866 F.Supp.2d 223 (S.D.N.Y. 2012), 10 Civ. 7498(LTS)(JCF), Bricklayers and Masons Local Union No. 5 Ohio Pension Fund v. Transocean Ltd.
|Docket Nº:||10 Civ. 7498(LTS)(JCF).|
|Citation:||866 F.Supp.2d 223|
|Opinion Judge:||LAURA TAYLOR SWAIN, District Judge.|
|Party Name:||BRICKLAYERS AND MASONS LOCAL UNION NO. 5 OHIO PENSION FUND, Plaintiff, v. TRANSOCEAN LTD. et al., Defendants.|
|Attorney:||Beth Ann Kaswan, Thomas Livezey Laughlin, IV, Scott Scott, LLP, New York, NY, Arthur L. Shingler, III, Scott Scott, LLP, San Diego, CA, David R. Scott, Scott & Scott, LLC, Colchester, CT, Geoffrey M. Johnson, Scott & Scott, LLC, Cleveland Heights, OH, for Plaintiff. Benjamin C. Morgan, Patricia A...|
|Case Date:||March 30, 2012|
|Court:||United States District Courts, 2nd Circuit, Southern District of New York|
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MEMORANDUM OPINION AND ORDER
Plaintiffs Bricklayers and Masons Local Union No. 5 Ohio Pension Fund (" Bricklayers" ) and DeKalb County Pension Fund (" DeKalb" ) bring this putative class action asserting claims for violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (" Exchange Act" ),
15 U.S.C. §§ 78n(a), 78t(e), against Transocean Ltd. (" Transocean" ) and two individual defendants (collectively " Defendants" ), alleging that a joint proxy statement (" Proxy" ), distributed to GlobalSantaFe Corp. (" GSF" ) shareholders on October 2, 2007, in connection with a merger (" Merger" ) between offshore oil contractors GSF and Transocean, contained false and misleading statements. 1
According to the Complaint, Plaintiffs— who were GSF shareholders at the time— voted to approve the Merger and exchange their GSF stock for Transocean stock based on false and misleading representations and warranties in the Proxy that Transocean's safety, training, inspection, and maintenance protocols were in compliance with all applicable environmental laws, and that there were no known facts or circumstances reasonably likely to give rise to liability under those laws. On April 20, 2010, a series of mishaps— many later attributed to Transocean management and personnel errors and equipment failures— resulted in an explosion on Transocean's Gulf of Mexico oil rig, the Deepwater Horizon, causing the immediate deaths of eleven workers and the worst oil spill in U.S. history.2 The media and governmental scrutiny into Transocean's practices that followed the spill uncovered long-standing, systemic deficiencies in Transocean's safety, training, inspection and maintenance practices. These revelations, in turn, precipitated a steep decline in Transocean's stock price.
Defendants move pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the Amended Complaint for failure to state a claim. The Court has jurisdiction of this action pursuant to 28 U.S.C. § 1331. For the reasons stated below, Defendants' motion is granted in part and denied in part.
The following facts are taken as true for purposes of this motion practice.
I. The Merger and the Joint Proxy
GSF was an offshore oil and gas drilling contractor that provided offshore drilling services to the world's leading oil and gas companies. ( Id. ¶ 2.) Transocean was at the time of the Merger, and continues to be, one of the largest international providers of offshore contract drilling services for oil and gas. At the time of the Merger, Transocean owned numerous offshore mobile drilling rigs throughout the world, including the deepwater semisubmersible drilling rig known as the Deepwater Horizon. ( Id. )
On July 21, 2007, Defendants Long and Marshall, acting on behalf of Transocean and GSF, respectively, entered into a tentative merger agreement (the " Merger Agreement" ) pursuant to which GSF shareholders would surrender each of their shares in exchange for 0.4757 shares of Transocean stock plus a $22.46 cash payment. (Compl. ¶¶ 3, 49.) In the Merger Agreement, both Transocean and GSF made " representations and warranties" about their respective business operations. In section 6.5 of the Merger Agreement, entitled " Compliance with Laws; Permits," Transocean represented, among other things, that:
Except for such matters as, individually or in the aggregate, do not and are not
reasonably likely to have a Transocean Material Adverse Effect 3 and except for matters arising under Environmental Laws which are treated exclusively in Section 6.13:
(a) Neither Transocean nor any Subsidiary of Transocean is in violation of any Applicable Laws relating to the ownership or operation of any of their respective assets or businesses, and no claim is pending or, to the knowledge of Transocean, threatened with respect to any such matters. No condition exists that is not disclosed in the Transocean Disclosure Letter and which does or is reasonably likely to constitute a violation of or deficiency under any Applicable Law relating to the ownership or operation of the assets or conduct of businesses of Transocean or any Subsidiary of Transocean.
Id. ¶ 143 (emphasis in Complaint).) " Applicable Laws" is defined elsewhere in the Merger Agreement as " any applicable law, rule, regulation, code, governmental determination, order, treaty, convention, governmental certification requirement or public limitation, U.S. or non-U.S." ( Id. ) In section 6.13 of the Merger Agreement, entitled " Environmental Matters," Transocean represented:
(a) Transocean and each Subsidiary of Transocean has been and is in compliance with all Environmental Laws except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, a Transocean Material Adverse Effect. There are no past or present facts, conditions or circumstances that interfere (or are reasonably likely to interfere in the future) with the conduct of any of their respective businesses in the manner now conducted or which interfere with continued compliance with any Environmental Law, except for any noncompliance or interference that is not reasonably likely to have, individually or in the aggregate, a Transocean Material Adverse Effect.
(b) Except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, a Transocean Material Adverse Effect, no judicial or administrative proceedings or governmental investigations are pending or, to the knowledge of Transocean, threatened against Transocean or its Subsidiaries that allege the violation of or seek to impose liability pursuant to any Environmental Law, and there are no past or present facts, conditions or circumstances at, on or arising out of, or otherwise associated with, any current (or, to the knowledge of Transocean or its Subsidiaries, former) businesses, assets or properties of Transocean or any Subsidiary of Transocean, including but not limited to on-site or off-site disposal, release or spill of any Hazardous Materials which violate Environmental Law or are reasonably likely to give rise under any Environmental Law to (i) costs, expenses, liabilities or obligations related to any cleanup, remediation, investigation, disposal or corrective action, (ii) claims arising for personal injury, property damage or damage to natural resources, or (iii) fines, penalties or injunctive relief.
Id. ¶ 144 (emphasis in Complaint).) " Environmental Law" is defined elsewhere in Page 230
the Merger Agreement as " any Applicable Law related to human health and the environment, including the common law." ( Id. ) Included in the catalogue of environmental laws that governed Transocean's activities are: 30 C.F.R. § 250.401, which requires drilling operators to " [u]se the best available and safest drilling technology to monitor and evaluate well conditions," keep quality control personnel on-sight, ensure that personnel are adequately trained, and " [u]se and maintain equipment and materials necessary to ensure the safety and protection of personnel, equipment, natural resources, and the environment" ( id. ¶ 35 (quoting 30 C.F.R. § 250.401)); 30 C.F.R. § 250.107, which requires operators to " use the best available and safest technology (BAST) whenever practical on all exploration, development, and production operations" ( id. ¶ 36 (quoting 30 C.F.R. § 250.107)); 30 C.F.R. § 250.300, which requires operators to take measures to " prevent unauthorized discharge of pollutants" and avoid creating " conditions that will pose unreasonable risk" to the environment ( id. ¶ 37 (quoting 30 C.F.R. § 250.300); and 30 CFR § 250.446, which requires operators to conduct a major inspection of the blowout preventer (" BOP" ) every three to five years. ( Id. ¶ 41.) In addition, the Clean Water Act, 33 U.S.C. § 1321(b), and the Oil Pollution Act, 33 U.S.C. § 2702), impose civil penalties for discharges of oil and hazardous substances into the ocean, and strict liability for removal costs and damages resulting from such discharges. ( Id. ¶¶ 42-44.)
Based on the representations in the Merger Agreement, Lehman Brothers (" Lehman" ) and Simmons & Company (" Simmons" ) opined that the consideration to be paid to GSF shareholders in exchange for their stock was " fair." ( Id. ¶ 50.)
On October 2, 2007, in advance of GSF's November 9, 2007, shareholder meeting and vote on the proposed Merger, Transocean and GSF jointly disseminated the Proxy to shareholders. ( Id. ¶ 142.) The Proxy was signed by Defendants Long and Marshall, ( Id. ¶ 7.) The Proxy represented that one of the " conditions" of the merger was " the accuracy of the representations and warranties of the parties set forth in the merger agreement," which was annexed to the Proxy. ( Id. ¶ 53.)...
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