Broadfoot v. Barrick Gold Corporation et al
Filing
63
MEMORANDUM AND ORDER: granting (48) Motion to Dismiss in case 1:17-cv-03507-NRB. For the reasons set forth below, the motion is granted. Accordingly, the Clerk of the Court is respectfully directed to enter judgment for defendants; to terminate this case and any motions pending therein; and to terminate the related case, No. 17 Civ. 3815. And as set forth herein. SO ORDERED. (Signed by Judge Naomi Reice Buchwald on 9/20/2018) Filed In Associated Cases: 1:17-cv-03507-NRB, 1:17-cv-03815-NRB (ama) Transmission to Orders and Judgments Clerk for processing.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------X
MEMORANDUM AND ORDER
In re BARRICK GOLD CORPORATION
SECURITIES LITIGATION
17 Civ. 3507 (NRB)
------------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
This action is not an environmental regulatory proceeding or
an environmental tort suit.
Rather, it is a federal securities
class action filed on behalf of all persons and entities that
purchased or otherwise acquired shares of the common stock of
defendant Barrick Gold Corp. in the United States or on a U.S.based stock exchange between February 16, 2017, and April 24, 2017,
Plaintiffs 1 allege that Barrick
inclusive (the “Class Period”).
and four individual defendants, Kelvin Dushnisky, Catherine Raw,
Richard Williams, and Jorge Palmes, violated section 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b5 promulgated thereunder, 17 C.F.R. § 240.10b-5.
Before the Court
is defendants’ motion to dismiss pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure. For the reasons set forth below,
the motion is granted.
1 We consolidated the related case Kim v. Barrick Gold Corp., No. 17 Civ.
3815 (NRB) (S.D.N.Y. filed May 19, 2017), and appointed Ashwini Malhotra as
lead plaintiff and Kahn Swick & Foti, LLC as lead counsel. See Oct. 4, 2017
Order, ECF No. 43.
1
I.
Background
The following allegations are drawn from plaintiffs’ amended
complaint (“AC”) [ECF No. 45], and are assumed to be true for the
purposes of this motion.
See Glob. Network Commc’ns, Inc. v. City
of New York, 458 F.3d 150, 154 (2d Cir. 2006).
We also consider
any “statements or documents incorporated into the complaint by
reference, legally required public disclosure documents filed with
[he [Securities and Exchange Commission (“SEC”)], and documents
possessed by or known to the plaintiffs and upon which they relied”
in bringing this action. 2 ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,
493 F.3d 87, 98 (2d Cir. 2007).
A.
Factual Background
1.
Barrick Gold and the Veladero Mine
Barrick Gold Corporation, based in Toronto, is the largest
gold mining company in the world.
AC ¶ 23.
Its common stock
trades on the New York Stock Exchange (NYSE) under the ticker ABX. 3
AC ¶ 23.
As part of its gold mining business, Barrick operates a
2
In particular, we consider: (1) Barrick’s September 25, 2015 press
release, Declaration of Ada Fernandez Johnson ex. 1, Feb. 2, 2017, ECF No. 501; (2) Barrick’s September 15, 2016 press release, id. ex. 2, ECF No. 50-2; (3)
Barrick’s October 4, 2016 press release, id. ex. 5, ECF No. 50-5; (4) a
transcript of a February 16, 2017 conference call, id. ex. 6, ECF No. 50-6; (5)
Barrick’s March 29, 2017 press release, Letter from Kim E. Miller to the Court,
Aug. 27, 2017, ECF No. 58-1; (6) Barrick’s March 30, 2017 press release,
Fernandez Johnson Decl. ex. 8, ECF No. 50-8; (7) Barrick’s April 6, 2017 press
release, id. ex. 9, ECF No. 50-9; and (8) Barrick’s April 24, 2017 press release,
id. ex. 10, ECF No. 50-10.
3 Barrick also trades on the Toronto Stock Exchange, though the parties
agree that only transactions in the United States or on U.S.-based exchanges
(i.e., those on the NYSE) are the subject of this suit. See generally Morrison
v. Nat’l Austl. Bank, Ltd., 561 U.S. 247 (2010).
2
number of mines, including the Veladero mine in San Juan province,
Argentina. AC ¶¶ 29, 31. Four Barrick employees are of particular
relevance here and are named as individual defendants: (1) Kelvin
Dushnisky,
Period;
Barrick’s
(2)
President
Catherine
Raw,
and
Director
Barrick’s
CFO
during
and
the
Executive
Class
Vice
President during the Class Period; (3) Richard Williams, Barrick’s
COO during the Class Period, and (4) Jorge Palmes, the Barrick
Executive General Manager overseeing the Veladero mine.
AC ¶¶ 24-
27.
The Veladero mine was opened in 2005 and is located on the
Argentine side of the Andes Mountains at an elevation of 4,000 to
4,850 meters above sea level (approximately 13,000 to 16,000 feet).
AC ¶ 31.
Veladero is a strip mine, at which gold is extracted
through the following process:
open pit.
AC ¶ 31.
First, ore is extracted from an
Second, the ore is crushed and transported by
conveyor to a “leach pad.”
AC ¶ 32.
Third, gold is “leached,”
i.e., extracted, from the ore in the leach pad area through a
series of chemical processes known as gold cyanidation, where a
cyanide-based solution is poured over the crushed ore in order to
separate the gold from other materials.
AC ¶ 32.
Finally, the
gold is then formed into semi-pure alloy bars, also known as doré
bars,
which
processing.
are
then
AC ¶ 32.
transported
to
a
refinery
for
further
Barrick estimated that as of December 31,
2016, the Veladero mine contained 3.3 million ounces of “measured
3
and indicated gold resources” and 6.7 million ounces in “proven
and provable gold reserves.” 4
According to a confidential witness CW1, who worked for
Barrick between February 2001 and February 2016 and was the Process
Chief at Veladero in September 2015, Barrick and the Veladero mine
had a culture of focusing on and maintaining production targets.
AC ¶¶ 45-46.
CW1 was required to report daily production numbers
to corporate headquarters in Toronto (and Dushnisky in particular)
and would be required to explain what remedial steps were being
taken when production was below target.
AC ¶¶ 45, 84.
When
accidents and incidents occurred, Barrick focused on maintaining
production and “would just push employees to try and recuperate
the lost production.”
2.
Veladero
cyanide
AC ¶ 46.
Prior Incidents at Veladero
experienced
solution
in
two
September
incidents
2015
and
involving
September
spills
2016. 5
of
On
September 13, 2015, a valve on a pipeline in the leach pad failed,
resulting in the spill of solution from the leach pad.
AC ¶ 34.
CW1, the Veladero process chief at the time, AC ¶ 35, recalled the
4 Plaintiffs allege that Barrick estimated that Veladero had 3.3 million
ounces of “proven and provable” gold reserves. See AC ¶ 33. However, Barrick’s
public filings report the figures presented here. E.g., Fernandez Johnson Decl.
ex. 9 at 3.
5 We distinguish here a “leak” from a “spill.”
Plaintiffs’ allegations
suggest that solution can leak from pipes while remaining contained within the
leach pad, and that sufficient solution must accumulate before leaked solution
spills from the pad. E.g., AC ¶ 37 (“The solution began to accumulate, and
then overflowed.” (emphasis added)); see also AC ¶ 50 (“[CW1] said that the
incident in September 2016 was made worse but not detecting it as quickly.”).
4
incident as occurring in an expansion area of the mine, AC ¶ 37.
According to CW1, the “monitoring instruments at the mine were not
precise enough to detect the extra flow of cyanide solution that
the broken valve allowed into the heap leach,” which allowed the
solution to accumulate and then overflow.
AC ¶ 37.
Shortly thereafter, a Barrick employee at Veladero informed
local residents of the spill through a Whatsapp message, stating
that in part that “Today there was a spill of 15,000 liters of
cyanide and mercury in Veladero directly into the river” and
instructing message recipients to “not use water from the tap to
drink, cook, etc.”
AC ¶ 38.
Barrick, by contrast, issued a
statement the next day, September 14, characterizing the spill as
a small leak and denying that solution had contaminated the river
or local water supplies.
AC ¶ 39.
The San Juan provincial
government weighed in the next day, September 15, warning residents
to “avoid and/or limit consumption of water” from the river in
question.
AC ¶ 40.
One day later (3 days after the spill), September 16, Barrick
acknowledged that cyanide solution had spilled into the Las Taguas
River near Veladero.
AC ¶ 41.
Barrick technicians estimated that
224,000 liters of cyanide solution were spilled in the incident,
but
Barrick
residents.
again
denied
AC ¶ 41.
any
impact
on
the
health
of
local
An environmental emergency was declared in
the local town of Jachal, and Judge Pablo Ortija of the Judicial
5
Court of Jachal ordered a five-day suspension of gold leaching at
Veladero.
AC ¶ 41.
Barrick acknowledged one week later, on
September 23, that the magnitude of the incident was greater than
previously disclosed and that one million liters of solution had
spilled into the Potrerillos River.
AC ¶ 42.
On September 25, 2015, 12 days after the spill and 9 days
after
the
suspension
of
production,
Barrick
announced
that
production restrictions imposed by the Argentine authorities had
been lifted and that it expected no material impact on Veladero’s
2015 production guidance.
AC ¶ 44; Fernandez Johnson Decl. ex 1.
CW1 explained, however, that restrictions on the introduction of
additional cyanide reduces the efficiency of the leaching process
and reduces production, and estimated that production was reduced
by 10% on days in which Barrick was restricted from adding cyanide.
AC ¶ 45.
On
September
8,
2016,
approximately
one
year
after
the
September 2015 spill, Barrick experienced another spill of cyanide
solution at Veladero.
AC ¶ 47.
Barrick disclosed the incident to
provincial authorities four days later, on September 12, and issued
a public statement on September 14.
AC ¶¶ 48, 51.
Barrick stated
that the incident stemmed from the tailings pond and was “caused
by a break in an 18” pipeline containing solution” that “occurred
after the pipe was struck by a chunk of ice.”
AC ¶ 48.
Barrick’s
statement reassured that cyanide solution did not contaminate
6
local water sources and stated that there was no impact on mining
activity.
AC ¶ 48.
The governor of San Juan province, however,
suspended operations at the mine that day.
AC ¶ 48. 6
Production
did not resume until October 4, 2016 -- 26 days after the initial
spill and 20 days after production had been suspended.
AC ¶ 48.
Barrick announced the resumption of production that day, and noted
in its press release that “[t]he company has completed a series of
remedial works required by provincial authorities designed to
prevent such an incident from reoccurring, including increasing
the height of the perimeter berms that surround the leach pad.”
Fernandez Johnson Decl. ex. 5. 7
The company also reaffirmed its
previously announced production guidance for 2016.
3.
Id.
Events During the Class Period
The Class Period begins on February 16, 2017, when Barrick
held a conference call to discuss its results for the fourth
quarter of 2016.
AC ¶ 52; Fernandez Johnson Decl. ex. 6.
After
discussion by senior management (including defendants Dushnisky,
Williams, and Raw, see Fernandez Johnson Decl. ex. 6 at 5-13), six
location-specific General Managers discussed results for their
6
Barrick’s press releases announced the suspension of operations on
September 15 rather than September 14, but any discrepancy is immaterial. See
Fernandez Johnson Decl. exs. 2, 5.
7 We note this press release not for the truth of the matter asserted
(i.e., that Barrick in fact increased the height of the perimeter berms
surrounding the leach pad), but to note what Barrick had previously disclosed
to the public.
7
particular sites.
These managers included defendant Palmes, who
stated the following:
At Veladero, 2016 was a very challenging year. In Q2,
severe winter-related [sic] resulted in 42 days of lost
production. In Q3, production was impacted by the two
weeks suspension of an operation due to environmental
incident quickly followed by a recovery action plan in
Q4. We previously completed a series of remedial works
to prevent such an incident from occurring again,
including the deployment of unmanned aerial vehicles for
remote sensing.
Looking forward, our digital transformation initiative
at the Barrick’s first integrated Remote Operations
Centre will help us drive high returns. For 2017, we
expect increased production of 770,000 ounces to 830,000
ounces at all-in sustaining cost of $840 per ounce to
$940 per ounce.
Fernandez Johnson Decl. ex. 6 at 15.
Approximately six weeks later, at approximately 5:00 p.m. on
March 28, 2017, Veladero experienced a leak of cyanide solution. 8
AC ¶¶ 53, 70; Letter from Kim E. Miller to the Court, Aug. 27,
2018, ECF No. 59.
Barrick issued a press release confirming the
leak on March 29, which stated the following:
SAN JUAN, Argentina — Barrick confirms that on the
evening of March 28, the monitoring system at Veladero
detected a rupture on a pipe carrying gold-bearing
solution on the leach pad.
Procedures were immediately activated to contain and
mitigate the situation, and the Company quickly
corrected the issue.
At the same time, the Company
shared this information with San Juan provincial
authorities.
8 Plaintiffs characterize the leak as a “spill,” e.g., AC ¶¶ 53, 71, 73,
but offer no allegations that any cyanide solution in fact left the leach pad
(as with the September 2015 and September 2016 spills).
8
All solution
facility.
was
contained
within
the
operating
There was no impact to people or the environment.
Letter from Kim E. Miller to the Court ex. A, Aug. 27, 2018, ECF
No. 59-1.
The next day, March 30, Barrick issued a second press release
discussing the March 28 incident. AC ¶ 56; Fernandez Johnson Decl.
ex. 8.
This press release, titled “Barrick Reports Restrictions
at Veladero Mine Heap Leach Facility” stated:
Barrick Gold Corporation . . . today reported that the
Government of San Juan province, Argentina, has
temporarily restricted the addition of cyanide to the
Veladero mine’s heap leach facility pending the
verification that remedial works have been completed.
The Company is working to complete this remediation as
quickly as possible.
On the evening of March 28, the monitoring system at
Veladero detected a rupture of a pipe carrying goldbearing solution on the leach pad.
All solution was
contained within the operating site; no solution reached
any diversion channels or watercourses.
The Company
promptly notified San Juan provincial authorities, who
inspected the site on March 29.
The safety of people and the environment remains
Barrick’s top priority. The incident did not pose any
threat to the health of employees, communities, or the
environment.
At this time, we do not anticipate a material impact to
Veladero’s 2017 production guidance.
Fernandez Johnson Dec. ex. 8 at 1.
The press release also contained a “Cautionary Statement on
Forward-Looking Information,” which explained that “[k]nown and
unknown factors could cause actual results to differ materially
9
from those projected in the forward-looking statements and undue
reliance should not be placed on such statements and information.”
The cautionary statement proceeded to identify a number of risk
factors,
including
“failure
to
comply
with
environmental
and
health and safety laws and regulations,” “timing of receipt of, or
failure to comply with, necessary permits and approvals,” “damage
to
the
Company’s
reputation
due
to
the
actual
or
perceived
occurrence of any number of events, including negative publicity
with respect to the Company’s handling of environmental matters or
dealings with community groups, whether true or not,” and “changes
in national and local government legislation, taxation, controls
or regulations and/or changes in the administration of laws,
policies and practices.”
Id. at 2.
The statement added further
that “[m]any of these uncertainties and contingencies can affect
our
actual
results
and
could
cause
actual
results
to
differ
materially from those expressed or implied in any forward-looking
statements made by, or on behalf of, us.”
Id. at 3.
Despite the eventfulness of the period between March 28 and
March 30, plaintiffs allege only that Barrick’s stock price dropped
from $19.62 per share on March 27 to $18.84 per share on March 30.
AC ¶¶ 71, 88.
We take judicial notice of the following changes of
Barrick’s stock prices 9: On March 27, Barrick opened at $19.62 and
9
17,
See ABX: Barrick Gold Corporation, Yahoo! Finance (last accessed Sept.
2018),
https://finance.yahoo.com/quote/ABX/history?period1=1488344400
10
closed at $19.60.
at $19.08.
$19.19.
On March 28, Barrick opened at $19.52 and closed
On March 29, Barrick opened at $19.00 and closed at
On March 30, Barrick opened at $19.06 and closed at
$18.84.
On April 6 -- one week later -- Barrick announced via press
release that Shandong Gold Mining Co. would acquire a 50% interest
in Veladero in exchange for $960 million.
Johnson Decl. ex. 9.
AC ¶ 58; Fernandez
This press release described the Veladero
mine as follows:
The Veladero mine is located in the San Juan province of
Argentina, on the highly prospective El Indo Belt,
approximately 10 kilometers away from Barrick’s PascuaLama project.
Veladero is located at elevations of
between
4,000-4,850
meters
above
sea
level,
approximately 375 kilometers northwest of the city of
San Juan. As of December 31, 2016, the mine had proven
and probable gold reserves of 6.7 million ounces, and
measured and indicated gold resources of 3.3 million
ounces. The mine is expected to produce 770,000-830,000
ounces of gold in 2017, at a cost of sales of $750-$800
per ounce, and all-in sustaining costs of $840-$940 per
ounce.
Fernandez Johnson Decl. ex. 9 at 3 (emphasis added) (footnotes
omitted).
This
press
release
contained
cautionary
language
identical to the language contained in the March 30 press release.
That
same
day,
Barrick
executives
met
with
Argentine
officials, who informed Barrick that its operations in the country
were in jeopardy and that “the company’s concession to operate the
&period2=1490932800&interval=1d&filter=history&frequency=1d.
Yahoo! Finance
reports the same quotes for Barrick stock as those presented in plaintiffs’
allegations, e.g., AC ¶¶ 59, 71, 88-89.
11
mine would have been at risk if Barrick Gold had not agreed to an
external
audit.”
AC
¶ 57.
Barrick
and
Shandong
“would
be
submitting a plan to the government of San Juan province to make
$500 million worth of necessary upgrades on the mine to prevent
future spills.”
AC ¶ 58 (emphasis added). 10
On April 24, 2017 -- the end of the Class Period and 27 days
after the March 28 leak -- Barrick announced its First Quarter
2017 operating results.
10.
AC ¶¶ 59, 74; Fernandez Johnson Decl. ex.
The announcement provided further details about the situation
at Veladero:
On March 28, a coupling on a pipe carrying gold-bearing
solution at the Veladero mine heap leach facility
failed. Solution released from the rupture was contained
within the operating site and did not result in any
impact to the environment or people.
The Company
promptly notified San Juan provincial authorities, who
inspected the site on March 29.
On March 30, the
Government of San Juan province temporarily restricted
the addition of cyanide to the Veladero mine’s heap leach
facility, pending the completion of works to strengthen
and improve the mine’s operating systems.
Barrick presented its proposed work plan to San Juan
provincial authorities on April 21, following extensive
consultation with both federal and provincial officials
and regulators. The provincial government has indicated
it will take approximately two weeks to review the
Company’s proposals, a process that will also include
federal authorities, including the national Ministry of
Environment and Sustainable Development. Initial work
on the proposed modifications to the heap leach facility
has already begun, concurrent with the review by
provincial and federal authorities.
Our updated
10 By design or otherwise, plaintiffs’ allegations could be construed
suggest that this plan was submitted on April 6. However, plaintiffs’ use of
the language “would be submitting,” coupled with the allegation in the initial
complaint that this plan was submitted on April 21, see Compl. ¶ 28, ECF No. 1,
renders implausible any suggestion that this plan was submitted on April 6.
12
guidance assumes a resumption of normal leaching
activities at the mine in June, subject to approval by
the Government of San Juan province, the lifting of
operating restrictions by the San Juan provincial court,
and the resolution of regulatory and legal matters by
the federal and provincial courts (for more information
about these matters, please see Note 17 “Contingencies”
of Barrick’s first quarter financial statements and the
notes thereto).
This assumption is based on our
assessment of the time required to complete the proposed
modifications to the leach pad. The timing of approval
for the resumption of leaching activities will depend on
the actual progress of work, any potential new
requirements, and a final evaluation of the completed
modifications by provincial authorities.
In parallel
with the submission of a new technical plan for the
operation, Barrick has also presented an updated
community investment and engagement plan to the
Government of San Juan and federal authorities for
review.
On a 100 percent basis [i.e., including the 50 percent
attributable to Shandong Gold], we now expect full-year
production at Veladero of 630,000-730,000 ounces of
gold, at a cost of sales of $740-$790 per ounce, and
all-in sustaining costs of $890-$990 per ounce.
Barrick’s share of full-year production, assuming 50
percent ownership from July 1, is expected to be 430,000480,000 ounces of gold. This compares to our original
2017 guidance of 770,000-830,000 ounces (100 percent
basis), at a cost of sales of $750-$800 per ounce, and
all-in sustaining costs of $840-$940 per ounce.
Fernandez Johnson Decl. ex. 10 at 4 (emphasis added) (footnote
omitted).
This release also announced a number of other weak results on
Barrick’s part, including (1) increased all-in sustaining costs in
the
first
quarter
of
2017
as
compared
to
2016;
(2)
reduced
production of copper at higher costs in the first quarter of 2017
as compared to 2016; and (3) reduced expectations for company-wide
gold production in 2017, a “significant portion” of which was
13
attributable to the 50% sale of Veladero to Shandong Gold.
3.
Id. at
Barrick’s stock dropped from $19.04 at market close on April
24, 2017 to $16.89 at market close on April 25.
4.
AC ¶¶ 75, 89.
Plaintiffs’ Additional Allegations
In addition to the events before and during the Class Period,
plaintiffs offer a number of additional allegations.
First, Judge
Ortija (of the Jachal Judicial Court) stated that Barrick had
failed to comply with work orders issued in December 2016 and
February 2017, AC ¶ 60, and that he learned on May 5, 2017 that
the March 2017 leak would not have occurred had Barrick complied
with an earlier order directing the replacement of certain pipes.
AC ¶¶ 60, 81.
Similarly, the provincial minister of mining stated
that Barrick had failed to complete an “urgent review” of its pipe
system.
AC ¶ 60.
Second, an additional confidential witness,
CW2, a senior accountant at Barrick’s Cortez mine in Nevada between
2009 and 2016, explained that the company maintained an accounting
system through Oracle that tracked expense costs and capital costs.
AC ¶ 55.
CW2 further explained that “senior executives could pull
anything
from
remedial works.
B.
the
Oracle
systems,”
including
costs
spent
on
AC ¶¶ 55, 82.
Procedural History
The initial complaint in this action was filed with Shepard
Broadfoot as a named plaintiff on May 10, 2017.
No. 1.
See Compl., ECF
A separate case, captioned Kim v. Barrick Gold Corp., No.
14
17 Civ. 3815, and identifying the same five defendants (Barrick
and the four individual defendants named here), was also filed in
this district, on May 19, 2017.
After reviewing the four timely
filed lead plaintiff applications as required by the Private
Securities Litigation Reform Act (PSLRA), see 15 U.S.C. § 78u4(a)(3)(B)(iii), we appointed Ashwini Malhotra as lead plaintiff,
approved his counsel Kahn Swick & Foti, LLC as lead counsel, and
consolidated the actions under this caption.
Order, ECF No. 43.
See Oct. 4, 2017
Plaintiffs then filed a substantially more
detailed amended complaint, which remains operative.
No. 45.
See AC, ECF
Defendants moved to dismiss on February 2, 2018, ECF No.
48, and oral argument was heard on August 23, 2018, see Aug. 23,
2018 Hr’g Tr., ECF No. 61.
II.
Discussion
A.
Legal Standards
On a motion to dismiss under Rule 12(b)(6), we must accept as
true
all
factual
allegations
in
the
complaint
and
draw
all
reasonable inferences in plaintiffs’ favor.
City of Providence v.
BATS
48
Glob.
Mkts.,
Inc.,
878
F.3d
36,
(2d
Cir.
2017).
Nevertheless, plaintiffs’ “factual allegations must be enough to
raise a right to relief above the speculative level, on the
assumption that all of the allegations in the complaint are true.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal
citations omitted).
In addressing a motion to dismiss, a court
15
may consider “any written instrument attached to the complaint,
statements
or
documents
incorporated
into
the
complaint
by
reference, legally required public disclosure documents filed with
the SEC, and documents possessed by or known to the plaintiff[s]
and upon which [they] relied in bringing the suit.”
ATSI, 493
F.3d at 98.
Section
10(b),
as
effectuated
by
Rule
10b-5,
makes
it
“unlawful for any person . . . [t]o make any untrue statement of
a material fact or to omit to state a material fact necessary in
order
to
make
the
statements
of
the
circumstances under which they were made, not misleading.”
17
C.F.R. § 240.10b-5(b).
made,
in
the
light
In order to state a claim under Section
10(b) and Rule 10b-5, “a plaintiff must [plausibly allege] (1) a
material
scienter;
misrepresentation
(3)
a
or
connection
omission
between
by
the
the
defendant;
misrepresentation
(2)
or
omission and the purchase or sale of a security; (4) reliance upon
the misrepresentation or omission; (5) economic loss; and (6) loss
causation.”
Halliburton Co. v. Erica P. John Fund, Inc., 134 S.
Ct. 2398, 2407 (2014) (internal quotation marks omitted).
Claims
under
section
10(b)
must
satisfy
the
heightened
pleading requirements of Rule 9(b) of the Federal Rules of Civil
Procedure
by
“stat[ing]
constituting fraud.”
99.
with
particularity
the
circumstances
Fed. R. Civ. P. 9(b); see ATSI, 493 F.3d at
A complaint alleging securities fraud must also meet the
16
requirements imposed by the PSLRA, which requires that plaintiffs
“specify each statement alleged to have been misleading” and “the
reason or reasons why the statement is misleading.”
78u-4(b)(1).
15 U.S.C. §
“[I]f an allegation regarding the statement or
omission is made on information and belief, the complaint shall
state with particularity all facts on which that belief is formed.”
Id.
The
PSLRA
also
requires
that
a
plaintiff
“state
with
particularity facts giving rise to a strong inference that the
defendant[s] acted with the required state of mind.”
4(b)(2).
Id. § 78u-
In analyzing scienter, we assess “whether all of the
facts alleged, taken collectively, give rise to a strong inference
of scienter, not whether any individual allegation, scrutinized in
isolation, meets that standard.”
Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 323 (2007) (emphasis in original).
“To determine whether the plaintiff has alleged facts that give
rise to the requisite ‘strong inference’ of scienter, a court must
consider plausible, nonculpable explanations for the defendant’s
conduct, as well as inferences favoring the plaintiff.”
323-24.
Id. at
The inference must be more than merely reasonable or
permissible; it must be “cogent and compelling,” i.e., “strong in
light of other explanations.”
Id. at 324.
“A complaint will
survive . . . only if a reasonable person would deem the inference
17
of scienter cogent and at least as compelling as any opposing
inference one could draw from the facts alleged.”
B.
Id.
Section 10(b) and Rule 10b-5
Consistent with their obligations under the PSLRA, plaintiffs
specifically
Palmes’s
identify
statement
on
three
the
misleading
February
statements:
16,
2017
(1)
Jorge
conference
call
describing the completion of remedial works, AC ¶¶ 63-64; (2) the
statement in Barrick’s March 30, 2017 press release that the
company
expected
no
material
change
to
its
2017
production
guidance, AC ¶¶ 65-67; and (3) the production guidance contained
in the April 6, 2017 press release, AC ¶¶ 68-69.
We consider the
February 16 statement first before turning to the March 30 and
April 6 statements, for which the analysis is largely the same.
1.
Palmes’s February 16, 2017 Statement
Plaintiffs first identify as misleading a portion of the
statement that Palmes made during the February 16, 2017 conference
call.
Palmes stated that:
At Veladero, 2016 was a very challenging year. In Q2,
severe winter-related [sic] resulted in 42 days of lost
production. In Q3, production was impacted by the two
weeks suspension of an operation due to environmental
incident quickly followed by a recovery action plan in
Q4. We previously completed a series of remedial works
to prevent such an incident from occurring again,
including the deployment of unmanned aerial vehicles for
remote sensing.
18
AC ¶ 52; Fernandez Johnson Decl. ex. 6 at 15 (emphasis added).
We
analyze both the falsity of this statement and whether it was made
with scienter.
a.
Falsity
Plaintiffs do not plausibly plead that the statement was false
or misleading.
Plaintiffs contend that the statement was false
because the March 2017 spill occurred shortly after Palmes’s
statement and because Barrick had in fact missed a number of work
deadlines imposed by local authorities.
AC ¶ 64.
Defendants
respond that Barrick had in fact completed various works intended
to prevent further cyanide spills, including the deployment of
monitoring drones 11 and the raising of perimeter berms surrounding
the leach pad. Plaintiffs do not argue that these remedial actions
were not in fact taken, or that the Argentine authorities had
permitted the resumption of operations at Veladero in October 2016
following the completion of certain remedial works, cf. AC ¶ 48.
The occurrence of the March 2017 spill does not support an
inference that Palmes’s statement was false or misleading.
“Fraud
depends on the state of events when a statement is made, not on
what happens later,” In re Vivendi, S.A. Sec. Litig., 838 F.3d
11
Plaintiffs fault defendants for failing to explain how monitoring drones
can prevent a spill rather than identify a leak [Pls.’ Opp’n 12 n.9], but
plaintiffs’ allegations support the proposition that prompt identification of
a leak would allow Barrick to take action in order to prevent the accumulation
of leaked solution that would then eventually overflow (i.e., a spill). E.g.,
AC ¶ 37; cf. AC ¶ 58 (referencing the addition of monitoring cameras as a spillprevention measure).
19
223, 262 (2d Cir. 2016), and the falsity of Barrick’s statement
therefore depends on whether Barrick had, as of February 16, 2017,
completed “a series of remedial works” intended to prevent further
solution spills.
Barrick either had done so or it had not as of
that time, and what occurred afterwards -- including the March 28
spill -- is irrelevant.
The March 28 spill at most indicates that,
with the benefit of hindsight, Barrick could have taken further
measures to prevent leaks and spills of cyanide solution, but “we
have refused to allow plaintiffs to proceed with allegations of
‘fraud by hindsight.’”
Novak v. Kasaks, 216 F.3d 300, 309 (2d
Cir. 2000).
Perhaps
recognizing
this
fundamental
deficiency
in
their
theory, plaintiffs repeatedly characterize Palmes’s statement as
a guarantee that no more spills of cyanide-containing solution
would occur.
E.g., Hr’g Tr. 27:19-20 (characterizing Palmes’s
statement as “we have completed these remedial works that will
prevent another spill”); id. 34:15-16 (discussing “necessary work
that would prevent the future spills”).
Problematically for
plaintiffs, however, Palmes did not say that Barrick had completed
remedial works “that will prevent” or “that would prevent” an
incident like the September 2016 spill from occurring.
Rather,
Palmes stated only that Barrick had completed remedial works “to
prevent such an incident” occurring, and this phrasing cannot
20
reasonably be understood as a guarantee against all future spills
of cyanide solution. 12
Plaintiffs’ second theory relies on three orders issued by
local authorities in December 2016 and February 2017 directing the
completion of certain works, AC ¶¶ 60, 81, but this theory relies
on the same mischaracterization of Palmes’s statement.
One of
these three orders -- plaintiffs do not specify which one -directed the replacement of certain pipes at Veladero.
AC ¶ 60.
Assuming in plaintiffs’ favor that these work orders in fact
related to the September 2016 spill, the fact that Barrick did not
complete certain remedial measures (even if required by local
authorities) nonetheless does not mean that it did not complete
certain other remedial measures (which could be fairly described
as
“a
series”).
authorities
can
Plaintiffs
state)
with
can
the
argue
(and
benefit
of
the
Argentine
hindsight
that
compliance with those work orders would have prevented the March
2017 spill, but this chain of causation was hardly known ex ante
before the spill, including the time Palmes’s statement was made.
12
Plaintiffs also rely on In re Barrick Gold Securities Litigation, No.
13 Civ. 3851 (SAS), 2015 WL 1514597 (S.D.N.Y. Apr. 1, 2015), which held that
Barrick’s “statements regarding environmental approvals” were actionable, id.
at *11. In that case, Barrick had made a number of categorical representations
that a certain project is “not impacting the glaciers surrounding our
operations” and that “we’re in compliance with our permits and we’re in
compliance with the provincial legislation,” id., and the broad category of
“statements regarding environmental approvals” were held to be actionable.
While that case noted in a footnote that Barrick had represented that “[t]he
company has put in place a range of measures to mitigate the potential impact
of dust emissions on glaciers,” id. at *11 n.141, it did not analyze specifically
whether that particular representation was actionable.
21
Ultimately, plaintiffs’ theories support at most an inference
that Barrick could have, and very possibly should have, done more
to prevent further leaks and spills of cyanide solution.
But it
does not plausibly allege that Barrick did not in fact undertake
a number of remedial measures intended to prevent spills, as needed
to render Palmes’s February 16 statement false or misleading.
b.
Scienter
Further, plaintiffs fail to plead a “strong inference of
scienter” as to this statement.
In order to plead a strong
inference of scienter, plaintiffs must allege “either (1) that
defendants had the motive and opportunity to commit fraud,” or
“(2) strong circumstantial evidence of conscious misbehavior or
recklessness.”
ECA, Local 134 IBEW Joint Pension Tr. of Chi. v.
JP Morgan Chase Co., 553 F.3d 187, 198 (2d Cir. 2009).
to
raise
a
strong
inference
of
scienter
through
“In order
‘motive
and
opportunity’ to defraud, Plaintiffs must allege that [the company]
or its officers ‘benefitted in some concrete and personal way from
the purported fraud.’”
ECA, 553 F.3d at 198 (quoting Novak v.
Kasaks, 216 F.3d at 307-08).
“Alternatively,
if
Plaintiffs
cannot
make
the
‘motive’
showing, then they could raise a strong inference of scienter under
the
‘strong
circumstantial
evidence’
prong.”
Id.
at
198-99
(quoting Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001)).
In
the absence of allegations of motive and opportunity, “the strength
22
of
the
circumstantial
greater.”
Id.
at
allegations
199
(quoting
must
be
264
Kalnit,
correspondingly
F.3d
at
142).
“Circumstantial evidence can support an inference of scienter in
a variety of ways, including where defendants . . . ‘[1] engaged
in deliberately illegal behavior; [2] knew facts or had access to
information
suggesting
that
their
public
statements
were
not
accurate; or [3] failed to check information they had a duty to
monitor.”
Emps.’ Ret. Sys. of the Gov’t of the V.I. v. Blanford,
794 F.3d 297, 306 (2d Cir. 2015) (quoting ECA, 553 F.3d at 199).
Here, plaintiffs do not meaningfully argue that defendants
had motive and opportunity to defraud. 13
stitch
together
an
inference
of
Plaintiffs attempt to
scienter
based
on
Palmes’s
knowledge of the falsity of his statement, Barrick executives’
access to capital expenditure information recorded in the Oracle
accounting system, and the “core operations” doctrine. These three
pieces of circumstantial evidence, taken together, do not add up
to a strong inference of scienter.
First, Palmes’s alleged knowledge of the falsity of his
statement depends on the occurrence of the March 2017 spill and an
13 Plaintiffs argue half-heartedly in a footnote that defendants were
motivated to conceal Veladero’s infrastructure problems in order to effectuate
a 50% sale to Shandong, but the complaint contains no allegations regarding the
negotiation process and no allegations supporting an inference that the sale
would have failed had Shandong known the allegedly concealed extent of
Veladero’s problems.
Indeed, the paragraph to which plaintiffs cite refers
only to the occurrence of the sale and a subsequent plan for the making of
improvements. See AC ¶ 58. And, in any event, “generalized desires,” such as
“the desire to achieve the most lucrative acquisition proposal,” do not support
an inference of scienter. Kalnit, 264 F.3d at 141.
23
Argentine official’s May 2017 statement that replacement of pipes
would have prevented the March 2017 spill.
But each of those
events occurred after Palmes’s February 2017 statement, and they
do not support the proposition that Palmes knew his statement was
false at the time he made it.
Second,
plaintiffs’
references
to
the
Oracle
accounting
system also do not support an inference of scienter.
“[W]here
plaintiffs contend defendants had access to contrary facts, they
must specifically identify the reports or statements containing
this information.”
Teamsters Local 445 Freight Div. Pension Fund
v.
Inc.,
Dynex
Capital
531
F.3d
190,
196
(2d
Cir.
2008).
Plaintiffs’ broad allegations regarding expense and capital cost
data are insufficient, as plaintiffs do not identify what specific
facts these data would have contained that contradicts Palmes’s
statement that “a series of remedial works” had been completed.
See, e.g., In re PXRE Grp. Ltd., Sec. Litig., 600 F. Supp. 2d 510,
536 (S.D.N.Y. 2009) (Sullivan, J.); cf. Dynex, 531 F.3d at 196
(rejecting plaintiff’s “broad reference to raw data”).
plaintiffs
reference
the
$500
million
plan
that
While
Barrick
and
Shandong jointly submitted following the 2017 spill, and it is
plausible that an expenditure of this magnitude would be reflected
in an accounting system, there are no allegations supporting an
inference that the remedial works that Barrick allegedly failed to
complete at the time of Palmes’s February 2017 statement would
24
have been of comparable magnitude such that their absence from
some unspecified accounting report would have been noticeable.
Finally, the Second Circuit has not decided whether the “core
operations”
doctrine
remains
valid
as
a
theory
of
scienter
following the PSLRA, see Frederick v. Mechel OAO, 475 F. App’x
353, 356 (2d Cir. 2012) (declining to decide whether “the ‘core
operations’ doctrine survives as a viable theory of scienter”
following the PSLRA), but the majority rule is to “consider the
‘core operations’ allegations to constitute supplementary, but not
an independent, means to plead scienter,” Schwab v. E*TRADE Fin.
Corp., 258 F. Supp. 3d 418, 434 (S.D.N.Y. 2017) (Koeltl, J.)
(internal quotation marks omitted); see, e.g., In re Wachovia
Equity Sec. Litig., 753 F. Supp. 2d 326, 352-53 (S.D.N.Y. 2011)
(Sullivan,
J.)
(considering
“core
operations”
“supplementary but not independently sufficient”).
allegations
as
Regardless of
the doctrine’s viability, however, the “core operations” doctrine
contributes little to the scienter analysis here.
“[C]ourts have
required that the operation in question constitute nearly all of
a company’s business before finding scienter based on the ‘core
operations doctrine.’”
Tyler v. Liz Claiborne, Inc., 814 F. Supp.
2d 323, 343 (S.D.N.Y. 2011) (Holwell, J.); In re BHP Billiton Sec.
Litig., 276 F. Supp. 3d 65, 92 (S.D.N.Y. 2017) (citing Tyler), and
the complaint alleges only that Veladero is “one of Barrick Gold’s
25
five largest mines, which collectively account for 70% of the
Company’s gold production,” AC ¶ 85; see also AC ¶ 29.
Tellabs directs that we are not “to scrutinize each allegation
in isolation but to assess all the allegations holistically,” 551
U.S. at 326, but these individually insufficient allegations do not
combine to create an inference of scienter sufficient to satisfy the
PSLRA.
As the Second Circuit has recognized in a number of contexts,
“[z]ero plus zero is zero.” Tepperwien v. Entergy Nuclear Operations,
Inc., 663 F.3d 556, 572 (2d Cir. 2011) (quoting MacDraw, Inc. v. CIT
That
Grp. Equip. Fin., Inc., 138 F.3d 33, 38 (2d Cir. 1998)).
principle applies here.
2.
Barrick’s March 30 and April 6, 2017 Press Releases
Plaintiffs
identify
as
misleading
the
March
30
press
release’s statement that “[a]t this time, we do not anticipate a
material impact to Veladero’s 2017 production guidance,” AC ¶ 65,
and
the
April
6
press
release’s
statement
that
Veladero
“is
expected to produce 770,000-830,000 ounces of gold in 2017, at a
cost of sales of $750-$800 per ounce, and all-in sustaining costs
of $840-$940 per ounce,” AC ¶ 67.
Plaintiffs argue that these
statements are false and misleading because restrictions on the
addition of cyanide reduced the efficiency of the gold cyanidation
process, and production restrictions previously imposed following
the 2015 and 2016 spills had “materially impacted production.”
¶ 66; see AC ¶ 69.
AC
Defendants respond that the statements are
26
protected
by
the
PSLRA’s
safe-harbor
for
forward-looking
statements, 15 U.S.C. § 78u-5.
Under the PSLRA’s safe-harbor provision, “a defendant is not
liable if (1) the forward-looking statement is identified and
accompanied by meaningful cautionary language, (2) the forwardlooking statement is immaterial, or (3) the plaintiff fails to
prove that the forward-looking statement was made with actual
knowledge that it was false or misleading. Because the safe harbor
is written in the disjunctive, a forward-looking statement is
protected
applies.”
under
In
the
re
safe
harbor
Vivendi,
838
if
any
F.3d
of
at
the
245–46
three
prongs
(alterations
incorporated) (internal quotation marks omitted) (quoting Slayton
v. Am. Express Co., 604 F.3d 758, 766 (2d Cir. 2010)).
We first
consider whether the March 30 and April 6 statements satisfy the
threshold criteria of being a forward-looking statement before
considering whether they fall within the safe harbor under any of
the three criteria.
a.
Forward-Looking Statement
The PSLRA defines the term “forward-looking statement” to be
“(A) a statement containing a projection of revenues, income
(including income loss), earnings (including earnings loss) per
share,
capital
expenditures,
dividends,
capital
structure,
or
other financial items; (B) a statement of the plans and objectives
of management for future operations, including plans or objectives
27
relating to the products or services of the issuer; (C) a statement
of
future
economic
performance,
including
any
such
statement
contained in a discussion and analysis of financial condition by
the management or in the results of operations included pursuant
to the rules and regulations of the Commission; (D) any statement
of
the
assumptions
underlying
or
relating
to
any
described in subparagraph (A), (B), or (C) . . . .”
§ 78u-5(i)(1).
statement
15 U.S.C.
A statement need not be specifically labeled as
forward-looking or segregated into a separate section to qualify
for safe-harbor protection. See Slayton, 604 F.3d at 769 (“Nothing
in the statute indicates that to be adequately identified, a
forward-looking statement must be contained in a separate section
or
specifically
requirement.”).
labeled,
and
we
decline
to
write
in
such
a
Rather, a statement that “projects results in the
future” is “plainly forward-looking,” and the Second Circuit has
acknowledged “the common-sense proposition that words such as
‘expect’ identify forward-looking statements.”
Id.
That is, the
“use of linguistic cues like ‘we expect’ or ‘we believe,’ when
combined
with
an
explanatory
description
of
the
company’s
intention to thereby designate a statement as forward-looking,
generally should be sufficient to put the reader on notice that
the company is making a forward-looking statement.”
Id.
The specific statements in the March 30 and April 6 press
releases that plaintiffs identify are forward-looking.
28
Barrick’s
production guidance -- discussing the amount of gold expected to
be produced and the costs of that production -- are projections of
“other
financial
items”
and
“statement[s]
of
future
economic
performance” falling with the statutory definition of “forwardlooking statement.” See 15 U.S.C. § 78u-5(i)(1)(A), (C). Further,
while Barrick did not specifically label these statements as
forward-looking, the March 30 press release stated that Barrick
“do[es] not anticipate a material impact” on production and the
April 6 press release stated that Veladero “is expected to produce”
a certain quantity of gold at certain cost levels and both press
releases noted that “[a]ll statements, other than statements of
historical fact, are forward-looking statements.”
ex. 8 at 1-2; id. ex. 9 at 3-4.
statement
as
forward-looking
AC ¶¶ 65, 68;
Barrick’s characterization of a
is
not
dispositive,
but
the
statements in question here fit within the statutory definition of
“forward-looking statement” and therefore satisfy the PSLRA safe
harbor’s threshold criterion of being forward-looking.
Plaintiffs
characterize
Barrick’s
statements
as
misrepresenting the present fact that “the March 28, 2017 spill
did not have any effect on production” [Pls.’ Opp’n 13], but this
statement is a mischaracterization.
When coupled with Barrick’s
acknowledgement that cyanide restrictions had already been imposed
(as of the March 30 statement), Barrick’s statement that it did
not anticipate “a material impact” on 2017 production can be
29
reasonably interpreted only as a statement that the restrictions
imposed were impacting production, but not to a material extent.
At bottom, the total amount of gold produced at Veladero in a given
year -- the figures reflected in the production guidance -- can be
assessed only at the end of the year, which was nine months into
the future at the time the statements in question were made.
As
Judge Scheindlin has explained, “[f]orecasts of future events are
necessarily contingent on present circumstances, but it is a game
of semantics to label them as grounded in the present.”
Gissin v.
Endres, 739 F. Supp. 2d 488, 507 n.106 (S.D.N.Y. 2010). 14
Of course, a statement comparable to the March 30 and April
6 statements made later in the year would come closer to being a
statement
about
present
fact
rather
than
a
forward-looking
statement.
For example, a statement about ability to meet annual
production
guidance
forward-looking
and
made
on
could
statement of present fact.
December
more
30
is
reasonably
not
be
particularly
considered
a
But here, where nine months remained
in the production year and plaintiffs’ own allegations suggest
14
For this reason, plaintiffs’ reliance on Wagner v. Barrick Gold Corp.,
No. 03 Civ. 4302 (RMB) (S.D.N.Y. Sept. 29, 2004), is unavailing. Wagner held
actionable Barrick’s statements that its production costs were expected to
decrease because Barrick was simultaneously undertaking processes that
increased production costs, see id., slip op. at *12. While Wagner cited some
case law regarding present misstatements, Barrick’s predictions regarding its
costs in the future are plainly “a statement containing a projection of . . .
financial items” falling within the statutory definition of a “forward-looking
statement.” 15 U.S.C. § 78u-5(i)(1)(A). Accordingly, this holding in Wagner
is best characterized as a forward-looking statement that was made with actual
knowledge of falsity (i.e., Barrick could not reasonably have expected that
costs would decrease given that it was simultaneously undertaking costincreasing processes).
30
that recuperation of lost production is not only possible but a
focus at Veladero, AC ¶ 46, the statements in question are best
characterized as forward-looking.
b.
Meaningful Cautionary Language
“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.
“A vague or
blanket (boilerplate) disclaimer which merely warns the reader
that the investment has risks will ordinarily be inadequate to
prevent misinformation.
must
be
substantive
To suffice, the cautionary statements
and
tailored
to
the
specific
future
projections, estimates or opinions in the [statements that] the
plaintiffs challenge.” Id. (quoting Inst. Investors Grp. v. Avaya,
Inc., 564 F.3d 242, 256 (3d Cir. 2009)).
That is, “the requirement
for meaningful cautions calls for substantive company-specific
warnings based on a realistic description of the risks applicable
to the particular circumstances, not merely a boilerplate litany
of generally applicable risk factors.”
Id. (internal quotation
marks omitted) (quoting Southland Sec. Corp. v. INSpire Ins.
Solutions, Inc., 365 F.3d 353, 372 (5th Cir. 2004)).
“To
determine
whether
cautionary
language
is
meaningful,
courts must first ‘identify the allegedly undisclosed risk’ and
then ‘read the allegedly fraudulent materials -- including the
31
cautionary language -- to determine if a reasonable investor could
have been misled into thinking that the risk that materialized and
resulted in his loss did not actually exist.’”
Inc.
Sec.
Litig.,
36
F.
Supp.
3d
320,
In re Delcath Sys.,
333
(S.D.N.Y.
2014)
(Schofield, J.) (quoting Halperin v. eBanker USA.com, Inc., 295
F.3d 352, 359 (2d Cir. 2002)); see also, e.g., In re Aratana
Therapeutics Inc. Sec. Litig., 315 F. Supp. 3d 737, 756 (S.D.N.Y.
2018)
(Engelmayer,
J.)
(applying
In
re
Delcath’s
two-step
analysis).
By March 30, the Argentine authorities had already imposed
restrictions on Barrick’s addition of cyanide to the leach pad,
and Barrick had already so disclosed in the March 30 press release
--
one
of
the
misleading.
that,
moving
very
statements
that
plaintiffs
allege
to
be
Accordingly, the allegedly undisclosed risk must be
forward,
Argentine
authorities
would
not
permit
Barrick to resume adding cyanide to the leaching process within a
certain time -- a regulatory approval of the type identified in
the cautionary language accompanying both press releases.
Indeed,
both releases include “timing of receipt of, or failure to comply
with, necessary permits and approvals.”
ex. 8 at 2; id. ex. 9 at 5.
Fernandez Johnson Decl.
Accordingly, a reasonable investor
would have understood that Barrick’s projections as to how much
gold would be produced by the end of 2017 were contingent on
Argentine authorities’ allowing Barrick to resume the addition of
32
cyanide in its leaching process.
Because the press releases
include cautionary language sufficient to prevent a reasonable
investor from believing the contrary, that cautionary language is
meaningful.
See In re Delcath, 36 F. Supp. 3d at 333.
This identification of the allegedly undisclosed risk also
allows us to readily dispense with plaintiffs’ argument that
Barrick’s statements are not protected by the PSLRA safe harbor
because the risks they concealed had already materialized.
The
PSLRA’s safe harbor indeed does not apply to already-materialized
risks, see Rombach v. Chang, 355 F.3d 164, 173 (2d Cir. 2004)
(“Cautionary
words
about
future
risk
cannot
insulate
from
liability the failure to disclose that the risk has transpired.”),
but
that
inability
principle
to
add
has
no
cyanide
application
would
impact
here.
(at
The
some
fact
point)
that
the
efficiency of the gold leaching process is not so much a risk but
a scientific certainty, and plaintiffs essentially so allege and
argue.
E.g., AC ¶ 44.
Rather, the uncertainty lies in (i.e., the
risks are) whether and for how long cyanide restrictions would be
imposed.
Barrick disclosed that Argentine authorities had, by
March 30, imposed restrictions on the addition of cyanide pending
the completion of certain remedial works, see Fernandez Johnson
Decl. ex. 8 at 1, and the risk was that those authorities would
not permit Barrick to resume the addition of cyanide within a
certain time.
The cautionary language attached to both the March
33
30 and April 6 statements warned that that regulatory approval
might not be forthcoming, and it is therefore meaningful.
Nor does the inclusion of other risk factors (which did not
transpire) in the press releases’ cautionary language render the
safe harbor inapplicable, as the securities laws does not demand
clairvoyance of defendants. See Novak, 216 F.3d at 309 (“Corporate
officials need not be clairvoyant.”).
Just as “a defendant need
not include the particular factor that ultimately causes its
projection not to come true in order to be protected by the
meaningful cautionary language prong of the safe harbor,” Slayton,
604 F.3d at 773, the inclusion of cautionary language as to other
factors that turn out (with the benefit of hindsight) to have no
impact does not detract from the meaningfulness of cautionary
language, cf. In re MGT Capital Invs., Inc. Sec. Litig., No. 16
Civ. 7415 (NRB), 2018 WL 1224945, at *11 (S.D.N.Y. Feb. 27, 2018)
(“[W]hen defendants warn investors of a potential risk, they need
not predict the precise manner in which [the] risks will manifest
themselves.” (alteration in original) (quoting In re AES Corp.
Sec. Litig., 825 F. Supp. 578, 588 (S.D.N.Y. 1993) (Conner, J.));
Wilbush v. Ambac Fin. Grp., Inc., 271 F. Supp. 3d 473, 493
(S.D.N.Y. 2017) (Berman, J.) (similar); In re TVIX Sec. Litig., 25
F. Supp. 3d 444, 457 (S.D.N.Y. 2014) (Swain, J.) (similar). 15
15
Plaintiffs also rely on this Court’s decision in In re BHP Billiton
Securities Litigation, 276 F. Supp. 3d 65 (S.D.N.Y. 2017), in which we held
34
In sum, we conclude that the March 30 and April 6 statements
identified by plaintiffs were accompanied by meaningful cautionary
language.
Those statements are therefore not actionable because
they fall within the PSLRA’s safe harbor.
c.
Actual Knowledge of Falsity
The PSLRA’s safe harbor applies for the additional reason
that plaintiffs fail to plausibly allege that these forwardlooking statements were “made with actual knowledge that it was
false or misleading.”
In re Vivendi, 838 F.3d at 245.
Plaintiffs
contend that Barrick knew that its production estimates were false
because
the
individual
reports
from
Veladero,
defendants
Barrick
received
had
a
daily
history
of
production
maintaining
production guidance despite previous spills and the production
restrictions consequently imposed by the Argentine authorities,
and Barrick admitted that restrictions on the addition of cyanide
reduced production. 16
Lacking
in
these
theories,
however,
is
any
plausible
inference that reduced production over the course of two and nine
days -- the amount of time that the production restrictions had
that general disclosures about breaches of tailings dams were insufficient to
render “very particular, concrete, and grave risks relating to” a specific dam
immaterial by virtue of having already been in the public domain, id. at 83.
This analysis in BHP -- which relates to materiality -- has little bearing on
our analysis of the “meaningful cautionary language” prong of the PSLRA safe
harbor.
16
Plaintiffs also rely on the core operations doctrine, which we have
already found inapplicable as to Barrick and Veladero.
35
been in place following the March 28 leak when the March 30 and
April 6 statements were made -- has a material impact on total
production assessed as of year-end.
Barrick
executives
defendants)
(including
received
daily
Accordingly, accepting that
several
production
of
the
updates
individual
from
Veladero
reflecting decreased production day-to-day, AC ¶¶ 45, 84, whether
these production updates reflected decreases that were significant
enough to call into question Barrick’s annual production guidance
is
a
separate
allegations.
question
and
is
unsupported
by
plaintiffs’
For example, considering CW1’s estimate that gold
production was reduced by up to 10% on days when cyanide solution
was not added to the leach pad, AC ¶ 44, restrictions in place for
a period of 18 days (the length of time between Barrick’s April 6
statement and April 24 corrective disclosure) would amount to only
a 0.5% reduction in annual production.
be
in
place
for
a
substantial
Restrictions would need to
period
before
overall
annual
production would be impacted, and plaintiffs do not seriously
engage with the mismatch in temporal scope between restrictions in
effect for a number of days and annual production reflected in
production guidance.
Nor does Barrick’s history of maintaining annual production
guidance in the face of operating restrictions imposed after the
2015 and 2016 spills support an inference of scienter.
Plaintiffs
label
production
as
baseless
Barrick’s
maintenance
36
of
annual
guidelines, but they also do not argue that Barrick in fact failed
to meet the production guidance it reaffirmed after the 2015 and
2016 spills.
See Aug. 23, 2018 Hr’g Tr. 34:20-24 (“THE COURT: Are
you arguing that Barrick missed production goals in 2015 and 2016?
MS. MILLER: No, your Honor.
not.”).
THE COURT: No.
MS. MILLER: We are
The fact that plaintiffs do not contend that Barrick
missed its 2016 production guidance is particularly significant in
that following the 2016 spill, the Argentine authorities had
suspended production outright for 20 days, AC ¶ 48, (i.e., a 100%
reduction
of
production
on
those
days)
rather
than
merely
restricting the addition of cyanide to the leaching process, AC
¶ 56.
Given that plaintiffs do not argue that Veladero having
been subject to processing restrictions for 9 days in 2015 and
further subject to the wholesale suspension of production for 20
days in 2016 caused Barrick to miss its production guidance in
those years, the impact on production that the imposition of
cyanide restrictions for 2 and 9 days following the March 2017
spill is wholly insufficient to raise a plausible inference that
the March 30 and April 6 statements regarding 2017 production
guidance were made with actual knowledge of falsity.
Further, any inference that defendants knew that the March 30
and April 6 press releases’ reaffirmance of the production guidance
was false -- that is, defendants knew as of March 30 and April 6
that the 2017 production guidance was unattainable -- is undermined
37
here by CW1’s statements that Barrick placed great emphasis on the
catching-up of behind-target production, AC ¶ 46, and by the fact
that nine months in the production year remained at the time the
March 30 and April 6 statements were made.
We therefore conclude
that the March 30 and April 6 statements fall within the PSLRA’s
safe harbor for the additional reason that plaintiffs fail to
plausibly allege that these statements were made with actual
knowledge of their falsity. 17
*
*
*
In sum, we hold that plaintiffs have failed to plausibly
allege that Palmes’s February 16 statement was false or made with
scienter and that the remaining statements are forward-looking
statements protected by the PSLRA’s safe harbor.
3.
Loss Causation
Given the foregoing, we need not address the parties’ loss
causation arguments.
Nonetheless, we note here that plaintiffs’
theory of loss causation as to the alleged partial disclosure on
March 29 borders on the nonsensical.
As an initial matter,
plaintiffs allege that Barrick’s stock price dropped over the
17 Given the foregoing analysis, plaintiffs would equally fail to plausibly
plead the lower scienter requirement of conscious recklessness generally
applicable to non-forward-looking statements. See City of Pontiac Policemen’s
& Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 184 (2d Cir. 2014) (defining
“recklessness as a state of mind ‘approximating actual intent,’ which can be
established by ‘conduct which is highly unreasonable and which represents an
extreme departure from the standards of ordinary care to the extent that the
danger was either known to the defendant or so obvious that the defendant must
have been aware of it’” (quoting Novak, 216 F.3d at 308, 312)).
38
period from March 27 (a Monday) to March 30 (a Thursday), an
expansive
window
that
is
difficult
to
reconcile
with
their
allegations, AC ¶ 91, that Barrick’s stock trades in an efficient
market allowing them to rely on the presumption of reliance set
forth in Basic Inc. v. Levinson, 485 U.S. 224 (1988).
See
Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc.,
546 F.3d 196, 207 (2d Cir. 2008) (noting, under Cammer v. Bloom,
711 F. Supp. 1264 (D.N.J. 1989), and progeny, the importance of
“[e]vidence that unexpected corporate events or financial releases
cause
an
immediate
response
in
the
price
of
a
security”
in
analyzing whether the Basic presumption applies (emphasis added)).
In actuality, Barrick’s stock price closed at $19.60 on March
27, decreased to $19.08 at close on March 28, increased to $19.19
at close on March 29, and decreased to $18.84 at close on March
30.
Plaintiffs contend that the decrease in price on March 28 is
attributable
to
the
occurrence
of
the
spill
which
partially
revealed the falsity of Palmes’s February 16 statement, that the
increase on March 29 is attributable to Barrick’s press release
containing
reassurances
that
there
were
no
impacts
on
the
environment or local residents, and that the decrease on March 30
is attributable to Barrick’s disclosure of cyanide restrictions in
the press release issued that day.
However,
plausibly
be
the
occurrence
considered
a
of
[Pls.’ Opp’n 28 n.19.]
the
spill
disclosure,
39
by
itself
particularly
cannot
when
plaintiffs’ allegations of Barrick’s intent and ability to conceal
spills and prevent their disclosure are considered. 18
¶¶ 38, 47, 48.
E.g., AC
But even accepting plaintiffs’ hindsight-inflected
theory that the March 28 spill amounted to a partial corrective
disclosure of Palmes’s February 16 statement (which we conclude is
implausible as analyzed above), that disclosure was made to (and
would have impacted) the market on March 29 -- not March 28.
Given
that Barrick’s stock price increased on March 29, rather than
decreased, it is far from clear that plaintiffs have met their
burden as to loss causation -- even though that burden is a low
one at the pleading stage.
See Carpenters Pension Tr. Fund of St.
Louis v. Barclays PLC, 750 F.3d 227, 232-33 (2d Cir. 2014) (“In
order to plead corrective disclosure, plaintiffs must plausibly
allege a disclosure of the fraud by which ‘the available public
information
regarding
corrected,’
and
corrective
that
the
company’s
the
disclosure.”
financial
market
reacted
(emphasis
added)
condition
negatively
(citation
to
[was]
the
omitted)
(alteration in original) (quoting In re Omnicom Grp., Inc. Sec.
Litig., 597 F.3d 501, 511 (2d Cir. 2010))).
Plaintiffs’ loss causation allegations as to the Barrick’s
April 24 announcement of its 2017 First Quarter results fare
18
Further, the spill happened at approximately 5:15 p.m. on March 28 -after the trading day in New York had concluded. See Letter from Kim E. Miller
to the Court, Aug. 27, 2018, ECF No. 59. (On March 28, 2017, Argentina and
Veladero would have been one hour ahead of New York.) Any allegation that this
information is capable of traveling back in time would, of course, be
implausible.
40
better, but only somewhat.
Further, while “[p]laintiffs need not
demonstrate on a motion to dismiss that the corrective disclosure
was the only possible cause for decline in the stock price,” id.
at 233, plaintiffs would have needed to so prove had their case
proceeded beyond this motion to dismiss, see In re Flag Telecom
Holdings,
Ltd.
Sec.
Litig.,
574
F.3d
29,
36
(2d
Cir.
2009)
(requiring disaggregation at the proof stage); see also Lentell v.
Merrill Lynch & Co., 396 F.3d 161, 174 (2d Cir. 2005) (holding
that disaggregation “is a matter of proof at trial”).
Defendants
identify -- accurately -- that Barrick’s April 24 disclosure
contained a litany of negative information about the company
unrelated to gold production at Veladero.
While these arguments
are premature on a motion to dismiss and therefore do not form a
basis of our dismissal of the section 10(b) and Rule 10b-5 claims
to
they
extent
they
are
based
on
the
March
30
and
April
6
statements, there is no reason to believe that these confounding
factors
would
not
have
presented
plaintiffs
with
serious
difficulties of proof were the case to proceed beyond the pleading
stage.
C.
Section 20(a)
Plaintiffs
also
allege
that
the
individual
defendants,
Dushnishky, Raw, Williams, and Palmes, are liable under Section
20(a) of the Exchange Act because they acted as “controlling
persons” of Barrick who participated in the alleged securities
41
fraud. AC ¶¶ 112-17. Section 20(a) provides for joint and several
liability
for
“[e]very
person
who,
directly
or
indirectly,
controls any person liable under any provision of this chapter or
of any rule or regulation thereunder . . . unless the controlling
person acted in good faith and did not directly or indirectly
induce the act or acts constituting the violation or cause of
action.”
15 U.S.C. § 78t(a).
To establish a prima facie case of
control-person liability under section 20(a), a plaintiff must
sufficiently allege a primary violation by the controlled person.
See ATSI, 493 F.3d at 108.
Because plaintiffs have failed to plead
a primary violation on Barrick’s part, their Section 20(a) claims
necessarily fail.
See Slayton, 604 F.3d at 778.
III. Conclusion
For the foregoing reasons, we grant defendants’ motion to
dismiss
in
prejudice.
its
entirety.
This
dismissal
will
operate
with
Plaintiffs make a token request for leave to amend in
their opposition [Pls.’ Opp’n 30 n.23], but we conclude that leave
to amend would be futile here given the fundamental substantive
problems in plaintiffs’ allegations. See Lopez v. CTPartners Exec.
Search Inc., 173 F. Supp. 3d 12, 44 (S.D.N.Y. 2016) (“[W]here the
problems with a claim are ‘substantive’ rather than the result of
an ‘inadequately or inartfully pleaded’ complaint, an opportunity
to replead would be ‘futile’ and ‘should be denied.’” (quoting
Cuoco v. Moritsugu, 222 F.3d 99, 112 (2d Cir. 2000))).
42
The
February 16 statement is not actionable because plaintiffs failed
to plausibly plead that it was false or misleading and failed to
plausibly plead a
strong inference of scienter,
and no
further
allegations could remove the March 30 and April 6 statements from
the PSLRA's safe harbor.
Accordingly, the Clerk of the Court is respectfully directed
to enter judgment for defendants;
to terminate this case and any
motions pending therein; and to terminate the related case, No. 17
Civ. 3815.
19
SO ORDERED.
Dated:
New York, New York
September JLa 2018
L~d:r~
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
:9 While creati v1 ty in legal
argument may be appropriately encouraged,
creativity in the formatting of motions papers is not.
Plaintiffs' choice of
creative, nay, noncompl1ant spacing in its memorandum 1n opposit~on, see Local
Civil Rule 11.l(b) (3), has not gone unnoticed, 1s unappreciated, and is in fact
particularly inexcusable in light of the previously enlarged page l1m1t
applicable to that memorandum, see Jan. 3, 2018 Order, ECF No. 47.
43
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