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Farber v. Crestwood Midstream Partners L.P.

United States Court of Appeals, Fifth Circuit

July 17, 2017

LAWRENCE G. FARBER Plaintiff
v.
CRESTWOOD MIDSTREAM PARTNERS L.P.; CRESTWOOD MIDSTREAM GP, L.L.C.; ROBERT G. PHILLIPS; ALVIN BLEDSOE; MICHAEL G. FRANCE; PHILIP D. GETTIG; WARREN H. GFELLER; DAVID LUMPKINS; JOHN J. SHERMAN; DAVID WOOD; CRESTWOOD EQUITY PARTNERS L.P.; CRESTWOOD EQUITY GP L.L.C.; CEQP ST SUB L.L.C.; MGP GP, L.L.C.; CRESTWOOD MIDSTREAM HOLDINGS L.P.; CRESTWOOD GAS SERVICES GP, L.L.C., Defendants-Appellees
v.
DAVID G. DUGGAN, Appellant ISAAC ARON, Individually and on Behalf of All Others Similarly Situated, Plaintiff-Appellee
v.
CRESTWOOD MIDSTREAM PARTNERS L.P.; CRESTWOOD MIDSTREAM GP, L.L.C.; ROBERT G. PHILLIPS; ALVIN BLEDSOE; MICHAEL G. FRANCE; PHILIP D. GETTIG; WARREN H. GFELLER; DAVID LUMPKINS; JOHN J. SHERMAN; DAVID WOOD; CRESTWOOD EQUITY PARTNERS L.P.; CRESTWOOD EQUITY GP L.L.C.; CEQP ST SUB L.L.C.; MGP GP, L.L.C.; CRESTWOOD MIDSTREAM HOLDINGS L.P.; CRESTWOOD GAS SERVICES GP, L.L.C., Defendants-Appellees
v.
DAVID G. DUGGAN, Appellant

         Appeal from the United States District Court for the Southern District of Texas

          Before STEWART, Chief Judge, and JOLLY and WIENER, Circuit Judges.

          E. GRADY JOLLY, Circuit Judge.

         The class members get nothing. The attorneys get their fees. A class member objects, but untimely. Consequently, we lack appellate jurisdiction.

         More specifically, this appeal arises from the district court's approval of a zero-dollar class action settlement and award of attorneys' fees in a consolidated lawsuit stemming from a merger between two Delaware entities: Crestwood Midstream Partners LP ("Midstream") and Crestwood Equity Partners LP ("Equity"). In the class action lawsuit, Isaac Aron, a Midstream unitholder and the class representative, alleged that Midstream's directors breached their fiduciary duty in approving the merger and that Equity's preliminary proxy statement omitted material information in violation of federal securities laws and Securities and Exchange Commission ("SEC") rules. The parties settled for additional disclosures, confirmatory discovery, and attorneys' fees. David Duggan, a class member, objected to the settlement. The district court approved the parties' settlement and awarded Aron attorneys' fees over Duggan's objection. Duggan appeals. We DISMISS for lack of appellate jurisdiction.

         I.

         On May 5, 2015, Midstream and Equity entered into a merger agreement in which Midstream would become a wholly-owned subsidiary of Equity and Midstream's unitholders would receive 2.75 common units of Equity for each unit of Midstream that they owned. The agreement was, however, subject to a vote by Midstream's unitholders.

         Fifteen days later, Lawrence Farber, a Midstream unitholder, filed a putative class action against sixteen named defendants, most notably Midstream and Equity, asserting that: (1) Midstream's directors breached their fiduciary duty by attempting to sell Midstream by means of an unfair process and for an unfair price; and (2) Equity aided and abetted such breaches.

         In June 2015, Equity filed a preliminary proxy statement with the SEC related to the merger. The preliminary proxy, among other things, summarized the merger agreement, explained the events leading up to the agreement, and summarized the financial analyses of Tudor, Pickering, Holt & Co. Advisors, LLC ("Tudor"), one of the financial advisors to the Midstream Conflicts Committee. Two parts of the proxy addressing Tudor's financial analyses are particularly relevant. First, in the Contribution Analysis section, the proxy stated that the contribution analysis indicated a range of implied exchange ratios in the merger of 1.432x to 4.179x, as compared to the exchange ratio of 2.750x. Second, in the Unaudited Financial Projections section, the proxy included a table showing unaudited financial projections[1] from 2015 to 2019 for Equity, Midstream, and the pro forma combined entity that would result from the merger. Importantly, the proxy stated that each financial forecast "included a base case[2] . . ., as well as an upside case[3] and a downside case, [4] resulting from adjustments by . . . management to the applicable base case." But the relevant table included only one case and never identified whether it reflected the base, upside, or downside case.

         On July 6, 2015, Farber amended his complaint to add the claim that the preliminary proxy violated SEC Rule 14a-9[5] and Section 14(a) of the Securities Exchange Act of 1934[6] because it was materially misleading and omitted material facts unitholders needed to properly evaluate the proposed merger.

         Fifteen days later, Aron filed his own putative class action against the Farber suit defendants, alleging that Midstream and Equity violated Securities Exchange Act §§ 14(a) and 20(a)[7] and Rule 14a-9. Pertinently, Aron contended that the preliminary proxy violated Section 14(a) and Rule 14a-9 because it omitted material facts regarding, among other things, key inputs and assumptions of the financial analyses performed by Tudor.

         Equity filed two amendments to the preliminary proxy in July and August 2015. While they provided some of the information Farber and Aron sought, these amendments did not provide the requested data underpinning Tudor's financial analyses.

         On August 28, 2015, Equity filed its final proxy with the SEC. Notably, Equity did not change the Contribution Analysis and Unaudited Financial Projections sections.

         Three days later, Midstream announced that it would hold a special meeting for unitholders to vote on the proposed merger on September 30, 2015. Shortly thereafter, Farber and Aron jointly moved for a preliminary injunction, seeking to enjoin the unitholder vote until Midstream and Equity disclosed the "material" information they had allegedly omitted from the final proxy in violation of federal securities laws and regulations.

         The district court consolidated Aron and Farber's cases. Farber then filed a voluntary notice of dismissal. But Aron moved for a temporary restraining order, expedited preliminary injunction hearing, and preliminary injunction.

         The district court granted Farber's motion to dismiss all of his claims against Midstream and Equity and ...


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