Jаgged Peak Energy Inc.; Joseph N. Jaggers; Robert W. Howard; Shonn D. Stahlecker; Charles D. Davison; S. Wil Vanloh, Jr.; Blake A. Webster; Citigroup Global Markets Inc. ; Credit Suisse Securities (USA) LLC; J.P. Morgan Securities LLC; Goldman, Sachs & Co.; RBC Capital Markets, LLC; Wells Fargo Securities, LLC; UBS Securities LLC; Keybanc Capital Markets, Inc.; ABN AMRO Securities (USA) LLC; Fifth Third Securities, Inc.; Petrie Partners Securities, LLC; Tudor, Pickering, Holt & Co. Securities, Inc.; BMO Capital Markets Corp.; Deutsche Bank Securities Inc.; Evercore Group L.L.C.; and Scotia Capital (USA) Inc., Petitioners v. Oklahoma Police Pension and Retirement System, individually and on behalf of all others similarly situated, Respondent
No. 21SC334
Supreme Court of Colorado, En banc
November 21, 2022
2022 CO 54
Attorneys for Petitioners Jagged Peak Energy Inc.; Joseph N. Jaggers; Robert W. Howard; Shonn D. Stahlecker; Charles D. Davison; S. Wil Vanloh, Jr.; and Blake A. Webster:
Shoemaker Ghiselli + Schwartz LLC
Paul H. Schwartz
Andrew R. Shoemaker
Vinson & Elkins LLP
Andrew E. Jackson
Attorneys for Petitioners Citigroup Global Markets Inc.; Credit Suisse Securities (USA) LLC; J.P. Morgan Securities LLC; Goldman, Sachs & Co.; RBC Capital Markets, LLC; Wells Fargo Securities, LLC; UBS Securities LLC; Keybanc Capital Markets, Inc.; ABN AMRO Securities (USA) LLC; Fifth Third Securities, Inc.; Petrie Partners Securities, LLC; Tudor, Pickering, Holt & Co. Securities, Inc.; BMO Capital Markets Corp.; Deutsche Bank Securities Inc.; Evercore Group L.L.C.; and Scotia Capital (USA) Inc.:
Holland & Hart LLP
Holly Stein Sollod
Paul, Weiss, Rifkind, Wharton & Garrison LLP
Audra J. Soloway
Attorneys for Respondent:
Shuman, Glenn & Stecker
Rusty E. Glenn
Shuman, Glenn & Stecker
Kip B. Shuman
Scott+Scott Attorneys at Law LLP
Thomas L. Laughlin, IV
Donald A. Broggi
Thomas C. Goldstein
Attorneys for Amicus Curiae Securities Industry and Financial Markets Association:
Hogan Lovells U.S. LLP
Jessica Black Livingston
JUSTICE GABRIEL delivered the Opinion of the Court, in which JUSTICE HOOD, JUSTICE HART, JUSTICE SAMOUR, and JUSTICE BERKENKOTTER joined.
JUSTICE MÁRQUEZ, joined by CHIEF JUSTICE BOATRIGHT, dissented.
JUSTICE GABRIEL
¶1 In this case, we consider whether a divisiоn of the court of appeals misapplied federal case law when it concluded that respondent Oklahoma Police Pension and Retirement System (“Oklahoma“) stated a plausible claim for relief under
I. Facts and Procedural History
¶2 Because this case comes to us in the context of a
¶3 Creating horizontal wells is a complicated process. Thus, oil and gas exploration and production companies like Jagged typically contract with third-party drilling companies to drill and service wells for them. These contract drilling service companies are generally compensated based on the amount of time that they work for the exploration and production companies and the costs that they incur during the engagement.
¶4 In January 2017, Jagged conducted an initial public offering (“IPO“), during which it sold over 31 million shares at a price to the public of $15.00 per share. In connection with this IPO, Jagged filed a registration statement and incorporated offering materials (collectively, the “offering documents“) with the Securities and Exchange Commission (“SEC“). The Jagged officers and directors named individually as defendants in this case (the “individual defendants“) each either signed or authorized the signing of the offering documents. Further, a number of
¶5 Oklahoma, a governmental pension system that provides pension and disability benefits for municipal police officers in the state of Oklahoma, purchased Jagged shares “pursuant to and/or traceable to the [IPO].” According to Oklahoma, within a short time after its investment, facts came to light indicаting that Jagged, the individual defendants, and the underwriter defendants (collectively, “defendants“) had negligently overstated Jagged‘s ability to increase its oil and gas production. As a result, the price of Jagged shares saw several notable declines, and except for a brief surge, Jagged‘s stock has traded well below its IPO price.
¶6 In light of the foregoing, Oklahoma filed a class action lawsuit in Denver District Court, alleging that defendants had made materially untrue statements and omissions in their offering documents in violation of
¶7 Although the amended complaint identifies as materially misleading multiple statements, sometimes paragraphs at a time, from Jagged‘s offering documents, the issues before us require us to take a closer look at just two.
¶8 The first stаtement, which the parties now refer to as “Statement 4,” provided that Jagged‘s primary business objective was to “increase stockholder value through the execution of the following strateg[y]“:
Maximize returns by optimizing drilling and completion techniques through the experience and expertise of our management and technical teams. Our experienced management and technical teams have a proven track record of optimizing drilling and completion techniques to drive well and field-level returns. We have experienced a significant decrease in our drilling and completion costs since 2014.
¶9 The second statement, which the parties now refer to as “Statement 2,” provided that Jagged‘s “development drilling plan is comprised exclusively of horizontal drilling with an ongoing focus on reducing drilling times, optimizing completions and reducing costs.”
¶10 Oklahoma alleged that both of these statements were materially untrue and misleading and omitted material information because Jagged had failed to disclose that (1) it had “hired inexperienced and wasteful employees and contractors to
¶11 Oklahoma contended that interviews with employees of Jagged and its contractors who worked for those entities “during the relevant period,” as well as public records, provided further corroboration that the offering documents were false and misleading. Specifically, according to Oklahoma, the former employees who were interviewed observed that (1) Jagged‘s “two in-house geologists were inexperienced and incompetent,” with one being deemed “not qualified” by a Jagged executive “due to his lack of relevant experience and this being his first job
¶12 Jagged moved to dismiss the amended complaint under
¶13 Jagged then filed a motion for “clarification” of the court‘s order, requesting that the district court “clarify” its order by ruling that its dismissal of Oklahoma‘s
¶14 Oklahoma appealed, and in its opening brief, it changed course somewhat. Rather than continuing to rely on the full excerpted statements from Jagged‘s offering documents, it narrowed its focus to two general categories of alleged misrepresentations and omissions, only one of which is at issue before us, namely, the alleged material misrepresentations regarding the competence and expertise of Jagged‘s management and workforce. Within this category, Oklahoma centered its argument on (1) the heading from Jagged‘s plan to “[m]aximize returns by optimizing drilling and completion techniques through the experience and expertise of our management and technical teams” and (2) the standalone statement regarding Jagged‘s “ongoing focus on reducing drilling times, optimizing completions and reducing costs.”
¶15 Jagged responded by reiterating its view that none of the statements on which Oklahoma was relying were actionable. In particular, as pertinent here, Jagged contended that the statements at issue amounted to (1) vague statements of corporate optimism that are immaterial as a matter of law under the so-called “puffery” doctrine and (2) assertions regarding post-IPO events that did not support plausible claims for relief (because Oklahoma was required to allege that Jagged‘s representations or omissions were misleading at the time of the IPO).
¶16 In a unanimous, unpublished opinion, a division of the court of appeals reversed the district court‘s judgment in part, concluding that as to both Statements 4 and 2, Oklahoma had pleaded actionable claims under
¶17 With respect to Statement 4, the division concluded that Oklahoma had plausibly pleaded that the statement was materially misleading or omitted material information because, at the time Jagged made the representation regarding its plan to maximize returns through the experience and expertise of its management and technical teams, its “management knew, but did not disclose, that Jagged‘s technical team was incompetent or unqualified and Jagged had
¶18 In so concluding, the division rejected Jagged‘s argument that Statement 4 comprised only immaterial puffery. Id. at ¶ 78. On this point, the division acknowledged that Jagged had represented generally that it had a proven track record of optimizing drilling and completion techniques, but Jagged also represented, in support of its more general point, that it had experienced a significant decrease in its drilling and completion costs from 2014 through November 2016, citing “very specific numerical data” showing this decline in costs. Id. Oklahoma alleged, however, that at the time of the IPO, Jagged had known workforce inadequacies that caused “substantial and ongoing additional drilling and production costs.” Id. The division thus concluded that Jagged‘s representations were not mere “puffery” but rather had “specific meaning” when read in context. Id.
¶19 The division reached a similar conclusion with respect to Statement 2 (regarding Jagged‘s representation as to its “ongoing focus“). Id. at ¶¶ 86-87. Specifically, the division concluded that this representation was contrary to the alleged facts “that, at the time of the IPO, Jagged was not focused on reducing its drilling times or its costs” but rather was “knowingly allowing inexperienced or incompetent employees to target well locations” and “had awarded costly
¶20 Finally, the division observed that because Oklahoma had alleged that Jagged‘s “managerial mistakes had already resulted in cost overruns and had decreased production at the time of the [IPO],” which the division deemed “an uncertainty that was likely to materially impact revenues,” Item 303 obligated Jagged to disclose the existing problems with its workforce. Id. at ¶ 93. The division thus reversed the district court‘s judgment to the extent that it had dismissed the portion of Oklahoma‘s Item 303 claim that was based on Jagged‘s failure to disclose the above-referenced uncertainties. Id. at ¶ 94.
¶21 Jagged then petitioned this court for certiorari review, and we granted its petition.
II. Analysis
¶22 We begin by setting forth the applicable standard of review. Next, we discuss the legal framework governing claims brought under
A. Standard of Review
¶23 We review de novo a district court‘s dismissal of a complaint for failure to state a claim under
¶24 Under the “plausibility” standard for assessing
B. The Securities Act
¶25
¶26 Specifically,
¶27
¶28 Finally,
¶29 Under each of these sections, “[m]ateriality is an essential element.” Id. at 360. A statement or omission is material if there is a substantial likelihood that “the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). Because materiality is a “mixed question of law and fact,” id. at 450, a complaint may not properly be dismissed on the ground that the alleged misstatements or omissions are not material unless they are “so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.” Morgan Stanley, 592 F.3d at 360 (quoting In re ECA, Local 134 IBEW Joint Pension Tr. of Chi. v. J.P. Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009)).
¶30 Alleged misstatements or omissions under the Securities Act can take the form of statements of fact or statements of opiniоn. See Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175, 182-86 (2015). When a plaintiff relies on a statement of fact, the plaintiff must allege that the statement was “untrue” at the time it was made. Id. at 183. When a plaintiff relies on a statement of opinion, the statement is actionable only if (1) the speaker did not actually hold the belief stated; (2) the opinion contains “embedded statements of fact” that are untrue; or (3) the statement “omits material facts about the issuer‘s inquiry into or knowledge concerning a statement of opinion, and if those facts conflict with what a reasonable investor would take from the statement itself.” Id. at 184-89.
¶31 Claims brought under
¶32 Finally, although claims under
¶33 Having thus set forth the governing legal framework, we turn to the first of the two issues before us, namely, whether the division below misapplied federal law when it held that corporate statements concerning the “expertise” of management and a “focus” on reducing costs were actionable misrepresentations under the Securities Act, rather than non-actionable “puffery.”
(1) the defendant is a “statutory seller“; (2) the sale was effectuated “by means of a prospectus or oral communication“; and (3) the prospectus or oral communication “include[d] an untrue statement of a material fact or omit[ted] to state a material fact necessary in order
to make the statements, in the light of the circumstances under which they were made, not misleading.”
Morgan Stanley, 592 F.3d at 359 (alterations in original) (quoting
¶29
¶30 Finally, according to an SEC interpretive release regarding Item 303 оf SEC Regulation S-K, Item 303 establishes a duty of disclosure when a “trend, demand, commitment, event or uncertainty is both presently known to management and reasonably likely to have material effects on the registrant‘s financial condition or results of operation.” In re Facebook, Inc., IPO Sec. & Derivative Litig., 986 F.Supp.2d 487, 506 (S.D.N.Y. 2013) (quoting Management‘s Discussion and Analysis of Financial Condition and Results of Operations; Certain Investment
C. Claims at Issue
¶31 Turning then to the case before us, we note that Jagged contends that the division below erroneously concluded that Statements 4 and 2 stated plausible claims for relief because, in Jagged‘s view, (1) those statements amounted to no more than immaterial puffery and were not rendered material by the presence of nearby allegations of historical or measurable information; and (2) in concluding that Oklahoma had plausibly pleaded claims that Statements 4 and 2 were misleading when made, the division inappropriately relied on Oklahoma‘s
¶32 We address and reject each contention in turn.
1. Puffery
¶33 Jagged first argues that the division adopted a theory of “couching” generally rejected by federal courts when the division concluded that the allegedly immaterial puffery statements that Oklahoma had identified as misleading were “transformed into material and therefore actionable statements simply by the presence in the offering materials of other, nearby, truthful, historical information.” Jagged asserts that the division got it doubly wrong because, in Jagged‘s view, Oklahoma had not raised the argument on which the division relied, nor did Oklahoma identify the contextual statements on which the division ultimately rested its conclusion (this is the second issue on which we granted certiorari). We are unpersuaded.
¶34 As an initial matter, Jagged misapprehends the division‘s analysis. The division did not rely on a theory of couching, nor did it rule on a basis not properly before it. Jagged principally argued that Oklahoma‘s assertions constituted immaterial puffery as a matter of law. Responding directly to this argument, the division concluded that Statements 4 and 2 were not overly vague statements of corporate optimism that were incapable of objective verification. To the contrary,
¶35 Accordingly, rather than looking to accurate historical statements “couched” around allegedly misleading (and therefore non-actionable) puffing statements, the division simply considered the allegedly misleading statements in context, which, under established precedent, it could properly do.
¶36 Specifically, in reviewing a district court‘s dismissal of a complaint for failure to state a claim, appellate courts must examine the complaint to determine its facial plausibility, and in doing so, the courts may “consider any written instrument attached to the complaint, statements or documents incorporated into the complaint by reference, legally required public disclosure documents filed with the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit.” ATSI Commc‘ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (emphasis added).
¶37 Accordingly, in determining whether Oklahoma plausibly pleaded the element of materiality, the division did not err in considering all of the allegations
¶38 We thus turn to the merits of Jagged‘s contention that, as a matter of law, Statements 4 and 2 comprised immaterial, non-actionable puffery.
¶39 In cases like the one before us, “two issues are central to claims under
¶40 Materiality is an inherently fact-specific inquiry. Facebook, 986 F.Supp.2d at 508. Thus, a complaint may not properly be dismissed on materiality grounds unless the alleged misstatements or omissions “are so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.” ECA, Loc. 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009) (quoting Ganino v. Citizens Utils. Co., 228 F.3d 154, 162 (2d Cir. 2000)).
¶41 Statements that are classified as “puffery” are “generalized statements of optimism that are not capable of objective verification.” Grossman v. Novell, Inc., 120 F.3d 1112, 1119 (10th Cir. 1997). Such “[v]ague, optimistic statements are not actionable because reasonable investors do not rely on them in making investment dеcisions.” Id. And because reasonable investors would not rely on such vague, broad, and non-specific statements, those statements are immaterial as a matter of law. See Barilli v. Sky Solar Holdings, Ltd., 389 F.Supp.3d 232, 250 (S.D.N.Y. 2019).
¶42 Like all statements in the materiality analysis, puffery must be considered in context. See Casella v. Webb, 883 F.2d 805, 808 (9th Cir. 1989). Context, however, can take many forms and, depending on the facts, may well impact the significance, if any, that a reasonable investor would place on the withheld or misrepresented information.
¶43 For example, in City of Monroe Employees Retirement System v. Bridgestone Corp., 399 F.3d 651, 669-71 (6th Cir. 2005), the Sixth Circuit considered a tire manufacturer‘s and its subsidiary‘s public statements affirming the safety and quality of its tires, as well as allegedly false representations in the manufacturer‘s financial statements accompanying its annual reports. The court concluded that all but one of eight specifically challenged representations were “best
¶44 Industry-specific context may likewise impact the materiality of a given statement. For example, in
¶45 Lastly, a defendant‘s own, separate representations may be telling. See Casella, 883 F.2d at 808. Thus, a defendant‘s statements “‘cannot be considered in isolation,’ but must be viewed ‘in the context of the total presentation.‘” Id. (quoting Hughes v. Dempsey-Tegeler & Co., 534 F.2d 156, 176 (9th Cir. 1976)). “What might be innocuous ‘puffery’ or mere statement of opinion standing alone may be actionable as an integral part of a representation of material fact when used to emphasize and induce reliance upon such a representation.” Id.
¶46 Even when considering the pertinent context in which statements were made, however, federal courts have concluded that “general positive statements”
¶47 In light of the foregoing precedent, Jagged argues that Statements 4 and 2 constituted immaterial puffery because Statement 4 “was a vague opinion about the company‘s perceived strengths” and Statement 2 was a “generic statement[] of corporate objectives.” For several reasons, we disagree.
¶48 First, regarding Statement 4, as the division below suggested, touting a strategy of maximizing returns “by optimizing drilling and completion techniques through the experience and expertise of [Jagged‘s] management and technical teams” and lauding a company‘s “proven track record” may, standing alone, be too general to support a viable claim. But that is not all that Oklahoma alleged. As noted above, Oklahoma also alleged that known historical and objectively verifiable facts and data could plausibly show that these general allegations were misleading at the time of the IPO and that defendants knew that they were,
¶49 Second, regarding Statement 2, in which Jagged represented that its development plan was “comprised exclusively of horizontal drilling with an ongoing focus on reducing drilling times, optimizing completions, and reducing costs,” we again acknowledge that, standing alone, this statement might not be actionable. But when viewed in the context of the historical and objectively verifiable facts set forth above, we conclude that Oklahoma has pleaded sufficient facts to support plausible claims for relief. Specifically, the facts set forth above in connection with our analysis of Statement 4, if true, can plausibly establish that Jagged, in fact, was not focused on optimizing completions and reducing costs. Indeed, the alleged facts, which are verifiable (and thus, by definition, not mere puffery), suggest the opposite.
¶50 Third, as noted above, industry-specific context may likewise impact the materiality of a given statement. See Bricklayers & Masons Local Union No. 5, 866 F.Supp.2d at 243-44. Here, accepting the allegations in Oklahoma‘s amended complaint as true, in the oil and gas industry, a horizontal well can cost up to 300% more to drill and complete for production than a vertical well directed to the same target horizon, but the extra costs associated with this process are expected to be recovered through increаsed production from the well. Thus, just as an investor in an industry as dangerous as deepwater drilling would be expected to be concerned about an operator‘s safety and training efforts, id. at 244, an investor in
¶51 Fourth, were we to adopt Jagged‘s rigid position regarding the representations that it alleges to be puffery here, we fear that we would effectively create a form of “magic words” exception to the materiality element that is inconsistent with what, as noted above, is an inherently fact-specific analysis. See Facebook, 986 F.Supp.2d at 508. Under Jagged‘s apparent interpretation, virtually any statement containing the words “experience,” “expertise,” “track record,” or “focus” would be immaterial as a matter of law, regardless of anything else alleged in a complaint. Were we to embrace such a position, however, securities registrants could use words like these to hide behind, or between, their own misrepresentations. Thus, we agree with the observation of one federal district court that “a company‘s statements that it is ‘premier,’ ‘dominant,’ or ‘leading’ must not be assessed in a vacuum (i.e., by plucking the statements out of their context to determine whether the words, taken per se, are sufficiently ‘vague’ so as to constitute puffery).” Scritchfield v. Paolo, 274 F.Supp.2d 163, 175-76 (D.R.I. 2003). Rather, such statements “are properly interpreted only by reference to the relevant circumstances that underlie their meaning.” Id. at 176.
¶52 For these reasons, on the specific facts presented here, we cannot say that the statements at issue were nothing more than generalized statements of corporate optimism that cannot be objectively verified. Nor, when we consider the context in which the statements were made, can we conclude that they would have been so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance, thereby rendering them immaterial as a matter of law. See ECA, 553 F.3d at 197; Grossman, 120 F.3d at 1119. Accordingly, we conclude that the division below properly rejected Jagged‘s contentions that Statements 4 and 2 were, as a matter of law, mere puffery.
¶53 In so concluding, we are not persuaded by Jagged‘s assertion that the representations at issue were not capable of objective verification. During oral argument, Jagged contended that because no standard exists for determining when an unspecified amount of experience can constitute “having experience” or when a company‘s business activities become a “focus,” its representations that it had (1) management and technical teams experienced in “optimizing drilling and completion techniques” and (2) “an ongoing focus on reducing drilling times, optimizing completions and reducing costs” are inherently unverifiable. In our view, however, “verifiable” is not necessarily synonymous with “quantifiable” or “measurable.” Thus, rather than examining just how much experience Jagged‘s
¶54 We likewise are unpersuaded by the case law on which Jagged relies because we view the statements at issue here as distinguishable from the kinds of statements that other courts have found to be too vague to be actionable. To be sure, courts have deemed to be non-actionable puffery bald representations touting a company‘s “[e]xperienced management team” with a “track record of executing effective strategies and achieving profitable growth,” City of Omaha Police & Fire Ret. Sys. v. Evoqua Water Techs. Corp., 450 F.Supp.3d 379, 400 (S.D.N.Y. 2020), and statements extolling a company‘s “successful businessman” chief executive officer and the company‘s “proven track record . . . operating
¶55 Accordingly, we conclude that Oklahoma‘s allegations regarding Statements 4 and 2 were sufficient to survive Jagged‘s motion to dismiss on puffery grounds.
2.
2. Hindsight Pleading
¶56 Jagged next argues that the division committed reversible error when it allowed Oklahoma to base its claims on “hindsight pleading.” Specifically, in Jagged‘s view, the division improperly relied on Oklahoma‘s allegations regarding post-IPO well collapses, cost increases, disadvantageоus contracts, and employee departures to infer that Jagged had misrepresented or omitted information regarding its team‘s experience or its finances at the time of the IPO. Jagged asserts that the division was required to assess any alleged misrepresentations or omissions at the time the disclosures were made or should have been made. Although we view this issue as somewhat close, we ultimately are unpersuaded.
¶57 As noted above, to plead a claim under
¶58 We recognize that Oklahoma‘s amended complaint includes many allegations recounting actions and events that occurred after the IPO, and we agree that these events cannot alone support an inference that trouble was brewing at Jagged prior to the IPO.
¶59 But in addition to these claims, the amended complaint makes the factual allegation that “during the relevant period,” former employees of Jagged and its contractors observed that (1) Jagged‘s two in-house geologists were inexperienced and incompetent; (2) one Jagged executive regarded one of the two geologists as
¶60 Although the amended complaint could (and perhaps should) have better clarified exactly when “the relevant period” was, when we read “the relevаnt period” together with “at the time of the Offering,” we are satisfied that Oklahoma sufficiently alleged that Jagged‘s representations were misleading at the time of the IPO and not solely in hindsight. This is particularly true given that, at this stage of the proceedings, we must accept the amended complaint‘s well-pleaded allegations as true and view those allegations in the light most favorable to Oklahoma. See N.M., ¶ 18, 397 P.3d at 373.
¶61 Accordingly, we conclude that Oklahoma plausibly alleged facts indicating that Jagged‘s statements about its workforce experience and focus on decreasing
¶62 Finally, we note Jagged‘s contention that even if some of Oklahoma‘s allegations are not based on hindsight pleading, those that remain are still insufficient to state a claim under the standard for opinion statements established in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U.S. 175, 194 (2015) (concluding that an investor “must identify particular (and material) facts going to the basis for the issuer‘s opinion“).
¶63 Although the division below indicated that its conclusion “that Oklahoma has stated a plausible claim that Jagged misled investors” was “[p]ursuant to Omnicare,” Okla. Police Pension, ¶ 77, Jagged did not cite to Omnicare in its certiorari petition, nor did it request that this court grant certiorari to consider the division‘s decision regarding opinion statements. Accordingly, that question is not properly before us, and we will not consider it. See Colo. Permanente Med. Grp., P.C. v. Evans, 926 P.2d 1218, 1228-29 (Colo. 1996).
¶64 In concluding that Oklahoma has plausibly pleaded its claims on the specific facts before us, we emphasize the limited nature of our opinion today. This case comes before us in the context of a motion to dismiss for failure to state a claim. Accordingly, the only question before us is whether Oklahoma plausibly alleged facts that, if proven, can support liability. In this context, we have assumed the
III. Conclusion
¶65 For the foregoing reasons, we conclude that the division below properly (1)applied federal law in concluding that Oklahoma plausibly pleaded viable claims for relief under
¶66 Accordingly, we affirm the judgment of the division below.
JUSTICE MARQUEZ, joined by CHIEF JUSTICE BOATRIGHT, dissented.
JUSTICE MARQUEZ, joined by CHIEF JUSTICE BOATRIGHT, dissenting.
¶67 The majority holds that Oklahoma Police Pension and Retirement System (“Oklahoma“) has stated plausible claims for relief against Jagged Peak Energy Inc. (“Jagged“) under
¶68 The majority admits that the challenged statements, standing alone, are too general to be actionable. See Maj. op. ¶¶ 48-49. But the majority nevertheless affirms the division‘s conclusion that Statements 4 and 2 support a viable claim under the
¶69 Not only does the majority fail to disavow the approach taken by the division below, it also compounds the division‘s error by conflating the plaintiff‘s burden to show that the statement was material with the separate burden to show that the statement was misleading. In so doing, the majority departs from federal precedent.
¶70 Statements about a company‘s “proven track record” and “ongoing focus” will not be puffery in every case. But in this case, a reasonable investor would not rely on such vague representations. Because I disagree with the majority‘s analytical approach and because Statements 4 and 2 are immaterial puffery and therefore non-actionable, I respectfully dissent.
I. Factual Background
¶71 This case has been a moving target. Initially, Oklahoma claimed that Jagged misled investors about the location of its acreage, the quality and value of that acreage, its capital expenditures, and the experience and expertise of its staff.
¶72 On appeal, Oklahoma abandoned all allegations related to the location of Jagged‘s acreage. Oklahoma‘s remaining allegations were distilled into eight discrete statements. A division of the court of appeals found six of those statements to be non-actionable. Okla. Police Pension & Ret. Sys. v. Jagged Peak Energy Inc., No. 19CA1718, ¶¶ 59, 73, 81, 84, 88. All of this means that at this point in the litigation, of the thousands of statements made in Jagged‘s 200-plus pages of offering materials, only two statements remain at issue.
¶73 The first statement (“Statement 4“) appears in a section of the prospectus about Jagged‘s business strategies. Jagged said it would:
Maximize returns by optimizing drilling and completion techniques through the experience and expertise of our management and technical teams. Our experienced management and technical teams have a proven track record of optimizing drilling and completion techniques to drive well and field-level returns. We have experienced a significant decrease in our drilling and completion costs since 2014.1
¶74 The second statement (“Statement 2“) describes Jagged‘s operations: “Our development drilling plan is comprised exclusively of horizontal drilling with an ongoing focus on reducing drilling times, optimizing completions and reducing costs.”
II. Overview of Federal Securities Law
¶75 Liability arises under
¶76 This case concerns materiality. For purposes of a
¶77 As the majority notes, a court looks at a challenged statement in context to determine whether it is material. See Maj. op. ¶ 42. But both the division and the majority have stretched “context” beyond the bounds of federal case law.
¶78 True, a court viewing a challenged statement in context may consider the general circumstances under which the statement was made: by whom, in response to what, in what form, in what industry, and so on. Take, for example, City of Monroe Employees Retirement System v. Bridgestone Corp., 399 F.3d 651 (6th Cir. 2005). There, the relevant context was the fact that consumers had filed multiple lawsuits against the defendant company. Id. at 672. The Sixth Circuit reasoned that against this factual backdrop, a statement in the company‘s subsequent press release could lead a reasonable juror to infer that the statement was a “direct response to the lawsuits.” Id. In other words, the lawsuits imbued the challеnged statement with significance, which is what made the statement material.
¶79 Similarly, in Hughes v. Dempsey-Tegeler & Co., 534 F.2d 156, 176 (9th Cir. 1976), the Ninth Circuit considered the circumstances in which the challenged statement was made, observing that the alleged misrepresentations occurred in
¶80 In Bricklayers & Masons Local Union No. 5 Ohio Pension Fund v. Transocean Ltd., 866 F.Supp.2d 223, 243 (S.D.N.Y. 2012), the federal district court considered industry-specific context in assessing the materiality of a statement. There, the court concluded that the defendants’ representation about conducting “‘extensive’ training and safety programs” was not puffery because “[i]n an industry as dangerous as deepwater drilling, it is to be expected that investors will be greatly concerned about an operator‘s safety and training efforts.” Id. at 233, 244.
¶81 Other federal securities cases reinforce the notion that “context” refers to the general circumstances under which the statement was made. See, e.g., Grossman, 120 F.3d at 1121 (considering as context that the challenged statements were all “contained in press releases or interview statements“); In re Petrobras Sec. Litig., 116 F.Supp.3d 368, 381 (S.D.N.Y. 2015) (considering as context that the challenged statements “were made repeatedly“). Ultimately, when a court views a challenged statement in context, it considers whether the statement “would have been viewed by thе reasonable investor as having significantly altered the ‘total mix’ of information made available.” In re Campbell Soup Co. Sec. Litig., 145 F.Supp.2d 574, 584 (D.N.J. 2001) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).
¶82 But the consideration of such general circumstances is a different endeavor than using historical statements and data near a challenged statement in a prospectus to concretize an otherwise vague statement of puffery. Federal case law expressly holds that courts cannot use neighboring statements and data to make an otherwise vague statement somehow material. See Freeland, 545 F.Supp.2d at 76 (“Combining puffery with accurate historical statements does not render the puffery material.“) (quoting XM Satellite, 479 F.Supp.2d at 177); Picard Chem. Inc. Profit Sharing Plan v. Perrigo Co., 940 F.Supp. 1101, 1122 (W.D. Mich. 1996) (same). Under federal case law, puffery does not become actionable when it is “couched between statements of fact and offered for context.” In re Diebold Nixdorf, Inc., Sec. Litig., No. 19-CV-6180, 2021 WL 1226627, at *10 (S.D.N.Y. Mar. 30, 2021). The puffery remains general, “which is what prevents [it] from rising to the level of materiality required to form the basis for assessing a potential investment.” Id. (quoting Ind. Pub. Ret. Sys. v. SAIC, Inc., 818 F.3d 85, 97-98 (2d Cir. 2016)).
¶83 Accordingly, when vague statements of corporate optimism and historical statements of fact appear together, a court evaluating materiality should assess such statements separately. See Abramson v. Newlink Genetics Corp., 965 F.3d 165, 173 (2d Cir. 2020) (concluding that defendants’ general descriptions of its pharmaceutical trial results were not puffery);
¶84 Examining the general context of a statement to evaluate its materiality is also distinct from relying on a plaintiff‘s allegations that the challenged statement was misleading when made; such allegations do not make non-actionable puffery material. Rather, whether a statement is material is a separate analysis from whether a statement is misleading. See In re Metro Sec.
III. Analysis
¶85 In concluding that Statements 4 and 2 are material, both the division and the majority departed from federal precedent.
¶86 First, as discussed above, a court evaluating materiality must decide when a challenged statement “cross[es] the line from corporate optimism and puffery to objectively verifiable matters of fact.” See In re Level 3, 667 F.3d at 1340. Here, the division used the surrounding historical statements and data to nudge Statement 4 across the line. In its arguments before the division, Oklahoma claimed that Jagged‘s statement about “[m]aximiz[ing] returns by optimizing drilling and completion techniques through the experience and expertise of [its] management and technical teams” was misleading. But in assessing the materiality of that statement, the division reasoned that sentence was “buttressed” by neighboring statements that Jagged‘s teams have a “proven track record” of optimizing drilling
¶87 The division‘s reliance on neighboring statements and data departed from federal precedent. See Freeland, 545 F.Supp.2d at 76 (“Combining puffery with accurate historical statements does not render the puffery material.“) (quoting XM Satellite, 479 F.Supp.2d at 177). If the historical data surrounding Statement 4 were false—and the majority acknowledges it is not, see Maj. op. ¶ 35—the division could have held that the historical data itself was material and misleading.
¶88 The majority does not disavоw the division‘s approach. Instead, it compounds the division‘s error by looking to Oklahoma‘s other allegations suggesting that Statement 4 was misleading. See Maj. op. at ¶ 48 (“But that is not all that Oklahoma alleged. . . . Oklahoma also alleged that known historical and objectively verifiable facts and data could plausibly show that these general allegations were misleading at the time of the IPO and that defendants knew that they were.“) (emphasis added). The majority adopts the same approach to Statement 2, again relying solely on allegations that Statement 2 was not true—not that Statement 2 was material. See id. at ¶ 49 (“Specifically, the facts set forth above in connection with our analysis of Statement 4, if true, can plausibly establish that Jagged, in fact, was not focused on optimizing completions and reducing costs. Indeed, the alleged facts, which are verifiable . . ., suggest the opposite.“) (emphases added). Notably, the majority does not rely on the statements Oklahoma actually challenged. Indeed, the majority acknowledges that those challenged statements, standing alone, are not actionable. It instead looks to Oklahoma‘s allegations concerning the misleading nature of those allegations to conclude that the statements were material. But as discussed above, those are separate hurdles.
¶89 Both the division‘s approach and the majority‘s approach deviate from federal securities case law at a time when uniformity is increasingly important. In 2018, the United States Supreme Court confirmed that state courts have concurrent jurisdiction over
¶90 As a practical matter, the majority‘s ruling today forces this particular litigation forward. As the majority observes, materiality “will rarely be dispositive in a motion to dismiss.” Maj. op ¶ 40 (quoting Morgan Stanley, 592 F.3d at 360). But federal courts routinely dismiss cases at the motion to dismiss stage on materiality grounds. See, e.g., Grossman, 120 F.3d at 1121-22; In re Level 3, 667 F.3d at 1340; Barilli v. Sky Solar Holdings, Ltd., 389 F.Supp.3d 232, 252-53 (S.D.N.Y. 2019). Such dismissals reflect a careful balance between protecting plaintiffs’ access to courts and protecting defendants from expensive yet meritless litigation.
¶91 Consistent with federal securities case law, I would hold that Statements 4 and 2 are non-actionable. Federal courts have routinely held that statements about
¶92 Similarly, federal courts have found assertions about a company‘s ongoing “focus” to be puffery. See, e.g., In re Level 3, 667 F.3d at 1340 (concluding defendant‘s statement that “this year is really focused on integration” was puffery); ECA, Loc. 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 206 (2d Cir. 2009) (concluding defendant‘s representation that it would “focus on financial discipline” was puffery). Indeed, statements regarding “focus” “are typical of the kind of ‘self directed corporate puffery’ and sales talk that courts . . . have shielded from liability.” In re Stone & Webster, Inc., Sec. Litig., 253 F.Supp.2d 102, 117 (D. Mass. 2003) (quoting Carney v. Cambridge Tech. Partners, Inc., 135 F.Supp.2d 235, 245 (D. Mass. 2001)).
¶93 In sum, I agree with the district court in this case and would hold that Statements 4 and 2 are non-actionable, immaterial puffery. As a result, I would not reach Jagged‘s hindsight pleading argument.
IV. Conclusion
¶94 I acknowledge this is a close case. To prevail on a claim under the
¶95 I am authorized to state that CHIEF JUSTICE BOATRIGHT joins in this dissent.
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1 Specifically, we granted certiorari to review the following issues:
1. Whether the court of appeals departed from federal caselaw on the
Securities Act of 1933 when it (a) held that immaterial “puffery” statements may become material due to nearby historical or measurable information, and (b) allowed plaintiff to plead claims based on hindsight.
2. Whether the court of appeals erred by reversing the district court based on a theory plaintiff never raised.
1 The bold font appears in the original prospectus. Notably, at the court of appeals, Oklahoma focused solely on the bolded sentence about “maximiz[ing] returns” through the “experience and expertise” of its staff. In its opinion, however, the division emphasized a different part of Statement 4 that did not appear in Oklahoma‘s brief: that Jagged‘s teams “have a proven track record” of optimizing drilling. Okla. Police Pension, ¶ 78.
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