In re SandRidge Energy, Inc., Shareholder Derivative Litigation: Denial of Attorneys' Fees and Appeal Dismissed as Moot
In In re SandRidge Energy, Inc., Shareholder Derivative Litigation, 875 F. 3d 1297 (10th Cir. 2017), the United States Court of Appeals for the Tenth District affirmed the district court's denial of Dale Hefner's (“Plaintiff”) request for additional discovery, challenge to the settlement agreement, and attorneys' fees resulting from a federal shareholder derivative suit filed on behalf of SandRidge Energy, Inc. (“SandRidge”) against its Board of Directors. The court affirmed the lower court’s ruling regarding attorneys’ fees and held Plaintiff's remaining claims were moot.
SandRidge was involved in two derivative suits, the first in federal court and the second, filed by Plaintiff, in state court. The state case was stayed pending a decision in the federal case. After a settlement was reached in the federal case, Plaintiff filed a motion objecting to the settlement, requesting attorneys’ fees, and requesting discovery related to the settlement. The court denied Plaintiff’s motion, and Plaintiff appealed arguing the court abused its discretion. Before the appeal was heard, SandRidge filed for bankruptcy and had their plan of reorganization approved. SandRidge then moved for dismissal of the appeal as moot.
When determining if a case is moot, the court looks for subsequent events that deny a claimant's standing. For a claim to be justiciable, the court must be able to provide effective relief. Additionally, an objector to a settlement can be compensated for attorneys’ fees only if he contributes to the "collective good" of the corporation.
The court held all but one of Plaintiff's claims were moot. The bankruptcy court’s approval of SandRidge’s reorganization released any claims against SandRidge's current or former officers and directors and eliminated all pre-organization shares. Even if Plaintiff was able to show the lower court abused its discretion in approving the settlement, the case would be dismissed on remand for lack of standing because the Plaintiff’s shares were eliminated in the reorganization. With regard to attorneys’ fees, the court held the district court properly decided that the actions taken by Plaintiff and his counsel did not provide substantial benefit to SandRidge or its shareholders. As such, the claim was properly denied.
For the above reasons, the court affirmed the district court's judgment denying attorneys’ fees and dismissed the rest of the appeal as moot.
The primary materials for this case may be found on the DU Corporate Governance website.