Firefighters Pension & Relief Fund of New Orleans v. Bulmahn

• Decision Date: 26 September 2014
• Docket Number: Civil Action No. 13–3935, 13–6083, 13–6084, 13–6233.
• Citation: 53 F.Supp.3d 882
• Court: U.S. District Court — Eastern District of Louisiana
• Parties: FIREFIGHTERS PENSION & RELIEF FUND OF THE CITY OF NEW ORLEANS, Individually and on Behalf of All Others Similarly Situated v. T. Paul BULMAHN, et al.

53 F.Supp.3d 882

FIREFIGHTERS PENSION & RELIEF FUND OF THE CITY OF NEW ORLEANS, Individually and on Behalf of All Others Similarly Situated

v.T. Paul BULMAHN, et al.

Civil Action No. 13–3935, 13–6083, 13–6084, 13–6233.

United States District Court, E.D. Louisiana.

Signed Sept. 26, 2014.

William B. Federman, Federman & Sherwood, Oklahoma City, OK, Stephen H. Kupperman, Barrasso, Usdin, Kupperman, Freeman & Sarver, LLC, New Orleans, LA, for Firefighters Pension & Relief Fund of the City of New Orleans, Individually and on Behalf of All Others Similarly Situated.

Paul R. Bessette, King & Spalding, LLP, Austin, TX, Matthew A. Woolf, Roy Clifton Cheatwood, Baker, Donelson, Bearman, Caldwell & Berkowitz, New Orleans, LA, for T. Paul Bulmahn, et al.

ORDER AND REASONS

SARAH S. VANCE, District Judge.

This case is a securities class action brought on behalf of all persons who acquired ATP Oil and Gas Corporation (“ATP”) 11.875% Senior Second Lien Exchange Notes (“Notes”) traceable to an allegedly false and misleading Form S–4 registration statement and prospectus issued in connection with ATP's December 16, 2010 exchange offer (“the Exchange”). ATP filed for Chapter 11 Bankruptcy on August 17, 2012 and is not named as a defendant in this action. Instead, plaintiffs sued ATP's senior executives and board of directors, alleging violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”). Defendants T. Paul Bulmahn, Albert L. Reese, Jr., and Keith R. Godwin (collectively, the “Officer Defendants”) have filed a motion to dismiss plaintiffs' Amended Complaint for failure to state a claim.¹ Defendants Chris A. Brisack, Arthur H. Dilly, Gerard J. Swonke, Brent M. Longnecker, Walter Wendlandt, Burt A. Adams, George R. Edwards, and Robert J. Karow (collectively, the “Director Defendants”) have likewise filed a motion to dismiss the Amended Complaint.² For the reasons that follow, the Court grants the motion and dismisses certain claims with prejudice and certain claims without prejudice with leave to amend.

I. BACKGROUND

Before it filed for bankruptcy in 2012, ATP engaged in the acquisition, development, and production of oil and natural gas properties.³ The company acquired and developed properties with proven undeveloped reserves in the Gulf of Mexico and the North Sea, but the majority of the company's business was in the Gulf of Mexico.⁴ As of December 31, 2009, ATP had leasehold and other interests in 62 offshore blocks and 104 wells, of which ATP was then operating a total of 93.⁵ As of March 16, 2010, ATP owned an interest in 36 platforms, including two floating production facilities: the ATP Innovator, located in the Gulf of Mexico at the company's Gomez Hub, and the ATP Titan, also in the Gulf of Mexico at ATP's Telemark Hub. As of the Registration Statement's effective date of December 16, 2010 (“the Effective Date”), construction on a third floating production facility, the Octabuoy, was underway in China for initial deployment at the company's Cheviot Hub in the North Sea.⁶

On April 19, 2010, ATP raised $1.5 billion by selling unregistered private notes to institutional investors in a transaction exempt from the registration requirements under the Securities Act.⁷ The notes were Senior Second Lien Notes due in 2015. The Company and its institutional investors agreed to offer to exchange the unregistered private notes for “substantially identical notes registered under the Securities Act” within nine months.⁸

On April 20, 2010, the day following the private note offering, the drilling rig Deepwater Horizon exploded and sank in the Gulf of Mexico, fracturing the well's pipe and creating “the largest oil spill in U.S. history.”⁹ In response, the U.S. Department of the Interior issued two moratoria that halted all drilling at depths greater than 500 feet between May 6, 2010 and October 12, 2010.¹⁰ Although the government eventually lifted the moratoria, it instituted new rules and regulations that conditioned the issuance of drilling permits on additional testing, training, and compliance with new safety requirements.¹¹ As of the Effective Date, the government had issued no new drilling permits, prompting members of the oil and gas industry to refer to this period of permitting delays as the “de facto moratorium.”¹² Together, these three moratoria halted all of ATP's exploration and development operations in the Gulf of Mexico through 2010.¹³

On or about October 12, 2010, ATP filed the Registration Statement with the Securities and Exchange Commission (“SEC”), indicating its intent to exchange the $1.5 billion in unregistered private notes for the registered Senior Second Lien Exchange Notes at issue in this litigation.¹⁴ Following a December 14, 2010 amendment, the SEC declared the Registration Statement effective, and the Exchange was effected on December 16, 2010.¹⁵

The Prospectus¹⁶ included a section titled “Risks Related to Our Business,” which provided a detailed account of the Deepwater Horizon explosion and the resulting moratoria. It also described the new regulatory requirements for obtaining drilling permits. It cautioned that “[t]he U.S. governmental and regulatory response to the Deepwater Horizon drilling rig accident and resulting oil spill could have a prolonged and material adverse impact on our Gulf of Mexico operations.” It also indicated that “[a]lthough Moratorium II has been lifted, we cannot predict with certainty when permits will be granted under the new requirements.” Among numerous pages of warnings, discussed in greater detail below, the Prospectus contained the following warning:

New regulations already issued will, and potential future regulations or additional statutory limitations, if enacted or issued, could, require a change in the way we conduct our business, increase our costs of doing business or ultimately prohibit us from drilling for or producing hydrocarbons in the Gulf of Mexico ....¹⁷

Ultimately, ATP did not survive and filed for Chapter 11 Bankruptcy on August 17, 2012.¹⁸ In a declaration filed in the bankruptcy action, Defendant Albert Reese, Jr., ATP's Chief Financial Officer, summarized the adverse impact of the moratoria on ATP's business operations, describing the Deepwater Horizon explosion and oil spill as the “primary reason” for the company's ultimate failure:

The delay on operations and the increasingly uncertain regulatory environment adversely affected ATP's operations and planned development that was necessary to service its additional debt. Despite statements that the moratoria had been lifted at various points in time, the government did not issue new deepwater drilling permits until February 28, 2011, thus effectively extending the moratorium. As a result, ATP was unable, despite access to funds, to drill and bring online six new wells during 2010 and 2011. In addition to the high costs of interrupted and discontinued drilling operations in deepwater, ATP continued to incur construction costs on the Octabuoy, its newest deepwater production platform, as a discontinuation of work of [sic] the platform would have led to significant escalation in cost-to-completion once work resumed. Moreover, as access to deepwater rigs became limited, ATP also experienced higher than expected costs in preserving its access to equipment during the moratoria.

Overall, ATP's inability to complete various wells or commence pipeline construction when planned due to the shutdown in the Gulf created significant liquidity problems....¹⁹

When asked whether “ATP [had] the liquidity and revenues at that time to absorb a lengthy moratorium,” Reese responded “no.”²⁰

By May 24, 2013, the date of the filing of the initial complaint in this action, the Notes acquired by Lead Plaintiff Plumbers and Pipefitters National Pension Fund and the Class were trading at just over 1% of par.²¹

Named Plaintiff Firefighters Pension & Relief Fund of the City of New Orleans

(“Firefighters”) filed this class action on May 24, 2013 on behalf of all persons who acquired the Notes traceable to the Registration Statement and Exchange.²² On August 15, 2013, the Court appointed Plumbers and Pipefitters National Pension Fund (“Plumbers”) as Lead Plaintiff.²³ Plumbers filed the Amended Complaint on October 10, 2013.²⁴ Plaintiff alleges that the Registration Statement was false and misleading in that it misrepresented and/or omitted material facts, including that:

(a) ATP did not have the liquidity and revenue to survive the moratoria;

(b) the proved oil and gas reserves as reported by ATP were false and misleading:

(c) there was no reasonable basis to believe, and defendants did not in fact believe, ATP's forecast of “a substantial increase in production over the next year as development wells are brought to production”;

(d) ATP was in violation of its credit and debt agreements as it had entered into “disguised financings” with various entities, including at least eight conveyances that ATP has not admitted were in fact disguised financings;

(e) ATP was operating in violation of U.S. environmental laws by unlawfully discharging oil and an unpermitted chemical dispersant into the Gulf of Mexico; and

(f) the boilerplate “risk disclosures” utilized in the Registration Statement were themselves misleading.²⁵

Plaintiff claims that its losses are a direct result of defendants' misrepresentations and omissions in the Registration Statement.²⁶

The Officer and Director Defendants now seek to dismiss plaintiff's Amended Complaint for failure to state a claim.²⁷

II. STANDARD

To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead enough facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable...