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

September 28, 2012

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:

MEMORANDUM AND ORDER

Eli Bensinger brings this putative class action against Denbury Resources Inc. ("Denbury") for federal securities law violations arising from Denbury's merger with Encore Acquisition Company ("Encore") on March 9, 2010. Bensinger now moves for class certification, for appointment as class representative, for appointment of WeissLaw LLP*fn1 as class counsel, and for judgment on the pleadings. For the reasons set forth herein, I grant in part and deny in part Bensinger's motions.

BACKGROUND

On October 31, 2009, Denbury and Encore entered into a merger agreement (the "Merger Agreement"). Merger Agreement, Gabriel Decl. Ex. 1, ECF No. 60 ("MA"). The Merger Agreement provided that Encore would merge with and into Denbury and that, upon the merger, Encore stockholders would receive $50 for each of their shares. Encore stockholders could elect to receive their $50 in one of three ways: (1) they could receive $50 in cash; (2) they could receive $15 in cash and $35 in Denbury stock; or (3) they could receive $50 in Denbury stock.

For those Encore stockholders who elected to receive all or part of their $50 in Denbury stock, the number of Denbury shares to which they were entitled hinged upon the value of Denbury stock. The higher the value of Denbury stock, the fewer shares they would receive for their money, and the lower the value, the more shares they would receive. For example, if Denbury shares were worth $1, an Encore shareholder who had elected to receive his $50 entirely in stock would receive 50 shares of Denbury stock. But if Denbury shares were worth $2,*fn2 the same Encore shareholder would receive only 25 shares. The dispute in this case is about what the value of Denbury stock was.

The Merger Agreement set the value of Denbury stock as 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," MA § 2.1(a)(i), and it defined the "Effective Time" to mean "the date and time" of the filing of a certificate of merger with the Delaware Secretary of State, MA § 1.2. The Proxy Statement filed by Denbury with the SEC on February 8, 2010, used equivalent language except in one material aspect: It defined the "Effective Time" or "Closing" as simply the "date" (not the date and time) that a certificate of merger is filed with the Delaware Secretary of State. Proxy Statement 2, 101, Gabriel Decl. Ex. 3-1, ECF No. 60 ("PS"). Furthermore, several of Denbury's earlier filings with the SEC, including Denbury's January 26, 2010 amendment to its Form S-4 Registration Statement, stated that the value of Denbury stock would be set at the "volume-weighted average price of Denbury common stock . . . for the twenty-day trading period ending on the second day prior to closing." Compl. ¶ 19; Answer ¶ 19; accord Compl. ¶¶ 15-17; Answer ¶¶ 15-17. Thus these filings dropped the language in the Proxy Statement and Merger Agreement that the relevant period ended on the second full trading day prior to closing.

The merger was ultimately approved by shareholders and consummated, and the certificate of merger was filed with the Delaware Secretary of State on the evening of Tuesday, March 9, 2010, after the trading day ended. Compl. ¶ 27; Answer ¶ 27. In calculating the number of Denbury shares to be doled out to Encore stockholders, the value of Denbury stock was set as the weighted average price of Denbury common stock for the twenty-day period ending on March 8, 2010. Bensinger contends that, pursuant to the terms of the Proxy Statement and earlier SEC filings incorporated by the Proxy Statement, the value of Denbury stock should have been set as the weighted average price of Denbury common stock for the twenty-day period ending on March 5, 2010. The difference between the two calculations is that the former counts March 9, 2010, as a day prior to closing and the latter does not.

Bensinger alleges that he held 42,100 shares of Encore stock on the date of the merger and that he disposed of his Denbury shares (via short sales) prior to the merger. He contends that if Denbury had used the 20-day period specified in the Proxy Statement, the value of Denbury stock would have been set lower and, as a result, he would have received a larger number of Denbury shares.

Bensinger filed the initial complaint in this action on April 28, 2010, and he filed an amended complaint on May 27, 2010 (the "Complaint"). The Complaint asserts violations of Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, and Section 14(a) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78n.*fn3 Denbury moved to dismiss on March 15, 2011, arguing, inter alia, that it had not made any material misrepresentations in the Proxy Statement.

I denied Denbury's motion on August 17, 2011, concluding that the Proxy Statement was misrepresentative and that the misrepresentations therein were not immaterial as a matter of law. See Memorandum and Order dated Aug. 17, 2011, at 14, ECF No. 33. Bensinger now moves for judgment on the pleadings. He also asks that I (1) certify a class of all Encore shareholders who received stock or a combination of stock and cash and were damaged by the failure of Denbury to calculate the merger consideration in accordance with the representations made in the Proxy Statement; (2) appoint him as class representative; and (3) appoint his counsel, WeissLaw LLP, as class counsel.

DISCUSSION

A. Jurisdiction

Denbury argues that the allegations in the Complaint demonstrate that Bensinger

lacks standing to bring either of the claims he asserts. Because the absence of standing would deprive the Court of subject matter jurisdiction, see Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), the Court must assure itself that Bensinger has standing before reaching the merits of Bensinger's motions, see Herrick Co., Inc. v. SCS Commn'ns., Inc., 251 F.3d 315, 321 (2d Cir. 2001) ("[S]ubjectmatter jurisdiction remains 'an unwaivable sine qua non for the exercise of federal judicial power.'" (quoting Curley v. Brignoli, Curley & Roberts Assocs., 915 F.2d 81, 83 (2d Cir. 1990))). In reviewing the facial jurisdictional challenge made here -- that is, the objection to the legal sufficiency of plaintiff's jurisdictional allegations as set forth in the complaint -- I "take all facts alleged in the complaint as true and draw all reasonable inferences in favor of ...


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