Nakkhumpun v. Taylor et al
Filing
22
ORDER Granting Defendant's Motion to Dismiss in Civil Action No. 12-cv-01038-CMA-CBS by Judge Christine M. Arguello on 9/30/13. (dkals, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 12-cv-01038-CMA-CBS (Consolidated for all purposes with
Civil Action No. 12-cv-01521-CMA-CBS)
PATIPAN NAKKHUMPUN, Individually and on behalf of all others similarly situated,
Plaintiff,
v.
DANIEL J. TAYLOR,
JOHN R. WALLACE,
CARL E. LAKEY, and
KEVIN K. NANKE,
Defendants.
ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS
In this class action, Lead Plaintiff Patipan Nakkhumpun, individually and on
behalf of all others similarly situated, alleges that Defendants Daniel J. Taylor, John R.
Wallace, Carl E. Lakey, and Kevin K. Nanke, former officers and directors of Delta
Petroleum Corporation (“Delta” or “the Company”), committed various acts of securities
fraud. The matter currently before the Court is Defendants’ Motion to Dismiss Plaintiffs’
Consolidated Complaint (the “Complaint”). (Doc. # 40.) For the reasons discussed
below, the motion is granted. 1
1
The Court, in its discretion under D.C.COLO.LCivR 7.1(G), determines that oral
argument would not materially assist it in ruling on Defendants’ motion. Thus, the Court
declines Defendants’ request to set the matter for argument. (Doc. # 40 at 1.)
I. BACKGROUND
A.
FACTS
1.
Delta and the Defendants
Delta was an oil and gas company founded in 1984, headquartered in Denver,
Colorado, and operating mainly in the Rocky Mountain and Gulf Coast regions. (Doc.
# 36 at 7.) In 2008 and 2009, Delta hired an investment banker to help it examine
strategic alternatives to reduce debt and improve liquidity. (Id.) In November 2009,
Delta announced that the alternatives under consideration included selling assets,
entering a partnership or joint venture, or selling the company. (Id. at 8.) From late
2009 through November 2011, Delta concentrated its efforts on its core asset in the
Vega Area of western Colorado’s Piceance Basin. (Id.) During that period, the
Company sold many of its other assets so that by the end of 2010 the vast majority
of its proved reserves 2 and growth prospects lay in the Vega Area. (Id.)
2.
The Opon Transaction
On March 18, 2010, Delta announced that it had entered into a “non-binding
letter of intent” with Opon International, LLC (“Opon” or “Opon International”). (Id. at
36.) That letter of intent contemplated the sale of a 37.5% non-operated working
interest in Delta’s Vega Area assets to Opon in exchange for $400 million. (Id.) In
addition, Opon would receive warrants to buy Delta stock on closing. (Id.) Delta’s
announcement further described that the Company would put more than half the
proceeds to use developing the Vega Area assets with the remainder going to “balance
2
“Proved reserves” is a term often used in the petroleum industry to denote the
“estimated quantity of reasonably recoverable oil and gas in mineral properties.” Truk Intern.
Fund LP v. Wehlmann, 737 F. Supp. 2d 611, 615 (N.D. Tex. 2009) (footnote omitted).
2
sheet obligations and general working capital purposes.” (Id.) Finally, Delta noted that
the letter of intent was “subject to customary due diligence, negotiation and execution of
definitive binding agreements,” and Opon’s ability to arrange financing. (Id. at 36-37.)
Opon had until June 1, 2010, to finalize the transaction without competition. (Id. at 37.)
Delta issued a press release on May 10, 2010, in which Defendant Wallace
stated that Delta “continue[d] to work with [its] potential partner, Opon International, in
moving toward the signing of definitive agreements and closing of the transaction.” (Id.
at 38.) That announcement reiterated all of the deal terms, including the interest in the
assets and warrants Opon would receive and the $400 million price tag. (Id.) After
describing those terms, the release again stated that “the parties [were] continuing with
the proposed transaction” and that Delta “underst[ood] that Opon’s financing efforts
[were] ongoing.” (Id. (emphasis added).) In an investor conference call the same day,
Defendant Taylor again reiterated the deal terms and stated that Delta was “continu[ing]
to work with Opon in their [sic] financing efforts and [was] working towards signing a
definitive purchase and sale agreement.” (Id. at 40.) He then declined to “comment
specifically on the details of the proposed transaction” but said that Delta was “pleased”
and that the “process [was] going well.” (Id.)
On June 1, 2010, the day Opon’s exclusive negotiating period was to end, Delta
issued another press release announcing an extension to the “expected time frame” to
finalize the deal. (Id. at 43.) The Company once more reiterated its continuing efforts
with Opon to secure financing and the ongoing work towards reaching a definitive
agreement. (Id.) And once more, Delta restated the deal terms and the caveat that the
deal was subject to negotiations, due diligence, and finalization. (Id.)
3
Then, on July 7, 2010, Delta issued a press release announcing that it had
“terminated discussions to sign a definitive Purchase and Sale Agreement with Opon” to
sell the 37.5% stake in the Vega Area assets. (Id. at 44.) Delta ascribed the termination
to Opon’s inability to “obtain financing for the transaction on the agreed-upon terms,”
identifying the terms as those “acceptable to [Delta].” (Id. at 44-45.)
3.
The Asset Impairment and Subsequent Bankruptcy Filing
On November 9, 2011, Delta announced a net loss of $429.4 million in the third
quarter of 2011. (Id. at 3.) Most of that loss resulted from Delta’s $420.1 million writedown of its Vega Assets. (Id.) In addition, the Company disclosed that no acquirers had
emerged with offers for Delta or its assets. (Id. at 3.) As a result, Delta announced that
it would have to restructure its debt and might have to file for Chapter 11 Bankruptcy.
(Id.) The next day, the Company’s shares fell from $1.34 to $0.71 per share. (Id.)
Then, just over a month later, Delta announced that it had filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code. (Id.)
B.
PROCEDURAL HISTORY
On April 18, 2012, George Darwin, a purchaser of Delta’s common stock, initiated
this action alleging that Defendants had committed fraud in violation of Securities
Exchange Act §§ 10(b) and 20(a) and SEC Rule 10b-5. (Doc. # 1.) Two months later,
on June 18, 2012, another purchaser of Delta stock, Plaintiff Nakkhumpun, moved to
consolidate this action with his already pending class action, which was then
encaptioned Nakkhumpun v. Taylor, et al., No. 12-cv-01521-PAB-BNB. Subsequently,
the Court ordered that the actions be consolidated under Rule 42(a)(2), appointed
Plaintiff Nakkhumpun lead plaintiff, and approved his choice of lead counsel. (Doc.
4
# 30.) On January 8, 2013, Plaintiffs filed a corrected version of their Complaint. (Doc.
# 36.) Defendants then filed a Motion to Dismiss for failure to state a claim under Rule
12(b)(6) on February 7, 2013. (Doc. # 40.) Defendants’ motion is ripe for review. 3
II. STANDARD OF REVIEW
A motion to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6)
serves the purpose of testing the “sufficiency of the allegations within the four corners
of the complaint.” Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994). Only
complaints containing “enough facts to state a claim to relief that is plausible on its face”
will survive such motions. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). When
considering a motion to dismiss, the Court must decide whether, assuming that the
allegations are true, “it is plausible and not merely possible that the plaintiff is entitled to
relief under the relevant law.” Christy Sports, LLC v. Deer Valley Resorts Co., 555 F.3d
1188, 1192 (10th Cir. 2009). Requiring plausibility is not the same as requiring
probability; there “must be more than a sheer possibility that a defendant has acted
unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citations and quotation marks
omitted). A complaint alleging facts that are “merely consistent with a defendant’s
liability . . . stops short of the line between possibility and plausibility of entitlement
to relief.” Id. (citations and quotation marks omitted).
In reviewing motions under Rule 12(b)(6), the Court “must accept all the wellpleaded allegations of the complaint as true and must construe them in the light most
favorable to the plaintiff.” Williams v. Meese, 926 F.2d 994, 997 (10th Cir. 1991).
However, that is not so for allegations that are conclusory and “do not allege the factual
3
Plaintiffs filed their Brief in Opposition to Defendants’ Motion to Dismiss on March 7,
2013 (Doc. # 42), and Defendants filed their Reply on March 27, 2012 (Doc. # 44).
5
basis” for the claim. Brown v. Zavaras, 63 F.3d 967, 972 (10th Cir. 1995); see also Tal
v. Hogan, 453 F.3d 1244, 1252 (10th Cir. 2006) (citations and quotation marks omitted).
A complaint does not “suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual
enhancement.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).
To state a claim under Rule 10b-5 for securities fraud, a plaintiff must allege that:
(1) the defendant made an untrue or misleading statement of material
fact, or failed to state a material fact necessary to make statements not
misleading; (2) the statement complained of was made in connection with
the purchase or sale of securities; (3) the defendant acted with scienter,
that is, with the intent to defraud or recklessness; (4) the plaintiff relied
on the misleading statements; and (5) the plaintiff suffered damages as
a result of his reliance.
Adams v. Kinder-Morgan, Inc., 340 F.3d 1083, 1095 (10th Cir. 2003).
Plaintiffs alleging violations of Rule 10b-5 must comply with the heightened
pleading standards of Rule 9(b) and the Private Securities Litigation Reform Act of
1995 (“PSLRA”), Pub. L. No. 104-67, 109 Stat. 737 (codified as amended in scattered
sections of Title 15 of the United States Code). Rule 9(b) requires that “in alleging fraud
or mistake, a party must state with particularity the circumstances constituting the fraud
or mistake.” “At a minimum, Rule 9(b) requires that a plaintiff set forth the who, what,
where, and how of the alleged fraud[,] . . . the time, place, and contents of the false
representation, and the identity of the party making the false statements.” United States
ex rel. Sikkenga v. Regence Bluecross Blueshield, 472 F.3d 702, 726-27 (10th Cir.
2006) (quotation marks and citations omitted). Still, Rule 9(b) “must be read in
conjunction with the principles of Rule 8, which calls for pleadings to be simple, concise,
and direct, and to be construed as to do substantial justice.” Schwartz v. Celestial
6
Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir. 1997) (quotation marks, citation, and
lacuna omitted).
Additionally, the PSLRA requires that Rule 10b-5 complaints “specify each
statement alleged to have been misleading, the reason or reasons the statement is
misleading, and, if an allegation regarding the statement or omission is made on
information or belief, the complaint shall state with particularity all facts on which that
belief is made.” 15 U.S.C. § 78u-4(b)(1). Concerning the defendant’s alleged state of
mind, “the complaint shall, with respect to each act or omission alleged to violate this
chapter, state with particularity facts giving rise to a strong inference that the defendant
acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2). In essence, the PSLRA
requires Rule 10b-5 plaintiffs to allege with particularity the defendant’s fraudulent acts
and state of mind. See Adams, 340 F.3d at 1095-96. At the same time, however, the
PSLRA did not “abolish the concept of notice pleading.” Id. at 1101 (observing that the
“PSLRA did not . . . purport to move up the trial to the pleading stage”).
III. DISCUSSION
Plaintiffs allege that Defendants committed fraud in violation of Securities
Exchange Act § 10(b) and Rule 10b-5. Specifically, the alleged fraudulent conduct
consists of: (A) making statements concerning Delta’s liquidity and financial condition
that were false or misleading, or both; (B) making statements concerning Delta’s
contemplated sale of assets to Opon International that were false or misleading, or both;
and (C) overstating the value of some of its oil and gas assets by delaying recognition
of their impaired value. The Court will separately evaluate these three categories of
conduct.
7
A.
STATEMENTS CONCERNING DELTA’S LIQUIDITY AND FINANCIAL
CONDITION
Defendants identify six alleged statements that they argue are not material under
Rule 10b-5 and are thus not actionable. (Doc. # 40 at 8-9.) Defendants also imply that
the other statements concerning Delta’s liquidity and financial condition may be
immaterial. (Id. at 11 (“Even if not considered puffery . . . .”).) In response, Plaintiffs
contend that “at least” four of the six alleged statements argued to be immaterial by
Defendants are in fact material. (Doc. # 42 at 9.) Although both Plaintiffs and
Defendants may have implicitly conceded the materiality or immateriality of certain
statements, 4 the Court will evaluate the materiality of all of the statements identified
in Plaintiffs’ response.
1.
Legal Standards
a)
Materiality
For a statement to be material there must be a “substantial likelihood that the
disclosure of the omitted fact would have been viewed by the reasonable investor as
having significantly altered the ‘total mix’ of information made available.” Basic, Inc.
v. Levinson, 485 U.S. 224, 231-32 (1988) (citing TSC Industries, Inc. v. Northway, Inc.,
426 U.S. 438, 449 (1976)). The Basic court attempted to strike a balance between too
minimal a standard which would result in an overabundance of trivial information and
4
In their Motion to Dismiss, Defendants assert that “[t]he vast majority” of the alleged
statements are immaterial (Doc. # 40 at 8), before arguing that six specific statements are
immaterial (Id. at 8-9). Defendants go on to argue that other statements, “[e]ven if not
considered” immaterial, were not false. (Id. at 11.) Plaintiffs respond that, “of the six statements
characterized by Defendants” as immaterial, “at least four” are material. (Doc. # 42 at 9.)
Plaintiffs also identify nine other statements alleged to be “materially false or misleading.” (Id. at
6.) Because both Defendants and Plaintiffs only specifically argue the materiality of a subset of
all the alleged statements and argue the materiality of others generally, the Court will consider
the materiality of every alleged statement specifically identified by either party.
8
too high a standard which would permit management to withhold information of real
consequence to investors. Id. at 231 (citing TSC Industries, 426 U.S. at 448-48).
Courts have identified at least two categories of immaterial statements: (1) those
deemed immaterial “because they are only vague statements of corporate optimism”
and (2) those deemed immaterial because “other documents available to the public
“bespoke caution” about their subject matter. See Grossman v. Novell, Inc., 120 F.3d
1112, 1119 (10th Cir. 1997). The first category is relevant in this case. 5
b)
Statements of Corporate Optimism
“Up to a point, companies must be permitted to operate with a hopeful outlook:
‘People in charge of an enterprise are not required to take a gloomy, fearful or defeatist
view of the future; subject to what current data dictates, they can be expected to be
confident about their stewardship and the prospects of the business that they manage.’”
Rombach v. Chang, 355 F.3d 164, 174 (2d Cir. 2004) (quoting Shields v. Citytrust
Bancorp, Inc., 25 F.3d 1124, 1129-30 (2d Cir. 1994)). A corporation’s self-praise about
its business strategy plays no serious role in market participants’ evaluation of potential
investments. S.E.C. v. Curshen, 372 Fed. App’x 872, 879-80 (10th Cir. 2010)
(unpublished) (citing In re Ford Motor Co. Sec. Litig., 381 F.3d 563, 571 (6th Cir. 2004)).
Reasonable investors do not normally rely on vague, optimistic statements in making
investment decisions. Grossman, 120 F.3d at 1119 (citations omitted). “These are
5
Defendants argue that the “bespeaks caution” doctrine applies here, too. (See Doc.
# 40 at 9 (“[A]ny suggestion that Delta was painting an overly optimistic picture of its financial
position is completely undermined by the contents of its public disclosures.”).) That doctrine,
however, applies only to forward-looking statements and not to statements concerning current
facts. See S.E.C. v. Goldstone, --- F. Supp. 2d ----, ----, 2013 WL 3456875, at *122 (citing
Plumbers Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 632 F.3d 762,
773 (1st Cir. 2011)). Because the only forward-looking statement at issue here is immaterial
for other reasons, the Court need not discuss or apply the “bespeaks caution” doctrine.
9
the sort of soft, puffing statements, incapable of objective verification” Id. at 1121-22.
Courts have described these statements as “rosy affirmation[s] commonly heard from
corporate managers and numbingly familiar to the marketplace—loosely optimistic
statements that are so vague, so lacking in specificity, or so clearly constituting the
opinions of the speaker,” that no reasonable investor would rely on them. Shaw
v. Digital Equipment Corp., 82 F.3d 1194, 1218 (1st Cir. 1996) (citations omitted).
Further, even statements on important topics may be “nothing more than puffery.”
In re Level 3 Commc’ns, Inc. Sec. Litig., 667 F.3d 1331, 1340 (10th Cir. 2012). That is
because both the subject matter of the statement and the statement itself must be
material. Id. at 1339-40 (though “reasonable investors wanted to know” about the
subject matter, not “everything defendants said on the topic was material”).
No bright line distinction exists between immaterial statements of corporate
optimism and those of material fact. In re Sprint Sec. Litig., 232 F. Supp. 2d 1193, 1217
(D. Kan. 2002). Courts evaluate whether alleged statements are material in light of the
context in which they were made. Grossman, 120 F.3d at 1121. Normally, the question
of materiality belongs to the finder of fact; however, a court may decide the issue as a
matter of law when “the information is so obviously important [or unimportant] to an
investor that reasonable minds cannot differ on the question of materiality.” S.E.C.
v. Cochran, 214 F.3d 1261, 1267 (10th Cir. 2000) (citing Connett v. Justus Ents. of
Kansas, Inc., 68 F.3d 382, 384 (10th Cir. 1995) (internal quotations omitted) (brackets
in original)).
10
2.
Analysis
Regarding Delta’s liquidity and financial condition, Plaintiffs have alleged
statements that can be divided into three categories relevant to the Court’s analysis of
materiality and falsity: (1) statements concerning current or past facts, (2) statements of
opinion concerning current facts, and (3) statements concerning future performance.
The Court will discuss these categories of statements in turn, below.
a)
Statements Concerning Current or Past Facts
(i)
Materiality
Reasonable investors are more likely to consider statements concerning current
and past facts important because such statements are more apt to be objectively
verifiable. In re Sprint, 232 F. Supp. 2d at 1217. By contrast, reasonable investors are
simply not likely to rely on statements they cannot verify. Id. (citing Grossman, 120 F.3d
at 1122-23). For example, in Grossman, the Tenth Circuit concluded that statements
that the defendant had experienced “substantial success” in post-merger integration
and that the merger was moving “faster than we thought” were incapable of objective
verification. 120 F.3d at 1121. In Level 3, the same was true of the defendant
corporation’s statement that it was a “logical consolidator with proven integration
experience.” 667 F.3d at 1340. Similarly, the statement that the corporation was
focusing on “integration and getting synergies” from past acquisitions was “vague
(if not meaningless) management-speak,” and broad statements that integration of
the acquired companies was “progressing well” and was beginning to yield beneficial
“synergies,” and that “overall customer experience [was] still positive,” were mere
puffery. Id.
11
In contrast, in Level 3 the Tenth Circuit deemed the following assertions to be
material because they were “objectively verifiable matters of fact” and “particularly
concrete”: (1) that “the majority” of the company’s integration of an acquired company
was complete, “ahead of plan,” and “under budget”; (2) that “a majority of the physical
network interconnections [were] completed”; (3) that the acquired company would “have
generally done, substantially done, . . . 85%, 90% done with those efforts”; and (4) that
“[m]ost of the physical integration” of the acquired company was then complete. Id.
Similarly, several statements in Grossman were deemed material because they “could
have, and should have had, some basis in objective and verifiable fact.” Grossman,
120 F.3d at 1123. In those statements, the Grossman defendants described a product’s
recent “increase in market share . . . from . . . 20% . . . to more than 40%,” an
“accelerated” pace of new product development, and that a merger was the “smoothest
in recent history.” Further, statements using words with set meanings, like “preservation
of capital,” were deemed material because they were even less vague than the material
statement about how “‘smoothly’ a merger ha[d] gone” in Grossman. See In re
Oppenheimer Rochester Funds Group Securities Ligitation, 838 F. Supp. 2d 1148, 116061 (D. Colo. 2012) (comparing Grossman, 120 F.3d at 1123).
In the instant case, the following statements are too vague to be susceptible to
objective verification and, therefore, are immaterial: (1) Defendant Lakey’s statement on
March 17, 2011, that “the results of [an] [sic] improved fourth quarter that demonstrates
clear operational achievements and the resulting substantial improvement in our
financial performance” (Doc. # 36 at 62); (2) Defendant Lakey’s August 4, 2011 report
of “another solid operating quarter coupled with the accomplishment of some very
12
important strategic steps” (id. at 71); (3) Defendant Lakey’s May 11, 2011 statement that
“our results are validating our strategy of focusing on the profitability of future potential
of our core assets in the Piceance Basin” (id. at 67); (4) Defendant Lakey’s August 4,
2011 statement that Delta had been “transformed” and “put its house in order” (id. at
73); and (5) Defendant Wallace’s May 10, 2010 statement that Delta was “very, very
encouraged by what [it was] seeing in the field and the sooner those wells [were]
completed the more meaningful impact they [would] have on production” (id. at 41).
On the other hand, the following four statements are more than mere corporate
optimism in that they described improved “liquidity” and “cash flow” which have set
meanings and are as objectively verifiable as the material statements in Level 3 and
Grossman: (1) on March 11, 2010, while discussing Delta’s results from the full year
and fourth quarter of 2009, Defendant Wallace stated that Delta’s “liquidity situation
ha[d] also improved materially” (Id. at 33.); (2) on the same day, Defendant Wallace
represented that Delta was “in a far better liquidity and financial situation” than at the
same time the prior year (Id. at 34.); (3) on March 16, 2011, Defendant Lakey discussed
Delta’s results from the full year and fourth quarter of 2010, stating that Delta had
“substantially improve[d]” its “cash flow” (Id. at 57.); and (4) Defendant Lakey stated on
May 10, 2011, that Delta was “pleased to have posted another solid financial quarter
driven by increased production from [its] core asset” (Id. at 64.). These statements were
specific and concrete enough to be objectively verified. Thus, all four statements are
material.
13
(ii)
Falsity
Having identified four material statements, the Court next turns to the question
of whether they were false or misleading when made. In their motion to dismiss,
Defendants argue that Plaintiffs have not alleged facts showing the alleged statements
were false or that the factual bases that accompanied those statements were false.
(Doc. # 40 at 12-13.) Plaintiffs contend that these statements were false or misleading
when made because they would “‘give a reasonable investor the impression of a state
of affairs that differs from the one that actually exists.’” (Doc. # 42 at 6 (quoting Berson
v. Applied Signal Tech., Inc., 527 F.3d 982, 985 (9th Cir. 2008)).)
Under the PSLRA, the pertinent question is whether the Complaint specifies “the
reason or reasons why th[e] [material] statements were misleading.” Adams v. KinderMorgan, 340 F.3d 1083, 1097 (10th Cir. 2003) (citing 15 U.S.C. § 78u-4(b)(1)). This
does not mean Plaintiffs must show a “direct contradiction[]” between the facts alleged
and Defendants’ statements. In re Level 3, 667 F.3d at 1343. Rather, Plaintiffs will have
met their burden if a reasonable person would have understood Defendants’ statements
as “inconsistent with the facts on the ground” depicted by Plaintiffs’ allegations. See id.
The Court approaches this inquiry taking the Plaintiffs’ allegations “as a whole.” Adams,
340 F.3d at 1099. Ultimately, the Court concludes that Plaintiffs have not met their
burden.
To begin with, a reasonable investor would understand Defendant Wallace’s
assertion on March 11, 2010, that Delta’s “liquidity situation” had improved materially, to
refer to specific improvements made during the fourth quarter of 2009, during the full
year 2009, or during both. Defendant Wallace made the statement in a press release
14
describing Delta’s performance during those periods. In addition, the statement
attributes “no small part” of the liquidity improvement to Delta having received proceeds
from a litigation settlement, money used by Delta to pay down its senior credit facility.
Moreover, the previous paragraph in that press release also discussed Delta’s improved
liquidity during the second half of 2009. That paragraph acknowledged that 2009 had
been “very challenging” because of “liquidity and bank covenant concerns,” among
other things. Nonetheless, according to Defendant Wallace, during the fourth quarter,
cash flow, lease operating expenses, and other performance measures had improved.
And “[m]ore importantly,” fourth quarter performance meant that Delta would be in
compliance with its senior credit facility covenants. Considering the allegations “as a
whole,” including the context of the allegedly false statements, the Court concludes that
a reasonable investor would have understood Defendant Wallace’s statement as a
summary of the several ways Delta’s liquidity had improved. Because Plaintiffs have
failed to allege any facts casting doubt on those specific improvements, they have failed
to allege that Defendant Wallace’s March 11, 2010 statement was inconsistent with the
facts on the ground.
By the same token, Defendant Wallace’s comment during the March 11, 2010,
conference call was entirely consistent with the “facts on the ground” depicted by
Plaintiffs’ allegations. A reasonable investor could understand this statement to mean
only that Delta’s liquidity was “far better” than in early March of 2009. Even if Delta’s
liquidity problems became “more acute” before March 2010, which Plaintiffs failed to
specifically allege, it is not clear that Delta’s liquidity position at that time was worse
than in March 2009. Plaintiffs’ allegations of more acute problems in “early 2010” are
15
even less demonstrative of circumstances that were inconsistent with Wallace’s
comment. The same is true of allegations that Delta defaulted on certain debt
covenants in March 2010. Even if Delta defaulted before March 11, 2010, Delta’s
liquidity position may have been better than it was in March 2009. And again, Plaintiffs
have not specifically alleged that the purported default occurred before the date
Defendant Wallace made the statements, i.e., March 11, 2010.
Likewise, none of the confidential witnesses’ statements indicate a downward
change in Delta’s liquidity condition between March 2009 and March 2010. Confidential
Witness 1 described “feeling concerned” about Delta’s liquidity and that the Company
“had a liquidity issue” from 2009 through 2011. (Doc. # 42 at 4.) Confidential Witness 4
described Delta’s practice of delaying payments to vendors as beginning in March 2009
and continuing through 2010. (Id. at 5.) Confidential Witness 6 stated that Delta had
cash flow problems at “many points in time.” (Id.) None of these statements are
inconsistent with an improvement in liquidity between March 2009 and March 2010.
Finally, Confidential Witness 6 stated that Delta was “struggling” and on a “long slow
demise” beginning in March 2009. (Id. at 5.) These statements are simply too vague
and unsubstantiated to depict a state of affairs at odds with the assertion that Delta’s
liquidity condition improved between March of 2009 and March of 2010.
The Court also concludes that Plaintiffs have not sufficiently alleged that
Defendant Lakey’s March 16, 2011 statement concerning Delta’s “cash flow” was false.
Like the allegations regarding Delta’s liquidity, Confidential Witness 2’s statements
concerning Delta’s cash flow do not depict a state of affairs inconsistent with Defendant
Lakey’s representation that Delta’s “cash flow” had “substantially improve[d].” Most of
16
Confidential Witness 2’s statements amount to nothing more than conclusory
allegations that Defendants lied about Delta’s cash flows. (Id. at 6-7.) Only one of
Confidential Witness 2’s statements gives a reason for those conclusions: “I didn’t see
any improvement in cash flow [as of March 16, 2011].” However, that assertion is
devoid of substantiating facts illustrating a state of affairs that was inconsistent with
Defendant Lakey’s statement.
Finally, Plaintiffs fail to allege anything that casts doubt on the truth of the
statement made by Defendant Lakey in the May 10, 2011 press release. He stated that
Delta had “increased production from [its] core asset” in the first quarter of 2011. Later
in that same press release he mentioned that “production was up 4% over the fourth
quarter, [but] it was slightly beneath [Delta’s] expectations due to timing decisions on
[its] inventory wells as a result of shale well activity.” (Doc. # 36 at 64.) Plaintiffs have
not adequately alleged the falsity of this May 10, 2010 statement.
In general, Plaintiff’s apparent strategy is to have the Court draw broad
inferences from specific, narrow statements made by Defendants and, at the same time,
to have the Court draw narrow, specific inferences from broad, general statements
made by Plaintiff’s witnesses. Apparently the Court will then find inconsistencies
between the broad inferences drawn from Defendants’ statements and the narrow
inferences drawn from Plaintiff’s witnesses. Doing so, however, would not comport with
the PSLRA’s heightened pleading requirement. Accordingly, Plaintiffs have failed to
allege that Defendants’ material statements concerning current and past facts were
false or misleading, and therefore the Rule 10b-5 claims based on those statements
are dismissed.
17
b)
Statements of Opinion Concerning Current Facts
Of Defendants’ alleged misstatements whose materiality and falsity are disputed,
seven are statements of opinion. In those statements Defendants expressed pride
and enthusiasm in Delta, high expectations, beliefs about Delta’s status and financial
situation, and beliefs about the value of Delta’s shares. Considering the nuanced legal
standards governing materiality and falsity of opinion statements, the Court analyzes
them separately from the other statements of current or past facts.
(i)
Materiality
Statements of opinion may be material. Virginia Bankshares, Inc. v. Sandberg,
501 U.S. 1083, 1090 (1991). The Supreme Court explained in Virginia Bankshares that
“there is no room to deny that a statement of belief by corporate directors about a
recommended course of action, or an explanation of their reasons for recommending it,”
can be important to a reasonable investor. Id. at 1090-91 (quoting TSC Indus., Inc.
v. Northway, Inc., 426 U.S. 438, 449 (1976)). In that case, a company’s directors
solicited proxies from its shareholders and represented to them that the price offered
for their stock was “high” and that the proposed merger was “fair” to them. Id. at 1088,
1094. The Supreme Court held that those statements would be important to
shareholders facing a proxy request because those shareholders knew that corporate
directors had knowledge and expertise exceeding their own and had a state law duty to
exercise their expertise for the shareholders’ benefit. Id. at 1091. With respect to the
materiality of directors’ statements of opinion or belief, Virginia Bankshares teaches that
reasonable investors are more apt to consider directors’ opinions important, and that the
18
context in which the opinion was communicated—in that case, a proxy solicitation—is
also critical to determining the materiality of opinion statements.
Just as the proxy solicitation context was critical to the materiality determination
in Virginia Bankshares, negative publicity can also create a context in which statements
of belief are deemed material. In City of Monroe Employees Retirement System
v. Bridgestone Corp., 399 F.3d 651, 672 (6th Cir. 2005), plaintiffs sued a tire
manufacturer alleging that it made misstatements in violation of Rule 10b-5. In July
2000, third parties filed multiple lawsuits alleging the manufacturer’s tires had caused
fatal car crashes, and safety groups called for the tires to be withdrawn from the market.
Id. The next month, the manufacturer stated that it “continually monitor[ed] the
performance of all [its] tire lines, and the objective data clearly reinforce[d] [its] belief”
that the tires were safe and of high quality. Id. The court deemed this statement
material because it could reasonably have been viewed as a direct response to public
allegations that the tires were unsafe. Id.
In the instant case, the Virginia Bankshares rationale is applicable to each of
the alleged statements of opinion made by Defendants, as the opinions expressed
belonged to directors, upon whose knowledge and expertise reasonable investors are
likely to rely. See Virginia Bankshares, 501 U.S. at 1091. Moreover, Defendants
allegedly made these statements in the context of public awareness that substantial
financial challenges were facing Delta. As Defendants emphasize, Delta publicly
warned investors of the serious financial obstacles it faced. Such warnings cannot
inoculate these statements of their materiality because, under Tenth Circuit precedent,
the “bespeaks caution” doctrine does not apply to statements of opinion or belief. See
19
Grossman, 120 F.3d at 1123 (quoting Virginia Bankshares, 501 U.S. at 1093) (“[S]uch
statements of opinion or belief must rest on ‘a factual basis that justifies them as
accurate, the absence of which renders them misleading.’”)
Nonetheless, opinions that “on their own terms and in context, lack[] a standard
against which a reasonable investor could expect them to be pegged . . . are too
squishy, too untethered to anything measurable” to be material. Id. at 671 (citations
omitted). Applying that standard in City of Monroe, the Sixth Circuit deemed immaterial
the tire manufacturer’s expression of “full confidence” in its tires and its statement that
its “experience with [the tires] indicates high consumer satisfaction with the quality and
reliability” of the tires. Id.
In the instant case, and in light of the aforementioned authorities, four of
Defendants opinion statements are immaterial. First, Defendant Wallace stated on
March 11, 2010, “Given how challenging our situation was, I can’t help but be proud of
how far we’ve come and where we stand today.” (Doc. # 36 at 34.) Second, Defendant
Taylor stated on August 4, 2011, “I absolutely share your enthusiasm about our progress
at Delta.” (Id. at 72.) Third, Defendant Taylor stated in a May 11, 2011 conference call
with investors, “I’m expecting a very promising year for Delta and what I’ve seen to date
only heightens my expectations.” (Id. at 66.) Fourth, Defendant Lakey stated on March
17, 2011, “Coupled with the plan for 2011, we believe we are well positioned to enhance
shareholder value if we execute. And I’m confident we will.” (Id. at 62.) Like the tire
manufacturer’s expression of “full confidence” in its tires and that there existed “high
consumer satisfaction,” these “squishy” statements by Defendants cannot be measured
against any standard and are therefore immaterial statements of corporate optimism.
20
By contrast, the Court concludes that the following three statements were
sufficiently tethered to measurable standards to be material. First, Defendant Wallace
commented in Delta’s May 10, 2010 investor conference call, “[W]e believe we are in
a far better financial situation than we were a year ago and the preservation of our
liquidity is essential.” (Id. at 40-41.) Second, in an August 4, 2011, investor conference
call, Defendant Lakey stated, “[O]ur current share price is apparently not in alignment
with the value of the asset and the company.” (Id. at 74.) Third, during the same call,
Defendant Taylor asserted, “Delta is currently trading at an amazing 50% discount.”
(Id. at 72.) Accordingly, the Court will address these statements to determine whether
they were false or misleading.
(ii)
Falsity of Material Statements of Opinion
Material “statements of opinion or belief must rest on ‘a factual basis that justifies
them as accurate, the absence of which renders them misleading.’” Grossman, 120
F.3d at 1123 (quoting Virginia Bankshares, 501 U.S. at 1093). By making a material
statement of opinion, a speaker impliedly asserts three facts: “(1) that the statement is
genuinely believed, (2) that there is a reasonable basis for the belief, and (3) that the
speaker is not aware of any undisclosed facts tending to seriously undermine the
accuracy of the statement.” In re Exabyte Corp. Sec. Litig., 823 F. Supp. 866, 871
(D. Colo. 1993) (quoting In re Apple Computer Sec. Litig., 886 F.2d 1109, 1113 (9th Cir.
1989)). As a result, opinion statements are misleading to the extent that any of those
three implied facts are untrue. See Virginia Bankshares, 501 U.S. at 1092. The implied
facts all involve the speaker’s state of mind, and so proving that they are false requires
proving scienter. See Podany v. Robertson Stephens, Inc., 318 F. Supp. 2d 146, 154
21
(S.D.N.Y. 2004), see also California Public Employees’ Retirement System v. Chubb
Corp., No. 00-4285, 2002 WL 33934282, at *17 (D.N.J. June 26, 2002) (unpublished);
Friedman v. Rayovac Corp., 295 F. Supp. 2d 957, at 990 (W.D. Wis. 2003) (whether
plaintiff sufficiently pled that defendant had “actual knowledge” of forward-looking
statement’s falsity “overlaps with the issue of scienter”).
In the Tenth Circuit, motive and opportunity are considered relevant, but alone
not sufficient, to establish the requisite state of mind. See Caprin v. Simon Trans.
Servs., Inc., 99 Fed. App’x 150, 161 (10th Cir. 2004) (unpublished) (citing Fleming, 264
F.3d at 1263). If the state of mind of defendants is established via statements made by
confidential witnesses, such witnesses should be “‘described in the complaint with
sufficient particularity to support the probability that a person in the position occupied by
the source would possess the information alleged.’” New Jersey Carpenters Pension
& Annuity Funds v. Biogen IDEC Inc., 537 F.3d 35, 51 (1st Cir. 2008) (quoting In re
Cabletron Sys. Inc., 311 F.3d 11, 29 (1st Cir. 2002)). Moreover, factors considered in
determining the value of confidential witnesses include the “level of detail provided by
the confidential sources, the corroborative nature of other facts alleged (including from
other sources), the coherence and plausibility of the allegations, the number of sources,
the reliability of the sources, and similar indicia.” Id. (citations and quotation marks
omitted).
As stated previously, Plaintiffs have alleged the following material statements of
opinion: (1) “[W]e believe we are in a far better financial situation than we were a year
ago and the preservation of our liquidity is essential” (Doc. # 36 at 40-41); (2) “our
current share price is apparently not in alignment with the value of the asset and the
22
company” (id. at 74); and (3) “Delta is currently trading at an amazing 50% discount”
(id. at 72). Plaintiff alleges that Defendants knew those statements were false, or at
least had no reasonable basis in fact to support them, but made them anyway. (Doc.
# 42 at 7-8.) The question is whether, taking the allegations collectively and accepting
them as true, a “reasonable person [would] deem the inference of scienter at least as
strong as any opposing inference.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551
U.S. 308, 326 (2007).
With respect to the first statement that Delta was in a “far better financial
situation” on May 10, 2010, than in the prior year, Plaintiffs have alleged no facts casting
doubt on Defendant’s belief or basis to believe that the statement was true. To be sure,
Plaintiffs have alleged many facts demonstrating that Delta was, in general,
experiencing significant difficulties beginning in 2009. According to Plaintiffs’ witnesses,
Delta had a “liquidity issue” beginning in 2009 and began a “long slow demise” when
banks tightened their credit agreements with it in March 2009. (Doc. # 42 at 4-5.)
However, these statements are unsubstantiated by any facts, and the Court therefore
assigns them little weight. Plaintiffs’ witnesses also state that Delta: began to delay
paying vendors in March 2009, raised capital through an equity offering in May 2009 to
avert bankruptcy, and began to consider raising capital through an asset sale in
September or October 2009. (Id. at 4-5.) Similarly, Delta’s Chief Restructuring Officer
stated that Delta sold non-core assets in March 2010. (Id. at 4.) However, rather than
implying that Defendants knew or had reason to know the May 10, 2010 statement was
false, the more likely inference from these facts is that Defendants viewed them as
contributing to an improving financial situation at Delta.
23
Delta’s Chief Restructuring Officer also stated that Delta had liquidity problems
that had become “more acute” in early 2010 and that it defaulted on certain debt
covenants in March 2010. (Id.) In addition, one confidential witness “fe[lt] concerned”
about Delta’s liquidity and ability to pay its debts from 2009 through 2011 and another
believed the company had “cash flow problems” at many points in time. (Id. at 4-5.) But
these statements are also too vague and imprecise to support a strong inference that
Defendants did not believe or have a reasonable basis in fact for the statement that
Delta was in a far better financial situation in May of 2010 than it had been the prior
year. In sum, the facts Plaintiffs allege are vague, lack factual substantiation, raise
inferences opposing scienter that are stronger than those supporting scienter, or are
simply ambiguous about the relevant question of what Defendants knew and believed
when making the statement. Therefore, Plaintiffs have failed to state a claim based on
these statements of opinion.
According to the Complaint, the material opinion statements about the “share
price” and trading “discount” were made by Defendants Taylor and Lakey in a
conference call with investors on August 4, 2011. (Doc. # 36 at 71-74.) Defendant
Taylor stated that “Delta [was] currently trading at an amazing 50% discount to the
lowest of these transactions at only $0.16 per Mcfe of [its] 2P reserves from the Williams
Fork alone.” A reasonable investor would understand that statement to mean that
Delta’s share price was $0.16 for each “Mcfe” unit of reserves in “2P,” one of Delta’s
wells in the Williams Fork. The statement further implies that the $0.16 price is 50% of
the lowest price in an unspecified group of transactions. Defendant Taylor then said
that “[t]he additional resource of the deeper shale only make our current valuation even
24
more attractive.” (Id. at 72-74.) The context of the statement makes clear that he was
referring to “2C,” another Delta well drilled into a deep shale formation beneath the
Williams Fork. That well, which had recently begun flowing, had been given a
significant valuation by an engineering firm. In addition to discussing Delta’s wells and
operations, Defendants identified other improvements, including having used proceeds
from two asset divestitures to pay down $106 million in debt, having reduced “Vega
LOE” by 60% from the previous year, reducing “G&A” by 35% from the previous year,
and increasing “per well EUR” by 22% in the Williams Fork. After describing those
improvements, Lakey stated, “This work was essential to build value in the core asset
of the company for our shareholders. Dan [Taylor] earlier pointed out that our current
share price is apparently not in alignment with the value of the asset and the company.
I hope this helps you see why we feel this way.” (Id. at 74.)
Ultimately, Plaintiffs have failed to allege any fact from which a reasonable
person could infer that Defendant Taylor did not believe his “50% discount” statement or
that he lacked a reasonable basis in fact to make it. That statement involved a highly
specific comparison of Delta’s share price to prices reflected in other transactions. The
same is true of Defendant Lakey’s statement that the “share price [was] apparently not
in alignment with the value of the asset and the company.” Accordingly, Plaintiffs’ Rule
10b-5 claims based on these statements are dismissed.
c)
Statements Concerning Future Performance
Plaintiffs have alleged one optimistic, forward-looking prediction: the May 10,
2010 statement that “[g]oing into 2011, these operational improvements will have a very
positive effect on Delta’s direction, strategy and asset value.” (Id. at 60.) But this type
25
of prediction is the type of vague, optimistic, “rosy affirmation” reasonable investors
would not consider important. See SRM Global Fund Limited Partnership v.
Countrywide Financial Corp., 448 Fed. App’x 116, 118 (2d Cir. 2011) (unpublished)
(“optimistic statements about future profitability” are mere corporate optimism and not
actionable); see also In re Level 3, 667 F.3d at 1340 (broad claims that integration is
going well and that the company should begin seeing the benefits of resulting synergies
were not material but, rather, rosy affirmations that reasonable investors do not find
important). Thus, this statement cannot form the basis of a Rule 10b-5 claim.
B.
STATEMENTS CONCERNING THE PROPOSED TRANSACTION WITH OPON
Defendants next argue that Plaintiffs have failed to plead adequately that
disclosures about Delta’s negotiations with Opon were false or misleading. Specifically,
according to Defendants, $400 million truly was the price of the potential sale, and
disclosing the price did not constitute a representation by Defendants that the Vega
Assets were worth that amount. (Doc. # 40 at 15.) It is also true, Defendants argue,
that the deal fell through because Opon could not obtain financing on terms acceptable
to Delta. (Id.) Defendants further argue that they had no duty to disclose any more
than they did about the negotiations with Opon. (Id.)
Plaintiffs respond that Defendants indeed made misleading statements about the
potential $400 million sale to Opon. (Doc. # 42 at 10-11.) According to Plaintiffs,
Defendants selectively disclosed positive news about the potential deal, issuing a
statement when Delta entered a preliminary, non-binding sale agreement, and
continuing to issue positive statements about the ensuing negotiations. (Id. at 11-12.)
Plaintiffs argue that the positive statements issued during those negotiations were
26
misleading because they did not disclose that, while negotiations were continuing, Opon
had backed away from the $400 million price and offered a lower price. (Id. at 12-13.)
Moreover, Plaintiffs assert that when Defendants ultimately disclosed that the deal had
fallen through, they misleadingly attributed it to lack of financing available to Opon and
not the true cause, i.e., Opon’s conclusion that the Vega Assets were not worth $400
million. (Id. at 13.)
1.
Legal Standards
a)
Duty to Disclose to Cure Misleading Statements
“Silence, absent a duty to disclose, is not misleading under Rule 10b-5.” Basic
Inc., 485 U.S. at 239 n.17. “[Section] 10(b) and Rule 10b-5 do not create an affirmative
duty to disclose any and all material information.” Matrixx Initiatives, Inc. v. Siracusano,
131 S. Ct. 1309, 1321 (2011). But “[d]isclosure is required . . . when necessary ‘to
make . . . statements made, in light of the circumstances in which they were made,
not misleading.” Id. (quoting 17 C.F.R. § 240.10b-5 (second lacuna in original)). The
statement made must be material, and the omitted fact must “alter[] the meaning of
the statement.” McDonald v. Kinder-Morgan, Inc., 287 F.3d 992, 998 (10th Cir. 2002)
(quoting In re Boston Tech., 8 F. Supp. 2d 43, 53 (D. Mass. 1998)). Thus, disclosure is
required only if statements actually made were misleading, i.e., if they would have given
a “‘reasonable investor the impression of a state of affairs that differ[ed] in a material
way from the one that actually exists.’” Reese v. BP Exploration (Alaska) Inc., 643 F.3d
681, 691 (9th Cir. 2011) (quoting Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 985
(9th Cir. 2008)). The question is whether the omission of facts rendered “what was
27
revealed . . . so incomplete as to mislead.” Hill v. Gozani, 638 F.3d 40, 57 (1st Cir.
2011).
A company does not issue misleading statements when it discloses some, but
not all, of the information it has about a strategic transaction, so long as the “information
[it did] provide—and the reasonable inferences one could draw from that information—
[are] entirely consistent with the more detailed explanation” that allegedly should have
been disclosed. Brody v. Transitional Hospitals, Corp., 280 F.3d 997, 1007 (9th Cir.
2002). In Brody, the defendant corporation disclosed that “certain parties . . . [had]
indicated an interest in acquiring” either the entire company or the company less a
subsidiary. In addition, the defendant disclosed that it had “engaged financial advisors
to advise [it] in connection with a possible sale.” Those disclosures, the plaintiff
shareholders argued, were misleading because they failed to state that the defendant
had received “actual proposals from three different parties.” However, the Ninth Circuit
concluded that these statements were not misleading because the disclosures did not
imply an absence of actual proposals or anything else untrue about the “stage of the
negotiations.” In fact, the disclosures suggested reasonable inferences about the
proposals and negotiations that were consistent with the more detailed information
that allegedly should have been disclosed. Id.
When a company announces that it is pursuing a particular goal and identifies
the means it has chosen to reach that goal, it has a duty to disclose other means that
are under “active and serious consideration.” See State of New Jersey and its Division
of Investment v. Sprint Corp., No. 03-2071, 2004 WL 1960130, at *6 (D. Kan. Sept. 3,
2004) (unpublished) (quoting In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 268 (2d Cir.
28
1993)). Likewise, when a corporation announces, touts, or reiterates a tentative plan,
those statements are misleading if the corporation fails to disclose that it is certain, or
very nearly certain, that the plan will not succeed. As such, it is misleading to make
“unabashedly positive” statements while simultaneously in possession of “specific,
objective facts” that cast doubt on those statements. Hill v. Gozani, 638 F.3d at 152-53
(discussing Matrixx, 131 S. Ct. at 1323). Even when the plan is tentative and specific
threats to the plan are disclosed, the statement is misleading if the corporation knew
the plan would fail. Cf. Rubinstein v. Collins, 20 F.3d 160, 171 (5th Cir. 1994) (“[T]he
inclusion of general cautionary language regarding a prediction would not excuse the
alleged failure to reveal known material, adverse facts.”) The omitted information need
not directly contradict what was actually said; rather, it is enough if the omission renders
the statement materially misleading. In re Time Warner Inc., 9 F.3d at 268.
b)
Strong Inference of Scienter
The PSLRA, enacted in 1995 “‘to curb abuse in private securities litigation,’”
heightens the “pleading standard for securities fraud actions in general, and for scienter
allegations in particular.” City of Philadelphia v. Fleming Cos. Inc., 264 F.3d 1245, 1258
(10th Cir. 2001) (quoting Greebel v. FTP Software, Inc., 194 F.3d 185, 191 (1st Cir.
1999)). That statute requires private plaintiffs to “state with particularity facts giving
rise to a strong inference that the defendant acted with the required state of mind.”
15 U.S.C. § 78u-4(b)(2) (emphasis added).
In securities fraud cases, the scienter element is satisfied if the defendant acted
with “a mental state embracing the intent to deceive, manipulate, or defraud, or
recklessness.” Adams v. Kinder-Morgan, Inc., 340 F.3d 1083, 1105 (10th Cir. 2003)
29
(quoting Fleming Cos., 264 F.3d at 1259) (quotation marks omitted). A defendant’s
conduct is reckless if it “is an extreme departure from standards of ordinary care, and
. . . presents a danger of misleading buyers or sellers that is either known to the
defendant or is so obvious that the actor must have been aware of it.” Dronsejko
v. Thornton, 632 F.3d 658, 665 (10th Cir. 2011) (citing Fleming, 264 F.3d at 1258)
(quotation marks omitted).
According to the Supreme Court, the PSLRA’s “strong inference” of scienter is
not satisfied when “a reasonable factfinder plausibly could infer from the complaint’s
allegations the requisite state of mind.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551
U.S. 308, 314 (2007). Instead, the court must compare the “inferences urged by the
plaintiff” with “competing inferences rationally drawn from the facts alleged.” Id. For the
inference of scienter urged by the plaintiff to “qualify as strong . . . [it] must be more than
merely plausible or reasonable—it must be cogent and at least as compelling as any
opposing inference of nonfraudulent intent.” Id.
Further, as mentioned above, confidential witnesses should be “‘described in
the complaint with sufficient particularity to support the probability that a person in the
position occupied by the source would possess the information alleged.’” New Jersey
Carpenters Pension & Annuity Funds v. Biogen IDEC Inc., 537 F.3d 35, 51 (1st Cir.
2008) (quoting In re Cabletron Sys. Inc., 311 F.3d 11, 29 (1st Cir. 2002)). Moreover,
factors considered in determining the value of confidential witnesses’ statements include
the “level of detail provided by the confidential sources, the corroborative nature of other
facts alleged (including from other sources), the coherence and plausibility of the
30
allegations, the number of sources, the reliability of the sources, and similar indicia.” Id.
(citations and quotation marks omitted).
c)
Loss Causation
Loss causation links the fraud with the harm; it is “the causal connection between
the [defendants’] material misrepresentation and the [plaintiffs’] loss.” Dura
Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 342 (2005). However, merely, alleging
that a misrepresentation resulted in an inflated stock price falls short of alleging loss
causation. In re Williams Sec. Litig.-WCG Subclass, 558 F.3d 1130, 1136-37 (10th Cir.
2009) (citing Dura Pharmaceuticals, 544 U.S. at 347). Instead, a plaintiff must allege
that the losses “were attributable to the revelation of the fraud.” Id. at 1137.
Moreover, for that revelatory disclosure to be corrective of the alleged fraud,
“it must at least relate back to the misrepresentation and not to some other negative
information about the company.” Id. at 1140 (citing Caremark, Inc. v. Coram Healthcare
Corp., 113 F.3d 645, 649 (7th Cir. 1997)). On the one hand, not “every bit of negative
information” is corrective of a prior misrepresentation, but on the other, a court cannot
be too “exacting in [its] demands for a connection between the initial misrepresentation
and subsequent revelation.” Id.
2.
Analysis
Plaintiffs allege that Defendants made misstatements concerning (a) Delta’s
continuing negotiations to sell a stake in its Vega Area assets to Opon International
and (b) misstatements concerning the reason those negotiations ended. Defendants
dispute that the statements at issue were misleading, that they were made with scienter,
and that they caused Plaintiffs losses.
31
a)
Statements Concerning Delta’s Continuing Negotiations with Opon
The Court turns first to Defendants’ arguments that their statements concerning
Delta’s negotiations with Opon were not misleading and did not cause Defendants’
losses. Because Plaintiffs have adequately alleged that Defendants’ statements
concerning Delta’s ongoing negotiations with Opon were misleading, the Court will also
consider whether Plaintiffs have adequately pled scienter and loss causation with
respect to those statements.
(i)
Duty to Disclose to Cure Misleading Statements
As described in Section I.A.2, supra, on May 10, 2010, Defendants issued a
release describing Opon as its “potential partner” and stating that Delta and Opon were
“continu[ing] to work . . . toward the signing of definitive agreements and closing” the
deal. (Doc. # 36 at 38.) The release also reiterated the deal’s details as previously
disclosed on March 18, 2010. It described the “non-binding letter of intent” and its
terms, including the $400 million price, the 37.5% portion of Vega Assets involved in the
transaction, and the issuance of warrants. (Id.) It also reiterated that “consummation”
depended on Opon obtaining financing and was “subject to customary due diligence,
negotiation and execution of definitive binding agreements.” (Id.) To the Court’s mind,
a reasonable investor would infer from this press release that the $400 million offer was
still on the table. On the same day, Defendant Taylor stated in a conference call with
investors that Delta was “continu[ing] to work with Opon in their [sic] financing efforts
and [was] working towards signing a definitive purchase and sale agreement” and that
Delta was “pleased that the process [was] going well.” (Id. at 40.) Taken together with
the May 10, 2010 press release, this statement would be interpreted by a reasonable
32
investor to mean that the terms of the “definitive purchase and sale agreement” toward
which Defendants were “continuing to work” did not vary significantly from those
announced on March 18, 2010.
On June 1, 2010, Delta announced publicly that the “expected time frame to sign
a definitive Purchase and Sale Agreement with Opon” had been extended, adding that
Delta was continuing to “work with Opon in its financing efforts” and that “both parties
[were] working towards signing a definitive Purchase and Sale Agreement.” (Id. at 43.)
Again, Delta reiterated all of the deal’s terms, just as it had in its May 10 statement,
which would again have led reasonable investors to believe those terms remained
intact. 6
Plaintiffs allege that when Defendants made these statements on May 10 and
June 1, 2010, Opon had already backed away from the $400 million price. Because
Defendants’ statements were inconsistent with that alleged fact, they were misleading.
6
Plaintiffs also argue that Defendants’ statements concerning the Opon negotiations
were misleading in that they failed to disclose Opon’s lower offer, leaving shareholders with the
impression that the assets were worth $400 million. (Doc. # 42 at 13.) The Court disagrees.
A corporation is not required to disclose opinions of insiders who disagree with its plans,
policies, or strategies. Cooperman v. Individual, Inc., 171 F.3d 43, 51 (1st Cir. 1999)
(“[D]isclosure of the business strategy supported by the majority of the Board did not obligate
defendants also to disclose the fact that [a dissenting director]—a distinct minority of the multimember Board—opposed that strategy.”). If the dissenting opinion of a board member need
not be revealed, then it follows that the opinion of a separate entity about the value of a
corporation’s assets need not be disclosed. That is especially so when, as here, the separate
entity’s interest is directly opposed to that of the corporation. If anything, Opon was likely to
make an offer that was unrealistically low so as to generate a bargain deal for itself. Therefore,
assuming Opon did in fact make an offer substantially lower than $400 million, Defendants’
failure to reveal that fact was not misleading.
However, as discussed in the text, infra, once Defendants chose to disclose the status of
Delta’s negotiations with Opon and the reason those negotiations terminated, they had a duty to
do so accurately. Therefore, although Defendants did not have to disclose Opon’s lower offer,
they did have a duty to accurately depict negotiations when discussing them.
33
(ii)
Strong Inference of Scienter
Having concluded that Defendants made misleading statements concerning
Delta’s negotiations with Opon, the Court now turns to the question of whether Plaintiffs
have adequately pled that Defendants knew those statements were misleading.
Specifically, the Court must decide whether Plaintiffs have pled facts giving rise to a
strong inference that Defendants knew or were reckless in not knowing that by May 10,
2010, and June 1, 2010, Opon had backed away from the $400 million price.
The only allegations regarding the Opon deal come from Confidential Witness 3,
who is purportedly the President and CEO of Opon. According to Plaintiffs, Confidential
Witness 3 determined that the Vega Assets were worth less than $400 million based on
the current and projected prices of natural gas. (Doc. # 36 at 15.) As a result, in the
“spring of 2010,” Opon decided to terminate the deal at the $400 million price and,
instead, offered a lower price that was a “much tougher deal” for Delta. Delta rejected
that offer. (Id.) These alleged facts do not raise a strong inference of scienter.
Although Opon’s President and CEO would certainly be in a position to know
whether Opon had communicated its withdrawal of the $400 million price to Delta, his
statements lack the level of detail that would support such an inference. Confidential
Witness 3 does not say how much lower Opon’s subsequent offer was and, more
importantly, does not specify when the $400 million offer was withdrawn. Moreover,
Confidential Witness 3’s statements are nowhere corroborated by statements from other
sources or other allegations. Therefore, although the alleged facts raise the inference
that Defendants might have known that the $400 million offer was off the table, they do
not raise a strong inference that such a conclusion is “more than merely plausible or
34
reasonable.” Tellabs, 551 U.S. at 314. Consequently, Plaintiffs’ claim that Defendants’
statements on May 10 and June 1, 2010, concerning the Opon transaction were
misleading does not meet the heightened pleading standard under the PSLRA.
(iii)
Loss Causation
Even if Plaintiffs were to have sufficiently pled scienter for these statements, their
attendant claims would not survive analysis of loss causation. The only loss Plaintiffs
allege occurred on November 10, 2011, the day after Delta announced the impairment
of its Vega Area assets and that it would likely enter bankruptcy. (Doc. # 42 at 29.)
What made the May 10 and June 1, 2010 statements misleading was that they created
the false impression that Opon was still entertaining a deal at the $400 million price.
For that to have caused Plaintiffs’ loss, Delta’s stock price would have had to fall on the
date Delta disclosed information that cured the misrepresentation. But that happened
on July 7, 2010, when Delta announced that its negotiations had fallen through—more
than sixteen months before Plaintiffs allege they suffered their loss. Therefore,
Plaintiffs’ allegations fail to demonstrate that either the May 10 or June 1, 2010
statements caused their loss.
b)
Statements Concerning the Reason Negotiations Ended
In addition to Defendants’ statements concerning the continuing Opon
negotiations, Plaintiffs also allege that Defendants misrepresented the reason those
negotiations ended. On July 7, 2010, Delta announced that it had terminated
negotiations with Opon because “Opon was unable to obtain financing for the
transaction on the agreed-upon terms.” (Doc. # 36 at 44-45.) In the same
announcement, Delta also stated that “Opon was unable to arrange financing for
35
a transaction on terms acceptable to us.” (Id.) Plaintiffs allege that this misrepresented
the real reason for the termination of negotiations: Opon would not pay the $400 million
price.
Defendants attack two elements of Plaintiffs’ claim based on this statement.
First, they argue that the statement was true and not misleading. Second, they argue
that the statement did not cause Defendants’ loss. The Court will consider these
arguments in turn.
(i)
Duty to Disclose to Cure Misleading Statement
As stated previously, the question is whether Defendants’ statements concerning
termination of negotiations would have given a reasonable investor “the impression of a
state of affairs that differs in a material way from the one that actually exists.” Reese
v. BP Exploration (Alaska) Inc., 643 F.3d 681, 691 (9th Cir. 2011) (citations and
quotation marks omitted). Defendants argue that attributing the termination to Opon’s
inability to “arrange financing on terms acceptable to Delta” is consistent with what
Plaintiffs allege was the real reason. (Doc. # 40 at 15 (emphasis in original).)
Defendants further assert that “the reason Opon could not obtain financing on the
agreed upon terms” does not matter. (Doc. # 44 at 5.)
In Brody, the alleged misstatement was susceptible to one inference, and it was
consistent with the facts plaintiffs argued should have been disclosed. See Brody, 280
F.3d at 1007. In contrast, here, Defendants’ statement was susceptible to two
inferences, one of which is inconsistent with what Plaintiffs allege was the true reason
negotiations ended. Defendants’ statement implies that two conditions had to occur for
the negotiations to result in a finalized transaction: Opon had to obtain financing, and
36
that financing had to be on terms acceptable to Delta. The statement mentions both
conditions in explaining why negotiations were terminated, but it is ambiguous as to
whether one or both conditions failed. Although a reasonable investor may have
inferred that the problem was Delta’s terms, it would have been just as reasonable to
have inferred that Opon would have been happy with Delta’s terms if it could have
secured the financing. The first inference is consistent with Plaintiffs’ allegation that
negotiations ended because of a problem with the $400 million price, one of Delta’s
terms. The second inference, however, is inconsistent with “the more detailed
explanation” Plaintiffs’ allege should have been disclosed. See id.
The Court concludes that a reasonable investor could draw either of the two
competing inferences from Defendants’ statement. Construing the allegations in the
light most favorable to Plaintiffs, as it must at this stage in the litigation, the Court
concludes that Plaintiffs’ have alleged “more than a sheer possibility” that Defendants’
statement was misleading. See Iqbal, 556 U.S. at 678. Therefore, Plaintiffs have
adequately alleged that the July 7, 2010 disclosure concerning the termination of Delta’s
negotiations with Opon was misleading and, thus, as to these statements, Defendants’
motion to dismiss must be denied unless there is another ground for granting it. 7
(ii)
Loss Causation
With respect to loss causation, as described above, Plaintiffs must allege facts
to demonstrate that their losses resulted from revelation of this false and misleading
statement. In re Williams, 558 F.3d at 1137. The revelation must be corrective of the
7
Defendants have not argued that they were unaware negotiations with Opon ended
because Opon backed away from the $400 million price for the Vega Assets. Therefore, the
Court assumes, without deciding, that Plaintiffs have adequately pled scienter with respect
to Defendants’ statement concerning the reason Delta’s negotiations with Opon ended.
37
alleged misrepresentation in that it “relate[s] back to the misrepresentation and not to
some other negative information about the company.” Id. at 1140.
According to Plaintiffs, Defendants stated that the Opon negotiations ended
because financing was unavailable, thereby concealing the true reason: that Opon was
unwilling to pay $400 million for the assets. The disclosures that Plaintiffs allege caused
the November 10, 2011 share price decline occurred the day before, on November 9,
2011, and included the $420.1 million asset impairment and a bankruptcy warning.
(Doc. # 42 at 29.) That Opon would not pay $400 million for the assets was, according
to Plaintiffs, relevant to investors’ understanding of what other potential acquirers might
bid or pay for the assets. However, the purported corrective statement—the asset
impairment—merely updated the Company’s accounting for the assets’ value in
accordance with Generally Accepted Accounting Principles (“GAAP”). Plaintiffs have
not alleged any facts showing that the updated accounting value of the Vega Assets,
when disclosed, suggested or implied anything false about Defendants’ statement
concerning the reason the Opon negotiations terminated. It is true that both the reason
Defendants gave for ending negotiations and the announcement of the asset
impairment touched upon the subject of the Vega Assets. That is not adequate,
however, to establish that the asset impairment announcement related back, and was
thus corrective of, the misstatement. See North Port Firefighters’ Pension—Local
Option Plan v. Temple-Inland, Inc., --- F. Supp. 2d ----, ----, 2013 WL 1263161, at *28
(N.D. Tex. 2013) (statements were not corrective merely because they concerned value
of same assets as alleged misstatements). The asset impairment announcement bore
too tenuous a relationship to the misstatement to have corrected that misstatement.
38
The other fact announced on November 9, 2011, that arguably may have caused
Plaintiffs’ loss was the heightened risk of bankruptcy. Like the asset impairment
announcement, however, disclosing this risk did not relate back to the misrepresentation
Plaintiffs allege. Opon’s decision not to pay $400 million for the Vega Assets was surely
bad news for Delta, and every negative event necessarily contributed somewhat to
Delta’s risk of bankruptcy. However, the warning that bankruptcy was more likely did
not relate back to, and correct, every allegedly concealed bit of bad news. Nor did the
bankruptcy warning relate back to the misstatement at issue here. This misstatement
concealed the risk that the assets might not fetch as high a price as Delta and its
shareholders hoped, which is no more connected to the risk of bankruptcy than any
other negative event would be.
Therefore, neither of the November 9, 2011 disclosures—the asset impairment
and bankruptcy warning—which precipitated Plaintiffs’ losses, related back to the July 7,
2010 misstatements. Consequently, Plaintiffs have failed to allege that these losses
incurred on November 10 were “attributable to the revelation of the fraud.” See In re
Williams at 1137. Plaintiffs’ claims based on the July 7, 2010 statement are dismissed
for failure to allege loss causation.
C.
DELAYED RECOGNITION OF ASSET IMPAIRMENT
Finally, Plaintiffs contend that (1) “Defendants knowingly or recklessly overstated
the amount of Delta Petroleum’s unproved properties, proved developed reserves[,] and
proved undeveloped reserves, which, in turn, understated the Company’s expenses and
materially understated the amount of the Company’s reported losses[,]” and that (2) the
39
timing of its corrective action, via the impairment charge, violated GAAP. (Doc. # 36 at
18-33.) The Court finds that Plaintiffs have failed to state a valid claim on this issue.
As previously indicated, GAAP are those principles recognized by the accounting
profession as the conventions, rules, and procedures necessary to define accounting
practice at a particular time. Those principles are the official standards adopted by the
American Institute of Certified Public Accountants. In conjunction with SEC accounting
literature and guidance including, specifically, SEC Regulation S-X, GAAP regulations
comprise the single authoritative source of U.S. accounting and reporting standards.
Under GAAP and SEC Regulation X, undrilled oil and gas locations “can be classified
as having undeveloped reserves only if a development plan has been adopted
indicating that they are scheduled to be drilled within five years, unless the specific
circumstances, justify a longer time.” ASC 932-360-20; SEC Regulation S-X, Rule
4.10(31). This classification, in turn, requires the existence of a reasonable expectation
that there will exist “financing required to implement the project.” ASC 932-360-20; SEC
Regulation S-X, Rule 4.10(26).
In conducting this review, the Court notes that, under Tenth Circuit law,
“allegations of GAAP violations or accounting irregularities, standing alone, are
insufficient to state a securities fraud claim.” Fleming Cos., 264 F.3d at 1261.
Moreover, the Court will not lightly second-guess a corporation’s timing decision relating
to taking an impairment, because such a decision usually hinges on a judgment call.
See, e.g., In re Loral Space & Telecomms. Ltd. Sec. Litig., No. 01 Civ.4388, 2004 WL
376442, at *17 (S.D.N.Y. Feb. 27, 2004) (“When the impairments became so severe as
40
to require specific accounting charges, and whether the requirements of the accounting
principles were satisfied, necessarily involved issues of judgment.”).
In the instant case, when Delta announced its third quarter 2011 financial results,
the bulk of the net loss it reported came from its $420.1 million impairment of proved
and unproved property in the Vega Area. Specifically, Delta recorded an impairment
of $157.5 million of its Vega area unproved leasehold, $239.8 million of its Vega area
proved properties, and $2.1 million of its Vega area surface acreage.
The impairment, while ultimately catastrophic for Delta, has not been sufficiently
alleged by Plaintiffs to have been in violation of GAAP. To begin with, the Complaint
fails to identify any oil and gas properties that, according to Plaintiff, should not have
been accounted for as reserves. Nor does Plaintiff assert any specific facts
demonstrating that Delta failed to have a reasonable expectation that it would have
financing to implement drilling projects on those properties. 8 The requirement to have
done so does not, contrary to Plaintiffs’ assertion, “ask[] too much” of them. (Doc. # 42
at 18 (citing Pirraglia v. Novell, Inc., 339 F.3d 1182, 1193 n.14 (10th Cir. 2003)).) 9
Rather, the PSLRA requires Plaintiffs to offer some particularized support for their
allegations without the benefit of discovery. See 15 U.S.C. § 78u-4(b)(3)(B); cf. In re
8
Instead, as Defendants note, “the Complaint concedes that Delta was evaluating a
variety of strategic alternative throughout the class period.” (Doc. # 40 at 17-18 (citing relevant
portions of the Complaint).)
9
In Pirraglia, upon which Plaintiffs rely, the Tenth Circuit determined that the plaintiffs had
properly pled a securities fraud claim, based on improper accounting practices, by alleging both
motive and opportunity, as well as specifically pleading: (1) the identity of the source of a report
that the defendant corporation’s president had created a fictitious revenue category to account
for the shortfall between actual and target sales numbers; (2) the amount of money involved;
and (3) the explanation that the source had learned of the fictitious category when one of the
corporation’s accountants had shown him a spreadsheet containing it. 339 F.3d at 1193. Here,
no facts of comparable specificity have been alleged.
41
Petsmart, Inc. Sec. Litig., 61 F. Supp. 2d 982, 993 (D. Ariz. 1999) (“The pleading must
provide some particularized support regarding inventory levels, the defendants’
knowledge, and approximately when plaintiffs think the write-down should have
occurred.”).
Additionally, Plaintiffs do not cite any internal documents or witnesses who fault
Delta’s accounting methodology or the timing of the impairment charge or who
otherwise suggest that, based on GAAP, the charge should have been taken in an
earlier quarter. In re Mirant Corp. Sec. Litig., No. 1:02-CV-1467, 2009 WL 48188, at *22
(N.D. Ga. Jan. 7, 2009) (unpublished) (“the Complaint must go further than merely
alleging with the benefit of hindsight that an impairment should have been taken to
reflect a decline in fair market value. Rather, the Complaint must provide detail as to
why an impairment was required under then-existing accounting rules” (citations
omitted)). The parties’ citation to In re Ibis Tech. Sec. Litig., 422 F. Supp. 2d 294
(D. Mass. 2006), helps elucidate why Plaintiffs’ allegations are insufficient here. In that
case, the plaintiffs claimed that the defendant corporation should have taken a write off
on certain older inventory. Id. at 314. The plaintiffs supported their claims with specific
factual allegations that 97% of the defendant’s sales were from the newer product,
compared to 13% in the same quarter the prior year and that, thereafter, the corporation
stopped selling the older product entirely. Id. at 315. The court explained that “plaintiffs
cannot plead a GAAP violation merely by claiming that a write-off for obsolete inventory
that was taken in one quarter should have been taken in an earlier quarter.” Id. at 314.
By comparison, the Complaint in the instant case does not provide similar detail as to
why an impairment was required to be reported prior to Detla’s third quarter 2011 report.
42
Further, the Complaint does not describe the impairment testing Delta undertook
nor does it explain how, or even if, Delta fraudulently reported the results of its
impairment tests in its financial statements. Instead, Plaintiffs rely on assorted
arguments that appear unrelated to whether Delta’s impairment testing was correct.
For instance, Plaintiffs assert that the Opon deal had fallen through by June of 2010
and that, “[b]y this time[,] Defendants knew, or were reckless in not knowing, that [Delta]
would be unable to obtain financing on acceptable terms such that it could go forward
with development projects on its oil and gas properties.” (Doc. # 36 at 32.) However,
Plaintiffs also allege that, through the spring of 2011, “Delta was aggressively seeking
investments . . . .” (Doc. # 42 at 16.) This indicates that, contrary to Plaintiffs’ previous
assertion, Delta was continuing to seek the capital necessary to proceed with its
development projects. Similarly, although Plaintiffs generally assert that Delta “had
a liquidity issue[,]” “couldn’t pay [its] bills (Doc. # 36 at 31 (quoting statements by
Confidential Witness 1)), and was selectively paying vendors to conserve cash (id. at 32
(citing statements by Confidential Witness 2)), no specific facts are alleged and, in any
event, Plaintiffs acknowledge that Delta was consistently “attempting to sell its assets.”
(Doc. # 42 at 16.)
Further, Plaintiffs assert that “[e]ach of the Company’s Forms 10-K and 10-Q
filings beginning with Delta’s year ended 2008 Form 10-K, filed on March 2, 2009,
carried a ‘going concern’ warning” (Doc. # 36 at 31) and that, by May of 2011, Delta’s
auditors told Defendants, and others at the company, that “bankruptcy [was] a real risk”
(Doc. # 42 at 16 (quoting statements by Confidential Witness 1)). But these assertions
relate only to Delta’s poor performance in general, not to the specific accounting
43
determinations that were made. Cf., e.g., Davidco Investors, LLC v. Anchor Glass
Container Corp., No. 8:04-CV-2561T-24EAJ, 2006 WL 547989, at *3, 15-17 (M.D.
Fla. Mar. 6, 2006) (unpublished) (plaintiffs sufficiently alleged facts indicating that
defendant’s failure to take earlier write-downs amounted to fraud, where, among other
things, plaintiffs pled that defendant lost contract which accounted for 50% of production
and, over the next year, no customers could be found to replace the lost sales).
As such, the Court agrees with Defendants that Plaintiffs’ “conclusory and nonspecific
allegations are patently insufficient to demonstrate Delta failed to comply with GAAP
concerning the timing of the impairment charge or that it overstated the value of any
of its assets.”10 (Doc. # 40 at 18.)
According, the Court determines that Plaintiff has failed to state a claim for
noncompliance with GAAP.
IV. CONTROL PERSON LIABILITY
Because Plaintiffs have failed to state a claim for violation of Rule 10b-5,
Plaintiffs’ Section 20(a) claim for control person liability necessarily fails. See Fleming,
264 F.3d at 1270-71 (“[T]o state a prima facie case of control person liability, the plaintiff
must establish (1) a primary violation of the securities laws and (2) ‘control’ over the
primary violator by the alleged controlling person. Because we find that the district court
properly dismissed Plaintiffs’ claims relating to primary violations of the Act, we conclude
that Plaintiffs’ controlling person liability claims were properly dismissed, as well.”
(internal quotation marks and citations omitted)).
10
Thus, the Court need not address whether Plaintiffs sufficiently alleged the additional
elements of their claim regarding the accounting impairment.
44
V. REQUEST TO AMEND
In the last sentence of their response, Plaintiffs state that, “[s]hould the Court
grant Defendants’ Motion, Plaintiffs request leave to amend.” (Doc. # 42 at 30.)
However, Plaintiffs have not filed a motion for leave to amend. Under the Local Rules
of this District, “[a] motion shall not be included in a response or reply to the original
motion. A motion shall be made in a separate paper.” D.C.COLO.LCivR 7.1(C).
Likewise, Fed. R. Civ. P. 7(b)(1) requires that a “request for a court order must be made
by motion.” Thus, there exists “no pending request to amend the complaint requiring
the Court’s attention.” In re Level 3 Commc’ns, Inc. Sec. Litig., No. 09-cv-00200, 2010
WL 5129524, at *12 (D. Colo. Dec. 10, 2010) (unpublished) (citing Calderon v. Kansas
Dep’t of Soc. & Rehab. Servs., 181 F.3d 1180, 1186-87 (10th Cir. 1999) (“[A] request for
leave to amend must give adequate notice to the district court and to the opposing party
of the basis of the proposed amendment before the court is required to recognize that
a motion for leave to amend is before it.”)), aff’d 667 F.3d 1331 (10th Cir. 2012).
If Plaintiffs choose to file a motion requesting leave to amend, not only must they
identify the new or additional facts that support their claims, but also, they shall address
how the new information overcomes the Court’s rulings in this Order.
VI. CONCLUSION
For the foregoing reasons, it is ORDERED that Defendants’ Motion to Dismiss
Plaintiffs’ Consolidated Complaint (Doc. # 40) is GRANTED. It is
45
FURTHER ORDERED that Defendants’ unopposed Motion Requesting Judicial
Notice in Support of Motion to Dismiss Plaintiffs’ Consolidated Complaint (Doc. # 41) is
GRANTED.
DATED: September
30
, 2013
BY THE COURT:
________________________________
CHRISTINE M. ARGUELLO
United States District Judge
46
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?