UNITED STATES DISTRICT COURT CENTRAL …securities.stanford.edu/filings-documents/1048/PETD00_01/...Case 8:11-cv-01891-AG-AN Document 200 Filed 05/19/14 Page 1 of 19 Page ID #:17172

Case 8:11-cv-01891-AG-AN Document 200 Filed 05/19/14 Page 1 of 19 Page ID #:17172

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. SACV 11-1891 AG (ANx) Date May 19, 2014

Title JEFFREY SCHULEIN et al. v. PETROLEUM DEVELOPMENT CORP. et al.

Present: The

ANDREW J. GUILFORD Honorable

Dwayne Roberts

Not Present

Deputy Clerk

Court Reporter / Recorder Tape No.

Attorneys Present for Plaintiffs: Attorneys Present for Defendants:

Proceedings: [IN CHAMBERS] ORDER GRANTING IN PART AND

DENYING IN PART MOTION FOR SUMMARY

JUDGMENT; DENYING MOTION FOR CLASS DECERTIFICATION

Plaintiffs Jeffrey Schulein et al. represent a class of persons and entities that invested in

related limited partnerships (the “Partnerships”), purchased by Defendant Petroleum

Development Corporation (“PDC”) in a cash-out merger. Plaintiffs are suing Defendants

PDC and DP 2004 Merger Sub LLC (“Merger Sub”) for violating federal securities law

and breaching their fiduciary duties. ( See First Amended Complaint (“FAC”), Dkt. No. 54.)

Defendants have filed two motions that the Court decides in this Order. First, Defendants

have filed a “Motion for Summary Judgment and Partial Summary Judgment.” (Motion

for Summary Judgment, Dkt. No. 122.) Second, Defendants have filed a “Motion for

Class Decertification.” (Decertification Motion, Dkt. No. 151.)

The Court GRANTS in part and DENIES in part the Motion for Summary Judgment. The

Court DENIES the Decertification Motion.

CIVIL MINUTES - GENERAL Page 1 of 19






BACKGROUND

Defendant PDC is a “domestic independent natural gas and crude oil company,” that

owns and operates natural gas and crude oil properties, primarily in Colorado. (FAC ¶ 2.)

To raise capital to finance the acquisition and development of these properties, PDC

formed twelve limited partnerships. ( Id. ¶¶ 2, 21) Plaintiffs bring this class action on

behalf of thousands of investors who owned units in these partnerships. ( Id. ¶ 21.)

Plaintiffs allege that PDC developed a scheme to reacquire the partnerships via cash-out

mergers through its wholly-owned subsidiary, Defendant Merger Sub. ( Id. ¶ 2.) Because the partnerships were registered with the SEC, PDC needed to solicit the votes of the

partnerships through proxies that complied with section 14 of the Securities and

Exchange Act of 1934. ( Id. ¶ 5.) Plaintiffs allege that the proxies, which are virtually

identical, contained misleading statements and omissions, which led to an artificially low

cash-out merger price. ( Id. ¶ 6.) Plaintiffs also allege that by failing to fully disclose

material information, PDC also breached its fiduciary duty to Plaintiffs, which PDC owed

as the sole managing general partner of each of the partnerships. ( Id. ¶ 7.)

Plaintiffs allegations of omitted and misrepresented information primarily concern the

value of the partnerships’ oil and gas reserves. Plaintiffs allege that the reserve valuations

in the proxies “failed to take into account technological developments that PDC has itself

publicly touted as likely to give rise to substantially increased revenues.” ( Id. ¶ 51.) Had the value of new types of wells been taken into account “the net present value of the net

income to be derived from the partnerships’ reserves would greatly exceed the amount the

limited partners received when they were cashed out. ( Id. ¶ 52.)

A majority of the investors voted to approve the cash-out mergers, and PDC paid a total

of $102,000,000 for the Partnerships, which is alleged to be 34 cents on the dollar of the

amount invested. (Id. ¶ 53.)

Plaintiffs’ FAC alleges two claims for relief: (1) Violations of Section 14(a) of the







Securities and Exchange Act of 1934 and SEC Rule 14a-9, and (2) Breach of Fiduciary

Duty.

The Court previously certified the following a class:

All persons and entities who owned limited partnership units in one or more of the

following limited partnerships (the “Partnerships”) who were cashed out of their

limited partnerships units pursuant to merger transactions with Defendant DP 2004

Merger Sub LLC (“Merger Sub”):

• PDC 2002-D Limited Partnership,

• PDC 2003-A Limited Partnership,

• PDC 2003-B Limited Partnership,

• PDC 2003-C Limited Partnership,







• PDC 2005-B Limited Partnership, and • Rockies Region Private Limited Partnership.

Excluded from the class are Defendants and their directors, officers, employees and

agents. (Order Granting Motion for Class Certification, Dkt. No. 84, at 13.) The Court

noted that “issues concerning the predominance requirement of Rule 23(b)(3) made for

close calls” and that the Court retained discretion to revisit certification. ( Id. at 14.)

PRELIMINARY MATTERS

In arguing the Motion for Summary Judgment, both parties submitted evidentiary







objections to the evidence offered by the other side. On motions with numerous

objections, “it is often unnecessary and impractical for a court to methodically scrutinize

each objection and give a full analysis of each argument raised.” Capitol Records, LLC v.

BlueBeat, Inc ., 765 F. Supp. 2d 1198, 1200 n.1 (C.D. Cal. 2010). The Court has frequently found that after it has devoted substantial time to ubiquitous evidentiary

objection in motions like this, the parties care nothing about their objections or the

resulting rulings. The Court does not rely on most of the evidence objected to, so it is

unnecessary to rule on the related objections. See Burch v. Regents of Univ. of Cal ., 433 F. Supp. 2d 1110, 1118, 1122 (E.D. Cal. 2006) (concluding that “the court will [only]

proceed with any necessary rulings on defendants’ evidentiary objections”).

The Court does rely on one piece of evidence Defendants object to, a document entitled

“partnership Buyback Board Presentation.” Defendants do not explain why it is

irrelevant, and as becomes clear later in this Order, the Court disagrees. This objection is

OVERRULED.

LEGAL STANDARDS

1. MOTION FOR SUMMARY JUDGMENT

Summary judgment is appropriate only where the record, read in the light most favorable

to the nonmoving party, indicates that “there is no genuine issue as to any material fact

and . . . the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P.

56(c); see Celotex Corp. v. Catrett , 477 U.S. 317, 323–24 (1986). Material facts are those necessary to the proof or defense of a claim, as determined by reference to substantive

law. Anderson v. Liberty Lobby , Inc. , 477 U.S. 242, 248 (1986). A factual issue is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving

party.” Id. In deciding a motion for summary judgment, “[t]he evidence of the nonmovant

is to be believed, and all justifiable inferences are to be drawn in his favor.” Id. at 255.







The burden initially is on the moving party to demonstrate an absence of a genuine issue

of material fact. Celotex , 477 U.S. at 323. If, and only if, the moving party meets its burden, the nonmoving party must produce enough evidence to rebut the moving party’s

claim and create a genuine issue of material fact. Id. at 322–23. If the nonmoving party meets this burden, then the motion will be denied. Nissan Fire & Marine Ins. Co. v. Fritz Co. , 210 F.3d 1099, 1103 (9th Cir. 2000).

2. MOTION FOR CLASS DECERTIFICATION

Under Federal Rule of Civil Procedure 23(a), a case can proceed as a class action only if

four requirements are met:

(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims

or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of

the class.

Fed. R. Civ. P. 23(a).

Besides the four Rule 23(a) requirements, a class must also satisfy one of the three

subsections of Rule 23(b). In this case, Plaintiff seeks to maintain a class under Rule

23(b)(3). That subsection requires that “the court finds that the questions of law or fact

common to class members predominate over any questions affecting only individual

members, and that a class action is superior to other available methods for fairly and

efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). Factors pertinent to

findings of predominance and superiority include:

(A) the class members’ interests in individually controlling the prosecution or

defense of separate actions; CIVIL MINUTES - GENERAL

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(B) the extent and nature of any litigation concerning the controversy already

begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims

in the particular forum; and (D) the likely difficulties in managing a class action.

Id.

“Rule 23 does not set forth a mere pleading standard.” Wal-Mart Stores, Inc. v. Dukes , 131 S. Ct. 2541, 2551 (2011). “A party seeking class certification must affirmatively

demonstrate his compliance with the Rule.” Id. “The party seeking class certification

bears the burden of demonstrating that the requirements of Rules 23(a) and (b) are met.”

Marlo v. U.P.S. , 639 F.3d 942, 947 (9th Cir. 2011). Even on a motion to decertify a class, the party seeking to maintain class certification bears the burden of demonstrating that the

Rule 23 requirements are satisfied. See id.

A district court should certify a class only if the court “is satisfied, after a rigorous

analysis,” that the Rule 23 prerequisites have been met. Id. (quoting Gen. Tel. Co. of Sw.

v. Falcon, 457 U.S. 147, 161 (1982)). If the court is not satisfied, then certification should

be refused. Falcon, 457 U.S. at 161. “Frequently that ‘rigorous analysis’ will entail some overlap with the merits of the plaintiff’s underlying claim. That cannot be helped.”

Wal-Mart, 131 S.Ct. at 2551. But “Rule 23 does not authorize a preliminary inquiry into

the merits of the suit for purposes other than determining whether certification [is]

proper.” Ellis v. Costco Wholesale Corp. , 657 F.3d 970, 983 n.8 (9th Cir. 2011) (citing Wal-Mart, 131 S. Ct. at 2552 n.6).

ANALYSIS

1. MOTION FOR SUMMARY JUDGMENT

Defendants make various requests for summary judgment and partial summary judgment







on the breach of fiduciary claim, brought under state law, and the federal section 14(a)

claim.

1.1 Partial Summary Judgment for PDC on the State Law Claim

Plaintiffs allege that PDC breached its fiduciary duty in violation of state law. They allege

that PDC, as the sole general partner of each of the partnerships, owed fiduciary duties to

all of the limited partners in each partnership. (FAC ¶ 73.) According to Plaintiffs, PDC

breached these duties by failing to disclose the true value of the partnerships, which had

increased, for example, because of new drilling opportunities. ( Id. ¶ 74.)

Defendants don’t seek full summary judgment for PDC on this claim, and they don’t

argue that no disputed issues of material fact exist. Instead, Defendants seek a series of

partial summary judgment rulings to narrow the scope of this claim.

1.1.1 Right to Drill New Wells After One Year

Defendants seek a ruling that PDC had no right or duty to drill new wells after 2006.

Defendants argue that PDC made promises to investors that each partnership would stop

drilling within one year, a restriction intended to create up-front tax deductions for

partners and then limit risk.

Defendants rely chiefly on the prospectus, arguing that it contains promises not to drill

new wells after the first year. The prospectus states: “We anticipate that within 12 months

following the formation of a partnership it will have expended or committed all

subscriptions for partnership operations. We will return any unexpended and/or

uncommitted subscriptions at the end of the 12-month period pro rata to the investor

partners . . . .” (Stump Decl., Dkt. No. 122-4, Ex. 1 (“Prospectus”), at 21.) The prospectus

further provides: “We will not drill any wells beyond the initial wells. Additional

development refers to work necessary or desirable to enhance production from existing

well.” (Id. at 28.). CIVIL MINUTES - GENERAL

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But the prospectus also states that these promises are not binding unless stated in the

partnership agreement. Specifically, the prospectus provides that some of the policies

discussed in the prospectus “are defined in and governed by the limited partnership

agreement,” but that “[o]ther policies and restrictions upon the activities of the

partnership and us are not set forth in the limited partnership agreement, but instead

reflect our current intention and thus are subject to change at our discretion.” ( Id. at 39.) Therefore, even if PDC promised in the prospectus not to build new wells after one year,

unless that policy is in the partnership agreement, that policy was merely PDC’s “current

intention” and was subject to change. PDC’s right to build new wells depends on what the

partnership agreement provides.

Turning to the partnership agreement, Defendants fail to point to any provision expressly

prohibiting building new wells after one year. Defendants point to a provision stating that

“any proceeds of the offering . . . not used . . . within one year after the closing of such

offering shall be distributed” back to investors. (Stump Decl., Dkt No. 122-22, Ex. 4

(“Partnership Agreement”), § 2.02(e).) But this provision, rather than restricting new

wells altogether, at most restricts one source of funding for new wells. ( See also id. § 6.03(b) (providing that “revenues from Partnership operations may be used for other

Partnership operations, including . . . for the purposes of drilling.” (Partnership

Agreement § 6.03(b).) Defendants have failed to convince the Court that the partnership

agreement prohibits the building of any new wells after one year.

The Court DENIES this request for partial summary judgment.

1.1.2 Right to Borrow or Raise New Funds

Defendants seek a ruling that PDC had no right or duty to borrow money or otherwise

raise funds. Defendants do not seek this ruling as to the Rockies Region Partnership,

which was an exception in that it permitted borrowing.

Defendants again base this request on statements in the prospectus and partnership







agreements for the partnerships (other than Rockies Region). The prospectus states: “A

partnership may not borrow funds, even if needed for partnership operations.”

(Prospectus at 13.) The partnership agreement further provides that PDC shall not

“[b]orrow any money in the name or on behalf of the Partnership.” (Partnership

Agreement § 6.03(b).)

The Court GRANTS Defendants’ request only to the extent they request a ruling that

PDC had no right to borrow money, except as to the Rockies Region partnership, under

the original partnership agreements. Again, these restrictions may have been lifted by

amendment, and the Court does not hold as matter of law whether or not fiduciary duties

might have required exploring that possibility.

Defendants have not justified their request for a broader ruling that PDC had no right to

raise funds by any other means. To that extent, the request is DENIED.

1.1.3 Duty to Amend or Negotiate Other Transactions

Defendants seek a ruling that “there was no fiduciary duty to consider amendments to the

partnership agreement to allow for the drilling of new wells or for the borrowing of

funds.” (Motion at 17.) Defendants points to West Virginia partnership law, which

provides that “relations among the partners and between the partners and the partnership

are governed by the partnership agreement.” W. Va. Code Ann. § 47B-1-3(a). But West

Virginia law also provides that the partnership agreement cannot eliminate the duty of

loyalty. Id. § 47B-1-3(b)(3)(i). Defendants do not convincingly explain why, as a matter

of law, the duty of loyalty could never require consideration of amendments even when

those amendments could add considerable value to the partnership. Defendants may be

correct that tax considerations and avoidance of risk weighed against considering

amendments. But that strikes the Court as an issue for the finder of fact.

Defendants also request a ruling that “there was no duty to negotiate all imaginable forms

of oil and gas transactions with hypothetical third parties.” (Motion at 18.) Of course not.







But the failure to consider beneficial alternatives can in some instances constitute a

breach of the duty of loyalty. See Auriga Capital Corp. v. Gatz Properties, 40 A.3d 839, 873 (Del. Ch. 2012). If what Defendants mean is that they weren’t required to consider

more alternatives than they did, the Court doesn’t have a basis to so hold as a matter of

law.

These requests for partial summary judgment are DENIED.

1.2 Summary Judgment for Merger Sub on the State Law Claim

Defendants argue that the breach of fiduciary duty claim fails against Merger Sub because

Merger Sub was not a partner in any of the partnerships, so it owed no fiduciary duty to

Plaintiffs. In response, Plaintiffs argue that their claim against Merger Sub “is for aiding

and abetting PDC’s breach of fiduciary duty.” (Opp’n at 15.)

But the FAC does not allege that Merger Sub aided and abetted PDC’s breach of

fiduciary duty. Rather, the FAC alleges that “Merger Sub, acting as an instrument of

PDC, also breached its fiduciary duties to the limited partners.” (FAC ¶ 75.) Plaintiff

cannot evade summary judgment by alleging that Merger Sub breached its own fiduciary

duties and then shifting the target in its opposition to summary judgment. See Lee v.

NNAMHS , 2009 WL 3052443 (D. Nev. 2009) (“It is not appropriate for Plaintiff to assert

new allegations outside the scope of the complaint in an opposition to a motion for

summary judgment.”); see also Coleman v. Quaker Oats Co. , 232 F.3d 1271, 1292 (9th Cir. 2000) (“A complaint guides the parties’ discovery, putting the defendant on notice of

the evidence it needs to adduce in order to defend against the plaintiff’s allegations.”).

The Court GRANTS the Motion for Summary Judgment as to Merger Sub on the state

law claim.

1.3 Summary Judgment on the Section 14(a) Claim







“To plead a claim under Section 14(a), plaintiff must allege that: (1) defendants made a

material misrepresentation or omission in a proxy statement; (2) with the requisite state of

mind; and (3) that the proxy statement was the transactional cause of harm of which

plaintiff complains.” In re Zoran Corp. Derivative Lit., 511 F. Supp. 2d 986, 1015 (N.D. Cal. 2007) (citing Mills v. Electric Auto-Lite Co. , 396 U.S. 375, 384 (1970)). “An omitted fact is material if there is a substantial likelihood that a reasonable shareholder

would consider it important in deciding how to vote.” TSC Indus., Inc. v. Northway, Inc ., 426 U.S. 438, 449 (1976).

Defendants seek summary judgment on this claim, arguing that Plaintiffs have not alleged

scienter. Defendants cite no authority holding that scienter is an element of a section

14(a) claim. Instead, they urge this Court to hold that it is, noting that the Supreme Court

has reserved the question of whether scienter is necessary for liability under section 14(a).

See Virginia Bankshares, Inc. v. Sandberg , 501 U.S. 1083, 1090 n.5 (1991).

But numerous Courts have held that scienter is not required for liability under section

14(a). See, e.g. , In re Zoran Corp. Derivative Litig. , 511 F. Supp. 2d 986, 1015 (N.D. Cal.

2007) (“[A] state of mind of negligence will suffice as to the degree of culpability.”); In re Exxon Mobil Corp. Sec. Litig. , 500 F.3d 189, 196 (3d Cir. 2007) (“Violations of

§ 14(a) . . . may be committed without scienter.”). Defendants note that section 10(b)

requires scienter for liability, and argue that the same should hold for section 14(a)

liability. But courts have noted that, unlike section 10(b), the text of section 14(a) lacks

any reference to a manipulative device or contrivance. See Gerstle v. Gamble-Skogmo,

Inc. , 478 F.2d 1281, 1298 (2d Cir. 1973).

The Court declines to hold that scienter is required for section 14(a) liability and DENIES

summary judgment on the section 14(a) claim.

1.4 Partial Summary Judgment on the Section 14(a) Claim

In the alternative, Defendants seek partial summary judgment on the section 14(a) claim,







requesting that certain disclosures and omissions in the proxy statements are not

actionable. The Court addresses each in turn.

1.4.1 Disclosure Concerning Discount Rates

Defendants seek a ruling that PDC’s disclosure relating to discount rates is not actionable.

The relevant portion of the proxies states:

PDC used discount rates of 15% for the proved developed producing

reserves and 25% for proved developed non-producing reserves to

determine the present value of estimated future net cash flows from the

partnership’s reserves. PDC believes that these discount rates are within the

range of discount rates commonly used in the oil and gas industry in

property acquisitions of producing properties, although they are higher than

the 10% rate that the SEC requires for comparative purposes in the year-end

reports of publicly traded oil and gas companies.

(Stump Decl., Dkt. No. 122-37, Ex. 16, at 1351.) Defendants argue that whether or not

Plaintiffs believe the PDC should have used a lower discount rate, PDC accurately

disclosed the rates it used in the valuation.

Plaintiffs respond that this disclosure is misleading because, among other reasons, the

discount rates disclosed in the proxies varied from those used in some of PDC’s internal

calculations of the appropriate discount rate. ( See, e.g. , Brook Decl. Dkt. No. 133-10, Ex. 27, at 7 (a board buyback presentation using discount rates of 12 and 15 percent).) The

Court agrees that these documents are sufficient to create a genuine dispute of material

fact. Defendants may have a viable argument at trial that disclosure of PDC’s internal

valuations wasn’t necessary, but the Court cannot conclude as a matter of law on these

facts that there is no “substantial likelihood that a reasonable shareholder would consider

[these omissions] important in deciding how to vote.” TSC Indus. , 426 U.S. at 449; see also Brown v. Brewer , 2010 WL 2472182 (C.D. Cal. June 17, 2010) (“A reasonable







shareholder would have wanted to independently evaluate management's internal

financial projections to see if the company was being fairly valued.”).

The Court DENIES partial summary judgment as to disclosures concerning the discount

rate.

1.4.2 Omission of Probable and Possible Reserves

Defendants next seek a ruling that PDC’s omissions concerning “probable” and

“possible” reserves are not actionable. They chiefly rely on Starkman v. Marathon Oil Company , where the Sixth Circuit held that defendant oil company had no duty to

disclose “estimates of the value of probable, potential and unexplored oil and gas reserves

which were based on highly speculative assumptions.” 772 F.2d 231, 242 (6th Cir. 1985).

But Starkman is distinguishable. Even if Defendants are not generally required to disclose

the value of non-proven reserves, they made statements about these reserves on the

proxies, and these statements are actionable if misleading. Cf. Lynch v. Vickers Energy

Corp. , 383 A.2d 278, 281 (Del. 1977) (requiring disclosure of a higher estimate of non-proven reserves when defendants disclosed a lower estimate). Here, as Plaintiffs point

out, the proxies included statements concerning the value of non-proven (i.e. probable

and possible) reserves. ( See, e.g. , Brook Decl., Dkt. No. 130-7, Ex. 7, at 15 (“Non-proven undeveloped projects were valued at $10,000 per drilling location.”).) According to

Plaintiffs, internal documents demonstrate that PDC placed a much higher value on non-proven reserves. (See, e.g. , Brook Decl., Dkt. No. 130-11, Ex. 9, at 3.)

Thus, Defendants have not carried their burden in showing that the evidence cited by

Plaintiff creates no genuine dispute of material fact as to whether the disclosures

concerning probable and possible reserves were actionable. Therefore, the Court DENIES

partial summary judgment on this issue.

1.4.3 Disclosure Concerning Special Transactions Committee and







Alternatives

Defendants also request a ruling that “the proxies adequately disclosed the work of the

[Special Transactions] Committee and the alternatives it considered.” (Motion for

Summary Judgment at 23.) The section entitled “Alternatives to the Merger” begins with

the statement that “[t]he Special committee considered the following alternatives before

determining to recommend the merger transaction described in this document.” (Stump

Decl. Dkt. No. 122-37, Ex. 16, at 44.) The section then describes various alternatives.

(See id. at 44–49.) Defendants argue that there is no evidence that these disclosures were

false or misleading.

Because Defendants point to an absence of evidence, the burden shifts to Plaintiffs to

rebut with evidence creating a genuine issue of material fact. Celotex , 477 U.S. at 322–23. Plaintiffs cite evidence, but they fail to articulate how any of this evidence makes

false any particular statement in the proxy. For example, Plaintiffs point to a statement of

the chair of the Committee that the Committee considered the possibility of a “farm out”

to be a “moot point” and not what the Committee “focused on.” (Brook Decl., Dkt. No.

139-4, Ex. 43, at 5.) But Plaintiffs don’t point to anything in the proxies stating that the

Committee did focus on this particular alternative. Plaintiffs also cite evidence that

Houlihan Lokey, a firm that conducted a fairness review for the Committee, didn’t

consider alternatives. But, again, Plaintiffs don’t point to anything in the proxy stating

otherwise.

In sum, even if the evidence cited by Plaintiffs demonstrates that the Committee failed to

consider certain alternatives, that alone is insufficient to make the disclosures in the proxy

misleading. The Court GRANTS partial summary judgment on this issue.

1.5 Summary Adjudication of What the Partnerships Owned

The parties dispute what the partnerships owned, which has apparently been a source of

confusion even among PDC’s own officers. (See Brook Decl., Dkt. No. 139-8, Ex. 47, at CIVIL MINUTES - GENERAL

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4 (Lance Lauck’s deposition testimony that he believed that, at the time of the partnership

mergers, there was “ambiguity between the initial offering documents and the conveyance

documents . . . so that there was ambiguity around whether or not the partnerships

actually owned the tract of land surrounding the well bore”).) Defendants seek a ruling

that, as a matter of law, the partnerships owned only the right to receive production from

wellbores, rather than an interest in “acreage.” Plaintiffs disagree.

The parties rely on different documents to support their positions. Defendants point to an

assignment from PDC to one of the partnerships, which conveyed oil and gas leases “only

to the extent such leases cover lands and depths necessary for production.” (Roth Decl.,

Dkt. No. 122-75, at 2.) Plaintiffs respond that the position of Defendants is contrary to

language in the offering and other documents. ( See, e.g. , Brook Decl., Dkt. No. 138-10, at 12 (“The Parternship’s properties consist of oil and gas wells, associated well equipment,

and the ownership in leasehold acreage assigned to the spacing units on which the 49

wells were drilled.”).

Neither party has provided sufficient evidence, authority, and argument—given the

conflict between the documents the parties cite—for the Court to make a ruling on

ownership. Thus, at this time, the Court DENIES the request for a ruling on this issue.

1.6 Summary Judgment on Punitive Damages

Defendants argue that Plaintiff is not entitled to punitive damages because Plaintiffs

expressly disclaimed any allegation of fraud in the FAC. But Defendants fail to explain

why a disclaimer of fraud precludes a finding that Defendants conduct was “wanton,

willful, or reckless.” Peters v. Rivers Edge Min., Inc. , 224 W. Va. 160, 190, 680 S.E.2d 791, 821 (2009). And Defendants don’t adequately explain why the evidence Plaintiffs

cite as showing willful conduct is insufficient for a finding of punitive damages.

Recognizing that Defendants carry the burden in seeking summary judgment, the Court

DENIES the Motion for Summary Judgment as to punitive damages. CIVIL MINUTES - GENERAL

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2. MOTION FOR CLASS DECERTIFICATION

The Court previously granted Plaintiffs’ Motion for certification of the following class,

which excludes Defendants and their directors, officers, employees and agents:

All persons and entities who owned limited partnership units in one or more of the

following limited partnerships (the “Partnerships”) who were cashed out of their

limited partnerships units pursuant to merger transactions with Defendant DP 2004

Merger Sub LLC (“Merger Sub”):











• PDC 2005-B Limited Partnership, and • Rockies Region Private Limited Partnership.

(Order Granting Motion for Class Certification, Dkt. No. 84, at 13.)

Defendants now move to decertify the class, arguing that the class fails to meet the

requirements of Rule 23(b)(3). To qualify for certification under Rule 23(b)(3), a class

must satisfy two conditions beyond the Rule 23(a) prerequisites: “‘common questions

must ‘predominate over any questions affecting only individual members,’ and class

resolution must be ‘superior to other available methods for the fair and efficient

adjudication of the controversy.’” Hanlon v. Chrysler Corp. , 150 F.3d 1011, 1022 (9th Cir. 1998) (quoting Fed. R. Civ. P. 23(b)(3)). Defendants argue that, because of issues







unique to each of the twelve partnerships, a class encompassing investors in all twelve of

the partnerships fails the predominance and superiority requirements.

2.1 Predominance

“The predominance inquiry of Rule 23(b)(3) asks ‘whether proposed classes are

sufficiently cohesive to warrant adjudication by representation.’” In re Wells Fargo Home Mortg. Overtime Pay Litig. , 571 F.3d 953, 957 (9th Cir. 2009) (quoting Local Joint Executive Bd. of Culinary/Bartender Trust Fund v. Las Vegas Sands, Inc. , 244 F.3d 1152, 1162 (9th Cir. 2001)). “When common questions present a significant aspect of the case

and they can be resolved for all members of the class in a single adjudication, there is

clear justification for handling the dispute on a representative rather than an individual

basis.” Hanlon, 150 F.3d at 1022 (internal quotation marks omitted).

Defendants argue that common issues don’t predominate because Plaintiffs’ theories of

liability, particularly that they received insufficient value for their shares of the

partnerships, depends on factors unique to each partnership. Defendants point to

testimony by Plaintiffs’ experts, for example, that the ability of each partnership to

finance new drilling opportunities is unique to each partnership. Defendants further argue

that, at a minimum, the class must be broken into three different buyback groups, or

“tranches,” to account for differences in market conditions and drilling regulations at the

time of each buyback date.

The Court agrees that there are many factual issues unique to each partnership. But the

Court still finds that these unique issues are outweighed by the numerous issues in this

case susceptible to common proof and common determinations of fact and law.

As the Court noted in its order certifying the class, the Ninth Circuit has found that

securities actions, particularly those stemming from a common course of conduct, are

particularly suitable to class action treatment. See, e.g. , Blackie v. Barrack, 524 F.2d 891, 902 (9th Cir. 1975); see also Amchem Prods., Inc. v. Windsor , 521 U.S. 591, 625 (1997)







(“Predominance is a test readily met in certain cases alleging consumer or securities fraud . . . .”). Defendants’ alleged liability stems from a common course of conduct involving

numerous factual issues identical (or at least nearly so) for each partnership. For example,

the content of the proxies are nearly identical. For all partnerships, Defendants used the

same discount rates, the same value for unproven reserves, and the same committee that

considered and dismissed the same alternatives to the merger. There is little dispute that,

to a large degree, Defendants treated the partnerships uniformly during their formation

and the merger. These factual issues are common to the entire class and important

elements of Plaintiffs’ theories of liability.

Defendants’ arguments in seeking summary judgment show that further common issues

exist. For example, Defendants argued that the rights and duties of all partnerships to

build additional wells is restricted by the same promises and contractual restrictions found

in the prospectuses and partnership agreements. These promises and restrictions, and their

significance to Defendants’ fiduciary duties, present common issues. Except as to the

Rockies Region partnership, which is unique in its ability to borrow, Defendants’

arguments in summary judgment did not differentiate between the partnerships.

Similarly, Defendants’ Memorandum of Contentions of Fact and Law shows that much of

their “key evidence” goes to common issues of fact. ( See Defendants’ Memorandum of

Contentions of Fact and Law, Dkt. No. 152, at 6–21 ). For example, Defendants contend

that “PDC employed a rigorous, industry-standard valuation methodology” to evaluate

the partnerships (Id. at 7.) In arguing that PDC employed a “fair process to effectuate the

merger transactions,” Defendants point to facts common to all partnerships, including the

work of the special committee, a willingness to entertain third party bids, and a provision

that PDC’s vote would not count. (Id. at 10–11.)

In sum, Defendants are correct that there are issues unique to each partnership. But

numerous common questions, which present a “significant aspect of the case,” outweigh

them and satisfy the predominance requirement in this case. Hanlon, 150 F.3d at 1022.







2.2 Superiority

Defendants also briefly argue that the superiority requirement isn’t satisfied. Class actions

certified under Rule 23(b)(3) must be “superior to other available methods for the fair and

efficient adjudication of the controversy.” Amchem , 521 U.S. at 615 (quoting Fed. R. Civ.

P. 23(b)(3)). Factors pertinent to findings of superiority include “the desirability or

undesirability of concentrating the litigation of the claims in the particular forum” and

“the likely difficulties in managing a class action.” Fed. R. Civ. P. 23(b)(3)(C)–(D).

Defendants argue that numerous exhibits and witnesses would make the class action

unwieldy as compared to a separate trial for each partnership.

But conducting multiple trials would be inefficient. The same witnesses would be called

multiple times. The parties would have to present the same evidence to multiple juries. A

single class action in this case “achieve[s] economies of time, effort, and expense.”

Amchem , 521 U.S. at 615.

The Court finds that a class action is the superior method of adjudicating the controversy.

The Decertification Motion is DENIED.

DISPOSITION

Defendants’ Motion to for Summary Judgment is GRANTED in part and DENIED in

part. Defendants’ Decertification Motion is DENIED.

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Documents

UNITED STATES DISTRICT COURT CENTRAL …securities.stanford.edu/filings-documents/1048/PETD00_01/...Case 8:11-cv-01891-AG-AN Document 200 Filed 05/19/14 Page 1 of 19 Page ID #:17172