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Eli Bensinger, Individually and On Behalf of All v. Denbury Resources Inc

August 17, 2011

ELI BENSINGER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
DENBURY RESOURCES INC., DEFENDANT.



The opinion of the court was delivered by: John Gleeson, United States District Judge:

ONLINE PUBLICATION ONLY

Eli Bensinger, individually and on behalf of all others similarly situated, ("Bensinger" or "plaintiff") alleges in his Amended Complaint (the "complaint") that defendant Denbury Resources Inc. ("Denbury" or "defendant") is liable under Section 11 of the Securities Act of 1933 and Section 14 of the Securities Exchange Act of 1934 for material misrepresentations in connection with Denbury's acquisition (the "merger") of Encore Acquisition Company ("Encore"). Bensinger was an Encore shareholder. (Compl. ¶ 4.)

The heart of Bensinger's claim is that Encore shareholders were falsely informed on multiple occasions that the formula for calculating the number of Denbury shares to be distributed to Encore shareholders as consideration for the merger was pegged to a weighted average share price of Denbury stock as of the date two days prior to the closing of the merger, which turned out to be Friday, March 5, 2010. In fact, the merger agreement pegged the calculation to the date of the second full trading day prior to the "effective time" of the merger, which, as that term was defined, turned out to be Monday, March 8, 2010. By using the March 8 date instead of March 5, Denbury paid less to the Encore shareholders, which resulted in this lawsuit.

Denbury now moves to dismiss the complaint, contending that: (1) it was brought in violation of a forum selection clause to which Bensinger is subject; (2) it is barred under the doctrines of res judicata and collateral estoppel; and (3) it fails to state a claim upon which relief may be granted. For the reasons set forth below, Denbury's motion is denied.

BACKGROUND

A. The Facts*fn1

On October 31, 2009, Denbury and Encore entered into an agreement pursuant to which, following stockholder approval and satisfaction of other conditions, Encore would merge into Denbury. (Compl. ¶ 13; Heim Dec., Ex. C, Annex A (the "Agreement") §1.2.*fn2 ) Section 2.1 of the Agreement provided a formula for determining the number of shares of Denbury common stock to be delivered upon the closing of the merger, stating that the Denbury share value was based on the "volume weighted average price of [Denbury] common stock for the period of twenty (20) consecutive trading days ending on the second full trading day prior to the Effective Time." (Agreement § 2.1 (emphasis added).) "Effective Time" is defined in the Agreement as "the date and time of filing of the Certificate of Merger with the Secretary of State." (Compl. ¶ 20; see Agreement § 1.2.)

The Agreement also contains a provision establishing Delaware as the forum for any litigation between the parties in connection with the merger:

All actions and proceedings arising out of or relating to this Agreement shall be heard and determined by the Delaware Court of Chancery or a federal district court located in Delaware. Each of [Encore] and [Denbury] hereby irrevocably and unconditionally consents to the exclusive jurisdiction of the Delaware Court of Chancery or a federal district court located in Delaware for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation thereto except in such court) . . . . (Agreement § 9.9.) The Agreement furtheridentifies the rights of shareholders and others in connection with the Agreement under § 9.7 of the Agreement, entitled "Parties in Interest," which references the plaintiff's right to enforce payment of the merger consideration under the Agreement:

This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, other than Sections 2.1 (from and after the Effective Time), 6.4 and 6.9 (which are intended to be for the benefit of the persons covered thereby and may be enforced by such persons) and except for (i) the rights of holders of [Encore] Common Stock to enforce their rights to receive the Merger Consideration in accordance with Article II upon consummation of the merger in the event the Merger is consummated and (ii) the rights of the Financing Sources to enforce their rights under Section 8.3(c)(iii) and Section 9.9. (Agreement § 9.7.)

On the following day, November 1, 2009, Denbury and Encore announced that Denbury was to acquire Encore in exchange for stock and cash. (Compl. ¶ 13.) The joint press release provided the following description of the calculation of the merger consideration under the "Terms of the Transaction":

The final number of Denbury shares to be issued will be adjusted based on the volume weighted average price of Denbury common stock for a 20 day trading period ending on the second day prior to closing. (Compl. ¶ 14 (emphasis in original).) In public statements and filings in the next four months leading up to the shareholder vote, Denbury continued to describe the consideration as being determined "based on the volume weighted average price of Denbury common stock for a 20 day trading period ending on the second day prior to closing." (Compl. ¶¶ 15-17 (emphasis in original).)*fn3 Additionally, both the registration statement for the merger and the Pre-Effective Amendment No. 1 to that registration statement stated: "The final number of Denbury shares to be issued will be adjusted based on the volume-weighted average price of Denbury common stock on the NYSE for the twenty-day trading period ending on the second day prior to closing." (Compl. ¶¶ 18, 19.) On the other hand, on the cover page to the registration statement and in the "Questions and Answers about the Merger" section, and, of course, in the Agreement itself, which was annexed to the registration statement, it was stated that the merger consideration would be calculated based "on the period of twenty (20) consecutive trading days ending the second full trading day prior to the effective time of the merger . . . ." (Heim Dec., Ex. H (the "Registration Statement") at 4, 19, 264, 387.)

On February 1, 2010, Denbury and Encore announced that they had scheduled their respective shareholder meetings to vote on the merger for March 9, 2010. (Compl. ¶ 22.) One month prior to those meetings, on February 8, 2010, Denbury and Encore filed a proxy statement with the SEC, which was thereafter disseminated to their respective shareholders, soliciting approval of the merger by the majority of each company's shareholders. (Compl. ¶ 23.) The cover page stated:

The actual number of shares of Denbury common stock to be issued to Encore stockholders receiving either all stock or a mix of cash and stock consideration will be determined under a collar mechanism based upon the volume weighted average price of Denbury common stock for the 20-day trading period ending on the second full trading day prior to the effective time of the merger, as more fully described in this joint proxy statement/prospectus.

(Compl. ¶ 23; Heim Dec., Ex. C (the "Proxy Statement") at 2 (emphasis added).) The Proxy Statement also contained a section entitled "Effective Time; Closing" which stated:

The merger will become effective on the date a certificate of merger is filed with the Delaware Secretary of State. The [Agreement] provides that the certificate of merger is to be filed as promptly as practicable after all the conditions to the closing of the merger are satisfied or waived. (Compl. ¶ 24; Proxy Statement at 93.) The Notes to Financial Information in the proxy stated that "[t]he final number of Denbury shares to be issued will be adjusted based on the volume-weighted average price of Denbury common stock on the NYSE for the twenty-day trading period ending on the second day prior to closing." (Compl. ¶ 25 (emphasis in original).) The Agreement, the November 1 joint press release, the Denbury Form 8-K, the Denbury 10-Q, ...


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