796 F.3d 310 (3rd Cir. 2015), 14-1204, In re SemCrude L.P.

Docket Nº:14-1204
Citation:796 F.3d 310
Opinion Judge:FISHER, Circuit Judge.
Party Name:IN RE: SEMCRUDE L.P., et al., Debtors, Thomas L. Kivisto, Appellant
Attorney:Paul R. Bessette, Esq., ARGUED, James P. Sullivan, Esq., King & Spalding, Austin, TX, Counsel for Appellant. Andrew S. Hicks, Esq., Adam P. Schiffer, Esq., ARGUED, Schiffer Odom Hicks & Johnson, Houston, TX; Gary F. Seitz, Esq., Gellert Scali Busenkell & Brown, Philadelphia, PA, Counsel for Appel...
Judge Panel:Before: FUENTES, FISHER and KRAUSE, Circuit Judges.
Case Date:August 05, 2015
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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796 F.3d 310 (3rd Cir. 2015)

IN RE: SEMCRUDE L.P., et al., Debtors,

Thomas L. Kivisto, Appellant

No. 14-1204

United States Court of Appeals, Third Circuit

August 5, 2015

Argued December 9, 2014.

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On Appeal from United States Bankruptcy Court for the District of Delaware. (08-bk-11525). Honorable Brendan L. Shannon, U.S. Bankruptcy Judge.

Paul R. Bessette, Esq., ARGUED, James P. Sullivan, Esq., King & Spalding, Austin, TX, Counsel for Appellant.

Andrew S. Hicks, Esq., Adam P. Schiffer, Esq., ARGUED, Schiffer Odom Hicks & Johnson, Houston, TX; Gary F. Seitz, Esq., Gellert Scali Busenkell & Brown, Philadelphia, PA, Counsel for Appellees.

Before: FUENTES, FISHER and KRAUSE, Circuit Judges.


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FISHER, Circuit Judge.

Thomas L. Kivisto, co-founder and former President and CEO of SemCrude L.P., an Oklahoma-based oil and gas company, allegedly drove SemCrude into bankruptcy through his self-dealing and speculative trading strategies. SemCrude's Litigation Trust sued Kivisto, and the parties reached a settlement agreement and granted a mutual release of all claims. One month later, a group of SemCrude's former limited partners (collectively,

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" Oklahoma Plaintiffs" ) sued Kivisto in state court, alleging breach of fiduciary duty, negligent misrepresentation, and fraud. Kivisto filed an emergency motion to enjoin the state action on the theory that the Oklahoma Plaintiffs' claims derived from the Litigation Trust's claims, which the U.S. Bankruptcy Court for the District of Delaware granted. On appeal, the U.S. District Court for the District of Delaware reversed, concluding that the claims were possibly direct and remanded. The Bankruptcy Court thereafter adopted the District Court's order in its entirety and denied injunctive relief. Because we conclude that the claims are derivative, we will reverse.



Kivisto co-founded SemCrude in Tulsa, Oklahoma, in 2000 and served as its President and CEO until 2008. SemCrude provided transportation, storage, distribution, and other oil-and-gas services to crude oil producers and refiners across North America's energy corridor. By 2006, SemCrude became one of the largest privately-held companies in the United States, with assets worth almost $14 billion.

In 2007 and 2008, however, SemCrude was driven into bankruptcy, the cause of which is disputed by the parties. Kivisto blames the company's collapse on, among other market factors, rising oil prices and tight credit markets that were inhospitable to Kivisto's previously successful trading strategy. The Oklahoma Plaintiffs, on the other hand, blame Kivisto for " engag[ing] in a pattern of egregious self-dealing and related-party transactions, commingl[ing] personal and corporate funds, and ma[king] wildly speculative trades for his own benefit" that allegedly caused SemCrude billions of dollars in losses. Appellees' Br. at 2 n.1. In particular, they allege that Kivisto used SemCrude's funds to place bets on oil for his personal benefit through a trading company that he owned with his wife, Westback Purchasing Company, LLC (" Westback" ), causing SemCrude to incur a $290 million receivable; and engaged in high-risk, double-or-nothing trades on behalf of SemCrude, stripping SemCrude of its ability to finance its operations and causing over $3 billion in losses. App. 333-43.

The Oklahoma Plaintiffs further allege that Kivisto concealed these decisions and actively misrepresented SemCrude's financial health and stability in order to induce them to invest additional capital or retain their investments in SemCrude. They specifically assert that Kivisto, among other things, misrepresented that SemCrude's " trading positions were always 'delta neutral'" and that it " 'closed its positions in its trading books every day,'" and concealed the existence of his personal trading scheme as well as SemCrude's trade exposure and attendant risks. App. 338. The Oklahoma Plaintiffs claim that " Kivisto made these misrepresentations to [the Oklahoma] Plaintiffs during shareholders' meetings, 'informative unitholder meetings,' and other meetings--both formal and informal" in 2000; 2001; April and September 2002; July 2003; December 2004; and later. App. 338. In " reli[ance] upon Kivisto's representations," the Oklahoma Plaintiffs allege that they " contributed millions of dollars to Sem[Crude] through capital contributions made [i]n" December 2000; November 2002; December 2003; January 2005; and May 2006. App. 338.

They also allege that " Kivisto was particularly aggressive in his efforts to induce [the Oklahoma] Plaintiffs to make their 2006 capital contributions." App. 338. On or about May 25, 2006, during a lunch meeting at Southern Hills Country Club in Tulsa that occurred one day before a capital

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contribution deadline, " Kivisto approached certain of the [Oklahoma] Plaintiffs and made several statements clearly intended to induce them to make these capital contributions." App. 338. He allegedly told some of the Oklahoma Plaintiffs that " you've got 24 hours to get your money in," and " you don't want to miss this one," emphasizing that the value of their shares would increase substantially in the future and that failing to make the contributions would cause them financial loss. App. 338-39 (internal quotation marks omitted). Those Oklahoma Plaintiffs contributed several million dollars to SemCrude shortly thereafter.

In essence, the Oklahoma Plaintiffs claim that, as a result of their personal dealings with Kivisto, they " acted and/or forewent certain actions in reliance upon Kivisto's misrepresentations and omissions. . . . [This is] illustrated, in part, by the millions of dollars [the Oklahoma] Plaintiffs paid to Sem[Crude] in the form of capital contributions." App. 350. They distinguish themselves from other limited partners because they allege that Kivisto's misrepresentations were made specifically to them. They also distinguish themselves as " non-insider" limited partners, claiming that all other limited partners held board or management positions or were involved in " sweetheart side deals" with Kivisto, which allowed these " insiders" to obtain information not available to the Oklahoma Plaintiffs or dissuaded them from disclosing Kivisto's alleged misconduct. Appellees' Br. at 2.


On July 22, 2008, SemCrude, its parent company, SemGroup L.P., and certain direct and indirect subsidiaries (collectively, " SemCrude" ) filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. The Bankruptcy Court entered a confirmation order on October 28, 2009, confirming SemCrude's plan of reorganization. The reorganization plan established a Litigation Trust and transferred to it the claims belonging to SemCrude's bankruptcy estate. The Litigation Trust was therefore entitled to pursue SemCrude's claims and distribute the money it recovered to SemCrude's creditors.

In 2009, the Litigation Trust1 asserted against Kivisto, certain former SemCrude officers, and Westback thirty claims related to breach of fiduciary duty, breach of contract, fraudulent transfer, and unjust enrichment. See App. 61-150. Following mediation, the parties reached a $30 million settlement agreement (that was paid out of the directors' and officers' liability insurance policies) and granted a mutual release of all claims. The Litigation Trust also discharged Kivisto and the other SemCrude officers from liability to any party for contribution or indemnity relating to the released claims. The Bankruptcy Court approved the settlement agreement on November 19, 2010.

One month later, on December 22, 2010, the Oklahoma Plaintiffs2 filed suit against Kivisto and PriceWaterhouseCoopers LLP (" PwC" ), SemCrude's pre-bankruptcy auditor, in the Tulsa County District Court in Oklahoma. Asserting injuries allegedly separate and distinct from the injuries sustained by SemCrude, the Oklahoma Plaintiffs sought money damages from Kivisto for breach of fiduciary duty, negligent misrepresentation, and fraud, and from PwC

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for professional negligence and a violation of the Oklahoma Accountancy Act. See App. 325-53. PwC removed the case, but the U.S. District Court for the Northern District of Oklahoma remanded the case back to state court. Ultimately, although PwC is not a party to this appeal, the Bankruptcy Court enjoined the action against PwC as derivative on October 7, 2011,3 and the District Court affirmed that order on November 15, 2012.

On May 4, 2011, Kivisto filed an emergency motion in the Bankruptcy Court to enjoin the Oklahoma Plaintiffs' lawsuit from proceeding in state court and, specifically, to enforce the confirmation order, the terms of the reorganization plan, and the settlement agreement. He alleged that the Oklahoma Plaintiffs' claims belonged to the Litigation Trust and had been released. SemCrude and the Litigation Trust joined the motion.

The Bankruptcy Court granted the motion to enjoin all three claims on October 7, 2011. It explained that the Oklahoma Plaintiffs' claims were derivative causes of action for the following reasons: (1) " [T]he injury suffered by the Oklahoma Plaintiffs is no different from the injury suffered by SemCrude as a result of Kivisto's wrongful conduct" ; (2) the Oklahoma Plaintiffs did not show that Kivisto owed them any duties distinct from his fiduciary duties owed to SemCrude and its other equity holders; and (3) any recovery would be deemed equity in SemCrude's estate and, therefore, the Oklahoma Plaintiffs would not be entitled to recovery outside the terms of the reorganization plan. App. 19. The parties agreed to stay the lawsuit in state court pending final resolution of these proceedings.


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