United States District Court, S.D. New York
CITY OF AUSTIN POLICE RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
KINROSS GOLD CORPORATION, TYE W. BURT, PAUL H. BARRY, GLEN MASTERMAN, and KENNETH G. THOMAS, Defendants
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
For CITY OF AUSTIN POLICE RETIREMENT, Lead Plaintiff: Joseph R. Seidman, LEAD ATTORNEY, Laurence Jesse Hasson, Bernstein Liebhard, LLP, New York, NY.
For Bo Young Cha, Individually and on behalf of all others similarly situated, Plaintiff: Jeffrey A. Berens, Dyer & Berens L.L.P. (CO), Denver, CO; Michael Ira Fistel, Jr., PRO HAC VICE, Holzer Holzer & Fistel, LLC, Atlanta, GA; Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP (LI), Melville, NY; Uri Seth Ottensoser, Bernstein Liebhard, LLP, New York, NY.
For City of Bridgeport Pension Plans A Investment Trust, Movant: David R. Scott, LEAD ATTORNEY, Scott & Scott, LLC (CT), Colchester, CT; Joseph Peter Guglielmo, LEAD ATTORNEY, Scott Scott, L.L.P. (NYC), New York, NY.
For Vincent and Lenita Cipponeri, Movant: Kim Elaine Miller, LEAD ATTORNEY, Kahn Swick & Foti, LLC, Madisonville, LA.
For IBEW Local Union No. 58 Pension Trust Fund, Annuity Fund and Sound & Communication Division Retirement Plan, Movant: David Avi Rosenfeld, Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP (LI), Melville, NY.
For Kinross Gold Corporation, Tye W. Burt, Paul H. Barry, Glen Masterman, Kenneth G. Thomas, Defendants: Matthew Alexander Schwartz, Robert Joseph Giuffra, Jr., Thomas William Walsh, Sullivan & Cromwell, LLP(NYC), New York, NY.
OPINION & ORDER
Paul A. Engelmayer, United States District Judge.
In this putative class action, lead plaintiff City of Austin Police Retirement System (" Austin" ) claims that defendants Kinross Gold Corporation (" Kinross" or the " Company" ) and four individual Kinross officers violated § § 10(b) and 20(a) of the Securities Exchange Act of 1934 (the " Exchange Act" ), 15 U.S.C. § § 78j(b), 78t(a), and the United States Securities and Exchange Commission's corresponding rule, 17 C.F.R. § 240.10b-5 (" Rule 10b-5" ). Austin alleges that Kinross and its officers made materially false and misleading statements to investors to the effect that (1) Kinross had done extensive due diligence before acquiring, in 2010, Red Back Mining, Inc. (" Red Back" ), a company mining gold in Africa; and (2) the rapid schedule that Kinross set, after that acquisition, for developing the Tasiast gold mine in Mauritania, which had been a principal asset of Red Back, was achievable.
Presently pending are (1) defendants' motion to dismiss Austin's Amended Complaint for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6); and (2) Austin's motion to strike certain exhibits which defendants submitted in support of that motion. For the reasons that follow, the Court grants Austin's motion to strike, and grants in part and denies in part defendants' motion to dismiss.
Kinross is a public company whose shares trade on the New York Stock Exchange (" NYSE" ). It is engaged in, among other activities, mining, exploring, and acquiring gold-bearing properties. Its gold production and exploration activities are primarily in Canada, the United States, the Russian Federation, Brazil, Ecuador, Chile, Ghana, and Mauritania. Am. Compl. ¶ 37.
Red Back is a mining company. In May 2010, Kinross purchased a 9.4% stake in Red Back for $583 million. Id . ¶ 39. In August 2010, Kinross announced its intention to acquire Red Back. In September 2010, Kinross's shareholders approved that acquisition.
Austin is a single-employer, defined benefit, public employee retirement system. It alleges that it purchased common stock of Kinross between August 3, 2010, and January 17, 2012 inclusive (the " Class Period" ); that Kinross's stock price had been artificially inflated during that period as a result of material, uncorrected misstatements; and that Austin was damaged as a result. Austin brings this suit individually and on behalf of all other persons and entities which purchased Kinross common stock on the NYSE during the Class Period and retained such shares until after the Class Period ended.
The four officers whom Austin has sued (" the Individual Defendants" ) are Tye W. Burt, who, beginning in March 2005, was Kinross's president and chief executive officer, id . ¶ 26; Paul H. Barry, who, beginning March 31, 2011, became Kinross's president and chief financial officer, id . ¶ 27; Glen Masterman, who was Kinross's senior vice president of exploration, id . ¶ 28; and Kenneth G. Thomas, who was Kinross's senior vice president of projects, id . ¶ 29. For purposes of this Opinion and Order, the Court refers to the defendants collectively as " Kinross."
2. Timeline of Kinross's Acquisition of Red Back and Tasiast
On May 4, 2010, Kinross issued a news release announcing that its board had agreed to purchase a 9.4% stake in Red
Back, for $583 million. Id . ¶ 39. In the news release, Kinross CEO Burt described the Red Back investment as " giv[ing] us a strategic stake in a fast-growing producer with great exploration potential . . . and assets in one of the world's most prolific gold regions." Id . One of Red Back's two primary projects was the Tasiast mine in Mauritania; the other was the Chirano mine in Ghana. Id . The following day, on an earnings call, Burt stated that Kinross had " done our homework here . . . West Africa has been on our radar screen for a couple of years. We've got months of technical due diligence and site visits." Id . ¶ 40.
On August 2, 2010, Kinross issued a press release announcing that its board had unanimously agreed to acquire, for $7.1 billion, all outstanding shares of Red Back common stock that Kinross did not already own. Id . ¶ 42. Under the merger agreement, Red Back shareholders were to receive, for each Red Back common share, 1.778 Kinross common shares and 0.110 common share purchase warrants, requiring the issuance of 425 million common shares and 26 million common share purchase warrants. Id . ¶ 43.
The following day, the start of the Class Period, Burt publicly stated that the dilution of Kinross's common shares was justified based on the " very large amount of work" Kinross had done, including on the Tasiast mine. Id . Kinross touted the Red Back acquisition as presenting a " transformational opportunity" for Kinross to become a " gold growth powerhouse," given, among other things, " the significant upside in reserves that we believe exists at Red Back, and Kinross's ability to accelerate that potential." Id . The same day, Burt told analysts that Kinross's goal was to " fast track" work at the Tasiast mine and that it planned to " embark on an accelerated exploration and development program" at Tasiast. Id . ¶ 56.
On August 5, 2010, in a quarterly earnings conference call, Burt told Kinross investors that the Red Back acquisition had been " based on the extensive due diligence and technical work that we have completed over the last six months," including " intensive engineering, technical, geologic, metallurgic, and hydrological work." Id . ¶ 45. He added that " we have done far more homework than one would typically see in a significant acquisition." Id . Kinross held out the Tasiast mine as the " centerpiece of the Red Back acquisition." Id . ¶ 46. In a presentation on August 16, 2010, Kinross stated that it possessed the requisite " experience and financial strength to optimize Red Back's assets and fast-track development plans . . . at Tasiast." Id . ¶ 56.
On August 9, 2010, Kinross announced that a shareholder meeting and vote on the Red Back acquisition would be held September 15, 2010. Id . ¶ 59. Several weeks later, Kinross learned that a large proxy advisory firm, Institutional Shareholder Services (" ISS" ), would issue a negative recommendation to Kinross shareholders regarding the merger. Id . On September 1, 2010, Kinross issued a news release entitled " Kinross provides additional information on Red Back transaction." Id . The news release, which Austin claims was intended to dissuade shareholders from heeding ISS and voting against the merger, updated investors about Kinross's development plans for Tasiast. It set out what Austin terms " aggressive milestones for the anticipated completion [by Kinross] of the expansion program [at Tasiast] based on Kinross's purportedly extensive due diligence." Id . ¶ 60. Specifically, Kinross projected that it would complete a scoping study for the mine by December 2010, a feasibility study by July 2011, and the expansion project in its entirety within 36 months, in the fourth quarter of 2013. Id .
Notwithstanding Kinross's September 1, 2010 update, the following day, ISS issued a negative recommendation as to the merger. ISS stated that although it was possible that " there is significantly more gold in the ground than is reflected in current reserves or analyst estimates," the transaction was too costly for Kinross shareholders to " tak[e] on the risk of that bet." Id . ¶ 62. In a news release issued on September 3, 2010, Kinross rejected ISS's analysis, stating that ISS lacked relevant technical understanding and knowledge. Kinross reiterated its view that the Tasiast mine had immense potential. It cited " six months of exhaustive due diligence by its geologists, technical teams, and management, supported by independent opinions of respected outside consultants." Id . ¶ 63.
On September 7, 2010, Red Back announced a 42% increase in its estimate of Tasiast's gold resources. Id . ¶ 64. Burt, speaking for Kinross, stated that Red Back's new estimate " confirms Kinross's view of Tasiast's tremendous potential based on our six months of intensive due diligence." Id . ISS's proxy analyst, in response, stated that ISS adhered to its recommendation that shareholders oppose the merger. The ISS analyst stated that Kinross had not given " detailed support" to enable shareholders to understand its claims as to " how great the potential is" of the Tasiast mine. Id . ¶ 65.
On September 15, 2010, Kinross held a special shareholder meeting. Id . ¶ 66. Despite ISS's negative recommendation, 66.4% of Kinross shareholders approved the acquisition. Id . On September 17, 2010, the transaction was completed. Id .
3. Timeline of Post-Acquisition Events Relating to the Tasiast Mine
In or around October 2010, core drilling began at Tasiast, and, by November 2010, approximately 28 rigs were drilling at the mine and sending back samples. Id . ¶ ¶ 48, 88. In December 2010, Kinross completed its scoping study of the mine, in keeping with the schedule it had set. Id . ¶ 83.
On February 16, 2011, Kinross issued a press release setting out a schedule for development of the Tasiast mine. Id . ¶ 109. Kinross projected that the feasibility study would be complete by mid-2011, that construction would commence in mid-2012, and that mining operations would begin in early 2014. Id . ¶ 77. Each of those deadlines was consistent with the timetable announced in August 2010, save that the earlier timetable had projected that the expansion project would be complete by the fourth quarter of 2013. Id . ¶ 60.
On August 10, 2011, Kinross announced its first major delay to the Tasiast schedule. Id . ¶ 79. Kinross now anticipated that the feasibility study, earlier projected to be complete by mid-2011, would be completed by the end of the first quarter of 2012. Id . ¶ 79. However, Kinross assured investors that neither the mine's construction nor its operational stages would be delayed. Id . ¶ 80. On November 2, 2011, in both a press release and a call with analysts, Kinross reiterated that the schedule for the mine's construction and operation remained intact. Id . ¶ ¶ 127, 129.
Five months later, on Monday, January 16, 2012, the day before the end of the Class Period, Kinross issued a press release reporting preliminary 2011 results and its forecast for 2012. Id . ¶ 91. The press release disclosed, for the first time, that Kinross would need an additional six to nine months to complete the Tasiast development project. Id . More broadly, Kinross stated that it would reassess the overall mining plan for Tasiast, and that it intended to " explore project development
alternatives to those included in the original Tasiast scoping study, with the objective of improving project economics and reducing overall project execution risk." Id . ¶ 92. Kinross further announced that it would take a material non-cash charge to goodwill in the amount of approximately $2.9 million. Id .
Following this announcement, Kinross's stock price dropped approximately 19 percent, from $12.65 per share the previous trading day (Friday, January 13, 2012), to $10.27 when the market reopened on January 17, 2012. Id . ¶ 93.
B. Procedural History
1. The Amended Complaint
Less than a month later, on February 16, 2012, the initial Complaint in this case was filed, by then-putative lead plaintiff Bo Young Cha. Dkt. 1. On May 31, 2012, in an Opinion and Order issued following briefing as to the most suitable lead plaintiff, the Court appointed Austin to serve in that role. Dkt. 33.
On July 23, 2012, Austin filed its Amended Complaint, alleging violations of sections 10(b) and 20(a) of the Exchange Act and of Rule 10b-5. Dkt. 41. The Amended Complaint claims that Kinross made materially false and misleading statements to investors that artificially inflated the price of Kinross stock during the Class Period. These alleged misstatements concern (1) the quality and extent of Kinross's due diligence with respect to the Tasiast mine; and (2) the schedule that Kinross set, following the completion of the acquisition of Red Back, for development of that mine.
2. Kinross's Motion to Dismiss
On September 7, 2012, Kinross moved to dismiss the Amended Complaint. Dkt. 38-40. Kinross argues that Austin has failed adequately to plead (1) facts giving rise to a strong inference that defendants acted with scienter in their statements about due diligence and the mining schedule; and (2) that Kinross made actionable misstatements. At very most, Kinross argues, the facts pled support only a finding that defendants were negligent in not knowing that their expectations as to the schedule for the future development of the Tasiast mine would not be met. Kinross argues that materials cognizable on a motion to dismiss support a competing, non-fraudulent inference as to why the company failed to meet that schedule: that unexpected industry-wide increases in capital and operating costs caused Kinross to delay the development of Tasiast. Kinross Br. 2-3. Kinross further argues that its statements as to both the quality of its due diligence and as to the Tasiast schedule were inactionable statements of puffery or opinion that it did not know were false when made and were not made recklessly. Finally, Kinross argues, its statements as to the Tasiast schedule were not actionable because they were protected forward-looking statements. Id . at 4.
On October 17, 2012, Austin opposed defendants' motion to dismiss. Dkt. 46. On November 16, 2012, defendants filed their reply. Dkt. 52.
3. Austin's Motion to Strike
On the same day it filed its opposition, Austin moved to strike 18 of the 34 exhibits that Kinross had submitted in support of its motion to dismiss. Dkt. 47-48. Those 18 exhibits (" the Disputed Exhibits" ) consist of analyst commentary about Kinross (Exhibits 13 and 16-18) or analyst or journalistic reports relating, or commenting upon, announcements by other gold-mining companies as to contemporaneous problems affecting their development projects (Exhibits 20-27 and 29-34). Kinross had cited those exhibits in support of its argument that it had not acted with recklessness or fraudulent intent in failing to announce the delay of the development
schedule for Tasiast until January 2012, but instead had merely fallen prey to unanticipated industry-wide cost increases that had dogged its competitors around the same time. Austin argues that these exhibits may not be considered on a motion to dismiss because (1) Kinross, in using them as a basis for its argument that there is no fair inference of scienter, has improperly sought to use them for the truth of the matters asserted; and (2) they are not fairly referenced by the Amended Complaint.
On November 2, 2012, Kinross filed an opposition to Austin's motion to strike. Dkt. 49. On November 12, 2012, Austin filed its reply. Dkt. 50.
On November 30, 2012, the Court held argument on both motions.
II. Austin's Motion to Strike
Because determining the universe of properly considered materials is a necessary predicate to considering Kinross's motion to dismiss, the Court turns first to Austin's motion to strike the 18 Disputed Exhibits.
A. Applicable Legal Standards
In evaluating a motion to dismiss in a securities action, the Court may take judicial notice of certain limited matters. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007); Fed.R.Evid. 201. The Court may also consider " any written instrument attached to the complaint, statements or documents incorporated into the complaint by reference, legally required public disclosure documents filed with the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit." ATSI , 493 F.3d at 98 (citation omitted). Outside of these categories, it is generally not appropriate for a court, on a motion to dismiss, to consider information or documents extrinsic to the complaint.
Austin argues that it is improper to consider the Disputed Exhibits for the truth of the matter asserted therein, i.e., that other companies within the mining industry experienced cost increases in or around 2011, which resulted in delays of their mining projects. Pl. Strike Br. 3-5. Austin also argues that the Disputed Exhibits are not " integral to, relied upon, attached to, or referenced in the Complaint," and, except for two exhibits (Exhibits 24 and 32) that are public filings with the SEC by Kinross's competitors, are not the types of public records that may be judicially noticed. Id . at 2, 5-6. Austin argues that to consider the Disputed Exhibits would convert the motion to dismiss into one for summary judgment, and necessitate opening discovery on the points at issue.
Kinross counters with two arguments. First, it argues, the Court is permitted to " take judicial notice that industry-wide increase in costs caused numerous mining companies to delay large development projects" ; it argues that this fact supports a competing, and benign, inference to Austin's scienter thesis that Kinross acted deliberately or recklessly in failing to announce until January 2012 that the Tasiast development schedule would be delayed. Kinross Strike Br. 4, 10 (citing Tellabs , 551 U.S. at 323-24). Second, Kinross argues, the Disputed Exhibits may be considered for the truth of the matters asserted therein. Id . at 10-11.
1. Judicial Notice of the Facts in the Disputed Exhibits
Under Federal Rule of Evidence 201(b), " [t]he court may judicially notice a fact that is not subject to reasonable dispute because it: (1) is generally known within the trial court's territorial jurisdiction; or
(2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." See Effie Film, LLC v. Pomerance , No. 11 Civ. 7087 (JPO), 909 F.Supp.2d 273, 2012 WL 6584485, at *21-22 (S.D.N.Y. Dec. 18, 2012) (surveying the types of fact of which courts have taken judicial notice). Under Rule 201(b), courts have taken notice of widely-known and typically market-wide events. See In re UBS AG Sec. Litig., No. 07 Civ. 11225 (RJS), 2012 WL 4471265, at *21 (S.D.N.Y. Sept. 28, 2012) (finding that " any alleged failure to disclose was more likely attributable to the financial turmoil occurring in 2007 than to fraud or recklessness" ); In re HomeBanc Corp. Sec. Litig., 706 F.Supp.2d 1336, 1341 n.1 (N.D.Ga. 2010) (taking " judicial notice of the existence of the financial crisis," but " not that the crisis caused the decline in HomeBanc's stock price" (emphasis added)); In re 2007 Novastar Fin., Inc., Sec. Litig., No. 07-0139-CV-W-ODS, 2008 WL 2354367, at *1 (W.D. Mo. June 4, 2008) (" reversals in [the mortgage] industry are amenable to judicial notice" ), aff'd , 579 F.3d 878 (8th Cir. 2009); In re Merrill Lynch & Co., Inc. Research Reports Sec. Litig., 289 F.Supp.2d 416, 421 (S.D.N.Y. 2003) (taking " judicial notice of the existence of the internet bubble and its subsequent crash" ); Kramer v. Time Warner, Inc., No. 89 Civ. 8234 (LBS), 1990 WL 166665, at *6 n.5 (S.D.N.Y. Oct. 24, 1990) (judicially noticing " widely-publicized collapse of the junk bond market" ), aff'd , 937 F.2d 767 (2d Cir. 1991).
The facts defendants ask the Court to judicially notice--that there were industry-wide increase in costs in the mining industry, and that these cost increases caused numerous mining companies to delay large development projects in or around 2011--are of a different character. The fact of cost increases affecting a particular industry, gold-mining, at a particular point in time, is not a well-publicized fact of which an average investor would be aware. See In re Merrill Lynch , 289 F.Supp.2d at 421 n.6 (collecting other examples, including the stock market crashes of 1929 and 1987). It is not a fact fairly termed " generally known" within this Court's jurisdiction. Fed.R.Evid. 201(b).
In any event, even if it were appropriate to take judicial notice of the fact of rising gold-mining costs during 2011, the Court assuredly could not take notice of the fact (if indeed true) that such costs were what caused other companies in this sector to delay large mining projects. A case on which Kinross relies makes this very point. See 2007 Novastar Fin. Sec. Litig., 2008 WL 2354367, at *1 (" [J]ust as the Court could take judicial notice of the fact that the country suffered from the Great Depression in the 1930s, the Court cannot use that fact to infer anything in particular about a business operating at the time. In short, while the Court can take judicial notice of the fact that the Company's industry suffered reversals, the Court cannot take judicial notice of the impact of those industry-wide reversals on the Company." ). Not only is that causal link not a fact generally known within the Court's jurisdiction, but by their nature, ...