Louisiana Municipal Police Employees Retirement System v. Continental Resources Inc et al

Filing 97

ORDER granting 86 Motion to Dismiss. Signed by Honorable Timothy D. DeGiusti on 5/16/2013. (mb)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
LOUISIANA MUNICIPAL POLICE
EMPLOYEES’ RETIREMENT SYSTEM,

)
)
)
Plaintiff,
)
)
v.
)
)
CONTINENTAL RESOURCES, INC.,
)
HAROLD G. HAMM, H. R. SANDERS, JR., )
JOHN T. McNABB II, MARK E. MONROE, )
ELLIS L. McCAIN, ROBERT J. GRANT,
)
JEFFREY B. HUME, and WHEATLAND
)
OIL INC.,
)
)
Defendants.
)

NO. CIV-12-667-D

ORDER
Before the Court is the motion to dismiss of Defendant Continental Resources, Inc.
(“Continental”) [Doc. No. 86]. Defendants Mark E. Monroe, H. R. Sanders, John T. McNabb, Ellis
L. McCain, and Robert J. Grant (collectively, the “Special Committee Director Defendants”) have
joined in the motion.1 Plaintiff responded to the motion, and Continental filed a reply.
Background:
Plaintiff filed this action on June 12, 2012, alleging that the defendants breached their
fiduciary duties to Continental’s minority shareholders in connection with Continental’s proposed
acquisition of certain assets owned by Wheatland Oil, Inc. (“Wheatland”). Specifically, Plaintiff
contends the proxy statement setting out the terms of the acquisition omitted material information

1
The Special Committee Director Defendants initially filed a separate motion, seeking dismissal for lack of
personal jurisdiction [Doc. No. 85], but they sought and were granted leave of Court to withdraw that motion and join
in Continental’s motion. Order of October 23, 2012 [Doc. No. 94]. They filed a notice [Doc. No. 95] joining in
Continental’s motion and adopting its arguments in support of dismissal for failure to state a claim, and a notice [Doc.
No. 96] expressly withdrawing their motion to dismiss on jurisdictional grounds. Accordingly, their withdrawn
jurisdictional arguments need not be considered. Defendants Harold G. Hamm, Jeffrey B. Hume, and Wheatland Oil,
Inc. have jointly filed a motion to dismiss [Doc. No. 87]. That motion will be addressed in a separate order.

which rendered the proxy misleading to Continental’s shareholders, and Defendants’ omission of
that information constitutes a breach of their fiduciary duties to the minority shareholders.
Defendant Harold Hamm (“Hamm”) is the majority shareholder and Chief Executive Officer
of Continental, and owns approximately 68% of Continental’s stock. Wheatland is owned by Hamm
and Defendant Jeffrey B. Hume (“Hume”), who is also Continental’s Vice Chairman of Strategic
Growth Initiatives and its former President and Chief Operating Officer. Hamm owns 75% of
Wheatland, and Hume owns 25%.
Continental is an oil and gas exploration and production company, and its stock is publicly
traded on the New York Stock Exchange (“NYSE”). Pursuant to Securities and Exchange
Commission (“SEC”) regulations, NSYE rules, and the terms of the purchase and sale agreement
between Continental and Wheatland, the proposed acquisition was an interested party transaction,
which required the approval of a majority of Continental’s minority shareholders. Thus, Continental
was required to receive approval from a majority of the issued and outstanding Continental shares
held by shareholders other than members of Continental’s Board of Directors, its executive officers,
Hamm and his affiliates, and Hume and his affiliates.
Plaintiff is a Louisiana public retirement system which has invested in Continental stock, and
currently owns shares which it values as worth more than $75,000.00.2 As a result, it was among
the minority shareholders whose approval was required for the acquisition.
In accordance with SEC requirements, Continental issued a July 9, 2012 definitive proxy
statement (“Proxy”) setting out the terms of the proposed Wheatland assets acquisition (“Wheatland
Acquisition”). The Proxy explained, inter alia, that the assets to be purchased in the proposed sale
2
The number of Continental shares owned by Plaintiff is not disclosed in the Complaint, the Amended
Complaint, or Plaintiff’s briefs.

2

consisted of Wheatland’s five to ten per cent interests in oil and gas properties located in portions
of the Bakken field in North Dakota and Montana and other properties in Oklahoma and Mississippi.
The transaction was not an acquisition of the stock of Wheatland, but a purchase of Wheatland
assets consisting of all its interests in the above-described oil and gas properties (the “Wheatland
Assets”). The Proxy and incorporated materials also explained that, at the time of the proposed
acquisition, Continental already owned the majority of the oil and gas properties in the areas where
the Wheatland Assets are located. Thus, the Wheatland Acquistion would increase Continental’s
holdings in those areas.
Plaintiff initially sought to enjoin the scheduled August 10, 2012 shareholder vote, filing a
motion for a temporary restraining order (“TRO”). Alternatively, Plaintiff asked the Court to enjoin
Defendants from counting the shares voted by the trustee of two trusts (“Trusts”) established for the
benefit of Hamm’s children. Following a hearing, the Court entered its August 3, 2012 Order [Doc.
No. 62] denying the TRO. On the date of the TRO hearing, Plaintiff filed a motion for a preliminary
injunction, again seeking to enjoin the scheduled August 10 vote.

A separate hearing was

conducted on that motion and, in an August 9, 2012 Order [Doc. No. 75], the Court denied the
request for a preliminary injunction. In both orders, the Court found, inter alia, that Plaintiff could
not demonstrate a likelihood of success on the merits of its breach of fiduciary duty claims because
the evidence and the governing law demonstrated that Defendants satisfied their duty to disclose
material facts to the minority shareholders.
On August 10, 2012, the scheduled meeting of the Continental shareholders was conducted,
and the shareholders approved the Wheatland Acquisition. According to public filings submitted by
Defendants and not disputed by Plaintiff, approximately 80% of the outstanding disinterested shares

3

were voted in favor of the acquisition. See August 16, 2012 SEC Form 8-K, submitted as Exhibit
3 to Defendants’ motion. According to the SEC Form 4 Statement of Changes in Beneficial
Ownership of Securities, filed by Continental on August 15, 2012, Continental acquired the
Wheatland Assets for $313,292,574. Defendants’ Exs. 4, 5.
On August 22, 2012, Plaintiff filed its Amended Complaint [Doc. No. 79], which Defendants
now seek to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Defendants
contend that the Amended Complaint fails to state a plausible claim for relief based on any of the
alleged omissions on which Plaintiff relies to support its breach of fiduciary duty claim.
Standard of review:
Dismissal under Rule 12(b)(6) for failure to state a claim is proper “if, viewing the
well-pleaded factual allegations in the complaint as true and in the light most favorable to the
non-moving party, the complaint does not contain ‘enough facts to state a claim to relief that is
plausible on its face.’” MacArthur v. San Juan County, 497 F.3d 1057, 1064 (10th Cir. 2007)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009); Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. The
question to be decided is “whether the complaint sufficiently alleges facts supporting all the
elements necessary to establish an entitlement to relief under the legal theory proposed.” Lane v.
Simon, 495 F.3d 1182, 1186 (10th Cir. 2007) (internal quotation marks omitted). “[I]n ruling on a
motion to dismiss, a court should disregard all conclusory statements of law and consider whether
the remaining specific factual allegations, if assumed to be true, plausibly suggest the defendant is

4

liable.” Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011).
In analyzing a Rule 12(b)(6) motion to dismiss, a court may consider “documents
incorporated into the complaint by reference, and matters of which a court may take judicial notice.”
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). Specifically, courts may take
judicial notice of federally regulated filings, including SEC filings. In re Morgan Stanley
Information Fund Securities Litig., 592 F.3d 347, 355 n. 5 (2d Cir. 2010).
Application:
To state a claim for relief based on a failure to disclose information in a proxy statement, a
plaintiff must alleged facts to show both that there was a disclosure violation and that the omitted
information was material. In re CheckFree Corp. Shareholders Litig., 2007 WL 3262188, at *3
(Del. Ch. Nov. 1, 2007) (unpublished).3 “To survive a motion to dismiss, the plaintiffs...must allege
that facts are missing from the statement, identify those facts, state why they meet the materiality
standard and how the omission caused injury.” Malpiede v. Townson, 780 A.2d 1075, 1086-87 (Del.
2001) (quotation omitted).
In the Amended Complaint, Plaintiff asserts essentially the same claim as set forth in the
original Complaint, alleging that Defendants breached their fiduciary duties to Continental
shareholders by failing to disclose in the Proxy statement information that was purportedly material
to the shareholders’ decision regarding whether to approve the Wheatland Acquisition. Plaintiff
does not assert violations of the federal securities laws or regulations, and does not assert a claim
based on fraud.

3

The parties agree that Oklahoma courts consider decisions of the Delaware courts persuasive authority on
issues related to the construction of the Oklahoma General Corporation Act because it is based on Delaware’s
Corporations Act. See Beard v. Love, 173 P.3d 796, 802 (Okla. Civ. App. 2007).

5

Plaintiff alleges Defendants failed to disclose the following purportedly material facts: 1)
information regarding the “Wheatland Assets’ estimated future oil and gas production or
Continental’s potential expenses accruing from same,” Amended Complaint ¶ 34; 2) information
about Wheatland that was allegedly available to the co-trustee of the Hamm children’s irrevocable
trusts and/or information regarding the relationship between Hamm and the co-trustee, Amended
Complaint ¶ 38; 3) information about the “substantial transportation costs involved in exploiting the
Wheatland Assets and...their past, present, and future effect on the value of the Wheatland
Acquisition,” Amended Complaint ¶ 33; and 4) information regarding the underlying data on which
Evercore Group, L.L.C. (“Evercore”) relied in preparing the fairness opinion issued by Evercore and
included as Appendix A to the Proxy, Amended Complaint ¶¶ 35, 36, 37. Each of these contentions
was also asserted in the original Complaint.
The Amended Complaint adds one new contention, alleging Defendants also breached their
fiduciary duty by failing to disclose why Continental determined it was permitted to proceed with
closing the Wheatland Acquisition despite language in the Purchase Agreement which allegedly
prohibits that acquisition from closing while this litigation remains pending. Amended Complaint
at ¶ 39.
Defendants argue that dismissal is mandated because a plausible claim for relief based on
breach of a fiduciary duty cannot be stated where, as a matter of law, there is no duty to disclose
additional information or where the information cited by a plaintiff cannot be material. Defendants
note that, in denying Plaintiff’s motions for a TRO and a preliminary injunction, the Court found
no duty was breached. Accordingly, they contend Plaintiff cannot state a plausible claim for relief.
With respect to the new allegation in the Amended Complaint, Defendants also argue it fails to state

6

a plausible claim for relief.
In response, Plaintiff argues that the Court’s previous denial of injunctive relief does not
mandate dismissal because the legal standards governing Rule 12(b)(6) motions differ from those
governing preliminary injunction motions. Although Plaintiff correctly distinguishes the standards
governing preliminary injunctive relief from those applicable to a motion to dismiss, its argument
does not necessarily preclude dismissal for failure to state a claim in this case.
Where a defendant seeks dismissal on grounds that he had no duty to disclose, the issue may
properly be determined in a Rule 12(b)(6) motion. In re Marsh & McLennan Companies, Inc.
Securities Litigation, 536 F. Supp. 2d 313, 319 (S.D.N.Y. 2007) (citations omitted). Where there
is no duty to disclose, a complaint fails to state a claim for relief on a cause of action based on the
violation of that alleged duty. Id., at 324. That rule is equally applicable where, as in this case, the
plaintiff does not allege a violation of federal securities law, but asserts that corporate directors
breached their fiduciary duties to shareholders by failing to disclose material facts, because the
absence of a duty to disclose renders the claim subject to dismissal. Noble v. AAR Corp., 2013 WL
1324915, at * 4 (N.D. Ill. April 3, 2013) (unpublished opinion) (applying Delaware law); Malpiede,
780 A.2d at 1086; In re JCC Holding Co., Inc., 843 A.2d 713, 720 n. 12 (Del.Ch. 2003); Orman
v. Cullman, 794 A.2d 5, 32 (Del. Ch. 2002); Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170 (Del.
2000). Dismissal is proper where, even if taken as true, the allegations cannot legally support a
claim for relief because of the absence of a duty to disclose or because the omitted information could
not be material as a matter of law. See, e.g., In re JCC Holding, 843 A.2d at 720; Orman, 794 A.2d
at 32. As one Delaware court noted, “[o]ur law is replete with examples of situations when this
court has dismissed disclosure claims” based on the allegations in a complaint and the content of a

7

proxy statement where there was no duty to disclose or the information was immaterial as a matter
of law. In re JCC Holding, 843 A.2d at 720. Dismissal for failure to state a claim is also proper on
the issue of materiality, as alleged “statements or omissions may be immaterial as a matter of law,”
and are properly dismissed. Malpiede, 780 A.2d at 1086.
The scope of the corporate directors’ fiduciary duty to disclose information in a proxy
statement is well settled. Corporate directors are “‘under a fiduciary duty to disclose fully and fairly
all material information within the board’s control when it seeks shareholder action.’” Globis
Partners, L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *10 (Del. Ch. Nov. 30, 2007)
(unpublished opinion) (quoting Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992)).

However, the

directors’ duty to disclose is “not boundless,” as “directors need only disclose information that is
material.” In re CheckFree, 2007 WL 3262188, at *2 (citing Louden v. Archer-Daniels-Midland
Co., 700 A.2d 135, 142 (Del. 1997)). “‘The essential inquiry is whether the alleged omission or
misrepresentation is material.’” Globis, 2007 WL 4292024, at *10 (quoting Arnold v. Society for
Savings Bancorp, Inc., 650 A. 2d 1270, 1277 (Del. 1994)).
To constitute a material omission sufficient to establish liability, the information in question
must “significantly alter” the “total mix of information made available” to the shareholders. In re
Netsmart Techs., Inc. Shareholders Litigation, 924 A.2d 171, 199 (Del. Ch. 2007); Zirn v. VLI
Corp., 621 A.2d 773, 778-79 (Del. 1993); TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449
(1976).4 “The burden of demonstrating a disclosure violation and of establishing the materiality
of requested information lies with the plaintiffs.” In re CheckFree, 2007 WL 3262188, at *2 (citing
In re Gen. Motors (Hughes) Shareholder Litigation, 2005 WL 1089021, at * 13 (Del. Ch. May 4,
4
Delaware has adopted the TSC Industries standard to determine materiality. See Rosenblatt v. Getty Oil Co.,
493 A.2d 929, 944 (Del. 1981).

8

2005), aff’d, 897 A.2d 162 (Del. 2006)). Thus, in order to state a plausible claim for relief, a
plaintiff must allege facts which, if taken as true, would support materiality. Malpiede, 780 A.2d at
1087.
When determining the materiality of an omitted fact, courts may consider “the information
disclosed directly to shareholders as well as that which was publicly available at the time of the
alleged omission.” Haberland v. Bulkeley, 896 F.Supp. 2d 410, 424 (E.D.N.C. 2012) (citing Citron
v. Fairchild Camera & Instrument Corp., 569 A.2d 53, 70-71 (Del. 1989) and In re Oracle Corp.,
867 A.2d 904, 940 (Del. Ch. 2004), aff’d, 872 A.2d 960, 2005 WL 877903 (Del. 2005)
(unpublished)).
Based on the foregoing legal standards, the Court must determine whether Plaintiff has stated
a plausible claim for relief based on the alleged omissions which it contends support its claim that
Defendants breached their fiduciary duty of disclosure.
Failure to disclose facts regarding the projected price of oil and gas from the Wheatland Assets:
Plaintiff contends the Proxy materials are misleading because they fail to accurately disclose
the projected price of oil and gas from the Wheatland Assets in the Bakken field, and fail to disclose
information underlying the Reserve Report Projections set out in the Proxy. This alleged omission
was a subject of the preliminary injunction hearing, and was addressed by the Court at length in the
Order [Doc. No. 75] denying injunctive relief.
The Court concludes that, contrary to Plaintiff’s contention, the Proxy contains sufficient
detail to satisfy the duty to disclose information regarding projected prices and reserves. The Proxy
sets out the reserve data, the costs of production, and the anticipated production from the Wheatland
Assets. See Proxy, Ex. 2 to motion to dismiss, p. 14. It further discloses four valuation scenarios

9

addressed by Evercore in its fairness opinion and considered by the Special Committee Director
Defendants and, ultimately, the Board. These scenarios underscore the inherent volatility of oil and
gas prices. Future oil and gas prices, of course, cannot be predicted with certainty. Accordingly,
to the extent Plaintiff seeks to impose a legal duty on Defendants to make such predictions, its
contention must be rejected.
The Proxy discloses the number and location of producing, shut-in, and undeveloped wells
to be included in the Wheatland Assets. Proxy at p. 14. It also identifies the wells, by location, in
which Wheatland participated during the three years prior to the Proxy, as well as Wheatland’s oil
and gas production, by location, for those years. Id. Additionally, the Proxy discloses Wheatland’s
revenues and costs for the three-year period. Proxy at p. 14.
Furthermore, the same uncertainties associated with Wheatland’s Assets also apply to
Continental’s own projections regarding the areas of production. It is undisputed that Continental
already holds interests in the very same areas in which the Wheatland Assets are located. As a
result, through the Wheatland Acquisition, Continental is acquiring more of what it already owns.
Indeed, Continental’s experience in this particular area, and thus the experience of its shareholders
by extension, militates in favor of the sufficiency of the treatment of these topics in the Proxy.
As the Court determined when it denied the preliminary injunction, the shareholders of
Continental possessed sufficient information to assess the uncertainties associated with oil and gas
prices which could be derived in the future from the acquisition of additional interests in an area in
which Continental has been active for some time. Continental’s annual reports, submitted to
shareholders, provide detailed explanations of its experience in the very same area in which the
Wheatland Assets are located. See, e.,g., Continental 2010 Annual Report, admitted into evidence

10

at the preliminary injunction hearing as Continental hearing Exhibit 1.5
Plaintiff contends that more details regarding revenues and projected sales should have been
disclosed because that information would have assisted the minority shareholders in evaluating the
Wheatland Acquisition. However, “‘[o]mitted facts are not material simply because they might be
helpful.’” Globis, 2007 WL 4292024, at *12 (quoting Skeen, 850 A.2d at 1174). Instead, there must
be “a substantial likelihood that the disclosure of the omitted fact would have been viewed” as
having “significantly altered the ‘total mix’ of information made available” to the shareholders at
the time the Proxy was issued. TSC Industries, 426 U.S. at 449; In re Netsmart, 924 A.2d at 199.
When determining whether a plaintiff has sufficiently alleged facts to support a plausible claim that
material information was omitted, courts look to the information actually disclosed as well as other
information, even that which is publicly available. See, e.g., Haberland, 896 F. Supp. 2d at 424.
In this case, Plaintiff and the other shareholders had access to additional information in
Continental’s annual reports which reported data regarding the same production areas as those to
be acquired in the Wheatland Acquisition. Accordingly, the additional data which Plaintiff
contends should have been detailed in the Proxy was available, and that data cannot satisfy the
materiality standard.
The Court concludes that Defendants satisfied their fiduciary duty, as a matter of law, with
respect to the disclosure of material facts related to the anticipated production of the Wheatland
Assets, and related information regarding reserves. Any shareholder could readily compare the four
scenarios used by Evercore and disclosed in the Proxy with current oil and gas prices and historical

5

When considering a Rule 12(b)(6) motion to dismiss, the Court may take judicial notice of materials including,
inter alia, “judicial notice of its own files and records,” so long as such documents are considered only to show their
contents and not to prove the truth of matters asserted therein. Tal v. Hogan, 453 F.3d 1244, 1265 n. 24 (10th Cir. 2006)
(citations omitted).

11

fluctuations, and decide for himself whether the scenarios supported the transaction. As discussed
in detail with respect to the claimed omission of more specific data underlying Evercore’s fairness
opinion, infra, Defendants had no duty to disclose the underlying data.

While additional

information might have been of interest to a shareholder, that does not render its omission material.
Accordingly, the Court finds that Plaintiff cannot state a plausible claim for relief based on
the omission of this information. To the extent that Plaintiff relies on that omission to support its
breach of fiduciary duty claim, the motion to dismiss is granted.
Failure to disclose information regarding the Hamm children’s trusts:
Plaintiff also alleges the Proxy should have, but did not, “inform shareholders that the
trustee...was a long-time friend of Defendant Hamm, had received significant compensation from
Hamm in the past, had access to Wheatland data not available to minority shareholders,” and had
access to information not available to the other Continental shareholders. Amended Complaint at
¶38.
As Defendants point out in their motion, in its orders denying Plaintiff’s motions for
injunctive relief, the Court determined that the disclosure of facts regarding the Trusts beyond that
set out in the Proxy could not have been viewed by a reasonable shareholder as important in
deciding how to vote on the Wheatland Acquisition. The Proxy disclosed the size of the Trusts’
holdings, identified Bert Mackie as the co-trustee, and explained that Hamm had no power to
determine how the Trusts’ shares would be voted. Proxy, Defendants’ Ex. 2 at p. 39.

As

Defendants also note, the August 10, 2012 shareholder vote approving the Wheatland Assets
acquisition reflects that a majority of the minority shareholders approved the acquisition even if the
Trusts’ votes are not counted. See Defendants’ Exhibit 3 in support of the motion is Continental’s

12

SEC Form 8-K reflecting the total vote. Accordingly, even if those shares were excluded from the
total shares approving the acquisition, the proposal would have been approved.
In any event, the allegations in the Amended Complaint fail to state a plausible claim for
relief on the basis that additional facts regarding the Trusts would have altered the total mix of
information available to the minority shareholders regarding the proposed Wheatland Acquisition.
Thus, Plaintiff cannot show that there was a material omission on which a plausible claim for relief
may be based. To the extent that Plaintiff relies on this omission to support its breach of fiduciary
duty claim, the motion to dismiss is granted.
Failure to disclose information regarding the costs of production, including transportation costs,
from the Wheatland Assets:
Plaintiff also contends the Proxy omits information regarding the projected costs of
production of the Wheatland Assets, including transportation costs.
As discussed, supra, in evaluating the materiality of allegedly omitted information, the Court
looks not only to the content of the Proxy, but also considers other information readily available to
shareholders at the relevant time, including that which had been directly disclosed to them and that
which is publicly available. See, e.g., Haberland, 896 F. Supp.2d at 424. “An omitted fact is not
material when the facts underlying it are fully disclosed and publicly available.” Id. (citing Orman
v. Cullman, 794 A.2d 5, 33-34 Del. Ch. 2002); O’Reilly v. Transworld Healthcare, Inc., 745 A.2d
902, 925-26 (Del. Ch. 1999) and Wilen v. Pollution Control Indus., Inc., 1984 WL 8272, at *4-5
(Del. Ch. Oct. 15, 1984) (unpublished)).
In this case, the Proxy contains historical data reflecting revenue versus costs for 2009
through 2011 in the area covered by the Wheatland Acquisition, and that data shows increasing
costs. Proxy at pp. 15, 33. A shareholder can readily determine from that information that costs
13

have exceeded revenues, and Plaintiff expressly does not contend that the Proxy contains false
statements or is fraudulent in this regard. Furthermore, in addition to the cost projections in the
Proxy materials, Continental’s shareholders had other readily available information regarding the
projected costs of production. The details of costs analyses for the development of oil and gas in
the Bakken field had been disclosed to Continental shareholders, including those asked to vote on
the Wheatland Acquisition, in Continental’s annual reports. Continental’s 2010 Annual Report
provides specific information regarding the reserves and costs incurred in the Bakken area. Because
the area proposed for acquisition is the same as that in which Continental already owns interests and
has been operating for years, the information which Plaintiff claims was omitted was readily
available to it and the other Continental shareholders from the annual reports. The disclosures in
the Proxy materials, coupled with the other information readily available to the shareholders,
provided adequate data from which the shareholders could determine potential costs of production
for the acquisition of the Wheatland Assets.6
The Court concludes that the disclosures regarding the anticipated costs of production,
including transportation costs, attributable to the Wheatland Assets were sufficient, as a matter of
law, to satisfy Defendants’ duty to disclose. Accordingly, to the extent Plaintiff’s claim is based on
this alleged failure to disclose, it fails to state a claim upon which relief may be granted.
Failure to disclose information underlying the Evercore fairness opinion:
The allegations in the Amended Complaint regarding the omission of material facts
consisting of the underlying bases for the Evercore opinion do not differ from those in the original
Complaint or those which Plaintiff argued in support of its preliminary injunction motion. As the
6
To the extent that this data is, in part, the basis for Plaintiff’s claim that Defendants failed to disclose
information underlying the Evercore opinion, that claim is addressed in more detail in the following section.

14

Court concluded in its Order denying motion for Plaintiff’s preliminary injunction, courts addressing
the question have rejected claims based on the failure to disclose details underlying a fairness
opinion. Skeen, 750 A.2d at 1173. “[Q]uibbles with a financial advisor’s work simply cannot be the
basis of a disclosure claim.” In re 3Com Shareholders Litigation, 2009 WL 5173804, at *6 (Del.
Ch. Dec. 18, 2009) (unpublished opinion); see also In re JCC Holding, 843 A.2d at 721. “Delaware
law does not require disclosure of all the data underlying a fairness opinion such that a shareholder
can make an independent determination of value.” Globis, 2007 WL 4292024, at *13. “‘Omitted
facts are not material simply because they might be helpful.’” Id., at * 12 (quoting Skeen, 750 A.2d
at 1174). Thus, a disclosure “that does not include all financial data needed to make an independent
determination of fair value is not per se misleading or omitting a material fact. The fact that the
financial advisors may have considered certain non-disclosed information does not alter this
analysis.” Id. (citing In re CheckFree,2007 WL 3262188, at *2). All that is required regarding a
fairness opinion is an “adequate and fair summary” of the work resulting in the opinion. In re
CheckFree, 2007 WL 3262188, at *3. A board of directors satisfies its obligation by “setting forth
a fair summary of the valuation work...performed.” In re JCC Holding, 843 A.2d at 722.
The Court concludes that, under the foregoing standards, Defendants in this case satisfied
their duty to disclose Evercore’s fairness opinion. The information set out in the Proxy provides an
adequate and fair summary of Evercore’s work, and Plaintiff thus cannot state a plausible claim for
breach of the duty to disclose on this basis.
Even if the Court were to find that Defendants had a duty to disclose the details on which
Plaintiff relies, dismissal is also appropriate where the allegedly omitted information was actually
disclosed in the proxy statement. “Even at the pleading stage, dismissal is appropriate where the

15

complaint is premised on the nondisclosure of information that was actually disclosed.” In re
Keyspan Corp. Securities Litigation, 333 F.Supp. 2d 358, 377 (E.D.N.Y. 2003) (citations omitted).
In this case, the Proxy contains more than the required “fair summary” of the Evercore
opinion, and provides considerable detail regarding information underlying Evercore’s fairness
opinion. As discussed, supra, the Proxy sets out the reserve data, the costs of production, and the
anticipated production from the Wheatland Assets. Proxy, at p. 14.

The Proxy sets forth four

valuation scenarios addressed by Evercore and considered by the Special Committee and, ultimately,
the Board. These scenarios underscore the inherent volatility of oil and gas prices. In this regard,
the projections regarding anticipated oil and gas prices in the future cannot, of course, be predicted
with certainty. Although additional, detailed disclosure may have been helpful, it was simply not
required under the circumstances present in this case. Any shareholder could readily compare the
four scenarios used by Evercore and disclosed in the Proxy with current oil and gas prices and
historical fluctuations, and decide for himself whether the scenarios supported the transaction.
Disagreement with the substance of a fairness opinion, including challenges to the accuracy
of valuation analyses, “does not constitute a disclosure claim.” JCC Holding, 843 A.2d at 721. In
JCC Holding, the plaintiffs alleged the directors should have disclosed more details regarding the
facts underlying a fairness opinion regarding a proposed merger. Rejecting that contention, the court
noted the “proxy statement obviously provided the plaintiffs with the material they needed to
determine various ways in which they disagreed with” the opinion. Id. According to the court, the
directors satisfied their disclosure duty “[b]y setting forth a fair summary of the valuation
work...performed” in the fairness opinion. Id. at 722. The court granted the defendants’ motion for
judgment on the pleadings as to that claim.

16

In this case, Plaintiff’s allegations in the Amended Complaint are similarly deficient because
Defendants satisfied their duty to disclose the information provided by Evercore by including in the
Proxy a summary of Evercore’s fairness opinion. The foregoing authorities establish that, as a
matter of law, the summary satisfied Defendants’ duty to disclose. Furthermore, the Proxy
contained more than a mere summary of the Evercore opinion. The additional detail, coupled with
the information available to minority shareholders by virtue of Continental’s existing ownership of
interests in the same areas covered by the acquisition, clearly satisfied Defendants’ duty to disclose.
Accordingly, to the extent Plaintiff’s claim is based on the non-disclosure of information underlying
the Evercore opinion, Plaintiff has failed to state a plausible claim for relief, and the motion to
dismiss is granted.
Failure to disclose why Continental determined it could proceed with the acquisition despite
language in the Purchase Agreement which prohibits closing the acquisition while this litigation
remains pending:
The Amended Complaint asserts one new allegation in support of Plaintiff’s claim that the
Defendants breached a fiduciary duty to disclose material information to shareholders. This
contention asserts that the Purchase Agreement prohibits Continental and Wheatland from closing
the transaction while this litigation remains pending. Amended Complaint at ¶ 39. Defendants seek
dismissal of this claim because they contend that, according to the plain language of the Purchase
and Sale Agreement, Plaintiff is incorrect because the agreement expressly provides that this
condition may be waived.
The Purchase and Sale Agreement, submitted as Exhibit 7 to the motion to dismiss, provides
that “[t]he obligations of Purchaser to consummate the transactions contemplated by this Agreement
are subject to the satisfaction (or waiver by Purchaser) on or prior to Closing of each of the

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following conditions precedent.” Purchase and Sale Agreement at § 8.2. Among the conditions
which could be waived is the condition that no litigation regarding the acquisition is pending at the
time of the closing.7 Id. at § 8.2(d). Furthermore, as Defendants also point out, the Proxy expressly
informed shareholders that the conditions to consummating the Purchase and Sale Agreement could
be waived. The Proxy states that “[a]ny condition to the consummation of the Acquisition may be
waived in writing by the party to the Purchase and Sale Agreement entitled to the benefit of such
condition.” Proxy, Defendants’ Ex. 2 at p. 4.
In its response brief, Plaintiff argues that the statement in the Proxy regarding the condition
was misleading because shareholders could have been led to believe that, even if they had questions
about the propriety of the Wheatland Acquisition, voting in favor of the acquisition was not a risk
because the transaction would not close if litigation remained pending at the closing date. Plaintiff’s
response at pp. 13-14. Plaintiff suggests that shareholders were misled into believing that, even if
they voted in favor of the acquisition, “the transaction would not close until all such shareholder
issues as presented by plaintiff in this litigation had been resolved.” Plaintiff’s response at p. 14.
Plaintiff then argues that Defendants breached their duty of candor by failing to disclose to the
shareholders at the time of the vote that “they apparently knew that [the condition] either had been,
or might be, waived.” Id.
Plaintiff offers no legal authority to support its contention that Defendants had a duty to
disclose something that might occur in the future. Furthermore, contrary to Plaintiff’s argument, the

7

The specific “no action” condition provides that “[o]n the Closing Date, no injunction, order or award
restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement,
or granting material damages in connection therewith, shall have been issued and remain in force, and no suit, action
or other proceeding by a third party (including any Governmental Body) seeking to restrain, enjoin or otherwise prohibit
the consummation of the transactions contemplated by this Agreement, or seeking substantial damages in connection
therewith, shall be pending before any Governmental Body or arbitrator.” Purchase and Sale Agreement at § 8.2(c).

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Proxy expressly lists the conditions precedent to the closing, including but not limited to the pending
litigation condition, and it expressly informs the shareholders that “any condition to the
consummation of the Acquisition may be waived in writing.” Proxy, Defendant’s Ex. 2, at p. 4.
Plaintiff offers no persuasive argument, and no legal authority, to support a contention that
Defendants had a duty to further disclose the fact that a condition could be waived. The Court finds
that no reasonable shareholder could have been misled by the Proxy statement’s disclosure
regarding the conditions in the Purchase and Sale Agreement or the provision that such conditions
could be waived.

The Court concludes that Plaintiff’s contention fails to state a claim on which

relief may be granted.
Conclusion:
For the foregoing reasons, the Court concludes that the Amended Complaint fails to state a
claim for relief on the contention that Defendants breached their fiduciary duties to Plaintiff and
other minority shareholders. The motion to dismiss [Doc. No. 86] is GRANTED.
Plaintiff has requested leave to further amend if the Court finds deficiencies in the Amended
Complaint. “‘[I]f it is at all possible that the party against whom the dismissal is directed can correct
the defect in the pleading or state a claim for relief, the court should dismiss with leave to amend.’”
Brever v. Rockwell International Corp., 40 F. 3d 1119, 1131 (10th Cir. 1994) (quoting 6 C. Wright
& A. Miller, Federal Practice & Procedure § 1483, at 587 (2d ed. 1990) and United States v.
McGee, 993 F.2d 184, 187 (9th Cir. 1993)).

Accordingly, a district court must justify its denial of

a motion to amend with reasons such as futility of amendment or undue delay. See Foman v. Davis,
371 U.S. 178, 182 (1962); Hom v. Squire, 81 F.3d 969, 973 (10th Cir.1996).
A court properly may deny a motion for leave to amend as futile when the proposed

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amended complaint would be subject to dismissal for any reason, including that the amendment
would not survive a motion for summary judgment. Bauchman for Bauchman v. West High School,
132 F.3d 542, 562 (10th Cir. 1997)(citing AM Int'l, Inc. v. Graphic Management Assocs., Inc., 44
F.3d 572, 578 (7th Cir.1995) and Wilson v. American Trans Air, Inc., 874 F.2d 386, 392 (7th
Cir.1989)).
In this case, the Court has determined the allegations asserted by Plaintiff do not state
plausible claims for relief because they are based on the failure to disclose information which, as
a matter of law, Defendants had no duty to disclose, or was not material to a shareholder’s decision
whether to approve the acquisition. Under these circumstances, amending the complaint would be
futile because Plaintiff cannot state plausible claims for relief on these bases under the prevailing
law. Accordingly, leave to amend is denied.
IT IS SO ORDERED this 16th day of May, 2013.

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