UNITED FOOD AND COMMERCIAL WORKERS UNION LOCAL 880 PENSION FUND, individually and on behalf of all others similarly situated, Plaintiff - Appellant,
CHESAPEAKE ENERGY CORPORATION; AUBREY K. MCCLENDON; MARCUS C. ROWLAND; MICHAEL A. JOHNSON; FRANK A. KEATING; BREENE M. KERR; CHARLES T. MAXWELL; DONALD L. NICKLES; FREDERICK B. WHITTERMORE; MERRILL A. MILLER, JR., Defendants -- Appellees, and UBS INVESTMENT BANK; ABN AMRO; BANC OF AMERICA SECURITIES LLC; WELLS FARGO SECURITIES, Defendants
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA. (D.C. No. 5:09-CV-01114-D).
Steven F. Hubachek (Eric Alan Isaacson and James I. Jaconette, with him on the briefs), Robbins Geller Rudman & Dowd LLP, San Diego, California, for Plaintiff - Appellant.
Robert P. Varian (Kenneth Herzinger, M. Todd Scott, Christin J. Hill, and Alexander K. Talarides, with him on the brief), Orrick, Herrington & Sutcliffe LLP, San Francisco, California, for Defendants - Appellees.
Before HARTZ, EBEL, and GORSUCH, Circuit Judges.
This matter is before us on appellant's Petition for Rehearing and Rehearing En Banc. We also have a response from the appellees and the reply filed via our order dated October 3, 2014. Upon consideration, the request for panel rehearing is denied by the panel assigned to this appeal originally. All of the pleadings were also forwarded to all of the active judges of the court who were not recused. As no member of the original panel or any active judge called for a poll, the petition for en banc rehearing is likewise denied.
The panel has, however, sua sponte made one small amendment to the original opinion at page 18. The amended version of the decision is attached to this order. The clerk is directed to file the amended version nunc pro tunc to the original filing date of August 8, 2014.
In 2008 Chesapeake Energy Corporation was one of the largest producers of natural gas in the United States, with thousands of wells in several states. By early July of that year the price of natural gas had risen to its highest level since the end of 2005 and Chesapeake's stock price had risen about 50% in the prior six months. Against that background, on July 9, 2008, Chesapeake sold 25 million shares of common stock in a public offering.
Soon thereafter, a financial crisis rocked the global economy. The New York Stock Exchange Composite Index--tracking the exchange where Chesapeake was listed--fell more than 30% in the three months after the Chesapeake offering. Chesapeake was hit even harder, with sharp drops in the prices of natural gas and Chesapeake's stock.
United Food and Commercial Workers Union Local 880 Pension Fund (Plaintiff), representing the class of all persons who purchased securities in the offering, contends that Chesapeake and named individual defendants (collectively Chesapeake), violated § § 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. § § 77k, 77 l (a)(2), and 77 o, because the Registration Statement for the offering was materially false and misleading. (Plaintiff also raised claims against other defendants associated with the underwriting of the offering.) According to Plaintiff, Chesapeake should have disclosed (1) that it had expanded a risky gas-price hedging strategy that made it vulnerable to a fall in natural-gas prices, and (2) that CEO Aubrey McClendon had pledged substantially all his company stock as security for margin loans and lacked the resources to meet margin calls. The district court granted summary judgment for Chesapeake. On June 21, 2013, the court dismissed the claims against the underwriter defendants without prejudice and granted a joint motion for entry of judgment under Fed.R.Civ.P. 54(b) as to Chesapeake. Plaintiff appeals. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm because Chesapeake's alleged omissions were not material or misleading.
Chesapeake was the country's third-largest producer of natural gas at the time of the offering. It produced billions of cubic feet of natural gas each day and had trillions of cubic feet of reserves. Its strategy was to focus on the discovery, acquisition, and development of natural gas in the United States. Before the offering the company had increased production every year for 18 years, and in the first quarter of 2008 it had drilled hundreds of new wells.
The stock offering was on July 9, 2008. Information about Chesapeake and the details of the offering were set forth in the Registration Statement, which included a prospectus and incorporated by reference some of Chesapeake's recent filings with the Securities and Exchange Commission (SEC). Chesapeake sold 25 million shares of common stock in the offering.
Natural-gas prices had been rising steeply. From December 31, 2007, to July 3, 2008, less than a week before the offering, the price had moved from $7.483 per million btu (British thermal units) to $13.577. Unsurprisingly, Chesapeake's stock price had also risen. In the six months preceding the offering its stock price had increased by almost half. But the upward trends sharply reversed after
the offering. In three months the price of natural gas fell about 45%, an index of stock in Chesapeake's industry peers fell 56%, and Chesapeake's stock fell about 70%.
This suit originated in 2009 when various parties filed complaints against Chesapeake and its investment bankers in the Southern District of New York. The district court consolidated the lawsuits and appointed Plaintiff to represent the class. Plaintiff filed its amended complaint on September 11, 2009. On Chesapeake's motion, the case was transferred a month later to the Western District of Oklahoma. Chesapeake moved for summary judgment on December 28, 2011.
The district court granted Chesapeake's motion. It ruled (1) that the Registration Statement " disclosed in detail the risks associated with Chesapeake's hedging strategy," Order at 22, United Food & Commercial Workers Union v. Chesapeake Energy Corp., No. CIV-09-1114-D, (W.D. Okla. Mar. 29, 2013), (2) that Chesapeake had adequately disclosed that McClendon had pledged most of his shares as collateral, and (3) that additional disclosure about his financial resources was " beyond the scope of that which is reasonable because it requires speculation about unpredictable future events that could not be ascertained at the time of the Offering," id. at 34.
" We review the district court's grant of summary judgment de novo, applying the same standards that the district court should have applied." Merrifield v. Bd. of Cnty. Comm'rs, 654 F.3d 1073, 1077 (10th Cir. 2011) (internal quotation marks omitted). Summary judgment shall be granted if " there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). When considering a motion for summary judgment, " [w]e examine the record and all reasonable inferences that might be drawn from it in the light most favorable to the non-moving party." Merrifield, 654 F.3d at 1077 (internal quotation marks omitted). " We can affirm on any ground supported by the record, so long as the appellant has had a fair opportunity to address that ground." Id. (brackets and internal quotation marks omitted).
A. The Applicable Statutes
Plaintiff alleges violations of sections 11, 12(a)(2), and 15 of the Securities Act of 1933. Section 11 imposes liability on certain persons " [i]n case any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements
therein not misleading." 15 U.S.C. § 77k(a). Plaintiffs " need not allege scienter, reliance, or loss causation." In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 359 (2d Cir. 2010). " A statement is material only if a reasonable investor would consider it important in determining whether to buy or sell stock." McDonald v. Kinder-Morgan, Inc., 287 F.3d 992, 998 (10th Cir. 2002) (internal quotation marks omitted). Aside from disclosures required by regulation, " [a] duty to disclose arises only where both the statement made is material, and the omitted fact is material to the statement in that it alters the meaning of the statement." Id. (brackets and internal quotation marks omitted). An omission is material only if disclosure of what is omitted would " significantly alter the total mix of information available." Slater v. A.G. Edwards & Sons, Inc., 719 F.3d 1190, 1197 (10th Cir. 2013). Although the question of materiality is " usually reserved for the trier of fact, we do not hesitate to dismiss securities claims . . . where the alleged misstatements or omissions are plainly immaterial." Id. (internal quotation marks omitted).
Section 12(a)(2) similarly imposes liability on any person who " offers or sells a security . . . by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading." 15 U.S.C. § 77 l (a)(2). The definition of materiality is the same as under section 11 (and under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b)), see Morgan Stanley, 592 F.3d at 360, and the plaintiff, as with section 11, need not " allege scienter, reliance, or loss causation," id. at 359. Together, the two ...