Thomas Podraza v. Richard Whiting

United States Court of Appeals
For the Eighth Circuit
___________________________

No. 14-1947
___________________________

Thomas Podraza; Dennis Doucet; Jan Arnett; Douglas Keehn

lllllllllllllllllllll Plaintiffs - Appellants

Patriot Coal Investor Group; Ernesto Espinoza, on behalf of himself and all others
similarly situated; John Ziants; James Schmitt; Karel Rybacek; Douglas Combs;
Furman Jerry Rogers, III, individually and on behalf of all others similarly situated

lllllllllllllllllllll Plaintiffs

Kevin Lowery, individually and on behalf of all others similarly situated

lllllllllllllllllllll Plaintiff - Appellant

v.

Richard M. Whiting; Mark N. Schroeder

lllllllllllllllllllll Defendants - Appellees

James Karas; Denis Dehne; Cambridge Retirement System; Richard Sitko

lllllllllllllllllllllMovants
____________

Appeal from United States District Court
for the Eastern District of Missouri - St. Louis
 ____________

Submitted: January 15, 2015
Filed: June 22, 2015
____________

Before WOLLMAN, SMITH, and SHEPHERD, Circuit Judges.
____________

SHEPHERD, Circuit Judge.

This appeal concerns a securities fraud class action brought on behalf of all
persons who purchased or acquired Patriot Coal Corporation securities between
October 21, 2010, and July 9, 2012 (“Plaintiffs”). The defendants are Richard
Whiting and Mark Schroeder, Patriot’s former Chief Executive Officer and former
Chief Financial Officer, respectively (“Defendants”).

In September 2010, a federal district judge in West Virginia ordered Patriot to
install environmental remediation facilities at two of its mines. Beginning in October
2010 and continuing until May 2012, for accounting purposes, Patriot recorded the
facilities’ installation costs as capital expenditures. After corresponding with the
Securities and Exchange Commission (“SEC”) over a period of months about this
accounting treatment, however, Patriot restated its financial documents in May 2012
to recognize the installation costs as expenses. The restatement caused Patriot’s asset
retirement obligation expense and net loss to increase by $49.7 million for 2010 and
$23.6 million for 2011. Patriot’s share priced dropped after the restatement. The
company filed for bankruptcy in July 2012.

Plaintiffs subsequently brought this action, alleging Defendants violated
sections 10(b), 20(a), and 20(b) of the Securities Exchange Act of 1934 (“Exchange
Act”), 15 U.S.C. § 78a et seq., as well as SEC Rule 10b–5, 17 C.F.R. § 240.10b–5.
Plaintiffs argued Defendants fraudulently capitalized the environmental remediation

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facilities’ installation costs to avoid the impact expensing the costs would have on
Patriot’s bottom line. Defendants moved to dismiss Plaintiffs’ complaint under
Federal Rule of Civil Procedure 12(b)(6) and the Private Securities Litigation Reform
Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4. The district court1 granted the motion
to dismiss, finding Plaintiffs failed to meet the PSLRA’s heightened requirement for
pleading scienter. Plaintiffs now appeal the dismissal of their complaint, arguing the
district court’s scienter ruling was in error. Because we find the more compelling
inference is that Defendants did not act with fraudulent intent, we agree with the
district court that the facts alleged do not give rise to the required strong inference of
scienter. We affirm.

I.

“Because this appeal arises from the district court’s grant of a motion to
dismiss, we draw the relevant facts from the class complaint.” Elam v. Neidorff, 544
F.3d 921, 925 (8th Cir. 2008). We also consider “other sources courts ordinarily
examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents
incorporated into the complaint by reference, and matters of which a court may take
judicial notice.” Tellabs, Inc. v. Makro Issues & Rights, Ltd., 551 U.S. 308, 322
(2007). Plaintiffs do not dispute that we may consider Patriot’s SEC filings and its
SEC correspondence to establish what Patriot wrote in those documents.

Patriot is a coal mining company based in St. Louis, Missouri, with chief
operations in the central and eastern United States. In 2008, Patriot acquired the
Apogee and Hobet surface mines in West Virginia. At the time of the acquisition, the
mines were subject to environmental litigation in the Southern District of West
Virginia. The plaintiffs in the environmental suits alleged that the mines discharged

1
The Honorable Stephen N. Limbaugh, Jr., United States District Judge for the
Eastern District of Missouri.

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selenium, a naturally occurring yet potentially toxic element, into water runoff. The
selenium discharge levels allegedly exceeded limits set in applicable state mining
permits, and the environmental plaintiffs sued to enforce compliance.

Patriot entered consent decrees with the plaintiffs in the environmental suits
in March 2009, agreeing to bring the Apogee and Hobet mines into compliance with
specific selenium discharge levels by April 2010. As part of its subsequent effort to
reduce selenium discharge levels at the mines, Patriot installed water treatment
technology it refers to as Zero Valent Iron (“ZVI”). Patriot recorded all the costs
associated with the ZVI technology, which amounted to about $20 million, as
expenses.

In September 2010, however, because the ZVI technology proved ineffective
in sufficiently lowering the selenium discharge levels, the West Virginia district court
ordered Patriot to install a Fluidized Bed Reactor (“FBR”) facility at the Apogee mine
and to submit and implement a treatment plan for the Hobet mine. After evaluating
several alternative technologies, Patriot proposed to install an Advanced Biological
Metals (“ABMet”) facility at the Hobet mine. We follow the parties and the district
court in referring to Patriot’s court-ordered obligations to install the FBR and ABMet
facilities as the “Remediation Obligations.”

On October 21, 2010, the first day of the class period, Patriot issued a press
release announcing that it had been ordered to install the FBR facility and that it
would recognize the facility’s installation costs as a $50 million capital expenditure
and its operating costs as a $20.7 million expense. After Patriot selected the ABMet
facility for the Hobet mine, it disclosed it would recognize that facility’s installation
costs, which it estimated at $25 million, as capital expenditures as well. In
subsequent public filings with the SEC—including in Form 10-Qs filed in November
2010, May 2011, and August 2011, as well as in its 2010 Form 10-K—Patriot

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reiterated it would recognize the Remediation Obligations’ installation costs as
capital expenditures and issued financial statements to that effect.

In September 2011, the SEC’s Division of Corporate Finance sent Patriot a
letter questioning this accounting treatment. The letter opened an eight-month
dialogue between Patriot and the SEC. During that time, the SEC sent six letters to
Patriot, all addressed to Whiting. Patriot responded with six letters of its own: four
signed by Schroeder and two signed by Patriot Vice President Christopher Knibb. In
its letters, Patriot provided detailed explanations of its accounting treatment. It stated
it believed its accounting complied with “authoritative” accounting guidance, and in
particular with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 410-30. According to Patriot, ASC 410-30 allows
companies to capitalize expenses for “tangible assets acquired to clean a particular
spill . . . to the extent that those tangible assets have future uses.” J.A. 178. Patriot
maintained it properly capitalized the Remediation Obligations’ installation costs
because it expected the Remediation Obligations to address “current and future
selenium discharge limit exceedances.” J.A. 178.

Patriot also told the SEC that ASC 410-30 supported its decision to capitalize
the Remediation Obligations’ installation costs but not the ZVI technology’s costs.
Patriot stated the FBR facility would “fill an area approximately 670 feet in length
and approximately 190 feet wide.” J.A. 201. Given its size, the FBR facility would
be “located farther down the valley where wider construction areas are available.”
J.A. 199. This placement “centrally located [the FBR facility] near active and
potential, future operations.” J.A. 199. By contrast, “ZVI water treatment tanks are
more commonly located in areas adjoining the affected outfalls because they require
a significantly smaller amount of evenly graded land.” J.A. 199. Further, the FBR
facility would contain “large steel tanks and other infrastructure that is designed to
have a long lifespan.” J.A. 201. “Comparatively, the ZVI tanks are plastic tanks. .

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. . The tanks were not constructed to withstand significant water flow over multiple
years.” J.A. 201.

In February 2012, while its dialogue with the SEC was ongoing, Patriot filed
its 2011 Form 10-K and again disclosed it was capitalizing the Remediation
Obligations’ installation costs. It also disclosed it had received comments from the
SEC regarding this accounting treatment and that the comments were unresolved.
Ernst & Young LLP, Patriot’s independent auditor, issued an audit opinion
accompanying the 2011 Form 10-K. The audit opinion, which included an
assessment of “the accounting principles used,” concluded that Patriot’s 2011 year-
end financial statements “present fairly, in all material respects, [Patriot’s]
consolidated financial position” “in conformity with U.S. generally accepted
accounting principles.” J.A. 308. It also “expressed an unqualified opinion” of
Patriot’s “internal control over financial reporting.” J.A. 308.

Nevertheless, the SEC continued questioning Patriot’s accounting treatment.
And in a letter to the SEC dated May 8, 2012, Patriot agreed to restate its financial
documents. Thus on May 8, 2012, Patriot filed a Form 8-K disclosing it would
restate its 2010 and 2011 consolidated financial statements to recognize the
Remediation Obligations’ installation costs as expenses. Patriot explained the change
was necessary because the “primary use [of the Remediation Obligations] will be to
treat selenium exceedances in water discharges resulting from past mining under
legacy permit standards.” J.A. 314. The restatement caused Patriot’s asset retirement

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obligation (“ARO”) expense2 and net loss to increase by $49.7 million for 2010 and
$23.6 million for 2011. Patriot’s share price dropped the following day.

The May 8, 2012 Form 8-K also contained a revenue forecast for 2013. On
May 15, 2012, however, Patriot filed another Form 8-K revising the forecast
downward “[b]ased on recent developments involving the potential default by a key
customer.” R. Doc. 51, at ¶ 57. Patriot’s share price dropped on May 15, 2012. Then
on May 22, 2012, Patriot issued a third Form 8-K, this time publishing a letter from
Whiting to Patriot employees acknowledging Patriot’s struggle to secure capital but
noting Patriot was working to restructure its debt. Patriot’s share price dropped on
May 22, 2012. On July 9, 2012, Patriot issued a press release announcing it “and
substantially all of its wholly owned subsidiaries [had] filed voluntary petitions for
reorganization under Chapter 11 . . . to undertake a comprehensive financial
restructuring.” R. Doc. 51, at ¶ 61. The press release stated Patriot had been
hampered by “reductions in U.S. thermal coal demand,” “challenging environmental
regulations affecting the cost of producing and using coal,” and “weaker international
and domestic economies.” R. Doc. 51, at ¶ 61. The press release also acknowledged
that Patriot’s “liquidity and financial flexibility” had been constrained by, among
other things, “rising expenditures for environmental and other liabilities.” R. Doc.
51, at ¶ 61.

Three separate securities fraud class actions were filed against Defendants later
in 2012. Following procedures set forth in the PSLRA, the district court consolidated

2
The complaint states that “[a]n ARO is a liability recorded to acknowledge and
measure the present value of the obligation in the future to incur cost to retire a given
tangible asset. The obligation typically arises because of a contractual or
governmental requirement to remove the asset and restore the property on which the
asset sits to a condition comparable to the condition of the property prior to the
construction of the asset. The obligation typically includes the cost of environmental
mitigation associated with removal of the asset.” R. Doc. 51, at ¶ 9 n.3.

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the cases and selected lead plaintiffs, who subsequently filed a consolidated class
action complaint against Defendants on behalf of themselves and all persons who
purchased or acquired Patriot securities between October 21, 2010, and July 9, 2012.
Plaintiffs claimed a number of Defendants’ statements about or involving the
Remediation Obligations were false and misleading because they treated the
installation costs as capital expenditures. Plaintiffs alleged Defendants violated
section 10(b) of the Exchange Act and Rule 10b–5 promulgated thereunder, as well
as Exchange Act sections 20(a) and 20(b), which impose liability on control persons.
Defendants moved to dismiss the complaint. The district court granted the motion to
dismiss based on Plaintiffs’ failure to plead scienter as necessary to sustain their
section 10(b) and Rule 10b–5 claims. The district court reasoned “the stronger
inference is that [Defendants] believed they were accounting appropriately for the
[Remediation] Obligations. . . . [T]he allegations here are largely premised upon
hindsight and conduct that rises to the level of corporate mismanagement, but not
severe recklessness.” R. Doc. 61, at 27. It concluded, “when viewed in light of
[Defendants’] explanations for their accounting decisions, the full and accurate
disclosure of the values underlying their financial statements, the facts regarding the
content of the May 8 restatement, the prompt correction of the May 8 revenue
forecast, as well as the fact that [Defendants] themselves did not benefit financially
from stock sales or in some other unusual way, [Plaintiffs’] allegations simply do not
support a strong inference of scienter.” R. Doc. 61, at 28. The district court
dismissed Plaintiffs’ section 20(a) and 20(b) claims because they are predicated on
a section 10(b) claim. Plaintiffs now appeal.

II.

A.

“We review the district court’s dismissal of a securities fraud complaint under
the PSLRA de novo . . . .” In re Ceridian Corp. Sec. Litig., 542 F.3d 240, 244 (8th

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Cir. 2008). “Although we construe the complaint liberally and accept the facts
pleaded as true, we reject unwarranted inferences and conclusory or catch-all
assertions of law.” Elam, 544 F.3d at 926.

Section 10(b) makes it unlawful “[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 the [SEC] may
prescribe.” 15 U.S.C. § 78j(b). Rule 10b–5, in turn, forbids:

any person, directly or indirectly, . . . (a) To employ any device, scheme,
or artifice to defraud, (b) To make any untrue statement of a 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, or (c) To engage in any act, practice, or
course of business which operates or would operate as a fraud or deceit
upon any person, in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b–5.

Responding to “perceived abuses of the § 10(b) private action—‘nuisance
filings, targeting of deep-pocket defendants, vexatious discovery requests and
manipulation by class action lawyers,’” Congress imposed heightened pleading
requirements on section 10(b) plaintiffs through enactment of the PSLRA. Tellabs,
551 U.S. at 320 (quoting Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547
U.S. 71, 81 (2006)). The PSLRA requires a complaint to “state with particularity
facts giving rise to a strong inference that the defendant acted with [scienter].” 15
U.S.C. § 78u-4(b)(2)(A); see Tellabs, 551 U.S. at 313 (“The PSLRA requires
plaintiffs to state with particularity . . . the facts evidencing scienter, i.e., the
defendant’s intention to ‘deceive, manipulate, or defraud.’” (quoting Ernst & Ernst
v. Hochfelder, 425 U.S. 185, 193 & n.12 (1976))).

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 “Scienter requires a showing of ‘reckless or intentional wrongdoing’ . . . .”
Elam, 544 F.3d at 928 (quoting Cornelia I. Crowell GST Trust v. Possis Med., Inc.,
519 F.3d 778, 782 (8th Cir. 2008)). It “‘can be established in three ways: (1) from
facts demonstrating a mental state embracing an intent to deceive, manipulate or
defraud; (2) from conduct which rises to the level of severe recklessness; or (3) from
allegations of motive and opportunity.’”3 Id. (quoting Cornelia I Crowell GST Trust,
519 F.3d at 782).

We follow three prescriptions when determining whether a complaint
sufficiently states facts giving rise to a strong inference of scienter. First, we “accept
all factual allegations in the complaint as true.” Tellabs, 551 U.S. at 322. Second,
we “consider the complaint in its entirety, as well as other sources courts ordinarily
examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents
incorporated into the complaint by reference, and matters of which a court may take
judicial notice.” Id. As noted above, Plaintiffs agree we may consider Patriot’s SEC
filings and its SEC correspondence. Third, “in determining whether the pleaded facts
give rise to a ‘strong’ inference of scienter, [we] must take into account plausible
opposing inferences.” Id. at 323. This means we compare “plausible, nonculpable
explanations for the defendant’s conduct” with “inferences favoring the plaintiff.”
Id. at 324. An inference of scienter is strong—and thus a complaint will survive a
motion to dismiss—“only if a reasonable person would deem the inference of scienter
cogent and at least as compelling as any opposing inference one could draw from the
facts alleged.” Id.

3
Severe recklessness means “‘highly unreasonable omissions or
misrepresentations that . . . present a danger of misleading buyers or sellers which is
either known to the defendant, or is so obvious that the defendant must have been
aware of it.’” Ceridian, 542 F.3d at 244 (alteration in original) (quoting Fla. State Bd.
of Admin. v. Green Tree Fin. Corp., 270 F.3d 645, 654 (8th Cir. 2001)).
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 B.

Plaintiffs argue they have shown a strong inference of scienter because:
(1) Defendants violated Generally Accepted Accounting Principles (“GAAP”);
(2) Defendants expensed all the ZVI technology’s costs but then capitalized the
Remediation Obligations’ installation costs; (3) the SEC notified Defendants of their
GAAP violations; (4) Defendants testified during the West Virginia environmental
litigation about expensing costs; (5) Defendants possessed a strong motive to commit
fraud; and (6) Defendants’ statements after the May 8, 2012 restatement deceptively
minimized the impact of the restatement. We disagree.

GAAP Violations. Plaintiffs maintain GAAP generally requires companies to
expense environmental remediation costs incurred as a result of past mining
operations and allows companies to capitalize such costs only to the extent they relate
to ongoing operations or future exceedences. Thus Plaintiffs allege Defendants
violated GAAP by capitalizing the Remediation Obligations’ installation costs
because, as Patriot’s May 8, 2012 Form 8-K noted, the Remediation Obligations
primarily “treat[ed] selenium exceedances in water discharges resulting from past
mining under legacy permit standards.” J.A. 314. Plaintiffs argue these GAAP
violations support a strong inference of scienter. In particular, they suggest the
magnitude of the GAAP violations—that is, the size of Patriot’s
restatement—demonstrates scienter.

“Section 10(b) and Rule 10b–5 prohibit fraud, not accounting malpractice.”
Ceridian, 542 F.3d at 246. Thus “[a]llegations of GAAP violations are insufficient
to state a securities fraud claim unless coupled with evidence of corresponding
fraudulent intent.” Kushner v. Beverly Enters., Inc., 317 F.3d 820, 831 (8th Cir.
2003); see also Ceridian, 542 F.3d at 246 (“Because GAAP is an ‘elaborate hierarchy’
of sources that accountants consult, rather than a ‘canonical set of rules,’ pleading an
amalgam of unrelated GAAP violations, without more, does not give rise to a strong

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inference of scienter.” (citation omitted) (quoting In re K-tel Int’l, Inc. Sec. Litig., 300
F.3d 881, 890 (8th Cir. 2002))). The fact that GAAP violations are allegedly
significant does not change this rule and is insufficient by itself to give rise to a
strong inference of scienter. See Fidel v. Farley, 392 F.3d 220, 231 (6th Cir. 2004)
(“Allowing an inference of scienter based on the magnitude of fraud ‘would
eviscerate the principle that accounting errors alone cannot justify a finding of
scienter.’ It would also allow the court to engage in speculation and hindsight, both
of which are counter to the PSLRA’s mandates.” (citation omitted) (quoting In re
SCB Computer Tech., Inc. Sec. Litig., 149 F. Supp. 2d 334, 359 (W.D. Tenn. 2001)))
overruled on other grounds by Tellabs, 551 U.S. 308 (2007).

Here, Plaintiffs fail to support their alleged GAAP violations with allegations
of specific facts showing Defendants knew they should have expensed the costs for
the Remediation Obligations or were reckless in doing so. We cannot infer scienter
from the fact that Patriot initially told the SEC it expected the Remediation
Obligations to address current and future selenium discharges and then later
acknowledged the Remediation Obligations would address discharges from past
mining operations. “[A] showing in hindsight that the statements were false does not
demonstrate fraudulent intent.” Kushner, 317 F.3d at 827; see also Elam, 544 F.3d
at 927 (“[PSLRA] cannot be satisfied with allegations that defendants made
statements ‘and then showing in hindsight that the statement is false . . . .’” (quoting
In re Navarre Corp. Sec. Litig., 299 F.3d 735, 743 (8th Cir. 2002))). Plaintiffs
suggest Defendants violated Patriot’s internal accounting policy, yet they fail to
allege any particularized facts about Patriot’s internal accounting policy. They allege
that Patriot stated in its 2011 Form 10-K that it had recorded some costs associated
with its environmental remediation efforts as expenses. See Elam, 544 F.3d at 927
(“[T]he PSLRA’s falsity pleading requirement requires particularity.”). However,
Defendants’ capitalizing the Remediation Obligations’ installation costs while stating
they had expensed other costs does not show fraud.

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 The inference of scienter is contradicted by the fact that Ernst & Young,
Patriot’s independent auditor, stated Patriot’s financial documents complied with
GAAP. It is also contradicted by the fact that Patriot, when pressed by the SEC to
defend its accounting treatment, offered a thorough—if ultimately
incorrect—explanation of its decision.4 It is further contradicted by the fact that
Patriot disclosed that it was corresponding with the SEC about its accounting
treatment. Moreover, we agree with the district court that “[t]he facts were known to
the market at all times, and [Plaintiffs’] inference of intent or recklessness does not
account for why [Defendants] would set out to commit fraud while repeatedly and
accurately explaining exactly how the company was treating the costs, including the
exact amount of costs expected to be incurred.” R. Doc. 61, at 18. Thus Defendants’
GAAP violations do not support a strong inference of scienter.

Treating Costs for the ZVI Technology As Expenses. Plaintiffs argue we can
draw a strong inference of scienter from the fact that Defendants treated the costs
associated with the ZVI technology as expenses. Plaintiffs contend this shows

4
One of Plaintiffs’ arguments on appeal is that the district court erred because
it used Patriot’s SEC correspondence to establish “the truth of the matters asserted in
[the correspondence].” Appellant Br. 15 n.5. At oral argument, Plaintiffs clarified
that they believe we may use the correspondence to establish what Patriot told the
SEC and that we may draw inferences based on the contents of the correspondence,
but that we may not take Patriot’s statements as true. Plaintiffs contend this means,
for example, that we cannot use Patriot’s statement that it believed it complied with
ASC 410-30 to establish that Defendants in fact held that belief. Although we doubt
the district court committed any error on this ground, we find it sufficient that we
adhere to these principles in our de novo review. Here, for example, we do not use
the correspondence to establish as a matter of fact that Defendants believed their
explanation. Rather, we draw an inference of nonfraudulent intent where Defendants
offered and then stood by a thorough explanation. We do not suggest that defendants
may mask their fraud in a jumble of accounting principles and industry-specific
jargon. But in this case, the more plausible inference based on Defendants’
explanation is one of non-fraudulent intent.
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Defendants understood GAAP required them to treat the Remediation Obligations’
costs as expenses.

The problem with Plaintiffs’ argument is they have failed to allege
particularized facts showing Defendants knew the Remediation Obligations should
have been treated the same as the ZVI technology. They allege simply that
“Defendants knew that [Patriot] should have recorded costs associated with the
Remediation Obligations as liabilities and corresponding expenses.” R. Doc. 51, at
¶ 140. But “‘[m]ere allegations of fraud are insufficient.’” Kushner, 317 F.3d at 827
(quoting Navarre, 299 F.3d at 742). The one case Plaintiffs rely on actually
demonstrates their argument’s weakness, which is that it “would require [us] to
assume that the two sets of costs were of an identical nature, or at least, that the
capitalized costs were of such a nature that Defendants’ failure to recognize them as
[expenses] amounted to recklessness.” In re Bio-Tech. Gen. Corp. Sec. Litig., 380
F. Supp. 2d 574, 589 (D.N.J. 2005). Yet Plaintiffs pled no facts that would justify
such an assumption. To the contrary, Plaintiffs alleged that Patriot installed the
Remediation Obligations only after the ZVI technology proved ineffective,
suggesting the two were not, in fact, the same. Thus Defendants’ expensing the ZVI
technology’s costs does not support a strong inference of scienter.

SEC Correspondence. Plaintiffs argue the SEC notified Defendants of their
GAAP violations and thus that Defendants’ capitalization of the Remediation
Obligations was knowingly false. However, the opposing inference of nonfraudulent
intent is stronger for several reasons. The first is timing. Patriot initially disclosed
it would capitalize the Remediation Obligations in an October 2010 press release.
Yet Patriot’s correspondence with the SEC did not begin until almost a year later, in
September 2011. Even if the SEC had notified Defendants of their faulty accounting,
Defendants would have been unaware of their mistake when they first capitalized the
Remediation Obligations and thus could not have made knowingly false statements
before September 2011.

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 More important, though, is that Plaintiffs have not demonstrated the SEC
correspondence did notify Defendants their accounting was incorrect. The SEC’s
first letter asked Patriot to explain its accounting treatment, which Patriot did. The
SEC’s November 2011 letter asked for “clarif[ication].” Its January 2012 letter
requested information “to better understand” Patriot’s view. It was not until April
2012 that the SEC suggested Patriot should restate. And a month later that is what
Patriot did. Throughout the eight-month dialogue, we note, Schroeder (along with
Knibb, who was never named as a defendant in this suit) responded to the SEC’s
questions and defended Patriot’s position as consistent with GAAP. Moreover, as the
district court observed, “[t]here was never a formal inquiry or enforcement action by
the SEC, nor any finding of misconduct or fraud.” R. Doc. 61, at 15. Plaintiffs’
allegations about the SEC correspondence do not support a strong inference of
scienter. See Ceridian, 542 F.3d at 248-49 (reasoning that where SEC conducted an
investigation but “no hearing or adverse findings ensued,” the more compelling
inference was that “SEC investigation uncovered no evidence of fraud”).

Testimony from West Virginia Litigation. Plaintiffs allege that in August
2010—during proceedings that resulted in the West Virginia district court’s order to
install the Remediation Obligations—Schroeder testified he knew that Patriot
assumed the Apogee and Hobet selenium discharge liabilities when it acquired the
mines, that Patriot would record the liabilities on its balance sheet, and that some of
the liabilities related to past mining operations. Plaintiffs argue this testimony shows
Defendants “certainly understood that at least part of the Remediation Obligations
were acquired liabilities that did not qualify as an asset and therefore should properly
be expensed.” Appellant Br. 45. However, Schroeder’s testimony related solely to
the remediation efforts Patriot took before the West Virginia district court ordered it
to install the Remediation Obligations. The testimony does not support a strong
inference of scienter regarding Defendants’ later accounting for the Remediation
Obligations.

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 Motive. Plaintiffs argue Defendants’ desire to keep Patriot solvent and to
maintain their compensation motivated them to commit fraud. “[M]otive can be a
relevant consideration, and personal financial gain may weigh heavily in favor of a
scienter inference.” Tellabs, 551 U.S. at 325. However, “‘[g]reed is a ubiquitous
motive, and corporate insiders and upper management always have the opportunity
to lie and manipulate.’” Fla. State Bd. of Admin. v. Green Tree Fin. Corp., 270 F.3d
645, 655 (8th Cir. 2001) (quoting Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1286
(11th Cir. 1999)). Thus a desire “universally held among corporations and their
executives . . . does not contribute significantly to an inference of scienter.” Id. at
664; see also K-tel, 300 F.3d at 895 (“[G]eneral allegations of a desire to increase
stock prices, increase officer compensation or maintain continued employment are too
generalized and are insufficient.”). Only allegations of an “unusual or heightened”
motive may give rise to a strong inference of scienter. Green Tree, 270 F.3d at 660;
see also Horizon Asset Mgmt. Inc. v. H & R Block, Inc., 580 F.3d 755, 766 (8th Cir.
2009) (“A complaint must show ‘that the benefit to an individual defendant is
unusual,’ for example, that the benefit is of an ‘overwhelming magnitude’ and
received under ‘suspicious circumstances.’” (quoting In re Cerner Corp. Sec. Litig.,
425 F.3d 1079, 1085 (8th Cir. 2005))).

Here, while it is true Patriot filed for bankruptcy several months after issuing
its financial restatement, Plaintiffs fail to allege specific facts showing that
Defendants’ “careers and the very survival of [Patriot] were at stake.” Appellant Br.
49. Patriot stated that several factors influenced its decision to file for bankruptcy,
including reduced demand for coal, the cost of regulatory compliance, and weak
international and domestic economies. It acknowledged that rising environmental
expenditures constrained its liquidity and financial flexibility immediately before the
bankruptcy filing, but never that the Remediation Obligations—which it had begun
capitalizing nearly two years before the bankruptcy filing—posed a “catastrophic
threat,” as Plaintiffs claim. Indeed, Plaintiffs’ argument is contradicted by Patriot’s
disclosing how much the Remediation Obligations would cost and how it would

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account for those costs, as well as by Patriot’s disclosure that it was corresponding
with the SEC about its accounting treatment. Thus Defendants’ alleged desire to
maintain Patriot’s survival in order to receive compensation does not present an
unusual or heightened motive and does not support a strong inference of scienter. See
Elam, 544 F.3d at 927 (“[T]he PSLRA’s falisty pleading requirement requires
particularity.”)

May 2012 Statements. Finally, Plaintiffs’ argue Defendants made knowingly
deceptive statements in the three Form 8-Ks Patriot filed in May 2012. First,
Plaintiffs point to the statement in the May 8, 2012 Form 8-K indicating the
restatement “has no impact on [Patriot’s] revenue or Adjusted EBITDA for any . . .
period” of restatement. R. Doc. 51, at ¶ 54. Plaintiffs do not dispute this statement
was literally true, but they argue it was deceptive because it conveyed the impression
that the restatement was of minimal significance. However, Patriot prefaced this
statement with a sentence explaining that the “restatement is increasing Patriot’s asset
retirement obligation expense and net loss by $23.6 million and $49.7 million for the
years ended December 31, 2011 and 2010, respectively.” J.A. 314. We agree with
the district court that we “cannot infer scienter from an admittedly accurate statement
that was fronted with the concession that the company had just recorded massive net
losses.” Memorandum, R. Doc. 61, at 20.

Second, Plaintiffs argue we can infer that the sales forecast announced in the
May 8, 2012 Form 8-K was knowingly deceptive because Patriot revised the sales
forecast a week later. While “the close proximity between” an allegedly fraudulent
statement and a later inconsistent statement is “relevant to scienter,” “‘[w]ithout more,
inferring scienter from [ ] temporal proximity . . . is nothing more than speculation.’”
Elam, 544 F.3d at 930 (second and third alterations in original) (quoting Fidel, 392
F.3d at 232). Thus the temporal proximity between the May 8 forecast and its May
15 revision does not support “a strong inference of scienter because [P]laintiffs’

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‘allegations rest on nothing more than hindsight.’” Id. (quoting Fidel, 392 F.3d at
232)).

Third, Plaintiffs argue Whiting’s letter to Patriot employees, included in the
May 22, 2012 Form 8-K, “was falsely positive” because while “Whiting hinted at
doubts about [Patriot’s] prospects, he did not disclose the full seriousness of the
situation or the looming threat of bankruptcy.” Appellant Br. 54. Plaintiffs pled no
facts, however, showing Defendants knew on May 22, 2012, that bankruptcy was in
fact looming. Instead, they ask us to speculate that Defendants must have known
Patriot was at risk of bankruptcy because Patriot had just issued a restatement. In the
absence of specific facts showing Defendants knew of Patriot’s impending
bankruptcy, however, the stronger inference is one of nonfraudulent intent.

In sum, accepting all factual allegations in Plaintiffs’ complaint as true and
considering the complaint in its entirety,5 we find the pleaded facts do not give rise
to a strong inference of scienter. We agree with the district court that “the allegations
here are largely premised upon hindsight and conduct that rises to the level of
corporate mismanagement, but not severe recklessness.” R. Doc. 61, at 27. Thus the
district court correctly dismissed Plaintiffs’ claims under section 10(b) and Rule
10b–5. Because Plaintiffs’ section 20(a) and 20(b) claims are not actionable absent
a separate violation of the Exchange Act, the district court correctly dismissed these
claims as well. See 15 U.S.C. § 78t(a)-(b).

5
Plaintiffs argue the district court failed to consider the complaint in its
entirety. This argument lacks merit, however, because the district court explicitly
discussed Plaintiffs’ “cumulative allegations.” R. Doc. 61, at 27-28; see also
Ceridian, 542 F.3d at 246 (“This argument is frequently made but rarely
persuasive.”).
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 III.

For the foregoing reasons, we affirm the dismissal of Plaintiffs’ complaint.
______________________________

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