City of Roseville Employees' Ret. Sys. v. EnergySolutions, Inc.

• Decision Date: 30 September 2011
• Docket Number: No. 09 Civ. 8633 (JGK).,09 Civ. 8633 (JGK).
• Citation: 814 F.Supp.2d 395
• Parties: CITY OF ROSEVILLE EMPLOYEES' RETIREMENT SYSTEM, et al., Plaintiffs, v. ENERGYSOLUTIONS, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

814 F.Supp.2d 395

CITY OF ROSEVILLE EMPLOYEES' RETIREMENT SYSTEM, et al., Plaintiffs,

v.ENERGYSOLUTIONS, INC., et al., Defendants.

No. 09 Civ. 8633 (JGK).

United States District Court, S.D. New York.

Sept. 30, 2011.

David Avi Rosenfeld, Evan Jay Kaufman, Samuel Howard Rudman, Mark Samuel Reich, Robbins Geller Rudman & Dowd LLP, Melville, NY, for Plaintiffs.

Bruce Domenick Angiolillo, Jonathan K. Youngwood, Paul Jacob Sirkis, Simpson Thacher & Bartlett LLP, New York, NY, Robert S. Clark, Parr Brown Gee & Loveless, Salt Lake City, UT, for Defendants.

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

This is a securities action brought on behalf of a proposed class of acquirers of common stock or depository shares of EnergySolutions, Inc. (“ES” or the “Company”) in or traceable to a November 14, 2007 initial public offering (the “IPO”) or a July 24, 2008 offering (the “July 2008 Offering”) (collectively, the “Offerings”). The lead plaintiffs allege causes of action against ES, 12 officers or directors of ES, ES's sole stockholder prior to the public offerings, and three underwriters under sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77k, 77 l (a)(2), 77 o; under section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b–5 promulgated thereunder, 17 C.F.R. § 240.10b–5; and under section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). The defendants move to dismiss the Second Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).

I.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.2007); Arista Records LLC v. Lime Group LLC, 532 F.Supp.2d 556, 566 (S.D.N.Y.2007). The Court's function on a motion to dismiss is “not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient.” Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985). The Court should not dismiss the complaint if the plaintiff has stated “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiff, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Id.; see also SEC v. Rorech, 673 F.Supp.2d 217, 221 (S.D.N.Y.2009).

A claim under Section 10(b) sounds in fraud and must meet the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u–4(b). Rule 9(b) requires that the complaint “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.” ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir.2007). The PSLRA similarly requires that the complaint “specify each statement alleged to have been misleading[and] the reason or reasons why the statement is misleading,” and it adds the requirement that “if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u–4(b)(1); see also ATSI, 493 F.3d at 99.

When claims under sections 11 or 12 of the Exchange Act “are premised on allegations of fraud,” they must also satisfy Rule 9(b). Rombach v. Chang, 355 F.3d 164, 171 (2d Cir.2004). If they sound in negligence, however, claims under sections 11 or 12 need only satisfy the less rigorous requirements of Federal Rule of Civil Procedure 8(a). See Litwin v. Blackstone Grp., L.P., 634 F.3d 706, 717–18 (2d Cir.2011), petition for cert. filed, 2011 WL 2593465 (U.S. June 28, 2011) (No. 11–15); see also In re Refco, Inc. Sec. Litig., 503 F.Supp.2d 611, 632 (S.D.N.Y.2007).

When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiffs relied on in bringing suit and that are either in the plaintiffs' possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002); Rorech, 673 F.Supp.2d at 221.

II.

The following facts are undisputed, unless otherwise indicated.

A.

ES was established to provide services such as engineering, spent fuel management, decontamination and decommissioning (“D & D”), and similar services to nuclear power plants and other commercial facilities. (Second Am. Compl. (“SAC”) ¶ 51.) A group of investors at three investment companies—Lindsay Goldberg; Peterson Partners L.P.; and Creamer Investments, Inc. (collectively, the “Sponsors”)—formed ES by purchasing and integrating existing companies in the radioactive waste disposal business through a company named ENV Holdings, Inc. (“ENV”). (SAC ¶¶ 2, 53–54.) At the time of the IPO, ENV was the sole stockholder of ES. (Youngwood Decl. Ex. A (“Nov. 2007 Reg. Stmt.”), at 6.)

“Commercial nuclear services primarily consist of specialized nuclear fuel cycle services provided to the 104 operating nuclear reactors in the United States, as well as D & D services provided to the nuclear reactors that have been shut down.” (SAC ¶ 52; Nov. 2007 Reg. Stmt. at 2; Youngwood Decl. Ex. B (“July 2008 Reg. Stmt.”), at 2.) According to ES's Registration Statements, ES held “life-of-plant” (“LOP”) contracts with 82 of the country's 104 operating nuclear reactors, under which ES would “process and dispose of substantially all low-level radioactive waste, or LLRW, and mixed low-level waste, or MLLW, generated by their nuclear power plants, and ultimately the waste materials generated from the [D & D] of those plants.” (Nov. 2007 Reg. Stmt. at 1; July 2008 Reg. Stmt. at 1.)

ES stated that one of its primary business strategies was to “[f]ocus on [d]ecommissioning of [s]hut-down U.S. [r]eactors.” (Nov. 2007 Reg. Stmt. at 4; July 2008 Reg. Stmt. at 4; SAC ¶ 87.) Under Nuclear Regulatory Commission (“NRC”) rules, an owner wishing to decommission a nuclear reactor can either (a) immediately dismantle the plant, (b) put the plant in safe storage while residual radioactivity decays (“SAFSTOR”), or (c) entomb radioactive material. (SAC ¶ 68.) The NRC allows for completion to span up to 60 years. (SAC ¶ 69.) Among other requirements, decommissioning activities cannot be conducted without specific prior NRC approval if they would “result in there being no reasonable assurance that adequate funds will be available for decommissioning.” (SAC ¶ 73.)

The Registration Statements stated that ES was “actively marketing [its] D & D services for shut-down reactors to nuclear power and utility companies.” (Nov. 2007 Reg. Stmt. at 4; July 2008 Reg. Stmt. at 4.) According to ES, 13 nuclear reactors were then in “various stages of shut-down” and maintained an aggregate pool of over $2.9 billion in dedicated decommissioning funds. (Nov. 2007 Reg. Stmt. at 4; July 2008 Reg. Stmt. at 4.) The Company stated that its “unique license stewardship initiative for shut-down reactors” (the “License Stewardship Initiative”) gave it the potential to “accelerate D & D activities by several years” by obtaining an NRC license for a given reactor site, acquiring the site and the associated decommissioning fund from the owning utility, performing the necessary D & D work, and then returning the site to its original owner. (Nov. 2007 Reg. Stmt. at 4; July 2008 Reg. Stmt. at 4.) The Registration Statements said: “We believe that we are well-positioned to compete for this D & D outsourcing work.” (Nov. 2007 Reg. Stmt. at 4; July 2008 Reg. Stmt. at 4.)

The Registration Statements identified thirteen nuclear reactors in particular that were “currently shut down and awaiting D & D” at the time of the IPO and the July 28 Offering. (Nov. 2007 Reg. Stmt. at 81; July 2008 Reg. Stmt. at 75.) In December 2007, the Company announced that it had entered into an agreement (the “Zion Agreement”) to purchase the Zion power plant, including the assets in Zion's decommissioning trust fund. (Youngwood Decl. Ex. C (“Dec. 2007 Form 8–K”), at 2.) The Zion plant included two of the thirteen reactors on ES' list. (Nov. 2007 Reg. Stmt. at 80; July 2008 Reg. Stmt. at 75.) ES, through a wholly owned subsidiary, would “complete the required decommissioning work according to an established schedule.” (Dec. 2007 Form 8–K at 2.) This “Zion Project” was conditioned on ES delivering a $200 million letter of credit. (Dec. 2007 Form 8–K at 2.) In the Registration Statements and a December 2007 Form 8–K, ES represented the trust fund to contain between $858 and $860 million, or “approximately $900 million,” in assets. (SAC ¶ 100; Nov. 2007 Reg. Stmt. at 81; July 2008 Reg. Stmt. at 75; Dec. 2007 Form 8–K at 2.)

ES also stated an intention to expand its commercial services business, particularly with companies with which it already had LOP contracts. The Registration Statements noted that “the NRC is reviewing a proposal to permit operators of nuclear reactors to access decommissioning funds for disposal of large components that have been retired from use in nuclear services,” and stated a belief that “the adoption of this proposal would be a significant opportunity for [ES] to expand” its...