In re Plains All Am. Pipeline, L.P. Sec. Litig., Lead Case No. H:15–02404

• Court: United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
• Writing for the Court: Lee H. Rosenthal, Chief United States District Judge
• Citation: 245 F.Supp.3d 870
• Parties: IN RE PLAINS ALL AMERICAN PIPELINE, L.P. SECURITIES LITIGATION
• Docket Number: Lead Case No. H:15–02404
• Decision Date: 29 March 2017

245 F.Supp.3d 870

IN RE PLAINS ALL AMERICAN PIPELINE, L.P. SECURITIES LITIGATION

Lead Case No. H:15–02404

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

Signed March 29, 2017

245 F.Supp.3d 877

MEMORANDUM AND OPINION

Lee H. Rosenthal, Chief United States District Judge

Contents

I. The Parties and the Plaintiffs' Causes of Action...878

A. The Plaintiffs...878

B. The Defendants...879

1. The Plains Defendants...879

a. The Corporate Defendants...879

b. The Individual Defendants...879

i. The Officer Defendants...879

ii. The Director Defendants...880

2. The Underwriter Defendants...880

C. The Causes of Action...880

II. The Complaint's Factual Allegations and Alleged Misrepresentations...880

A. Background: Plains's Operations...880

B. Plains's Pre–Class Period Actions and the EPA Consent Decree...881

C. Plains's Efforts to Rehabilitate Its Image...882

D. The Spill...883

E. Plains Reveals the Severity of the Spill...883

F. Investigations Reveal Additional Information About Plains's Maintenance Record...884

G. Defendants' Knowledge of the Corrosion Problems...886

III. The Legal Standards...888

A. Standing...888

B. Rule 12(b)(6)...888

C. The Exchange Act...889

1. Material Misrepresentations and Omissions...889

2. Scienter...891

3. Statements of Opinion After Omnicare ...892

4. Section 20(a) of the Securities Exchange Act of 1934...893

D. The Securities Act...893

IV. Analysis...894

A. The Exchange Act Claims...894

1. Statements Alleged to be Misleading...895

a. Statements about Plains's efforts in integrity management, corrosion control, and leak detection....895

b. Statements about legal compliance...903

c. Statements about spill-response capabilities...913

d. Post-spill statements...917

e. Conclusion on material-misrepresentation allegations...920

2. Scienter...920

a. The Scienter Allegations on the Actionable Statements...920

b. The Plaintiffs' General Scienter Allegations...921

3. Loss Causation...927

B. The Securities Act Claims: § 11, § 12, and § 15...927

1. Standing...927

2. Rule 9(b)'s Particularization Requirement...933

3. The Securities Act Claims...933

V. Conclusion and Order...933

APPENDIX...933

The plaintiffs in this putative securities-fraud class action allege that an oil and gas pipeline company falsely claimed to have a comprehensive, effective environmental and regulatory compliance program to prevent oil spills and, if they occurred, quickly remediate the effects. Instead, the plaintiffs allege, the touted compliance program was close to nonexistent, and Plains repeatedly violated regulatory mandates.

245 F.Supp.3d 878

Plains allegedly deceived the public about its compliance program with falsehoods that inflated the price of the company's securities. The lack of an effective compliance program was dramatically exposed when a Plains pipeline in Santa Barbara County, California, burst and thousands of barrels of oil spilled. Plains securities lost significant value in the aftermath. This lawsuit followed.

The plaintiffs have sued Plains and several affiliated companies, certain officers and directors, and the banks that underwrote Plains's securities offerings, seeking compensation for the diminished value of Plains securities. The defendants have moved to dismiss the case. The plaintiffs responded, and the defendants replied. (Docket Entries No. 114, 115, 124, 127, 128). The parties presented oral argument at a lengthy hearing in September 2016.

Based on the briefs, the hearing, the record, and the applicable law, the court grants the motions to dismiss, (Docket Entry Nos. 114, 115), without prejudice and with leave to amend. The reasons are explained in detail below.

I. The Parties and the Plaintiffs' Causes of Action

A. The Plaintiffs

The plaintiffs are individuals and institutional investors who purchased equity and debt instruments issued by entities affiliated with Plains All American Pipeline, a major national oil and gas pipeline operator.¹ Compl. ¶¶ 13–17. They seek to represent a class of Plains investors who purchased Plains All American Pipeline, LP ("Plains") common units between February 27, 2013 and August 5, 2015, or who purchased Plains GP Holdings, LP ("Plains Holdings") Class A Shares between October 16, 2013 and August 5, 2015. The plaintiffs also seek to represent those individuals who purchased securities "pursuant and traceable to" certain public securities offerings.

The plaintiffs' claims arise from the following public offerings:

• the Plains Holdings October 16, 2013 initial public offering of Class A shares ("IPO");

• the Plains Holdings November 12, 2014 public offering of Class A shares ("Secondary Offering");

• the Plains February 26, 2015 public offering of common shares ("Plains Offering");

• the Plains August 8, 2013 public offering of 3.85% senior notes due 2023;

• the Plains April 15, 2014 public offering of 4.7% senior notes due 2044;

• the Plains September 2, 2014 public offering of 3.6% senior notes due 2024; and

• the Plains December 2, 2014 public offering of 2.6% senior notes due 2019 and 4.9% senior notes due 2045.

Lead plaintiff IAM National Pension Fund is a defined benefit pension plan for members of the International Association of Machinists and Aerospace Workers. IAM bought Plains and Plains Holdings securities on the open market during the relevant class periods. Id. ¶ 13.

Plaintiff City of Warren Police and Fire Retirement System is a defined benefit governmental retirement system for police and firefighters in Warren, Michigan. It purchased 4.7% Plains notes in the April 2014 offering. Id. ¶ 14.

245 F.Supp.3d 879

Plaintiff Ming Liu is an individual who purchased Plains Holdings Class A shares in the IPO. Id. ¶ 15.

Plaintiff Jacksonville Police and Fire Pension Fund is a defined benefit government retirement system for police and firefighters in Jacksonville, Florida. It purchased Plains Holdings Class A shares in the IPO and the Secondary Offering. Id. ¶ 16.

Plaintiff Detroit Police and Fire Retirement System is a defined benefit governmental retirement system for police and firefighters in Detroit, Michigan. It purchased Plains Holdings Class A shares in the Secondary Offering and Plains common units in the Plains Offering. Id. at ¶ 17.

There is no allegation that the named plaintiffs purchased notes in or traceable to the August 2013 senior-notes offering, the September 2014 senior-notes offering, or the two December 2014 senior-notes offerings. The complaint alleges that named plaintiffs purchased securities in or traceable to four of the eight transactions at issue in this case.

B. The Defendants

1. The Plains Defendants

a. The Corporate Defendants

Plains All American Pipeline, LP ("Plains"), is a publicly traded Delaware master limited partnership that owns and operates oil and gas pipelines throughout the United States. Id. ¶ 18. A general partner, Plains All American GP LLC ("GP LLC"), manages Plains and employs Plains's officers, directors, managers, and US-based employees. Id. ¶ 19. GP LLC, in turn, is wholly controlled by Plains GP Holdings, LP ("Plains Holdings"), a publicly traded Delaware limited partnership. Id. ¶ 21. Plains Holdings is, in turn, managed by PAA GP Holdings LLC ("Holdings LLC"), which owns the general partner interest in Plains Holdings and directs that entity's activities. Id. ¶ 26. Plains itself wholly owns PAA Finance Corp., a Delaware corporation formed in 2001 to co-issue Plains's debt securities. Id. ¶ 25. Each entity is a named defendant.

b. The Individual Defendants

I. The Officer Defendants

Greg L. Armstrong is the CEO and Chairman of the Board of GP LLC, Plains's general partner, Holdings LLC (Plains Holdings's general partner), and PAA Finance. Id. ¶ 27. Armstrong signed all of the securities offering materials at issue in the case and many of the SEC filings alleged to contain false and misleading statements and allegedly made false or misleading statements at investor meetings. Id.

Chris Herbold is the Vice President—Accounting and Chief Accounting Officer of GP LLC, PAA Finance, and Holdings LLC. Id. ¶ 28. He signed the registration statements for some of the securities offerings, as well as the SEC filings that contained allegedly misleading statements. Id.

Richard McGee is the Executive Vice–President, General Counsel, and Secretary of GP LLC and Holdings LLC. Id. ¶ 29. He signed the SEC filings that allegedly contained false and misleading statements. Id.

Harry Pefanis is President and Chief Operating Officer of GP LLC and Holdings LLC, and President of PAA finance. Id. ¶ 30. Pefanis signed the registration statement for some of the securities offerings and other SEC filings that contained allegedly false or...