Southern District Of Texas Dismisses Securities Class Action Against Oil And Gas Exploration Company Based On Alleged Misstatements Regarding Compliance With Safety Standards
On June 19, 2018, Judge Lee H. Rosenthal of the United States District Court for the Southern District of Texas dismissed with leave to amend a putative securities class action against Anadarko Petroleum Corporation (“Anadarko” or the “Company”) and certain of its officers. Edgar v. Anadarko Petroleum Corp., et al., No. 17-1372 (S.D. Tex., June 19, 2018). Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 by allegedly making material misstatements about the safety of its gas wells and compliance with regulatory requirements. The Court found all but one of the alleged misstatements was not actionable because they amounted to opinions and “corporate cheerleading.” Although the Court found one alleged misstatement actionable, it held that the complaint failed to establish scienter, and granted leave to amend the complaint.
The Company is an oil and gas exploration and production company. In 2013, it acquired land north of Denver, including approximately 1,500 existing oil wells that allegedly were decades old and did not comply with health, safety, and environmental laws and regulations. After discovering that several hundred of the wells posed safety and environmental hazards, the Company authorized tens of millions of dollars for remediation. However, after oil prices plummeted in 2014, Plaintiffs alleged that the Company reversed course, slashed its remediation budget, and laid off 30 percent of its workforce responsible for well remediation. Plaintiffs alleged that defendants’ failure to remediate caused a significant oil spill, and a deadly explosion at a Colorado home, which the local fire department confirmed was caused by a methane leak from a Company well. The Company’s stock price fell the day following the fire department’s announcement.
Plaintiffs alleged that various statements in the Company’s published “fact sheets” and SEC filings constituted material misstatements about the Company’s compliance with health and safety standards. The Court found nearly all statements about the Company’s compliance were not misleading because (i) no reasonable investor would interpret them as a guarantee of full compliance, (ii) statements that Anadarko believed it was in compliance constituted non-actionable opinions, which plaintiffs failed to allege that defendants did not genuinely hold, and (iii) statements that the operations center’s management was “state of the art” were non-actionable “corporate cheerleading.”
The Court held that the Company’s statement that it “operates its global onshore and offshore operations in compliance with applicable laws” constitutes an actionable misstatement. The Court reasoned that this statement was a specific and unqualified assertion of fact. The statement was ultimately untrue because the Company allegedly violated a Colorado Oil and Gas Conservation Commission rule. Nevertheless, the Court found that plaintiffs failed to adequately plead scienter because they did not show that defendants were aware of a failure to comply with the Commission’s rule at the time the statement was made.
The Court dismissed the claims along with the derivative claim under section 20(a), but granted plaintiffs leave to amend the complaint.