Das v. Rio Tinto PLC

• Decision Date: 31 August 2018
• Docket Number: 16-cv-09572 (ALC)
• Citation: 332 F.Supp.3d 786
• Parties: Puranjay DAS, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. RIO TINTO PLC, Tom Albanese, Alan Davies, and Sam Walsh, Defendants.
• Court: U.S. District Court — Southern District of New York

332 F.Supp.3d 786

Puranjay DAS, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,

v.RIO TINTO PLC, Tom Albanese, Alan Davies, and Sam Walsh, Defendants.

16-cv-09572 (ALC)

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

Signed August 31, 2018

Jeremy Alan Lieberman, Justin Solomon Nematzadeh, Marc Ian Gross, Joseph Alexander Hood, II, Pomerantz LLP, New York, NY, for Plaintiffs.

Mark Robert Filip, Joshua Z. Rabinovitz, Martin Louis Roth, Kirkland & Ellis LLP, Chicago, IL, Matthew Lane Schwartz, Boies, Schiller & Flexner LLP, Nidhi Yadava, Robert C. Micheletto, Jones Day, Fraser Lee Hunter, Jr., Michael G. Bongiorno, Musetta Durkee, Wilmer Cutler Pickering Hale and Dorr LLP, Nathaniel Jacob Kritzer, Kirkland & Ellis LLP, New York, NY, David Ronald Woodcock, Jones Day, Dallas, TX, Peter J. Romatowski, Jones Day, Washington, DC, for Defendants.

OPINION AND ORDER

ANDREW L. CARTER, JR., United States District Judge:

On behalf of a putative class consisting of purchasers of American Depositary Receipts ("ADRs") between March 16, 2012 and November 17, 2016, Lead Plaintiff Puranjay Das ("Plaintiff") brings this action against Defendants Rio Tinto plc ("Rio Tinto" or "the Company") as well as Tom Albanese, Alan Davies, and Sam Walsh ("Individual Defendants"), asserting claims of securities fraud under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"). Defendants have moved to dismiss this action for failure to state a claim under Fed R. Civ. P. 12(b)(6). Walsh and Davies also move to dismiss the action for lack of personal jurisdiction under Rule 12(b)(2). For the reasons set forth below, Defendants' motions to dismiss are GRANTED.

BACKGROUND

I. Factual Background

The following facts are drawn from Plaintiff's Amended Complaint (ECF No. 40) ("Am. Compl") and are presumed to be true for purposes of this motion to dismiss. The Court also takes judicial notice of Rio Tinto's public filings, many of which Plaintiff quotes from at length. ATSI Comm'ns, Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 98 (2d Cir. 2007).

Rio Tinto finds, mines, and processes mineral resources such as iron ore. Am. Compl ¶ 2. Albanese served as Rio Tinto's Chief Executive Officer ("CEO") from May 2007 until January 2013 and on the Board of Directors ("Board") from 2006 until January 2013. Id. ¶ 21. Walsh served as CEO from January 2013 until his retirement in July 2016, and as a Board member from June 2009 through July 2016. Id. ¶ 24. Davies served as the Company's chief executive of the Energy & Minerals Group from July 2016 through November 2016, when he was terminated. Id. ¶ 23. Each Individual Defendant also served as Executive Committee members during the Class Period. Id. ¶ 22-24.

Between 1997 and 2008, the Government of Guinea ("GoG") granted Rio Tinto exploration rights and a concession to sections (known as blocks 1 through 4) of Simandou, a mountain in Guinea's interior that is home to one of the largest iron-ore deposits in the world. Id. ¶¶ 3-4. In late 2008, the GoG revoked Rio Tinto's rights to blocks 1 and 2, ultimately awarding them to one of Rio Tinto's competitors. Id. ¶ 5. The GoG maintained that it rescinded Rio Tinto's mining rights because the Company breached the Guinean Mining Code by failing to vigorously develop the mine. Id. The Company, however, believed that this was a pretext and that its rivals had bribed GoG officials to secure their share of Simandou. Id.

Lest Rio Tinto lose its remaining rights to blocks 3 and 4, the Company poured significant resources into their development, and high-level executives of the Company made frequent visits to the mine. Id. ¶¶ 5-6. In 2010, upon his election to power in Guinea, then-President Alpha Conde declared that all mining contracts would be reexamined. Id. ¶¶ 30, 67. As a result, Rio Tinto's competitor was stripped of its rights to blocks 1 and 2. Id. ¶ 68.

A. Payment to Combret

Fearful that their rights to blocks 3 and 4 would likewise be stripped, Rio Tinto entered into an arrangement with one of President Conde's close friends, Francois Polge de Combret. Id. ¶ 70. Combret had studied with President Conde in Paris. Id. ¶ 29. In 2010, Combret established an independent advisory firm called FC Finance. Id. Plaintiff alleges that, since President Conde's victory, Combret "has played a key, nefarious role in the renegotiations of Simandou mining rights." Id. ¶ 70.

During the course of this relationship, Individual Defendants agreed to pay Combret $10.5 million ("Combret payment") for his help protecting the mining rights for blocks 3 and 4, in which they were ultimately successful. Id. ¶¶ 70, 76. Plaintiff alleges this payment constituted a bribe in violation of the U.S. Foreign Corrupt Practices Act of 1977 ("FCPA"). Id. ¶ 7, 70.

On May 10, 2011, Walsh, Albanese, and Davies sent multiple emails discussing the Combret payment. Id. ¶¶ 71-74. In these messages, Davies described the "very unique and unreplicable services and closeness to the President" that Combret provided, along with his "extreme confidence that [Combret would] continue to assist [Rio Tinto] to improve [their] relationship with the GoG and the President." Id. ¶ 72. Walsh agreed that there was "[n]o question that [Combret] delivered sizeable value, but also no question that there is still sizeable risk going forward." Id. ¶ 71. Albanese cautioned Walsh to "think about [the] optics to the GoG." Id. ¶ 74.

On April 22, 2011, Rio Tinto disclosed the signing of a "Settlement Agreement" with the GoG, whereby their mining rights to blocks 3 and 4 were secured by a payment to the Guinean Public Treasury of $700 million. Id. ¶ 77.

These actions came on the heels of revelations in April 2010 that Rio Tinto executives had, in 2009, bribed Chinese officials in connection with iron-ore operations in China. Id. ¶ 44. At that time, Walsh stated that "[r]eceiving bribes is a clear violation of Chinese law and Rio Tinto's code of conduct, The Way We Work ... [we] will spare no effort in doing everything we can to prevent any similar activity." Id. ¶ 45. Walsh further stated that Rio Tinto had "already implemented a number of improvements to our procedures" and ordered "a further far-reaching independent review of our processes and controls." Id.

B. Allegedly Misleading Statements

During the class period, Defendants made numerous public statements to Rio Tinto's investors via SEC filings, earnings calls, the Company's code of conduct, media releases, and its website. Id. ¶¶ 8-10, 93-186. These statements fall into five main categories: (1) Rio Tinto's commitment to law abidance and anti-corruption, id. ¶¶ 82-84; 94-100; 110-115; 122-23; 126-31; 134-37; 142-45; 156-162; 169-70; 173-76; 185-86; (2) the Company's work with the GoG, id. ¶¶ 108-09; 116-121; 124-25; 138-41; 152-55; 171-72; (3) the Company's contingent liabilities, id. ¶¶ 101-03; 146-47; 163-64; 177-78; 183-84; (4) the adequacy of the Company's of internal controls, id. ¶¶ 104-05; 148-49; 165-66; 179-80; and (5) SOX certifications, id. ¶¶ 106, 132, 150, 167, 181. Plaintiff contends that these statements were materially misleading because, in short, Defendants failed to disclose that they paid Combret a $10.5 million bribe which violated their code of conduct, subjected the Company to regulatory and legal action, and made clear the ineffectiveness of their internal controls. Id. ¶ 93.

C. Revelation of Payment

The alleged bribery scheme came to light in 2015, when Rio Tinto's counsel found the May 2011 emails about the Combret payment during discovery in an unrelated case. Id. Counsel then reported the emails to Rio Tinto's head of Legal & Regulatory Affairs, Debra Valentine. Id. ¶ 80. At some point thereafter, another law firm was retained to conduct an internal investigation. Id. ¶ 81.

Rio Tinto first disclosed the payment in a media release on November 9, 2016. Id. ¶ 187. The Company stated that it launched an internal investigation into the matter led by external counsel and had notified relevant authorities in the United Kingdom and the United States. Id. On November 16, 2016, Rio Tinto issued a statement disclosing that it had reviewed the investigation's findings to date and concluded that executives "failed to maintain the standards expected of them under [Rio Tinto's] code of conduct." Id. ¶ 190. News articles published on November 14, 2016, ¶ 189, November 16, 2016, ¶ 191, and November 18, 2016, ¶¶ 192-94, discussed the alleged bribe and attendant controversy. Rio Tinto disclosed the outfall from the Combret payment as a contingent liability in its 2016 Form 20-F. Id. ¶ 200.

Following the disclosure, "heads rolled." Id. ¶¶ 12-13. Valentine, Davies, and Hugo Bague, group Executive of Organizational Resources, were terminated in connection with the payment. Id. ¶ 13. Additionally, Rio Tinto deferred bonuses and incentive plan awards designated to be paid to Davies and Walsh, valued at $20 million, and even reclaimed money already paid to Davies. Id. ¶¶ 197-99. Plaintiff alleges that this treatment indicates the seriousness of the alleged misconduct. Id. ¶ 13.

As a result of public statements about the bribe, Rio Tinto's ADR price dropped from $39.65 on November 14, 2016 to $36.55 on November 18, 2016. Id. ¶ 195. This caused Plaintiff and other putative class members "significant" losses and damages. Id. ¶ 196.

II. Procedural Background

Plaintiff filed the complaint commencing this action on December 12, 2016. ECF No. 1. Plaintiff filed an amended complaint on May 30, 2017. This is the operative complaint in this suit.

On September 11, 2017, Defendants moved to dismiss this action for failure to state a claim and lack of personal jurisdiction. ECF No. 62 ("Rio Tinto Mem"); 65 ("Albanese Mem"); 67 ("Davies Mem"); 69 ("Walsh Mem"). Plaintiff filed its opposition motion on October 11, 2017. ECF No. 70 ("Pl Opp"). Defendants filed reply memoranda on November 8, 2017. ECF No. 76 ("Rio Tinto Reply"); 78 ("Albanese Reply"); 80 ("Davies Reply"); 81 (...