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14-2581-cv 

In re Magnum Hunter Res. Corp. Sec. Litig. 

UNITED STATES COURT OF APPEALS 

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A 

SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY 

FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. 

WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST 

CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION 

“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON 

ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at 

the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New 

York, on the 23rd day of June, two thousand fifteen. 

 

PRESENT: RALPH K. WINTER, 

PIERRE N. LEVAL, 

REENA RAGGI, 

 Circuit Judges. 

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IN RE MAGNUM HUNTER RESOURCES 

CORPORATION SECURITIES LITIGATION 

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EDWARD PAIGE, 

Plaintiff-Appellant, 

DELAWARE COUNTY EMPLOYEES RETIREMENT 

FUND, MARY PAPPAS, THE ILNAF TRUST, MIKE 

GRETSCHEL, MARK HINNAU, DAVID MACATTE, 

Individually and on behalf of all others similarly situated, 

ANTHONY ROSIAN, Individually and on behalf of all 

others similarly situated, SHAUN FOSTER, Individually 

and on behalf of all others similarly situated, TEDDY 

ATCHLEY, Individually and on behalf of all others 

similarly situated, 

Plaintiffs, 

 v. No. 14-2581-cv 

 
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MAGNUM HUNTER RESOURCES CORPORATION, 

GARY C. EVANS, RONALD D. ORMAND, FRED J. 

SMITH, JR., H.C. “KIP” FERGUSON, III, J. RALEIGH 

BAILES, SR., VICTOR G. CARILLO, BRAD BYNUM, 

STEPHEN C. HURLEY, JOE L. MCCLAUGHERTY, 

STEVEN A. PFEIFER, JEFF SWANSON, CREDIT 

SUISSE SECURITIES (USA) LLC, CITIGROUP 

GLOBAL MARKETS INC., DAVID S. KRUEGER, 

JAMES W. DENNY, III, 

 Defendants-Appellees.

*

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APPEARING FOR APPELLANT: STEVEN J. TOLL (Daniel S. Sommers, S. 

Douglas Bunch, Genevieve O. Fontan, Cohen 

Milstein, Sellers & Toll PLLC; Kimberly 

Donaldson Smith, Catherine Pratsinakis, 

Chimicles & Tikellis LLP, Haverford, 

Pennsylvania; Peter Safirstein, Elizabeth 

Metcalf, Morgan & Morgan, P.C., New York, 

New York; Jonathan Gardner, Angelina 

Nguyen, Labaton Sucharow LLP, New York, 

New York, on the brief) Cohen Milstein Sellers 

& Toll PLLC, New York, New York. 

APPEARING FOR APPELLEES: GERARD G. PECHT (Peter A. Stokes, 

Fulbright & Jaworski, Houston, Texas; Adam S. 

Hakki, Shearman & Sterling LLP, New York, 

New York, on the brief), Fulbright & Jaworski 

LLP, Houston, Texas. 

Appeal from a judgment of the United States District Court for the Southern District 

of New York (Katherine B. Forrest, Judge). 

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, 

AND DECREED that the judgment entered on June 24, 2014, is AFFIRMED. 

Lead Plaintiff Edward Paige on behalf of himself and a putative class of investors 

who acquired Magnum Hunter Resource Corporation (“Magnum Hunter”) securities 

 

*

 The Clerk of Court is directed to amend the official caption as shown above. 
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between January 17, 2012, and April 22, 2013 (“plaintiffs”), appeal from the dismissal of 

their amended complaint for failure to state securities fraud claims against (1) current and 

former Magnum Hunter executives in violation of §§ 10(b) and 20(a) of the Securities 

Exchange Act of 1934 (“Exchange Act”), see 15 U.S.C. §§ 78j(b), 78t(a), and Securities 

and Exchange Commission (“SEC”) Rule 10b-5, see 17 C.F.R. § 240.10b-5; (2) those 

same executives as well as Magnum Hunter’s outside board members and underwriters in 

violation of § 11 of the Securities Act of 1933 (“Securities Act”), see 15 U.S.C. § 77k; and 

(3) Magnum Hunter’s underwriters in violation of § 12 of the Securities Act, see 15 U.S.C. 

§ 77l(a)(2). 1 We review a Rule 12(b)(6) dismissal de novo, accepting all factual 

allegations in the complaint as true, and drawing all reasonable inferences in plaintiffs’ 

favor. See ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). 

We assume the parties’ familiarity with the facts and the record of prior proceedings, which 

we reference only as necessary to explain our decision to affirm. 

1. Exchange Act Claims Fail To Allege Facts Admitting a Strong Inference of Scienter 

To survive dismissal, securities fraud complaints must satisfy the heightened 

pleading standard of Fed. R. Civ. P. 9(b), which requires that the circumstances 

 

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 Specifically, plaintiffs assert Exchange Act claims against the following defendants: 

Gary C. Evans, Magnum Hunter’s Chairman and Chief Executive Officer; Ronald 

Ormand, Magnum Hunter’s former Chief Financial Officer; David S. Krueger and Fred J. 

Smith, Jr., Magnum Hunter’s former and current Chief Accounting Officers, respectively; 

and H.C. “Kip” Ferguson, Magnum Hunter’s Vice President of Exploration. They assert 

their § 11 claims against defendants Evans, Ormand, and Krueger; Magnum Hunter’s 

outside board members J. Raleigh Bailes, Sr., Victor G. Carillo, Brad Bynum, Stephen C. 

Hurley, Joe L. McClaugherty, Steven A. Pfeifer, and Jeff Swanson; and underwriters 

Credit Suisse Securities (USA) LLC, and Citigroup Global Markets Inc. (“Underwriter 

Defendants”). Section 12 claims are asserted only against the Underwriter Defendants. 
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constituting fraud be “state[d] with particularity,” and the Private Securities Litigation 

Reform Act (“PSLRA”), see 15 U.S.C. § 78u-4(b), which requires that scienter, i.e., a 

defendant’s “intention to deceive, manipulate, or defraud,” also be pleaded with 

particularity, Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007) 

(internal quotation marks omitted). To satisfy the PSLRA, a complaint must, “‘with 

respect to each act or omission alleged to [constitute securities fraud], state with 

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

required state of mind.’” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d at 99 

(quoting 15 U.S.C. § 78u-4(b)(2)). That strong inference must be “cogent and at least as 

compelling as any opposing inference one could draw from the facts alleged.” Tellabs, 

Inc. v. Makor Issues & Rights, Ltd., 551 U.S. at 324. In deciding if this burden has been 

carried, we consider “all of the facts alleged, taken collectively,” not individual allegations 

in isolation. Id. at 323. Scienter may be satisfied by alleging facts “(1) showing that the 

defendants had both motive and opportunity to commit the fraud or (2) constituting strong 

circumstantial evidence of conscious misbehavior or recklessness.” ATSI Commc’ns, 

Inc. v. Shaar Fund, Ltd., 493 F.3d at 99. 

On appeal, plaintiffs do not argue that any defendant had the “motive and 

opportunity” to commit fraud sufficient to support scienter.2

 Id. Rather, they argue that 

 

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 In their amended complaint, plaintiffs purported to allege that defendants Evans and 

Krueger had the motive and opportunity to commit fraud because those defendants sold 

shares of Magnum Hunter stock during the class period. Insofar as these allegations are 

not abandoned, see United States v. Joyner, 313 F.3d 40, 44 (2d Cir. 2002) (deeming 

argument not raised in appellate brief abandoned), we agree with the district court that such 
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the alleged facts give rise to a strong inference of defendants’ “conscious misbehavior or 

recklessness.” Id. Where, as here, “motive is not apparent, it is still possible to plead 

scienter by identifying circumstances indicating conscious behavior by the defendant, 

though the strength of the circumstantial allegations must be correspondingly greater.” 

Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001). Like the district court, however, we 

conclude that plaintiffs have failed in this regard. 

Under plaintiffs’ theory, defendants represented in their public statements that 

Magnum Hunter had evaluated its internal controls and procedures and signed off that they 

were effective, despite knowingly or recklessly disregarding that the internal controls were 

ineffective, which caused Magnum Hunter to restate its financials and eventually reveal 

that there were greater accounting weaknesses than had previously been reported. 

Plaintiffs’ allegations, however, fail to support such an inference. Rather, as the district 

court held, they support only that “defendants were in a constant game of ‘Catch 

up’—acknowledging the company’s material weaknesses and disclosing their continued 

efforts to resolve them, only to learn of yet more.” In re Magnum Hunter Res. Corp. Sec. 

Litig., 26 F. Supp. 3d 278, 297 (S.D.N.Y. 2014). 

Plaintiffs’ allegations regarding the February and May 2012 publication of 

inaccurate financial results leading to the November 2012 financial restatement do not 

themselves give rise to a plausible inference of scienter. See Stevelman v. Alias Research, 

 

stock sales are insufficient by themselves to demonstrate motive and opportunity to 

commit fraud. See Acito v. IMCERA Grp., Inc., 47 F.3d 47, 54 (2d Cir. 1995) (holding 

that selling stock, by itself, insufficient to plead scienter, absent allegations that “stock 

sales were ‘unusual’”); accord Rothman v. Gregor, 220 F.3d 81, 94 (2d Cir. 2000). 
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Inc., 174 F.3d 79, 84 (2d Cir.1999) (rejecting argument that company’s subsequent 

revelation of accounting change and retroactive announcement of lowered earnings was 

probative of conscious misbehavior or recklessness). Nor do Magnum Hunter’s 

statements related to internal controls weaknesses support such an inference, even when 

compared to earlier statements that the company was implementing remedial measures. 

See, e.g., ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 

553 F.3d 187, 200 (2d Cir. 2009) (“[A]llegations of GAAP violations or accounting 

irregularities, standing alone, are insufficient to state a securities fraud claim” in absence of 

“evidence of corresponding fraudulent intent.” (internal quotation marks omitted)); Novak 

v. Kasaks, 216 F.3d 300, 309 (2d Cir. 2000) (stating that failure to identify problems with 

internal controls and accounting practices does not manifest recklessness sufficient for § 

10(b) liability). 

The amended complaint alleges only that Magnum Hunter repeatedly disclosed 

ongoing control weaknesses in late-2012 through mid-2013 while continuing to warn of 

possible additional problems. Plaintiffs argue that the initial disclosures did not identify 

every known control weakness, but that, too, is insufficient to support a plausible inference 

of scienter. See, e.g., Acito v. IMCERA Grp., Inc., 47 F.3d 47, 53 (2d Cir. 1995) (“Mere 

allegations that statements in one report should have been made in earlier reports do not 

make out a claim of securities fraud.”). In any event, plaintiffs’ own allegations belie their 

contention, as the November 2012 disclosure showed Magnum Hunter identifying material 

weaknesses in its quarterly financial reporting, as well as in its share-based compensation, 
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and disclosing a “[l]ack of sufficient, qualified personnel to design and manage an 

effective control environment.” Am. Compl. ¶ 105.

Plaintiffs nevertheless argue that when these disclosure allegations are combined 

with the alleged assertions of “confidential witnesses” who used to work at Magnum 

Hunter, a strong inference of recklessness can be drawn. These witnesses indicate, inter 

alia, that corporate controller Smith was inexperienced and overwhelmed by his 

responsibilities, and that defendant Krueger, the former chief accounting officer, lacked the 

desire or skills to train accounting staff on appropriate internal controls. Contrary to 

plaintiffs’ contention, however, these confidential witness assertions suggest, at most, that 

Magnum Hunter had inadequate internal controls; they do not imply that any defendant 

made specific disclosures with fraudulent scienter. See ATSI Commc’ns, Inc. v. Shaar 

Fund, Ltd., 493 F.3d at 99. Instead, documents referenced in the complaint indicate that 

defendants disclosed repeatedly, in November 2012 and into 2013, that Magnum Hunter 

had material accounting weaknesses in its audit staffing and financial reporting. 

A confidential witness statement regarding “changed” production numbers is also 

insufficient to plead scienter with the required particularity. The witness does not identify 

any specific numbers that were changed, nor does she tie the changed numbers to a 

particular misstatement. Thus, this allegation is insufficiently particular to attribute the 

requisite scienter to any defendant. As for statements regarding the Eagle Ford 

disclosures, plaintiffs have not alleged that these expressions of corporate optimism—that 

the site had achieved “predictability” and was “clearly exceeding” the company’s previous 
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projections—were false, let alone reckless. See Novak v. Kasaks, 216 F.3d at 309 

(rejecting “fraud by hindsight”). 

Accordingly, after examining “all of the facts alleged, taken collectively,” we 

conclude that no “reasonable person” would “deem the inference of scienter cogent and at 

least as compelling as any opposing inference one could draw from the facts alleged.” 

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. at 314.3

2. The Securities Act Claims Are Barred by the Statute of Limitations 

Claims under the Securities Act must be “‘brought within one year after the 

discovery of the untrue statement or the omission, or after such discovery should have been 

made by the exercise of reasonable diligence.’” Police & Fire Ret. Sys. of City of Detroit 

v. IndyMac MBS, Inc., 721 F.3d 95, 107 (2d Cir. 2013) (quoting 15 U.S.C. § 77m). 

Plaintiffs argue that their claims are timely with the benefit of the “discovery rule,” under 

which “the limitations period does not begin to run until the plaintiff thereafter discovers or 

a reasonably diligent plaintiff would have discovered the facts constituting the violation.” 

Merck & Co. v. Reynolds, 559 U.S. 633, 653 (2010) (internal quotation marks omitted) 

(applying discovery rule to Exchange Act claims). We have never considered whether 

Merck abrogates this circuit’s existing “inquiry notice” rule in favor of the discovery rule 

in Securities Act claims, an issue that divides the district courts in this circuit. See, e.g., 

Pennsylvania Pub. Sch. Emps.’ Ret. Sys. v. Bank of Am. Corp., 874 F. Supp. 2d 341, 364 

(S.D.N.Y. 2012) (surveying “conflicting law . . . on this point”). We need not 

 

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 Because plaintiffs have failed to state a § 10(b) claim, their § 20(a) claim must also fail. 

See ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d at 108. 
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conclusively decide this question here because, even if we were to resolve it in plaintiffs’ 

favor, we nevertheless conclude that the Securities Act claims are untimely because 

Magnum Hunter’s public disclosures on October 22, 2012, and November 14, 2012, would 

have led a reasonably diligent plaintiff to have discovered the facts underlying his claim. 

See Freidus v. Barclays Bank PLC, 734 F.3d 132, 139 (2d Cir. 2013). 

Plaintiffs argue that it was only with the April 16, 2013 disclosure that they could 

understand the “pervasive” nature of the internal control weaknesses. Appellant’s Br. 50. 

The argument fails because we have never permitted the statute of limitations to be tolled 

until a company’s disclosures touch on every specific allegation that a plaintiff chooses to 

put in his complaint. That is especially so where, as here, earlier disclosures were 

sufficient to allow plaintiffs to discover the facts underlying the cause of action. See 

Freidus v. Barclays Bank PLC, 734 F.3d at 139; cf. Staehr v. Hartford Fin. Servs. Grp., 547 

F.3d 406, 427 (2d Cir. 2008) (stating that, under inquiry notice doctrine, “investor does not 

have to have notice of the entire fraud being perpetrated”). Accordingly, because 

plaintiffs filed the operative complaint more than one year after Magnum Hunter disclosed 

information sufficient for plaintiffs to discover their claims, plaintiffs’ claims are untimely. 

The “relation back” and “equitable tolling” doctrines warrant no different 

conclusion. Plaintiffs cannot benefit from the relation back doctrine because those 

plaintiffs who originally filed suit did not allege stock purchases traceable to any of 

Magnum Hunter’s offerings and, thus, lacked standing. See DeMaria v. Andersen, 318 

F.3d 170, 178 (2d Cir. 2003) (stating that standing under § 11 of Securities Act is conferred 
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only upon “purchasers who can trace their shares to an allegedly misleading registration 

statement”); Fed. R. Civ. P. 15(c)(1)(B) (relation back doctrine applies only where 

amended pleading “asserts a claim or defense that arose out of the conduct, transaction, or 

occurrence set out—or attempted to be set out—in the original pleading”). Delaware 

County Employees Retirement Fund (“DelCo”), the plaintiff with standing, was not an 

original plaintiff and, thus, cannot provide relationship back to the original complaint. 

See Police & Fire Ret. Sys. of City of Detroit v. IndyMac MBS, Inc., 721 F.3d at 112–13. 

Plaintiffs’ equitable tolling argument is similarly unavailing, as DelCo has long known 

about it claims. Indeed, in June 2013, it moved for appointment as lead counsel, although 

it never filed its own complaint. Under these circumstances, we conclude that plaintiffs 

have not demonstrated either the reasonable diligence or extraordinary obstacle to filing 

necessary for equitable tolling. See Pace v. DiGuglielmo, 544 U.S. 408, 418 (2005). 

3. Conclusion 

We have considered plaintiffs’ remaining arguments and conclude that they are 

without merit. We therefore AFFIRM the judgment of the district court. 

FOR THE COURT: 

CATHERINE O’HAGAN WOLFE, Clerk of Court