City of Riviera Beach Gen. Emps. Ret. Sys. v. Macquarie Infrastructure Corp., 18-CV-3608 (VSB)

CITY OF RIVIERA BEACH GENERAL EMPLOYEES RETIREMENT SYSTEM, on behalf of itself and all others similarly situated, Plaintiff, v. MACQUARIE INFRASTRUCTURE CORPORATION, et al., Defendants.

No. 18-CV-3608 (VSB)

United States District Court, S.D. New York

September 7, 2021

OPINION & ORDER

VERNON S. BRODERICK, United States District Judge:

In this action, Lead Plaintiff Moab Partners, L.P. (“Plaintiff” or “Moab”) asserts various securities law claims against Defendant Macquarie Infrastructure Corporation (“Macquarie” or “MIC”), Macquarie Infrastructure Management (USA) Inc. (“MIMUSA”), Barclays Capital Inc. (“Barclays”), James Hooke, Jay Davis, Liam Stewart, Richard D. Courtney, (Hooke, Davis, Stewart and Courtney together known as the “Officer Defendants”), Robert Choi, Martin Stanley, Norman H Brown, Jr., George W. Carmany III, Henry E. Lentz, Ouma Sananikone, and William H. Webb (together with the Officer Defendants, “Individual Defendants”).^[1] Plaintiff's claims center on its assertion that MIC and the other Individual Defendants made “material misrepresentations and omissions” about potential risks facing what it characterizes as MIC's “most important operating division, ” and specifically that Defendants were “actively conceal[ing] [MIC's] exposure” to a soon-to-be-effective environmental regulation. (CAC 1 &amp ¶ 1.)^[2]

Currently before me are various Defendants' motions to dismiss Plaintiffs Consolidated Complaint. Because I find that Plaintiff does not plausibly allege false statements or omissions, nor does it allege facts from which to draw a strong inference of scienter, Defendants' motions to dismiss the Consolidated Complaint are GRANTED.

I. Factual Background^[3]

The relevant time period for all of Plaintiff s alleged claims the “Class Period, ” is February 22, 2016 to February 21, 2018. (CAC ¶¶ 3, 41; Doc. 101 (“MIC MTD”) at 12; Doc. 110 (“MTD Opp.”) at 10.)

A. The Primary Defendants

Defendant Macquarie is a publicly traded Delaware holding company that owns and operates various infrastructure and infrastructure-related businesses. (CAC ¶ 28.) Central to the allegations in the Consolidated Complaint is what Plaintiff calls Macquarie's “most important operating division, ” International-Matex Tank Terminals-Bayone, Inc. (“IMTT”). (Id. ¶ 1.) IMTT is a wholly-owned MIC subsidiary that operates large “bulk liquid storage terminals” within the United States. (See Id. ¶¶ 1, 33.) IMTT's terminals handle and store various liquid commodities, most notably “petroleum, ” but also “biofuels, chemicals, and vegetable/tropical oil products.” (Id. ¶ 63.) IMTT does not buy and sell petroleum or other liquid products; it is solely a service provider to those who have title to various liquid products and need those products stored and handled. (Id. ¶¶ 37, 63.)

Just before the start of the alleged “Class Period” of February 22, 2016 to February 21, 2018, (CAC ¶¶ 3, 41; see also MTD Opp. 10), MIC's market capitalization was approximately $5.75 billion, with around 80, 084, 457 shares of common stock outstanding that had traded in the first quarter of 2016 at a high of $71.82.^[4] Just before the close of the Class Period, MIC's market capitalization was still approximately $5.75 billion, with around 84, 819, 268 shares of common stock outstanding that had traded in the first quarter of 2018 at a high of $67.84.^[5] By May of 2018, after the Class Period, MIC's market capitalization had declined to around $3.2 billion.^[6]

Defendant MIMUSA acts as MIC's manager. (CAC ¶ 29.) Through a management service agreement with MIC, MIMUSA assigns its employees to work at MIC as MIC's officers. (Id.) MIMUSA is compensated based on how MIC performs financially, which considers factors including MIC's market capitalization. (Id. ¶ 58.)

Defendants Hooke and Stewart were both MIMUSA employees assigned to work as MIC officers; Hooke served as Chief Executive Officer (“CEO”) of MIC from May 8, 2009 to December 31, 2017, and Stewart has served as Chief Financial Officer (“CFO”) of MIC since June 2015. (Id. ¶¶ 29, 30, 32.) Since 2008, Defendant Davis has been MIC's Head of Investor Relations and a Vice President of MIC, (id. ¶ 31), and Defendant Courtney has served as CEO and President of IMTT since February 2015, (id. ¶ 33).

B. MIC's Business in No. 6 Fuel Oil

The disputes in this case arise out of MIC's business, through IMTT, in storing a category of refined petroleum known as “No. 6 fuel oil.” (Id. ¶¶ 1, 109.) No. 6 fuel oil refers to a “group of heavy and residual fuel oils” that “are generally what is left in the bottom of the barrel at the end of petroleum refinement process.” (Id. ¶ 81.) Because No. 6 fuel oil has various environmentally noxious qualities, including a relatively high percentage sulfur content compared to other oils, governments and other institutions with regulatory authority have sought to limit or ban No. 6 fuel oil's use for over a decade. (See Id. ¶¶ 87-88, 91.) Regulation has led to declines in the usage of No. 6 fuel oil, though this “the decline in residual fuel oil usage [was] masked by increase in its use as a fuel for maritime bunkering.”^[7] (Id. ¶ 89.) Indeed, “large shipping vessels” were generally thought of as the main users of No. 6 fuel oil by the start of the Class Period. (Id.)

According to the allegations in the Consolidated Complaint, the use of No. 6 fuel oil was threatened by a pending regulation known as “IMO 2020.” First adopted in October 2008 by the International Maritime Organization (“IMO”), the United Nations body charged with regulating global shipping, IMO 2020 sought to ban the use of fuels with a sulfur content of 0.5% or more by the beginning of 2020. (See Id. ¶¶ 90-91.) Because No. 6 fuel oil “typically” has a “sulfur content” of closer to “3%, ” (id. ¶ 91), many believed “IMO 2020 w[ould] effectively eliminate the use of No. 6 fuel oil for global shipping, ” (id. ¶ 92; see also Id. ¶ 99 (recounting the U.S. Energy Information Administration's “significantly lowered expectations for future” global use of products like No. 6 fuel oil)). At the same time, others believed that shippers might opt to continue using No. 6 fuel oil even after IMO 2020's adoption by “installing abatement technology such as scrubbers” that would remove sulfur content in excess of regulations from emissions. (Schreiber Decl. Ex. O, ^[8] at 4 (explaining that “the production and supply of higher sulfur fuels like No. 6 fuel oil “would need to continue until the day before” IMO 2020 “kicks in”) (cited in CAC ¶ 97).) Since 2013, IMO 2020 has been mentioned in the securities filings of at least one publicly-traded fuel storage business; one of these filings states that IMO 2020 has the potential to “reduce demand for our products and services.” (CAC ¶ 98.) On October 27, 2016, IMO 2020 was “formally fixed” to place a 0.5% cap on sulfur in fuels like No. 6 fuel oil, (id. ¶ 120), a fact that was “widely reported” and about which there was a plethora of market analysis, (id. ¶¶ 121-23).

C. Relevant Pre-Class Period Statements

Plaintiff identifies Defendants' first alleged statements relating to No. 6 fuel oil as occurring during a May 3, 2012 earnings call. (Id. ¶ 105.) Specifically, during this earning call, Hooke stated that due to the “shutter[ing]” and “idl[ing]” of certain “refineries in the Northeast, ” MIC expected “less short term demand for storage of heavy oil residual product in the Northeast, ” and that MIC “ha[d] a reasonable No. of heavy oil tanks at” one of IMTT's main storage sites. (See id.; Schreiber Decl. Ex. B.) As a result, Hooke said, MIC “may” make “a one-off increase in capital expenditures to convert the heavy product tanks to service the clean product.” (Id.) Hooke cautioned that MIC's approach was not to convert its tanks over right away, but to “wait-and-see” and evaluate what mix of petroleum products customers may want to store at its facilities. (Id.)

Defendants only referred to converting IMTT's “heavy product” storage tanks on two other occasions prior to the Class Period. On August 2, 2012, during an earnings call, Hooke reported that MIC did not “see an immediate need to convert large amounts of existing heavy oil storage” over to handle “clean product.” (CAC ¶ 106.) Next, on a November 1, 2012 earnings call, Hooke said that MIC had, in “the past couple of months[, ] . . . concluded that it would be in IMTT's long-term best interest to begin to convert a portion of the residual oil storage at Bayonne, ” one of IMTT's largest storage terminals, “to clean product storage.” (Id. ¶ 107.)^[9]Hooke added that converting storage capacity “from residual oil or six oil to” other product classes would require capital expenditures. (Id.)

D. Mid-Class Period Statements

Defendants did not again “publicly discuss the storage of No. 6 fuel oil” until “near the end of the Class Period.” (Id. ¶ 108.) For example, a few days after the IMO made a late October 2016 announcement that IMO 2020 would go into effect at the start of 2020, as it had previously publicly stated it would, (id. ¶ 120), MIC held a November 2016 earnings call and “did not mention IMO 2020, ” (id. ¶ 124). Speaking for MIC, Hooke did say that, based on MIC's customers' behavior around storage contracts, he thought “shippers and others probably” thought commodity prices “will not be either as low or as volatile as has been the case over the last couple of years.” (Id. ¶ 124.) He then added “none of MIC's businesses are exposed directly to the price of crude oil or petroleum products.” (Id. ¶ 124.) Next, during conferences held in May 2017, Davis stated that MIC's storage business had “no commodity exposure other than the very broad macroeconomic factors influencing supply and demand more broadly.” (Id. ¶¶ 144-45.) By...