In re Dynegy, Inc. Securities Litigation

• Decision Date: 07 October 2004
• Docket Number: No. CIV.A. H-02-1571.,CIV.A. H-02-1571.
• Citation: 339 F.Supp.2d 804
• Parties: In re: DYNEGY, INC. SECURITIES LITIGATION Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust, et al., v. Dynegy, Inc., et al.
• Court: U.S. District Court — Southern District of Texas

339 F.Supp.2d 804

In re: DYNEGY, INC. SECURITIES LITIGATION Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust, et al., v. Dynegy, Inc., et al.

No. CIV.A. H-02-1571.

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

October 7, 2004.

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William S. Lerach, Helen J. Hodges, John A. Lowther, James I. Jaconette, Alexandra S. Bernay, Lerach, Coughlin, Stoia and Robins, San Diego, CA, Roger B. Greenberg, Schwartz Junell, et al, Houston, TX, Connie Cheung, Patrick J. Coughlin, Azra Z. Mehdi, Milberg Weiss, et al, San Francisco, CA, for plaintiff.

Michael T. Powell, Haynes and Boone, David D. Sterling, Baker Botts LLP, Thomas C, Godbold, Fulbright & Jaworski, Michael M.Wilson, Clements O'Neill, et al, Dennis G. Herlong, Attorney at Law, Mark K. Glasser, Michael W. Youtt, King & Spalding, Houston, TX, Kevin Tod Abikoff, Hughes Hubbard, et al, Washington, DC, Jacalyn D. Scott, Wilshire Scott, et al, Houston, TX, Robyn F. Tarnofsky, Michael E. Gertzman, Brad S. Karp, Julia L. Tarver, Bairbre O'Neill, Paul Weiss, et al, New York, NY, Charles G. King, III, King & Pennington LLP, Houston, TX, Michael J. Chepiga, Attorney at Law, New York, NY, Harrison J. Frahn, IV, Simpson Thacher, et al, Palo Alto, CA, Lynn K. Neuner, Sympson Thacher, et al, New York, NY, C.W. Flynn, IV, Locke Purnell Rain & Harrell, Dallas, TX, Richard W. Clary, Cravath Swaine, et al, New York, NY, Russell "Rusty" Hardin, Jr., Rusty Hardin and Associates, Houston, TX, Richard M. Wyner, Shea & Gardner, Christopher E. Palmer, John D. Aldock, William F. Sheehan, Shea & Gardner, Washington, DC, Roger Brian Cowie, Locke Liddell, et al, Dallas, TX, for defendant.

MEMORANDUM AND ORDER

LAKE, District Judge.

                TABLE OF CONTENTS
                   I. Introduction ...............................................................818
                   II. Standard of Review ........................................................818
                   III. Factual Allegations ......................................................819
                      A. Black Thunder ...........................................................819
                      B. Project Alpha ...........................................................820
                         1. Misrepresentations ...................................................820
                         2. Olis Trial ...........................................................820
                      C. Improper Accounting Practices ...........................................821
                         1. Natural Gas Contracts ................................................822
                         2. Forward Power Contracts ..............................................822
                         3. Gas Trading Volume ...................................................822
                         4. Trading Losses .......................................................823
                      D. Debt and Securities Offerings ...........................................823
                      E. Disclosures .............................................................823
                         1. December of 2001 .....................................................823
                

                         2. March of 2002 ........................................................824
                         3. April of 2002 ........................................................824
                         4. May of 2002 ..........................................................824
                         5. July of 2002 .........................................................824
                         6. August of 2002 .......................................................824
                         7. February through May of 2003 .........................................824
                  IV. Claims Asserted Under the 1933 Securities Act ..............................825
                      A. Applicable Law ..........................................................825
                         1. Section 11 ...........................................................825
                            (a) Elements of a § 11 Claim .........................................826
                            (b) Statute of Limitations ...........................................826
                            (c) Affirmative Defenses .............................................827
                            (d) Pleading Standards ...............................................827
                         2. Section 15 ...........................................................828
                            (a) Elements of a § 15 Claim .........................................828
                            (b) Affirmative Defenses .............................................828
                      B. Factual Allegations Specific to 1933 Securities Act Claims...............829
                         1. Registration Statement for DHI 6.875% Notes ..........................829
                            (a) Factual Particulars ..............................................829
                            (b) Misstatements and Omissions ......................................830
                         2. Registration Statement Offer for DI Common Stock .....................830
                            (a) Factual Particulars ..............................................831
                            (b) Misstatements and Omissions ......................................831
                         3. Registration Statement for DHI 8.75% Notes ...........................831
                            (a) Factual Particulars ..............................................832
                            (b) Misstatements and Omissions ......................................832
                      C. Defendants' Motions to Dismiss § 11 Claims ..............................832
                         1. Certification Requirement ............................................833
                         2. Pleading Compliance with Statute of Limitations ......................834
                            (a) Applicable Law ...................................................834
                            (b) Allegations of Compliance ........................................835
                            (c) Analysis .........................................................836
                                (1) Debt Security Offerings ......................................836
                                (2) Stock Offering ...............................................836
                            (d) Conclusions ......................................................837
                         3. Limitations Bar ......................................................837
                            (a) Assertion of Limitations in Motion to Dismiss ....................838
                            (b) Relation Back ....................................................839
                                (1) Applicable Law ...............................................839
                                (2) Original Pleadings ...........................................839
                                (3) Analysis .....................................................840
                                     (i) New Claims Against Existing Parties: DI, Watson
                                          Bergstrom, Doty, and Mott ..............................840
                                         (A) New Claims Asserted Against Existing
                                              Defendants by Existing Plaintiff ...................840
                                         (B) New Claims Asserted Against Existing
                                              Defendants on Behalf of Newly Proposed
                                              Plaintiffs .........................................841
                                    (ii) New Claims Asserted Against DHI .........................843
                                (4) Conclusions ..................................................844
                            (c) Inquiry Notice ...................................................845
                                (1) Applicable Law ...............................................845
                                (2) Trigger Dates ................................................847
                                     (i) March 13, 2002 ..........................................847
                                    (ii) April 25, 2002 ..........................................849
                                   (iii) May 2002 ................................................851
                                         (A) Black Thunder .......................................852
                                         (B) Project Alpha .......................................852
                

                                         (C) Trading Practices ...................................854
                                (3) Conclusions ..................................................855
                                     (i) Trigger Date Conclusions ................................855
                                         (A) March 13, 2002 ......................................855
                                         (B) April 25, 2002 ......................................855
                                         (C) May 2002 ............................................856
                                    (ii) Application of Trigger Date Conclusions .................856
                                         (A) March 15, 2001, Debt Offering .......................856
                                         (B) December 20, 2001, Stock Offering ...................857
                                             1. DI and the Individuals ...........................858
                                             2. Director Defendants ..............................858
                                             3. Arthur Andersen ..................................859
                                             4. Lehman Brothers Inc...............................861
                                         (C) February 15, 2002, Debt Offering ....................862
                                             1. DHI ..............................................862
                                             2. The 1933 Act Individual Defendants................863
                                             3. Andersen and Underwriters ........ ...............866
                         4. Negative Causation Defense ...........................................867
                            (a) Applicable Law ...................................................867
                            (b) Hawaii Ironworkers ...............................................868
                            (c) The Regents ......................................................870
                         5. Non-Issuer

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