Zoren v. Genesis Energy, L.P.

• Citation: 195 F.Supp.2d 598
• Decision Date: 27 March 2002
• Docket Number: No. CIV.A.00-1005-SLR.,CIV.A.00-1005-SLR.
• Parties: Bruce E. ZOREN, on behalf of himself and all others similarly situated, Plaintiff, v. GENESIS ENERGY, L.P., Genesis Energy, LLC, John P. Von Berg, Mark J. Gorman, A. Richard Janiak, Michael A. Peak, Herbert 1. Goodman, J. Conley Stone and Salomon Smith Barney, Inc., Defendants.
• Court: U.S. District Court — District of Delaware

195 F.Supp.2d 598

Bruce E. ZOREN, on behalf of himself and all others similarly situated, Plaintiff, v. GENESIS ENERGY, L.P., Genesis Energy, LLC, John P. Von Berg, Mark J. Gorman, A. Richard Janiak, Michael A. Peak, Herbert 1. Goodman, J. Conley Stone and Salomon Smith Barney, Inc., Defendants.

No. CIV.A.00-1005-SLR.

United States District Court, D. Delaware.

March 27, 2002.

Norman M. Monhait, Rosenthal, Monhait, Gross & Goddess, P.A., Wilmington, Delaware, Greenfield & Goodman, Paoli, Pennsylvania (Richard D. Greenfield, Marquerite R. Goodman, of counsel), Francis J. Farina, Davon, PA, for plaintiff.

Jesse A. Finkelstein, Anne C. Foster, Richards, Layton & Finger, Wilmington Delaware (Cravath Swaine & Moore, of counsel), New York, New York, for defendants.

MEMORANDUM OPINION

SUE L. ROBINSON, Chief Judge.

I. INTRODUCTION

Before the court are motions in a class action securities case originally brought in the Delaware Court of Chancery and subsequently removed under 28 U.S.C. § 1441 and 1446(b) on the basis of an alleged application of the Securities Litigation Uniform Standards Act of 1998 ("SLUSA" or the "Act"), 15 U.S.C. § 78bb. Defendants Genesis Energy, L.P. ("Genesis"), Genesis Energy LLC, John P. Von Berg, Mark J. Gorman, A. Richard Janiak, Michael A. Peak, Herbert I. Goodman, J. Conley Stone and Salomon Smith Barney, Inc. (collectively "defendants"), move for dismissal of the amended complaint based upon the Act's preemption provision and plaintiff, Bruce E. Zoren's ("Zoren"), inability to state a claim under Delaware law. Zoren moves to remand to state court, arguing the Act's inapplicability or, in the alternative, the application of its "savings" provisions, 15 U.S.C. § 78bb(f)(3)(A).

II. FACTS

The material facts are not substantially in dispute. Zoren and other class members own units of defendant Genesis, a Delaware limited partnership engaged in the purchase and sale of crude oil. The assets of Genesis are owned and operated through Genesis Crude Oil, L.P., an operating limited partnership ("Operating Partnership"), while defendant Genesis Energy, LLC serves as the General Partner of Genesis and the Operating Partnership. (D.I. 1 ¶ 2(b)(c)). Zoren alleges that since its formation in 1996, Genesis has been controlled by defendant Salomon Smith Barney, Inc. ("SSB"), a broker and dealer in securities. (Id. ¶ 11)

Genesis units were initially offered to the public in 1996, with SSB serving as lead underwriter. (Id.) This Initial Public Offering ("IPO") saw the sale of 8,625,000 units and raised $163 million, used primarily to purchase certain combined operations of other companies and contribute revenue to the Operating Partnership. (Id. ¶ 28) By mid-1998 revenues were down and Genesis appeared unable to meet its common unit obligation. (Id. ¶ 36) A Second Public Offering ("SPO") occurred in 1998, with SSB again serving as lead underwriter. (Id. ¶ 42) Similar to the IPO, 8,628,000 shares were offered.

Notwithstanding these public offerings, revenues further declined by the end of 1999. (Id. ¶ 56) In May 2000 Genesis announced a proposed financial restructuring, unanimously approved by its board of directors based upon the recommendation of a "special committee." (Id. ¶ 56-58) The restructuring was likewise supported by a fairness opinion from Simmons & Company International ("Simmons"), a financial advisor. The restructuring was subject to approval by holders of a majority of Genesis units. (Id. ¶ 58) In October 2000 Genesis mailed unitholders three proxy statements to vote on the proposed restructuring, which was approved in December 2000. (Id. ¶ 68) It is these three events-the IPO, SPO and restructuring-that form the basis of Zoren's complaint.

III. PROCEDURAL HISTORY

Zoren filed his original complaint in June 2000 in the Delaware Court of Chancery, alleging that the proposed restructuring unfairly benefitted Genesis and SSB to the detriment of unitholders. (D.I. 1, Ex. A ¶ 49-58) Zoren charged defendants with responsibility for a steadily declining revenue stream and, in turn, a declining unit value and the inability of Genesis to fully fund its minimum quarterly distribution obligation. (Id.) In claiming that defendants breached fiduciary and contractual duties under Delaware law, Zoren did not initially allege fraud, misrepresentation, deception or the like. (Id.)

Zoren filed his amended complaint in November 2000, only weeks after defendants mailed unitholders the proxy statement seeking approval to restructure. The amended complaint continues to assert breaches of fiduciary and contractual obligations, but differs substantially from the initial pleading in defendants' motives for the IPO, SPO and reorganization. While the original pleading is premised upon "self-dealing and unjust enrichment" (Id. ¶ 51), the amended complaint alleges a long-standing conspiracy to defraud and deceive unitholders.

Specifically, the amended complaint for the first time alleges that the "IPO prospectus was materially false and misleading" in that it "failed to disclose" at least a dozen material facts. (D.I. 1, Ex. A ¶ 30) Similarly, Zoren alleges "[t]he Secondary Public Offering Prospectus was materially false and misleading in numerous ways, including each and every count of the (12) subparagraphs set forth in paragraph 30 above." (Id. ¶ 43) Rather than disclose this information, Zoren alleges "SSB enlisted its financial analysts in an effort to deceive the public." (Id. ¶ 45) Zoren claims SSB attempted "[t]o disguise the inflation of Genesis' market price" and its "subsequent equity research analyses of Genesis continued this charade." (Id. ¶ 49 & 50)

Aside from fraud and deceit in the IPO and SPO, Zoren alleges similar conduct in the restructuring. Specifically, Zoren claims a defendant director's "characterization of the proposed reorganization is materially false and misleading." (Id. ¶ 62) He further claims the proxy statements "falsely" described special committee members as "disinterested" and that the committee and Simmons' independence "is a total sham." (Id. ¶ 63, 64) The proxy statements are further described as "blatant attempt[s] by SSB and Genesis to mislead unitholders into believing that Simmons' work was adequate." (Id. ¶ 66)

In describing a breach of duty of candor, Zoren alleges each of the three restructuring proxy statements "is materially false and misleading and each is intended to mislead the unitholders into approving a transaction which is not in their best interest." (Id. ¶ 68) Zoren further alleges that the proxy statements contain "many misrepresentations or omissions of fact which are material to any decision by the unitholders on how to vote with respect to the Reorganization." (Id. ¶ 74) Thirteen alleged "misrepresentations and omissions" are detailed. (Id.)

As with his other state law claim, Zoren's breach of fiduciary duty allegations incorporate the charges of fraud and deceit "detailed at length above" and assert the proxy statements contain "misrepresentations or omissions of fact which are material to any decision by the shareholders on how to vote with respect to the proposed transaction." (Id. ¶ 83) Although his amended pleading adds this pattern of fraud and deceit, Zoren chose to continue his demand for compensation "for all losses and damages" caused by defendants' conduct. (Id. p. 37)

IV. STANDARD OF REVIEW

In analyzing a motion to dismiss pursuant to Rule 12(b)(6), the court must accept as true all material allegations of the complaint and it must construe the complaint in favor of the plaintiff. See Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts, Inc., 140 F.3d 478, 483 (3d Cir.1998). "A complaint should be dismissed only if, after accepting as true all of the facts alleged in the complaint, and drawing all reasonable inferences in the plaintiff's favor, no relief could be granted under any set of facts consistent with the allegations of the complaint." (Id.) Claims may be dismissed pursuant to a Rule 12(b)(6) motion only if the plaintiff cannot demonstrate any set of facts that would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). The moving party has the burden of persuasion. See Kehr Packages, Inc., v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir.1991).

Relevant here, removal jurisdiction is governed by 28 U.S.C. § 1441(a). The statute is strictly construed, requiring remand to state court if any doubt exists over whether removal was proper. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 104, 61 S.Ct. 868, 85 L.Ed. 1214 (1941). The party seeking removal bears the burden to establish federal jurisdiction. Steel Valley Auth. v. Union Switch & Signal Div. Am. Standard, Inc., 809 F.2d 1006 (3d Cir.1987). see also Coardes v. Chrysler Corp., 785 F.Supp. 480 (D.Del. 1992).

The existence of a federal question rests upon the allegations of a "well-pleaded complaint." Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). A plaintiff, therefore, is described as the "master of the complaint" and a defendant may not remove a state law claim, even on federal preemption grounds, if the plaintiff pleads only state law claims. Id. The doctrine of "complete preemption," however, stands as an exception to the well-pleaded complaint rule. It holds that "once an area of state law has been completely preempted, any claim purportedly based on that preempted state law is considered, from its inception, a federal claim, and therefore arises under federal law." Id. at 393, 107 S.Ct. 2425, citing Franchise Tax Board of Cal. v. Construction Laborers Vacation Trust for Southern Calif., 463 U.S. 1, 24, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). With these principles in mind, the court accepts as true all allegations in Zoren's amended complaint to decide whether defendants have established that the case was properly removed and, therefore, is preempted under SLUSA.

V. DISCUS...