“the board owes fiduciary duties to the company, something Yucaipa, as a stockholder, generally does not”
How later courts described this case
- “the board owes fiduciary duties to the company, something Yucaipa, as a stockholder, generally does not”
- the trial court did not abuse its discretion in certifying the class, although the class representatives were admittedly “hand- picked” or selected as representatives
- the claims of the class representative need not be identical or perfectly coextensive with - 56 - those of the class as a whole; the claims need only be substantially similar with those of the class
- addressing the impact of a showing of nondisclosure of material information on the ratification defense
Written by the judges who cited it.
The opinion
ACCEPTED
03-15-00248-CV
7922603
THIRD COURT OF APPEALS
AUSTIN, TEXAS
November 24, 2015 11/20/2015 11:03:34 AM
JEFFREY D. KYLE
CLERK
No. 03-15-000248-CV
IN THE THIRD COURT OF APPEALS RECEIVED IN
THIRD JUDICIAL DISTRICT OF TEXAS 3rd COURT OF APPEALS
AUSTIN, TEXAS
AUSTIN, TEXAS
11/20/2015 11:03:34 AM
JEFFREY D. KYLE
BRIGHAM EXPLORATION COMPANY, BEN M. BRIGHAM, Clerk
DAVID T. BRIGHAM, HAROLD D. CARTER, STEPHEN C. HURLEY,
STEPHEN P. REYNOLDS, HOBART A. SMITH, SCOTT W. TINKER,
STATOIL ASA, AND FARGO ACQUISITION, INC.,
Appellants,
vs.
RAYMOND BOYTIM, et al., INDIVIDUALLY
AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
Appellees.
Appeal from the 261st Judicial District Court of Travis County, Texas
Trial Court No. D-1-GN-11-003205
The Honorable Lora Livingston, Presiding
PLAINTIFFS-APPELLEES’ OMNIBUS ANSWERING BRIEF
TO OPENING BRIEFS OF APPELLANTS BRIGHAM,
STATOIL ASA AND FARGO ACQUISITION, INC.
MICHAEL D. MARIN
State Bar No. 00791174
BOULETTE GOLDEN & MARIN L.L.P.
2801 Via Fortuna Drive, Suite 530
Austin, TX 78746
Telephone: 512/732-8900
512/732-8905 (fax)
mmarin@boulettegolden.com
Liaison Counsel
Oral Argument Requested
RANDALL J. BARON SAMUEL H. RUDMAN
DAVID T. WISSBROECKER MARK S. REICH
STEVEN M. JODLOWSKI MICHAEL G. CAPECI
ROBBINS GELLER RUDMAN ROBBINS GELLER RUDMAN
& DOWD LLP & DOWD LLP
655 West Broadway, Suite 1900 58 South Service Road, Suite 200
San Diego, CA 92101 Melville, NY 11747
Telephone: 619/231-1058 Telephone: 631/367-7100
619/231-7423 (fax) 631/367-1173 (fax)
Class Counsel for Appellees
KENDALL LAW GROUP, LLP THE BRISCOE LAW FIRM, PLLC
JOE KENDALL WILLIE C. BRISCOE
DANIEL HILL 8150 N. Central Expressway, Suite 1575
JAMIE J. McKEY Dallas, TX 75206
3232 McKinney Avenue, Suite Telephone: 214/239-4568
700 281/254-7789 (fax)
Dallas, TX 75204
Telephone: 214/744-3000
214/744-3015 (fax)
DUNNAM & DUNNAM LLP BRODSKY & SMITH, LLC
HAMILTON LINDLEY EVAN J. SMITH
4125 West Waco Drive (76710) MARC ACKERMAN
P.O. Box 8418 Two Bala Plaza, Suite 602
Waco, TX 76714-8418 Bala Cynwyd, PA 19004
Telephone: 254/753-6437 Telephone: 610/667-6200
254/753-7434 (fax) 610/667-9029 (fax)
LEVI & KORSINSKY, LLP KOHN, SWIFT & GRAF, P.C.
SHANE T. ROWLEY DENIS F. SHEILS
30 Broad Street, 24th Floor One South Broad Street, Suite 2100
New York, NY 10004 Philadelphia, PA 19107-3389
Telephone: 212/363-7500 Telephone: 215/238-1700
866/367-6510 (fax) 215/238-1968 (fax)
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
Telephone: 610/225-2677 Telephone: 484/588-5516
610/408-8062 (fax) 484/450-2582 (fax)
KELLY N. REDDELL
THE REDDELL FIRM PLLC
100 Highland Park Village, Suite 200
Dallas, Texas 75205
Telephone: 214/295-3031
Additional Counsel for Appellees
TABLE OF CONTENTS
Page
INDEX OF AUTHORITIES .......................................................................... v
RECORD REFERENCES ........................................................................... xiii
COUNTER-STATEMENT OF THE CASE ............................................... xiv
STATEMENT REGARDING ORAL ARGUMENT ................................. xvi
COUNTER-STATEMENT OF THE ISSUES ........................................... xvii
COUNTER-STATEMENT OF THE FACTS ................................................ 1
I. Background of the Acquisition .................................................. 1
II. Management and Jefferies Urge the Board to Sell the
Company .................................................................................... 1
III. The Management-Driven Sales Process .................................... 2
IV. After Reporting Record Production, the Board Agrees
to a Tender Offer ........................................................................ 5
V. The Acquisition .......................................................................... 7
VI. Self-Dealing ............................................................................... 7
STATEMENT OF PROCEDURAL HISTORY ............................................ 9
I. Plaintiffs Seek Injunctive Relief on an Expedited
Basis ........................................................................................... 9
II. The Cash-Out Merger Is Consummated and Plaintiffs
Amend Their Petition to Seek Damages .................................. 10
III. The First Round of Class Certification Proceedings ............... 11
-i-
A. Plaintiffs Move for Class Certification .......................... 11
B. The Evidentiary Hearing on Plaintiffs’ Motion ............. 12
C. After Conducting Further Proceedings, the Trial
Court Grants Plaintiffs’ Motion ..................................... 14
D. The First Appeal ............................................................ 14
IV. The Second Round of Class Certification Proceedings ........... 15
A. Plaintiffs Submit an Amended Trial Plan and
Again Move for Class Certification............................... 15
B. The Trial Court Grants Plaintiffs’ Renewed
Motion ............................................................................ 16
SUMMARY OF THE ARGUMENT ........................................................... 18
ARGUMENT ................................................................................................ 23
I. This Court Reviews a Grant of Class Certification for
Abuse of Discretion.................................................................. 23
II. The Class Definition Is Appropriate ........................................ 23
III. The Trial Plan Adopted by the Trial Court Complies
with Brigham I and Bernal....................................................... 30
A. The Trial Plan Properly Analyzes Plaintiffs’
Claims ............................................................................ 31
1. The Trial Plan Properly Analyzes How
Damages Will Be Proven .................................... 31
2. Plaintiffs Offer One Damages Theory ................ 33
- ii -
3. The Trial Plan Properly Explains
Plaintiffs’ Breach of Fiduciary Duty
Claims .................................................................. 34
4. The Trial Court Properly Understood and
Explained the Role of Plaintiffs’ Claims
Based Upon Defendants’ Non-
Disclosures .......................................................... 37
5. The Trial Plan Properly Analyzes
Plaintiffs’ Aiding-and-Abetting Claims
Against Statoil ..................................................... 39
B. The Trial Plan Properly Analyzes Defendants’
Pleaded Defenses ........................................................... 42
1. The Court Fully Understood and Gave
Due Consideration to the Effect of
Defendants’ Alleged Defenses of
Acquiescence, Ratification, Estoppel,
and Waiver........................................................... 43
a. Delaware Has Repeatedly Found
These Defenses Inapplicable to
Plaintiffs’ Claims ...................................... 43
b. Even if They Applied, Defendants’
Pleaded Defenses Do Not Preclude
Class Certification ..................................... 46
c. Defendants Cannot Overcome the
Reality that These Types of Cases
Are Routinely Certified and Tried
on a Class-Wide Basis............................... 50
2. The Court Properly Analyzed
Defendants’ “Proportionate
Responsibility” Defense ...................................... 51
- iii -
IV. Plaintiffs Satisfied the Requirements for Class
Certification.............................................................................. 54
A. The Trial Court Acted Within Its Discretion in
Finding that Plaintiffs’ Claims Are Typical .................. 55
B. The Trial Court Acted Within Its Discretion in
Finding that Common Issues Predominate .................... 58
C. The Trial Court’s Numerosity Finding Was
Sufficiently Supported ................................................... 58
D. The Trial Court Acted Within Its Discretion in
Finding that Plaintiffs Will Fairly and
Adequately Protect the Interests of the Class ................ 61
1. Adequacy Findings Are Entitled to
Substantial Deference .......................................... 63
2. Statoil Concedes that Adequacy Is Met
by Not Challenging the Vast Majority of
the Factors Relevant to the Adequacy
Determination ...................................................... 64
3. The Trial Court’s Findings Regarding
Plaintiffs’ Familiarity with the Litigation
Are Amply Supported by the Record .................. 66
a. Howard Weissberg .................................... 68
b. Walter Schwimmer.................................... 72
c. Jeffery Whalen .......................................... 77
d. Robert Fioravanti ...................................... 79
e. Raymond Boytim ...................................... 82
- iv -
f. Myrna Goodman ....................................... 84
g. Hugh Duncan ............................................ 85
CONCLUSION ............................................................................................. 88
CERTIFICATE OF COMPLIANCE ............................................................ 91
CERTIFICATE OF SERVICE ..................................................................... 91
APPENDIX
-v-
TABLE OF AUTHORITIES
Page
CASES
Adams v. Reagan,
791 S.W.2d 284 (Tex. App.–Fort Worth 1990, no writ) .............................. 65, 76
Andra v. Blount,
772 A.2d 183 (Del. Ch. 2000) ............................................................................ 57
Bershad v. Curtiss-Wright Corp.,
535 A.2d 840 (Del. 1987) ................................................................. 27, 28, 29, 49
BMG Direct Marketing, Inc. v. Peake,
178 S.W.3d 763 (Tex. 2005) .............................................................................. 43
Brevan Howard Credit Catalyst Master Fund Ltd. v.
Spanish Broad. Sys. Inc.,
No. 9209-VCG, 2015 Del. Ch. LEXIS 141
(Del. Ch. May 19, 2015) ..................................................................................... 48
Brigham Exploration Co. v. Boytim,
No. 03-13-00191-CV, 2014 Tex. App. LEXIS 9068
(Tex. App.-Austin Aug. 15, 2014, no pet.).................................................. passim
Bundesen v. Beck,
No. 11,347, 1992 Del. Ch. LEXIS 42
(Del. Ch. Feb. 12, 1992) ..................................................................................... 48
Canyon Lake Island Prop. Owners Ass’n v. Sterling/Suggs L.P.,
No. 03-14-00208-CV, 2015 Tex. App. LEXIS 5739
(Tex. App.–Austin June 5, 2015, no pet. h.) ...................................................... 65
Chen v. Howard-Anderson,
87 A.3d 648 (Del. Ch. 2014) .............................................................................. 37
Chevron U.S.A., Inc. v. Kennedy,
808 S.W.2d 159 (Tex. App.-El Paso 1991, writ dism’d w.o.j.) ......................... 60
- vi -
Cinerama, Inc. v. Technicolor, Inc.,
663 A.2d 1156 (Del. 1995) ................................................................................. 36
Clements v. Rogers,
790 A.2d 1222 (Del. Ch. 2001) .......................................................................... 57
Cooper v. Ross & Roberts, Inc.,
505 A.2d 1305 (Del. Ch. 1986) .......................................................................... 52
Corwin v. KKR Fin. Holding, LLC,
No. 629, 2015 Del. LEXIS 473
(Del. Oct. 2, 2015) .............................................................................................. 47
Crescent/Mach I Partners, L.P. v. Turner,
No. 17455, 2000 Del. Ch. LEXIS 145
(Del. Ch. Sept. 29, 2000) .................................................................................... 38
DaimlerChrysler Corp. v. Inman,
252 S.W.3d 299 (Tex. 2008) ........................................................................ 35, 41
Dale v. Town of Elsmere,
No. 99M-01-15-VAB, 2001 Del. Super. LEXIS 161
(Del. Super. Ct. Apr. 27, 2001) .......................................................................... 26
Dieter v. Prime Computer, Inc.,
681 A.2d 1068 (Del. Ch. 1996) .................................................................... 24, 31
Farmers Ins. Exch. v. Leonard,
125 S.W.3d 55 (Tex. App.–Austin 2003, no pet.) ....................................... passim
Forsyth v. Lake LBJ Inv. Corp.,
903 S.W.2d 146 (Tex. App.–Austin 1995, writ dism’d w.o.j.) ................... passim
Frank v. Wilson & Co.,
32 A.2d 277 (Del. 1943) ..................................................................................... 47
Gantler v. Stephens,
965 A.2d 695 (Del. 2009) ............................................................................. 44, 47
- vii -
Garcia v. Walker,
No. 04-05-00343-CV, 2006 Tex. App. LEXIS 1409
(Tex. App.–San Antonio Feb. 22, 2006, no pet.) ......................................... 63, 72
Gesoff v. IIC Indus.,
902 A.2d 1130 (Del. Ch. 2006) .......................................................................... 27
Harris Constr. Co. v. GGP-Bridgeland, LP,
No. H-07-3468, 2009 U.S. Dist. LEXIS 69476
(S.D. Tex. Aug. 10, 2009) .................................................................................. 52
Henry Schein Inc. v. Stromboe,
102 S.W.3d 675 (Tex. 2002) .............................................................................. 64
Hi-Lo Auto Supply L.P. v. Beresky,
986 S.W.2d 382 (Tex. App.–Beaumont 1999, writ mand. denied) .................... 66
In re Beatrice Cos., Inc. Litig.,
No. 155, 1987 Del. LEXIS 1036
(Del. Ch. Feb. 20, 1987) ..................................................................................... 24
In re Celera Corp. S’holder Litig.,
59 A.3d 418 (Del. 2012) .............................................................................. passim
In re Celera Corp. S’holder Litig.,
No. 6304-CVP, 2012 Del. Ch. LEXIS 66
(Del. Ch. Mar. 23, 2012) ............................................................................. passim
In re Countrywide Corp. S’holders Litig.,
No. 3464-VCN, 2009 Del. Ch. LEXIS 44
(Del. Ch. March 31, 2009) .................................................................................. 26
In re Dole Food Co., Inc. S’holder Litig.,
No. 8703-VCL, 2015 Del. Ch. LEXIS 223
(Del. Ch. Aug. 27, 2015) ............................................................................. passim
In re Gaylord Container Corp. S’holders Litig.,
747 A.2d 71 (Del. Ch. 1999) .............................................................................. 54
- viii -
In re JCC Holding Co. S’holder Litig.,
843 A.2d 713 (Del. Ch. 2003) ............................................................................ 19
In re Kosmos Energy Ltd. Sec. Litig.,
299 F.R.D. 133 (N.D. Tex. 2014) ....................................................................... 68
In re PNB Hldg. Co. S’holders Litig.,
No. 28-N, 2006 Del. Ch. LEXIS 158
(Del. Ch. Aug. 18, 2006) .................................................................................... 32
In re Prodigy Commc’ns Corp. S’holders Litig.,
No. 19113, 2002 Del. Ch. LEXIS 95
(Del. Ch. July 26, 2002) ............................................................................... 24, 27
In re Rural Metro Corp. S’holders Litig.,
88 A.3d 54 (Del. Ch. 2014) ......................................................................... passim
In re Rural/Metro Corp. Stockholders Litig.,
102 A.3d 205 (Del. 2014) ................................................................................... 38
In re Transkaryotic Therapies, Inc.,
954 A.2d 346 (Del. 2008) ................................................................................... 27
In re Triarc Cos., Inc. Class & Deriv. Litig.,
791 A.2d 872 (Del. Ch. 2001) ...................................................................... 24, 25
In re Tyson Foods, Inc. Consol. S’holder Litig.,
919 A.2d 563 (Del. Ch. 2007) ............................................................................ 38
Intratex Gas Co. v. Beeson,
22 S.W.3d 398 (Tex. 2000) ................................................................................ 23
Joseph v. Shell Oil Co.,
No. 7450, 1985 Del. Ch. LEXIS 458
(Del. Ch. Feb. 8, 1985) ....................................................................................... 33
King v. City of Austin,
No. 03-03-00173-CV, 2004 Tex. App. LEXIS 2623
(Tex. App.–Austin Mar. 25, 2004, no pet.) .................................................. 67, 86
- ix -
Klaassen v. Allegro Dev. Corp.,
106 A.3d 1035 (Del. 2014) ................................................................................. 47
Louisiana-Pacific Corp. v. Andrade,
19 S.W.3d 245 (Tex. 1999) ................................................................................ 49
Malone v. Brincat,
722 A.2d 5 (Del. 1998) ....................................................................................... 38
Methodist Hosps. of Dallas v. Tall,
972 S.W.2d 894 (Tex. App.–Corpus Christi 1998, no pet.) ............................... 59
Mills Acquisition Co. v. MacMillan, Inc.,
559 A.2d 1261 (Del. 1989) ........................................................................... 36, 37
Nevins v. Bryan,
885 A.2d 233 (Del. Ch. 2005) ............................................................................ 49
Norberg v. Security Storage Co. of Wash.,
No. 12885, 2000 Del. Ch. LEXIS 142
(Del. Ch. Sept. 19, 2000) ........................................................................ 28, 29, 49
Omnicare, Inc. v. NCS Healthcare, Inc.,
809 A.2d 1163 (Del. Ch. 2002) .......................................................................... 26
Pate v. Elloway,
No. 01-03-00187-CV, 2003 Tex. App. LEXIS 9681
(Tex. App.–Houston [1st Dist.] Nov. 13, 20013, pet. denied) ......... 27, 66, 67, 75
Pate v. Havens,
No. 04-0006, 2004 Tex. LEXIS 1160
(Tex. Nov. 5, 2004)....................................................................................... 20, 51
Pate v. Havens,
No. 04-0006, 2005 Tex. LEXIS 305
(Tex. Apr. 8, 2005) ........................................................................... 20, 27, 50, 51
Rabkin v. Philip A. Hunt Chem. Corp.,
498 A.2d 1099 (Del. 1985) ................................................................................. 58
-x-
Rainbow Group, Ltd. v. Johnson,
990 S.W.2d 351 (Tex. App.–Austin 1999, pet dism’d w.o.j.) ........................... 60
Ret. Sys. v. Boeing Co.,
711 F.3d 754 (7th Cir. 2013) .............................................................................. 87
Schultz v. Ginsburg,
965 A.2d 661 (Del. 2009) ................................................................................... 25
Shapiro v. Pabst Brewing Co.,
No. 7339, 1985 Del. Ch. LEXIS 496
(Del. Ch. July 30, 1985) ............................................................................... 57, 58
Snyder Commc’ns v. Magana,
94 S.W.3d 213 (Tex. App.–Corpus Christi 2002, pet. filed) ............................. 59
Southwestern Ref. Co. v. Bernal,
22 S.W.3d 425 (Tex. 2000) ......................................................................... passim
Steinhardt v. Howard-Anderson,
No. 5878-VCL, 2012 Del. Ch. LEXIS 1
(Del. Ch. Jan. 6, 2012) .................................................................................. 28, 29
Stewart v. Wilmington Tr. SP Servs.,
112 A.3d 271 (Del. Ch. 2015) ............................................................................ 71
Texas Workers’ Comp. Ins. Facility v. Personnel Servs.,
895 S.W.2d 889 (Tex. App.–Austin, 1995, no writ) .......................................... 49
Turner v. Bernstein,
768 A.2d 24 (Del. Ch. 2000) .............................................................................. 56
Weatherly v. Deloitte & Touche,
905 S.W.2d 642 (Tex. App.–Houston [14th Dist.] 1995,
writ dism’d w.o.j.) .............................................................................................. 76
Women’s Clinic of S. Tex. v. Alonzo,
No. 13-12-00537, 2013 Tex. App. LEXIS 7263
(Tex. App.–Corpus Christi June 13, 2013, pet. denied) ..................................... 59
- xi -
Yucaipa Am. Alliance Fund II, L.P. v. Riggio,
1 A.3d 310 (Del. Ch. 2010) ................................................................................ 53
STATUTES, RULES AND REGULATIONS
Tex. Civ. Prac. & Rem. Code Ann.
§33.002(a)(1) ................................................................................................ 51, 52
§33.003 ............................................................................................................... 53
§33.003(b) ........................................................................................................... 53
Tex. R. App. P.
Rule 25.1 ............................................................................................................. 14
Rule 38.1(e) ........................................................................................................ 55
Texas Rules of Civil Procedure
Rule 42 ......................................................................................................... passim
Rule 42(a) ........................................................................................................... 55
Rule 42(b) ........................................................................................................... 55
Rule 42(c) ........................................................................................................... 31
Texas Business Corporation Act
Article 8.02 ......................................................................................................... 52
8 Del. C.
§102(b)(7) ......................................................................................... 34, 35, 36, 37
§253 .................................................................................................................... 44
§327 .................................................................................................................... 26
- xii -
RECORD REFERENCES
Brigham AB ___ Brief of Brigham Appellants (September 28,
2015)
Statoil AB ___ Brief of Appellants Statoil ASA and Fargo
Acquisition, Inc. (September 28, 2015)
CR ___ Clerk’s Record Volume 1 of 1 (June 4, 2015)
1SCR ___ Supplemental Clerk’s Record Volume 1 of 1
(June 5, 2015)
2SCR ___ Supplemental Clerk’s Record Volume 1 of 1
(June 12, 2015)
3SCR___ Supplemental Clerk’s Volume III (August 12,
2015)
SCR Ex. 1___ Exhibit 1 to Supplemental Clerk’s Record
(August 14, 2015)
RR (Vol. 1)___ Reporter’s Record Volume 1 of 4 (July 9, 2015)
RR (Vol. 2) ___ Reporter’s Record Volume 2 of 4 (July 9, 2015)
RR (Vol. 3) ___ Reporter’s Record Volume 3 of 4 (July 9, 2015)
RR (Vol. 4) ___ Reporter’s Record Volume 4 of 4 (July 9, 2015)
- xiii -
COUNTER-STATEMENT OF THE CASE
Consistent with Tex. R. App. P. 38.1(d), Plaintiffs-Appellees offer this
simple statement of the case.
This case concerns the sale of Brigham Exploration Company
(“Brigham” or the “Company”), a Delaware corporation headquartered in
Texas, to Statoil ASA (“Statoil”), a Norwegian multinational oil and gas
company, via a cash tender offer of $36.50 per share. Plaintiffs, who
collectively owned 37,025 shares of Brigham when the deal was announced
(and over 20,000 shares when the deal closed), allege that the now-former
members of Brigham’s Board of Directors breached their fiduciary duties under
Delaware law in agreeing to and effecting the cash-out merger. Plaintiffs also
allege that Brigham and Statoil aided and abetted the Board’s breach of
fiduciary duties in connection with the buyout. CR 5. Plaintiffs seek damages
for the class as a result of defendants’ breaches of fiduciary duty. CR 8.
This is the second interlocutory appeal stemming from three-year long
class certification proceedings before the trial and appellate courts. The instant
appeal pertains to the trial court’s April 9, 2015 order, in which it certified
plaintiffs’ claims for class treatment under Tex. R. Civ. P. 42. CR 3163-67.
The trial court entered an order certifying a class of “all holders of common
- xiv -
stock of Brigham Exploration Company as of October 17, 2011” and adopted
an amended trial plan, dated March 19, 2015. Id.; Brigham AB, Appendix B.
- xv -
STATEMENT REGARDING ORAL ARGUMENT
Plaintiffs-Appellees welcome oral argument to assist the Court in
resolving the issues presented.
- xvi -
COUNTER-STATEMENT OF THE ISSUES
Did the trial court, with the benefit of thousands of pages of evidentiary
submissions and numerous rounds of briefing from the parties, two hearings to
specifically address Appellants’ pleaded defenses, and numerous successful
class-wide trials in cases involving the same claims and defenses asserted here,
conduct a rigorous analysis of Appellants’ pleaded defenses for purposes of
class certification?
- xvii -
COUNTER-STATEMENT OF THE FACTS
I. Background of the Acquisition
Brigham engages in the exploration, development and production of oil
and natural gas in the United States. CR 9.
In the decade leading up to the sale, the Company had invested heavily in
its exploration activities, particularly in the Williston Basin, a region that has
the largest onshore oil accumulations in the United States. CR 9, 16. As a
result of that investment, the Company had steadily seen its revenues grow. In
2004, the Company reported revenue of $71.7 million. By 2007, the
Company’s revenue had nearly doubled – to $124.7 million. Id.
In 2008, the Company essentially struck gold, discovering several
significant oil reserves in the Vicksburg and Williston Basin. CR 16-17.
Within the next year, the Company announced several more discoveries,
including a deep Frio field discovery and three high rate discoveries in the
Bakken. Id.
II. Management and Jefferies Urge the Board to Sell the
Company
As Brigham’s production was soaring, shareholders were positioned to
reap the long-term benefits of the Company’s oil discoveries. CR 17.
Management, however, had a different idea. Id. In late 2010, Ben Brigham, the
-1-
Company’s President and CEO, and his management team began formulating a
plan to sell the Company so that they could cash out tens of millions of dollars of
options and other equity holdings, at the expense of shareholders. Id.
Unbeknownst to the Board, management quietly began working with the
Board’s long-time financial advisor, Jefferies & Company, Inc. (“Jefferies”), in
an effort to convince the Board that they should sell the Company rather than
continuing to execute on the current business plan. CR 17. On December 10,
2010, Jefferies appeared at a Board meeting to pitch a potential sale of the
Company. CR 17-18. Sensing an opportunity for a big payday, Jefferies
predictably called the conditions for a sale “favorable” and predicted that buyer
interest would be “strong.” Conveniently, Jefferies had already identified two
lists of companies for the Board to potentially approach. At the conclusion of
the meeting, the Board authorized Jefferies to contact only 10 of the suggested
16 companies on the lists. The Board also retained Jefferies, without inquiring
into whether Jefferies had any conflicts of interest (it did) that would make its
advice less reliable. Id.
III. The Management-Driven Sales Process
Even though the Board was considering a potential sale, the Board
decided to allow a conflicted management team and conflicted bankers, rather
than an independent special committee, to meet and negotiate with potential
-2-
buyers, including Statoil. CR 18-19. Over the next two months, Jefferies
began contacting potential buyers. Id.
These efforts, however, were not as fruitful as management and Jefferies
had predicted. CR 21. At a Board meeting on March 11, 2011, Jefferies
informed the Board that for various reasons each of the limited number of
companies contacted had declined to move forward. CR 20. However, rather
than end the process and continue to execute on its standalone business plan,
the Board decided to single-track discussions with Statoil even though Statoil
had yet to even indicate a price at which it was willing to make an offer and had
already told Brigham that it was not willing to provide an offer that included a
premium to Brigham’s stock price. CR 21-22. By April 2011, the Company’s
talks with Statoil had slowed to a crawl, which frustrated Brigham’s upper
management. CR 21-23.
Meanwhile, the Company continued to report spectacular financial
results. CR 20-21. On February 24, 2011, the Company reported record
production volumes, revenues and operating income for the fourth quarter of
2010. Id.
This news led to a slew of upward revisions by analysts between
February 2011 and June 2011. CR 20. Among the analysts who believed the
Company’s share price would reach $45.00 in the near term was the Board’s
-3-
own advisor, Jefferies, which, on June 1, 2011, issued a report in which it set
the price target on the Company at $45.00. CR 6, 21. Notably, three months
later, Jefferies offered an opinion to Brigham shareholders in which it stated
that the $36.50 per share in consideration offered by Statoil was “fair,” despite
being $8.50 less than the price target Jefferies’ analysts had set for the
Company just months earlier. Id.
Internally, Company management continued to refine valuation models
under various rig programs, as directed by the Board, to account for the
Company’s newfound discoveries and substantially improved outlook. CR 22-
23. On March 23, 2011, the Board held a meeting at which Eugene Shepherd,
Brigham’s then-Chief Financial Officer, provided a presentation to the Board
concerning the net asset value and profitability of the Company under 12-, 16-,
20-, and 24-rig programs. Id.
The Board had also asked Jefferies to develop valuation models based on
these rig programs. Jefferies had developed a valuation model under a more
conservative program, which assumed that the Company would increase to 16
operated rigs by the end of 2012 and then stay constant, and an accelerated
model, which assumed that the Company would increase to 30 operated rigs by
the end of 2013. CR 22-23. Ben Brigham and his management team, as well
as Jefferies, believed the 30-rig initiative was achievable. CR 29. Under
-4-
Jefferies’ analysis, the accelerated, or 30-rig model, implied a net asset value
per share of between $79.82 and $149.94, depending on the price of oil.
CR 23. Defendants did not disclose Jefferies’ 30-rig analysis to shareholders.
Id. Nor did defendants disclose or provide any information whatsoever
concerning several other accelerated drilling programs developed by the
Company. CR 22.
IV. After Again Reporting Record Production, the Board
Agrees to a Tender Offer
On August 8, 2011, the Company reported that its average daily
production volumes for the second quarter of 2011 were a quarterly record of
12,206 barrels of crude oil equivalent per day, up 57% from the second quarter
of 2010. CR 24. Despite record financial results, the Board continued to allow
management to push for a sale. Id. In early September 2011, management re-
approached Statoil, which had gone silent several months earlier. CR 23-24.
The Board did not direct Jefferies to contact other potential buyers, or to
return to the ten potential buyers contacted in January, even though Brigham’s
recent successes and newfound oil reserves had made it a more attractive sales
target. CR 24-25. Indeed, on September 28, 2011, Chevron Corp., which had
been contacted in January but initially said it was not interested, contacted
Jefferies to express interest in pursuing a deal with Brigham. Chevron
-5-
requested access to the data room so that it could perform due diligence and
possibly put together a bid. CR 25. Out of fear that it would upset Statoil, the
Board instructed Jefferies not to give Chevron access to the data room. Id.
Then, in early October, after an eight-month period when virtually no
material terms were discussed by Brigham and Statoil, including price, the terms
of a $4 billion buyout with Statoil were negotiated in mere days. CR 25-27. To
get that deal, however, Ben Brigham deceived his fellow Board members.
CR 380-81. In the days leading up to the execution of the Merger Agreement,
Ben Brigham’s eagerness to sell the Company led him to secretly make a
“handshake deal” with Statoil without seeking Board approval for the price of
$36.50. Id. Realizing what he had done, Ben Brigham tried to backtrack on his
“handshake,” but then agreed to secure Board approval for the price rather than
unwind the deal and maybe lose the offer from Statoil. Id. Notably, the walking
orders Ben Brigham had been given at the time by the Board were to hold firm at
$40. Id.
None of this was disclosed to the Board. CR 381. On the morning of
October 17, 2011, the Company and Statoil executed the Merger Agreement,
and the Company and Statoil issued a press release announcing the tender offer.
CR 27-28. By structuring the transaction as a tender offer, the Board
essentially eliminated its ability to shop the Company. CR 37.
-6-
V. The Acquisition
On October 28, 2011, Statoil launched the tender offer, which was set to
expire one month later. CR 28. That same day, Ben Brigham sent a letter to
shareholders, informing them that Statoil had commenced a tender offer and
urging them to tender their shares. Id. However, during the initial tender offer
period, Statoil failed to get enough tendered shares to close the deal and
complete the acquisition. CR 28. Statoil therefore commenced a subsequent
offering period beginning on December 1, 2011 and expiring on December 7,
2011. Id. During the subsequent offering period, Statoil exercised its option,
under the Merger Agreement, to purchase newly-issued shares from the
Company so that Statoil would own enough shares to satisfy the short-form
threshold. Id.
Statoil closed the transaction on December 8, 2011. CR 29.
VI. Self-Dealing
When the deal closed, Brigham’s management team made off with nearly
$100 million in merger related compensation. CR 34-36. In fact, one month
before the acquisition was announced, and while the Company was seeking a
buyer, defendant directors and certain Company executives granted themselves
what were essentially spring-loaded options by amending their existing equity
incentive package to provide for accelerated vesting of their outstanding
-7-
options and restricted shares so that they could cash out in a merger with
Statoil. Id. Defendants also provided rich golden parachutes to the rest of the
management team to assure everyone at the Company was incentivized to push
for a deal with Statoil. Id.
-8-
STATEMENT OF PROCEDURAL HISTORY
Although this action arrives at this Court before a final resolution in the
trial court, it has already generated a substantial record. The class certification
order subject to the instant appeal is the result of an extensive, multi-year class
certification process before the trial court and this Court of Appeal. A
summary of those proceedings is set forth below.
I. Plaintiffs Seek Injunctive Relief on an Expedited Basis
On October 17, 2011, one day after signing the merger agreement,
Brigham and Statoil jointly announced that they had entered into a merger
agreement, pursuant to which Statoil would acquire Brigham. CR 27.
Following the announcement, five shareholder class actions were filed against
Brigham, its Board and Statoil. CR 291-97. These lawsuits sought to enjoin
the acquisition. CR 221.
Statoil launched the tender offer on October 28, 2011 and announced that
the tender offer would expire one month later, on November 30, 2011. CR 28.
Plaintiffs took limited, expedited discovery, and promptly moved for temporary
injunctive relief, seeking to delay the close of Statoil’s tender offer until
defendants disclosed one piece of information: a 30-rig valuation analysis
prepared by Brigham’s financial advisor, Jefferies, and presented to the
Brigham Board prior to the execution of the merger agreement. CR 29, 305.
-9-
Plaintiffs were unsuccessful in attempting to enjoin the tender offer based upon
this single non-disclosure, and on December 8, 2011, the deal closed. CR 29,
305.
II. The Cash-Out Merger Is Consummated and Plaintiffs
Amend Their Petition to Seek Damages
Once the merger was consummated, plaintiffs consolidated the various
actions and amended their petition to seek damages. CR 4-48. In March 2012,
plaintiffs filed a consolidated amended petition for breach of fiduciary duty. Id.
Plaintiffs allege that the officers and directors of Brigham had breached their
fiduciary duties of loyalty, good faith and fair dealing, independence, and due
care in connection with the consummation of the merger by, among other
things:
(i) engaging in self-dealing by obtaining tens of millions of dollars in
personal benefits for themselves;
(ii) making no effort to ensure that the interests of the public
shareholders were adequately protected during the sales process
(by, for example, establishing a special committee of independent
directors to oversee the process); and
(iii) selling the Company at a significantly undervalued price.
CR 44-45.
Plaintiffs’ consolidated petition also alleges that the directors failed to
disclose certain material information to Brigham shareholders concerning the
- 10 -
sales process leading to the merger, the Company’s relationship with its
financial advisors, who were concurrently retained, as well as the impact that
those relationships had on the process, and the data and input underlying the
fairness opinion of the financial advisors as well as the methodologies
employed. CR 41-44. The petition also alleges that Brigham and Statoil aided
and abetted the breaches. CR 5.
III. The First Round of Class Certification Proceedings
A. Plaintiffs Move for Class Certification
Plaintiffs first moved for class certification in 2012. CR 678-983. In the
motion, plaintiffs sought to certify a class of “[a]ll holders of Brigham common
stock as of October 17, 2011” – the date the transaction was announced.
CR 683.
As support for their motion, plaintiffs submitted, inter alia, deposition
testimony from the former officers and executives of Brigham. CR 708-09,
758-64. Plaintiffs also submitted sworn affidavits from each of the seven
proposed class representatives. CR 656-76. In the affidavits, the class
representatives confirmed, under oath, that they: (i) owned Brigham stock at the
time the merger was announced; (ii) believed that the price accepted by the
Brigham Board and offered by Statoil undervalued their holdings;
(iii) understood that the role of a class representative was to act as a fiduciary
- 11 -
for the class; (iv) were familiar with the litigation through the review of
pleadings and other legal papers; (v) had kept abreast of the progress of the
litigation through discussions with their counsel; and (vi) were willing to attend
trial. Id. Plaintiffs also submitted resumes from the law firms seeking to be
appointed as class counsel. CR 850-944.
Defendants opposed plaintiffs’ motion for class certification, arguing that
plaintiffs and their counsel were inadequate, that individual issues
predominated, that the claims of plaintiffs were atypical, and that plaintiffs’
proposed trial plan was deficient. CR 1862.
Prior to filing its opposition, defendants deposed all of the named
plaintiffs. 3SCR 96-451. Collectively, the plaintiffs testified for nearly 30
hours. Id. The transcripts of these depositions cover 1,078 pages. Id.
B. The Evidentiary Hearing on Plaintiffs’ Motion
On October 22, 2012, the trial court held an all-day hearing on plaintiffs’
motion for class certification. The hearing began with counsel for the parties
providing opening statements in support of their position on plaintiffs’ motion.
CR 1589, 1617-27.
Then, for nearly the rest of the day, four of the seven class
representatives, all of whom had traveled from various locations across the
United States to attend the hearing, provided live testimony about a variety of
- 12 -
topics relating to their adequacy as class representatives, including their
motivation for bringing the lawsuit; familiarity with the claims asserted in the
action; their role in overseeing and working with their counsel; familiarity with
the factual record in this case; and ability and willingness to fulfill their role as
class representative should the court certify the class. CR 1627-1785. Counsel
for defendants spent hours cross-examining the proposed class representatives.
CR 1647-80, 1698-1713, 1731-51, 1765-84.
After Messrs. Weissberg, Schwimmer, Whalen and Fioravanti completed
their testimony, counsel for the parties gave lengthy closing arguments in
support of their respective positions. CR 1591, 1794-1858. Those
presentations addressed the numerous legal and factual arguments made in
support of, and in response to, plaintiffs’ motion for class certification. Id. In
particular, the parties addressed defendants’ challenges to plaintiffs’ showing
on the adequacy and typicality requirements. CR 1796-1845. In all, 11
exhibits were admitted into the record during the hearing. CR 1591.
At the end of the hearing, the trial court took plaintiffs’ motion for class
certification under submission pending the submission of a reply brief from
plaintiffs’ counsel, along with a number of additional evidentiary items from
the parties. CR 1788-93. Among the evidentiary submissions was a compact
disc, compiled by defendants, containing one-hour worth of videotaped
- 13 -
excerpts from the depositions of the proposed class representatives which
defendants believed supported their position that the named plaintiffs were
inadequate. Id. At the trial court’s request, the parties also lodged complete
copies of the deposition transcripts of the named plaintiffs for the court’s
review. Id.
C. After Conducting Further Proceedings, the Trial
Court Grants Plaintiffs’ Motion
One-and-a-half months later, on December 18, 2012, the trial court
indicated in a letter to the parties that it had “considered the pleadings, the
evidence and the arguments of counsel,” and that it was granting plaintiffs’
motion for class certification. CR 1077. After defendants objected to
plaintiffs’ proposed class certification order, on February 22, 2013, the trial
court held a second hearing on plaintiffs’ motion. CR 1079-85; RR 4-14.
One week later, on February 27, 2013, the trial court signed an order
granting class certification. CR 1195. Defendants then filed a notice of
interlocutory appeal to the class certification order under Tex. R. App. P. 25.1.
D. The First Appeal
In their first appeal, defendants launched a broad attack on the trial
court’s class certification order. They argued that the case did not meet the
requirements for class certification under Rule 42, that the named plaintiffs
- 14 -
cannot adequately protect the interests of absent class members, that plaintiffs’
counsel was inadequate, that the named plaintiffs do not satisfy the typicality
requirement, and that individualized issues predominated. In addition, they
argued that the trial plan adopted by the trial court was deficient on a number of
grounds.
After a hearing, this Court reversed on narrow grounds. It explained that
the trial plan must “state the elements of [Appellants’ pleaded] defenses” and
conduct a rigorous analysis of those defenses. To that end, it directed the trial
court to conduct further proceedings regarding plaintiffs’ proposed trial plan.
Brigham Exploration Co. v. Boytim, No. 03-13-00191-CV, 2014 Tex. App.
LEXIS 9068, at *9-*10 (Tex. App.-Austin Aug. 15, 2014, no pet.) (“Brigham
I”).
IV. The Second Round of Class Certification Proceedings
A. Plaintiffs Submit an Amended Trial Plan and Again
Move for Class Certification
Consistent with this Court’s decision, on remand the trial court held
further proceedings on defendants’ alleged defenses.
At a December 17, 2014 status conference, the trial court instructed
plaintiffs to file an amended trial plan that the court indicated it would
“rigorously undertake every effort to evaluate its efficacy.” RR (Vol. 2) 5-6.
- 15 -
On January 30, 2015, plaintiffs renewed their motion for class
certification and submitted an amended trial plan which stated the elements of
each defense asserted by defendants, identified the issues of law and fact
arising from those defenses, and analyzed how the defenses could be tried on a
class-wide basis. CR 119-39. On March 2, 2015, defendants filed an
opposition to plaintiffs’ renewed class certification motion and proposed trial
plan. Defendants responded by arguing that the trial plan misstated the law and
failed to sufficiently address several of their defenses. CR 119-39. Defendants
also renewed their challenges to plaintiffs’ showing on the commonality,
typicality, adequacy and numerosity requirements of Tex. R. Civ. P. 42. Id. In
addition, defendant Statoil filed a supplemental brief in which it challenged the
adequacy of the named plaintiffs as class representatives. 3SCR 2-11.
Plaintiffs filed responsive briefs on March 16 and 19, 2015. The trial court
entertained oral argument by the parties on March 31, 2015. RR (Vol. 3) 1.
B. The Trial Court Grants Plaintiffs’ Renewed Motion
On April 9, 2015, the Court certified plaintiffs’ claims for class
treatment. It entered an order certifying a class of “all holders of common
stock of Brigham Exploration Company as of October 17, 2011” and adopted
plaintiffs’ Second Amended Trial Plan. CR 3163-67; Brigham AB, App. B.
- 16 -
Defendants filed an interlocutory appeal from that order on April 27,
2015. CR 3168.
- 17 -
SUMMARY OF THE ARGUMENT
This is the second appeal stemming from three years of class certification
proceedings before the trial court. In the first appeal, defendants launched a
broad attack on the trial court’s class certification order and insisted, as they do
here, that a class could not be certified in this case. The Court did not credit
those arguments, but instead, reversed on the narrow issue of the trial plan’s
treatment of defendants’ pleaded defenses. Sending the case back to the trial
court, it identified a single issue for further consideration on class certification:
whether the trial plan “state[d] the elements of [Appellants’ pleaded] defenses”
and conducted a rigorous analysis of those defenses. Brigham I, 2014 Tex. App.
LEXIS 9068, at *9-*10.
That is exactly what the trial court did. On remand, to supplement its
extensive previous work, the trial court held two additional hearings and
considered a full round of briefing specifically focused on Appellants’ pleaded
defenses. Those proceedings resulted in a lengthy, 20-page trial plan, fully half
of which is devoted to Appellants’ pleaded defenses. That plan identifies each
defense and the elements thereof, and explains in detail how the defenses will be
tried on a class-wide basis based on governing Delaware law and a number of
recent class trials in similar cases.
- 18 -
Unable to seriously challenge the trial court’s analysis, defendants stray
far beyond this Court’s opinion in Brigham I with a host of arguments unrelated
to the narrow issue presently before the Court. Defendants resort back to the
erroneous assertion that a class trial simply cannot be conducted here. In
defendants’ view, “the problems with the Order and Revised Trial Plan run
deeper than a simple failure to include sufficient ‘detail’ in the trial plan.”
Brigham AB 12, 17-18. The class, they maintain, is “hopelessly unworkable.”
Brigham AB 12.
That notion, however, has been fundamentally rejected many times in
similar cases certified in Delaware and Texas. Courts have routinely found that
cases such as this one should be certified because breach of fiduciary claims
arising in the context of a merger transaction (as well as the defenses to those
claims) affect all shareholders equally. Courts in Delaware, which supplies the
substantive law governing plaintiffs’ claims, have put it this way: “[c]ases
[challenging the fairness of a corporate merger] are quintessential examples of
class actions.” In re JCC Holding Co. S’holder Litig., 843 A.2d 713, 722 n.20
(Del. Ch. 2003).1
1
All citations and footnotes are omitted and emphasis is added, unless otherwise
noted.
- 19 -
These orders, like the class certification order in this case, are not simply
based on the theoretical assumption or expectation that the cases can be tried
classwide; class treatment has repeatedly been proven workable through actual
real-world experience. Numerous class cases like this one have not only been
certified, but successfully tried to judgment on a class-wide basis. In the past
two years alone, plaintiffs’ counsel here have tried two breach of fiduciary duty
cases stemming from completed acquisitions of publicly listed companies on a
class-wide basis in Delaware, despite the fact that the defendants in those
cases asserted the same defenses asserted by defendants in this case. SCR,
Ex. 1 at 17-18 (citing Dole and Rural/Metro); see also RR (Vol. 3) at 34 (citing
several additional similar class cases that have been tried). Plaintiffs’ counsel
has also tried one such class case – post-Bernal – in Texas, Pate v. Havens, No.
04-0006, 2005 Tex. LEXIS 305 (Tex. Apr. 8, 2005). Notably, the class in Pate
was first upheld by the Texas Court of Appeals, and then twice (on a petition
for review and then on a petition for rehearing) by the Texas Supreme Court
after full briefing on the merits. See id.; Pate v. Havens, No. 04-0006, 2004
Tex. LEXIS 1160 (Tex. Nov. 5, 2004). All of these cases were tried in a matter
of days, without the need for proof on individual issues.
If cases involving the same claims, same defenses, same substantive law,
and the same type of merger transactions have been certified and successfully
- 20 -
tried as class actions, why can’t that be done here? Tellingly, defendants have
no answer to this question. Defendants do not even try to reconcile their
position with the Dole and Rural/Metro trials or the other similar cases that
have likewise been tried on a class basis.
Rather than grappling with this reality, defendants attempt to create their
own. In many instances, defendants advance arguments that are directly
contrary to controlling Delaware law. In others, defendants do not cite any
authority at all. In still others, they rely on overruled authority. For example,
defendants say plaintiffs’ class definition is “unworkable” and “invalid,” but
Delaware courts say just the opposite – that plaintiffs’ class definition is not
only proper, but “commonplace” and “ordinary.” Defendants say their defenses
require inquiries into class members’ state of mind, but Delaware courts say the
opposite – that these defenses do not apply in this type of case and, even if they
did, plaintiffs’ state of mind is “immaterial.” Defendants say damages require
an inquiry into the price received by each class member who sold into the
market, but, again, Delaware courts say the opposite – damages on a per-share
basis are the same for every shareholder and dependent on common, class-wide
testimony from an expert on the fair value of the company. These three
incorrect assertions, and variations on them, form the core of defendants’
appeal.
- 21 -
In short, the trial court’s class certification order and trial plan stand on
firm legal ground. As is evident from a record that now spans more than 4,500
pages, the trial court reached its decision only after the most rigorous of class
certification proceedings. Through those proceedings, the trial court fashioned
a trial plan that is grounded in real-world experience. That plan explains how
this case will be tried in a timely, manageable way, and it was properly adopted
by the trial court. As such, in no way does this case embody the “certify now,
worry later” approach of which defendants complain. When the Texas
Supreme Court in Bernal spoke of “actual, not presumed” conformance with
Tex. R. Civ. P. 42, this is exactly the type of case it was talking about. The trial
court’s order granting certification should be affirmed.
- 22 -
ARGUMENT
I. This Court Reviews a Grant of Class Certification for
Abuse of Discretion
Plaintiffs-appellees agree that the standard of review is abuse of
discretion. Southwestern Ref. Co. v. Bernal, 22 S.W.3d 425, 439 (Tex. 2000).
“[T]he trial court is afforded broad discretion in defining the class and
determining whether to grant or deny a class certification.” Farmers Ins. Exch.
v. Leonard, 125 S.W.3d 55, 60 (Tex. App.–Austin 2003, no pet.) (citing
Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 406 (Tex. 2000)).
II. The Class Definition Is Appropriate
Defendants lead with a challenge to the definition of the class. The trial
court certified a “class of all holders of Brigham common stock as of October
17, 2011” – the date of the announcement of the merger. CR 3163-67.
Defendants argue that this class definition is “unworkable” and “invalid.”
Brigham AB 18-20. According to defendants, the certified class is overbroad
because it includes investors who held Brigham shares, but following the
announcement of the deal either (i) sold their shares on the open market, or (ii)
tendered their shares to Statoil. Id.
This argument is directly at odds with settled Delaware law. “[I]t is
commonplace for class certification orders entered by this Court in actions
- 23 -
involving the internal affairs of Delaware corporations to define the relevant
class as all persons . . . who owned shares as of a given date, and their
transferees, successors and assigns.” In re Triarc Cos., Inc. Class & Deriv.
Litig., 791 A.2d 872, 878-79 (Del. Ch. 2001).
Defendants ignore their own authority, which states that, in merger
litigation, classes are “ordinarily” defined to include “all persons who held
shares as of the date the transaction was announced.” Brigham AB 20 (citing
In re Prodigy Commc’ns Corp. S’holders Litig., No. 19113, 2002 Del. Ch.
LEXIS 95, at *12 (Del. Ch. July 26, 2002)); see In re Celera Corp. S’holder
Litig., 59 A.3d 418, 426, 430 (Del. 2012) (upholding certification of a class
which includes shareholders as of the date of the announcement of the merger).
Such a class definition is consistent with the principle in Delaware that any
shareholder who owns stock at the time a director breaches his fiduciary duties
can assert a claim for damages. To have standing, “the plaintiff must have been
a stockholder at the time the terms of the merger were agreed upon because it is
the terms of the merger, rather than the technicality of its consummation, which
are challenged.” In re Beatrice Cos., Inc. Litig., No. 155, 1987 Del. LEXIS
1036, at *7-*8 (Del. Ch. Feb. 20, 1987); Dieter v. Prime Computer, Inc., 681
A.2d 1068, 1072 (Del. Ch. 1996) (stating “[i]t is not the Merger that constitutes
- 24 -
the wrongful act of which Plaintiffs complain; it is the ‘fixing of the terms of
the transaction’”).2
In Celera, the Delaware Supreme Court recently confronted and rejected
a challenge to the standing of a plaintiff who held shares at the time of the
announcement of the merger, but who sold the shares prior to the completion of
the merger. Celera, 59 A.3d at 426, 430; In re Celera Corp. S’holder Litig.,
No. 6304-CVP, 2012 Del. Ch. LEXIS 66, at *84-*88 (Del. Ch. Mar. 23, 2012).
The Celera court found that the plaintiff “has legal standing to represent the
class [which included shareholders at the time of the announcement of the
merger] because it held Celera stock at the time the merger was approved.” 59
A.3d at 431. In so doing, the court drew a distinction between shareholders
who held at the time of the announcement, who have standing, and those who
had purchased their shares after the proposed merger had been announced, who
do not have standing. Id. at 430.
Similarly, in Schultz v. Ginsburg, 965 A.2d 661 (Del. 2009), which was
cited with approval by the Celera court, the Delaware Supreme Court found that
breach of fiduciary duty claims such as those at issue here are personal, and
therefore do not transfer to later purchasers. Id. at 667-68 & n.12 (noting that
2
Defendants rely on Triarc, but fail to note that the class approved by the court in that
case actually included selling shareholders. Triarc, 791 A.2d at 879.
- 25 -
this reasoning is in accord with Delaware’s strong policy against the purchase of
a lawsuit). This principle is well-rooted in Delaware law. Omnicare, Inc. v. NCS
Healthcare, Inc., 809 A.2d 1163, 1170 (Del. Ch. 2002) (the “policy animating 8
Del. C. §327 . . . has been applied to preclude stockholders who later acquire
their shares from prosecuting direct claims”).
As plaintiffs explained to the trial court, plaintiffs were unable to locate a
single case in Delaware – hardly considered a plaintiff-friendly forum – in the
last 15 years in which a court has defined or limited a class in the way that
defendants say must be done here. None of those courts defined the class by
excluding investors who tendered their shares to the buyer. See CR 2630-3131
(Compendium of 68 Class Certification Orders). Nor did they define a class
based on those that sold after the announcement of the merger.3 Celera, 59
A.3d at 431 (finding that the class representative was typical, even though they
3
Defendants attempt to distinguish some of these orders as settlement classes.
Brigham AB 36. However, many of the orders involve litigation classes. See, e.g., CR 2670
(Tab 1), 2709 (Tab 6), 2713 (Tab 7), 2744 (Tab 11), 2748 (Tab 12). In any event, in
Delaware, a settlement class receives the same level of scrutiny as a litigation class – i.e.,
“strict compliance with Rule 23” – to ensure that it satisfies all of the certification
requirements. Otherwise, the settlement would violate due process. In re Countrywide
Corp. S’holders Litig., No. 3464-VCN, 2009 Del. Ch. LEXIS 44, at *37-*38 (Del. Ch.
March 31, 2009). Further, like Texas, Delaware adheres to the rule that “‘[e]ach class
member must have standing to bring the suit in his own right.’” Dale v. Town of Elsmere,
No. 99M-01-15-VAB, 2001 Del. Super. LEXIS 161, at *21 n.29 (Del. Super. Ct. Apr. 27,
2001) (“‘The definition of a class cannot be so broad as to include individuals who are
without standing to maintain the action on their own behalf. Each class member must have
standing to bring the suit in his own right.’”).
- 26 -
sold their shares into the open market). Texas courts, too, have rejected
defendants’ position. In the acquisition challenged by plaintiffs in the Pate
action, “[m]ore than 99% of the outstanding shares were voted in favor of the
merger.” Pate, 2003 Tex. App. LEXIS 9681, at *3. Yet, the court did not
exclude these shareholders from the class. CR 1653-58.
Defendants also argue that a class of Brigham shareholders as of the date
of announcement of the merger cannot have claims related to a misleading
proxy. Brigham AB 19. Again, this argument finds no support in Delaware
law. See Celera, 59 A.3d at 426, 430 (discussing supplemental disclosures to
shareholders in class that included shareholders who held stock as of the date of
the announcement of the merger); Celera, 2012 Del. Ch. LEXIS 66, at *84-*88
(same); In re Transkaryotic Therapies, Inc., 954 A.2d 346, 356-57 (Del. 2008)
(discussing plaintiffs’ non-disclosure claims); Prodigy, 2002 Del. Ch. LEXIS
95, at *17-*18 (discussing remedial disclosures).
Defendants cite this controlling authority only in passing because it is
fatal to their arguments. See Brigham AB 18-20. Defendants’ primary
authority in support of their argument, Bershad v. Curtiss-Wright Corp., 535
A.2d 840 (Del. 1987), has been overruled by the Delaware Supreme Court. As
the Chancery Court recognized in Gesoff v. IIC Indus., 902 A.2d 1130 (Del. Ch.
2006), “Kahn v. Lynch implicitly overruled the holding in Bershad.” Id. at
- 27 -
1143 n.89. Norberg v. Security Storage Co. of Wash., No. 12885, 2000 Del.
Ch. LEXIS 142 (Del. Ch. Sept. 19, 2000), another decision cited by defendants,
is an unpublished trial court decision handed down before Celera. Norberg
also relies on Bershad.4
Defendants also cite Steinhardt v. Howard-Anderson, No. 5878-VCL,
2012 Del. Ch. LEXIS 1 (Del. Ch. Jan. 6, 2012). But, just as the unsuccessful
objector did in Celera, defendants overstate the holding of Steinhardt in
arguing that a shareholder who elects to sell his or her shares on the open
market is improperly included in the class. In Steinhardt, the lead plaintiff did
not simply “sell stock in the open market.” Instead, as lead plaintiff, he
received confidential information about the defendant company during
4
Norberg is also factually inapposite. There, a shareholder filed a complaint alleging
breach of fiduciary duty against the company’s directors and majority shareholders. 2000
Del. Ch. LEXIS 142, at *1-*2. While that action was pending, the defendants offered the
dissenting shareholders who sought appraisal a settlement, which was approved by the court,
that would allow them to accept the merger consideration. Id. at *3. After filing his original
unfairness claim and after the settlement agreement was offered, Norberg tendered his shares
to the company for the merger consideration without any caveat that he would continue to
pursue litigation. Id. at *7. The court found that Norberg had acquiesced because he
“abandoned his appraisal claim, challenged the fairness of the price and process and later,
despite his declared assessment of the unfairness of the transaction, freely and voluntarily
accepted the merger consideration.” Id. at *25. Unlike in Norberg, plaintiffs did not pursue
an appraisal claim and certainly have not settled their claims against defendants. Celera,
2012 Del. Ch. LEXIS 66, at *44 (distinguishing Norberg on these grounds).
In addition, even though the Norberg court found that the plaintiff had acquiesced in
the merger, it still contemplated the certification of a class and reserved a decision on that
issue pending the proposal of an adequate class representative. 2000 Del. Ch. LEXIS 142, at
*29.
- 28 -
discovery and, while possessing that inside information, shorted the company’s
stock before the market learned of the strength of the class’s claims.
Steinhardt, 2012 Del. Ch. LEXIS 1, at *6-*7. While the court dismissed
Steinhardt from the case, the court did not hold categorically that a lead
plaintiff simply cannot sell his or her shares before the challenged transaction is
consummated. Rather, because a lead plaintiff is a fiduciary to the class, the
court in Steinhardt relied on the principle that “‘[i]t is an act of disloyalty for a
fiduciary to profit personally from the use of information secured in a
confidential relationship.’” Id. at *32. Here, by contrast, defendants do not
claim and could not establish that plaintiffs used their fiduciary position to
profit from the use of confidential information. See Celera, 2012 Del. Ch.
LEXIS 66, at *58-*60 (distinguishing Steinhardt and refusing to find atypical
and inadequate a class representative who sold shares into the open market).
Since Celera, no court has relied upon Norberg, Bershad or Steinhardt to
preclude a shareholder’s claim based upon the doctrines of acquiescence or
waiver, to pare down a proposed class, or to deny a motion for class
certification. Defendants omit this fact in their appeal. The class definition
approved by the trial court is the proper formulation for breach of fiduciary
- 29 -
duty actions under Delaware law brought in connection with tender offers, such
as this one.5
III. The Trial Plan Adopted by the Trial Court Complies with
Brigham I and Bernal
As required by Tex. R. Civ. P. 42 and Bernal, the trial court adopted a
trial plan in granting class certification. That plan, 20 pages in length, reflects
the court’s “rigorous analysis” of the class claims and is the result of numerous
hearings and thousands of pages of briefing and related submissions. Brigham
AB, App. B.
It analyzes each of the claims certified for class treatment. Id. at 2-4.
For plaintiffs’ claims for breach of fiduciary duty, it identifies the governing
law and the applicable burden of proof (see id. at 2-3); for plaintiffs’ aiding-
and-abetting claim, it identifies the standard governing the claim (see id.). It
further identifies plaintiffs’ theories and explains how plaintiffs intend to prove
their claims, identifying the common, class-wide evidence that plaintiffs will
introduce at trial to show liability, causation and damages. Id. at 13-17. It also
5
Defendants’ repeated characterization of this case as a “securities class action” (see
Statoil AB xi, 2) reflects a fundamental misunderstanding of the claims asserted here. This
is a case for breach of fiduciary duty under Delaware law, not for violations of federal
securities statutes, and the requirements for proving a fiduciary duty claim (such as standing)
differ from those necessary to prove a securities fraud claim.
- 30 -
explains how plaintiffs intend to calculate and allocate damages to the class.
Id. at 16.
In addition, as directed by this Court in Brigham I, the trial plan states
the elements of each defense asserted by defendants (see Brigham AB, App. B
at 4-12), identifies the common issues of law and fact arising from those
defenses (see id. at 16-20), and explains how the defenses will be tried in a
manageable, time efficient manner. See id.; Tex. R. Civ. P. 42(c). As such, the
trial plan complies with Bernal’s mandate that it explain how plaintiffs’ claims
and defendants’ defenses can be tried on a class-wide basis.
A. The Trial Plan Properly Analyzes Plaintiffs’ Claims
1. The Trial Plan Properly Analyzes How
Damages Will Be Proven
Citing no legal authority, defendants first contend that computing
damages in this case would raise individualized issues, because it would require
the fact-finder to identify and evaluate the sales price for each share sold by
class members following the announcement of the deal. Brigham AB 24-25.
This contention is easily dispensed.
As explained above, under Delaware law, “[i]t is not the Merger that
constitutes the wrongful act of which Plaintiffs complain; it is the ‘fixing of the
terms of the transaction.’” Dieter, 681 A.2d at 1072. Thus, it is the investors
- 31 -
who held shares at the time of the announcement of the merger who are
damaged by defendants’ misconduct. Celera, 59 A.3d at 426, 430.
Consistent with this principle, damages for victims of a breach of
fiduciary duty in the context of a merger are determined by measuring the
difference between the fair value of the company and the price offered. The
first part of the equation – fair value – is established through expert testimony
about the value of company acquired. The second part of the equation – price
offered – is simply the per share amount offered by the acquiror. This is clearly
explained in the trial plan adopted by the trial court. Brigham AB, App. B at
16-17.
This has long been the accepted damages measure in breach of fiduciary
duty cases stemming from a merger. Only a couple of months ago, after a
plaintiffs’ verdict against two directors in a class action stemming from the
acquisition of Dole Foods, the Delaware Court of Chancery employed this very
formula to award $2.74 per share to each of the Dole shareholders who were
harmed by the directors’ breach of fiduciary duty. In re Dole Food Co., Inc.
S’holder Litig., No. 8703-VCL, 2015 Del. Ch. LEXIS 223, at *149-*150 (Del.
Ch. Aug. 27, 2015); see also In re PNB Hldg. Co. S’holders Litig., No. 28-N,
2006 Del. Ch. LEXIS 158, at *5 (Del. Ch. Aug. 18, 2006) (“I conclude that the
fair value of a share of PNB on the date of the Merger was $52.34, which is
- 32 -
$11.34 per share higher than the consideration offered in the Merger.”); In re
Rural Metro Corp. S’holders Litig., 88 A.3d 54, 107 (Del. Ch. 2014) (entering
judgment and awarding damages to the stockholder class at an identical $4.17
per share for the plaintiff and each eligible class member).
Nothing about this formula requires the fact-finder to “identify all the
different sales prices and the dates of the sales [for those shareholders who
elected to sell into the open market after the announcement of the deal] in order
to compute damages,” as defendants argue. Brigham AB 24. Such an inquiry
is irrelevant under Delaware law. Joseph v. Shell Oil Co., No. 7450, 1985 Del.
Ch. LEXIS 458, at *14 (Del. Ch. Feb. 8, 1985) (“In short, if a finding of
damages occurs, the damages will be mathematically allocated on a per share
basis to all the stockholders in similar circumstances. There is a total absence
of individual issues and therefore there would be no reason for the Court to
make a separate finding of damages as to each share or each shareholder.”).
2. Plaintiffs Offer One Damages Theory
Defendants also contend that the trial plan “fails to address the impact of
plaintiffs’ conflicting damages theories on typicality and predominance.”
Brigham AB 41.
This argument makes no sense, as plaintiffs only offer one method of
establishing damages. Plaintiffs intend to establish damages by measuring the
- 33 -
difference between the fair value of the company and the price offered. See
Brigham AB, Appendix B at 16.
In any event, whether pitched under the guise of “individualized
damages” or “conflicting damages theories,” defendants’ argument provides no
ground for reversal. As explained above, Delaware law does not require a
separate finding of damages as to each share or each shareholder. See supra
§III.A.1. If liability and damages are established, each class member will
receive an identical amount per share for each share of Brigham stock they
owned at the time of the announcement of the deal. Dole, 2015 Del. Ch.
LEXIS 223, at *154-*155 (awarding damages to the stockholder class at an
identical $2.74 per share to each eligible class member); Rural Metro, 88 A.3d
at 107 (entering judgment and awarding damages to the stockholder class at an
identical $4.17 per share for the plaintiff and each class member). Because
each shareholder is being awarded an identical amount per share, this damages
measure does not raise commonality or typicality issues.
3. The Trial Plan Properly Explains Plaintiffs’
Breach of Fiduciary Duty Claims
Defendants also contend that the trial plan is deficient because it did not
analyze, under 8 Del. C. §102(b)(7), the applicability of the exculpatory
- 34 -
provision in Brigham’s charter, and because it did not mention that plaintiffs
supposedly must prove that the Board acted in bad faith. Brigham AB 40.
As an initial matter, the trial plan approved by the court did mention and
discuss, at length, both of these issues. The trial plan specifically references
bad faith in connection with its discussion of defendants’ §102(b)(7) defense.
See Brigham AB, Appendix B at 10. In addition, the trial plan repeatedly
discusses the duty of good faith, and “‘acting in bad faith’ and ‘not acting in
good faith’ are two sides of the same coin.” Dole, 2015 Del. Ch. LEXIS 223, at
*129; Brigham AB, Appendix B at 7, 9-11, 17.
Defendants essentially fault the trial court for not finding, at the class
certification stage, that plaintiffs’ claims are precluded as a matter of law. This,
of course, would have been improper. “‘[D]eciding the merits of the suit in
order to determine the scope of the class or its maintainability as a class action
is not appropriate.’” DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 315
(Tex. 2008).
Defendants argue that plaintiffs must prove that the Board acted in bad
faith to prevail on their claims. Brigham AB 40. First, this issue has no impact
on class certification, because, even if plaintiffs must show bad faith, that
showing would need to be made by all class members – making it a common
issue. Defendants do not contend otherwise.
- 35 -
Second, defendants’ assertion is incorrect as a substantive matter. As the
Delaware Supreme Court has made clear: “When a board of directors’ loyalty is
questioned . . . courts determine whether a conflict has deprived stockholders of
a ‘neutral decision-making body.’” Cinerama, Inc. v. Technicolor, Inc., 663
A.2d 1156, 1170 (Del. 1995) (emphasis in original). It further explained that
“the manipulation of the disinterested majority by an interested director vitiates
the majority’s ability to act as a neutral decision-making body.” Id. at 1170
n.25 (citing Mills Acquisition Co. v. MacMillan, Inc., 559 A.2d 1261, 1279
(Del. 1989)); Rural Metro, 88 A.3d at 85 (“The presence of an exculpatory
provision does not eliminate the underlying duty of care or the potential for
fiduciaries to breach that duty.”).
Here, the Board and management were not only conflicted as a result of
the $80 million they stood to gain in special payments if the deal closed, but
Ben Brigham failed to comply with his “rigorous affirmative duty of
disclosure” to his fellow Board members before seeking approval of the
merger. See Mills, 559 A.2d at 1283; CR 688-89 (alleging that B. Brigham
failed to disclose to the Board that he had a made a deal with Statoil for $36.50,
when the Board had told him to hold firm at $40). Such misconduct deprives
defendants of any protection provided by 8 Del. C. §102(b)(7) and the
exculpatory provision in Brigham’s charter. Dole, 2015 Del. Ch. LEXIS 223,
- 36 -
at *97-*98, *124-*134 (citing Mills and finding that 8 Del. C. §102(b)(7) did
not exculpate two directors who breached their duty of loyalty by deceiving the
special committee).
4. The Trial Court Properly Understood and
Explained the Role of Plaintiffs’ Claims Based
Upon Defendants’ Non-Disclosures
Defendants also contend that the trial court “demonstrate[d] a lack of
rigor” when it included reference to the duty of candor (also commonly referred
to as the duty to disclose) in the class certification order and trial plan.
Defendants say the breach of duty of candor is “a nonexistent legal claim.”
Brigham AB 39.
This is incorrect. Delaware recognizes that directors who fail to disclose
material facts to shareholders in connection with a merger, or make a false
representation, have violated their legal duties to shareholders. As the
Delaware Chancery Court in Chen v. Howard-Anderson, 87 A.3d 648 (Del. Ch.
2014) recently explained in rejecting the very argument defendants make here:
[D]efendants argue that because the Merger closed, and because it
was not a short-form merger or a merger involving a controlling
stockholder, it is no longer possible for this court to award a
remedy for a breach of the duty of disclosure, warranting
summary judgment in their favor. That is an incorrect statement
of current Delaware law.
- 37 -
If the plaintiffs prove at trial that the defendants committed a non-
exculpated breach of the fiduciary duty of disclosure, then
damages can be awarded using a quasi-appraisal measure.
Id. at 691 (citing In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1 (Del.
2014)) (surveying Delaware decisions); see also Malone v. Brincat, 722 A.2d 5,
9 (Del. 1998). This so-called “nonexistent legal claim” recently resulted in a
$75.7 million plaintiffs’ verdict after a class trial in Rural/Metro. In re
Rural/Metro Corp. Stockholders Litig., 102 A.3d 205, 213 (Del. 2014) (post-
trial decision setting the amount of the advisor’s liability for false information
in proxy statement at $75.7 million).
Defendants also contend that plaintiffs dropped this claim, making too
much out of plaintiffs’ statement that they are not seeking specific monetary
damage for the alleged non-disclosures. Brigham AB 34-35. But just because
plaintiffs do not seek specific monetary relief on the basis of the non-
disclosures does not mean that the non-disclosure allegations are irrelevant to
plaintiffs’ claims and have no role in this case. Under Delaware law, non-
disclosure allegations implicate the duty of care and the duty of loyalty. In re
Tyson Foods, Inc. Consol. S’holder Litig., 919 A.2d 563, 597-98 (Del. Ch.
2007) (“where there is reason to believe that the board lacked good faith in
approving a disclosure, the violation implicates the duty of loyalty”);
Crescent/Mach I Partners, L.P. v. Turner, No. 17455, 2000 Del. Ch. LEXIS
- 38 -
145 (Del. Ch. Sept. 29, 2000) (“The fiduciary duty of disclosure arises as a
subset of a director’s fiduciary duties of loyalty and care.”).
Thus, as the trial plan explains, plaintiffs will make an affirmative
showing on non-disclosure in their case-in-chief. See Brigham AB, App. B at
16. The trial plan correctly analyzes the duty of candor within the context of
plaintiffs’ claims for care and loyalty. See Brigham AB, App. B at 16. The
trial plan also correctly recognizes that, if plaintiffs prove a breach of the duty
of candor, it will defeat several of defendants’ affirmative defenses, because
those defenses require that shareholders were informed of all material facts
surrounding the acquisition. Brigham AB, App. B at 7-8, 19-20; see infra
§III.B.1.b. And, importantly, the trial plan explains how the non-disclosures
can be proved through evidence common to the class. Brigham AB, App. B at
16.
5. The Trial Plan Properly Analyzes Plaintiffs’
Aiding-and-Abetting Claims Against Statoil
Appellees are at a loss to explain Statoil’s argument that the trial plan
“failed to account” for and “ignored” the “knowing participation” element of
plaintiffs’ aiding-and-abetting-claim under Delaware law. Statoil AB 17. This
assertion is blatantly false.
- 39 -
The trial plan clearly identifies the “knowing participation” element of an
aiding-and-abetting claims, citing the relevant authority, and lays out the
standard plaintiffs must meet to satisfy this element. It states:
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. 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.’”
See Statoil AB, App. B at 4.
In its brief, Statoil also complains that the trial plan ignores the four ways
in which a plaintiff can satisfy the “knowingly participation” element of an
aiding-and-abetting claim. See Statoil AB 17. But the exact language cited by
Statoil is incorporated into the trial plan. Compare Statoil AB 17 with
Brigham AB, App. B at 4-5.
Additionally, Statoil, like Brigham, faults the trial court for not finding at
the class certification stage that plaintiffs could not prevail on the merits of
their aiding-and-abetting claims, speculating that the claims would have been
dismissed in Delaware. Statoil AB 18. As noted above, this would have been
improper, because a trial court does not decide the merits of a suit in
determining whether class certification is appropriate. See supra, III.A.3.
- 40 -
At the class certification stage, a trial court must only understand the
nature and extent of the claims sought, so that it can determine if the claims can
be tried class-wide. Daimler Chrysler, 252 S.W.3d at 315. That the trial court
did. As explained in the trial plan, plaintiffs’ aiding and abetting claim is
predicated on plaintiffs’ breach of fiduciary duty claim. Brigham AB, App. B
at 15. Plaintiffs’ claims share three of the same elements and thus, will rely on
much of the same proof, such as internal Brigham and Statoil documents,
testimony from Brigham’s directors and officers and certain of its executives, e-
mails and other correspondence between Brigham and Statoil, and documents
and testimony from the financial advisors retained by Brigham and Statoil. All
of this evidence is common to the class, and Statoil does not suggest otherwise.
It is clear under Delaware law that aiding-and-abetting claims in the
merger context rest on common, class-wide proof. See Rural Metro, 88 A.3d
54 (finding, after class-wide trial, that the directors of Rural Metro Corp. had
breached their fiduciary duties to a class of shareholders in connection with a
sale of the company and that the Board’s financial advisor had aided and
abetted that violation). This is precisely why Statoil levies an attack on the
- 41 -
merits of plaintiffs’ claim, rather than arguing that the aiding-and-abetting
claim raises individual issues.6
B. The Trial Plan Properly Analyzes Defendants’
Pleaded Defenses
As noted above, the trial court’s analysis of defendants’ defenses was the
focus of this Court’s decision in Brigham I, 2014 Tex. App. LEXIS 9068, at *9-
*10. Defendants nevertheless bury their arguments concerning their defenses
in the middle of their brief – the position typically reserved for an appellant’s
weakest arguments. Understandably so, as they find no support in Delaware
law.
Defendants focus on five of the 13 alleged defenses – acquiescence,
ratification, estoppel, waiver and the proportionate responsibility. Brigham AB
25-33. Defendants say the 20-page trial plan adopted by the trial court, more
than half of which is dedicated to defendants’ pleaded defenses, “glosses over”
how these defenses bear on the class certification analysis under Tex. R. Civ. P.
42. Brigham AB 26. They are wrong, for the reasons discussed below.
6
Despite contending that plaintiffs’ aiding-and-abetting claims have no merit – calling
them “outlandish” – Statoil notably has never moved for summary judgment in the four years
this action has been pending. Statoil AB 2. The reason for that is simple: discovery has
turned up considerable evidence that Statoil sought to induce a breach of fiduciary duty. For
example, Statoil was informed that Ben Brigham did not have Board authorization to agree
to a deal at $36.50, yet nevertheless encouraged him to obtain full Board approval of the
deal. CR 434-35.
- 42 -
1. The Court Fully Understood and Gave Due
Consideration to the Effect of Defendants’
Alleged Defenses of Acquiescence, Ratification,
Estoppel, and Waiver
The rigorous analysis required under Bernal at class certification is not a
one-way street. That standard applies equally to both plaintiffs’ claims and
defendants’ defenses. Thus, just as plaintiffs cannot obtain class certification
by relying solely on assertions of commonality and predominance, defendants
cannot defeat certification by asserting myriad defenses and then proclaiming
that they must be allowed to pursue these defenses on an individual-by-
individual basis. As the Texas Supreme Court recognized in BMG Direct
Marketing, Inc. v. Peake, 178 S.W.3d 763 (Tex. 2005), one of defendants’
primary authorities, “in many cases it would be unfair to allow a defendant to
preclude class certification simply by alleging an affirmative defense.” Id. at
778. Yet that is exactly what defendants attempt to do here.
a. Delaware Has Repeatedly Found These
Defenses Inapplicable to Plaintiffs’
Claims
Defendants do not grapple with the most troubling flaw in their position.
The Delaware Supreme Court has already rejected the notion the acquiescence,
ratification, waiver and estoppel doctrines have any application to plaintiffs’
claims.
- 43 -
In Gantler v. Stephens, 965 A.2d 695 (Del. 2009), the Delaware Supreme
Court held that shareholders do not “ratify” a merger by tendering their shares:
“the ratification doctrine does not apply to transactions where shareholder
approval is statutorily required.” Id. at 714. Here, as defendants acknowledge,
shareholder approval – i.e., shareholders being convinced to tender their shares
to Statoil – was “statutorily required” in order for Statoil to execute the top-up
option and complete the back-end of the short-form merger. See 8 Del. C. §253
(requiring threshold of shares to complete short-form merger). Because
shareholder approval was statutorily required, defendants’ “ratification”
defense is baseless as a matter of law.
Similarly baseless is the assertion that the acquiescence, waiver and
estoppel doctrines are a defense to plaintiffs’ claims. As noted above, in
Celera, the Delaware Supreme Court held that a plaintiff (NOERS) who sold
all of its shares into the open market before the merger closed was not subject
to “equitable defenses” such as “waiver” and “acquiescence.” 59 A.3d at 431.
Just like here, Celera involved the acquisition of a publicly traded company via
a tender offer with a back-end top-up option. Id. at 425. An objector, BFV,
argued that NOERS had acquiesced in the merger and had waived its claims by
selling its shares. Id. at 426-27, 431. The court overruled the objection, finding
that plaintiff had standing to pursue its claims, that plaintiff was an adequate
- 44 -
class representative, and that the trial court had correctly certified a class which
included shareholders who held shares at the date of the Board’s approval of
the merger agreement. Id. at 431; Celera, 2012 Del. Ch. LEXIS 66, at *36
(“the mere act of tendering one’s shares while simultaneously pursuing an
equitable claim is not sufficient to show acquiescence”).
In so doing, the Delaware Supreme Court affirmed the findings of the
Chancery Court, which held that such equitable defenses did not apply for at
least two reasons. First, “[w]here a squeeze-out merger extinguishes the
minority’s legal right to remain shareholders of the corporation, ‘the “choice”
between accepting the possibly inadequate merger consideration and pursuing a
possibly inadequate appraisal remedy’ is not ‘a meaningful choice.’” Celera,
2012 Del. Ch. LEXIS 66, at *39; Celera, 59 A.3d at 431. Here, too, because
defendants structured the deal as a tender offer, and because the Board granted
Statoil the right to purchase newly-issued shares so as to allow it to cross the
90% short-form threshold (upon obtaining 50% of the outstanding shares), class
members were left without a meaningful choice. Celera, 59 A.3d at 431
(“where minority shareholders are faced with a choice between accepting an
inadequate merger buy-out or pursuing inadequate appraisal, the shareholders
did not acquiesce in the merger by accepting the buy-out”).
- 45 -
Second, the requirement that a shareholder show “unequivocal approval
of the transaction” could not be met. Unlike the ordinary context of a long-
form merger with a shareholder vote, in the context of a two-tiered tender offer
with a back-end top-up option (again, the structure of the transaction at issue
here), shareholders are “‘powerless to do anything about’” the merger. Celera,
2012 Del. Ch. LEXIS 66, at *43. Defendants ignore this controlling authority.
b. Even if They Applied, Defendants’
Pleaded Defenses Do Not Preclude Class
Certification
Notably, despite authority holding that defendants’ defenses do not apply
as a matter of law, the trial court did not just dismiss them out of hand as
inapplicable. It instead assumed that the defenses applied to plaintiffs’ claims
and analyzed their role at a class trial. Brigham AB, App. B at 19-20.
As defendants acknowledge, an essential factual predicate for applying
the acquiescence, ratification, waiver, and estoppel doctrines is that the
shareholder was fully informed of all material facts. Brigham AB 26. Here, as
part of their duty of care and duty of loyalty claims, plaintiffs contend that the
class was not fully informed when they tendered their shares to Statoil. CR 41-
54. Plaintiffs will make this showing in their case-in-chief.
As explained in the trial plan, if plaintiffs establish that defendants did
not disclose these facts, plaintiffs will prevail on their claims and will negate
- 46 -
one of the essential elements of the defenses. Gantler, 965 A.2d at 712 (where
the plaintiff alleges a “cognizable claim that the [14D-9] contained a material
misrepresentation, [that allegation] eliminates an essential predicate for
applying the doctrine [of ratification], namely, that the shareholder vote was
fully informed”). If plaintiffs do not establish that defendants withheld material
information, plaintiffs’ claims fail and defendants are entitled to judgment on
that claim, without the need for a separate finding on the defenses. See Corwin
v. KKR Fin. Holding, LLC, No. 629, 2015 Del. LEXIS 473, at *21 (Del. Oct. 2,
2015) (addressing the impact of a showing of nondisclosure of material
information on the ratification defense). Either way, these defenses will be
disposed of as the parties litigate the merits of plaintiffs’ claims.
Ignoring this, defendants say that their defenses will require an inquiry
into the state of mind of each individual class member. Brigham AB 28. But
this is not the law in Delaware. In Delaware, a shareholder’s state of mind is
irrelevant. Klaassen v. Allegro Dev. Corp., 106 A.3d 1035, 1047 (Del. 2014)
(“For the defense of acquiescence to apply, conscious intent to approve the act
is not required . . . .”); see id. (plaintiff’s “conscious intent” is immaterial to an
acquiescence finding); Frank v. Wilson & Co., 32 A.2d 277, 283 (Del. 1943)
(“Conscious intent is not an element, nor does ratification require a change of
- 47 -
position or prejudice.”); Bundesen v. Beck, No. 11,347, 1992 Del. Ch. LEXIS
42, at *26 (Del. Ch. Feb. 12, 1992) (“Estoppel does not require intent . . . .”).
In Brevan Howard Credit Catalyst Master Fund Ltd. v. Spanish Broad.
Sys. Inc., No. 9209-VCG, 2015 Del. Ch. LEXIS 141 (Del. Ch. May 19, 2015),
the Delaware Chancery Court was recently confronted with this issue in the
context of a motion to compel discovery into the state of mind of shareholders.
Id. at *13. The court rejected the motion on the ground that the discovery was
irrelevant:
Plaintiffs point out . . . that they should at least be able to take
discovery about the state of mind of their predecessors, assuming
those predecessors can be identified . . . . The problem with that
assertion, again, is that acquiescence is focused on the
understanding of the Defendant. The record is clear that the
Plaintiffs and their predecessors, owners of Series B Preferred
Stock at the time the complained-of debt was incurred, had actual
or constructive notice that SBS intended to acquire the debt, and
stood silent. Their intent in so doing is not pertinent here.
Id. at *13-*14. The court further explained that acquiescence requires “‘the
other party to believe’” that the plaintiffs had acted in a way to lead them to
believe “‘the act ha[d] been approved. For the defense of acquiescence to
apply, conscious intent to approve the act is not required, nor is a change of
position or resulting prejudice.’” Id. at *13 n.18.
Defendants eschew this authority in favor of several inapplicable
decisions from Texas which arise under different circumstances. They do not
- 48 -
involve Delaware substantive law and certainly do not involve a breach of
fiduciary duty claim by a shareholder. Instead, they involve claims under
Texas common law for negligence stemming from plaintiff’s exposure to
asbestos (Louisiana-Pacific Corp. v. Andrade, 19 S.W.3d 245, 247 (Tex.
1999)), a misrepresentation claim under Texas common law against an
employee leasing company (Texas Workers’ Comp. Ins. Facility v. Personnel
Servs., 895 S.W.2d 889, 890 (Tex. App.–Austin, 1995, no writ)), and personal
injury claims under Texas common law for mental anguish caused by the sight
and sound of an explosion at an oil refinery (Bernal, 22 S.W.3d at 429). The
only Delaware authority cited by defendants, Nevins v. Bryan, 885 A.2d 233
(Del. Ch. 2005), likewise did not involve a merger, shareholder-plaintiffs, or a
breach of fiduciary duty claim, but instead, involved a plaintiff who challenged
his removal as a director of a non-profit corporation.
Defendants also regurgitate their argument that Delaware courts have
applied the doctrines of waiver and acquiescence to dismiss lawsuits (see
Brigham AB 30), citing Norberg and Bershad, but, as discussed above, those
decisions have been overruled on the points for which defendants cite them and
are no longer good law. See supra §II.
- 49 -
c. Defendants Cannot Overcome the Reality
that These Types of Cases Are Routinely
Certified and Tried on a Class-Wide
Basis
The legal and practical realities concerning the acquiescence, ratification,
waiver, and estoppel doctrines explain why these cases are routinely certified
and tried on a class-wide basis, even though these defenses are routinely
pleaded by defendants.
This Court need look no further than two recent trials from Delaware to
recognize that potential defenses such as acquiescence will not, as defendants
contend, “require countless mini-trials.” See Brigham AB 29. As here, Dole
and Rural Metro were two breach of fiduciary duty cases stemming from a
completed acquisition of a publicly listed company. And, as here, defendants
asserted defenses based upon the doctrines of acquiescence, ratification, waiver
and estoppel. SCR, Ex. 1 at 32-38 (Rural Metro, Answer to Verified Second-
Amended Complaint); id. (Dole Food, Answer and Affirmative Defenses).
These defenses did not prevent a class-wide trial in those actions and they will
not do so here, either. In fact, all of the claims and defenses in the Dole and
Rural Metro cases were resolved, in plaintiffs’ favor, in a single trial.
Similarly, in Pate, defendants asserted that plaintiffs’ claims “were
extinguished by the fully informed shareholder vote approving and ratifying the
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merger.” App. A at 3. Yet, the certified class included “‘all persons or entities,
other than defendants, who were Pennzoil-Quaker State Corp. shareholders of
record on August 1, 2002.’” CR 1058. After class certification was upheld by
the Texas Court of Appeals, the case was tried to verdict on a class-wide basis
in three weeks. See Pate, 2004 Tex. LEXIS 1160; Pate, 2005 Tex. LEXIS 305.
Defendants simply have no explanation as to why plaintiffs’ claims
cannot be tried on a class-wide basis, when it is routinely done in other actions
involving the same claims, same defenses and transactions structured in the
same way. Cases such as Pate, Rural/Metro and Dole – only a few of many
examples – have proven that cases such as this do not create manageability or
commonality problems.
2. The Court Properly Analyzed Defendants’
“Proportionate Responsibility” Defense
Recognizing that their defenses based on the doctrines of acquiescence,
ratification, waiver and estoppel will not carry the day, defendants rushed to
amend their answer after Brigham I to add a purported defense based upon the
doctrine of proportionate responsibility under Tex. Civ. Prac. & Rem. Code
Ann. §33.002(a)(1). In their appeal, defendants claim the trial court must
submit a question to the jury apportioning responsibility for harm between the
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parties, and that the trial court failed to account for this “defense.” Brigham
AB 38-39.
This doctrine, however, is a creature of Texas substantive law and does
not apply to plaintiffs’ claims. Plaintiffs’ claims are governed by the
substantive law of Delaware because Brigham was a Delaware corporation – a
point defendants do not dispute. 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. Texas’
proportionate responsibility statute, Tex. Civ. Prac. Rem. Code Ann.
§33.002(a)(1), is substantive, not procedural law. Harris Constr. Co. v. GGP-
Bridgeland, LP, No. H-07-3468, 2009 U.S. Dist. LEXIS 69476, at *3 n.1 (S.D.
Tex. Aug. 10, 2009) (“Texas proportionate responsibility statutes reflect a
substantive state policy” and are not procedural); cf. Cooper v. Ross & Roberts,
Inc., 505 A.2d 1305, 1307 (Del. Ch. 1986) (“prejudgment interest, like the issue
of damages, is substantive, and the state whose laws govern the substantive
legal questions also govern the question of prejudgment interest”). Thus, this
“defense” is not available to defendants here.
In any event, defendants offer nothing to establish that the doctrine of
proportionate responsibility would play any role at a trial on plaintiffs’ claims.
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Any finding of proportionate fault must, of course, be grounded in some legally
culpable act by plaintiffs. See Tex. Civ. Prac. & Rem. Code Ann. §33.003.
But, tellingly, defendants are silent on this point, failing to identify any
legal duty owed by plaintiffs to defendants. Defendants’ omission is not an
oversight. While directors of a company owe a fiduciary duty to plaintiffs in
connection with an acquisition, the reverse is not true. Non-insider
shareholders do not owe legal duties to a company or its directors under
Delaware law. Yucaipa Am. Alliance Fund II, L.P. v. Riggio, 1 A.3d 310, 357
n.245 (Del. Ch. 2010) (“the board owes fiduciary duties to the company,
something Yucaipa, as a stockholder, generally does not”). As such, there is no
duty for plaintiffs to breach, and they cannot be held liable for some percentage
of harm caused by defendants’ misconduct.
Defendants also need to provide evidence of wrongdoing (along with
some evidence establishing a causal connection between that wrongdoing and
the harm) before any question regarding proportionate responsibility can be
submitted to the jury. Tex. Civ. Prac. & Rem. Code §33.003(b). Again, despite
having many opportunities to do so, defendants have never made any such
showing or even explained what their showing at trial might entail.
In their appeal, defendants contend that “[s]hareholders who chose to sell
in the open market . . . are potentially responsible for all or part of any alleged
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harm.” Brigham AB 38. Again, defendants cite no authority for this
proposition because there is none. As a matter of law, selling shares into the
open market is not a basis for the jury to re-apportion fault between the parties
because it is not a legally culpable act. Shareholders are free to sell their shares
into the open market. In re Gaylord Container Corp. S’holders Litig., 747 A.2d
71, 78 (Del. Ch. 1999) (“stockholders . . . are ordinarily free to sell their shares,
and purchasers who . . . ordinarily free to buy those shares”); Brigham AB 38-
39. To plaintiffs’ knowledge, no court – in Delaware or elsewhere – has found
that shareholders bear some responsibility for the harm caused by a board’s
failure to fulfill its fiduciary duties. Nor have they applied the doctrine of
comparative fault to diminish or preclude a shareholder’s recovery in
circumstances even remotely similar to those presented by this case.
IV. Plaintiffs Satisfied the Requirements for Class Certification
Defendants also raise challenges to the trial court’s findings on several of
the class certification requirements. Rule 42 of the Texas Rules of Civil
Procedure authorizes a trial court to certify actions for class treatment.
Certification of a proposed class is appropriate where the party proposing a
class action shows that: (i) the class is so numerous that joinder of all members
is impracticable; (ii) there are questions of law or fact common to the class;
(iii) the claims or defenses of the representative parties are typical of the claims
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or defenses of the class; and (iv) the representative parties will fairly and
adequately protect the interests of the class. Tex. R. Civ. P. 42(a). Common
questions of fact or law must predominate over questions affecting only
individual members, and a class action must be superior to other available
methods for the fair and efficient adjudication of the controversy. Tex. R.
Civ. P. 42(b).
On appeal, defendants do not raise any objections to the trial court’s
findings regarding commonality. As such, defendants have waived any claim
of error on this prerequisite and it is not at issue on this appeal. Tex. R. App.
38.1(e) (the appellant’s brief must state concisely all issues or points presented
for review).
A. The Trial Court Acted Within Its Discretion in
Finding that Plaintiffs’ Claims Are Typical
In a variation on their previous argument that the class definition is
overbroad, defendants contend that the trial court’s finding that plaintiffs’
claims are typical of the Class is in error. In particular, they argue that
plaintiffs’ claims are atypical of the claims of the class because plaintiffs sold
their shares into the open market and did not tender their shares to Statoil.
Brigham AB 43.
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This is another argument that has been considered and rejected by the
Delaware Supreme Court. In Celera, 59 A.3d 418, the Delaware Supreme
Court held that there was no atypicality between the plaintiffs, who had not
tendered their shares, and the class members who had had tendered shares.
Defendants cite Celera in passing, but fail to acknowledge its holding. Indeed,
as noted above, despite the fact that the doctrines of acquiescence, ratification,
waiver or estoppel are regularly asserted by defendants, these cases are tried on
a class-wide basis. See supra §III.B.1.c.
In Delaware, when a corporate fiduciary commits a breach of duty, all
shareholders at the time of the merger announcement are identically harmed.
Turner v. Bernstein, 768 A.2d 24, 33 (Del. Ch. 2000) (“[i]n challenges to
corporate mergers brought on behalf of the shareholders not affiliated with the
defendants, it is virtually never the case that there is any legitimate basis that a
defendant might be found liable to some plaintiffs but not others”). That
certainly holds true in this case. All Brigham shareholders at the time the
merger agreement was announced became victims of the unfair process used to
force the acquisition; all were denied fair value of their shares; and all were
harmed by defendants’ self-dealing. Bernal, 22 S.W.3d at 435 (the claims of
the class representative need not be identical or perfectly coextensive with
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those of the class as a whole; the claims need only be substantially similar with
those of the class).
Defendants say that “[n]umerous courts have held that the disparity
between tendering and non-tendering shareholders prevents plaintiffs from
satisfying the typicality requirement” – citing Andra v. Blount, 772 A.2d 183
(Del. Ch. 2000), and Shapiro v. Pabst Brewing Co., No. 7339, 1985 Del. Ch.
LEXIS 496 (Del. Ch. July 30, 1985) – both of which were decided before
Celera.
Andra has no relevance here for numerous reasons. Most importantly, as
at least one Delaware court succinctly stated, “Andra was not an acquiescence
case.” Clements v. Rogers, 790 A.2d 1222, 1239 (Del. Ch. 2001). Nor did it
involve class certification. Andra, 772 A.2d at 196.
Shapiro, issued nearly 30 years ago, likewise did not involve class
certification. In Shapiro, minority shareholders claimed that appraisal was not
an available remedy at a time when it was believed that appraisal was the
exclusive remedy for minority shareholders. Shapiro, 1985 Del. Ch. LEXIS
496, at *10. The trial court dismissed plaintiffs’ claims because plaintiff did
not allege “facts which, if true, would render the appraisal remedy inadequate.”
Id. at *12. In a subsequent decision, the Delaware Supreme Court effectively
overturned the Shapiro decision by making clear that appraisal was not an
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exclusive remedy. See Rabkin v. Philip A. Hunt Chem. Corp., 498 A.2d 1099,
1108 (Del. 1985). Therefore, a plaintiff would no longer be required to plead
why appraisal was “inadequate.” Even though it was issued more than 30 years
ago, no Delaware court has relied on or cited Shapiro for the proposition cited
by defendants.
B. The Trial Court Acted Within Its Discretion in
Finding that Common Issues Predominate
Both of defendants’ arguments concerning predominance are nothing
more than a regurgitation of their previous arguments as to the trial plan’s
treatment of their defenses.
First, citing no Delaware law, defendants say each shareholder will need to
be examined individually about their state of mind to determine if defendants’
affirmative defenses apply. Brigham AB 44. But, as discussed above, this is not
true. See supra §III.B.1.b. Second, defendants argue that it is necessary to
individually evaluate whether each shareholder suffered damage as a result of the
merger. Brigham AB 44-45. Again, this is incorrect. See supra §III.A.1.
C. The Trial Court’s Numerosity Finding Was
Sufficiently Supported
Although defendants did not raise any issue as to the trial court’s finding
on numerosity in their first appeal, they do so here. Echoing an argument at
least one Texas court has characterized as “pure sophistry,” defendants contend
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that certification must be denied because plaintiffs have not shown the precise
number of shareholders who still held their shares at the close of the tender
offer. Brigham AB 45; Snyder Commc’ns v. Magana, 94 S.W.3d 213, 239-40
(Tex. App.–Corpus Christi 2002, pet. filed).
The Court need not reach this issue, however, as it has been waived.
“Where error exists at the time of an initial appeal, an appellant waives its right
to complain in a subsequent appeal of the error it failed to present in the initial
appeal.” Women’s Clinic of S. Tex. v. Alonzo, No. 13-12-00537, 2013 Tex.
App. LEXIS 7263, at *4 (Tex. App.–Corpus Christi June 13, 2013, pet. denied).
In any event, this argument fails on substantive grounds for two reasons.
First, defendants’ challenge is predicated on the incorrect assertion that the
class is overbroad because it includes shareholders who sold their shares prior
to the completion of the merger. As explained above, so long as shareholders
held stock at the time of the announcement, they are properly included within
the class. See supra §II.
Second, even if certification was proper only as to shareholders who held
their shares as of the close of the tender offer, the numerosity prerequisite
would still be satisfied. The numerosity requirement, in particular, “is not
based on numbers alone.” Methodist Hosps. of Dallas v. Tall, 972 S.W.2d 894,
898 (Tex. App.–Corpus Christi 1998, no pet.). Rather, the test is whether
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joinder of all members is practicable in view of the size of the class and
includes such factors as judicial economy, the nature of the action, geographical
location of class members, and the likelihood that class members would be
unable to prosecute individual lawsuits. Rainbow Group, Ltd. v. Johnson, 990
S.W.2d 351, 357 (Tex. App.–Austin 1999, pet dism’d w.o.j.). Defendants do
not challenge any of these factors, conceding that they are met.
As to the size of the class, there is sufficient evidence to support a
finding that there are enough class members to render joinder impracticable.
As defendants acknowledge, there were over one hundred million shares of
Brigham stock issued and outstanding at the time of the announcement. CR
130; CR 459 (117,318,932 shares outstanding prior to the acquisition). Even if
a large percentage of shareholders disposed of their shares before the close of
the tender offer, which is unlikely given the short, one-and-a-half month tender
offer period, there would still be thousands of shareholders within the class.
This is easily enough to satisfy numerosity. Chevron U.S.A., Inc. v. Kennedy,
808 S.W.2d 159, 161-62 (Tex. App.-El Paso 1991, writ dism’d w.o.j.) (finding
no error in certification of a class comprised of 20 identifiable members).
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D. The Trial Court Acted Within Its Discretion in
Finding that Plaintiffs Will Fairly and Adequately
Protect the Interests of the Class
Defendants’ adequacy challenge rests on arguments made in the Statoil
Appellants’ brief. Brigham AB 46-47. In its brief, Statoil offers a novel and
unprecedented perspective on class certification, contending that plaintiffs are
inadequate class representatives, but only as to the aiding-and-abetting claim
against Statoil. It makes no argument as to plaintiffs’ adequacy as to the
underlying claim for breach of fiduciary duty against Brigham and the
individual defendants.
Yet Statoil cites not a single case – in Texas or elsewhere – in which a
court has found a plaintiff to be an adequate representative for purposes of one
claim, but inadequate for purposes of another. There is none. In Texas, courts
do not evaluate adequacy on a claim-by-claim (or defendant-by-defendant)
basis. And indeed, the Class plaintiffs seek to represent here was not defined in
this manner. Instead, adequacy is determined by evaluating a plaintiff’s ability
to fairly and adequately protect the interests of the entire class – here, the
former shareholders of Brigham.
To establish his or her adequacy, a plaintiff must only demonstrate that he
or she is familiar with the “basic issues” of the case and actively involved in the
litigation. Here, as discussed below, the record – which includes affidavits,
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nearly 30 hours deposition testimony and live testimony from the plaintiffs at the
class certification hearing – contains ample evidence supporting the trial court’s
findings concerning plaintiffs’ adequacy. Going well beyond what is necessary
to qualify as a class representative, plaintiffs established that they conducted
independent investigations both before and after the case was filed; initiated the
litigation because they were “surprised,” “befuddled” and “upset” about the
merger; have reviewed key pleadings, depositions and other materials produced
by defendants and third parties in litigation; have assisted and directed counsel
throughout the litigation; and have participated in discovery and attended
important hearings. Several plaintiffs have done even more. As such, they are
familiar with the key facts and issues supporting their claims – the terms, timing
and structure of the merger, Brigham and its operations, Brigham’s directors and
executives, the buyer (Statoil), the scope of the class, and the duties upon which
their claims are based, among other things. Quite clearly, plaintiffs are
committed to protecting the interests of class members, and Statoil’s plea for
reversal does nothing to refute the trial court’s findings in this regard.
To the extent it is necessary for plaintiffs to be familiar with Statoil,
again, there is ample evidence in the record to support a finding that they are.
In addition to the testimony described above, plaintiffs testified that they are
familiar through their research with Statoil and its operations, its assets, and its
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role in the buyout of Brigham. And, contrary to Statoil’s contention, plaintiffs
understood that Statoil is a defendant and explained the actions of Statoil that
led to the suit. Statoil’s suggestion that this is a “lawyer-driven” litigation –
and that the trial court qualified plaintiffs as class representatives without any
serious vetting of their qualifications – is completely baseless.
1. Adequacy Findings Are Entitled to Substantial
Deference
Statoil faces a tall task in seeking reversal on adequacy grounds.
“Adequacy of representation is a question of fact” and must be determined based
on the individual circumstances of each case. Farmers, 125 S.W.3d at 66.
Because adequacy is a fact question left to the discretion of the trial court, “the
trial court does not abuse its discretion in finding adequacy if there is evidence to
support the finding.” Id. at 66; Garcia v. Walker, No. 04-05-00343-CV, 2006
Tex. App. LEXIS 1409, at *5-*6 (Tex. App.–San Antonio Feb. 22, 2006, no pet.)
(“Under an abuse of discretion standard, we defer to a trial court’s rulings when
discretionary matters depend on the resolution of conflicting facts.”).
In conducting appellate review, it also makes a difference how the named
plaintiffs demonstrated their adequacy to the trial court. The deference to the
trial court’s findings is heightened where, as here, a class representative
testifies live at an evidentiary hearing, enabling the trial court to assess the
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person’s credibility and demeanor. “A trial court has discretion to rule on class
certification issues, and some of its determinations – like those based on its
assessment of the credibility of witnesses, for example – must be given the
benefit of the doubt.” Henry Schein Inc. v. Stromboe, 102 S.W.3d 675, 691
(Tex. 2002); Farmers, 125 S.W.3d at 68 (“the trial court is in the best position
to weigh the credibility of Leonard and Sawyer as well as to determine the
ability and integrity of class counsel to represent the entire class”).
Notably, even if defendants could meet their burden, to obtain reversal
defendants would need to show that there was no factual basis for the trial
court’s findings for all seven plaintiffs. While the presence of multiple class
representatives helps to ensure that the class claims are vigorously prosecuted,
Tex. R. Civ. P. 42 does not require more than one representative. A single
representative is sufficient to support a class certification order.
2. Statoil Concedes that Adequacy Is Met by Not
Challenging the Vast Majority of the Factors
Relevant to the Adequacy Determination
To appreciate how narrow Statoil’s adequacy challenge is, it is necessary
to understand the framework under which a trial court determines whether a
plaintiff should be qualified as a class representative.
There are two components to the adequacy determination. First, it must
appear that the representatives, through their attorneys, will vigorously
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prosecute the class claims. Forsyth v. Lake LBJ Inv. Corp., 903 S.W.2d 146,
150 (Tex. App.–Austin 1995, writ dism’d w.o.j.). Factors affecting this
determination include the following: (1) counsel’s adequacy; (2) the plaintiff’s
personal integrity; (3) the representative’s familiarity with the litigation and his
belief in the grievance’s legitimacy; (4) whether the class is unmanageable,
based on geographical limitations; and (5) whether the plaintiff can afford to
finance the class action. Id. Second, there must be an absence of antagonism
or conflict between the representative’s interests and those of the class
members. Adams v. Reagan, 791 S.W.2d 284, 291 (Tex. App.–Fort Worth
1990, no writ).
Of those two components, courts focus especially on the second
component – intra-class conflicts of interest. “The primary issue to be
considered is whether conflict or any antagonism exists between the interests of
the [named plaintiffs] and those of the remainder of the class. However, “the
conflict must be fundamental and go to the heart of the litigation.” Canyon Lake
Island Prop. Owners Ass’n v. Sterling/Suggs L.P., No. 03-14-00208-CV, 2015
Tex. App. LEXIS 5739, at *19 (Tex. App.–Austin June 5, 2015, no pet. h.).
Here, Statoil does not challenge the trial court’s finding that the plaintiffs are
free of conflicts that would prevent them from effectively representing other
shareholders.
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Nor does Statoil challenge the trial court’s findings on four of the five
factors relevant to the determination as to whether a class member will
vigorously pursue the claims. Forsyth, 903 S.W.2d at 150. This alone is fatal
to Statoil’s appeal, as a plaintiff can qualify as a class representative even if one
factor weighs against a finding of adequacy. See Hi-Lo Auto Supply L.P. v.
Beresky, 986 S.W.2d 382, 388-89 (Tex. App.–Beaumont 1999, writ mand.
denied) (upholding the trial court’s adequacy finding even though the court
assumed “[defendant] proved it [was] being targeted by unscrupulous plaintiffs’
lawyers” and the plaintiff lacked personal integrity).
3. The Trial Court’s Findings Regarding
Plaintiffs’ Familiarity with the Litigation Are
Amply Supported by the Record
Even as to the one factor it does challenge – familiarity with the
litigation, Statoil cannot meet its heavy burden of establishing that there was no
factual basis for the trial court’s finding. Statoil AB 9-17.
Although Statoil may prefer a higher standard, plaintiffs must only
demonstrate that they are familiar with the “basic issues” of the case and are
actively involved in the litigation. Farmers, 125 S.W.3d at 67 (“A class
representative should be familiar with the basic issues, including composition
of the class and damages sought.”); Pate v. Elloway, No. 01-03-00187-CV,
2003 Tex. App. LEXIS 9681, at *16 (Tex. App.–Houston [1st Dist.] Nov. 13,
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20013, pet. denied) (same). Class representatives are “not required to fully
comprehend the legal terms and pleadings.” King v. City of Austin, No. 03-03-
00173-CV, 2004 Tex. App. LEXIS 2623, at *13 (Tex. App.–Austin Mar. 25,
2004, no pet.).
As in Pate, 2003 Tex. App. LEXIS 9681, which involved breach of
fiduciary duty claims stemming from the Shell-Pennzoil merger, the named
plaintiffs here have “demonstrated familiarity with the basic issues in the case.”
Id. at *13-*19. They initiated the litigation because they were upset with the
merger price; sought and retained counsel to investigate and pursue their
claims; have reviewed the key pleadings; conducted independent investigations
both before and after the case was filed; have assisted and directed counsel
throughout the litigation; have participated in discovery, including sitting for
deposition, and are willing to participate at trial; and understand that they have
a responsibility to ensure that class members are treated fairly. This is more
than enough to satisfy adequacy.
Statoil does its best to ignore much of the named plaintiffs’ testimony. In
fact, outside of a single snippet from each of the plaintiffs’ depositions, Statoil
does not cite or discuss any of the over 1,000 pages of plaintiffs’ testimony. Nor
does Statoil discuss the many hours of plaintiffs’ live testimony before the trial
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court during the class certification proceedings.7 Statoil’s one-sided approach to
the evidentiary record flouts a fundamental tenet of appellate procedure: “[t]he
appellate court reviews the entire record” – not isolated snippets – “to determine
if the trial court abused its discretion in [granting] certification.” Forsyth, 903
S.W.2d at 149. When the entire record is reviewed, it is plain that there was
ample support for the trial court’s finding that plaintiffs are familiar with the facts
and issues of the case, including the facts supporting their aiding-and-abetting
claim against Statoil, and are actively involved in the litigation.
a. Howard Weissberg
Mr. Weissberg established that he has taken an active role in and is
familiar with the litigation. Id. at 150.
Mr. Weissberg, like three other class representatives (Messrs. Fioravanti,
Whalen and Schwimmer) traveled hundreds of miles to personally attend and
testify at the class certification hearing. CR 1627-80. His live testimony allowed
the court to look him in the eye and judge for itself whether he could fairly
7
The extensive process by which the trial court vetted the class representatives
distinguishes this case from Statoil’s primary authority, In re Kosmos Energy Ltd. Sec. Litig.,
299 F.R.D. 133 (N.D. Tex. 2014). In Kosmos, the “sole piece of evidence” in support of
adequacy was a declaration which contained “no detail.” Id. at 146-47. Here, in contrast,
plaintiffs offered, in addition to affidavits, extensive deposition and hearing testimony to
establish their adequacy. Also unlike here, Kosmos involved a federal securities claim
brought under the PSLRA, which “raised the adequacy threshold.” Id. at 140.
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represent the class. Mr. Weissberg also expressed a willingness to appear at trial.
CR 979.
Before purchasing Brigham stock, Mr. Weissberg investigated the
Company through its stock price charts and earnings records, as well as
numerous articles about the Company. CR 1629, 1632. Mr. Weissberg even
performed his own economic valuation of Brigham based on the information he
obtained through his independent investigation. CR 1643.
Mr. Weissberg became involved in the case after seeing the public
announcement of the acquisition by Statoil. CR 1631. After seeing that
Brigham shareholders would only receive $36.50 per share, he contacted a law
firm. CR 1633. “[A]s soon as I saw the announcement, I felt that there was
something wrong, that I was not going to get my long-term benefits from this
deal.” CR 1631.
Since then, Mr. Weissberg has reviewed the pleadings, including
verifying the initial petition and reviewing the amended petition. CR 978. He
reviewed deposition transcripts and key documents produced by defendants
during the expedited discovery process. Id. Mr. Weissberg also read the
lengthy Proxy Statement filed by Brigham with the Securities and Exchange
Commission. 3SCR 406-08. He is familiar with the amount of money that Ben
Brigham and the other individual defendants made in connection with the deal.
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3SCR 383; CR 2036; CR 2042-43 (identifying David Brigham and Harold
Carter and explaining what actions Mr. Carter failed to take).
He has also read the depositions of two Brigham employees taken in this
action. 3SCR 399. To bolster his independent personal knowledge, Mr.
Weissberg has reviewed between six and 12 detailed memoranda provided by
his counsel, which described the claims, the status of the litigation, and his role
as a class representative. 3SCR 386-87, 390. In addition, he has actively
participated in discovery, sitting for deposition and providing responses to
defendants’ special interrogatories. CR 1645, 2047.
Mr. Weissberg also testified that he closely monitors his attorneys,
staying in touch with them as a “regular routine.” 3SCR 398; CR 1634-38. He
speaks with his attorneys “[o]n a regular basis. Sometimes once, twice a
week.” CR 1638; 3SCR 398 (testifying at his deposition that he communicates
with his attorneys “[q]uite frequently”). In the first stage of the litigation, when
plaintiffs moved for injunctive relief, Mr. Weissberg advised his attorneys
regarding the motion for preliminary injunction. CR 978. Further, for months
before the class certification hearing, Mr. Weissberg participated in regular
conference calls with class counsel and the other class representatives, during
which they discussed plaintiffs’ legal theories and experts to potentially be
retained. CR 1637-38. Mr. Weissberg also demonstrated his familiarity with
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Statoil, explaining that he was familiar with Statoil’s headquarters in Norway
and its operations in the United States. CR 2040; 3SCR 30. He knew that
Fargo was the legal entity Statoil created to absorb Brigham in the merger. CR
2040.8
Statoil suggests that Mr. Weissberg did not understand that he was suing
Statoil, but omits his testimony – provided earlier in the deposition – directly
to the contrary.
Q. Who are you suing in this lawsuit, sir?
A. A lot of people, Statoil, Brigham, Bud Brigham, Brigham
Company.
CR 2041. Mr. Weissberg testified similarly at the hearing. CR 1675 (“Q. Now,
as you sit here today, do you understand that you’ve sued Statoil? A. Yes.”).
In fact, during cross examination, defendants suggested, as they do here, that
Mr. Weissberg did not understand during his deposition that he was suing
Statoil. However, Mr. Weissberg refuted this point. CR 1676 (“Q. Right. But
on the day of the deposition, you did not, right? A. I did know we sued
8
Statoil overlooks the fact that plaintiffs’ fiduciary duty and aiding-and-abetting
claims significantly overlap and are based on the same underlying events. Thus, to the
extent plaintiffs demonstrate knowledge of the facts supporting the fiduciary duty claim,
plaintiffs likewise demonstrate knowledge of the facts supporting the aiding-and-abetting
claim. Stewart v. Wilmington Tr. SP Servs., 112 A.3d 271, 319 n.225 (Del. Ch. 2015)
(“because of the significant overlap in their respective elements, much of the evidence for
proving an aiding and abetting claim already would be coming in to prove the breach of
fiduciary duty claim under the fiduciary duty carve-out to in pari delicto”).
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Statoil.”). Mr. Weissberg then explained he sued Statoil because it is the
company that bought Brigham, that Statoil is now responsible for Brigham, and
that Brigham is no longer in business. CR 1679-80.
At most, Statoil has cited conflicting testimony about Mr. Weissberg’s
knowledge of Statoil. But that is not a basis for reversal. Garcia, 2006 Tex.
App. LEXIS 1409, at *5-*6 (“Under an abuse of discretion standard, we defer
to a trial court’s rulings when discretionary matters depend on the resolution of
conflicting facts.”). Because there was ample evidence to support the trial
court’s finding that Mr. Weissberg was familiar with the litigation, including
the claims against Statoil, the trial court did not abuse its discretion. Farmers,
125 S.W.3d at 66.
b. Walter Schwimmer
Like Mr. Weissberg, Dr. Schwimmer sat for deposition and testified live
at the class certification hearing. CR 1681-1716. Dr. Schwimmer traveled
from Los Angeles to attend the class certification hearing. CR 1681.
Dr. Schwimmer, a retired physician, was deeply familiar with Brigham
through his personal research. He investigated Brigham before purchasing any
stock in the Company, through his annual subscriptions to investment letters,
articles available on the internet, and various news reports, including a Forbes
magazine article. CR 1684; 3SCR 339-40. Upon learning of the deal, he was
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“surprised” and called attorneys to inquire further about a potential lawsuit. Id.
Notably, he did not immediately file suit. Instead, he “wanted more
information” and carefully investigated the acquisition and any potential claims
before deciding whether to file suit. CR 1687.
Only after investigating the merger further did Dr. Schwimmer decide to
initiate a lawsuit. CR 1685-86. He did not “think [it] was right” that the
Brigham directors were making off with between $40 and $60 million as a
result of the deal, and that “there was a breach and it should definitely be
acknowledged.” CR 1686-87. He also “felt that the price [shareholders] got
for the shares was not adequate. And that the board, which is supposed to
represent all of the share owners and not just themselves, did something that
was unfair to the public share owners.” CR 1695. When asked what he was
trying to achieve through the lawsuit, Dr. Schwimmer testified that “I’d like to
see a monetary value of what the true value of what the company was being
made to all the former owners.” Id.
After filing suit, he has continued to conduct his own investigation. He
receives “an ongoing service” of publications which he reviews on a monthly
basis. He read several analyst reports and articles about the Brigham
acquisition and provided them to counsel. 3SCR 339-40, 344; CR 1686-87. As
part of his independent research, Dr. Schwimmer also investigated Statoil and
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its involvement in the development of oil reserves in the Bakken, the same area
in which Brigham operated. 3SCR 344.
Dr. Schwimmer also stays abreast of the status of the litigation in
numerous ways. He reads the memoranda provided by his attorneys (3SCR
345; CR 1688); participates in regular conference calls with the other class
representatives, who owned Brigham stock (CR 1726-28); and maintains
regular contact with his attorneys, who had “spent a lot, a lot, a lot of time” on
this matter. CR 2006. Further, Dr. Schwimmer appeared for deposition and
provided discovery responses based upon his personal knowledge. CR 1693.
Dr. Schwimmer expressed a willingness to be involved through a trial in this
case. CR 661.
Additionally, Dr. Schwimmer received and reviewed drafts of various
pleadings in the litigation, including the petition before it was filed. CR 1701,
1709. Dr. Schwimmer also confirmed that he had “received drafts of the
various pleadings and amended pleadings in the litigation, as well as reviewed
discovery requests and responses and correspondence from [his] counsel
regarding the litigation.” CR 660-61; 3SCR 290-92.
Contrary to Statoil’s assertion, Dr. Schwimmer never testified that he did
not understand he was suing Statoil. At his deposition, defense counsel asked
Dr. Schwimmer directly:
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Q. Who are you suing?
A. I’ll tell you from my own memory. We’re suing the
management, the board of directors of Brigham. We’re
also suing Statoil and . . . .
3SCR 351.
Nor, as Statoil suggests, was Dr. Schwimmer unable to explain why he
was suing Statoil. Statoil AB 12, 14. He testified, “I have knowledge as to
why we are suing Statoil.” 3SCR 362. When asked at deposition how
shareholders’ interests were not taken into consideration, he explained that
Brigham and Statoil had made a “handshake deal” for $36.50 which was not
disclosed to the rest of the Board. 3SCR 352-53. He further explained that
Statoil had offered Brigham and its directors a “special deal” – unavailable
from other potential buyers – that resulted in millions of dollars in payments to
the defendants and lucrative job positions with Statoil after the deal closed.
3SCR 353.
Nevertheless, Statoil maintains that the trial court erred in finding Dr.
Schwimmer adequate because he relied, in part, on his attorneys when
determining whether to sue Statoil. But there is nothing inadequate about a
class representative who consults their attorneys before deciding to bring a
claim. In fact, this is exactly what a plaintiff should do to ensure the class is
protected. Pate, 2003 Tex. App. LEXIS 9681, at *18 (plaintiffs stayed
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informed by reading articles relating to the merger and stayed in regular contact
with his attorneys). Indeed, although it is not the case here, Texas courts have
upheld the appointment of class representatives even where most, if not all, of a
plaintiffs’ knowledge originated from the attorney. Weatherly v. Deloitte &
Touche, 905 S.W.2d 642, 654 (Tex. App.–Houston [14th Dist.] 1995, writ
dism’d w.o.j.) (upholding class certification where the class representatives
“filed th[e] suit only after learning about their claims from their attorney”);
Adams, 791 S.W.2d at 291 (the trial court did not abuse its discretion in
certifying the class, although the class representatives were admittedly “hand-
picked” or selected as representatives).
Of course, Statoil offers no support for the proposition that plaintiffs’
counsel should not be providing information to their clients or advising them as
to the viability of certain legal claims (because none exists). This is especially
true in a complex case such as this, where virtually all of the events supporting
the claim took place behind closed doors and were never made public.
In sum, Dr. Schwimmer established his ability to vigorously represent
the class, and the trial court’s factual findings in this regard are well supported.
Forsyth, 903 S.W.2d at 150.
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c. Jeffery Whalen
The record is clear that Mr. Whalen is actively involved in and
knowledgeable about the litigation. Mr. Whalen sat for deposition and testified
live at the class certification hearing after traveling over a thousand miles from
California. CR 1717-50.
Mr. Whalen, a retired pharmacist, purchased 1,200 shares of Brigham
stock in 2010 and 2011, intending to hold the stock as a long-term investor.
CR 1719. He purchased the stock after investigating the Company through the
North Dakota Industrial Commission’s oil and gas website and after
“monitoring [the oil production of] Brigham and some other companies.”
CR 1718.
Like the other named plaintiffs, Mr. Whalen became upset when he
learned of the deal through the news online, particularly the price accepted by
the Brigham Board. In his own words, Mr. Whalen explained he “was
befuddled that it would be sold and at the share price it was sold for.”
CR 1719. “When I saw the offer I was upset,” Mr. Whalen testified. 3SCR
422. After consulting various internet and news articles concerning the deal,
Mr. Whalen contacted attorneys and indicated that he wanted to be part of a
lawsuit. CR 1720-21. He also determined that wanted to serve as a class
representative. Id.
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Mr. Whalen explained that he actively monitors his attorneys. He speaks
with his attorneys, through emails, conference calls and face-to-face meetings,
“on an ongoing basis, I can say twice a week.” CR 1725-30; CR 657, 2028.
He participates in conference calls with class counsel and the other plaintiffs
about the status of the lawsuit, and the retention of experts. Id. He has also
participated in discovery by gathering documents and helping prepare
interrogatory responses to address defendants’ discovery requests. CR 657. He
has reviewed and verified the pleadings, including the initial petition and the
amended petition. Id. And – in addition to testifying at a deposition and at the
class certification hearing – he would participate in settlement negotiations and
would travel to Texas to attend trial. 3SCR 423.
At deposition, Mr. Whalen explained who Ben Brigham, David Brigham,
Stephen Reynolds, Hobart Smith and Statoil were, and that each was a named
defendant. 3SCR 432-34. In addition, Mr. Whalen had independently
reviewed information about Brigham online, such as news, and had visited
Brigham’s website. 3SCR 431. Mr. Whalen had also reviewed at least seven
memoranda from his attorneys. 3SCR 415-16.
It is simply not true, as Statoil contends, that Mr. Whalen does not know
he was suing Statoil. Compare Statoil AB 12-13 with 3SCR 434 (“Q. Are you
suing Statoil, as well? A. Yes.”). Although he indicated that some of the
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reasons he was suing Statoil were subject to confidential discussions with his
attorneys, Mr. Whalen went on to explain at deposition that he was suing
Statoil and provided several reasons why. 3SCR 434 (“Q. Other than
conversations with your lawyers, do you know why you are suing Statoil and
Fargo Acquisition? A. Based upon my review of activity and the assets of the
company, and the stock price, that’s one reason why I would sue Brigham
Exploration and Statoil.”); 3SCR 422 (explaining that he was “dissatisfied with
the amount” offered by Statoil); 3SCR 434 (“[Brigham] has been undervalued
and the stockholders are suffering from that financially.”).
In short, Mr. Whalen amply demonstrated the level of involvement with
the case that the law requires. Forsyth, 903 S.W.2d at 150.
d. Robert Fioravanti
Mr. Fioravanti, a retired supervisor at Monsanto, is from Massachusetts.
CR 1752-53. He also sat for a deposition and testified live at the class
certification hearing. CR 1752-1785. Mr. Fioravanti expressed a willingness to
appear at trial. 3SCR 220.
Mr. Fioravanti learned of the merger when he received a received a call
from his broker notifying him that the Brigham Board had agreed to sell the
Company to Statoil. As with the other plaintiffs, he was disappointed at the
sale price of $36.50 per share because Brigham stock had hit $40.00 per share
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the week prior to the announcement. CR 1755-56. After learning that several
lawsuits had been filed against Brigham, he contacted plaintiffs’ attorneys,
telling them that he “agreed with what they were doing, because [he] believe[d]
that Statoil should have paid more money for Brigham Exploration.” CR 1757.
Before filing the lawsuit, Mr. Fioravanti conducted online research
concerning numerous oil and gas companies, including Brigham. 3SCR 1754-
55; id. at 1757. He conducted an investigation of Statoil and, through that
investigation, discovered that Statoil was producing 40,000 barrels of oil per
day. CR 1754-55. In addition, he reviewed articles about the acquisition of
Brigham by Statoil (3SCR 192-93); visited the library to read articles about
Brigham in financial magazines such as Forbes, Fortune, Smart Money and
Kiplinger (id.); reviewed the depositions of the other named plaintiffs (3SCR
204); and reviewed the merger agreement, as well as the financial opinion
provided by Jefferies and Co. to the Brigham Board when the merger was
approved. 3SCR 204, 214.
Mr. Fioravanti stayed apprised of the merger through the financial press
and has reviewed everything sent to him by his attorneys. CR 1758, 1760.
Since the case was filed, Mr. Fioravanti has had “many” discussions with his
attorneys, during which his views had been “accepted and responded to.”
CR 1761-62. Those discussions included numerous conference calls involving
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his attorneys and the other class representatives. CR 1760-61. In that regard,
Mr. Fioravanti testified that he communicated roughly twice per week with
attorneys about the lawsuit. 3SCR 193-94. He has also communicated with
other Brigham shareholders. Id.
Like the other plaintiffs, Mr. Fioravanti had reviewed the pleadings and
other legal papers filed in this matter. 3SCR 204; CR 672. In addition to
reviewing the pleadings, as discussed above, he has also reviewed the merger
agreement (3SCR 214); the fairness opinion offered by Jefferies to the Brigham
Board of Directors regarding the value of the Company (3SCR 203-04);
numerous memoranda and other documents provided to him by his attorneys
(3SCR 191-92); and the interrogatories propounded by defendants to the
plaintiffs (CR 1765). He made clear at the class certification hearing that he
reads everything from the litigation that is sent to him. CR 1760.
Mr. Fioravanti’s extensive knowledge of the case extends to Statoil. He
fully understood that he was suing Statoil. 3SCR 205 (“Q. Who are you suing?
A. Brigham Exploration. Q. Who else? A. Statoil.”). He had specifically
performed research on Statoil and understood details about the company such
as the number of barrels of oil Statoil was producing per day and the number of
rail cars being used to transport oil in the Bakken. 3SCR 192, 201. He also
clearly explained at deposition why he was suing Statoil, because “they didn’t
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pay a fair value of [Brigham’s] worth.” 3SCR 205. Indeed, in the same
breadth that Statoil says “the named plaintiffs’ deposition testimony
demonstrated conclusively that they had no knowledge to support an aiding-
and-abetting claim,” Statoil cites testimony in which Mr. Fioravanti explains
why he was suing Statoil. Compare Statoil AB12 with Statoil AB 14.
In short, Mr. Fioravanti’s testimony makes clear that he will fairly and
adequately represent the class, as the trial court found. Forsyth, 903 S.W.2d at
150.
e. Raymond Boytim
Mr. Boytim, a resident of Texas, held 23,500 shares of Brigham common
stock worth over $850,000 at the time of the tender offer and 19,000 shares at
the time the acquisition closed. CR 666; 3SCR 105-06.
As with the other plaintiffs, Mr. Boytim has been informed about the
case from day one. Mr. Boytim testified that he has remained informed about
the case by reviewing transcripts from the depositions of Brigham’s former
directors and executives, as well as by doing his own independent investigation
after the merger was announced. 3SCR 102-21. As an investor with significant
holdings in Brigham, it should come as no surprise that Mr. Boytim also
conducted an independent investigation of Brigham before the merger. 3SCR
105-07.
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Not surprisingly, at deposition, Mr. Boytim had no problem identifying
many of the defendants and their role at Brigham or Statoil. 3SCR 121-22. He
knew so much about Brigham that he also conducted and prepared his own
valuation analysis of the Company. 3SCR 107.
Because Mr. Boytim understands his fiduciary duties to the class, he has
also met with his attorneys on several occasions (3SCR 108); he has been
regularly communicating with his attorneys through email and by telephone
(3SCR 119); he has fully participated in discovery, including responding to
interrogatories and document requests propounded by defendants (3SCR 123)
and preparing for and submitted to several hours of deposition testimony.
3SCR 104. Mr. Boytim testified that he had reviewed drafts of the pleadings.
3SCR 128. In his affidavit in support of the motion for class certification, he
stated that he has reviewed the significant pleadings, including the petition.
CR 964.
He testified that he understands that he is suing Brigham, Statoil and the
parties that made the decision to sell the Company. 3SCR 115. Like the other
plaintiffs, he was upset at the merger price, which he felt was too low. 3SCR
127. He was upset with the way the deal was consummated, testifying that the
Board of Directors had “ramrod[ded]” the merger through. 3SCR 117. He also
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provided a detailed explanation of the actions of Statoil which had led him to
file suit. 3SCR 117-18.
As is evident from the record, Mr. Boytim is familiar with the claims and
will vigorously represent the class. Forsyth, 903 S.W.2d at 150.
f. Myrna Goodman
There is also no abuse of discretion regarding trial court’s adequacy
findings regarding Myrna Goodman. Throughout the action Ms. Goodman has
“actively monitored the litigation and overseen counsel and will continue to do
so.” CR 664. She has done so through consistent contact with her attorneys, as
she testified that she has had approximately 20 conversations, in person and by
email. 3SCR 253-54. She has likewise reviewed several memoranda from her
attorneys regarding her duties as a class representative. Id. at 255.
Ms. Goodman has also reviewed documents from the case, including
“key pleadings, such as the Complaint and Preliminary Injunction motion,” as
well as any documents and deposition testimony from the case. 3SCR 254-55;
CR 664. Understanding and appreciating her fiduciary duties to the class, she
has participated in discovery and would travel to Austin for trial. 3SCR 260;
CR 664.
At deposition, Ms. Goodman testified that she sued Brigham and the
remaining principals of Brigham, including Ben Brigham and David Brigham.
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3SCR 247. When asked about “the purpose of the lawsuit,” she explained that
“the shareholders want to get more income [from] the stock” – which is entirely
consistent with the objectives of the other named plaintiffs and in the interest of
the shareholder class. 3SCR 246.
Like the other named plaintiffs, Ms. Goodman demonstrated her
commitment to vigorously represent the class. Forsyth, 903 S.W.2d at 150.
g. Hugh Duncan
Mr. Duncan, a retired attorney, also established that he is familiar with
the litigation and has been an active class representative. Mr. Duncan sued
because he was “sorely disappointed in the result that was obtained in the
merger agreement with Statoil. [He] thought that the agreed upon price was
wholly inadequate.” CR 517.
Mr. Duncan is yet another plaintiff who was familiar with Brigham prior
to the lawsuit. He had conducted an investigation of Brigham in connection
with his initial investment. 3SCR 163. After the merger was announced, he
remained informed by reviewing articles relating to the merger. 3SCR 159-60,
165. He has also obtained and provided to class counsel information about the
expected productivity of Brigham’s wells in North Dakota. 3SCR 146. Mr.
Duncan testified that Brigham’s shareholders were not informed of the
negotiations between Ben Brigham and Statoil and the process leading up to the
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merger. 3SCR 163-64. He testified that he understood Brigham’s accelerated
drilling plans. 3SCR 172-73. He testified about his familiarity with the process
leading up to the sale of Brigham to Statoil. 3SCR 158-59, 161. Although a
class representative is not required to be familiar with legal terms (see King,
2004 Tex. App. LEXIS 2623, at *13), Mr. Duncan also explained the duties of
loyalty and due care upon which plaintiffs’ claims are based. 3SCR 173.
In addition, after the lawsuit was filed, Mr. Duncan received significant
pleadings and related materials, including the Complaint, the motion for
preliminary injunction, the transcript from the hearing on the motion for
preliminary injunction, Court orders and correspondence from counsel
regarding Statoil’s tender offer, and Brigham’s Proxy Statement. CR 675. He
has also received numerous documents produced by defendants during the
course of this litigation, including presentations to the Brigham Board by its
financial advisor before the merger. CR 675-76. He also received the
deposition of one of the key witnesses in the case. Id.
Mr. Duncan clearly established that he has been actively pursuing the
litigation. He testified that he communicated regularly with his attorneys
regarding the status of the litigation. 3SCR 108, 119, 171. He testified that he
had reviewed defendants’ interrogatories and provided all information available
to him. 3SCR 176. He testified that he had provided all of the document he
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had collected in the process of his evaluation of Brigham. 3SCR 142. Mr.
Duncan had also met with his attorneys at least four times. 3SCR 147. And
Mr. Duncan, like all of the plaintiffs, sat for several hours of deposition. Id. As
he explained, “I am trying to keep abreast of my responsibilities as a
shareholder and a possible class representative, felt an obligation to keep up
with the litigation, you know. And my lawyers have been very good about
keeping me informed.” 3SCR 146. He testified that he would attend trial.
3SCR 178.
With respect to Statoil, Mr. Duncan testified that he reviewed the merger
agreement between Brigham and Statoil, and was familiar with Statoil. 3SCR
142, 145, 165. As the testimony cited by defendant shows, Mr. Duncan fully
understood that he was suing Statoil. When asked about this issue at
deposition, Mr. Duncan referred to the pleadings and said, “I believe we
are . . . .” 3SCR 178.
In short, Mr. Duncan is well suited to represent the class, and he
established as much to the trial court. Forsyth, 903 S.W.2d at 150.9
9
Statoil’s citation to City of Livonia Emps.’ Ret. Sys. v. Boeing Co., 711 F.3d 754 (7th
Cir. 2013), highlights its desperate and misguided attempt to show that this case is being
controlled by the plaintiffs’ attorneys. Boeing did not involve class certification, did not
involve the adequacy of a plaintiff and – in fact – did not even involve any of the attorneys
on this case. Rather, it dealt with the use of certain facts provided by a confidential witness
in connection with an amended complaint filed in a §10(b)(5) securities case. Id. at 759-60.
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CONCLUSION
For the foregoing reasons, plaintiffs respectfully request that this Court
affirm the trial court’s class certification order and trial plan.
DATED: November 20, 2015 Respectfully submitted,
BOULETTE GOLDEN & MARIN L.L.P.
MICHAEL D. MARIN
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