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Neiman v. Bulmahn

United States Court of Appeals, Fifth Circuit

April 21, 2017

BRIAN M. NEIMAN; WILLIAM KRUSE; and THE MOSHE ISSAC FOUNDATION, Individually and on behalf of all others similarly situated, Plaintiffs - Appellants

         Appeal from the United States District Court for the Eastern District of Louisiana

          Before HIGGINBOTHAM, ELROD, and HIGGINSON, Circuit Judges.

          STEPHEN A. HIGGINSON, Circuit Judge

         This securities class action concerns ATP Oil & Gas Corporation's ("ATP") collapse into bankruptcy. Plaintiffs-Appellants were shareholders of ATP, a company engaged in the acquisition, development, and production of oil and gas properties. Plaintiffs allege that Defendants, each of whom was an officer or director of ATP, misrepresented (1) the production of Well 941 #4 ("Well #4") (a new well that ATP brought online in 2011), (2) ATP's liquidity and whether the company had the available funds to complete the Clipper pipeline (a pipeline project that ATP anticipated completing in late 2012), and (3) the true reason that Matt McCarroll resigned as CEO of ATP. The district court dismissed Plaintiffs' Second Amended Complaint with prejudice. Plaintiffs appealed. We AFFIRM.



         ATP was a Texas company that developed oil and gas properties. As of March 2010, ATP had an interest in 104 wells in the Gulf of Mexico. Defendants were each officers of ATP. Defendant T. Paul Bulmahn served as Chairman, Chief Executive Officer, and director of ATP from May 2008 through the bankruptcy. Defendant Albert L. Reese, Jr., served as CFO of ATP from March 1999 through the bankruptcy. Defendant Keith R. Godwin served as ATP's Chief Accounting Officer from April 2004 through the bankruptcy. Defendant Leland E. Tate served as President of ATP from May 2008 through the bankruptcy.

         B. Well #4

         In August 2011, ATP began production from Well #4. ATP stated that "[t]he well delivered on ATP's original expectations with an initial rate exceeding 7, 000 Boe [barrels of oil equivalent] per day . . . . Company-wide production now exceeds 31, 000 Boe per day."

         On September 12, 2011, Reese re-stated that ATP projected its total production at 31, 000 Boe per day. On September 26, 2011, Moody's Investors Service issued a report, which claimed that ATP's cash flow was "not sufficient to cover" ATP's outstanding notes. Reese responded to the Moody's article on September 29, 2011, stating, "I can't fight rumors or reports, all I can do is continue to deliver on the promises we've made. Our expectation is that everything is going to be fine."

         Plaintiffs claim that both of Reese's statements were false and misleading because Well #4 actually was producing far less than the projected 7, 000 Boe per day. In November 2011, ATP disclosed that Well #4 actually was producing 3, 500 Boe per day.

         C. ATP's Liquidity and Financial Condition

         Plaintiffs raise a number of allegations concerning Defendants' representations that ATP's liquidity and financial condition were solid from 2010 to 2012. Throughout the period, Defendants routinely stated that ATP had sufficient liquidity to meet its capital needs. Plaintiffs allege that each of these statements was false or misleading, arguing that in fact from 2010 to 2012, ATP's financial condition was worsening and its liquidity position was crumbling. In support, Plaintiffs first point to Reese's testimony at ATP's bankruptcy hearing where Reese testified that ATP was "facing a severe liquidity crisis[.]" Second, Plaintiffs argue that ATP's reliance on financing signaled its imminent liquidity crisis. Namely, Plaintiffs allege that beginning in April 2010, ATP was forced to sell a significant portion of future production from its wells (in the form of overriding royalty interests ("ORRIs") and net profit interests ("NPIs")-financial instruments that sell a percentage of future income from an asset) to finance drilling projects. In support, Plaintiffs cite Confidential Witness Three ("CW3"), a certified public accountant who worked in ATP's accounting and finance department from June 2010 to October 2011, and who observed that "even if [ATP's wells] produced like gangbusters, they don't have a right to that money-their cash flows are already spoken for." Third, Confidential Witness Four ("CW4"), the Vice President of Production at ATP from June 2001 until October 2013, additionally noted that during the class period, ATP often delayed maintenance work and payments to vendors in order to manage cash flow. Indeed, by May 2012, ATP's cash position became so strained that it withheld approximately $23.2 million in ORRI and NPI payments in order to stave off bankruptcy.

         D. The Clipper Project

         Up until its bankruptcy, ATP was developing the Clipper wells in the Gulf of Mexico. ATP believed that the Clipper wells held plentiful reserves. However, to monetize those reserves ATP needed to build a pipeline connecting the Clipper wells to the nearest oil production platform. The total cost of completing the Clipper pipeline was estimated at between $140 million and $150 million. ATP's management believed that the revenue from the Clipper wells would alleviate ATP's poor financial condition. ATP's management routinely touted the Clipper project's potential revenue. Plaintiffs allege that each of these statements was false and misleading because ATP did not have the available capital or access to capital necessary to complete the Clipper pipeline.

         E. Matt McCarroll's Resignation

         On June 1, 2012, ATP issued a press release announcing that Matt McCarroll had been hired as CEO, replacing Defendant Bulmahn. Six days later, on June 7, 2012, ATP issued a second press release announcing that ATP "was unable to reach a mutually agreeable employment agreement with Mr. McCarroll and effective today he has submitted his resignation." Defendants Bulmahn and Reese were listed as individuals to contact on both press releases.

         Plaintiffs contend that the reason given for McCarroll's resignation was false or misleading. According to Plaintiffs, the true reason for McCarroll's departure was that McCarroll discovered ATP's financial weaknesses and wanted ...

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