Yoshikawa v. Exxon Mobil Corp.

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MENDI YOSHIKAWA, et al., Plaintiffs, v. EXXON MOBIL CORP., et al., Defendants.

Civil Action No. 3:21-CV-0194-N

United States District Court, N.D. Texas, Dallas Division

August 12, 2024

MEMORANDUM OPINION AND ORDER

David C. Godbey Chief United States District Judge

This Order addresses Defendants Exxon Mobil Corporation (“ExxonMobil”) and Melissa Bond's Motion for Judgment on the Pleadings [123]. Because Plaintiffs^[1]adequately allege their remaining securities claims, the Court denies the motion.

I. The Origins of the Dispute

As discussed in the Court's prior orders ruling on Defendants' first and second motions to dismiss [88] & [112], this is a federal securities putative class action on behalf of all persons and entities who purchased or otherwise acquired ExxonMobil common stock (“XOM”) between March 7, 2018 and January 15 2021 (the “Class Period”). Order 1, Sept. 29 2022 (“First MTD Order”) [88]; Order 1, Aug. 24, 2023 (“Second MTD Order”) [112]. Plaintiffs allege that ExxonMobil portrayed its oil and gas assets in the Permian Basin^[2] as more valuable than they were, and when ExxonMobil finally disclosed that its production goals could not be realized, the value XOM shares declined. Second MTD Order 1-2. Plaintiffs initially sued ExxonMobil and several of its personnel under Sections 10(b) and 20(a) of the Securities and Exchange Act (the “Exchange Act”) and the related Rule 10b-5(b). See § 10, 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5(b); 15 U.S.C. § 78t(a). Plaintiffs allege both affirmative misrepresentations of ExxonMobil's drilling potential in the Permian Basin and omissions of material information about the project's obstacles. Id. at 2. The Court initially dismissed Plaintiffs' claims for failure to plead adequately that any Defendant acted with the requisite state of mind but granted leave to amend. First MTD Order 20, 37-38.

Plaintiffs filed a Second Amended Complaint (“SAC”), omitting several of the original defendants but maintaining the Section 10(b) misrepresentation and omission claims against ExxonMobil and its officers Woods and Mallon, as well as the Section 20(a) control person claim against Woods. See SAC ¶¶ 437-40, 448 [92]. In the SAC, Plaintiffs additionally asserted a scheme liability claim against Melissa Bond, the former Senior Manager of Delaware Basin Development, alongside Mallon and ExxonMobil, and named Mallon as a control person. Id. ¶¶ 441, 448. The SAC alleged that Bond and Mallon conspired to manipulate the valuation of ExxonMobil's Permian assets, of which Woods either would or should have learned from a meeting with Bond. Id. ¶¶ 123-32, 11-63. Specifically, the SAC alleged Bond manipulated learning curve assumptions included in ExxonMobil's 2019 development plan, which increased proved reserves by increasing the number of wells Exxon expected to drill. Id. ¶¶ 158, 274. Further, the SAC recounts that ExxonMobil was found liable for unlawfully terminating two whistleblowers who raised concerns about ExxonMobil's valuation of the Permian assets in response to negative press. Id. ¶¶ 132- 34, 137, 141-43, 146, 151-53, 155-57.

In ruling on the motion to dismiss the SAC, the Court dismissed all of Plaintiffs' claims under Section 10(b) of the Exchange Act, and the claims against Mallon under Rule 10b-5(a) and (c) with prejudice. Second MTD Order 22. The scheme liability claims under Rule 10b-5(a) and (c) against Bond and ExxonMobil remain. Id. At that stage, the Court determined that Plaintiffs adequately pled facts that created a strong “inference that Bond was at least severely reckless regarding the possibility that falsification of the 2019 Development Plan would mislead investors.” Id. at 21. Likewise, because Defendants did not assert any deficiency in Plaintiffs' pleading regarding scheme liability against ExxonMobil based on Bond, the Rule 10b-5(a) and (c) claim against ExxonMobil survived the Rule 12(b)(6) challenge. Id. at 22. Finally, Plaintiffs' Section 20(a) claims survived the motion to dismiss because Defendants' sole argument for dismissing the control person liability claims was that Plaintiffs did not adequately plead a primary violation - but as of the Order on the second motion to dismiss, primary liability claims survived. Id. Now, Defendants move again to dismiss Plaintiffs' remaining claims, seeking a judgment on the pleadings.

II. Legal Standards

A. Motion for Judgment on the Pleadings

Any party may move for judgment on the pleadings after the pleadings are closed, as long as the motion does not delay trial. FED. R. CIV. P. 12(c). A Rule 12(c) motion “is designed to dispose of cases where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noticed facts.” Herbert Abstract Co. v. Touchstone Props., Ltd., 914 F.2d 74, 76 (5th Cir. 1990) (per curiam). When ruling on a Rule 12(c) motion for judgment on the pleadings, the Court applies the same standard as that used for a motion to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Doe v. Myspace, Inc., 528 F.3d 413, 418 (5th Cir. 2008).

When addressing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must determine whether the plaintiff has asserted a legally sufficient claim for relief. Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995). A viable complaint must 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 (2007). To meet this standard, a plaintiff must “plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A court generally accepts well-plead facts as true and construes the complaint in the light most favorable to the plaintiff. Gines v. D.R. Horton, Inc., 699 F.3d 812, 816 (5th Cir. 2012). But a court does “not accept as true conclusory allegations, unwarranted factual inferences, or legal conclusions.” Ferrer v. Chevron Corp., 484 F.3d 776, 780 (5th Cir. 2007).

A plaintiff must provide “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. “Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. (internal citations omitted). “When reviewing a motion to dismiss, a district court must consider the complaint in its entirety, as well as documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) (internal quotation marks omitted).

Section 10(b) claims are subject to Rule 9(b)'s heightened pleading standard, which requires that plaintiffs alleging fraud or mistake state their claims with particularity. Owens v. Jastrow, 789 F.3d 529, 534-35 (5th Cir. 2015). Specifically, plaintiffs must set forth “the ‘who, what, when, where, and how' of the events constituting fraud or mistake.” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 339 (5th Cir. 2008) (quoting ABC Arbitrage Pls. Grp. v. Tchuruk, 291 F.3d 336, 350 (5th Cir. 2002) (internal quotations omitted)). Plaintiffs also must “distinguish among those they sue and enlighten each defendant as to his or her particular part in the alleged fraud.” Southland Sec. Corp. v. INSpire Ins. Sols., Inc., 365 F.3d 353, 365 (5th Cir. 2004). Allegations against defendants as a group, without more specific connections between an individual Defendant and an allegedly fraudulent act, should be disregarded. Owens, 789 F.3d at 537-38. Other inference-based allegations, such as pleading based on a defendant's position, corporate culture, or common knowledge alone, are similarly too vague. See First MTD Order 6-8 (citing Abrams v. Baker Hughes Inc., 292 F.3d 424, 433 (5th Cir. 2002); Callinan v. Lexicon Pharma., Inc., 479 F.3d 379, 432 (S.D. Tex. 2020) (quoting In re Citigroup Inc. Sec. Litig., 753 F.Supp.2d 206, 245 (S.D.N.Y. 2010)); Ind. Elec. Workers' Pension Trust Fund IBEW v. Shaw Grp., Inc., 537 F.3d 527, 537 (5th Cir. 2008)).

B. Pleading Section 10b-5(a) and (c) Claims

Section 10(b) of the Exchange Act, codified at 15 U.S.C. § 78j(b), empowers the SEC to prescribe rules and regulations to protect the public from manipulative and deceptive securities practices. Rule 10b-5, implementing Section 10(b), makes it unlawful: “(a) [t]o employ any device, scheme, or artifice to defraud” and “(c) [t]o engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.” 17 C.F.R. § 240.10b-5. There is “considerable overlap among the subsections of the Rule.” Lorenzo v. SEC, 587 U.S. 71, 80 (2019). Thus, pleading each type of claim varies only slightly. Rule 10b-5(a) and (c) claims “require allegations ‘that the defendant (1) committed a deceptive or manipulative act, (2) with scienter, that (3) the act affected the market for securities or was otherwise in connection with their purchase of [sic] sale, and (4) that the defendant's actions caused the plaintiff's injuries.'” Ranieri v. AdvoCare Int'l, L.P., 336 F.Supp.3d 701, 720 (N.D. Tex. 2018) (quoting In re Enron Corp. Sec., 529 F.Supp.2d 644, 678 n.45 (S.D. Tex. 2006)).

The Private Securities Litigation Reform Act (“PSLRA”) further heightens the pleading requirements in two ways. Plaintiffs must “specify each statement alleged to have been misleading, the reason or reasons why the statement is...