Oil train tank cars are pictured at the Dakota Plains Pioneer Terminal in New Town, N.D., on June 8, 2016. (Photo: Alex Milan Tracy/AP)
Two months after the U.S. Securities and Exchange Commission cracked down on the founders of Dakota Plains Holdings Inc., the midstream energy company filed for bankruptcy in Minneapolis shortly before Christmas. Dakota Plains, which is seeking a sale of its operations to a Houston-based buyer, listed only $3.1 million in assets against nearly $75.4 million in liabilities in its Chapter 11 petition.
Some of those debts include thousands of dollars owed to at least three law firms. Dakota Plains ran into trouble this past fall after its former CEO Craig McKenzie resigned amid sagging financials as a result of the ongoing decline in global oil prices and allegations that the Wayzata, Minnesota-based company had manipulated its stock price.
On Halloween, the SEC unveiled charges against Dakota Plains co-founders Ryan Gilbertson and Michael Reger, accusing the two defendants of multiple securities law violations after the oil transportation company went public in early 2012. Reger agreed to pay nearly $8 million to settle the SEC case, but civil charges remain pending in a Minneapolis federal court against Gilbertson and two other defendants, Douglas Hoskins, a friend of Gilbertson’s, and Thomas Howells, a consultant who advised on a reverse merger between Dakota Plains and a shell company called MCT Holding Corp. (Dorsey & Whitney’s James Langdon, Edward Magarian and David Trevor are representing Reger in the SEC case and related civil litigation.)
Baker & Hostetler complex commercial litigation and restructuring partner Eric Goodman in Cleveland, bankruptcy partners Elizabeth Green and Jimmy Parrish in Orlando and finance partner Jorian Rose in New York are leading a team from the firm advising Dakota Plains in its bankruptcy case. A court filing by Baker & Hostetler on Tuesday noted that the firm has received a $150,000 retainer for its services and has discounted its normal hourly rates by 10 percent. (Baker & Hostetler lawyers are billing Dakota Plains between $250 and $860 per hour.)
Michael McGrath, a name partner at Minneapolis-based Ravich, Meyer, Kirkman, McGrath, Nauman & Tansey, is serving as local bankruptcy counsel to Dakota Plains. Ravich Meyer has received a $10,000 retainer and lawyers from the firm are billing between $285 and $475 per hour for their services, according to court filings. The company’s Chapter 11 petition on Dec. 20 shows that it has already paid $4,012.75 to Ravich Meyer. Other firms receiving small retainer payments from Dakota Plains include Minneapolis-based Lindquist & Vennum ($10,000) and Bridgewater, New Jersey-based Hartmann & Anglim ($2,500).
According to a list of Dakota Plains’ 20 largest unsecured creditors, the debtor owes $272,919.27 to Faegre Baker Daniels in Minneapolis; $218,915.80 to Vinson & Elkins in Dallas; and $32,762.41 to Reno, Nevada-based business and real estate firm Woodburn & Wedge. Sard Verbinnen & Co., a prominent Wall Street public relations firm, is owed another $40,730.86 from Dakota Plains for investor relations work.
Earlier this year, Vinson & Elkins advised Dakota Plains on its adoption of a shareholder rights plan—also known as a “poison pill”—in connection with activist activity by hedge fund Lone Star Value Management LLC. Kai Liekefett, head of Vinson’s shareholder activism response team, subsequently advised Dakota Plains on a proxy contest commenced by Lone Star as the latter nominated five members to the company’s board of directors. (Old Greenwich, Connecticut-based Lone Star, the largest stockholder in Dakota Plains, has been a vocal critic of the company’s management in recent months.)
James Thornton, a former associate at Balch & Bingham and McKenna Long & Aldridge (absorbed into Dentons in 2015), serves as general counsel for Dakota Plains, as well as the company’s interim chief financial officer. Gilbertson has reportedly cited statements made to him by Thornton describing how an outside law firm had blessed certain transactions being scrutinized by the SEC.
Houston-based BioUrja Trading LLC has emerged as a stalking horse bidder for Dakota Plains with an $8.55 million offer to acquire the company through a section 363 sale. Lawyers for BioUrja have yet to enter an appearance with the bankruptcy court.