Citations
- 307 F. Supp. 3d 583
Full opinion text
Lee H. Rosenthal, Chief United States District Judge
I. Background
This Memorandum and Opinion addresses the defendants' second motion to dismiss this securities-fraud amended complaint. The complaint arises from a highly publicized oil spill in an environmentally sensitive area on the California coast. The defendants responded, according to the plaintiffs, with a series of misrepresentations about the extent of the spill and the financial impact on Plains, the oil and gas pipeline owner and operator. The plaintiffs contend that Plains falsely claimed to have a comprehensive, effective environmental and regulatory compliance program to prevent oil spills and, if they occurred, to quickly remediate the effects. When the facts emerged, the stock price dropped. A putative class of stockholders sued the company, its officers and directors, and the banks that underwrote some of its securities offerings, seeking compensation for their stock-price losses.
On March 29, 2017, the court issued a lengthy Memorandum and Opinion addressing the defendants' first motions to dismiss. The court dismissed the plaintiffs' claims, without prejudice and with leave to amend. (Docket Entry No. 136). The specific rulings were as follows:
• The Exchange Act claims were dismissed, without prejudice and with leave to amend, because: (1) the majority of the statements, as pleaded, were not actionably misleading, and (2) the plaintiffs did not allege facts that gave rise to a strong inference of scienter for any defendant for any statement. Op. at 32-33;
• Some of the Exchange Act claims were found potentially actionable, but not as pleaded, including two legal-compliance statements in Plains's agreements with the Underwriter defendants:
(1) "None of the Issuers, the GP Entities or the Material Subsidiaries is in violation of any law, statute, ordinance, administrative or governmental rule or regulation applicable to it or of any decree of any court or governmental agency or body having jurisdiction over it...."; and
(2) "Environmental Compliance. Except as described in the Pricing Disclosure Package and the Prospectus, none of the Plains Entities, directly or indirectly, has violated any environmental, safety, health or similar law or regulation applicable to its business relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), or lacks any permits, licenses or other approvals required of them under applicable Environmental Laws to own, lease or operate their properties and conduct their business as described in the Pricing Disclosure Package and the Prospectus or is violating any terms and conditions of any such permit, license or approval, which in each case would reasonably be expected to have a Material Adverse Effect." Op. at 61.
• A statement about corrosion control on the Plains website and three post-spill statements by Plains's safety and security director, Patrick Hodgins, were actionably misleading, as pleaded, including:
(1) a statement on Plains's website that it "perform[s] scheduled maintenance on all of our pipeline systems and make[s] repairs and replacements when necessary or appropriate," Op. at 41;
(2) Hodgins's statement that "[t]he first time I heard anything about the corrosion is what I read in the newspapers.... We had no indication at all to assume there was an issue," Op. at 74-75;
(3) Hodgins's statement, when asked whether the 2007 or 2012 in-line inspection runs had uncovered any sections of line 901 with metal loss greater than 50 percent, that Plains "had not had any indication at that time," id. ; and
(4) Hodgins's failure to correct a spill-estimate figure, when asked about a 105,000 gallon spill volume, despite Plains's alleged knowledge that the spill volume could be much larger. Id.
• The four statements that were actionably misleading as pleaded-Hodgins's three statements and the statement about corrosion control on Plains's website-were not set out with an alleged basis for a strong inference of scienter. Op. at 76-77.
• The plaintiffs' "general" allegations of scienter as to the statements held to be false or misleading were insufficient. Op. at 77-88.
• The defendants' loss-causation arguments were not a sufficient basis to dismiss the case. Op. at 89.
• The court rejected the plaintiffs' "class standing" argument; held that the plaintiffs who did not purchase notes in or traceable to the August 2013, September 2014, or the two December 2014 notes offerings did not have standing; and dismissed the plaintiffs' claims under § 11 and § 12(a)(2) of the Securities Act for those offerings, for lack of subject-matter jurisdiction. Op. at 97.
The court dismissed the plaintiffs' Exchange Act and Securities Act claims, without prejudice and with leave to amend. Op. at 98. The plaintiffs filed a Second Amended Consolidated Complaint. (Docket Entry No. 137). The Plains defendants and the Underwriter defendants have moved to dismiss this amended pleading. (Docket Entries No. 140, 141). The plaintiffs responded, and both groups of defendants separately replied. (Docket Entry Nos. 142, 143, 144). The court held a hearing at which it heard arguments on the motions.
The primary new factual allegations in the Second Amended Complaint are:
• some of Plains's statements apply "specifically-and exclusively" to its pipelines in high-consequence areas;
• Plains had notice of regulatory violations because of warning letters from the PHMSA from 2009 and 2013 about Lines 901 and 903;
• Plains was indicted in Santa Barbara Superior Court in May 2016 on felony charges for its conduct related to the spill;
• the conclusions in the PHMSA's May 19, 2016 Failure Investigation Report were derived from Plains's own data;
• Plains had received several other warning letters and notices of violations from the PHMSA in 2010, 2011, 2013, 2014, and 2016, about regulatory violations on its pipelines in other parts of the country;
• conclusions from the May 19, 2016 Failure Investigation Report detailing regulatory violations on Line 901;
• Plains did not perform adequate inspections or maintenance on its pipelines, had ineffective corrosion protection, did not have adequate leak-detection systems or monitoring, and did not adequately respond to the Line 901 spill, in violation of federal regulations;
• Plains's legal and regulatory compliance failures and pipeline-integrity deficiencies were allegedly reported to the individual defendants because of representations in Plains's Form 8-K underwriting agreements and Forms 10-K and 10-Q that Plains maintained disclosure controls and procedures designed to provide reasonable assurance that material information was "recorded, processed, summarized, and communicated" to Plains's officers;
• by virtue of Plains's audit committee's charter, the committee received notice of all potential or actual regulatory non-compliance that could "result in material non-compliance"; the committee in turn reported to the Board;
• two of the named defendants signed Sarbanes-Oxley Act certifications in Plains's Forms 10-K and 10-Q that "material information...[was] made known to [them]....";
• reports required by the Pipeline Inspection, Enforcement, and Safety ("PIPES") Act "could not be compiled or verified without the underlying data Plains obtained through its ILIs and excavations of Lines 901 and 903 throughout the class period"; and
• statements in Plains's Code of Business Conduct emphasized a commitment to compliance with applicable laws and a requirement that material deviations from pipeline-safety and environmental-protection measures must be approved by two of four senior executive officers.
The facts set out here are taken primarily from the Second Amended Consolidated Complaint, (Docket Entry No. 137). The factual background pleaded in the earlier complaints, much of which is repeated in the Second Amended Complaint, is also set out in detail in the March 2017 Memorandum and Opinion. Op. at 3-21.
Although the Second Amended Complaint alleges more specific facts about Plains's pre-spill regulatory violations, the Second Amended Complaint still does not allege a strong inference of scienter. The new scienter allegations are, again, based on the defendants' positions within the company and certifications they signed affirming that senior executives had reviewed reports containing material information. These allegations are not enough to establish a cogent and compelling inference of scienter. The motions to dismiss, (Docket Entries No. 140, 141), are granted. This third effort to replead does not cure the deficiencies. The claims are dismissed with prejudice and without leave to amend, because further amendment would be futile.
The reasons for these rulings are explained in detail below.
I. The Parties and the Plaintiffs' Causes of Action
A. The Plaintiffs
The plaintiffs are individuals and institutional investors who purchased equity and debt instruments issued by entities affiliated with Plains All American Pipeline, a major national oil and gas pipeline owner and operator. 2d Compl. ¶¶ 16-20. The named plaintiffs seek to represent a class of investors who purchased Plains All American Pipeline, LP common units between February 27, 2013 and August 5, 2015, or who purchased Plains GP Holdings, LP ("Plains Holdings") Class A Shares between October 16, 2013 and August 5, 2015. The named plaintiffs also seek to represent individuals who purchased securities "pursuant and traceable to" the following public securities offerings:
• the Plains Holdings October 16, 2013 initial public offering of Class A shares ("IPO");
• the Plains Holdings November 12, 2014 public offering of Class A shares ("Secondary Offering");
• the Plains February 26, 2015 public offering of common shares ("Plains Offering");
• the Plains August 8, 2013 public offering of 3.85% senior notes due 2023;
• the Plains April 15, 2014 public offering of 4.7% senior notes due 2044;
• the Plains September 2, 2014 public offering of 3.6% senior notes due 2024; and
• the Plains December 2, 2014 public offering of 2.6% senior notes due 2019 and 4.9% senior notes due 2045.
Lead plaintiff IAM National Pension Fund is a defined-benefit pension plan for members of the International Association of Machinists and Aerospace Workers. IAM bought Plains and Plains Holdings securities on the open market during the class periods. Id. ¶ 16.
Plaintiff City of Warren Police and Fire Retirement System is a defined-benefit governmental retirement system for police and firefighters in Warren, Michigan. It purchased 4.7% Plains notes in the April 2014 offering. Id. ¶ 17.
Plaintiff Ming Liu is an individual who purchased Plains Holdings Class A shares in the October 2013 IPO. Id. ¶ 18.
Plaintiff Jacksonville Police and Fire Pension Fund is a defined-benefit government retirement system for police and firefighters in Jacksonville, Florida. It purchased Plains Holdings Class A shares in the October 2013 IPO and the November 2014 Secondary Offering. Id. ¶ 19.
Plaintiff Detroit Police and Fire Retirement System is a defined-benefit governmental retirement system for police and firefighters in Detroit, Michigan. It purchased Plains Holdings Class A shares in the November 2014 Secondary Offering and Plains common units in the February 2015 Plains Offering. Id. ¶ 20.
There is no allegation that the named plaintiffs purchased notes in or traceable to the August 2013 senior-notes offering, the September 2014 senior-notes offering, or the two December 2014 senior-notes offerings.
B. The Defendants
1. The Plains Defendants
a. The Corporate Defendants
Plains All American Pipeline, LP ("Plains"), is a publicly traded Delaware master limited partnership that owns and operates oil and gas pipelines throughout the United States. Id. ¶ 21. A general partner, Plains All American GP LLC ("GP LLC"), manages Plains and employs Plains's officers, directors, managers, and U.S.-based employees. Id. ¶ 22. GP LLC, in turn, is wholly controlled by Plains GP Holdings, LP ("Plains Holdings"), a publicly traded Delaware limited partnership. Id. ¶ 24. Plains Holdings is, in turn, managed by PAA GP Holdings LLC ("Holdings LLC"), which owns the general partner interest in Plains Holdings and directs that entity's activities. Id. ¶ 29. Plains itself wholly owns PAA Finance Corp., a Delaware corporation formed in 2001 to co-issue Plains's debt securities. Id. ¶ 28. Each entity is a named defendant.
b. The Individual Defendants
i. The Officer Defendants
Greg L. Armstrong is the CEO and Chairman of the Board of GP LLC, Plains's general partner, Holdings LLC (Plains Holdings's general partner), and PAA Finance. Id. ¶ 30. Armstrong signed the securities-offering materials at issue and many of the SEC filings alleged to contain false and misleading statements. He also made allegedly false or misleading statements at investor meetings. Id.
Chris Herbold is the Vice President-Accounting and Chief Accounting Officer of GP LLC, PAA Finance, and Holdings LLC. Id. ¶ 31. He signed the registration statements for some of the securities offerings, as well as the SEC filings that contained allegedly misleading statements. Id.
Richard McGee is the Executive Vice-President, General Counsel, and Secretary of GP LLC and Holdings LLC. Id. ¶ 32. He signed the SEC filings that contained allegedly false and misleading statements. Id.
Harry Pefanis is the President and Chief Operating Officer of GP LLC and Holdings LLC, and President of PAA finance. Id. ¶ 33. Pefanis signed the registration statement for some of the securities offerings and other SEC filings that contained allegedly false or misleading statements. Id.
Al Swanson is the Executive Vice-President and Chief Financial Officer of GP LLC, PAA Finance, and Holdings LLC. Id. ¶ 34. Swanson signed the allegedly misleading registration statements and SEC filings. Id.
ii. The Director Defendants
In addition to the Officer defendants, the plaintiffs sued the following members of the board of directors: Victor Burk, Everardo Goyanes, Gary Petersen, John Raymond, Bobby Shackouls, Robert Sinnott, Vicky Sutil, J. Taft Symonds, and Christopher Temple. These defendants were directors of various Plains entities for at least part of the relevant period, and each signed securities-offering materials containing allegedly untrue or misleading statements. Id. ¶¶ 36-44.
2. The Underwriter Defendants
The plaintiffs also sued financial institutions that participated in at least one Plains securities offering in which the registration statement or other offering materials contained allegedly false or misleading statements. Id. ¶¶ 45-81. Different Underwriter defendants allegedly participated in each of the securities offerings at issue.
C. The Causes of Action
The plaintiffs' Second Amended Complains asserts claims under:
• § 10(b) of the Exchange Act and Rule 10b-5 against Plains, Plains Holdings, and the Officer defendants;
• § 20(a) of the Exchange Act against Holdings LLC, Plains Holdings, and the Officer defendants;
• § 11 of the Securities Act against all defendants;
• § 12(a)(2) of the Securities Act against the Underwriter defendants; and
• § 15 of the Securities Act against Holdings LLC, Plains Holdings, the Officer defendants, and the Director defendants.
For the Exchange Act claims under § 10(b)/Rule 10b-5 and § 20(a), the plaintiffs seek to represent a class of those purchasing Plains common units between February 27, 2013 and August 5, 2015, and those purchasing Plains Holdings Class A shares between October 16, 2013 and August 5, 2015.
For the Securities Act claims under §§ 11, 12, and 15, the plaintiffs seek to represent a class of those purchasing securities "pursuant and traceable to" these offerings. Id. ¶¶ 1-2. The court's earlier Memorandum and Opinion dismissed the claims related to the August 2013 senior-notes offering, the September 2014 senior-notes offering, and the two December 2014 senior-notes offerings because the plaintiffs did not have standing. Op. at 97. The Second Amended Complaint includes allegations about these offerings only "to preserve all rights related to claims arising out of those offerings." 2d Compl. ¶ 2, n.1.
II. The Second Amended Consolidated Complaint's Factual Allegations
For purposes of this motion to dismiss, the allegations in the Second Amended Consolidated are taken as true except to the extent that they are contradicted by the narrow category of documents the court may consider on a motion to dismiss without converting it into one for summary judgment.
A. The Allegations as to Plains's Operations
Plains All American Pipeline is a publicly traded MLP. Its business is interstate and intrastate crude-oil pipeline transportation and storage. Before and during the class period, Plains was one of North America's largest energy pipeline operators. It grew primarily by acquiring significant pipeline and terminal networks. 2d Compl. ¶ 87. The assets acquired included Lines 901 and 903, built in 1987 and acquired by Plains in 1998. Line 901 extends approximately 10 miles along the California coast, where it connects to Line 903, which continues 128 miles through Santa Barbara County and into Kern County. Id. ¶ 88.
Plains conducted periodic inspections of the pipeline with internal inspection devices called pipeline-inspection gauges, or "smart pigs." Smart pigs are run inside a pipeline to detect anomalies caused by corrosion, cracks, laminations, dents, or other defects. These runs are called in-line inspections. Plains's third-party in-line-inspection vendor, Rosen, conducted in-line inspections on Line 901 in June 2007, July 2012, and May 5, 2017. Id. ¶ 89.
Plains's pipeline operations are controlled remotely from a center in Midland, Texas that is operated and staffed at all times. The center "continuously monitors all of Plains's liquid product movements" and "maintains system integrity through leak detection." Id. ¶ 90. The center monitors and operates over 850 remote sites. Id.
During the class period, most of the Plains pipelines, including Lines 901 and 903, were under the regulatory jurisdiction of the Pipeline and Hazardous Materials Safety Administration. The PHMSA enforces regulations under the Hazardous Liquids Pipeline Safety Act of 1979. Id. ¶ 91. Federal regulations enacted under the Act, referred to in this opinion as the "Pipeline Safety Act," required Plains to "adopt measures designed to reduce the environmental impact of oil discharges from onshore pipelines, including the maintenance of comprehensive spill response plans and the performance of extensive spill response training for pipeline personnel." Id. 2002 and 2006 amendments to the Pipeline Safety Act required Plains to "implement integrity management programs, including more frequent inspections, correction of identified anomalies and other measures to ensure pipeline safety in 'high consequence areas,' such as high population areas, areas unusually sensitive to environmental damage, and commercially navigable waterways." Id. ¶ 92. PHMSA regulations also required Plains to implement enhanced measures in high-consequence areas. Id.
Lines 901 and 903 were in a high-consequence area because they were close to the environmentally sensitive Santa Barbara coastline, rivers, state parks, and national forests. The plaintiffs allege that, during the class period, Lines 901 and 903 comprised 9 to 10 percent of Plains's interstate crude-oil pipelines in high-consequence areas, and 15 to 18 percent of Plains's pipelines affecting commercially navigable waters and sensitive ecological resources. Id. Plains had to comply with the PHMSA's enhanced high-consequence-area requirements for Lines 901 and 903. Id. Plains was also generally, and specifically for Lines 901 and 903, subject to the Federal Water Pollution Control Act, referred to as the "Clean Water Act," as amended. That Act imposes restrictions on the discharge of pollutants, like crude oil, into navigable waters of the United States, as well as into state waters. Id. ¶ 93.
Plains publicly stated throughout the class period that it was in substantial compliance with these laws and regulations. Plains also stated that it had implemented pipeline maintenance and integrity measures "beyond regulatory mandate." Id. ¶ 95. The plaintiffs allege that Plains knew that both statements were false when they were made.
B. Plains's Pre-Class Period Actions and the EPA Consent Decree
Plains and its related companies reported 229 safety and maintenance "incidents" on pipelines to federal regulators, more than all but three other reporting companies. These incidents resulted in more than $141 million in property damage and the release of more than 800,000 gallons of hazardous liquids. Id. ¶ 96.
The EPA sued Plains in 2010 and obtained a consent decree requiring Plains to pay significant fines for regulatory violations, and to adopt new safety measures to prevent spills and reduce the impact when they did occur. Id. ¶ 97. The consent decree required Plains to take steps that included the following: to spend $41 million to upgrade more than 10,000 miles of pipeline; to conduct weekly aerial patrols of certain pipelines to check for leaks; to spend millions to mitigate leak threats from corrosion; to install computational pipeline-monitoring capabilities; and to conduct ongoing monitoring of its pipeline system. Id. ¶ 98. None of the $41 million was spent on upgrading or repairing Lines 901 or 903. Id. The plaintiffs repeatedly allege that the consent decree specifically required Plains to repair, upgrade, monitor, and take other similar actions on Lines 901 and 903. The consent decree is a public document central to the plaintiffs' complaint, so the court may consider it on this motion to dismiss.
The defendants insist that the consent decree does not support the plaintiffs' characterization. The consent decree is discussed in detail later in this opinion. For now, it suffices to note that while the decree did include Lines 901 and 903 on a lengthy list of lines subject to certain requirements, it did not require Plains to make specific expenditures or take specific steps on Lines 901 or 903. And, as the defendants emphasize, the United States and Plains jointly terminated the consent decree in 2013. See Docket Entry No. 20, United States v. Plains All American Pipeline, LP , 4:10-cv-2833 (S.D. Tex. Nov. 26, 2013).
C. Plains's Statements About Its Pipeline Integrity
In the wake of the consent decree, Plains executives issued statements telling investors that it had adopted enhanced measures to ensure pipeline integrity. Id. ¶ 99. The Plains 2012 Form 10-K, filed the first day of the class period, reassured investors that "pipeline integrity management" was Plains's "primary operational emphasis," and that Plains had "implemented programs intended to maintain the integrity of our assets, with a focus on risk reduction through testing, enhanced corrosion control, leak detection, and damage prevention." Id. The Form 10-K stated that the Plains "pipelines are in substantial compliance with [applicable regulations]" and that Plains's "integrity management program" included measures that went beyond legal requirements. Id.
At a 2014 investor day conference, Plains CEO Greg Armstrong stated that "[s]afety is a core value" and that Plains "foster[s] a culture that emphasizes operational excellence, asset integrity, & safety." Id. ¶ 100. The top three items in Armstrong's presentation were "Safety," "Pipeline Integrity Management," and "Incident Response Preparation." Id. Armstrong assured investors that "[w]e are committed to operational excellence in safety, pipeline integrity management, and responding to incidents in the unfortunate development that they do occur." Id. Armstrong also stated that "we do a lot and I mean a tremendous amount that will never be appreciated by the public" on safety and spill prevention. Id. Armstrong acknowledged that safety and environmental compliance may "in the short-term hurt our performance in terms of relative to EBITDA targets, etc.," but stated that notwithstanding this effect, "in all cases we want to make sure we do the right thing." Id.
The Officer defendants made several statements, which the plaintiffs say were false and misleading, about Plains's pipeline integrity-management program and Plains's investments in complying with regulations governing pipelines in high-consequence areas. These statements were:
(1) [t]he DOT regulations include requirements for the establishment of pipeline integrity management programs and for protections of 'high consequence areas' where a pipeline leak or rupture could produce significant adverse consequences. We have also developed and implemented certain pipeline integrity measures that go beyond regulatory mandate.
(2) "[i]n that regard, we have implemented programs intended to maintain the integrity of our assets, with a focus on risk reduction through testing, enhanced corrosion control, leak detection, and damage prevention." Id. ¶ 101.
The plaintiffs contend that Plains reassured investors of its commitment to regulatory compliance in high-consequence areas, stating in its class-period Form 10-Ks that:
(1) Plains "devote[d] substantial resources to comply with [government]-mandated pipeline integrity rules ... for protection of 'high consequence areas' where a pipeline leak or rupture could produce significant adverse consequences"; and
(2) that Plains had complied with the Department of Transportation's requirements for high-consequence areas, including "more frequent inspections, correction of identified anomalies and other measures, to ensure pipeline safety in 'high consequence areas,' such as ... commercially navigable waterways." Id. ¶¶ 101-102.
The plaintiffs argue that these statements apply "specifically-and exclusively" to all of Plains's pipelines running through high-consequence areas. Id. The defendants, in contrast, argue that the statements describe Plains's company-wide integrity-management plan and are not limited to, or focused on, pipelines in high-consequence areas. (Docket Entry No. 143 at 2-3). This dispute is discussed further below.
Plains also represented that its officers were involved in the company's safety, pipeline-integrity, and incident-response work. 2d Compl. ¶ 105. During the class period, Plains's website asserted that its Environmental, Health, and Safety Program was "successful because it is developed, supported and carried out by our employees, from the senior management team down to the newest hire"; that "Plains All American is committed to public safety, protection of the environment and operation of our facilities in a prudent and safe manner"; and that the Plains entities "believe that all of our pipelines have been constructed and are maintained in all material respects in accordance with applicable federal, state and local laws and regulations, standards proscribed by the American Petroleum Institute and accepted industry practice." Id.
The plaintiffs contend that these statements would lead reasonable investors to believe that Plains's pipeline integrity-management program, specifically as applied to Lines 901 and 901, fully complied with all applicable regulations. Id. ¶ 107. The plaintiffs contend that reasonable investors would not expect that Plains instead: (1) ignored "troubling warnings" from the PHMSA and Plains's own field measurements showing that the in-line inspection tool was inaccurate; (2) instructed its in-line-inspection vendor to ignore anomalies; (3) ignored inaccuracies in its repair decisions; (4) failed to properly repair or replace pipelines; (5) disregarded regulatory requirements and PHMSA notices and warnings to conduct preventive and mitigative evaluations; (6) ignored warnings that its corrosion-control program was ineffective; (7) ignored warnings about control-room violations; and (8) disregarded industry practices by failing to install automatic shutoff valves on Lines 901 and 903. Id.
According to the Second Amended Complaint, Plains falsely assured investors that, when a leak was detected, the company would promptly respond, coordinate with public officials, and implement a comprehensive plan to prevent severe environmental impacts. Id. ¶ 109. The plaintiffs say that these promises of safe and effective pipeline operation were illusory. Instead, Plains had, and knew it had, disregarded its pipeline-integrity and maintenance obligations, with predictable results when a spill occurred in a high-consequence area. Id. ¶ 108.
D. The Spill
On May 19, 2015, Line 901 ruptured and spilled oil into the Pacific Ocean and environmentally sensitive coastal areas. The spill killed nearly 200 birds and more than 100 marine mammals, including dolphins and sea lions. Id. ¶ 110-112. At an investor day conference held shortly after the spill, Armstrong conceded that "[i]f you could pick any place in the world you would not want to have a release, [Santa Barbara] would probably qualify as the one." Id. ¶ 112.
Plains's response to the spill left much to be desired. State law required Plains to report the spill to the federal National Response Center within 30 minutes of detection. Instead, Plains did not report the spill to the National Response Center until hours after it was discovered. Id. ¶ 114. Plains's own response plans indicated that it should take no more than 15 minutes to discover a release and shut down the flow. Plains officials noticed anomalies in Line 901 by 10:30 a.m., but they did not shut the pipeline down until 11:30 a.m. Government officials first learned of the spill through a 911 call from beachgoers-not from Plains-at approximately 11:42 a.m. The local fire department notified the National Response Center of the spill at 12:43 p.m., over two hours before Plains itself notified the agency. Id.
According to the plaintiffs, Plains's "spin operation" was far more effective than its on-the-ground response. Plains officials stated that the company's "worst case" estimate showed that, at most, 21,100 gallons of oil had spread into the ocean, and as many as 105,000 gallons had been released. Id. ¶ 115. On May 26, 2015, Plains filed a Form 8-K with the SEC. The Form 8-K described the spill and stated that Plains "currently estimates that the amount of released crude oil could be as high as approximately 2,400 barrels," equivalent to 101,000 gallons of oil; this represented a 4,000 gallon reduction from the initial "worst case" estimate. Id. Plains allegedly waged a public-relations campaign to create the impression that it was working efficiently and effectively to remedy the spill, when it knew it had understated the extent of the spill and that it lacked the capability to respond effectively. Id. ¶¶ 116-117.
E. Plains Reveals the Severity of the Spill
On August 5, 2015, Plains disclosed in an investor presentation that as much as 143,000 gallons of oil might have leaked, an amount 42 percent larger than previously reported. Id. ¶ 118. Plains also disclosed that both the U.S. Department of Justice and the California Attorney General were investigating the spill; Plains could be liable for criminal violations of the Clean Water Act; and Lines 901 and 903 were subject to multiple PHMSA corrective actions. Id. For the first time, according to the plaintiffs, Plains disclosed that the spill would cost the company $257 million-not including lost revenue associated with shutting down Lines 901 and 903-and that Plains's insurance did not cover all the costs. Id.
During May and June, the defendants communicated regularly with investors and the public. The communications included the following:
• On June 4, 2015, defendants hosted an investor day, at which Armstrong discussed the Santa Barbara oil spill and encouraged investors to visit the Plains website for "daily updates" on the spill. Id. ¶ 365.
• On the www.plainsline901response.com website, in the "daily updates" section, Plains posted: (1) incident updates on June 29, 2015, July 6, 2013, and July 13, 2015; (2) "Recovery Q&As" on June 17, 2015; (3) the investor day presentation on June 4, 2015; and (4) Armstrong's letters to members of Congress on June 24, 2015. Id.
• The defendants and other Plains representatives had numerous conversations with the press about the spill between May 28, 2015 and August 5, 2015. Id. ¶ 372.
The PHMSA had required Plains to have a spill-response plan for Lines 901 and 903. That plan, in place before the spill occurred, estimated the worst-case scenario for a spill from Line 901 at 148,092 gallons, closer to the actual damage than to Plains's initially released estimates. Id. ¶ 368. The spill-response plan's risk analysis assumed "10 minutes total time to detect the rupture and 5 minutes to shutdown pipeline." Id. But on the day of the spill, Plains employees did not shut down the rupture for more than two hours after it began. Id. The plaintiffs point to this delay as evidence of Plains's misrepresentations about its pipeline safety and spill-response capabilities.
F. Plains's Maintenance Record
i. The March 2009 PHMSA Notice of Amendment
On March 4, 2009, the PHMSA issued a Notice of Amendment to Dan Nerbonne, Plains's Vice President of Engineering. The Notice stated that in 2008 and 2009 inspections of Lines 901 and 903, the PHMSA had identified more than 20 "apparent inadequacies found with Plains's plans or procedures." These inadequacies included the following:
• Plains's data integration process failed to apply in-line-inspection tool uncertainty when comparing in-line-inspection results to the integrity management rule repair requirement, in violation of 49 C.F.R. § 195.452(f) and (g) ;
• Plains's Operations and Maintenance Manual did not provide guidance on "specific composite repairs methods that are approved for use" and did not provide procedures to follow when making repairs on corroded pipes, in violation of 49 C.F.R. § 195.585(a) and (b) ;
• Plains's integrity management program did not provide for the submission of "Safety Related Conditions Reports (SRCR)" to the PHMSA when "pressure reductions are taken for conditions" that meet the SRCR criteria, in violation of 49 C.F.R. § 195.55 ;
• Plains's Operation and Maintenance Manual on Corrosion Control did not provide "adequate details for employees to perform their maintenance activities safely," in violation of 49 C.F.R. § 195.402 ;
• Plains's "Aboveground Storage Tank Inspection, Repair, and Maintenance Specification [did] not address the hydrostatic test requirements of [industry standard] API 653 section 12.3," in violation of 49 C.F.R. § 195.307 ;
• Plains's Operations and Maintenance Manual did not provide procedures for pipeline coating inspection, in violation of 49 C.F.R. § 195.561 ;
• Plains's Operations and Maintenance Manual did not have procedures to monitor a Vapor Corrosion Inhibitor System used for breakout tanks and did not have an explanation as to why "the use of cathodic protection [was] not needed for the tank bottom protection," in violation of 49 C.F.R. 195.565 ;
• Plains did not have specific procedures on how it reviewed results of close internal surveys and performed quality checks "on performance of CIS and data collected to ensure that data actually is representative of what is occurring in the field," in violation of 49 C.F.R. § 195.573 ;
• Plains used an inadequate method of determining voltage drops in monitoring the adequacy of cathodic protection, and the section in its Operation and Maintenance Manual provided little guidance on how these drops would be considered, in violation of 59 C.F.R. § 195.573;
• Plains failed to record and include galvanic anodes in the cathodic protection process, and did not address "the practice of installing test points at all galvanic installations to allow on/off reading," in violation of 49 C.F.R. § 195.589 ; and
• Plains failed to comply with the coating standards for transition coating used in repairs, in violation of 49 C.F.R. 195.559.
Id. ¶ 119.
ii. The December 2013 Warning Letter
On December 24, 2013, the PHMSA sent a Warning Letter to Troy Valenzuela, Plains's Vice President of Environmental Health and Safety. The PHMSA, the Texas Railroad Commission, and the New Mexico Public Regulation Commission had inspected the Midland Control Room and found that Plains had "committed probable violations of the Pipeline Safety Regulations, Title 49, Code of Federal Regulations." Id. ¶ 120. The probable violations all concerned control-room management. They included: (1) making changes "to the critical alarm type description and response priority" without following the Management of Change Procedures, in violation of 49 C.F.R. § 195.446(j) ; (2) providing no evidence of compliance with 49 C.F.R. § 195.446(j)'s requirement "to review the controller training program content" at least once a year to identify potential improvements to the training program; and (3) failures by Control Room personnel to completely fill out Abnormal Operations forms, in violation of 49 C.F.R. § 195.446(j). Id. ¶ 120.
iii. The May 21, 2015 Corrective Action Order
On May 21, 2015, the PHMSA issued a Corrective Action Order requiring Plains to take certain steps on Line 901. Id. ¶ 121. The May 21 Order noted that Plains's inspections of Line 901 in June 2007 and July 2012 had demonstrated declining pipeline integrity. Id. The May 21 Order noted that Plains had used a shrink-wrap sleeve coating on Line 901, which increases the likelihood of corrosion and of leaks. The May 21 Order required Plains to shut down Line 901, conduct extensive testing, review the company's emergency plans and training, and identify other shrink-wrapped parts of the line. Id. On June 3, 2015, the PHMSA issued an amended Corrective Action Order, which identified "extensive external corrosion" on Line 901 and "extensive corrosion" (among other deficiencies) on the adjoining Line 903. Id. ¶ 122.
On September 11, 2015, the PHMSA issued a Notice of Probable Violation based on its September and October 2013 inspections of Lines 901 and 903. Id. ¶ 125. The Notice stated that Plains had likely violated regulations requiring it to keep records of its pipeline integrity-management efforts for lines in high-consequence areas, including records of required tests on Line 903. Id. ¶¶ 127-128. The Notice also stated that Plains did not have records of heightened prevention and mitigation efforts in other high-consequence areas and did not have records indicating what process it used to determine what measures it should take. Id. ¶ 129. The Notice stated that Plains could not produce documents showing its required annual review of its emergency-response training or showing that contractors had performed the tasks that the regulations required. Id. ¶¶ 130-131.
The PHMSA Notice of Probable Violation stated that the violations were "determined prior to the May 19, 2015 crude oil spill in Santa Barbara." Id. ¶ 132. The Notice stated that the PHMSA had asked Plains to provide "additional information" following the PHMSA's September and October 2013 inspections of Lines 901 and 903, and that "during the course of our inspection, our representatives found concerns that may impact your current level of safety" and "discussed" those concerns with Plains representatives. Id. ¶ 132-133. One of these concerns was that "Plains had unclear procedures and documentation of its decision making process for addressing when in-line inspection (ILI) tool run data indicates anomalous conditions." Id. ¶ 134. Additionally, Plains did not appear to have adequate documentation of its plans for contacting emergency responders if a spill occurred in California. Id. at ¶¶ 135-136. Plains had provided the requested additional information in late 2013 and June 2014.
On November 12, 2015, the PHMSA sent yet another amendment to the May 2015 Corrective Action Order. The amended Order required more remedial measures and the following additional findings on Plains's pipeline maintenance:
• The PHMSA's independent review of in-line inspection tool surveys for Lines 901 and 903 over the past 10 years found that anomalies were "under-called" in areas of general corrosion.
• Despite common industry practice, Plains did not share its in-line inspection field data with the vendor for that task, preventing Plains from more accurately analyzing its inspection data.
• The PHMSA's independent review of in-line inspection surveys from the past 10 years show that Line 903 has corrosion characteristics similar to Line 901's, and a number of the Line 903's anomalies had characteristics consistent with the Line 901 failure site.
• Based on the number of anomalies identified on Line 903, it did not appear that Plains had an effective corrosion-control program, meaning that Line 903 had likely degraded further since the last in-line inspection.
• Line 903 had shrink-wrap sleeves on some weld sites, which could contribute to stress corrosion cracking.
Id. ¶ 137.
Based on these findings, the PHMSA required Plains to take Line 903 off-line, purge it, and try to identify problems like those found on Line 901. The PHMSA also ordered Plains to provide its in-line-inspection vendor with field data, to provide additional training, and to implement enhanced measures to monitor Line 903 during the purge-and-inspection period. Id. ¶ 138. The PHMSA's findings, the plaintiffs assert, were based on data that Plains either knew about or recklessly disregarded before the spill. The plaintiffs cite the fact that the PHMSA's conclusions about the in-line inspection undercall bias were derived from Plains's own data. Id. ¶ 139.
iv. The May 16, 2016 Indictment
After the class period ended, on May 16, 2016, Plains was indicted on 42 misdemeanor counts and 4 felony counts for discharging oil into state and federal waters, in violation of the Clean Water Act; knowingly causing a hazardous substance to spill; and knowingly making false or misleading reports after the spill. Id. ¶ 140. The Santa Barbara Superior Court denied Plains's motions to set aside the criminal indictment.
v. The May 19, 2016 Failure Investigation Report
On May 19, 2016, the PHMSA published a Failure Investigation Report with additional findings and conclusions from its investigation of the spill. The PHMSA conducted interviews, "reviewed numerous historical documents and available records, and performed a thorough review of Plains Control Room in Midland, TX," and reviewed "the Plains Integrity Management Plan (IMP), CP [cathodic protection] records, ILI reports, anomaly dig information, SCADA event and alarm logs, pressure and flow trends, procedures, and reports obtained from the pipeline operator and PHMSA SMEs." Id. ¶ 141. The plaintiffs contend that Plains had "substantially all" of this evidence in its possession long before the spill occurred. Id.
The Report found that Line 901 was operating at 56 percent of its maximum operating pressure immediately before the release, a pressure that "should not have caused the release if the pipeline's integrity had been maintained to federal standards." Id. The Report found that the release's direct cause was external corrosion below the pipeline's coating "that thinned the pipe wall to a level where it ruptured and suddenly released heavy crude oil." Id. ¶ 142. The Report identified three contributory causes: (1) "ineffective protection against external corrosion of the pipeline; (2) Plains's failure to detect and mitigate the corrosion; and (3) lack of timely detection of the rupture,"-and described Plains's failures in each category. Id. ¶¶ 142-146.
G. The Defendants' Knowledge of the Corrosion Problems
The plaintiffs allege that the problems with Lines 901 and 903 were not unique to those lines, but instead were "pervasive" and "system-wide." The plaintiffs point to a variety of other environmental incidents and regulatory penalties across the Plains pipeline network in the years before the Santa Barbara spill, alleging that Plains had a "culture of noncompliance." The plaintiffs include a bullet-pointed list of PHMSA notices of violations and probable violations and warning letters about Plains's pipelines in California and in other states, from 2008 to 2014. The notices and letters identify failures to correct corrosion-control deficiencies; failures to coat pipelines; insufficient cathodic protection; failures to establish proper inspection intervals for pipes, valves, and tanks; failures to specify the correct standard for corrosion-control procedures; using conflicting criteria for corrosion-control procedures; failures to monitor internal and external corrosion; and inadequate monitoring of in-line inspection tool results. Id. ¶ 147. The plaintiffs point to additional PHMSA letters and notices detailing Plains's deficiencies in testing, leak detection, damage prevention, and spill-response capabilities. Id. ¶ 148. The plaintiffs contend that Plains's reported infractions together resulted in "more than $141 million in property damage and the release of more than 802,000 gallons of hazardous liquid." Id. ¶ 149.
The plaintiffs contend that the Officer defendants "were well aware of the risks associated with Plains' failure to properly address the corroding pipelines" because corrosion-control failures had resulted in more than 78 oil spills since 2006 and because corrosion-related incidents represented "close to 40 percent of the Company's overall releases." Id. ¶ 150. The plaintiffs contend that these incidents made Plains the "worst pipeline operator in the United States as measured both by the number of total incidents and number of incidents per 1,000 miles of pipeline operated."Id. ¶ 151. The plaintiffs allege that the Officer defendants were aware of the risks associated with these control deficiencies, but ignored them "in favor of a short-sighted profits-based strategy that directly contradicted the Company's public statements." Id.
The plaintiffs allege that the regulatory violations were documented, summarized, and communicated to the Officer defendants. The plaintiffs point to underwriting agreements in Plains's Form 8-K, which stated that Plains had disclosure controls and procedures that "are designed to provide reasonable assurance that material information relating to the Partnership, including its consolidated subsidiaries, is recorded, processed, summarized, and communicated to the principal executive officer, the principle financial officer and other appropriate officers of GP LLC to allow for timely decisions regarding required disclosure," and statements in Plains's Forms 10-K and 10-Q that Plains "maintain[ed] written disclosure controls and procedures...[which] is designed to ensure that the information required to be disclosed by us in reports...is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms." Id. ¶¶ 157, 159. The plaintiffs also point to Plains's audit committee charter, which required the committee to obtain reports from management about compliance and to report that information to Plains's board. Id. ¶ 160-62.
The plaintiffs allege that the defendants had ample access to information about Plains's ongoing regulatory violations. Plains's SEC filings stated that the firm's directors "have access to members of management, and a substantial amount of information transfer and informal communication occurs between meetings." Id. ¶ 163. Plains represented that its environmental and safety program was "successful" because it was "developed, supported and carried out by our employees, from the senior management team down to the newest hire." Id.
In support, the plaintiffs identify two individuals, Nerbonne and Valenzuela, not defendants, who oversaw Plains's integrity-management and environmental health and safety programs, and who reported to Pefanis, one of the Officer defendants. The plaintiffs allege that Nerbonne and Valenzuela had "direct and steady contact with senior management and the board of directors." Id. The plaintiffs also point to Plains's Forms 10-K and 10-Q, signed by Armstrong and Pefanis during the class period. These Forms contained certifications under the Sarbanes-Oxley Act of 2002, stating that "material information relating to registrant, including its consolidated subsidiaries, is made known to use by others within those entities, particularly during the period in which this report is being prepared." Id. ¶ 167. The plaintiffs also allege that the Officer defendants reviewed the data underlying the in-line inspections and excavations because of regulations enacted under the PIPES Act, 49 U.S.C. § 60109(f), which require pipeline operators to "have a senior executive officer of the company sign and certify annual pipeline Integrity Management Program (IMP) performance reports." Id. ¶¶ 168-172.
The plaintiffs also point to provisions in Plains's Code of Business Conduct, which Plains adopted in conformance with the PIPES Act. All Plains employees were required to sign and certify their compliance with the Code. The Code requires material deviations from pipeline-safety protocols to be approved by two of the four senior executive officers, Armstrong, Pefanis, Swanson, and McGee. The Code also states that Plains is committed to safe and environmentally responsible operations, investment in necessary equipment and resources, and compliance with applicable laws and regulations. Waivers of the Code "must be obtained in writing from the Vice President...of your business unit or corporate function." Id. ¶ 173. Waiver requests that a vice president determined to be material were required to be approved by two of the four senior executive officers.
The plaintiffs allege that, despite the regulatory problems, Plains represented that its integrity-management program was sound. Id. ¶ 164. At a meeting attended by Armstrong, Pefanis, and Swanson, Armstrong stated:
We have implemented a tremendous amount of testing procedures, Dan Nerbonne and Rick Jensen and their groups in both US and Canada spend a tremendous a[m]ount of time investing in testing and trying to advance technologies to be able to monitor the pipe and to proactively get in front of some of these opportunities and issues.
Id.
The plaintiffs also point to the consent decree, which required Plains to implement an improved pipeline integrity-management program, corrosion-control measures, and other changes designed to reduce the risk of spills. Id. ¶ 166. Plains was required to check in with the EPA twice a year, setting out the progress it had made on these improvements. The PAA and PAGP represented in SEC filings that they had "developed and implemented certain pipeline integrity measures that go beyond regulatory mandate, some of which are now incorporated in the 2010 Consent Decree." As part of making "pipeline integrity management" a "primary operational emphasis," Plains had instituted an "internal review process pursuant to which we examine various aspects of our pipeline...systems that are not subject to the DOT pipeline integrity management mandate." Id.
The plaintiffs allege that the corporate and individual defendants were severely reckless in promoting Plains's safety record while allowing the pipelines to degrade for want of repairs. This recklessness was due, the plaintiffs allege, to the defendants' financial interest in Plains's profits. The ownership structure and internal incentive schemes of the various Plains partnerships and companies rewarded each group of defendants for distributing cash to Plains All American's unit-holders. The Officer defendants' bonuses, some potentially over one million dollars, depended on their generating cash, reducing the incentive to spend money repairing decaying pipelines. Id. ¶¶ 175-186.
The plaintiffs allege that the defendants knew before the spill that Line 901 had reached or exceeded its useful life. Lines 901 and 903 were constructed in 1987 and were operational in 1990. In May 2015, Line 901 had been operating for 25 years. Plains's SEC filings stated that the lines had an estimated maximum useful life of 30 years, based on the "condition, manufacturing specifications, technological advances and historical data concerning useful lives of similar assets." Id. ¶ 187. The plaintiffs allege that the defendants knew that Line 901 was located in a sandy, coastal environment that could create corrosion problems, which, combined with the fact that the lines were located in a high-consequence area, made the 30-year estimate unrealistically high. The plaintiffs contend that had the defendants had properly monitored and evaluated Line 901, they would have known that it had exceeded its useful life.
Finally, the plaintiffs allege that decreasing production volumes on Lines 901 and 903 motivated the defendants to look the other way. In 1995, Plains reported that it shipped an average of 152,000 net barrels of oil per day from the outer continental shelf fields, which included Lines 901 and 903. By 2014, the production volumes from these fields had dropped to an average of 37,000 net barrels per day. In its 2013, 2014, and 2015 filings with the SEC, Plains reported the decline in volumes shipped from the outer continental shelf. The plaintiffs allege that this production decrease gave the defendants "little incentive to undertake the massive repairs necessary to keep an almost thirty-year-old pipeline safe and compliant with regulations." Id. ¶ 189. Repairing the pipeline would have required replacing large segments, at significant cost, and Plains's insurance would cover some clean-up costs from any spills. The plaintiffs contend that these factors made it "simply not worth it to defendants to perform the repairs necessary to Lines 901 and 903 that would have prevented the Santa Barbara spill." Id. ¶¶ 188-191.
H. The Challenged Statements During the Class Period
The Second Amended Complaint asserts claims based on 17 allegedly false statements during the class period. The statements are identified by the numbers used in Appendix A of the Plains defendants' motion to dismiss. (Docket Entry No. 140, Appendix A).
• Statement 1: "The DOT regulations include requirements for the establishment of pipeline integrity management programs and for protection of 'high consequence areas' where a pipeline leak or rupture could produce significant adverse consequences. We have also developed and implemented certain pipeline integrity measures that go beyond regulatory mandate.
...
Accordingly, for 2013 and beyond, we will continue to focus on pipeline integrity management as a primary operational emphasis. In that regard, we have implemented programs intended to maintain the integrity of our assets, with a focus on risk reduction through testing, enhanced corrosion control, leak detection and damage prevention." 2d Compl. ¶ 192.
• Statement 2: "Plains All American supports its commitment to safe and environmentally responsible operations through extensive and ongoing education and training, as well as investment in any necessary equipment, systems, processes, or other resources." 2d Compl. ¶ 193.
• Statement 3: "We have an internal review process in which we examine the condition and operating history of our pipelines and gathering assets to determine if any of our assets warrant additional investment or replacement." 2d Compl. ¶ 194.
• Statement 4: "The HLPSA was amended by the Pipeline Improvement Act of 2002 and the Pipeline, Inspection, Protection, Enforcement and Safety Act of 2006. These amendments have resulted in the adoption of rules by the Department of Transportation ('DOT') that require transportation pipeline operators to implement integrity management programs, including more frequent inspections, correction of identified anomalies and other measures to ensure pipeline safety in 'high consequence areas,' such as high population areas unusually sensitive to environmental damage, and commercially navigable waterways . In the United States, our costs associated with the inspection, testing and correction of identified anomalies were approximately $107 million in 2014, $57 million in 2013 and $39 million in 2012. Based on currently available information, our preliminary estimate for 2015 is that we will incur approximately $75 million in capital expenditures and approximately $27 million in operational expenditures associated with our required pipeline integrity management program. Significant additional expenses could be incurred if new or more stringently interpreted pipeline safety requirements are implemented. Currently, we believe our pipelines are in substantial compliance with HLPSA and the 2002 and 2006 amendments. In addition to required activities, our integrity management program includes several voluntary, multi-year initiatives designed to prevent incidents. Costs incurred for such activities were approximately $21 million in 2014, $22 million in 2013 and $24 million in 2012, and our preliminary estimate for 2015 is that we will incur approximately $31 million of such costs.
....
We are subject to the EPA's Risk Management Plan regulations at certain facilities. These regulations are intended to work with OSHA's PSM regulations (see 'Occupational Safety and Health' above) to minimize the offsite consequence of catastrophic releases. The regulations require us to develop and implement a risk management program that includes a five-year accident history, an offsite consequence analysis program, a prevention program and an emergency response program. We believe we are operating in substantial compliance with our risk management program. " (Docket Entry No 140, Ex. 6); 2d Compl. ¶ 195 (emphasis added to indicate the excerpt of the statements included in the Second Amended Complaint).
• Statement 5: The Company "perform[s] scheduled maintenance on all of our pipeline systems and make[s] repairs and replacements when necessary or appropriate." 2d Compl. ¶ 202.
• Statement 6: "When we buy an asset in an acquisition we have not only the opportunity capital in our forecast but we have in our forecast the amount of what we call fix up capital that it takes just to get that pipeline or that tank running at the-and operated in a way that we would feel comfortable running it for the next 25 or 30 years." 2d Compl. ¶ 204
• Statement 7 (Slide): "(i) Continue to regularly assess pipeline integrity using state-of-the-art inspection tools and technologies; (ii) Smart pigs, advanced data interpretation/integration, advanced GIS mapping and risk screening; and (iii) Improving data/interpretation/integration capabilities to better prioritize, focus on and assess areas warranting attention." 2d Compl. ¶ 205.
• Statement 8: "We assess the pipeline using the best tools that are available. Smart pigs, we run them when it makes sense, more often than are required. We improve our data interpretation to make sure that we are trying to prevent things from happening, not diagnose what did happen." 2d Compl. ¶ 206
• Statement 9: Hodgins: [T]he first time I heard anything about the corrosion is what I read in the newspapers.... We had no indication at all to assume there was an issue...."
...
When asked about the 2007 and 2012 in-line inspection results, Hodgins stated:
"We had not had any indication at that time...[that there was] metal loss greater than 50%" 2d Compl. ¶¶ 207-208.
• Statement 10: "In the unfortunate event that we do have an incident we will be prepared. Our key objective obviously is to preserve life and safeguard the environment. The personnel that are on site at the time that we have an event that does come up have as much unrestricted authority to make decisions to spend money as it would if I was standing on that [side al