The U.S. Court of Appeals for the Fifth Circuit has killed off a shareholder derivative case against BP plc over the Deepwater Horizon oil spill, extending a winning streak for Sullivan & Cromwell in investor litigation over the catastrophe.
In a 13-page decision issued on Jan. 16, the Fifth Circuit refused to revive claims that BP’s directors and officers failed to institute safety measures that could have prevented the explosion and oil spill in the Gulf of Mexico. The court ruled that U.S. District Judge Keith Ellison in Houston didn’t clearly err when he ruled in September 2011 that the claims should be heard in the United Kingdom, not the U.S.
The April 2010 environmental disaster resulted in a 33 percent drop in BP’s stock price. BP’s shareholders brought several derivative suits –technically on behalf of the company–against directors and officers of the London-based company and its U.S. subsidiary. The shareholders alleged that the board prioritized cost-cutting over safety and ignored red flags that the Deepwater Horizon oil rig wasn’t safe. The suits were consolidated in Houston before Ellison, who’s also presiding over securities litigation related to the spill. (The exception is a derivative suit Robbins Geller Rudman & Dowd brought in Alaska state court.) Because BP is incorporated in the U.K., the lawsuits asserted claims under the English Companies Act of 2006.
As soon the cases were filed, experts like D & O Diary blogger Kevin Lacroix pondered whether Ellison would even agree to hear suits involving both an English company and English law. In hopes of establishing a nexus to the U.S., the plaintiffs lawyers pointed out that the underlying events occurred on U.S. soil, and that eight of the 17 defendants are U.S. citizens–including BP CEO Robert Dudley and chairman H. Lamar McKay.
Siding with BP’s defense lawyers at Sullivan & Cromwell, Ellison threw out the derivative claims on forum non conveniens grounds in September 2011, ruling “the English High Court is the more appropriate forum for this case.” Ellison offered a slew of reasons, including that if the case went forward he’d be faced with the “formidable exercise” of interpreting the English Companies Act, “a still nascent and evolving body of law.” Based on Ellison’s ruling, the Superior Court in Anchorage also dismissed Robbins Geller’s Alaska case.
Wolf Haldenstein Adler Freeman & Herz, which represents lead plaintiff City of New Orleans Employees’ Retirement System, appealed to the Fifth Circuit in July. The plaintiffs lawyers argued that Ellison abused his discretion by tossing the case based on factors that he conceded only “slightly” favored dismissal. To prevail on forum non conveniens grounds, they asserted, a defendant is required to show that they would be “extremely prejudiced” by the plaintiff’s forum choice.
The Fifth Circuit was no more sympathetic to the plaintiffs’ argument than Judge Ellison, ruling Wednesday that “the district court appropriately exercised its discretion in assessing the relevant private and public interest factors and finding that they weighed in favor of dismissal.”
The decision is only the latest piece of good news for BP and Sullivan & Cromwell in the BP investor litigation. Last February Ellison gutted a consolidated securities class action alleging that BP misled investors about its preparation for an oil spill in Gulf of Mexico. Based on the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank, Ellison limited the case to claims brought on behalf of purchasers of American Depositary Receipts. Shareholders who bought their shares in the U.K. were out of luck. As we explained at the time, that ruling capped BP’s potential damages by about 90 percent. Since then, some large investors have struck out on their own and brought state law fraud claims, as Reuters columnist Alison Frankel explained in a November 2012 column.
Once again siding with the oil giant, in March 2012 Ellison ruled that BP employees can’t go forward with claims against BP relating to their company-invested retirement accounts, which sank in value after the 2010 spill. “Examining the fluctuations in BP’s stock price suggests that plaintiffs’ losses were only temporary,” Ellison ruled when he dismissed the ERISA claims.
Sullivan & Cromwell partner Rick Pepperman, who argued for BP at the Fifth Circuit, declined to comment. We didn’t immediately hear back from Wolf Haldenstein’s Robert Weintraub, who represented NOERS in the Fifth Circuit appeal.