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In re Cobalt International Energy, Inc. Securities Litigation

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

June 15, 2017



          NANCY F. ATLAS Judge.

         This securities case is before the Court on the Motion to Dismiss Count III of Plaintiffs' Second Amended Complaint (“Motion to Dismiss”) [Doc. # 216] filed by Defendants Goldman, Sachs & Co. (“Goldman Sachs”), Riverstone Holdings LLC (“Riverstone”), FRC Founders Corp. (“FRC”), and ACM Ltd. (“ACM”), and the Motion to Dismiss Count III of the Second Amended Complaint (“Carlyle Motion to Dismiss”) [Doc. # 219] filed by Defendant The Carlyle Group L.P. (“Carlyle”). Plaintiffs filed a consolidated Opposition [Doc. # 23] to the Motions to Dismiss, and Defendants filed separate Replies [Docs. # 240 and # 241].

         The Court has reviewed the full record, including its prior rulings in this case and Plaintiffs' Second Amended Complaint [Doc. # 200], as well as all briefing submitted by the parties. Based on this review, and the application of relevant legal authorities, the Court grants the Carlyle Motion to Dismiss and denies the Motion to Dismiss filed by the other moving Defendants.

         I. BACKGROUND

         The background of this case is set forth fully in the Court's Memorandum and Order [Doc. # 108] entered January 19, 2016. Briefly, 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. After the IPO, the moving Defendants, except Carlyle, designated an individual of their choice to serve as a member of Cobalt's Board.

         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”).

         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.[1]

         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 May 1, 2015, Plaintiffs filed their Consolidated Amended Class Action Complaint (“CAC”) [Doc. # 72]. Plaintiffs alleged in Count I of their CAC that Cobalt and its executives violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5. In Count II, Plaintiffs alleged that Cobalt and its executives violated Section 20(a) of the Exchange Act. Plaintiffs asserted in Count III a claim under Section 11 of the Securities Act of 1933 (“Securities Act”) against Cobalt, its directors, and the underwriters of the various offerings of Cobalt securities. In Count IV, Plaintiffs asserted a claim against Goldman Sachs, Riverstone, Carlyle and others (identified as the “Control Defendants”) under Section 15 of the Securities Act. In Count V, Plaintiffs asserted a claim against the underwriters under Section 12(a)(2) of the Securities Act.

         In its January 2016 Memorandum and Order, the Court dismissed the Section 11 claim by individuals who purchased Cobalt stock after April 30, 2013. The Court denied the Motions to Dismiss in all other respects. Plaintiffs elected not to amend their Section 11 claim to allege reliance by the post-April 30, 2013 purchasers.

         On March 15, 2017, Plaintiffs, with leave of Court, filed their Second Amended Complaint. In Count III of the Second Amended Complaint, Plaintiffs assert a claim against the Control Defendants under Section 20A of the Exchange Act. The Control Defendants have filed their Motions to Dismiss, which have been fully briefed and are now ripe for decision.


         A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure is viewed with disfavor and is rarely granted. Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011) (citing Harrington v. State Farm Fire & Cas. Co., 563 F.3d 141, 147 (5th Cir. 2009)). The complaint must be liberally construed in favor of the plaintiff, and all facts pleaded in the complaint must be taken as true. Harrington, 563 F.3d at 147. The complaint must, however, contain sufficient factual allegations, as opposed to legal conclusions, to state a claim for relief that is “plausible on its face.” See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Patrick v. Wal-Mart, Inc., 681 F.3d 614, 617 (5th Cir. 2012). When there are well-pleaded factual allegations, a court should presume they are true, even if doubtful, and then determine whether they plausibly give rise to an entitlement to relief. Iqbal, 556 U.S. at 679. Except as explained below regarding the ...

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