Izadjoo v. Helix Energy Solutions Grp., Inc.

• Decision Date: 14 February 2017
• Docket Number: CIVIL ACTION NO. H–15–2213
• Citation: 237 F.Supp.3d 492
• Parties: Parviz IZADJOO, On behalf of himself and all others similarly situated, Plaintiff, v. HELIX ENERGY SOLUTIONS GROUP, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

237 F.Supp.3d 492

Parviz IZADJOO, On behalf of himself and all others similarly situated, Plaintiff,

v.HELIX ENERGY SOLUTIONS GROUP, INC., et al., Defendants.

CIVIL ACTION NO. H–15–2213

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

Signed February 14, 2017

Thomas E. Bilek, The Bilek Law Firm LLP, Houston, TX, for Plaintiff.

David D. Sterling, Baker Botts LLP, Houston, TX, for Defendants.

MEMORANDUM AND OPINION

Lee H. Rosenthal, Chief United States District Judge

The putative class members in this federal securities action are investors in Houston-based Helix Energy Solutions Group, Inc., an off-shore energy services company. The plaintiffs allege that during the period from October 21, 2014 to July 21, 2015, Helix misrepresented the length of time that one of its well intervention vehicles would be idle during 2015. In July 2015, Helix reported that the vessel's time in a dry dock lasted 64 days instead of the estimated 45 days. Helix also reported revenue losses and a downward forecast of revenue from an overall slowdown in the oil and gas market. On the same day as the announcement, Helix stock price declined approximately 16.8%.

The plaintiffs sued Helix and three company officers. The plaintiffs allege securities fraud under § 10(b) and § 20(a) of the Exchange Act, 15 U.S.C. § 78j(b) and 78t(a), and under Rule 10b–5, 17 C.F.R. § 240.10b–5. They seek damages for the decline of their share value. (Docket Entry No. 23).

The defendants moved to dismiss under Federal Rules of Civil Procedure 12(b)(6) and 9(b), and under the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. § 78u–4(b)(2). (Docket Entry No. 28). They argue that the complaint fails to allege a material misrepresentation, fails to allege facts giving rise to a strong inference of scienter, and fails plausibly to allege loss causation. The plaintiffs responded, and the defendants replied. (Docket Entry Nos. 30, 31). Based on the pleadings; the motion, response, and reply; the record; and the relevant law, the defendants' motion to dismiss is granted. The dismissal is without prejudice and with leave to amend, no later than March 17, 2017.

The reasons for these rulings are explained below.

I. Background

A. The Complaint Allegations

Helix maintains a fleet of five vessels that provide well intervention services, primarily in deep-water regions of the Gulf of Mexico and the North Sea. (Docket Entry No. 23 ¶¶ 24–26). According to the complaint, Helix's Q4000 is its main vessel in the Gulf of Mexico. (Id. ¶ 27). Independent oil and gas companies contract with Helix to use its vessels as platforms to repair, maintain, and abandon underwater oil wells at a fraction of the cost and time required to use traditional oil rigs. (Id. ¶¶ 24–25). The plaintiffs allege that the availability of Helix's vessels has a material effect on its financial position. (Id. ¶ 29). Helix is to apprise investors of expected and actual vessel utilization rates, which may be adversely affected by the need for vessel repairs, upgrades, or inspections, or by economic downturns. (Id. ¶¶ 31–32).

The plaintiffs allege that in October 2014, Helix disclosed in its third-quarter earnings report that the Q4000 had an 89% utilization rate during that quarter and had been idle for 10 days in July 2014 "due to thruster repairs." (Id. ¶¶ 39, 41). The report informed investors that Helix expected the Q4000 to have "strong utilization" through the rest of 2014 and was scheduled for dry dock early in the second quarter of 2015. (Id. ¶¶ 40, 42).

In the 2014 fourth-quarter earnings report issued in February 2015, Helix reported an 86% utilization rate for the Q4000 , with idle time from "mechanical problems related to the redeployment of its intervention riser system" and from "repairs incurred after being struck by a supply boat." (Docket Entry No. 28, Ex. 3 at 80).¹ Helix officers on the earnings call allegedly said nothing about thruster problems affecting the Q4000 . (Docket Entry No. 23 ¶¶ 51–52). The officers reported that they expected the Q4000 to have "good utilization in 2015," excluding the scheduled dry dock. (Docket Entry No. 28, Ex. 3 at 93).

In the 2015 first-quarter earnings report issued in April 2015, Helix reported that the Q4000 had been "on-hire for the entire quarter" and had a 91% utilization rate. (Id. , Ex. 4 at 20). Helix officers on the earnings call reported that the Q4000 intervention riser system had encountered "mechanical issues" in January. (Id. at 24). The officers did not mention thruster problems on the call. (Docket Entry No. 23 ¶ 58). The Helix officers announced that the Q4000 was "currently in dry dock for an estimated 45 days" and was "expected to have good utilization in 2015." (Id. ¶ 57).

In the 2015 second-quarter earning report issued in July 2015, Helix reported that the Q4000 had "experienced the combination of standard shipyard delays and delays in the refurbishment of the Q4000 thrusters." (Id. ). During an earnings call on July 21, 2015, Helix announced that the Q4000 was in dry dock for 64 days, 19 days longer than the originally estimated 45 days. (Id. ¶ 62). On that same date, Helix common stock fell $1.90, or 16.8%, from the previous day's close of $11.30. (Id. 63).

The parties dispute the significance of the announcement of the 19–day delay in the time the Q4000 was in dry dock. The defendants argue that "the Complaint contains no facts indicating that the prediction [of a 45–day dry dock] was anything other than sincerely believed when made." (Docket Entry No. 28 at 13). Helix contends that it routinely warned investors about the unpredictable timing of dry dock work and that it forewarned investors that two months was a "typical" period for dry docking. (Id. at 5). The defendants also argue that the complaint provides a facially insufficient basis to infer that the Q4000 had thruster problems during the class period, that the company's officers knew about or suspected thruster problems, or that thruster problems delayed the 2015 dry dock period. (Id. at 9–18).

The plaintiffs contend that Helix officers knew or recklessly disregarded that the Q4000 's ongoing thruster problems would require significant repairs and extend the 2015 dry dock period beyond the estimated 45 days. (See, e.g. , id. ¶¶ 33–35, 42–44, 58). The plaintiffs rely on a confidential witness, known in the complaint as FE2,² who stated that through June 2015, Helix "had some issues with the Rolls Royce thrusters they were trying to resolve and had been trying to resolve from a previous dry dock." (Id. ¶ 33). This witness also stated that "at weekly management meetings, Helix personnel discussed the Q4000 's thruster problems and covered those problems in weekly written reports that FE2 read." (Id. ¶¶ 35).

The plaintiffs allege that some of the defendant officers "sold shares of Helix suspicious in timing and amount." (Id. ¶ 65). Clifford Chamblee, Helix's Executive Vice President and Chief Operating Officer, did not sell any of his stock in the three years before the class period, but he sold 15,000 shares of common stock during the class period. (Id. ). Anthony Tripodo, Helix's Executive Vice President and Chief Financial Officer, sold over 22,000 shares of common stock during the class period. (Id. ¶ 66). The plaintiffs argue that these "stock sales are suspicious in nature, and contribute to the strong inference of scienter." (Docket Entry No. 30 at 21).

B. The Allegedly Fraudulent Statements and Omissions

The plaintiffs allege that during the class period—between October 21, 2014 and July 21, 2015—Helix affirmatively or by omission materially misrepresented its financial condition in its: (1) 2014 Form 8–K and related press release and earnings call; (2) 2014 third quarter Form 10–Q; (3) 2014 Form 10–K; (4) February 2015 Form 8–K and related press release and earnings call; and (5) April 2015 Form 8–K and related press release and earnings call. Each alleged misrepresentation or omission is summarized below.

(A) Helix filed a Form 8–K report on October 20, 2014. (Docket Entry No. 23 ¶ 38). In the accompanying press release and earnings call presentation Helix stated that "[v]essel utilization for the Q4000 in the Gulf of Mexico was slightly down—89% utilization in the third quarter of 2014 compared to 90% in the second quarter of 2014—due to thruster repairs." (Id. ¶¶ 39–40). The earnings call presentation included statements that the Q4000 was expecting "strong utilization in Q4 of 2014." (Id. ¶ 40). On the call, Helix President and Chief Executive Officer Owen Kratz announced that the Q4000 was scheduled for dry dock maintenance in "early Q2." (Id. ¶ 42). Mr. Kratz advised that the dry dock period would last for "plus or minus 45 days," but this was "just an estimate because you never know once you get into dry dock." (Docket Entry No. 28, Ex. 3 at 52, 54)³ . Mr. Tripodo signed the Form 8–K. The signature certified the report's material accuracy, as the Sarbanes–Oxley Act of 2002 (SOX) required. (Id. ¶ 38 n.6).

(B) Helix filed a third-quarter Form 10–Q on October 22, 2014. (Id. ¶ 46). The filing did not mention thruster issues affecting the Q4000 . (Id. ). Mr. Kratz and Mr. Tripodo signed the certification form. (Id. ¶ 46 n.7).

(C) Helix filed its 2014 Form 10–K on February 18, 2015. (Id. ¶ 53). The filing did not mention thruster issues affecting the Q4000 . (Id. ). Mr. Kratz and Mr. Tripodo again signed the certification form. (Id. ¶ 53 n.9).

(D) Helix filed a current report on Form 8–K on February 17, 2015. (Id. ¶ 50). The accompanying press release and earnings call presentation did not mention thruster issues affecting the Q4000 . (Id. ¶¶ 51–52). Mr. Tripodo signed the certification form. (Id. ¶ 50 n.8).

(E) Helix filed a Form 8–K report on April 21, 2015. (Id. ¶ 56). The accompanying earnings call presentation stated that "[t]he Q4000 (currently in dry dock for an estimated 45 days) is expected to have good utilization in 2015." (Id. ¶ 57). Mr. Tripodo signed the

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