BRIAN M. NEIMAN; WILLIAM KRUSE; and THE MOSHE ISSAC FOUNDATION, Individually and on behalf of all others similarly situated, Plaintiffs - Appellants
T. PAUL BULMAHN; ALBERT L. REESE, JR.; KEITH R. GODWIN; LELAND E. TATE, Defendants-Appellees
from the United States District Court for the Eastern
District of Louisiana
HIGGINBOTHAM, ELROD, and HIGGINSON, Circuit Judges.
STEPHEN A. HIGGINSON, Circuit Judge
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.
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.
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."
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."
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
ATP's Liquidity and Financial Condition
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.
The Clipper Project
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.
Matt McCarroll's Resignation
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.
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 ...