Novagold Res. v. J Capital Research LLC

• Decision Date: 28 March 2022
• Docket Number: 20-CV-2875 (LDH) (PK)
• Court: U.S. District Court — Eastern District of New York
• Parties: NOVAGOLD RESOURCES, INC., Plaintiff, v. J CAPITAL RESEARCH USA LLC, Defendant.

NOVAGOLD RESOURCES, INC., Plaintiff,
v.
J CAPITAL RESEARCH USA LLC, Defendant.

No. 20-CV-2875 (LDH) (PK)

United States District Court, E.D. New York

March 28, 2022

MEMORANDUM AND ORDER

LaSHANN DeARCY HALL UNITED STATES DISTRICT JUDGE

NOVAGOLD Resources, Inc. (“Plaintiff”) brings this action against J Capital Research USA LLC (“Defendant”) alleging defamation by libel per se and trade libel. Defendant moves pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the amended complaint in its entirety.

BACKGROUND^[1]

Plaintiff is a publicly traded Canadian precious metals company with its shares trading on the Toronto Stock Exchange and New York Stock Exchange. (Am. Compl. ¶¶ 5, 10, ECF No. 34.) Plaintiff's focus is the development of the Donlin Gold project (the “Donlin Project”) in Alaska, of which it owns 50%. (Id. ¶ 10.) The Donlin Project “is regarded to be one of the largest, highest-grade, and most prospective known open-pittable gold deposits in the world.” (Id.) The Donlin Project's feasibility is supported by environmental, technical, and social studies, specifically: the “Donlin Creek Gold Project Alaska, USA, NI 43-101 Technical Report on Second Updated Feasibility Study” (the “Feasibility Study”); the “Natural Gas Pipeline Plan

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of Development Donlin Gold, Revision 1” (the “Plan of Development”); and the “Letter Re: Supplemental Information for the Donlin Gold Natural Gas Pipeline” (the “Supplemental Pipeline Information”). (Id.) The Feasibility Study and Plan of Development are publicly available, whereas the Supplemental Pipeline Information was submitted to the Alaskan State Pipeline Coordinator's Office. (Id.)

Defendant is a New York research organization that publishes short-seller reports on publicly traded companies. (Id. ¶¶ 6, 12, 17.) Plaintiff alleges that Defendant has a “track record of attempting to manipulate the market” and is “deliberately indifferent to the truth.” (Id. ¶¶ 2, 12.) According to Plaintiff, Defendant's “modus operandi” is to “sucker-punch companies by publishing lengthy reports without warning in the middle of a trading day when [Defendant] knows the company will not have adequate time to digest and respond before uncertainty in the market causes the share price to drop.” (Id. ¶ 14.) In the past, Defendant's reports focused on Chinese companies in the technology and consumer cyclical industries. (Id. ¶ 18.)

Sometime around September 2019, Tim Murray, an analyst working for Defendant, communicated to Plaintiff that he was transitioning from covering iron and steel investments to gold investments. (Id. ¶ 11.) On or about May 28, 2020, Defendant published a 22-page report titled “Pipe Dream: The deposit that will never be mined” (the “Report”), authored by Mr. Murray, criticizing the feasibility and Plaintiff's management of the Donlin Project.^[2] (Id. ¶ 16.) Plaintiff alleges that the Report focuses on three demonstrably false “themes”.

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First, Plaintiff alleges that the Report falsely asserts that Plaintiff misled its investors. Specifically, the report states: “[f]or the last 15 years, [Plaintiff's] management team has systematically misled investors with subjective presentation of information about a deposit so remote and technically challenging that the mine will never be built”; “management's biggest misrepresentation is around the cost to build the pipeline” and “[m]anagement deliberately misleads investors with custom metrics designed to deceive, directing investors to presentations which claim the deposit will require $6.7 bln in capital, however, the feasibility study clearly shows this number is $8 bln (already, we believe, far too low)”; “[t]he most recent feasibility study, done in 2012, estimated that the initial capex alone, is $ 8 bln, not $ 6.7 bln.” (Id. ¶ 21.) Further, Plaintiff alleges that the Report states that “[m]anagement has drilled only 16 holes since 2011 and not even released the modeling results of the last, meager drill assays in 2017.” (Id. ¶ 23.) And finally, Plaintiff alleges that the Report claims that Plaintiff misled its investors with respect to a separate mining project partially owned by Plaintiff. (Id. ¶ 24.) According to Plaintiff, these statements were false, misleading, and/or “designed to create panic.” (Id. ¶¶ 22- 24.)

Second, Plaintiff alleges that the Report makes false claims regarding the feasibility of the Donlin Project. For instance, the Report states: “the Donlin deposit . . . is not feasible to put into production at any gold price” and is a “stock promote, not a mining plan”; “[t]he proposed natural gas pipeline central to powering the project is dead on arrival, ” and “[t]he terrain around the Donlin deposit is among the most inhospitable on the planet.” (Id. ¶¶ 25-26.) The Report goes on to state: “[e]ach of the 300 stream crossings will require a temporary bridge, and dam, and two pits, one on either side of the stream, for the drilling equipment to bore a hole under the stream”; “[e]ven if [Plaintiff] reduced the mine capacity by half, it could not barge enough diesel

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to operate the power plant”; “[t]he total diesel that can be barged up the river is at best 253 ML”; that “[u]nder the most optimistic scenario, cutting production to half of what is now planned, the diesel barged in would be sufficient for at most seven months of operations per year, essentially reducing output to a quarter of what is now planned”; and that the Donlin Project's planned power plant “would be the largest power plant in Alaska and increase the electricity produced in that state by about 40%.” (Id. ¶¶ 28-30.) According to Plaintiff, these statements are all demonstrably false. (Id.)

Third, Plaintiff alleges the Report attacks its management by falsely stating that “management has been treating this 12-person concept company like an ATM” and has “awarded themselves base salaries that rival those of the CEO's at Newmont and Barrick.” (Id. ¶ 33.) Additionally, the Report states that: “[s]enior office holders and directors have taken $35 mln in net cash from share sales in the last five years”; “[s]ome 70% of [Plaintiff] insider share sales were over the last 12 months, as the share price increased by 300%”; “[t]he CFO's stock in the company has halved, from around 2.2 mln shares to 1 mln”; “[t]he CEO has reduced his net position by 26%”; and that “[a]fter the 2017 assay, the CEO sold down $2.5 mln in stock.” (Id. ¶ 34.) Last, Plaintiff notes that a table included in the Report contains demonstrably false insider share sales figures and management positions. (Id. ¶ 35.)

Following the Report's publication, Defendant took to Twitter to promote the Report and re-publish its statements. (Id. ¶ 36.) On May 28, 2020, Defendant tweeted the following:

J Capital @JCap_Research • May 28

Knowing that the pipeline isn't feasible, [Plaintiff] is claiming it can barge diesel up the river during the 5 months it's not frozen. It can't

J Capital @JCap_Research • May 28

The [Plaintiff] share sales make a few million in cash comp look like pocket change.

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J Capital @JCap_Research • May 28

You might call [Plaintiff] the purest form of capital-market fraud, 24-carat.

J Capital @JCap_Research • May 28

The pipeline to the [Plaintiff's] deposit site would need 300 tunnels to cross the river. If you could build it, which you can't at any reasonable cost.

(Id. ¶¶ 36-38, 40.)

Plaintiff immediately began preparing a formal response to the Report and advised its investors that a “fulsome response” addressing the “numerous inaccuracies and falsehoods” in the Report was forthcoming. (Id. ¶ 41.) On June 8, 2020, Plaintiff published a 40-page response to the Report, specifically refuting each statement made by Defendant. (Id. ¶ 43.) Moreover, Plaintiff's chairman published a statement alleging that the Report was filled with lies used for Defendant's “nefarious goal to manipulate [Plaintiff's] stock price and derive a quick profit on the backs of unsuspecting shareholders.” (Id.) According to Plaintiff, the Report was published as part of Defendant's “short and distort” scheme to drive Plaintiff's stock price down in order to benefit short-sellers of the stock. (Id. ¶¶ 17, 41.) Specifically, Plaintiff alleges that the Report was designed to create panic and cast doubt on the feasibility of the Donlin Project, despite publicly available information to the contrary. (See id. ¶¶ 22, 31.)

In addition to substantial reputational damage, Plaintiff alleges that its shares fell nearly 9% between the close of trading on May 27, 2020, and close of trading on May 28, 2020, when the Report was released. (Id. ¶ 46.) Moreover, Plaintiff alleges that it incurred significant costs in its effort to counteract the effects of the Report. (Id. ¶ 49.)

STANDARD OF REVIEW

To withstand a Rule 12(b)(6) 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.'” Ashcroft v. Iqbal,

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556 U.S. 662, 677-78 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when the alleged facts allow the court to draw a “reasonable inference” of defendant's liability for the alleged misconduct. Id. at 678. While this standard requires more than a “sheer possibility” of a defendant's liability, id., “[i]t is not the Court's function to weigh the evidence that might be presented at trial” on a motion to dismiss. Morris v. Northrop Grumman Corp., 37 F.Supp.2d 556, 565 (E.D.N.Y. 1999) (citing Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985)). Instead, “the Court must merely determine whether the complaint itself is legally sufficient, and, in doing so, it is well settled that the Court must accept the factual allegations of the complaint as true.” Id. (citations omitted).

DISCUSSION

I.Defamation by Libel Per Se

To state a claim for defamation in New...