IN RE: KIRKLAND LAKE GOLD LTD. SECURITIES LITIGATION

Background

Stephen Brahms, individually and for other similarly situated investors, sued Kirkland Lake Gold Ltd., described in the opinion as a Canadian company that mines and processes gold, its CEO Anthony Makuch, and Kirkland’s former board chairman. The complaint asserted violations of Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

In an earlier round of this case, the court dismissed all claims except those based on Makuch’s statements about acquisitions. The remaining allegations concerned two statements emphasizing organic growth over mergers and acquisitions and a statement describing production and cost standards for potential acquisitions. The alleged corrective disclosure was Kirkland’s November 25, 2019 announcement that it was acquiring Detour in an all-stock transaction valued at $3.68 billion. Kirkland’s share price declined 17% that day.

Brahms moved for class certification under Federal Rule of Civil Procedure 23 and moved to exclude the report and testimony of defense expert James Griffin under Federal Rule of Evidence 702 and the standards associated with Daubert v. Merrell Dow Pharmaceuticals, Inc.

Motion to Exclude Expert Testimony

The court denied the motion to exclude Griffin’s report and testimony. Defendants offered Griffin as a mining-industry expert, not as an economics expert. He had a mining-engineering degree, more than 40 years of mining-industry experience, and more than 25 years as an investment banker advising mining companies on mergers and acquisitions. The court found him qualified to offer experience-based opinions about how mining-industry participants and financial markets would interpret Makuch’s statements.

The court also found Griffin’s opinions sufficiently reliable. His opinions were based on his professional experience and a logical explanation: mining companies operate in a self-depleting industry, so organic growth and acquisitions are complementary strategies. The court concluded that his opinions were rationally related to that experience and sufficiently connected to Kirkland’s business strategy and history of relying on acquisitions for growth.

The court further found the opinions relevant to the class-certification question of price impact. Griffin’s report could help the court evaluate how the statements fit customary mining-industry practices and how investors might have reacted to them. The court treated criticisms about Griffin’s coal-mining experience, lack of quantitative analysis, and the weight of his conclusions as issues affecting the strength of the evidence rather than its admissibility for class-certification purposes.

Motion for Class Certification

For certification under Rule 23(b)(3), Brahms had to show numerosity, commonality, typicality, and adequate representation, as well as predominance and superiority. The court focused only on predominance, which asks whether common legal or factual questions outweigh questions affecting individual class members.

The securities-fraud claim included reliance on the alleged misrepresentations. Under the Supreme Court’s “Basic presumption,” investors in an efficient market may receive a class-wide presumption that they relied on public misrepresentations reflected in the stock price. Defendants can defeat that presumption at the class-certification stage by proving, more likely than not, that the alleged misrepresentations did not actually affect the stock price.

The court analyzed Brahms’s theory as one of “inflation maintenance.” Under that theory, a misrepresentation maintains existing inflation in a stock price rather than causing the price to rise when the statement is made. The later price decline is used as an indirect indication of the earlier inflation. The court explained that this inference weakens when there is a mismatch between the alleged misrepresentation and the later corrective disclosure.

The M&A Statements

The two statements about mergers and acquisitions broadly emphasized Kirkland’s organic growth plans and said that organic growth was the company’s primary growth driver instead of buying another company. The court found those statements broad and generic because they did not specifically rule out considering future acquisitions.

The court found a substantial difference in specificity between those statements and the later announcement of a particular all-stock acquisition of Detour at a particular valuation. The announcement did not directly refer to the earlier statements, and Brahms’s theory effectively treated the earlier statements as misleading because they omitted information.

The court therefore asked whether a truthful but equally general statement—“Although we are focused on delivering significant organic growth, we are also considering external growth through M&A”—would have affected Kirkland’s stock price. It found that the evidence did not support the allegation that Kirkland was actively negotiating with Detour when the January and February 2019 statements were made. The record showed that discussions ended in 2018 and resumed in summer 2019.

The court found that the truthful substitute would not have affected the stock price. It relied in part on Kirkland’s June 2019 announcement of a “Deal Room” inviting potential acquisition candidates to submit information. That announcement was more specific about Kirkland’s openness to acquisitions, but it was not followed by a statistically significant decline in the stock price. The court also noted that analysts did not discuss the two challenged statements or infer from them that Kirkland was not considering acquisitions.

The court credited Griffin’s opinions about how mining-industry participants would perceive a statement that Kirkland was not considering acquisitions. It also credited defense economist Jennifer Marietta-Westberg’s potential alternative explanations for the stock-price decline after the Detour announcement, including the use of stock to finance the deal and investor concerns about the acquisition. The court gave limited weight to plaintiff’s economics expert, Steven Feinstein, because his analysis relied on factual allegations that the record did not support, including the assertion that Kirkland was actively considering acquiring Detour when Makuch made the statements.

The court concluded that defendants proved by a preponderance of the evidence that the two M&A Statements did not affect Kirkland’s share price. Defendants therefore rebutted the Basic presumption of reliance as to those statements.

The Minimum Standards Statement

The January 14, 2019 Minimum Standards Statement described numerical production and cost targets for potential acquisition assets, including production of more than 100,000 ounces, cash costs of $650 per ounce or less, and all-in sustaining costs of $950 per ounce or less.

Unlike the M&A Statements, the Minimum Standards Statement was specific enough for a more direct comparison with the Detour announcement. The court nevertheless found a substantive mismatch. Brahms interpreted the numbers as requirements that a mine had to meet when Kirkland acquired it. Defendants interpreted them as targets over the life of the mine.

The court found that the record supported defendants’ interpretation. In an earlier earnings call, Makuch had described the same cost figures as applying “over the life of the mine.” The court also noted that Detour exceeded the $950 all-in sustaining-cost standard when acquired but met all three metrics by the third quarter of 2021. Because the statement referred to future targets rather than rigid acquisition-time requirements, the court found that the Detour announcement did not establish that the later price decline equaled inflation caused by the earlier statement.

The court considered additional evidence, including analyst commentary. Analysts who referred to the January 2019 statement did not indicate that it affected their valuation of Kirkland’s stock, and analysts discussing the Detour acquisition did not attribute the stock-price decline to Detour’s failure to meet the stated targets. The court again credited Griffin’s experience-based opinion and gave little weight to Feinstein’s analysis.

The court concluded that defendants proved by a preponderance of the evidence that the Minimum Standards Statement did not affect Kirkland’s stock price and therefore rebutted the Basic presumption of reliance for that statement as well.

Disposition

Because defendants rebutted the reliance presumption for all three challenged statements, Brahms had not shown predominance under Rule 23(b)(3). Judge J. Paul Oetken denied the motion to exclude James Griffin’s testimony and report and denied the amended motion for class certification. The clerk was directed to close the motions at docket entries 76 and 108.