Fifth Circuit Securities Litigation Quarterly Q1 2024 – Shareholders

Introduction

Welcome to the first 2024 edition of Shearman &
Sterling’s Fifth Circuit Securities Litigation Quarterly. As
public companies and financial institutions continue to migrate to
Texas, our Texas-based securities litigation team continues to
monitor all developments and help our clients navigate the unique
landscape for federal securities litigation in the Fifth
Circuit.

In our Q1 2024 edition, we cover three new case filings, two
class certification decisions, and other decisions of note.

New Securities Class Action Filings

Decisions of Note

Cabot: Leave to Amend Granted and One Newly Challenged
Statement Dismissed on Repose Grounds

Apache: Motion for Class Certification Denied-in-Part
Based on Defendants’ Proof of Lack of Price Impact

McDermott: Motion for Class Certification Denied
Without Prejudice Due to Inherent IntraClass Conflict and Need for
Sub-Classes

Other Cases of Note: S.D. Tex. Dismisses Derivative
Case for Failure to Plead Demand Futility; N.D. Tex. Dismisses
Derivative Case for Failure to Plead Wrongful Refusal of Demand;
Fifth Circuit Affirms Dismissal of Non-Class Securities Claims;
Harris County District Court Sanctions Plaintiff’s Counsel in
ExxonMobil/Pioneer Merger Case

Delaware County Employees Ret. Sys. v. Cabot Oil
& Gas Corp., 2024 WL 83503 (S.D. Tex. Jan. 8,
2024)

• Judge Rosenthal granted leave to file a second amended
  complaint adding new alleged misrepresentations and omissions, and
  dismissed with prejudice new challenge to one statement on statute
  of repose grounds.




• The court found the company’s production guidance was not
  protected by the safe harbor for forward-looking statements because
  (i) plaintiffs adequately alleged defendants knew the company would
  not be able to meet the guidance, and (ii) the cautionary language
  accompanying the guidance was not tailored to the company and its
  circumstances at the time.




• The court held the challenge to the 2018 production guidance
  was barred by the statute of repose. The motion for leave to amend
  was filed more than five years after the guidance statement and did
  not relate back to the first amended complaint because it was based
  on distinct conduct and allegations.




• The court also found that plaintiffs adequately alleged certain
  new alleged omissions related to regulatory investigations and
  alleged violations.




• The court found that permitting amendment in this case based on
  litigation discovery was not inconsistent with applicable
  heightened pleading standards.

In re Apache Corp. Sec. Litig, 2024 WL 532315
(S.D. Tex., Feb. 9, 2024)

• Magistrate Judge Edison recommended that Plaintiffs’ motion
  for class certification be granted-in-part and denied-in-part.




• Plaintiffs sought to certify a class of Apache common stock
  purchasers during the period September 7, 2016 through March 13,
  2020, during which they alleged defendants misrepresented the
  prospects of a hydrocarbon play known as Alpine High.




• Defendants contested certification as to the period February
  22, 2018 through March 13, 2020, arguing they had rebutted the
  fraud-on-themarket presumption of reliance during that period by
  demonstrating that the statements made during that time period had
  no price impact.




• The court agreed there was no “front-end” price
  impact during this period. The only statistically significant price
  increase following a challenged statement during this time period
  was caused by other positive news (not the alleged
  misstatement).




• The court also found there was no “back-end” price
  impact during this period. Two of the three alleged corrective
  disclosures during this time period did not reveal new information
  related to the alleged misstatements. As to the third alleged
  corrective disclosure, the court found an absence of price impact
  because the stock price decline was not statistically significant
  at a 95% confidence level unless an extended (three or four day)
  event window was used and the new information was not sufficiently
  corrective of the alleged misstatement.




• During the briefing on Plaintiffs’ objections to portions
  of the magistrate judge’s recommendations the parties reported
  reaching an agreement to settle the case.

Edwards v. McDermott Int’l, Inc. 2024 WL
873054 (S.D. Tex., Feb. 29, 2024) 2024 WL 1256293 (S.D. Tex., Mar.
25, 2024)

• Magistrate Judge Edison recommended that Plaintiffs’ class
  certification motion be denied without prejudice to refiling to
  certify two sub-classes.




• Plaintiffs sought to certify a class of acquirers of McDermott
  International common stock. McDermott merged with Chicago Bridge
  and Iron Company (“CB&I”) during the putative class
  period and plaintiffs alleged defendants made pre- and post-merger
  misrepresentations regarding CB&I projects.




• The court held lead plaintiff, which acquired McDermott stock
  in exchange for CB&I shares in the merger, did not necessarily
  lack standing because it benefitted from the alleged inflation in
  CB&I stock. The court reasoned that McDermott stock may have
  also been inflated at the time of the merger.




• The court found, however, that former CB&I shareholders
  have a fundamental conflict with other purchasers of McDermott
  stock because of differing incentives to show the extent to which
  each company’s stock price was inflated by the alleged fraud.
  The court therefore found that two subclasses should be created
  — one of former CB&I shareholders and one of other
  McDermott shareholders—and that lead plaintiff was only
  adequate to represent the subclass of former CB&I
  shareholders.




• The court further found that Defendants demonstrated that some
  of the alleged corrective disclosures were not corrective of the
  alleged misstatements, reflecting the absence of price impact and
  requiring the class period be shortened.




• After both Plaintiffs and Defendants objected to the
  magistrate’s recommendations, Judge Hanks adopted the
  recommendations with revisions to the wording of the proposed
  sub-class definitions.

Other Decisions of Note

In re Cabot Oil & Gas Corp. Deriv.
Litig., 2024 WL 23365 (S.D. Tex. Jan. 2, 2024): Judge
Rosenthal dismissed a derivative action for failure to plead demand
futility, finding plaintiff did not allege a bad faith failure of
oversight by members of the board of directors.

Cruz v. Reid-Anderson, 2024 WL 150443
(N.D. Tex. Jan. 12, 2024): Judge Pittman dismissed a derivative
action for failure to plead that a litigation demand was wrongfully
refused by the Six Flags board of directors. The court held that
legal counsel to the board was not conflicted and did not dominate
consideration of plaintiff’s demand.

Talarico v. Johnson, 2024 WL 939738
(5th Cir. Mar. 5, 2024): Fifth Circuit affirmed dismissal of
non-class securities claims on standing grounds and for failure to
plead fraud.

Corwin v. Alameddine, No. 2024-02900
(190th Judicial District, Harris County Mar. 12, 2024): In a case
challenging disclosures in connection with the merger of Pioneer
Natural Resources and ExxonMobil, Judge Miller granted
ExxonMobil’s motion for sanctions against plaintiff’s
counsel, finding the claims against ExxonMobil were groundless and
filed in bad faith and for an improper purpose.

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