NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS FEB 26 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
CRAIG M. PLUMLEY; et al., No. 19-55121
19-56216
Plaintiffs-Appellants,
D.C. No. 3:16-cv-00512-BEN-AGS
v.
SEMPRA ENERGY; et al., MEMORANDUM*
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of California
Roger T. Benitez, District Judge, Presiding
Argued and Submitted February 8, 2021
Pasadena, California
Before: TALLMAN, CALLAHAN, and LEE, Circuit Judges.
In these consolidated appeals, Craig Plumley, individually and on behalf of a
putative class of shareholders, challenges the district court’s dismissal of his
securities fraud complaint against Sempra Energy, Southern California Gas
Company (“SoCalGas”), and two individual defendants, Debra Reed and Dennis
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Arriola1 (collectively, “Defendants”), under Sections 10(b) and 20(a) of the
Securities Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and Securities and Exchange
Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. Plumley also challenges the
district court’s denial of two post-judgment motions to reconsider and its denial of
leave to further amend after two previous attempts failed. We have jurisdiction
under 28 U.S.C. § 1291, and we affirm.
Plumley’s suit stemmed from alleged material misstatements made by
Defendants before and after a massive natural gas leak from the Aliso Canyon gas
storage reservoir near Porter Ranch northwest of Los Angeles that began in
October 2015 and continued until February 2016. The leak released tens of
thousands of metric tons of methane into the air, and nearby residents complained
of impacts on their health. On January 6, 2016, then-Governor Jerry Brown
declared the situation an emergency. His proclamation triggered a 7% drop in
Sempra’s stock price, which fell from $93.51 per share on January 6 to $87.00 per
share at close of trading on January 7.2
We review the district court’s dismissal of Plumley’s Second Amended
1
During the class period at issue in this case, Debra Reed was Sempra’s
Chairwoman and CEO, and Dennis Arriola was SoCalGas’s Chairman, President,
and CEO.
2
Because the parties are familiar with the facts, we will further recite only those
necessary to decide these appeals.
2
Complaint (“SAC”) de novo, In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1051
(9th Cir. 2014), and its denial of leave to amend for abuse of discretion, Gompper
v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002). We accept the SAC’s factual
allegations as true, but securities fraud claims also must meet the exacting pleading
standards of Rule 9(b) and the Private Securities Litigation Reform Act. 15 U.S.C.
§ 78u-4; Fed. R. Civ. P. 9(b); Oregon Pub. Emps. Ret. Fund v. Apollo Grp. Inc.,
774 F.3d 598, 604 (9th Cir. 2014) (citing Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U.S. 308, 313–14 (2007)).
To survive dismissal Plumley must plead sufficient facts giving rise to a
“cogent and compelling” inference that Defendants made a material
misrepresentation or omission (i.e., falsity) with intent or “deliberate recklessness”
(i.e., scienter) in connection with the purchase or sale of securities. In re NVIDIA
Corp. Sec. Litig., 768 F.3d at 1052–53 (deliberate recklessness must “present[ ] a
danger of misleading buyers or sellers that is either known to the defendant or is so
obvious that the actor must have been aware of it” (citation omitted)). The district
court dismissed the SAC for failure to adequately allege scienter. Whether taken
individually or evaluated holistically, we agree with the district judge that the
allegations in the SAC fail to support a strong inference that Defendants acted with
scienter. See Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 992 (9th Cir.
2009).
3
Plumley alleges that Defendants were financially motivated to withhold
information that the leaking well at Aliso Canyon lacked a sliding sleeve valve or
shutoff valve because they would be subject to significant fines and penalties if
found to be non-compliant with regulations and safety rules, they wished to secure
a rate hike in November 2014, and they wished to offer and sell corporate notes
worth $750 million in November 2015. But the SAC is deficient for failing to
allege who within Sempra or SoCalGas knew, or were deliberately reckless in not
knowing, about the lack of a sliding sleeve and shutoff valve and who chose to
withhold that information to avoid fines or obtain a rate increase. Without more
specific and particularized allegations of knowledge or deliberate recklessness,
these claims of financial motivation “speak to precisely the ‘routine corporate
objectives such as the desire to obtain good financing and expand’ that we have
rejected in the past.” Webb v. Solarcity Corp., 884 F.3d 844, 856 (9th Cir. 2018)
(quoting In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 884 (9th Cir. 2012)).
The SAC also lacks specific and particularized allegations about who knew
and was responsible for omitting any mention of the leak from the prospectus for
the November 2015 note offering. By the time the prospectus was filed, the
existence of the ongoing leak at Aliso Canyon was already public knowledge. We
therefore cannot say that failing to discuss it in the prospectus was “so dramatically
false” as to lead to a strong inference of corporate scienter. In re NVIDIA Corp.
4
Sec. Litig., 768 F.3d at 1063. Moreover, although several early top-kill efforts had
failed by the time the prospectus was filed, it is not clear from the SAC that by
November 2015 it was apparent to company officials that all subsequent top-kill
efforts would also prove unsuccessful, making a prompt remedy of capping the
leak impossible. See id. at 1050, 1063 (refusing to find corporate scienter based on
SEC filings between November 2007 and May 2008 when the scope of the
problems was not apparent until July 2008).
Nor do we draw a strong inference of scienter from the fact that, on January
4, 2016, Reed received her largest stock payout since becoming Sempra’s CEO in
2011, and immediately sold half of those shares two days before Sempra’s share
price fell following the Governor’s emergency proclamation.3 Although insider
trading may demonstrate scienter, a plaintiff must allege “unusual or suspicious
stock sales.” Ronconi v. Larkin, 253 F.3d 423, 435 (9th Cir. 2001) (internal
quotation marks omitted). Here, Reed’s sales were consistent with her prior
trading history, both in timing and in percentage of shares sold. See id. The more
reasonable inference to draw is that Reed followed her usual practice with respect
to selling a portion of her stock in 2016 to pay her tax liability on the additional
income, not that she was tipped off in advance by the Governor’s sister.
3
According to Plumley, Reed must have learned through Governor Brown’s sister,
a member of Sempra’s board, that Governor Brown intended to declare a state of
emergency.
5
We reject Plumley’s argument that an intent to deceive can be inferred from
Defendants’ weekend delay in officially reporting the gas leak to all required
regulatory agencies, door-to-door visits to nearby residents to inform them that the
gas leak did not present a risk to their health, alleged attempt to suppress media
coverage,4 or statement in an October 30 press release that Defendants “expect this
situation to take another week or longer to resolve.” These allegations are
insufficiently specific and particularized; further, the more reasonable inference to
draw from the facts alleged is that Defendants spent the weekend investigating the
source of the leak, reassuring concerned nearby residents, and trying what they no
doubt hoped would be a successful top kill, rather than intentionally (or
deliberately recklessly) seeking to mislead investors and the general public. See,
e.g., City of Dearborn Heights 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856
F.3d 605, 619 (9th Cir. 2017) (“[A] motive to commit fraud and opportunity to do
so provide some reasonable inference of intent, but are not sufficient to establish a
strong inference of deliberate recklessness.” (quoting In re VeriFone Holdings, Inc.
Sec. Litig., 704 F.3d 694, 701 (9th Cir. 2012) (internal quotation marks omitted))).
Nor is it evident from the allegations before us that any unnamed company
4
Plumley relies for this allegation on a notation in an October 25, 2015 report to
the California Public Utility Commission that reads: “No ignition, no injury. No
media.” This notation is more reasonably understood as informing the
Commission that no media had yet reported on the leak, not that Defendants were
working to suppress coverage.
6
decisionmaker was aware, at the time they were made, that assurances as to the
lack of health risk or that stopping the leak would take “a week or longer” were
false. See Ronconi, 253 F.3d at 430 (noting “no facts are alleged in the complaint
that would support an inference that the company’s more optimistic predictions
were known to be false or misleading at that time by the people who made them”).
The allegation that Defendants knew the leak “contained hazardous
materials” but failed to disclose both the leak and the “release of the Air Pollutants
to the public” is wholly conclusory and does not support a strong inference of
scienter. Similarly, Plumley’s allegation that “Defendants also knew of the serious
health impacts being experienced by area residents very shortly after the Gas Leak
began” is insufficiently specific and particularized. The facts alleged in the SAC
do not show when Defendants learned of the complaints reported to the South
Coast Air Quality Management District, nor is it clear from the SAC when
Defendants allegedly became aware of the mounting complaints and how that
timing related to their ongoing public statements about health risks. Plumley’s
further contention that Defendants’ shifting post-leak statements about potential
health impacts evince an intent to mislead more reasonably supports the inference
that Defendants were updating their communications to the public as they learned
new information over time through air monitoring and health complaints. No
strong inference of scienter can be drawn from these allegations.
7
Plumley’s claims that Defendants’ delay in reporting the leak slowed
evidence collection, that Defendants refused to ensure evidence was preserved, and
that they initially did not allow a third-party researcher to conduct low-altitude fly-
overs of Aliso Canyon to take air quality readings similarly do not support a strong
inference of scienter. Plumley fails to allege knowledge or deliberate recklessness
by specific Defendants, and there is nothing beyond supposition to suggest that the
weekend delay in reporting was engineered by them to delay evidence collection
and ultimately mislead investors. The statement by Arriola that the number of
people on site and the urgency to close the leaking well might affect evidence
preservation efforts is more reasonably understood not as a refusal to preserve
evidence but as a realistic assessment of the chaotic situation on the ground and the
inevitable alteration of conditions on the scene as they tried to do so. In our view,
the inference that Defendants would not permit low-altitude fly-overs of the site as
part of a cover-up is not more compelling than their explanation that initially they
were concerned about distracting workers on the ground, potential safety risks, and
subsequent liability.
As for Plumley’s allegations that Defendants resisted directives from the Los
Angeles County Department of Public Health (“L.A.D.P.H.”) and understated the
quantity of methane released by the leak, the SAC again lacks specificity. It is not
apparent from the complaint who within Sempra or SoCalGas responded in the
8
manner alleged in the statements reported by Angelo Bellomo from L.A.D.P.H., or
when these interactions allegedly occurred. Plumley points to differences between
methane leak estimates by the California Air Resources Board and SoCalGas’s
own estimates, and he describes how his own expert calculated probable methane
quantities. But he does not plausibly allege facts tending to show that Defendants
had access to data leading to different calculations or knew their estimates were
either wrong or so wide of the mark as to constitute an “extreme departure from the
standards of ordinary care . . . which presents a danger of misleading buyers or
sellers that is either known to the defendant or is so obvious that the actor must
have been aware of it.” Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569 (9th
Cir. 1990) (en banc) (quoting Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d
1033, 1045 (7th Cir. 1977)).
We reject Plumley’s contention that knowledge of all of the foregoing
should be imputed to Reed and Arriola under the core operations doctrine. Absent
allegations of specific admissions by Reed or Arriola of detailed involvement in
the minutia of the companies’ well operations or witness accounts of the same,
Plumley cannot prevail by simply incanting this theory. See Police Ret. Sys. of St.
Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1062 (9th Cir. 2014). Nor is this
one of the “rare circumstances” where the nature of the facts alleged are “of such
prominence that it would be absurd to suggest that management was without
9
knowledge of the matter.” S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 786 (9th
Cir. 2008) (internal quotation marks and citation omitted).
Considering the allegations in the SAC collectively, “a reasonable person
[would not] deem the inference of scienter at least as strong as any opposing
inference.” Tellabs, Inc., 551 U.S. at 326. All told, the SAC plausibly alleges
Defendants knew that the leaking well lacked a safety valve and that they had a
financial motive and opportunity to omit this information from rate increase
applications, the November 2015 prospectus, and public statements about the
estimated time to stop the leak. That being said, allegedly inaccurate public
statements about the scope and health effects of the leak, a short delay in reporting
the leak to every regulatory agency ultimately involved, and some indication that
Defendants may have relied on low-end calculations of methane release do not
make the allegations of scienter “cogent and compelling, thus strong in light of
other explanations.” Id. at 324.
Next, the district court’s decision to dismiss the SAC without leave to amend
was not an abuse of discretion. At the time the court ruled, Plumley could only
speculate that the forthcoming Root Cause Analysis Report might lead to new
allegations. It was reasonable at this stage for the court to determine that the
prejudice to Defendants in having to defend against a third complaint after having
already twice prevailed on motions to dismiss outweighed Plumley’s speculation
10
that at an undetermined time in the future he might be able to allege new facts. See
Foman v. Davis, 371 U.S. 178, 182 (1962); Nguyen v. Endologix, Inc., 962 F.3d
405, 420 (9th Cir. 2020).
Finally, the district court did not abuse its discretion in twice denying
reconsideration, relief from judgment, or further leave to amend under Rules 59(e)
and 60(b) in response to Plumley’s proffer, first, of preliminary results from the
Root Cause Analysis, and second, of the finalized Report. Although the Report
may well have shed light on what caused the gas leak and failed top-kill efforts,
our review of Plumley’s proposed—and then revised proposed—third amended
complaint convinces us that the Report does little to strengthen the inference that
Defendants acted with the intent to deceive investors or with reckless disregard of
the risk of doing so. Plumley still fails to plead particularized facts indicating
which specific corporate persons knew the alleged statements were false or
intended to mislead investors or the public at the time they were made, or to
identify any particular Defendant who made a false or misleading statement.5
Plumley’s two motions to take judicial notice on appeal, Dkt. Nos. 30 and
59, are DENIED. See Fed. R. Evid. 201(b); Lee v. City of Los Angeles, 250 F.3d
668, 690 (9th Cir. 2001).
5
Plumley has failed sufficiently to allege primary violations of Section 10(b) or
Rule 10b-5; therefore we affirm the dismissal of his Section 20(a) claims. See
Webb, 884 F.3d at 858.
11
AFFIRMED.
12