Last fall, the U.S. Court of Appeals for the Fifth Circuit upheld a district court order denying class certification to a group of BP plc shareholders in the securities litigation, Ludlow v. BP plc, 800 F.3d 674 (5th Cir. 2015). The proposed class of investors purchased BP securities before the April 20, 2010, catastrophic blowout of the Deepwater Horizon oil rig that resulted in more than 5 million barrels of oil spilling into the Gulf of Mexico. These “pre-spill” investors alleged that, for several years before the spill, BP, which had leased the rig and co-owned the well site where the explosion occurred, made material misrepresentations overstating the strength of BP’s safety processes and procedures and understating the risk of catastrophe in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

Both the district court and the Fifth Circuit held that the pre-spill plaintiffs failed to satisfy the U.S. Supreme Court’s “common damages burden,” recently set forth in an antitrust case, Comcast v. Behrend, 133 S. Ct. 1426 (2013). Under Comcast, a plaintiff seeking class certification must present a damages methodology that is both consistent with the plaintiff’s theory of liability and capable of measuring damages across the entire proposed class. (The district court certified, and the Fifth Circuit affirmed, a “post-spill” class of investors who alleged that BP misrepresented the company’s internal estimates of the flow rate of the oil spill, which lasted 87 days. Those decisions are beyond the scope of this article.) The Fifth Circuit denied the pre-spill plaintiffs a rehearing en banc. On Jan. 25, the plaintiffs filed a petition for a writ of certiorari, asking that the U.S. Supreme Court determine whether Comcast‘s common damages burden applies to securities fraud class actions invoking the fraud-on-the-market presumption and to “clarify the scope of inquiry into the merits of a damage model at class certification.”

The Fifth Circuit’s Decision

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