Fort Stockton v. Sandridge

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 1 of 20
IN THE UNITED STATES BANKRUPTCY COURT

FOR THE SOUTERN DISTRICT OF TEXAS
HOUSTON DIVISION
SANDRIDGE ENERGY, INC., et al.,1
Debtors.
FORT STOCKTON INDEPENDENT
SCHOOL DISTRICT,
Plaintiff,
v.
SANDRIDGE ENERGY, INC., SANDRIDGE

EXPLORATION AND PRODUCTION, LLC,
PION GATHERING COMPANY, LLC, AND
PECOS COUNTY APPRAISAL DISTRICT,
Defendants.
IN RE:
Case No. 16-32488

Chapter 11
(Jointly Administered)
Adversary Proceeding
No. 16-__________
ORIGINAL COMPLAINT OF FORT STOCKTON

INDEPENDENT SCHOOL DISTRICT
TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE:
Fort Stockton Independent School District (FSISD), a creditor and interested party in
the above-captioned Chapter 11 case, hereby files this Original Complaint complaining of
1
The Debtors in these chapter 11 cases, along with the last four digits of each Debtors federal tax identification
number, include: SandRidge Energy, Inc. (4793); 4th Street Properties, LLC (N/A); Black Bayou Exploration,
L.L.C. (0561); Braniff Restaurant Holdings, LLC (2453); CEBA Gathering, LLC (6478); CEBA Midstream GP,
LLC (0511); CEBA Midstream, LP (7252); Cholla Pipeline, L.P. (5092); Cornhusker Energy, L.L.C. (4609); FAE
Holdings 389322R, LLC (N/A); Integra Energy, L.L.C. (7527); Lariat Services, Inc. (0702); MidContinent
Resources, LLC (6928); Mistmada Oil Company, Inc. (3032); Pion Gathering Company, LLC (5943); Sabino
Exploration, LLC (1929); Sagebrush Pipeline, LLC (0515); SandRidge CO2, LLC (7903); SandRidge Exploration
and Production, LLC (6535); SandRidge Holdings, Inc. (8401); SandRidge Midstream, Inc. (1148); SandRidge
Operating Company (1245); SandRidge Realty, LLC (6079); Sierra Madera CO2 Pipeline, LLC (1558); and WTO
Gas Gathering Company, LLC (N/A). The location of the Debtors service address is: 123 Robert S. Kerr Avenue,
Oklahoma City, Oklahoma 73102.
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SandRidge Energy, Inc., SandRidge Exploration and Production, LLC, Pion Gathering
Company, LLC (SandRidge Energy, Inc. and its subsidiaries SandRidge Exploration and
Production, LLC and Pion Gathering Company, LLC are collectively referred to herein for all
purposes as SandRidge or Debtor), and the Pecos County Appraisal District (hereinafter
PCAD, and collectively with SandRidge, the Defendants), and in support thereof
respectfully represents as follows:
I.
1.
JURISDICTION AND VENUE
Jurisdiction is proper before this Court pursuant to 28 U.S.C. 157 and 1334.
This is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(A), (K), and (O). See also In re
Altegrity, Inc., 544 B.R. 772, 777 (Bankr. D. Del. 2016) (matters brought under section 505(a)
are core proceedings). Further, this is an adversary action under Rule 7001 of the Federal Rules
of Bankruptcy Procedure for the determination of certain ad valorem tax claims and the
allowance and recovery of administrative priority claims for ad valorem taxes, penalties, and
interest against SandRidge.
2.
Venue is appropriate in this Court pursuant to 28 U.S.C. 1408 and 1409
because SandRidges bankruptcy case is pending before this Court.

II.
3.
THE PARTIES
Fort Stockton Independent School District is an independent school district as per
the Education Code of the State of Texas and subdivision of the State of Texas, with its principal
office located at 101 West Division Street, Fort Stockton, Texas 79735. There are five schools
located within FSISDs geographical area: Alamo Elementary, Apache Elementary, Fort
Stockton Intermediate School, Fort Stockton Middle School, and Fort Stockton High School. As
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a school district, Fort Stockton ISD is also a taxing unit pursuant to the Texas Tax Code.
Pursuant to the Education Code (Sec. 11.152) FSISD may levy and collect taxes.
4.
Defendant SandRidge Energy, Inc., a debtor in the above-captioned Chapter 11
case, is an oil and natural gas company incorporated in Delaware with its corporate headquarters
located at 123 Robert S. Kerr Avenue, Oklahoma City, Oklahoma 73102. SandRidge Energy,
Inc. may be served with process through its registered agent, The Corporation Trust Company,
Corporation Trust Center, 1209 Orange St., Wilmington, DE 19801.
5.
Defendant SandRidge Exploration and Production, LLC, a subsidiary of
SandRidge Energy, Inc. and an affiliated debtor in the above-captioned Chapter 11 case, is a
Delaware limited liability company with its principal office located at 123 Robert S. Kerr
Avenue, Oklahoma City, Oklahoma 73102. SandRidge Exploration and Production, LLC may be
served with process through its registered agent, The Corporation Trust Company, Corporation
Trust Center, 1209 Orange St., Wilmington, DE 19801.
6.
Defendant Pion Gathering Company, LLC, a subsidiary of SandRidge Energy,
Inc. and an affiliated debtor in the above-captioned Chapter 11 case, is a Delaware limited
liability company with its principal office located at 1700 Pennsylvania Ave., NW, Washington,
DC 20006. Pion Gathering Company, LLC may be served with process through its registered
agent, Clayton R. Taylor, 333 Clay Street, Suite 4150, Houston, TX 77002.
7.
Defendant Pecos County Appraisal District is the appraisal district tasked with
appraising property in Pecos County, where FSISD is located. PCADs principal office is located
at 201 S. Main Street, Fort Stockton, TX 79735.
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III.
8.
NATURE OF CASE
In Texas, pursuant to Article 8 Section 1(b) of the Texas Constitution, all real
property and tangible personal property in the Stateunless exempt as required or permitted by
the Constitutionis to be taxed in proportion to its value. The taxation of such property is
termed ad valorem. In Texas, oil, gas, and other minerals are subject to ad valorem taxation.
Each ownership interest in oil, gas or other minerals prior to severance from the earth is
construed as real property. Each of these types of property is classified as Category G
property for ad valorem taxation purposes. The value of all mineral deposits still in the ground,
as well as those not yet produced and the equipment used to produce and prepare minerals for
sale, are considered taxable property.2 Thus, Category G taxable property includes all proved
reserves (both producing and non-producing), unproved reserves, and equipment.
9.
Under Texas law, misrepresentations by the taxpayer regarding the value of its
property subject to ad valorem tax obviates any release from liability for the payment of the taxes
avoided. As a result, taxes that would have been paid, but were not assessed or paid as a result
of such misrepresentation, are construed as a debt and are subject to the limitations set forth in
the Texas Constitution, Article III, Section 55 which prohibits the legislature from limiting by
time the recovery of debt owed to a subdivision of the State. Further, Section 55 specifically
limits delinquent property taxes to legislative limitation of no less than ten (10) years. The
Debtor owes taxes that it has avoided by misrepresentation, and prior to the Debtors filing
bankruptcy, FSISD served Debtor with a demand for payment for said debt. The basis for the
debt is that FSISD disputes the valuation of SandRidges reported assets in Pecos County. Since
at least 2003, the valuation of SandRidges assets in Pecos County and its related property tax
See TEXAS COMPTROLLER OF PUBLIC ACCOUNTS, Texas Property Tax Assistance Property Classification Guide,
Feb. 2014, pg. 10, http://comptroller.texas.gov/taxinfo/proptax/pdf/96-313.pdf.
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liability to FSISD have been substantially undervalued when compared to the property values
extrapolated through the quantity of proved reserves SandRidge provided in information and
sworn reports to the Energy Information Administration (EIA). Such information is specific in
detail to the oil and gas field, and therefore specific in detail to the taxable reserves within the
FSISD tax district.
10.
Reports to the EIA, for example, are required to list only the quantity of proved
reserves (producing and non-producing), whereas taxable Category G property, in contrast,

includes all proved reserves (producing and non-producing), in addition to unproved reserves
and equipment.
11.
Even though SandRidges reports to the EIA list only proved reserves, the
extrapolated value of the quantities of its reported proved reserves for the years 2003 through
2011 greatly surpass the value of all Category G taxable property from all operators in Pecos
County for those years. By way of example, the extrapolated value of SandRidges reported
proved reserves within FSISDs taxing area in Pecos County is $11,837,622,170 for the year
2008. Despite this, the total Category G property valuation for FSISDs taxing area in Pecos
County for all taxpayers amounted to only $1,417,148,690a nearly $10 billion deficit.
Subsequent years are similar.
12.
Upon information and belief, SandRidge has (i) intentionally or recklessly
omitted taxable Category G property in information, communication, and reports provided to

PCAD for appraisal purposes; and (ii) intentionally or recklessly misrepresented the amounts or
values of its taxable Category G property in information, communication, and reports provided
to PCAD for appraisal purposes. As a result, under Texas law, SandRidge is liable to FSISD for
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the untaxed property. And per Article II Section 55 of the Texas Constitution, the debt has not
been released due to the passage of time.
13.
Further, FSISD believes that SandRidge has deliberately attempted to prevent
FSISD from securing its claim through tax liens by transferring the assets that would be subject
to those liens to a third party shortly before SandRidges bankruptcy.
14.
As a result of SandRidges fraudulent misrepresentations, omissions, and/or
undervaluations, FSISD is owed substantial sums by SandRidge, in an amount estimated by

FSISD, based on available information, to exceed $500 million for the period 2003 through
2015, exclusive of penalties and interest. Because this tax liability has not yet been assessed, it
likewise has not yet been incurred and will constitute a postpetition administrative expense under
11 U.S.C. 507(a)(2) and 503(b)(1)(B) and (C).
IV.
15.
PROCEDURAL BACKGROUND
On May 16, 2016 (the Petition Date), SandRidge and its affiliated debtors
commenced the above-captioned bankruptcy case by filing voluntary petitions for relief under
Chapter 11 of Title 11 of the United States Code, 11 U.S.C. 101, et seq. (the Bankruptcy
Code).
16.
On May 18, 2016 FSISD filed a Limited Comment in Response to Debtors
Emergency First-Day Motions [Dkt. 64] (the Comment). In its Comment, FSISD stated it was
evaluating its options for collecting the debt owed it by SandRidge, including but not limited to
contesting prior valuations, appraisals, renditions, and/or assessments in Pecos County, including
those associated with Debtors property tax liabilities owed to FSISD over the past several years.
17.
On June 16, 2016, as part of its ongoing investigation, FSISD filed its Expedited
Motion for Order Directing SandRidge Energy, Inc., et al. to Produce Documents and Appear
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for Examination Pursuant to Federal Rule of Bankruptcy Procedure 2004 [Dkt. 235] (the 2004
Motion).
18.
On June 24, 2016, the Bankruptcy Court held a hearing on FSISDs 2004 Motion,
during which the Court instructed FSISD to file a notice of deposition pursuant to the Courts
local rules.
19.
On June 27, 2016, FSISD filed and served its Notice of Intention to Take Oral
Deposition, Duces Tecum, of Debtors Designated Representative(s), Pursuant to Federal Rule

of Bankruptcy Procedure 2004 [Dkt. 375] (the 2004 Notice).
20.
FSISDs 2004 Notice scheduled the Debtors deposition for July 22, 2016 at
10:00 a.m., and also directed the Debtors to produce documents to FSISD based on the following
document requests by July 15, 2016:
1. All Documents reflecting the value of all of the Debtors assets in Pecos County, TX
for each year from January 1, 2010 to date.
2. All Documents Concerning asset valuations or reserves confirmations for Debtors
assets since January 1, 2010, including documents received by Debtors or prepared
for Debtors by T.Y. Pickett, Netherland, Sewell & Associates, DeGolyer and
MacNaughton, Lee Keeling and Associates, Inc., and Cawley, Gillespie &
Associates, Inc.
3. All Documents Concerning any submissions made to either the U.S. Energy
Information Administration or the Security Exchange Commission concerning any
real or personal property owned by Debtors in Pecos County, Texas since January 1,
2010.
4. All Documents Concerning any submissions made to, or communications with, the
Pecos County Appraisal District for the purpose of determining the existence and
valuation of all real or personal property owned by Debtors in Pecos County, Texas
since January 1, 2010.
5. All Documents reflecting any real or personal property in Pecos County, Texas that
Debtors have sold, transferred, or otherwise conveyed since January 1, 2010.
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21.
On July 5, 2016, the Debtors filed Debtors Emergency Motion to Quash the
Notice of Intention to Take Oral Deposition, Duces Tecum, of Debtors Designated

Representative(s), Pursuant to Federal Rule of Bankruptcy Procedure 2004 [Dkt. 470]
(Debtors MTQ).
22.
On July 6, 2016, the Bankruptcy Court entered its Order Staying 2004 Exam
Notice, Establishing Deadlines and Setting Hearing [Dkt. 475] (the 2004 Order).
23.
In the 2004 Order, the Court ordered that FSISDs 2004 Notice to the Debtors
was stayed pending further court order. The order also set the Debtors MTQ for hearing on
August 4, 2016 and established filing deadlines for the parties, with FSISDs response to
Debtors MTQ due July 22, 2016, and Debtors reply due July 29, 2016.
24.
FSISD also has attempted to obtain these documents and depositions directly
from the PCAD.

25.
On June 16, 2016, FSISD filed and served its Notice of Intention to Take Oral
Deposition, Duces Tecum, of Designated Representative(s) of Pecos County Appraisal District,

Pursuant to Federal Rule of Bankruptcy Procedure 2004 [Dkt. 237].
26.
On June 30, 2016, PCAD filed Pecos County Appraisal Districts Motion to
Quash Subpoena, Motion for Protective Order, and Objection to Duces Tecum [Dkt. 419] related
to FSISDs June 16, 2016 notice.
27.
On June 30, 2016, FSISD filed and served its Amended Notice of Intention to
Take Oral Deposition, Duces Tecum, of Designated Representative(s) of Pecos County Appraisal
District, Pursuant to Federal Rule of Bankruptcy Procedure, with Subpoena for Rule 2004
Examination [Dkt. 426] (the PCAD Subpoena).
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28.
On July 12, 2016, PCAD filed the Pecos County Appraisal Districts Motion to
Quash Subpoena for Rule 2004 Examination and Amended Notice of Intention to Take Oral
Deposition Duces Tecum, of Designated Representative(s) of Pecos County Appraisal District,
Motion for Protective Order, and Objection to Duces Tecum [Dkt. 499] (the PCAD MTQ).
29.
The next day, on July 13, 2016, the Bankruptcy Court entered its Order Granting
Pecos County Appraisal Districts Motion to Quash Subpoena for Rule 2004 Examination and
Amended Notice of Intention to Take Oral Deposition Duces Tecum, of Designated
Representative(s) of Pecos County Appraisal District, and Order Granting Motion for Protective
Order [Dkt. 506].
30.
As shown through the filings of their respective motions to quash, both the
Debtors and PCAD have obfuscated FSISDs search for transparency concerning substantial
discrepancies in the values of SandRidges property in Pecos County reported to federal agencies
compared to the values reported by the PCAD.
31.
On July 22, 2016, FSISD filed a proof of claim for its ad valorem tax claim,
including as an attachment a draft of this complaint to provide the Debtors with a detailed
description of the basis for FSISDs claim [Claim No. 903].
V.
32.
FACTUAL BACKGROUND
On November 13, 2014, FSISD, through counsel, sent a letter to SandRidges
General Counsel, Phillip Warman, expressing its concerns related to SandRidges reporting of
reserves and associated payment of ad valorem taxes on oil and gas reserves located in the Pecos
County taxing districts. No response was received by FSISD. On February 9, 2015, FSISD,
through counsel, sent a demand letter to SandRidge whereby FSISD demanded payment in the
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amount of $2,915,600,579, representing the estimated value of ad valorem taxes underpaid by

SandRidge and due FSISD for the period 2005 2011, inclusive of penalties and interest.
33.
On February 17, 2015, Warman and FSISD counsel discussed FSISDs demand
by phone. SandRidge communicated its willingness to meet, but requested additional

information beforehand. On February 18, 2015, FSISD, though counsel, sent a letter to
SandRidge advising that an abridged version of the requested information would be forthcoming.
On February 20, 2015, FSISD, through counsel, delivered said information to SandRidge. In
response, SandRidge agreed to a meeting which was scheduled to take place in Dallas, Texas on
March 30, 2015. However, on March 24, 2015, SandRidge cancelled the meeting; it was not
rescheduled.
34.
On May 5, 2015, SandRidge, through counsel, sent a letter to FSISD in response
to its November 13, 2014 and February 9, 2015 letters. Essentially, SandRidges letter requested
that FSISD provide even more information and documents supporting its allegations.
35.
Since at least the time of SandRidges response in May of 2015, FSISD has
attempted to obtain supporting property appraisal documents from PCAD. PCAD, however,
refused to provide any documents to assist FSISD with its potential challenge to its Category G
property tax appraisals for the years 2003 to 2015. Even now, PCAD continues to refuse to
provide FSISD with information and documents properly requested through the statutory
exemptions to withholding such information under Section 22.27(b) of the Texas Tax Code.
Thus, FSISD, despite its best efforts, has been unable to obtain the detailed documentation
requested by SandRidge in its May 2015 letter.
36.
Upon information and belief, SandRidge has intentionally or recklessly
undervalued its real and personal property in Pecos County, and omitted real and personal
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property submitted to PCAD through its working papers and/or rendition reports, for purposes of
ad valorem tax appraisal since 2003.
37.
The value of SandRidges Category G property in Pecos County has been
significantly underestimated when compared to the value of the quantities of SandRidges

proved reserves (producing and non-producing) reported to the EIA.
38.
For example, in its 2003 report to the EIA, SandRidge reported quantities of its
proved reserves located within FSISDs taxing area in Pecos County estimated to be valued at
$1,070,545,720. In contrast, the value of the entirety of Category G taxable property in FSISDs
taxing area of Pecos County, which should include all proved reserves, unproved reserves, and
equipment, of SandRidge and everyone else owning such property in FSISDs taxing area of
Pecos County, only amounted to $776,941,890 that same year. This significant discrepancy has
resulted in a minimum of $4,772,530 in lost ad valorem tax revenue to FSISD as determined
using that years annual ad valorem tax rate of 1.63%, not including additional penalties and
interest due. Because the total property value of all category G property in FSISDs taxing area
of Pecos County includes not just SandRidges property, but also the property of other operators,
SandRidges additional tax liability estimated above has likely been understated.
39.
In its 2005 report to the EIA, SandRidge reported quantities of its proved reserves
located within FSISDs taxing area in Pecos County estimated to be valued at $6,144,632,100. In
contrast, the value of the entirety of Category G taxable property in FSISDs taxing area of Pecos
County, which should include all proved reserves, unproved reserves, and equipment, of
SandRidge and everyone else owning such property in FSISDs taxing area of Pecos County,
only amounted to $1,211,173,910 that same year. This significant discrepancy has resulted in a
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minimum of $78,348,250 in lost ad valorem tax revenue to FSISD as determined using that
years annual ad valorem tax rate of 1.59%, not including additional penalties and interest due.
40.
41.
located within FSISDs taxing area in Pecos County estimated to be valued at $10,115,999,760.
In contrast, the value of the entirety of Category G taxable property in FSISDs taxing area of
Pecos County, which should include all proved reserves, unproved reserves, and equipment, of
42.
located within FSISDs taxing area in Pecos County estimated to be valued at $11,837,622,170.
In contrast, the value of the entirety of Category G taxable property in FSISDs taxing area of
Pecos County, which should include all proved reserves, unproved reserves, equipment, of
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43.
44.
45.
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only amounted to $808,192,474 that same year. This significant discrepancy has resulted in a
46.
FSISD believes that the above pattern of undervaluation of SandRidges Category
G assets in FSISDs taxing area of Pecos County continued for the years 2012 to 2015; however,
both SandRidge and PCAD have and continue to obfuscate FSISDs attempts to obtain
documentation that it believes will substantiate similar actions by SandRidge for the years 2012
to 2015.
47.
On or about January 21, 2016, SandRidge, through its subsidiary and affiliated
debtor SandRidge Exploration and Production, LLC, purported to convey ownership of

substantially all of its oil and natural gas properties and midstream assets located in the Pion
field in the West Texas Overthrust (located in Pecos County) (hereinafter Pinon Field Assets),
together with $11 million in cash, to a wholly owned subsidiary of Occidental Petroleum
Corporation (Oxy) called Occidental West Texas Overthrust, Inc. (the Oxy Transfer).
SandRidge asserts that, in exchange, it was released from all past, current, and future claims and
obligations under an existing 30-year treating agreement between the companies. SandRidge
further asserts that, prior to this conveyance, during the year ended December 31, 2015, it
accrued approximately $34 million in penalties related to SandRidges shortfall in meeting its
2015 annual CO2 delivery requirement under the 30-year treating agreement that was terminated
in accordance with the terms of the transaction.3 The Pinon Field Assets would have been
subject to FSISDs first priority tax lien.
It is worth noting that although the Oxy Transfer purported to be effective as of 7:00 a.m., Central Standard Time
on 21 January 2016, the Oxy Transfer conveyance was not executed by either party until April 8, 2016. Because
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48.
Per SandRidges SEC 10-Q filing for quarter ending September 30, 2015,
SandRidge stipulated that its total liability to Oxy under the parties contract was at a minimum
$579,000,000, and at a maximum $2.2 billion per contract termination options. SandRidges
transfer of the Pinon Field Assets essentially resolved the liability; thus, using SandRidges
minimum stipulated liability as the value of the Pinon Field Assets at the time is a reasonable
starting point for estimating the debt owed by SandRidge to FSISD for the years 2012-2015 (the
contract liability began in 2011).
49.
The price of gas was at a historic low when the Oxy Transfer occurred. An
analysis of gas market conditions for the preceding years also allows an estimated value to be
placed on the Pinon Field Assets for the years 2012 through 2015 when they were held by
SandRidge, and when gas market conditions were much more favorable to SandRidge. Although
the Pinon Field Assets do not represent all of SandRidges assets within FSISDs taxable area of
Pecos County, they represent a minimum baseline value for comparison purposes.
50.
The estimated taxable value of the Pinon Field Assets for the years 2013 and 2014
are $1,710,000,000 and $3,671,470,588, respectively, based on gas market conditions for those
years. PCADs total valuation for Category G property within FSISDs taxing area of Pecos
County for those years, however, was much smaller. For the tax year 2013, the total taxable
value for all Category G property in Pecos County within FSISDs taxing area was
$449,594,490. For the tax year 2014, the total taxable value for all Category G property in Pecos
County within FSISDs taxing area was $466,712,530. For the tax year 2015, the total taxable
the conveyance was not executed by the parties until April 8, 2016, the transfer was not effective until that time and
it is therefore subject to avoidance under Chapter 5 of the Bankruptcy Code. In addition, reports from the Texas
Railroad Commission and the Texas Comptroller demonstrate that Oxy did not take over as operator and producer
until March 2016 well after the transfer was purported to be effective and within 90 days of the Bankruptcy filing.
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value for all Category G property in Pecos County within FSISDs taxing area was
$370,852,446.
51.
This amounts to a total minimum undervaluation estimate of more than $4.5
billion for 2013-2015. This undervaluation has resulted in approximately $57.4 million in unpaid
ad valorem taxes owed to FSISD for these years.
VI.
COUNT ONE FRAUD (SandRidge)
52.
FSISD hereby incorporates all of the foregoing paragraphs as if set forth fully
53.
FSISD alleges that SandRidge engaged in fraud and intentionally misrepresented
herein.
the amount and/or valuation of its assets in reports and information to PCAD that PCAD used for
appraisal purposes, resulting in a significant shortfall of tax revenue to FSISD.
54.
The undervaluations and omissions of SandRidges real and personal property are
supported by SandRidges sworn attestations to the EIA in Form 23-L and SandRidges quarterly
report/10-Q, which conflict with the appraised value of SandRidges property in Pecos County.
55.
SandRidge intentionally omitted certain real and personal property owned in
Pecos County when providing information and documents to PCAD for the appraisal of its
property in Pecos County. PCAD, in turn, did not consider property of which it had no
knowledge when appraising SandRidges property in Pecos County.
56.
SandRidge materially misrepresented prices, costs and where applicable,
depletion rates to PCAD, which caused the low appraisal values and thus incorrect ad valorem
taxes to be calculated.
PCAD, in turn, relied on SandRidges misrepresentations and/or
omissions when appraising SandRidges property in Pecos County.
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57.
SandRidge knew that the material representations were false when they were
made, or else made the material representations recklessly.

58.
As a result of the fraud, misrepresentations, and omissions perpetrated by
SandRidge, the erroneous tax assessments of SandRidges real and personal property in Pecos
County for 2003 to 2015 by PCAD were void ab initio.
59.
As a result of SandRidges material omissions and/or misrepresentations to
PCAD, FSISD was damaged in an amount believed to exceed $500 million in taxes, exclusive of
penalties and interest, for the period 2003 to 2015.
VII.
COUNT TWO FRAUDULENT INDUCEMENT (SandRidge)
60.
61.
SandRidge committed fraud to the detriment of FSISD and PCAD by making
herein.
material misrepresentations and omissions to PCAD as set forth herein above, which include
without limitation the intentional omission of real and personal property from information and
documents submitted to PCAD for purposes of the appraisal of its real and personal property in
Pecos County for the years 2003 through 2015.
62.
When SandRidge made the above misrepresentations and omissions, it knew the
misrepresentations were false and the omissions material, or it made said misrepresentations and
omissions recklessly and as a positive assertion, but without any knowledge of the truth of the
misrepresentations.
63.
SandRidge made these fraudulent misrepresentations with the intention and
knowledge that PCAD would rely and act upon them in appraisal of SandRidges real and
personal property in Pecos County.
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64.
PCAD acted in reasonable reliance on SandRidges misrepresentations and
omissions by, among other things, appraising the value of SandRidges property in Pecos County
based on incomplete, inaccurate, and/or fraudulent information and documents provided by
SandRidge for that purpose.
65.
As a taxing unit and direct beneficiary in the appraisal of property in Pecos
County, FSISD was in the class of persons who reasonably can be expected to act or refrain from
acting in reliance upon SandRidges misrepresentations, and was damaged in an amount believed
to exceed $500 million in taxes, exclusive of penalties and interest, for the period 2003 to 2015
as a result of SandRidges misrepresentations and omissions.
VIII.
COUNT THREE NEGLIGENT MISREPRESENTATION (SandRidge)
66.
67.
SandRidge provided information and documents to PCAD and/or its
herein.
representatives and/or agents, directly and/or indirectly, in the course of its business so that
PCAD would use them for property tax appraisal purposes.
68.
The information and documents provided by SandRidge were false.
69.
SandRidge did not exercise reasonable care or competence in obtaining or
communicating this information to PCAD for tax appraisal purposes.

70.
PCAD relied on the information when appraising SandRidges property in Pecos
County.
71.
Relying on SandRidges false information, FSISD was damaged in an amount
believed to exceed $500 million in taxes, exclusive of penalties and interest, for the period 2003
to 2015.
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IX.
COUNT FOUR DETERMINATION OF SANDRIDGES TAX LIABILITY

PURSUANT TO 11 U.S.C. 505 (SandRidge and Pecos County Appraisal District)
72.
73.
The compensatory damages FSISD seeks are measured by the reduction in tax
herein.
revenue caused by SandRidges tortious conduct. This determination cannot be made without
determining the amount of ad valorem taxes that would have been received by FSISD if
SandRidges real and personal property had been properly valued. Accordingly, FSISD requests
this Court to determine the market value, for ad valorem tax purposes, of the real and personal
property in question pursuant to 11 U.S.C. 505.
74.
The PCAD is a necessary party to this determination. Accordingly, it has been
named as a Defendant.
X.
PRAYER
WHEREFORE, PREMISES CONSIDERED, Fort Stockton ISD demands judgment

against Defendants on each of the above-referenced claims and causes of action as follows:
1.
Determining the proper amount of Defendant SandRidges tax liability in
FSISDs taxable area in Pecos County for the years 2003 through 2015;
2.
Awarding an administrative expense priority claim under section 507(a)(2) for
compensatory damages in favor of Plaintiff Fort Stockton ISD against Defendant

SandRidge for its unpaid and due ad valorem tax liability in an amount of at least $500
million;
3.
Awarding penalties and interest on the additional tax liability determined by this
Court at the highest priority and to the fullest extent allowed by law;
_____________________________________________________________________________________________
Page 19 of 20
4.
Awarding Plaintiff Fort Stockton ISD such other and further relief, at law or in
equity, as the Court may deem just and proper.
Date: August 3, 2016
Respectfully submitted,
/s/ Stephanie D. Curtis
Stephanie D. Curtis
Texas State Bar No. 05286800
Mark A. Castillo
Joshua L. Shepherd
CURTIS | CASTILLO PC
901 Main Street, Suite 6515
Dallas, Texas 75202
Telephone: 214.752.2222
Facsimile: 214.752.0709
COUNSEL FOR PLAINTIFF FORT
STOCKTON INDEPENDENT SCHOOL
DISTRICT
_____________________________________________________________________________________________
Page 20 of 20

Fort Stockton v. Sandridge

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Fort Stockton v. Sandridge

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Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 1 of 20

IN THE UNITED STATES BANKRUPTCY COURT

SANDRIDGE ENERGY, INC., et al.,1

FORT STOCKTON INDEPENDENT

SANDRIDGE ENERGY, INC., SANDRIDGE

PECOS COUNTY APPRAISAL DISTRICT,

Case No. 16-32488

ORIGINAL COMPLAINT OF FORT STOCKTON

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 2 of 20

JURISDICTION AND VENUE

Venue is appropriate in this Court pursuant to 28 U.S.C. 1408 and 1409

because SandRidges bankruptcy case is pending before this Court.

Fort Stockton Independent School District is an independent school district as per

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 3 of 20

Defendant SandRidge Energy, Inc., a debtor in the above-captioned Chapter 11

Defendant SandRidge Exploration and Production, LLC, a subsidiary of

Defendant Pion Gathering Company, LLC, a subsidiary of SandRidge Energy,

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 4 of 20

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 5 of 20

reserves (producing and non-producing), whereas taxable Category G property, in contrast,

Upon information and belief, SandRidge has (i) intentionally or recklessly

omitted taxable Category G property in information, communication, and reports provided to

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 6 of 20

Further, FSISD believes that SandRidge has deliberately attempted to prevent

As a result of SandRidges fraudulent misrepresentations, omissions, and/or

undervaluations, FSISD is owed substantial sums by SandRidge, in an amount estimated by

On May 18, 2016 FSISD filed a Limited Comment in Response to Debtors

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 7 of 20

Deposition, Duces Tecum, of Debtors Designated Representative(s), Pursuant to Federal Rule

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 8 of 20

Notice of Intention to Take Oral Deposition, Duces Tecum, of Debtors Designated

from the PCAD.

Deposition, Duces Tecum, of Designated Representative(s) of Pecos County Appraisal District,

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 9 of 20

On November 13, 2014, FSISD, through counsel, sent a letter to SandRidges

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 10 of 20

amount of $2,915,600,579, representing the estimated value of ad valorem taxes underpaid by

by phone. SandRidge communicated its willingness to meet, but requested additional

On May 5, 2015, SandRidge, through counsel, sent a letter to FSISD in response

Upon information and belief, SandRidge has intentionally or recklessly

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 11 of 20

The value of SandRidges Category G property in Pecos County has been

significantly underestimated when compared to the value of the quantities of SandRidges

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 12 of 20

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 13 of 20

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 14 of 20

FSISD believes that the above pattern of undervaluation of SandRidges Category

debtor SandRidge Exploration and Production, LLC, purported to convey ownership of

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 15 of 20

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 16 of 20

This amounts to a total minimum undervaluation estimate of more than $4.5

COUNT ONE FRAUD (SandRidge)

FSISD alleges that SandRidge engaged in fraud and intentionally misrepresented

SandRidge intentionally omitted certain real and personal property owned in

SandRidge materially misrepresented prices, costs and where applicable,

PCAD, in turn, relied on SandRidges misrepresentations and/or

omissions when appraising SandRidges property in Pecos County.

Case 16-03174 Document 1 Filed in TXSB on 08/03/16 Page 17 of 20

made, or else made the material representations recklessly.

As a result of the fraud, misrepresentations, and omissions perpetrated by

As a result of SandRidges material omissions and/or misrepresentations to

COUNT TWO FRAUDULENT INDUCEMENT (SandRidge)

SandRidge committed fraud to the detriment of FSISD and PCAD by making

SandRidge made these fraudulent misrepresentations with the intention and