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In re Royal Dutch/Shell Transport Securities Litigation

November 13, 2007

IN RE ROYAL DUTCH/SHELL TRANSPORT SECURITIES LITIGATION


The opinion of the court was delivered by: Pisano, District Judge.

FOR PUBLICATION

OPINION

Presently before the Court is a motion by Defendants N.V. Koninklijke Nederlandsche Petroleum Maatschappij (also known as the Royal Dutch Petroleum Company), a Dutch corporation with its headquarters located in the Kingdom of the Netherlands, and The "Shell" Transport and Trading Company, p.l.c., a British corporation with its headquarters located in the United Kingdon, (collectively "Shell") brought pursuant to Federal Rule of Civil Procedure 53(g), seeking the Court to adopt the September 18, 2007 Report and Recommendation of Special Master Nicholas H. Politan ("the Report"). This consolidated class action arises from allegations that Shell violated federal securities law. The worldwide putative class ("the Class" or "Plaintiffs") is composed of persons and entities who purchased, between April 8, 1999 and March 18, 2004 ("the Class Period"), securities issued by Shell. Lead Plaintiffs are the Pennsylvania State Employees' Retirement System ("SERS") and the Pennsylvania Public School Employees' Retirement System ("PSERS"). The proposed Class includes, among others, "Non-U.S. Purchasers;" that is, those persons or entities who purchased their shares on exchanges outside of the United States and at the time of such purchase were residents or citizens of, or were incorporated in or created under the laws of, any jurisdiction other than the United States.

In December 2004, Shell moved to dismiss the claims asserted by these Non-U.S. Purchasers pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction and later renewed that motion on April 18, 2007. On May 24, 2007, this Court entered an Order, in accordance with the agreement of the parties, whereby it appointed retired United States District Court Judge Nicholas H. Politan as Special Master for the limited purpose of determining whether this Court has subject matter of jurisdiction over the securities claims brought by the Non-U.S. Purchasers. Special Master Politan issued his Report on September 18, 2007, suggesting that the Court does not have subject matter jurisdiction over these claims. On motion by Shell and having reviewed the record as it was presented to the Special Master, the Court now adopts the Special Master's Report and Recommendation and dismisses the securities claims asserted by the Non-U.S. Purchasers included in the putative class.

I. BACKGROUND

This cause of action arises from Shell's announcements that it would reclassify its previously reported (or "booked") proved oil and gas reserves. The first such announcement occurred on January 9, 2004, when Shell stated that it would reclassify 3.9 billion barrels of oil equivalent ("boe") that had been reported as proved reserves for 2002. Again, on March 18, 2004, the last day of the Class Period, Shell announced that it would reclassify an additional 250 million boe that had been reported proved as of December 31, 2002, and would reduce by approximately 220 million boe the amount of proved reserves it had expected to report as of December 31, 2003. The crux of the allegations have been set forth at length in previous opinions by this Court and, thus, the Court sets forth here only those facts relevant to the present issue of subject matter jurisdiction over the Non-U.S. Purchasers. See in re Royal Dutch/Shell Transp. Sec. Litig., 380 F. Supp. 2d 509 (D.N.J. 2005) ("Royal Dutch I"); in re Royal Dutch/Shell Transp. Sec. Litig., 2006 WL 2355402 (D.N.J. 2006) ("Royal Dutch II"). Relevant to the limited inquiry of subject matter jurisdiction over the Non-U.S. Purchasers' claims, the essence of Plaintiffs' allegations is that Shell "engaged in material and substantial conduct in the United States that was part and parcel of the fraud" and the "U.S. participants in this conduct acted with an awareness of the scheme to book or retain improper proved reserves." (Lead Plaintiffs' Proposed Findings of Facts & Conclusions of Law ("LPs' PFF") ¶¶ 391-92).

Shell first moved to dismiss the Non-U.S. Purchasers in December 2004 before former Chief Judge John W. Bissell, who denied the motion on August 9, 2005. Royal Dutch I, supra, 380 F. Supp. 2d at 548. Shell argued that Plaintiffs failed to satisfy the "conduct test" for jurisdictional purposes because any conduct allegedly committed in furtherance of Shell's alleged securities violations occurred outside of the United States and thus fell beyond the scope of the federal securities laws. Shell also contended that the Non-U.S. Purchasers did not suffer any effects within the United States as a result of Shell's alleged violations. Nevertheless, the Court held that Plaintiffs, at the pleading stage of the case, alleged sufficient conduct to retain jurisdiction over the Non-U.S. Purchasers' claims. Ibid. Subsequently, the parties engaged in extensive discovery and mediation, revealing further proofs in respect of the alleged U.S.-based conduct.

On April 11, 2007, Shell notified the Court and Lead Plaintiffs that it had entered into a Settlement Agreement, filed in the Amsterdam Court of Appeals in the Netherlands, that would resolve all asserted and unasserted claims of Non-U.S. Purchasers. The other parties to that Settlement Agreement include a foundation specifically formed to represent the interests of all Non-U.S. Purchasers ("the Foundation"), the Vereniging van Effectenbezitters ("VEB"), a Dutch shareholder advocacy group, and two pension funds that purchased hundreds of millions of shares of Shell stock during the putative class period and that previously had filed securities law actions in this Court. As a joint request by those parties to the Settlement Agreement, Shell sought the Amsterdam Court of Appeals to declare the Settlement Agreement binding on all Non-U.S. Purchasers pursuant to the Dutch Collective Financial Settlement Act. Wet Collectieve Afwikkeling Massaschade, BW Art. 907-10 (the Civil Code of the Netherlands) and 14 Rv Art. 1013-18 (the Code of Civil Procedure of the Netherlands). In response, on April 30, 2007, Lead Plaintiffs filed before this Court a motion to enjoin Shell from seeking such a declaration. Consequently, that Settlement Agreement is conditioned in part on this Court's deciding whether to exercise subject matter jurisdiction over the Non-U.S. Purchasers.

Resulting from that Settlement Agreement, Shell renewed before this Court its motion to dismiss the Non-U.S. Purchasers' claims, pursuant to Federal Rule of Civil Procedure 12(b)(1), for failure to show that sufficient conduct occurred in the United States such that the federal securities laws applies to those claims and for failure to show that the Non-U.S. Purchasers experienced any effect in the United States from Shell's alleged violation of the federal securities laws. Shell also moved to sever and dismiss the Non-U.S. Purchasers' claims based on the doctrines of forum non conveniens and comity. Based on Judge Politan's previous involvement with the parties to this suit in respect of their mediation sessions, this Court, on May 24, 2007 and upon the joint proposal by the parties, appointed Judge Politan as Special Master to "consider and review the extensive evidentiary record on the conduct test issues and report to the Court on his findings and recommendations[.]" The parties also stipulated that the Court would adjourn Shell's motion to sever and dismiss based on the doctrines of forum non conveniens and comity until after the Court reviews the Special Master's Report pursuant to Federal Rule of Civil Procedure 53(g). The parties also agreed that Lead Plaintiffs' motion to enjoin Shell in respect of the Settlement Agreement's binding effect would be withdrawn without prejudice and that, if this Court ultimately dismisses the Non-U.S. Purchasers' claims from the present action, that motion will be deemed withdrawn with prejudice.

On September 18, 2007, in a comprehensive thirty-nine-page opinion, Special Master Politan determined that, despite considering "a multitude of boxes overflowing with transcripts and other exhibits[,] . . . Plaintiffs have not satisfied the 'conduct test' under the operative analysis[.]" (R. at 3). Therefore, Special Master Politan "recommend[ed] that the District Court decline to exercise subject matter jurisdiction over the Non-U.S. Purchasers and exclude them from any class potentially certified in this action." (R. at 3).

Shell now moves to have the Court adopt the Special Master's Report, including Special Master Politan's findings of facts and conclusions of law, in its entirety. Lead Plaintiffs object, contending that the evidence submitted is sufficient to establish subject matter jurisdiction over the Non-U.S. Purchasers' claims.

II. DISCUSSION

A. Standards of Review

Pursuant to Federal Rule of Civil Procedure 53(g), a Court, after affording an opportunity to be heard, may "adopt or affirm; modify; wholly or partly reject or reverse; or resubmit to the master with instructions[]" a special master's order, report, or recommendations. Fed. R. Civ. P. 53(g)(1). The Court decides de novo "all objections to conclusions of law made or recommended by a master[,]" Fed. R. Civ. P. 53(g)(4), and "all objections to findings of fact made or recommended by a master" unless otherwise stipulated by the parties, Fed. R. Civ. P. 53(g)(3).

Federal Rule of Civil Procedure 12(b)(1) allows a party to move for dismissal of a case based on lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). When a defendant makes a motion for lack of subject matter jurisdiction pursuant to that Rule, "the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case." Mortensen v. First Fed. Sav. and Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). Further, "no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits ...


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