IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 15-31094

BRIAN M. NEIMAN; WILLIAM KRUSE; and THE MOSHE ISSAC 

FOUNDATION, Individually and on behalf of all others similarly situated, 

 Plaintiffs - Appellants 

v. 

T. PAUL BULMAHN; ALBERT L. REESE, JR.; KEITH R. GODWIN; 

LELAND E. TATE, 

 Defendants - Appellees 

Appeal from the United States District Court

 for the Eastern District of Louisiana 

Before HIGGINBOTHAM, ELROD, and HIGGINSON, Circuit Judges. 

STEPHEN A. HIGGINSON, Circuit Judge:

This securities class action concerns ATP Oil & Gas Corporation’s 

(“ATP”) collapse into bankruptcy. Plaintiffs-Appellants were shareholders of 

ATP, a company engaged in the acquisition, development, and production of oil 

and gas properties. Plaintiffs allege that Defendants, each of whom was an 

officer or director of ATP, misrepresented (1) the production of Well 941 #4 

(“Well #4”) (a new well that ATP brought online in 2011), (2) ATP’s liquidity 

and whether the company had the available funds to complete the Clipper 

pipeline (a pipeline project that ATP anticipated completing in late 2012), and 

(3) the true reason that Matt McCarroll resigned as CEO of ATP. The district 

United States Court of Appeals

Fifth Circuit

FILED

April 21, 2017

Lyle W. Cayce

Clerk

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court dismissed Plaintiffs’ Second Amended Complaint with prejudice. 

Plaintiffs appealed. We AFFIRM. 

I 

A. ATP 

ATP was a Texas company that developed oil and gas properties. As of 

March 2010, ATP had an interest in 104 wells in the Gulf of Mexico. 

Defendants were each officers of ATP. Defendant T. Paul Bulmahn served as 

Chairman, Chief Executive Officer, and director of ATP from May 2008 

through the bankruptcy. Defendant Albert L. Reese, Jr., served as CFO of ATP 

from March 1999 through the bankruptcy. Defendant Keith R. Godwin served 

as ATP’s Chief Accounting Officer from April 2004 through the bankruptcy. 

Defendant Leland E. Tate served as President of ATP from May 2008 through 

the bankruptcy. 

B. Well #4 

In August 2011, ATP began production from Well #4. ATP stated that 

“[t]he well delivered on ATP’s original expectations with an initial rate 

exceeding 7,000 Boe [barrels of oil equivalent] per day . . . . Company-wide 

production now exceeds 31,000 Boe per day.” 

On September 12, 2011, Reese re-stated that ATP projected its total 

production at 31,000 Boe per day. On September 26, 2011, Moody’s Investors 

Service issued a report, which claimed that ATP’s cash flow was “not sufficient 

to cover” ATP’s outstanding notes. Reese responded to the Moody’s article on 

September 29, 2011, stating, “I can’t fight rumors or reports, all I can do is 

continue to deliver on the promises we’ve made. Our expectation is that 

everything is going to be fine.” 

Plaintiffs claim that both of Reese’s statements were false and 

misleading because Well #4 actually was producing far less than the projected 

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7,000 Boe per day. In November 2011, ATP disclosed that Well #4 actually 

was producing 3,500 Boe per day. 

C. ATP’s Liquidity and Financial Condition 

Plaintiffs raise a number of allegations concerning Defendants’ 

representations that ATP’s liquidity and financial condition were solid from 

2010 to 2012. Throughout the period, Defendants routinely stated that ATP 

had sufficient liquidity to meet its capital needs. Plaintiffs allege that each of 

these statements was false or misleading, arguing that in fact from 2010 to 

2012, ATP’s financial condition was worsening and its liquidity position was 

crumbling. In support, Plaintiffs first point to Reese’s testimony at ATP’s 

bankruptcy hearing where Reese testified that ATP was “facing a severe 

liquidity crisis[.]” Second, Plaintiffs argue that ATP’s reliance on financing 

signaled its imminent liquidity crisis. Namely, Plaintiffs allege that beginning 

in April 2010, ATP was forced to sell a significant portion of future production 

from its wells (in the form of overriding royalty interests (“ORRIs”) and net 

profit interests (“NPIs”)—financial instruments that sell a percentage of future 

income from an asset) to finance drilling projects. In support, Plaintiffs cite 

Confidential Witness Three (“CW3”), a certified public accountant who worked 

in ATP’s accounting and finance department from June 2010 to October 2011, 

and who observed that “even if [ATP’s wells] produced like gangbusters, they 

don’t have a right to that money—their cash flows are already spoken for.” 

Third, Confidential Witness Four (“CW4”), the Vice President of Production at 

ATP from June 2001 until October 2013, additionally noted that during the 

class period, ATP often delayed maintenance work and payments to vendors

in order to manage cash flow. Indeed, by May 2012, ATP’s cash position 

became so strained that it withheld approximately $23.2 million in ORRI and 

NPI payments in order to stave off bankruptcy. 

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D. The Clipper Project 

Up until its bankruptcy, ATP was developing the Clipper wells in the 

Gulf of Mexico. ATP believed that the Clipper wells held plentiful reserves. 

However, to monetize those reserves ATP needed to build a pipeline connecting 

the Clipper wells to the nearest oil production platform. The total cost of 

completing the Clipper pipeline was estimated at between $140 million and 

$150 million. ATP’s management believed that the revenue from the Clipper 

wells would alleviate ATP’s poor financial condition. ATP’s management 

routinely touted the Clipper project’s potential revenue. Plaintiffs allege that 

each of these statements was false and misleading because ATP did not have 

the available capital or access to capital necessary to complete the Clipper 

pipeline. 

E. Matt McCarroll’s Resignation 

On June 1, 2012, ATP issued a press release announcing that Matt 

McCarroll had been hired as CEO, replacing Defendant Bulmahn. Six days 

later, on June 7, 2012, ATP issued a second press release announcing that ATP 

“was unable to reach a mutually agreeable employment agreement with Mr. 

McCarroll and effective today he has submitted his resignation.” Defendants 

Bulmahn and Reese were listed as individuals to contact on both press 

releases. 

Plaintiffs contend that the reason given for McCarroll’s resignation was 

false or misleading. According to Plaintiffs, the true reason for McCarroll’s 

departure was that McCarroll discovered ATP’s financial weaknesses and 

wanted to begin restructuring immediately, but the ATP Board would not 

agree. 

II 

“We review de novo the district court’s dismissal of the securities fraud 

complaint . . . .” Plotkin v. IP Axess Inc., 407 F.3d 690, 696 (5th Cir. 2005). “A 

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plaintiff’s complaint will survive a Rule 12(b)(6) motion to dismiss if, accepting 

its factual allegations as true, the complaint plausibly states a claim for relief.” 

Local 731 I.B. of T. Excavators & Pavers Pension Trust Fund v. Diodes, Inc., 

810 F.3d 951, 956 (5th Cir. 2016) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 

(2009)). “Where, as here, the complaint involves an allegation of fraud, Federal 

Rule of Civil Procedure 9(b) imposes a higher standard on the complainant, 

requiring that he plead with ‘particularity the circumstances constituting 

fraud.’” Id. “The PSLRA has raised the pleading bar even higher and enhances 

Rule 9(b)’s particularity requirement for pleading fraud in two ways.” Id.

(citing Ind. Elec. Workers’ Pension Trust Fund IBEW v. Shaw Grp., Inc., 537 

F.3d 527, 533 (5th Cir. 2008)). “First the plaintiff must ‘specify each statement 

alleged to have been misleading, and the reason or reasons why the statement 

is misleading.’” Id. (citing Shaw Grp., 537 F.3d at 533). “Second, ‘for each act 

or omission alleged to be false or misleading, plaintiffs must state with 

particularity facts giving rise to a strong inference that the defendant acted 

with the requisite state of mind.’” Id. (quoting Shaw Grp., 537 F.3d at 533).

Plaintiffs assert two claims. Count One alleges that Defendants violated 

Section 10(b) of the Exchange Act and Rule 10b–5 promulgated thereunder. 

Count Two alleges that Defendants are liable as control persons under Section 

20(a) of the Exchange Act. 

To state a claim under Rule 10b–5 “a plaintiff must allege, in connection 

with the purchase or sale of securities, ‘(1) a misstatement or an omission (2) 

of material fact (3) made with scienter (4) on which the plaintiff relied (5) that 

proximately caused [the plaintiff’s] injury.’” Nathenson v. Zonagen Inc., 267 

F.3d 400, 406–07 (5th Cir. 2001) (quoting Tuchman v. DSC Commc’ns Corp., 

14 F.3d 1061, 1067 (5th Cir. 1994)); see also Goldstein v. MCI WorldCom, 340 

F.3d 238, 244 (5th Cir. 2003).

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[A] plaintiff pleading a false or misleading statement 

or omission as the basis for a section 10(b) and Rule 

10b–5 securities fraud claim must, to avoid dismissal 

pursuant to Rule 9(b) and 15 U.S.C. §§ 78u–4(b)(1) & 

78u–4(b)(3)(A) [the PSLRA]: (1) specify . . . each 

statement alleged to have been misleading, i.e., 

contended to be fraudulent; (2) identify the speaker; 

(3) state when and where the statement was made; (4) 

plead with particularity the contents of the false 

representations; (5) plead with particularity what the 

person making the misrepresentation obtained 

thereby; and (6) explain the reason or reasons why the 

statement is misleading, i.e., why the statement is 

fraudulent. 

Goldstein, 340 F.3d at 245 (quoting ABC Arbitrage Plaintiffs Grp. v. Tchuruk, 

291 F.3d 336, 350 (5th Cir. 2002)). 

“Under Section 20(a), a person who exerts control over a person who 

violates any provision of the Securities Exchange Act can be held jointly and 

severally liable with the primary actor of the underlying securities law 

violation.” Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU Corp., 

565 F.3d 200, 206 n.4 (5th Cir. 2009). Nonetheless, “[c]ontrol person liability 

is secondary only and cannot exist in the absence of a primary violation.” 

Southland Sec. Corp. v. INSpire Ins. Sols., Inc., 365 F.3d 353, 383 (5th Cir. 

2004) (citing Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1021 n.8 (5th 

Cir. 1996)). 

III 

A. Reese’s Statements

Broadly, Plaintiffs’ scienter theory with respect to Reese’s statements 

about Well #4’s production is that prior to speaking on September 12 or 

September 29, Reese knew, or was severely reckless in not knowing, that Well 

#4’s production had dropped. Plaintiffs ground this theory in three sources: (1) 

Reese’s purported motive to deceive investors, (2) allegations made by certain 

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confidential witnesses, and (3) Reese’s high rank in the company. The district 

court rejected Plaintiffs’ scienter theory. We agree. 

‘“Scienter’ is ‘a mental state embracing intent to deceive, manipulate, or 

defraud[.]’” Goldstein, 340 F.3d at 245 (quoting Ernst & Ernst v. Hochfelder, 

425 U.S. 185, 193 n.12 (1976)). “[P]laintiffs can demonstrate scienter by a 

showing of ‘severe recklessness’ . . . .” Id. 

[Severe recklessness] is limited to those highly 

unreasonable omissions or misrepresentations that 

involve not merely simple or even inexcusable 

negligence, but an extreme departure from the 

standards of ordinary care, and that present a danger 

of misleading buyers or sellers which is either known 

to the defendant or is so obvious that the defendant 

must have been aware of it. 

Spitzberg v. Hous. Am. Energy Corp., 758 F.3d 676, 684 (5th Cir. 2014) (quoting 

Rosenzweig v. Azurix Corp., 332 F.3d 854, 866 (5th Cir. 2003)). 

“[W]e must look to the Complaint in toto in deciding whether it 

adequately pleads scienter.” Barrie v. Intervoice-Brite, Inc., 397 F.3d 249, 263 

(5th Cir. 2005), opinion modified on denial of reh’g, 409 F.3d 653 (5th Cir. 2005) 

(citing Goldstein, 240 F.3d at 246–47). “A three-step framework guides this . . . 

evaluation. First, the factual allegations in the pleadings must be accepted as 

true. Second, the court must consider the entire complaint . . . . Third, the 

court must consider plausible inferences supporting as well as opposing a 

strong inference of scienter.” Diodes, 810 F.3d at 956–57 (internal citations 

omitted). “Ultimately, in order to create an inference of scienter, the 

allegations in the complaint must be ‘cogent and compelling,’ not simply 

‘reasonable,’ or ‘permissible.’” Id. at 957 (quoting Tellabs, Inc. v. Makor Issues 

& Rights, Ltd., 551 U.S. 308, 323 (2007)).

Plaintiffs’ scienter allegations fall short for three reasons. First, 

Plaintiffs have failed adequately to plead that Reese had a motive to mislead 

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the public in September 2011. The fact that ATP disclosed the true production 

of Well #4 in November 2011, just two months after Reese’s statements, belies 

an inference of scienter. On November 9, 2011, Tate stated 

As we brought [Well #4] on production, what we saw 

was a completion efficiency where there was more 

wellbore drawdown near the well bore than what we 

had seen during the well test and as a result we can 

make on a routine basis about 3,500 barrels a day 

equivalent out of that well. 

It would have made little sense for Reese to lie about Well #4’s production in 

September only for Tate to disclose the true production in November. This is 

especially true because Plaintiffs have not alleged that Reese had a particular 

reason to lie in September that would have vanished by November. For 

example, Plaintiffs do not allege that Reese inflated ATP’s production numbers 

in September in order to facilitate an important business opportunity that was 

no longer salient in November. Instead, Plaintiffs allege that throughout Fall 

2011, ATP’s fiscal position continually worsened. 

Plaintiffs’ contrary suggestion that Reese had a motive to lie is not 

supported by our case law. We have found that “[t]he desire to raise capital in 

the normal course of business does not support a strong inference of scienter 

because virtually all corporate insiders share this goal.” Owens v. Jastrow, 789 

F.3d 529, 539 (5th Cir. 2015) (citing Abrams v. Baker Hughes Inc., 292 F.3d 

424, 434 (5th Cir. 2002)). The “outlier” to this proposition is Goldstein where 

this court found that the company’s “need to complete a ‘crucial’ $129 billion 

merger . . . gave the company a motive to inflate its financial results.” Shaw 

Grp., 537 F.3d at 544 (quoting Goldstein, 340 F.3d at 242, 250). 

Plaintiffs do not explain with any specificity why, in September 2011, 

when Reese spoke, ATP had a more than routine need to raise capital. For 

example, Plaintiffs have not alleged that in September 2011, ATP was in 

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critical negotiations to facilitate financing or to seek out potential creditors. 

Rather, Plaintiffs’ allegations indicate that in September 2011, ATP could 

easily access credit, and, indeed, did so many times. 

Although lack of motive is not fatal to Plaintiffs’ claim, “[w]here, as here, 

the plaintiff[s have] not alleged a clear motive for the alleged misstatements 

or omissions, the strength of [the] circumstantial evidence of scienter must be 

correspondingly greater.” See R2 Invs. LDC v. Phillips, 401 F.3d 638, 644 (5th 

Cir. 2005). 

Second, Plaintiffs’ Confidential Witness allegations fall short. All that 

Plaintiffs’ Confidential Witness allegations indicate is that reports were made 

available to Reese, which showed that Well #4 was not producing 7,000 Boe 

per day. Plaintiffs have not directly alleged that Reese actually read the 

reports or was otherwise made aware of the lower production. The allegation 

that CW4 claims to have been confident that Reese knew of the production 

numbers does not plausibly allege Reese’s knowledge because Plaintiffs fail to 

plead any basis for CW4’s confidence. Thus, the critical question is whether it 

is proper to infer that Reese was made aware, or was severely reckless in not 

being aware, of Well #4’s lower production. 

Our precedent indicates that for allegations concerning internal 

corporate reports alone to support a strong inference of scienter (1) the 

complaint must have “corroborating details regarding the contents of allegedly 

contrary reports, their authors and recipients[,]” Abrams, 292 F.3d at 432, and 

(2) the corporate reports be connected to the speaking executive in a persuasive 

way, see Goldstein, 340 F.3d at 251–52. 

Plaintiffs’ allegations fail on the second element. Plaintiffs allege that 

Reese received weekly emails containing production reports. Plaintiffs do not 

directly allege, however, that Reese read the relevant section of the reports 

before he made either his September 12 or September 29 statements. Instead, 

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Plaintiffs ask the court to infer that Reese either actually reviewed the 

production reports, or was severely reckless in not doing so, from the fact that 

he received them. 

Goldstein comes the closest to defining when a plaintiff adequately 

alleges that an executive has knowledge of a report. 340 F.3d 238. There, the 

plaintiffs alleged that two executives, Ebbers and Sullivan, misstated 

WorldCom’s financial position by failing to write off over $500 million of 

uncollectable accounts receivable. Id. at 243–44. In support of their scienter 

allegations, plaintiffs alleged that WorldCom’s legal department prepared a 

monthly list of delinquent accounts. Id. at 251. Plaintiffs alleged that the list 

should have alerted Ebbers and Sullivan to the need for a write off. Id. at 251–

52. That list was sent to certain financial officers including David Myers, the 

company controller. Id. at 251. Plaintiffs alleged that Ebbers and Sullivan 

must have become aware of the list, or were severely reckless in not doing so, 

because Myers directly reported to Ebbers and Sullivan. Id. at 251–52. The 

court rejected the argument, holding that the PSLRA did not allow “the 

plaintiffs to make a conclusory assumption that simply because a monthly 

report was generated and distributed to an individual who reported to Ebbers 

and Sullivan, Ebbers or Sullivan had knowledge of certain delinquent account 

information which may appear in monthly reports.” Id. at 252. Instead, the 

court suggested that plaintiffs should have alleged, for example, that Myers 

presented or discussed the report with Ebbers and Sullivan. Id.

The specifics of this case make the inference that Reese actually looked 

at Well #4’s data tenuous. CW4 testified that each week ATP’s executives 

would receive a productivity report listing both company-wide metrics and 

individual well data. For Reese to determine that Well #4’s productivity had 

fallen, he would have had to open not only the email from CW4’s staff 

containing the productivity report, but also open the productivity report, parse 

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through data for ATP’s other hundred or so wells, find the data for Well #4, 

and then notice that the data differed from his August statements in a material 

way. Absent an allegation that Reese was alerted to the Well #4 data in some 

way, inferring that Reese took those steps is less plausible than inferring that 

he would not have read specific entries in the emailed reports. 

Indeed, the allegations in the Complaint suggest that Reese may have 

had good reason not to look at the reports without prompting. CW4, the person 

charged with creating the production reports, never reported directly to Reese. 

Additionally, Reese did not attend the weekly production meetings where the 

reports were discussed. Instead, CW4 reported to George Morris, the Chief 

Operating Officer, and Morris attended the production meetings. These 

allegations indicate that Morris, not Reese, was charged with monitoring 

production, and accordingly, strengthen the inference that Reese would likely 

not have read the weekly production reports absent some basis for him to do 

so.1 

Third, Reese’s position in the company does not aid Plaintiffs’ scienter 

allegations. As a general matter, “[a] pleading of scienter may not rest on the 

inference that defendants must have been aware of the misstatement based on 

their positions within the company.” Abrams, 292 F.3d at 432 (citing In re 

Advanta Corp. Sec. Litig., 180 F.3d 525, 539 (3d Cir. 1999)). However, in 

Nathenson, we held that occasionally “special circumstances” would permit a 

plaintiff to plead scienter by pleading a defendant’s position in the company. 

267 F.3d at 425. 

The ‘special circumstances’ cases exhibit some 

combination of four considerations that might tip the 

 

1 In short, the Complaint here alleged facts that undercut the inference that Reese

read the Well #4 production data. Accordingly, we have no occasion to decide, as a general 

matter, when an executive can be charged with knowledge of specific facts based on the 

allegation that the executive received an email containing those facts. 

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scales in favor of an inference of scienter. First, the 

smaller the company the more likely it is that 

corporate executives would be familiar with the 

intricacies of day to day operations. Second, the 

transaction at issue may have been critical to the 

company’s continued vitality. Third, the 

misrepresented or omitted information at issue would 

have been readily apparent to the speaker. Fourth, 

the defendant’s statements were internally 

inconsistent with one another. 

Diodes, 810 F.3d at 959 (internal citations omitted). 

The “special circumstances” exception does not apply here. First, with 

over 60 employees, ATP was approximately twice as large as the companies in 

the cases where this court has found a “special circumstance.” See Nathenson, 

267 F.3d at 425 (32 to 35 employees); Dorsey v. Portfolio Equities, Inc., 540 F.3d 

333, 342 (5th Cir. 2008) (no employees). Second, Well #4 was not material 

enough to place this case into the “special circumstances” category. That is not 

to say that Well #4 was not important to ATP. ATP’s own August 24, 2011 

report indicated that Well #4 was projected to produce 22.5% of ATP’s total 

output. However, this court’s jurisprudence requires more. Indeed, this court 

has previously found that the “special circumstances” doctrine was not 

implicated by statements concerning an asset that comprised 22% of the 

respective company’s total portfolio. See Jastrow, 789 F.3d at 540 

(“Defendants’ alleged misstatement of the MBS portfolio valuation was not as 

crucial to the continuing operation of Guaranty as were the misstatements 

regarding the patent’s applicability in Nathenson. Although Guaranty’s nonagency MBS portfolio was undeniably a large and important business asset, it 

is not alleged to have been Guaranty’s single product, instead comprising at all 

relevant times no more than 22% of Guaranty’s total assets.”); see also Abrams, 

292 F.3d at 438 (Parker, J., concurring). Third, as explained above, Plaintiffs’ 

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allegations fail to create a strong inference that it would have been readily 

apparent to Reese that his re-articulation of the August 24 report materially 

misstated Well #4’s true production. And, last, Plaintiffs concede that Reese’s 

statements were not internally inconsistent with other ATP speakers. Taking 

all these factors together, we conclude that Plaintiffs have failed to plead facts 

that would make this a “special circumstances” case. 

In short, viewing Plaintiffs’ allegations as a whole, we agree with the 

district court that Plaintiffs failed adequately to allege scienter with regard to 

Reese’s statements. 

B. Liquidity and Clipper 

From 2010 to 2012, Defendants represented, in various ways, that ATP 

had sufficient liquidity to meet its capital needs. For example, in September 

2011, Reese stated that ATP had a “solid capital position,” and in April 2012, 

Reese stated that “[l]iquidity is sound.” Defendants further opined that ATP 

had sufficient capital to fund the Clipper project, which Defendants 

represented would add significant production. Plaintiffs allege that each of 

these statements was false and misleading because ATP’s capital position 

crumbled from 2010 to 2012 such that it had no hope of completing the Clipper 

project. Even if the statements were false, we hold that Plaintiffs failed 

adequately to plead scienter. 

First, the fact that ATP continuously disclosed its worsening cash 

position belies a claim of scienter. From 2010 to 2012, ATP’s financial 

statements and the notes that accompanied them repeatedly warned investors 

that ATP had negative working capital and that ATP was financing its shortterm cash or service needs by ceding shares of its long-term profits. It would 

have made little sense for Defendants to simultaneously disclose to, and 

mislead, the public about ATP’s liquidity position. For this reason, 

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“[a]dditional transparency . . . further negates the inference of scienter.” 

Jastrow, 789 F.3d at 541; see also Diodes, 810 F.3d at 960.

Second, the nature of ATP’s cash position undercuts Plaintiffs’ scienter 

allegations. There were ample grounds to disagree about the state of ATP’s 

finances from 2010 to 2012. As the company itself explained in May 2012, “[i]n 

the event we do not achieve the projected production and cash flow increases 

[from ATP’s planned future projects], we will attempt to fund any short-term 

liquidity needs through other financing sources[.]” However, the company 

warned that “there is no assurance that we will be able to do so in the future if 

required to meet any short-term liquidity needs.” Thus, ATP’s financial 

condition by 2012 was essentially a disclosed bet on future production. ATP 

had highly leveraged its future cash flows to continue production and 

exploration. This placed a great deal of pressure on the limited number of 

producing wells that ATP operated. Indeed, the pressure on ATP’s production 

was so great that, according to ATP’s first quarter 2012 Form 10-Q, any 

significant disruption to its business “could have a material adverse effect 

on . . . [ATP’s] ability to meet [its] commitments as they come due.” 

Nonetheless, if ATP had been able to bring its planned new production online, 

it could have secured significant increased revenue. Certainly, a reasonable 

investor could have looked at this situation and concluded that ATP’s financial 

condition was untenable. Indeed, some investors did precisely that; for 

example, Moody’s issued a report in September 2011 suggesting that ATP had 

a “high likelihood” of restructuring. But that was not the only reasonable view 

of ATP’s finances. If ATP could bridge its liquidity gap and begin to benefit 

from its planned new wells, the company could have tapped into significant 

revenue. Against this backdrop, Defendants were not required to “present an 

overly gloomy or cautious picture of the company’s current performance[]” so 

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long as their statements were “reasonably consistent with reasonably available 

data.” Abrams, 292 F.3d at 433. 

Third, the timing of ATP’s liquidity statements does not support an 

inference of scienter. It is true that in May 2012, ATP indicated that it was 

within its financing capability, and three months later, ATP declared 

bankruptcy. Plaintiffs argue that this temporal proximity establishes scienter, 

citing to Plotkin, 407 F.3d 690. In Plotkin, the court noted that “allegations of 

later-emerging facts can, in some circumstances, provide warrant for 

inferences about an earlier situation. For example, the fact that a business 

files for bankruptcy on ‘Day Two,’ may, under the right surrounding 

circumstances, provide grounds for inferring that the business was performing 

poorly on ‘Day One.’” Id. at 698 (citing Novak v. Kasaks, 216 F.3d 300, 313 (2d 

Cir. 2000)). However, Plotkin does not aid the inference of scienter here 

because ATP disclosed its capital position in May 2012. That is, the inference 

that Plotkin endorses would allow the court to infer that ATP had potential 

liquidity problems in May 2012. However, that inference says nothing about 

Defendants’ scienter because ATP disclosed those liquidity concerns. The same 

is true with regard to ATP’s decision to hire bankruptcy counsel in June or July 

of 2012. ATP had disclosed its liquidity problems to the market in May 2012. 

The fact that a month later ATP would consult bankruptcy counsel hardly 

indicates that ATP’s executives knew that they would run out of cash. Indeed, 

many companies engage bankruptcy counsel to explore restructuring options 

before management is sure that the company will fail. See, e.g., Richard M. 

Cieri, The Role of a Restructuring Lawyer, in Arthur J. Abramowitz Et. al. 

Inside the Minds: The Art and Science of Bankruptcy Law, 

http://www.gibsondunn.com/fstore/documents/pubs/Cieri_Restructuring_Law

yer.pdf (“The goal of a restructuring lawyer is to stay out of bankruptcy. 

Therefore, a restructuring lawyer is successful when a company never has to 

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commence a bankruptcy case. In the vast majority of cases, bankruptcy should 

be the last option because it is a very difficult and expensive process.”). 

Fourth, and for similar reasons, neither the bankruptcy trustee’s 

allegations, McCarroll’s assessment of ATP’s financial conditions, the 

Confidential Witnesses’ assessments of ATP’s liquidity, nor the Bankruptcy 

Judge’s determination that ATP filed bankruptcy too late established an 

inference of scienter. The fact that others disagreed with Defendants’ 

assessments of ATP’s liquidity does not indicate that Defendants’ assessments 

were not truly or reasonably held. See, e.g., Jastrow, 789 F.3d at 545 (finding 

that a Confidential Witness’s disagreement with management about whether 

to rely on ratings agencies did not contribute to an inference of scienter); Zucco 

Partners, LLC v. Digimarc Corp., 552 F.3d 981, 999 (9th Cir. 2009), as amended

(Feb. 10, 2009) (finding that “disagreement among employees with regard to 

the proper scrap rate, is not enough to establish a cogent or compelling scienter 

allegation”). 

Fifth, Plaintiffs’ motive allegations do not support an inference of 

scienter. Plaintiffs contend that the motive to raise capital here was more than 

typical because ATP needed to raise funds to continue its operations. Here, 

ATP’s opportunity to mislead potential capital partners was severely limited 

by ATP’s continuous disclosure of its liquidity position. Moreover, the fact that 

Plaintiffs have not alleged that Defendants themselves profited from their 

alleged misstatements undercuts a motive allegation. See Jastrow, 789 F.3d 

at 545 n.18; Nathenson, 267 F.3d at 421 (“[T]he fact that the other defendants 

did not sell their shares during the relevant class period undermines plaintiffs’ 

claim.” (quoting Acito v. IMCERA Grp., Inc., 47 F.3d 47, 54 (2d Cir. 1995)).

Again, viewing the Complaint as a whole, we hold that Plaintiffs’ 

allegations of scienter as to ATP’s liquidity and the Clipper project fail as a 

matter of law. 

 Case: 15-31094 Document: 00513963156 Page: 16 Date Filed: 04/21/2017
No. 15-31094

17

C. McCarroll’s Resignation

On June 1, 2012, ATP issued a press release announcing that Matt 

McCarroll had been hired as CEO, replacing Defendant Bulmahn. Six days 

later, on June 7, 2012, ATP issued a second press release announcing that ATP 

“was unable to reach a mutually agreeable employment agreement with Mr. 

McCarroll and effective today he has submitted his resignation.” Plaintiffs 

contend that the reason given for McCarroll’s resignation was false or 

misleading. 

However, nothing in the Complaint indicates that McCarroll informed 

either Bulmahn or Reese, or indeed anyone at ATP, of his reason for resigning. 

For example, when McCarroll claimed that he recommended restructuring but

the Board declined, he did not indicate that he conditioned his employment on 

the Board restructuring. Likewise, when McCarroll told a private investigator 

that ATP’s finances were a disaster, he did not indicate that he made that 

statement to anyone at ATP or that he told ATP that he resigned because of 

the company’s financial condition. Absent some allegation that McCarroll 

informed someone at ATP why he resigned, there is no basis for the court to 

conclude that Bulmahn and Reese knew or were reckless in not knowing 

McCarroll’s “true” reasons. See Southland, 365 F.3d at 361 (“[W]e will not 

‘strain to find inferences favorable to the plaintiffs.’” (quoting Westfall v. Miller, 

77 F.3d 868, 870 (5th Cir. 1996)).

We AFFIRM. 

 Case: 15-31094 Document: 00513963156 Page: 17 Date Filed: 04/21/2017