The opinion of the court was delivered by: FREDA WOLFSON, Magistrate Judge
Presently before the Court is a motion to dismiss the
Consolidated Amended Class Action Complaint, which alleges
violations of (i) Section 14(a) of the Securities Exchange Act of
1934 (the "Exchange Act"), 15 U.S.C. § 78n(a), and Rule 14a-9(a)
promulgated thereunder, 17 C.F.R. § 240.14a-9(a); (ii) Section
10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5
promulgated thereunder, 17 C.F.R. § 240.10b-5; and (iii) Section
20(a) of the Exchange Act, 15 U.S.C. § 78t(a). The motion to
dismiss was filed by Exxon Mobil Corporation ("Exxon Mobil") and
Lee R. Raymond*fn1 ("Raymond," together with Exxon Mobil,
"Defendants"). The Court has jurisdiction over this matter
pursuant to 28 U.S.C. §§ 1331 and 1337. For the reasons set forth
below, Defendants' motion to dismiss is granted. I. BACKGROUND
The initial complaint in this action was filed in this Court on
February 17, 2004, under the caption Binz v. Exxon-Mobil Corp.
and Lee R. Raymond, Civil Action No. 04-1257 (FLW). By Order of
this Court on June 18, 2004, this case was consolidated with
Estate of Hyman J. Rock v. Exxon-Mobil Corp. and Lee Raymond,
Civil Action No. 04-1921 (FLW) under the caption In re Exxon
Mobil Corp. Securities Litigation, Civil Action No. 04-1257
(FLW). Subsequently, an Order dated October 26, 2004 consolidated
The Ohio Public Employees Retirement System, et al. v.
Exxon-Mobil Corp. et al, Civil Action No. 04-2484 (FLW) and
Ticktin v. Exxon-Mobil Corp. et al, Civil Action No. 04-3629
(FLW) with Exxon Mobil Corp. Sec. Litig., Civil Action No.
04-1257 (FLW). Ohio Public Employees Retirement System and State
Teachers Retirement System of Ohio were appointed Lead
Plaintiffs, by an Order dated July 20, 2004. Plaintiffs'
Consolidated Amended Class Action Complaint (the "Complaint") was
filed on October 4, 2004. Presently before the Court is
Defendants' motion to dismiss the Complaint, pursuant to
Fed.R.Civ.P. 12(b)(6) and 9(b). For the reasons stated below,
the Court grants Defendants' motion to dismiss Plaintiffs'
securities fraud claims for being untimely, and while not
necessary based upon the Court's ruling that the claims are
time-barred, the Court also grants Defendants' motion to dismiss
the Plaintiffs' claims for failure to plead with particularity as
required by Fed.R.Civ.P. 9(b) and the Private Securities
Litigation Reform Act (the "PSLRA").
B. The Exxon-Mobil merger
This is a class action brought under the federal securities
laws on behalf of all persons and entities who were either
holders of Mobil Corp. ("Mobil") common stock on May 27, 1999,
when Exxon and Mobil shareholders voted to approve a proposed merger
between the two companies, or who acquired Exxon stock on or
about November 30, 1999, through a stock-for-stock exchange in
connection with the merger.
Exxon Mobil is an integrated oil and gas company that engages
in the exploration for, and production of, crude oil and gas, the
manufacture of petroleum products, and the transportation and
sale of crude oil, natural gas and petroleum products. Compl. ¶
24. On December 1, 1998, Exxon and Mobil publicly announced a
planned merger, subject to shareholder approval. Id. ¶ 91.
Pursuant to the merger, each share of Mobil stock would be
exchanged for 1.32015 shares of Exxon stock (the "Exchange
Ratio"). Id. ¶ 2. On April 5, 1999, the two companies issued a
joint proxy statement (the "Proxy Statement") seeking shareholder
approval of the proposed merger at Exxon's and Mobil's respective
shareholder meetings to be held on May 27, 1999. See Paul F.
Carvelli, Esq. ("Carvelli") Decl. Ex. D. This Proxy Statement
incorporated by reference Exxon's Annual Report on Form 10-K
("10-K"), filed on March 26, 1999 with the Securities and
Exchange Commission (the "SEC"), which contained Exxon's 1998
year-end financial statements. Compl. ¶ 92. Exxon also filed
three quarterly reports on Form 10-Q ("10-Q") with the SEC, on
May 15, 1999, August 13, 1999, and November 12, 1999,
respectively, that incorporated statements regarding the proposed
merger that were made in the Proxy Statement.*fn2 Id. ¶¶
185, 187, 189; Pls. Opp. at 4.
To be entitled to vote on the proposed merger, a Mobil
shareholder had to own Mobil stock at the close of business on
March 29, 1999. See Carvelli Decl. Ex. D. at II-2. On May 27,
1999, Mobil and Exxon shareholders approved the merger, and,
after receiving regulatory approvals, the merger closed on November 30, 1999.*fn3 Compl. ¶¶ 3-4.
Pursuant to the merger, all Mobil shares were exchanged for Exxon
shares in accordance with the Exchange Ratio, and Exxon
subsequently changed its corporate name to Exxon Mobil Corp.
Id. ¶ 4.
1. Impairment of Exxon's oil and gas assets
The gravamen of Plaintiffs' action alleges that Defendants, by
failing to recognize in Exxon's 1998 year-end financial
statements certain impairments to the long-term carrying value of
Exxon's oil and gas assets, inflated Exxon's assets and earnings
and thereby artificially inflated the value of Exxon stock to
Mobil shareholders before the merger. Compl. ¶ 96. According to
Plaintiffs, the steep drop in oil prices in 1998, see id. ¶¶
88-89, required Exxon to report the impairment of its oil and gas
fields pursuant to the Statement of Financial Accounting
Standards No. 121 ("SFAS 121")*fn4 under the Generally
Accepted Accounting Principles ("GAAP"). Id. ¶¶ 97-99.
According to the Complaint, a confidential witness, identified in
the Complaint as an individual who held various financial
analysis positions within Exxon USA from 1995 to 1998, and an oil
and gas accounting expert will be able to confirm that Exxon had
impaired properties in 1998.*fn5 See Compl. ¶¶ 127-137,
167-175. Plaintiffs allege that Exxon, by not reporting the SFAS
121 impairments, maintained its stock value at artificially high
levels and thus avoided paying more shares of its stock to Mobil
shareholders in the merger. Id. ¶ 250(a). According to
Plaintiffs, Exxon should have recognized an impairment of approximately $3.7 billion. Id. ¶ 250(a)(i).
Given the stock allocation to Exxon and Mobil shareholders
resulting from the merger,*fn6 Plaintiffs allege that Exxon
"shortchang[ed] Mobil shareholders" by as much as $18 billion.
Pls. Opp. at 24. Alternatively, Plaintiffs claim that if Exxon
had taken the impairments and reduced its 1995-1998 net earnings
by $3.7 billion, Mobil shareholders would have received an extra
2.3% of the outstanding stock of the combined company.*fn7
Compl. ¶ 250(a)(iv).
Defendants, on the other hand, assert that Exxon did not have
to recognize any impairment of its oil and gas assets because its
"disciplined investment and asset management program" regularly
reviewed properties and also monitored underperforming assets
that the company ultimately "improved to acceptable levels or
divested." Defs. Mot. Summ. J. at 10, 30. In its 1998 Annual
Report on Form 10-K, Exxon claimed that its asset management
program created a "very efficient capital base," which thereby
eliminated the need to impair certain of its oil and gas assets
in 1998. See Pls. Opp. at 10.
2. Plaintiffs' securities fraud claims
Count I of the Complaint asserts a violation of Section 14(a)
of the Exchange Act and Rule 14a-9(a) promulgated thereunder. In
pertinent part, Section 14(a) states that
[i]t shall be unlawful for any person . . . in
contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate
in the public interest or for the protection of
investors, to solicit . . . any proxy or consent or
authorization in respect of any security (other than
an exempted security) registered pursuant to Section
781 of the Act. 15 U.S.C. § 78n(a). Rule 14a-9 provides, in relevant part, that
[n]o solicitation . . . shall be made by means of any
proxy statement . . . containing any statement which,
at the time and in the light of the circumstances
under which it is made, is false or misleading with
respect to any material fact, or which omits to state
any material fact necessary in order to make the
statements therein not false or misleading. . . .
17 C.F.R. § 240.14a-9(a). Plaintiffs allege that the Proxy
Statement filed in connection with the merger, which contained
Exxon's 1998 year-end financial statements, was false and
misleading because it "(i) failed to record any SFAS 121
impairment for oil and gas properties . . . (ii) failed to
disclose any internal accounting policy that could have explained
its failure to report an impairment, as GAAP and SEC Regulations
required; and (iii) resulted in a material overstatement of
Exxon's net income." Compl. ¶ 235. Because of these omissions and
inaccurate financial statements, Plaintiffs claim that Mobil
shareholders "did not receive the consideration for their Mobil
stock that [D]efendants told them they would get." Id. ¶ 238;
see also id. ¶¶ 229-240.
Count II of the Complaint alleges violations of Section 10(b)
of the Exchange Act and Rule 10b-5 promulgated thereunder.
Section 10(b) makes it unlawful for any person to "use or employ,
in connection with the purchase or sale of any security
registered on a national securities exchange or any security not
so registered, any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as the
[SEC] may prescribe as necessary or appropriate in the public
interest or for the protection of investors." 15 U.S.C. § 78j(b).
Rule 10b-5 renders it illegal 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 . . . in
connection with the purchase or sale of any security."
17 C.F.R. § 240.10b-5(b). Section 10(b) and Rule 10b-5 reach "beyond
statements and omissions made in a registration statement or prospectus in connection with an initial distribution of
securities and create liability for "false or misleading
statements or omissions of material fact that affect trading on
the secondary market." In re Burlington Coat Factory Sec.
Litig., 114 F.3d 1410, 1417 (3d Cir. 1997). In Count II,
Plaintiffs advance the same allegations asserted in their Section
14(a) claim and additionally allege that Exxon's three quarterly
reports on Form 10-Q filed subsequent to the Proxy Statement and
prior to the closing of the merger contained similarly false and
misleading statements. Compl. ¶¶ 16, 185-190.
Count III of the Complaint alleges a violation of Section 20(a)
of the Exchange Act by Raymond, Exxon's most senior corporate
officer at the time of the merger. Section 20(a) imposes joint
and several liability on any person who "controls a person liable
under any provision of the [Exchange Act]." Shapiro v. UJB
Financial Corp., 964 F.2d 272, 279 (3d Cir. 1992). Under the
plain language of the statute, a plaintiff must "prove not only
that one person controlled another person, but also that the
`controlled person' is liable under the Act. If no controlled
person is liable, there can be no controlling person liability."
Id. (citation omitted). Section 20(a) is a predicate offense,
requiring a violation of some other section of the Exchange Act
in order to be applicable. 15 U.S.C. § 78t(a). Here, Plaintiffs
allege that Raymond manipulated the value of Exxon stock "to
ensure the Mobil acquisition's success." Pls. Opp. at 29-30.
According to Plaintiffs, Raymond's "unusually large executive
compensation package" is indicative of "heightened motive and
opportunity" that satisfies the scienter requirement of a
securities fraud claim. Pls. Opp. at 30.
C. Statute of limitations
Defendants have moved to dismiss Plaintiffs' securities fraud
claims on the ground that they are barred by the statute of
limitations. Specifically, Defendants contend that the
limitations period governing the Section 14(a) and Section 10(b)
claims is one year after the discovery of the alleged wrongdoing or three years from the occurrence of the alleged
wrongdoing, whichever period is shorter. See Defs. Mot. Summ.
J. at 12. Defendants further assert that Plaintiffs were on
inquiry notice of the alleged misstatements when the Proxy
Statement was disseminated in April 1999. See id. at 18.
Finally, Defendants claim that Plaintiffs have failed to
adequately plead scienter. Plaintiffs respond that the
appropriate limitations period for their claims is to be found in
Section 804 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"),
and regardless, they were not on inquiry notice of their claims
before March 2004. See Pls. Opp. at 7. Furthermore, Plaintiffs
assert that their securities fraud claims actually arose on
November 30, 1999, when the merger was consummated. Plaintiffs
thus contend that their claims were not time-barred prior to
Sarbanes-Oxley becoming effective on July 30, 2002.
Federal Rule of Civil Procedure 12(b)(6) provides that a court
may dismiss a complaint "for failure to state a claim upon which
relief can be granted." A claim should be dismissed only if "it
appears beyond doubt that the plaintiff can prove no set of facts
in support of his claim which would entitle him to relief." In
re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 215
(3d Cir. 2002) (citations omitted). The inquiry is not whether
plaintiff will ultimately prevail, but whether he is entitled to
offer evidence to support his claims. Id. (citing Scheuer v.
Rhodes, 416 U.S. 232, 236 (1974)). In deciding a Rule 12(b)(6)
motion, courts must accept all well-pleaded factual allegations
in the complaint as true and draw all reasonable inferences in
favor of the non-moving party. Id. (citations omitted).
Nevertheless, courts are not required to credit bald assertions
or legal conclusions alleged in the complaint. Id. at 216
(citing Burlington Coat, 114 F.3d at 1429). Similarly, legal
conclusions draped in the guise of factual allegations do not
benefit from the presumption of truthfulness. Id. (citing In re Nice Sys., Ltd. Sec. Litig.,
135 F. Supp. 2d 551, 565 (D.N.J. 2001)).
As a general matter, courts ruling on a motion to dismiss may
not consider matters extraneous to the complaint. Burlington
Coat, 114 F.3d at 1426 (citation omitted). However, an exception
to the general rule is that a "`document integral to or
explicitly relied upon in the complaint'" may be considered
"`without converting the motion [to dismiss] into one for summary
judgment.'" Id. (emphasis omitted) (quoting Shaw v. Digital
Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996); citing In re
Donald J. Trump Casino Sec. Litig., 7 F.3d 357, 368 n. 9 (3d
Cir. 1993) ("a court may consider an undisputedly authentic
document that a defendant attaches as an exhibit to a motion to
dismiss if the plaintiff's claims are based on the document.")).
The rationale underlying this exception is that the primary
problem raised by considering documents outside the complaint
lack of notice to the plaintiff has dissipated where plaintiff
has actual notice and has relied upon the documents in framing
the complaint. See id. For the same reason, courts may
consider matters of public record that are relied upon or cited
in the complaint. In re Cybershop.com Sec. Litig.,
189 F. Supp. 2d 214, 223-24 (D.N.J. 2002). Relevant to this action, the Court
also may consider SEC filings, even if those filings are not
relied on in the complaint. See In re NAHC, Inc. Sec. Litig.,
306 F.3d 1314, 1331 (3d Cir. 2002) ("NAHC").
A. Applicability of Rule 9(b)
Independent of the standard applicable to Rule 12(b)(6)
motions, Fed.R.Civ.P. 9(b) ("Rule 9(b)") requires that "[i]n
all averments of fraud or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity."
Fed.R.Civ.P. 9(b). This particularity requirement has been
rigorously applied in securities fraud cases. See Burlington
Coat, 114 F.3d at 1417. As such, plaintiffs asserting securities
fraud claims must specify "`the who, what, when, where, and how:
the first paragraph of any newspaper story.'" In re Advanta Corp.
Sec. Litig., 180 F.3d 525, 534 (3d Cir. 1999) (quoting DiLeo v.
Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990)). "Although
Rule 9(b) falls short of requiring every material detail of the
fraud such as date, location, and time, plaintiffs must use
`alternative means of injecting precision ...