. respecting this fact. See Response
to Motion to Strike Lorett Affidavit at 4-5. The Defendants assert that the Plaintiffs: (i) deny the
fourth fact and the Lorett Aff.’s corresponding assertions, but not on the factual basis that UF 36
alleges; and (ii) cite no Lorett Aff. portion that is inconsistent with the Lorett Depo. regarding
that fact. See Response to Motion to Strike Lorett Affidavit at 5. In any event, the Defendants
argue, the Lorett Depo. does not contradict any of the limited parts of the five Lorett Aff.
paragraphs that the Plaintiffs challenge. See Response to Motion to Strike Lorett Affidavit at 510.
Broadly speaking, the Defendants assert that, when R. Lorett expressed his belief that

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$451,000.00 per share was a fair price, he is entitled to state both what he learned, and what all
generally know and accept to be true. See Response to Motion to Strike Lorett Affidavit at 10.
As the Defendants see it, the Plaintiffs can cross-examine R. Lorett at trial in an effort to
impeach his credibility if they believe he lacks personal knowledge of any fact. See Response to
Motion to Strike Lorett Affidavit at 10. To challenge R. Lorett’s credibility at this stage in the
case, the Defendants pronounce, is both irrelevant and quixotic. See Response to Motion to
Strike Lorett Affidavit at 10. The Defendants, therefore, conclude that the Motion to Strike
Lorett Affidavit “lacks sufficient merit to be worth the Court’s attention and should be
summarily denied.” Response to Motion to Strike Lorett Affidavit at 11.
The Plaintiffs reply that they concede that a court ordinarily should not decide witness
credibility at this stage, but insist that the Court cannot credit a witness’ testimony for purposes
of summary judgment if it had been exposed as incompetent or false. See Reply to Motion to
Strike Lorett Affidavit at 1. According to the Plaintiffs, the Lorett Depo. admitted that R. Lorett
did not have an opinion -- or even the tools to formulate such an opinion -- about the TIR stock’s
fair value, which the Plaintiffs contend directly contradicts the Lorett Aff. See Reply to Motion
to Strike Lorett Affidavit at 2-3. The Defendants, therefore, argue that the Court should strike
Lorett Aff. ¶¶ 19, 25, and 27, and preclude R. Lorett from testifying on the fair price issue. See
Reply to Motion to Strike Lorett Affidavit at 3. Regarding Lorett Aff. ¶ 23, the Plaintiffs
contend that the Defendants admit in their Response to the Motion to Strike Lorett Affidavit that
R. Lorett’s statement is hearsay and that the Court therefore must strike it, because the
Defendants cannot use hearsay to establish the absence of any disputed factual issue for
summary judgment purposes. See Reply to Motion to Strike Lorett Affidavit at 4-5. Regarding
Lorett Aff. ¶ 24, the Plaintiffs purport that R. Lorett admitted at his deposition that he had never

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heard the phrase “factoring debt” and that he does not know what it means. Reply to Motion to
Strike Lorett Affidavit at 5. The Plaintiffs argue that, because ¶ 24 uses the term despite R.
Lorett’s professed ignorance of it, the Court should strike Lorett Aff. ¶ 24, and prevent R. Lorett
from testifying on the issue of factoring debt. See Reply to Motion to Strike Lorett Affidavit at
5. Turning to ¶ 27, the Plaintiffs assert that the Court should strike R. Lorett’s reference to a
tender offer, because the Lorett Depo. admits that he was not involved in the tender offer and
does not understand the tender offer. See Reply to Motion to Strike Lorett Affidavit at 6. Also
with regard to ¶ 27, the Plaintiffs urge the Court to strike R. Lorett’s statement concerning how
much the Plaintiffs were paid for their shares. See Reply to Motion to Strike Lorett Affidavit at
6. According to the Plaintiffs, R. Lorett lacks any personal knowledge concerning the merger
consideration paid for the shares and admitted during his deposition that he relied on Boylan for
this information. See Reply to Motion to Strike Lorett Affidavit at 6. The Defendants insist that
the Court therefore strike R. Lorett’s statement about the payment amount and preclude R. Lorett
from testifying at trial about the issue. See Reply to Motion to Strike Lorett Affidavit at 6.
Painting with a broader brush, the Plaintiffs finally contend that the Court should strike the
Lorett Aff. in its entirety, because R. Lorett’s multiple incompetent and potentially false
statements impeach his credibility. See Reply to Motion to Strike Lorett Affidavit at 7.
At the hearing, the Defendants maintained that R. Lorett is “absolutely qualified” to
testify about what he believed a fair price for his shares was. Tr. at 448:22-25 (DeMuro). After
all, the Defendants reminded the Court, R. Lorett “was the CEO, the president of the company.
He operated the company for a number of years. He was deeply involved in the bidding process,
the pooled shareholder process, etcetera, and so he was obviously competent to say that he
believed that it was a good price.” Tr. at 449:1-5 (DeMuro). The Plaintiffs dismissed the

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Plaintiffs’ attempts to distinguish “fair price” from “fair value,” and “factoring debt” from
“factoring receivables,” as caviling.

Tr. at 449:6-22 (DeMuro).

In both these issues, the

Defendants asserted, the Plaintiffs’ attempts to split hairs does nothing but reveal a bald truth that
no real contradiction exists between R. Lorett’s affidavit and his deposition testimony. See Tr. at
449:23-450:2 (DeMuro). Consequently, the Defendants maintained, the Court should not strike
the Lorett Aff. For their part, the Plaintiffs countered that the decision whether to strike the
Lorett Aff. centers on honesty. See Tr. at 451:8-16 (Kagen).
The Court noted at the hearing that it was disinclined to strike the Lorett Aff., because no
doctrine provides the Court the power to strike testimony solely on the grounds of testimonial
inconsistency. See Tr. at 452:9-13 (Court). Clarifying its inclination at the time, the Court
continued:
I’m inclined to deny the Motion to Strike. I’m not probably going to use a motion
to strike in this case to strike testimony or briefing or things like that. I think it’s
reserved for pleadings and so I’ll probably limit my motions to strike.
As I indicated, though, there were some things about Lorett, particularly
whether he had knowledge to testify about certain things. I’ll try to sort it out. I
guess I’m inclined to think that if a witness says one time he didn’t know and at
another time he said he did, it’s not the summary judgment stage to sort that out.
There is some testimony.
I don’t think it’s going to make any difference if I consider Lorett’s
testimony because if I understood what was going on in the motions for summary
judgment, there was other testimony to support the factual statements. But I will
try to sort it out and so I’ll deal with this motion.
In the motion we’re going to write, there might be some nicking and
excluding of some things or I’m not considering some of Lorett’s testimony, but
I’ll sort that out when I write the opinion.
Tr. at 476:13-477:7 (Court). Upon further study, the Court sees no sound reason to abandon this
inclination. Rule 12(f) of the Federal Rules of Civil Procedure gives federal district courts
discretion to strike any “redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ.
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P. 12(f). As the Court noted at some length in its analysis of Plaintiff’s Motion to Strike
Affirmative Defenses, supra, motions to strike are disfavored except under extraordinary
circumstances. See 5C C. Wright & A. Miller, Federal Practice & Procedure § 1382, at 433-36
(3d. ed. 2004).

See also Scherer v. U.S. Dep’t of Educ., 78 F. App’x at 689 (10th Cir.

2003)(unpublished). Moreover, as the Court has held in previous cases, it may use rule 12(f)
only to strike pleadings. See, e.g., Great Am. Ins. Co. v. Crabtree, 2012 WL 3656500, at *18
(denying plaintiff’s motion to strike exhibits attached to the defendant’s motion to dismiss,
because they were neither pleadings nor irrelevant); Applied Capital, Inc. v. Gibson, 2007 WL
5685131, at *18 (refusing the plaintiff’s request to strike a motion to dismiss because rule 12(f)
applies only to pleadings, and not to a motion to dismiss); Estate of Anderson v. Denny’s, Inc.,
2013 WL 690809, at *12 (denying the plaintiff’s request to strike a notice of completion of
briefing for similar reasons). The Lorett Aff. (i) is not a pleading; and (ii) even if the Plaintiffs
correctly assess Lorett’s affidavit and deposition testimony to be contradictory, is not redundant,
immaterial, impertinent, or scandalous. The Court therefore denies the Plaintiffs’ request to
strike the Lorett Affidavit. The Court noted at the hearing that it would sort out Lorett’s factual
claims in the factual section of this opinion, and the Court has sorted them out supra in footnotes
to the relevant undisputed facts.
VIII. THE COURT GRANTS IN PART AND DENIES IN PART THE PLAINTIFFS’
MOTION IN LIMINE TO PRECLUDE EVIDENCE OF PLAINTIFFS’
CONDUCT, (i) PRECLUDING THE AKIN GUMP LETTER, AND LETTERS
THAT THE PLAINTIFFS AND PLAINTIFFS’ COUNSEL EXCHANGED WITH
THE DEFENDANTS; (ii) NOT PRECLUDING LETTERS TIR SENT TO AND
RECEIVED FROM THE TRIANGLE MEZZANINE LENDERS; AND (iii) NOT
PRECLUDING THE DEFENDANTS FROM MENTIONING THAT THE
PLAINTIFFS RESIDE OUTSIDE OF OKLAHOMA.
The Court grants in part and denies in part the Plaintiffs’ Motion In Limine to Preclude
Evidence of Plaintiffs’ Conduct. The Court concludes that (i) the Akin Gump letter’s plain
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language, and other letters that the Plaintiffs and the Plaintiffs’ counsel exchanged with the
Defendants between September, 2013, and November, 2013, reflect that they are compromise
offers under rule 408 of the Federal Rules of Evidence; (ii) the Akin Gump letter and other
letters that the Plaintiffs and the Plaintiffs’ counsel exchanged with the Defendants between
September, 2013, and November, 2013 do not fall into any of the rule 408(b) exceptions that
permit a court to admit compromise-offer evidence; (iii) letters sent to and received from
Triangle Capital are not compromise offers between the Plaintiffs and the Defendants; and (iv)
the Triangle Capital correspondence is not irrelevant to a determination of the TIR shares’ fair
price and is not likely to mislead or to confuse the jury.
A.

THE COURT WILL PRECLUDE THE AKIN GUMP LETTER, AND ALL
OTHER LETTERS BETWEEN THE PLAINTIFFS AND THE
DEFENDANTS FROM SEPTEMBER, 2013, TO NOVEMBER, 2013,
BECAUSE THESE LETTERS WERE COMPROMISE OFFERS UNDER
RULE 408 OF THE FEDERAL RULES OF EVIDENCE.

The Plaintiffs argue that the Court should preclude the Defendants from offering any
evidence, testimony, or argument concerning: (i) the Plaintiffs’ offers to sell their TIR shares to
the Defendants, and mezzanine lenders’ sales of TIR shares; (ii) alleged “blackmail” or “threats”;
(iii) prices which the Plaintiffs paid for their TIR shares and post-merger Plaintiff
communications; (iv) “certain irrelevant and pejorative facts about plaintiffs contained in
Defendants’ pretrial briefs”; and (v) improper evidence or argument based on the fact that the
Plaintiffs are from the New York area rather than from Oklahoma. Plaintiffs’ Motion in Limine
at 1. The Plaintiffs assert that the Court should exclude material related to these issue, because:
(i) it is irrelevant under rule 402 of the Federal Rules of Evidence; (ii) it has a prejudicial effect
that outweighs its probative value under rule 403 of the Federal Rules of Evidence; or (iii) in the
alternative on the specific issue of share sale price offers, it represents a compromise offer under

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rule 408 of the Federal Rules of Evidence. See Plaintiffs’ Motion in Limine at 1.
As the Defendants see it, each broad evidentiary category that the Plaintiffs seek to
exclude is probative of the Plaintiffs’ actions, knowledge, or motives surrounding the Plaintiffs’
acceptance of the merger consideration. See Response to Plaintiffs’ Motion in Limine at 2.
Moreover, the Defendants maintain, the Akin Gump letter and other letters between the Plaintiffs
and the Defendants from September, 2013, to November, 2013, were business negotiations
between arm’s-length commercial parties engaged in business negotiations, i.e., not settlement
discussions in lieu of pending or imminent claims that would fall under rule 408 of the Federal
Rules of Evidence. See Response to Plaintiffs’ Motion in Limine at 4. If the Court were to
adopt the Plaintiffs’ proposed scope of rule 408, the Defendants maintain, the Court would allow
the exclusion to swallow the rule, creating a result in which the exclusion would apply to
“virtually all contested commercial negotiations.” Response to Plaintiffs’ Motion in Limine at 45. The jury, the Defendants contend, is entitled to consider Stuart’s investor communications
when assessing not only fair value and fair price, but also the Plaintiffs’ credibility in general.
See Response to Plaintiffs’ Motion in Limine at 14.
At the hearing, the Plaintiffs maintained that they attempted to compromise their claims
after they were ousted from the board in June, 2013, and reiterated that the letters between them
and the Defendants were settlement discussions inadmissible as testimony -- discussions in
which the Plaintiffs engaged, because they did not want to have to sue a company on whose
board they recently had served. See Tr. at 224:5-229:4 (Kagen). According to the Plaintiffs, the
Akin Gump Letter, by its plain language, is an example of such settlement negotiations. See Tr.
at 229:5-232:10 (Kagen).

The Defendants reiterated their belief that there is not a rule 408

issue, because rule 408 was never meant to reach business negotiations, even as to price, and

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consequently that the letters do not constitute a settlement offer or a compromise of a disputed
claim. See Tr. at 287:9-288:14 (DeMuro). The Defendants asserted that it was important to
admit the letter, because it is evidence of the Plaintiffs’
mistaken belief that they could hold us up for a higher price, number one; and
then when Mr. Stuart found out that he was wrong, he had to report back to his
powers-to-be and he was embarrassed by the fact that he was wrong and he ends
up six months later suing.
So it’s important, number one, that we see these in a course of
communications. In other words, there’s a stream of correspondence that
reflect[s] that dynamic, the Plaintiffs attempting to hold us up for a higher price in
which they make certain admissions and so it goes to the course of dealing. So
we can’t just pull out one letter and say, why do I want this?
Why do I specifically want this? Number one, I wanted to show that they
were presented by capable counsel during this entire time period, which goes to
show that they are sophisticated, that they understood the information they were
getting, they understood how to ask for information if they weren’t getting it. So
that’s an important fact for us, that they were represented by counsel.
Tr. at 289:22-290:1 (DeMuro). The Defendants argued that the Akin Gump letter does not even
contain a threat of litigation, which the Defendants maintained the Tenth Circuit has set as a
clear cut-off line between evidence admissible versus inadmissible under rule 408. See Tr. at
291:8-22 (DeMuro). Moreover, according to the Defendants, the letter was written eight months
before the Plaintiffs filed suit under a different counsel. See Tr. at 291:23-292:2 (DeMuro).
Turning to another letter between the Plaintiffs and the Defendants, the Defendants said
that the letter follows the bidding war in which Stuart lost and what the Defendants asserted was
Stuart’s subsequent inequitable course of conduct. See Tr. at 292:6-11 (DeMuro). The letter, as
the Defendants read it, also demonstrates the Stuart group’s sophistication, and their ability in
late September, 2013, to do their own analysis and arrive at numbers about which they insisted
earlier in the hearing that they had been kept in the dark. See Tr. at 292:12-293:4 (DeMuro). A
third letter, the Defendants said, likewise contains no hallmarks of settlement or litigation. See
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Tr. at 293:5-294:6 (DeMuro). Returning to the Akin Gump letter, the Defendants say that the
letter was the next letter in the series of these other letters and that the Court should interpret it in
these other letters’ context. See Tr. at 294:14-295:16 (DeMuro). The Defendants insisted that it
is vital for the Court to allow the letters between the Plaintiffs and the Defendants to be
introduced into evidence, because “the fountainhead of this whole case is Mr. Stuart’s bruised
ego over the fact that he lost the bid . . . [and] embarked on this unequitable attempt to interfere
with the IPO.” Tr. at 299:15-19 (DeMuro). Summarizing and ending their argument on the rule
408 issue, the Defendants told that Court that it “would be really, really fundamentally
prejudicial to the Defendants’ case to not -- to keep from the jury what we believe was this
shakedown attempt that was going on post-bidding and almost ten months before litigation was
filed.” Tr. at 300:23-301:2 (DeMuro).
The Court indicated at the hearing that it was inclined to consider the Akin Gump letter
and other letters between the Plaintiffs and the Defendants to be just offers and counteroffers
typical of business negotiations and, therefore, not within rule 408’s scope. See Tr. at 302:4-9
(Court). Unpacking its thoughts further, the Court continued:
And it just looks to me like when you got lawyers writing letters like this, Akin
Gump could have written a stronger letter. They could have written a letter
saying we’re going to sue you if you don’t take this offer. But some lawyers have
different styles and some of the very best litigators have a light touch when
they’re doing settlement negotiations, so I’m a little bit reluctant to say this isn’t
an offer to compromise just because of the style that a particular lawyer has.
Tr. at 309:20-310:3 (Court). The Court has looked further into the Plaintiffs’ Motion in Limine
since the hearing and sees no sound reason to diverge from this inclination. The Akin Gump
letter’s plain language clearly establishes that the letter was an offer to compromise a claim for
less than what the Plaintiffs held to be the fair market value for their shares. The Akin Gump
letter’s third through fifth full paragraphs are especially clear on this point:
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Without waiving any of our clients’ rights or the rights of the other individual
shareholders, all of which are expressly reserved, we renew the offer to engage in
a meaningful and disciplined dialogue concerning the true value of the Company.
As Mr. Stuart informed the Board, the same valuation methodology used over the
summer -- which is the same valuation methodology on which the Offer Price
purportedly is based -- indicates that the company is worth approximately
$650,000 per share.
To be clear, we are willing to negotiate mutually agreeable terms, and
to do so on an expedited basis.
Please let me know when you are available to discuss a mutually
agreeable resolution to this matter.
Akin Gump Letter at 2 (emphases added).

In the third paragraph, the Akin Gump letter

paraphrases “without prejudice,” a term that courts regularly have held to be a mark of a
settlement negotiation with the words “[w]ithout waiving any of our clients’ rights.” Akin Gump
Letter at 2. In the fourth and fifth paragraphs, the Akin Gump Letter states in unmistakable
terms that the Plaintiffs are willing to “negotiate mutually agreeable terms” and that the Plaintiffs
are willing to discuss with the Defendants how to resolve this matter in a mutually agreeable
fashion. Akin Gump Letter at 2.
The Plaintiffs’ September 26, 2013 letter has a similar tenor, proposing to forego the
long-term future value of TIR’s shares that they would receive in litigation, and instead settle
their claim for a lower share value, calculated solely on the basis of TIR’s historic, backwardlooking financial performance data as of the date of the proposed sale. At the hearing, the
Defendants vividly told the Court that the challenged letters, when taken together, show:
We wanted to settle. We were willing to be reasonable. We understood the risks
of litigation, the concerns, the combative nature of these entities. . . . We knew
who we were getting into bed with here. We understood what they were going to
be doing. We wanted to settle. We weren’t given that opportunity. We were
shown the door and thrown out in the cold.
Tr. at 231:20-232:10 (Kagen). The Court concludes that the Defendants’ account here is credible.

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These letters, individually and collectively, represent settlement negotiations that fall within rule
408’s scope. Accordingly, the Court will preclude the Akin Gump letter, and the letters between
the Plaintiffs and Plaintiffs’ counsel and the Defendants.
B.

THE COURT WILL NOT PRECLUDE LETTERS SENT TO AND
RECEIVED FROM TRIANGLE CAPITAL, BECAUSE THOSE
LETTERS: (i) ARE NOT COMPROMISE OFFERS BETWEEN THE
PLAINTIFFS AND THE DEFENDANTS; AND (ii) THOSE LETTERS ARE
UNLIKELY TO MISLEAD OR CONFUSE THE JURY.

The Plaintiffs argue that the Court also should preclude the Defendants from offering any
evidence, testimony, or argument concerning Triangle Capital’s sales of TIR shares.

See

Plaintiffs’ Motion in Limine at 1. The Plaintiffs assert that the Court should exclude material
related to this issue under rule 408(a)(1) of the Federal Rules of Evidence, because the
mezzanine lenders’ sale to TIR also constituted accepting a valuable consideration in
compromising a claim. See Plaintiffs’ Motion in Limine at 7. According to the Plaintiffs, TIR’s
mezzanine lenders: (i) did not believe that $451,000.00 per share was a fair value for TIR’s
shares; and (ii) accepted that sale price only as a compromise, reserving the right to retroactively
receive a higher price at a future date by means of a gross-up provision and seeking to resolve an
ongoing contentious dispute over the shares with the Defendants, in which Boylan made a threat
to bring suit against the mezzanine lenders. See Plaintiffs’ Motion in Limine at 7 & n.2.104 The
Plaintiffs concede that the transaction between the Defendants and the mezzanine lenders would
104

At the hearing, the Plaintiffs expanded upon the reasons that they asserted motivated
the mezzanine lenders to sell their TIR shares at what the Plaintiffs contended was below the
shares’ fair market value. See Tr. at 221:22-223:7 (Kagen). According to the Plaintiffs, at least
some of the mezzanine lenders considered the share price to be too low, but that they had
accepted the price on four grounds: (i) it was a group deal; (ii) these mezzanine lenders felt that
the $650,000.00 per warrant that they received compensated somewhat for the purported
underpriced shares; (iii) the Defendants threatened to sue one of the resisting mezzanine lenders - who also was a board member -- for breach of fiduciary duty if he failed to sign off on the deal;
and (iv) the deal with the mezzanine lenders provided a prospective gross-up option. See Tr. at
221:22-223:7 (Kagen).
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seem to fall within rule 408’s exception regarding the settlement of a claim different than the one
being litigated, but they nevertheless argue that the Court should preclude mention of the
mezzanine lenders sale on the grounds that that sale was “similar to Plaintiffs’ fair value claim.”
Plaintiffs’ Motion in Limine at 8 (emphasis in the original). In the alternative, the Plaintiffs
argue that the Court should preclude admission of evidence regarding the sales under rules 401,
402, and 403 of the Federal Rules of Evidence, because the substantial likelihood that it would
mislead the jury and confuse the issues outweighs any probative value this information might
have. See Plaintiffs’ Motion in Limine at 8.
The Defendants counter that sale similarity is not enough, maintaining that the Plaintiffs
cannot wield rule 408 to exclude the mezzanine lenders’ sale price, because: (i) the Plaintiffs
were not a party to that transaction; (ii) the issues involved are not being litigated in this case;
and (iii) the mezzanine lenders’ sale of TIR shares in an arms-length commercial transaction for
the same price and near the same time as the merger is probative of the fair value analysis. See
Response to Plaintiffs’ Motion in Limine at 4 (citing Towerridge, Inc. v. T.A.O., Inc., 111 F.3d
758, 770 (10th Cir. 1997)). The Defendants argue that the agreement by which the mezzanine
lenders sold their shares and warrants to Cypress Energy Partners is a typical commercial
transaction document, not a classic settlement agreement, and is completely separate and distinct
from the Plaintiffs’ claims in this case. See Response to Plaintiffs’ Motion in Limine at 7-11.
Accordingly, the Defendants maintain, any letters about the mezzanine lenders’ transactions fall
far outside rule 408’s scope. See Response to Plaintiffs’ Motion in Limine at 11.
Rule 408(b) of the Federal Rules of Evidence provides:
(a) Prohibited Uses. Evidence of the following is not admissible -- on behalf of
any party -- either to prove or disprove the validity or amount of a disputed claim
or to impeach by a prior inconsistent statement or a contradiction:

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(1) furnishing, promising, or offering -- or accepting, promising to
accept, or offering to accept -- a valuable consideration in
compromising or attempting to compromise the claim; and
(2) conduct or a statement made during compromise negotiations
about the claim -- except when offered in a criminal case and when
the negotiations related to a claim by a public office in the exercise
of its regulatory, investigative, or enforcement authority.
(b) Exceptions. The court may admit this evidence for another purpose, such as
proving a witness’s bias or prejudice, negating a contention of undue delay, or
proving an effort to obstruct a criminal investigation or prosecution.
Fed. R. Evid. 408. The Court listed numerous United States Courts of Appeals cases in its law
regarding section on rule 408 supra that show that the United States Courts of Appeals have
interpreted rule 408 to make inadmissible only statements that (i) are made in settlement
negotiations; (ii) relate to issues involved in the proceedings; and (iii) offer to compromise or
settle any claim in the action being litigated. Under some circumstances, rule 408 can cover
what the Plaintiffs referred to in Plaintiffs’ Motion in Limine as “similar” claims. See Plaintiffs’
Motion in Limine at 8. As one set of treatise writers posit when interpreting a Tenth Circuit
case:
[E]ven where the settlement relates to prior claims that arguably arose out of
different events and transactions, where these claims are related inasmuch as they
arose in the course of the same large scale project operated by the defendant, and
the claims sued upon are similar enough to be relevant, there is a sufficient basis
for bringing the evidence concerning the compromises and settlements under the
umbrella of Fed. R. Evid. 408.
12 John Bourdeau et al., Federal Procedure § 33:238 (2017)(citing Bradbury v. Phillips
Petroleum Co., 815 F.2d 1356 (10th Cir. 1987), an opinion that Judge Barrett wrote and thenChief Judge Holloway and Judge Logan joined, in which seven prior claims brought by
landowners arose in the course of the same large scale uranium exploration project conducted by
the defendant). The Plaintiffs argue that Triangle Capital’s sale of TIR shares was such an

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instance of a similar claim. See Plaintiffs’ Motion in Limine at 8 (asserting that Triangle
Capital’s sale was “similar to Plaintiffs’ fair value claim”)(emphasis in the original).
The Court disagrees with the Plaintiffs that the “similarity loophole” to rule 408’s
exception is large enough to allow the Court to preclude Triangle Capital’s sales. In Bradbury v.
Phillips Petroleum Co., the very case that the treatise writers cite, the Tenth Circuit considered a
trespass and battery case in which drill workers from one an independent contractor that the
defendant hired drilled on the incorrect parcel of land and then pursued that landowner’s
neighbor onto the neighbor’s property and battered him when the neighbor began taking
photographs of the drillers’ equipment at the landowner’s behest. See Bradbury v. Phillips
Petroleum Co., 815 F.2d at 1358-60. After a jury had awarded actual and exemplary damages to
both the landowner whose property the contractor drillers had impermissibly drilled and the
landowner’s neighbor whom they battered,105 the defendant appealed the case to the Tenth
Circuit on the grounds that the district court had erred in admitting exhibits and testimony
regarding compromises of previous claims by landowners against the defendant. See Bradbury
v. Phillips Petroleum Co., 815 F.2d at 1359. The defendant argued that those settlements should
have been excluded as compromises or offers of compromise pursuant to rule 408 of the Federal
Rules of Evidence. See Bradbury v. Phillips Petroleum Co., 815 F.2d at 1359. The Tenth
Circuit reviewed seven prior settlements or compromises that the United States District Court for
the District of Colorado allowed into evidence, each of which involved the same independent
105

The Tenth Circuit noted that principal-agent law normally would not impose tort
liability on a defendant for the actions of its independent contractors who committed a tort
outside of their employment’s scope, but also stated that that it would consider the record,
because (i) “there were no special interrogatories regarding the agency issue”; and (ii) “the
relationship of principal and agent is ordinarily a question of fact and a finding on the issue is
binding on appeal if it is supported by substantial evidence or not clearly erroneous.” Bradbury
v. Phillips Petroleum Co., 815 F.2d at 1361 (citing Mitton v. Granite State Fire Insurance Co.,
196 F.2d 988 (10th Cir.1952)).
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contractor trespassing upon private land to drill or conduct uranium exploration on the
defendant’s behalf. See Bradbury v. Phillips Petroleum Co., 815 F.2d at 1362. The Tenth
Circuit deduced that rule 408’s plain language supported the district court’s conclusion that these
settlements and compromises did not fall within rule 408’s scope and that, accordingly, evidence
of these settlements and compromises was not precluded. See Bradbury v. Phillips Petroleum
Co., 815 F.2d at 1363.
The Tenth Circuit decided that there are some cases, such as Bradbury v. Phillips
Petroleum Co., it is best practice for a district court to let policy considerations and the exact
pattern or mosaic of similar claims combine to override rule 408’s plain language, i.e., preclude
such settlement and compromise offers. See Bradbury v. Phillips Petroleum Co., 815 F.2d at
1363 (buttressing this conclusion by reference to the Advisory Committee notes). The Tenth
Circuit held that the seven prior settlement or compromise offers at issue in Bradbury v. Phillips
Petroleum Co. made rejecting rule 408’s plain language a close call, because the offers betrayed
similar “reckless conduct and disregard of personal and property rights” and awareness of the
independent contractor’s personnel’s conduct on Phillips’ part. Bradbury v. Phillips Petroleum
Co., 815 F.2d at 1363. Even that degree of similarity, in the Tenth Circuit’s estimation, provided
insufficient grounds for the Tenth Circuit to conclude that the United States District Court for the
District of Colorado had erred when it allowed the offers into evidence as not being precluded
under rule 408, and the Tenth Circuit affirmed the district court’s decision. See Bradbury v.
Phillips Petroleum Co., 815 F.2d at 1363.
Despite making an argument about how similar Triangle Capital’s sale and the Plaintiffs’
sales were, the Plaintiffs undercut their own position when they simultaneously argue in regard
to various motions that Triangle Capital’s sale was structured so differently from the Plaintiffs’

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sale as to make Triangle Capital’s sale price a poor barometer of TIR shares’ value. For
instance, the Plaintiffs argue that Triangle Capital: (i) was selling two different equities -warrants and shares -- as opposed to the Plaintiffs’ sale of only shares; and (ii) Triangle Capital
retained a prospective gross-up option on the shares it sold. See Tr. at 221:22-223:7 (Kagen).
Triangle Capital and the Plaintiffs also were differently situated: unlike the Plaintiffs, Triangle
Capital was bargaining from a position of power, as it was able to frustrate merger plans if it
chose not to sell its shares. It seems safe to conclude that Triangle Capital’s sale and the
Plaintiffs’ sale were less “similar” to each other than the settlements and compromise offers were
in Bradbury v. Phillips Petroleum Co.
Insofar as the Tenth Circuit held that the similarity in Bradbury v. Phillips Petroleum Co.,
even when coupled to persuasive public policy considerations, was insufficient to hold that the
United States District Court for the District of Colorado had erred by applying rule 408’s plain
meaning, the Court reasons that, a fortiori, more dissimilar settlement or compromise offers in
this case make it even less likely that the Court would be justified in diverging from rule 408’s
plain meaning. Thus, even if the Plaintiffs are correct that Triangle Capital’s letters reveal
compromise and settlement offers, see Reply to Plaintiffs’ Motion in Limine at 2-4 -- a
characterization with which the Defendants disagree, see Response to Plaintiffs’ Motion in
Limine at 7-11 -- the Court would not be in a position to preclude the letters under rule 408. The
Court also trusts that the parties can easily explain to the jury -- just as they straightforwardly
have explained to the Court through their briefings and at the hearing -- the differences between
Triangle Capital’s sale and the Plaintiffs’ sale. The Court therefore does not agree with the
Plaintiffs that rules 401, 402, and 403 of the Federal Rules of Evidence create an ironclad
argument for disallowing the Defendants from putting letters sent to and received from Triangle

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Capital into evidence.
At the end of the hearing’s second day, the Court gave the parties its inclination as to how
it would rule on the Plaintiffs’ Motion in Limine. The Court then stated:
I went back and reviewed . . . [the] Plaintiffs’ Motion in Limine to Preclude
Evidence of Plaintiffs’ Conduct. I think I gave a . . . tentative ruling . . . on what I
though on the Akin Gump [letter], that those types of letters would be out. I
thought that the letters as to the . . . Triangle mezzanine . . . group, I thought that
price should come in.
I went back and looked and there was some more materials there, and
without prejudging anything, I wasn’t inclined to keep that out. I don’t . . .
sanitize a trial that much and so I was not inclined to grant those portions of it.
Tr. at 543:21-544:8 (Court). The Court concludes that there is no sound reason to depart from its
inclination. Accordingly, the Court denies the Plaintiffs’ request to preclude letters sent to and
received from Triangle Capital, because (i) those letters are not compromise offers between the
Plaintiffs and the Defendants; and (ii) Triangle Capital’s sale and the Plaintiffs’ sale, although
remotely similar, are not sufficiently similar for a district court within the Tenth Circuit to
recognize that they necessarily fall within rule 408’s scope.
C.

THE COURT DENIES THE PLAINTIFFS’ REQUEST TO PRECLUDE
MENTION THAT THE PLAINTIFFS RESIDE OUTSIDE OF THE STATE
OF OKLAHOMA.

The Plaintiffs finally request that the Court preclude any mention that the Plaintiffs reside
outside of the State of Oklahoma. See Plaintiffs’ Motion in Limine at 1. The Defendants take
umbrage with what they perceive to be a New York lawyer’s request’s implication that
Oklahomans are so provincial and unsophisticated that the mere mention of the fact that the
Defendants reside outside of the State of Oklahoma will inflame sectarian passions and unfairly
prejudice the Defendants. See Response to Plaintiffs’ Motion in Limine at 15. Furthermore, the
Defendants contend that references to the location of relevant events and general background

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information about the parties are permissible and necessary to give the jury context to the
evidence. See Response to Plaintiffs’ Motion in Limine at 14.
From the United States’ very beginnings, when Federalists tussled with Anti-Federalists
and secession movements arose in every corner of the country, American citizens have felt
loyalties both to the states in which they reside and the country as a whole. Data from decades’
worth of the University of Chicago’s General Social Survey, which the Court captures in figures
2 and 3 infra, show that this double loyalty persists to this day, even if surveyed Americans are
twice as likely to feel a close connection to their country as to their state.106 As the Court
understands the Plaintiffs’ argument for preclusion on the issue of state residency, for which the
Plaintiffs did not lay out a comprehensive rationale in their briefings or at the hearing, the
Plaintiffs must deduce that they would suffer undue prejudice as the proverbial Other if their
state residency is divulged to the jury, on the grounds that Oklahomans’ state loyalty (i) is
guardedly provincial; and (ii) would override Oklahomans’ sense of civic duty in judging out-ofstate plaintiffs on the merits of the case rather than entrenched prejudices.

106

In 2014, less than one in four Americans surveyed who provided a response indicated
that he or she felt very close to his or her state, a rate nearly unchanged for a decade. Compare
University of Chicago, General Social Survey q.4 (2014), with University of Chicago, General
Social Survey q.4 (2004), available at https://gssdataexplorer.norc.org/variables/4818/vshow
(last visited Apr. 20, 2017). In contrast, nearly half of Americans in 2014 felt very close to their
country. See University of Chicago, General Social Survey q.4 (2014), available at https
://gssdataexplorer.norc.org/variables/4819/vshow (last visited Apr. 20, 2017). Calculations from
the survey data and the data visualizations in figures 2 and 3 are the Court’s own.
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100%

100%

80%

80%

60%

60%

40%

40%

20%

20%

0%

0%
1996

2004

2014

1996

Figure 2 “How close do you feel to your state?,”
General Social Surveys, 1996-2014

2004

2014

Figure 3 “How close do you feel to America?,”
General Social Surveys, 1996-2014

Social psychological literature on jury decision-making suggests that the Plaintiffs’
concerns about jury bias against parties that are dissimilar to themselves are not entirely
phantasmagorical. Some empirical studies have shown in-group bias to be a real phenomenon,
one that causes jurors -- sometimes unwittingly -- to, ceteris paribus, favor whichever party is
more similar to them. See, e.g., Nancy J. King, Postconviction Review of Jury Discrimination:
Measuring the Effects of Juror Race on Jury Decisions, 92 Mich. L. Rev. 63, 79-99
(1993)(surveying the literature). Some social cognition research has shown this bias to be
resistant to various de-biasing procedures, such that it colors a juror’s impression of a case before
the conscious mind actively engages the evidence presented at trial.

See Linda Hamilton

Krieger, The Content of Our Categories: A Cognitive Bias Approach to Discrimination and
Equal Employment Opportunity, 47 Stan. L. Rev. 1161, 1188 (1995)(discussing how, in the
process of deciding cases, biases influence the decision-maker’s judgment long before the
decisional moment and often beyond the reach of the decision-maker’s self-awareness). The
studies that uncover such bias, however, have found it to be correlated only with race and
gender, i.e., a white male juror would be biased toward a white or male party, and a Latina juror
would be biased toward a Latino or female party. See John Guinther, The Jury in America 93

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n.12 (1988)(reporting on research that the RAND Corporation undertook). Nevertheless, the
Court has found no empirical study that has uncovered a geographical in-group bias of the sort
that the Plaintiffs appear to fear. It is an article of faith among many in the legal profession that
American jurors are xenophobic toward foreign parties. See Kimberly A. Moore, Xenophobia in
American Courts, 97 Nw. U. L. Rev. 1497, 1502-03 (reporting survey data). Empirical studies
of civil cases defy, however, this common perception.

See Kevin Clermont & Theodore

Eisenberg, Xenophilia in American Courts, 109 Harv. L. Rev. 1120 (1996)(finding that: (i)
foreign parties win a higher percentage of cases in court than domestic parties win; and (ii) the
widespread perception that American jurors are hostile to foreign parties is unsubstantiated and
at most exaggerated). But see Kimberly A. Moore, Xenophobia in American Courts, 97 Nw. U.
L. Rev. at 1509-13 (finding an exception in patent cases).
Under social psychological theory, jurors’ in-group bias should be larger against foreign
parties than against out-of-state parties, ceteris paribus, on the grounds that jurors will feel an
out-of-state party to be more similar to them than a foreign party is. The lack of measurable ingroup bias against foreign parties, therefore, suggests that fear of intense bias against out-of-state
defendants likely is misplaced. Data support this conclusion; out-of-state plaintiffs who sue instate defendants prevail in forty-seven percent of jury trials.

See Kimberly A. Moore,

Xenophobia in American Courts, 97 Nw. U. L. Rev. at 1519. This percentage is a slight minority
of trials, and below the fifty percent success rate that one would expect given the law of large
numbers if in-state and out-of-state parties had equally strong cases on average.107 The slight
minority appears, however, to at least partially be a result of out-of-state parties’ weaker cases:

107

See Law of Large Numbers, Encyclopedia of Mathematics (Michiel Hazewinkel ed.
2001), available at https://www.encyclopediaofmath.org/index.php/Law_of_large_numbers (last
visited Apr. 21, 2017).
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out-of-state parties win only twenty-seven percent of civil cases that a judge decides compared to
the forty-seven percent of civil cases that a jury decides. See Kimberly A. Moore, Xenophobia
in American Courts, 97 Nw. U. L. Rev. at 1519 n. 74. Until scholars conduct more robust
multivariate analyses, the prevailing evidence shows that -- if a geographical juror bias exists at
all -- it more likely is a bias in favor of out-of-state parties than against them.
Even given the nationwide data that suggest a lack of the category of geographical ingroup bias to which the Plaintiffs fear they will be subjected if the Court allows the Defendants
to mention that the Plaintiffs hail from other states, the Plaintiffs might argue that the Court
would commit the decomposition fallacy by imputing a similar lack of geographic bias to
Oklahomans.

What is true about the whole may not be true about each of its individual

subpopulations. At least theoretically, Oklahomans might exhibit greater geographic in-group
bias than Americans as a whole exhibit.
The Plaintiffs do not explicitly make this argument in their briefings, nor did they posit
such enhanced geographical in-group bias at the hearing. Nor can the Court identify any
evidence in support of such a proposition that would rise to the level that the Plaintiffs would
face undue prejudice under rule 401, 402, or 403 of the Federal Rules of Evidence. The Court,
even during the brief time that it has spent out-of-district in Tulsa, has recognized that
Oklahomans are proud of their state. Rightly so. Oklahoma was the continental United States’
last frontier,108 gritted its teeth against the sandpaper winds of the Dust Bowl,109 and dominated

108

In 1889, Congress placed two million acres of territory that later would become
Oklahoma into the public domain. See Act of March 2, 1899, 50 Stat. 341. At noon on April 22,
1889, more than fifty-thousand settlers stampeded into the territory to stake out their claims, and
within a few hours, all the available land was claim. See Into Oklahoma at Last: Thousands
Wildly Dashing in for Homes, N.Y. Times, Apr. 22, 1889; William Willard Howard, The Rush
to Oklahoma, 33 Harper’s Weekly 391 (May 18, 1889). The following year, Frederick Jackson
Turner, who at the time was the Superintendent of the United States Census Bureau, declared the
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the gridiron for seven college football national championships, among many other calls to fame
and indicia of hardiness, drive, and resolve.110 The Court finds no evidence in the Plaintiffs’
briefing or the Plaintiffs’ remarks on the Plaintiffs’ Motion in Limine, however, which suggests
that Oklahomans are more of the mold of Oklahoma state chauvinist Grampa Joad111 than of
other Oklahoma native son and moral cosmopolitan Woody Guthrie.112

Absent concrete

evidence that the Plaintiffs would suffer undue prejudice if the Defendants merely mention their
states of residence, the Court cannot assume that other Oklahomans are state chauvinists.
Even were the Plaintiffs correct to presume that Oklahomans’ state pride has a dark side
of guarded provincialism, the Court finds no evidence in the Plaintiffs’ briefing or in the
Plaintiffs’ discussion of Plaintiffs’ Motion in Limine at the hearing that one can assume ex ante

frontier to be closed. See Frederick Jackson Turner, The Frontier in American History 297
(1921).
109

See, e.g., Timothy Egan, The Worst Hard Time: The Untold Story of Those Who
Survived the Great American Dust Bowl 196 (The “train sputtered its way east, stopping
frequently so the crews could shovel sand from the tracks . . . . It looked awful outside: all of the
Oklahoma Panhandle blowing and dead, no life of any form in the fields . . . . “)
110

The Oklahoma Sooners have won six college football national championships outright
and shared a seventh, in 1974, with the University of Southern California. See National
Collegiate Athletic Association, FBS Football Championship History, http://www.ncaa.com
/history/football/fbs (last visited Apr. 20, 2017).
111

Of all John Steinbeck’s characters residing in Oklahoma at the beginning of The
Grapes of Wrath, Grampa Joad is the only one who seems to show state chauvinism, particularly
as the Joad family readies itself to move to California. See, e.g., John Steinbeck, The Grapes of
Wrath 116-17 (75th Anniversary ed. 2014).
112

Woody Guthrie was born in Okemah, Oklahoma, in 1912. See Woody Guthrie, Bound
for Glory: The Hard-Driving, Truth-Telling, Autobiography of America’s Great Poet-Folk
Singer 38 (1983). In his most famous ballad, preserved in the Library of Congress’ National
Recording Registry, Woody Guthrie wrote that he felt that all the land in the United States -including, apropos, “New York Island” -- is part of the same vast tract that transcends parochial
identities. See Woody Guthrie, This Land Is Your Land, on Woody Guthrie: The Ultimate
Collection, disc 1, track 2 (Not Now Music Ltd. 2007)(1944).
- 337 -

that this state pride would override Oklahomans’ sense of civic duty in judging out-of-state
plaintiffs on the merits of the case before them. Social scientific research which models civic
behavior and engagement on twelve different dimensions ranks Oklahoma as above average
among the fifty states, ahead of the Court’s home state of New Mexico and significantly ahead of
the State of New York, which ranks fourth-to-last among the states on this composite civic
measure. See Corporation for National & Community Service, Volunteering in America 11-12
(2007). Such civic-mindedness is not, of course, a failsafe against prejudice insinuating itself
into the jury box. Combined with voir dire, however, the Court concludes that there are adequate
safeguards in place to produce a jury of Oklahomans who, in the vivid imagery that the
Defendants provided in their Reply to Plaintiffs’ Motion in Limine, will not “hiss with
prejudicial bias” with every passing reference to New York. Response to Plaintiffs’ Motion in
Limine at 14. The Court has a high degree of confidence that it and an Oklahoman jury will do
in this case what federal courts have done in federal case after federal case for over two-hundred
years: provide out-of-state parties a fair trial. The Court also will caution the Defendants not to
highlight or unfairly argue about the Plaintiffs’ residency or make any argument that the jury
should rule on that basis rather than on the law as the Court gives the law to it and the facts as
presented. The Court is confident of its ability to control the case to assure the Plaintiffs a fair
trial regardless of their residency. Accordingly, the Court denies the Plaintiffs’ request that the
Court preclude the Defendants from making any reference to the Plaintiffs’ out-of-state
residency.
IT IS ORDERED that: (i) the requests in the Defendants’ Motion for Summary
Judgment on Acquiescence Defense and Brief in Support, filed April 3, 2015 (Doc. 83), are
denied; (ii) the requests in the Defendants’ Second Motion for Summary Judgment and Brief in

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Support Thereof, filed September 14, 2015 (Doc. 154), are denied in part as they relate to the
Oklahoma common-law clean hands doctrine, the Oklahoma common law of waiver, and the
Oklahoma common law of estoppel, and granted in part as they relate to securities claims, thus
dismissing those securities claims; (iii) the requests in the Plaintiffs’ Motion to Strike, filed April
20, 2015 (Doc. 86), and the Plaintiffs’ Motion to Strike Affidavit of Randall Lorett and
Memorandum of Law in Support Thereof, filed April 20, 2015 (Doc. 87), are denied; (iv) the
requests in the Plaintiffs’ Motion to Strike Affirmative Defenses, filed November 4, 2015 (Doc.
191), are denied, although the Court will not allow evidence of those affirmative defenses at trial,
because it has granted the Plaintiffs’ MSJ with respect to entire fairness; (v) the requests in the
Plaintiffs’ Memorandum of Law in Support of Motion for Partial Summary Judgment on Breach
of Fiduciary Duty Claims, filed September 14, 2015 (Doc. 157), are granted, with determination
of damages -- and only damages -- left to be resolved at trial; and (vi) the requests in Plaintiffs’
Motion in Limine to Preclude Evidence of Plaintiffs’ Conduct, and Brief in Support, filed
October 26, 2015 (Doc. 182), are granted in part, precluding entry into evidence of the Letter
from Akin Gump to Richard M. Carson, Vice President and General Counsel of Cypress Energy
Partners -- TIR, LLC, Nov. 26, 2013, filed April 3, 2015 (Doc. 83-25), and other letters that the
Plaintiffs and the Plaintiffs’ counsel exchanged with the Defendants between September, 2013,
and November, 2013, and denied in part, not precluding letters sent to and received from
Triangle Capital and not precluding references to the Plaintiffs’ out-of-state residence.

________________________________
UNITED STATES DISTRICT JUDGE

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Counsel:
Jamison A. Diehl
Akin Gump Strauss Hauer & Feld LLP (NY)
New York, New York
-- and -R. Stratton Taylor
Mark H. Ramsey
Clinton Derek Russell
Taylor Burrage Foster Mallett Downs Ramsey & Russell
Claremore, Oklahoma
-- and -Stuart Kagen
Daniel A. Cohen
Joshua C. Gillette
Kyla Janine Grant
Kagen & Caspersen
New York, New York
Attorneys for the Plaintiffs
Toney Daniel Foster
Taylor Burrage Foster Mallett Downs Ramsey & Russell
Claremore, Oklahoma
Attorneys for Plaintiff Stuart 2005 GST Family Trust
Frederic Dorwart
Paul DeMuro
Sarah Wishard Poston
Nora Rose O’Neill
Fredric Dorwart Lawyers
Tulsa, Oklahoma
Attorneys for the Defendants

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