SandRidge Bankruptcy Court Denies Plan Enforcement on D&O Indemnification Discharge Claims
SandRidge Energy sought to enforce its confirmed Chapter 11 plan to bar insurers' $17 million subrogation claims against the reorganized debtor for indemnification obligations to former officers arising from federal securities class actions. Judge Isgur denied the motion, holding that because SandRidge's D&O policies and indemnification obligations were assumed under the plan pursuant to § 365, they were not discharged and remained enforceable post-confirmation.
Background and Business Context
SandRidge Energy, Inc., a Mid-Continent oil and gas exploration and production company, filed for Chapter 11 bankruptcy protection in May 2016. Prior to the filing, SandRidge and three of its officers—Tom Ward, James D. Bennett, and Matthew K. Grubb—were named as defendants in two federal securities class action lawsuits filed in 2012 and 2015 in the Western District of Oklahoma. The bankruptcy stay halted these proceedings, but they resumed against the officers following plan confirmation in September 2016, with SandRidge remaining as a nominal defendant.
The securities litigation ultimately settled for $17 million, paid entirely by SandRidge's D&O liability insurance carriers. Following payment, the insurers filed suit against SandRidge as subrogees of two of the former officers (Bennett and Grubb), seeking to enforce the officers' indemnification rights against the reorganized debtor. The D&O policies expressly provided subrogation rights to the insurers when coverage is provided following SandRidge's wrongful refusal to indemnify.
The Dispute
SandRidge moved to reopen its bankruptcy case (closed in November 2020) and enforce its confirmed plan, arguing that its indemnification obligations to Bennett and Grubb were discharged in the Chapter 11 proceedings. The insurers contended that SandRidge had assumed both its D&O policies and its indemnification obligations under the plan, and therefore these obligations survived confirmation and were not discharged.
Through its bylaws, certificates of incorporation, and certain indemnification agreements, SandRidge had provided broad indemnification to its directors and officers for certain conduct in their capacity as directors and officers of the company. The insurers alleged that SandRidge was obligated to indemnify its officers and directors for the securities lawsuits under these provisions.
The Court's Ruling
Judge Marvin Isgur denied SandRidge's motions to reopen the case and enforce the plan in a brief memorandum opinion. The court held:
Because SandRidge's D&O policies and indemnity obligations were assumed in its Chapter 11 plan, they were not discharged.
The ruling means that the insurers' subrogation claims against SandRidge may proceed, as the indemnification obligations to Bennett and Grubb survived the bankruptcy process through the plan's assumption provisions under § 365 of the Bankruptcy Code. SandRidge's attempt to use its confirmed plan as a shield against the $17 million subrogation claim failed because the plan itself had preserved, rather than discharged, the very obligations the company now sought to avoid.