In re SemCrude L.P., et al.

Citation:
In re SemCrude L.P., et al., No. 14-1204, -- F.3d -- (3d Cir. Aug. 5, 2015).
Tag(s):
Ruling:
SemCrude's former limited partners' claims against Thomas Kivisto, SemCrude's co-counder and former president and CEO, were derivative of the claims against the corporation previously asserted, settled and released by the SemCrude Litigation Trust. Because the limited partners had no direct claims against the Debtors in addition to the claims already asserted, settled and released by the Litigation Trust, they were properly enjoined from pressing their claims against Kivisto in state court.
Procedural context:
Former limited partners sued Kivisto in Oklahoma state court. Kivisto filed emergency motion in the Delaware Bankruptcy Court to enjoin the state action on the basis that the claims derived from the Litigation Trust's claims previously settled and released. The Delaware Bankruptcy Court granted the injunction and the Delaware District Court reversed. On remand, the Delaware Bankruptcy Court adopted the District Court's order in its entirety and denied injunctive relief. On direct certification to the Court of Appeals of the Third Circuit, the appellate court reversed the District Court, stating, "the Bankruptcy Court got it right the first time."
Facts:
On July 22, 2008, SemCrude, its parent company, SemGroup L.P., and certain direct and indirect subsidiaries (collectively, “SemCrude”) filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. The Bankruptcy Court entered a confirmation order on October 28, 2009, confirming SemCrude’s plan of reorganization. The reorganization plan established a Litigation Trust and transferred to it the claims belonging to SemCrude’s bankruptcy estate, entitling the Litigation Trust to pursue SemCrude’s claims and distribute the money it recovered to SemCrude’s creditors. Kivisto co-founded SemCrude in Tulsa, Oklahoma, in 2000 and served as its President and CEO until 2008. SemCrude’s Litigation Trust in 2009 asserted against Kivisto and certain former SemCrude officers thirty claims related to breach of fiduciary duty, breach of contract, fraudulent transfer, and unjust enrichment. The parties reached a $30 million settlement agreement and granted a mutual release of all claims. The Litigation Trust also discharged Kivisto and the other SemCrude officers from liability to any party for contribution or indemnity relating to the released claims. The Bankruptcy Court approved the settlement agreement on November 19, 2010. One month later, a group of SemCrude’s former limited partners (collectively, the “Oklahoma Plaintiffs”) sued Kivisto in state court, alleging breach of fiduciary duty, negligent misrepresentation, and fraud, allegedly separate and distinct from the injuries sustained by SemCrude. Kivisto filed an emergency motion in the Bankruptcy Court to enjoin the Oklahoma Plaintiffs’ lawsuit from proceeding in state court and, specifically, to enforce the confirmation order, the terms of the reorganization plan, and the settlement agreement. He alleged that the Oklahoma Plaintiffs’ claims belonged to the Litigation Trust and had been released. SemCrude and the Litigation Trust joined the motion. The Bankruptcy Court granted the motion to the state court action, holding that the Oklahoma Plaintiffs’ claims were derivative causes of action for the following reasons: (1) The injury suffered by the Oklahoma Plaintiffs is no different from the injury suffered by SemCrude as a result of Kivisto’s wrongful conduct; (2) the Oklahoma Plaintiffs did not show that Kivisto owed them any duties distinct from his fiduciary duties owed to SemCrude and its other equity holders; and (3) any recovery would be deemed equity in SemCrude’s estate and, therefore, the Oklahoma Plaintiffs would not be entitled to recovery outside the terms of the reorganization plan. The Oklahoma Plaintiffs appealed to the District Court, which reversed and remanded the Bankruptcy Court’s order on all claims. The District Court held the Bankruptcy Court did not properly consider the Oklahoma Plaintiffs’ claims that they had been separately harmed and found that there was a sufficient basis to conclude that they had been. The Bankruptcy Court thereafter adopted the District Court's order and denied injunctive relief. The Third Circuit, stating that whether a claim is derivative or direct is a question of state law, see Official Comm. of Unsecured Creditors v. R.F. Lafferty & Co., Inc., 267 F.3d 340, 348 (3d Cir. 2001), exercised plenary review of the District Court's order. The Third Cirucit analyzed whether the Oklahoma Plaintiffs’ claims state derivative or direct causes of action based on the Oklahoma Supreme Court's decision in Dobry v. Yukon Elec. Co., 290 P.2d 135 (Okla. 1955). Dobry held that "it is a well-established general rule that a stockholder of a corporation has no personal or individual right of action against third persons, including officers and directors of the corporation, for a wrong or injury to the corporation which results in the destruction or depreciation of the value of his stock, since the wrong thus suffered by the stockholder is merely incidental to the wrong suffered by the corporation and affects all stockholders alike." Id. at 137. Applying Dobry to the face of the Oklahoma Plaintiffs' complaint, the Third Circuit agreed with Kivisto that the Oklahoma Plaintiffs are functionally indistinguishable from any other investor who acted upon or forewent opportunities to sell their limited partner units as a result of Kivisto’s misrepresentations and omissions. All SemCrude limited partners suffered the same loss of capital on a pro rata basis as a result of his alleged misconduct and, therefore, the Oklahoma Plaintiffs’ respective losses differ only in amount, not in kind, making their claims derivative. Holding that the Oklahoma Plaintiffs had failed to show that they were uniquely harmed, i.e., suffered any harm in addition to that of the company or other equity holders, the Third Circuit held their their claims were derivative of the claims belonging to and released by the Litigation Trust.
Judge(s):
Fuentes, Fisher and Krause, C.J.

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