LexisNexis® CLE On-Demand features premium content from partners like American Law Institute Continuing Legal Education and Pozner & Dodd. Choose from a broad listing of topics suited for law firms, corporate legal departments, and government entities. Individual courses and subscriptions available.
A wave of litigation followed in the wake of the
April 2010 Deepwater Horizon oil spill. Among this litigation were several
shareholder derivative suits filed against certain directors and officers of BP
and of its U.S. subsidiary. At the time these cases first arose, I asked
whether or not these suits involving (and ultimately for the benefit of) an
English corporation and even asserting claims under English law would be
permitted to go forward in U.S. courts.
A September 15, 2011 ruling from Judge Keith Ellison of
the Southern District of Texas determined that, notwithstanding the fact that
the Deepwater Horizon disaster took place in the U.S. and caused extensive
environmental damage here, "the English High Court is a far more appropriate
forum for this litigation," and accordingly he granted the defendants' motion
to dismiss the cases. Judge Ellison's September 15 decision can be found here.
As discussed here,
plaintiffs filed the first of several derivative lawsuits in connection with
the Deepwater Horizon oil spill in May 2010. Though many of the lawsuits were
first filed in the Eastern District of Louisiana, the cases were ultimately
consolidated through the multidistrict litigation process in the Southern
District of Texas. However, while the lawsuits were filed in U.S. courts, they
asserted claims under the English Companies Act of 2006 (about which refer here).
The defendants moved to dismiss the consolidated derivative litigation in the
grounds of forum
In his September 15 ruling, Judge Ellison granted the
defendants' motion to dismiss. He summarized his ruling by saying that "this
case is a shareholder derivative action brought under a recently enacted U.K.
statute on behalf of an English Company against numerous English defendants and
other foreign nationals." The Court, he said, is "persuaded that the Complaint
should be dismissed under the doctrine of foreign non conveniens, as the
English High Court is the more appropriate forum for this case."
Judge Ellison found that considerations of public
interest "most strongly favor England as the appropriate forum in which to
proceed with this case." He noted that the focus would not be the events in the
Gulf that led up to the oil spill, but rather the actions of the company's
board, which took place in England. He commented that "this lawsuit is not
intended to redress the devastating impact of the Deepwater Horizon disaster in
the Unites States. Instead the lawsuit is intended to compensate BP for the
financial and reputational harm the company suffered as a result of its high level
management's alleged disregard for the safety of its operations."
Judge Ellison noted that "the primary concern of this
derivative litigation is the internal affairs of an English corporation, and
the suit seeks to recover damages for the benefit of BP only." He concluded
that England "has a far greater interest in the resolution of this dispute."
Judge Ellison was particularly concerned that were the
case to remain in a U.S. court, the court would have to interpret and apply the
recently enacted Companies Act. If the case were to go forward in a U.S. court,
"the Court would be faced with the formidable exercise of interpreting and
applying a still nascent and evolving body of law."
Judge Ellison did condition his dismissal on the
defendants proferring adequate proof that they are amenable to service of
process in England or submitting a stipulation that the will submit to the
jurisdiction of the appropriate English court.
Although the claimants clearly would have preferred to
pursue their mismanagement claims against the BP officials in the U.S., where
the disastrous oil spill occurred, Judge Ellison found that the allegations in
this case involve alleged actions or inactions that took place in England. The
fact is that though the shareholders chose to file their action here in
preference to England, with full awareness that English courts presented an
alternative forum. The decision to file here rather than there undoubtedly had
something to with a perception that a court in closer proximity to the damages
cause by the spill might prove to be a more receptive forum. The selection of a
U.S. court over an English one also reflects the more general advantages a
plaintiff enjoys here by comparison to English courts - for example, the
absence in the U.S. of a "loser pays" model, among other things.
These kinds of advantages often encourage plaintiffs with
claims involving non-U.S. companies to try to pursue their claims in U.S.
courts. But the outcome of the dismissal motion in the BP derivative suit represents
just one more example of the many ways prospective litigants are finding it
increasingly more difficult to pursue corporate and securities claims against
non-U.S. companies in U.S. courts. Courts interpreting the U.S. Supreme Court's
Morrison decision have significantly narrowed the circumstances in which
securities claims involving foreign companies can go forward in U.S. courts.
Judge Ellison's decision in the BP case underscores the difficulties
prospective claimants may fact in pursuing derivative suits involving non-U.S.
companies here as well.
Alison Frankel's September 16, 2011 Thomson Reuters
News & Insight article about Judge Ellison's decision can be found here. Victor Li's
September 16, 2011 Am Law Litigation Article about the decision can be found here.
For Whom the Statute Tolls:
Under Section 13 of
the '33 Act, liability actions alleging a violation of the statue must be
brought within one year of "discovery of the untrue statute or omission."
Section 13 provides further that in no event shall the action be brought more
than three years after the security was first offered to the public. The one
year provision represents a statute of limitation and the three year provision
represents a so-called "statute of repose."
Questions of statutes of limitation and repose might seem
obscure, but they can often be critical in determining whether or not a case
will go forward. A September 15, 2011 decision by Southern District of New York
Judge Laura Taylor Swain in the Morgan Stanley Mortgage Pass-Through
Certificates Litigation (here)
presents interesting and potentially significant rulings on both the statute of
limitations and statute of repose issues.
The case involves claims asserted by investors who
purchased certain mortgage-backed securities issued by various Morgan Stanley
related entities. The plaintiffs allege that the offering documents related to
these securities misrepresented and omitted material facts regarding the
underwriting standards applied by the loan originators. As detailed in Alison
Frankel's September 16, 2011 article in Thompson Reuters News & Insight
this lawsuit has a convoluted procedural history, in part due to the
plaintiffs' efforts to assemble a group of prospective class representatives
whose claims were not time-barred. This latest dismissal motion round involved
amended allegations and additional named plaintiffs. The defendants again moved
to dismiss based on the statute of limitations and the statute of repose.
Judge Swain's 40- page opinion reflects a number of
interesting rulings, particularly with respect to the timeliness questions.
First, she rejected the defendants' arguments, based on information that was
publicly available more than a year before the initial complaint was filed,
that the claims of the Public Employees' Retirement System of Mississippi
(MissPERS) were untimely. Judge Swain said that though there was ample
publicity on issues pertaining to circumstances relevant to the securities,
none of the various items of publicity "addresses, even at a speculative level,
the disregard of underwriting practices, neglect of appraisal standards, or
consequent LTV ration misrepresentations alleged in the [amended complaint]"
Nevertheless, though she found that the early warnings
were not sufficient to trigger inquiry notice, she also found that the
plaintiffs had not alleged with sufficient specificity the time and
circumstances of their discovery of the conduct alleged in their claims.
Accordingly she allowed the plaintiffs leave to replead to establish the
circumstances of their discovery in order to establish compliance with the one
year statute of limitations.
Perhaps even more interesting is Judge Swain's ruling on
the question of the three-year statute of repose, and in particular her application
of what is known as the American Pipe tolling doctrine. Under this
doctrine, which derives from a
1974 U.S. Supreme Court opinion, the initiation of an earlier class action
suit tolls the running of the statute of limitations for other purported class
members who may later seek to intervene and represent the class. The
application of the American Pipe tolling doctrine to the running of the
statute of limitations is well established. A long standing question has been
whether American Pipe tolling also applies to the statute of repose. Judge
Swain held that American Pipe tolling does apply to the statue of
repose, and denied defendants' argument that the claims of certain new
plaintiffs were barred by the statue of repose in the '33 Act.
In holding that American Pipe tolling applies even
to the three-year statute of repose, Judge Swain declined to follow two recent
decisions by other Southern District of New York judges. She reasoned that the
tolling doctrine is equitable in nature and "permits a court - after weighing
the equities in the discrete case before it - to authorize plaintiffs to bring
actions outside the limitations period."
Judge Swain's ruling about the statute of repose
represents a potentially big deal. If followed by other courts, it could
potentially be very significant in cases where an initial plaintiff's purported
class action is dismissed for the plaintiff's lack of standing. Other
prospective claimants who might want to come forward at that point might find
their claims blocked by the statute of repose, if the initial filing did not
toll the statute's running.
This possibility is not merely theoretical, particularly
with respect to the many mortgage-backed securities class action claims that
have been asserted in the wake of the financial crisis. In many of these cases,
the claimants have had some of their initial claims dismissed because the named
plaintiff did not actually buy securities in all of the offerings in which the
securities were sold. Judge Swain's ruling, if followed, would remove one
potentially significant impediment that might other wise exist for other
prospective claimants who did buy securities in the other offerings and who
might want to come forward and assert class claims on behalf of other investors
who bought those securities.
The question is whether other courts will follow Judge
Swain on these issues, or will follow the other two Southern District of New
York decisions that recently went the other way and held that American Pipe
tolling does not apply to the statute of repose. In her September 16,
2011 Am Law Litigation Daily article about Judge Swain's ruling in the
Morgan Stanley case (here),
Susan Beck identifies and links to the two other recent Southern District of
New York rulings that Judge Swain declined to follow. She also speculates that
the Second Circuit will likely weigh in on these issues, given that the two
prior cases (which resulted in dismissals) are on appeal to the Second Circuit
and have been consolidated for one hearing before that court.
Special thanks to a loyal reader for sending me a copy of
Judge Swain's decision in the Morgan Stanley case.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
For more information about LexisNexis
products and solutions connect with us through our corporate site.