In re Partners

729 F.Supp.2d 1276

In re SEMGROUP ENERGY PARTNERS, L.P., Securities Litigation.

No. 08-MD-1989-GKF-FHM.

United States District Court, N.D. Oklahoma.

April 30, 2010.

Opinion Granting Reconsideration in Part and Denying Reconsideration in Part July 30, 2010.

Laurence D. Paskowitz, Paskowitz & Associates, Roy L. Jacobs, Roy Jacobs & Associates, New York, NY, Stuart William Emmons, William Bernard Federman, Federman & Sherwood, Oklahoma City, OK, for Craig Carson.

Darren J. Check, Gregory M. Castaldo, Lauren Wagner Pederson, Michelle M. Newcomer, Naumon A. Amjed, Sean M. Handler, Sharan Nirmul, Steven D. Resnick, Stuart L. Berman, Barroway Topaz Kessler Meltzer & Check, LLP, Radnor, PA, Douglas Anthony Terry, Nelson Roselius Terry O'Hara & Morton, Oklahoma City, OK, Erik D. Peterson, Ramzi Abadou, Barroway Topaz Kessler Meltzer & Check LLP, San Francisco, CA, for Harvest Fund Advisors LLC.

Darren J. Robbins, Coughlin Stoia Geller Rudman & Robbins LLP, San Diego, CA, David A. Rosenfeld, Samuel H Rudman, Coughlin Stoia Geller Rudman & Robbins LLP, Melville, NY, Gerald Joseph Lovoi, Tulsa, OK, Joseph H. Weiss, Mark D. Smilow, Moshe Balsam, Weiss & Lurie, New York, NY, for Michael Rubin.

Natalie Marie MacKiel, Robert Craig Finkel, Wolf Popper LLP, New York, NY, for Charles D. Maurer.

Catherine A. Torell, Cohen Milstein Hausfeld & Toll PLLC, New York, NY, Daniel S. Sommers, Jason M. Leviton, Steven J. Toll, Cohen Milstein Sellers & Toll PLLC, Washington, DC, for Dharam V. Jain.

B. Warren Pope, Michael R. Smith, King & Spalding LLP, Atlanta, GA, Don G. Holladay, Gary S. Chilton, Heidi J. Long, Holladay & Chilton PLLC, Oklahoma City, OK, Michael W. Youtt, William Robert Burns, King & Spalding, Houston, TX, for SemGroup Energy Partners, L.P., SemGroup Energy Partners G.P., LLC, Kevin L. Foxx, Alex Stallings, and Lehman Brothers Inc.

Clark Otto Brewster, Mark Byron Jennings, Brewster & De Angelis PLLC, Tulsa, OK, Lisa S. Gallerano,Orrin Harrison, III, Akin Gump Strauss Hauer & Feld, Dallas, TX, for Gregory C. Wallace.

Alfred Robert Pietrzak, Daniel Allan McLaughlin, Owen H. Smith, Stacy L. Acord, Sidley Austin LLP, New York, NY, Archer Scott McDaniel, McDaniel Longwell Acord & Kroll PLLC, Tulsa, OK, for Citigroup Global Markets Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo & Company, SMH Capital Inc., UBS Securities LLC, Wachovia Capital Markets, LLC, Wachovia Corporation, Raymond James & Associates, Inc., RBC Capital Markets Corporation, A.G. Edwards & Sons, Inc., Goldman Sachs & Co., and JP Morgan Securities.

Penny P. Reid, Weil Gotshal & Manges, New York, NY, for SemGroup Holdings, L.P.

Colin Hampton Tucker, John H. Tucker, Randall Edwin Long, Rhodes Hieronymus Jones Tucker & Gable, Tulsa, OK, Jesse Z. Weiss, Kimberly Geiler Davis, Michael J. Biles, Paul Richard Bessette, Greenberg Traurig, LLP, Austin, TX, for Thomas L. Kivisto.

Bruce W. Collins, Carolyn R. Raines, Emily Coleman McCall, Carrington Coleman Sloman & Blumenthal LLP, Dallas, TX, Edward John Main, James Keith Secrest, II, Secrest Hill & Butler, Tulsa, OK, for W. Anderson Bishop, and Brian F. Billings.

Ari M. Berman, Clifford Louis Thau, Ronald L. Oran, Vinson & Elkins, New York, NY, Michael Paul Kirschner, Kirschner Law Firm, Oklahoma City, OK, for E. Bartow Jones, Andrew Ward, Carlyle/Riverstone Global Energy and Power Fund II, L.P., C/R SemGroup Investment Partnership, L.P., and C/R Energy Coinvestment II, L.P.

James David Jorgenson, Laurence Lindsay Pinkerton, Pinkerton & Finn, Tulsa, OK, for A.R. Thane Ritchie, and Ritchie Opportunistic Trading, Ltd.

Frederic Dorwart, Nora Rose O'Neill, Frederic Dorwart Lawyers, Tulsa, OK, for Bosc, Inc.

Gabor Balassa, Joshua Z. Rabinovitz, Kirkland & Ellis LLP, Chicago, IL, Mary Quinn-Cooper, Eldridge Cooper Steichen & Leach PLLC, Tulsa, OK, for Pricewaterhousecoopers, LLP.

OPINION AND ORDER

GREGORY K. FRIZZELL, District Judge.

This matter comes before the court on the following Rule 12(b)(6) motions to dismiss:

• Defendant Brent Cooper's Motion to Dismiss [Doc. No. 193];

• Defendant BOSC, Inc.'s Motion to Dismiss [Doc. No. 196];

• Defendants Brian F. Billings and W. Anderson Bishop's Motion to Dismiss [Doc. No. 197];

• Defendant Thomas Kivisto's Motion to Dismiss [Doc. No. 200];

• Motion to Dismiss of Defendants Carlyle/Riverstone Global Energy and Power Fund II, L.P., C/R SemGroup Investment Partnership, L.P., C/R Energy Coinvestment II, L.P., Andrew Ward and E. Bartow Jones (collectively, the "Carlyle/Riverstone Defendants") [Doc. No. 201];

• Defendant Gregory C. Wallace's Motion to Dismiss [Doc. No. 203];

• Motion to Dismiss of Defendants A.G. Edwards & Sons, Inc., Citigroup Global Markets Inc., Goldman, Sachs & Co., J.P. Morgan Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Raymond James & Associates Incorporated, RBC Capital Markets Corporation, SMH Capital Inc., UBS Securities LLC and Wachovia Capital Markets LLC (collectively,the "Underwriter Defendants") [Doc. No. 207];

• Motion to Dismiss of Defendants Wachovia Corporation and Wells Fargo & Company (collectively, the "Successor-in-Interest Defendants") [Doc. No. 209];

• Motion to Dismiss of Defendants SemGroup Energy Partners, L.P., SemGroup Energy Partners, G.P. LLC, Kevin L. Foxx, Alex G. Stallings and Michael J. Brochetti (collectively, the "SGLP Defendants") [Doc. No. 211];

• Motion to Dismiss of Defendants A.R. Thane Ritchie and Ritchie Opportunistic Trading, Ltd. (collectively, the "Ritchie Defendants") [Doc. No. 218].

I. Background/Procedural Status

This federal securities class action arises from the July 2008 collapse and bankruptcy of SemGroup, L.P. ("SemGroup" or the "Parent"), the corporate parent of SemGroup Energy Partners, L.P. ("SGLP" or the "Company"), a publicly traded limited partnership. SGLP is a limited partnership with a general partner, SemGroup Energy Partners G.P., L.L.C. ("SGLP GP") or the ("General Partner"), whose board of directors and officers control SGLP and manage its operations and activities. SGLP provides terminalling, storage, gathering and transportation services for companies engaged in the production, distribution and marketing of crude oil. It owns and operates an aggregate of approximately 6.7 million barrels of storage capacity. SGLP's crude oil-related assets were contributed to the Company by the Parent in connection with SGLP's Initial Public Offering ("IPO") in July 2007 in exchange for $137.5 million. SGLP also owned and operated 46 liquid asphalt cement terminals, which provide terminal and storage services in the continental United States. The asphalt facilities were acquired from an affiliate of the Parent in connection with a Secondary Offering in February 2008.

The IPO documents represented that SGLP had a throughput agreement with the Parent, pursuant to which the Parent would pay SGLP guaranteed monthly minimum fees of $6.4 million in exchange for gathering, transportation, terminalling and storage services provided by SGLP. The relationship with SemGroup was represented as having historically provided over 80 percent of its revenues. The documents represented that SGLP, because of its relationship with SemGroup, would be able to aggressively pursue acquisitions that would otherwise not be attractive due to commodity price risk. This is because SGLP would have only minimal direct exposure to commodity price fluctuations. Moreover, SGLP would enjoy the benefits of overlapping management with SemGroup and its affiliates. SemGroup's management was described as having significant experience in the energy business. On July 17, 2007, the IPO was accomplished for SGLP common units. Defendants and their affiliates publicly sold 14.375 million units of SGLP for $22.00 per unit, generating gross proceeds of approximately $316.3 million.

The Secondary Offering Documents issued in January and February of 2008 made similar representations and additionally reported the SGLP was entering into a terminalling agreement with SemMaterials, a SemGroup subsidiary. Pursuant to the agreement, SGLP would acquire certain asphalt-related assets from SemMaterials for $378.8 million and would provide throughput services to the parent for guaranteed minimum monthly revenues totaling $58.9 million annually. SGLP, through its affiliates and underwriters, sold 6.9 million SGLP common units at $23.90 per unit, generating additional gross proceedsof $164.9 million in the Secondary Offering.

On July 17, 2008, SGLP disclosed for the first time that its Parent was "experiencing liquidity issues" and considering filing bankruptcy. SGLP's unit price dropped more than 52 percent that day, from $22.80 to $11.00 per unit. Four days later, SemGroup filed for bankruptcy. By November 2008, SGLP units were trading lower than $1.00 per unit. In February 2009, SGLP's units were delisted from the National Association of Securities Dealers ("NASDAQ").

Plaintiff alleges the Parent's collapse was caused by extremely risky, speculative and unauthorized trading in crude oil and other commodities over a period that began well before the IPO and continued through the Class Period. Specifically, plaintiff contends that while it is customary for energy companies to "hedge" their exposure to commodity price risk through forward contracts and other arrangements, the Parent's practices deviated sharply from the industry norm. SemGroup, plaintiff contends, routinely engaged in trades as fast-profit-seeking investments that were divorced from any physical inventory or commodity purchases or sales. Before 2007, the speculative trading program accounted for half of the Parent's revenue. However, with rising oil prices in 2007 and 2008, SemGroup is alleged to have amassed hundreds of millions of dollars of paper losses on its "bets" that oil prices would decrease. As prices continued to spiral, SemGroup rolled options forward rather than closing out trades and cutting its losses. As SemGroup's "rolled forward" trading positions...