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In re Cobalt International Energy, Inc. Securities Litigation

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

June 15, 2017

IN RE COBALT INTERNATIONAL ENERGY, INC. SECURITIES LITIGATION

          MEMORANDUM AND ORDER

          NANCY F. ATLAS SENIOR UNITED STATES DISTRICT JUDGE.

         This securities case is before the Court on Plaintiffs' Motion for Class Certification and Appointment of Class Representatives and Class Counsel (“Motion”) [Doc. # 163], to which Defendants filed an Opposition [Doc. # 205], and Plaintiffs filed a Reply [Doc. # 239]. Having reviewed the full record and the applicable legal authorities, the Court grants the Motion.

         I. BACKGROUND

         Cobalt is an exploration and production company that was formed in 2005 as a private company. Cobalt conducted an initial public offering (“IPO”) of its shares in December 2009.

         In 2007, Cobalt entered into an agreement with Sonangol E.P. (“Sonangol”), the Angolan national oil company, to acquire a 40% interest in oil exploration Blocks 9, 20, and 21 in offshore Angola. In 2009, the Angolan Parliament issued two decrees assigning an interest in the Blocks to Nazaki Oil & Gaz (“Nazaki”), Sonangol P&P, and Alper Oil, Limitada (“Alper”). In February 2010, Cobalt and these other companies signed Risk Services Agreements (“RSAs”) with Sonangol.

         On January 4, 2011, Cobalt filed a Registration Statement and Prospectus (“January 2011 Registration Statement”) with the Securities and Exchange Commission (“SEC”). Based on this 2011 Registration Statement, Cobalt conducted, inter alia, a stock offering in late February 2012 (“February 2012 Stock Offering”). Additionally, Cobalt conducted registered public offerings of Cobalt convertible senior notes (“Cobalt Notes”) in December 2012 and May 2014.

         On March 10, 2011, Cobalt learned that the SEC was conducting an informal inquiry into allegations that there existed a connection between Nazaki and senior government officials in Angola. The next day, Cobalt contacted the Department of Justice (“DOJ”) regarding the same allegations. Both the SEC and the DOJ later began formal investigations into whether Cobalt had violated the Foreign Corrupt Practices Act of 1977 (“FCPA”). The SEC investigation and the DOJ investigation regarding FCPA violations have ended with no recommendation for enforcement action against Cobalt.

         Meanwhile, Cobalt drilled two exploration wells in the offshore Angola drilling region: Lontra on Block 20 and Loengo on Block 9. Cobalt had no rights to gas discoveries and, instead, had rights only to any oil that was discovered in the Blocks. Ultimately, Lontra was found to contain a substantially higher percentage of gas than originally estimated, and drilling at Loengo failed to discover oil.

         On April 15, 2012, the Financial Times published two reports that Nazaki was owned by Angolan officials, who had admitted their ownership interest to the Financial Times. On December 1, 2013, Cobalt issued a press release disclosing that the Lontra well contained primarily gas to which Cobalt had no rights. On August 5, 2014, Bloomberg reported that the SEC had issued a “Wells Notice” recommending the institution of an enforcement action, and that “social payments” that Cobalt was required to make to the Angolan government to fund a research center were for a center that did not exist. On November 4, 2014, Cobalt issued a press release disclosing that the Loengo well was a “dry hole” with no oil. The price of Cobalt shares declined after each of these reports.

         On March 15, 2017, Plaintiffs filed their Second Amended Complaint. Plaintiffs assert a claim under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5; Section 20(a) of the Exchange Act; Section 20A of the Exchange Act; Section 11 of the Securities Act of 1933 (“Securities Act”); Section 15 of the Securities Act; and Section 12(a)(2) of the Securities Act. Plaintiffs have filed a Motion seeking class certification, appointment of class representatives, and appointment of class counsel. The Motion has been fully briefed and is now ripe for decision.

         II. STANDARD FOR CLASS CERTIFICATION

         “The class action is ‘an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.'” Comcast Corp. v. Behrend, ___ U.S. ___, 133 S.Ct. 1426, 1432 (2013) (quoting Califano v. Yamasaki, 442 U.S. 682, 700-701 (1979)). To pursue a class action, Plaintiffs must demonstrate compliance with the requirements of Rule 23. See Id . (citing Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011)). Plaintiffs must prove that “there are in fact sufficiently numerous parties, common questions of law or fact, typicality of claims or defenses, and adequacy of representation.” See id.; Fed.R.Civ.P. 23(a); Torres v. S.G.E. Mgmt., LLC, 838 F.3d 629, 635 (5th Cir. 2016) (en banc).

         Plaintiffs, such as those here, seeking class certification pursuant to Rule 23(b)(3) must also prove that “the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed.R.Civ.P. 23(b)(3); Torres, 838 F.3d at 635-36. “The Plaintiffs have the burden of showing that these requirements are met.” Id. at 636 (citing Wal-Mart, 564 U.S. at 350-51).

         III. ANALYSIS OF RULE 23(a) FACTORS

         Rule 23(a) requires Plaintiffs seeking class certification to prove that “there are in fact sufficiently numerous parties [numerosity], common questions of law or fact [commonality], typicality of claims or defenses [typicality], and adequacy of representation [adequacy].” Comcast Corp., 133 S.Ct. at 1432.

         A. Numerosity

         The number of class members must be such that “joinder of all members is impracticable.” Fed.R.Civ.P. 23(a)(1). Plaintiffs have presented evidence that during the class period, Cobalt had over 350 million shares outstanding held by record holders ranging in number between 107 and 192. Additionally, there were 599 institutional investors holding Cobalt shares during ...


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