Heydenrych v. Eagle Rock Energy Partners, L.P. et al, No. 4:2015cv01470 - Document 20 (S.D. Tex. 2016)
Court Description: MEMORANDUM OPINION AND ORDER granting 17 MOTION to Dismiss 16 Amended Complaint. (Signed by Judge Sim Lake) Parties notified.(gclair, 4)
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Heydenrych v. Eagle Rock Energy Partners, L.P. et al Doc. 20 United States District Court Southern District of Texas ENTERED October 21, 2016 IN THE UNITED STATES D ISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIV ISION David J. Bradley, Clerk IRVING BRAUN , JUDITH BRAUN , and CECIL PHILXN , Individually and on Behalf of A ll Others Similarly Situated , Plaintiffs, EAGLE ROCK ENERGY PARTNERS , L .P .; EAGLE ROCK ENERGY G&P , LLC ; EAGLE ROCK ENERGY GP, L .P .; JOSEPH A . MILLS ; CHRISTOPHER D . RAY ; DAVID W . HAYES; WILLIAM K . WHITE ; WILLIAM A . SMITH ; HERBERT C . WILLIAMSON 111 ; PEGGY A . HEEG ; PHILIP B . SMITH ; VANGUARD NATURAL RESOURCES , LLC ; SCOTT W . SMITH ; RICRARD A . ROBERT ; W . RICHARD ANDERSON ; BRUCE W . MCCULLOUGH ; and LOREN SINGLETARY , CIVIL ACTION NO . H -15-1470 Defendants . MEMOKAHDUM OPIN ION AND ORDER This action was brought against Eagle Rock Energy Partners , Eagle Rock Energy G&P, Joseph A . M ills ; Christopher Eagle Rock Energy L .P .; Ray ; David W . Hayes; William K . White; William A . Sm ith ; Herbert C . William son 111; Peggy A . Heeg ; Philip Sm ith ; Vanguard Natural Resources, LLC ; Scott Smith ; Richard A . Robert; W . Richard Anderson ; Bruce W . Mccullough ; and Loren Singletary for alleged violations of 55 and 15 of the Dockets.Justia.com securities Act of 1933, 15 U .S .C . 55 77k , and 55 14 ( and 20 ( a) a) of the Securities Exchange Act of 1934, 15 U . S.C. 55 78n ( a), t( a). Pending before the court Entry No . Dismiss Defendants' Motion to Dismiss ( Docket Plaintiffs' Opposition (uplaintiffs' Opposition' ') Defendants ' Motion to ( Docket Entry No . 18), and Defendants' Reply in Support of Their Motion to Dismiss ( Docket Entry No . For the reasons stated below , Defendants' Motion to Dismiss will be granted . Procedural Historv and Alleqed Facts On June 2015 , the original plaintiff , Pieter Heydenrych , initiated this action by filing a Class Action Comp laint for Breach of Fiduciary Duty I'CAC,' Docket Entry No . A ' On October 26, 2015, Irv ing Braun , Judith Braun , and Cecil Ph ilan were appointed Lead Plaintiffs for this action . On February 2016, Plaintiffs filed a Consolidated Complaint for Violations of the Securities Act of 1933 (uthe Securities Act' and the Securities Exchange Act of ') 1934 (nthe Securities Exchange Act/) ('consolidated Complaint,' ' A ' Docket Entry No . l6) Plaintiffs allege that Eagle Rock Energy Partners , ( uEagle Rock') was a master limited partnership engaged in the ' upstream and gas business . Eagle Rock was managed by general partner , Eagle Rock Energy GP, which was turn managed by the board of directors ( the 'Eagle Rock Board' of its ' ') general partner , Eagle Rock Energy GP , LLC . David Hayes, Peggy Heeg , Joseph Mills, Christopher Ray , Philip Sm ith , William Smith , William White , and Herbert W illiamson III were the members of the Eagle Rock Board. Vanguard Natural Resources, LLC (' % vanguard' is ') a publicly traded company focused on the acquisition and development of oil and natural gas properties in the United States . Scott W . Smith , Richard A . Robert , Richard Anderson , Bruce W . Mccullough , and Loren Singletary are the members of Vanguard 's board of directors ( the uVanguard Board' . o On May 21, 2015, Eagle Rock and Vanguard announced that they had entered into a merger agreement by which Vanguard would acquire Eagle Rock . In connection with the merger the Eagle Rock Defendants, together with the Vanguard Defendants, issued a joint Proxy and Registration Statement ( the nStatement/ , which contained o the communications at issuex The Statement contained financial disclosures and projections regarding the companies' pre-merger financial status and post-merger projections. Specifically, the Statement included the following information : @ historical financial information for Vanguard and Eagle Rock ( Docket Entry No. 17-1 at 43-58)7 @ pro forma financial statements illustrating the balance sheet and income statement of the combined enterprise ( . at 59-60, 190-234)7 id l For clarity, the court will cite to the joint Proxy and Registration Statement attached as Exhib it A to Defendants' Motion to Dismiss ( Docket Entry No. 17-1). @ comparative per unit information , including a comparison of Vanguard 's and Eagle Rock 's historical unit prices and quarterly distributions ( . at 61-68); id a summary of the financial analysis conducted by Eagle Rock 's financial advisor , Evercore Group , regarding the merger ( . at 135-48)7 id a summary of the financial analysis conducted by Vanguard 's financial advisor , Wells Fargo Securities, regarding the merger ( . at 121-29)7 id financial and operating projections for Eagle Rock and Vanguard as stand-alone entities given to their Boards when evaluating the merger ( . at 150-58); id bullet point lists of the positive and negative considerations taken into account by the Eagle Rock Board ( id. at 130-35) and Vanguard Board at 120-21) in approving the merger; ( . id risk factors ( . at 69-84); id @ a description of where Eagle Rock and Vanguard unitholders can obtain additional information (id . at 316-19)7 a complete copy of the Merger Agreement at 320-86)7 and (id . a complete copy of Evercore 's and Wells Fargo Securities ' fairness opinions ( id. at 400-08). The Statement also contained the following financial projections: Average daily production Total revenue ( in millions) $ Total EBITDA ( i millions) $ n Distributable cash flow ( in $ 2015E 399 2016E 4O7 2017E 403 2018E 40O 2019E 4O2 632 407 173 685 435 l83 631 377 117 589 336 68 605 347 73 2 .16 2 .54 56 .87 2 .73 2 .83 2 .94 millions) Realiz Oi1 price ( ed $/Bbl) Realized Gas Price ( $/Mcf) ( Id. at 152.) Plaintiffs allege that Defendants omitted material information from the Statement and, as a result, the projections were misleading . Specifically , Plaintiffs allege that Defendants failed to mention ua looming debt problem .z Vanguard 's pre-merger credit 'z agreement contained covenants limiting the consolidated ratio of the companies' debt to earn ings before interest , taxes , depreciation , and amortization IA 'EBITDA' 3 Plaintiffs allege that 'I. the outstanding debt at the time the Statement was issued was more than 4.5x the projected 2017 EBITDA of the combined companies, which would violate the debt covenants . The merger was approved by a vote on October 5 , 2015, and the merger closed on October 8 , 2015 . Plaintiffs allege that on December 2015, the merged Vanguard (uthe Company' announced a cash distribution to common ') unitholders significantly lower than the previous month 's and has since suspended distributions altogether . Plaintiffs a llege in their Opposition that Defendants omitted from the Statement the material fact that cash distributions would have to be Vanguard 's reduced credit meet the agreement . statements imp ly ing deb t ratio Plaintiffs requirements of also allege that asserting the belief that distributions would continue were false or m isleading . z consolidated Complaint, Docket Entry No. l6, p. 15 $ 55. 3Eighth Amendment To Third Amended And Restated Credit Agreement ( ncredit Agreement/ , Docket Entry No. 17-5, p . 6 . o II . Applicable Leqal Standards Defendants argue that Plaintiffs' Consolidated Complaint should be dism issed pursuant to Federal Rule of Civ il Procedure l2 ( 6) for failure to state a claim for which relief may be b)( granted .4 A. Federal Rule of Civil Procedure 12 ( 6) b)( A Rule l2 ( 6) motion tests the formal sufficiency of the b)( pleadings and is uappropriate complaint because when a defendant attacks the fails to state a legally cognizable claim .' ' Ramminq v . United States, 281 F.3d 158, 161 ( 5th Cir. 2001) cert. denied sub nom. Cloud v . United States, 2665 ( 2002). The court must accept the factual allegations of the complaint as true , view them a light most favorable to the plaintiff, and draw all reasonable inferences in the p laintiff's favor . Id . To defeat a motion to dismiss pursuant to Rule 12 ( 6), a plaintiff b)( must plead uenough facts to state a claim to relief that is plausible on its face .' Bell Atlantic Corp . v . Twomblv , l27 S . ' 1955, 1974 ( 2007). ' claim has facial plausibility when the ' A plaintiff p leads factual content that allows the court to draw the reasonab le inference misconduct alleged .' ' that the defendant is liab le for the A shcroft v . Icbal , 129 S . Ct . 1937, 1949 ( 2009) ( citing Twomblv, pleads facts that are at 1965) 'Where a complaint ' ' merely consistent with ' a defendant 's 4 Defendants' Motion to Dismiss, Docket Entry No . - 6- liability , it 'stops short of the line between possibility and plausibility of entitlement to relief.'' Id . ( ' quoting Twomblv, 127 S. Ct. at 1966). Moreover, courts do not accept as true legal conclusions . When considering a motion comp laint and its proper dismiss courts consider the attachments . Ecuities, Incw 540 F. 333, 3d Dorsev ( 5th v . Portfolio 2008). Courts may also rely on 'documents incorporated into the comp laint by reference , ' and matters of which a court may take judicial notice.' Id. In ' securities cases courts may take judicial notice of the contents of public disclosure documents that are required by 1aw to be filed with the Securities Exchange Commission (USEC' and are actually ') filed with the SEC with the caveat that these documents may be considered only for the purpose of determ ining what statements they contain ; not for proving the truth of their contents . Lovelace v . Software Spectrum Inc w F. 3d 1015, 1018 ( 5th Cir. 1996) ( citing and adopting rule of Kramer v . Time Warner Incw 937 F. 2d ( 2d 1991), and explaining that this rule does not apply to other forms of disclosure such as press releases or announcements at shareholder meetings). B. Federal Securities Law The federal securities laws were enacted primarily to serve two d istinct goals : to promote or requ ire sufficient disclosure of information to allow those in securities markets to make intelligent investment decisions, and ( to control fraud and 2) manipulation in the trading of securities . Securities and Exchange Commission v . Southwest Coal & Energy Co ., 624 F. 1312, 1318 ( 2d 5th Cir . 1980) Control Person Liability Plaintiffs ' claims under 5 of the Securities and 5 2O( a) of the Securities Exchange Act assert control person liability . nControl person liab ility is secondary on ly and cannot exist in the absence of a primary v iolation .' Southland Securities ' Corp . v . INspire Insurance Solutions, Inc w 365 F.3d 353, 383 ( 5th 2004) ( citing Lovelace v. Software Srectrum Incw F. 3d 1015, 1021 n.8 ( 5th Cir. 1996)). Plaintiffs' claims under 5 11 of the Securities Act and 5 14 ( of the Securities Exchange Act will a) consequently be analyzed first. Since those primary claim s will be dismissed , the court need not consider the secondary claims . The Securities Act Claim nThe Securities Act of 1933, 48 Stat. 74, 15 U . S.C. 5 77a lt seg ., protects investors by ensuring that companies issuing securities ( known as 'issuers') make a ' full and fair disclosure of information ' relevant to a pub lic offering . Omnicare , Inc . v . Laborers District Council Construction Industry Pension Fund, S. Ct. 1318, 1323 ( 2015) Section 11 of the Act provides a private cause of action uE iqn case any part of registration statement, when such part became effective , contained an untrue statement of - 8- a material fact or om itted to state a material fact required to be stated therein or necessary to make the statements therein not misleading .' ' 15 U .S .C . 5 77k . defraud is necessary . No proof of intent to deceive or Omnicare , Inc w l35 S . Ct . at 1323 . The Securities Exchange Act Claims Section 14 ( a) of the Securities Exchange Act makes it unlawful to solicit prox ies uin contravention of such rules and regulations as appropriate in the Commission the public may prescribe interest or investors.' 15 U . C . 5 78n ( ' S. a) imp lied private right of action . as necessary or for the protection of Section 14 ( provides for an a) KBR v . Chevedden , App 'x 213, 215 ( 5th Cir . 2012) ( citing J.I. Case Co . v . Borak, 84 S . Ct. 1555, 1559 ( 1964)). The elements of a section 14 ( claim are : (l) defendants a) misrepresented or om itted a material fact in a proxy statement , Virqin ia Bankshares, Inc . v . Sandberq , l11 S. Ct. 2749, 2757 ( 1991)7 TSC Indus., Inc. v . Northwav, Incw 96 S. Ct. 2126, 2132 (1976); Justin Indus. v . Choctaw Sec., L . P., 920 F . 262, 267 (5th Cir. 1990); 2d ( defendants acted at least negligently in distributing 2) the proxy statement, Herskowitz v . Nutri/system , Inc., 857 F.2d 179, 189-90 ( 3rd Cir. 1988), cert. denied, 109 S. Ct. 1315 ( 1989); and ( the false or misleading proxy 3) statement was an essential link in causing the corporate actions, International Broadcasting Corp . v . Turner, 734 F. Supp . 383, 390 ( . Minn . 1990); Halpern v. Armstrong, D 49l F. Supp . 365, 378 ( D . . . 1980). S. N Y In re Browninq-Ferris Industries, Inc . Shareholder Derivative Litiqation, 830 F. Supp . 361, 365 ( D . Tex. 1993), aff'd sub nom . S. Cohen v . Ruckelshaus, 20 F.3d 465 ( 5th Cir . 1994). 111 . Analysis A 12( 6) motion to dismiss is ordinarily decided solely on b)( the complaint and documents incorporated by reference therein . But Plaintiffs have substantially altered their position from the Consolidated Complaint to their Opposition . include Plaintiffs' changes altering the debt-to -EBlTDA calculation on which they base their claim and misleading adding additional allegedly false or statements . Defendants correctly complaints should not be amended via responses . contend that But because the outcome is the same , and because the court is not inclined to allow further amendment , the court will analy ze Plaintiffs' cumulative allegations . At issue is whether Defendants omitted material facts or made false or misleading statements of material fact their Registration Statement or Proxy Statement . Although materiality a m ixed question of 1aw and fact , cases may be properly dism issed on the pleadings for lack of materiality . Kapps v . Torch Offshore , Incw 379 F . 207, 216 ( 3d 5th 2004) Plaintiffs allege that Defendants' statements lare false and misleading with regard to ' 50th the debt and distributions issues .' 's Assum ing debt levels would have remained the same from the time the Statement was issued and that the projected 2017 EBITDA was accurate, Plaintiffs allege that the resulting consolidated debt-to -EBlTDA ratio would breach s consolidated Compl aint, Docket Entry No. 16, p. - 1 0- $ existing debt covenants .6 Although Plaintiffs miscalculated the ratio in their Consolidated Complaint , Defendants do not dispute that the combined debt of the merged Company at the time the Statement was issued would exceed a 4 .5x multiple of its projected, combined EBITDA if debt were to remain unchanged and earnings projections were to prove accurate.? Plaintiffs refer to this situation as the Company 's nloom ing debt problem' and argue that Defendants' projections are false or ' misleading to the ex tent that they fa il to account for the debt covenants .8 Plaintiffs do not dispute the earnings projections but dispute the Company 's ability to continue historical distributions without breaching the debt covenants .g Plaintiffs claim that the projections and use of historical distributions in the valuation of the premerger companies were therefore misleading x o Because the debt covenants were pub licly available , and because this specific risk was identified by cautionary language court concludes that these om issions and the Statement, the allegedly false or misleading statements were immaterial as a matter of law . 6Id . = Vsee Defendants ' Motion to Dism iss, Docket Entry No . 17, pp . 16-18, and Plaintiffs' Opposition, Docket Entry No . l8, pp . 24 -25 . 8consolidated Complaint, Docket Entry No . 9Id . at 15-16 . l oId - 1 1- ! A. Alleged Omissions The alleged omissions are either inferential factual), immaterial, or b0th . A ufact' ' ( e ., not i. 'something that ' actually exists.' Black's Law Dictionary ( ' 10th ed. 2014). At the time of the Statement the relevant facts alleged were that the pre-merger companies had outstanding debt, and ( 2) the debt was subject to covenants contained in the Credit Agreement. These facts were publicly available, whether in the Statement or other filings x l Plaintiffs do not allege that the companies were then in breach of the debt covenants . Instead , they infer that , if certain assumptions were to hold true , Defendants would eventually breach the existing debt covenants . But Defendants had no duty to draw or communicate such an inference . uA s a general rule , so long as material facts are disclosed or already deceptive to fail to known , it is not verbalize al1 adverse inferences expressly .' Klamberg v . R0th, ' Supp . 544, 551-52 ( D . . . S. N Y 1979) ( collecting cases). ' TJhe law is clear that companies need 'E not depict facts in a negative or pejorative light or draw negative inferences to have made adequate disclosures .' ' Singh v . Schikan , 106 Supp . 3d 439, 448 ( D . . . 2015)7 see also Kahn v . Wien, S. N Y 842 Supp . 667, 676 ( D . Y .), aff'd, 41 F.3d 1501 ( E. N. 2d Cir. 1994) (u proxy statement need not negatively characterize A facts that are disclosed or expressly verbalize l see Credit Agreement, Docket Entry No . l a11 the adverse inferences from those facts' . The facts on which Plaintiffs rely o to infer the ex istence of the ulooming debt problem' were publicly ' available . Plaintiffs even demonstrate in their Consolidated Comp laint that the eventual outcome foreshadowed by the Statement could be derived from basic mathematical operations x z Plaintiffs ' arguments rely on assumptions that Defendants were not required to make . Company 's outstanding For example , Plaintiffs assume that the debt and debt covenants would remain unchanged from the time the projections were made through 2017. But Defendants point out that the Credit Agreement was already amended several times--once even for an alteration to the covenant concerning the max imum debt-to-EBITDA ratio x 3 Plaintiffs do not contend that further amendments were impossible or that the Company had no options other than breach . scenario contingent on several Plaintiffs simply posit a assumptions and argue that Defendants should have described that possible scenario in the Statement . But Defendants were under no obligation to do so . Assuming , arguendo , that Defendants' omission qualifies as a 'factz' ' ' standard for materiality of an omission is whether 'there ( ' is) a substantial likelihood that the disclosure of the omitted fact wou ld have been viewed by the reasonable investor as having significantly altered the 'total m ix ' of information made l zconsolidated Complaint , Docket Entry No . p. HDefendants' Motion to Dism iss , Docket Entry No . see also Credit Agreement, Docket Entry No . 17-5 . - 13- available .' ' Karos, 379 F . 3d at 214 ( 5th Cir . 2004) ( citations omitted) ( emphasis in original). uThe 'total mix' of information normally includes information that is and has been in the readily available general public domain and facts known or reasonably available to the shareholders.' ' Id. at 2l6 ( citing United Paperworkers International Union v . International Paper Co ., 985 In Kapps the plaintiffs alleged F. 1190, 1199 ( Cir. 1993)) 2d 2d that prospectus was m isleading part because omitted information regarding natural gas prices . Id . at 210-11 . A lthough the Fifth Circuit rejected the argument that availability of that information was mere public sufficient, the court ultimately determ ined that public availability , when combined w ith the cautionary statements in the prospectus, made the omission immaterial. See id . at 214-17 (collecting supporting cases from other circuit courts). Here, the relevant information regarding the debt covenants was publicly available in other disclosuresx4 and the Statement contained cautionary Plaintiffs would language apparently regarding have debt Defendants covenants x s reproduce and incorporate any and a1l previous disclosures that , when combined with their projections, could point to unrealized financial difficu lties . Presumab ly , Plaintiffs also want Defendants to l see Credit Agreement, Docket Entry No . 4 l see infra , Part 111 . B . 5 - 14 - p . lz . connect the dots to draw attention to the ' 'loom ing debt problem .' ' But as the Second Circuit put it , prospectuses are not 'required to ' address E reasonable investors'q as if they were children in kindergarten .' ' In re Proshares Trust Securities Litigation, 728 2013) ( citations omitted) F .3d is an investor 's responsibility to combine available facts in order to derive estimates about a security 's value . Copying and attaching prev iously disclosed information to the Statement would not have significantly altered the total mix of information availab le to investors . The only information not already explicitly available was the inference that Plaintiffs deduced from publicly available information . B. Allegedly False or Misleading Statements Plaintiffs are unclear as to whether the statements regarding future distributions are m isleading solely due to Defendants alleged omissions or are misleading on their own . Plaintiffs argue that, light projections the regarding ulooming future debt prob lem ,' Defendants' ' distributions were false misleading. Plaintiffs do not identify specific projections. Instead , the Consolidated Complaint references a 'Discounted ' Distribution Analysis,' which was included as a basis for the ' valuation of underlying securitiesx 6 Complaint is unclear , but Plaintiffs seem The Consolidated to allege that the l 6consolidated Complaint, Docket Entry No . P. inclusion of historical distributions for implies that distributions will continue . valuation purposes Plaintiffs supplement their argument in their Response to include the following language from the Statement: u Vanguard believes E Eagle Rock'sq assets provide consistent and predictab le cash flow volumes that w ill enable Vanguard to continue to make consistent monthly cash distributions to its unitholders and , over time , improve equity valuation' ( ' emphasis in original) Defendants argue that the allegedly false or misleading statements are subject to the nbespeaks caution' doctrinex8 This ' doctrine applies when forward-looking statements , such as financial projections, are ( accompanied by meaningful cautionary 2) language , which would alert the reasonable investor to consider those statements with healthy skepticism . See In re Donald J . Trump Casino Securities Litigation-Taj Mahal Litigation, 357, 371 ( Cir. 1993) ('E 3d ' Wlhen an offering document's forecasts, opinions or projections are accompanied by meaningful cautionary statements, the forward-looking statements will not form the basis for a securities fraud claim if those statements did not affect the l 7plaintiffs ' Opposition , Docket Entry No . 8. lB Defendants initially raised a defense under the Private Securities Litigation Reform Act's E' 'PSLRA' usafe harbor,' which ') ' Plaintiffs challenged . Since the materiality standards under the safe harbor, the bespeaks caution doctrine, and the Fifth Circuit 's utotal mix' analysis all lead to the same result , the court need ' not decide the applicability of the PSLRA . - 16- ' total mix' of information the document provided investors.r). ' Although the Fifth Circuit has rejected use of the ubespeaks caution' doctrine as a per se bar to liability , the reasoning ' underlying the doctrine is consistent with the ' 'total mix' test ' described above . See Rubinstein v . Collins , 20 F .3d 160, 167 & Cir . 1994) (ï hthe ' bespeaks caution' doctrine merely reflects the unremarkable proposition analyzed that statements must be context' ') ( citing In Re Trumr, F.3d at 364). Meaningful cautionary statements should include uspecific , concrete explanations that clearly identifl and quantif l y) yq present financial dangers .' ' clearly Lormand v . U .S . Unwired , Inc w 565 ( 5th Cir. 2009).1 9 Whether Plaintiffs' allegations refer to implied projections of future distributions or Defendants' exp licit 'belief' about the ' ' Company 's ab ility to make future distributions, the statements are foreword -looking and , considered in context , are not actionable . l9 In their Opposition , Plaintiffs make much of the following quotation: ' Tlhe 'E doctrine of bespeaks caution provides no protection to someone who warns his hiking companions to walk slow ly because there might be a ditch ahead when he knows with near certainty that the Grand Canyon lies one foot away .' Kurtzman v . ' Compac Computer Corp w Civil Action No . H -99-1011 , 2000 WL 34292632, at *57 ( D. Tex . Dec. 12, 2000) S. Prudential Sec . Ltd . Partnership Litiq w ( D . . . 1996). S. N Y ( citing In re 930 F . Supp . 68, 72 Whatever the potential applicability of this reasoning , it cannot apply when Plaintiffs have exp licitly disclaimed any allegations of scienter on the part of Defendants. To the extent that either of Plaintiffs ' claims sound in fraud , they would fail under the heightened pleading standards of Federal Rule of Civil Procedure 9 ( b) and the PSLRA, 15 U . C . 55 78u-4, S. et seg . See Rosenzweig v . Azurix Corp ., 332 F.3d 854, 869 ( 5th Cir. 2003) (ug Gqeneralized, positive statements about the company 's future prospects are not actionable because they are immaterial.' ') In Rosenzweiq the Fifth Circuit evaluated the materiality of forward-looking statements in a prospectus . One such statement, discussing the issuer 's hanticipate E ' sources of funding for b dl' capital expenditures, was deemed immaterial . Id . Although the Fifth Circuit did not explicitly invoke the Bbespeaks caution' ' doctrine , it applied a sim ilar analysis . qualifying term Id . In addition to the nanticipate ,' the statement was accompanied by ' 'extensive cautionary ' secure financing .' ' language about the company 's ability to Id . The court cited one such statement : 'There can be no assurances that we will be successful in securing A any financing arrangements .' ' Id . The are clear parallels between the statements in Rosenzweig and the ones in th is case . Far from detailed or specific financial projections, Plaintiffs point to a vaguely hopeful ubelief' about ' continuing future distributions and an implication drawn from an advisor 's valuation . uBelief ,' like 'anticipate ,' is a qualifying ' ' ' term , and the statements were accompanied by specific cautionary language . elsewhere In addition to the generalized warnings included the Statementz o Defendants identify the following cautionary language : 20 see supra , pp . - 18 - The unaudited information . prospective financial and operating . is subjective in many respects. As a result, there can be no assurance that the prospective results will be realized or that actual results will not be significantly h igher or lower than estimated . Since the unaudited prospective financial and operating information covers mu ltiple years, such information by its nature becomes less predictive with each successive year . Statement , Docket Entry No . 17-1 , pp . 150-51 . E Tlhe above unaudited prospective financial and operating information reflects numerous assumptions and estimates as to future events . . . The estimates and assumptions underly ing the unaudited prospective financial and operating information involve judgments with respect to, among other things, future economic, competitive, regu latory and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, . . all of which are difficult to predict and many of which are beyond the control of Vanguard, Eagle Rock and LRE and will be beyond the control of the combined entity resulting from the merger . There can be no assurance that the underly ing assumptions will prove to be accurate or that the projected results will be realized , and actual results likely will differ, and may differ materially , from those reflected in the unaudited prospective financial and operating information , regardless of whether the merger is completed . Id . at relative 157 . to The Statement also Eagle Rock l's warns : uVanguard 's leverage means leverage thatq declines in commodity prices could have a more negative impact on the value of the comb ined company than would be expected on Eagle Rock on a standalone basis .' ' Id . at 35. And finally , the Statement identifies among particular urisks or uncertainties' the Company 's ' ability comply with covenants contained in the agreements governing their indebtedness' and 'ability to generate sufficient cash flows for making distributions .' - 1 9- Id . at Even assuming that vaguely hopeful projections of 'consistent ' monthly cash distributions' are sufficient to materially influence ' a reasonable investor , the warnings in the Statement are sufficient to bespeak caution regarding any such projections. At the very least , a reasonable investor would have been prompted to investi- gate the pre-merger companies' debt positions, which were publicly disclosed in other filings . Put another way , the express or implied belief that distributions of some unspecified amount wou ld continue did not , in context , significantly alter the total mix of available information on which a reasonable investor would rely . Returning to the Discounted Distribution Analysis, the court concludes that the Analysis did not significantly alter the total mix of information made available . The Analysis exp licitly drew on u projections' similar to those just discussed. ' A reasonable investor would have evaluated those projections in light of the cautionary statements prov ided the fairness op inion of which they were a part and elsewhere . In light of the forward -looking nature the statements Plaintiffs identify and the accompanying cautionary language , the statements were immaterial as a matter of law and were not false or misleading . IV . Conclusion and Order Plaintiffs fail to state a claim for which relief may be granted under 5 of the Securities - 20- or 5 14( a) of the Securities Exchange Act because they fail to identify omission or false or misleading material statement of material fact . Because Plaintiffs ' primary claim s fail, their secondary claims under 15 of the Securities Act and 20( a) the Securities Exchange Act will be dismissed as well . Plaintiffs have requested that any dismissal be without prejudice so that Plaintiffs may cure any defects by amendment. But Plaintiffs have already substantially altered the nature of this case their Consolidated Complaint, and the court has considered the further adjustments made in Plaintiffs' Opposition. Although the court recognizes that leave to amend should be ufreely ' given , further amendment here would be futile . For the reasons stated above , Defendants' Motion to Dismiss ( Docket Entry be dismissed w ill be GRANTED , and Plaintiffs ' claims will with prejudice. SIGNED at Houston , Texas , on this 21st day of October , 2016 . < F S IM LA KE UNITED STATES DISTRICT JUDGE - 21 -
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