United States District Court, D. Idaho
IN RE HECLA MINING COMPANY DERIVATIVE SHAREHOLDER LITIGATION. This Document Relates To: ALL ACTIONS
MEMORANDUM DECISION AND ORDER RE: DEFENDANTS' MOTION TO DISMISS (Docket No. 40)
RONALD E. BUSH, Magistrate Judge.
Currently pending before the Court is Defendants' Motion to Dismiss (Docket No. 40). Having carefully reviewed the record, participated in oral argument, and otherwise being fully advised, the undersigned enters the following Memorandum Decision and Order:
I. RELEVANT BACKGROUND
A. The Parties
1. Plaintiffs Glenda Hesley, Gerald Moss, and Jeffrey Adams ("Plaintiffs") were stockholders of Nominal Defendant Hecla Mining Company ("Hecla") at all times relevant to this action. See Compl., ¶¶ 20-22 (Docket No. 33); but see supra.
2. Hecla is a Delaware corporation, headquartered in Coeur d'Alene, Idaho. See id. at ¶¶ 23 & 25 (Docket No. 33). Hecla engages in the discovery, acquisition, development, production, and sale of various precious and base metals, including silver, gold, lead, and zinc. The focal point of its production and the source of the vast majority of its revenues and profits is its silver production. See id. at ¶¶ 2, 23, 62, & 63. Hecla owns and operates two mines: (1) the Greens Creek mine near Juneau, Alaska, and (2) the Lucky Friday mine in Mullan, Idaho. See id. at ¶¶ 2, 24 & 64. Hecla's flagship mine is the Lucky Friday mine. See id. at ¶¶ 3 & 68.
3. Plaintiffs bring this suit derivatively against all seven members of Hecla's board of directors and certain Hecla officers, alleging "breaches of fiduciary duties and other violations of law relating to a failure to ensure compliance with safety regulations." Id. at ¶¶ 1, 28, 34, 40, 44, 47, 51, 55, & 59. Specifically, the Individual Defendants include:
Phillips S. Baker, Jr.: Hecla's CEO since May 2003; Hecla's President since November 2001; a Hecla director since November 2001; Hecla's CFO from May 2001 to June 2003; Hecla's COO from November 2001 to May 2003; and a Hecla Vice President from May 2001 to November 2001. See id. at ¶ 27.
James A. Sabala: Hecla's Senior Vice President since March 2008; and Hecla's CFO since May 2008. See id. at ¶ 33.
John H. Bowles: A Hecla director since 2006; Chairman of Hecla's Audit Committee since May 2006; a member of Hecla's Health, Safety, Environmental & Technical Committee ("Safety Committee") since August 2010 (and also on the predecessor of the Safety Committee since March 2007); serves or has previously served as a director on other companies' board of directors involved with mining or mineral exploration, including Mercator Minerals Ltd., Boss Power Corp., and HudBay Mineral Inc.; held an officer position with the Mining Suppliers Association of British Columbia; and was appointed a Fellow of the Canadian Institute of Mining and Petroleum. See id. at ¶¶ 38 & 39.
Terry V. Rogers: A Hecla director since 2007; Chairman of Hecla's Safety Committee since February 2012; a member of Hecla's Audit Committee since February 2008; had been a member of Hecla's Safety Committee since August 2010 (and also on the predecessor of the Safety Committee since February 2008); serves or has previously served as a member on other mining companies' boards of directors, including Kumtor Operating Company and Centerra Gold Inc.; and has held executive positions at other mining companies during his 30 years of employment in the mining industry. See id. at ¶¶ 42 & 43.
Charles B. Stanley: A Hecla director since 2007; a member of Hecla's Audit Committee since February 2008; and a member of Hecla's Safety Committee since August 2010 (and also on the predecessor of the Safety Committee since February 2008). See id. at ¶ 46.
Anthony P. Taylor: A Hecla director since 2002; a member of Hecla's Safety Committee since August 2010; was the inaugural Chairman of Hecla's Safety Committee until March 2011 (and also served on the predecessor of the Safety Committee since 2006); and served as a director and executive officer at several mineral exploration companies, including Crown Gold Corporation, SELEX Resources Ltd., Gold Summit Corporation, Millennium Mining Corporation, and Greencastle Resources Limited. See id. at ¶¶ 49 & 50.
Ted Crumley: A Hecla director since 1995, and Chairman of Hecla's board of Directors ("Board") since May 2006. See id. at ¶ 54.
George R. Nethercutt, Jr.: A Hecla director since 2005; served on Hecla's Audit Committee in 2006; a former U.S. Congressman, with mining legislation a focus of his political career; and served as a private consultant and represented clients with mining issues. See id. at ¶¶ 57 & 58.
B. Mining Incidents at the Lucky Friday Mine
4. Between 2007 and 2011, a series of "rock burst", "ground fall", and "tunnel collapse" incidents occurred at the Lucky Friday mine. See id. at ¶¶ 100-116, 120-121, & 125-131. According to Plaintiffs, these events (and any related investigations) "put the Director Defendants on notice of the persistent dangerous conditions at Lucky Friday mine." See Pls.' Opp. to Mot. to Dismiss, p. 5 (Docket No. 43) (citing Compl., ¶¶ 104, 110, 113, 116, & 122 (Docket No. 33) ("Consistent with the Individual Defendants' fiduciary duties and obligations, defendants were required to be informed and upon information and belief, were informed of these kinds of safety incidents.")).
5. In 2011, Hecla experienced three "tragic and catastrophic" accidents at the Lucky Friday mine. See Compl., ¶ 132 (Docket No. 33).
April 15, 2011: A miner is killed when a rock fall strikes him while watering down a muck pile in a stope. See id. at ¶¶ 133-134. Hecla informs its investors of the accident on April 19, 2011. See id. at ¶ 136. The Mine Safety and Health Administration ("MSHA") investigates the accident and, on November 17, 2011, issues a report citing Hecla for various safety violations. See id. at ¶¶ 137-139; see also Ex. B to Defs.' Mot. to Dismiss (Docket No. 40, Att. 3).
November 17, 2011: A contract miner is injured while trying to free plugged material in a bin excavation. See Compl., ¶ 147 (Docket No. 33). The miner and co-worker entered the bin from the top to remove blockage below them. See id. Material gave way, engulfing them; the miner was freed from the material and hospitalized, but died two days later from his injuries. See id. Hecla informs its investors of the accident on November 18, 2011. See id. at ¶ 149. MSHA investigates the accident and, on June 19, 2012, issues a report citing the independent contractor and Hecla for various safety violations. See id. at ¶¶ 148 & 150; see also Ex. C to Defs.' Mot. to Dismiss (Docket No. 40, Att. 4).
December 14, 2011: Seven employees are injured by a rock burst while working below the surface. See Compl., ¶ 151 (Docket No. 33). MSHA investigates the accident, conducts a "special impact investigation, " and orders Hecla to shut down the Lucky Friday mine until work conditions are safe. See id. at ¶¶ 156 & 165. According to Plaintiffs, "[t]hese inspections resulted in a multitude of citations and orders issued to [Hecla]." See id. at ¶ 157; see also id. at ¶¶ 158-164 & 190 ("In all, MSHA issued 59 citations to Hecla for 27 different safety violations as a result of the special impact investigation - of those 27 distinct types of violations, 18 of them represented repeat violations for which the Lucky Friday mine had received a combined 87 total citations over the previous decade.").
C. Lucky Friday Mine Closes Indefinitely
6. During the inspection following the December 14, 2011 incident, MSHA issued a citation to Hecla regarding a build-up of sand and concrete material on the walls and beams of the primary access to the Lucky Friday mine, known as the "Silver Shaft." See id. at ¶ 158.
7. On January 5, 2012, MSHA issued a closure order for the Lucky Friday mine, citing built-up material in the Silver Shaft. See id. at ¶ 167.
8. Because federal law requires mines to have two points of exit, on January 11, 2012, Hecla announced that the Lucky Friday mine would be closed until early 2013 to remove the build-up in the Silver Shaft. See id. at ¶¶ 168 & 169.
9. Owing to the Lucky Friday mine's closure, Hecla lowered its estimated silver production for 2012 from 9.5 million ounces to 7 million ounces - an approximate loss in production, based on market value, of at least $70.7 million. See id. at ¶¶ 191 & 270. Moreover, on February 21, 2012, Hecla reported that an additional $62 million in costs would be necessary to bring the Lucky Friday mine into compliance with MSHA safety regulations. See id. at ¶¶ 192 & 270.
D. Procedural Backdrop
10. On February 29, 2012, Plaintiff Hesley brought a shareholder derivative action on Hecla's behalf (Case No. 2:12-cv-00097-REB). On February 29, 2012, Plaintiff Moss brought a shareholder derivative action on Hecla's behalf (Case No. 2:12-cv-00098-CWD). On March 9, 2012, Plaintiff Adams brought a shareholder derivative action on Hecla's behalf (Case No. 2:12-cv-00119-MHW). On May 17, 2012, the undersigned ...