United States District Court, S.D. New York
JEFFREY FRIES, Individually and On Behalf of All Others Similarly Situated, Plaintiff,
NORTHERN OIL AND GAS, INC., MICHAEL L. REGER, and THOMAS W. STOELK, Defendants.
OPINION AND ORDER
EDGARDO RAMOS, U.S.D.J.
class action arises out of alleged violations of the
Securities Exchange Act of 1934 by Northern Oil and Gas, Inc.
(“Northern Oil”), Michael L. Reger
(“Reger”), and Thomas W. Stoelk (“Stoelk,
” collectively, the “Defendants”). Lead
plaintiff Matthew Atkinson (“Plaintiff” or
“Atkinson”) asserts causes of action individually
and on behalf of others similarly situated against Defendants
for violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, and Rule 10b-5 promulgated thereunder.
Plaintiff generally alleges that Defendants made false and
misleading statements in their public filings and comments.
Before this Court is Defendants' motion to dismiss the
Consolidated Amended Complaint (“CAC”) in its
entirety pursuant to the Federal Rule of Civil Procedure
reasons set forth below, Defendants' motion is GRANTED
brings this action individually and on behalf of all persons,
other than Defendants, who purchased or otherwise acquired
Northern Oil securities from March 1, 2013 to August 15, 2016
(the “Class Period”). CAC ¶ 1.
Oil is an independent energy company engaged in the
acquisition, exploration, development, and production of oil
and natural gas properties in the United States, primarily
holding interests in the Williston Basin of North Dakota and
Montana. Id. ¶¶ 2, 31. It was co-founded
by Reger and Ryan Gilbertson (“Gilbertson”), a
non-party, in 2006. Id. ¶¶ 4-5, 32. In
2007, Northern Oil became a public company through a reverse
merger whereby it merged into a company that had
publicly-traded stock. Id. ¶ 33. It is
incorporated in Minnesota and is headquartered in Wayzata,
Minnesota. Id. ¶¶ 3, 25.
individual Defendants occupied executive positions at
Northern Oil during the Class Period. Reger served as
Northern Oil's Chief Executive Officer
(“CEO”) from 2007 until his termination on August
16, 2016. Id. ¶ 26. Reger sold over 550, 000
shares of Northern Oil common stock during the Class Period
for tax purposes. Id.; Doc. 41 (“Hammel
Decl.”) Ex. 20-36. Stoelk served as Northern Oil's
Chief Financial Officer (“CFO”) at all relevant
times, and became the interim CEO upon Reger's
termination. CAC ¶ 28. Stoelk sold over 78, 000 shares
of Northern Oil common stock during the Class Period for tax
purposes. Id.; Hammel Decl. Ex. 4-19.
Reger's Conduct at Dakota Plains
2008, Reger and Gilbertson co-founded another company named
Dakota Plains Transport Inc., which became a public company
named Dakota Plains Holdings, Inc. (“Dakota
Plains”) on March 22, 2012. CAC ¶ 34. Dakota
Plains, a non-party, is a “transloading” facility
that loads crude oil into railway cars in New Town, North
Dakota, and is wholly unrelated to Northern Oil. Id.
¶¶ 5, 29. It is a Nevada corporation with its
principal executive offices in Wayzata, Minnesota.
Id. ¶ 29.
alleges that Reger and Gilbertson improperly exercised
control over Dakota Plains. Id. ¶¶ 5,
35-51. Specifically, when Dakota Plains became a public
company, Reger controlled 21.4% of its stock and 33.3% of its
promissory notes, and Gilbertson controlled 11% of its stock
and 38.9% of its promissory notes. Id. ¶¶
26-27. However, in order to conceal the full extent of their
involvement, they did not hold any formal positions at Dakota
Plains. Id. ¶ 36. Instead, they named
Reger's father as CEO and Gilbertson's father as
President, and later installed one of their friends as CEO.
Id. ¶¶ 36, 40. Reger also held his Dakota
Plains stock in ten different accounts over which he had
beneficial ownership, with each account holding no more than
5% of the stock. Id. ¶¶ 48-51. Without
disclosing their control or ownership, Reger and Gilbertson
used their influence to improperly obtain financial benefits
for themselves, including through a stock manipulation
February 20, 2015, Dakota Plains reported Reger and
Gilbertson's potential violations of securities laws at
that company to the United States Securities and Exchange
Commission (“SEC”). Id. ¶ 52.
Thereafter, the SEC sent Reger a Wells Notice in connection
with the Dakota Plains investigation. Id.
¶¶ 15, 109. On August 16, 2016, after Reger
informed Northern Oil of the Wells Notice, Northern Oil
terminated Reger. Id. On that day, Northern Oil
stock fell by 6.28%. Id. ¶ 110. On October 31,
2016, the SEC issued a cease and desist order against Reger
concerning his role at Dakota Plains, in which he agreed to
cease and desist from violating Sections 17(a)(2) and
17(a)(3) of the Securities Act of 1933, and Sections 13(d)
and 16(a) of the Securities Exchange Act of 1934; and to make
disgorgement and penalty payments. Id. ¶ 111;
see Hammel Decl. Ex. 3.
Reger's Conduct at Northern Oil
claims that, during the Class Period, Reger neglected his
responsibilities as the CEO of Northern Oil, and instead,
appropriated Northern Oil resources to further his control of
Dakota Plains. CAC ¶ 55. Plaintiff relies on three
confidential witnesses (“CWs”). CW 1, a former
executive assistant at Northern Oil headquarters from January
2009 through September 2015 who reported directly to Reger,
asserts Reger went to the Northern Oil headquarters in
Wayzata, Minnesota three or four days a week for brief
periods of time, and that Stoelk effectively ran Northern Oil
during Reger's last few years at the company.
Id. ¶ 58. At Northern Oil headquarters, Reger
worked on Dakota Plains matters, including holding meetings
with Dakota Plains directors and investors. Id.
¶¶ 60-61. CW 1 “regularly ferried Dakota
Plains-related personnel . . . to and from Northern Oil
headquarters.” Id. ¶ 61. Reger also used
Northern Oil sponsored tours of Northern Oil facilities in
North Dakota to pitch hedge funds and other investment
entities on Dakota Plains. Id. ¶ 62.
CW 2, a
former vice president of engineering at Northern Oil
headquarters from November 2011 through November 2015 who
reported directly to Reger and Stoelk, states that Reger had
little to no involvement in the day-to-day operations at
Northern Oil, and instead, spent most of his time pursuing
acquisitions or working on matters related to Dakota Plains.
Id. ¶ 64. He further attests that Reger's
role at Dakota Plains was an open secret at Northern Oil, of
which Stoelk was aware. Id. ¶¶ 65-66.
CW 3, a
former vice president of operations for Dakota Plains in
Wayzata, Minnesota from April 2012 to February 2013, recalls
spending more time in Northern Oil's offices than Dakota
Plains' own offices, which was located half a block away
from Northern Oil's headquarters. Id.
¶¶ 53, 71. He states that “Dakota Plains
functioned under the direction of Northern Oil.”
Id. ¶ 71.
Defendants' Alleged False or Misleading
alleges that, in light of Reger's misconduct, Defendants
made fraudulent representations and omissions in their public
filings and other public comments. Specifically, Northern Oil
stated in each of its Form 10-Ks for the years ended December
31, 2012, December 31, 2013, December 31, 2014 and December
31, 2015 that it “adopted a Code of Business Conduct
and Ethics that applies to [Northern Oil's] chief
executive officer, chief financial officer and persons
performing similar functions [and that a] copy is available
on [Northern Oil's] website at
¶¶ 74, 89, 98, 103. Reger and Stoelk signed
certifications as to the accuracy of each of these public
filings. See Northern Oil and Gas, Inc., Annual
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Form 10-K) (March 1, 2013); Northern
Oil and Gas, Inc., Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (Form 10-K)
(March 3, 2014); Northern Oil and Gas, Inc., Annual Report
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Form 10-K) (February 27, 2015); Northern Oil and
Gas, Inc., Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Form 10-K) (March 3,
2016). Northern Oil's Code of Business Conduct and Ethics
states in relevant part the following:
• “It is the policy of [Northern Oil] that all
employees and directors comply strictly with all laws
governing its operations and to conduct its affairs in
keeping with the highest moral, legal and ethical standards.
In particular, senior executives hold an important and
elevated role in maintaining a commitment to (i) honest and
ethical conduct; (ii) full, fair, accurate, timely and
understandable disclosure in [Northern Oil]'s public
communications, and (iii) compliance with applicable
government rules and regulations.” Id. ¶
75 (emphasis omitted).
• “[Northern Oil] proactively promotes ethical
behavior. Employees should report violations of applicable
laws, rules and regulations, this Code or any other code,
policy or procedure of [Northern Oil] to appropriate
personnel. Officers of [Northern Oil] should report any such
violation directly to the chief executive officer and/or the
chief financial officer. Employees and directors are expected
to cooperate in internal investigations of misconduct.”
• “All employees and directors should protect
[Northern Oil]'s assets and ensure their efficient use.
All [Northern Oil] assets should be used for legitimate
business purposes only. The use of assets of [Northern Oil]
for any unlawful or improper purpose is strictly prohibited.
Theft, carelessness, and waste have a direct impact on
[Northern Oil]'s profitability.” Id.
• “A conflict of interest exists where one or both
parties in a relationship receive or give unfair advantage of
preferential treatment because of the relationship and the
term ‘conflict of interest' describes any
circumstance that could cast doubt on a person's ability
to act with total objectivity with regard to [Northern
Oil]'s interest. Conflicts of interest are prohibited as
a matter of [Northern Oil] policy. . . . All employees must
conduct business in a manner that avoids even the appearance
of conflict between personal interests and those of [Northern
Oil]. . . . Also, employees are prohibited from directly or
indirectly competing, or performing services for any person
or entity in competition with, [Northern Oil].”
asserts that these statements are materially false and/or
misleading because (1) Northern Oil's policies and Code
of Business Conduct and Ethics were inadequate to either
detect or prevent misconduct by Northern Oil officers, (2)
Reger's misconduct violated Northern Oil's assurance
to investors that its executives would maintain honest
conduct and adhere to applicable laws and regulations, (3)
Reger's blatant misuse of Northern Oil's assets
violated Northern Oil's commitment to investors to
safeguard those assets for legitimate purposes, and (4)
Reger's involvement in Dakota Plains violated Northern
Oil's prohibition of conflicts of interest. Id.
¶¶ 78, 93, 102, 106.
also made certain representations concerning Reger's
personal experience in the oil industry. Specifically,
Northern Oil made the following alleged ...