Cohen Milstein and its co-counsel recently scored an important victory in the Third U.S. Circuit Court of Appeals, which refused to allow Defendants to appeal the District Court’s class certification decision in In re EQT Corp. Securities Litigation, a federal securities class action relating to the 2017 merger of major natural gas producers EQT Corporation and Rice Energy. In re EQT is a prime example of how federal securities defendants nowadays nearly always file a Rule 23(f) petition following a decision to certify a class, no matter how long the odds of securing a reversal.
EQT is a major producer of natural gas that drills wells through hydraulic fracturing, or “fracking.” In November 2017, EQT acquired rival gas producer Rice Energy for $6.7 billion. EQT’s senior executives told investors at the time that the merger would create synergies worth between $2.5 billion and $7.5 billion by combining the two companies’ supposedly contiguous drilling acreage, which would allow for longer and more efficient lateral wells, and by enabling EQT to capitalize on best practices and new technologies developed by Rice Energy. Plaintiffs in In re EQT allege that these representations were false and misleading because, among other things, the claimed synergies were based on assumptions Defendants knew or recklessly disregarded were invalid, and because EQT did not in fact intend to adopt Rice Energy’s best practices or technology following the merger. After the acquisition, EQT concealed skyrocketing costs and serious problems drilling long lateral wells, instead telling shareholders it was “ahead of schedule for achieving our capital synergies.” The truth was ultimately revealed through EQT’s financial disclosures and a series of presentations the former Rice Energy executive team made during a proxy contest for control of the company.
On August 11, 2022, the U.S. District Court for the Western District of Pennsylvania issued a thorough 51-page opinion that granted Plaintiffs’ motion for class certification. Defendants then filed a motion for leave to appeal the District Court’s decision to certify the class to the Third Circuit pursuant to Federal Rule of Civil Procedure 23(f).
Defendants raised three principal arguments to support their petition. First, they argued the District Court’s ruling conflicted with the Supreme Court’s decision in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, 141 S. Ct. 1951 (2021), even though the District Court directly quoted and correctly applied the standard endorsed by that decision. Second, Defendants argued that the District Court had ignored “qualitative” evidence of the lack of price impact in the form of analyst reports, even though the District Court assessed the qualitative evidence of the “economic materiality” of the corrective disclosures at issue. Third, Defendants argued that Plaintiffs’ out-of-pocket damages model is not susceptible of common proof on a classwide basis and violated the requirements of Comcast Corp. v. Behrend, 569 U.S. 27 (2013)— ignoring that Comcast is generally inapplicable in securities litigation, that the out-of-pocket damages model is the accepted standard approach in securities class actions, and that the District Court thoroughly analyzed Plaintiffs’ model and found it to be applicable class-wide.
On September 23, 2022, just nine days after the parties’ briefing on the petition was complete, a Third Circuit panel consisting of Judges McKee, Shwartz, and Bibas denied Defendants’ petition for leave to appeal. The Third Circuit gave no quarter to Defendants’ arguments, dispatching with their petition in a terse, three-sentence order.
In re EQT exemplifies the current trend of defendants filing Rule 23(f) petitions following class certifications as a matter of course. Hopefully, more plaintiff victories like the one in In re EQT will give defendants pause and deter them from filing meritless petitions and imposing unwarranted costs on federal securities plaintiffs.