481 F.Supp.3d 280
S.D.N.Y.2020Background
- Sasol announced construction of the Lake Charles Chemicals Project (LCCP) in Oct. 2014 at an $8.1 billion budget; class period runs Mar. 10, 2015–Jan. 13, 2020.
- Over the class period Sasol repeatedly updated LCCP cost estimates upward (to ~$8.9B, $11B, $11.13B, $11.6–11.8B, $12.6–12.9B) while assuring investors the project was "on track."
- Six confidential witnesses (CWs) who worked on LCCP alleged contemporaneous knowledge of much higher costs (one alleged a Feb. 2016 binding Fluor change order obligating at least $11.7B) and manipulation/cover-up of schedules and accounting.
- An independent internal review disclosed in Oct. 2019 found errors in cost estimates and "inappropriate conduct and an improper tone at the top," leading to disciplinary action/resignations of several executives.
- Plaintiff asserts Rule 10b-5 and Section 20(a) claims based on (1) allegedly false cost/schedule statements and (2) allegedly false/ misleading assurances about internal controls; defendants moved to dismiss under Rule 12(b)(6).
- Court: motion denied in part and granted in part — cost/schedule claims survive as to most defendants; internal-controls claims dismissed; defendant Grobler dismissed entirely.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| PSLRA safe harbor for forward-looking cost/schedule statements | Statements were false when made because defendants knew (via CWs and change order) costs/schedule were far worse | Statements are forward-looking with meaningful cautionary language and lack actual knowledge of falsity | Safe harbor does not bar claims as to Schoeman, Nqwababa, Cornell; Constable and Victor also survive; Grobler's lone post-review statement falls within safe harbor and is dismissed |
| Actionable misrepresentations / omissions | Public cost/schedule statements were misleading/false—half-truths—because they omitted known overruns; internal-control statements were also misleading | Optimistic statements about controls and remediation were non-actionable puffery or forward-looking | Cost/schedule misrepresentations adequately pleaded; internal-controls statements dismissed for lack of particularized falsity allegations |
| Sufficiency of scienter | CWs + internal review + resignations show knowing falsity (or at least recklessness) by senior management | CW allegations are too indirect/unspecific to show particularized scienter for each defendant | Court finds a strong inference of scienter (collectively) for most named executives (except Grobler) — meets PSLRA/Tellabs standard |
| Individual liability / relief requested (depose CWs) | Plaintiffs rely on CWs and documentary/internal-review corroboration | Defendants ask dismissal or at least depositions of CWs before ruling | Court declines CW depositions; denies dismissal for specified defendants; dismisses Grobler and internal-controls claim |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (facial plausibility pleading standard)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility and pleading limits)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (standard for evaluating scienter inference)
- Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, 552 U.S. 148 (2008) (elements of Rule 10b-5 claim)
- Slayton v. Am. Exp. Co., 604 F.3d 758 (2d Cir. 2010) (PSLRA safe-harbor/cautionary-language analysis)
- In re Vivendi, S.A. Sec. Litig., 838 F.3d 223 (2d Cir. 2016) (PSLRA safe-harbor and forward-looking statements)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (particularity for confidential witnesses)
- Emps.' Ret. Sys. of Gov't of the V.I. v. Blanford, 794 F.3d 297 (2d Cir. 2015) (scienter and circumstantial evidence)
- Kleinman v. Elan Corp., PLC, 706 F.3d 145 (2d Cir. 2013) (reasonable investor standard for misleading statements)