On February 27, 2020, Judge Loretta A. Preska of the United States District Court for the Southern District of New York dismissed a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 against a precious metals mining company and certain of its executives. In Re Pretium Resources Inc. Sec. Lit., No. 18-CV-08199 (S.D.N.Y. Feb. 27, 2020). Plaintiffs alleged that the company made misleading public statements expressing confidence in an existing plan for a particular gold mine, notwithstanding substantially increased excavation costs the mine was facing. As noted by the Court and discussed in our prior post, the Southern District of New York previously dismissed another action filed against the company regarding alleged misrepresentations relating to its projections for the same mine. Here, too, the Court held that plaintiffs failed to allege an actionable omission or scienter.
As a threshold matter, the Court, noting similar rulings in the previous litigation concerning the same mine, determined that the statements in question were "expressions of optimism" and "estimates" that are "well-established species of opinion." Slip op. at 9. The Court noted that such opinion statements could give rise to liability under Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U.S. 175, 194-95 (2015), which held that a statement of opinion can only be false or misleading if (1) the speaker did not truly hold the opinion; (2) the opinion contained embedded supporting facts that were untrue; or (3) the speaker omits information that makes the information provided misleading to a reasonable investor. Slip op. at 9-10. Determining that the first two Omnicare tests were not applicable, the Court turned to the third test for assessing the potential actionability of omissions. Id. at 10.
The Court explained that the core of this inquiry was "whether the omitted facts would conflict with what a reasonable investor would take from the statement itself," but also cautioned that reasonable investors understand that "opinions sometimes rest on competing facts" and a reasonable investor does not expect that every known fact supports the opinion statement. Id. at 11 (citing Omnicare, 575 U.S. at 189). Using this framework, the Court rejected plaintiffs' argument that the company's alleged failure to disclose higher-than-anticipated costs of excavation while expressing confidence in the long-term mine plan created a false impression that the plan remained viable. To the contrary, the Court held, the company's statements—including that the "mine plan will now be updated" based on the completion of a certain estimate and "success in increasing confidence in the estimate in the areas to be mined in the first three years"—did not amount to a "blanket confirmation of all the plan's components" and contained no false information regarding specific excavation costs that had allegedly been fraudulently omitted. Id. at 12. Moreover, the Court noted that even if these statements could be interpreted as a broad expression of confidence in the plan's viability, they still would not be actionable because plaintiffs, at most, alleged that there were facts "cutting the other way," but failed to establish under Omnicare that the speaker's opinion did not "fairly align" with all the available information. Id. at 13.
In addition, the Court held that plaintiffs did not sufficiently allege facts to support a strong inference of scienter, which plaintiffs attempted to establish only using circumstantial evidence. Id. at 15-16. Plaintiffs pointed to a company executive's statement that he had seen visible veins of gold ore at the mine, which indicated that "the model is working out the way it should be," as evidence he knew that the company was digging more than it had planned because the initial model was not viable; they also alleged that the Company had disclosed a different set of numbers regarding excavation costs to regulators than was presented to investors. Id. at 15. But the Court held that plaintiffs' allegations were nonsensical, that plaintiffs had failed to allege how the data reported to regulators specifically contradicted the public statements and, moreover, that the fact that the regulatory filings were ultimately made public "kicks the legs out from any inference of scienter." Id. at 16.
While the Court expressed "serious doubts that [plaintiffs] can add any allegations that would shore up their Complaint" and declined to grant leave to amend, the Court permitted plaintiffs to make a motion for leave to amend to explain specifically how any amendment would cure the defects identified by the Court. Id. at 17.
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