Elliot v. Ward et al

Filing 166

ORDER granting in part and denying in part 146 Motion to Dismiss. DENIES the Motion to Dismiss 146 filed by WCT and 192 LLC to that extent; but GRANTS said motion to the extent the Amended Complaint seeks to impose liability on these two defendants for aiding and abetting. Signed by Honorable Lee R. West on 9/22/14. (kw)

FILED

SEP 2 2 2014
IN THE UNITED STATES DISTRICT COURT FORcNu.£UTAREEOE~SHlNN.C~ERK
U.S. DI~URT. WESTff'l.N 01S1. OKLA

THE WESTERN DISTRICT OF OKLAHOMA BY
IN RE SANDRIDGE ENERGY, INC.
SHAREHOLDER DERIVATIVE LITIGATION

)
)

i

.DEPUTY

No. CIV-13-102-W
Relating to All Derivative Actions

ORDER
This matter comes before the Court on the Motion to Dismiss filed pursuant to Rule
12(b)(6), F.R.Civ.P., bydefendantsWCTResources, L.L.C. ("WCT") and 192 Investments,
L.L.C. ("192 LLC"). Lead plaintiff Paul Elliot, on behalf of the Paul Elliot IRA RIO ("Elliot"),
and plaintiff Lisa Ezell have responded in opposition, and WCT and 192 LLC have filed a
reply. Based upon the allegations in the 'first amended verified consolidated shareholder
derivative complaint ("Amended Complaint"), the Court makes its determination. 1
In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the United States Supreme
Court set forth the standards that this Court must use in determining whether dismissal,
as WCT and 192 LLC have requested, is warranted under Rule 12(b)(6). The Supreme
Court held in accordance with Rule 8, F.R.Civ.P., that a complaint need not contain
"heightened fact pleading of specifics," 550 U.S. at 570, or "detailed factual allegations,"
id. at 555 (citations omitted), but it must contain "enough facts to state a claim to relief that
is plausible on its face." Id. at 570.
The United States Court of Appeals for the Tenth Circuit has stated that Twombly
imposes a "burden ... on the plaintiff[s] to frame a 'complaint with enough factual matter
(taken as true) to suggest' that [they are] ... entitled to relief." Robbins v. Oklahoma, 519

1The arguments advanced by WCT and 192 LLC regarding the plaintiffs' alleged failure to
adequately assert demand futility in the Amended Complaint are addressed in a separate Order
issued this date.

F.3d 1242, 1247 (10th Cir. 2008)(quoting Twombly, 550 U.S. at 556).

Thus, "[t]he

allegations [in the Amended Complaint] must be enough that, if assumed to be true, ...
[the plaintiffs] plausibly (not just speculatively) harvel a claim for relief [against WCT and
192 LLC]." Id. (footnote omitted).
The Court's task at this stage is to determine whether "there are well-pleaded factual
allegations," Ashcroft V. Iqbal, 556 U.S. 662, 679 (2009), in the challenged pleading,2 and
if so, the "[C]ourt should assume their veracity and then determine whether they plausibly
give rise to an entitlement to relief." Id.
A claim has facial plausibility when the plaintiff pleads factual content
that allows the [C]ourt to draw the reasonable inference that the defendant
is liable for the misconduct alleged. The plausibility standard is not akin to
a "probability requirement," but it asks for more than a sheer possibility that
a defendant has acted unlawfully. Where a complaint pleads facts that are
"merely consistent with" a defendant's liability, it "stops short of the line
between possibility and plausibility of 'entitlement to relief. "'
Id. at 678 (citations omitted).
In this connection, a complaint IIImust contain either direct or inferential allegations
respecting all the material elements necessary to sustain a recovery under some viable
legal theory.'" Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008)(quotation and
further citation omitted). While "[t]he nature and specificity of the allegations required to
state a plausible claim will vary based on context," Kansas Penn Gaming. LLC V. Collins,
656 F.3d 1210, 1215 (10th Cir. 2011 )(citations omitted), neither "'naked assertion[s]' devoid
of 'further factual enhancement,'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at

2"ln evaluating a Rule 12(b)(6) motion to dismiss, courts may consider not only the
complaint itself, but also attached exhibits and documents incorporated into the complaint by
reference." Smith V. United States, 561 F. 3d 1090, 1098 (10 th Cir. 2009)( citations omitted).

2

557), nor n[t]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory allegations, ... suffice." Id. (citation omitted). "[T]he Twomblyllgbal standard
recognizes a plaintiff should have at least some relevant information to make the claims
plausible on their face." Khalik v. United Air Lines, 671 F.3d 1188, 1193 (10th Cir. 2012).
"[I]t demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation,"
Igbal, 556 U.S. at 678 (citations omitted), and more than "mere 'labels and conclusions,'
and 'a formulaic recitation of the elements of a cause of action' ...." Kansas Penn
Gaming, 656 F.3d at 1214 (quoting Twombly, 550 U.S. at 555).
The plaintiffs brought this derivative action on behalf of nominal defendant
SandRidge Energy, Inc. (nSandRidge"),3 and have contended that the Amended Complaint
combines the factual allegations in the original verified consolidated shareholder derivative
complaint "of self-dealing, breaches of fiduciary duty, and violations of corporate ethics that
... [d]efendant [Tom L] Ward committed," Doc. 142 at 5,

,-r 2, with "further evidence of .

. . wrongful conduct during the period from October 25,2010 to the present ....n Id. at 6,

Named as defendants in Amended Complaint in addition to movants WCT and 192
LLC are Ward, SandRidge's former chief executive officer and Chairman of its Board of

3SandRidge is a corporation that is organized under Delaware law and that has its
headquarters in Oklahoma City, Oklahoma. See Doc. 142 at 12, 1122. It was formed in 2006, see
id. at 14,1132, and relying on the description found on SandRidge's website, the plaintiffs have
asserted that "Sandridge is an oil and natural gas exploration company that 'focuses on drilling
low-risk, conventional, high rate-of-return oil wells in shallow carbonate reservoirs.'" Id. at 12, 1122.
4For purposes of this lawsuit, the period from October 25, 2010, to the present is the
"Relevant Period." See id. at 6,112.

3

•

Directors ("Board"),5 and certain SandRidge Board members: Jim J. Brewer, Everett R.
Dobson, William A. Gilliland, Daniel W. Jordan, Roy T. Oliver, Jr., and Jeffrey S. Serota.
These individuals at the time the Amended Complaint was filed were serving or had served
as Board members. 6 The plaintiffs have alleged that these defendants together with Ward
breached their fiduciary duties and wasted corporate assets.
Also named as defendants are three entities to which the plaintiffs have collectively
referred as "the 'Ward Entity Defendants,'" id. at 14,

,-r

31: TLW Land & Cattle, L.P.

("TLW') and movants WCT and 192 LLC. TLW, a limited partnership organized under
Oklahoma law, see id. at 13, ,-r 31, was formed by Ward in 2004, see id. at 23,

,-r 59, when

Ward was employed at Chesapeake Energy Corporation ("Chesapeake"). 7 TLWs original
principal place of business was 6200 N. Western Avenue, Oklahoma City, Oklahoma-a
Chesapeake address, see id.

,-r

60; TLW now shares the same physical address as

SandRidge-123 Robert S. Kerr Avenue, Oklahoma City, Oklahoma, see id. at 24,

,-r 63,

and moved to that address when Ward left Chesapeake.
The plaintiffs have asserted that TLW has no employees, see id. at 25,
"only one general partner, TLW Investments, Inc.," id. at 24,

,-r 61,

,-r 65,

and

and that Ward as the

SWard served as SandRidge's chairman and chief executive officer from June 2006 until
his employment was terminated in June 2013. See id. at 12, 11 23. Ward also served as
SandRidge's president from December 2006 to January 2011. See id.
6Pursuant to a settlement agreement between SandRidge and TPG-Axon Partners, LP,
TPG-Axon Management LP, TPG-Axon Partners GP, L.P., TPG-Axon GP, LLC, TPG-Axon
International, L.P., TPG-Axon International GP, LLC and Dinakar Singh LLC on March 13,2013,
the number of Board members and directors increased from seven to eleven. See Doc. 142-29
at 2,11 1(a)(i). Appointed as directors were Stephen C. Beasley, Edward W. Moneypenny, Alan J.
Weber and Dan A. Westbrook. See id. 11 1(a)(ii).
7Ward was a director of Chesapeake and its president and chief operating officer from 1989
to February 2006. See Doc. 142 at 12, 11 23.

4

president of the latter, see id., "orchestrated TLW['s] ... organization and controls its
activities." Id. 1160. The plaintiffs have further alleged that TLW "is an 'entity in which ..
. Ward has [admitted1 ... an ownership interest,'" id. 11 62, according to SandRidge's
disclosures to the Securities and Exchange Commission, and for which he has "signed
numerous conveyances ...." Id. 8
Movant WCT is described in the Amended Complaint as an Oklahoma limited
liability company, see id. at 13,11 31, the chief executive officer of which is Ward's son,
Trent Ward (liT Ward"). See id. at 17,1142. WCT was formed in 2002 by Shannon Self,
a member of Chesapeake's Board of Directors, see id. at 16,1141, and like TLW, WCT had
its original place of business at 6200 North Western Avenue, Oklahoma City, Oklahoma;
it too eventually shared the same address as SandRidge at 123 Robert S. Kerr Avenue,
Oklahoma City, Oklahoma, from 2008 to July 2011. See id. at 19, 1147.
WCT is alleged to have only seven (7) employees and one contract geologist. See
at 44,11126. Members of the limited liability company are trusts that were established and
funded by Ward and his wife, Schr'ee Ward ("S Ward"), for the benefit of their children:
the Trent Lee Ward Trust, the Romi Norel Ward Trust and the James Davis Ward Trust.
See id. at 18, 1144; id. at 13, 1131 (citations omitted). The trustee of these trusts is Scott
C. Hartman, who is alleged to be "Ward's personal employee," see id. at 18, 1145, and
although "'listed as a SandRidge employee,'11 id. (quotation omitted), Hartman's
"'employment is devoted to ... Ward's business affairs.'" Id. (quotation omitted).

Sin the Amended Complaint, the plaintiffs have also referred to a document executed by
Ward in September 2012 in a case filed in this judicial district, wherein he averred that he is the
owner of TlW. See Chechele v. Ward, No. CIV-10-1286-M (Doc. 133-1 at 3,113).

5

Movant 192 LLC is also a limited liability company organized under Oklahoma law,
see id. at 13,11 31; it was formed in 2004 by Tom Blalock, see id. at 20,11 48, a partner in
the same law firm as Self and a former member of Chesapeake's Board of Directors. See
id. Like TLW and WCT, 192 LLC had its original place of business at 6200 North Western
Avenue, Oklahoma City, Oklahoma, see id. 11 49, and in 2008, it moved to the same
address as SandRidge at 123 Robert S. Kerr Avenue, Oklahoma City, Oklahoma. See id.
at 21, 11 51.
192 LLC, like WCT, has as its members the Trent Lee Ward Trust, the Romi Norel
Ward Trust and the James Davis Ward Trust, see id. at 13, 11 31, but unlike WCT, it
allegedly has no employees. See id. at 21,11 53. 9
In summarizing the alleged wrongful conduct giving rise to this lawsuit, the plaintiffs
have asserted that
Ward, in violation of his fiduciary duties to SandRidge and its shareholders,
[SandRidge's] ... policies and procedures, and his employment agreement,
wrongfully usurped SandRidge's corporate opportunities, benefitting himself
and his familyL]

9To demonstrate Ward's alleged control over and ownership interest in WCT and 192 LLC
and the relationship between the two entities, the plaintiffs have set forth the following allegations
in the Amended Complaint (all of which describe conduct that occurred before the "relevant period,"
as that term is defined in the Amended Complaint):
(1) in November 2003, WCT purchased the land on which T Ward's residence was located
in Oklahoma County, Oklahoma;
(2) in 2004, WCT transferred title to the land to 192 LLC, claiming that the conveyance was
tax-exempt under title 68, section 3202.3 of the Oklahoma Statutes, which applies to a non-sale
document from a trust to a limited liability company;
(3) in 2005, 192 LLC then transferred title to the property to Ward and his wife, S Ward, and
likewise claimed that the conveyance was tax exempt as a related-party transaction; and
(4) that the deed transferring title to the land from WCT to 192 LCC recites that "the
members and membership percentages of WCT ... are identical to the members and membership
percentages of 192 [LLC] ... ," Doc. 142 at 22, 1l55, which, in the plaintiffs' opinion, "reveal[s] that
th[e]se two entities are essentially interchangeable." Id.

6

id. at 6, ,-r 3, and through TLW, WCT and 192 LLC, "as surrogates for one another," id. at
7, ,-r 7, "has taken numerous corporate opportunities that should have been offered to
SandRidge, id. ,-r 8, "[b]y front running [SandRidge] ... ," id. at 34, ,-r 102, by "us[ing] ...
SandRidge's material confidential and proprietary ... information and resources ... ," id.
at 35, ,-r 104, and "by flipping acquired leases to SandRidge without appropriate approvals
of a majority of independent and disinterested [D]irectors ...." Id.,-r 105.
The "corporate opportunities" to which the plaintiffs have referred relate to the
Mississippi Lime formation, also known as the "Mississippian Play," see id. at 14, ,-r 35, in
which SandRidge. as it "transition[ed] away from gas-dominant assets," id., "began to build
an industry-leading leasehold position," id., and be recognized as "a leading developer."
Id. at 15, ,-r 36. Alleged to be SandRidge's "primary focus since at least 2010," id. at 16,
,-r 40, the Mississippian Play "is a limestone formation containing oil and natural gas [that]
... stretches through more than 17 million acres in northern Oklahoma, southern and
western Kansas, and a small corner of Nebraska." Id. at 14, ,-r 35.
According to a SandRidge press release dated January 18, 2013, the Mississippian
Play "'is widely considered to be one of the most valuable oil-rich basins in the United
States,'" id. at 15, ,-r 36; see Doc. 142-3 at 1, and in describing SandRidge's role in this
formation, the plaintiffs have contended
(1) that "[r]obust growth in the Mississippian Play is a key element of SandRidge's
overall strategic plan[, and] [t]o that end, SandRidge has been, and remains, active in
developing confidential and proprietary information about the Mississippian Play, acquiring
mineral rights, conducting drilling and exploration activities, and developing infrastructure
across the Mississippian Play[,]" Doc. 142 at 15, ,-r 37;
7

{2} that n[a]ccording to SandRidge's presentations at the Goldman Sachs Global
Energy Conference 1o

•••

and the Credit Suisse Energy Summit 11 ['Credit Suisse'] ... [in

2013], [SandRidge] ... is 'dominating' the Mississippian Play [as demonstrated by the
following]:
• SandRidge controls the largest acreage position in the Mississippian Play,
constituting approximately 2.3 million acres, and it has identified over 11,000
possible horizontal drilling locations.
• SandRidge has more than 40% ofthe rigs drilling in the Mississippian Play,
consisting of 32 rigs across 200 miles.
• SandRidge has already drilled 600 wells, representing 44% of all wells
drilled in the Mississippian Play.
• SandRidge also has 107 disposal wells ... and 384 miles of power line .
. . in the Mississippian Play[; and]
• [a]ccording to the ... Credit Suisse presentation, SandRidge plans to
consolidate its holdings in the Mississippian Play through significant
additional acquisitions of mineral rights and to drill 581 wells in 2013 while
increasing the number of its rigs from 32 to 41 [;]
Id. at 15-16, 11 38 {footnote and citations omitted}; and
{3} that "according to a [February 2013] SandRidge press release 12

... ,

since

January 2010, SandRidge has invested $500 million in the acquisition of mineral
leaseholds and over $1.7 billion in development, drilling capital, and infrastructure in the
Mississippian Play." Id. at

16,11 39.

10See Doc. 142-4.
11See Doc. 142-5.
12See Doc. 142-6.

8

In describing Ward's alleged wrongful conduct in connection with their complaints
that he used SandRidge's confidential and proprietary information, the plaintiffs have
averred:
(1) "Beginning in 2009, SandRidge emerged alongside of Chesapeake as the two
horizontal drilling leaders in the [Mississippian] [P]lay. In fact, of the 1,336 horizontal wells
drilled since 2009, SandRidge has drilled 839 or 63% of all wells." Id. at 42,,-r 120.
(2) "[B]ecause companies like SandRidge and Chesapeake typically obscure their
lease acquisition activities in order to keep their interest in a given area out of the public
spotlight (in an attempt to control the inevitable inflation of lease costs when mineral
owners find out that industry leaders are interested in their land), they typically acquire
leases utilizing brokers or agents, who subsequently assign title to those mineral lease
interests to the company at a later date .... Ward ... was in a position to know the
identities of brokers and agents acting on behalf of SandRidge and the geographic
locations of its acquisitions[,]" id. at 42-43, ,-r 121; and
(3) that "[i]t is not happenstance, [but rather through the use of confidential and
proprietary information divulged by Ward,] ... that [WCT, TLW and 192 LLC] ... have
acquired massive acreage adjacent to SandRidge acreage ...." Id. at 43, ,-r 121.
The plaintiffs have further alleged in connection with Ward's disclosure of
SandRidge's confidential and proprietary information:
(1) n[T]echnological innovations in horizontal drilling, and multi-stage fracture
stimulation (known as 'tracking') completion technologies, have unlocked previously
unavailable potential in the [Mississippian] [P]lay. Because of its history as a producing

9

formation, however, there is an incredible amount of historical geological data that any
prudent exploration company would analyze before adopting an acquisition strategy." Id.
~

122.
(2) "Moreover, a prudent exploration company would develop new geological

information to confirm its analysis of the historical data. In fact, between 2007 and 2009
SandRidge drilled mostly vertical wells .... [T]hose wells were drilled to confirm geological
concepts, gather subsurface geological data in the form of drill cutting samples and cores,
update reservoir analysis, and test for the presence and quality of hydrocarbon saturation."
Id. ~ 123.
(3) "An exploration company acquires data at substantial cost, both in the acquisition
of historical and third party developed information and by drilling and completing new wells.
The cost to analyze and learn from this data, while coordinating the analysis and field
efforts between various disciplines (including but not limited to geology, geophysics, land
and lease acquisition, reservoir engineering and economics, drilling engineering, and
completion and production engineering) can run into the millions of dollars. That is the
reason this type of work is most effectively pursued by the large independent exploration
companies such as SandRidge, ... [which] can maintain the internal technical staff and
[which has] ... the financial capability to undertake this type of work." Id. at 44,

~

124.

(4) "With 2500 employees, including a staff of geologists, SandRidge is equipped
to perform the analysis to exploit the Mississippian Play ... [and] it has spent hundreds of
millions of shareholder dollars doing just that." Id.

~

125.

To further support their claim of misuse of confidential and proprietary information,
the plaintiffs have alleged that "Ward was privy to data ... that was developed (at great

10

expense] by ... [SandRidge] engineers, geologists, and technicians," id. at 93,11 307, and
that this data was inter alia compiled and monitored by SandRidge's Reservoir Engineering
Department and its geology unit-both of which reported directly to Ward or provided him
with information. See id. at 93-94,1111 307, 308.
The plaintiffs have asserted on the other hand that since 192 LLC has no
employees and WCT is "[s]taffed with only seven employees and one contract geologist,
... [rendering WCT inadequately] prepared to undertake its own independent analysis of
the Mississippian Play in support of [its] lease acquisition programL] ... which ... exceeds
... 475,000 acres," id. at 44,11 126, "a reasonable inference [can be drawn] that ... [both
192 LLC and WCT have] relied almost exclusively on SandRidge's activities and
information [disclosed by Ward] in making their acquisition decisions." Id.11 126.
In describing the movants' wrongful conduct in connection with their acquisitions in
the Mississippian Play, the plaintiffs have alleged that WCT, with its "wholly inadequate,"
id. at 26,11 67, staff, and 192 LLC, again in the absence of any employees, necessarily
acted through others in "acquir[ing] mineral leaseholds in areas adjacent to SandRidge
mineral leaseholds," id. at 27,11 70, and in certain instances, either acquired "property that
they then flipped to SandRidge," id. at 28,11 75, or "acquired land or mineral rights shortly
before SandRidge acquired [the] adjacent acreage," id. at 28,11 75, thereby "increasing the
value ofthe ... land or mineral rights ... [WCT and/or 192 LLC] had purchased." Id. The
plaintiffs have further alleged that WCT and 192 LLC also "sold their ... land or mineral
rights to SandRidge competitors ... and in other instances ... retained the land or mineral
rights, which appreciated due to SandRidge's investments of shareholder resources." Id.
at 28-29, 11 75.
11

Examples of corporate opportunities that allegedly should have been made available
to SandRidge or examples of instances where WCT allegedly wrongfully profited, include:
(1) as to properties in Kansas, namely, in Sherman, Thomas, Sheridan, Wallace,
Logan and Gove Counties,
(a) SandRidge has leased 142,720 acres in over 223 sections while WCT
has leased 257,920 acres in over 403 sections, see id. at 27, ,-r 72;
(b) "[rn]any ofWCT['s] ... sections are contiguous to SandRidge's sections,
and certain of WCT['s] . . . sections are surrounded by SandRidge's
sections," id. at 27-28, ,-r 72, resulting in the latter's "sections [being located]
. . . directly in SandRidge's key business areas and . . . integral [to]
SandRidge['s corporate] opportunitiesL]" id. at 28, ,-r 72;
(c) "[a]ccording to deed records in these six counties, ... WCT ... acquired
its leaseholds in advance of or contemporaneously with SandRidge's
acquisition of its leaseholds[,]" id. ,-r 73;
(d) WCT's "leaseholds were in areas that SandRidge had identified at great
expense as favorable locations[,)" id.; and
(e) WCT's "acquisitions of [its] ... leaseholds were in direct competition with
SandRidge, [which] were [not] . . . first presented to SandRidge as
acquisition prospects ... [or] corporate opportunities for SandRidge," id.; and
(2) as to properties in Oklahoma, namely, in Pawnee, Woods and Alfalfa Counties,
(a) "[o]n November 30, 2010, WCT ... leased mineral rights in Pawnee
County, ... [and] [t]wo months later, on January 20,2011, WCT ... flipped
those leases to SandRidge," id. ,-r 76;
(b) on November 3, 2011, WCT leased from TLW "land and mineral rights
in Woods County, ... [and] [s]ix months later, on May 23, 2012, WCT ...
flipped those leases to SandRidge," id. ,-r 77;
(c) "[o]n February 28,2012, WCT leased land and mineral rights from TLW
in Alfalfa County, ... ,[and] [sleven months later, on August 29,2012, WCT
... flipped those leases to SandRidge," id. ,-r 78; and
(d) "[o]n April 23, 2012, WCT ... assignedwellbore rights in [property known
as] Quail Run [in Woods County] to S[] Ward ... ," id. at 30, ,-r 81, and that

12

one month later, "SandRidge started drilling in the Quail Run[] well ...." Id.
1182.
The plaintiffs have also described in their Amended Complaint other sections leased
by WCT and/or 192 LLC in Kansas that are either contiguous to, or surrounded by,
Sandridge's sections,13 and they have complained that these acquisitions were made "in
advance of or contemporaneously with SandRidge's acquisition of its leaseholds," id. at 28,

1173, and were made "in direct competition with SandRidge, were neither first presented
to SandRidge as acquisition prospects nor approved by a majority of independent and
disinterested directors ... , and otherwise would have been corporate opportunities for
SandRidge." Id.
The plaintiffs have further complained in connection with these acquisitions

(1) that SandRidge "lost the ability to drill on leaseholds that instead [were] ...
diverted to the Ward Entity Defendants, and it lost the right to capture hydrocarbons from
those leaseholds[,]" id. at 34, 11103;
(2) that these leaseholds "were obtained [by the Ward Entity Defendants] through
the use of SandRidge's material confidential and proprietary ... information and resources
without adequate consideration to SandRidge[,]" id. at 35, 11104;

13These examples include
84-86, and from
(1) acquisitions in Barber County in June 20,2011, see Doc. 142 at 30,
87-88;
June 6, 2011 to July 5, 2011, see id. at 31,
(2) acquisitions in Thomas County in November 2011, see id. at 33,
95-96, December
89-90; id. at 32,
93-34, and January and February 2012, see id. ~~ 91­
2011, see id. at 31,
92;
(3) an acquisition in Finney County in November 2012, see id. at 33, ~ 97;
(4) acquisitions in Sherman County in April and July 2012, see id. ~ 98;
(5) an acquisition in Wallace County in August 2012, see id. at 34, ~ 99; and
(6) an acquisition in Cowley County in January 2011. See id. ~ 100.

mr
mr

mr

mr

mr

13

(3) that "by flipping acquired leases to SandRidge without appropriate approvals of
a majority of independent and disinterested directors, there is no assurance that
SandRidge paid the Ward Entity Defendants fair value for the assets[,]" id. ,-r 105; and
(4) that "the Ward Entity Defendants have benefitted, at no cost, from the hundreds
of millions of dollars in infrastructure [SandRidge] ... has developed throughout the
Mississippian Play." Id.,-r 106.
The plaintiffs have claimed that the foregoing conduct gives rise to three causes of
action against WCT and 192 LLC: "Aiding and Abetting," see id. at 91-92, "Misappro­
priation of SandRidge's Confidential and Proprietary Information, Including Trade Secrets,"
see id. at 92-96, and "Unjust Enrichment." See id. at 97. Each of these causes of action
is grounded on the plaintiffs' assertions in their Amended Complaint and in their response
that WCT and 192 LLC as "surrogates" either acted for Ward as his substitute or permitted
Ward to act through them based upon his alleged "ownership, domination and control."
Doc. 152 at 10.

See,~,

Doc. 142 at 7, ,-r 7 ("Ward makes all decisions for each of

them"); id. at 16, 1141 ("Ward's fingerprints are all overWCT"); id. at 7, ,-r 8 ("Ward, through
the Ward Entity Defendants, has taken numerous corporate opportunities"); Doc. 152 at
15 (Ward Entity Defendants "provided Ward with the means to do indirectly-under the
guise of an 'independent' oil and gas company-the very conduct prohibited"); id. ("Ward
Entity Defendants were a necessary component of . . . Ward's efforts to usurp
SandRidge['s] corporate opportunities"). Indeed, as this Court stated earlier in these
proceedings, one of the Amended Complaint's overarching themes is that "the Ward Entity
Defendants do not act independently from Ward." Id. at 11 (emphasis deleted).

14

The Court has looked to the law of Delaware to determine whether the plaintiffs
have stated a viable claim of "Aiding and Abetting." In this connection, the plaintiffs have
alleged in their fourth cause of action that "Ward owed SandRidge and its shareholders
fiduciary duties ... [and that he] breached those duties with the knowledge and substantial
assistance of the Ward Entity Defendants." Doc. 142 at 91,

~

297. The plaintiffs have

further alleged that WCT and 192 LLC as two of the three Ward Entity Defendants
"performed ... critical, and decidedly impermissible, role[s]," id.

~

298, in, and "were ...

necessary component[s] of . . . Ward's efforts to usurp SandRidge's corporate
opportunities[.]" Id.

~

299.

The plaintiffs have claimed that "Ward established WCT ... and 192 [LLC] ... ,
determined what assets were put into these companies, and participated in their
management," id. at 92,

~

301, thereby creating "vehicle[s through which Ward was able]

to efficiently acquire, retain, and sell land in the Mississippian [Play]." lQ.

~

299. The

plaintiffs have further contended that because "Wa rd's knowledge of his breaches is
imputed to the Ward Entity Defendants[.]" id.

~

302, movants WCT and 192 LLC acted

"with the fllil knowledge that their participation would assist [him] ... in breaching his
fiduciary duties." Id.
To survive the movants' request for dismissal, the plaintiffs must advance sufficient
well-pleaded factual allegations that show each of the following elements as to each
movant: "'(1) the existence of a fiduciary relationship, (2) a breach of the fiduciary's duty,
... (3) knowing participation in that breach by the [movant then under consideration 14] ..

14As the Court stated in its earlier Orders issued in this matter, Rules 8 and 12(b)(6) require
that each defendant be given "'fair notice of what the ... claim is and the grounds upon which it

15

· ,'and (4) damages proximately caused by the breach." Malpiede v. Townson, 780 A.2d
1075, 1096 (Del. 2001 )(footnote omitted).
Although the Amended Complaint clearly sets forth a fiduciary relationship between
Ward and SandRidge and its shareholders, as the Court stated in its Order issued this
date, the plaintiffs' claim that Ward breached his fiduciary duties in the first cause of action
has been dismissed; such finding requires dismissal of this cause of action against WCT
and 192 LLC.

ti,

Malone v. Brincat, 722 A.2d 5 (Del. 1998)(absent a claim for breach

of fiduciary duty, there can be no claim for aiding and abetting).
WCT and 192 LLC have next challenged the plaintiffs' fifth cause of
action-"Misappropriation of SandRidge's Confidential and Proprietary Information,
Including Trade Secrets." See Doc. 142 at 92-96. The Uniform Trade Secrets Act
("UTSA"), 78 O.S. § 85 et seq., which was adopted in Oklahoma in 1986 and on which the
plaintiffs have relied, requires a plaintiff to show (i) the existence of a trade secret, (ii)
misappropriation of that secret by the defendant then under consideration 15 and (iii) the use
of the secret to the plaintiffs detriment.

ti,

Micro Consulting, Inc. v. Zubeldia, 813 F.

Supp. 1514, 1534 (W.O. Okla. 1990); MTG Guarnieri Manufacturing. Inc. v. Clouartre, 239
P.3d 202,209 (Okla. App. 2010).

rests.'" Burnett v. Mortgage Electronic Registration Systems. Inc., 706 F.3d 1231, 1240 (10th Cir.
2013)(quoting Twombly, 550 U.S. at 555». The plaintiffs nevertheless have again attributed
actions to the "Ward Entity Defendants," without identifying the particular actions, if any, in certain
situations of each individual defendant. While the Court at this stage has taken as true each well­
pleaded allegation as to each defendant, the plaintiffs are advised that at the summary judgment
stage, they must identify evidence that demonstrates the specific actions of each defendant and
for which each defendant is allegedly responsible.
15See n.14 supra.
16

The term "trade secret" as defined in the UTSA
means information, including a formula, pattern, compilation, program,
device, method, technique or process, that:
a. derives independent economic value, actual or potential,
from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use, and
b. is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
78 O.S. § 86{4).
The UTSA defines the term "misappropriation" to mean, inter alia,
a. acquisition of a trade secret of another by a person who knows or has
reason to know that the trade secret was acquired by improper means; 16 or
b. disclosure or use of a trade secret of another without express or implied
consent by a person who:
(1) used improper means to acquire knowledge of the trade secret; or
(2) at the time of disclosure or use, knew or had reason to know that his
knowledge of the trade secret was:
(a) derived from orthrough a person who had utilized improper
means to acquire it; or
(b) acquired under circumstances giving rise to a duty to
maintain its secrecy or limit its use; or
(c) derived from or through a person who owed a duty to the
person seeking relief to maintain its secrecy or limit its use ..

Id. § 86{2).

16The phrase "improper means" for purposes of the UTSA "includes . . . breach or
inducement of a breach of a duty to maintain secrecy ...." 78 O.S. § 86(1).
17

According to the plaintiffs, while "the potential commercial play area [in the
Mississippian formation] is vast," Doc. 142 at 42,

,-r 20, the formation "is not equally

productive across its whole." Doc. 152 at 18. SandRidge therefore had to compile data
"that was developed (at great expense) by ... [SandRidge] engineers, geologists, and
technicians,"

Doc. 142 at 93,

,-r 307, to determine the most profitable locations for

SandRidge's acquisition of mineral rights. 17 The plaintiffs have further alleged that
SandRidge and its shareholders were the sole intended beneficiaries of that data, as
analyzed by SandRidge employees, that such data "was valuable to SandRidge," id. at 95,

,-r 310, and that "SandRidge employees sought to maintain the secrecy of such
information." Id.
In reviewing the allegations in the Amended Complaint in the light most favorable
to the plaintiffs, the Court finds that Elliot and Ezell have sufficiently identified confidential
and proprietary information that qualifies as a "trade secret" under the UTSNs broad
definition of that term. The information regarding the Mississippian Play collected by
SandRidge through geological exploration and drilling has "independent economic value,
actual or potential, from not being generally known to, and not being readily ascertainable
by proper means by, other persons[, including competitors in the formation,] who [could]
... obtain economic value from its disclosure or use," 78 O.S. § 86(4)(a), and was, as

17The plaintiffs have cited as one example, as set forth in SandRidge's 2010 Form 10-K,
regarding SandRidge's eighteen-member Reservoir Engineering Department, which is "comprised
of seven degreed engineers and [eleven] engineering analysts/technicians," Doc. 142-30 at 2, and
which is responsible for "monitor[ing] asset performance and mak[ing] reserves estimate
adjustments," id., after consideration of "production histories as well as other geologic, economic,
ownership and engineering data." Id. See Doc. 142 at 93, ,-r 307.
18

alleged, lithe subject of efforts that [were] ... reasonable under the circumstances to
maintain its secrecy." Id. § 86(4)(b);

~,

Doc. 142 at 56-57,

mI 164-167.

The thrust of this cause of action is as the plaintiffs have asserted: "Ward had
access to information that qualified as 'trade secrets' ... , and therefore the Ward Entity
Defendants-as surrogates of ... Ward-had such access." Id. at 93,

~

305. However,

because mere possession of a trade secret is not sufficient to trigger liability, the Court
must also determine whether the plaintiffs' allegations adequately plead misappropriation
of that secret by WCT and/or 192 LCC and the use of that secret to the plaintiffs' detriment.

ti,

Micro Consulting, 813 F. Supp. at 1534.
In this connection, the plaintiffs have alleged that WCT and 192 LLC as
Ward Entity Defendants misappropriated SandRidge's confidential and
proprietary information, including [SandRidge's] ... trade secrets, and further
wrongfully used that confidential and proprietary information to SandRidge's
detriment by usurping SandRidge's corporate opportunities, which
SandRidge was and is financially able to exploit, were and are within
SandRidge's line of business, and in which [SandRidge] . . . and its
shareholders had and have an interest or expectancy ill the opportunities,
thus placing ... Ward in a position inimical to, and in conflict with, his duties
to SandRidge and its shareholders.

Id. at 93,

~

306. The plaintiffs have contended that WCT and 192 LLC as "Ward Entity

Defendants relied almost exclusively on SandRidge's activities and information in making
their[own] acquisition decisions," id. at44, ~ 126, and thatthey acquired certain leaseholds
(as identified in the Amended Complaint) "through the use of SandRidge's material
confidential and proprietary ... information and resources without adequate consideration
to SandRidge." Id. at 35,

~

104.

The plaintiffs have suggested that the allegations in the Amended Complaint give
rise to the following scenario:
19

Ward misappropriated SandRidge's trade secrets with regard to the
Mississippian [Play] ... and used such trade secrets to divert corporate
opportunities to the [Ward Entity Defendants] ... controlled by him. With
SandRidge's trade secrets in hand, the Ward Entity Defendants then utilized
SandRidge's trade secrets to acquire acreage in the advance of or
contiguous with SandRidge's acquisition of mineral rights in the same area.
Doc. 152 at 18.
In light of the plaintiffs' well-pleaded allegations regarding Ward's domination and
control of these two entities, the Court finds that WCT and 192 LLC knew or had reason
to know that SandRidge's confidential and proprietary information was acquired by
improper means (that is, through Ward's alleged breach of his duty to maintain the
confidentiality of such information 18), ~, 78 O.S. § 86(2)(a), or that they used this
information, without express or implied consent, knowing or having reason to know that
their knowledge of the information was derived from one who had utilized improper means
to acquire it.

U, id. § 86(2)(b).

Because such allegations and the inferences drawn therefrom are sufficient to raise
a plausible claim that WCT and 192 LLC misappropriated SandRidge's trade secrets, the
plaintiffs have "'nudged their [misappropriation] claim [against both WCT and 192 LLC]
across the line from conceivable to plausible.'" Robbins, 519 F.3d at 1247 (quotation
omitted). Accordingly, the defendants are not entitled to dismissal of this claim for relief.
Finally, WCT and 192 LLC have challenged the plaintiffs' sixth cause of action:
"Unjust Enrichment." In Oklahoma, n[b]efore a party will be entitled to recover for unjust
enrichment, ... 'there must be enrichment to another, coupled with a resulting injustice.'"
City of Tulsa v. Bank of Oklahoma. N.A., 280 P.3d 314, 319 (Okla. 2011)(quoting Teel v.

18See Doc. 149-1 at 13, 1f 7; Doc. 149-2 at 14, 1f 8.

20

Public Service Co. of Oklahoma, 767 P.2d 391, 398 (Okla. 1985)(superseded by statute
on other grounds». "Unjust enrichment is a condition which results from the failure of a
party to make restitution in circumstances where not to do so is inequitable, i.e., the party
has money in its hands that, in equity and good conscience, it should not be allowed to
retain." Oklahoma Department of Securities ex reI. Faught v. Blair, 231 P. 3d 645, 658
(Okla. 2010)(citing Harvell v. Goodyear Tire & Rubber Co., 164 P.3d 1028, 1035 (Okla.
2006».
In the Amended Complaint, the plaintiffs have alleged in support of this equitable
cause of action:
(1) WCT and 192 LLC, again as Ward Entity Defendants, "have unfairly benefited
through the use of [SandRidge's] ... assets and confidential information, gained in
connection with ... Ward's employment or involvement with SandRidge, to directly
compete and interfere with SandRidge's business[,]" Doc. 142 at 97, 1[ 315;
(2) "SandRidge ha[d] a reasonable expectation of being offered all corporate
opportunities from . . . Ward relating to the acquisition of mineral interests and
development in the Mississippian Play[,1" id. 1[ 316;
(3) WCT and 192, as "Ward Entity Defendants have unfairly benefited from ...
Ward's usurpation of SandRidge's corporate opportunities[.]" id.1[ 317, to the plaintiffs' and
SandRidge's detriment;
(4) "[t]o allow ... [WCT and 192 LLC] to retain the benefits of SandRidge's
corporate opportunities wrongfully usurped . . . would result in substantial and unjust
enrichment[,]" id. 1[ 319; and

21

(5) n[i]n accordance with equity and good conscience, ... [WCT and 192 LLC] ought
not to be allowed to retain such a benefit that should have rightfully gone to SandRidge."
Id.
WCT and 192 LLC have asserted two grounds that they claim warrant dismissal of
this claim for relief. 19 First, they have argued that the plaintiffs have failed to identify any
corporate assets acquired by WCT and/or 192 LLC "that should have rightly gone to
SandRidge," id., and second, they have again challenged what they describe as the
plaintiffs'"unfounded contention that WCT and 192 [LLC] are 'surrogates' ofWard. n Doc.

146 at 28.
As the Court has determined, the well-pleaded factual allegations support a finding
at this stage of the proceedings that WCT and 192 LLC misappropriated SandRidge's
trade secrets to their own benefit and tothe detriment of SandRidge and its shareholders.
Accordingly, the inference may be drawn that WCT and 192 LLC acquired assets through
their alleged misconduct, profited therefrom and have therefore been unjustly enriched by
their retention of the same.
"Twombly does not require a court at the motion-to-dismiss stage to consider
whether the factual allegations are probably true .... [O]n the contrary, [absent exceptions
not relevant here,] ... a court must take the allegations as true, no matter how skeptical the

191n response, the plaintiffs have first contended that the Court, in addressing WCT and 192
LLC's initial Motion to Dismiss, has already determined that the plaintiffs adequately stated a claim
for relief and that "WCT and 192 [LLC] should not be allowed to now reargue the sufficiency of the
allegations." Doc. 152 at 6. The Court disagrees.
In their prior motion, WCT and 192 LLC only challenged this claim on the grounds that an
adequate remedy of law existed. The Court found that the plaintiffs could plead in the alternative
and did not address the sufficiency of the plaintiffs' allegations against these two defendants.

22

court may [or may not] be." Iqbal. 556 U.S. at 696 (Souter, Jr., dissenting)(citing Twombly.
550 U.S. at 555 (court must proceed on assumption that all well-pleaded allegations are
true); id. at 556 (well-pleaded complaint may proceed even if it actual proof of the facts
alleged is improbable)(further citation omitted).
Because the Court finds that the plaintiffs have alleged facts, taken as a whole and
as true, that are "suggestive of illegal conduct," Twombly. 550 U.S. at 563 n.8 (citation
omitted), and have included sufficient "factual enhancement," id. at 557, to show "more
than a sheer possibility that [each] ... defendant has acted unlawfully," Iqbal, 556 U.S, at
678 (citations omitted), in connection with the plaintiffs' claims for misappropriation of
confidential and proprietary information and unjust enrichment, the Court
(1) DENIES the Motion to Dismiss [Doc. 146] filed by WCT and 192 LLC to that
extent; but
(2) GRANTS said motion to the extent the Amended Complaint seeks to impose
liability on these two defendants for aiding and abetting.
ENTERED this ~ay of September, 2014.

23