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In re Plains All American Pipeline, L.P. Securities Litigation

United States District Court, S.D. Texas, Houston Division

March 29, 2017

IN RE PLAINS ALL AMERICAN PIPELINE, L.P. SECURITIES LITIGATION

          MEMORANDUM AND OPINION

          Lee H. Rosenthal Chief United States District Judge

         Contents

         I. The Parties and the Plaintiffs' Causes of Action ................................ 3

         A. The Plaintiffs ............................................... 3

         B. The Defendants ............................................. 5

         1. The Plains Defendants .................................. 5

         a. The Corporate Defendants ......................... 5

         b. The Individual Defendants ......................... 5

         I. The Officer Defendants ..................... 5

         ii. The Director Defendants .................... 6

         2. The Underwriter Defendants ............................. 6

         C. The Causes of Action ............................................... 7

         II. The Complaint's Factual Allegations and Alleged Misrepresentations .............. 7

         A. Background: Plains's Operations ...................................... 8

         B. Plains's Pre-Class Period Actions and the EPA Consent Decree ............. 9

         C. Plains's Efforts to Rehabilitate Its Image .............................. 10

         D. The Spill ........................................................ 12

         E. Plains Reveals the Severity of the Spill ................................ 13

         F. Investigations Reveal Additional Information About Plains's Maintenance Record........................ 15

         G. Defendants' Knowledge of the Corrosion Problems ...................... 17

         III. The Legal Standards .................................................... 21

         A. Standing ....................................................... 21

         B. Rule 12(b)(6) .................................................... 22

         C. The Exchange Act ................................................ 23

         1. Material Misrepresentations and Omissions ................ 24

         2. Scienter ............................................ 26

         3. Statements of Opinion After Omnicare .................... 28

         4. Section 20(a) of the Securities Exchange Act of 1934 ........ 30

         D. The Securities Act ................................................ 30

         IV. Analysis .............................................................. 32

         A. The Exchange Act Claims .......................................... 32

         1. Statements Alleged to be Misleading ..................... 33

         a. Statements about Plains's efforts in integrity management, corrosion control, and leak detection. . .............. 33

         b. Statements about legal compliance ................. 45

         c. Statements about spill-response capabilities .......... 64

         d. Post-spill statements ............................ 70

         e. Conclusion on material-misrepresentation allegations . . 75

         2. Scienter ............................................ 75

         a. The Scienter Allegations on the Actionable Statements.................. 75

         b. The Plaintiffs' General Scienter Allegations .......... 77

         3. Loss Causation ....................................... 88

         B. The Securities Act Claims: § 11, § 12, and § 15 ......................... 89

         1. Standing ............................................ 89

         2. Rule 9(b)'s Particularization Requirement ................. 97

         3. The Securities Act Claims .............................. 98

         V. Conclusion and Order ................................................... 98

         APPENDIX ................................................................. 99

         The plaintiffs in this putative securities-fraud class action allege that an oil and gas pipeline company falsely claimed to have a comprehensive, effective environmental and regulatory compliance program to prevent oil spills and, if they occurred, quickly remediate the effects. Instead, the plaintiffs allege, the touted compliance program was close to nonexistent, and Plains repeatedly violated regulatory mandates. Plains allegedly deceived the public about its compliance program with falsehoods that inflated the price of the company's securities. The lack of an effective compliance program was dramatically exposed when a Plains pipeline in Santa Barbara County, California, burst and thousands of barrels of oil spilled. Plains securities lost significant value in the aftermath. This lawsuit followed.

         The plaintiffs have sued Plains and several affiliated companies, certain officers and directors, and the banks that underwrote Plains's securities offerings, seeking compensation for the diminished value of Plains securities. The defendants have moved to dismiss the case. The plaintiffs responded, and the defendants replied. (Docket Entries No. 114, 115, 124, 127, 128). The parties presented oral argument at a lengthy hearing in September 2016.

         Based on the briefs, the hearing, the record, and the applicable law, the court grants the motions to dismiss, (Docket Entry Nos. 114, 115), without prejudice and with leave to amend. The reasons are explained in detail below.

         I. The Parties and the Plaintiffs' Causes of Action

         A. The Plaintiffs

         The plaintiffs are individuals and institutional investors who purchased equity and debt instruments issued by entities affiliated with Plains All American Pipeline, a major national oil and gas pipeline operator.[1] Compl. ¶¶ 13-17. They seek to represent a class of Plains investors who purchased Plains All American Pipeline, LP (“Plains”) common units between February 27, 2013 and August 5, 2015, or who purchased Plains GP Holdings, LP (“Plains Holdings”) Class A Shares between October 16, 2013 and August 5, 2015. The plaintiffs also seek to represent those individuals who purchased securities “pursuant and traceable to” certain public securities offerings.

         The plaintiffs' claims arise from the following public offerings:

• the Plains Holdings October 16, 2013 initial public offering of Class A shares (“IPO”);
• the Plains Holdings November 12, 2014 public offering of Class A shares (“Secondary Offering”);
• the Plains February 26, 2015 public offering of common shares (“Plains Offering”);
• the Plains August 8, 2013 public offering of 3.85% senior notes due 2023;
• the Plains April 15, 2014 public offering of 4.7% senior notes due 2044;
• the Plains September 2, 2014 public offering of 3.6% senior notes due 2024; and
• the Plains December 2, 2014 public offering of 2.6% senior notes due 2019 and 4.9% senior notes due 2045.

         Lead plaintiff IAM National Pension Fund is a defined benefit pension plan for members of the International Association of Machinists and Aerospace Workers. IAM bought Plains and Plains Holdings securities on the open market during the relevant class periods. Id. ¶ 13.

         Plaintiff City of Warren Police and Fire Retirement System is a defined benefit governmental retirement system for police and firefighters in Warren, Michigan. It purchased 4.7% Plains notes in the April 2014 offering. Id. ¶ 14.

         Plaintiff Ming Liu is an individual who purchased Plains Holdings Class A shares in the IPO. Id. ¶ 15.

         Plaintiff Jacksonville Police and Fire Pension Fund is a defined benefit government retirement system for police and firefighters in Jacksonville, Florida. It purchased Plains Holdings Class A shares in the IPO and the Secondary Offering. Id. ¶ 16.

         Plaintiff Detroit Police and Fire Retirement System is a defined benefit governmental retirement system for police and firefighters in Detroit, Michigan. It purchased Plains Holdings Class A shares in the Secondary Offering and Plains common units in the Plains Offering. Id. at ¶ 17.

         There is no allegation that the named plaintiffs purchased notes in or traceable to the August 2013 senior-notes offering, the September 2014 senior-notes offering, or the two December 2014 senior-notes offerings. The complaint alleges that named plaintiffs purchased securities in or traceable to four of the eight transactions at issue in this case.

         B. The Defendants

         1. The Plains Defendants

         a. The Corporate Defendants

         Plains All American Pipeline, LP (“Plains”), is a publicly traded Delaware master limited partnership that owns and operates oil and gas pipelines throughout the United States. Id. ¶ 18. A general partner, Plains All American GP LLC (“GP LLC”), manages Plains and employs Plains's officers, directors, managers, and US-based employees. Id. ¶ 19. GP LLC, in turn, is wholly controlled by Plains GP Holdings, LP (“Plains Holdings”), a publicly traded Delaware limited partnership. Id. ¶ 21. Plains Holdings is, in turn, managed by PAA GP Holdings LLC (“Holdings LLC”), which owns the general partner interest in Plains Holdings and directs that entity's activities. Id. ¶ 26. Plains itself wholly owns PAA Finance Corp., a Delaware corporation formed in 2001 to co-issue Plains's debt securities. Id. ¶ 25. Each entity is a named defendant.

         b. The Individual Defendants

         I. The Officer Defendants

         Greg L. Armstrong is the CEO and Chairman of the Board of GP LLC, Plains's general partner, Holdings LLC (Plains Holdings's general partner), and PAA Finance. Id. ¶ 27. Armstrong signed all of the securities offering materials at issue in the case and many of the SEC filings alleged to contain false and misleading statements and allegedly made false or misleading statements at investor meetings. Id.

         Chris Herbold is the Vice President - Accounting and Chief Accounting Officer of GP LLC, PAA Finance, and Holdings LLC. Id. ¶ 28. He signed the registration statements for some of the securities offerings, as well as the SEC filings that contained allegedly misleading statements. Id.

         Richard McGee is the Executive Vice-President, General Counsel, and Secretary of GP LLC and Holdings LLC. Id. ¶ 29. He signed the SEC filings that allegedly contained false and misleading statements. Id.

         Harry Pefanis is President and Chief Operating Officer of GP LLC and Holdings LLC, and President of PAA finance. Id. ¶ 30. Pefanis signed the registration statement for some of the securities offerings and other SEC filings that contained allegedly false or misleading statements. Id.

         Al Swanson is the Executive Vice-President and Chief Financial Officer of GP LLC, PAA Finance, and Holdings LLC. Id. ¶ 31. Swanson signed the allegedly misleading registration statements and SEC filings. Id.

         ii. The Director Defendants

         In addition to these Officer Defendants, the plaintiffs sued various Director Defendants. Victor Burk, Everardo Goyanes, Gary Petersen, John Raymond, Bobby Shackouls, Robert Sinnott, Vicky Sutil, Taft Symonds, and Christopher Temple were all allegedly directors of various Plains entities for at least some of the relevant period. All allegedly signed securities-offering materials containing untrue or misleading statements. Id. ¶¶ 33-41.

         2. The Underwriter Defendants

         In addition to the Plains Defendants, the plaintiffs sued various underwriter defendants. They are all financial institutions alleged to have participated in at least one Plains securities offering in which the relevant registration statement or other offering materials contained false or misleading statements. Id. ¶¶ 42-79. Different underwriter defendants allegedly participated in each of the securities offerings at issue.[2]

         C. The Causes of Action

         The plaintiffs assert claims under:

• § 10(b) of the Exchange Act and Rule 10b-5 against Plains, Plains Holdings, and the Officer Defendants;
• § 20(a) of the Exchange Act against Holdings LLC, Plains Holdings, and the Officer Defendants;
• § 11 of the Securities Act against all defendants;
• § 12(a)(2) of the Securities Act against the Underwriter Defendants; and • § 15 of the Securities Act against Holdings LLC, Plains Holdings, the Officer Defendants, and the Director Defendants.

         For the Exchange Act claims under § 10(b)/Rule 10b-5 and § 20(a), the plaintiffs seek to represent a class consisting of those purchasing Plains common units between February 27, 2013 and August 5, 2015, and those purchasing Plains Holding Class A shares between October 16, 2013 and August 5, 2015. For the Securities Act claims under §§ 11, 12, and 15, the plaintiffs seek to represent a class of those purchasing securities “pursuant and traceable to” these offerings. Id. ¶¶ 1-2.

         II. The Complaint's Factual Allegations and Alleged Misrepresentations

         This factual recitation is drawn from the plaintiffs' Consolidated Amended Complaint, (Docket Entry No. 70). For purposes of this motion to dismiss, these allegations are taken as true except to the extent that they are contradicted by the narrow category of documents the court may consider on a motion to dismiss without converting it into one for summary judgment. The allegations are summarized, identifying the contested points.

         A. Background: Plains's Operations

         Plains All American Pipeline is a publicly traded MLP. Its business is interstate and intrastate crude-oil pipeline transportation and storage. Before and during the class period, Plains was one of North America's largest energy pipeline operators. It grew primarily by acquiring significant pipeline and terminal networks. Compl. ¶ 85. The assets acquired included Lines 901 and 903, built in 1987 and acquired by Plains in 1998. Line 901 extends approximately 10 miles along the California coast, where it connects to Line 903, which continues 128 miles through Santa Barbara County and into Kern County. Id. ¶ 86.

         During the class period, most of the Plains pipelines, including Lines 901 and 903, were under the regulatory jurisdiction of the Pipeline and Hazardous Materials Safety Administration. The Pipeline Safety Administration enforces regulations under the Hazardous Liquids Pipeline Safety Act of 1979. Id. ¶ 87. Federal regulations enacted under the Act, referred to in this opinion as the “Pipeline Safety Act, ” required Plains to “adopt measures designed to reduce the environmental impact of oil discharges from onshore pipelines, including the maintenance of comprehensive spill response plans and the performance of extensive spill response training for pipeline personnel.” Id. ¶ 87. 2002 and 2006 amendments to the Pipeline Safety Act required Plains to “implement integrity management programs, including more frequent inspections, correction of identified anomalies and other measures to ensure pipeline safety in ‘high consequence areas, ' such as high population areas, areas unusually sensitive to environmental damage, and commercially navigable waterways.” Id. ¶ 88. Pipeline Safety Administration regulations also required Plains to implement enhanced measures in high-consequence areas. Id.

         Lines 901 and 903 were in a high-consequence area because they were close to the environmentally sensitive Santa Barbara coastline, rivers, state parks, and national forests. Plains had to comply with the Pipeline Safety Administration's enhanced high-consequence area requirements for Lines 901 and 903. Id. Plains was also generally, and specifically for Lines 901 and 903, subject to the Federal Water Pollution Control Act, referred to here as the “Clean Water Act, ” as amended. That Act imposes restrictions on the discharge of pollutants, like crude oil, into navigable waters of the United States as well as into state waters. Id. ¶ 89.

         Plains stated (falsely, say the plaintiffs) throughout the class period that it was in compliance with these laws and regulations. Plains also promised investors that it had implemented pipeline maintenance and integrity measures “beyond regulatory mandate.” Id. ¶ 91.

         B. Plains's Pre-Class Period Actions and the EPA Consent Decree

         Before and during the class period, Plains pipelines had a series of oil spills that “rendered Plains one of if not the worst safety and environmental-regulation violators in the pipeline business.” Id. ¶ 92. Plains and its related companies reported 229 safety and maintenance “incidents” on pipelines to the federal regulators, more than all but three other reporting companies. These incidents resulted in more than $141 million in property damage and the release of more than 800, 000 gallons of hazardous liquids. Id.

         The EPA sued Plains in 2010 and obtained a consent decree requiring Plains to pay significant fines for regulatory violations and to adopt new safety measures to prevent spills and reduce the impact when they did occur. The consent decree required Plains, among other things, to: spend $41 million to upgrade more than 10, 000 miles of pipeline; conduct weekly aerial patrols of certain pipelines to check for leaks; spend millions to mitigate leak threats from corrosion; install computational pipeline-monitoring capabilities; and conduct ongoing monitoring of its pipeline system. Id. ¶ 94. None of the $41 million was spent on upgrading or repairing Lines 901 or 903. Id. The plaintiffs repeatedly allege that the consent decree specifically required Plains to repair, upgrade, monitor, and take other actions on Lines 901 and 903. The consent decree is a public document central to the plaintiffs' complaint, so the court may consider it on a motion to dismiss. The defendants insist that the decree does not support the plaintiffs' characterization. The consent decree is discussed in great detail later in this opinion. For now, it is enough to note that while, as the plaintiffs argue, the decree does include Lines 901 and 903 on a lengthy list of lines subject to certain requirements, it does not require specific expenditures on Lines 901 or 903. And, as the defendants emphasize, the United States and Plains jointly terminated the consent decree in 2013. See Docket Entry No. 20, United States v. Plains All American Pipeline, LP, 4:10-cv-2833 (S.D. Tex. Nov. 26, 2013).

         C. Plains's Efforts to Rehabilitate Its Image

         In the wake of the consent decree, Plains executives tried to assure investors that it had adopted enhanced measures to ensure pipeline integrity. Id. ¶ 98. The 2012 10-K form, filed the first day of the class period, reassured investors that “pipeline integrity management” was Plains's “primary operational emphasis, ” and that Plains had “implemented programs intended to maintain the integrity of our assets, with a focus on risk reduction through testing, enhanced corrosion control, leak detection, and damage prevention.” Id. The Form 10-K stated that the Plains “pipelines are in substantial compliance with [applicable regulations]” and that Plains's “integrity management program” included measures that went well beyond legal requirements, including “several internal programs designed to prevent incidents and . . . activities such as automating valves and replacing river crossings.” Id.

         At a 2014 Investor Day conference, Plains CEO Greg Armstrong stated that “safety is a core value” and that Plains “foster[s] a culture that emphasizes operational excellence, asset integrity, & safety.” Id. ¶ 99. The top three items in Armstrong's presentation were “Safety, ” “Pipeline Integrity Management, ” and “Incident Response Preparation.” Id. Armstrong assured investors that “[w]e are committed to operational excellence in safety, pipeline integrity management, and responding to incidents in the unfortunate development that they do occur.” Id.. Armstrong also stated that “we do a lot and I mean a tremendous amount that will never be appreciated by the public” on safety and spill prevention. Id.

         Plains also represented that its officers were involved in the company's safety, pipeline-integrity, and incident-response work. Id. ¶ 100. During the class period, Plains's website asserted that its Environmental, Health, and Safety Program was “successful because it is developed, supported and carried out by our employees, from the senior management team down[;]” that “Plains All American is committed to public safety, protection of the environment and operation of our facilities in a prudent and safe manner[;]” and that the Plains entities“believe that all of our pipelines have been constructed and maintained in all material respects in accordance with applicable federal, state and local laws and regulations, standards proscribed by the American Petroleum Institute and accepted industry practice.” Id. The website went on to state that Plains had “devote[d] substantial resources to comply with [government]-mandated pipeline regulatory rules, ” including “requirements for the establishment of pipeline integrity management programs and for protection of ‘high consequence areas'” (like Santa Barbara's coastline) “where a pipeline leak or rupture could produce significant adverse consequences.” Id. ¶ 101. The website also stated that Plains had “developed and implemented certain pipeline integrity measures that go beyond [its] regulatory mandate.” Id.

         Plains assured investors that, when a leak was detected, the company would immediately respond, coordinate with public officials, and implement a comprehensive plan to prevent severe environmental impacts. Id. ¶ 103. But, the plaintiffs say, these promises of safe and effective pipeline operation were illusory. Instead, the company had disregarded its pipeline-integrity and maintenance obligations, with predictable results. Id. ¶ 102.

         D. The Spill

         On May 19, 2015, Line 901 ruptured and spilled oil into the Pacific Ocean and environmentally sensitive coastal areas. The spill killed nearly 200 birds and more than 100 marine mammals, including dolphins and sea lions. Id. ¶ 104-06. At an Investor Day conference held shortly after the spill, Armstrong conceded that “[i]f you could pick any place in the world you would not want to have a release, [Santa Barbara] would probably qualify as the one.” Id. ¶ 106. Plains's response to the spill left much to be desired. State law required Plains to report the spill to the federal National Response Center within 30 minutes of detection. Instead, Plains did not report the spill to the National Response Center until hours after it was discovered. Id. ¶ 108. Plains's own response plans indicated that it should take no more than 15 minutes to discover a release and shut down the flow. Plains officials noticed the anomalies in Line 901 by 10:30 a.m. and shut the pipeline down at 11:30 a.m. Government officials first learned of the spill through a 911 call from beachgoers-not from Plains-at approximately 11:42 a.m. The local fire department notified the National Response Center of the spill at 12:43 a.m., well over two hours before Plains itself notified the agency. Id.

         According to the plaintiffs, Plains's “spin operation” was far more effective than its on-the-ground response. Plains officials stated that the company's “worst case” estimate showed that, at most, 21, 100 gallons of oil had spread into the ocean, and as many as 105, 000 gallons had been released. Id. ¶ 109. On May 26, 2015, Plains filed a Form 8-K with the SEC. The Form 8-K described the spill and stated that Plains “currently estimates that the amount of released crude oil could be as high as approximately 2, 400 barrels, ” equivalent to 101, 000 gallons of oil; this represented a 4, 000 gallon reduction from the initial “worst case” estimate. Id. Plains allegedly waged a public-relations campaign to create the impression that it was working efficiently and effectively to remedy the spill. Id. ¶¶ 110-11.

         E. Plains Reveals the Severity of the Spill

         On August 5, 2015, Plains disclosed in an investor presentation that as much as 143, 000 gallons of oil might have leaked, an amount 42% larger than previously reported. Id. ¶ 112. Plains also disclosed that: both the U.S. Department of Justice and the California Attorney General were investigating the spill; Plains could be liable for criminal violations of the Clean Water Act; and Lines 901 and 903 were subject to multiple Pipeline Safety Administration corrective actions. Id. For the first time, according to the plaintiffs, Plains disclosed that the spill would cost the company $257 million-not including lost revenue associated with shutting down Lines 901 and 903-and that Plains's insurance did not cover all the costs. Id.

         In the August presentation, Plains explained its revision:

In the second half of June we completed the process of emptying and purging Line 901, which resulted in the removal of approximately 26, 000 barrels of crude oil from the line. This activity provided additional data to assess the reasonableness of our worst case estimate of 2, 400 barrels based on the “drain-down” methodology.

Id. ¶ 114. But this statement, the plaintiffs say, was also inaccurate. Plains completed purging Line 901 by May 28, 2015, not in the second half of June, and knew the true extent of the spill for at least two months before disclosing the results of the purge process to investors.[3] During these two months, the defendants communicated regularly with investors and the public. The communications included the following:

• On June 4, 2015, defendants hosted an investor day, at which Armstrong discussed the Santa Barbara oil incident and encouraged investors to visit the Plains website for “daily updates” on the spill. Id. ¶ 116.
• On June 10, 2015, as reflected in Plains's June 11, 2015 Form 8-K filed with the SEC, individual defendants spoke at a media briefing and answered reporters' questions about the Line 901 crude release. Id.
• On the www.plainsline901response.com website, in the “daily updates” section, Plains posted: (1) incident updates on June 29, 2015, July 6, 2013, and July 13, 2015; (2) “Recovery Q&As” on June 17, 2015; and (3) the investor-day presentation on June 4, 2015 and Armstrong's letters to members of Congress on June 24, 2015. Id.
• The defendants and other Plains representatives had numerous conversations with the press about the spill between May 28, 2015 and August 5, 2015. Id.

         The Pipeline Safety Administration had required Plains to have a spill-response plan for Lines 901 and 903. That plan, in place before the spill occurred, estimated the worst-case scenario for a spill from Line 901 at 167, 000 gallons, closer to the actual damage than to Plains's initially released estimates. Id. ¶ 118. The plan's risk analysis assumed “10 minutes total time to detect the rupture and 5 minutes to shutdown pipeline.” Id. ¶ 119. But on the day of the spill, Plains employees did not try to remedy the rupture for more than two hours after it began. Id. The plaintiffs point to this delay as evidence of Plains's misrepresentations about pipeline safety.

         F. Investigations Reveal Additional Information About Plains's Maintenance Record

         On May 21, 2015, the Pipeline Safety Administration issued a Corrective Action Order requiring Plains to take certain actions on Line 901. Id. ¶ 120. The May 21 Order noted that Plains's inspections of Line 901 in June 2007 and July 2012 had demonstrated declining pipeline integrity. Id. The Administration noted that Plains had used shrink-wrap sleeve coating on Line 901, which increases the likelihood of corrosion and therefore leaks. The May 21 Order required Plains to shut down Line 901, conduct extensive testing, review the company's emergency plans and training, and identify other shrink-wrapped parts of the line. Id. On June 3, 2015, the Administration issued an amended Corrective Action Order, which identified “extensive external corrosion” on Line 901 and “extensive corrosion” (among other deficiencies) on the adjoining Line 903. Id. ¶ 121.

         On September 11, 2015, the Pipeline Safety Administration issued a Notice of Probable Violation based on its September and October 2013 inspections of Lines 901 and 903. Id. ¶ 124. The Notice stated that Plains had likely violated regulations requiring it to keep records of its pipeline-integrity management efforts for lines in high-consequence areas, including records of required tests on Line 903. Id. ¶¶ 126-27. The Notice also stated that Plains did not have records of heightened prevention and mitigation efforts in other high-consequence areas and did not have records indicating what process it used to determine what measures it should take. Id. ¶ 128. The Notice stated that Plains could not produce documents showing its required annual review of its emergency-response training or showing the contractors performing the tasks that the regulations required. Id. ¶¶ 129-130.

         The Pipeline Safety Administration Notice of Probable Violation stated that the violations were “determined prior to the May 19, 2015 crude oil spill in Santa Barbara” and that the Administration asked Plains to provide “additional information following” the Administration's inspection. Plains provided the information in late 2013 and June 2014. Id. ¶ 131. The Notice stated that “during the course of our inspection, our representatives found concerns that may impact your current level of safety” and “discussed” those concerns with Plains representatives. One of these concerns was that “Plains had unclear procedures and documentation of its decision making process for addressing when in-line inspection (ILI) tool run data indicates anomalous conditions.” Id. ¶¶ 132-33. Additionally, Plains did not appear to have adequate documentation of its plans for contacting emergency responders if a spill occurred in California. Id. at ¶¶ 134-35.

         On November 12, 2015, the Pipeline Safety Administration sent yet another amendment to the May Corrective Action Order. The amended Order required more remedial measures and included additional findings on Plains's pipeline maintenance. Id. ¶ 136. The amended Order also made several additional findings:

• The Administration's independent review of in-line inspection tool surveys for Lines 901 and 903 over the past 10 years found that anomalies were “under-called” in areas of general corrosion.
• Despite common industry practice, Plains did not share its in-line inspection field data with the vendor for that task, preventing Plains from more accurately analyzing its inspection data.
• The Administration's independent review of in-line inspection surveys from the past 10 years show that Line 903 has corrosion characteristics similar to Line 901's, and a number of the Line's anomalies had characteristics consistent with the Line 901 failure site.
• Based on the number of anomalies identified on Line 903, it did not appear that Plains had an effective corrosion-control program, meaning that Line 903 had likely degraded further since the last in-line inspection.
• Line 903 had shrink-wrap sleeves on some weld sites, which could contribute to stress corrosion cracking.

Id.

         Based on these findings, the Pipeline Safety Administration required Plains to take Line 903 off-line, purge it, and try to identify problems like those found on Line 901. Plains was also ordered to provide its in-line inspection vendor with field data, to provide additional training, and to implement enhanced measures to monitor Line 903 during the purge-and-inspection period. Id. ¶ 137. The Administration's findings, the plaintiffs assert, were based on data that Plains either knew about or recklessly disregarded. The plaintiffs cite the fact that the Administration's conclusions about the in-line inspection under-call bias were derived from Plains's own data. Id. ¶ 138.

         G. Defendants' Knowledge of the Corrosion Problems

         Plains conducted in-line inspection runs on Line 901 in 2007, 2012, and on May 5, 2015, shortly before the spill. Id. ¶ 139. After the 2007 run, Plains obtained permits to address 15 anomalies on Lines 901 and 903. Thirteen of the anomalies were on Line 901. One of the sites that Plains excavated as part of that process appears to have been where the 2015 spill occurred. Id. ¶¶ 140-41. The 2007 run revealed extensive corrosion on Line 901, despite Plains's pipeline-integrity management efforts. Id. ¶ 143.

         After the 2012 run, Plains sought permits to address 82 anomalies on Line 903. The plaintiffs allege that these are the same anomalies that led to the eventual shutdown of that line. Id. at ¶ 141. On May 5, 2015, shortly before the spill, Plains's in-line inspection vendor ran an inspection that revealed four areas in Line 901 requiring immediate investigation under the relevant regulations and under the Plains integrity management plan. The vendor's ordinary practice was to notify Plains immediately after completing a “first pass” through the data, a process that allegedly took 7 to 14 days. Id. ¶ 142. Plains would have received the data, at the latest, on the day of the spill. Plains was required to shut down the line pending resolution of the anomalies as soon as it received the data. It did not. Id. Plains's failure to provide its in-line inspection vendor with the field data necessary to calibrate the inspection tools (an industry-standard practice that Plains did not follow), meant that these anomalies might have been only a fraction of those actually present, because the tools were under-calling the degree of corrosion. The corrosion was caused, at least in part, by Plains's decision to shrink-wrap several of the pipe weld sites. These plastic coatings are prone to “disbonding, ” increasing the likelihood of corrosion and other problems. Id. ¶ 146. Plains allegedly knew that shrink-wrap coating increased these risks, but did not commensurately increase its inspections or maintenance work on Lines 901 and 903. Id. ¶ 147. To make matters worse, when the leak occurred, Plains was operating Line 901 at pressures above its maximum safe operating pressure in light of the level of corrosion in the pipe walls. Indeed, according to the plaintiffs, if Plains had properly avoided under-call bias by calibrating its in-line inspection tools, it would have known that the level of corrosion in the pipe section exceeded the level requiring immediate repair or reduction of pressure. Id. ¶¶ 153, 155. In short, the plaintiffs allege, the 2007 in-line inspection corrosion results indicate that Plains was operating Line 901 in clear violation of Pipeline Safety Administration guidelines, greatly increasing the risk of a severe rupture and spill. Id. ¶ 156.

         Lines 901 and 903 were built beginning in 1987. Plains's SEC filings indicated that they had a maximum useful life of 30 years. In 2015, when Line 901 ruptured, it was 28 years old. Id. ¶ 158. Plains knew that the pipelines were likely to have degraded. But, because production volumes for the fields that Lines 901 and 903 serviced declined significantly after the mid-1990s, Plains had little incentive to spend money on repairing these aging pipelines. Plains's insurance coverage also significantly reduced incentives to repair the lines. Id. ¶¶ 159-161. Even more disincentive arose, according to the plaintiffs, from the fact that money spent to repair the pipelines would have impacted financial-performance metrics that were primary drivers of the individual defendants' bonuses. Id.

         The plaintiffs also point to a variety of other environmental incidents and regulatory penalties that Plains experienced across its pipeline network in the years prior to the Santa Barbara spill, suggesting that Plains had a widespread culture of noncompliance. Id. ¶¶ 176-77. The plaintiffs cite Pipeline Safety Administration data that ranks Plains among the worst pipeline operators in the United States, measured by total incidents and by incidents per thousand miles of pipeline. Id. ¶ 178.

         Despite these failures and problems, Plains represented throughout the class period that it had effective safety and integrity programs supervised by high-level executives. Plains's SEC filings stated that the firm's directors “have access to members of management, and a substantial amount of information transfer and informal communication occurs between meetings.” Id. ¶ 185. Plains's Senior Vice-President of Engineering, who was responsible for the integrity program, was a senior executive, routinely in contact with Plains's top-level management and the board. Plains stated, for example, that “[i]n addition to required activities, our integrity management program includes several internal programs designed to prevent incidents and includes activities such as automating valves and replacing river crossings.” Id. ¶ 184. But even while it made this statement, Plains was the only pipeline operator that did not install automatic shutoff valves on its Santa Barbara pipelines. Id.

         Plains represented that its environmental and safety program was “successful” because it was “developed, supported and carried out by our employees, from the senior management team down to the newest hire.” Id. At a meeting attended by Armstrong, Pefanis, and Swanson, Armstrong stated:

We have implemented a tremendous amount of testing procedures, Dan Nerbonne and Rick Jensen and their groups in both U.S. and Canada spend a tremendous a[m]ount of time investing in testing and trying to advance technologies to be able to monitor the pipe and to proactively get in front of some of these opportunities and issues.

Id. ¶ 186.

         The plaintiffs also point to the consent decree, which required Plains to implement an improved pipeline-integrity management program and corrosion-control measures, as well as other changes designed to reduce the risk of spills. Id. ¶ 187. Plains was required to check in with the EPA twice a year, setting out the progress it had made on these new measures. Plains represented in SEC filings that it had “developed and implemented certain pipeline integrity measures that go beyond regulatory mandate, some of which are now incorporated in the 2010 Consent Decree.” As part of making “pipeline integrity management” a “primary operational emphasis, ” Plains had instituted an “internal review process pursuant to which we examine various aspects of our pipeline . . . systems that are not subject to the DOT pipeline integrity management mandate.” Id.

         The plaintiffs allege that the corporate and individual defendants were severely reckless in continuing to promote Plains's safety record while simultaneously allowing the pipelines to waste away for want of repairs. This recklessness was due, the plaintiffs allege, to the defendants' financial interest in boosting Plains's profits. The ownership structure and internal incentive schemes of the various Plains partnerships and companies rewarded each group of defendants for distributing cash to Plains All American's unit-holders. The officer defendants' multimillion-dollar bonuses depended on their ability to generate cash, meaning that they had no incentive to repair the company's decaying pipelines. Id. ¶¶ 188-199.

         These allegations are examined in light of the legal standards and the documents properly considered in this motion.

         III. The Legal Standards

         A. Standing

         Federal Rule of Civil Procedure 12(b)(1) applies to challenges to a plaintiff's standing. “A case is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case.” Home Builders Ass'n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998) (citation and internal quotation marks omitted). A court lacks power to decide a claim that a plaintiff lacks standing to bring. The plaintiff has the burden of demonstrating that subject-matter jurisdiction exists. See Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981). Standing requires: “(1) an ‘injury in fact' that is (a) concrete and particularized and (b) actual or imminent; (2) a causal connection between the injury and the conduct complained of; and (3) the likelihood that a favorable decision will redress the injury.” Croft v. Governor of Tex., 562 F.3d 735, 745 (5th Cir. 2009) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). The plaintiff “must demonstrate standing for each claim he seeks to press.” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006). Therefore, “under the general principles of standing, ‘a litigant may not merely “champion the rights of another.'” Audler v. CBC Innovis Inc., 519 F.3d 239, 248 (5th Cir. 2008) (quoting Scottsdale Ins. Co. v. Knox Park Constr., Inc., 488 F.3d 680, 684 (5th Cir. 2007)).

         B. Rule 12(b)(6)

         Rule 12(b)(6) allows dismissal if a plaintiff fails “to state a claim upon which relief can be granted.” In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), the Supreme Court confirmed that Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2). To withstand a Rule 12(b)(6) motion, a complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Id. at 570; see also Elsensohn v. St. Tammany Parish Sheriff's Office, 530 F.3d 368, 372 (5th Cir. 2008). In Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court elaborated on the pleading standards discussed in Twombly. The Court explained that “the pleading standard Rule 8 announces does not require ‘detailed factual allegations, ' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. at 678 (quoting Twombly, 550 U.S. at 555). Iqbal explained that “[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556).

         “[I]n deciding a motion to dismiss for failure to state a claim, courts must limit their inquiry to the facts stated in the complaint and the documents either attached to or incorporated in the complaint.” Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir. 1996). A court may “consider documents integral to and explicitly relied on in the complaint, that the defendant appends to his motion to dismiss, as well as the full text of documents that are partially quoted or referred to in the complaint.” In re Sec. Litig. BMC Software, Inc., 183 F.Supp.2d 860, 882 (S.D. Tex. 2001) (internal quotation marks omitted). Consideration of documents attached to a defendant's motion to dismiss is limited to “documents that are referred to in the plaintiff's complaint and are central to the plaintiff's claim.” Scanlan v. Tex. A & M. Univ., 343 F.3d 533, 536 (5th Cir. 2003) (citing Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). In securities cases, courts may take judicial notice of the contents of public disclosure documents that the law requires be filed with government agencies, such as the SEC, and that are actually filed with the agency. Lovelace, 78 F.3d at 1018 n.1. The court may consider these matters of public record without converting the motion into one seeking summary judgment. See Funk v. Stryker Corp., 631 F.3d 777, 780 (5th Cir.2011); Isquith v. Middle S. Utils., Inc., 847 F.2d 186, 193 n.3 (5th Cir. 1988) (quoting 5 Wright & Miller, Federal Practice and Procedure § 1366); Jathanna v. Spring Branch Indep. Sch. Dist., No. CIV.A. H-12-1047, 2012 WL 6096675, at *3 (S.D. Tex. Dec. 7, 2012).

         C. The Exchange Act

         Under § 10(b) of the Securities Exchange Act of 1934, “[i]t shall be unlawful for any person, directly or indirectly, . . . [t]o use or employ, in connection with the purchase or sale of any security registered on a national securities exchange . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). SEC Rule 10b-5 implements § 10(b) by forbidding, among other things, the making of any “untrue statement of material fact” or the omission of any material fact “necessary in order to make the statements made . . . not misleading.” 17 C.F.R. § 240.10b-5. The Supreme Court has held that § 10(b) affords a right of action to purchasers or sellers of securities injured by its violation. Tellabs, Inc., v. Makor Issues & Rights, Ltd., 551 U.S. 308, 318, 127 S.Ct. 2499 (2007). “But the statutes make these latter actions available, not to provide investors with broad insurance against market losses, but to protect them against those economic losses that misrepresentations actually cause.” Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 345 (2005) (internal citations omitted).

         To state a private claim under § 10(b), a plaintiff must allege: (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation. R2 Invs. LDC v. Phillips, 401 F.3d 638, 641 (5th Cir. 2005) (internal citations omitted).

         1. Material Misrepresentations and Omissions

         A plaintiff who asserts securities fraud in violation of § 10(b) and Rule 10b-5 must comply with the pleading requirements of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act. See Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 239 (5th Cir. 2009); see also Tellabs, 551 U.S. at 322. Rule 9(b) requires the complaint to “state with particularity the circumstances constituting the fraud.” Fed.R.Civ.P. 9(b). In the Fifth Circuit, the Rule 9(b) standard requires “specificity as to the statements (or omissions) considered to be fraudulent, the speaker, when and why the statements were made, and an explanation why they are fraudulent.” Plotkin v. IP Axess Inc., 407 F.3d 690, 696 (5th Cir. 2005). “Put simply, Rule 9(b) requires ‘the who, what, when, where, and how' to be laid out.” Benchmark Electronics, Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir. 2003); see also Carroll v. Fort James Corp., 470 F.3d 1171, 1174 (5th Cir. 2006).

         As Judge Ellison explained in a similar case arising from the BP Deepwater Horizon ...


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