A British chemicals company has asked a Dallas County judge to use the Texas Anti-SLAPP law to dismiss an IPO-related shareholder class action lawsuit – a request that if granted would be an unprecedented decision.
Citing the Texas Citizens Participation Act, lawyers for Venator Materials PLC filed a motion Friday asking a judge to reject a securities class action complaint alleging that company officials provided misleading information in documents filed with the U.S. Securities and Exchange Commission just prior to the company going public in 2017.
The plaintiffs claim that officials with Venator Materials, a spinoff company of The Woodlands-based Huntsman Corp., improperly downplayed in SEC filings the damage of a fire that destroyed its titanium dioxide plant in Pori, Finland, a misrepresentation that they argue caused the Venator stock to plummet to a small fraction of what it was initially worth.
Lawyers involved say it is the first time that a corporate defendant has cited the state Anti-SLAPP law in a motion to dismiss in a Texas state court in a securities class action case related to an initial or secondary public offering (brought under Section 11 of the Securities Act of 1933).
The Venator case is also an example of how state courts in Texas are increasingly becoming the destination of choice over Texas federal courts for plaintiffs’ lawyers in IPO-related securities litigation.
The trend, according to legal experts, is the result of last year’s U.S. Supreme Court decision in Cyan v. Beaver County Employees Retirement Fund.
In Cyan, the high court held that class action IPO-related securities violation claims tied to federal law (namely, the 1933 Securities Act) may be litigated in state court, which provided clarity on what amendments to the 1933 act from the 1990s did and did not do.
A handful of these kinds of cases have cropped up in state court since the March 2018 decision, but legal experts say more are on the way.
One of the lawsuits, also pending in Dallas County district court, was filed in February in Judge Aiesha Redmond’s court and names FTS International and Chesapeake Energy Corp. as the main defendants. Another such complaint, which was filed last year in Austin state court against XBiotech, has already been dismissed by Travis County District Judge Dustin Howell.
Lawyers for Venator argue that the TCPA applies in their situation because the plaintiffs filed their lawsuit in response to Venator exercising its right of free speech on matters of public concern. In fact, Venator argues, the plaintiffs’ factual allegations alone demonstrate that the TCPA applies.
“Venator’s communications about the fire were true and complete, as a review of such communications demonstrates,” Venator lawyers say in the motion, filed Friday in Dallas District Judge Dale Tillery’s court.
Venator’s legal team, which includes Smyser Kaplan Veselka’s Craig Smyser and Lynn Pinker Cox & Hurst’s Michael Hurst, also filed a separate 91a motion to dismiss on Friday that says the plaintiffs’ claims are baseless, and that Venator did not violate securities laws because it was being fully truthful in its filings based off the information it had at the time about repairing the Pori plant.
“The federal securities laws neither require clairvoyance nor hindsight. But those are the qualities plaintiff’s consolidated petition depends on,” the 91a filing says. “Plaintiffs, with the benefit of hindsight, filed a securities act claim stating essentially that Venator should have known shortly after the fire that it would not be able to successfully rebuild the plant and misrepresented that purported fact to investors in its registration statements for the initial public offering in August and then in the secondary public offering in November 2017.”
The Fire
Based in the United Kingdom, Venator is a chemical company focused on titanium dioxide, which causes the whiteness, opacity and brightness in the appearance of everyday products like plastics, paper, and sunscreen when it’s used as a pigment. It was the pigments and additives division of Huntsman until it spun off in 2017 by way of an IPO.
The August 2017 IPO raised $454 million ($20 per share), and all of the proceeds went to Huntsman to help pay down debt. Venator raised another $533 million through a secondary offering (SPO) that commenced in November 2017, selling company stock to the public at an upsized $22.50 per share.
At the time Venator filed for an IPO, it disclosed the financial and operation effects from the January 2017 Pori plant fire in its mandatory filings to the SEC, but the shareholder plaintiffs claim Venator did not disclose as much as it knew.
As a result, the plaintiffs claim, Venator stock plummeted in the following months when the company later announced that the cost estimates to repair the Pori plant were hundreds of millions of dollars greater than originally projected in its IPO and SPO registration statements. In December 2018, three months after Venator announced it was “abandoning the Pori plant entirely,” Venator’s stock fell to $3.65 per share — 82% below the IPO price and 84% below the SPO price, says the plaintiffs’ lawsuit, which was filed in February.
The plaintiffs, Macomb County Retirement System and Firemen’s Retirement System of St. Louis, allege Venator violated Sections 11, 12(a)2 and 13 of the Securities Act of 1933 due to the alleged false representations in the SEC filings.
The lawsuit also names a slew of top executives at Venator and underwriters of the IPO and SPO as defendants. The underwriters include Citigroup, Goldman Sachs, J.P. Morgan Securities and Merrill Lynch. The suit names Huntsman as a defendant due to the control it maintains over Venator.
“None of the defendants named herein made a reasonable investigation or possessed reasonable grounds for the belief that the statements contained in the IPO registration and/or the SPO registration statement were true and without omission of any material facts and were not misleading,” the plaintiffs’ amended complaint says.
Huntsman, which is being represented by Thad Behrens of Haynes and Boone, filed joinders for Venator’s two motions to dismiss, echoing Venator’s arguments that the claims are baseless and that previous case law warrants a dismissal of the lawsuit. The underwriters, who are being represented by Jeff Tillotson of Tillotson Law, have also joined the other defendants’ positions.
Judge Tillery has already scheduled a hearing on July 8 for the 91a motion to dismiss, but has not yet set a hearing date for the TCPA motion.
Venator and Huntsman have asked Judge Tillery to transfer the case to Montgomery County. He will consider the arguments for a transfer at a hearing on July 9.
The rest of the legal team representing Venator and its executives include Razvan Ungureanu and Eugeine Zilberman of Smyser Kaplan Veselka in Houston and Andrés Correa, David Cole and John Christian of Lynn Pinker Cox & Hurst in Dallas.
The plaintiffs’ lawyers are Dallas attorney Joe Kendall of Kendall Law Group; Samuel Rudman and Brian Cochran of California-based Robbins Geller Rudman & Dowd; and Jonathan Gardner, Alfred Fatale and Lisa Strejlau of Labaton Sucharow in New York.
The remainder of the Dallas-based team representing Huntsman includes Daniel Gold, Matthew McGee and William Marsh from Haynes and Boone and Dick Sayles from Bradley Arant Boult Cummings.
The underwriters are also being represented by New York attorneys Audra Soloway, Geoffrey Chepiga, Caitlin Grusauskas and Mary Spooner of Paul, Weiss, Rifkind, Wharton & Garrison.
The case number is DC-19-02030 in Dallas County.