Nakkhumpun v. Taylor
2015 U.S. App. LEXIS 5547
| 10th Cir. | 2015Background
- Securities class action by Patipan Nakkhumpun for purchasers of Delta Petroleum securities (Mar 11, 2010–Nov 9, 2011) alleging §10(b)/Rule 10b-5 violations based on statements about (1) a proposed $400M transaction with Opon International for a 37.5% interest in Vega Area assets and (2) Delta’s liquidity/financial condition.
- March–June 2010: Delta repeatedly announced a $400M price and anticipated closing; July 2010: Chairman Daniel Taylor announced termination, attributing it to Opon’s inability to obtain financing.
- Plaintiff alleges the true reason was that Opon retracted the $400M offer after valuing the assets lower; Taylor’s explanation misled the market into believing Opon still valued the assets at $400M.
- District court dismissed for failure to plead loss causation (Opon statement) and falsity (financial statements); denied leave to amend as futile for scienter. Court of Appeals reviewed de novo and considered proposed amendments.
- Appellate holdings: reversed as to Taylor’s July 2010 Opon statement (falsity, scienter, loss causation adequately alleged); affirmed dismissal for all other defendants on Opon claim and affirmed dismissal of all claims about financial-condition statements (insufficient falsity or scienter).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Falsity of Taylor’s July 2010 Opon statement | Taylor misattributed termination to financing; Opon actually retracted $400M after valuing assets lower | Statement truthful or at least ambiguous; lenders’ refusal could mean low valuation or credit issues | Held false/misleading as pleaded — plaintiffs alleged Opon retraction and that Taylor’s explanation masked valuation-based termination |
| 2. Scienter for Taylor (Opon statement) | Taylor knew market was conditioned to believe $400M and recklessly disregarded risk of misleading investors | Statements aimed to attract buyers / maximize value; no intent to deceive | Held inference of scienter (recklessness) is at least as compelling as innocence; pleaded facts support scienter |
| 3. Loss causation (Opon statement) | Misleading July 2010 statement concealed risk that assets weren’t marketable at $400M; risk materialized Nov 9, 2011 disclosure that no buyer would pay near $400M, causing price drop | Dura and temporal gap defeat causal connection; risks disclosed earlier in 2009 10-K | Held loss causation adequately pleaded under materialization-of-concealed-risk theory; Nov 9, 2011 disclosed truth to market |
| 4. Falsity/scienter for statements re: financial condition (multiple speakers/statements) | Statements portrayed improving liquidity and asset value; plaintiff points to internal cash-flow problems and delayed payments | Statements were opinion or based on public metrics and not knowingly false; no strong inference of intent/recklessness | Held insufficient: plaintiff failed to plead falsity or the requisite scienter for these statements; dismissal affirmed |
Key Cases Cited
- Slater v. A.G. Edwards & Sons, 719 F.3d 1190 (10th Cir. 2013) (Rule 12(b)(6) de novo review and consideration of SEC-filed documents)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (scienter inference must be at least as compelling as any competing inference)
- Adams v. Kinder-Morgan, Inc., 340 F.3d 1083 (10th Cir. 2003) (elements of §10(b)/Rule 10b-5 claims and recklessness definition)
- In re Level 3 Commc’ns, Inc. Sec. Litig., 667 F.3d 1331 (10th Cir. 2012) (statement is false if inconsistent with facts on the ground)
- Dronsejko v. Thornton, 632 F.3d 658 (10th Cir. 2011) (standards for pleading scienter)
- Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) (materialization-of-concealed-risk theory for loss causation)
- In re Williams Sec. Litig.-WCG Subclass, 558 F.3d 1130 (10th Cir. 2009) (loss causation and expert proof issues)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005) (requirement to plead how truth was revealed to market for loss causation)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (duty not to speak misleadingly; opinions and completeness of disclosure)
- Anixter v. Home-Stake Prod. Co., 77 F.3d 1215 (10th Cir. 1996) (recklessness suffices for scienter in §10(b) claims)