In re Key Energy Servs., Inc. Secs. Litig.

166 F.Supp.3d 822

In re Key Energy Services, Inc. Securities Litigation

CIV. A. NO. 4:14-CV-2368

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

Signed March 31, 2016

OPINION AND ORDER

MELINDA HARMON, UNITED STATES DISTRICT JUDGE

The above referenced securities-fraud, putative class action alleges material misrepresentations and omissions by Defendants regarding Key Energy Services, Inc.'s (“Key's”) financial condition and the future of its business, leading to inflated stock prices in violation of §§ 10(b), control person liability under 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b) and 78t(a), as amended by the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), 15 U.S.C. § 78u-4(b)(2), et seq. , Securities and Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. § 240.10b-5, and by the Foreign Corrupt Practices Act of 1977 (the “FCPA”), 15 U.S.C. § 78dd-1, et al. , by overstatement of lucrative business opportunities in foreign countries despite significant, highly publicized risks, particularly in Mexico and Russia, and by failure to disclose serious deficiencies in Key's internal control systems to protect Key from the threat of FCPA violations and to attract and maintain investor interest in Key's business operations in areas known for corruption.

Pending before the Court are two motions to dismiss the Consolidated Amended Complaint (instrument #37) of Lead Plaintiff Inter-Local Pension Fund of the Graphic Communications of the International Brotherhood of Teamsters, pursuant to the PSLRA and Federal Rules of Civil Procedure 9(b) and 12(b)(6), filed by (1) Defendants Key Energy Services, Inc. (“Key”),¹ Richard J. Alario (“Alario”),² J. Marshall Dodson (“Dodson”),³ and Newton W. “Trey” Wilson III (“Wilson”)⁴ (#49); and (2) Defendant Taylor M. Whichard, III (#50),⁵ who also joins in #49.

This action is brought on behalf of a putative class composed of all persons and entities, excluding Defendants and their affiliates, who or which purchased or acquired Key's common stock from September 4, 2012 to July 17, 2014 (the “Class Period”).

I. Standards of Review

A. Rule 12(b)(6)

When a district court reviews a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), it must construe the complaint in favor of the plaintiff and take all well-pleaded facts as true. Randall D. Wolcott, MD, PA v. Sebelius , 635 F.3d 757, 763 (5th Cir.2011), citing Gonzalez v. Kay , 577 F.3d 600, 603 (5th Cir.2009). The plaintiff's legal conclusions are not entitled to the same assumption. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (“The tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.”), citing Bell Atlantic Corp. v. Twombly , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Hinojosa v. U.S. Bureau of Prisons , 506 Fed.Appx. 280, 283 (5th Cir.2012).

“While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ... a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do....” Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 1964–65, 167 L.Ed.2d 929 (2007) (citations omitted). “Factual allegations must be enough to raise a right to relief above the speculative level.” Id. at 1965, citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-236 (3d ed. 2004) (“[T]he pleading must contain something more ... than ... a statement of facts that merely creates a suspicion [of] a legally cognizable right of action”). “Twombly jettisoned the minimum notice pleading requirement of Conley v. Gibson , 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) [“a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief”], and instead required that a complaint allege enough facts to state a claim that is plausible on its face.” St. Germain v. Howard , 556 F.3d 261, 263 n. 2 (5th Cir.2009), citing In re Katrina Canal Breaches Litig. , 495 F.3d 191, 205 (5th Cir.2007) (“To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead 'enough facts to state a claim to relief that is plausible on its face.”'), citing Twombly , 127 S.Ct. at 1974 ). “ ‘A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.’ ” Montoya v. FedEx Ground Package System, Inc. , 614 F.3d 145, 148 (5th Cir.2010), quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The plausibility standard is not akin to a “probability requirement,” but asks for more than a “possibility that a defendant has acted unlawfully.” Twombly , 550 U.S. at 556, 127 S.Ct. 1955. Dismissal is appropriate when the plaintiff fails to allege “ ‘enough facts to state a claim to relief that is plausible on its face’ ” and therefore fails to “ ‘raise a right to relief above the speculative level.’ ” Montoya , 614 F.3d at 148, quoting Twombly , 550 U.S. at 555, 570, 127 S.Ct. 1955.

In Ashcroft v. Iqbal , 556 U.S. at 679, 129 S.Ct. 1937, the Supreme Court stated that “only a complaint that states a plausible claim for relief survives a motion to dismiss,” a determination involving “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” “[T]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements do not suffice” under Rule 12(b). Iqbal , 129 S.Ct. at 1949. The plaintiff must plead specific facts, not merely conclusory allegations, to avoid dismissal. Collins v. Morgan Stanley Dean Witter , 224 F.3d 496, 498 (5th Cir.2000). “Dismissal is proper if the complaint lacks an allegation regarding a required element necessary to obtain relief....” Rios v. City of Del Rio, Texas , 444 F.3d 417, 421 (5th Cir.2006), cert. denied , 549 U.S. 825, 127 S.Ct. 181, 166 L.Ed.2d 43 (2006).

Dismissal under Rule 12(b)(6) is proper not only where the plaintiff fails to plead sufficient facts to support a cognizable legal theory, but also where the plaintiff fails to allege a cognizable legal theory. Kjellvander v. Citicorp , 156 F.R.D. 138, 140 (S.D.Tex.1994), citing Garrett v. Commonwealth Mortgage Corp. , 938 F.2d 591, 594 (5th Cir.1991) ; ASARCO LLC v. Americas Min. Corp. , 382 B.R. 49, 57 (S.D.Tex.2007). “A complaint lacks an 'arguable basis in law' if it is based on an indisputedly meritless legal theory' or a violation of a legal interest that does not exist.” Ross v. State of Texas , Civ.A. No. H–10–2008, 2011 WL 5978029, at *8 (S.D.Tex. Nov. 29, 2011).

When a plaintiff's complaint fails to state a claim, the court should generally give the plaintiff at least one chance to amend the complaint under Rule 15(a) before dismissing the action with prejudice. Great Plains Trust Co v. Morgan Stanley Dean Witter & Co. , 313 F.3d 305, 329 (5th Cir.2002) ( “District courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal.”); United States ex rel. Adrian v. Regents of the Univ. of Cal. , 363 F.3d 398, 403 (5th Cir.2004) (“Leave to amend should be freely given, and outright refusal to grant leave to amend without a justification ... is considered an abuse of discretion. [citations omitted]”). The court should deny leave to amend if it determines that “the proposed change clearly is frivolous or advances a claim or defense that is legally insufficient on its face....” 6 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Proc. § 1487 (2d ed. 1990).

“Rule 12(b) is not a procedure for resolving contests about the facts or the merits of a case.” Gallentine v. Housing Authority of City of Port Arthur, Tex. , 919 F.Supp.2d 787, 794 (E.D.Tex.2012), citing 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure: Civil 2d § 1356, at 294 (1990).

As noted, on a Rule 12(b)(6) review, although generally the court may not look beyond the pleadings, the Court may examine the complaint, documents attached to the complaint, and documents attached to the motion to dismiss to which the complaint refers and which are central to the plaintiff's claim(s), as well as matters of public record. Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir.2010), citing Collins , 224 F.3d at 498–99 ; Cinel v. Connick , 15 F.3d 1338, 1341, 1343 n. 6 (5th Cir.1994). See also United States ex rel. Willard v. Humana Health Plan of Tex., Inc. , 336 F.3d 375, 379 (5th Cir.2003) (“the court may consider ... matters of which judicial notice may be taken”). Taking judicial notice of public records directly relevant to the issue in dispute is proper on a Rule 12(b)(6) review and does not transform the motion into one for summary judgment. Funk v. Stryker Corp. , 631 F.3d 777, 780 (5th Cir.2011). “A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b).

B. Rule 9(b)

Federal Rule of Civil Procedure 9(b) provides,

In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person must be averred generally.

“In every case based upon fraud, Rule 9(b) requires the plaintiff to...