Justia Corporate Compliance Opinion Summaries

In 2006, Cabot Oil & Gas Company began fracking in Dimock Township, Pennsylvania. By 2009, their operations caused a residential water well explosion, leading to methane gas contamination in local water supplies. The Pennsylvania Department of Environmental Protection (DEP) found Cabot in violation of environmental laws, resulting in the 2009 Consent Order, which mandated corrective actions and a $120,000 penalty. Cabot violated this order by 2010, leading to another consent order and additional fines. Over the next decade, Cabot received numerous violation notices and faced lawsuits, including a 2020 grand jury finding of long-term indifference to remediation efforts, resulting in criminal charges and a nolo contendere plea.Shareholders filed a derivative suit against Cabot’s directors, alleging breaches of fiduciary duties, including failure to oversee operations, issuing misleading statements, and insider trading. The United States District Court for the Southern District of Texas dismissed the claims, finding no serious oversight failure or bad faith by the directors, and insufficient particularized allegations to support claims of material misrepresentation or insider trading.The United States Court of Appeals for the Fifth Circuit reviewed the case de novo. The court affirmed the district court’s dismissal, agreeing that the directors had implemented and monitored compliance systems, and that the shareholders failed to demonstrate bad faith or conscious disregard of duties. The court also found that the statements in Cabot’s disclosures were not materially misleading and that the shareholders did not adequately plead demand futility regarding the insider trading claim. Thus, the court upheld the dismissal of all claims with prejudice. View "Ezell v. Dinges" on Justia Law