United States District Court, D. Nevada
IN RE ALLIED NEVADA GOLD CORP., SECURITIES LITIGATION
R. HICKS UNITED STATES DISTRICT JUDGE
Scott Caldwell, Robert Buchan, Randy Buffington, and Stephen
Jones moved to dismiss the second consolidated amended
complaint (“SAC”) in this federal securities
class action. ECF No. 126. Plaintiffs opposed the motion and
Defendants filed a reply. ECF Nos. 132 and 135. Lead
Plaintiff Andrey Slomnitsky filed the SAC after the court
granted Defendants' motion to dismiss the first amended
complaint (“FAC”). ECF No. 125; see ECF
No. 120. The court dismissed the FAC for failing to
adequately plead the required elements for a claim brought
under Section 10 and Rule 10(b)-5 of the Securities Exchange
Act (“SEA”), which include: (1) falsity, (2)
scienter, and (3) causation. ECF No. 120. For the same
reasons that the court dismissed the FAC, the court now
dismisses the SAC with prejudice.
brought this federal securities class action on behalf of
investors who purchased stock in Allied Nevada Gold
Corporation (“Allied”) from January 18, 2013, to
August 5, 2013, (the “class period”). ECF No. 125
at ¶ 1.
the class period, Allied operated the Hycroft Mine in Nevada,
which consisted of three leach pads: the Lewis leach pad, the
Brimstone leach pad, and the North leach pad. Id. at
¶¶ 2, 5. The instant class action focuses on the
operations at the Lewis leach pad. See id.
mined and developed the Hycroft Mine in order to recover gold
and silver from oxide ores through a heap-leaching process.
Id. at ¶¶ 3-4. The heap-leaching process
requires the creation of a leach pad, which is created by
compacting soil to create a flat but sloped foundation for
the placement of an impermeable barrier. Id. at
¶ 14. The impermeable barrier is the leach pad, on which
gold and silver-bearing ore is placed after it is extracted,
crushed, and coated with lime. Id. at ¶¶
15-16. The crushed ore is then doused with a diluted cyanide
solution to dissolve the gold and the silver from the ore.
Id. at ¶ 16. This process creates a solution,
called the pregnant solution, that holds the dissolved gold
and silver. Id. The pregnant solution percolates
through the ore stacked on the leach pad. Id. at
¶¶ 17-18. The ability of the pregnant solution to
percolate through the stacked ore is essential to the
heap-leaching process. Id. at ¶¶ 19-22. At
the end of the process, the gold and the silver are removed
from the pregnant solution by carbon absorption. Id.
at ¶ 23. Allied conducted a heap-leaching process at the
Lewis leach pad during the class period, during which time,
the Lewis leach pad experienced ongoing operational
difficulties. Id. at ¶¶ 24-25.
addition to conducting a heap-leaching process at the Hycroft
mine, Allied sought to expand its leach pad operations.
Id. at ¶ 5. It engaged in expansion projects,
such as increasing the mining rate, adding process machinery,
constructing a mill, and upgrading infrastructure items.
Id. at ¶ 5. However, Allied eventually
suspended its expansion projects in August 2013 due to the
ongoing operational difficulties at the Lewis leach pad.
Id. at ¶ 47.
complaint and the opposition to the instant motion,
Plaintiffs focus largely on an activity known as
“belly-dumping.” See generally id.; see
also ECF No. 132. Belly dumping is the use of
large trucks that release piles of lime while driving over a
leach pad. ECF No. 125 at ¶ 25. However, Plaintiffs
identify the issue that impeded the recovery of gold and
silver at the Lewis leach pad as a condition known as
“blinding.” Id. at ¶¶ 25; ECF
No. 132 at 3. Blinding occurs when an impermeable barrier is
created within the stacked ore on the leach pad, which
inhibits the leaching process by preventing the leaching
solution from soaking ore located below the impermeable
barrier. ECF No. 125 at ¶ 25.
complain that four Defendants caused the stockholders'
loss during the class period by not disclosing the blinding
issue: (1) Scott A. Caldwell, (2) Robert M. Buchan, (3) Randy
E. Buffington, and (4) Stephen M. Jones. See generally
Id. Plaintiffs allege that each Defendant-all
high-ranking Allied officials at some time during the class
period-were extensively experienced in mining and had a
comprehensive understanding of the heap-leaching process.
Id. at ¶¶ 11, 57-60.
the four high-ranking Defendants, Allied issued a variety of
press releases and financial information during the class
period. See generally Id. (referencing multiple
press releases and financial documents). It also
participated in several conference calls to discuss the
Hycroft Mine's performance. See generally Id.
(quoting multiple conference calls held by
Allied). Plaintiffs allege that the press releases,
financial statements, and conference calls all contained
materially false and misleading statements about: (1) the
operations of the Lewis leach pad, (2) Allied's cash
position and access to capital, (3) the expansion project of
the Hycroft Mine, and (4) Allied's favorable financial
guidance. Id. at ¶¶ 156, 162, 180, 203.
Plaintiffs also allege that Defendants knew the statements
were materially false and misleading at the time the
statements were made. See id.
then allege that the truth regarding Allied's business
was slowly revealed to stockholders beginning on April 30,
2013. Id. at ¶¶ 183-86. On April 30,
Allied announced its financial results for the first quarter
of 2013 and its “higher than expected” production
costs. Id. at ¶ 183; see also ECF No.
126 at Ex. L. Allied then disclosed that it would likely
phase the expansion project of the Hycroft mine and that it
planned to issue a secondary public offering
(“SPO”). ECF No. 125 at ¶¶ 185-86;
see also ECF No. 126 at Ex. L. Allied also filed a
Form 10-Q, in which it made projections regarding gold and
silver production for the year of 2013 and stated it had
sufficient capital and access to funding. ECF No. 125 at
¶¶ 188-89; see also ECF No. 126 at Ex. 15.
The following day, May 1, 2013, Allied held a conference
call, in which Defendants explained their reasoning for
phasing the expansion project and for issuing a SPO. ECF No.
125 at ¶ 191; see also ECF No. 126 at Ex. N. In
the conference call, Defendants reiterated their confidence
in the business plan and its ability to deliver as planned.
ECF No. 125 at ¶¶ 192-95; see also ECF No.
126 at Ex. N.
on May 2, 2013, Allied filed an automatic shelf registration
statement on Form S-2 with the Securities Exchange Commission
(“SEC”). ECF No. 125 at ¶ 214. On May 9,
2013, Allied amended the registration statement, offering to
sell fourteen million shares of Allied stock in the SPO.
Id. at ¶ 215, ECF No. 126 at Ex. O. On May 17,
2013, Allied announced the closing of its sale of the
fourteen million shares in the SPO at $10.75 per share. ECF
No. 125 at ¶¶ 211, 230. On July 8 and July 22,
2013, Allied released two new press releases, which allegedly
further exposed the truth about Allied's business.
Id. at ¶¶ 233-34; see also ECF
No. 126 at Exs. P and Q.
Plaintiffs contend that full disclosure regarding
Allied's operations and financial positions was not made
until early August 2013. Id. at ¶¶ 241-50.
Specifically, on August 6, 2013, Defendants issued a press
release and held a conference call, announcing its production
costs had increased dramatically and would continue to rise
because of operational defects at the Lewis leach pad.
Id.; ECF No. 126 at Exs. R and S. It also announced
that the expansion project was indefinitely suspended as a
result of the operational issues. ECF No. 125 at ¶ 241;
see also ECF No. 126 at Exs. R and S. The next day,
Allied's stock dropped from $5.90 per share at the close
of trading on August 5, 2103, to $3.73 per share at the close
of trading on August 7, 2013. Id. at ¶ 251.
allege that Defendants knew the Lewis leach pad suffered from
the blinding issue at the time in which the alleged
misstatements were made. See generally ECF No.
125. In so alleging, Plaintiffs rely in part on a
May 2, 2013 letter that Defendants sent to the Nevada
Division of Environmental Protection (NDEP). Id. at
¶¶ 210, 246. The letter to NDEP “proposes a
sonic drill program for the Brimstone and Lewis Leach
Pads.” ECF No. 134 at Ex. A. The accompanying
documentation states: “Mineralization within a heap can
be located and characterized through drilling” and
“[Allied] intends to case these drill holes …
for possible use as injection wells in the future.”
Id. Because the letter and accompanying report
allegedly took “a number of days to weeks to prepare[,
]” Plaintiffs allege Defendants knew about the blinding
condition and planned to use the drilling program to confirm
the areas in the Leach Pad where blinding was occurring. ECF
No. 125 at ¶ 210. The “investigative drilling
program” began in approximately June or July of 2013.
Id. at ¶¶ 100, 118, 120. Plaintiffs also
rely on multiple statements from fifteen confidential
witnesses, all of whom are Allied's former employees.
Id. at ¶¶ 61-122. Ten of the fifteen
confidential witnesses were included in the FAC.
Compare ECF No. 98 with ECF No. 125.
filed the first complaint in this action on April 3, 2014.
ECF No. 1. The court consolidated this case on November 7,
2014, and named Andrey Slomnitsky as lead plaintiff. ECF NO.
59. Allied then filed for Chapter 11 bankruptcy. ECF No. 95.
Plaintiffs filed the FAC on May 1, 2015. ECF No. 98.
Defendants moved to dismiss the FAC on September 29, 2015.
ECF No. 103. The court dismissed the FAC on August 8, 2016,
but gave Plaintiffs leave to amend. ECF No. 120. The court
dismissed the FAC because Plaintiffs' allegations failed
to support the idea that Defendants knew the extent of the
operational issues at the time the alleged misrepresentations
were made. Id. Accordingly, Plaintiffs failed to
plead falsity, scienter, and causation. Id.
then filed the SAC on November 3, 2016, alleging two claims:
(1) a violation of Section 10 under the SEA and Rule 10(b)-5;
and (2) a violation of Section 20(a) of the SEA. ECF No. 125.
Defendants moved to dismiss the SAC on January 25, 2017. ECF
No. 126. Defendants also requested judicial notice of
Allied's stock prices and the cost of gold on various
dates. ECF No. 127. Plaintiffs filed an opposition to the
motion, and Defendants replied. ECF Nos. 132, 135.
Rule of Civil Procedure (“Rule”) 8(a)(2) requires
a pleading to contain a “short and plain statement of
the claim showing that the pleader is entitled to
relief.” Fed.R.Civ.P. 8(a)(2). A court may dismiss a
complaint that fails to meet this standard under Rule
12(b)(6). Fed.R.Civ.P. 12(b)(6). Rule 12(b)(6) permits
dismissal on the basis of either (1) the “lack of a
cognizable legal theory, ” or (2) “the absence of
sufficient facts alleged under a cognizable legal
theory.” Balistreri v. Pacifica Police
Dep't, 901 F.2d 696, 699 (9th Cir. 1990). In
considering whether the complaint is sufficient to state a
claim, the court accepts as true all factual allegations
contained in the complaint. Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). However, a court need not “accept
as true allegations that contradict matters properly subject
to judicial notice or by exhibit” or “allegations
that are merely conclusory, unwarranted deductions of fact,
or unreasonable inferences.” In re Gilead Scis.
Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008)
(internal quotations omitted). While a complaint need not
allege detailed factual allegations, it “must contain
sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.'”
Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007)). A claim is
facially plausible when it “allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.” Id.
9(b) and the Private Securities Litigation Reform Act
(“PSLRA”) also govern securities fraud claims.
Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981,
990 (9th Cir. 2009) as amended (Feb. 10, 2009).
Accordingly, a plaintiff must satisfy the heightened pleading
standard required by both Rule 9(b) and the standards under
PSLRA. Id. Rule 9(b) requires a plaintiff alleging
fraud or mistake to “state with particularity the
circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other condition of mind of a person may be
averred generally” Fed.R.Civ.P. 9(b); Nursing Home
Pension Fund, Local 144 v. Oracle Corp., 380 F.3d 1226,
1230 (9th Cir. 2004). But while Rule 9(b) permits the general
averment of a person's state of mind, the PSLRA requires
a plaintiff alleging securities fraud to “plead with
particularity both falsity and scienter.” Gompper
v. VISX, Inc., 298 F.3d 893, 895 (9th Cir. 2002)
(quoting Ronconi v. Larkin, 253 F.3d 423, 429 (9th
Cir. 2001)); see also Nursing Home, 380 F.3d at
court first addresses the issue of judicial notice. The court
then discusses each claim alleged by Plaintiffs in turn.
Finally, the court turns to the issue of dismissal with
may take judicial notice of “records and reports of
administrative bodies.” Interstate Natural Gas Co.
v. Southern California Gas Co., 209 F.2d 380, 385 (9th
Cir. 1953). Under the Federal Rules of Evidence, “[a]
judicially noticed fact must be one not subject to reasonable
dispute in that it is either (1) generally known within the
territorial jurisdiction of the trial court or (2) capable of
accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned.” Fed.R.Evid.
201(b). “A court shall take judicial notice if
requested by a party and supplied with the necessary
information.” Fed.R.Evid. 201(d). Accordingly,
“[a]though generally the scope of review on a motion to
dismiss for failure to state a claim is limited to the
[c]omplaint, a court may consider evidence on which the
complaint necessarily relies if: (1) the complaint refers to
the document; (2) the document is central to the
plaintiffs' claims; and (3) no party questions the
authenticity of the copy attached to the 12(b)(6)
motion.” Daniels-Hall v. Nat'l Educ.
Ass'n, 629 F.3d 992, 998 (9th Cir. 2010) (internal
quotations and citations omitted). The court may “treat
such a document as ‘part of the complaint, and thus may
assume that its contents are true for the purposes of a
motion to dismiss under Rule 12(b)(6).'” Marder
v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (quoting
United States v. Ritchie, 342 F.3d 903, 908 (9th
refer to and quote from the following: (1) Allied's press
releases dated January 18, 2013, February 22, 2013, February
25, 2013, March 21, 2013, March 27, 2013, April 8, 2013,
April 30, 2013, July 8, 2013, July 22, 2013, and August 6,
2013; (2) Allied's conference calls on January 18, 2013,
February 25, 2013, April 9, 2013, May 1, 2013, and August 6,
2013; (3) Allied's financial statements including the
2012 Form 10-K filed February 25, 2013, the Form 10-Q filed
April 30, 2013, and the Prospectus Supplement filed on May 9,
2013. Plaintiffs also refer to Allied's letter to NDEP,
dated May 2, 2013. Plaintiffs' references and quotes from
the forgoing form the basis for the allegations within
Plaintiffs' SAC. Further, the parties do not dispute the
authenticity of the documents provided to the court. The
court therefore takes judicial notice of Exhibits B to S
provided by Defendants and Exhibit A provided by Plaintiffs.
Defendants request the court to take judicial notice of their
Exhibit A, which contains a graphical representation of the
published stock prices for Allied from October 1, 2012, to
August 29, 2013; a table showing the published stock prices
for Allied from October 1, 2012, to August 9, 2013; a
graphical representation of the published prices for gold
from October 8, 2012, to August 27, 2013; a table showing the
published prices for gold from October 1, 2012, to December
31, 2012; and a table showing the published prices for gold
from April 30, 2013, to August 9, 2013. A company's
published stock prices qualify as judicially noticeable
information. See In re Homestore.com, Inc. Sec.
Litig., 347 F.Supp.2d 81, 817 (C.D. Cal. 2004).
“[P]ublicized commodities prices” also qualify as
judicially noticeable information. See In re Crude Oil
Commodity Futures Litig., 913 F.Supp.2d 41, 52 (S.D.N.Y.
2012). Plaintiffs did not object to any of Allied's
exhibits. The court therefore takes judicial notice of
Exhibit A provided by Defendants.
Violation of Section 10(b) and Rule 10b-5 of the Securities
10(b) of the SEA, 15 U.S.C. § 78j(B), makes it unlawful
“for any person … [t]o 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 ...