In re Molycorp, Inc., Civil Action No. 12-CV-00292-RM-KMT

• Decision Date: 31 March 2015
• Docket Number: Civil Action No. 12-CV-00292-RM-KMT
• Parties: In re MOLYCORP, INC. SECURITIES LITIGATION.
• Court: U.S. District Court — District of Colorado

In re MOLYCORP, INC. SECURITIES LITIGATION.

Civil Action No. 12-CV-00292-RM-KMT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

March 31, 2015

Judge Raymond P. Moore

ORDER

This uncertified securities fraud class action comes before the Court on Defendants' motion to dismiss (ECF No. 109) Plaintiffs'¹ consolidated complaint² ("Complaint") (ECF No. 60). The motion is fully briefed and ripe for adjudication. (ECF Nos. 110; 121; 122; 123.) Defendants also filed a motion for the Court to take judicial notice of certain documents filed in support of their motion to dismiss. (ECF No. 111.) The Court, under a separate order, has addressed that request and incorporates its rulings herein.

Plaintiffs allege securities fraud under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. §§ 78j(b), 78t(a), and 78t-1 and United States Securities and Exchange Commission ("SEC") Rule 10b-5, 17 C.F.R. § 240.10b-5. Plaintiffs also allege violations of Sections 11, 12(a), and 15 of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. §§ 77k, 77l, and 77o.

The Court has subject matter jurisdiction pursuant to Section 27 of the 1934 Act, 15 U.S.C. § 78aa(a), and Section 22 of the 1933 Act, 15 U.S.C. § 77v(a), as well as pursuant to 28 U.S.C. § 1331.

For the reasons discussed below, the Court GRANTS Defendants' motion to dismiss.

I. BACKGROUND

Because this matter is before the Court on Defendants' motion to dismiss, the Court accepts all well-pled facts, as distinguished from conclusory allegations, as true. Adams v. Kinder-Morgan, Inc., 340 F.3d 1083, 1088 (10th Cir. 2003) (citation omitted). The Court also incorporates those facts of which it takes judicial notice pursuant to Defendants' motion (ECF No. 111) and the parties' stipulation (ECF No. 116).

A. Overview

Plaintiffs, a group of individuals who purchased shares of Defendant Molycorp, Inc.'s ("Molycorp" or "Company") stock during the class period (February 11, 2011 through November 10, 2011) ("Class Period"), bring this action to recover damages sustained as a result of Defendants' allegedly misleading statements regarding "rare earth elements" ("REEs") at Molycorp's mine known as "Mountain Pass." (ECF No. 60 ¶¶ 1-3.) Plaintiffs allege that Defendants told investors that commercially significant amounts of "heavy" REEs ("HREEs") were located at Mountain Pass, that they would produce these HREEs during phases of developing Mountain Pass (a project known as "Project Phoenix"), and that no substitutes were available for these HREEs. (ECF No. 60 ¶ 3.)

Plaintiffs allege that there were no commercially significant volumes of HREEs at Mountain Pass and that Defendants knew of this fact. (ECF No. 60 ¶¶ 83-106; see also ECF No. 60 ¶¶ 267-68.) Plaintiffs rely upon an "industry expert" and a former Molycorp "analytical chemist" to form the basis for these allegations. (ECF No. 60 ¶ 4.) Plaintiffs allege that Defendants made these misleading statements to inflate Molycorp's stock prices to allow "insider selling" Defendants to sell large portions of their shares in Molycorp. (ECF No. 60 ¶ 5.)Further, the alleged inflated stock price allowed Molycorp to raise additional funds through a follow on stock offering and acquire another company ("Aktsiaselts Silmet Grupp"). (ECF No. 60 ¶ 5.)

Plaintiffs allege that between November 8, 2011 and November 10, 2011, information regarding the true nature of Mountain Pass's HREE inventory became available to the market and, as a result, Molycorp's stock dropped and Plaintiffs were harmed. (ECF No. 60 ¶¶ 149-151, 279.)

B. The Parties and the Claims

Plaintiffs bring this action on behalf of all purchasers or acquirers of Molycorp securities from February 11, 2011 through November 10, 2011, including all persons who purchased or acquired Molycorp 5.50% Series A Mandatory Convertible Preferred Stock in the February 11, 2011 offering (hereinafter "February Offering") and all persons who purchased Molycorp common stock in the June 10, 2011 secondary offering (hereinafter "June Offering"). (ECF No. 60 ¶¶ 10-21.)

Molycorp is a Colorado-based company (ECF No. 60 ¶ 8) whose core business is the mining, production, and sale of rare earth elements (ECF No. 60 ¶ 22).

1934 Act Defendants include Molycorp (ECF No. 60 ¶ 22), certain Molycorp executive officers and/or directors³ (ECF No. 60 ¶¶ 23, 28, 31, 34, 35, 39, 41, 43, 44) as well as certain Molycorp private equity investors⁴ (ECF No. ¶¶ 37, 38, 40, 42).

1933 Act Defendants include Molycorp (ECF No. 60 ¶ 47), certain Molycorp executive officers and/or directors⁵ (ECF No. 60 ¶¶ 48-52, 54-58), a Molycorp private equity investor⁶ (ECF No. 60 ¶ 53), and various securities underwriters⁷ (ECF No. 60 ¶¶ 59-68).

Plaintiffs' securities claims focus upon three broad categories of misrepresentations: statements related to Mountain Pass (ECF No. 60 ¶¶ 108, 115, 117, 121, 127, 129, 133); statements related to the demand and lack of available substitutes for REEs (ECF No. 60 ¶¶ 110, 115, 128); and statements in SEC certifications (ECF No. 60 ¶¶ 116, 122, 134).

Between February and June 2011, Insider Selling Defendants⁸ collectively sold 31,419,972 shares of their holdings in Molycorp's stock—generating $1,584,366,300 in trading proceeds. (ECF No. 60 ¶ 87.) Insider Selling Defendants allegedly sold these shares at prices ranging from $50 to $51 per share (ECF No. 60 ¶ 88) despite the fact that the stock traded above $70 per share during the Class Period (ECF No. 60 ¶ 159).

C. Project Phoenix

Beginning in 2010, Molycorp began the process of commencing mining operations at Mountain Pass as well as modernizing and expanding the facility. (ECF No. 60 ¶ 80.) Plaintiffs allege that Molycorp's goal was to become a "vertically integrated producer of high-performance permanent rare earth magnets that would incorporate the use of highly-valued HREEs. . . ." (ECF No. 60 ¶ 80.) Plaintiffs allege that Defendants assured investors that demand for theseproducts was expected to increase and that China (where most REEs were produced) was restricting its exports of the elements. (ECF No. 60 ¶ 80.)

Project Phoenix was to be completed in phases. (ECF No. 60 ¶ 81.) Plaintiffs allege that during Project Phoenix Phase I, Molycorp "envision[ed] the production of 19,500 metric tons of REE oxides from Mountain Pass. . . ." (ECF No. 60 ¶ 81.) Plaintiffs allege that during Project Phoenix Phase II, Molycorp "envision[ed] the production of 40,000 metric tons of REE oxides. . . ." (ECF No. 60 ¶ 81.) Plaintiffs allege that according to Molycorp's SEC filings and various presentations, Molycorp would produce HREEs during Project Phoenix Phases I and II and would transport "dysprosium and terbium mined from Mountain Pass to off-site facilities to produce rare earth metals and alloys." (ECF No. 60 ¶ 82.)

D. Alleged Material Misrepresentations and Omissions

Plaintiffs generally allege that Smith, Allen, Ashburn, Ball, Bhappu, Burba, Dolan, Kristoff, Machiels, Henry, and Thompson were senior officers or directors of Molycorp; each of them had access to the materially adverse, undisclosed information; each of them directly participated in the management of Molycorp; each was directly involved in the day-to-day operations of Molycorp; and each was involved in signing and/or disseminating the information in the SEC forms and press releases. (ECF No. 60 ¶¶ 23-26, 28-30, 31, 33, 34-37, 39, 41, 43-44, 45, 70-74.)

Plaintiffs allege that because Defendants Smith, Allen, Ashburn, and Burba's compensation was tied to specific Project Phoenix milestones, they had knowledge of Project Phoenix's status as well as knowledge of whether commercial volumes of HREEs existed at Mountain Pass. (ECF No. 60 ¶ 82.)

1. February 2011 Statements Related to Molycorp's Initial Public Offering

On January 24, 2011, Molycorp filed a registration statement for 5.50% Series A Mandatory Convertible Preferred Stock for its initial public offering ("IPO"). (ECF No. 60 ¶ 107.) Defendants Smith, Allen, Ashburn, Ball, Bhappu, Cogut, Dolan, Kristoff, Machiels, Henry, and Thompson signed the registration statement for the February Offering. (ECF No. 60 ¶ 107.) The offering documents, including the Free Writing Prospectus, for the February Offering allegedly contained materially false and misleading statements. (ECF No. 60 ¶¶ 108-112.) Plaintiffs allege that the February Offering documents contain the following materially false and misleading statement:

If we are able to add an off-site facility to product [sic] rare earth metals and alloys instead of adding such facilities and equipment at Mountain Pass, we would transport cerium, lanthanum, neodymium praseodymium, dysprosium, terbium, and samarium oxide products from our Mountain Pass facility to that off-site location to produced [sic] rare earth metals and alloys. . . .

* * *

The oxides produced from processing REE's are collectively referred to as REOs. Light and heavy REE are contained in all rare earth deposits, including in our deposit at Mountain Pass.

(ECF No. 60 ¶ 108.)

Molycorp's February Offering document further states that

IMCOA⁹ estimates there is a [sic] currently a global deficit in REO supply, which anticipated [sic] to continue without the advent of production from new projects, such as Mountain Pass. Limits on rare earth exports from China and the lack of available substitutes makes the development of new sources of REEs essential to meet the growing demand for existing and emerging technologies, such as hybrid and electric vehicles, wind power turbines, compact fluorescent light bulbs, hard disk drives and dual use electronics.

(ECF No. 60 ¶ 110.)

On February 14, 2011, Molycorp filed a prospectus associated with the February Offering that contained the same statements distributed to the market in Molycorp's February 11, 2011 Free Writing Prospectus. (ECF No. 60 ¶ 111.)

Plaintiffs allege that these statements are false and misleading and Defendants omitted material facts based on the...