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Shareholders Still Fight for Their Day in Court

More than six years after the devastating Deepwater Horizon oil spill, a group of BP, P.L.C. shareholders are still trying to get their day in court.

In Whitley v. BP, PLC, No. 15-20282 (5th Cir. 2016), the Fifth Circuit Court of Appeals threw out an amended complaint brought by the shareholders based on a recent U.S. Supreme Court decision, Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014).

The plaintiffs are investors in the BP Stock Fund, an employee stock ownership plan comprised of BP stock. The plan is governed by the Employee Retirement Income Security Act, which imposes strict fiduciary duties on those who manage such plans. After the 2010 Deepwater Horizon catastrophe in the Gulf of Mexico and subsequent decline in BP’s stock price, the investors filed suit alleging that the plan fiduciaries breached their duties of prudence and loyalty by allowing the plans to acquire and hold overvalued BP stock; their duty to provide adequate investment information to plan participants; and their duty to monitor those responsible for managing the fund.

The federal district court dismissed the claims under the “presumption of fiduciary prudence” standard of Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995). While the shareholders’ appeal was pending, the Supreme Court issued Fifth Third, holding there was no such presumption of prudence under ERISA. Instead, the Court held that “…a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.”

The Fifth Circuit then remanded the case for reconsideration in light of Fifth Third. The shareholders filed an amended complaint alleging, under Fifth Third, that the fiduciaries possessed unfavorable inside information about BP and could have taken alternative actions including freezing, limiting, or restricting company stock purchases; and disclosing unfavorable information to the public. The district court granted their motion to amend.

The question on appeal was whether the shareholders’ amended complaint stated a plausible claim under the new pleading standards of Fifth Third. The Fifth Circuit concluded that the Supreme Court “clarified that a court cannot simply presume that the plaintiff’s proposed alternatives would satisfy the Fifth Third standards; rather, ‘the facts and allegations supporting that proposition should appear in the stockholders’ complaint.’”

The appellate court concluded the lower court erred when it altered the language of Fifth Third to reach its holding. “The district court stated that it could not determine, ‘on the basis of the pleadings alone, that no prudent fiduciary would have concluded that [the alternatives] would do more good than harm.’ These statements are not equivalent. Under the Supreme Court’s formulation, the plaintiff bears the significant burden of proposing an alternative course of action so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it.”

The court concluded the BP shareholders had failed to meet the burden because the facts and allegations supporting an alternative action that could satisfy Fifth Third’s standards did not appear in their complaint.

The amended complaint claimed BP’s stock was overvalued due to “numerous undisclosed safety breaches” known only to insiders; essentially, the company had a greater risk exposure to potential accidents than was known to the market. “Based on this fact alone, it does not seem reasonable … that a prudent fiduciary at that time could not have concluded that (1) disclosure of such information to the public or (2) freezing trades of BP stock—both of which would likely lower the stock price—would do more harm than good. In fact, it seems that a prudent fiduciary could very easily conclude that such actions would do more harm than good.”

The Fifth Circuit reversed and remanded the district court’s judgment.Super Lawyers named Illinois business trial attorneys Peter Lubin and Vincent DiTommaso Super Lawyers in the Categories of Class Action, Business Litigation and Consumer Rights Litigation. DiTommaso-Lubin’s Illinois business trial lawyers have over a quarter of century of experience in litigating complex class action, copyright, non-compete agreement, trademark and libel suits, consumer rights and many different types of business and commercial litigation disputes including lawsuits between businesses or between shareholders and owners of the same business.  Our Evanston and Glencoe business dispute lawyers handle emergency business law suits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud. You can contact us by calling (630) 333-0000 or our toll free number (877) 990-4990.  You can also contact us online here.