Floyd v. CIBC World Markets, Inc.

• Decision Date: 25 August 2009
• Docket Number: Civil Action No. H-08-3048.
• Citation: 426 B.R. 622
• Parties: Ben FLOYD, et al., Plaintiffs, v. CIBC WORLD MARKETS, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

426 B.R. 622

Ben FLOYD, et al., Plaintiffs, v. CIBC WORLD MARKETS, INC., et al., Defendants.

Civil Action No. H-08-3048.

United States District Court, S.D. Texas, Houston Division.

August 25, 2009.

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Omar S. Saleh, Attorney at Law, Houston, TX, for Plaintiffs.

Gary W. Marsh, James A. Washburn, Jeffrey R. Baxter, Thuy V. Taitt, McKenna Long & Aldridge, Atlanta, GA, Mark Daniel Manela, Mayer Brown et al., Houston, TX, for Defendants.

MEMORANDUM AND ORDER

NANCY F. ATLAS, District Judge.

Pending before the Court is a Motion to Dismiss Doc. # 6 ("Motion"), filed by Defendants CIBC World Markets, Inc. and CIBC World Markets Corp. (collectively, "CIBC").¹ Plaintiff Ben Floyd ("Floyd"), on behalf of the Estate of Seven Seas Petroleum, Inc. ("Seven Seas") has responded Doc. # 19.² CIBC has replied Doc. # 23.³ Upon review of the parties' submissions, all pertinent matters of record, and applicable legal authorities, the Court concludes that CIBC's Motion should be granted in part and denied in part.

I. FACTUAL BACKGROUND

Seven Seas was an oil and gas exploration company with operations focused in the Guaduas Fields (the "Fields") in Colombia, South America. Seven Seas lost money on these operations between 1995 and 2000. Plaintiff's Amended Complaint alleges that by early to mid 2001, Seven Seas was insolvent from both a liquidity and balance sheet perspective and that it was evident to the Directors of Seven Seas and other company insiders that, absent additional funding, Seven Seas would have to file bankruptcy by late 2001. Seven Seas accordingly sought to raise additional funds in an effort to continue operations. Plaintiff alleges that Seven Seas hired CIBC⁴ to serve as Seven Seas' exclusive financial advisor, to assist in raising these additional funds, and to render a fairness opinion in connection with any potential financing transaction. Ultimately, Seven Seas reached an agreement with Chesapeake Energy Corporation ("Chesapeake") to issue $45 million senior, secured notes (the "Secured Facility"), $22.5 million of which would be purchased by Chesapeake and $22.5 million of which would be purchased by a group of Seven Seas' insiders.⁵ These senior, secured notes were to be secured by substantially all of Seven Seas' assets. In addition, the senior, secured notes included detachable warrants which, if exercised, gave the purchasers (Chesapeake and the insiders) the right to purchase up to forty percent of Seven Seas' common stock at a price below Seven Seas' trading price at the time of the transaction. At a May 17, 2001, meeting, having received a preliminary opinion from CIBC that the Secured Facility was fair from a financial point of view, the Seven Seas' board of directors authorized Seven Seas to issue the senior, secured notes. On July 23, 2001, CIBC issued a final written fairness opinion regarding the transaction. The Secured Facility closed the following day.

Seven Seas used the $45 million to develop its proven reserves in the shallow portions of the Fields and to drill the Escuela 2 well in the deep Fields. These exploration and development efforts proved unsuccessful. Seven Seas' reserve engineering firm subsequently reduced Seven Seas' reserve estimates by sixty-six percent. The combination of poor financial performance and the reserve write-down pushed Seven Seas to announce in November 2002 that it would likely cease operation in late 2002 or early 2003. Seven Seas began implementing a wind-down strategy at Chesapeake's request, which included a plan to sell Seven Seas' rights to the shallow Fields. In connection with this process, CIBC was retained to market Seven Seas' interest in the Fields and to administer the auction process.

On December 20, 2002, a group of senior noteholders filed an involuntary Chapter 7 bankruptcy petition against Seven Seas. Seven Seas subsequently filed its own petition under Chapter 11 and Plaintiff Ben Floyd was appointed as Chapter 11 Trustee on January 14, 2003. In his capacity as Trustee, Floyd filed suit against Chesapeake, the directors of Seven Seas, and CIBC (the "Director Litigation").⁶ Floyd sued the directors for breach of their fiduciary duties in connection with the Secured Facility transaction. As to CIBC, the Trustee alleged that CIBC was negligent and breached its duty of care to Seven Seas and that CIBC aided and abetted the Directors' breach of fiduciary duties. On September 18, 2003, Floyd dismissed CIBC from the Director Litigation without prejudice. Floyd subsequently settled with the remaining defendants in the Director Litigation.

On August 4, 2003, the United States Bankruptcy Court for the Southern District of Texas confirmed the Chapter 11 Trustee's Second Amended Plan of Reorganization for Seven Seas. On October 14, 2008, Plaintiff filed a complaint in the present action asserting seven claims against CIBC: aiding and abetting the breach of fiduciary duty by Seven Seas' directors; breach of CIBC's fiduciary duties of care and of loyalty to Seven Seas; negligence; gross negligence; fraud; and negligent misrepresentation. CIBC moves to dismiss Plaintiff's claims under Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), and 12(b)(6).

II. ANALYSIS

A. Claims Against CIBC World Markets, Inc.

CIBC argues that Plaintiff's Amended Complaint "contains no individualized claims against defendant CIBC World Markets, Inc. ("CWM, Inc.") ," that "all of Plaintiff's claims of liability related to the Fairness Opinion issued by CIBC World Markets Corp. ("CWM Corp.") ," and that Plaintiff does not and cannot "allege that CWM, Inc. participated in any way in the creation of the Fairness Opinion, or that otherwise it should be liable for the actions of CWM Corp."⁷ The Court analyzes this motion under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.

1. Rule 12(b)(6) Legal Standard

Traditionally, courts hold that a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim is viewed with disfavor and is rarely granted. See Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 232 (5th Cir. 2009); Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 570 (5th Cir.2005). The Supreme Court has explained that in considering a motion to dismiss under Rule 12(b)(6), a complaint must be liberally construed in favor of the plaintiff and all well-pleaded facts taken as true. See Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009); Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) ("A judge must accept as true all of the factual allegations contained in the complaint." (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal citations omitted))). Nevertheless, "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Legal conclusions "are not entitled to the assumption of truth." Id. at 1950. Legal conclusions "can provide the framework of a complaint," but they must be supported by factual allegations. Id.⁸

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. at 1950. "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." Id. at 1949 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). The determination of "whether a complaint states a plausible claim for relief is a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950. "But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not `shown'—`that the pleader is entitled to relief.'" Id. (quoting FED. R. CIV. P. 8(a)(2)).⁹ "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (internal citations omitted). It is insufficient to plead facts that are "merely consistent with" a defendant's liability. See Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955).

In considering a motion to dismiss, a court ordinarily must limit itself to the contents of the pleadings and attachments thereto. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir.2000) (citing FED. R. CIV. P. 12(b)(6)). "Documents that a defendant attaches to a motion to dismiss are also considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to her claim." Id. (quoting Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir.1993)); see also Kane Enters. v. MacGregor (USA), Inc., 322 F.3d 371, 374 (5th Cir.2003). "In so attaching, the defendant merely assists the plaintiff in establishing the basis of the suit, and the court in making the elementary determination of whether a claim has been stated." Collins, 224 F.3d at 499. These are documents presumably whose authenticity no party questions.

2. Rule 12(b)(6) Analysis: Allegations Against CWM, Inc.

Plaintiff argues that its Amended Complaint makes sufficient factual allegations against ...