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In re Bp P.L.C. Securities Litigation

United States District Court, Fifth Circuit

December 6, 2013

IN RE: BP p.l.c. SECURITIES LITIGATION

MEMORANDUM AND ORDER

KEITH P. ELLISON, District Judge.

Pending before the Court is Plaintiffs' Motion for Class Certification. (Doc. No. 652.)[1] Having reviewed the motion, Defendants' response (Doc. No. 664), Plaintiffs' reply brief in support of their motion (Doc. No. 677), Defendants' sur-reply (Doc. No. 688), Plaintiffs' response to Defendants' sur-reply (Doc. No. 691-1), all papers in support thereof, and having heard oral argument, the Court finds that Plaintiffs' Motion for Class Certification (Doc. No. 652) must be DENIED.

I. BACKGROUND AND PROCEDURAL HISTORY

A. Actionable Misstatements

This case is a putative class action against three BP corporations and two BP executives ("Defendants"). Plaintiffs assert securities fraud claims on behalf of purchasers of BP American Depositary Shares ("ADSs") on the New York Stock Exchange ("NYSE") who were allegedly injured by a series of misrepresentations and omissions made by Defendants between 2007 and 2010. According to Plaintiffs, the misleading nature of these statements and omissions was made clear by the April 20, 2010 explosion of the Deepwater Horizon drilling rig; the ensuing oil spill into the Gulf of Mexico; and various events and disclosures in the months following the explosion. Three times, the Court has engaged at length with Plaintiffs' theories of Defendants' liability. A more complete explication of the relevant facts and allegations can be found in the lengthy opinions issued on those occasions. See In re BP p.l.c. Securities Litig. (" BP I "), 843 F.Supp.2d 712 (S.D. Tex. 2012); In re BP p.l.c. Securities Litig. (" BP II "), 852 F.Supp.2d 767 (S.D. Tex. 2012); In re BP p.l.c. Securities Litig. (" BP III "), 922 F.Supp.2d 600 (S.D. Tex. 2013).

Following the Court's decisions on Defendants' three motions to dismiss, Plaintiffs' claims have been narrowed such that only four broad categories of alleged misstatements and omissions remain in the case. These are:

• Statements touting BP's progress in implementing the recommendations of the independent commission known as the "Baker Panel" following the 2005 explosion at the Company's Texas City refinery. The Baker Panel was convened to review and suggest improvements to BP's safety practices, the efficacy of which was seriously in doubt following a series of high-profile safety mishaps. The Baker Panel released a report in January 2007 (the "Baker Report"), which included a series of specific recommendations intended to improve BP's safety culture and processes. Plaintiffs claim that, following the release of the Baker Report, Defendants repeatedly publicized their progress on the Report's recommendations as a way to assuage the public that BP had turned a corner on safety. In reality, according to Plaintiffs, nothing about BP's safety programs had changed, and BP remained an accident waiting to happen. Alleged misstatements in this category were made in November 2007, February 2008, April 2008, December 2008, and March 2010.
• Statements describing BP's Operating Management System ("OMS") as a system being applied across all of BP's lines of business, worldwide, in an attempt to standardize safety processes. Statements in this category were allegedly misleading because they omitted that OMS would not govern safety practices at contractor-owned sites, such as the Deepwater Horizon drilling rig. Statements in this category were also allegedly misleading because they represented that OMS had been implemented in the Gulf of Mexico by the time of the Deepwater Horizon explosion, when Plaintiffs claim it had not. Alleged misstatements in this category were made in February 2009, March 2009, April 2009, February 2010, March 2010, and April 2010.
• Statements from two agency filings-the Initial Exploration Plan ("IEP") and the Gulf of Mexico Regional Oil Spill Response Plan ("OSRP")-describing BP's ability to respond to a catastrophic deepwater oil spill. According to Plaintiffs, these statements were grossly inaccurate, and BP had no contingency plans and no adequate response equipment for a disaster. The documents were filed with the relevant federal agency, the U.S. Department of the Interior's Minerals Management Service ("MMS"), in March 2009 and June 2009 respectively. Plaintiffs claim that they were publicly available documents upon filing. They were also scrutinized in the media following the Deepwater Horizon explosion.
• Statements made after the April 20, 2010 Deepwater Horizon explosion regarding the magnitude of the resulting oil spill. According to Plaintiffs, Defendants perpetuated the fiction that the spill was only approximately 5, 000 barrels per day, even as internal BP estimates showed that the true number was much higher. Alleged misstatements in this category were made in late April 2010 and May 2010.

Although all the surviving misrepresentations in this case can be sorted into the above four categories, the first two categories are closely related. Specifically, OMS was a response to one of the Baker Report recommendations. Therefore, the alleged misrepresentations regarding OMS might be considered an extension, or a subset, of the alleged misrepresentations regarding BP's progress on the Baker Panel recommendations.

B. Lead Plaintiffs

Pursuant to procedures required by the Private Securities Litigation Reform Act ("PSLRA"), the Court previously had occasion to consider and appoint lead plaintiffs and lead counsel in this action. Two groups of prospective lead plaintiffs-"NY/OH" and the "Ludlow Plaintiffs"-vied for appointment.

The NY/OH group consisted of (1) Thomas P. DiNapoli, Comptroller of the State of New York, as Administrative Head of the New York State and Local Retirement Systems and sole Trustee of the New York State Common Retirement Fund ("New York"), and (2) Ohio Attorney General Mike DeWine, statutory litigation counsel for the Ohio Public Employees Retirement System ("Ohio").[2] They proposed a fairly long class period, stretching from June 2005 until June 2010. As the proposed class period indicates, they alleged that Defendants engaged in misrepresentations both before and after the Deepwater Horizon explosion itself.[3]

The Ludlow Plaintiffs consisted of four individual investors: Robert H. Ludlow, Peter D. Lichtman, Leslie J. Nakagiri, and Paul Huyck. They proposed a much shorter class period, from March 2009 until April 2010. They did not allege that Defendants committed securities fraud after the Deepwater Horizon explosion. They accused NY/OH of proposing an improperly long class period in order to maximize the extent of their BP holdings-a factor for consideration in the lead plaintiff analysis. They also asserted that NY/OH's emphasis on post-explosion fraud would dilute the class's pre-explosion claims.

Following extensive briefing, the Court elected to appoint both sets of plaintiffs: NY/OH as lead plaintiffs for the proposed class, and the Ludlow Plaintiffs as lead plaintiffs for a wholly subsumed subclass. The Court was motivated by concerns that the two groups had articulated significantly different theories of the alleged fraud:

First, whereas the Ludlow Plaintiffs' claims center on BP's statements about the safety of its drilling operations in the Gulf of Mexico in the thirteen months leading up to the Deepwater Horizon explosion, New York & Ohio argue more generally that BP made fraudulent statements between 2005 and 2010 about its safety precautions both in the Gulf of Mexico and elsewhere. Second, in extending the class period to June 1, 2010, New York & Ohio focus a good deal of attention on fraud allegedly committed after April 20, 2010, such as statements about the rate at which oil was escaping from the rig and about BP's attempts to stop the flow. A substantial portion of New York & Ohio's losses derive from purchases of BP [ADSs] by one of the Ohio funds on May 3 and May 25, 2010, several weeks after the Deepwater Horizon explosion.

In re BP Securities Litig., 758 F.Supp.2d 428, 438 (S.D. Tex. 2010). The Court attributed the competing theories to the fact that NY/OH were "net sellers" of ADSs during the proposed class period proposed by the Ludlow Plaintiffs. Id. In other words, because NY/OH's losses were "concentrated outside of the Ludlow Period, " they were incentivized to "present different legal theories than other plaintiffs." Id. The Court concluded that NY/OH had not shown themselves to be typical and adequate lead plaintiffs for the so-called Ludlow Period. Id. At the same time, the Ludlow Plaintiffs were similarly inadequate to represent plaintiffs who purchased before and after the Ludlow Period. Id. at 439. To accommodate the interests of all members of the proposed class, the Court opted to appoint NY/OH as lead plaintiffs of the class, and the Ludlow Plaintiffs as lead plaintiffs of a subclass. Id. at 442.

Following the Court's designation of lead plaintiffs, NY/OH and the Ludlow Plaintiffs filed separate complaints. Defendants moved to dismiss both complaints; the Ludlow Complaint was dismissed in its entirety, and the NY/OH Complaint was partially dismissed. See BP II, 852 F.Supp.2d at 820; BP I, 843 F.Supp.2d at 799. NY/OH and the Ludlow Plaintiffs then jointly filed a single consolidated, amended complaint: the Second Consolidated Amended Class Action Complaint, or "SAC." (Doc. No. 339.) Defendants moved for partial dismissal of the SAC, which was partially granted and partially denied. See BP III, 922 F.Supp.2d at 640-41. Discovery has commenced on the surviving claims in the SAC, and the Court has entered a docket control order with trial scheduled for August and September 2014. (Doc. No. 582.)

II. PLAINTIFFS' PROPOSED CERTIFICATION

New York, Ohio, and the Ludlow Plaintiffs have filed a motion for class certification under Rule 23. They seek the following certification:

All persons and entities who purchased or otherwise acquired BP's ADSs between November 8, 2007 and May 28, 2010 [and were injured thereby] ("Class"), as well as all persons and entities who purchased or otherwise acquired BP's ADSs between March 4, 2009 and April 20, 2010 [and were injured thereby] ("[Ludlow Subclass]").[4] Excluded from the Class and [Subclass] are Defendants, directors and officers of BP, their families and affiliates, as well as the retirement accounts of Defendants and BP's directors and officers.

(Doc. No. 652-1 ("Mot."), at 2.) As made clear above, the proposed "Class Period" is November 8, 2007 to May 28, 2010. The proposed "Ludlow Subclass Period" is subsumed within the Class Period and is March 4, 2009 to April 20, 2010 (the date of the Deepwater Horizon explosion). New York and Ohio are proposed representatives for the Class; the Ludlow Plaintiffs are proposed representatives for the Ludlow Subclass.

III. LEGAL STANDARDS

Federal class actions are governed by the requirements of Federal Rule of Civil Procedure 23. Unger v. Amedisys Inc., 401 F.3d 316, 320 (5th Cir. 2005). The party seeking class certification bears the burden of showing that Rule 23 has been satisfied. Id. (citing Berger v. Compaq Computer Corp., 257 F.3d 475, 479-80 (5th Cir. 2001)); see also Wal-Mart Stores, Inc. v. Dukes, ___ U.S. ___, 131 S.Ct. 2541, 2551 (2011) ("Rule 23 does not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rule-that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc."). The requirements for class certification under Rule 23(a) are:

(1) The class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a)(1)-(4).

"To obtain class certification, parties must satisfy Rule 23(a)'s four threshold requirements, as well as the requirements of Rule 23(b)(1), (2), or (3)." M.D. ex rel. Stukenberg v. Perry, 675 F.3d 832, 837 (5th Cir. 2012) (citing Maldonado v. Ochsner Clinic Found., 493 F.3d 521, 523 (5th Cir. 2007)). Plaintiffs in this case seek certification under Rule 23(b)(3), which requires the Court to find two additional requirements satisfied: predominance and superiority. See Unger, 401 F.3d at 320. "The predominance element requires a finding that common issues of law or fact predominate over any questions affecting only individual members.'" Id. (quoting Fed.R.Civ.P. 23(b)(3)). This requirement is more demanding than the commonality prong of Rule 23(a) "because it tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.'" Id. (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997)). Finally, a party seeking class certification must show that a class action "is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed.R.Civ.P. 23(b)(3).

IV. DEFENDANTS' OPPOSITION

Defendants oppose certification. They organize their objections to class certification under the following four principal arguments:

(1) Defendants claim that Rule 23(a) has not been satisfied because New York and Ohio are atypical and inadequate representatives of the proposed Class. Defendants' argument is grounded in the specifics of New York and Ohio's trading activity during the Class Period, as described below. (Doc. No. 664 ("Opp."), at 10-20.)
(2) Defendants contend that the Ludlow Plaintiffs have not established that the Rule 23 prerequisites are satisfied for the proposed ...

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