554 F. App'x 40
2d Cir.2014Background
- Roofers Local No. 149 Pension Fund (Roofers) brought a putative class action under §10(b) and Rule 10b-5 against CNOOC Ltd., alleging false statements about safety at an oilfield CNOOC co-owned with ConocoPhillips China (COPC) and concealment of causes of two major spills.
- COPC operated the field day-to-day; China’s State Oceanic Administration (SOA) later issued a report identifying management and system failures as causes of the spills.
- Roofers relied on CNOOC’s public statements asserting safety inspections and remedial measures, arguing those statements were false or misleading given the SOA findings.
- The District Court dismissed the complaint under Fed. R. Civ. P. 12(b)(6) for failure to meet Rule 9(b) and the PSLRA pleading standards for securities fraud, and denied reconsideration.
- The Second Circuit reviewed the dismissal de novo and considered the SOA report submitted on reconsideration, but affirmed, finding Roofers did not plead falsity or a strong inference of scienter.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of fraud pleading under Rule 9(b) and PSLRA | Statements about safety were false/misleading because the SOA report showed foreseeable risks and management failures | CNOOC’s public statements were general and not shown to be false; complaint lacks particularized facts | Affirmed dismissal — complaint did not meet Rule 9(b)/PSLRA particularity for misstatement allegations |
| Scienter (required state of mind) | CNOOC "must have known" about the safety problems given the nature of the failures reported by SOA | No facts show CNOOC knew or was reckless; at most negligence or hindsight inference | Affirmed — no strong inference of scienter; "must have known" allegation is insufficient absent facts showing problems were obvious to CNOOC at the time |
| Consideration of SOA report submitted on reconsideration | SOA report supplies the factual basis for falsity and scienter | Report does not establish that identified problems were apparent to CNOOC when statements were made | Court considered the SOA report but held it did not cure pleading defects |
| Standard for inferring scienter from negligence-like facts | SOA findings show extreme departure from care supporting scienter | Extreme departure must show known danger or so obvious defendant must have been aware | Court applied Tellabs standard: inference must be cogent and at least as compelling as opposing inferences; plaintiff failed to meet this standard |
Key Cases Cited
- Harris v. Mills, 572 F.3d 66 (2d Cir. 2009) (de novo review of Rule 12(b)(6) dismissal standard)
- Taveras v. UBS AG, 708 F.3d 436 (2d Cir. 2013) (consideration of documents incorporated by reference)
- ATSI Comm., Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (Rule 9(b) and PSLRA pleading requirements for misstatements)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (particularity standards for fraud pleadings)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (standard for whether pleaded facts give rise to a "strong inference" of scienter)
- Chase Group Alliance LLC v. City of New York Dept. of Finance, 620 F.3d 146 (2d Cir. 2010) (viewing pleadings in the light most favorable to plaintiff on motion to dismiss)