Kirkland Lake Gold Wins Summary Judgment in Securities Class Action

Paul, Weiss achieved a significant victory for gold mining company Kirkland Lake Gold and its former CEO Anthony Makuch in a putative securities class action, when the U.S. District Court for the Southern District of New York granted the defendants' motion for summary judgment in its entirety.

The plaintiff brought securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 based on alleged misstatements about Kirkland's M&A strategy. The plaintiff alleged two categories of misstatements: statements made by Makuch emphasizing Kirkland's internal growth in response to analyst questions about M&A (the M&A statements); and statements made by Makuch about the cost and production targets Kirkland would apply in assessing a mine for potential acquisition (the minimum standards statement). The court previously found both falsity and scienter-knowledge or intent of wrongdoing-adequately pleaded at the motion to dismiss stage because the plaintiff alleged that Kirkland was engaged in "active acquisition negotiations" with another Canadian mining company-Detour Gold Corp.-at the time these statements were made. The defendants moved for summary judgment on falsity, scienter and loss causation grounds.

U.S. District Judge Paul Oetken agreed with the defendants that, based on the factual record developed, no rational trier of fact could find for the plaintiff. On the M&A statements, Judge Oetken found that, contrary to the plaintiff's allegation, "it is beyond genuine dispute that Kirkland was not actively considering the acquisition of Detour when Makuch made the statements." Moreover, Judge Oetken held that, while organic growth may have been Kirkland's number one priority, that did not mean M&A was not on the table-a conclusion reinforced by other statements made during the relevant time period by Kirkland about its openness to M&A. Judge Oetken also found that "[i]t turns reason on its head to argue simultaneously that Kirkland promised investors that (1) it would not acquire new mines and (2) it would only acquire mines with minimum production standards." Judge Oetken also agreed with the defendants that the minimum standards statement was not misleading because, although Detour may not have met the standards at the time of the acquisition, "Kirkland's management had clarified in comments to investors before and afterwards that such standards were measured after Kirkland had acquired mines," and Detour ultimately did meet the standards. Judge Oetken also found that "Kirkland's history of acquiring declining mines and turning them into low-cost, high-volume producers" supported this conclusion.

Judge Oetken found that the plaintiff's allegations of scienter similarly failed given the "lack of a genuine dispute as to the evidence that there were no on-going discussions between Detour and Kirkland when Makuch's three statements were made, and that the minimum standards statements did not refer to a mine's production capacity at the time of purchase." Addressing the plaintiff's argument that Makuch was at minimum "reckless" in making the minimum standards statement, Judge Oetken held that "though it would have been more accurate for Makuch to clarify that his [statement] about minimum production standards were intended as a future goal for acquired mines, such a one-time omission is hardly 'highly unreasonable behavior' or 'an extreme departure from the standards of ordinary care.'" Given there was no genuine dispute of fact as to falsity and scienter, Judge Oetken noted that "the Court does not need to and thus declines to reach the element of loss causation."

The Paul, Weiss team included litigation partners Audra Soloway and Joshua Hill and partner-elect Alison Benedon.