WATKINS v. HAMM
419 P.3d 353
| Okla. Civ. App. | 2017Background
- Continental Resources (controlled by Harold Hamm) acquired Wheatland Oil in 2012; Hamm and Hume (Wheatland owners) received ~ $313 million of Continental stock, slightly increasing Hamm’s control and diluting minority holders.
- Plaintiffs (minority Continental shareholders) originally sued derivatively and directly alleging breach of fiduciary duty, unjust enrichment, and aiding and abetment based on alleged overpayment/dilution and misleading disclosures.
- Procedurally: federal litigation on related proxy/disclosure claims dismissed; plaintiffs voluntarily abandoned their derivative claims and amended to assert only a direct class claim for minority shareholders against Hamm, Hume, and Wheatland.
- Defendants moved to dismiss, arguing Oklahoma law recognizes only derivative claims for corporate overpayment/dilution and that the amended pleading failed Tooley/Aronson-type tests and reasserted previously-dismissed disclosure claims.
- The trial court dismissed the amended petition with prejudice; the Oklahoma Court of Civil Appeals affirmed, declining to recognize a new direct cause of action under Oklahoma law and finding the pleaded harm derivative in nature.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Oklahoma recognizes a direct shareholder claim against officers/directors for alleged over-issuance/dilution | Watkins: minority shareholders can pursue a direct claim (relying on Delaware "intrinsic fairness" and Gentile-type theory) | Hamm/Hume: Oklahoma law permits only derivative suits for corporate overpayment/dilution; plaintiffs’ claim is derivative and improperly abandoned | Court: Oklahoma will not adopt a direct action here; plaintiffs’ claims are derivative and dismissal affirmed |
| Whether plaintiffs satisfy Tooley (direct v. derivative) test | Plaintiffs: harm is unique to minority shareholders because value/voting power was transferred to controlling shareholders | Defendants: harm flowed to Continental; any recovery would benefit the corporation and shareholders pro rata; plaintiffs cannot prevail without showing injury to the corporation | Held: Plaintiffs fail Tooley prongs — harm alleged is to the corporation and relief would benefit Continental; plaintiffs cannot prevail without showing corporate injury |
| Applicability of Delaware precedents (Gentile, Tooley) to permit a direct claim in Oklahoma | Plaintiffs: Delaware decisions—especially Gentile—support direct/double-natured claims for control-extracting dilution | Defendants: Delaware law is unsettled and Oklahoma should not extend its corporate law to adopt Gentile’s direct-claim approach | Held: Court notes Delaware confusion over Gentile and declines to expand Oklahoma law based on unsettled Delaware authority |
| Whether rescission/damages sought would inure solely to minority shareholders | Plaintiffs: rescission of excess shares would redress minority loss and restore minority value | Defendants: relief would primarily benefit Continental and all shareholders; not unique to plaintiffs | Held: Relief would redound to the corporation and all shareholders; claim is derivative, not direct |
Key Cases Cited
- Tooley v. Donaldson, Lufkin & Jenrette, 845 A.2d 1031 (Del. 2004) (test for distinguishing direct v. derivative claims)
- Gentile v. Rossette, 906 A.2d 91 (Del. 2006) (recognized dual-natured direct/derivative claim in controlling-shareholder dilution context)
- El Paso Pipeline GP Co. v. Brinckerhoff, 152 A.3d 1248 (Del. 2016) (refused to extend Gentile; emphasized limits of direct-claim theory)
- Feldman v. Cutaia, 951 A.2d 727 (Del. 2008) (explains why corporate overpayment/dilution claims are generally derivative)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (demand-futility standard for derivative suits)
- Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (addressed standard of review in controller transactions; relevant to demand/business-judgment analysis)