Spitzberg v. Houston American Energy Corp.
2014 U.S. App. LEXIS 13485
| 5th Cir. | 2014Background
- Plaintiffs allege securities fraud under §10(b)/Rule 10b-5 based on misrepresentations about Houston American Energy’s Colombia oil concession (CPO-4), from 2009 through 2012.
- Key alleged misstatement: the slide stating CPO-4 reserves of 1–4 billion barrels and “identif[ied] leads” implying testing/production had occurred.
- Post-2009 disclosures and 2011–2012 filings claimed strong inflows/shows at Tamandua #1; CW-3 allegedly contradicted these by stating no oil/flowable hydrocarbons were found.
- The district court dismissed on scienter and loss causation grounds, and on additional theories (falsity particularity, forward-looking safe harbor, and statute of limitations).
- The Fifth Circuit reverses and remands, holding the complaint adequately pled scienter and loss causation and that liability issues require further development; limitations issues reserved for later proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of scienter pleading | Plaintiffs allege severe recklessness about testing and reserves terms. | Defendants contend no strong inference of scienter; district court correct. | Complaint pleads severe recklessness; scienter survives |
| Loss causation pleading | Loss caused by specific misstatements; corrective disclosures tied to Tamandua abandonment. | Loss causation not pled; other factors possible. | Loss causation adequately pled; dismissal reversed |
| Falsity and particularity under PSLRA | Each misstatement identified with why misleading; reliance on industry terms and disclosures. | Statements not sufficiently tied to falsity or lack particularity. | Falsity/particularity adequately pled; not dismissed |
| Safe harbor for forward-looking statements | Some statements mix current and forward-looking aspects; safe harbor not apply to present portion. | Reserves terms are forward-looking and may fall under safe harbor. | Reserves term not fully protected; safe harbor inapplicable for the present component |
| statute of limitations under 28 U.S.C. § 1658(b)(1) | Limitations should be decided under discovery standards; facts not on record for early dismissal. | Two-year clock triggered by later disclosures; dismissal proper. | Limitations issue not decidable on motion to dismiss |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (strong inference standard for scienter; cogent as compelling as opposing inferences)
- Rosenzweig v. Azurix Corp., 332 F.3d 854 (5th Cir. 2003) (severe recklessness defined; extreme departure from ordinary care)
- Indiana Elec. Workers’ Pension Trust Fund IBEW v. Shaw Group, Inc., 537 F.3d 527 (5th Cir. 2008) (PSLRA heightened pleading standards for scienter and falsity)
- Lormand v. US Unwired, Inc., 565 F.3d 228 (5th Cir. 2009) (tie-breaking inference framework; loss causation not evaluated with same rigor as scienter)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (loss causation pleading standards; corrective disclosures)
- Merck & Co., Inc. Sec., Derivative & ERISA Litig., 543 F.3d 150 (3d Cir. 2008) (loss causation and pleading standards in securities cases)
- Makor Issues & Rights, Ltd. v. Tellabs, Inc., 513 F.3d 702 (7th Cir. 2008) (mixed present/future statements and safe harbor applicability)
- Avaya, Inc. v. Institutional Investors Group, 564 F.3d 242 (3d Cir. 2009) (PSLRA pleading standards and scienter reconsiderations)
- Stone & Webster, Inc. Sec. Litig., 414 F.3d 187 (1st Cir. 2005) (forward-looking statements safe harbor guidance)