OPINION AND ORDER
I. INTRODUCTION
This action arises from alleged false and misleading statements made by Tronox, Inc. (“Tronox”) during and following its initial public offering in 2005 (the “IPO” or “Tronox IPO”). On June 28, 2010, I issued an Opinion and Order
(“Tronox
I”)
1
ruling on defendants’ motions to dismiss various claims asserted in plaintiffs’ Consolidated Amended Complaint (“CAC”)
II. APPLICABLE LAW
A. Control Person Liability Under Section 20(a) of the Exchange Act
“To establish a prima facie case of control person liability, a plaintiff must show (1) a primary violation by the controlled person, (2) control of the primary violator by the defendant, and (3) that the defendant was, in some meaningful sense, a culpable participant in the controlled person’s fraud.” 4
“[C]ontrol over a primary violator may be established by showing that [the controller] possessed ‘the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.’ ”
5
“Actual control is essential to control person liability.”
6
Moreover, “the Section 20(a) defendant must ... have actual control over the
transaction
in question.”
7
However, “[f]or purposes of Section 20(a) liability, actual control requires only the
ability
to direct the actions of the controlled person, and not the
active exercise
thereof.”
8
“Allegations of influence are not the same as
“Allegations of control are not averments of fraud and therefore need not be pleaded with particularity.” 11 Thus, “ ‘[a]t the pleading stage, the extent to which the control must be alleged will be governed by Rule 8’s pleading standard.’ ” 12 “In the Second Circuit, ‘the control person provisions are broadly construed as they were meant to expand the scope of liability under the securities laws.’ ” 13 “Whether a person is a ‘controlling person’ is a fact-intensive inquiry, and generally should not be resolved on a motion to dismiss.” 14
B. Respondeat Superior Liability 15
“Respondeat superior
imposes liability upon a principal for the torts of [its] agent committed within the scope of their agency relationship.”
16
A principal-agent relationship “is created when [1] one party consents to have another act on its behalf, [2] with the principal controlling and directing the acts of the agent.”
17
“Under the rubric of agency liability, there
“Under the agency theory, the issue of liability rests on the amount of control the parent corporation exercises over the actions of the subsidiary.... The parent corporation will be held liable for the activities of the subsidiary only if the parent dominates those activities.” 19 “[W]hile one corporation whose shares are owned by a second corporation does not, by that fact alone, become the agent of the second company, a corporation — completely independent of a second corporation'— may assume the role of the second corporation’s agent in the course of one or more specific transactions.” 20 “Circumstantial evidence of a principal-agent relationship includes the exclusive dedication of a subsidiary to assisting the parent company, payment of the subsidiary’s expenses by the parent company, and requests for approval of the parent company for important decisions by the subsidiary.” 21 “The level of control necessary to form a principal-agent relationship between a parent company and subsidiary defies resolution by mechanical formulate], for the inquiry is inherently fact-specific.” 22
C. Successor-in-interest Liability
“[A] corporation acquiring the assets of another does not succeed to the liabilities of the successor corporation except where (1) the successor expressly or impliedly assumed the liability; (2) there was a de facto merger of the successor and predecessor; (3) the successor was a mere continuation of the predecessor; or (4) the transaction was fraudulent.”
23
The fraud
III. DISCUSSION
A. KMG: Control Person Liability After March 31, 2006
In Tronox /, I dismissed plaintiffs’ claim that “KMG (and, by extension, KMG’s officers) retained control of Tronox after March 31, 2006.” 26 Plaintiffs had argued that, despite the fact that Tronox became an independent company on April 1, 2006, “KMG retained control after March 31, 2006 by virtue of the Master Separation Agreement [“MSA”].” 27 This argument, I found, “fail[ed] as a result of plaintiffs’ own allegations.” 28 In particular, plaintiffs had alleged that a condition in the MSA— under which KMG was only responsible for partially reimbursing Tronox for environmental costs after Tronox had already “paid above the amount reserved for specified sites” 29 — rendered the indemnification illusory because “the Chemical Business [did] not have sufficient cash flow to spend the reserved amounts and thus qualify for indemnification.” 30 Reasoning that “it is not plausible to think that Tronox was controlled by an indemnification it could not receive,” I held that “this condition in the [MSA] cannot form the basis for plaintiffs’ allegation of control.” 31 However, I granted plaintiffs leave to replead then-control claims based on misstatements made after Tronox’s Spin-Off, “to the extent they are able to allege facts, other than the existence of the [MSA], that create a plausible inference that KMG controlled Tronox after March 31, 2006.” 32
Based on “newly discovered information gleaned from Tronox’s bankruptcy case that Tronox had received some reimbursement [from KMG] pursuant to the MSA,”
33
plaintiffs have removed from their complaint the allegation that indemnification under the MSA was “illusory.” Therefore, the grounds on which I previously dismissed plaintiffs’ control claims after March 31, 2006, no longer support their dismissal. I now find that the FAC’s more fulsome allegations, based on several additional provisions of the MSA and supporting confidential witness (“CW”) information,
34
adequately plead that KMG had “actual control over the transaction in question”
35
— namely, Tronox’s failure to record reserves for environmental remediation costs and tort claim liabilities that were both probable and reasonably estimable in violation of Generally Accepted Ac
First, under the terms of the MSA, KMG had no reimbursement obligation for environmental liabilities without KMG’s prior written consent to any material change made by Tronox which increased any reserve amount by $2.5 million or more, or if Tronox established any reserve for a site where none had been previously recorded. 37 “In other words, to the extent that KMG had itself understated the environmental remediation reserves for the sites it transferred to Tronox in connection with the Tronox IPO, KMG ensured that those reserves would continue to be [publicly] understated by Tronox.” 38
Second, the MSA required Tronox to adopt and use KMG’s flawed reserve methodologies for the same remediation sites that were transferred to Tronox 39 — the same improper reserving methodologies that formed the basis for this Court’s finding that plaintiffs’ primary securities fraud claims against Tronox could proceed. According to plaintiffs, “one Tronox senior manager believed that he could not change the method by which Tronox would [determine] environmental reserves — which was the practice used by [KMG] and approved by [Ernst & Young, LLP] — or the company risked losing whatever indemnity it had.” 40 Plaintiffs’ theory that KMG controlled Tronox through the MSA is bolstered by the allegation that KMG “imposed” the MSA on Tronox and “unilaterally determined” its content — including “a highly unusual provision” that required Tronox to indemnify KMG for any material misstatements in the Tronox IPO Registration Statement. 41
Third, no later than eight business days following the end of each quarter, but pri- or to the public announcement of Tronox’s financial results in an SEC filing or press release, Tronox was required to provide KMG with reserve estimates and any changes in reserve estimates, for the purposes of obtaining KMG’s comments and approval prior to filing.
42
The MSA also required Tronox to deliver to KMG — no later than ten business days prior to filing a 10-Q and twelve business days prior to filing a 10-K — drafts of any discussion or analysis of contingent obligations to pay
Fourth, KMG and Tronox were “in regular communication.” 46 They conducted “Quarterly Meetings” to “discuss remediation activities with respect to Former Operations, reserve estimates and matters giving rise to changes in reserves.” 47 These meetings were to be conducted prior to Tronox’s delivering reserve estimates and any changes thereto to KMG. 48 According to plaintiffs, a Vice-President of Governmental Affairs for Tronox “recalled having numerous conversations while at Tronox with [KMG] and Anadarko personnel in 2006, 2007, and 2008 regarding [KMG’s] and then Anadarko’s continuous attempts to influence the reserving process.” 49
These allegations support the plausible inference that KMG “controlled the dissemination of the statements in the [SEC filings] that plaintiff[s] allege[ ] were materially false or misleading.”
50
For example, it is plausible that through the Quarterly Meetings, KMG ensured that Tronox was responding as intended to the MSA’s strong incentives to understate reserves,
51
and that it had the power not only to “influence” Tronox, but to “direct [its] management and policies.”
52
Defendants argue that any interaction between KMG and Tronox pursuant to the MSA related solely to whether Tronox would receive any reimbursement from KMG, and reflected no involvement in the amount of reserves Tronox would publicly report.
53
B. Anadarko
1. Control Person Liability After March 31, 2006
Anadarko argues that “Plaintiffs’ Section 20(a) claim against Anadarko runs afoul of the undisputed fact that Anadarko is not even a party to the MSA, the document Plaintiffs contend provided KMG with the ability to exercise control over Tronox after the Spin-Off.”
58
However, plaintiffs have alleged that not only KMG, but also Anadarko, were “deeply involved in the process of determining Tronox’s remediation obligations and reserves, the core of the fraud alleged in the FAC.”
59
Indeed, plaintiffs allege virtually identical involvement of KMG and Anadarko in the implementation of the MSA.
60
Moreover, Anadarko represented in its 2006 and 2007 Annual Reports that “ ‘[a]s a result of the merger, we will be responsible to provide reimbursements to Tronox pursuant to the [MSA], and we may be subject to potential joint and several liability, as the successor to [KMG], if Tronox is unable to perform certain remediation obligations.’ ”
61
According to plaintiffs, as of June 29, 2010, and “pursuant to the [MSA],” Anadarko had paid Tronox approximately $4.1 million in environmental response costs, and it has reserved approximately $96 million in remaining reimbursement obligations.
62
2. Respondeat Superior Liability
Plaintiffs also seek to establish Anadarko’s liability on the basis of respondeat superior for KMG’s primary violation “in controlling the reporting of Tronox’s reserves.” 67 Plaintiffs articulate their theory of respondeat superior liability in their Opposition brief:
Anadarko is properly alleged to be responsible for the tortious acts of its agent, KMG, in controlling the reporting of Tronox’s reserves. The confidential witness allegations, and public statements of Tronox’s CEO show that, following the merger, Anadarko allowed KMG to interact with Tronox in addressing the issues regarding Tronox’s environmental reserves and remediation costs, including issues arising under the MSA. Anadarko at all times maintained control over these activities, especially in light of its acknowledged responsibility, as KMG’s successor, to pay any remediation obligations which Tronox could not satisfy. 68
Anadarko argues that the paragraphs of the FAC on which this argument is based “relate only to KMG’s alleged ‘ability to exercise control’ over Tronox — not to Anadarko’s relationship to KMG.” 69 Instead, “the sole bases for Plaintiffs’ allegation of a principal-agent relationship between Anadarko and KMG [in the FAC] are (i) Anadardo and KMG’s ‘parent-subsidiary relationship’ and (ii) ‘the merger agreement dated as of June 22, 2006’ ” 70 — allegations insufficient to allege the existence of a principal-agent relationship. 71
First, plaintiffs’ allegations support the inference that KMG was acting on Anadarko’s behalf, with Anadarko’s consent, in implementing the terms of the MSA. Given — as defendant notes — that “Anadarko is not even a party to the MSA,” 74 Anadarko’s assumption of responsibility for KMG’s reimbursement obligations pursuant to the MSA 75 raises the plausible inference that Anadarko consented to KMG’s acting on its behalf in implementing the MSA’s terms. Stated in terms of apparent authority, in light of Anadarko’s “acknowledged responsibility, as KMG’s successor, to pay any remediation obligations which Tronox could not satisfy,” 76 KMG “[held] itself out as possessing” 77 the authority to act on Anadarko’s behalf in implementing the terms of the MSA.
Second,
plaintiffs have adequately alleged that Anadarko controlled and directed KMG’s actions in implementing the terms of the MSA. Plaintiffs have alleged Anadarko’s “deep involvement ... in the reserving process following its acquisition of [KMG] in August 2006.”
78
That these allegations support the plausible inference that
KMG
controlled
Tronox
does not preclude a finding, at the motion to dismiss stage, that Anadarko also controlled and directed KMG. Given that Anadarko is not even a party to the MSA, Anadarko’s “continuous attempts to influence the reserving process”
79
would necessarily result from its control and direction of KMG, the party to whom Tronox was required to deliver quarterly and annual reports and other public filings “in form and substance satis
3. Successor-in-interest Liability
a. Express or Implied Assumption of KMG’s Liabilities
The FAC adds no material allegations on which to sustain plaintiffs’ claim that Anadarko expressly or impliedly assumed KMG’s liability for securities fraud actions relating to the Tronox IPO. Instead, the claim remains entirely based on (1) Anadarko’s acknowledgment of its potential liability as a successor-in-interest to KMG for environmental remediation costs 82 and (2) Anadarko’s contractual agreement, together with KMG, to indemnify KMG’s officers and directors for then-acts or omissions occurring before the acquisition date. 83 These allegations fail to state a claim for successor liability based on express or implied assumption of liabilities. 84
b. Fraud
Plaintiffs now claim that
Anadarko is liable as a successor-in-interest to KMG because its merger with that company constituted the culmination of the fraud alleged in the FAC whereby the Legacy Liabilities were excised out of KMG and transferred to Tronox, for the purpose of allowing Anadarko to acquire KMG free and clear of such obligations. These transactions ... were part of a deliberate plan, scheme, and artifice to defraud whereby the Legacy Liabilities were imposed on the public shareholders of Tronox without disclosure of their true magnitude and with the goal of KMG and Anadarko fraudulently escaping these liabilities. 85
Anadarko moves to dismiss this claim on the grounds that plaintiffs have “improperly conflated the merger with the IPO and Spin Off’:
86
because the Legacy Liabilities were allegedly transferred to Tronox prior to the merger, Anadarko argues, the merger was not the “final step” in escaping the obligations arising from the Legacy Liabilities.
87
I agree. Plaintiffs’ allegations do not support an inference that
Anadarko’s acquisition of
KMG — the “transaction” at issue in this claim — was “fraudulent and intended to provide an escape from liability.”
88
The fact that “Anadarko ... knew that KMG had gone from billions of dollars in environmental remediation liabilities to effectively zero in a very short timeframe”
89
or that “[a]bsent KMG’s ability to represent it had no or limited exposure, the merger would not have occurred”
90
does not sup
C. KMG Officers: Control Person Liability
In Count IV of the FAC, plaintiffs allege that Corbett (for the entire Class Period), Wohleber (through August 10, 2006), and Pilcher (through August 10, 2006) “were controlling persons of Tronox and the officers of Tronox ... within the meaning of Section 20(a) of the Exchange Act.” 93 As support for that claim, they allege that Corbett, Wohleber, and Pilcher, along with KMG, “devised and effectuated the fraudulent scheme and course of conduct alleged herein”; “created the plan to remove the Legacy Liabilities from [KMG] and place them into Tronox without making full and adequate disclosure[s]”; “planned and effectuated [KMG’s] extrication from further association with Tronox except through a modest indemnification obligation reflected in the [MSA], by completing the Spin-Off’; “unilaterally determined the content of all material agreements between [KMG] and Tronox and dictated the terms of the transactions described hereinabove”; and “imposed” the MSA on Tronox. 94
Building on these allegations, plaintiffs argue that, as senior officers of (and/or general counsel for) KMG from March 31, 2006, to August 10, 2006 — when KMG controlled Tronox by virtue of the MSA 95 — Corbett, Wohleber, and Pilcher “continued to exercise control over Tronox.” 96 Plaintiffs assert that these senior officers “can be presumed to have received reports regarding Tronox’s ongoing environmental remediation work, the setting of the reserves, and to have directed KMG’s positions vis-a-vis Tronox.” 97 Because they were “responsible for and had knowledge of KMG’s financial reporting, which included the reimbursement obligations and related amount of Tronox reserves,” they controlled this aspect of Tronox’s financial reporting “inasmuch as KMG” did. 98
Corbett and Pilcher now move to dismiss Count TV in full,
99
and Wohleber moves to dismiss Count IV for the period after March 31, 2006.
100
As an initial mat
1. Control Person Liability from November 21, 2005 to March 31, 2006 (Corbett and Pilcher) and from April 1, 2006 to August 10, 2006 (Corbett, Pilcher, and Wohleber) 101
Defendants argue that Corbett’s and Pilcher’s “role as officers of KMG between the time of Tronox’s IPO and Spin-Off’ — a period of time during which plaintiffs have alleged KMG controlled Tronox 102 — “does not amount to an allegation of control under Section 20” 103 because
[t]here are no allegations that [from November 21, 2005, to March 31, 2006] either Corbett or Pilcher owned a controlling amount of Tronox voting shares, were officers or directors of Tronox, were involved in the day-to-day activities of Tronox, or signed any of Tronox’s filings. More specifically, there is no allegation that Corbett or Pilcher were involved in Tronox’s reserve-setting process or the management of Tronox. 104
Therefore, according to defendants, plaintiffs’ control claims boil down to mere assertions of Corbett’s and Pilcher’s “status” as officers of KMG, which is “generally not enough to constitute control.” 105
Defendants similarly argue that plaintiffs’ control argument for the period from March 31,
2006
to August 10, 2006, is a concession that their claim against Corbett, Pilcher, and Wohleber is based solely
It is true that plaintiffs have not explicitly alleged the quintessential markers of control against Corbett, Pilcher, and Wohleber. For example, there is no allegation that from November 21, 2005 through March 31, 2006, either Corbett or Pilcher signed Tronox’s allegedly fraudulent public filings,
108
or that any of the KMG Officers were directly involved in Tronox’s day-to-day operations.
109
However, in light of plaintiffs’ allegations (1) that Corbett, Pilcher, and Wohleber “devised and effectuated the fraudulent scheme”
110
and that (2) KMG controlled Tronox from the IPO to the Spin-Off to the Merger, I find their allegations sufficient to support the plausible inference that the KMG Officers had the “
‘power
to direct or cause the direction of the management and policies of [Tronox]’ ”
111
during that time period.
112
Corbett and Pilcher may not have signed Tronox’s filings during this time — because they were not Tronox officers — but they allegedly “created the plan to remove the Legacy Liabilities from [KMG] and place them into Tronox without making full and adequate disclosure^]” and “dictated the terms of the [IPO],”
113
rendering plausible the inference that they had the power to control the content of Tronox’s company press releases
114
and public filings.
115
Such allegations place this case in stark contrast to those relied upon by defendants for the proposition that plaintiffs cannot state a claim based on “tertiary liability.”
119
In
Fezzani v. Bear, Stearns, & Co.,
plaintiffs sought to hold a senior officer of Bear Stearns, which in turn allegedly controlled the primary violator (Baron), “responsible based on tertiary liability — his control of Bear Stearns, which in turn allegedly controlled Baron.”
120
The court held that plaintiffs could not “stretch the concept of .control liability so far.”
121
However, in that case, the court had already
dismissed
plaintiffs’ control claims against Bear Stearns as time-barred. If the court had reached the “merits” of plaintiffs’ control allegations against Bear Stearns- — -that it “took over Baron’s offices and executed transactions, as well as approved or disapproved of all of Baron’s trading orders after November 1995” and subsequently “assumed control of all trading activities at Baron and sent its employees to Baron’s offices to enforce that control”
122
— it may well have found that plaintiffs stated a claim against Bear Stearns, and seriously considered whether the senior officer, too, could be found to
Teamsters Local 445 Freight Division Pension Fund v. Bombardier Inc.
125
is also distinguishable. In that case, I held that an allegation that an individual defendant (“Beaudoin”) was an officer and director of
a parent corporation
(“BI”) of a primary violator (“BCM” and “BCI” (collectively “Bombardier”)) was insufficient to plead a claim under Section 20(a).
126
The complaint alleged that Beaudoin, as a signatory of BI’s Annual Reports, had direct knowledge of the “Certificate Offerings” that were reflected in BI’s financial statements and incorporated in BI’s Annual Reports.
127
I first rejected plaintiffs’ primary securities fraud allegations against Beaudoin because “the Complaint does not allege that Beaudoin knew of information contradicting [BCM’s and BCI’s] public statements ---- Nor does plaintiff allege that the Certificate Offerings were a core operation of BI.”
128
By contrast, plaintiffs here have alleged that Corbett, Pilcher, and Wohleber — who allegedly orchestrated the plan by which the Legacy Liabilities were excised from KMG and who “unilaterally determined the content of’ the MSA which they “imposed” on KMG
129
— knew of information contradicting the reserves reported by Tronox.
130
Moreover, unlike the KMG Officers in this case, Beaudoin was not alleged to have “controlled [BCM and BCI], nor [did plaintiffs] make any specific allegation of control against him other than his status as an officer and director.”
131
Instead, the complaint mere
2. Corbett: Control Person Liability from August 11, 2006 to January 12, 2009
Plaintiffs do not explain their theory for how Corbett was a “controlling person” of Tronox after the August 10, 2006 merger. 135
Although Plaintiffs’ basis for asserting control for this time period is entirely unstated, it can be inferred that it is based solely on the fact that Corbett became an outside director of Anadarko, whereas Pilcher and Wohleber had no role at Anadarko. Plaintiffs are apparently alleging that — after Anadarko’s acquisition of KMG — Corbett, as an outside director, controlled Anadarko, which in turn is allegedly liable (as a successor-in-interest or on a theory of respondeat superior) for KMG’s alleged control over Tronox. 136
This theory is “yet another step removed from ‘control person’ liability.” 137 Plaintiffs have failed to articulate how Corbett continued to control Tronox — vis-a-vis Anadarko vis-a-vis KMG — beyond asserting his status as an outside director of Anadarko. In the absence of additional allegations, plaintiffs’ Section 20(a) claim is too attenuated to state a claim against Corbett for control liability after the Merger.
IV. CONCLUSION
For the aforementioned reasons, KMG’s motion to dismiss is denied; Anadarko’s motion to dismiss plaintiffs’
respondeat superior
and Section 20(a) claims is denied;
SO ORDERED.
Notes
.
See In re Tronox, Inc. Sec. Litig.,
No. 09 Civ. 6220,
. "Tronox Officers” refers collectively to defendants Thomas Adams, Marty Rowland, Mary Mikkelson, and J. Michael Rauh.
. "Spin-Off” refers to KMG’s distribution of its remaining Tronox shares to KMG shareholders on March 31, 2006. See FAC ¶ 15.
.
ATSI Commc'ns, Inc. v. Shaar Fund, Ltd.,
.
First Jersey Sec.,
Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.
15 U.S.C. § 78t(a).
.
In re Blech Sec. Litig.,
.
In re Alstom SA Sec. Litig.,
.
CompuDyne Corp. v. Shane,
.
Fezzani v. Bear, Stearns & Co., Inc.,
.
Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc.,
No. 05 Civ. 1898,
.
In re Parmalat Sec. Litig.,
.
In re Scottish Re Group Sec. Litig.,
.
CompuDyne,
.
Id. Accord In re Scottish Re,
. "Under New York choice of law principles, the law of the state of incorporation determines when the corporate form will be disregarded.”
Fletcher v. Atex, Inc.,
.
Khanna v. McMinn,
No. Civ.A. 20545-NC,
.
Cochran v. Stifel Fin. Corp.,
No. Civ.A. 17350,
.
Albert v. Alex. Brown Mgmt. Servs., Inc.,
Nos. Civ.A. 762-N, Civ.A. 763-N,
.
Grasty,
.
Alex. Brown,
.
Apartheid,
.
Apartheid,
.
New York v. National Serv. Indus., Inc.,
.
Polius,
. Fed.R.Civ.P. 9(b).
.
. Id.
. Id.
. CAC ¶ 87.
. Id.
.
Tronox I,
. Id.
. Plaintiffs' Memorandum of Law in Opposition to KMG’s and KMG Officers' Motion to Dismiss (“PL Opp. Mem. to KMG Mem.'1) at 3 n. 6. See FAC ¶ 49 n. 5.
. The confidential witnesses on whose reports plaintiffs base their allegations occupied positions providing them with personal knowledge as to the facts they reported.
See, e.g., In re Sadia,
S.A.
Sec. Litig.,
.
Alstom,
. The MSA has a term of seven years, fully encompassing the Class Period. See FAC ¶ 48.
. See FAC ¶ 51; 10/24/05 Master Separation Agreement between Kerr-McGee Corporation and Tronox, Inc. (''MSA”), Exhibit A to 9/20/10 Declaration of Solomon B. Cera, counsel to plaintiffs, in Support of PL Opp. Mem. to KMG Mem., at 20.
. Pl. Opp. Mem. to KMG Mem. at 3. See also FAC ¶ 133 ("The terms of the [MSA] effectively precluded Tronox from changing reserving methodologies by placing at risk [KMG's] indemnity if it did so.”).
. See FAC 11 52; MSA at 46 ("All information provided by any Tronox Group member ... filed with the [SEC] ... will be consistent in terms of detail and otherwise with Parent’s [KMG’s] policies with respect to the application of GAAP and practices in effect on the Effective Date [of the MSA] .... ”); FAC ¶ 133 (showing that Tronox’s environmental remediation reserve balances from December 31, 2004, through September 30, 2008(1) fluctuated little and (2) were consistent with the reserve balances of KMG’s "Chemicals Segment” in years 2002-2004 (i.e., prior to the Spin-Off)).
. FAC ¶ 109. "One can plausibly infer that the reason KMG imposed this provision on Tronox was to ensure that there would be no disclosure by Tronox of KMG’s historically improper reserving practices. Any such disclosure would have unraveled the entire Tronox transaction and revealed it to be, as alleged, a fraud on the public investors in Tronox.” Pl. Opp. Mem. to KMG Mem. at 3 n. 5.
. FAC ¶ 421.
. See id. ¶¶ 48, 54; MSA at 18-19.
. See FAC ¶ 54; MSA at 22. Final versions of such filings were to be delivered to KMG "in form and substance satisfactory to Parent.” Id. at 42-43, 44.
. FAC ¶ 56.
. Id.
. FAC ¶ 50.
. MSA at 19 (emphasis added).
. See FAC ¶ 49.
. Id. ¶ 57. See also id. (alleging that Tronox "took direction from [KMG] on what legal positions it would take in response to claims made by citizens alleging injury from environmental pollution” and “was required by [KMG] to adopt these positions as its own and did so”).
.
In re Flag Telecom Holdings, Ltd. Sec. Litig.,
. See
Tronox I,
.
Fezzani,
.
See
KMG’s and KMG Officers’ Reply to Plaintiffs' Memorandum in Opposition to KMG's and KMG Officers' Motion to Dismiss ("KMG Reply Mem.”) at 3 ("Plaintiffs’ argument amounts, at most, to an assertion that
. Pl. Opp. Mem. to KMG Mem. at 7-8. See also id. at 9 n. 11 ("One cannot reasonably separate the issue of reimbursement obligations from involvement in setting the reserves. The two are inextricably linked.”).
. KMG Mem. at 4.
. Pl. Opp. Mem. to KMG Mem. at 9 n. 11.
. Id. at 10.
. Anadarko’s Reply to Plaintiffs’ Memorandum in Opposition to Anadarko’s Motion to Dismiss (“Anadarko Reply Mem.”) at 5.
. Plaintiffs' Memorandum of Law in Opposition to Anadarko's Motion to Dismiss ("Pl. Opp. Mem. to Anadarko Mem.”) at 9.
. See FAC ¶¶ 48-59.
. Id. ¶ 127 (quoting Annual Reports).
. See id. ¶ 49 n. 5. See also id. ¶ 270 (quoting defendant Adams’ statement, during the third quarter of 2007, that Tronox pursued "Anadarko reimbursements").
. Id. ¶ 58.
.
See Anwar,
.
In re Scottish Re,
. Plaintiffs' allegations also support the inference that KMG and Anadarko consciously engaged in a cover-up so that the control they exercised over Tronox could not be revealed. See FAC ¶ 55. For example, based on information obtained from “CW 15,” a Vice-President of Safety & Environmental Affairs, KMG and Anadarko made it a point to refrain from generating any documents that might appear to confirm their exercise of control. See id.; see also id. ¶ 56 (alleging that senior KMG and Anadarko personnel issued a directive to Tronox to avoid creating a record of revisions made to the notification letters so as to limit any documentation that showed KMG's and Anadarko’s control of Tronox).
. PI. Opp. Mem. to Anadarko Mem. at 10.
. Id.
. Anadarko Reply Mem. at 5.
. Anadarko’s Memorandum of Law in Support of Motion to Dismiss ("Anadarko Mem.”) at 10 (quoting FAC ¶ 424).
.
See id.
at 9. Anadarko also moves to strike the
respondeat superior
allegations as barred by my order in
Tronox I
granting plaintiffs
. Anadarko Mem. at 9 (explaining what plaintiffs must plead to survive a motion to dismiss their claim for respondeat superior liability).
.
See Cochran,
. Anadarko Reply Mem. at 5.
. See FAC ¶¶49 n. 5, 127, 128. See also discussion supra Part III.B.l.
. PL Opp. Mem. to Anadarko Mem. at 10.
.
Alex. Brown,
. FAC ¶ 58.
See
discussion
supra
Part III. B.l.
See, e.g., Wiwa v. Royal Dutch Petroleum Co.,
No. 96 Civ. 8386,
. FAC 11 57.
. MSA at 42-43, 44.
. FAC ¶ 58.
. See id. ¶ 128.
. See id. ¶ 66.
.
See Tronox I,
. Pl. Opp. Mem. to Anadarko Mem. at 3-4.
. Anadarko Mem. at 6.
. Id. at 2.
.
Polius,
. PL Opp. Mem. to Anadarko Mem. at 5.
. Id. at 6.
.
See Sunnyside Dev. Co. v. Opsys Ltd.,
No. C 05 0553,
. Anadarko Mem. at 6 (quoting
Polius,
. FAC ¶¶ 420-421.
. Id. ¶ 421.
. See discussion supra Part III.A.
. PL Opp. Mem. to KMG Mem. at 9.
. Id.
. Id.
. From November 21, 2005 through August 10, 2006, Corbett was the Chairman and CEO of KMG; Pilcher served as Senior Vice President, Secretary, and General Counsel of KMG. See id. ¶¶ 37-38.
. Wohleber served as Chairman of the Board and a Director of Tronox from November 21, 2005 through March 31, 2006, during which time he signed various Tronox SEC filings. See id. ¶ 34. Wohleber does not move to dismiss plaintiffs' control allegations against him from the IPO to the Spin-Off, focusing instead on the later time, when he served solely as an officer of KMG (Senior Vice President and Chief Financial Officer). See id.
. Plaintiffs assert that "Wohleber, Corbett, and Pilcher have been properly alleged to be control persons of Tronox through March 31, 2006," citing
Tronox I,
. KMG does not now argue that plaintiffs have failed to state a claim that KMG controlled Tronox from the IPO to the Spin-Off. There is no question that plaintiffs have made such allegations. See 2/26/10 Plaintiffs’ Memorandum in Opposition to KMG's, Anadarko's, and the Individually Named Defendants' Motion to Dismiss (Docket No. 78) at 48 n. 57 (“KMG's control over Tronox prior to March 31, 2006, is evidenced by the fact that, among other things, KMG: (1) planned and effectuated the fraudulent IPO scheme alleged in the Complaint; (2) owned 88.7% of the total voting power of all classes of Tronox stock, including 56.7% of the outstanding Tronox Class B shares; (2) received $804 million of the $844 million in proceeds and secured credit facility monies raised through the IPO; (3) assigned two of its executives, Defendants Rauh and Wohleber, to Tronox's Board of Directors; and (4) had complete control over the [MSA].") (citations omitted); FAC ¶ 46 (" 'Upon the closing of this [IPO], ... [KMG] will be able to control, directly or indirectly ... all matters affecting us ____’”) (quoting Tronox’s Registration Statement and Prospectus).
. KMG Mem. at 10.
. Id.
.
Alstom,
. KMG Reply Mem. at 4 (quoting PL Opp. Mem. to KMG Mem. at 9).
. Id. at 5.
.
See Jacobs v. Coopers & Lybrand, L.L.P.,
No. 97 Civ. 3374,
. See cases cited supra note 64.
. FAC ¶ 421. Accord FAC ¶¶4 (Corbett, Wohleber, and Pilcher were "instrumental in planning and effectuating the transfer of the environmental remediation and tort liabilities to Tronox prior to the IPO”), 16 (Pilcher was a "moving force behind the fraudulent plan”), 37 (alleging Corbett’s “involvement in developing the plan to create Tronox, dumping the Legacy Liabilities on Tronox, entering into the [MSA], and planning the Tronox IPO and subsequent Spin-Off”), 38 (same for Pilcher), 105 (alleging Corbett’s and Wohleber's approval of the separation of KMG’s Chemical Business), 125 (alleging Corbett was "a primary architect” and Wohleber and Pilcher "architects” of the fraud), 145 (Corbett and Wohleber were “ 'heavily involved’ ” in the decision to " 'dump' ” Legacy Liabilities) (quoting an Environmental Manager and Business Manager for the Health, Safety, and Environmental Group at both KMG and Tronox between 1984 and 2008).
.
First Jersey Sec.,
. I note that while courts in this Circuit have repeatedly addressed (a) the standards for alleging control against individuals who served as directors and officers of primary violators, few cases have squarely addressed (b) the standards for alleging individuals' control of entities that in turn controlled primary violators — e.g., Corbett's, Wohleber’s, and Pilcher’s liability based on their control of Tronox vis-a-vis KMG.
. FAC ¶ 421.
.
See, e.g., id.
¶ 94 (reciting Corbett’s statement in a March 8, 2005 press release that “[f|or some time, the Board has been considering the separation of chemical [sic], current market conditions for this industry now make
.
See Teamsters,
. FAC 11421.
. See id. ¶¶ 16, 165.
. I also note that although the attribution requirement of
Pacific Inv. Mgmt. Co. LLC v. Mayer Brown LLP,
. KMG Reply Mem. at 5.
.
. Id.
. Id. at 646.
. Id.
. See Pl. Opp. Mem. to KMG Mem. at 10; supra note 110.
.
. Id. at *15. The alleged fraud in that case concerned certain Certificates offered by Bombardier. "The gravamen of plaintiff's allegations [was] that defendants engaged in a scheme to defraud investors through misrepresentations and omissions regarding the integrity of [Bombardier’s] underwriting standards for loan origination ...." Id. at *1.
. Id. at *15.
.
Id.
at *14 —*15.
See also Alstom,
.FAC ¶ 421.
. See id. ¶¶ 39 (Corbett, Pilcher, and Wohleber "had access to the material adverse undisclosed information about the true extent of the Legacy Liabilities and the material deficiency in reserves recorded by Tronox” and "had access to internal Tronox and [KMG] corporate documents, including drafts and final copies of Tronox’s press releases and its Forms 10-K and Forms 10-Q, as well as the operating plans, budgets, forecasts and reports of operations prepared by Defendants ....”), 102 (KMG’s senior officers "knew that the Chemical Business did not have sufficient assets as a stand-alone entity to support the ongoing maintenance of [the] Legacy Liabilities”), 423 (Wohleber in particular "was fully knowledgeable as to the scope of the Legacy Liabilities and the fact that both [KMG] and Tronox had failed to record adequate reserves.”).
.
Teamsters,
. Id.
. Defendants' reliance on
In re Alstom SA Sec. Litig.
is also misplaced. Although the
Alstom
court dismissed plaintiffs' claim that Alstom's CEO controlled Alstom's wholly-owned subsidiary, ATI, by virtue of his status as Alstom’s CEO, it suggested that plaintiffs might have stated a claim had they explicitly "state[d] that ATI was controlled [by Alstom] through stock ownership” and pled that the CEO was a "culpable participant” in ATI's fraud.
. This is especially true in light of plaintiffs' allegations that KMG consciously engaged in a cover-up so that the control it exercised over Tronox could not be revealed. See supra note 66.
. See, e.g., FAC V 37 ("Corbett was a control person of Tronox based on his involvement in developing the plan to create Tronox, dumping the Legacy Liabilities on Tronox, entering into the [MSA], and planning the Tronox IPO and subsequent Spin-Off.”).
. See KMG Mem. at 9.
.
Id. See In re Alstom,