861 F. Supp. 2d 197
S.D.N.Y.2012Background
- Securities class action against Transocean and its CEOs following the Deepwater Horizon disaster (April 20, 2010).
- Lead Plaintiff purports to represent investors who bought Transocean stock between Aug 5, 2009 and July 23, 2010.
- Court considers defendants’ Rule 12(b)(6) motion to dismiss the Consolidated Class Action Complaint.
- Court primarily relies on the Chief Counsel’s Report on the Macondo incident.
- Alleged misrepresentations concern three Newman conference calls (Aug 5, 2009; Feb 24, 2010; May 28, 2010) denying systemic safety failures.
- Court grants motion to dismiss, noting lack of material misrepresentation, insufficient scienter, and no viable Section 20(a) claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff pleads a material misrepresentation or omission. | Lead Plaintiff argues statements on safety culture were misleading. | Defendants say statements were consistent with reasonably available data. | Not proven; statements not actionable as material misrepresentations. |
| Whether plaintiff pled strong inference of scienter. | Lead Plaintiff asserts intentional or reckless disregard given internal safety data. | Defendants contend lack of contemporaneous evidence of systemic safety failures; Lloyd’s audit later undermines recklessness. | Not shown; scienter not adequately pleaded. |
| Whether Section 20(a) claims survive given failure of primary violation. | If Section 10(b)/10b-5 claims fail, section 20(a) should fail too. | No primary violation; control liability cannot stand. | Dismissed as to Section 20(a). |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (established Rule 8 pleading and scienter standards)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pushes plausibility standard for complaints)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (U.S. 1976) (requires scienter for fraud under Rule 10b-5)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (heightened pleading for fraud claims under PSLRA; Rule 9(b) applied)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (requires strong inference of scienter; balancing of inferences)
- ECA & Local 134 IBEW Joint Pension Trust v. JPMorgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (necessity of strong inference of scienter under PSLRA)
- Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479 (2d Cir. 2011) (standard for evaluating scienter in securities fraud cases)
- Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (U.S. 2011) (materiality and disclosure duties under Rule 10b-5)