Caspersen v. Martin Oring & Searchlight Minerals Corp.
| Decision Date | 28 February 2020 |
| Docket Number | Civ. No. 19-15819 (KM) (JBC) |
| Citation | 441 F.Supp.3d 23 |
| Parties | Samuel M.W. CASPERSEN, AS TRUSTEE FOR the SAMUEL M.W. CASPERSEN DYNASTY TRUST u/a DTD 9/3/97, Plaintiff, v. Martin ORING and Searchlight Minerals Corp., Defendants. |
| Court | U.S. District Court — District of New Jersey |
Joshua C. Gillette, Kagen & Caspersen, New York, NY, Plaintiff.
Corinne McCann Trainor, Corinne McCann Trainor, Allison Linda Hollows, Fox Rothschild LLP, for Lawrenceville, NJ, for Defendants.
Plaintiff Samuel M.W. Caspersen invested more than a half million dollars in a speculative mining project overseen by defendants Martin Oring and Searchlight Minerals Corp. Caspersen claims that Oring and Searchlight fraudulently induced him to invest in the project and that his investment is now essentially worthless. In this diversity case, he seeks recovery under two common-law causes of action and New Jersey's blue-sky law.
Now before the Court is the motion of the defendants, Oring and Searchlight, to dismiss the complaint for failure to state a claim, pursuant to Fed. R. Civ. P. 12(b)(6). (DE 6).1 For the following reasons, the motion is DENIED .
Solely for purposes of this motion, the allegations in the complaint are assumed to be true and all inferences are drawn in favor of the plaintiff.
Plaintiff Samuel M.W. Caspersen is the trustee of the Samuel M.W. Caspersen Dynasty Trust and brings this action on its behalf. (Compl. ¶ 8). Defendant Martin Oring is the chairman, president, and CEO of defendant Searchlight Minerals Corp. (Compl. ¶¶ 9 & 10). Caspersen is a resident of New York; Oring is a resident of New Jersey; and Searchlight is a Nevada Corporation. (Compl. ¶¶ 8–10).
Searchlight is an exploratory-stage mining company whose primary project involves mineral recovery at a historical reclamation site in Clarkdale, Arizona. (DE 6-1 at 1). This dispute concerns Caspersen's investment in that project. Caspersen alleges that Oring and Searchlight made deliberately false and misleading representations and omissions regarding the deposits of gold at the Clarkdale site, which Searchlight owns outright. (DE 1-2 ¶ 1). Caspersen alleges that because of these representations, he invested more than a half million dollars into Searchlight's mining efforts and that this investment is now worthless. (Compl. ¶ 1). He now seeks to recover damages from Searchlight and from Oring, upon whose representations Caspersen relied. (Compl. ¶ 7).
In 2005 Searchlight acquired a fifty-percent interest in the Clarkdale project, and in 2007 it acquired the remaining fifty percent. (Compl. ¶ 17). In 2010, Searchlight appointed Oring as its chairman and CEO. (Compl. ¶ 27). Searchlight also hired Arrakis, Inc. to perform technical work and named James Murray, the owner of Arrakis, as its project manager. (Compl. ¶¶ 27 & 28).
At the Clarkdale site, the company has been working to transform an approximately twenty-million ton, forty-five-acre slag pile into a large-scale commercial metal reclamation operation. (DE 6-1 at 1). According to Searchlight, the project contains a significant volume of gold, and it may also contain residual copper
and zinc. (Compl. ¶¶ 15–18).
To determine the mineral content of a slag pile like the one at Clarkdale, Searchlight tests for the "head grade." That is the term metallurgists use to refer to the measurement of the volume of a resource within a given deposit that may contain valuable minerals. (Compl. ¶¶ 19–21). The conventional method used to calculate the head grade of gold is a process known as fire assaying. (Compl. ¶¶ 19–21). An assay yielding 0.5 ounces per ton ("OPT") is considered commercially viable and very promising. (Compl. ¶¶ 19–21). According to Searchlight, traditional fire assay methods are ill-suited to accurately determine the amount of gold at Clarkdale. (Compl. ¶ 26).
In 2011, Searchlight engaged a metallurgy-consulting firm, SGS, to assess the Clarkdale slag in a way that Searchlight could use to solicit capital investors. (Compl. ¶ 29). In February 2011, SGS began testing samples of Clarkdale slag in its Chilean laboratories. (Compl. ¶ 30).
Seven months later, Searchlight issued a press release that described tests that were "independently performed by SGS" and which "confirm[ed]" earlier test results "yield[ing] up to 0.5 [OPT]." (Compl. ¶¶ 33-34). However, SGS had not independently performed these tests. (Compl. ¶ 35). Instead, large portions of the work had been performed by Arrakis, which Searchlight had also hired. (Compl. ¶¶ 35 & 43).
In early 2012, SGS conducted additional tests at its Australian facilities. (Compl. ¶ 36). On May 7, 2012, Searchlight announced "the results of tests conducted by an independent Australian metallurgical testing firm." (Compl. ¶ 38). The press release claimed that "[p]reviously, the Company repeatedly demonstrated the ability to successfully extract gold into solution in values approximating 0.5 ounces per ton," and it touted results from the "independent" Australian firm. (Compl. ¶ 39). The press release also noted the involvement of a scientist at Arrakis named Kathy Wakeman, claiming that she had "over 35 years [of] experience." (Compl. 39).2
During its Australia testing, Searchlight used different methodologies, including the so-called "atomic absorption" method that Wakeman had developed. (Compl. ¶ 43). But Searchlight knew that Wakeman's methodology was improper; Arrakis consultant Michael Thomas described the process as "a bunch of bullshit." (Compl. ¶¶ 43 & 44).
SGS grew distrustful of Searchlight's scientific integrity and eventually prohibited Searchlight from using its name in connection with any publicity related to the findings. (Compl. ¶ 43). Accordingly, the May 7, 2012 press release did not refer to SGS by name, and Searchlight later referred to prior SGS tests as originating from "an independent engineering firm in Chile." (Compl. ¶ 43).
By 2013, Searchlight had internally discarded the results of the atomic absorption test, and it eventually stopped using the method entirely. (Compl. ¶ 45). However, Oring and Searchlight continued to publicly cite the data generated by the discredited atomic absorption methodology. (Compl. ¶ 45).
Emily Bray, an Arrakis geologist, discussed with Oring her own test results, which typically revealed an OPT of 0.02 or less. (Compl. ¶ 46). The highest yield that Bray's tests revealed was an OPT of 0.17—just over one-third of the publicly disclosed value of 0.5. (Compl. ¶ 46). And even that 0.17 value was described by Bray as an outlier. (Compl. ¶ 46). According to Bray, Searchlight's public claims—that it consistently and repeatedly demonstrated results at the 0.5 OPT level—are false and misleading. (Compl. ¶¶ 48 & 49).
Searchlight engineer Douglas Aho explained that he never understood the source of the 0.5 OPT claim. (Compl. ¶ 50). The results of Aho's own tests showed very little gold—nowhere near 0.5 OPT. (Compl. ¶ 50). Aho theorized that Searchlight discarded low results and only issued reports with favorable numbers. (Compl. ¶ 50). He also claimed that the company made no progress at all with respect to gold extraction during his tenure at Searchlight. (Compl. ¶¶ 50 & 51).
Undeterred, Searchlight on March 10, 2015 issued a press release that claimed that testing "had consistently yielded 0.47 OPT (or greater)." (Compl. ¶ 47). The press release did not disclose that the numbers were the product of a scientific process that Searchlight itself had internally discredited—namely, the atomic absorption method. (Compl. ¶ 47).
Throughout the spring of 2015, Oring solicited Caspersen for a private investment. (Compl. ¶ 80). During an April 3 phone call, Oring emphasized the positive gold measurements that SGS's tests in Chile and Australia had yielded. (Compl. ¶ 80). Oring told Caspersen that conventional testing was ineffective on Clarkdale slag but that the atomic absorption method allowed Searchlight to successfully extract a gold yield of 0.5 OPT. (Compl. ¶ 80). According to Oring, Clarkdale represented one of the largest gold discoveries in the world within the previous decade. (Compl. ¶¶ 80 & 81). Oring told Caspersen that Searchlight had in December 2014 discovered how to successfully extract the gold, that it was "perfecting the process," and that it was only two months away from its target date. (Compl. ¶¶ 88 & 89).
On April 22, 2015, Oring sent Caspersen a pitchbook. (Compl. ¶ 90). The book claimed that "[s]ignificant amounts of gold and other valuable metals were ‘locked up’ in the sulfide slag material." (Compl. ¶ 91). Consistent with Oring's other representations, the pitchbook also claimed that Searchlight's "major technical breakthrough" was a "game-changer" and that the "greatest metallurgical risks have been solved." (Compl. ¶¶ 90–92). The pitchbook repeated the claim that Searchlight had "verified prior reported gold grades between 0.4 to 0.6 ounces per ton (average)." (Compl. ¶ 93). It also claimed that Searchlight had "reduced [its] burn rate to approximately $200,000–$250,000 per month (down from $500,000+)." (Compl. ¶¶ 97 & 125).
The OPT range presented in the pitchbook was not the product of a valid scientific methodology, and Searchlight had ignored unfavorable numbers while reporting only the favorable outliers. (Compl. ¶ 94). Indeed, Searchlight had already stopped using the atomic absorption method years before Oring and Searchlight presented the values derived from that process. (Compl. ¶ 94).
To help him evaluate the investment opportunity, Caspersen engaged Matthew Bender of Samuels Engineering ("SE"). (Compl. ¶ 98). Bender traveled to Clarkdale to inspect the slag pile and the related infrastructure. (Compl. ¶ 98). Bender also reviewed records that were made available to him, including documents relating to SGS's 2011 and 2012 testing. (Compl. ¶ 98). Furthermore, Murray represented to him that the SGS...
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