McDermott Had No Duty to Disclose Mulling Bankruptcy, Judge Says

McDermott International Inc. had no obligation to disclose that the engineering company was contemplating bankruptcy, a Texas federal judge said while recommending that a set of investors’ claims be dismissed.

A company that is close to insolvency should be able to carefully deliberate its future, “free from any obligation to disclose potential bankruptcy,” Magistrate Judge Andrew Edison in the US District Court for the Southern District of Texas said.

“All told, I refuse to fault Defendants for failing to disclose that McDermott was considering bankruptcy,” Edison wrote in a Tuesday decision, which still needs approval from a district court judge.

With his conclusion, Edison said he was joining the “overwhelming majority of federal courts” that have considered the issue.

Houston-based McDermott filed for Chapter 11 protection in January 2020. McDermott was struggling with debt taken on from its 2018 acquisition of Chicago Bridge & Iron Co.

Nova Scotia Health Employees’ Pension Plan and City of Pontiac General Employees’ Retirement System are leading a group of investors who allege McDermott made misrepresentations about the Chicago Bridge merger’s risks and costs.

In November, Nova Scotia expanded the litigation with a supplement to the complaint, arguing McDermott and certain executives falsely convinced investors the company could overcome its liquidity problems, even as it careened toward bankruptcy.

Along with finding McDermott had no obligation to disclose it was considering filing for bankruptcy, Edison said none of the statements investors pointed to in the supplement were “factually untrue or misleading” at the time they weremade.

“Although Defendants repeatedly described their efforts to ameliorate McDermott’s liquidity problems, they never once promised investors that a bankruptcy filing was off the table,” Edison said.

Nova Scotia is represented by Pomerantz LLP and The Briscoe Law Firm PLLC. The defendants are represented by Baker Botts LLP.

The case is Edwards v. McDermott International, Inc. et al, S.D. Tex., No. 18-cv-04330, 8/30/22.