Duane and Virginia Lanier Trust v. Sandridge Energy Inc et al

Filing 309

ORDER denying without prejudice 215 Motion for Partial Summary Judgment on the Pleadings as set forth herein. Signed by Honorable Charles Goodwin on 03/26/2019. (jb)

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
DUANE & VIRGINIA LANIER
)
TRUST, individually and on behalf of )
all others similarly situated, et al.,
)
)
Plaintiffs,
)
)
vs.
)
)
SANDRIDGE MISSISSIPPIAN
)
TRUST I et al.,
)
)
Defendants.
)

Case No. CIV-15-634-G

ORDER
Now before the Court is the Motion for Partial Judgment on the Pleadings filed
pursuant to Federal Rule of Civil Procedure 12(c) by Defendants SandRidge Energy, Inc.
(“SandRidge”),1 Tom L. Ward, James D. Bennett, Matthew K. Grubb, and SandRidge
Mississippian Trust I (“Trust I”). See Defs.’ Mot. (Doc. No. 215). Lead Plaintiffs2 have
responded in opposition, see Pls.’ Mem. (Doc. No. 231), and Defendants have replied, see
Defs.’ Am. Reply (Doc. No. 242).

Lead Plaintiffs have advised that SandRidge is sued “as a nominal defendant solely to the
extent of available insurance.” Consol. Am. Compl. (Doc. No. 78) ¶ 38.
1

These include Duane & Virginia Lanier Trust (“Lanier”), Ivan Nibur, Jase Luna, who is
sometimes referred to in pleadings and papers as “Luna Jase,” see, e.g., Consol. Am.
Compl. ¶ 35, Matthew Willenbucher, and substituted Lead Plaintiff Deborah Rath, as agent
of the Estate of Lawrence Ross, deceased, and as attorney-in-fact for Sonja Rath, Personal
Representative of the Estate of Lawrence Ross, deceased (“Rath”).
2

BACKGROUND
A. Plaintiffs’ Allegations
SandRidge explored, developed, and produced natural gas and oil reserves in,
among other locations, the Mississippian Formation, “a geological formation located in
northern Oklahoma and south-central Kansas.” Consol. Am. Compl. ¶ 87. “[T]o finance
increased capital expenditures planned for 2011, SandRidge decided to ‘monetize’ certain
of its existing oil and gas assets in [n]orthern Oklahoma by selling interests in those assets
to the public via a royalty trust.” Id. ¶ 4. To this end, SandRidge created Trust I and
conveyed to it royalty interests consisting of a share of SandRidge’s revenue from (a)
existing horizontal oil and gas wells in five Oklahoma counties, collectively referred to as
the “Trust I Area of Mutual Interest” (“Trust I AMI”), and (b) specific horizontal oil and
gas wells to be drilled in the Trust I AMI. See id. To pay for these royalty interests, Trust
I committed to sell common units to investors in an initial public offering (“Trust I IPO”)
and transfer the net proceeds of that sale to SandRidge. Id. ¶ 5.
SandRidge thereafter decided to raise additional funds to finance its capital
expenditures and in December 2011 formed the SandRidge Mississippian Trust II (“Trust
II”). Id. ¶ 19. SandRidge conveyed to Trust II royalty interests consisting of a share of
SandRidge’s revenue from (a) existing horizontal wells in nine counties in Oklahoma and
Kansas, collectively referred to as the “Trust II Area of Mutual Interest” (“Trust II AMI”),
and (b) certain horizontal oil and gas wells to be drilled in the Trust II AMI. Id. As with
Trust I, to compensate SandRidge for these royalty interests Trust II committed to sell

2

common units in an initial public offering (“Trust II IPO”) and transfer those proceeds to
SandRidge. Id. ¶ 20.
In November 2012, SandRidge made certain statements that concerned the
performance of oil and gas wells in the Mississippian Formation. In a press release dated
November 8, 2012, SandRidge “reported a ‘net loss applicable to common stockholders of
$184 million, or $0.39 per diluted share, for third quarter 2012 compared to net income
available to common stockholders of $561 million, or $1.16 per diluted share, in third
quarter 2011.’” Id. ¶ 227.
The next day, “before markets opened, SandRidge held a conference call for
analysts and investors to discuss the financial results and other information in the . . . [p]ress
[r]elease.” Id. ¶ 228. During that earnings call, Defendant Ward, who was SandRidge’s
founder and then chief executive officer and chairman of SandRidge’s Board of Directors,
“disclosed that . . . SandRidge’s wells in the Mississippian Formation consisted of far more
gas and far [fewer] oil deposits than the market had previously been led to believe.” Id. In
response to an analyst’s “concern over the drop in oil production in the Mississippian
Formation,” “Defendant Ward conceded that wells in the Mississippian Formation . . . were
producing less oil.” Id. ¶ 230. On that same call, Defendant Grubb, then SandRidge’s
president and president and chief operating officer of Trust I and Trust II, further disclosed:
“As for the Mississippian, while the gas performance has been on target, we
are seeing a steeper oil decline than we previously anticipated and have made
revision to our model accordingly for 2013.”
Id. ¶ 229.

3

Following these disclosures, the prices of SandRidge common stock and
Mississippian Trust units dropped. SandRidge’s common stock declined from a close of
$6.10 per share on November 8, 2012, to a close of $5.51 per share on November 9, 2012.
See Decl. of Mark P. Gimbel, Ex. 1 (Doc. No. 216-1) at 11, ¶ 12.3 “[T]he price of Trust I
Units declined from a close of $18.95 per [u]nit on November 8, 2012 to a close of $17.54
per [u]nit on November 9, 2012 (a 7.4% decline and a 16.5% decline from the Trust I
Offering price of $21/Unit).” Consol. Am. Compl. ¶ 232. From “November 12 [to] 15,
2012, the price of Trust I Units dropped further on each trading day to close at $14.81 on
November 15, 2012—an additional decline of 15.6%,” resulting in a total decline of 21.8%.
Id. “[T]he price of Trust II Units declined from $19.36 per unit on November 8, 2012 to
close at $17.70 per unit on November 9, 2012 (an 8.5% decline, and a 15.7% decline from
the Trust II Offering price of $21/Unit).” Id. ¶ 233. From “November 12 [to] 15, 2012,
the price of Trust II Units dropped further on each trading day to close at $15.36 on
November 15, 2012—an additional drop of 13.2%,” resulting in a total decline in the price
of Trust II units of 20.7%. Id.
B. Procedural History of In re Sandridge Energy, Inc. Securities Litigation, Case No.
CIV-12-1341-G
On December 5, 2012, a complaint was filed in this Court on behalf of a putative
class of investors in SandRidge common stock, asserting claims against SandRidge, Ward,
Grubb, and Bennett (who was executive vice president of SandRidge and chief financial
officer of both SandRidge and the two Trusts). See Glitz v. SandRidge Energy, Inc., Case
3

References to page numbers herein use the ECF pagination unless otherwise specified.
4

No. CIV-12-1341 (W.D. Okla.). Initially, no claims were asserted on behalf of Trust I or
Trust II investors, and neither Trust I nor Trust II was a named defendant.
The Complaint alleged that SandRidge, together with its officers and directors, had
violated federal securities laws by “disseminati[ng] . . . false and misleading statements
concerning . . . [SandRidge’s] business and operational status and FY 2012 financial
expectations.” Glitz, Compl. (Doc. No. 1) ¶ 1. The Complaint contended that “the truth”
about defendants’ conduct had “beg[un] to be revealed” on November 8, 2012, through a
“publicly issued . . . letter” written by “D[i]nakar Singh, CEO of . . . TPG-Axon, which
then owned 4.5% of SandRidge’s stock.” Id. ¶ 52 (emphasis and capitalization omitted).
This letter discussed “SandRidge’s ‘disastrous performance’ and over 76% decline in its
stock price.” Id. To this end, the Complaint also cited a November 8, 2012 press release,
in which “Defendants [had] reported a loss of $184 million, or 39 cents per share, in the
3Q 2012, compared with a profit of $561 million, or $1.16 per share, in the 3Q 2011.” Id.
¶ 54 (emphasis omitted). And it cited a November 9, 2012 conference call, during which
“Defendant Ward [had] acknowledged that SandRidge had been overstating the value of
its Mississippian assets . . . , disclosing that in reality, [SandRidge’s] Mississippian
formation assets consisted of far more low-margin natural gas deposits and far fewer highmargin oil deposits than the market had previously been led to believe.” Id.
The Complaint also alleged that the defendants had made misstatements and
omissions about “the extent and value of [SandRidge’s] oil reserves” so that SandRidge
could “monetize its interests in the Mississippian formation assets.” Id. ¶ 66. These
misstatements and omissions, said the plaintiffs, had “[a]rtificially inflat[ed] and
5

manipulat[ed] SandRidge’s stock price,” and when they “became apparent to the market
on November 8, 2012, SandRidge’s stock price fell precipitously.” Id. ¶ 67.
Glitz was eventually consolidated with Carbone v. SandRidge Energy, Inc., Case
No. CIV-13-19, also pending in the Western District of Oklahoma. See Glitz, Order of
Mar. 6, 2013 (Doc. No. 60) (West, J.). Laborers Pension Trust Fund for Northern Nevada,
Construction Laborers Pension Trust of Greater St. Louis, Vladimir Galkin, and Angela
Galkin, purchasers of SandRidge common stock, were appointed Lead Plaintiffs in the restyled consolidated action. See id. at 2, 4. In July 2013, they amended their complaint.
See In re SandRidge Energy, Inc. Securities Litigation, Case No. CIV-12-1341-G
(“SandRidge”), Doc. Nos. 67, 73, 75.4
Named as additional plaintiffs in that pleading were Judith Greenberg, Charles
Blackburn, and Ted Odell, who sought to assert claims on behalf of a putative class of
purchasers of Trust I and Trust II Units. See SandRidge Compl. (Doc. No. 75) ¶¶ 1, 2325.

These Trust I and II Unitholders likewise alleged that Defendants’ alleged

misrepresentations and omissions about wells in the Mississippian Formation had
artificially inflated the price of Trust I and Trust II Units. They further alleged that, “[a]s
a direct result of Defendants’ disclosures” on November 8 and 9, 2012, and “a

4

More precisely, the Lead Plaintiffs in SandRidge filed a consolidated amended complaint
on July 23, 2013 (Doc. No. 67), a corrected consolidated amended complaint on July 30,
2013 (Doc. No. 73), and a second corrected consolidated amended complaint on July 30,
2013 (Doc. No. 75). For ease of reference, the Court refers to the last of these documents—
which is the operative pleading—as the “SandRidge Complaint.”
6

materialization of the undisclosed risk of investing in . . . the SandRidge Trusts,” the price
of Trust I and Trust II Units “fell precipitously.” See id. ¶¶ 329-331, 361.5
On May 11, 2015, the Court dismissed the claims brought by Greenberg, Blackburn,
and Odell without prejudice for failure to comply with certain requirements of the Private
Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4. See SandRidge,
Order of May 11, 2015 (Doc. No. 180) (West, J.).
C. Procedural History of Current Action, Case No. CIV-15-634-G
On June 9, 2015, immediately after the dismissal of the claims of Greenberg,
Blackburn, and Odell in SandRidge, Lanier brought the instant action. See Compl. (Doc.
No. 1). A consolidated amended complaint followed on November 11, 2016. See Am.
Compl. (Doc. No. 78).6 In that pleading, Lanier joined with Nibur and Rath (who like
Lanier had purchased Trust I units) and with Luna and Willenbucher (who also like Lanier
had purchased Trust II units) to bring claims on behalf of themselves and the individuals
and entities that had purchased or otherwise acquired common units of (a) Trust I pursuant
or traceable to the Trust I IPO, deemed effective April 5, 2011, and/or at all other times

5

The Trust I Unitholders further alleged that a November 19, 2012 analyst report on Trust
I stated, “Following comments from management of SandRidge . . . regarding horizontal
Mississippian well performance we are lowering our [earnings per unit] estimates and
valuation range as a result of an updated type curve.” SandRidge Compl. ¶ 332. The report
further stated that based on information revealed during the conference call that “the data
indicate[d] that oil production rates [were] declining at a faster than previously anticipated
rate,” id. (emphasis omitted), and as a result, SandRidge was “reducing [estimated ultimate
recoveries] due to the steeper decline rate for oil” and was “updating [its] model to reflect
these assumptions.” Id.
6

Lead Plaintiffs supplemented their consolidated amended complaint on May 1, 2017. See
Suppl. Allegations (Doc. No. 120).
7

between April 5, 2011, and November 8, 2012, inclusive (the “Class Period”), see, e.g., id.
¶¶ 2, 3; and/or (b) Trust II pursuant or traceable to the Trust II IPO, deemed effective April
17, 2012, and/or at all other times during the Class Period, see, e.g., id.
Relief was sought under sections 10(b) and 20(a) of the Securities Exchange Act of
1934 (“Exchange Act”), as amended by the PSLRA, 15 U.S.C. §§ 78j(b), 78t(a), and Rule
10b-5, promulgated thereunder. See 17 C.F.R. § 240.10b-5. Lead Plaintiffs also sought to
hold certain defendants liable under sections 11, 12(a)(2), and 15 of the Securities Act of
1933 (“Securities Act”), 15 U.S.C. §§ 77k, 77l(a)(2) and 77o.
The Exchange Act and Rule 10b-5 claims were asserted against Trust I and nominal
Defendant SandRidge as well as against Defendants Ward, Bennett, and Grubb. The
Securities Act claims were asserted against both Trust I and Trust II, SandRidge, Ward,
Bennett, and Grubb. Also named as Defendants were Randall D. Cooley, who served as
SandRidge’s senior vice president–accounting, members of SandRidge’s Board of
Directors (Jim J. Brewer, Everett R. Dobson, William A. Gilliland, Daniel W. Jordan, Roy
T. Oliver, Jr., and Jeffrey S. Serota), and certain entities that had underwritten the Trusts’
offerings and/or had helped draft and disseminate prospectuses for the two offerings.7
On August 30, 2017, the Court, without objection, dismissed Lead Plaintiffs’
Securities Act claims. See Order of Aug. 30, 2017 (Doc. No. 129) (Miles-LaGrange, J.).
Judgment on those claims was thereafter entered pursuant to Federal Rule of Civil

7

Those entities were Raymond James & Associates, Inc., Morgan Stanley & Co.
Incorporated (n/k/a Morgan Stanley & Co., LLC), Merrill Lynch, Pierce, Fenner & Smith,
Inc., RBC Capital Markets, LLC, and Citigroup Global Markets Inc.
8

Procedure 54(b) on December 5, 2017. See J. (Doc. No. 146) (Palk, J.). The Court also
dismissed Luna’s and Willenbucher’s claims against Trust I on January 18, 2019. See
Order of Jan. 18, 2019 (Doc. No. 282) (Goodwin, J.). What remains are the individual
claims of Lanier, Nibur, and Rath and the claims they have asserted on behalf of putative
class members under section 10(b) and/or section 20(a) of the Exchange Act and under
Rule 10b-5 against Defendants SandRidge, Ward, Bennett, Grubb, and Trust I.
STANDARD OF REVIEW
Defendants originally argued in their Rule 12(c) motion that the Exchange Act
claims brought by Lead Plaintiffs on behalf of the putative class members were timebarred. Based on Lead Plaintiffs’ response, Defendants have now contended that all
Exchange Act claims in this action are untimely. Thus, Defendants invoke their affirmative
defense of the statute of limitations, contending that Plaintiffs’ claims were asserted after
expiration of the two-year limitations period set forth in 28 U.S.C. § 1658(b)(1) for
Exchange Act claims.8
A.

General Rule 12(c) Standards

Rule 12(c) permits a party to move for judgment on the pleadings “[a]fter the
pleadings are closed—but early enough not to delay trial.” Fed. R. Civ. P. 12(c). The

8

28 U.S.C. § 1658(b) provides that
a private right of action that involves a claim of fraud, deceit, manipulation,
or contrivance in contravention of a regulatory requirement concerning the
securities laws . . . may be brought not later than the earlier of—
(1) 2 years after the discovery of the facts constituting the violation; or
(2) 5 years after such violation.
9

Court evaluates the motion under the familiar standard for Federal Rule of Civil Procedure
12(b)(6) motions. See Atl. Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138,
1160 (10th Cir. 2000) (citing Mock v. T.G. & Y. Stores Co., 971 F.2d 522, 528 (10th Cir.
1992)); see, e.g., Denver Health & Hosp. Auth. v. Beverage Distribs. Co., LLC, 546 F.
App’x 742, 745 (10th Cir. 2013). Accordingly, the Court “accept[s] the well-pleaded
allegations of the [operative] complaint as true and construe[s] them in the light most
favorable to the non-moving party.” Realmonte v. Reeves, 169 F.3d 1280, 1283 (10th Cir.
1999).
While the Court may dismiss a claim on the pleadings based on an affirmative
defense9 under Rule 12(c), it is only appropriate to do so when a plaintiff’s pleadings

9

Federal Rule of Civil Procedure 8(c) requires that a responsive pleading set forth certain
enumerated affirmative defenses, including the statute of limitations. Generally, “a party
waives its right to raise an affirmative defense at trial when the party fails to raise the
defense in its pleadings,” Creative Consumer Concepts, Inc. v. Kreisler, 563 F.3d 1070,
1076 (10th Cir. 2009); the Tenth Circuit, however, has cautioned courts to “keep in
perspective that the liberal pleading rules established by the Federal Rules of Civil
Procedure apply to the pleading of affirmative defenses,” id. (internal quotation marks
omitted), and to “avoid hypertechnicality in pleading requirements and focus, instead, on
enforcing the actual purpose of the rule,” id. (internal quotation marks omitted), which is
to guarantee that the opposing party has notice of any additional issue that may be
raised at trial so that he or she is prepared to properly litigate it. When a plaintiff
has notice that an affirmative defense will be raised at trial, the defendant’s failure
to comply with Rule 8(c) does not cause the plaintiff any prejudice. And, when the
failure to raise an affirmative defense does not prejudice the plaintiff, it is not error
for the trial court to hear evidence on the issue.
Id. (internal quotation marks omitted).
Defendants SandRidge, Bennett, and Grubb raised the affirmative defense of statute
of limitations in their answers to the consolidated amended complaint. See SandRidge’s
Answer (Doc. No. 137) ¶ 388; Bennett and Grubb’s Answer (Doc. No. 138) at 79, ¶ 28.
Ward and Trust I did not assert this affirmative defense in their responsive pleadings. See
Ward’s Answer (Doc. No. 140), at 16-20; Trust I’s Answer (Doc. No. 141) at 45-48.
10

“admit[ ] all the elements of the affirmative defense by alleging the factual basis for those
elements.” Fernandez v. Clean House, LLC, 883 F.3d 1296, 1299 (10th Cir. 2018).10 Thus,
to prevail on their Rule 12(c) motion, Defendants must show that the pleadings in this case
(and those matters of which the Court may take judicial notice)11 “make clear that the right
sued upon has been extinguished.’” Solomon v. HSBC Mortg. Corp., 395 F. App’x 494,
497 (10th Cir. 2010) (quoting Aldrich v. McCulloch Props., Inc., 627 F.2d 1036, 1041 n.4
(10th Cir. 1980)).
B. The two-year limitations period set forth in 28 U.S.C. § 1658(b)(1)
Section 1658(b)(1)’s two-year limitations period “begins to run upon discovery of
the facts constituting the violation.” China Agritech, Inc. v. Resh, 138 S. Ct. 1800, 1804
(2018). The term “discovery” as used in § 1658(b)(1) was interpreted by the Supreme
Court in Merck & Co., Inc. v. Reynolds, 559 U.S. 633 (2010). Because the arguments in

Because Lead Plaintiffs have not complained that Ward’s and Trust I’s failure to do so has
prejudiced them, the Court finds Ward and Trust I have not waived their right to assert this
affirmative defense.
“Rule 12(b)(6) or Rule 12(c) is a proper vehicle for dismissing a complaint that, on its
face, indicates the existence of an affirmative defense such as noncompliance with the
limitations period.” Guidry v. Chenega Integrated Sys., L.L.C., No. CIV-07-378-D, 2010
WL 11613793, at *1 (W.D. Okla. Feb. 12, 2010) (alteration and internal quotation marks
omitted).
10

11

See Wei v. Univ. of Wyo. Coll. of Health Sch. Pharm., No. 18-8011, 2019 WL 117081,
at *3 (10th Cir. Jan. 7, 2019) (finding that the district court was entitled to glean relevant
date for limitations calculation by taking judicial notice of a filing in the plaintiff’s earlier
lawsuit); Guidry, 2010 WL 11613793, at *1 (“Facts subject to judicial notice, such as facts
shown by the case record, may be considered without converting the [Rule 12(b)(6) or Rule
12(c)] motion to one for summary judgment”).
11

this case implicate principles explained in Merck, the Court recites the relevant discussion
at length.
In Merck, a group of investors had brought suit on November 6, 2003, against Merck
& Co., Inc. and others under section 10(b), alleging that these defendants had “knowingly
misrepresented the risks of heart attacks accompanying the use of Merck’s pain-killing
drug, Vioxx (leading to economic losses when the risks later became apparent).” Merck,
559 U.S. at 637-38.

The district court dismissed plaintiffs’ complaint as untimely,

concluding that certain pre-November 2001 events “should have alerted the plaintiffs to a
possibility that Merck had knowingly misrepresented material facts no later than October
9, 2001, thus placing the plaintiffs on ‘inquiry notice’ to look further.” Id. at 643 (emphasis
and internal quotation marks omitted);12 see In re Merck & Co. Sec., Derivative &
“ERISA” Litig. (MDL No. 1658), 483 F. Supp. 2d 407 (D.N.J. 2007). Because “the
plaintiffs had failed to show that they exercised reasonable due diligence but nevertheless

12

These events included:

(a) a March 2000 study conducted by Merck that “compared Vioxx with another
painkiller, naproxen” and showed that while “persons taking Vioxx suffered fewer
gastrointestinal side effects,” “approximately 4 out of every 1,000 participants who took
Vioxx suffered heart attacks, compared to only 1 per 1,000 participants who took
naproxen,” Merck, 559 U.S. at 639;
(b) a Food and Drug Administration (“FDA”) “warning letter released to the public on
September 21, 2001,” that read in part “that, in respect to cardiovascular risks, Merck’s
Vioxx marketing was ‘false, lacking in fair balance, or otherwise misleading,’” id. at 640
(internal quotation marks omitted); and
(c) Merck’s response on October 9, 2001, as reported in the New York Times, to the
FDA letter, the filing of “more products-liability lawsuits,” and the drop in Merck’s share
price: “Merck ha[s] reexamined its own data and ‘[finds] no evidence that Vioxx
increase[s] the risk of heart attacks,’” id. at 641 (internal quotation marks omitted).
12

were unable to discover their injuries, the [district] court took October 9, 2001, as the date
that the limitations period began to run.” Merck, 559 U.S. at 643 (internal quotation marks
omitted). The Third Circuit reversed, finding “that the pre-November 2001 events, while
constituting ‘storm warnings,’ did not suggest much by way of scienter, and consequently
did not put the plaintiffs on ‘inquiry notice,’ requiring them to investigate further.” Id.; see
In re Merck & Co. Sec., Deriv. & “ERISA” Litig. (MDL No. 1658), 543 F.3d 150, 172 (3d
Cir. 2008).
In affirming the court of appeals’ decision, the Supreme Court agreed “that
Congress intended courts to interpret the word ‘discovery’ in § 1658(b)(1)” as
“encompass[ing] not only to those facts the plaintiff actually knew, but also those facts a
reasonably diligent plaintiff would have known.” Merck, 559 U.S. at 646, 648. Applying
that interpretation, the Supreme Court rejected Merck’s argument that § 1658(b)(1) did
“not require ‘discovery’ of scienter-related ‘facts.’” Id. at 648. It held: “The statute says
that the limitations period does not begin to run until ‘discovery of the facts constituting
the violation.’ Scienter is assuredly a ‘fact.’”13 Id. (quoting 28 U.S.C. § 1658(b)(1)). The
Court further explained:

“Scienter consists of ‘a mental state embracing intent to deceive, manipulate, or defraud,’
or recklessness.” Anderson v. Spirit AeroSystems Holdings, Inc., 827 F.3d 1229, 1236-37
(10th Cir. 2016) (quoting Adams v. Kinder-Morgan, Inc., 340 F.3d 1083, 1105 (10th Cir.
2003)). For purposes of section 10(b), “recklessness is defined 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 defendant or is so obvious that the
[defendant] . . . must have been aware of it.’” City of Phil. v. Fleming Cos., Inc., 264 F.3d
1245, 1260 (10th Cir. 2001) (internal quotation marks omitted).
13

13

And this “fact” of scienter “constitut[es]” an important and necessary
element of a § 10(b) “violation.” A plaintiff cannot recover without proving
that a defendant made a material misstatement with an intent to deceive—
not merely innocently or negligently. Indeed, Congress has enacted special
heightened pleading requirements for the scienter element of § 10(b) fraud
cases. As a result, unless a § 10(b) plaintiff can set forth facts in the
complaint showing that it is “at least as likely as” not that the defendant acted
with the relevant knowledge or intent, the claim will fail. It would therefore
frustrate the very purpose of the discovery rule in this provision—which,
after all, specifically applies only in cases “involv[ing] a claim of fraud,
deceit, manipulation, or contrivance,”—if the limitations period began to run
regardless of whether a plaintiff had discovered any facts suggesting scienter.
So long as a defendant concealed for two years that he made a misstatement
with an intent to deceive, the limitations period would expire before the
plaintiff had actually “discover[ed]” the fraud.
Id. at 648-49 (alterations in original) (emphasis, citations, and internal quotation marks
omitted).
The Supreme Court rejected Merck’s next argument that, “even if ‘discovery’
requires facts related to scienter, facts that tend to show a materially false or misleading
statement (or material omission) are ordinarily sufficient to show scienter as well.” Id. at
649. The Supreme Court “recognize[d] that certain statements are such that, to show them
false is normally to show scienter as well,” but found that in section 10(b) cases “the
relation of factual falsity and state of mind is more context specific. An incorrect prediction
about a firm’s future earnings, by itself, does not automatically tell us whether the speaker
deliberately lied or just made an innocent (and therefore nonactionable) error.” Id. at 650.
Accordingly, § 1658(b)(1) “may require ‘discovery’ of scienter-related facts beyond the
facts that show a statement (or omission) to be materially false or misleading.” Id.
The Supreme Court also took issue with terminology used by Merck and in the
courts below, including that the limitations period begins to run when plaintiffs are “on
14

‘inquiry notice’”—that is, “the point at which a plaintiff possesses a quantum of
information sufficiently suggestive of wrongdoing that he should conduct a further
inquiry.” Id. (internal quotation marks omitted). Noting § 1658(b)(1)’s express language,
the Supreme Court held that a plaintiff’s claim does not accrue “when a plaintiff would
have begun investigating” but upon “the ‘discovery’ of” the “‘facts constituting the
violation.’” Id. at 651. It stated that “[i]f the term ‘inquiry notice’ refers to the point where
the facts would lead a reasonably diligent plaintiff to investigate further, that point is not
necessarily the point at which the plaintiff would already have discovered facts showing
scienter or other ‘facts constituting the violation.’” Id. And, similarly, the Supreme Court
stated that events commonly characterized as “storm warnings” “may be useful to the
extent that they identify a time when the facts would have prompted a reasonably diligent
plaintiff to begin investigating.” Id. at 653.14
In evaluating the timeliness of the Exchange Act claims in this case, the Court, as
the Supreme Court has cautioned, must be cognizant that § 1658(b)(1)’s two-year
limitations period did not begin to run (and Lead Plaintiffs’ Exchange Act claims did not
accrue) until, as shown by the allegations in the pleadings, Lead Plaintiffs “did in fact

14

Cf. De Vito v. Liquid Holdings Grp., Inc., No. CIV-15-6969 (KM) (JBC), 2018 WL
6891832, at *26 (D.N.J. Dec. 31, 2018) (explaining that while “[t]erms such as ‘inquiry
notice’ and ‘storm warnings’ may be useful to the extent that they identify a time when
facts would have prompted a reasonably diligent plaintiff to begin investigating,’” “such
metaphors do not supply the legal standard; calling a disclosure a ‘storm warning’ does not
trigger the statute of limitations before the plaintiff discovers or a reasonably diligent
plaintiff would have discovered the facts constituting a violation” (internal quotation marks
omitted)).
15

discover, or . . . a reasonably diligent plaintiff would have discovered, ‘the facts
constituting the violation,’”—“includ[ing] the fact of scienter”—“whichever [came] first.”
Id. at 637 (emphasis added) (quoting 28 U.S.C. § 1658(b)(1)). These “discovery principles
cannot be evaded by [Lead Plaintiffs’] inaction.” De Vito, 2018 WL 6891832, at *25.
Rather, “they apply ‘irrespective of whether . . . [Lead] [P]laintiff[s] undertook a
reasonably diligent investigation.’” Id. (quoting Pension Trust Fund for Operating Eng’rs
v. Mortg. Asset Securitization Transactions, Inc., 730 F.3d 263, 275 (3d Cir. 2013)).
DISCUSSION
According to Defendants, because Lead Plaintiffs’ “own dispositive admissions”
show “without exception or qualification,” that “all elements of Defendants’ fraudulent
conduct, including scienter, were revealed to the investing public, including Plaintiffs, by
November 9, 2012,” the Exchange Act claims filed more than two years later, on June 9,
2015, are time-barred. Defs.’ Am. Reply (Doc. No. 242) at 2, 3 (emphasis omitted).15
Relying on the allegations in both the original complaint and the amended pleading,
Defendants contend that Lead Plaintiffs knew as early as November 2012 about “the nature
and extent of Defendants’ fraud.” Compl. ¶ 80. In particular, Defendants point to Lead

15

Lead Plaintiffs have made clear in their response that they are not relying on American
Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), wherein the Supreme Court held
among other things “that the timely filing of a class action tolls the applicable statute of
limitations for all persons encompassed by the class complaint.” China Agritech, 138 S.
Ct. at 1804; see Pls.’ Mem. at 18 (“Plaintiffs’ initial complaint filed on June 9, 2015 was
timely under Merck, and Plaintiffs need not rely on American Pipe tolling to render their
Exchange Act claims timely . . . .”); id. (“American Pipe tolling is irrelevant because as
shown, under Merck, the two-year limit had not expired before the Plaintiffs filed their
initial complaint on June 9, 2015.”).
16

Plaintiffs’ assertion that the “fraud [was] finally . . . revealed to investors and the market,”
“after the disclosures on November 8 and 9, 2012, came to light.” Id.; see also id. ¶ 75
(“[w]hen Defendants’ prior misrepresentations and fraudulent conduct were disclosed and
became apparent to the market, the price of SandRidge Trusts units fell precipitously”);
Consol. Am. Compl. ¶ 25 (“risks to Trust I and II Unitholders concealed by material
omissions from the Trusts’ registration statements . . . began to materialize on November
9, 2012, when SandRidge held a conference call”); cf. SandRidge Compl. (Doc. No. 1) ¶
67 (“When Defendants’ prior misrepresentations and fraudulent conduct became apparent
to the market on November 8, 2012, SandRidge’s stock price fell precipitously, as the prior
artificial inflation came out of the stock price.”).
Lead Plaintiffs respond that they had not and could not have discovered by
November 2012 (or any time more than two years prior to June 9, 2015) the facts related
to scienter. They contend that their Exchange Act claims “did not begin to run any earlier
than July 23, 2013,” the day the first consolidated amended complaint was filed in
SandRidge. Pls.’ Mem. at 11 (emphasis omitted); see SandRidge Consol. Am. Compl.
(Doc. No. 67).16

16

See supra note 4. As stated, this pleading was followed by a corrected consolidated
amended complaint (Doc. No. 73), and a second corrected consolidated amended
complaint (Doc. No. 75), both filed on July 30, 2013. Because Lead Plaintiffs have cited
to the Court’s Order dated August 27, 2015, which examined the allegations in the second
corrected consolidated amended complaint (Doc. No. 75), see SandRidge, Order of Aug.
27, 2015 (Doc. No. 184) at 1 (West, J.) (“after review of the allegations in the corrected
consolidated amended complaint, see Doc. 75”), the Court has referred to that pleading in
considering the arguments now presented by the parties.
17

Lead Plaintiffs note that in SandRidge, the Court on August 27, 2015, found that the
allegations in support of the essential element of scienter in that case—allegations filed by
“sophisticated institutional investors and their experienced securities class action
counsel”—were deficient. See Pls.’ Mem. at 6, 11. According to Lead Plaintiffs, because
the Court “necessarily determined that the November 2012 disclosures did not reveal
scienter,” Defendants cannot now claim that those same November 2012 disclosures
provided Lead Plaintiffs sufficient information to trigger the two-year time limit in §
1658(b)(1). Id. at 13.
In the August 27, 2015 Order, the Court considered whether the allegations in
SandRidge met the PSLRA’s “heightened pleading standard” and, specifically, “satisf[ied]
the scienter requirement—a mental state embracing intent to deceive, manipulate, or
defraud.” SandRidge, Order of Aug. 27, 2015, at 24 (internal quotation marks omitted).
The Court found that
“there is little in the [corrected consolidated] [a]mended [c]omplaint to
support the conclusory allegation that [defendants’] . . . allegedly misleading
omissions and statements were motivated by the intent to defraud or by a
reckless disregard of a known ‘fact that was so obviously material that
[defendants Ward, Grubb, and Bennett] . . . must have been aware both of its
materiality and that its nondisclosure would likely mislead investors.’”
[Weinstein v. McClendon, 757 F.3d 1110,] 1114 [(10th Cir. 2014)]. Absent
allegations that give rise to a strong inference that [defendants] . . . “knew
about the ‘“danger of misleading buyers and sellers,’” Nakkhumpun[ v.
Taylor, 782 F.3d 1142,] 1149 [(10th Cir. 2015)] (quoting Dronsejko v.
Thornton, 632 F.3d 658, 665 (10th Cir. 2011) (further quotation omitted)),
or that “the danger [of misleading investors] was ‘so obvious that
[defendants] . . . must have been aware of it[,]’” id. (quotations omitted), this
theory of relief fails. The allegations in the [corrected consolidated]
[a]mended [c]omplaint taken as a whole together with the exhibits submitted
by the parties, fail to create the necessary inference that any representations
made by, or any nondisclosures of, [any defendant] . . . regarding the
18

production of SandRidge’s wells in the Mississippian formation were made
with the primary purpose of misleading shareholders or that . . . defendant[s]
recklessly disregarded the likelihood that [their] . . . representations or
nondisclosures regarding production would mislead SandRidge investors.
Id. at 28-29 (ninth and eleventh alteration in original) (footnotes omitted); see also id. at
22.17
Again, the question before the Court is when—as shown by the pleadings in this
case—Lead Plaintiffs discovered, or a reasonably diligent plaintiff would have discovered,
sufficient facts regarding Defendants’ state of mind to start the two-year limitations
period.18 Despite Defendants’ arguments to the contrary, the Court finds there are no

17

In the instant case, the Court determined on November 11, 2017, that Lead Plaintiffs had
sufficiently pled the essential elements of their section 10(b) claims, including facts
evidencing scienter as to Defendants Ward and Grubb. See Order of Sept. 11, 2017 (Doc.
No. 130) (Miles-LaGrange, J.) at 8. In doing so, the Court found that the consolidated
amended complaint
specifically allege[d] that both [D]efendants Ward and Grubb attended senior
management meetings concerning the oil and gas production performance of
individual SandRidge wells, including the Trust Wells, after the Trust
offerings, that the meetings were often led by [D]efendant Grubb, and that
the declining oil production of the Trust Wells after the Trust I IPO, and the
unpredictability of the performance of individual Trust I Wells after the Trust
I IPO, was discussed at these weekly meetings.
Id. at 8-9 (citing Consol. Am. Comp. (Doc. No. 78) ¶¶ 68-73). The Court further found
that the allegations regarding Defendants Ward and Grubb’s “motive further support[ed] a
finding . . . [of] scienter.” Id. at 9 (citing Consol. Am. Compl. (Doc. No. 78) ¶¶ 299-304).
As to Defendant Bennett, the Court found that the allegations in the consolidated amended
complaint failed to sufficiently allege scienter and dismissed the section 10(b) claims
against him. See id.
18

In SandRidge, the Court made no findings regarding when the plaintiffs discovered the
facts supporting their allegations of scienter, and the plaintiffs had no duty to plead the
same. See Fernandez, 883 F.3d at 1299 (“A plaintiff need not anticipate in the complaint
an affirmative defense that may be raised by the defendant”); Ghailani v. Sessions, 859
19

allegations in Lead Plaintiffs’ pleadings that definitively establish for purposes of §
1658(b)(1) when Lead Plaintiffs learned the key facts supporting their allegations of
scienter.19 Lead Plaintiffs’ conclusory assertion that “the nature and extent of Defendants’
fraud” was “revealed to investors and the market” “after the disclosures on November 8
and 9, 2012, came to light,” Compl. ¶ 80, is not sufficient to show that Lead Plaintiffs
knew—as of November 9, 2012, or any time prior to June 9, 2013—that a named defendant
had acted either (i) with the intent to deceive, manipulate, or defraud Trust I Unitholders
or (ii) so recklessly that his conduct “‘present[ed] a danger of misleading [these] buyers or
sellers that [was] either known to the defendant or [was] so obvious that the [defendant] . .
. must have been aware of it.’” Fleming Cos., 264 F.3d at 1260 (internal quotation marks
omitted).
As to whether Defendants have shown that the pleadings establish facts that “would
have prompted a reasonably diligent plaintiff to begin investigating” whether Defendants
were at fault by November 2012, Merck, 559 U.S. at 653, the Court finds that a reasonably

F.3d 1295, 1306 (10th Cir. 2017) (noting that the complaint need not anticipate affirmative
defenses).
19

To find that a plaintiff had in fact discovered the key facts, the record must make clear
that the plaintiff had actual notice of what it considered to be the underlying fraudulent
conduct, including the defendant’s scienter. See, e.g., Zarecor v. Morgan Keegan & Co.,
801 F.3d 882, 887 (8th Cir. 2015) (plaintiffs’ statement of claim in arbitration that
defendant had not disclosed risky structure of securities and had “misrepresented hundreds
of millions of dollars of asset-backed securities as being corporate bonds and preferred
stocks” was sufficient to show facts constituting violation, including “an intent to
deceive”); FirstBank P.R., Inc. v. La Vida Merger Sub, Inc., 638 F.3d 37, 39 (1st Cir. 2011)
(at the moment plaintiff knew of merger, “it necessarily also knew that it had not been told
of the merger earlier” and that “[d]efendants [had] purposely avoided [plaintiff’s]
participation in the [m]erger”).
20

diligent plaintiff who had purchased Trust I Units and who had sustained damages when
the price of those units declined might have determined that inquiry into the cause of that
decline was warranted. “[E]vidence that Trust I’s wells were not performing as well as
expected began to emerge in late 2011.” Consol. Am. Compl. (Doc. No. 78) ¶ 307. During
Trust I conference calls in 2011 and 2012, analysts: “raised pointed questions,” id.;
inquired about certain “ominous signs of Trust I Wells’ declining oil production,” id. ¶
294; and “expressed concern over the drop in oil production in the Mississippian
Formation,” id. ¶ 230. And, “the truth” was further “revealed” on November 8, 2012, when
investor Singh publicly issued his letter complaining about “SandRidge’s ‘disastrous
performance.’” SandRidge Compl. at 24 (emphasis and capitalization omitted), ¶ 52; see
also SandRidge, Corr. Consol. Am. Compl. (Doc. No. 75) ¶ 322. Such allegations alone,
however, are not enough to establish as a matter of law when a reasonable plaintiff,
diligently investigating these alleged “storm warnings,” would have discovered the facts
constituting the cause of action, including the fact that any named defendant acted either
recklessly or with the intent to deceive, manipulate, or defraud Trust I Unitholders. See
City of Pontiac Gen. Emps.’ Ret. Sys. v. MBIA, Inc., 637 F.3d 169, 174 (2d Cir. 2011)
(noting that absent actual knowledge, “the limitations period commences not when a
reasonable investor would have begun investigating, but when such a reasonable investor
conducting such a timely investigation would have uncovered the facts constituting a
violation”).

21

CONCLUSION
While a court may dismiss a claim on the pleadings based on an affirmative defense
under Federal Rule of Civil Procedure 12(c), it is only appropriate to do so when a
plaintiff’s pleadings “admit[ ] all the elements of the affirmative defense by alleging the
factual basis for those elements.” Fernandez, 883 F.3d at 1299. Because application of a
limitations period is most often a fact-intensive inquiry, see Merck, 559 U.S. at 652 (citing
Young v. Lepone, 305 F.3d 1, 9 (1st Cir. 2002) (“[A] reasonably diligent investigation . . .
may consume as little as a few days or as much as a few years to get to the bottom of the
matter.”)), and because Defendants have not shown at this stage of the proceeding that the
allegations in Lead Plaintiffs’ pleadings “make clear that the right sued upon [in this case]
has been extinguished,’” Solomon, 395 F. App’x at 497 (internal quotation marks omitted),
the Court DENIES Defendants’ Motion for Partial Judgment on the Pleadings (Doc. No.
215).

Such denial is without prejudice should discovery reveal a basis for again

challenging the timeliness of Lead Plaintiffs’ Exchange Act claims.
IT IS SO ORDERED this 26th day of March, 2019.

22