Jon D. Gruber v. Ryan R. Gilbertson

Background

This long-running securities class action was brought by Dakota Plains Holdings, Inc. shareholders against various company officers and directors. After a jury trial, the court approved settlements with all remaining defendants except Michael Reger and directed the claims administrator to calculate class-member damages. The administrator calculated total class losses of $51,818,909.82.

The court considered Reger’s objections to the claims administrator’s report and the plaintiffs’ request to distribute the $13.95 million settlement paid by the other officer and director defendants.

Calculation of damages against Reger

The court held that the 57% stock-price-inflation finding had to be applied first because the statutory reductions apply to the judgment, not automatically to the class’s entire claimed loss. Applying that reduction produced damages of $29,536,778.5974, assuming the administrator’s total-loss figure was correct.

The court then determined that Gilbertson’s 50% responsibility corresponded to a reduction of $14,768,389.2987. The court also held that the separate $13.95 million settlement had to be deducted in full. The statute did not allow the court to reduce that settlement credit based on Gilbertson’s responsibility. The court therefore adopted Reger’s calculation approach in principle, which had produced $818,389.30 using the administrator’s original total-loss figure, but directed the administrator to recalculate the loss total first as required elsewhere in the opinion.

Challenges to individual claims

The court rejected Reger’s argument that most challenged claimants knew about his undisclosed ownership interest and therefore could not recover. Reger did not provide enough evidence to overcome the presumption that the claimants relied on the omitted information. The court allowed claims by Lone Star Value Investors, LP; the Lynch claimants and Fidelity; Silver Mountain Partners LP; early investors in Dakota Plains; and other challenged claimants.

Clear Harbor Asset Management withdrew its claim, so the administrator was directed to remove it from the loss calculation. The court also rejected Reger’s request for additional post-trial discovery, relying on its earlier conclusion that he had already had substantial discovery opportunities and had not shown a sufficient basis for further individualized inquiry.

PIPE offering claims

The court allowed claims based on shares purchased in the private-investment-in-public-equity offering. The fixed purchase price of $2.15 per share did not exclude those shares because the offering documents contained the same material omissions underlying the claims, and the price was nearly the same as Dakota Plains’ market price on the offering date. The court also found no evidence that any knowledge held by placement agents was communicated to the class members.

Claims-administration methodology

The court found that Reger’s objection to using a first-in-first-out method for claimants who held shares from before the class period had merit. Because those claimants’ pre-public-offering shares could be matched with later sales, the method could improperly create losses based on shares that were not compensable. The administrator was directed to use a last-in-first-out method for Silver Mountain and the handful of other claimants with pre-public-offering shares.

The court denied Reger’s objections concerning fees and commissions, allegedly inadequate documentation, and quality-control procedures. The cited examples did not establish a systemic problem with the administrator’s work. The court noted that one pricing error should be corrected but was insufficient to undermine the overall process.

Settlement distribution and other rulings

The court granted the plaintiffs’ request to pay the claims administrator an additional $94,187.99 in unpaid fees and anticipated distribution costs. It agreed that PIPE shares should be included in the class. It denied approval of the administrator’s treatment of Silver Mountain’s reissued shares and required a LIFO recalculation. It agreed that Thomas Pivec’s claim should be denied because he neither purchased nor sold shares during the class period and therefore was not a class member.

The court allowed five claims filed shortly after the deadline, totaling $102,345.25, and granted the plaintiffs’ request to distribute the officer-and-director settlement funds, subject to the required changes to the claims calculations. In conclusion, the plaintiffs’ motions were granted, and Reger’s motion was granted in part and denied in part.