holding taxpayers could not bring class action without first exhausting administrative remedies
How later courts described this case
- holding taxpayers could not bring class action without first exhausting administrative remedies
- if the moving party seeks to certify a predominance-of-common-questions action, the commonality determination under Rule 42(a) is subsumed under the predominance determination
- if the moving party seeks to - 5- 759959 1 733 951 733 certify a predominance-of-common-questions action, the commonality determination under Rule 42(a) is subsumed under the predominance determination
- holding that the class-action device cannot alter the parties’ burden of proof or the substantive prerequisites to a claim or defense
Written by the judges who cited it.
The opinion
ACCEPTED
03-15-00248-CV
7127861
THIRD COURT OF APPEALS
AUSTIN, TEXAS
9/28/2015 4:48:15 PM
JEFFREY D. KYLE
CLERK
No. 03-15-000248-CV
___________________________________________
FILED IN
In the Third Court of Appeals 3rd COURT OF APPEALS
AUSTIN, TEXAS
at Austin, Texas 9/28/2015 4:48:15 PM
___________________________________________
JEFFREY D. KYLE
Clerk
BRIGHAM EXPLORATION COMPANY, ET AL,
Defendants/Appellants,
v.
RAYMOND BOYTIM, ET AL,
Plaintiffs/Appellees.
___________________________________________
On Appeal from the 201st Judicial District Court of Travis County, Texas
Honorable Lora Livingston, Presiding Judge
Cause No. D-1-GN-11-003205
__________________________________________________________________
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS
_________________________________________________________________
THOMPSON & KNIGHT LLP THOMPSON & KNIGHT LLP
Debora B. Alsup Timothy R. McCormick
Texas Bar No. 02006200 Texas Bar No. 13463500
debora.alsup@tklaw.com timothy.mccormick@tklaw.com
Benjamin Hallmark Michael W. Stockham
Texas Bar No. 24069865 Texas Bar No. 24038074
benjamin.hallmark@tklaw.com michael.stockham@tklaw.com
98 San Jacinto Blvd., Suite 1900 1722 Routh Street, Suite 1500
Austin, Texas 78701-4238 Dallas, Texas 75201
(512) 469-6100 (214) 969-1700
(512) 482-5028 (Alsup Fax) (214) 969-1751 (Fax)
(512) 482-5091 (Hallmark Fax)
ATTORNEYS FOR APPELLANTS THE BRIGHAM DEFENDANTS
Oral Argument Requested
IDENTITY OF PARTIES AND COUNSEL
Appellants Counsel for Appellants
Brigham Exploration Company, Debora B. Alsup
Ben M. Brigham, David T. Ben Hallmark
Brigham, Harold D. Carter, THOMPSON & KNIGHT LLP
Stephen C. Hurley, Stephen P. 98 San Jacinto Blvd., Suite 1900
Reynolds, Hobart A. Smith, and Austin, Texas 78701-4238
Scott W. Tinker (512) 469-6100
(512) 482-5028 (Alsup Fax)
(512) 482-5091 (Hallmark Fax)
debora.alsup@tklaw.com
benjamin.hallmark@tklaw.com
Timothy R. McCormick
Michael W. Stockham
THOMPSON & KNIGHT LLP
1722 Routh Street, Suite 1500
Dallas, Texas 75201
(214) 969-1700
(214) 969-1751 (Facsimile)
timothy.mccormick@tklaw.com
michael.stockham@tklaw.com
Statoil ASA and Fargo Russell S. Post
Acquisition, Inc. Fields Alexander
Parth Gejji
BECK REDDEN LLP
1221 McKinney St., Suite 4500
Houston, Texas 77010
(713) 951-3700
(713) 951-3720 fax
rpost@beckredden.com
falexander@beckredden.com
pgejji@beckredden.com
i
Chris R. Cowan
BECK REDDEN LLP
515 Congress Avenue, Suite 1750
Austin, Texas 78701
(512) 708-1000, ext 6402
(512) 708-1002 fax
ccowan@beckredden.com
Appellees Counsel for Appellees
Raymond Boytim Randall J. Baron
Hugh Duncan David T. Wissbrocker
Steven M. Jodlowski
Robbins Geller Rudman & Dowd LLP
655 West Broadway, Suite 1900
San Diego, CA 92101-3301
(619) 231-1058
(619) 231-7423 fax
Samuel H. Rudman
Mark S. Reich
Michael G. Capeci
Robbins Geller Rudman & Dowd LLP
58 South Service Road, Suite 200
Melville, NY 11747
(631) 367-7100
(631) 367-1173 fax
srudman@rgrdlaw.com
mreich@rgrdlaw.com
mcapeci@rgrdlaw.com
Michael D. Marin
Boulette Golden & Marin LLP
2801 Via Fortuna, Suite 530
Austin, Texas 78746
(512) 732-8924
(512) 732-8905 fax
mmarin@boulettegolden.com
ii
Walter Schwimmer Evan J. Smith
Marc L. Ackerman
Brodsky & Smith, LLC
Two Bala Plaza, Suite 602
Bala Cynwyd, Pennsylvania 19004
(610) 667-6200
(610) 667-9029 fax
esmith@brodsky-smith.com
mackerman@brodsky-smith.com
Michael Ohler Hamilton Lindley
Ryan Ohler Dunnam & Dunnam L.L.P.
Walter Ohler, Jr. 4125 W. Waco Drive 76710
P.O. Box 8418
Waco, Texas 76714
(254) 753-6437
(254) 753-7434 fax
hlindley@dunnamlaw.com
The Edward J. Goodman Life Shane T. Rowley
Income Trust Levi & Korsinsky LLP
and Shane T. Rowley
The Edward J. Goodman 30 Broad St., 24th Floor
Generation Skipping Trust New York, NY 10004
(212) 363-7500 x127
(866) 367-6510 fax
srowley@zlk.com
Denis F. Sheils
Kohn, Swift & Graf, P.C.
One South Broad Street, Suite 2100
Philadelphia, PA 19107-3389
(215) 238-1700
(215) 238-1968 fax
dsheils@kohnswift.com
iii
Hugh Duncan Joe Kendall
Daniel Hill
Jamie J. McKey
Kohn, Swift & Graf, P.C.
One South Broad Street, Suite 2100
Philadelphia, PA 19107-3389
(215) 238-1700
(215) 238-1968 fax
dsheils@kohnswift.com
Robert Fioravanti Katharine M. Ryan
Richard A. Maniskas
Ryan & Maniskas, LLP
995 Old Eagle School Road, Suite 311
Wayne, PA 19087
(484) 588-5516
(484) 450-2582 fax
kryan@rmclasslaw.com
rmaniskas@rmclasslaw.com
Kelly N. Reddell
The Reddell Firm PLLC
100 Highland Park Village, Suite 200
Dallas, Texas 75205
(214) 295-3031
kelly@reddell-law.com
Raymond Boytim Willie C. Briscoe
The Briscoe Law Firm, PLLC
The Preston Commons
8150 N. Central Expwy., Suite 1575
Dallas, Texas 75206
(214) 239-4568
(281) 254-7789 fax
wbriscoe@thebriscoelawfirm.com
iv
Howard Weissberg Patricia C. Weiser
Jeffrey Whalen James M. Ficaro
The Weiser Law Firm, P.C.
22 Cassatt Avenue
Berwyn, PA 19312
(610) 225-2677
(610) 408-8062 fax
pw@weiserlawfirm.com
jmf@weiserlawfirm.com
v
REQUEST FOR ORAL ARGUMENT
Under Texas Rule of Appellate Procedure 39.1, Appellants, the Brigham
Defendants, respectfully request oral argument. Oral argument will assist this
Court in determining the legal issues in this complex appeal.
vi
TABLE OF CONTENTS
Page
IDENTITY OF PARTIES AND COUNSEL .............................................................i
REQUEST FOR ORAL ARGUMENT ....................................................................vi
TABLE OF AUTHORITIES .....................................................................................x
STATEMENT OF CASE .......................................................................................xvi
ISSUES PRESENTED......................................................................................... xviii
STATEMENT OF FACTS ........................................................................................1
A. Brigham’s volatile stock price history was tied to the
price of oil. ..................................................................................1
B. Brigham’s Board agrees to sell Brigham after a yearlong
process. ........................................................................................2
C. Plaintiffs file suit within hours of the transaction
announcement. ............................................................................3
D. Plaintiffs unsuccessfully attempt to enjoin the
transaction. ..................................................................................3
E. Following the merger announcement, Brigham’s stock is
subject to heavy trading volume. ................................................4
F. Brigham’s shareholders overwhelmingly support the
transaction. ..................................................................................6
G. The trial court erroneously entered a class certification
order. ...........................................................................................7
H. This Court decertifies the class in Brigham I. ............................8
I. The trial court recertified the class on remand. ..........................9
STANDARD OF REVIEW .....................................................................................11
vii
SUMMARY OF THE ARGUMENT ......................................................................12
ARGUMENT AND AUTHORITIES ......................................................................15
I. The Trial Court Failed to Rigorously Analyze the Certification
Requirements under Rule 42 on Remand............................................15
A. The Order and Revised Trial Plan exemplify a “certify
now, worry later” approach.......................................................17
B. The class definition is both unworkable and invalid. ...............18
II. The Trial Plan Remains Legally Deficient..........................................21
A. A detailed trial plan is required to demonstrate that the
trial court performed a rigorous analysis under Rule 42. .........22
B. The Revised Trial Plan does not rigorously analyze how
damages will be proven. ...........................................................23
C. The Revised Trial Plan does not rigorously analyze the
effect of the Defendants’ affirmative defenses. ........................25
D. The Revised Trial Plan fails to account for Defendants’
right to request jury findings on proportionate
responsibility. ............................................................................38
E. There is no cause of action in Delaware for breach of the
duty of candor. ..........................................................................39
F. The Revised Trial Plan misstates the elements of
Plaintiffs breach of fiduciary duty claims. ................................40
G. The Revised Trial Plan fails to address the impact of the
Plaintiffs’ conflicting damages theories on typicality and
predominance. ...........................................................................41
III. This Case Cannot Satisfy the Requirements for Class
Certification under Rule 42. ................................................................42
A. Named Plaintiffs do not satisfy the typicality requirement
because they did not tender their shares. ..................................42
viii
B. Plaintiffs failed to establish that common issues
predominate over individual issues...........................................44
C. The numerosity requirement was not met.................................45
D. Plaintiffs failed to establish that they are adequate
representatives of the absent class members. ...........................46
CONCLUSION AND PRAYER .............................................................................47
CERTIFICATE OF COMPLIANCE .......................................................................49
CERTIFICATE OF SERVICE ................................................................................49
APPENDIX
ix
TABLE OF AUTHORITIES
Cases
1993 GF P’ship v. Simmons & Co. Int’l,
2010 WL 4514277 (Tex. App.—Houston [14th Dist.]
Nov. 9, 2010, no pet.) (mem. op.) ........................................................................19
All American Life & Casualty Insurance Co. v. Vandeventer,
2006 WL 742452
(Tex. App.—Fort Worth Mar. 23, 2006, no pet.) (mem. op.) .............................23
Allen v. Hines Ranches of Tex., Inc.,
2003 WL 22908134
(Tex. App.—Austin Dec. 11, 2003, no pet.) (mem. op.) .....................................19
Andra v. Blount,
772 A.2d 183 (Del. Ch. 2000).............................................................................43
Basic Inc. v. Levinson,
485 U.S. 224 (1988) ............................................................................................19
Bershad v. Curtiss-Wright Corp.,
535 A.2d 840 (Del. 1987) ................................................................ 20, 25, 30, 43
Best Buy Co. v. Barrera,
248 S.W.3d 160 (Tex. 2007) ...............................................................................37
Bluelinx Corp. v. Texas Constr. Sys., Inc.,
363 S.W.3d 623 (Tex. App.—Houston [14th Dist.] 2011, no pet.)....................32
BMG Direct Marketing, Inc. v. Peake,
178 S.W.3d 763 (Tex. 2005) ............................................................ 23, 30, 32, 37
Bowden v. Phillips Petroleum Co.,
247 S.W.3d 690 (Tex. 2008) .................................................................. 11, 12, 37
Brigham Exploration Co. v. Boytim,
2014 WL 4058965 (Tex. App.—Austin,
Aug. 15, 2014, no pet.) (mem. op.) .............................................................. passim
C&J Energy Servs., Inc. v. City of Miami Gen. Emps.,
107 A.3d 1049 (Del. 2014) .................................................................................22
x
Cameron Appraisal Dist. v. Rourk,
194 S.W.3d 501 (Tex. 2006) (mem. op.) ............................................................37
Canyon Lake Island Prop. Owners Ass’n. v. Sterling/Suggs Ltd. P’ship.,
2015 WL 3543125 (Tex. App.—Austin, Jun. 5, 2015, no pet. h.) ............... 23, 45
Citizens Ins. Co. of Am. v. Daccach,
217 S.W.3d 430 (Tex. 2007) ...............................................................................37
Compaq Computer Corp. v. Lapray,
135 S.W.3d 657 (Tex. 2004) ...............................................................................37
DaimlerChrysler Corp. v. Inman,
252 S.W.3d 299 (Tex. 2008) ...............................................................................37
Enron Oil & Gas Co. v. Joffrion,
116 S.W.3d 215 (Tex. App.—Tyler 2003, no pet.) ............................................23
E.V. Slack, Inc. v. Shell Oil Co.,
969 S.W.2d 565 (Tex. App.—Austin 1998, no pet.) ...........................................16
Exxon Mobil Corp. v. Gill,
299 S.W.3d 124 (Tex. 2009) ...............................................................................37
Farmers Group, Inc. v. Lubin,
222 S.W.3d 417 (Tex. 2007) ...............................................................................37
Ford Motor Co. v. Ocanas,
138 S.W.3d 447 (Tex. App.—Corpus Christi 2004, no pet.) .............................23
Ford Motor Co. v. Sheldon,
22 S.W.3d 444 (Tex. 2000) .................................................................................31
Ford v. Culbertson,
308 S.W.2d 855 (Tex. 1958) ........................................................................ 28, 29
Gen. Motors Corp. v. Garza,
179 S.W.3d 76 (Tex. App.—San Antonio 2005, no pet.)...................................23
General Motors Corp. v. Bloyed,
916 S.W.2d 949 (Tex. 1996) ...............................................................................15
xi
Glencrest Res., LLC v. Ellis,
2012 WL 3500324
(Tex. App.— Fort Worth Aug. 16, 2012, no pet.) (mem. op.) ..................... 11, 12
Government Employees Insurance Co. v. Patterson,
2007 WL 4225504
(Tex. App.—Corpus Christi Nov. 29, 2007, no pet.) (mem. op.) ........................23
Griffin v. GK Intelligent Sys., Inc.,
196 F.R.D. at 298 (S.D. Tex. 2000) ....................................................................42
Heckmann v. Williamson Cnty.,
369 S.W.3d 137 (Tex. June 8, 2012) ..................................................................37
Henry Schein, Inc. v. Stromboe,
102 S.W.3d 675 (Tex. 2002) ...................................................... 11, 15, 23, 26, 37
Hotels.com, L.P. v. Canales,
195 S.W.3d 147 (Tex. App.—San Antonio 2006, no pet.).......................... 23, 42
In re BJ’s Wholesale Club, Inc. S’holders Litig.,
2013 WL 396202 (Del. Ch. Jan. 31, 2013) ..........................................................41
In re Celera Corp. S’holder Litig.,
59 A.3d 418 (Del. 2012) .....................................................................................43
In re Cornerstone Therapeutics, Inc.,
115 A.3d 1173 (Del. 2015) .................................................................................40
In Re Prodigy Commc’ns Corp. Shareholders Litig.,
2002 WL 1767543 (Del. Ch. Jul. 26, 2002) .......................................................20
In Re Triarc Cos. Class & Derivative Litig.,
791 A.2d 872 (Del. Ch. 2001).............................................................................20
Intratex Gas Co. v. Beeson,
22 S.W.3d 398 (Tex. 2000) .................................................................................19
Issen v. GSC Enters., Inc.,
508 F. Supp. 1278 (N.D. Ill. 1981) .....................................................................44
Janus Capital Grp., Inc. v. First Derivative Traders,
131 S. Ct. 2296 (2011) ........................................................................................39
xii
Landon v. Jean-Paul Budinger, Inc.,
724 S.W.2d 931 (Tex. App.—Austin 1987, no writ)..........................................11
Louisiana-Pacific Corp. v. Andrade,
19 S.W.3d 245 (Tex. 1999) .................................................................................29
Lubin v. Farmers Grp, Inc.,
2009 WL 3682602
(Tex. App.—Austin Nov. 6, 2009, no pet.) (mem. op.).......................................36
Ludlow v. BP,
---F.3d---, 2015 WL 5235010 (5th Cir. Sept. 8, 2015) ................................. 31, 32
Lyondell Chem. Co. v. Ryan,
970 A.2d 235 (Del. 2009) ...................................................................... 22, 40, 41
Malone v. Brincat,
722 A.2d 5 (Del. 1998) .......................................................................................39
Malpiede v. Townson,
780 A.2d 1075 (Del. 2001) .................................................................................39
McKinney Indep. Sch. Dist. v. Carlisle Grace, Ltd.,
222 S.W.3d 878 (Tex. App.— Dallas 2007, pet. denied) ...................................32
Monsanto Co. v. Davis,
97 S.W.3d 642 (Tex. App.—Waco 2002, pet. denied) .......................................42
N. Am. Mort. Co. v. O’Hara,
153 S.W.3d 43 (Tex. 2004) .......................................................................... 23, 37
N.J. Carpenters Pension Fund v. infoGROUP, Inc.,
2013 WL 610143 (Del. Ch. Feb. 13, 2013) ........................................................27
Nat’l W. Life Ins. Co. v. Rowe,
164 S.W.3d 389 (Tex. 2005) ........................................................................ 23, 37
Nevins v. Bryan,
885 A.2d 233 (Del. Ch. 2005).............................................................................29
Norberg v. Security Storage Co. of Wash.,
2000 WL 1375868 (Del. Ch. Sept. 19, 2000) .............................................. 20, 30
xiii
Pate v. Elloway,
2003 WL 22682422
(Tex. App.—Houston [1st Dist.] Nov. 13, 2003, pet. denied) (mem. op.) ..........36
Pfeffer v. Redstone,
965 A.2d 676 (Del. 2009) ...................................................................................39
Phillips Petroleum Co. v. Yarbrough,
405 S.W.3d 70 (Tex. 2013) .......................................................................... 23, 37
Realty Growth Investors v. Council of Unit Owners,
453 A.2d 450 (Del. 1982) ...................................................................................27
Riemer v. State,
392 S.W.3d 635 (Tex. 2013) ...............................................................................37
Riemer Ex Rel. Themselves v. State,
452 S.W.3d 491 (Tex. App.—Amarillo 2014, pet. filed) ...................................37
Salsitz v. Peltz,
210 F.R.D. 95 (S.D.N.Y. 2002) ..........................................................................44
Shapiro v. Pabst Brewing Co.,
1985 WL 11578 (Del. Ch. July 30, 1985)............................................................44
Snyder Commc’ns v. Magaña,
142 S.W.3d 295 (Tex. 2004) ...............................................................................37
Solomon v. Armstrong,
747 A.2d 1098 (Del. Ch. 1999)...........................................................................27
Southwestern Ref. Co. v. Bernal,
22 S.W.3d 425 (Tex. 2000) ......................................................................... passim
Spivak v. Petro-Lewis Corp.,
120 F.R.D. 693 (D. Colo. 1987) .........................................................................44
State Farm Mutual Auto. Ins. Co. v. Lopez,
156 S.W.3d 550 (Tex. 2004) ....................................................................... passim
Steinhardt v. Howard–Anderson,
2012 WL 29340 (Del. Ch. Jan. 6, 2012) .............................................................20
xiv
Stonebridge Life Ins. Co. v. Pitts,
236 S.W.3d 201 (Tex. 2007) ...............................................................................37
Sw. Bell Tel. Co. v. Mktg. On Hold Inc.,
308 S.W.3d 909 (Tex. 2010) ...............................................................................37
Tex. S. Rentals, Inc. v. Gomez,
267 S.W.3d 228 (Tex. App.—Corpus Christi 2008, no pet.) .............................23
Tex. Workers’ Comp. Ins. Facility v. Personnel Servs., Inc.,
895 S.W.2d 889 (Tex. App.–Austin, 1995, no writ)...........................................29
Texas Parks & Wildlife Dept. v. Dearing,
240 S.W.3d 330 (Tex. App.—Austin 2007, pet. denied) ...................... 21, 23, 26
Tracker Marine, L.P. v. Ogle,
108 S.W.3d 349 (Tex. App.—Houston [14th Dist.] 2003, no pet.)....................23
Union Pac. Res. Group, Inc. v. Hankins,
111 S.W.3d 69 (Tex. 2003) .......................................................................... 23, 37
Vila v. BVWebTies LLC,
2010 WL 3866098 (Del. Ch. Oct. 1, 2010) ........................................................27
Rules and Regulations
TEX. CIV. PRAC. REM. CODE ANN. §§33.002, 33.003 ..............................................38
TEX. R. CIV. P. 42(a) ............................................................................. 16, 42, 44, 45
TEX. R. CIV. P. 42(b) ................................................................................... 16, 22, 45
TEX. R. CIV. P. 42(c) ........................................................................................ passim
TEX. R. CIV. P. 277 ...................................................................................................38
Additional Authorities
Restatement (Second) of Torts §§ 525, 526 (1977) .................................................39
8 DEL. CODE § 262 .....................................................................................................4
xv
STATEMENT OF CASE
Nature of Case: This is the second appeal from an order certifying a class action
filed by former shareholders of Brigham Exploration Company
(“Brigham”). CR4. This Court reversed the first class
certification order. Brigham Exploration Co. v. Boytim, 2014
WL 4058965 (Tex. App.—Austin, Aug. 15, 2014, no pet.)
(mem. op.) (“Brigham I”). On remand, the trial court
recertified. CR3167.
The dispute concerns Statoil ASA’s (“Statoil”) 2011 acquisition
of Brigham via an all-cash tender offer. CR1941-42. Plaintiffs
allege that the tender offer price of $36.50 was too low and that
Brigham and Brigham’s individual officers and directors (the
“Brigham Defendants”) breached their fiduciary duties by
agreeing to the deal. CR5-8. Plaintiffs attempted to enjoin the
transaction, but were unsuccessful. CR305-307.
The trial court entered an order granting class certification on
February 27, 2013. CR1191-95. On appeal, this Court
reversed, finding that the “trial court’s order and the adopted
trial plan fail to meaningfully address appellants’ pleaded
defenses[,]” and that “the trial court abused its discretion by
certifying a class without an order complying with the express
requirements of Rule 42 and without formulating a trial plan
confirming that it has rigorously analyzed the requirements of
Rule 42.” Brigham I, 2014 WL 4058965 at *4.
On remand, the trial court adopted Plaintiffs’ revised trial plan
and recertified the class on April 9, 2015. CR3163-67.
Defendants now appeal the trial court’s interlocutory order
certifying the class on remand.
Trial Court: Order denying temporary injunction signed on November 22,
2011 by the Honorable John K. Dietz, 250th Judicial District
Court, Travis County.
Initial class certification order signed on February 27, 2013 by
the Honorable Lora Livingston, 261st Judicial District Court,
Travis County.
xvi
Second class certification order signed on April 9, 2015 by the
Honorable Lora Livingston, 261st Judicial District Court,
Travis County.
Course of The trial court signed its Order Granting Class Certification on
Proceedings in remand on April 9, 2015. App. A.
Trial Court:
xvii
ISSUES PRESENTED
1. Did the trial court abuse its discretion in certifying the class without
conducting the mandatory rigorous analysis of all certification requirements
under Rule 42?
2. Did the trial court abuse its discretion by adopting a legally deficient revised
trial plan that prevents this Court from meaningfully evaluating whether
certification of the class conforms with all Rule 42 prerequisites?
3. Did the trial court abuse its discretion in concluding that individualized
issues do not predominate under Rule 42(b)(3), even though Defendants’
affirmative defenses will require individualized proof and damages cannot
be proven on a class wide basis?
4. Did the trial court abuse its discretion in concluding that the Named
Plaintiffs’ claims are typical under Rule 42(a)(3), even though they did not
tender their shares, yet 92% of the Brigham shareholders tendered?
xviii
STATEMENT OF FACTS
In Brigham I, the first appeal of this class action proceeding, this Court
instructed the trial court to conduct the required rigorous analysis under Rule 42
before ruling on class certification. That did not happen on remand. This second
appeal challenges the Order certifying a class of former shareholders of Brigham
Exploration Company who complain that the purchase price of $36.50 per share
paid by Statoil to acquire Brigham in an all-cash tender offer was too low.
A. Brigham’s volatile stock price history was tied to the price of oil.
Ben M. “Bud” Brigham started Brigham in 1990 with $25,000—the entirety
of his family’s personal savings. CR1274, 1286-87. Nine years later, the company
went public, issuing stock at $8 per share. 1 CR143-46, 1277, 1333. From the time
it went public in 1997, to the sale to Statoil in December 2011, Brigham’s stock
had a tumultuous price history in a volatile market tied to the price of oil.
CR1333-35, 3SCR547.
Brigham’s stock prices continued to be volatile in the period leading up to
the sale to Statoil. In the 52 weeks prior to the 2011 sale, Brigham’s stock
fluctuated between $21 and $37. CR1321. The high lasted for less than a week in
the spring of 2011, when oil prices spiked to over $110 a barrel. CR182, 1281,
1
Bud Brigham did not retain a majority interest in Brigham after it went public. At the time of
the disputed transaction, he owned less than two percent of the company’s common stock.
CR2308.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 1
1321. Brigham’s stock closed at $30 per share the day before the merger
announcement on October 17, 2011; oil was at $86 per barrel at that point. CR185,
197; 3RR15-16, 18. In November 2011, during the tender offer at issue in this
case, oil prices were between $95 and $100 a barrel. CR1278-79. As this Court is
well aware, oil prices since have plummeted to dramatically low levels. At the
time the trial court recertified this class action, oil prices were $50 per barrel, and
they have dropped further to about $45 per barrel today. CR216, 3RR18. 2 The last
time oil prices were this low, Brigham’s stock traded at $2 per share. CR1281-82;
3RR18.
B. Brigham’s Board agrees to sell Brigham after a yearlong process.
In 2010, Brigham’s Board of Directors undertook a lengthy process to
explore a potential sale of the company. 3SCR547. With the help of its financial
advisor, Jefferies & Company, Inc., Brigham contacted ten potential buyers to
assess their interest. Id. The Board held numerous meetings to facilitate the sales
process. After ongoing discussions with several potential buyers, Statoil emerged
as the only company with the necessary resources and interest to purchase Brigham
at a premium. CR1922; CR1925-26. Brigham and Statoil negotiated the
transaction and engaged in due diligence for many months. 3SCR547-553.
2
See also BLOOMBERG BUSINESS, http://www.bloomberg.com/quote/CL1:COM (last visited
Sept. 28, 2015).
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 2
Following these lengthy efforts, the Board voted unanimously to approve the
tender offer of $36.50 per share on October 16, 2011. 3SCR1926.
C. Plaintiffs file suit within hours of the transaction announcement.
The sale of Brigham to Statoil was announced to shareholders the next day,
October 17, 2011. Within minutes, law-firm press releases hit the internet trolling
for plaintiffs to serve as proposed class representatives. CR1928-1930. The first
plaintiff, Raymond Boytim, filed suit within hours of the merger announcement.
CR221. He accused all Brigham Board members of “omitting to disclose material
financial information” in SEC filings that were not even filed yet and would not be
filed with the SEC for another eleven days. CR234; CR1471. Ten suits were filed
in Texas and in Delaware before Brigham and Statoil even filed their disclosure
documents with the SEC. 3SCR571-73.
D. Plaintiffs unsuccessfully attempt to enjoin the transaction.
Plaintiffs sought to enjoin the transaction based on Brigham’s alleged failure
to disclose an internal marketing piece created by Jefferies, which suggested that a
properly capitalized acquiring company could operate up to 30 drilling rigs with
Brigham’s assets. Judge Dietz denied the requested injunction, finding that the
document was “a marketing tool versus an assessment by the board of directors of
the value of the company.” CR1378-1381. As he explained, “[T]he record reflects
that this was not an assessment by management as to what the present value of
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 3
Brigham Oil was, but was rather an attempt to entice Statoil or other buyers that if
they had sufficient capital, they could really make a lot of money out of
Brigham….” CR1380. Once the injunction was denied on November 22, 2011,
the tender offer went forward and the merger transaction closed on December 8,
2011.
E. Following the merger announcement, Brigham’s stock is subject
to heavy trading volume.
The transaction was structured as a tender offer, under which shareholders
were given the option of tendering their shares to Statoil for $36.50 per share.
CR1912, 2260. If more than 90% of the shares were tendered, Statoil could affect
a “short-form” merger under Delaware law without the necessity of a shareholder
vote. CR1912, 2260. Shareholders thus had an individualized choice: (1) whether
to tender their shares prior to the consummation of the merger for $36.50, (2)
whether to sell on the open market, or (3) whether to hold until the cash-out
merger. CR1280, 1912, 2260. Plus, under Delaware law, dissenting shareholders
who were not satisfied with the tender offer price of $36.50 had an additional
option. They could seek a judicial appraisal of the fair value of Brigham’s shares.
CR2245; 8 DEL. CODE § 262. No shareholder requested an appraisal.
This case is unusual in that Brigham’s stock had a highly active trading
volume following the October 17, 2011 announcement of the transaction with
Statoil. Brigham had about 117 million shares outstanding at that time. CR2267,
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 4
3164. Plaintiffs’ class is defined as the shareholders who held shares on October
17, 2011, (CR3167) but the trading volume shows that on that day, 62 million
shares were sold; i.e. over half of Brigham’s outstanding shares changed hands.
4RR DX1. From October 17 to October 28, 2011, when Brigham’s Schedule 14D-
9 was filed, 133 million shares were sold. Id. As discussed below, the
shareholders holding these 133 million shares can have no complaint about
allegedly inadequate disclosures in the 14D-9, because it was not even filed with
the SEC until eleven days after the class definition cut-off. CR1471. And from
October 17, 2011 to the close of the tender offer on December 8, 2011, 255 million
shares were traded. 4RR DX1. The trading volume and stock prices in the
aftermath of the announcement is shown in the following chart (4RR DX1):
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 5
F. Brigham’s shareholders overwhelmingly support the transaction.
Once the merger was announced on October 17, 2011, Brigham’s
shareholders overwhelmingly supported the deal. By December 8, 2011,
shareholders had voluntarily tendered 92.2% of the outstanding shares. CR1941-
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 6
43. This allowed Statoil to effect a short-form merger, converting each remaining
Brigham share into a right to receive $36.50. This provided shareholders with a
33% premium over the average market price of Brigham shares during the 30
days before the deal was announced. CR1320-21; 3SCR553.
Unlike the majority of shareholders they seek to represent, the seven Named
Plaintiffs did not voluntarily tender their shares to Statoil, but instead sold their
shares on the open market before the merger; and a few held a small amount of
their shares through the tender offer period and were automatically cashed out.3
G. The trial court erroneously entered a class certification order.
Plaintiffs’ class action petition alleges that the Brigham Board of Directors
breached its fiduciary duties by (a) using an unfair method in selling Brigham, (b)
agreeing to an unfair price, and (c) failing to disclose material information related
to the merger. Plaintiffs also alleged that Brigham and Statoil aided and abetted
these breaches. CR5-8. Delaware law controls the substance of these claims
because Brigham was incorporated in Delaware.
After a hearing, Judge Livingston issued an order on February 27, 2013
certifying a class defined “as all holders of common stock of Brigham Exploration
Company as of October 17, 2011,” excluding “defendants and any person, firm,
3
See CR2080-81, 2086-88; Boytim Dep. at 85-87 (CR2054); Duncan Dep. at 36 (CR1987);
Fioravanti Dep. at 139 (CR1980); Schwimmer Dep. at 40-41 (CR2000-01); Whalen Dep. at 34-
35 (CR2020).
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 7
trust, corporation or other entity related to or affiliated with any defendant.”
CR60. Named Plaintiffs were appointed as class representatives, and Robbins
Geller Rudman & Dowd LLP was appointed as class counsel. Id. The trial court
adopted the Plaintiffs’ Proposed Trial Plan.
H. This Court decertifies the class in Brigham I.
On appeal to this Court from the first certification order, Defendants raised
six points of error, including that the order failed to satisfy the requirements of
Rule 42 and that the trial plan was legally deficient in a number of ways. Brigham
Exploration Co. v. Boytim, 2014 WL 4058965 at *2 (Tex. App.—Austin, Aug. 15,
2014, no pet.) (mem. op.) (“Brigham I”). This Court agreed that the trial plan was
deficient because it failed to “meaningfully address appellants’ pleaded defenses.”
Id. at *4. The Court concluded that “the trial court abused its discretion by
certifying a class without an order complying with the express requirements of
Rule 42 and “without formulating a trial plan confirming that it has rigorously
analyzed the requirements of Rule 42.’” Id. (quoting State Farm Mutual Auto.
Ins. Co. v. Lopez, 156 S.W.3d 550, 557 (Tex. 2004)). Because the trial plan issue
was dispositive, this Court did not address the other challenges to the certification
order and trial plan, but instead reversed and remanded for further proceedings. Id.
at *4 & n.2.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 8
I. The trial court recertified the class on remand.
On remand, Plaintiffs submitted their Second Amended Proposed Plan for
Trial of Class Claims on March 19, 2015 (the “Revised Trial Plan”). App. B. 4 The
Revised Trial Plan has several additional pages that add the elements of
Defendants’ affirmative defenses, including a voluntariness element. App. B at
p.19. But then it reaches the perfunctory conclusion that all of the defenses “are
subject to common proof and will not present manageability problems.” App. B at
p.17. It proposes essentially the same plan as in Brigham I. (Compare App. B to
App. C at CR946-54). It has no analysis of the manageability problems created by
individualized issues that must be resolved by a fact-finder, and suggests that
proportionate responsibility issues “can be resolved through the use of an
appropriate jury form.” App. B at p.19. Plaintiffs also submitted a proposed class
certification order, but advised the trial court that it was “fundamentally the same
order the Court signed last time it certified the class with a new date for the trial.”
3RR5-6.
The Brigham Defendants and Statoil filed a Joint Opposition. CR119. They
argued that the Revised Trial Plan, like the prior version, failed to adequately
analyze the affirmative defenses and would be unworkable because the defenses
4
Although requested, the Revised Trial Plan was not initially included in the Clerk’s Record.
Rather than e-filing it, it was hand-delivered to this Court on June 5, 2015 without Bates
numbers. It is attached as App. B.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 9
create individualized issues that would overwhelm any common issues. 3RR17-
18, 21; CR131. Indeed, Plaintiffs earlier acknowledged that the affirmative
defense of acquiescence would apply to any proposed class member who
voluntarily tendered shares, and such shareholders “would not be able to
participate in any recovery,” but Plaintiffs ignored that problem in the Revised
Trial Plan.5 Defendants also pointed to the exceedingly high trading volume of
Brigham stock after October 17, 2011, which made it virtually impossible to prove
which shareholders remained after so many shares were sold. Defendants also
demonstrated that Plaintiffs’ class definition of shareholders on October 17 was
unworkable. 3RR19-20; 4RR DX1. Additionally, Defendants argued that
members of the purported class would necessarily need to show that they had
suffered damages, yet given the historic volatility of Brigham’s stock prices as
related to the price of oil, $36.50 was an excellent price. 3RR18. And given the
plummeting price of oil since the time of the sale to Statoil, Brigham’s Board got
an excellent price for Brigham’s stockholders. Id. Most shareholders made a
tremendous amount of money, locking in significant profits with an erratic stock in
a volatile market. CR1284-85. In fact, one of the Named Plaintiffs sold his stock
on the open market for higher than the tender offer price, and had a total gain of
5
See Brigham I, No. 03-13-00191-CV, Plaintiffs-Appellees’ Brief at 65, 71-72, available at
http://www.search.txcourts.gov/Case.aspx?cn=03-13-00191-CV&coa=coa03.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 10
over $141,000—which he testified was “a very good return” on his investment.
CR1980.
Plaintiffs offered no additional evidence to demonstrate that the
requirements of Rule 42 were met. 4RR1-3. Judge Livingston recertified the class
on April 9, 2015, adopting Plaintiffs’ Revised Trial Plan and signing their
proposed order (the “Order”) without revision. CR 3163, 3166. This second
interlocutory appeal followed.
STANDARD OF REVIEW
Courts review class certification orders under an abuse-of-discretion
standard. Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 696 (Tex. 2008). A
court abuses its discretion if it acts arbitrarily, unreasonably, or without reference
to guiding principles. Id. Thus, an abuse of discretion follows if a trial court acts
contrary to law, violates any applicable legal rule, or errs in a manner “affecting
the fairness of the proceeding as a whole.” Landon v. Jean-Paul Budinger, Inc.,
724 S.W.2d 931, 936 (Tex. App.—Austin 1987, no writ). The trial court’s
discretion is especially limited in the class-certification context, and a reviewing
court will defer to the trial court only on some determinations, such as witness
credibility. Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 691 (Tex. 2002).
Reviewing courts “do not . . . indulge every presumption in the trial court’s favor,
as compliance with class action requirements must be demonstrated rather than
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 11
presumed.” Bowden, 247 S.W.3d at 696 (emphasis added); see also Glencrest
Res., LLC v. Ellis, 2012 WL 3500324, at *4 (Tex. App.—Fort Worth Aug. 16,
2012, no pet.) (mem. op.) (noting that the abuse-of-discretion standard is
“modified” in the class-certification context because the trial court’s discretion is
more limited).
SUMMARY OF THE ARGUMENT
The trial court abused its discretion in re-certifying a class of Brigham
shareholders who complain that $36.50 per share was an unfair price for the sale of
Brigham to Statoil. Despite this Court’s clear instruction in Brigham I, the trial
court did not perform a rigorous analysis of Rule 42’s certification requirements on
remand. See 2014 WL 4058965 at *4. Instead, the court proceeded as if
certification was a foregone conclusion, accepting Plaintiffs’ mostly cosmetic
changes to the trial plan, and summarily granting recertification. Plaintiffs’
Revised Trial Plan again fails to “meaningfully address” Defendants’ affirmative
defenses, the very error that led to reversal in Brigham I. Likewise, the trial court
did not address problems with the class definition or with Plaintiffs’ proposal for
class-wide damages proof.
Had the trial court engaged in the required analysis, it would have
recognized that the class remains hopelessly unworkable. The class is defined as
all Brigham shareholders as of October 17, 2011, the day that the proposed merger
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 12
between Brigham and Statoil was announced. Plaintiffs allege that the Brigham
Defendants violated their fiduciary duties and misled shareholders into approving
an inadequate price for Brigham’s stock. But the SEC filings that allegedly
contain the misrepresentations were not even filed until eleven days later, on
October 28, 2011. Thus, the class of October 17 shareholders could not have been
misled by a filing that had not been made, much less damaged by a merger that had
not yet occurred.
In truth, the great majority of Brigham shareholders in Plaintiffs’ proposed
class willingly sold their shares on the open market prior to the merger. The
underlying facts are unusual in that there was incredibly high trading volume as
soon as the merger was announced, which continued until the close of the tender
offer on December 8, 2011. Over half of Brigham’s 117 million outstanding
shares traded hands on the day of the merger announcement, which means that by
day end over half of the proposed class of “shareholders as of October 17” were no
longer shareholders. By November 30, 2011, the close of the initial tender period,
250 million shares—over twice the outstanding Brigham shares—had been sold.
This raises the question of how many of the original shareholders on October 17
that are supposed to be part of the putative class, were still shareholders at the time
of the final tender. This question has not been answered.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 13
Any trial must necessarily address the reasons why each shareholder sold, or
decided to wait and tender their shares to Statoil for $36.50. A shareholder who
sold for more than $36.50 will not have any harm or damages, and those who
chose to sell for less than the tender offer price will need to explain why. Such
evidence is vital to the Defendants’ ability to present critical affirmative defenses
and would result in an inevitable multitude of mini trials that would swamp the
proposed class proceeding. The Revised Trial Plan simply ignores these
fundamental problems.
Further, although over 90% of the then-existing Brigham shareholders
voluntarily tendered their shares for the approved merger price of $36.50, none of
the proposed class representatives tendered. The named Plaintiffs are thus atypical
of the vast majority of shareholders they purport to represent, rendering them unfit
to serve as class representatives.
For these reasons and others set forth below, the Order certifying the class
and incorporating the Revised Trial Plan should be reversed, and judgment should
be rendered that under the facts of the underlying case, class certification is
unavailable.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 14
ARGUMENT AND AUTHORITIES
The trial court certified a class of all shareholders of Brigham stock as of the
date the merger with Statoil was announced on October 17, 2011. But each
shareholder had an independent reason for deciding to sell on the open market,
accepting the tender offer price of $36.50, or holding their shares until they were
cashed out. Individual issues will thus predominate any trial, and class-wide proof
of the fact and amount of damages will be impossible. Because “class actions are
extraordinary proceedings with extraordinary potential for abuse,” class
certification is not a decision to be taken lightly. General Motors Corp. v. Bloyed,
916 S.W.2d 949, 953 (Tex. 1996); see also Schein, 102 S.W.3d at 691. Yet the
trial court took the decision to grant recertification lightly here. Insurmountable
problems with Plaintiffs’ class definition, damages model, and individualized proof
were never addressed. This case cannot be certified as a class action, and the
Order should be reversed.
I. The Trial Court Failed to Rigorously Analyze the Certification
Requirements under Rule 42 on Remand.
Under Texas Rule of Civil Procedure 42(a), a party seeking class
certification must first satisfy four threshold requirements:
(1) the class is so numerous that joinder of all members is
impracticable;
(2) there are questions of law, or fact common to the class;
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 15
(3) the claims or defenses of the representative parties are typical of
the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the
interests of the class.
TEX. R. CIV. P. 42(a). App. E.
Once these four prerequisites are met, the party seeking certification must
also plead and prove that that the action falls under one of the categories listed in
Rule 42(b). E.V. Slack, Inc. v. Shell Oil Co., 969 S.W.2d 565, 567 (Tex. App.—
Austin 1998, no pet.). In this case, the trial court certified under Rule 42(b)(3),
which required Plaintiffs to demonstrate that “the questions of law or fact common
to the members of the class predominate over any questions affecting only
individual members, and a class action is superior to other available methods for
the fair and efficient adjudication of the controversy.” TEX. R. CIV. P. 42(b)(3).
Plaintiffs also had to define an appropriate class under TEX. R. CIV. P. 42(c)(1)(B)
They failed to meet any of these Rule 42 mandates.
Before certifying a class, the trial court must conduct a “rigorous analysis”
of all the Rule 42 certification requirements. Southwestern Ref. Co. v. Bernal, 22
S.W.3d 425, 435 (Tex. 2000). By requiring a trial plan at the time of class
certification, the Texas Supreme Court prohibits trial courts from deferring any
part of the mandatory rigorous analysis until later in the trial proceedings, and has
explicitly rejected a “certify now and worry later” approach. Id. at 434-35.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 16
A. The Order and Revised Trial Plan exemplify a “certify now,
worry later” approach.
In Brigham I, this Court found that the “the trial court’s order and the
adopted trial plan fail to meaningfully address appellants’ pleaded defenses,” and
did not reach the other deficiencies asserted by Defendants. Brigham I, 2014 WL
4058965 at *3–*4 & n.1. This Court thus concluded that “the trial court abused its
discretion by certifying a class without an order complying with the express
requirements of Rule 42 and without formulating a trial plan confirming that it has
rigorously analyzed the requirements of Rule 42.” Id. at *4 (quotations omitted).
Consequently, the Court decertified the class and remanded the case. Id.
On remand, it was incumbent on the trial court to perform a rigorous
analysis of the Rule 42 prerequisites. It failed to do so. In fact, the trial court’s
initial proposal was to suggest that a revised trial plan could be approved—and the
class recertified—without a hearing. 2RR5-7. While the court eventually held a
hearing, it was superficial. Plaintiffs offered no additional evidence to support
certification and framed the issue as merely adding more detail to the trial plan.
They explained the Brigham I ruling as: “The Court of Appeals came down to
give us a more detailed trial plan. It wasn’t to come and review the entire
argument on class certification.” 3RR7.
But the trial court never conducted a rigorous analysis in connection with the
first class certification order, and it didn’t do so with the second order either. The
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 17
problems with the Order and Revised Trial Plan run deeper than a simple failure to
include sufficient “detail” in the trial plan.
B. The class definition is both unworkable and invalid.
At the outset, this Court should examine the class definition, which is both
unworkable and invalid. Plaintiffs have changed their proposed class definition on
multiple occasions throughout this litigation.6 Their most recent definition of “all
holders of Brigham common stock as of October 17, 2011” is not a valid class
definition either, as required by TEX. R. CIV. P. 42(c)(1)(B). CR3167. This class
definition fails for at least four reasons:
First, Brigham’s extensive trading history shows that 62 million shares
were sold the day that the merger was announced. This means that by the close
of business on October 17, the shareholders who previously held over half of
Brigham’s 117 million outstanding shares had disappeared. See “Decision Making
by Brigham Shareholders” at page 6 supra (4RR DX1). Such purported class
members were no longer shareholders on October 17, yet they are included in the
class definition. There has been no attempt by Plaintiffs to identify who the selling
shareholders are and who was still a holder at day end on October 17, 2011.
6
Plaintiffs have defined the class three different ways. CR327 (“all other stockholders of the
Company who have been harmed by defendants’ actions as described herein (the ‘Class’)”);
CR375 (“All holders of Brigham common stock as of December 8, 2011, who held their shares
through consummation of the acquisition of Brigham by Statoil ASA (“Statoil”) at the price of
$36.50 per share.”); and CR683 (“All holders of Brigham common stock as of October 17,
2011.”)
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 18
Second, the class makes a failure to disclose claim, asserting that Brigham’s
disclosures about the Statoil transaction in SEC filings made on October 28 (a
14D-9 and Schedule TO) were inadequate. App. B at p.4; CR45. But a class of
Brigham shareholders as of October 17, cannot have a disclosure claim for
disclosures not made until October 28. This chronological defect is fatal because it
is impossible to be damaged on October 17 by a disclosure that has not yet been
made. 7
Third, the proposed class includes shareholders who voluntarily sold shares
after October 17, 2011. A properly defined class “insures that those actually
harmed by the defendant’s wrongful conduct will receive the relief ultimately
awarded.” Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 403 (Tex. 2000). The
Brigham stock trading records show that from the time of the announcement on
October 17, to the close of the tender offer on December 8, 2011, 255 million
shares were traded. Because Brigham had only 117 million shares issued and
available to trade in the open market, these sales reflect more than double the
amount of the issued shares. CR2267, 3164. In light of the extensive trading
7
See Basic Inc. v. Levinson, 485 U.S. 224, 248 (1988) (plaintiff must have suffered injury after
the representations were made and before the truth was revealed); Allen v. Hines Ranches of
Tex., Inc., 2003 WL 22908134, at *4 (Tex. App.—Austin Dec. 11, 2003, no pet.) (holding that
fraud does not exist if the misrepresentation occurred after the transaction); see also 1993 GF
P’ship v. Simmons & Co. Int’l, 2010 WL 4514277, at *7-8 (Tex. App.—Houston [14th Dist.]
Nov. 9, 2010, no pet.) (holding that misrepresentations that occurred after the transaction could
not form the substance of the claims).
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 19
volume, Plaintiffs have not shown how many shareholders of those who held the
original 117 million shares on October 17 still held their shares on November 30 in
order to claim harm. Any Plaintiff who sold their shares cannot claim damages
under Delaware law. See In Re Triarc Cos. Class & Derivative Litig., 791 A.2d
872, 875 (Del. Ch. 2001) (“Selling stockholders who are members of the class
have not suffered any damages.”); In Re Prodigy Commc’ns Corp. Shareholders
Litig. 2002 WL 1767543 (Del. Ch. Jul. 26, 2002) (“[m]erely objecting to the fact
that the merger happened is not a valid objection.”)
Fourth, the proposed class definition includes shareholders who accepted
the benefit of the merger transaction. This is likewise not permitted under
Delaware law. See e.g., Bershad v. Curtiss-Wright Corp., 535 A.2d 840 (Del.
1987); Steinhardt v. Howard–Anderson, 2012 WL 29340 at *11 (Del. Ch. Jan. 6,
2012); Norberg v. Security Storage Co. of Wash., 2000 WL 1375868, at *5, 7 (Del.
Ch. Sept. 19, 2000). A full 92% of the shareholders voluntarily tendered their
shares and accepted the $36.50 price per share.
The trial court never explained how it planned to make Plaintiffs’
unworkable class definition workable when trying this case. 8
8
The Brigham Defendants also respectfully incorporate the arguments set forth in Statoil’s
appellant’s brief that the class definition improperly includes shareholders who lack standing
because they apply equally to all defendants.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 20
II. The Trial Plan Remains Legally Deficient.
The substantive allegations against the Brigham Defendants are that they
allegedly used an unfair method in selling Brigham for an unfair price, and did not
disclose material information related to the merger in the 14D-9. CR5-8. These
complaints are to be analyzed under Delaware substantive law. However, the class
action requirements under Rule 42, including the mandate for a stringent trial plan,
are specific to Texas.
The trial plan is not a mere formality; it plays an integral role in appellate
review, “allow[ing] a reviewing court to meaningfully evaluate whether
certification of the class conforms with all Rule 42 prerequisites.” State Farm, 156
S.W.3d at 555; see also Texas Parks & Wildlife Dept. v. Dearing, 240 S.W.3d 330,
346 (Tex.App.—Austin 2007, pet. denied). This “meaningful evaluat[ion]” is
crucial because a reviewing court will not simply assume that class certification
was appropriate. See Bernal, 22 S.W.3d at 435 (“[A]ctual, not presumed,
conformance with [Rule 42] remains….indispensable.”)
A workable trial plan must include the proper legal framework to
demonstrate that the proposed plan meets the requirements of Texas law. The
Revised Trial Plan does not cite the correct Delaware legal precedents that govern
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 21
some of the core issues, including issues of liability and the affirmative defenses. 9
It also fails to analyze issues of fact affecting individual class members or describe
how such individual issues will be tried and then submitted to the jury for a
verdict.
As shown below, the state of mind of each class member will be a
controlling fact issue for the jury to resolve on an individual basis. Because the
Revised Trial Plan and Order do not describe how this case can be tried with the
host of identified individual issues, they fail to meet the requirements of Rules
42(b)(3), 42(b)(3)(D), and 42(c)(1)(D)(iii)-(iv), (vi)-(viii) and reversal should be
ordered.
A. A detailed trial plan is required to demonstrate that the trial
court performed a rigorous analysis under Rule 42.
As this Court noted in Brigham I, “[A] trial plan is required in every
certification order to allow reviewing courts to assure that all requirements for
certification under Rule 42 have been satisfied.” Brigham I, 2014 WL 4058965 at
*3. A proper trial plan ensures that the court has fulfilled its obligation to perform
a “rigorous analysis” of all certification prerequisites under Rule 42. State Farm,
156 S.W.3d at 555-56. The trial court must understand the claims, defenses,
9
See, e.g., C&J Energy Servs., Inc. v. City of Miami Gen. Emps., 107 A.3d 1049 (Del. 2014)
(discussing duties owed by directors during a change of control transaction); Lyondell Chem. Co.
v. Ryan, 970 A.2d 235 (Del. 2009) (discussing duties owed by directors and the proper
application of an exculpatory provision).
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 22
relevant facts, and applicable substantive law to make a meaningful determination
of the certification issues. Id. “[I]t is improper to certify a class without knowing
how the claims can and will likely be tried.” Id. at 555. Indeed, as this Court did
in Brigham I, Texas appellate courts regularly reverse trial courts for adopting
deficient trial plans in orders granting class certification. 10 In fact, this Court
recently reversed a certification order because the trial court failed to rigorously
analyze whether Rule 42’s requirements were satisfied. Canyon Lake Island Prop.
Owners Ass’n. v. Sterling/Suggs Ltd. P’ship., 2015 WL 3543125 (Tex. App.—
Austin Jun. 5, 2015, no pet. h.).
B. The Revised Trial Plan does not rigorously analyze how damages
will be proven.
The gravamen of Plaintiffs’ complaint is that Brigham was sold for
“inadequate consideration.” App. B at p.15. Their Revised Trial Plan indicates
that they plan to prove their measure of damages through “expert testimony
10
See, e.g., Phillips Petroleum Co. v. Yarbrough, 405 S.W.3d 70, 75, 81-82 (Tex. 2013); BMG
Direct Mktg., Inc. v. Peake, 178 S.W.3d 763, 777 (Tex. 2005); Nat’l W. Life Ins. Co. v. Rowe,
164 S.W.3d 389, 393 (Tex. 2005); N. Am. Mortg. Co. v. O’Hara, 153 S.W.3d 43, 45 (Tex. 2004)
(per curiam); State Farm, 156 S.W.3d at 557; Union Pac. Res. Grp, Inc. v. Hankins, 111 S.W.3d
69, 75 (Tex. 2003); Henry Schein, 102 S.W.3d at 689-90; Tex. S. Rentals, Inc. v. Gomez, 267
S.W.3d 228, 247 (Tex. App.—Corpus Christi 2008, no pet.); Government Employees Insurance
Co. v. Patterson, 2007 WL 4225504, at *9-10 (Tex. App.—Corpus Christi Nov. 29, 2007, no
pet.); Hotels.com, L.P. v. Canales, 195 S.W.3d 147, 156 (Tex.App.—San Antonio 2006, no pet.);
All American Life & Casualty Insurance Co. v. Vandeventer, 2006 WL 742452 at *1 (Tex.
App.—Fort Worth Mar. 23, 2006, no pet.); Gen. Motors Corp. v. Garza, 179 S.W.3d 76, 84
(Tex. App.—San Antonio 2005, no pet.); Dearing, 240 S.W.3d at 361; Ford Motor Co. v.
Ocanas, 138 S.W.3d 447, 454 (Tex. App.—Corpus Christi 2004, no pet.); Enron Oil & Gas Co.
v. Joffrion, 116 S.W.3d 215, 224 (Tex. App.—Tyler 2003, no pet.); Tracker Marine, L.P. v.
Ogle, 108 S.W.3d 349, 363 (Tex. App.—Houston [14th Dist.] 2003, no pet.).
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 23
establishing the difference between the true value of the Company and the amount
actually received by the shareholders.” Id. According to the trial plan, this theory
of damages can be proven on a class-wide basis because “[t]he amount actually
received is the $36.50 that all shareholders received when they either tendered their
shares to Statoil or were cashed-out.” Id.
This proposed class-wide damages proof simply won’t work under unique
facts of this case. Following the merger announcement, millions of shares were
sold by shareholders who elected to sell on the open market. To identify all the
different sales prices and the dates of those sales in order to compute damages
would be an overwhelming task, given the extensive trading activity. Some of the
shares were sold for less than $36.50, and at least some of these shareholders were
able to sell their shares for more than $36.50 per share. 4RR DX1. Obviously, the
latter shareholders were not harmed and cannot be included in the class. Yet the
Revised Trial Plan, like its predecessor, ignores these realities.
The Brigham/Statoil merger was structured as a tender offer in which
shareholders were not required to tender their shares. They had several options: (i)
tendering to Statoil for $36.50, (ii) selling their shares on the open market, (iii)
demanding an appraisal of the Brigham stock value (which would require keeping
the shares through the merger date), or (iv) waiting to see if the merger would go
forward and then being cashed out if it did. As shown, the merger announcement
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 24
touched off frenetic trading activity in which millions upon millions of Brigham
shares changed hands, with over 133 million traded before Defendants provided
the SEC 14D-9 disclosures regarding the transaction, and over 255 million total
shares trading up to the close of the tender offer on December 8. Ultimately, over
92% of Brigham shares were voluntarily tendered. CR1941. Given these
undisputed facts, the Revised Trial Plan’s conclusion that the claims of all
shareholders who held stock on October 17, 2011 may be addressed with only
common proof is woefully inadequate.
C. The Revised Trial Plan does not rigorously analyze the effect of
the Defendants’ affirmative defenses.
A class action is a procedural device intended to advance judicial economy.
Bernal, 22 S.W.3d at 437. Defendants have asserted the affirmative defenses of
acquiescence, acquiescence in price, ratification, estoppel, and waiver. CR74-75.
Under Texas procedural law, Defendants have a right to pursue these defenses, and
to inquire into the reasons that so many shareholders decided to sell their shares on
the open market, rather than tender them to Statoil. To the extent that shareholders
voluntarily accepted the benefits of the merger, or otherwise acquiesced in the
price, they may not be entitled to the relief sought by the Named Plaintiffs. See
e.g. Bershad, at 848. However, the Revised Trial Plan makes no effort to
categorize the shareholders based on their actions after the merger announcement.
Nor does it explain how the differing circumstances of the various Plaintiffs could
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 25
be efficiently managed in a class action. Consequently, the Revised Trial Plan still
fails to meaningfully address Defendants’ affirmative defenses.
1. Defendants have a substantive right to pursue their
affirmative defenses.
Before a court can certify a class, it must rigorously analyze how “any issues
affecting only individual members, raised by the claims or defenses asserted in the
pleadings, will be tried in a manageable, time efficient manner.” TEX. R. CIV. P.
42(c)(1)(D)(viii) (emphasis added); see Bernal, 22 S.W.3d at 436. Indeed, each
party must “have the opportunity to adequately and vigorously present any material
claims and defenses.” Id. at 437; Schein, 102 S.W.3d at 693. It is legal error for
the class certification vehicle to diminish a defendant’s rights at trial, including its
right to offer evidence supporting its affirmative defenses. See Bernal, 22 S.W.3d
at 437 (holding that the class-action device cannot alter the parties’ burden of proof
or the substantive prerequisites to a claim or defense).
While the Revised Trial Plan notes the elements of the acquiescence,
ratification, estoppel, and waiver defenses, it glosses over the critical question of
how these defenses bear on the class-certification analysis under Rule 42. App. B
at pp.18-20. See Dearing, 240 S.W.3d at 346 (“[D]ispositive issues going to the
viability of the class claims should be resolved by the trial court before
certification is considered.”) In particular, the Revised Trial Plan fails to consider
and analyze the individualized nature of these defenses.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 26
Each of the acquiescence, acquiescence in price, ratification, estoppel, and
waiver defenses has a distinct intent, knowledge, and voluntariness component, i.e.
a state-of-mind element. For example, acquiescence requires that a plaintiff have
(1) full knowledge of his rights and material facts; (2) a meaningful choice in
determining how to act; and (3) voluntarily acted in a way demonstrating
unambiguous approval of the challenged transaction. N.J. Carpenters Pension
Fund v. infoGROUP, Inc., 2013 WL 610143, at *7 (Del. Ch. Feb. 13, 2013).
Ratification requires proof that a plaintiff approved a challenged board
action after being fully informed of the facts. See e.g., Solomon v. Armstrong, 747
A.2d 1098, 1113 n.40 (Del. Ch. 1999). Waiver requires proof that the plaintiff (1)
had an existing legal right, (2) which it knew of at the time of the alleged waiver,
and (3) that it intended to relinquish that right. Realty Growth Investors v. Council
of Unit Owners, 453 A.2d 450, 456 (Del. 1982). “[E]stoppel is the effect of the
voluntary conduct of a party whereby he is absolutely precluded ... from asserting
rights which might perhaps have otherwise existed, ... as against another person,
who has in good faith relied upon such conduct, and has been led thereby to
change his position for the worse....” Vila v. BVWebTies LLC, 2010 WL 3866098
*10 n.73 (Del. Ch. Oct. 1, 2010).
At trial, to adequately and vigorously present the defenses, Defendants must
offer proof of intent, knowledge, or waiver of knowledge. See e.g., Ford v.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 27
Culbertson, 308 S.W.2d 855, 865 (Tex. 1958); Tex. Workers’ Comp. Ins. Facility
v. Personnel Servs., Inc., 895 S.W.2d 889, 894 (Tex. App.–Austin, 1995, no writ);
Nevins v. Bryan, 885 A.2d 233, 249 (Del. Ch. 2005). Further, state-of-mind is
unique to each putative class member and subject to credibility determinations.
See Bernal, 22 S.W.3d at 437. And knowledge and intent are subjective
considerations. See Louisiana–Pacific Corp. v. Andrade, 19 S.W.3d 245, 248
(Tex. 1999) (state of mind element, actual knowledge, is subjective).
None of these defenses can be addressed by class wide proof because they
involve individual choices made by the shareholders. In an open, freely-traded
market for securities, investors bought and sold Brigham shares for myriad
reasons, some unique to, and known only by, each individual investor. Some
investors may have needed liquidity or simply intended to sell their stock when it
reached a certain price or by a certain date. Other investors may have simply been
happy with the price available regardless of any allegations that the share price was
insufficient. As shown above, thousands of investors over a fifty-three day period
traded 255 million shares of Brigham in the open market for reasons of their own.
The evidence as to why any one investor traded is unique to each investor,
and the record will require evidence from the individual investors. In fact, one of
the Named Plaintiffs testified that he sold on the open market and did not tender
because “I wanted to pursue other investment opportunities.” CR1980.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 28
Defendants are entitled to have a jury determine if a particular investor’s answer is
credible and whether the Defendants’ affirmative defenses apply to that specific
individual investor. Simply put, the heavy trading of Brigham stock after the
parties announced the merger agreement demonstrates that there are unique issues
of fact that can only be answered one-by-one by the jury.
2. Individual voluntary buy/sell decisions by putative class
members make certifying a class impossible and would
swamp any trial.
Because Defendants’ defenses require an individualized inquiry into the
voluntariness of each class member’s decision to tender or otherwise sell their
shares—assessments that include the shareholders’ state of mind—these
individualized inquiries preclude class certification under the predominance
requirement of Rule 42(b)(3). Although the Revised Trial Plan recognizes the
voluntariness element of each of these defenses, it fails to explain how each
shareholder’s state of mind could be tried on a class-wide basis. App. B at pp.11-
21. Waiver, waiver of knowledge, ratification, estoppel, acquiescence in price, and
acquiescence would require countless mini-trials to determine, based on the facts
and circumstances surrounding each class member’s state of mind, whether the
class member’s tender or sale of shares was voluntary.
Delaware courts have applied the doctrines of waiver and acquiescence in
circumstances indistinguishable from this case, decertifying or dismissing such
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 29
lawsuits before considering whether a class should be certified because the putative
class representatives had voluntarily relinquished known rights. See Norberg v.
Security Storage Co. of Wash., 2000 WL 1375868, at *6 (Del. Ch. Sept. 19, 2000)
(finding the plaintiff’s claims were barred by waiver and acquiescence as a result
of accepting the merger consideration after filing a suit that detailed why the
majority breached their fiduciary duties); Bershad v. Curtiss-Wright Corp., 535
A.2d 840, 840-41 (Del. 1987).
The Texas Supreme Court reached a similar conclusion in BMG Direct
Marketing, Inc. v. Peake, 178 S.W.3d 763 (Tex. 2005). In that case, the trial court
certified a class of music club members who had paid unlawful late fees. Id. at
765. Citing Bernal’s rejection of the “certify now and worry later” approach, the
Texas Supreme Court reversed. Specifically, the Supreme Court was concerned
that the trial court failed to analyze the effect of the voluntary payment of the fees
by class members on the requirements for class certification. Id. at 776-77. Given
that the voluntary-payment rule might cause individual issues to predominate, and
given that “[i]t is improper to certify a class without knowing how the claims can
and will likely be tried,” the trial court’s certification order was inadequate and
required reversal. Id. at 777-79. In this case, the voluntary nature of each
individual shareholder’s sale or tender is also a core issue that precludes
certification.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 30
A recent Fifth Circuit decision confirms that individualized considerations
underlying an investor’s decision to buy or sell a stock can preclude class
certification.11 In Ludlow v. BP, the trial court declined to certify a class of
shareholders who purchased stock in BP prior to the Deepwater Horizon explosion.
---F.3d---, 2015 WL 5235010 (5th Cir. Sept. 8, 2015). The proposed damages
theory for the class was that the pre-spill stock price was inflated as a result of
BP’s failure to properly disclose the risk of a spill. Id. at *9. BP’s misstatements,
the theory went, led to investors “being defrauded into taking a greater risk than
disclosed.” Id. When the spill occurred, the risk materialized and investors were
damaged by the decline in the stock price. 12
The Fifth Circuit affirmed the trial court’s holding that this “materialization
of the risk” theory was not capable of class-wide determination. Id. at *10.
Critically, the theory was based “on a determination that each plaintiff would not
have bought BP stock at all were it not for the alleged misrepresentations—a
determination not derivable as a common question, but rather one requiring
individualized inquiry.” Id. Given that different investors have differing
tolerances for risk, some investors might have elected to purchase BP stock even if
11
“[F]ederal decisions and authorities interpreting current federal class action requirements are
persuasive in Texas actions.” Ford Motor Co. v. Sheldon, 22 S.W.3d 444, 452 (Tex. 2000).
12
The Ludlow court affirmed the trial court’s certification of a class of post-spill investors.
Certification of this class was not challenged on the grounds that individualized issues would
predominate. See id. at *5-8.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 31
the risk had been properly disclosed. Id. The proposed damages model could not
be applied uniformly across the class “because it lumps together those who would
have bought the stock at the heightened risk with those who would not have.” Id.
at *11.
The same is true here. The law and logic of Bernal, BMG, and Ludlow
demonstrate that class certification is improper. A blanket finding as to intent or
knowledge would be a complete legal fiction, not a factual determination that
could support a jury verdict or a judgment. Indeed, the issues of intent and
voluntariness will, by necessity, focus at the level of each individual trade.
Defendants have the right to ask each individual shareholder what state-of-mind
each had at the time of the sale or sales of their shares and submit controlling
issues to a jury. Bluelinx Corp. v. Texas Constr. Sys., Inc., 363 S.W.3d 623, 627
(Tex. App.—Houston [14th Dist.] 2011, no pet.); McKinney Indep. Sch. Dist. v.
Carlisle Grace, Ltd., 222 S.W.3d 878, 888 (Tex. App.—Dallas 2007, pet. denied).
Conducting a trial on the intent and knowledge for tens of thousands, if not
hundreds of thousands, of trades by Brigham shareholders, is the type of Herculean
task that would swamp a single jury. Indeed, the focus of the trial for weeks, if not
months or years, would be on presenting evidence and cross-examination related to
individual questions raised by the Defendants’ properly-asserted affirmative
defenses.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 32
3. Bernal illustrates that class certification cannot ignore
individual issues raised in a defendants’ defense.
The Texas Supreme Court’s decision in Bernal emphasizes the following
points: (1) class certification cannot restrict the substantive rights of the defendant,
and (2) the defendant’s choice of how to defend must also be evaluated as a key
component the class certification analysis. In Bernal, 904 plaintiffs claimed
injuries from a single explosion of a refinery tank owned by Southwestern. The
trial court certified the class and ordered a three-phase trial. 22 S.W.3d at 429.
Phase One would resolve liability and causation as to the named plaintiffs. Id.
Phase Two would resolve punitive damages, if there had been a finding of gross
negligence under Phase One. Id. During Phase Three, the jury would “determine
whether the individual class members can show sufficient, specific injuries or
damages and whether they were proximately caused by …. the tank explosion.”
Id. The Court of Appeals affirmed, holding that the class met all class action
prerequisites. Id. The Court of Appeals also held that, even though individual
issues might predominate in determining causation and damages, “the class was
maintainable because the modified trial plan called for the individual issues to be
litigated separately from the common issues.” Id.
The Supreme Court reversed. The Court focused on the right of
Southwestern to adequately and vigorously present its defenses. Id. at 437-39. It
reasoned that “Southwestern is entitled to a fair opportunity to individual
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 33
determinations of causation and damages for each of the 904 plaintiffs.” Id. at 437.
The Court then concluded that if “Southwest chooses to challenge the credibility of
and its responsibility for each personal injury claim individually, then what may
nominally be a class action initially would degenerate in practice into multiple
lawsuits separately tried.” Id.
4. The Revised Trial Plan includes disclosure claims that
Plaintiffs earlier explicitly dropped.
The Revised Trial Plan’s only attempt to analyze how the individualized
issues presented by Defendants’ affirmative defenses would be managed is to
assert that “[a]s a practical matter, these defenses merge with the merits of
Plaintiffs’ non-disclosure claims.” App. B at p.19. But there is nothing for these
defenses to “merge” into because Plaintiffs do not have valid non-disclosure
claims. Their class definition precludes such a claim, as discussed above, plus,
they dropped non-disclosure claims in prior filings: “Plaintiffs are not seeking
specific monetary recovery for the class on the basis of a non-disclosure claim.”
CR 1007; see also CR1819-23. The trial court even questioned Plaintiffs about
this claim, and they confirmed it was “irrelevant.”:
THE COURT: Your argument, if I understand it correctly, is that on
October 17th, they get the bad news, that’s when they have
information that’s going to give them heartburn, and whatever they
were told 11 days later is irrelevant.
PLAINTIFFS’ COUNSEL: That’s correct.
CR1823. Nonetheless, the Revised Trial Plan still includes a non-disclosure claim:
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 34
Here, plaintiffs contend that the Individual Defendants disseminated a
Schedule 14D-9 and a tender offer statement on Schedule TO, filed
with the Securities and Exchange Commission on October 28, 2011,
which was false and misleading and failed to disclose all material
information to Brigham shareholders in connection with the tender
offer from Statoil.
App. B at p.4.
More broadly, the Revised Trial Plan’s conclusory assumption that the
disclosure documents cover the field of Defendants’ affirmative defenses is
erroneous. As noted, the essence of Plaintiffs’ claims is not that the disclosures
were inadequate, it is that Defendants’ failed to obtain adequate consideration for
Brigham. Concomitantly, the focus of Defendants affirmative defenses of waiver,
acquiescence, acquiescence in prize, ratification, and estoppel is that shareholders
agreed to the price they obtained by choosing to sell on the open market or through
the Statoil tender offer. The question of whether shareholders voluntarily decided
to sell and at what price is not the same as the question of whether the disclosures
were adequate. Thus, the Revised Trial Plan’s statement that, if Plaintiffs “do not
establish that shareholders were misled, plaintiffs’ non-disclosure claims fail and
defendants are entitled to judgment on that claim, without the need for a separate
finding on the defenses” is simply untrue.
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 35
5. Plaintiffs cannot explain how common issues will
predominate given the individualized inquiries necessitated
by the affirmative defenses.
Plaintiffs’ oft-repeated response to Defendants’ complaints is that “these
types of cases are routinely certified.” 3RR9. Plaintiffs point to their counsel’s
experience in Pate v. Elloway, 2003 WL 22682422, (Tex. App.—Houston [1st
Dist.] Nov. 13, 2003, pet. denied) (mem. op.). However, neither the trial plan nor
individualized issues were argued as error in Pate, those points were uncontested.
“[T]he trial court found that the requirements of numerosity, commonality,
typicality, predomination of common questions of fact or law, superiority of a class
action over other available methods of adjudicating the controversy, and
development of a trial plan were uncontested and were satisfied.” Id. at *2.
Plaintiffs have also pointed to a number of Delaware cases that were
certified as class actions. E.g., 1SCR89. The vast majority, however, were
settlement class actions, so the threshold issue of whether to certify the class was
agreed upon. As this Court has noted, settlement classes are not held to the same
standard of proof as litigated classes. See Lubin v. Farmers Grp, Inc., 2009 WL
3682602 at *21 (Tex. App.—Austin Nov. 6, 2009, no pet.). Significantly, Texas
procedural law applies to this case, not Delaware law. Texas rejects a ‘certify now,
worry later’ approach, which is acceptable in Delaware. Notably, given the
stringent Texas requirements that must be met to certify a class, not a single Texas
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 36
Supreme Court opinion has affirmed a challenged class certification order in the
last decade.13
13
See Phillips Petroleum Co. v. Yarbrough, 405 S.W.3d 70, 72 (Tex. 2013) (trial court abused
discretion in failing to undertake a rigorous analysis of res judicata’s impact on Rule 42
requirements); Heckmann v. Williamson Cnty., 369 S.W.3d 137 (Tex. 2012) (considering class
certification tangentially although ruling based on jurisdiction); Sw. Bell Tel. Co. v. Mktg. On
Hold Inc., 308 S.W.3d 909, 926–27 (Tex. 2010) (proposed class representative was not adequate
because its interests conflicted with those of the absent class members); Exxon Mobil Corp. v.
Gill, 299 S.W.3d 124, 129 (Tex. 2009) (vacating certification order and holding that
determination was based on trial court’s significant misunderstanding of the substantive law);
Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 702 (Tex. 2008) (class of royalty owners
failed to meet the predominance requirement and individual issues would predominate over
common issues); DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 306 (Tex. 2008) (named-
plaintiffs lacked standing to bring the class action because the possibility of a concrete injury to
the named-plaintiffs was extremely remote); Best Buy Co. v. Barrera, 248 S.W.3d 160, 163
(Tex. 2007) (class certification was improper because individual issues predominated since
defendant was entitled to inquire whether individual class members were aware of a restocking
fee and voluntarily agreed to it as they made purchases); Stonebridge Life Ins. Co. v. Pitts, 236
S.W.3d 201, 203 (Tex. 2007) (denying certification because individualized inquiries would
predominate over common issues); Citizens Ins. Co. of Am. v. Daccach, 217 S.W.3d 430, 460
(Tex. 2007) (decertifying the class and remanding to the trial court for further proceedings);
Cameron Appraisal Dist. v. Rourk, 194 S.W.3d 501, 502 (Tex. 2006) (holding taxpayers could
not bring class action without first exhausting administrative remedies); BMG Direct Mktg., Inc.
v. Peake, 178 S.W.3d 763, 777 (Tex. 2005) (rejecting certification due to the “certify now and
worry later” approach resulting from the trial court’s failure to analyze the voluntary-payment
rule’s effect on the predominance requirement); Nat’l W. Life Ins. Co. v. Rowe, 164 S.W.3d 389,
392 (Tex. 2005) (trial court failed to perform the necessary rigorous analysis to determine
whether the class action requirements were met); see also N. Am. Mort. Co. v. O’Hara, 153
S.W.3d 43, 45 (Tex. 2004) (reversing class certification due to error from ordering class certified
before trial plan was prepared); State Farm Mut. Auto. Ins. Co. v. Lopez, 156 S.W.3d 550, 557
(Tex. 2004) (reversing certification for failure to reflect the rigorous analysis necessary for
typicality and adequate representation requirements); Snyder Commc’ns v. Magaña, 142 S.W.3d
295, 301 (Tex. 2004) (reversing certification due to highly individualized issues predominating);
Compaq Computer Corp. v. Lapray, 135 S.W.3d 657, 681 (Tex. 2004) (reversing certification
and holding that predominance requirement was not satisfied); Union Pac. Res. Group, Inc. v.
Hankins, 111 S.W.3d 69, 75 (Tex. 2003) (reversing certification and holding that commonality
requirement was not satisfied); Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675 (Tex. 2003)
(reversing class certification because individual issues predominated and class action was not
superior).
In a few cases, the Supreme Court has remanded for further proceedings to determine if
certification is appropriate. See Riemer v. State, 392 S.W.3d 635, 642 (Tex. 2013) (error on
adequacy issue; remanded to determine whether other Rule 42 requirements were satisfied. On
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 37
D. The Revised Trial Plan fails to account for Defendants’ right to
request jury findings on proportionate responsibility.
In Texas, a trial court must submit a question apportioning responsibility for
harm between the parties. TEX. CIV. PRAC. REM. CODE ANN. §§33.002(a)(1);
33.003(a)l; Tex. R. Civ. P. 277. As shown above, millions of Brigham shares
changed hands for reasons known only to individual traders. Shareholders who
chose to sell in the open market (or unspecified others who advised them to sell)
are potentially responsible for all or part of any alleged harm. A jury must decide
that proportion. To submit thousands of proportionate responsibility questions
would swamp the jury and make the trial unmanageable.
The Revised Trial Plan fails to rigorously analyze this issue as well. Instead,
it suggests only that proportionate responsibility “can be resolved through use of
an appropriate jury form.” App. B at 20. This says nothing. It does not explain
how the use of a “jury form” could adequately address proportionate responsibility
on a class-wide basis given that each individual shareholder engaged in a unique
course of conduct, based on individualized considerations, with respect to their
Brigham shares.
remand, certification was denied. 452 S.W.3d 491, 502 (Tex. App.—Amarillo 2014, pet. filed)).
See also Farmers Group, Inc. v. Lubin, 222 S.W.3d 417 (Tex. 2007) (in class action brought by
attorney general under the Insurance Code, the class certification requirements should be applied
to the claims asserted, not to the Attorney General himself, and remanding for further
proceedings).
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 38
E. There is no cause of action in Delaware for breach of the duty of
candor.
The Order also includes a claim against the Brigham Defendants for breach
of the duty of candor for “failing to disclose all material information to Brigham
shareholders.” CR3164-65. This claim allegedly stems from the Brigham
Defendants “disseminat[ing]” the Transaction Disclosure Documents filed with the
SEC on October 28, 2011. App. B at p.4. 14
But Delaware law does not permit Plaintiffs to allege a separate claim for a
breach of the duty of candor. Rather, candor is a facet of the duty of care and the
duty of loyalty. See Pfeffer v. Redstone, 965 A.2d 676, 684 (Del. 2009) (“[T]he
duty of disclosure is not an independent duty, but derives from the duties of care
and loyalty.”); see also Malpiede v. Townson, 780 A.2d 1075, 1086 (Del. 2001);
Malone v. Brincat, 722 A.2d 5, 11 (Del. 1998). The certification order thus
includes a nonexistent legal claim and further demonstrates the lack of rigor in the
trial court’s Rule 42 analysis. State Farm, 156 S.W.3d at 555-56 (trial court must
understand the claims and applicable substantive law).
14
The Revised Trial plan also states that Plaintiffs have a claim against the Brigham Defendants
on the basis of alleged nondisclosures from the Schedule TO. App. B at pp.3-4. The Schedule
TO was authored by Statoil and was a communication by Statoil and Fargo Acquisition, Inc. to
Brigham Shareholders. CR1937. It included no recommendations from the Brigham Defendants
on behalf of Brigham. Id. Only the “maker” of an allegedly misleading disclosure can be held
liable for that disclosure. Cf. Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct.
2296, 2301-03 (2011); see also Restatement (Second) of Torts §§ 525, 526 (1977) (imposing
liability on one who “makes” a misrepresentation).
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 39
F. The Revised Trial Plan misstates the elements of Plaintiffs breach
of fiduciary duty claims.
The Revised Trial Plan also misstates and omits elements of Plaintiffs’
breach of fiduciary duty claims. See TEX. R. CIV. P. 42(c)(1)(D)(i) (order must
contain “the elements of each claim or defense asserted in the pleadings”); see also
CR1236; CR127-28 (lodging this objection with the trial court).
First, it improperly includes a claim by Plaintiffs for breach of the duty of
care. This claim fails as a matter of law because the exculpatory provision in
Brigham’s Certificate of Incorporation (authorized by chapter 8, section 102(b)(7)
of the Delaware Code) bars Plaintiffs’ claims for monetary liability for breach of
the duty of care. See Ryan, 970 A.2d at 239; see also In re Cornerstone
Therapeutics, Inc., 115 A.3d 1173, 1179 (Del. 2015) (holding that “plaintiffs must
plead a non-exculpated claim for breach of fiduciary duty against an independent
director protected by an exculpatory charter provision, or that director will be
entitled to be dismissed from the suit”). Thus, the trial plan incorrectly states
which claims will be available to Plaintiffs under Delaware law.
Second, the trial plan omits a crucial element of Plaintiffs’ claim for breach
of the duty of loyalty. To establish this breach under Delaware law, Plaintiffs must
show that the Brigham Board members acted in bad faith. Ryan, 970 A.2d at 243.
And to show bad faith, Plaintiffs must prove that the Board members intentionally
used a sales process they knew was not designed to obtain the highest price
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 40
reasonably available. Id.; see also In re BJ’s Wholesale Club, Inc. S’holders Litig.,
No. 6623-VCN, 2013 WL 396202, at *7 (Del. Ch. Jan. 31, 2013). The trial plan
omits this bad-faith requirement.15
G. The Revised Trial Plan fails to address the impact of the
Plaintiffs’ conflicting damages theories on typicality and
predominance.
The trial plan also fails to recognize that Plaintiffs have offered conflicting
damages theories. See TEX. R. CIV. P. 42(c)(1)(D)(iii). Plaintiffs have
inconsistently argued that (a) damages are based on what each class member
“actually received either in the open market or via tender;” and (b) damages can be
calculated “without the need to resort to information collected from individual
Class members” CR 1002; App. B at p.8. Yet proof of what each class member
received is an individualized inquiry. As noted, this case is unique because
millions of shares changed hands in the aftermath of the merger announcement—
some shareholders chose to accept less than $36.50 when they sold in the open
market, and many received more than $36.50 per share. 4RR DX1. The Revised
Trial Plan simply has no answer for how damages will be determined on a class
wide basis given these undisputed facts, destroying the predominance element.
15
The Order also makes improper factual findings about Defendants’ alleged conduct. It says
Plaintiffs have “demonstrated that each member of the [Proposed] Class is the victim of a
common course of conduct engaged in by defendants.” CR3166. This finding lacks any support
in the record whatsoever. See CR1235; CR127-28 (lodging this objection).
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 41
Also, because the Named Plaintiffs are not in the same position as most of the
putative class, the typicality element is lacking, as discussed below.
III. This Case Cannot Satisfy the Requirements for Class Certification
under Rule 42.
There is no implicit right to proceed as a class action, and the Plaintiffs bear
the burden of establishing that all of the requirements set forth in Rule 42 are
satisfied. See Hotels.com, L.P. v. Canales, 195 S.W.3d 147, 153 (Tex. App.—San
Antonio 2006, no pet.). Plaintiffs failed to meet this burden. The proposed class is
not certifiable under the numerosity, typicality, commonality, or predominance
requirements.
A. Named Plaintiffs do not satisfy the typicality requirement because
they did not tender their shares.
The trial court abused its discretion in finding that Named Plaintiffs satisfy
the typicality requirement. See TEX. R. CIV. P. 42(a)(3). Where a class
representative is immune to a defense that may defeat the claims of absent class
members, that representative is not typical of the class. See Monsanto Co. v.
Davis, 97 S.W.3d 642, 645-46 (Tex. App.—Waco 2002, pet. denied) (holding that
trial court abused its discretion in certifying class where representatives “are not
subject to the same defenses as those of the unnamed plaintiffs”); accord Griffin v.
GK Intelligent Sys., Inc., 196 F.R.D. 298, 301 (S.D. Tex. 2000) (finding that class
representative was not typical where establishing liability “is a more difficult task”
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 42
for absent class members because the named plaintiff, unlike most of the class,
could rely on a legal presumption).
The Named Plaintiffs are not typical because, unlike the vast majority of the
class, they sold their shares on the open market and did not tender their shares to
Statoil. Over 92% of the outstanding shares were tendered to Statoil. CR1941. In
contrast, none of Named Plaintiffs tendered all of their shares; rather, they either
sold their shares on the open market, or held them through the tender offer period
and were automatically cashed out. CR2086-88. Thus, they are not subject to
some of Defendants’ affirmative defenses. Under the acquiescence doctrine, for
example, a shareholder is barred from seeking any recovery if he tenders his shares
with all material information concerning the tender offer. In re Celera Corp.
S’holder Litig., 59 A.3d 418, 431 (Del. 2012); Bershad, 535 A.2d at 848 (Del.
1987).
Numerous courts have held that the disparity between tendering and non-
tendering shareholders prevents plaintiffs from satisfying the typicality
requirement. See, e.g., Andra v. Blount, 772 A.2d 183, 196 (Del. Ch. 2000) (noting
that “it might be necessary to limit [a non-tendering stockholder] to representing
the non-tendering stockholders who are situated similarly to her….[T]endering
stockholders may well be subject to the defense that they are estopped from
challenging the fairness of a transaction whose benefits they willingly accepted.”);
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 43
Shapiro v. Pabst Brewing Co., No. 7339, 1985 WL 11578, at *5 (Del. Ch. July 30,
1985) (“[Plaintiff’s] claim is atypical of the purported class of non-tendering
[stockholders] and, thus, plaintiff is precluded from acting on their behalf.”). 16
B. Plaintiffs failed to establish that common issues predominate over
individual issues.
Rule 42(b)(3)’s predominance requirement is one of the most stringent
prerequisites to class certification. Bernal, 22 S.W.3d at 433. The test for
predominance is not whether common issues outnumber uncommon issues, but
“whether common or individual issues will be the object of most of the efforts of
the litigants and the court.” Id. at 434. If resolving individual issues is likely to be
an overwhelming task, then common issues do not predominate. Id. A class
cannot be certified if it is not determinable from the outset that individual issues
can be considered in a manageable, time-efficient, and fair manner. Id. Relatedly,
the commonality requirement of Rule 42(a)(2) cannot be met either if individual
issues predominate.
As shown, 92% of the shares were tendered here. At trial, each tendering
shareholder will need to be examined individually about their knowledge at the
time of the tender to determine whether Defendants’ affirmative defenses apply to
that shareholder. Further, evaluating whether each shareholder suffered actual
16
Accord Salsitz v. Peltz, 210 F.R.D. 95, 98 (S.D.N.Y. 2002); Spivak v. Petro-Lewis Corp., 120
F.R.D. 693, 698 (D. Colo. 1987); Issen v. GSC Enters., Inc., 508 F. Supp. 1278, 1296 (N.D. Ill.
1981).
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 44
damages as a result of the merger will be an overwhelming task, as discussed
above. These and the other individualized issues previously addressed preclude
class certification. See Bernal, 22 S.W.3d at 433; see also TEX. R. CIV. P. 42(b)(3).
The Order is thus wrong in its statement that “questions of law and fact common to
the Class predominate over any questions affecting only individual members.”
CR3166.
C. The numerosity requirement was not met.
Plaintiffs also had the burden to proving that the proposed class is so
numerous that joinder of all members is impracticable. TEX. R. CIV. P. 42(a)(1).
There has been no showing that the shareholders who held shares on the date the
transaction was announced (October 17, 2011), still held shares on the date the
tender offer closed (December 8, 2011). Thus, while Plaintiffs have proposed a
class of “all holders of Brigham common stock as of October 17, 2011,” they have
made no attempt to identify the shareholders that actually suffered alleged damages
from an inadequate sales price of $36.50 per share when they were forced to cash
out their shares. Having failed to do so, Plaintiffs have not and cannot make the
required numerosity showing. See Canyon Lake, 2015 WL 3543125 at *6 (finding
that the plaintiffs had not met their numerosity burden where they made only
unsupported conclusions that it would be impracticable to join all class members).
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 45
D. Plaintiffs failed to establish that they are adequate representatives
of the absent class members.
Finally, the trial court also abused its discretion in finding that the Named
Plaintiffs adequately represent the interests of absent Plaintiffs. The trial court did
not specifically address this issue on remand and thus did not modify its prior
findings from the initial certification order that Named Plaintiffs are adequate.
Compare CR58-59 with CR3165-66.
However, Named Plaintiffs are inadequate because they have failed to take
an active role in monitoring the litigation and lack sufficient knowledge of the
case. For example, one of the Named Plaintiffs testified that she believed that the
lawsuit “is about trying to lower the stock, the price of the stock.” Goodman Dep.
at 32-33, 75 (3SCR237-38, 248) (emphasis added)). Another Named Plaintiff
testified that he did not know who one of the Brigham Defendants is. Whalen Dep.
at 145-146 (3SCR433). Plaintiffs’ information came primarily from “Script
Memos” prepared by Plaintiffs’ Counsel which contained only allegations, but not
facts. As a consequence of Named Plaintiffs’ lack of knowledge regarding the
case, they are unable to make prudent decisions on behalf of absent Plaintiffs and
cannot exercise adequate oversight over their counsel. Rather than repeating them
here, Defendants incorporate by reference their arguments from Brigham I that
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 46
Named Plaintiffs are inadequate.17 They also respectfully incorporate the
arguments presented in the Appellants’ Brief of Statoil because they apply equally
to the Brigham Defendants. The trial court committed reversible error in finding
Named Plaintiffs adequate.
CONCLUSION AND PRAYER
For all the foregoing reasons, the Court should reverse, decertify the class,
and render judgment that the class does not, and cannot meet the requirements of
Rule 42. Alternatively, the Brigham Defendants pray that this Court reverse the
trial court’s Order granting class certification, decertify the class, vacate the
Revised Trial Plan, and remand for further proceedings. They also request all
other relief to which they may be entitled.
17
Defendants incorporate the arguments, authorities, and citations to the record regarding
adequacy in their Appellants’ Brief in Brigham I. See No. 03-13-00191-CV, Brief of Appellants,
available at http://www.search.txcourts.gov/Case.aspx?cn=03-13-00191-CV&coa=coa03
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 47
Respectfully submitted,
By: /s/ Debora B. Alsup
Debora B. Alsup
State Bar No. 02006200
debora.alsup@tklaw.com
Ben Hallmark
Texas Bar No. 24069865
benjamin.hallmark@tklaw.com
THOMPSON & KNIGHT LLP
98 San Jacinto Blvd., Suite 1900
Austin, Texas 78701
(512) 469-6100
(512) 482-5028 (Alsup Fax)
(512) 482-5091 (Hallmark Fax)
Timothy R. McCormick
State Bar No. 13463500
timothy.mccormick@tklaw.com
Michael W. Stockham
State Bar No. 24038074
michael.stockham@tklaw.com
THOMPSON & KNIGHT LLP
1722 Routh Street, Suite 1500
Dallas, Texas 75201
(214) 969-1700
(214) 969-1751 (Facsimile)
ATTORNEYS FOR APPELLANTS
THE BRIGHAM DEFENDANTS
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 48
CERTIFICATE OF COMPLIANCE
This document complies with the typeface requirements of TEX. R. APP. P.
9.4(e) because it has been prepared in a conventional typeface no smaller than 14-
point for text and 12-point for footnotes. This document also complies with the
word-count limitations of TEX. R. APP. P. 9.4(i), if applicable, because it contains
11,371 words, excluding any parts exempted by TEX. R. APP. P. 9.4(i)(1).
/s/ Debora B. Alsup
Debora B. Alsup
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing document will
be electronically filed using a certified Electronic Filing Service Provider, which
will send electronic notification of such filing to the following counsel of record on
this the 28th day of September, 2015, or alternatively, a copy will be sent via e-
service, facsimile or e-mail, to the following parties.
/s/ Debora B. Alsup
Debora B. Alsup
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 49
Counsel for Defendants
Russell S. Post Chris R. Cowan
Fields Alexander Beck Redden LLP
Parth Gejji 515 Congress Avenue, Suite 1750
Beck Redden LLP Austin, Texas 78701
1221 McKinney St., Suite 4500 (512) 708-1000, ext 6402
Houston, Texas 77010 (512) 708-1002 fax
(713) 951-3700 ccowan@beckredden.com
(713) 951-6220 (Alexander)
(713) 951-3720 fax
rpost@beckredden.com
falexander@beckredden.com
pgejji@beckredden.com
Class Counsel for Plaintiffs
Robbins Geller Rudman & Dowd LLP Robbins Geller Rudman & Dowd LLP
Randall J. Baron Samuel H. Rudman
David T. Wissbroecker Mark S. Reich
Steven M. Jodlowski Michael G. Capeci
655 West Broadway, Suite 1900 58 South Service Road, Suite 200
San Diego, CA 92101-3301 Melville, NY 11747
(619) 231-1058 (631) 367-7100
(619) 231-7423 fax (631) 367-1173 fax
randyb@rgrdlaw.com srudman@rgrdlaw.com
dwissbroecker@rgdlaw.com mreich@rgrdlaw.com
sjodlowski@rgdlaw.com mcapei@rgrdlaw.com
Liaison Counsel for Plaintiffs
Boulette Golden & Marin LLP
Michael Marin
2801 Via Fortuna, Suite 530
Austin, Texas 78746
(512) 732-8924
(512) 732-8905 fax
mmarin@boulettegolden.com
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 50
Additional Counsel for Plaintiffs
Kendall Law Group, LLP The Briscoe Law Firm, PLLC
Joe Kendall Willie C. Briscoe
Daniel Hill The Preston Commons
Jamie J. McKey 8150 N. Central Expressway, Suite 1575
3232 McKinney Avenue, Suite 700 Dallas, Texas 75206
Dallas, Texas 75204 (214) 239-4568
(214) 744-3000 (281) 254-7789 fax
(214) 744-3015 fax wbriscoe@thebriscoelawfirm.com
jkendall@kendalllawgroup.com
dhill@kendalllawgroup.com
jmckey@kendalllawgroup.com
Dunnam & Dunnam L.L.P. Brodsky & Smith LLC
Hamilton P. Lindley Evan J. Smith
4125 W. Waco Drive (76710) Marc L. Ackerman
P.O. Box 8418 Two Bala Plaza, Suite 602
Waco, Texas 76714 Bala Cynwyd, Pennsylvania 19004
(254) 753-6437 (610) 667-6200
(254) 753-7434 fax (610) 667-9029 fax
hlindley@ dunnamlaw.com esmith@brodsky-smith.com
mackerman@brodsky-smith.com
Levi & Korsinsky, LLP Kohn, Swift & Graf, P.C.
Shane T. Rowley Denis F. Sheils
30 Broad St., 24th Floor One South Broad Street, Suite 2100
New York, NY 10004 Philadelphia, PA 19107-3389
(212) 363-7500 x127 (215) 238-1700
(866) 367-6510 fax (215) 238-1968 fax
srowley@zlk.com dsheils@kohnswift.com
The Weiser Law Firm, P.C. Ryan & Maniskas, LLP
Patricia C. Weiser Katharine M. Ryan
James M. Ficaro Richard A. Maniskas
22 Cassatt Avenue 995 Old Eagle School Road, Suite 311
Berwyn, PA 19312 Wayne, PA 19087
(610) 225-2677 (484) 588-5516
(610) 408-8062 fax (484) 450-2582 fax
pw@weiserlawfirm.com kryan@rmclasslaw.com
jmf@weiserlawfirm.com rmaniskas@rmclasslaw.com
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 51
Kelly N. Reddell
The Reddell Firm PLLC
100 Highland Park Village, Suite 200
Dallas, Texas 75205
(214) 295-3031
kelly@reddell-law.com
010283 000032 15948485.8
APPELLANTS’ BRIEF OF THE BRIGHAM DEFENDANTS – PAGE 52
No. 03-15-000248-CV
___________________________________________
In the Third Court of Appeals
at Austin, Texas
___________________________________________
BRIGHAM EXPLORATION COMPANY, ET AL,
Defendants/Appellants,
v.
RAYMOND BOYTIM, ET AL,
Plaintiffs/Appellees.
___________________________________________
On Appeal from the 201st Judicial District Court of Travis County, Texas
Honorable Lora Livingston, Presiding Judge
Cause No. D-1-GN-11-003205
__________________________________________________________________
APPENDIX
_________________________________________________________________
A Order Granting Class Certification, April 9, 2015 CR 3163-67
B Plaintiffs’ Proposed Second Amended Plan for Trial of Hand-filed
Class Claims, March 19, 2015 06/05/15 by
district clerk
without Bates
numbering
C Plaintiffs’ Proposed Amended Preliminary Plan for Trial CR 946-57
of Class Claims, September 12, 2012
D Order Denying Temporary Injunction, November 22, 2011 CR 305-07
E Texas Rule of Civil Procedure 42
APPENDIX COVER PAGE
Appendix A
DC BK151 03 PG1 00
Filed in The District Court
of Travis County, Texas
AfR · 9 2015
At Lj· (JO f M.
Velva L. Price, District Clerk
Cause No. D-1-GN-11-003205
(Consolidated)
RAYMOND BOYTIM, et al., Individually and§ IN THE DISTRICT COURT OF
on Behalf of All Others Similarly Situated, §
§
Plaintiffs, § TRAVIS COUNTY, TEXAS
§
vs. §
201st JUDICIAL DISTRICT
BRIGHAM EXPLORATION COMPANY, ~
et al., §
§
Defendants.
§
____________________________ §
ORDER GRANTING CLASS CERTIFICATION
Case # D-1-G N-11-003205
lllllllllllllllllllllllllllllllllllllllllllllllllllllll
003974777
3163
DC BK151 03 PG1 01
The Court, having considered the papers filed in support of, and in opposition to, plaintiffs'
Motion for Class Certification, as well as oral argument thereon, finds as follows, pursuant to
Rule 42 ofthe Texas Rules of Civil Procedure:
I. The members of the Class, as defined below, are so numerous that joinder of all
members is impracticable. Plaintiffs have demonstrated that Brigham had more than 117,318,932
shares of stock outstanding prior to the acquisition of Brigham Exploration Company ("Brigham" or
the "Company") by Statoil ASA ("Statoil") (the "Acquisition").
2. Plaintiffs bring claims against the former members of Brigham's Board ofDirectors
for breach of their fiduciary duties, and a claim against the Company and Statoil for aiding and
abetting the Board's breach of fiduciary duties. These claims raise questions of law and fact
common to the Class including, inter alia, the following:
(a) whether the former members ofthe Brigham's Board breached their fiduciary
duties of undivided loyalty, independence or due care with respect to plaintiffs and the other
members ofthe Class in connection with the Acquisition;
(b) whether the former members of Brigham's Board engaged in a plan and
scheme to benefit themselves and/or Statoil at the expense of the members of the Class;
(c) whether the former members of Brigham's Board breached their fiduciary
duty to secure and obtain the best price reasonable under the circumstances for the benefit of
plaintiffs and the other members of the Class in connection with the Acquisition;
(d) whether Brigham and/or Statoil aided and abetted the breach of fiduciary
duties by the Individual Defendants;
(e) whether defendants breached any of their other fiduciary duties to plaintiffs
and the other members of the Class in connection with the Acquisition, including the duties of
- 1-
3164
DC BK151 03 PG1 02
candor, good faith, diligence, honesty and fair dealing by failing to disclose all material information
to Brigham shareholders;
(f) whether defendants erected preclusive barriers to discourage other offers for
the Company and its assets; and
(g) whether plaintiffs and the other members of the Class were damaged as a
result of defendants' misconduct.
3. The claims of Raymond Boytim, Hugh Duncan, Robert Fioravanti, Walter
Schwimmer, The Edward J. Goodman Life Income Trust and The Edward J. Goodman Generation
Skipping Trust, Jeffrey Whalen and Howard Weissberg (collectively "plaintiffs") are typical of the
claims of the Class. Plaintiffs have demonstrated that their claims, as well as those possessed by the
Class, arise out of the same course of conduct or events and are based on the same legal theories.
4. Plaintiffs will fairly and adequately protect the interests of the Class. Plaintiffs
established, through deposition testimony, sworn affidavits, and/or live testimony provided at the
class certification hearing, that they: (i) have taken an active role in the prosecution of the action,
including communicating regularly with their attorneys, reviewing the documents and deposition
testimony of defendants, responding to discovery requested by defendants, independently
investigating Brigham and Statoil and the acquisition; (ii) are knowledgeable about the factual and
legal issues involved in the case; (iii) understand the procedural history of the case; (iv) have no
interests antagonistic to the class; (v) understand their duties to the class and seek to maximize any
recovery for the class; (vi) strongly believe in the legitimacy of their grievance; and (vii) are
prepared to appear at trial.
5. Plaintiffs' selected class counsel will adequately represent plaintiffs and the Class and
prosecute their claims. Robbins Geller Rudman & Dowd LLP is experienced in the area of securities
- 2-
3165
DC BK151 03 PG1 03
litigation and has vigorously prosecuted this case to date. Boulette Golden & Marin L.L.P. is
likewise experienced in complex commercial litigation.
6. The questions of law and fact common to the Class predominate over any questions
affecting only individual members of the Class. Plaintiffs have demonstrated that each member of
the Class is the victim of a common course of conduct engaged in by defendants.
7. A class action is superior to other available methods for the fair and efficient
adjudication ofthe controversy in this action.
(a) Plaintiffs have established that, given the relatively small amount of dollars
which may be at issue for many class members, the class action mechanism is the only means by
which a claim challenging defendants' actions will ever be adjudicated, that pursuing individual
actions would be prohibitively expensive for the vast majority ofthe Class, especially in light of the
potentially small dollar amount oftheir individual claims, and that Class members' interests are far
better served by the class action device than pursuing individual actions; and
(b) Plaintiffs have submitted trial plan which offers a rigorous analysis and a
specific explanation of how the class claims are to proceed to trial. After evaluating the plan, the
Court finds that a trial in this action will be manageable in that it involves the application of the laws
of a single state (Delaware), there are no individual issues to be resolved by the fact-finder, and that
the sole individual issue (the amount of shares held by each class member on October 17, 2011) can
be resolved through a post-judgment proceeding. The Court hereby adopts and incorporates
Plaintiffs' Proposed Second Amended Plan for Trial of Class Claims, filed March 19, 2015.
8. Plaintiffs' Amended Notice of Pendency of Class Action, attached as Exhibit 10 to
Plaintiffs' Amended Motion for Class Certification, satisfies Rule 42(c)(2)(B) of the Texas Rules of
Civil Procedure. It concisely and clearly states in plain, easily understood language: (i) the nature of
-3-
3166
DC BK151 03 PG1 04
the action; (ii) the definition of the Class certified; (iii) the Class claims, issues and defenses;
(iv) that a member of the Class may enter an appearance through counsel if the member so desires;
(v) that the judgment, whether favorable or not, will include and bind all members who do not
request exclusion by the specified date; (vi) that the court will exclude any members of the Class if
they request exclusion; and (vii) when and how a member may be exclude themselves from the
Class.
Good cause appearing, IT IS HEREBY ORDERED that:
1. Plaintiffs' Motion for Class Certification is GRANTED.
2. The Class is defined as all holders of common stock of Brigham Exploration
Company as of October 17, 2011. Excluded from the Class are defendants and any person, firm,
trust, corporation or other entity related to or affiliated with any defendant.
3. Plaintiffs are appointed as representatives ofthe Class.
4. Robbins Geller Rudman & Dowd LLP is appointed as Class Counsel, and Boulette
Golden & Marin L.L.P. is appointed as Liaison Counsel.
5. The Court approves Plaintiffs' Amended Notice ofPendency of Class Action. Within
30 days, the parties shall meet and confer regarding a proposed plan for dissemination of the notice.
ORDER
IT IS SO ORDERED.
DATED:
THEHO
-4-
3167
Appendix B
Cause No. D-1-GN-11-003205
(Consolidated)
RAYMOND BOYTIM, et al., Individually and§ IN THE DISTRICT COURT OF
on Behalf of All Others Similarly Situated, §
§
Plaintiffs, § TRAVIS COUNTY, TEXAS
§
vs. §
261st JUDICIAL DISTRICT
BRIGHAM EXPLORATION COMPANY, et ~
al., §
§
Defendants.
§
__________________________ §
PLAINTIFFS' PROPOSED SECOND AMENDED PLAN
FOR TRIAL OF CLASS CLAIMS
1014363_1
TABLE OF CONTENTS
Page
I. PLAINTIFFS' CLAIMS ...................................................................................................... 2
A. Plaintiffs' Claim for Breach of Fiduciary Duty Against the Individual
Defendants ............................................................................................................... 3
B. Aiding and Abetting Breach of Fiduciary Duty Against Brigham and
Statoi1 ...................................................................................................................... .4
II. DEFENDANTS' PLEADED DEFENSES ..........................................................................5
A. Defense Nos. I and 9 ............................................................................................... 6
B. Defense No. 2 ........................................................................................................... 6
C. Defense Nos. 3, 5-6 .................................................................................................. 7
D. Defense No. 4 ........................................................................................................... 8
E. Defense No. 7 ........................................................................................................... 9
F. Defense No. 8........................................................................................................... 9
G. Defense Nos. 10 and II ......................................................................................... 10
H. Defense No. 12 .................................................................................... ,.................. 11
I. Defense No. 13 ....................................................................................................... 12
III. CLASS ISSUES ................................................................................................................. 12
A. Procedural History ................................................................................................. 12
B. Common Questions of Law and Fact Predominate ............................................... 13
I. Plaintiffs Will Prove Breach of Fiduciary Duty Through Common
Evidence ..................................................................................................... 14
2. Plaintiffs Will Prove with Common Evidence Causation and
Amount of Damages .................................................................................. 16
3. Defendants' Defenses Are Susceptible to Common Proof.. ...................... 17
- 1-
1014363_1
Pursuant to Tex. R. Civ. P. 42(d), this Court hereby adopts the following trial plan in connection
with its order granting certification of plaintiffs' claims against defendants. This plan provides a
detailed assessment of how a single trial can be conducted against Brigham Exploration Company
("Brigham" or the "Company"), the members of its Board of Directors (the "Individual Defendants" or
the "Board"), and Statoil ASA ("Statoil") on behalf of a proposed class of all holders of Brigham
common stock as of October 17, 2011. Based upon the voluminous written submissions of the parties
in connection with plaintiffs' motion for class certification, as well as hearings held on October 22,
2012, February 22,2013, December 17,2014, and March 31,2015, it is evident totheCourtthattrial of
this action on a class-wide basis will present no unduly challenging manageability issues.
This plan addresses the class certification issues, the claims arising from defendants' actions,
the manner in which defendants' common course of conduct will be proven at trial, and other issues
relating to the management and superiority of a class-wide trial. As discussed below, this action
stems from the sale of Brigham to Statoil for $36.50 per share of Brigham stock. That sale was
completed on December 8, 2011, one-and-a-half months after Brigham and Statoil announced to
shareholders that the companies had entered into a definitive merger agreement. Plaintiffs allege
that Brigham's directors breached their fiduciary duties to shareholders in agreeing to and facilitating
the sale. Plaintiffs also bring a claim against Brigham and Statoil for aiding and abetting the breach
of fiduciary duty. In response to plaintiffs' claims, defendants have pleaded several defenses, which
are addressed below.
The Court envisions a single trial with the following procedural steps:
1. Plaintiffs will present their case-in-chief, submitting common evidence of defendants'
wrongdoing, class-wide injury, and total damages;
2. The Individual Defendants will present the defenses they wish to advance;
-1-
1014363_1
3. Brigham and Statoil will present the defenses they wish to advance;
4. Plaintiffs will present their rebuttal case; and
5. The case will be submitted to the jury, which will enter a verdict based on a proposed
jury charge.
Counsel for plaintiffs are deeply experienced in takeover litigation, especially in takeover
cases after the acquisition closes, and have prepared similar cases for trial. Counsel for plaintiffs
have also tried numerous takeover cases on a class-wide basis, including at least one action in Texas.
See Ellowayv. Pate, 238 S.W.3d 882 (Tex. App.-Houston [l4thDist.]2007, no pet.). Plaintiffs will
present their case through the testimony of their experts; the testimony and documents of the
Individual Defendants, Brigham and Statoil; the testimony and documents of defendants' financial
advisors; and, potentially, the documents and testimony of Shell, ENI, Chevron and Total, four
potential buyers.
If a verdict for the plaintiffs results, judgment in a total, single monetary sum will be entered
in favor of the Class. A post-judgment proceeding will follow, in which the Court will approve the
procedure for distributing checks (or direct deposits) to each individual Class member based on
plaintiffs' expert's damage calculations. Plaintiffs will ask the Court to approve the final allocation
of damages. If a verdict is returned in favor of defendants, judgment dismissing the action with
prejudice would be entered.
I. PLAINTIFFS' CLAIMS
This action involves claims against Brigham's Board for breach of its fiduciary duties, and a
claim against the Company and Statoil for aiding and abetting the Board's breach of fiduciary duties.
- 2-
1014363_1
A. Plaintiffs' Claim for Breach of Fiduciary Duty Against the Individual
Defendants
The primary claim in this case is a claim for breach of fiduciary duty against the members of
Brigham's Board at the time of the acquisition. That claim is governed by Delaware law because
Brigham was a Delaware corporation. Article 8.02 of the Texas Business Corporation Act provides
that the internal affairs (including the actions of its Board Members) of a foreign corporation doing
business in Texas are controlled by the substantive law of the state of incorporation.
Directors owe fiduciary duties of care and loyalty to the corporation and its shareholders.
Mills Acquisition Co. v. MacMillan, Inc., 559 A.2d 1261, 1280 (Del. 1989); accord Revlon, Inc. v.
MacAndrews &Forbes Holdings, Inc., 506 A.2d 173, 179 (Del.l986). In the contextofachangeof
control, such as this, courts review directors' conduct under the enhanced scrutiny standard and must
employ "less tolerance for slack by the directors" and be cognizant of the fact that "[a]lthough the
directors have a choice of means, they do not comply with their [fiduciary] duties unless they
undertake reasonable steps to get the best deal." In re Netsmart Techs., Inc. S'holders Litig., 924
A.2d 171, 192 (Del. Ch. 2007); see also Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914,928
(Del. 2003); Revlon, 506 A.2d 173. The enhanced scrutiny test requires:
(a) a judicial determination regarding the adequacy of the decisionmaking process
employed by the directors, including the information on which the directors based
their decision; and (b) a judicial examination of the reasonableness of the directors'
action in light of the circumstances then existing.
Paramount Commc'ns v. QVC Network, 637 A.2d 34,45 (Del. 1994); Omnicare, 818 A.2d at 931.
Under the enhanced scrutiny test, "[t]he directors have the burden of proving that they were
adequately informed and acted reasonably." Paramount, 637 A.2d at 45.
In addition, as part of their fiduciary duties to Brigham's shareholders, the Board must fully and
fairly disclose all material information within the Board's control. See Netsmart, 924 A.2d at 202; In re
Pure Resources, Inc., S'holders Litig., 808 A.2d 421,448 (Del. Ch. 2002) ("When a document ventures
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into certain subjects, it must do so in a manner that is materially complete and unbiased by the omission
of material facts."). Here, plaintiffs contend that the Individual Defendants disseminated a Schedule
14D-9 ("Schedule 14D-9") and a tender offer statement on Schedule TO ("Schedule TO"), filed with
the Securities and Exchange Commission on October 28, 2011, which was false and misleading and
failed to disclose all material information to Brigham shareholders in connection with the tender offer
from Statoil. The determination of whether the Board breached that duty in this instance turns on the
materiality of the alleged non-disclosures and omissions. Under relevant case law, courts determine
materiality by assessing whether there is a substantial likelihood that a reasonable shareholder would
consider the fact important in deciding how to vote. See Arnold v. Soc'y for Sav. Bancorp, 650 A.2d
1270, 1277 (Del. 1994); TSC Indus. v. Northway, Inc., 426 U.S. 438, 449 (1976).
B. Aiding and Abetting Breach of Fiduciary Duty Against Brigham and
Statoil
Plaintiffs also have a claim against Brigham and Statoil, for aiding and abetting of the
breaches of fiduciary duties by the Individual Defendants, as members of the Board of Brigham.
Rand v. Western Airlines, No. 8632, 1989 Del. Ch. LEXIS 118, at *14 (Del. Ch. Sept. 11, 1989)
("[I]f there were objective evidence that the transaction benefits the fiduciaries at the stockholders'
expense, knowing participation by a third party might be inferable."). To prevail on their claim for
aiding and abetting a breach of fiduciary duty, plaintiffs must prove: (1) the existence of a fiduciary
relationship; (2) a breach of the fiduciary's duty; (3) knowing participation in that breach by Statoil;
and (4) damages proximately caused by the breach. Malpiede v. Townson, 780 A.2d 1075, 1097
(Del. 2001); In re Rural Metro Corp. S'holders Litig., 88 A. 3d 54, 80 (Del. 2014). As to the third
element- knowing participation, plaintiffs must show that the buyout group "'sought to induce the
breach of a fiduciary duty"' or" 'make factual allegations from which knowing participation may be
inferred."' In re Bj's Wholesale Club, Inc., C.A. No. 6623-VCN, 2013 Del. Ch. LEXIS 28, at *54-
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*55 (Del. Ch. Jan. 31, 2013). Knowing participation may be inferred where a buyout group:
(1) "directly 'sought to induce [a] breach of fiduciary duty"' by the board; (2) attempted to '"create
or exploit conflicts of interest in the board'"; (3) '"used knowledge of the breach to gain a bargaining
advantage in negotiations"' with the board; or (4) knew the "'terms of the transaction [were] so
egregious or the magnitude of the side deals ... so excessive as to be inherently wrongful."' Id.
II. DEFENDANTS' PLEADED DEFENSES
On January 13, 2015, defendants filed a Third Amended Answer to plaintiffs' petition. In it,
defendants plead the following defenses:
1. Plaintiffs' petition fails to state a claim for which relief can be granted;
2. The negotiation and process leading up to the signing of the merger agreement and
tender offer, as well as the decision to recommend the tender offer by the Individual Defendants, are
protected by the business judgment rule;
3. Defendants did not know, and in the exercise of reasonable care could not have
known, of any untruths or omissions in the Schedule 14D-9 or the Schedule TO;
4. The alleged misrepresentations and omissions were not material and did not
proximately cause any damages to plaintiffs;
5. Defendants acted in good faith and without any intent to deceive;
6. Defendants' alleged misstatements or omissions were made in good faith, with
genuine belief;
7. Pursuant to 8 Del C. §14l{e), defendants are not liable because they relied in good
faith upon the records of the corporation;
8. Plaintiffs' claims are barred because of payment or accord and satisfaction;
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9. Plaintiffs' generalized allegations of purported misrepresentations, deceit, or failure to
disclose are barred because of a failure to plead those claims with requisite specificity;
10. Plaintiffs' claims for damages are barred as a matter of law;
ll. Plaintiffs' claims are barred under the 8 Del. C. § l02(b )(7) exculpation clause in
Brigham's Certificate of Incorporation;
12. Plaintiffs' claims are barred by the doctrines of waiver, acquiescence, acquiescence in
price, ratification, and estoppel; and
13. The recovery by plaintiffs, if any, should be precluded or reduced by virtue of the
doctrine of proportionate responsibility.
A. Defense Nos. 1 and 9
Defendants' first and ninth defenses are directed at the sufficiency of plaintiffs' pleadings,
which is a legal matter for the Court. Texas follows a "fair notice" standard for pleading, in which
courts assess the sufficiency of pleadings by determining whether an opposing party can ascertain
from the pleading the nature, basic issues, and the type of evidence that might be relevant to the
controversy. See Tex. Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 230 (Tex. 2004);
Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896-97 (Tex. 2000); Boyles v. Kerr, 855
S.W.2d 593, 601 (Tex. 1993); see also Tex. R. Civ. P. 47(a). The test of fair notice is whether an
opposing attorney of reasonable competence, with the pleadings before him or her, could ascertain
the nature and basic issues of the controversy and the testimony that is probably relevant. Hand v.
Dean Witter Reynolds Inc., 889 S.W.2d 483, 489 (Tex. App.-Houston [14th Dist.] 1994, writ
denied).
B. Defense No. 2
In their second defense, defendants contend that the business judgment rule bars plaintiffs'
claims.
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i'
i
The business judgment rule is an evidentiary presumption. Cede & Co. v. Technicolor, 634
A.2d 345, 360 (Del. 1993). Where shareholders challenge transactions approved by the board of a
corporation, the business judgment rule operates as "a presumption that in making a business decision
the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the
action taken was in the best interests of the company." Aronson v. Lewis, 473 A.2d 805, 812 (Del.
1984). A shareholder plaintiff may rebut the presumption by showing that a defendant breached any
one of the triads of their fiduciary duty- good faith, loyalty or due care. Citron v. Fairchild Camera &
Instrument Corp., 569 A.2d 53, 64 (Del. 1989). If the plaintiff makes this evidentiary showing, the
presumption is rebutted and the burden shifts to the defendant directors, the proponents of the
challenged transaction, to prove to the trier of fact the "entire fairness" of the transaction to the
shareholder plaintiff. Nixon v. Blackwell, 626 A.2d 1366, 1376 (Del. 1993).
C. Defense Nos. 3, 5-6
Defendants have raised three defenses alleging that they acted in good faith and without any
intent to deceive Brigham's shareholders.
The duty to act in good faith is technically a subset of the duty of loyalty. "Encompassed
within the duty of loyalty is a good faith aspect as well. 'To act in good faith, a director must act at all
times with an honesty of purpose and in the best interest and welfare of the corporation."' Shocking
Techs., Inc. v. Kosowsky, No. 7164-VCN, 2012Del. Ch. LEXIS 224, at *29 (Del. Ch. Sept. 28, 2012)
(citation omitted). Stated alternatively, a director who acts "reckless and indifferent as to the rights of
the stockholders" may breach the duty of good faith. Perrine v. Pennroad Corp., 47 A.2d 479, 489
(Del. Ch. 1946) (citing Karasik v. Pacific Eastern Corp., 180 A. 604 (Del. Ch. 1935)).
With respect to the defense that defendants did not know, or could not have known, of any
untruths or omissions in the Schedule 14D-9 or Schedule TO, directors of a Delaware corporation
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are under a fiduciary duty to disclose all material information within the Board's control when they
seek shareholder action. Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992); Arnold, 650 A.2d at 1277.
"The disclosure obligation . . . is said to be one that requires the disclosure of all material
information within the knowledge ofthe corporation (and thus available to the directors)." Behrens
v. United Investors Mgmt. Co., No. 12876, 1993 Del. Ch. LEXIS 217, at *42 (Del. Ch. Oct. 1, 1993).
D. Defense No. 4
In their fourth defense, defendants assert that the alleged misrepresentations and omissions
are not material and did not proximately cause damages or injuries to plaintiffs.
The Delaware Supreme Court has stated that the essential inquiry in analyzing a disclosure
claim is whether the alleged omission or misrepresentation is material. Arnold, 650 A.2d at 1277.
The objective definition of materiality employed by Delaware courts is adopted from the United
States Supreme Court's decision in TSC, 426 U.S. 438, which states, in pertinent part:
An omitted fact is material if there is a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to vote . . . . It does not
require proof of a substantial likelihood that disclosure of the omitted fact would
have caused the reasonable investor to change his vote. What the standard does
contemplate is a showing of a substantial likelihood that, under all the circumstances,
the omitted fact would have assumed actual significance in the deliberations of the
reasonable shareholder. Put another way, there must be a substantial likelihood that
the disclosure of the omitted fact would have been viewed by the reasonable investor
as having significantly altered the "total mix" of information made available.
!d. at449.
Under Delaware law, once materiality has been shown, causation is satisfied. In In re Rural
Metro Corp. Stockholders Litig., 88 A.3d 54 (Del. Ch. 2014), the Court of Chancery held that,
"[w]hen seeking post-closing damages for breach of the duty of disclosure, however, the plaintiff
must prove quantifiable damages that are 'logically and reasonably related to the harm or injury for
which compensation is being awarded.'" !d. at 104 (citing In re J.P. Morgan Chase & Co. S 'holder
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Litig., 906 A.2d 766, 773 (Del. 2006)). There, the court explained, "a [fmancial advisor's] actions
resulted in stockholders voting on the merger based on a proxy statement that contained materially
false disclosures and omissions about [financial advisor's] valuation analyses and conflicts.
Stockholders were denied the information necessary to make an informed decision whether to seek
appraisal. Causation is satisfied." Rural Metro, 88 A. 3d at 107. In a later opinion, the court entered
judgment and awarded damages to the stockholder class at an identical $4.17 per share for the
plaintiff and each eligible class member. In re Rural/Metro Corp. Stockholders Litig., 102 A. 3d 205
(Del. Ch. 2014). The showing of causation involved no individual issues of proof.
E. Defense No. 7
Defendants also invoke §14l(e) of Delaware's corporation law, 8 Del. C. §14l(e), as a
defense. Section 141 (e) provides that directors are protected from a breach of the duty of care when
the directors reasonably believe the information upon which they rely has been presented by an
expert selected with reasonable care and is within that person's professional or expert competence.
8 Del. C. §14l(e); see also Brehm v. Eisner, 746 A.2d 244, 262 (Del. 2000).
Section 14l(e) does not reach claims for breaches of loyalty and good faith. See, e.g.,
Selectica, Inc. v. Versata Enters., No. 4241-VCN, 2010 Del. Ch. LEXIS 39, at *62 (Del. Ch.
Feb. 26, 2010) (recognizing that board's reliance on expert's advice may, in certain circumstances,
defeat a "due care claim"), aff'd, 5 A.3d 586 (Del. 2010).
F. Defense No.8
In their eighth defense, defendants contend that plaintiffs' claims are barred because of
payment or accord and satisfaction. Three elements are necessary to prove an accord and
satisfaction: (1) that a bona fide dispute existed as to the amount owed that was based on mutual
good faith; (2) that the debtor tendered an amount to the creditor with the intent that payment would
be in total satisfaction of the debt; and (3) that the creditor agreed to accept the payment in full
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satisfaction of the debt. CitiSteel USA, Inc. v. Connell Ltd. P'shp, Luria Bros. Div., 758 A.2d 928,
931 (Del. 2000) (citingAciernov. Worthy Bros. Pipeline Corp., 693 A.2d 1066, 1068 (Del. 1997)).
The burden to prove these elements is on the party alleging that the accord and satisfaction took
place. !d. at 1068-69.
G. Defense Nos. 10 and 11
Defendants also contend that plaintiffs' claims for monetary damages are barred as a matter
of law and under the 8 Del. C. §102(b)(7) exculpation clause in Brigham's Certificate of
Incorporation. Although § 102(b)(7) provision does not operate to defeat the validity of a plaintiff's
claim on the merits, it permits a corporation to adopt a clause eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except in certain circumstances. Emerald Partners v. Berlin, 787 A.2d
85, 92 (Del. 2001).
Section 102(b)(7) applies only to directors; it does not authorize exculpation of officers.
Chen v. Howard-Anderson, 87 A.3d 648, 686 (Del. Ch. 2014); McPadden v. Sidhu, 964 A.2d 1262,
1275-76 (Del. Ch. 2008). Nor does §102(b)(7) shield a corporation from monetary damages
stemming from the actions of its directors or officers. 8 Del. C. §102(b)(7).
A § 102(b)(7) exculpation clause also cannot eliminate or limit the liability of a director for
any breach of the duty of loyalty or good faith, including a claim for non-disclosure. 8 Del. C.
§102(b)(7); accord Levy v. Stern, No. 211, 1996 Del. LEXIS 468, at *6 n.4 (Del. Dec. 20, 1996)
(§ 102(b)(7) "is inapplicable ... where the alleged breach entails bad faith, intentional misconduct, or
a breach of the duty ofloyalty"); Wayne Cnty. Emps. 'Ret. Sys. v. Corti, No. 3534-CC, 2009 Del. Ch.
LEXIS 126, at *25-*28 (Del. Ch. July 24, 2009), aff'd, 996 A.2d 795 (Del. 2010).
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"Because [§ 102(b)(7)] is an affirmative defense, the defendants would normally shoulder the
burden of establishing each of its elements, and the inapplicability of each of its four exceptions."
Rothenberg v. Santa Fe Pacific Corp., No. 11749, 1992 Del. Ch. LEXIS 106, at *12-*13 (Del. Ch.
May 18, 1992); In re Orchard Enters., Inc., 88 A.3d 1, 48 (Del. Ch. 2014).
H. Defense No. 12
Defendants' twelfth defense raises four related doctrines of equity- waiver, acquiescence,
ratification and estoppel- all of which defendants bear the burden of proving under Delaware law.
'"Waiver is the voluntary and intentional relinquishment of a known right. . . . It implies
knowledge of all material facts and intent to waive.' Moreover, 'the facts relied upon must be
unequivocal in nature.'" Am. Family Mortg. Corp. v. Acierno, No. 290, 1994 Del. LEXIS 105, at
*13 (Del. Mar. 28, 1994) (quoting Realty Growth Investors v. Council of Unit Owners, 453 A.2d
450, 456 (Del. 1982)) (internal citations omitted). To be subject to the defense of acquiescence,
defendants must prove every plaintiff: (i) had full knowledge of their rights and all material facts;
(ii) possessed a meaningful choice in determining how to act; and (iii) acted voluntarily in a manner
showing unequivocal approval of the challenged conduct. N.J. Carpenters Pension Fund v.
infoGROUP, Inc., No. 5334-VCN, 2013 Del. Ch. LEXIS 43, at *25 (Del. Ch. Feb. 13, 2013). To
obtain the benefits of ratification, the defendants must prove, by a preponderance of the evidence,
that the plaintiffs consented to the switch after all material facts were disclosed. O'Malley v. Boris,
No. 15735-NC, 2002 Del. Ch. LEXIS 33, at *22 n.28 (Del. Ch. Mar. 18, 2002). "[T]he ratification
doctrine does not apply to transactions where shareholder approval is statutorily required." Gantler
v. Stephens, 965 A.2d 695, 714 (Del. 2009). '"Estoppel is the effect of the voluntary conduct of a
party whereby he is absolutely precluded ... from asserting rights which might perhaps have
otherwise existed, ... as against another person, who has in good faith relied upon such conduct, and
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has been led thereby to change his position for the worse."' Kahn v. Household Acquisition Corp.,
591 A.2d 166, 176 (Del. 1991).
I. Defense No. 13
Defendants' last defense is based on the doctrine of proportionate responsibility. Under
Chapter 33 of the Texas Civil Practice and Remedies Code, if a liability finding has been made by
the jury, the jury may be asked to detennine if other parties contributed to the harm for which
damages are sought. Tex. Civ. Prac. & Rem. Code Ann. §33.003(a) (2006). If so, the jury may
detennine the percentage of responsibility of each party and reduce or eliminate any damages owed
to a plaintiff. !d.
III. CLASS ISSUES
A. Procedural History
This action was initiated on October 17, 2011, when Raymond Boytim filed a petition
stemming from the announcement by Brigham and Statoil that the companies had entered into a
merger agreement. Several additional Brigham shareholders filed similar actions. The actions were
thereafter consolidated. On November 10, 2011, plaintiffs moved for an order preventing defendants
from closing the tender offer and taking down any tendered shares until defendants cured the
breaches of fiduciary duty set forth in plaintiffs' petition. That motion was denied, and Statoil
closed the transaction on December 8, 2011.
After the sale was consummated, plaintiffs filed a second amended consolidated petition,
which added a claim for damages. Plaintiffs also added factual allegations based on their review of
the documents and deposition testimony provided by defendants prior to the close of the transaction.
In early March 2012, plaintiffs filed a third amended class action petition for breach of fiduciary
duty. The petition added several additional named plaintiffs, but was otherwise identical to the
second amended petition filed in January. Discovery is ongoing.
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On September 17, 2012, plaintiffs moved for class certification of their claim that defendants
had breached their duties to Brigham's shareholders. Both parties have submitted voluminous
filings, and the Court has held numerous hearings, in connection with that motion. On October 22,
2012, the trial court held a hearing during which counsel for the parties providing opening
statements in support of their respective positions and four class representatives provided live
testimony. The Court held a second hearing on February 22, 2013. At that hearing, the Court
addressed defendants' objections to the class certification order and proposed trial plan. Five days
later, the Court issued an order certifying a class of former Brigham shareholders. An interlocutory
appeal followed.
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