Firefighters Pension & Relief Fund of the City of New Orleans v. Bulmahn et al

Filing 238

ORDER AND REASONS granting defendants' motions 206 209 221 and DISMISSES plaintiff's claims with prejudice.. Signed by Chief Judge Sarah S. Vance on 8/14/15. (Reference: ALL CASES)(jjs)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
FIREFIGHTERS PENSION & RELIEF
FUND OF THE CITY OF NEW
ORLEANS, Individually and on
Behalf of All Others Similarly
Situated

CIVIL ACTION

VERSUS

NO: 13-3935, c/w
13-6083, 13-6084,
13-6233

T. PAUL BULMAHN, ET AL.

SECTION: R

ORDER AND REASONS
This case is a securities class action brought on behalf of
all persons who acquired ATP Oil and Gas Corporation ("ATP")
11.875% Senior Second Lien Exchange Notes ("Notes") traceable to an
allegedly false and misleading Form S-4 registration statement and
prospectus issued in connection with ATP's December 16, 2010
exchange

offer

("the

Exchange").

ATP

filed

for

Chapter

11

Bankruptcy on August 17, 2012 and is not named as a defendant in
this action.

Instead, plaintiff sued ATP's senior executives and

board of directors, alleging violations of Sections 11 and 15 of
the Securities Act of 1933 ("Securities Act").

Defendants T. Paul

Buhlman, Albert L. Reese, Jr., and Keith R. Godwin (collectively,
the

"Officer

Defendants")

have

filed

a

motion

to

dismiss

plaintiff's Second Amended Complaint for failure to state a claim.1
Defendants Chris A. Brisack, Arthur H. Dilly, Gerard J. Swonke,

1

R. Doc. 206.

Brent M. Longnecker, Walter Wendlandt, Burt A. Adams, George R.
Edwards,

and

Robert

J.

Karow

(collectively,

the

"Director

Defendants") have likewise filed a motion to dismiss the Second
Amended Complaint.2
defendants'

motions

For the reasons that follow, the Court grants
and

dismisses

plaintiff's

Second

Amended

Complaint with prejudice.

I.

BACKGROUND
Before it filed for bankruptcy in 2012, ATP engaged in the

acquisition, development, and production of oil and natural gas
properties.3

The company acquired and developed properties with

proven undeveloped reserves in the Gulf of Mexico and the North
Sea, but the majority of the company's business was in the Gulf of
Mexico.

As of December 31, 2009, ATP had leasehold and other

interests in 62 offshore blocks and 104 wells, of which ATP was
then operating a total of 93.4

Additionally, as of March 16, 2010,

ATP owned an interest in 36 platforms, including two floating
production facilities: the ATP Innovator, located in the Gulf of
Mexico at the company's Gomez Hub, and the ATP Titan, also in the
Gulf of Mexico at the company's Telemark Hub.

2

R. Doc. 209. The Director Defendants adopt the Officer
Defendants' arguments as their own.
3

R. Doc. 199 at 6.

4

R. Doc. 206-2 at 8.
2

On

April

unregistered

19,

2010,

private

ATP

notes

raised

to

$1.5

billion

institutional

by

investors

selling
in

a

transaction exempt from the registration requirements under the
Securities Act.5
2015.

The notes were Senior Second Lien Notes due in

ATP agreed to offer to exchange the unregistered private

notes for "substantially identical notes registered under the
Securities Act" within nine months.6
On April 20, 2010, the day after the private note offering,
the drilling rig Deepwater Horizon exploded and sank in the Gulf of
Mexico, fracturing the well's pipeline and creating "the largest
oil spill in U.S. history."7

In response, the United States

Department of the Interior issued two moratoria that halted all
drilling at depths greater than 500 feet between May 6, 2010 and
October 12, 2010.8
moratoria

on

Although the Department of Interior lifted the

October

12,

2010,

it

instituted

new

rules

and

regulations that conditioned the issuance of drilling permits on
additional

testing,

requirements.9

training,

and

compliance

with

new

safety

As of February 2011, the Department of Interior had

issued no new drilling permits, prompting members of the oil and

5

ATP's April 23, 2010 Form 8-K, R. Doc. 133-3 at 3.

6

Id.

7

R. Doc. 199 at 10.

8

R. Doc. 206-2 at 30.

9

Id.
3

gas industry to refer to this period of permitting delays as the
"de facto moratorium."10

Together these three moratoria halted all

of ATP's exploration and development operations in the Gulf of
Mexico through 2010.11
On October 12, 2010, ATP filed the Registration Statement with
the Securities and Exchange Commission ("SEC"), indicating its
intent to exchange the $1.5 billion in unregistered private notes
for the registered Senior Second Lien Exchange Notes at issue in
this litigation.12 Following a December 14, 2010 amendment, the SEC
declared the Registration Statement effective, and the Exchange was
effected on December 16, 2010 ("the Effective Date").13
The Prospectus14 included a section titled "Risks Related to
Our Business," which provided a detailed account of the Deepwater
Horizon explosion and the resulting moratoria.

It also described

the new regulatory environment in the Gulf of Mexico, cautioning
that

"[t]he

U.S.

government

and

regulatory

response

to

the

Deepwater Horizon drilling rig accident and resulting oil spill
could have a prolonged and material adverse impact on our Gulf of

10

R. Doc. 199 at 11.

11

Id.

12

R. Doc. 206-2.

13

Id.

14

For all practical purposes, the Registration Statement
and Prospectus contain the same information and are
interchangeable.
4

Mexico operations."

It also warned that "[a]lthough Moratorium II

has been lifted, we cannot predict with certainty when permits will
be granted under the new requirements."
cautionary

language,

the

Prospectus

Among numerous pages of
contained

the

following

statement:
We project a substantial increase in production over the
next year as development wells are brought to production.
Absent alternative funding sources, achieving our
projected production growth is necessary to provide the
cash flow required to fund our capital plan and meet our
existing obligations, both over the next twelve months
and on a longer term basis.15
Ultimately, ATP did not survive and filed for Chapter 11
bankruptcy on August 17, 2012.16
bankruptcy

action,

defendant

In a declaration filed in the

Albert

Reese,

Jr.,

ATP's

Chief

Financial Officer, summarized the adverse impact of the moratoria
on ATP's business operations, describing the Deepwater Horizon
explosion and oil spill as the "primary reason" for the company's
failure:
The delay on operations and the increasingly uncertain
regulatory
environment
adversely
affected
ATP's
operations and planned development that was necessary to
service its additional debt. Despite statements that the
moratoria had been lifted a various points in time, the
government did not issue new deepwater drilling permits
until February 28, 2011, thus effectively extending the
moratorium. As a result, ATP was unable, despite access
to funds, to drill and bring online six new wells during
2010 and 2011.
In addition to the high costs of
interrupted and discontinued drilling operations in

15

R. Doc. 206-2 at 30-31.

16

R. Doc 199 at 16.
5

deepwater, ATP continued to incur construction costs on
the Octabuoy, its newest deepwater production platform,
as a discontinuation of work o[n] the platform would have
led to significant escalation in cost-to-completion once
work resumed.
Moreover as access to deepwater rigs
became limited, ATP also experienced higher than expected
costs in preserving its access to equipment during the
moratoria.
Overall, ATP's inability to complete various wells or
commence pipeline construction when planned due to the
shutdown in the Gulf created significant liquidity
problems . . . .17
When asked whether "ATP [had] the liquidity and revenues at that
time to absorb a lengthy moratorium," Reese responded, "no."18
By

May

24,

2013,

the

date

plaintiff

filed

the

initial

complaint in this action, the Notes acquired by Lead Plaintiff
Plumbers and Pipefitters National Pension Fund were trading at just
1% over par.19
Named Plaintiff Firefighters Pension & Relief Fund of the City
of New Orleans ("Firefighters") filed this class action on May 24,
2013 on behalf of all persons who acquired the Notes traceable to
the Registration Statement and Exchange.20

17

On August 15, 2013, the

August 17, 2012 Albert Reese Bankruptcy Declaration, R.
Doc. 133-6 at 8,10. The Court considers this declaration because
plaintiff quotes and refers to it in their Second Amended
Complaint. See Randall D. Wolcott, M.D., P.A. v. Sebelius, 635
F.3d 757, 763 (5th Cir. 2011) (indicating that courts may
consider documents incorporated into the complaint by reference
on a motion to dismiss).
18

R. Doc. 199 at 16.

19

Id. at 4.

20

R. Doc. 1.
6

Court appointed Plumbers and Pipefitters National Pension Fund as
Lead Plaintiff.21

Lead Plaintiff filed its First Amended Complaint

on October 10, 2013.22 The First Amended Complaint alleged that the
Registration

Statement

was

false

and

misleading

in

that

it

misrepresented and/or omitted material facts, including that:
(a) ATP did not have the liquidity and revenue to survive
the moratoria;
(b) the proved oil and gas reserves as reported by ATP
were false and misleading;
(c) there was no reasonable basis to believe, and
defendants did not in fact believe, ATP's forecast of "a
substantial increase in production over the next year as
development wells are brought to production";
(d) ATP was in violation of its credit and debt
agreements as it had entered into "disguised financings,"
including at least eight conveyances that ATP has not
admitted were in fact disguised financings;
(e) ATP was operating in violation of U.S. environmental
laws by unlawfully discharging oil and unpermitted
chemical dispersant into the Gulf of Mexico; and
(f) the boilerplate "risk disclosures" utilized in the
Registration Statement were themselves misleading.23
On December 18, 2013, the Officer and Director Defendants
moved to dismiss plaintiff's First Amended Complaint.24

The Court

granted the defendants' motion to dismiss on September 26, 2014,

21

R. Doc. 63.

22

R. Doc. 75.

23

Id. at 3-4.

24

R. Docs. 133 and 136.
7

but gave plaintiff leave to replead several of the dismissed
claims.

Specifically, the Court dismissed the following claims

without prejudice and with leave to amend:
(1) that defendants violated Item 303 by failing to
disclose that ATP did not have the liquidity and revenue
to survive the moratoria; (2) that ATP's forecast of "a
substantial increase in production over the next year as
development wells are brought to production" was false or
misleading because defendants knew that ATP lacked the
liquidity and revenues to survive the moratoria.25
The Court dismissed with prejudice plaintiff's Section 12 claim and
the following Section 11 claims:
(1) that the defendants violated Item 303 by failing to
disclose the alleged problems at the Atwater well; (2)
that the proved oil and gas reserves as reported by ATP
were false and misleading; (3) that ATP's forecast of "a
substantial increase in production over the next year as
development wells are brought to production" was false or
misleading because defendants failed to disclose the
alleged problems at Atwater; (4) that defendants failed
to disclose that ATP was in violation of its credit and
debt agreements due to "disguised financings" with
various entities; (5) that defendants failed to disclose
that ATP was operating in violation of U.S. environmental
laws; and (6) that the boilerplate "risk disclosures"
utilized in the Registration Statement were themselves
misleading.26
On November 3, 2014, plaintiff filed its Second Amended
Complaint.27

Although the Court granted plaintiff leave to replead

two of its previously dismissed claims, plaintiff reasserted only
one of its claims: the Registration Statement was false and

25

R. Doc. 196 at 69.

26

Id.

27

R. Doc. 199.
8

misleading in that it misrepresented and/or omitted material facts
regarding the Registration Statement's projection of "a substantial
increase in production over the next year as development wells are
brought to production."28

The Court permitted plaintiff to replead

that this projection was false "because defendants knew that ATP
lacked the liquidity and revenues to survive the moratoria."29
Plaintiff was not permitted to replead that the projection was
false because of problems at Atwater.30

Nonetheless, plaintiff

continues to rely on Atwater despite the Court's ruling. Plaintiff
also seeks to hold the Director Defendants liable as "control
persons" under Section 15 of the Act.

15 U.S.C. § 77o(a).

The Officer and Director Defendants now move the Court to
dismiss plaintiff's Second Amended Complaint for failure to state
a claim.31

28

Id. at 15-16. The Second Amended Complaint also
realleges all claims and allegations set forth in the First
Amended Complaint "for the sole purpose of preserving those
claims for any appeal." Id. at 3 n.1. Realleging the claims the
Court dismissed with prejudice is unnecessary for the purpose of
preserving such claims for appeal, and, therefore, the Court will
not address the previously dismissed claims. See Williams v.
Wayne, 533 F.3d 360, 365 (5th Cir. 2008) ("A plaintiff, by filing
an amended complaint after a dismissal with leave to amend, is
not barred from raising on appeal the correctness of the
dismissal order.") (internal quotations and citations omitted).
29

R. Doc. 196 at 69.

30

Id.

31

R. Docs. 206 and 209.
9

II.

STANDARD
To survive a Rule 12 (b)(6) motion to dismiss, the plaintiff

must plead enough facts to “state a claim to relief that is
plausible on its face.”

Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)).

A claim is facially plausible “when the plaintiff pleads

factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”
Id.

A court must accept all well-pleaded facts as true and must

draw all reasonable inferences in favor of the plaintiff.

Lormand

v. U.S. Unwired, Inc., 565 F.3d 228, 239 (5th Cir. 2009).
A legally sufficient complaint need not contain detailed
factual

allegations,

but

it

must

go

beyond

labels,

legal

conclusions, or formulaic recitations of the elements of a cause of
action.

Id.

In other words, the face of the complaint must

contain enough factual matter to raise a reasonable expectation
that

discovery

will

plaintiff’s claim.

reveal

evidence

of

each

element

Lormand, 565 F.3d at 257.

of

the

If there are

insufficient factual allegations to raise a right to relief above
the speculative level, or if it is apparent from the face of the
complaint that there is an insuperable bar to relief, the Court
must dismiss the claim.

Twombly, 550 U.S. at 555.

In reviewing a motion to dismiss, the Court is limited to the
complaint, its proper attachments, documents incorporated into the
10

complaint by reference, and matters of which the Court may take
judicial notice.

See Randall D. Wolcott, M.D., P.A. v. Sebelius,

635 F.3d 757, 763 (5th Cir. 2011). In securities cases, courts may
take judicial notice of the contents of public disclosure documents
that are filed with the SEC as required by law; however, "these
documents may be considered only for the purpose of determining
what statements they contain, and not for proving the truth of
their contents."

In re Franklin Bank Corp. Sec. Litig., 782 F.

Supp. 2d 364, 384-85 (S.D. Tex. 2011) (citing Lovelace v. Software
Spectrum, Inc., 78 F.3d 1015, 1018 & n.1 (5th Cir. 1996)).
III. Discussion
A.

Statutory Framework

The Securities Act of 1933, 15 U.S.C. § 77a, et seq., protects
investors by ensuring that companies issuing securities (known as
"issuers")

make

a

"full

and

relevant to the public offering.
(1988).

fair

disclosure

of

information"

Pinter v. Dahl, 486 U.S. 622, 646

The linchpin of the Act is the registration requirement,

which prevents issuers from offering securities unless they have
filed a registration statement.

See 15 U.S.C. §§ 77d, 77e.

The

Act mandates that the registration statement contain specified
information about both the company itself and the security for
sale.

Id. at §§

77g, 77aa.

Section 11 of the Act promotes

compliance with the registration requirement by giving purchasers

11

a right of action against an issuer for material misstatements or
omissions contained in a registration statement:
In case any part of the registration statement, when such
part became effective, contained an untrue statement of
material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, any person acquiring
such security . . . [may] sue.
Id. at § 77k(a).

"A 'material fact' is one which a reasonable

investor would consider significant in the decision whether to
invest,

such

that

it

alters

the

'total

available about the proposed investment."

mix'

of

information

Krim v. BancTexas Grp.,

Inc., 989 F.2d 1435, 1445 (5th Cir. 1993) (quoting Isquith v.
Middle S. Utils., Inc., 847 F.2d 186, 207-08 (5th Cir. 1988)).
fact

is

not

material

if

"a

reasonable

investor

viewing

A

the

information in context would not have considered the investment
significantly more risky as a result."
With

respect

to

alleged

Id. at 1446.

omissions,

an

issuer

need

only

disclose information that is either (1) necessary to make other
statements not misleading, or (2) specifically required to be
disclosed by the securities laws.

See Kapps v. Torch Offshore,

Inc., 379 F.3d 207, 212 n.6 (5th Cir. 2004) (citing Oxford Asset
Mgmt. Ltd. v. Jaharis, 297 F.3d 1182, 1190 (11th Cir. 2002)).

The

"mere possession of material nonpublic information does not create
a duty to disclose."

Id. (quoting Shaw v. Digital Equip., 82 F.3d

1194, 1202 (1st Cir. 1996)).

12

Section

11's

"expansive"

liability

provisions

create

"'virtually absolute' liability for corporate issuers for even
innocent material misstatements."

Krim v. pcOrder.com, Inc., 402

F.3d 489, 495 (5th Cir. 2005). Accordingly, a Section 11 plaintiff
need not plead scienter, reliance, or fraud.
Huddleston, 459 U.S. 375, 381-82 (1983).

Herman & MacLean v.
Nonetheless, when a

plaintiff's allegations are grounded in fraud, Federal Rule of
Civil Procedure 9(b) applies.

Lone Star Ladies Inv. Club v.

Schlotzsky's Inc., 238 F.3d 363, 368 (5th Cir. 2001).

Rule 9(b)

requires a party to "state with particularity the circumstances
constituting fraud or mistake."

Fed. R. Civ. P. 9(b).

The Fifth

Circuit "interprets Rule 9(b) strictly, requiring the plaintiff to
specify the statements contended to be fraudulent, identify the
speaker, state when and where the statements were made, and explain
why the statements were fraudulent." Flaherty & Crumrine Preferred
Income Fund, Inc. v. TXU Corp., 565 F.3d 200, 207 (5th Cir. 2009)
(citing Williams v. WMX Tech., Inc., 112 F.3d 175, 177 (5th Cir.
1997)).

In cases concerning "omissions of facts, Rule 9(b)

typically requires the claimant to plead the type of facts omitted,
the place in which the omissions should have appeared, and the way
in which the omitted facts made the misrepresentations misleading."
Carroll v. Fort St. James Corp., 470 F.3d 1171, 1174 (5th Cir.
2006).

13

Finally,

"in

order

to

check

frivolous,

lawyer-driven

litigation," Ind. Elec. Workers' Pension Trust Fund IBEW v. Shaw
Grp. Inc., 537 F.3d 527, 532 (5th Cir. 2008), Congress passed the
Private Securities Litigation Reform Act ("PSLRA") and placed
heightened pleading requirements on plaintiffs pursuing federal
securities fraud suits.

15 U.S.C. §§ 78u-4, et seq.; see also

Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353,
365 (5th Cir. 2004) ("[T]he PSLRA requires the plaintiffs to
distinguish among those they sue and enlighten each defendants as
to his or her particular part in the alleged fraud.").

The PSLRA

also created a "safe harbor" from liability for certain forwardlooking statements contained in a registration statement. The safe
harbor provision states that a defendant
shall not be liable with respect to any forward-looking
statement, whether written or oral, if and to the extent
that(A) the forward-looking statement is(i) identified as a forward-looking statement,
and is accompanied by meaningful cautionary
statements identifying important factors that
could
cause
actual
results
to
differ
materially from those in the forward-looking
statement; or
(ii) immaterial; or
(B) the plaintiff fails to prove that the forwardlooking statement–(i) if made by a natural person, was made with
actual knowledge by that person that the
statement was false or misleading; or

14

(ii) if made by a business entity; was(I) made by or with the approval of an
executive officer of that entity; and
(II) made or approved by such officer
with actual knowledge by that officer
that
the
statement
was
false
or
misleading.
15 U.S.C. § 77z-2(c). Because this provision is disjunctive, parts
(A) and (B) must be considered separately. See Southland, 365 F.3d
at 372 ("The safe harbor has two independent prongs: one focusing
on the defendant's cautionary statements and the other on the
defendant's state of mind.");32 Slayton v. Am. Exp. Co., 604 F.3d
758, 766 (2d Cir. 2010) ("The safe harbor is written in the
disjunctive; that is, a defendant is not liable if the forwardlooking statement is identified and accompanied by meaningful
cautionary language or is immaterial or the plaintiff fails to
prove that it was made with actual knowledge that it was false or
misleading."). The PSLRA further provides that "[o]n any motion to
dismiss based upon [the safe-harbor provision], the court shall
consider any statement cited in the complaint and cautionary
statement accompanying the forward-looking statement, which are not
subject to material dispute, cited by the defendant."

32

15 U.S.C. §

Any suggestion to the contrary in Lormand v. US Unwired,
Inc., 565 F.3d 228, 244 (5th Cir. 2009), conflicts with the Fifth
Circuit's earlier holding in Southland and does not bind this
Court. Rios v. City of Del Rio, 444 F.3d 417, 425 n.8 (5th Cir.
2006) ("[W]here two previous holdings or lines of precedent
conflict the earlier opinion controls and is the binding
precedent in this circuit . . . .").
15

77z-2(e).

If a plaintiff does not meet these standards, the PSLRA

states that the district court "shall," on defendant's motion,
"dismiss the complaint."

15 U.S.C. § 78u-4(b)(3).

See also Asher

v. Baxter Int'l Inc., 377 F.3d 727, 728 (7th Cir. 2004) ("The PSLRA
creates rules that judges must enforce at the outset of the
litigation. . . . .").
B.

ATP's Allegedly Misleading Projection of a Substantial
Increase in Production

The Second Amended Complaint alleges that the Prospectus's
projection of a "substantial increase in production over the next
year as development wells are brought to production" was misleading
because defendants did not believe, and had no reasonable basis to
believe,

that

production

would

actually

increase.33

Plaintiff

alleges that defendants did not believe, and had no reasonable
basis to believe, this projection because (1) ATP did not submit
permit

applications

for

its

Gomez

#9

and

#10

wells

to

the

government until June 2011, thereby ensuring that the Gomez wells
would not contribute to the projected production increase in 2011,
(2) ATP did not conduct "exploratory testing that would have
allowed ATP to accurately estimate production from [the company's]
Telemark [Hub]," (3) "the lack of connectivity at [ATP's] Atwater
[well] suggested that the Company's production projections at
Telemark's other new wells would not be met," and (4) ATP did not

33

R. Doc. 199 at 17-18.
16

have the financial resources to bring the Telemark and Gomez
projects to production.34
The Court specifically notes that plaintiff was permitted to
replead their claim that defendants did not believe or have a
reasonable basis to believe the forecasted increase in production
only on the grounds that defendants knew they lacked liquidity to
survive the moratorium.

The Court did not permit plaintiff to

reallege claims regarding Atwater or any other basis for why the
prediction

was

false

and

misleading.

Plaintiff

now

makes

allegations that exceed the scope of the Court's order.

For this

reason

lack

alone,

except

for

an

allegation

resources, this claim is dismissable.

regarding

a

of

These allegations are also

insufficient on other grounds.
Plaintiff must meet the stringent standards of the PSLRA, as
the

Prospectus

explicitly

identified

the

projection

of

a

substantial production increase as a "forward-looking statement[]
under the Private Securities Litigation Reform Act of 1995."35
Accordingly, the PSLRA's safe-harbor provision forecloses liability
in this case if (1) ATP's projection of a substantial production
increase

"is

accompanied

by

meaningful

cautionary

statements

identifying important factors that could cause actual results to
differ materially from" the projection, or (2) "the plaintiff fails

34

Id. at 18-19.

35

R. Doc. 206-2 at 5.
17

to prove that the forward-looking statement . . . was made with
actual knowledge by that person that the statement was false or
misleading."

15 U.S.C. § 77z-2(c).

These pleading requirements are not affected by the recent
Supreme Court decision in Omnicare, Inc. v. Laborers District
Council Construction Industry Pension Fund,135 S. Ct. 1318 (2015).
In Omnicare, the Supreme Court analyzed when an issuer may be held
liable under Section 11 for a statement of opinion (as opposed to
a factual statement) in a registration statement.
Because

the

opinion

statements

in

Omnicare

Id. at 1324.

centered

on

the

lawfulness of the issuer's existing contracts, id. at 1323, the
Supreme Court had no occasion to address projections or other
forward-looking statements.

Accordingly, Omnicare does not change

the statutory safe harbor for forward-looking statements or lessen
the plaintiff's pleading burden under the PLSRA.
1.

Plaintiff has Failed to Adequately Plead Actual
Knowledge

To plead a cause of action under the PSLRA safe harbor
provision, a plaintiff must plead facts indicating that a defendant
actually knew that the statement was either false or misleading.
See Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309, 1324
n.14 (2011) ("Under the PSLRA, if the alleged misstatement or
omission is a 'forward-looking statement,' the required level of
scienter is 'actual knowledge.'").
knowledge

under

the

PSLRA,

a
18

Moreover, to plead actual

plaintiff

must

"state

with

particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind." 15 U.S.C. § 77u4(b)(2).
The Second Amended Complaint is sprinkled with conclusory
allegations that defendants "did not believe, and had no reason to
believe" the projection of a substantial increase in production.36
As an initial matter, alleging that defendants had no reason to
believe, or lacked a reasonable basis for, the projection is
insufficient

under

the

PSLRA's

safe

harbor

provision.

See

Southland, 365 F.3d at 371 ("To avoid the safe harbor, plaintiffs
must plead facts demonstrating that the statement was made with
actual knowledge of its falsity."); Golesorkhi v. Green Mountain
Coffee Roasters, Inc., 973 F. Supp. 2d 541, 555 (D. Vt. 2013)
("Because the safe harbor specifies an actual knowledge standard
for

forward-looking

statements,

the

scienter

requirement

for

forward-looking statements is stricter than for statements of
current fact.

Whereas liability for [misleading statements of

36

See, e.g., R. Doc. 199 at 3 ("The Registration Statement
utilized in connection with the Exchange was false and misleading
in that it misrepresented and/or omitted material facts,
including that there was no reasonable basis to believe, and
defendants did not in fact believe, ATP's forecast of 'a
substantial increase in production over the next year as
development wells are brought to production.'"); id. at 18
("Defendants' statements projecting 'a substantial increase in
production over the next year as development wells are brought to
production' were materially false and misleading because
defendants knew that, having no reasonable basis for the
projection, the statements were materially false and
misleading.").
19

current fact] requires a showing of either knowing falsity or
recklessness, liability for [forward-looking statements] attaches
only upon proof of knowing falsity.").
conclusory

allegation

that

Additionally, plaintiff's

"defendants"

did

not

believe

projection is insufficient for two separate reasons.

the

First, the

Fifth Circuit has rejected the "group pleading doctrine," and the
Court therefore cannot "construe allegations contained in [the]
Complaint against the 'defendants' as a group as properly imputable
to

any

particular

individual

defendant

unless

the

connection

between the individual defendant and the allegedly fraudulent
statement is specifically pleaded."

Southland, 365 F.3d at 365.

Second, plaintiff's conclusory allegation that all defendants did
not believe the projection, standing alone, is insufficient to
survive a motion to dismiss.

Iqbal, 556 U.S. at 686-87 (holding

that plaintiff cannot merely "plead the bare elements of his cause
of action," including defendant's mental state, "and expect his
complaint to survive a motion to dismiss").

Instead, to survive a

motion to dismiss, "plaintiffs must plead facts demonstrating that
the statement was made with actual knowledge of [the projection's]
falsity."

Southland, 365 F.3d at 371.

The Second Amended Complaint alleges that defendants did not
believe the projection for four reasons: (1) ATP did not submit
permit applications for its Gomez #9 and #10 wells until June 2011,
thereby ensuring that the Gomez wells would not contribute to the

20

projected production increase in 2011; (2) ATP did not conduct
"exploratory testing" at wells attached to the Telemark Hub and
therefore could not "accurately estimate" production from these
wells; (3) "connectivity" problems at ATP's Atwater well suggested
that other wells attached to the Telemark Hub would also have less
than anticipated production; and (4) ATP did not have the financial
resources to complete the Telemark and Gomez projects.37
Plaintiff
expressed

in

has
its

failed
order

to

address

dismissing

the

concerns

plaintiff's

the

First

Court

Amended

Complaint that the Prospectus projected a substantial increase in
production "as development wells are brought to production," not a
substantial increase in production as the Telemark and Gomez in
particular are brought to production.38

Plaintiff attempts to

remedy this problem by referring to oral statements ATP allegedly
made in the spring of 2010 stating that the "2011 production
increase was to be driven by new wells at Telemark and Gomez."39
Section 11, however, imposes liability only for misstatements or
omissions

contained

in

a

registration

statement

itself,

and

plaintiff cannot rewrite the Registration Statement by referencing

37

R. Doc. 199 at 18-19.

38

R. Doc. 196 at 48 ("[ATP's projection] did not limit the
projection to development wells in particular, so the truth of
the statement is to be judged by the overall increase in
production, not just from development wells.").
39

R. Doc. 199 at 9.
21

extrinsic statements.

See In re Sterling & Foster Co., Inc., Sec.

Litig., 222 F. Supp. 2d 216, 267 (E.D.N.Y. 2002) (dismissing
plaintiff's Section 11 claim to the extent that it was based on
extrinsic statements not contained in the registration statement
itself).
Nevertheless, even overlooking plaintiff's failure to address
this issue, the Court finds that the allegations in the Second
Amended Complaint fail to give rise to an inference that defendants
actually disbelieved the projection. First, plaintiff alleges that
defendants did not believe the projection because ATP did not
submit permit applications for Gomez #9 and #10 wells until June of
2011, thereby ensuring that the Gomez wells could not contribute to
a production increase in 2011.40 Absent allegations that defendants
are clairvoyant, defendants' failure to submit the Gomez permits
until June 2011 cannot support an inference that defendants knew,
some seven months earlier in December 2010, that the Gomez wells
would not contribute to the projected production increase in 2011.
See Plotkin v. IP Axess Inc., 407 F.3d 690, 698 (5th Cir. 2005)
("We

subscribe

to

the

rule

that

a

Plaintiff

cannot

charge

Defendants with intentionally misleading their investors about
facts Defendants may have become aware of after making allegedly
misleading statements to the public.") (internal quotation and
citation

40

omitted).

Thus,

without

Id. at 15.
22

any

factual

allegations

supporting the proposition that defendants knew in December 2010
that they would not submit the Gomez permits until June 2011, the
Court finds that ATP's alleged failure to submit permits until June
2011

does

not

give

rise

to

an

inference

that

defendants

subjectively disbelieved the projected production increase in
December 2010.

See In re IPO Sec. Litig., 358 F. Supp. 2d 189, 205

(S.D.N.Y. 2004) ("The truth of a statement made in the registration
statement

is

judged

by

the

facts

as

they

existed

when

the

registration statement became effective.").
Next, plaintiff alleges that defendants knew the projection
was

false

because

ATP

did

not

conduct

"exploratory

testing"

necessary to "accurately estimate" future production from several
wells attached to the Telemark Hub.

In other words, plaintiff

argues that defendants did not believe the projected increase
because there was testing they should have conducted and did not do
it.41

As will be discussed in detail below, defendants disclosed

that

they

based

their

projections

on

estimates

prepared

by

independent, third-party petroleum engineers.42 Defendants' alleged
failure to conduct additional testing at the Telemark Hub does not

41

Id. at 13.

42

See R. Doc. 206-2 at 137 ("The information incorporated
by reference into this prospectus regarding estimates of the oil
and gas reserves of ATP Oil and Gas Corporation and related
future net cash flows and the present values thereof were based
upon reserve reports prepared by Ryder Scott Company, L.P. and
Collarini Associates, each independent petroleum engineers.").
23

support an inference of actual knowledge as to the projection's
falsity.

Under the PSLRA's safe harbor, the question is not

whether the defendants' projection was supported by all available
testing.
2013)

See Bartesch v. Cook, 941 F. Supp. 2d 501, 509 (D. Del.

(holding

that

plaintiff's

allegation

that

defendants'

projection "lacked any reasonable basis" was insufficient in light
of plaintiff's "fail[ure] to allege that any of the defendants had
actual knowledge of its falsity").

Instead, the question is

whether the defendants had actual knowledge that the projection was
false.

Southland, 365 F.3d at 371 ("To avoid the safe harbor,

plaintiffs must plead facts demonstrating that the statement was
made with actual knowledge of its falsity.").

The upshot of

plaintiff's allegation of a lack of testing is that ATP lacked
allegedly available knowledge of Telemark's production potential.
This allegation might support an inference of negligence, but it
falls

far

short

of

showing

that

defendants

knowledge that the projection was false.

possessed

actual

This is especially true

as plaintiff does not allege that defendants consciously decided to
forego additional testing because they knew that the testing would
undermine the projection.
Third, plaintiff alleges that defendants knew the projection
was false because alleged "connectivity" problems at ATP's Atwater
well suggested that other wells attached to the Telemark Hub would

24

also produce less than originally projected.43

Plaintiff bolsters

this contention with a statement from a confidential witness who
opines that "Atwater's poor production was a warning sign for the
entire Telemark Hub, suggesting that the projections for the
remaining Telemark wells might be inaccurate.

This is because of

the close geographic proximity and geological make-up of the
Telemark wells."44 As the Court previously dismissed with prejudice
plaintiff's

allegation

"that

ATP's

forecast

of

a

substantial

increase in production over the next year as development wells are
brought to production was false or misleading because defendants
failed to disclose the alleged problems at Atwater" as time barred,
this allegation must be disregarded.45 Even if the Court considered
it, it does not raise a plausible inference that defendants knew
that the projection was false.

Plaintiff does not explain how the

confidential witness achieved this geological understanding of
Telemark's geological makeup.

And the confidential witness's

opinion that Atwater's connectivity issues "suggest[ed] that the
projections for the remaining Telemark wells might be inaccurate"
does not even give rise to an inference that the confidential

43

R. Doc. 199 at 15.

44

Id. According to the complaint, the confidential witness
worked as an ATP Vice-President from 2001 until December 2012,
was responsible for ATP's development, managed project teams, and
led weekly meetings at ATP's headquarters for each of ATP's
projects. Id. at 13.
45

R. Doc. 196 at 68-69.
25

witness possessed actual knowledge that the projection was false,
let alone speak to the defendants' level of scienter.

Indeed,

plaintiff does not allege that the confidential witness disclosed
his alleged insight to any of the defendants, nor does plaintiff
plead any facts supporting an inference that defendants shared in
the

confidential

witness's

view

of

the

geology.

That

this

allegation derives from a confidential source further detracts from
its weight in the Court's scienter analysis.

Ind. Elec. Workers'

Pension Trust Fund v. Shaw Grp., Inc., 537 F.3d 527, 535 (5th Cir.
2008) (holding that allegations deriving from confidential sources
deserve less weight in the court's scienter analysis because
"anonymity frustrates" the court's ability to "weigh the strength
of plaintiffs' favored inference in comparison to other possible
inferences") (internal citation and quotation omitted).
Finally, plaintiff alleges that defendants did not believe the
projection because defendants knew in December 2010 that ATP did
not have the financial resources to survive the moratoria and would
eventually file for bankruptcy in August 2012.46 In support of this
theory, plaintiff cites defendant Albert Reese's August 17, 2012
bankruptcy testimony in which Reese responded "no" when asked
whether "ATP [had] the liquidity and revenues at that time to
absorb

a

lengthy

moratorium."47

46

Id. at 19-20.

47

Id. at 16.
26

Plaintiff

also

borrows

an

allegation from Bankruptcy Trustee Rodney Tow's Chapter 7 complaint
that "[s]hortly after the Oil Spill, as early as May 2010, ATP
began to have problems with liquidity due to the Oil Spill and
foreseeable government response and entered the zone of insolvency,
which the Directors and Officers knew."48

Thus, plaintiff alleges

that defendants knew that ATP would not achieve the projected
production increase because defendants allegedly knew in December
2010 that ATP would file for bankruptcy in August 2012.
Conspicuously

absent

from

plaintiff's

complaint

is

any

allegation that ATP misrepresented its financial position in the
Prospectus or the SEC filings incorporated by reference therein.
Plaintiff fails to offer any explanation as to why defendants must
have known that ATP was doomed to fail while the market, armed with
the same financial data, failed to reach this conclusion.

Without

any allegation that defendants possessed financial data that the
market did not, plaintiff's attempt to impute actual knowledge to
defendants

amounts

hindsight.

See Plotkin, 407 F.3d at 698 ("We subscribe to the rule

that

a

plaintiff

to

nothing

cannot

charge

more

than

defendants

pleading

with

fraud-by-

intentionally

misleading their investors about facts defendants may have become
aware of after making allegedly misleading statements to the
public."); In re Verifone Sec. Litig., 11 F.3d 865, 869 (9th Cir.
1993) ("Absent allegations that [the issuer] withheld financial

48

Id.
27

data or other existing facts from which forecasts are typically
derived,

the

alleged

omissions

are

not

of

material

actual,

facts."); In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1420
(9th Cir. 1994) ("In sum, [plaintiffs'] argument distills to a
contention
collapse

that
in

[the

sales

corporation]

that

[securities] offering.

occurred

should
in

have

1987,

predicted

long

after

the
the

The corporation had no duty to do so.").

As the Court explained in its order dismissing plaintiff's First
Amended Complaint:
[P]laintiff merely points out that when asked in 2012
whether "ATP [had] the liquidity and revenues at that
time to absorb a lengthy moratorium," Reese responded
"no."
Plaintiff then concludes that each of the
defendants must have known ATP's ultimate fate as early
as 2010 simply because one defendant, with the benefit of
hindsight, stated that ATP lacked the liquidity to
survive a moratorium that was still ongoing as of the
Effective Date.
This argument is classic fraud-byhindsight pleading . . . .49
Plaintiff's adoption of an allegation from the Bankruptcy Trustee's
August 2014 Chapter 7 complaint does not alter the analysis.
Trustee's

allegation

that

ATP

was

in

an

undefined

"zone

The
of

insolvency" as early as May 2010 is nothing more than an unproven
allegation filed in an adversarial proceeding more than four years
after the SEC deemed the Registration Statement at issue here
effective.

Plaintiff cites nothing from the Trustee's complaint

alleging that defendants possessed any previously undisclosed

49

R. Doc. 196 at 22.
28

information or providing any other factual support for plaintiff's
contention that defendants knew in December 2010 that ATP would
file for bankruptcy or be insolvent two years later in August 2012.
Accordingly,

the

Court

finds

that

the

Bankruptcy

Trustee's

complaint does not alter the Court's scienter analysis.

See

Southland, 365 F.3d at 383 ("[B]ecause fraud cannot be proved by
hindsight, subsequent lawsuits are unpersuasive of scienter, as
they do not show what any particular individual knew . . . at the
time . . . .").
In

sum,

the

Court

has

considered

all

of

plaintiff's

allegations individually and cumulatively and finds that plaintiff
has failed to plead sufficient facts to give rise to an inference
that defendants possessed actual knowledge that the projection of
a substantial increase in production was false or misleading at the
time it was made.

Accordingly, the Court finds that plaintiff has

failed to plead actual knowledge as required by the PSLRA.

15

U.S.C. §§ 77u-4(b)(2), 77z-2(c)(1)(B)(i).
2.

The Prospectus
Language

Provided

Meaningful

Cautionary

Even if plaintiff had adequately pleaded actual knowledge,
the Court finds that the first prong of the PSLRA's safe harbor
precludes liability because the Registration Statement's projection
of a substantial increase in production is "identified as a
forward-looking

statement,

and

is

accompanied

by

meaningful

cautionary statements identifying important factors that could
29

cause actual results to differ materially from those in the
forward-looking statement."

15 U.S.C. § 77z-2(c)(1)(A)(I).

"To avail themselves of safe harbor protection under the
meaningful cautionary language prong, defendants must demonstrate
that their cautionary language was not boilerplate and conveyed
substantive information."

Slayton, 604 F.3d at 772.

In the Fifth

Circuit, "very vague and general" cautionary statements that do not
"disclose the specific risks and their magnitude" will not suffice.
Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 246-47 (5th Cir.
2009).

Instead, to fall within the safe harbor provision, an

issuer must give "substantive company-specific warnings based on a
realistic description of the risks applicable to the particular
circumstances,

not

merely

applicable risk factors."

a

boilerplate

litany

of

generally

Southland, 365 F.3d at 372; see also

Inst. Investors Grp. v. Avaya, Inc., 564 F.3d 242, 256 (3d Cir.
2009) ("To suffice, the cautionary statements must be substantive
and tailored to the specific future performances, estimates or
opinion in the prospectus which the plaintiffs challenge.").
Here,
substantial

plaintiff
increase

challenges
in

defendants'

production

over

development wells are brought to production."50

50

R. Doc. 199 at 17-18.
30

projection
the

next

of

"a

year

as

The projection is

located in a twenty-page section of the Prospectus entitled "Risk
Factors."51

Placed in its proper context, the projection reads:

We project a substantial increase in production over the
next year as development wells are brought to production.
Absent alternative funding sources, achieving our
projected production growth is necessary to provide the
cash flow required to fund our capital plan and meet our
existing obligations, both over the next twelve months
and on a longer term basis. Our ability to execute our
plan depends, in part, on our ability to continue
drilling for and producing hydrocarbons in the Gulf of
Mexico.
Our plan is currently based upon obtaining
necessary drilling permits, and successfully achieving
commercial production from existing wells presently
scheduled to commence during the remainder of 2010 and
2011.
Delays from difficulties receiving necessary
permits, reduced access to equipment and services, or bad
weather, could have a material adverse effect on our
financial position, results of operations and cash flow.
In addition to the risks associated with achieving our
projected production growth, additional regulatory
requirements and increased costs for which funding must
be secured, or a negative change in commodity prices and
operating cost levels, could have a material adverse
effect on our financial position, results of operations
and cash flows. While we are pursuing other sources of
funding, there is no assurance that the alternative
sources will be available should any of the above risks
or uncertainties materialize.52
The "Risk Factors" section also specifically notes that "delays in
the development of or production curtailment at our material
properties, including at our Telemark Hub may adversely affect our
financial position and results of operations."53

51

R. Doc. 206-2 at 21-41.

52

Id. at 31.

53

Id. at 33.
31

In the "Risk Factors" section, ATP also warned that its
estimates of its oil and gas reserves were just that, estimates:
Our actual development results are likely to differ from
our estimates of our oil and gas reserves.
We may
experience production that is less than estimated and
development costs that are greater than estimated in our
reserve reports.
Such differences may be material.
Estimates of our oil and natural gas reserves and the
costs and timing associated with developing these
reserves may not be accurate. Additionally, at December
31, 2009 approximately 87% of our total proved reserves
are classified as undeveloped.
Development of these
reserves may not yield the expected results, or the
development may be delayed or the development costs may
exceed our estimates, any of which may materially affect
our financial position and results of operations.
Development activity may result in downward adjustment of
reserves or higher than estimated costs.
Our estimates of our proved oil and natural gas reserves
and the estimated future net revenues from such reserves
are based upon various assumptions, including assumptions
required by the SEC relating to oil and natural gas
prices, drilling and operating expenses, capital
expenditures, taxes and availability of funds.
This
process requires significant decisions and assumptions in
the evaluation of available geological, geophysical,
engineering and economic data for each reservoir.
Therefore, these estimates are inherently imprecise and
the quality and reliability of this data can vary.54
ATP also warned of the inherent risk in the development of deep-sea
oil and gas reserves:
Our development activities may be unsuccessful for many
reasons, including cost overruns, equipment shortages,
and mechanical difficulties. Moreover, the successful
drilling of a natural gas or oil well does not ensure a
profit on investment.
A variety of factors, both
technical and market-related, can cause a well to become
uneconomic or only marginally economic. In addition to

54

Id.
32

their cost, unsuccessful wells can hurt our efforts to
replace reserves.55
With respect to the permitting status of its development wells, ATP
warned:
Although Moratorium II has been lifted, we cannot predict
with certainty when permits will be granted under the new
requirements.56
*

*

*

We have ongoing and planned drilling operations in the
deepwater Gulf of Mexico, some of which were permitted
prior to April 20, 2010, and some of which are not yet
permitted. Such permits, among other required approvals,
are necessary prior to commencement of offshore drilling
operations. Moratorium II has caused us to delay the
third and fourth wells scheduled at our Telemark Hub and,
even though Moratorium II has been lifted, any delays in
the resumption of the permitting process may result in
delays in our drilling operations scheduled in 2011 at
our Gomez Hub.57
And with respect to its financial situation, ATP stated:
We may not be able to generate sufficient cash flow and
may not be able to borrow funds in amounts sufficient to
enable us to service our indebtedness, or to meet our
working capital and capital expenditure requirements. If
we are not able to generate sufficient cash flow from
operations or borrow sufficient funds to service our
indebtedness, we may be required to sell assets or issue
equity, reduce capital expenditures, or refinance all or
a portion of our existing indebtedness. We may not be
able to refinance our indebtedness, sell assets or issue
equity, or borrow more funds on terms acceptable to us,
if at all.

55

Id. at 35.

56

Id. at 30.

57

Id. at 31.
33

We currently have a substantial amount of indebtedness.
As of September 30, 2010, we have total debt of
approximately 1,784.0 million . . . . Our ability to
satisfy our financial obligations and commitments depends
on our future operating performance and on economic,
financial, competitive and other factors, many of which
are beyond our control. We cannot provide assurance that
our business will generate sufficient cash flow or that
future financings will be available to provide sufficient
proceeds to meet these obligations. The inability to
meet our financial obligations and commitments will
impede the successful execution of our business strategy
and the maintenance of our economic viability.58
Finally, ATP warned of the risk that an inability to obtain capital
might force it to curtail operations:
If we are not able to generate sufficient funds from our
operations and other financing sources, we may not be
able to finance our planned development activity,
acquisitions or service our debt. We have historically
needed and will continue to need substantial amounts of
cash to fund our capital expenditure and working capital
requirements. Our ongoing capital requirements consist
primarily of funding development and exploration of or
oil and gas reserves.
*

*

*

We have been dependent on debt and equity financing to
fund our cash needs that were not funded from operations
or the sale of assets.
Since mid-2008 the capital
markets in the United States and the remainder of the
world have been in disarray. There have been capital
market transactions completed, but they have been very
expensive compared to historical levels. In addition,
low commodity prices production problems, disappointing
drilling results and other factors beyond our control
could reduce our funds from operations and may restrict
our ability to obtain additional financing or to pay
interest and principal on our debt obligations.
Furthermore, we have incurred losses in the past that may
affect our ability to obtain financing. Quantifying or
predicting the likelihood of any or all of these

58

Id. at 22.
34

occurring is difficult in the current domestic and world
economy.
For these reasons, financing may not be
available to us in the future on acceptable terms or at
all. In the event additional capital is required but not
available on acceptable terms, we would curtail our
acquisitions, drilling, development and other activities
or could be forced to sell some of our assets on an
untimely basis.59
Tellingly, plaintiff attempts to cherry-pick other arguably
generic warnings in the Prospectus and then argue that "much of
defendants' cautionary language was boilerplate."60

Although the

Court agrees that several of the warnings selected by plaintiff
fail to meet the Fifth Circuit's "substantive company-specific
warning" standard,61

Southland, 365 F.3d at 372, this argument is

nothing but a strawman. The issue is whether defendants' warnings,
as a whole, provided "substantive company-specific warnings based
on

a

realistic

description

particular circumstances."

of

the

risks

applicable

to

Southland, 365 F.3d at 372.

the
That

plaintiff's selected warnings, standing alone and out of context,
fail to meet this standard is of no consequence.

As the Court

stated in its order dismissing plaintiff's First Amended Complaint,
[t]hese [warnings] plainly indicate (1) that the
moratoria had halted much of ATP's drilling and
production activity in the Gulf; (2) that development

59

Id. at 31-32.

60

R. Doc. 216 at 42.

61

See R. Doc. 206-2 at 42 ("The oil and natural gas
business involves many uncertainties and operating risks that can
prevent us from realizing profits and can cause substantial
losses.").
35

delays or curtailment of production at material
properties such as the Telemark Hub might materially
affect ATP's financial position and operating results;
(3) that drilling and production activity was necessary
to provide the cash flow required to fund ATP's capital
plan and meet its existing obligations; (4) that ATP
suffered significant losses in 2010; (5) that ATP did not
know when permits would issue or when it would be able to
resume drilling; and (6) that the delays, coupled with
the new regulatory framework for obtaining permits, could
have material adverse effects on ATP's liquidity and
revenues, including potentially ending ATP's drilling
operations in the Gulf altogether.62
The Prospectus also warned that delays and permitting interruptions
could adversely effect the development of the Gomez wells in
particular.63

Thus, the Court finds that ATP's projection of a

substantial increase in production was coupled with more than
adequate cautionary language to bring the projection within the
protection of the PSLRA's safe harbor provision.

See Asher, 377

F.3d at 734 (7th Cir. 2004) ("The PSLRA does not require the most
helpful caution; it is enough to identify important factors that
could cause actual results to differ materially from those in the
forward-looking statement.

That means that it is enough to point

to the principal contingencies that could cause actual results to
depart from the projection."); In re Donald J. Trump Casino Sec.
Litig.-Taj Mahal Litig., 7 F.3d 357, 364 (3d Cir. 1993) (affirming

62

R. Doc. 196 at 18.

63

R. Doc. 206-2 at 31 ("[E]ven though Moratorium II has
been lifted, any delays in the resumption of the permitting
process may result in delays in our drilling operations scheduled
in 2011 at our Gomez Hub.").
36

district court's dismissal because "[t]he prospectus here took
considerable care to convey to potential investors the extreme
risks

inherent

in

the

venture

while

simultaneously

carefully

alerting the investors to a variety of obstacles the Taj Mahal
would face, all of which were relevant to the potential investor's
decision concerning purchase of the bonds").
Plaintiff's final argument is that the risks that defendants
warned of in their cautionary language had already come to pass,
and that "warnings of risks that have already occurred are not
meaningful."64

More specifically, plaintiff alleges that ATP's

warning that achieving the projected production increase depended
on

"obtaining

necessary

drilling

permits,

and

successfully

achieving commercial production from existing wells presently
scheduled to commence during the remainder of 2010 and 2011," was
not meaningful and was itself misleading because (1) it misled
investors regarding "the status of the permitting process with
respect to the Gomez wells," and (2) it misled investors because
"production estimates for the Telemark Hub could not be relied on
in light of the poor performance at [the] Atwater" well.65
As

an

plaintiff's

initial
claim

matter,
that

the

64

Court

cautionary

R. Doc. 216 at 44.

65

the

R. Doc. 199 at 20-21.
37

has

already

language

dismissed

was

itself

misleading with prejudice.66

Moreover, even if these claims were

properly before the Court, plaintiff has failed to allege facts
that the risks ATP warned of had already come to pass so as to take
the cautionary language out of the PSLRA's safe harbor protection.
Cf. Huddleston v. Herman & MacLean, 640 F.2d 534, 544 (5th Cir.
1981), aff'd in part and rev'd in part, 459 U.S. 375 (1983)
(holding that to "warn that the untoward may occur when the event
is contingent is prudent; to caution that is is only possible for
the unfavorable events to happen when they have already occurred is
deceit"); In re Facebook, Inc., IPO Sec. & Derivative Litig., 986
F. Supp. 2d 487, 516-17 (S.D.N.Y. 2013) (holding that risk warnings
misleadingly

represented

that

increased

mobile

usage

and

the

company's product decisions could negatively impact revenues and
revenue growth, when in fact they already had).
With regard to plaintiff's Gomez permitting claim, plaintiff
provides no explanation as to how the cautionary language warned of
a risk that had already come to pass, as the Prospectus simply
warned that the projected production increase was contingent on
receiving the required permits.

The Prospectus disclosed that, as

of the Effective Date, ATP did not have the permits for the Gomez
wells, that the moratoria had frozen the permitting process through
2010, and that any delays in resuming the permitting process could

66

R. Doc. 196 at 69.
38

result in delays in ATP's drilling plans at the Gomez Hub.67
Indeed, plaintiff's Second Amended Complaint acknowledges that ATP
did not receive any drilling permits until March 18, 2011, some
three months after the Effective Date.68 The Court fails to see how
ATP's warning that the projected production increase was contingent
on receiving the necessary permits warned of a risk that had
already come to pass, when plaintiff acknowledges that, as of the
Effective Date, ATP had not received any of the permits required to
commence

its

planned

drilling

activities

at

the

Gomez

Hub.

Plaintiff seems to be arguing that the warning was nevertheless
inadequate because it implied that the delays would be solely
attributable to the moratoria and the government.

Plaintiff's

factually unsupported allegation that the permitting delay was
caused solely by ATP's tardy submission of the permit application
does not render ATP's December 2010 warning as to future permitting
delays ineffective or otherwise inadequate. See Asher, 377 F.3d at
732 ("[T]he cautions need not identify what actually goes wrong and
causes

the

projections

to

be

inaccurate;

prevision

is

not

required."); Harris v. Ivax Corp., 182 F.3d 799, 807 (11th Cir.
1999) ("When an investor has been warned of risks of a significance
similar to that actually realized, she is sufficiently on notice of

67

R. Doc. 206-2 at 31.

68

R. Doc. 199 at 11.
39

the danger of the investment to make an intelligent decision about
it according to her own preferences for risk and reward.").
Second, with regard to plaintiff's claim that the warnings
were ineffective because "production estimates for the Telemark Hub
could not be relied on in light of the poor performance at
Atwater,"69

this

is

merely

a

regurgitation

of

plaintiff's

substantive claim regarding the alleged connectivity problems at
Atwater. The Court has already dismissed this claim with prejudice
and it warrants no further discussion.70 Plaintiff also argues that
the Prospectus's warning that "[d]elays in the development of or
production curtailment at our material properties including at our
Telemark Hub may adversely effect our financial position and
results of operations" warned of a risk that had already come to
pass because "the Company's production estimates at Telemark were
already unreliable because of ATP's lack of exploratory testing."71
This argument is a non-sequitur; ATP's alleged failure to conduct
additional testing would not mean that the unfavorable event warned
of, i.e., curtailment of production at Telemark, had already
occurred as of the effective date. In other words, plaintiff fails
to plausibly allege why testing not done (which means whatever the
testing would show was not available) necessarily indicated that

69

Id. at 21.

70

R. Doc. 196 at 69.

71

R. Doc. 216 at 45.
40

production curtailment or development delays (the risks warned of)
existed in fact as of the effective date.

Thus, the Court fails to

see how ATP's alleged failure to conduct exploratory testing
renders

the

Prospectus's

warning

about

the

risk

of

future

production curtailment misleading.
To the extent that plaintiff is arguing that ATP's warning
mislead investors because it suggested that ATP's projections were
based on all available testing, the Prospectus fully disclosed the
basis for the production estimates, stating:
Our actual development results are likely to differ from
our estimates of our oil and gas reserves.
We may
experience production that is less than estimated and
development costs that are greater than estimated in our
reserve reports.
Such differences may be material.
Estimates of our oil and natural gas reserves and the
costs and timing associated with developing these
reserves may not be accurate. Additionally, at December
31, 2009 approximately 87% of our total proved reserves
are classified as undeveloped.
Development of these
reserves may not yield the expected results, or the
development may be delayed or the development costs may
exceed our estimates, any of which may materially affect
our financial position and results of operations.
Development activity may result in downward adjustment of
reserves or higher than estimated costs.
Our estimates of our proved oil and natural gas reserves
and the estimated future net revenues from such reserves
are based upon various assumptions, including assumptions
required by the SEC relating to oil and natural gas
prices, drilling and operating expenses, capital
expenditures, taxes and availability of funds.
This
process requires significant decisions and assumptions in
the evaluation of available geological, geophysical,
engineering and economic data for each reservoir.

41

Therefore, these estimates are inherently imprecise and
the quality and reliability of this data can vary.72
Plaintiff does not challenge the accuracy of ATP's underlying data
or provide any explanation as to why ATP was not entitled to rely
on the estimates of third-party petroleum engineers in making its
projection.73 Once again, plaintiff does not allege that defendants
knew that the additional testing would invalidate or otherwise
undermine the independent petroleum engineers' estimates. Thus, in
light of the foregoing, it is clear that defendants fully apprised
plaintiff of the basis for ATP's projections, and plaintiff cannot
be heard to complain that ATP failed to warn investors about the
uncertainty of its oil and gas reserve estimates.

Plaintiff's

allegation that defendants should have conducted additional testing
does not give rise to liability under Section 11.

See In re Magnum

Hunter Res. Corp. Sec. Litig., 26 F. Supp. 3d 278, 292 (S.D.N.Y.
2014)

("Mere

allegations

of

corporate

mismanagement

are

not

actionable.") (citing Santa Fe Indus., Inc. v. Green, 430 U.S. 462,
479 (1977)).

72

Id. at 33.

73

See Prospectus, R. Doc. 206-2 at 137 ("The information
incorporated by reference into this prospectus regarding
estimates or the oil and gas reserves of ATP Oil and Gas
Corporation and related future net cash flows and the present
values thereof were based upon reserve reports prepared by Ryder
Scott Company, L.P. and Collarini Associates, each independent
petroleum engineers.").
42

Thus, for the foregoing reasons, the Court finds that ATP's
projection of a substantial increase in production was accompanied
by "substantive company-specific warnings." Southland, 365 F.3d at
372.

The

projection

therefore

falls

within

the

safe-harbor

provision for forward-looking statements and defendants cannot be
held liable under Section 11.
C.

Plaintiff's
Directors

15 U.S.C. § 77z-2(c)(1)(A)(I).

Section

15

Claim

Against

the

Director

Plaintiff's sole theory of liability against the Director
Defendants is under Section 15 of the Securities Act.

Section 15

imposes liability on persons who "control[] any person liable
under" Section 11.

15 U.S.C. § 77o(a).

Because the Court finds

that plaintiff has failed to plead a Section 11 claim, plaintiff's
Section 15 claim against the Director Defendants also fails as a
matter of law.

Rosenzweig v. Azurix Corp., 332 F.3d 854, 863 (5th

Cir. 2003).

IV.

CONCLUSION
For

the

foregoing

reasons,

the

Court

GRANTS

defendants'

motions and DISMISSES plaintiff's claims with prejudice.

New Orleans, Louisiana, this

14th

day of August, 2015.

SARAH S. VANCE
UNITED STATES DISTRICT JUDGE
43