A three-judge panel of the US Court of Appeals for the Second Circuit recently upheld the dismissal of a multidistrict class action against Canadian mining company Agnico-Eagle Mines Limited (Agnico) and its executives, who allegedly concealed and misrepresented structural issues with a particular mine and caused a $2.2 billion shareholder loss.
According to plaintiffs, in March 2010, Agnico conducted a major blast at its Goldex mine in Quebec. This excavation caused immediate and lingering structural issues. In October 2011, the company made a surprise announcement that it was shutting down Goldex. In response, Agnico’s share price dropped nearly 25 percent within two days. Multiple plaintiffs sued, and the cases were consolidated in the US District Court for the Southern District of New York.
In January 2013, US District Judge J. Paul Oetken granted the defendants’ motion to dismiss and denied plaintiffs’ request for leave to amend the complaint. By summary order dated October 3, 2013, the Second Circuit panel affirmed the lower court’s “thorough” opinion, which held that plaintiffs failed to plead facts sufficient to support a strong inference of scienter.
The court found plaintiffs’ “very general” allegations insufficient to support an inference of fraudulent intent under a “motive and opportunity” theory. Moreover, given the timing of the Goldex announcement just prior to a major deal closing, the court noted that plaintiffs’ improper motive argument “runs aground when tested by common sense.”
Nor was the court persuaded by plaintiffs’ claim that Agnico and its executives knew or should have known facts about Goldex that they deliberately or recklessly did not disclose. Declining to permit a “fraud by hindsight” theory, the court held that there was no evidence—and even contrary evidence—that defendants knew before October 2011 that the mine might need to be closed. And, even if they had such knowledge, the court explained that the defendants reasonably considered the risk entailed by available information and believed they need not share that information with the public.
Finally, the court noted that plaintiffs declined earlier opportunities to amend, and made their request in a single sentence. Consequently, the court explained that it had no information as to what changes any amendment would effect, nor any sense of what additional facts might entitle plaintiffs to relief. As such, the court denied plaintiffs leave to amend on the grounds of futility.
In re Agnico-Eagle Mines Ltd. Securities Litig., Case No. 13-0511 (2d Cir. 2013).