Kapps v. Torch Offshore, Inc.

Torch Offshore Inc. (Torch) (defendant) was in the natural gas and oil (gas) pipeline business. On June 7, 2001, Torch conducted an initial public offering (IPO) for its common stock. The prospectus for the IPO disclosed the volatile nature of gas prices and Torch’s dependence on gas prices. The prospectus further stated that gas prices increased by approximately 133 percent between February 1999 and June 6, 2001, and referred to “recent increases in the price of natural gas.” These statements were true, but the prospectus did not mention that gas prices had actually declined by approximately 60 percent during the roughly five months immediately before the IPO. However, historical gas prices were publicly available via the Wall Street Journal and other easily available sources. On August 2, Torch announced that gas prices declined in the post-IPO period, affecting Torch’s business, and Torch’s stock price declined significantly by early August. Karl Kapps (plaintiff) filed a putative class action against Torch and others on behalf of all purchasers of Torch stock between the IPO and August 1, claiming that the prospectus contained material misrepresentations and omissions in violation of § 11 of the Securities Act of 1933. Specifically, Kapps alleged that the positive statements in the prospectus about gas prices were misleading because the prospectus did not also disclose the gas-price decrease immediately before the IPO. The district court dismissed the complaint on the apparent basis that information about gas-price data was publicly available and constituted industry-wide—rather than Torch-specific—information and thus could not have been material information that § 11 required Torch to disclose. Kapps appealed.