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In re Vale S.A. Securities Litigation

United States District Court, S.D. New York

March 23, 2017

IN RE VALE S.A. SECURITIES LITIGATION

          MEMORANDUM OPINION AND ORDER

          GREGORY H. WOODS, UNITED STATES DISTRICT JUDGE.

         In November 2015, the Fundão Dam, a repository of iron ore tailings located in the city of Mariana in the Brazilian state of Minas Gerais, collapsed, releasing a deluge of muddy waste onto the village of Bento Rodrigues below. The dam's failure caused nineteen people to lose their lives, destroyed hundreds of homes, and caused ecological damage so severe that this incident has often been described as the worst environmental disaster in Brazil's history.

         The Fundão Dam was owned and operated by Samarco Mineração S.A., a mining company owned in equal parts by Brazilian mining company Vale S.A. and Australian mining company BHP Tilliton. The Plaintiffs in this putative securities class action, holders of Vale's American Depository Receipts, allege that various statements made by Vale and certain of its senior executives, both before and after the dam collapse, were false and misleading within the meaning of the American federal securities laws. Defendants now move to dismiss the complaint on several grounds. For the reasons stated below, Defendants' motion to dismiss is GRANTED IN PART and DENIED IN PART.

         I. BACKGROUND

         This case arises out of what the complaint characterizes as Brazil's worst-ever environmental disaster-the “catastrophic collapse” of the Fundão mining dam in the Brazilian state of Minas Gerais on November 5, 2015. This “Mariana mining disaster, ” as it is known, “unleashed millions of tons of toxic mining waste” as a result of which nineteen people lost their lives, more than 600 people lost their homes and possessions, and numerous waterways were severely polluted.

         Lead Plaintiffs, the Alameda County Employees' Retirement Association and Orange County Employees Retirement System (“Plaintiffs”), bring this lawsuit under §§ 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder, on behalf of themselves and a putative class of purchasers of the common or preferred stock American Depository Receipts (“ADRs”) of Vale, S.A. (“Vale”), between November 7, 2013 and November 30, 2015 (the “Class Period”). Plaintiffs filed an amended complaint in this case on April 29, 2016 (Dkt. No. 58), which names as defendants Vale, Vale's Chief Executive Officer Murilo Pinto de Oliveira Ferreira, Vale's Chief Financial Officer Luciano Siani Pires, and Vale's Executive Director, Ferrous Minerals, Gerd Peter Poppinga. Defendants filed a motion to dismiss the complaint on July 25, 2016 (Dkt. No. 79), Plaintiffs filed an opposition on August 29, 2016 (Dkt. No. 88), and Defendants filed a reply on September 12, 2016 (Dkt. No. 91).

         What follows is a summary of the factual allegations contained in the amended complaint, allegations which are accepted as true for the purposes of this motion. See, e.g., Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002).

         A. Overview of Vale's Mining Business

         Vale is a mining company incorporated and headquartered in Brazil, and is the world's largest producer of iron ore and iron ore pellets, and the second largest producer of nickel. Compl. ¶¶ 20, 25. In addition to mines it owns in Brazil, Vale operates mines through Samarco Mineração S.A. (“Samarco”), a privately held joint venture between Vale and an affiliate of BHP Billiton (“BHP”), an Australian mining conglomerate. Id. ¶ 26. In 2014 and 2015, Samarco accounted for 23% of Vale's total pellet production. Id. ¶ 45. Vale received more than $3 billion in dividends from Samarco in the five years before the dam collapse, and before the collapse, analysts projected that Samarco would contribute more than 5% of Vale's total EBITDA in 2015. Id. ¶ 46.

         Samarco's board of directors is composed of four Vale executives and four BHP executives; there are no other board members. Id. ¶ 27. During the Class Period, the following executives served as directors on Samarco's board: Defendant Poppinga, Jose Carlos Martins (Poppinga's immediate predecessor as Vale's Executive Director, Ferrous Metals), Pedro José Rodrigues (Vale's Global Director of Mergers Acquisitions), Hélio Moreira Cabral, Marcelo Botelho Rodrigues, and Stephen Potter (Vale's Global Director of Strategy). Id.[1]

         Vale employees also served on various Samarco committees responsible for operating the mining business. Id. ¶ 28. During the Class Period, Vale's Global Director of Strategy, Stephen Potter, and its General Manager for Iron Ore Planning and Development, Paulo Bandeira, served on Samarco's Operations Committee, which was responsible for monitoring Samarco's operational improvements plan and evaluating and monitoring Samarco's operational performance related to health, safety, environment and community, sales, production, costs, and inventory. Id. The Operations Committee was also responsible for the “technical evaluation of new resources, ” and the evaluation and monitoring of capital projects. Id.

         Vale executives Stephen Potter, Helio Cabral, and Cleber Santiago, who were responsible for managing Vale's controlled companies, served on Samarco's Finance and Strategy Committee. Id. ¶ 29. Luiz Eduardo Lopes (Vale's Director of Budget and Capital Improvements), Mauricio Drumond (Vale's Director for Performance and Integration of Capital Projects), and Rodrigo Araujo served on Samarco's Project Management Committee. Id.

         Samarco's board met at least three times each year, and Vale employees, including Defendant Poppinga after he joined Samarco's board, attended every meeting. Id. ¶ 30. According to minutes of the various meetings, the topics discussed included “tailings storage and the ongoing risks associated with tailings storage, ” “needed operational and safety improvements, ” “the licensing of various mining operations and tailings storage facilities, ” “shareholder audit results, ” and “the status of various capital projects.” Id. Vale also audited Samarco every year, and presented the results of those audits to Samarco's board each year. Id. ¶ 32.

         Mining for iron generates an enormous amount of waste as the iron is separated from the ore. Id. ¶ 33. Once the ore is excavated, a mechanical or chemical process is used to extract the desired product from the ore. Id. This process, known as beneficiation, produces a waste stream known as tailings, a mixture of water, processing chemicals, and finely ground rock. Id. The most common way to store tailings is through the use of earthen dams known as “tailings dams, ” into which tailings are typically pumped as a slurry consisting of 60% water and 40% fine particles. Id. ¶ 34. The complaint alleges that tailings dams are “unprofitable, necessary evils of mining operations” and that “therefore, there is a tendency and inclination to cut corners when constructing and maintaining tailings dams.” Id. ¶ 35.

         Tailings dams are typically built in sequential “lifts” over several years that increase the size and height of the dam throughout the life of the particular mine(s) it services. Id. ¶ 36. Typically, a base or starter dam is constructed, and, as it fills with a mixture of tailings and water, is raised to accommodate additional waste. Id. Material used to raise the dam often includes the tailings themselves. Id.

         Tailings dams are generally built using “upstream” or “downstream” design and construction. Id. ¶ 37. The upstream method is the least expensive way to build a tailings dam, and, according to a Wall Street Journal article cited in the complaint, was the method employed by Samarco. Id. ¶ 38. Upstream dams rely on the stability of the tailings themselves as a foundation for the construction; edification of these types of tailings dams involves letting the tailings closest to the dam dry out and then using those dry tailings as the foundation for new levels, raised by plowing earth or tailings into successive embankments. Id. ¶¶ 37-38. Upstream dams are less secure than downstream dams. Id. ¶ 37. In particular, upstream dams built on tailings are more susceptible to “liquefaction, ” a physical phenomenon in which the strength and stiffness of soil is reduced by either dynamic forces (such as an earthquake) or static forces (such as slope instability or the buildup of water pressure). Id. ¶ 39.

         Tailings dams are not designed to hold substantial amounts of water and indeed, “water is the number one enemy of tailings dams”-too much water makes the dams unstable and greatly increases the risk of collapse. Id. ¶ 40. Accordingly, tailings dams must not be raised too quickly to ensure that the tailings used to construct the “lifts” have sufficient time to dry out before additional lifts are added; if the tailings do not dry sufficiently, the risk of a collapse increases significantly. Id. Experts estimate that tailings dams fail at a rate ten times greater than conventional dams and, on average, between 2001 and 2011 there was one tailings dam failure every eight months. Id. ¶ 42.

         In February 2013, iron ore traded at $154.64 per dry metric ton; by November 2015 (when the Fundão Dam collapsed), the price had decreased by more than 70%, to $46.16. Id. ¶ 54. The complaint alleges that, as iron ore prices decrease, “the pressure on mining companies to increase production and cut costs grows enormously.” Id. ¶ 55. And “[o]ne way to increase production is to mine increasingly lower-grade ores, ” which “produces more waste.” ¶ 41. This increase in the growth of waste “spawns the needs for larger and larger tailings dams, ” but “as the size of tailings dams increases, so too does the incidence and risk of catastrophic failures.” Id. Vale was “not immune to these pressures, ” and between 2013 and the third quarter of 2015, Vale increased production 36%. Id. This “explosive growth in production led to an equally explosive growth in waste.” Id. ¶ 56.

         B. The Fundão Dam

         The Fundão Dam is one of three interconnected dams that Samarco and Vale used to store and hold tailings from their mining operations. Id. ¶ 47. The dam was built, in part, to receive tailings from Vale's Alegria plant. Id. ¶ 48. Waste arrived daily through pipelines linking the Alegria mine to the dam. Id. ¶ 49.

         Under the terms of a contract with Samarco, referred to in the complaint as the “SAMITRI” contract, Vale was permitted to dispose of tailings from its Alegria mine into Samarco's tailings dams. Id. ¶ 52. Vale dumped more than one million tons of waste into the Fundão Dam in 2014, 36% more than the contract allowed. Id.

         The contract also obligated Vale to share in the maintenance expenses of existing dams and the construction and maintenance of any new dams. The relevant contractual provision provided that Vale

[s]hall share in the maintenance expenses of the current dam and construction and maintenance of new dams, as well as any environmental costs derived from the use of the SAMARCO dams, in proportion to such degree of utilization as shall occur.

Id. ¶ 53. Because the Fundão Dam did not exist when Vale became a party to the contract with Samarco, Vale was required to share in the maintenance and construction of the Fundão Dam. Id.

         In connection with the increased production and concomitant increase in the growth of tailings described above, Samarco's board became focused on the issue of tailings disposal. During its December 4, 2013 meeting, the board “acknowledged” that the disposal of tailings was “still a considerable concern, particularly regarding the future tailings storage capacity.” Id. ¶ 57. When Samarco's CEO, Roberto Vescovi, “reiterated to the board the importance of investing in tailings disposal” at the September 19, 2014 board meeting, the board recommended that management “resolve the limitations for tailings disposal at dams and pumps, making that the Company's main priority.” Id. ¶ 58. The minutes of a December 10, 2014 meeting also reflect that the board “reiterated” the “concern over the risk related to the tailings disposal and sanitary landfill projects, and the impacts of the amounts of capital needed on the results of the company.” Id. The board, including Defendant Poppinga and Stephen Potter, authorized a project to “yet again” increase the size and elevation of the Fundão Dam at an April 15, 2015 meeting. Id.

         The complaint alleges that the Fundão Dam, originally constructed in 2007 and 2008, was “plagued” by “serious problems . . . from the beginning.” Id. ¶ 60. In 2009, one of the dam's main dikes “experienced severe drainage problems” but, instead of “moving the water downstream away from the tailings, the bottom drain damned the water, causing excessive pressure in the embankment near the Dam's foundation.” Id. ¶ 61. As a result, the “original conceptual design, ” which “called for draining the Dam through permeable bottom drains, was abandoned, ” and “[u]nder the new design, the bottom drains were filled and a new method for draining water was implemented.” Id. The Samarco board, including the Vale representatives on the board, “were informed of these problems and authorized the design change.” Id.

         Shortly thereafter, a deformation or “piping” was noted in the dam's main gallery spillway. Id. ¶ 62. A spillway is a passage or structure through which excess water is released. Piping occurs when water exiting a tailings impoundment picks up soil particles and moves them out of a dam's foundation or embankment; this continued removal of soil particles causes channels or “pipes” to develop in a dam's walls or foundation. Id. If these channels become big enough to connect to the free-standing water in the reservoir, “large flows can develop, leading to a complete dam failure.” Id.

         Although the complaint does not allege when this occurred, at some point, a “sinkhole occurred in the tailings beach, caused by a break in a concrete joint in the secondary gallery.” Id. ¶ 63. A “specialized company [was] brought in to examine the problem, ” which proposed a solution that involved reinforcing the galleries. Id. However, “because that solution would have limited the height of the tailings that could be deposited in the reservoir, thereby reducing the Dam's capacity, it was not implemented.” Id. Instead, the “galleries were plugged and deactivated so that the Dam could be raised yet again.” Id.

         Around the same time, Samarco wanted to expand the Fundão Dam to “occupy” the valley between the dam and the waste dump at Vale's adjacent New Factory Mine. ¶ 64. Joaquim Pimenta de Ávila, the dam's original engineer, recommended that “Vale assess the situation to determine whether the expansion would . . . interfere with drainage from its waste dump.” Id. He also “reported concerns that surface flows from Vale's adjacent waste pond could negatively impact the Dam.” Id. “Notwithstanding Mr. Pimenta de Ávila's concerns, the expansion went forward and the axis and geometry of the Dam were changed significantly . . . .” Id. ¶ 65.

         In order to address the ongoing “piping” and drainage issues, a recess was built into the dam's left abutment, which was in the process of being raised. Id. ¶ 66. No license was obtained for construction of the recess, and there was no provision for the recess in the environmental permit for raising the dam. Id. The dam's geometry was changed without revisiting a stability analysis contained in the dam's original operating manual. Id. ¶ 67.

         In 2013, there were “water upsurges in the embankment near the left shoulder” of the dam, and in 2014, there were “upsurges in the embankment near the right shoulder.” Id. ¶ 68. Upsurges can cause “significant saturation in the embankments, which in turn can lead to liquefaction and collapse.” Id.

         Mr. Pimenta de Ávila, whose contract was not renewed when it expired in 2012, was brought back as a consultant in November 2013, and in September 2014, he performed six inspections of the Fundão Dam which “identified several serious risks.” Id. ¶ 69. The “most significant risk” he identified involved the beginning of a break in one of the dam's retreat dikes; he identified several extended cracks running parallel to the crest of the dike, as well as signs of movement at the foot of the slope. Id. The nature of the cracks and movement were typical of “sliding, ” which he believed was probably caused by “liquefaction of the foundation tailings from the retreat dikes.” Id.

         Mr. Pimenta de Ávila recommended that several measures be implemented to monitor the stability of the dam, but when he later inquired about the results of the recommended tests, he was told “the results had been lost because the ‘computer's hard drive had burned up.'” Id. ¶¶ 69-70. In response, he “reemphasized the importance of performing the tests, and urged that the tests be made a priority.” Id. ¶ 70.

         The complaint alleges that no “adequate emergency action plan (‘EAP') was ever implemented at the Fundão Dam.” Id. ¶ 71. According to Paulo Sergio Machado Ribeiro Filho, a member of the accident response team for dams at the Germano complex-where Samarco principally conducts its operations, including the Fundão Dam-the dam had no audible alarm system. Id. In addition, the only training he received on how to respond to an accident at the dam was to “consult the emergency action plan, and to take the actions that were the responsibility of the environment team in it, ” and the day the dam collapsed, he “had not been activated to take any action or to perform the duties inherent to the deputy in the environment unit.” Id. He “never participated in any drill for a situation in which the dam ruptures” either. Id.

         The EAP had no mechanism for notifying residents in the town directly below the Fundão Dam in the event of an emergency. Id. ¶ 72. According to Gleison Alexandrino Souza, a contractor who worked at the dam and lived in Bento Rodrigues when the dam collapsed, Samarco “never conducted any training with the community for emergency situations” and “did not issue any statements or warnings to the community near the rupture.” Id.

         In 2009, Samarco retained Rescue Training International (“RTI”) and its director, Randal Fonseca, to create an emergency action plan for its mining units, including the Germano complex and the Fundão Dam and other tailings dams. Id. ¶ 73. In interviews with journalists, Mr. Fonseca explained that “he was hired because an independent audit of Samarco's existing emergency action plan had concluded that the plan did not conform to international technical rules of safety.” Id. “Among other failings, the plan provided no audible alarms or other viable warnings system to alert residents of the towns that were immediately downhill” from the Fundão Dam. Id. Mr. Fonseca designed a new plan to “address these and other deficiencies, ” which he presented to Samarco after “the auditors approved” it. Id.

         While performing other work for Samarco three years later, Mr. Fonseca “noticed that the measures he had included in the EAP he created three years earlier had not been implemented.” Id. ¶ 74. He questioned Samarco's officers about this, and was told that Samarco “decided to use the simpler plan that the auditors had rejected.” Id. Mr. Fonseca opined, in an interview with a Brazilian newspaper, that “the reason for the decision not to implement the plan he recommended was an unwillingness to spend money on security given the tough economic climate at that time.” Id.

         In 2013, in connection with an application to expand the Fundão Dam, the Minas Gerais State Prosecutor's office retained the Instituto Pristino, a not-for-profit environmental and geotechnical modelling institute affiliated with the University of Minas Gerais, to study the dam and prepare a report on its condition and whether the license should be renewed. Id. ¶ 75. The “four experts who prepared the Pristino Report warned of serious risks at the Dam, and recommended that the license not be renewed unless a number of conditions were met.” Id.

         The Pristino Report “warned that the Dam's proximity to an adjacent Vale tailings pond posed serious risks that rising water levels, resulting from the natural flow of surface water, could cause several collapses in the Dam's walls, creating a massive flow of waste.” Id. ¶ 76. The authors concluded that the “structures never should have been adjacent to each other because of their different physical characteristics, ” and the Pristino Report “stated that these design defects had been noted in previous technical reports, and should have been included in the application for renewal.” Id. The complaint alleges that “[t]hese were the same concerns that Mr. Pimenta de Ávila noted in his September 2011 Technical Report.” Id. And like Mr. Pimenta de Ávila's report, the “Pristino Report also recommended that studies on the possible impact of contact between the structures be undertaken.” Id.

         The Pristino Report specifically recommended that the following conditions be placed on renewing the license:

• More frequent (less than one year between tests) geotechnical and structural testing and monitoring of the Dam and adjacent dikes.
• Creation and presentation of a contingency plan for hazards or accidents that may occur, including evidence of the effectiveness of the contingency plan.
• Performance of a break analysis of the Dam, which was supposed to have been delivered to regulators six years earlier. The report noted that this condition was of “extreme importance to ensure the security and integrity of the environment.”

Id. ¶ 77. Ultimately, however, these conditions were not imposed on the license renewal and the recommended steps were not taken, causing the state prosecutor to abstain from the vote approving renewal of the license. Id.

         In September 2014, Mr. Pimenta de Ávila “warned about ‘severe' structural problems in the Fundão Dam” and “urged the company to step up monitoring of water pressure and levels and to reinforce the Dam with a buttress.” Id. ¶ 78. “After seeing cracks and sliding in the Dam that he believed were the beginning of a rupture, Mr. Pimenta de Ávila prepared a written report in which he noted that the ‘geometry of the cracks characterized a vast area with movement typical of sliding which very probably would have been caused by the occurrence of liquefaction involving the foundation tailings from the retreat dikes.'” Id. To protect against liquefaction, he “urged the installation of additional sensors to monitor water levels in the Dam, to monitor the readings daily, and to drill wells and pump out excess water if the readings indicated excessive water.” Id.

         Mr. Pimenta de Ávila also recommended the installation of a buttress at the base of the dam “to prevent the kind of collapse that eventually occurred.” Id. ¶ 79. He “attributes the failure to follow his recommendations to a mistaken belief that a collapse would not happen.” Id.

         Gleison Alexandrino Souza, who worked for the company that performed the work to expand the dam (described above), saw a crack in a “corner” of the dam out of which “water was flowing” while working there in 2014. Id. ¶ 80. According to Mr. Souza, “everybody knew that the crack was there, and the company removed all of the machines from the area and began to repair the cracked spot.” Id.

         According to Brazilian federal prosecutor José Adércio Leite Sampaio, the “Dam had undergone a rapid expansion in the years leading up to the collapse, with the volume of tailings growing by 1100% between 2012 and 2015, from 5 million cubic meters to 55 million cubic meters.” Id. ¶ 81. However, “according to Brazilian police investigating the collapse, as the volume of waste exploded in 2014 and 2015, the volume of water drained from the dam actually decreased, a recipe for the kind of disaster that ensued.” Id.

         According to an article in the Wall Street Journal dated November 24, 2015, prosecutor Sampaio “said that several of the 50 piezometers, ” instruments bored into the dam's walls that measure water pressure and saturation of the soils that comprised the walls, “indicated ‘emergency' levels of pressure and stress before the Dam collapsed.” Id. ¶ 82.

         According to Wagner Alves, Samarco's General Manager for Mining Operations, one of the piezometers “continuously indicated an emergency situation in 2014 and 2015.” Id. ¶ 83. A July 2015 stability report “likewise reported that several piezometers and other instruments recorded emergency levels of water and water pressure in 2014 and 2015, including one that continuously recorded ‘emergency' levels between August 2014 and July 2015 and another between March and May 2015.” Id. Data from the piezometers was collected weekly, not daily as Mr. Pimenta de Ávila had urged. Id.

         On November 5, 2015, the Fundão Dam “began to leak.” Id. ¶ 84. While employees “futilely” tried to reduce the volume of water in the dam, the dam burst, “unleashing a colossal torrent of mud and debris hurtling toward the villages below.” Id. As a result of the dam's collapse, “19 people lost their lives, and hundreds lost their homes and all of their possessions.” Id. The collapse “destroy[ed] Bento Rodrigues and seriously damage[ed] several other nearby towns, ” and the “mudflow flooded the Rio Doce, killing fish and wildlife and polluting the water all the way to the Atlantic Ocean 400 miles away.” Id.

         C. Aftermath of the Fundão Dam Collapse

          The complaint alleges that in “the days and weeks after the collapse, Defendants made numerous public statements disclaiming any responsibility for the collapse or the harm it caused.” Id. ¶ 85.

         On a November 16, 2015 conference call with investors and analysts to discuss the dam collapse, Defendant Pires “claimed that Brazilian and international law prohibited Vale from directly interfering in Samarco's management” and that “Vale and Samarco were completely independent and shared no resources, systems, or support functions” as follows:

And unlike others sometimes, other affiliates, there were no resources shared between Vale and Samarco or BHP and Samarco whatsoever. So we did not share systems. We did not share support functions. We did not share, not even in Mariana, where Vale and Samarco were neighbors, we did not share any type of operations crews, or let's say, safety technicians or communications people or community relations people.

Id.

         On November 27, 2015, Brazilian prosecutors announced that they were going to sue Vale, BHP, and Samarco for $5.2 billion to “pay for the environmental damage they had caused and to compensate victims of the tragedy.” Id. ¶ 86. On December 18, 2015, a Brazilian court “ordered Vale (along with BHP and Samarco) to fund a comprehensive recovery plan to remediate the environmental and societal harm the collapse caused, and froze Vale's Brazilian mining assets to ensure that it complied with its obligations.” Id. In doing so, the “Brazilian court found that there was sufficient evidence to support the probability that Vale was responsible” as a “direct polluter” “inasmuch as the tailings from its mining operations comprised the mass of mud and tailings that caused the environmental disaster, ” and as an “indirect polluter, ” because it was not only a “beneficiar[y]” of Samarco's mining activities, but was “also co-responsible for the decisions made by” Samarco.” Id. Shortly thereafter, the three companies agreed to pay an estimated $6 billion for these purposes. Id.

         D. Defendants' Allegedly Materially False and Misleading Statements

The complaint alleges that during the Class Period in regular press releases, conference calls, public filings and filings with the SEC, Defendants repeatedly made materially false and misleading statements and omissions concerning: (1) the Company's dedication and commitment to health, safety, and the environment; (2) the Company's risk mitigation plans, policies, and procedures; (3) the Company's control over Samarco's operations and its responsibility for the devastating harm the Fundão Dam collapse caused; (4) the Company's purported cost cuts and capital expenditure reductions; and (5) the accuracy and completeness of the Company's 2013 and 2014 Annual Reports.

Id. ¶ 87. Each category of allegedly false and misleading statements is summarized below.

         1. Statements Regarding Vale's Commitment to Health, Safety and the Environment

         According to the complaint, “[t]hrougout the Class Period, Defendants repeatedly touted to investors the Company's focus on the health and safety of employees and the communities in which the Company operates, ” but these statements were “false and misleading.” Id. ¶ 88.

         First, the complaint alleges that during Vale's Capital Markets Day conference, which was held in New York on December 2, 2014, Defendant Ferreira stated: “I would like to assure you that we are striving to build a company of solid values, ” including “respect [for] the environment [and] genuine care for the safety and well-being of fellow colleagues and respect [for] the communities in which our company operates.” Id. ¶ 89. Vania Somavilla, Vale's Executive Director of Human Resources, Health and Safety, Sustainability and Energy, further stated that “[w]e seek nothing less than zero harm[.] [W]e work together with governments and civil society to help build a better regulatory framework[.]” Id. She also stated that Vale's “commitment to promoting a zero harm culture has paid off . . . and we want to do more by reinforcing genuine care, improving safety training, improving risk management and control, and encourag[ing] deviation report[ing] and to improve continuously.” Id. Finally, Somavilla stated that Vale “not only mitigate[s] the impact of our presence, but also leave more than we take then we arrive.” Id.

         The complaint alleges that each of the three individual Defendants was present when Somavilla made these statements, and that Somavilla's statements were “materially false and misleading when made because, among other things, Vale did not respect the environment or the communities in which it operates, did not promote a zero harm culture, did not mitigate the impact of the Company's presence, was not focused on safety, and did not work together with governments and civil society to help build a better regulatory framework.” Id. ¶ 90.

         In Vale's 2013 Sustainability Report, which was publicly released in April 2014, Defendants “reaffirmed the Company's commitment to ‘focusing on health and safety . . . building a positive legacy for communities close to areas where we operate, and adopting best practices in social and environmental management.'” Id. ¶ 91. The 2013 Sustainability Report reports information regarding certain companies, including Samarco, under a category called “Disclosures on Management Approach, ” which “includes companies or entities over which Vale has significant influence” including “affiliates, of which Vale owns 20% to 50% of the voting capital, either directly or indirectly, and companies or entities over which Vale exercises shared control.”[2] This report was also “referenced in a press release that was filed with the SEC on May 8, 2014 on Form 6-K.” Compl. ¶ 91.

         Vale's 2014 Sustainability Report, which was referenced in a press release filed with the SEC on June 1, 2015 on Form 6-K, “contained nearly identical statements.” Id. ¶ 92. Like Vale's 2013 Sustainability Report, Vale's 2014 Sustainability Report provides information regarding Samarco under a category called “Management Approach, ” which “includes companies or entities over which Vale has significant influence” including “affiliates, of which Vale owns 20% to 50% of the voting capital, either directly or indirectly, and companies or entities in which Vale exercises significant control.” The complaint alleges that the statements in the Sustainability Reports were “false and misleading because, among other things, Vale was not focused on health and safety, had not adopted best practices in social and environmental management, and caring for health and safety was not a priority for the Company.” Compl. ¶ 93.

         The complaint alleges that Defendants also made “other, substantially similar statements concerning Vale's focus on health and safety, as well as the environment.” Id. ¶ 94. For example, on December 2, 2013, during a conference call with analysts and investors, Defendants Ferreira, Pires, and Poppinga used slides during the presentation, which were also filed with the SEC on Form 6-K, that “emphasized the Company's ‘culture of genuine care delivering operational excellence, ' the ‘implementation of the health and safety management system, ' and Vale's focus on ‘[r]isk reduction through technical improvements.'” Id. ¶ 94. The “slides also assured investors that Vale would deliver value to shareholders through a focus on ‘[s]afety, sustainability and [the] environment.'” Id.

         During an April 30, 2014 conference call with analysts, Defendant Pires stated that “we within Vale want to take this opportunity to repeat that all of the executive officers and our CEO are committed to achieving the highest possible health and safety standards in our operations.” Id. During an April 30, 2015 conference call with analysts, Defendant Poppinga stated that “[y]ou will see a different Vale in the next few months, quarters and years, very focused on . . . health and safety, more and more.” Id. The complaint alleges that these statements were “materially false and misleading” because Vale “was not focused on health and safety, had not adopted best practices in social and environmental management, and caring for health and safety was not a priority for the Company.” Id. ¶¶ 95, 93.

         Finally, with respect to Defendants' allegedly false and misleading statements concerning Vale's commitment to health, safety, and the environment, the complaint alleges that Vale's Code of Ethics and Conduct, which is publicly available on Vale's website and referenced in SEC filings, provides, in part:

Vale's mission is to transform natural resources into prosperity and sustainable development, aiming to be the number one global natural resources company in creating long term value, through excellence and passion for people and the planet. Therefore, Vale conducts its business activities guided by a set of values that reflect high ethical and moral standards, aimed at assuring credibility and preserving the company's image in the markets in which it regularly operates, in the short and long term. The company's positive reputation and image are an asset of its shareholders, management and employees[.]

Id. ¶ 96. The complaint alleges that these statements were “materially false and misleading because . . . Vale did not conduct its business activities, in particular its tailings dam management, with high ethical and moral standards.” Id. ¶ 97.

         2. Statements Regarding Vale's Mitigation Plans, Policies, and P rocedure s

         The complaint alleges that “[d]uring the Class Period, Defendants repeatedly represented to investors that the Company had risk mitigation plans and procedures in place to address health and safety risks, as well as environmental risks.” Id. ¶ 98.

         On March 27, 2014, Vale filed with the SEC its annual report on Form 20-F for the fiscal year ended December 31, 2013. Id. ¶ 99. The 2013 annual report stated that Vale has a “relentless focus on health and safety, ” as “[h]ealth and safety [are] . . . critical to [its] long-term competitiveness.” Id. The annual report further stated that “[w]e remain focused on achieving a record of zero harm in our operations” and that “[w]e have ‘health, safety and environmental standards and risk management systems and processes in place to mitigate the risk of' environmental, health, and safety incidents.” Id. The 2013 annual report also stated that the “[w]e mitigate operational risk with new controls and improvement of existing ones, ” and “[a]s a result, the Company seeks to have a clear view of its major risks, the cost-benefit on mitigation plans and the controls in place to monitor the impact of operational risk closely. . . .” Id.

         Vale's 2013 annual report defines “Vale” as referring to “Vale S.A., ” and “we, ” “us, ” or the “Company” as referring to “Vale and, except where the context otherwise requires, its consolidated operating subsidiaries.” The annual report also distinguishes between Vale's subsidiaries and its joint ventures, and the list of “principal consolidated operating subsidiaries” provided in the annual report does not include Samarco. Rather, Samarco is defined separately as a “joint venture with BHP Billiton plc in which we have a 50% equity stake.” The complaint alleges that the statements in paragraph 99 were “materially false and misleading when made because Defendants knew or recklessly disregarded that Vale was not focused on health and safety, did not have health, safety and environmental standards and risk management systems and process in place to mitigate risks, and did not mitigate operational risks with new controls and improvement of existing ones.” Compl. ¶ 100.

         Vale's 2013 Sustainability Report stated that Vale “implements actions and measure to prevent, control or compensate for [environmental] impacts, ” and that it has “policies, systematic requirements and procedures designed to prevent and minimize risks and protect lives.” Id. ¶ 101 (brackets in complaint). The report also stated that Vale had developed “technical and operational procedures, control devices, qualified teams, specialist consultancies and period audits in order to identify, control and minimize the risks of its operations, and maintain tolerable levels” and that Vale's “[o]perations are planned and conducted so as to cause the least possible environmental impact[.]” Id.

         With respect to iron ore operations specifically, the 2013 Sustainability Report stated that Vale's “commitment to environmental and social issues is also reflected in the way [it] manage[s] the specific kinds of waste in the production process, ” and that as far as tailings dams are concerned, Vale takes steps to “ensure that such structures are stable in order to control the risks of impacts.” Id. The report further stated that Vale had “invested in processes, systems and tools for the automation of dams monitoring” and that “Vale dams are constructed and operated following strict safety standards and audited periodically to monitor and reduce all potential risks, including structural failures.” Id.

         The complaint alleges that these statements from the 2013 Sustainability Report were “materially false and misleading because, among other things, the Fundão Dam did not follow strict safety standards; Vale did not have policies, systematic requirements and procedures to prevent and minimize risk and protect lives; and did not implement actions and measure so as to cause the least possible environmental impact.” Id. ¶ 102.

         The complaint alleges that Defendants made “similar statements” in Vale's annual report for the fiscal year ended December 31, 2014, which was filed with the SEC on March 20, 2015 on Form 20-F, and that these statements were materially false and misleading for the same reasons. Id. ¶¶ 103-04. Vale's 2014 annual report contains the same definitional limitations as those just discussed with respect to the 2013 annual report. And like the 2013 annual report, the 2014 annual report makes a distinction between Vale's subsidiaries and its joint ventures, with Samarco being defined as “a joint venture with an affiliate of BHP Billiton plc in which we have a 50% equity stake.”

          3. Statements Regarding Control over Samarco's Operations andRegarding Responsibility for the Harm ...


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