Citations
- 147 F. Supp. 3d 493
Full opinion text
SECTION: R
ORDER AND REASONS
SARAH S. VANCE, UNITED STATES DISTRICT JUDGE
This case is a securities class action brought on behalf of all persons who purchased ATP Oil & Gas Corporation’s common stock in the public market between December 16, 2010 and ATP’s bankruptcy filing on August 17, 2012 (“the Class Period”). Because it is in bankruptcy proceedings, ATP is not named as a defendant in this action. Instead, court-appointed Léad Plaintiffs Brian M. Neiman, William R. Kruse, and the Moshe Issac Foundation (“Lead Plaintiffs”), individually and bn behalf of the class, are suing ATP’s senior executives, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well 'as SEC Rule 10b-5 promulgated thereunder. Déféndants T. Paul Buhlman, Albert L. Reese, Jr., Keith R. Godwin, and Leland E. Tate filed a motion to dismiss plaintiffs’ Consolidated Class Action Complaint for failure to state a claim on March 6, 2015. For the reasons that follow, the Court grants the motion.
I. BACKGROUND
Before filing for bankruptcy in 2012, ATP engaged in the acquisition, development, and production of oil and natural gas properties. The company acquired and developed properties with proven undeveloped reserves in the Gulf of Mexico and the North Sea, but the majority of the company’s business was in the Gulf of Mexico. As of December 31, 2009, ATP had leasehold and other interests in 62 offshore blocks and 104 wells in the Gulf of Mexico, of which ATP was then operating a total of 93.' As of March 16, 2010, ATP owned an interest in 36 oil platforms, including two floating production facilities: the ATP Innovator, located in the Gulf of Mexico at the company’s Gomez Hub, and the ATP Titan, also in the- Gulf of Mexico at the company’s Telemark Hub. When ATP filed for bankruptcy in August 2012, construction on a third floating production facility, the Octabuoy, was underway in China for initial deployment at the company’s Cheviot Hub in the North Sea. ATP described its floating production facilities as “fundamental to [its] hub strategy and business plan.”
On April 19, 2010, ATP raised $1.5 billion by selling unregistered private notes to institutional investors in a transaction exempt from the registration requirements under the Securities Act. On April 20, 2010, the day after the private note offering, the drilling rig Deepwater Horizon exploded and sank in the Gulf of Mexico, fracturing the well’s pipe and creating “the largest oil spill in the history of the Gulf of Mexico.” In response, the U.S. Department of the Interior issued two moratoria that halted all drilling at depths greater than 500 feet between May 6, 2010 and October 12, 2010. Although the moratoria were eventually lifted, the Government instituted new rules and regulations that conditioned the issuance of drilling permits on additional testing, training, and compliance with new safety requirements. The Minerals. Management Service did not issue any drilling permits until February 2011, prompting members of the oil and gas industry to refer to this period of permitting delays as the “de facto moratorium.” ATP did not receive its first permit after the moratoria until March 18, 2011. Together, these three moratoria halted all of ATP’s exploration and development operations in the Gulf of Mexico through- early 2011. The delay resulted in tens of millions of dollars in interruption and standby costs for ATP, while at the same time delaying anticipated revenues from the wells ATP had planned to complete and bring on line for production. Indeed, during the moratoria ATP spent over $1 billion in infrastructure construction and other capital expenditures related to five such wells.
Between April and December 2011, ATP issued three press releases announcing the drilling and completion of two wells at Green Canyon (“GC”) Block 300 (“Clipper”) in the deepwater Gulf of Mexico. Upon completion of the “Clipper Project,” ATP announced in its December 12, 2011 press release that tests of the two wells revealed that they were capable of producing 22,000 barrels oil equivalent (“Boe”) per day. In order to monetize the value of the Clipper wells, ATP needed rto build a pipeline from the Clipper wells to the nearest production platform 16 miles away. The December press release stated that ATP expected to complete the pipeline in the third or fourth quarter of 2012.
On October 12, 2010, ATP filed a Registration Statement and Prospectus with the Securities and Exchange Commission (“SEC”), indicating its intent to exchange the $1.5 billion in unregistered' private notes for equivalent registered notes. Defendants Bulmahn, Reese, and Godwin signed the Registration Statement. Following a December 14, 2010 amendment, the SEC declared the Registration Statement effective, and the Exchange, was effected on December 16, 2010. " ‘ '
The Prospectus contained a section titled “Risks Related to Our Business,” which provided a detailed account of the Deepwater Horizon explosion and the resulting moratoria. It also described the new regulatory requirements for obtaining drilling permits. It cautioned' that “[t]he U.S. governmental and regulatory response to the Deepwater Horizon drilling rig accident and resulting oil spill could have a prolonged and material adverse impact on our Gulf of Mexico operations.” It also indicated that “[although Moratorium II has been lifted, wé'cannot predict with certainty when permits will be granted under the new requirements.” As discussed in further detail below, the Prospectus went on to provide a lengthy explanation of these risks. Importantly, it contained the following warning:
New regulations already issued will, and potential future regulations or additional statutory limitations, if enacted or issued, could, require a change in the way we conduct our business, increase our costs of doing business or ultimately prohibit us from drilling for or producing hydrocarbons in the Gulf of Mexico. .. ,
On August 24, 2011, ATP issued a press release announcing the first production from Mississippi Canyon (‘MC‘) Block 941 #4 (also referred to as MC Block 941 A-2) in the deepwater Gulf of Mexico. The #4 well was one of three , wells brought on production at the Telemark Hub location utilizing the ATP Titan floating platform. The press release was signed by defendants Bulmahn and Reese and indicated that
[t]he well delivered on ATP’s original expectations with an initial rate exceeding 7,000 Boe per day. ... Company-wide production now exceeds 31,000 Boe per day. ,.. We have finally realized the planned material production revenue of this well that has been much anticipated for 16 months. ... The greater-than-a-billion-dollar investment at Telemark reflects ATP’s continuing commitment to develop America’s energy resources.
' On September 12, 2011, Reese spoke on ATP’s behalf at the Rodman Renshaw Global Investment Conference. Specifically, Reese stated:
You can see the numbers we have here, 21,000 barrels last year; first half of this year about 25,000 barrels, most recent report we said 31,000 barrels that’s with the .new Telemark well. On later this year, we do expect to add the last well at Telemark that should be on by .the end of this year, sort of Christmas present and New Year’s present and Thanksgiving Day present, too early to tell.
On September 26, 2011, Moody’s Investor Services (“Moody’s”) published a report stating that ATP had a “high likelihood” of restructuring. Bloomberg News reported on the Moody’s analysis on September. 29, 2011 in an article titled “ATP $1.5 Billion of Debt Falls to Yield 23.4%, Trace Data Show”:
ATP shows a “high likelihood” it may face some type of restructuring, analysts from Moody’s Investors Service wrote in a Sept. 26 report. The company’s asset base and cash flows are ‘not sufficient to cover' the second-lien notes, according to the report. Moody’s assigns a Caa2 grade to ATP with a “negative” outlook.
On September 29, 2011, Bloomberg News published defendant Reese’s response to. the Moody report in an article titled “ATP Says New Gulf of Mexico Oil Wells' to Stave Off Default.” The article stated in part: .
ATP Oil & Gas, one of the first oil explorers allowed to resume drilling in the U.S. Gulf of Mexico after the Deep-water Horizon disaster, expects to pump enough oil from new wells during the next three years to avoid defaulting on $1.5 billion in debt.
Moody’s Investors Service this week said ATP shows- a “high likelihood” it may have to restructure its debt because its cash flow and asset base -are insufficient to cover notes maturing in 2015. The company’s $1.79 billion in net debt exceeds that of 97% of Houston-based ATP’s U.S. .peers, according to data compiled by Bloomberg.
ATP expects to begin production from new wells at its Telemark field this year, followed by additional • output at the Clipper and Gomez projects in 2012, En-trada in 2013 and Cheviot a year later, said Albert L. Reese, ATP’s chief financial officer. All of those fields are in the Gulf of Mexico, except Cheviot, which is in the U.K.
“All of that is before the bonds come due in 2015, so I don’t know what Moody’s is talking about,” Reese said today in a 'telephone interview. “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.”
Lead Plaintiffs allege that contrary to Reese’s words of assurance, “everything was not fine.” According to data available on the Bureau of Ocean Energy Management’s website, MC Block 941, which already contained two producing wells, produced an average of 9,379 Boe per day in July 2011, the last full month before ATP announced its first production. from Well #4. In September 2011, the first full month after Well #4’s first production, Block 941 produced an average of 12,117 Boe per day. Plaintiffs reason that if, consistent with the initial production rate, Well #4 had continued to produce 7,000 Boe per day, Block 941’s overall* daily production in September should have'been 16,692 Boe per day. Plaintiffs apparently assume that production from the two other wells at Block 941 remained- constant, so that Well #4’must have been producing no more than an average of 2;738 Boe'per day when Reese’gave' his interview to Bloom-berg in September — approximately 61-per-cent less than the 7,000 Boe ATP initially announced.
On November 8, 2011, ATP issued a press release announcing its Third,,Quarter 2011 Results, in which- it disclosed that overall oil and gas production for the period was only 24,200 Bóe per day, in contrast to the 31,000 per day it announced in August. The following day, ATP held its third quarter earnings conference call. During the call, defendant Tate disclosed that although Well #4 had initially tested at 7,000 Boe per day, issues with wellbore drawdown were negatively affecting' the well’s completion efficiency, causing the well to produce only about 3,500. Boe per day.
Following these disclosures regarding ATP’s production rates, ATP’s common stock fell to $8.45, decreasing by $2.05 from the previous day’s closing price and $2.50 from its November 9 intra-day high. On November 10, ATP’s-stock -fell an additional $1.20, closing at $7.25 per share.
In addition to the decline in value of ATP’s common stock, plaintiffs allege that the lower production from Well #4 cost ATP crucial revenue that it needed to complete the pipeline to the Clipper wells— approximately $20.5 million in September and October 2011 by plaintiffs’ calculations. Plaintiffs further allege that 'the lower production at Telemark created even more financial problems for ATP, because the company would need to shut the wells down, to repair them in order to increase production. When ATP filed for bankruptcy- in August 2012, Reese indicated that “declining production” was one of the reasons ATP could not survive the moratoria, putting ATP “in the untenable position -of running out of cash before it could complete the Clipper Wells project and generate the revenues necessary to begin remedying the situation.”
On June 1, 2012, ATP issued a press release announcing that Matt McCarroll had joined ATP as its new Chief Executive Officer and that he had demonstrated his commitment to the company by purchasing one million shares of its common stock at market price. Six days later, however, McCarroll resigned his position and rescinded his stock purchase. In a June. 7, press release, ATP cited a failure “to reach a mutually agreeable. employment agreement” as the reason for McCarroll’s departure. Defendants Bulmahn and Reese were listed as the contact persons on both press releases, and Reese signed the Form 8-K to which each press release was attached.
Reese testified at ATP’s bankruptcy hearing that ATP pursued numerous avenues of potential financing to improve the company’s liquidity, including sales of assets, taking on partners, the sale of overriding royalty interests [“ORRIs”] and net profit interests [“NPIs”], equity raises, and borrowing against its equity positions in the ATP Titan and the ATP Innovator} Despite incurring additional debt obligations, including an increase in its first lien credit facility by $150 million and the sale of $185 million in ORRIs in the first quarter of 2012, ATP ultimately succumbed to the liquidity constraints caused by the moratoria and the company’s production problems. The company’s cash position deteriorated from $224 million on March 31, 2012 to between $25 and $30 million by June 30, 2012. Reese later said that “[p]rior to the [bankruptcy] filing, we did not have the ability to go borrow more money or encumber the assets.”
Plaintiffs allege that ATP’s stock “plummeted” from $1.49 to a closing price of $0.36 on August 10, 2012 “amid reports that the Company may file for bankruptcy.” ATP filed for Chapter 11 bankruptcy protection on August 17, 2012, reporting total debts of $3.49 billion and assets of $3.64 billion. ATP issued a press release announcing the bankruptcy filing, in which it indicated its intent to continue operating during its financial restructuring using $618 million in debtor-in-possession funding. The press release stated in part:
The primary reason for the reorganization began with the Macondo well blowout in April 2010 and the imposition beginning in May 2010 of the moratoria on drilling and related activities in the Gulf of Mexico. These events prevented ATP from bringing to production in 2010 and in early 2011 six development wells that would have added significant production to ATP. As of the date of this filing, three of these wells are yet to be drilled. Had ATP been allowed to drill and complete these wells ATP believes it would have provided a material production change in 2010 continuing to today. This projected increase in production should have substantially increased cash flows, shareholder value and allowed the company the ability to withstand normal operational issues experienced by owners of oil and gas properties in the Gulf of Mexico. In addition, these incremental cash flows would have mitigated or prevented the need to enter into many of the financings ATP has closed since the imposition of the moratoria — financings that require relatively high rates of return and monthly payments.
On August 20, 2012, the next trading day, ATP’s common stock price fell $0.1593 per share to close at $0.30 per share.
In a declaration filed in the bankruptcy action, Reese summarized the adverse impact of the moratoria on ATP’s business operations, describing the Deepwater Horizon explosion and oil spill as the “primary reason” for the company’s ultimate failure:
As detailed further below, due to adverse operational exigencies stemming from the 2010 Gulf drilling moratoria as well as subsequent events, ATP finds itself with over $2 billion of indebtedness and less than $10 million in cash as of the Petition Date. ...
When the moratorium was effectively lifted in March 2011, ATP received permits and attempted .to generate production from these projects as- quickly as possible. By February 2012, ATP was able to complete the Mississippi, Canyon 941 A-1, 1-2, and Mississippi Canyon 942 A-3 wells in its Telemark field-and connect them to the ATP Titan____■
Overall, ATP’s inability to complete various ■ wells or commence' pipeline construction when planned due to the shutdown in the Gulf created, significant liquidity problems, which were exacerbated by less than expected production rates at ATP’s Telemark Hub and cost overruns on the Octabuoy. ATP’s management, with the assistance of various outside professionals, closely monitored these challenging conditions and evaluated potential alternatives to improve ATP’s liquidity position. ATP diligently sought to solicit potential partners, joint operators, or investors with respect to its foreign operations to share in the development costs of its North Sea and Eastern Mediterranean oil and gas properties. Although it is generally recognized that the reserves and operations of ATP’s foreign affiliates have .significant value, ATP has not yet been able to complete a transaction with any parties that will bring in enough financing to complete the construction of the necessary ’infrastructure to start generating new production from these foreign deepwater operations.
Despite ATP’s best efforts, it was .unable to overcome the impact of the moratoria when ongoing project construction costs, declining oil prices and less than anticipated production put it in the untenable position of running out of cash before it could complete the Clipper Wells project and generate the revenues necessary to begin remedying its situation. In the period leading up to the Petition Date, ATP found itself facing a severe liquidity crisis, with a cash position of less than $10 million and a substantial backlog of .trade payables and amounts due under overriding royalties and net profit interests totaling, -in the aggregate, over [$170] million, along with substantial payments due on the Second Lien Notes later this fall. ATP’s inability to make current payments on many of its obligations have resulted in a number of notices of default and lawsuits from its creditors, with some seeking prejudgment relief (such as temporary restraining orders or writs of sequestration) that could further restrict the Company’s short-term cash flow and liquidity.
When asked at the First Day Hearings whether “ATP [had] the liquidity and revenues at that time to absorb a lengthy moratorium,” Reese responded “No. We could not.”
Testimony at the First Day Hearings further revealed that ATP had retained Mayer Brown LLP to advise the' company on a potential bankruptcy no later than the last week of June 2012, and it hired Jeffer-ies & Co. “in the middle of July” 2012 for the purpose of “addressing and considering DIP [debtor in possession] financing.”
As the bankruptcy action has progressed, legal proceedings both inside and outside the bankruptcy reveal numerous creditors seeking remedies against ATP for unpaid obligations. Plaintiffs’ Consolidated Class Action Complaint lists 21 different vendors and service providers that have sued ATP for unpaid invoices dating back as far as 2007 and totaling more than $63.3 million. In the majority of these lawsuits, however, the goods and services for which ATP failed to pay do not predate early 2012. Moreover, plaintiffs allege that ATP had to renegotiate payment schedules to some of its vendors, and the complaint fails to indicate whether payments to these 21' vendors actually were overdue at the time ATP filed forbankruptcy, or whether they were among the payments ATP was able to renegotiate.
Additionally, both before and during the class period, ATP sold ORRIs and NPIs to various investors and vendors. Plaintiffs allege that ATP’s management began withholding payments from some of the interest holders in order to preserve cash. At the bankruptcy hearing, Reese testified that he, Bulmahn, Tate, and Godwin collectively would have made the decision not to distribute these funds. Plaintiffs allege that ATP failed to make approximately $23.2 million in ORRI and NPI payments to five interest holders between April and August 2012.
On August 5, 2013, Brian Neiman filed a class action complaint in the Southern District of Texas asserting that .defendants violated Section 10(b) of the Securities Exchange Act of> 1934. Shortly thereafter, Brian Stackhouse filed a similar complaint in the Southern District of Texas. In addition, Thomas Mansfield filed a Section 10(b) class action complaint against defendants in the Eastern District of Louisiana. The actions were "transferred to the Eastern District of Louisiana and consolidated, and the Court appointed Neiman, Kruse, and the Moshe Issac Foundation as Lead Plaintiffs. Lead Plaintiffs filed their First Amended Consolidated Class Action Complaint on February 18, 2014, in which they" identified 27 different statements they contend were false or misleading because thev statements failed to disclose ATP’s well performance" issues and liquidity problems. After the Court dismissed plaintiffs’ First Amended Complaint without prejudice, plaintiffs filed their Second Amended Complaint realleging that defendants:
(a) failed to disclose the effects of the moratoria on ATP in the Registration Statement and the company’s Forms 10-K and 10-Q, in violation of Item 303(a) of Regulation S-K;
(b)" failed to disclose 'at the September 12, 2011 Rodman Renshaw Global Investment 'Conference and in Reese’s September 29, 2011 interview' with Bloomberg News that Well 941 #4 was ño longer producing the announced 7,000 Boe per day;
(c) falsely stated in various SEC filings, earnings calls, and conferences that ATP’s liquidity was “strong” or ‘sound* and that the company could continue to .meets its obligations for the next twelve months despite the fact that (1) Well 941 #4 was underperforming, (2) ATP lacked funds to complete the Clipper pipeline project to access the revenue stream it expected from the wells’ production, and (3) A.TP was running out of cash, forcing the company to negotiate delayed payments to certain vendors, delay routine maintenance, and withhold ORRI and NPI payments from investors;
(d) misleadingly projected that ATP would complete the Clipper Wells pipeline in the third quarter - of 2012 and touted the wells’ plentiful reserves despite knowing that ATP lacked the funds to complete the pipeline project; land
(e) misled investors about the reasons behind Matt McCarroll’s June-7, 2012 resignation from his position as ATP’s CEO.
Defendants now move to dismiss the Second Amended Complaint, asserting that plaintiffs’ allegations fail to méét" the heightened pleading requirements under the Private Securities Litigation Reform Act.
II. STANDARD
To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead enough facts to -“state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A claim is facially plausible “when the plaintiff .pleads factual content that allows the court to draw the reasonable inference, that th,e defendant is liable for the misconduct alleged.” Id. A court must accept all'well-pleaded, facts as true and must-draw all reasonable inferences in favor of the plaintiff. Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 239 (5th Cir.2009).
A legally sufficient complaint need not contain detailed factual allegations, but it must go beyond labels, legal conclusions, or formulaic recitations of the elements of a cause of action. Id. In other words, the face of the complaint must contain enough factual matter to raise a reasonable expectation that discovery will reveal evidence of éach element of the plaintiffs claim. Lormand, 565 F.3d at 257. If there are insufficient factual allegations to' raise a right to relief above the speculative level, or if it is apparent from the face of the complaint that there is an insuperable bar to relief, the Court must dismiss the claim. Twombly, 550 U.S. at 555, 127 S.Ct. 1955.
In reviewing a motion, to dismiss, the Court is limited to the complaint, its proper attachments, documents incorporated into the complaint by reference, and matters of which the Court may take judicial notice. See Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 763 (5th Cir.2011). In securities cases, courts may take judicial notice of the contents of public disclosure documents that are filed with the SEC as required by law; however, “these documents may be considered only for the purpose of determining what statements they contain, and not' for proving the truth of their contents.” In re Franklin Bank Corp. Sec. Litig., 782 F.Supp.2d 364, 384-85 (S.D.Tex.2011) (citing Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1018 & n. 1 (5th Cir.1996)).
III. DISCUSSION
A. Section 10(b)
To survive a motion for dismissal, plaintiffs' must allege facts entitling them to relief for their substantive cause of action. Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful for a person to:
use or employ; in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
15 U.S.C. § 78j(b). Rule 10b—5 makes it unlawful for any person, directly or indirectly, to:
make any untrue statement of material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading ... in connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5.
Accordingly, to state a claim under Section 10(b) and Rule 10b-5, a plaintiff must adequately allege, in connection with the purchase or sale of securities, “(1) a misstatement or an omission (2) of material fact (3) made with scienter (4) on which plaintiff relied (5) that proximately caused [the plaintiffs] injury.” Nathenson v. Zonagen Inc., 267 F.3d 400, 406-07 (5th Cir.2001) (citing Tuchman v. DSC Commc’ns, 14 F.3d 1061, 1067 (5th Cir.1994)). “A ‘material fact’ is one which a reasonable investor would consider significant in the decision whether to invest, such that it alters the ‘total mix’ of information available about the proposed investment.” Krim v. BancTexas Grp., Inc., 989 F.2d 1435, 1445 (5th Cir.1993). A fact is not material if “a reasonable investor viewing the information in context would not have considered the investment significantly more risky as a result.” Id. at 1446.
A plaintiff asserting a claim for securities fraud must also plead his claim in accordance with the particularity requirements of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), 15 U.S.C. § 78u-4. The relevant provision of the PSLRA provides:
In any private action arising under this title in which the plaintiff alleges that the defendant
(A) made an untrue statement of a material fact; or
(B) omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading;
the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.
15 U.S.C. § 78u-4(b)(1). The Fifth Circuit has held that the PSLRA’s pleading requirement “incorporates, at a minimum, the pleading standard for fraud actions under Federal Rule of Civil Procedure 9(b).” Plotkin v. IP Axess Inc., 407 F.3d 690, 696 (5th Cir.2005) (citing Rosenzweig v. Azurix Corp., 332 F.3d 854, 865 (5th Cir.2003)); ABC Arbitrage Plaintiffs Grp. v. Tchuruk, 291 F.3d 336, 349-50 (5th Cir.2002) (‘[W]e have observed that “[t]he effect of the PSLRA in this respect is to at a minimum, incorporate the standard for pleading fraud under Fed.R.Civ.P. 9(b).” (quoting Nathenson, 267 F.3d at 412)). To satisfy Rule 9(b), a plaintiff must specify each allegedly fraudulent statement, the speaker, when and where the statement was made, and why the statement was false or misleading. Fin. Acquisition Partners LP v. Blackwell, 440 F.3d 278, 287 (5th Cir.2006); Plotkin, 407 F.3d at 696. This heightened pleading standard serves an important screening function in securities fraud suits. It “provides defendants with fair notice of the plaintiffs’ claims, protects defendants from harm to their reputation and goodwill, reduces the number of strike suits, and prevents plaintiffs from filing baseless claims and then attempting to discover unknown wrongs.” Melder v. Mor ris, 27 F.3d 1097, 1100 (5th Cir.1994) (quoting Tuchman, 14 F.3d at 1067).
In the Fifth Circuit, “the required state of mind for scienter- is * ah intent to deceive, manipulate, defraud or severe recklessness.” Owens v. Jastrow, 789 F.3d 529, 535-36 (5th Cir.2015) (quoting Lormand, 565 F.3d at 251). Severe recklessness, for purposes of Section 10(b)’s scienter element, is
limited to those highly unreasonable omissions or representations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of-misleading buyers or sellers which is either known to the defendant or so obvious that the defendant must have been aware of it.
Nathenson, 267 F.3d at 408 (quoting Broad v. Rockwell, 642 F.2d 929, 961-62 (5th Cir.1981)).
The PSLRA also requires that a plaintiff “state with particularity facts giving rise to a strong inference” of scienter with respect to each allegedly false or misleading statement. 15 U.S.C. § 78u-4(b)(2). This requirement “alters the usual contours of a Rule 12(b)(6) ruling.” Lormand, 565 F.3d at 239. Instead of drawing all reasonable inferences in the plaintiffs favor, the Court “must take into account plausible inferences opposing as well as supporting a strong inference of scienter.” Id. This includes any “nonculpable explanations for the defendant’s conduct.” Cent. Laborers’ Pension Fund v. Integrated Elec. Servs., Inc., 497 F.3d 546, 551 (5th Cir.2007). “The inference of scienter must ultimately be ‘cogent and compelling,’ not merely ‘reasonable’ or ‘permissible,’” in light of other explanations, Lormand, 565 F.3d at 239; see also Cent. Laborers’, 497 F.3d at 551. In other words, a reasonable person must find the inference of scienter to be “at least as compelling as any opposing inference one could draw from the facts alleged.” Cent. Laborers’, 497 F.3d at 551. In reviewing a plaintiffs scienter allegations, a court must “assess all the allegations holistically,” not in isolation. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 326, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).
A plaintiff may satisfy the heightened pleading requirement by alleging facts showing a motive to commit fraud and a clear opportunity to do so, or by identifying circumstances indicating conscious or reckless behavior by defendants, so long as. the totality of allegations raises a strong inference of fraudulent intent. See Tuchman, 14 F.3d at 1068. Although the strong-inference pleading standard does not license courts to resolve disputed facts at the motion to dismiss stage, it does permit the court to “engage in some weighing of the allegations to determine whether the inferences toward scienter are strong or weak.” Cent. Laborers’, 497 F.3d at 551 (quoting Rosenzweig, 332 F.3d at 867). When a complaint fails to plead scien-ter in conformity with the -PSLRA, the court must dismiss it. 15 U.S.C. § 78u-4(b)(3)(A).
Finally, the PSLRA’s “safe-harbor” provision protects defendants from liability for certain projections, statements of future economic performance, and statements of plans or objectives for future operations. 15 U.S.C. § 78u-5(I). More specifically, the PSLRA’s safe-harbor provision states that a defendant
shall not be liable with respect to any forward-looking statement, whether written or oral, if and to the extent that
(A) the forward-looking statement is-
(i) identified as a forward-looking statement, and is accompanied by meaningful cautionary language identifying important factors that could cause actual results to differ materially from those in the forward-looking statement; or
(ii) immaterial; or
(B) the plaintiff fails to" prove that the forward-looking statement-
(i) if made by a natural person, was made with actual knowledge by that person that the statement was false or misleading ....
15 U.S.C. § 78u-5(c)(1). Because this provision is disjunctive, parts (A) and (B) must be considered separately. See Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 372 (5th Cir.2004) (“The safe harbor has two independent prongs: one focusing on. the'defendant’s cautionary statements and the other on the defendant’s state of mind.”); Slayton v. Am. Exp. Co., 604 F.3d 758, 766 (2d Cir.2010) (“The safé harbor is written in the disjunctive; that is, a defendant is not liable if the forward-looking statement is identified and accompanied by meaningful cautionary language or is immaterial or the plaintiff fails to prove that it was made with actual knowledge that it was false or misleading.”). Thus, under the first prong of the statutory safe-harbor, there is no liability -if, .and to the extent that, the statement is .identified as a. forward looking statement, and is accompanied by meaningful cautionary language. A cautionary statement is “meaningful” if it provides “substantive company-specific warnings based on a realistic description of the risks applicable to the particular circumstances, not merely a boilerplate litany of generally applicable risk factors.” Southland, 365 F.3d at 372. “Although a defendant is under no duty to disclose every fact or assumption underlying a prediction, he must disclose material, firm-specific adverse facts that affect the validity or plausibility of that prediction.” Lormand, F.3d at 249.
Under the second prong, a defendant avoids liability if the plaintiff fails to prove'that the statement was made with actual knowledge that the statement was false- or misleading. 15 U.S.C. § 78u-5(c)(1)(B). Because the second-prong places the burden of proof on the plaintiff, the PSLRA effectively requires plaintiffs to prove actual knowledge — not just recklessness — in the case of every forward-looking statement. See In re Anadarko, 957 F.Supp.2d 806, 831 n. 13 (S.D.Tex.2013) .(“If the statements are covered by the statutory ‘safe harbor’ provision, Plaintiffs would be required to show intent to deceive, and • not merely recklessness.”) (citing Nathenson, 267 F.3d at 409). Accordingly, for each predictive statement, plaintiffs must plead specific facts giving rise to a strong inference that the defendant responsible for the forward-looking statement actually knew that the prediction was false. See Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 131 S.Ct. 1309, 1324 n. 14, 179 L.Ed.2d 398 (2011) (“Under the PSLRA, if the alleged misstatement or omission is a ‘forward-looking statement,’ the required level of Scienter is ‘actual knowledge.’ ”).
B. Plaintiffs’ Claims
The Second Amended Complaint alleges that defendants are liable for seventeen different false or misleading statements made between December 2010 and June 2012. These allegedly false and misleading statements can be grouped into five categories:
(1) defendants failed to disclose the’effects of the moratoria on ATP'in the Registration Statement and the company’s Forms 10-K and 10-Q, in violation of Item 303(a) of Regulation S-K;
(2) defendants failed to disclose at the September 12, 2011 Rodman Renshaw Global Investment Conference ’and in Reese’s September 29, 2011 interview with Bloomberg News that Well- 941 #4 was no longer producing the announced 7,000 Boe per day;
(3) defendants falsely stated" iri various SEC filings, earnings calls, and conferences that ATP’s liquidity was ‘/strong” and “sound” and that the company could continue to meets its obligations for the next twelve months despite the fact that (1) Well 941 #4 was underperforming, (2) ATP lacked the funds to complete the Clipper pipeline in order to access the revenue stream it expected from the wells’ production, and (3) ATP was running out of cash, forcing the company to negotiate delayed payments to certain vendors, delay routine maintenance, and withhold ORRI and NPI payments from investors;
(4) defendants misleadingly projected that ATP would complete the Clipper Wells pipeline in the third quarter of 2012 and touted the wells’ plentiful reserves despite knowing that ATP lacked the funds to complete the pipeline project; and
(5) defendants misled investors about the reasons behind Matt McCarroll’s June 7, 2012 resignation from his position as ATP’s CEO.
The Court will address each category of allegedly false or misleading statements in turn.
1. Allegations 'that Defendants Failed to Disclose the Effects of the Moratoria on ATP
Plaintiffs allege that ATP’s December 16, 2010 Registration Statement, March 16, 201110-K Filing, and Forms 10-Q covering the first, second, and third quarters of 2011 violated Item 303 of Regulation S-K by failing to disclose “the true, negative, and severe effects of the morato-ria on ATP’s liquidity and ability to meet its current obligations, and that [the mora-toria] was likely to materially impact liquidity and results of operations going forward.”
Item 303 of Regulation S-K requires the authors of certain corporate statements to disclose any known trends, events, or uncertainties that are (1) reasonably .likely to result in a material increase or decrease in liquidity, or (2) reasonably expected to have ■ a materially unfavorable impact on revenues or income from operations. 17 C.F.R. § 229.303. These disclosures must appear in the non-financial portions of registration statements and prospectuses, as well as in annual and quarterly reports filed on Forms 10-K and 10-Q, respectively, with the discussion to “focus specifically on material events and uncertainties known to management that would cause reported financial information not to necessarily be indicative of future operating results or of future financial condition.” Id. § 229.303(a), Instruction 3. The duty to disclose arises only when the “trend, demand, commitment, event or uncertainty is both [1] presently known to management and [2] reasonably likely to have material effects on the registrant’s financial condition or results of operations.” Management’s Discussion and Analysis of Financial Condition and Results of Operations, Exchange Act Release No. 26,831, Investment Company Act Release No. 16, 961, 43 SEC Docket 1330 (May 18, 1989).
Because Item 303 creates an affirmative obligation to disclose certain information, liability under the provision is not tied to any particular statements contained in the relevant SEC filing; rather, liability exists when a defendant fails to disclose information covered by Item 303. Thus, although plaintiffs characterize several of the statement contained in the Registration Statement, Form 10-K, and Forms 10-Q as misleading, plaintiffs make scant allegations regarding information ATP allegedly failed to disclose in these documents. With respect to the Registration Statement and Prospectus, plaintiffs state only that defendants-failed to disclose that, at the time the Registration Statement was declared effective, defendants “knew that ATP had inadequate liquidity and that their proposed drilling program would not proceed in 2010.” With respect to the 2010 Form 10-K and the Forms 10-Q for the first, second and third quarters of 2011, plaintiffs allege that ATP “failed to disclose the true, negative, and severe effects of the moratoria on ATP’s liquidity and ability to meet its current obligations, and that [the moratoria] was likely to materially impact liquidity and results of operations going forward.”.
As the Court held in its order dismissing plaintiffs’: First Amended Complaint, the very - information that plaintiffs claim is omitted is actually disclosed in ATP’s SEC disclosures in plain English throughout the Class Period.- Indeed, to the extent that the moratoria constituted a “known trend” that was likely to have a material impact on ATP’s liquidity and revenues, ATP discussed the BP Oil Spill and the resulting moratoria in great depth in the Prospectus. The Prospectus provided the following disclosures regarding the moratoria’s current impact on ATP:
We have ongoing and planned drilling operations in the deepwater Gulf of Mexico, some of which were permitted prior to April 20, 2010, and some of which are not yet permitted. Such permits, among other required approvals, are necessary prior to commencement of offshore drilling operations. Moratorium II has caused us to delay the third and fourth wells scheduled at our Telemark Hub and, even though Moratorium II has been lifted, any delays in the resumption of the permitting process may-result in delays in our drilling operations scheduled in 2011 at our Gomez Hub. During June 2010, we agreed-.to terminate a contract for services of a drilling rig as a result of Moratorium I. Under our termination agreement, we obtained a full release of our • obligations under the contract and incurred net «costs of $8.7 million reflected as contract termination costs on our September 30, 2010 statement of operations____
The size of our operations and our capital expenditure budget limits the number of properties that we can develop in any given year. Complications in -the development of any single major well or infrastructure installation may result in a material adverse effect on our financial condition and results of operations.- For instance, production delays are occurring resulting from Moratorium I and Moratorium II as described above.in.the first risk factor under “Risks Related-to Our Business.”
With respect to the moratoria’s potential future impact on ATP’s revenues and liquidity,'the Prospectus warned:'"
The U.S. governmental and regulatory response to the Deepwater Horizon drilling rig accident and resulting oil spill could have a prolonged and material adverse impact on our Gulf of Mexico operations ....
Although Moratorium II has been lifted, we cannot predict with certainty when permits will be granted under the new requirements____
We project a substantial increase in production over the next year as development wells are brought to production. Absent alternative funding sources, achieving our projected production growth is necessary to provide the cash flow required to fund our capital plan and meet our existing obligations, both over the next twelve months and on a longer term basis. Our ability to execute our plan depends, in part, on our ability to continue drilling for and producing hydrocarbons- in the Gulf of Mexico. Our plan is currently based on obtaining necessary drilling permits, and successfully achieving commercial production form existing wells presently scheduled to commence during the remainder of 2010 and 2011. Delays from difficulties receiving necessary permits, reduced access to equipment and services, or bad weather, could have a material adverse effect on our financial position, results of operations and cash flows. In addition to the risks associated with achieving our projected production, growth, additional regulatory requirements . and increased costs for which funding must be secured, or a negative change in commodity prices and operating cost levels, could also have a material, adverse effect on our financial position, results of operations and cash flows. While we are pursuing various other sources of funding, there is no assurance that the alternative sources will be available should any of the. above risks or uncertainties materialize..
If we aré not able to generate sufficient funds from our operations and other financing sources, we may not be able to finance our planned development activity, acquisitions or service our debt.
We have historically needed and will continue to need substantial amounts of cash to fund our capital expenditure ánd working capital requirements
Delays in the development of or production curtailment at our material properties including at our Telemark Hub may adversely affect our financial position and results of operations.
The Prospectus’s financial statement also disclosed that ATP had suffered a net loss of roughly $121.4 million in the nine months ending September 30, 2010.- Finally, when referring to the new permitting environment that caused the de facto moratorium that was ongoing when the Registration Statement was declared effective, the Prospectus unequivocally stated:
New regulations already issued will,' and potential future regulations or additional statutory limitations, if enacted or issued, could, require a change in the way we conduct our business, increase our costs of doing business or ultimately prohibit us from drilling for or producing hydrocarbons- in ■ the Gulf of Mexico.
ATP’s later filings repeated ■ these warnings and updated investors as the situation developed, disclosing the costs ATP incurred as a result of the moratoria, as well as the financing arrangements ATP made to preserve cash in the absence of revenues from operations.' ATP’s 2010 10-K stated:
We have incurred substantial costs caused by the deepwater drilling moratoriums and subsequent drilling permit delays. For example, during 2010 a side-track well operation in 7,000 feet of water was interrupted when Moratorium I was imposed and work on that project stopped, resulting in the early termination of a drilling contract. In the course,of obtaining a full release from our obligations under the contract,, we incurred net costs of $8.7 million, which are reflected as drilling interruption costs on our Consolidated Statements of Operations. Because the necessary drilling permits were not issued, drilling interruption costs also include $14.9 million-of stand-by costs for a drilling-rig and support operations at our Gomez Hub and Telemark Hub properties,
[0]ur cash flows were significantly negatively impacted by the drilling moratoriums, as we incurred the additional costs noted above and at the same time were unable to place on production three wells during 2010 that were originally part of the 2010 development program. We funded our 2010 activities through a combination of new debt financings, the sale, or conveyance of economic interests in selected properties and financing arrangements with our suppliers. ■
During this period we financed significant portions of our development program with transactions entered into with our suppliers and their affiliates. We have conveyed to certain suppliers net profits interests in our Telemark Hub, Gomez Hub, and Clipper oil and gas properties in exchange for development services. We have also negotiated with certain other vendors in the development of the Telemark Hub and Clipper to partially defer payments for a period of twelve months .... These types of financial arrangements preserve our current cash and allow us to pay from the proceeds of future production.
Our 2011'development plans in the Gulf of Mexico, as well as our longer term business plan, are dependent on receiving approval for deepwater drilling and other permits submitted to the BOEM .... [Tjhere is no assurance that [the permits] mil be received in time to benefit our 2011 results or that permits 'will be-issued in the future.
ATP’s First Quarter 2011 Form’fO-Q'up-dated investors regarding the status of permits and further disclosed ATP’s continuing efforts to preserve cash:
Our 2011 development plans in the Qulf of Mexico as well as our longer term business plan are dependent on receiving additional approvals for deepwater drilling and other permits under applications which have been and will be submitted to the Bureau of Ocean Energy Management Regulation and' Enforcement of the Department of the Interior. In the first quarter of 2011, we- received permits to drill the third well at Tele-mark and to complete drilling of a well at Green Canyon. Drilling of the third wéll at Telemark is-already underway. Also, while we believe we can satisfy the permitting requirements' for- the additional planned 2011 wells, which will allow us to significantly increase our production from current levels, there is no assurance that they will be received in time to benefit oür 2011 results or that the permits will be issued in the future.... The size of.our operations and our capital expenditures budget limit the number of properties that we can develop in a given year: A substantial portion of our current production is concentrated among'-relatively few wells located offshore in the Gulf of Mexico and-in the North Sea, which are characterized by production declines more rapid than found in conventional offshore properties. As a result, we'are particularly vulnerable to a near-term severe impact resulting from-.unanticipated complications-in the development of, or production from, any single material well or infrastructure installation, including'lack of sufficient capital, delays in receiving necessary drilling and operations permits, increased regulation, reduced, access to equipment and services, mechanical or operational failures or bad weather. Any unanticipated significant disruption to, or decline in, our current production levels or prolonged negative changes in commodity prices or operating cost levels could have a material adverse effect on oúr financial position, results of operations and cash flows and our ability to meet our commitments as they come due. We have historically obtained various other sources of funding to supplement our cash flow from operations and we will continue to pursue them in the future, however, there is no assurance that these alternative sources will be available should these risks and uncertainties materialize.
We have been financing a significant portion of our development program with transactions entered into with our suppliers and financial institutiqns that either defer payments to future periods or will be. repaid based on - production through or from the revenues, or net profits generated from future production. While these financing transactions have enabled us to continue the development of our properties and preserve cash, they will significantly burden the future net cash flows from our production until these obligations are satisfied.
The Company’s Second Quarter 2011 Form 10-Q repeated these warnings and discussed the ongoing impacts of the mora-toria on ATP:
Events that occurred in 2010 and regulations that were enacted in 2010 and 2011 have had a major impact on our operations and ability to move forward with development plans.
Although Moratorium II has been lifted and we have received two permits to develop wells at our Telemark and Clipper properties, we cannot predict with certainty when additional permits will be granted under the new. requirements. $ $ $
During the first six months of 2011, we also obtained a significant additional financing and commitments to finance from term loans and other transactions. In the second quarter 2011, we conveyed dollar-denominated overriding royalty interests and dollar-denominated overriding royalty interests in the form of net profit interests in the Gomez Hub and the Telemark Hub for aggregate net proceeds of $70.3 million. These Overrides and NPIs obligate us to deliver a percentage of the proceeds from the future sale of hydrocarbons in the specified proved properties until the purchaser recovers it original investment, plus an overall rate of return. In June 2011 we also closed a perpetual preferred stock offering that provided net proceeds of $123.3 million, net of discount, related option contract costs and issuance costs.
Drilling interruption costs were $1.2 million and $8.7 million in the sécond quarter of 2011 and 2010, respectively. They consist of standby costs for drilling operations at our Telemark and Gomez Hubs resulting from the deepwa-ter drilling moratoriums and subsequent drilling permit delays caused by the April 2010 Macondo incident in the Gulf of Mexico. These costs are expected to continue.
Finally, ATP’s Third Quarter 2011 Form 10-Q repeated that the BP Oil spill and the resulting moratoria ‘had a major impact on [ATP’s] operations and ability to move forward with development plans.' ATP also stated:
Since May 2010 when the federal government imposed the first of a series of moratoriums in the Gulf of Mexico, we have faced unparalleled difficulties in obtaining permits to continue our development program. Prior to the moratoriums, we anticipated developing and bringing to production three additional wells at our Telemark Hub and two additional wells at our Gomez Hub by the end of 2010. As of September 30, 2011, we have been able to bring to production two additional wells at the Telemark Hub and the third well has been drilled to total depth .... During the third quarter, the two wells planned for the Gomez Hub were postponed to late 2012/early 2013 as permits have not yet been received for these two wells.
In addition, we have incurred capital and operating costs higher than we expected primarily due to additional regulations imposed since the deepwater Macondo incident and the requirement to sidetrack the two wells. ... While cash flows were lower than previously projected due to lower than expected production rates, the delays in bringing on new production and higher costs, we continued our development operations by supplementing our cash flows from operating activities with, funds raised through various financing transactions.
As the foregoing makes clear, ATP fully informed investors of the current impact, and likely future impact, of the moratoria in each of the challenged SEC filings. ATP’s SEC filings apprised the market that the company was facing liquidity issues, that it was negotiating payment terms with its vendors, that it was'experiencing permitting delays and increased costs, and that it was selling overriding royalty interests and net profit interests to make up for lost income and pay for its drilling projects. Plaintiffs’ claim that ATP failed to disclose the impacts of the mora-toria in violation of Item 303 is therefore without merit. In re Progress Energy, Inc. Sec. Litig., 371 F.Supp.2d 548, 552 (S.D.N.Y.2005) (“[I]t is indisputable that there can be no omission where the alleg-' edly omitted facts are disclosed.”) (internal citation omitted).
In response, plaintiffs argue that ATP’s disclosures were themselves misleading and incomplete because ATP did .not .disclose that it was then unable to meet its obligations, that ATP was “insolvent or practically insolvent,” or that defendants “knew that the ORRI and NPI interests that ATP sold substantially hindered ATP’s ability to improve or even maintain its financial situation.” In support of their theory that ATP failed to disclose that it was v then unable to meet its obligations, plaintiffs rely on a statement from a confidential witness who states that ATP “routinely delayed maintenance work in order to manage its cash flow” and “also stated that putting off payments to vendors was another routine way that ATP handled cash shortages.” As an initial matter, ATP repeatedly disclosed that it was renegotiating payments with vendors in order to preserve cash. ATP also fully apprised investors that it had “significant debt, trade payables, and other long-term obligations.” ATP further disclosed that these debts could “reduce funds available for other purposes” and strain ATP’s ability to secure financing “required to fund working capital and capital expenditures and for other general corporate purposes.” Thus, although ATP did not specifically disclose that it was delaying routine maintenance to preserve cash, ATP fully disclosed that it was pursuing various options to preserve cash and increase its liquidity. Because ATP fully apprised investors of its intention and efforts to preserve cash, the Court will not read into the securities laws a general obligation to disclose the details of ATP’s maintenance practices. See Kapps v. Torch Offshore, Inc., 379 F.3d 207, 212 n. 6 (5th Cir.2004) (“[T]he mere possession of .material nonpublic information does not create a duty to disclose.”) (quoting Shaw v. Digital Equip., 82 F.3d 1194, 1202 (1st Cir.1996)).
With respect to plaintiffs’ claim that ATP failed to disclose that it was “insolvent or practically insolvent,” plaintiffs fail to allege any contemporaneous facts supporting their claim that ATP was insolvent or practically insolvent at the time ATP submitted the challenged SEC filings. To support their claim that ATP was insolvent or practically insolvent during the relevant periods, plaintiffs rely on an allegation lifted from Rodney Tow’s August 15, 2014 complaint filed in the bankruptcy proceedings:
Shortly after .the Oil Spill, as early as May 2011, ATP began to have problems with liquidity due to the Oil Spill and foreseeable government response and entered the zone of insolvency,- which the Directors and Officers knew.
Rodney Tow’s bankruptcy allegations, filed in an adversarial proceeding more than two years after ATP filed for bankruptcy, and more than three -and a half years after ATP’s 2010 10-K filing, fail to create a strong inference that defendants knew that ATP was insolvent, or “practically insolvent,” when the company filed its disclosure statements with the SEC. Defendants correctly point out that “fraud cannot be proved by hindsight,” Southland, 365 F.3d at 383, and plaintiffs’ use of Rodney Tow’s allegations, made in 2014 with the benefit of hindsight, is classic fraud-by-hindsight pleading. Indeed, plaintiffs do not challenge the accuracy of ATP’s .financial disclosures in any of the SEC filings. Nor do plaintiffs provide any factual allegations that ATP withheld financial data or otherwise failed to disclose the required financial information. Item 303 imposes a duty to disclose trends only if they are “presently known to management.” Plaintiffs’- reference to ATP’s August 2012 bankruptcy, and the bankruptcy trustee’s August 2014 complaint, do not give rise to an inference that defendants knew that ATP was insolvent, or practically insolvent, when defendants filed the challenged disclosures., with the.SEC. Southland, 365 F.3d at 383 (“[B]ecause fraud cannot be proved by hindsight, subsequent lawsuits are unpersuasive of scienter, as they do not show what any particular individual knew ... at the time .... ”). Absent plausible allegations that defendants knew that ATP was insolvent or practically insolvent at the time they filed the relevant disclosures with the SEC, plaintiffs have failed to plead that defendants violated Item 303.
Finally, plaintiffs claim that defendants’ disclosures were inadequate under Item 303 because the SEC filings failed to disclose that the “ORRI and NPI interests that ATP sold substantially hindered ATP’s ability to improve or even maintain its financial situation.” To be clear, plaintiffs do not allege that defendants failed to disclose that ATP sold ORRIs and NPIs to bolster the company’s short-term liquidity. Instead, plaintiffs allege that defendants failed to disclose the alleged effects of these ORRIs and- NPIs. Once again, however, the information that plaintiffs contend ATP omitted in violation of Item 303 was disclosed in plain E