By Margaret Cronin Fisk and Laurel Brubaker Calkins, Bloomberg News
BP ’s U.S. investors can’t pursue as a group claims that the company inflated its shares with misleading statements before and after the Gulf of Mexico oil spill, a judge ruled, citing a recent Supreme Court decision.
Shareholders sought permission to sue in two groups, the larger including all buyers of BP’s American depositary receipts from Nov. 8, 2007, to May 28, 2010. The second subgroup would cover about 900,000 individual investors, who purchased BP ADRs from March 4, 2009, to April 20, 2010, the date BP’s Macondo well blew out, triggering the biggest U.S. offshore oil spill.
U.S. District Judge Keith Ellison in Houston denied the investors’ request for group, or class, status Friday. Ellison had earlier set a trial date for August 2014.
Ellison ruled that the investors failed to show that their damages could be calculated on a class-wide basis in a way that was consistent with their legal theory on BP’s culpability. If they could’ve done so, he said, he’d have been “inclined” to give the investors permission to sue as a class.
“Because the court’s ruling is based in large part on a recent Supreme Court decision that — in this court’s opinion — has appreciably changed the landscape for class certification,” Ellison said in Friday’s decision, investors should be given a “second attempt to establish the elements necessary for class action treatment.”
Ellison gave lawyers for the investors 30 days to revise their motion and supplement it. He said he declined to certify the class based on the high court’s ruling in a case involving Comcast, in which investors weren’t allowed to sue as a group because the court found a disconnect between the investors’ class-wide damages model and the company’s liability.
“We got pretty clear direction from the court,” Richard Mithoff, one of the lead investors’ attorneys, said in a telephone interview. “I’m confident we will be able to address the issues raised by the court and by the recent U.S. Supreme Court ruling” in order to certify the class.
The New York State Common Retirement Fund is reviewing the decision, said Jennifer Freeman, a spokeswoman for the fund.
“While the court has denied class certification at this time, we note that it recognized the need to do so, in part, because of a changing legal landscape,” Freeman said in an e- mail. “As a result, the court has given us 30 days to renew our motion to certify the class, which we intend to do.”
“Today’s order confirms BP’s view, as noted in our brief and at oral argument, that plaintiffs failed to establish that this case is appropriate for class treatment,” Geoff Morrell, BP’s spokesman, said in an e-mail.
The investors, led by New York and Ohio pension funds, sued London-based BP and certain of its officers in 2010, alleging violations of U.S. securities laws. The investors also claimed BP publicly proclaimed a commitment to improving safety while cutting budgets and rejecting employee concerns.
The investors said their ADRs “were artificially inflated as a result of defendants’ dissemination of materially false and misleading statements and material omissions,” according to papers filed in federal court in Houston in June.
“All suffered losses when the truth surrounding those misstatements and material omissions was revealed to the market and BP’s stock price declined,” they said.
BP disputed the claims and opposed certifying the investors as a class.
“Plaintiffs must demonstrate that the alleged misrepresentations were publicly known, that the stock traded in an efficient market, and that the relevant transaction took place between the time the misrepresentations were made and the time the truth was revealed,” BP said in a filing in August.
In court filings, the company has denied fraud or any lack of attention to safety.
“A commitment to safety is not a guarantee that no future accidents will occur,” BP said in court papers. Investors are trying to “transform a matter involving allegedly negligent processes into an action for securities fraud,” BP said.
BP shares fell about 40 percent in the weeks after the explosion, investors said in court papers. The shares haven’t fully recovered from the drop, which eliminated billions of dollars in market value.
The investors also sued BP’s former Chief Executive Officer Tony Hayward and Doug Suttles, the ex-chief operating officer of BP’s exploration unit, over statements they made in connection with the spill.
They accused Hayward of misleading investors about how thoroughly BP had improved its safety practices and how prepared it was to handle a large spill in ultra-deep water. The investors said both Hayward and Suttles lied publicly about the size of the spill to prop up BP’s stock price.
Investor securities-fraud suits were among hundreds of claims filed in U.S. courts after the explosion and sinking of the Deepwater Horizon drilling rig off the Louisiana coastline in April 2010. Eleven rig workers were killed in the blast, which sent millions of barrels of oil into the gulf.
Ellison refused in March 2013 to dismiss the bulk of the investors’ securities-fraud claims. He previously limited participation in the litigation to investors who bought shares on U.S. stock exchanges.
After several U.S. pension funds sought to get around this ruling by suing under state securities laws, Ellison ruled yesterday that three of the funds, led by Alameda County Employees’ Retirement Association, can pursue deceit claims for losses on their ordinary shares under English law.
BP agreed in 2012 to pay $525 million to settle a U.S. Securities and Exchange Commission claim that the company underestimated the size of the spill. The company also pleaded guilty to a felony count of obstruction of Congress related to its spill-size estimate.
The plea was part of a $4 billion settlement of criminal charges brought by the U.S. against BP over the incident. The company also pleaded guilty to 11 felony counts related to the rig workers’ deaths and two misdemeanor environmental-law violations.