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Securities

The BP Securities Litigation: Court Sustains One Group Of Investors' Claims Of Securities Fraud Arising From the Deepwater Horizon Disaster

On February 13, 2012, the Hon. Keith Ellison, federal district court judge for the Southern District of Texas, ruled on motions to dismiss filed by several British Petroleum ("BP") entities and individual defendants who have been sued for securities fraud. The gravamen of investors' claims is that the defendants misled the market about BP's safety precautions and other aspects of its drilling operations between 2007 and 2010 (the Class Period). A subclass of investors asserted similar claims focused on operations in the Gulf of Mexico for the thirteen months before the Deepwater Horizon disaster. The Court held that the investors (other than those in the subclass) who purchased BP American Depository Receipts ("ADR") on the New York Stock Exchange had adequately alleged violations of Section 10(b) of the 1934 Securities Exchange Act ("Exchange Act"). The Court examined the pleadings under the 1995 Private Securities Litigation Reform Act ("PSLRA"), Rule 9(b) of the Federal Rules of Civil Procedure ("Fed. R. Civ. P."), and the Supreme Court's decision in Morrison v. Nat'l Austl. Bank Ltd., 130 S. Ct. 2869, 177 L.Ed. 2d 535 (2010). Under the PSLRA and Rule 9(b), investors among other things are required to identify with particularity the statements of material information that were disseminated to the market that were false and misleading and the reasons for their falsity. The Court found that investors had met their pleading burden by identifying false statements concerning (i) BP's expanding deepwater drilling that lacked proper safety protocols,(ii) BP's failure to disclose prior safety incidents, and (iii) its systemic retaliation against workers. Similarly, although the Court dismissed the complaint for other reasons, the Court found that the subclass had adequately identified false statements concerning the scope of BP's transition to its operating management system ("OMS"), the application of the OMS across operations and its capacity to respond to spills were false and misleading. The Court also however narrowed the class under Morrison to only include investors who purchased ADRs on the New York Stock Exchange. The Court rejected an attempt by investors to avoid the impact of Morrison by asserting state law claims that they argued also were exempt from the Securities Litigation Uniform Standards Act's ("SLUSA") ban on state-level securities class actions. This narrower class represents a small fraction of the Company's total float and consequently, the potential recovery in the U.S. In addition to the pending securities fraud cases against BP, there are derivative and ERISA cases that were transferred by the Multi-District Litigation panel to the Southern District of Texas. There also are many suits asserting claims for personal injury, wrongful death, and property damage that are pending in federal court in the Eastern District of Louisiana.

Background

On April 20, 2010, the Deepwater Horizon drilling rig owned by Transocean Ltd and operated by BP p.l.c. exploded and sank at the Macondo well site in the Gulf of Mexico. The resulting blow out spilled over four million barrels of oil into the Gulf at a rate of over 60,000 barrels per day over an eighty seven day period and cost BP upwards of $40 billion. From the date of the initial explosion through the end of the class period on May 28, 2010, BP's market capitalization fell over $91 billion.

Numerous lawsuits were filed against several BP entities and officers of the Company by investors alleging securities fraud related to the Deepwater Horizon spill. The Comptroller of the State of New York and the Attorney General of Ohio - the New York and Ohio Plaintiffs - filed suit in federal district court for the Southern District of New York. A group called the Ludlow Plaintiffs filed suit Western District of Louisiana. The Judicial Panel on Multidistrict Litigation transferred all cases involving securities claims, derivative claims and ERISA claims to the Southern District of Texas. The Court in the Southern District of Texas consolidated the securities cases, appointed two sets of lead plaintiffs ("NY/Ohio" and "Ludlow") and set a schedule for filing amended complaints and motions to dismiss. In re BP PLC, 2012 U.S. Dist. Lexis 17788, *18-20 [an enhanced version of this opinion is available to lexis.com subscribers].

The NY/Ohio plaintiffs alleged that BP made a series of fraudulent misstatements about its safety efforts and procedures beginning in January 16, 2007. The Ludlow plaintiffs' allegations related to specific statements about the company's Gulf operations in the thirteen months prior to the Deepwater Horizon explosion. The defendants moved to dismiss on May 6, 2011 challenging the pleadings under the PSLR and Fed. R. Civ. P. 9(b) [an annotated version of this statute is available to lexis.com subscribers]. Defendants also moved to dismiss the claims of all investors who bought BP common stock on a foreign exchange pursuant to the Supreme Court's Morrison decision.

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