In re Kosmos Energy Ltd.

955 F.Supp.2d 658

In re KOSMOS ENERGY LTD. SECURITIES LITIGATION.

Civil Action No. 3:12–CV–373–B.

United States District Court,

N.D. Texas,

Dallas Division.

June 24, 2013.

Held Invalid

17 C.F.R. § 230.159A(a)

Theodore Carl Anderson, III, Dallas, TX, Amber L. Eck, Zeldes & Haeggquist LLP, San Diego, CA, David R. Scott, Scott & Scott, LLP, Colchester, CT, Deborah Clark–Weintraub, Scott & Scott, LLP, New York, NY, Geoffrey Johnson, Scott & Scott, LLP, Cleveland Heights, OH, Robert M. Behrendt, Kilgore & Kilgore, Dallas, TX, Joe Kendall, Jamie Jean McKey, Kendall Law Group LLP, Dallas, TX, Willie Briscoe, Preston Commons West, Dallas, TX, Lionel Z. Glancy, Michael Goldberg, Glancy Binkow & Goldberg LLP, Los Angeles, CA, Darren J. Robbins, David J. Harris, James I. Jaconette, Lucas F. Olts, Tricia L. McCormick, X. Jay Alvarez, Robbins Geller Rudman & Dowd LLP, San Diego, CA, for Plaintiff.

Daniel H. Charest, Katherine L. I. Hacker, Terrell W. Oxford, Warren T. Burns, Susman Godfrey LLP, Dallas, TX, Stephen D. Susman, Susman Godfrey, Houston, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

JANE J. BOYLE, District Judge.

Before the Court are the Motions to Dismiss filed by Defendants on January 22, 2013 (docs. 73, 75, 76). For the reasons stated below, the Motions are GRANTED IN PART and DENIED IN PART. The Consolidated Complaint's § 12(a)(2) claim is DISMISSED WITHOUT PREJUDICE as to Kosmos Energy Ltd. (“Kosmos”).¹ The Consolidated Complaint's § 15 claim is DISMISSED WITHOUT PREJUDICE as to The Blackstone Group L.P. (“Blackstone”) and Warburg Pincus LLC (“Warburg” or “Warburg Pincus”). The Consolidated Complaint's § 11 and § 12 claims are DISMISSED to the extent they are based on statements regarding the drillstem rates for certain Kosmos oil wells. The Motions to Dismiss are DENIED as to all other requested relief.

I.BACKGROUND

This putative class action case concerns Lead Plaintiff Nursing Homes and Related Industries Pension Plan's ² (the “Pension Plan”) allegations of securities law violations against Kosmos. Specifically, the Pension Plan alleges that Kosmos issued a false and misleading Registration Statement and Prospectus ³ in connection with Kosmos' May 11, 2011 initial public offering (“IPO”). Kosmos is an oil exploration and production company with a focus in West Africa. In June 2007, Kosmos discovered a large deepwater oil field offshore of Ghana called the Jubilee Field (“Jubilee”). The Jubilee Field was one of the largest oil discoveries in the world in 2007. In 2009, Kosmos entered into partnerships with gas exploration companies to spend over $3.3 billion to develop Jubilee. Oil production from Jubilee began in November 2010, and Kosmos received its first oil revenues from the field in early 2011. Oil revenues from Jubilee were Kosmos' sole source of revenue since Kosmos' inception. Consolidated Compl. (“Compl.”) ¶¶ 2–3.

In 2011, Kosmos filed its Registration Statement with the SEC in connection with the planned IPO of Kosmos common stock. On May 10, 2011, the Registration Statement was declared effective by the SEC and Kosmos sold $620 million of Kosmos stock. By August 2012, however, Kosmos' stock had declined to half of the IPO price. The Pension Plan, which bought stock in connection with the Kosmos IPO, now alleges that the Registration Statement included several false and misleading statements regarding the then-current performance of Jubilee and overly optimistic projections regarding Jubilee's future production. It alleges that the now-public production problems at Jubilee which were omitted from the Registration Statement “caused significant delays, hundreds of millions of dollars in remediation expenses, and hundreds of millions of dollars in lost revenue.” Compl. ¶¶ 4–6.

As result of the foregoing, the Pension Plan now brings strict liability claims under Sections 11,⁴ 12(a)(2),⁵ and 15 ⁶ of the Securities Act of 1933 against Defendants. Defendants include Kosmos, the issuer of the stock at issue; several individuals who are officers or directors of Kosmos (“the Individual Defendants”); ⁷ Citigroup Global Markets Inc. (“Citigroup”), Barclays Capital Inc. (“Barclays”), and Credit Suisse Securities (USA) LLC (“Credit Suisse”), who served as co-lead underwriters for the IPO (collectively the “Underwriter Defendants”); and Blackstone and Warburg Pincus, private equity companies that own significant positions in Kosmos (the “Shareholder Defendants”).⁸ These Defendants have filed Motions to Dismiss, which are now ripe for the Court's disposition.

II.LEGAL STANDARD

In analyzing a complaint under Federal Rule of Civil Procedure 12(b)(6), the Court accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff. Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir.2004). The complaint should be dismissed only if it does not include enough facts to state a claim to relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim must be “nudged ... across the line from conceivable to plausible.” Id. “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Further, “[f]actual allegations must be enough to raise a right to relief above the speculative level....” SW Bell Tel., LP v. City of Hous., 529 F.3d 257, 260 (5th Cir.2008) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).

III.ANALYSIS

A. Section 11 Claims⁹

Section 11 of the Securities Act “permits a securities purchaser to recover damages against, among others, signatories to a registration statement and directorsof the issuer, if the registration statement contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” Rosenzweig v. Azurix Corp., 332 F.3d 854, 861 (5th Cir.2003) (quoting 15 U.S.C. § 77k(a)). Section 11 requires only notice pleading under Federal Rule of Civil Procedure 8 rather than the heightened pleading standards required by Federal Rule of Civil Procedure 9(b) or the Private Securities Litigation Reform Act (“PSLRA”). Kapps v. Torch Offshore, Inc., 379 F.3d 207, 210 (5th Cir.2004).

“A fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in making an investment decision.” Id. at 213–14 (quoting Basic Inc. v. Levinson, 485 U.S. 224, 231, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988)). For an omission to be material, there must be a “ substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.” Id. at 214. Stated another way, a court must determine whether statements or omissions are materially misleading when read in the context of the prospectus as a whole. Id. at 211. Relevant to the issue of materiality is whether the alleged misstatements are coupled with cautionary language, as statements must be analyzed in context under the “bespeaks caution” doctrine. Rubinstein v. Collins, 20 F.3d 160, 167–68 (5th Cir.1994). See also In re Worlds of Wonder Secs. Litig., 35 F.3d 1407, 1414 (9th Cir.1994) (bespeaks caution doctrine allows court to dismiss claims where defendant's forward looking statements contain enough cautionary language or risk disclosure to protect the defendant against claims of securities fraud) ¹⁰ (citations omitted). Thus, a court looking at whether alleged misstatements affect the total mix of information must consider whether such statements are misleading when coupled with cautionary language and any disclosures of firm-specific adverse facts or assumptions. Rubinstein, 20 F.3d at 167. However, notwithstanding the “bespeaks caution” doctrine, “cautionary language is not necessarily sufficient, in and of itself, to render predictive statements immaterial as a matter of law.” Id.

The Consolidated Complaint identifies four main misleading statements or omissions in Kosmos' Prospectus. Specifically, the Pension Plan points to the following statements from the Prospectus:

a. “Since year-end [2010] our current production continues to increase according to our plan, currently achieving 60,000–70,000 boepd [barrels of oil equivalent per day]”;

b. “We expect gross oil production from the Jubilee Field to reach ... 120,000 barrels of oil per day (“bopd”) in the third quarter of 2011”;

c. “Our current production is consistent with our development plan and there have been no negative indicators that our production forecast [120,000 bopd] will not be met in 2011”; and d. A chart on page 91, which showed that the J–08 and J–09 wells were producing oil and been drillstem tested at 16,500 bopd and 20,500 bopd, respectively.

Compl. ¶ 4. In the Pension Plan's view, these statements were false and misleading given that such statements portray the Jubilee Field as progressing as planned, when in reality such statements omitted multiple facts, existing at the time of the Prospectus and which were known to Kosmos, that made it clear that the Jubilee Field's production was not increasing according to plan and that Kosmos' production projections would not be met. See Compl. ¶¶ 36–45.

As an initial matter, before proceeding to an examination of the four alleged misstatements, the Court notes the Prospectus' cautionary language, more specifically the extensive warnings in the Prospectus regarding the risks of oil production and the difficulty of making accurate projections regarding future performance. As highlighted by Kosmos, the warnings include statements such as:

1. “Exploring for and developing hydrocarbon reserves involves a high degree of operational and financial risk.” Kosmos App. 22. Such risk ...