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In re BP P.L.C. Securities Litigation

United States District Court, S.D. Texas, Houston Division

March 8, 2017

IN RE BP P.L.C. SECURITIES LITIGATION This document relates to: IN RE BP ERISA LITIGATION Civil Action No. 4:10-cv-4214

          MEMORANDUM AND ORDER

          HON. KEITH P. ELLISON UNITED STATES DISTRICT JUDGE.

         Before the Court is ERISA Plaintiffs' Motion for Leave to File an Amended Complaint. (Dkt. 232 (the “Motion”).) Defendants oppose the Motion, arguing that Plaintiffs' proposed amended complaint fails to state a claim, and that leave to amend should therefore be denied as futile. (Dkt. 235.) The Court agrees. Plaintiffs' Motion must be denied.

         I. BACKGROUND[1]

         This is far from the first time that Defendants have challenged Plaintiffs' pleadings in the course of this nearly seven-year-old litigation. In March of 2012, the Court granted Defendants' motion to dismiss Plaintiffs' First Consolidated ERISA Complaint, holding that Plaintiffs had failed to adequately rebut the so-called “Moench presumption of prudence.”[2] Later that year, Plaintiffs filed a motion for leave to amend, but the Court denied the motion because the proposed amendments would have been futile in light of the Moench presumption. Plaintiffs timely appealed to the Fifth Circuit.

         It turned out, however, that these motion-to-dismiss proceedings were largely for naught. While this case was pending appeal, the Supreme Court scuttled the Moench presumption and created a new framework for evaluating claims against certain ERISA fiduciaries. See Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459, 2466-67 (2014). Accordingly, the Fifth Circuit vacated this Court's order denying leave to amend and remanded the matter for reconsideration in light of Dudenhoeffer. (Dkt. 147.) On remand, this Court granted Plaintiffs' motion for leave to amend their complaint, but did so with some concern-Dudenhoeffer proved challenging to apply. (See Dkt. 170 at 23-30.) Given the uncertainty surrounding the governing legal standard, at Defendants' request, the Court certified the issue for interlocutory appeal to the Fifth Circuit. (Dkt. 178.) In certifying the matter, the Court noted that “if Defendants are correct in their interpretation of Dudenhoeffer”-and the Fifth Circuit has since confirmed that they were- “then none of Plaintiffs' prudence claims would survive a motion to dismiss.” (Id. at 4.)

         In the meantime, this Court declined to stay proceedings pending the interlocutory appeal, and Plaintiffs filed an amended complaint. The amended complaint asserted two general theories of liability (the “Prudence Claims” and “Monitoring Claims, ” respectively): (i) that the “Insider Defendants”[3] and “Corporate Defendants” breached their duties of prudence and loyalty by permitting BP's 401(k) Plan (the “Plan”) participants to invest in the BP Stock Fund at an artificially inflated price; and (ii) that numerous defendants breached their duties to adequately monitor the fiduciaries whom they appointed. (Dkt. 173 at 89, 93.) Defendants moved for partial dismissal, which the Court granted. (Dkt. 212.) The Court's order dismissed the Prudence Claims against the Corporate Defendants and the Insider Defendants, with the exceptions of Insider Defendants McKay, Shaw and Dupree, and further dismissed the Monitoring Claims in their entirety. (Id. at 30; see also Dkt. 223 at 2 n.5.) This ruling left Plaintiffs' complaint on unstable ground. Only the Prudence Claims against McKay, Shaw, and Dupree remained, and those claims were the subject of Defendants' pending interlocutory appeal.

         Following several rounds of briefing, [4] the Fifth Circuit held that this Court erred in granting Plaintiffs' motion for leave to amend the Prudence Claims; the proposed amended complaint failed to plead sufficient factual allegations to state a claim, and leave therefore should have been denied as futile. The Fifth Circuit accordingly reversed the judgment of this Court and remanded the matter for further proceedings. Whitley v. BP, P.L.C., 838 F.3d 523, 529 (5th Cir. 2016). As a result of this ruling, Plaintiffs were left without a single viable claim.

         Plaintiffs now move for leave to file another amended complaint, attaching a proposed amended complaint that purportedly cures the deficiencies identified by the Fifth Circuit.[5] (Dkt. 232, Ex. A (the proposed “TAC”).) Plaintiffs have substantially bolstered the TAC with specific factual allegations, expressly weighed the “harm” and “good” of each proposed alternative, and even taken the unconventional approach of appending two expert reports to the proposed pleadings to show the bases for their factual allegations. Defendants maintain that the TAC fails to state a claim and that leave to amend should once again be denied as futile.

         II. LEGAL STANDARD

         Plaintiffs move for leave to amend their complaint under Rule 15(a)(2) of the Federal Rules of Civil Procedure. “Rule 15(a) declares that leave to amend ‘shall be freely given when justice so requires'; this mandate is to be heeded.” Foman v. Davis, 371 U.S. 178, 182 (1962). Accordingly, district courts in the Fifth Circuit “must entertain a presumption in favor of granting parties leave to amend.” Mayeaux v. Louisiana Health Service and Indem. Co., 376 F.3d 420, 425 (5th Cir. 2004). Leave to amend may be denied, however, in the case of “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, [or] futility of amendment.” Wimm v. Jack Eckerd Corp., 3 F.3d 137, 139 (5th Cir. 1993).

         Futility is shown by amendments which “advance[e] a claim or defense that is legally insufficient on its face, or . . . fail[ ] to include allegations to cure defects in the original pleading.” 6 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Fed. Prac. and Proc. § 1487 (3d ed.). In other words, Plaintiffs will be denied leave to amend only if “the amended complaint would fail to state a claim upon which relief could be granted.” Stripling v. Jordan Prod. Co., LLC, 234 F.3d 863, 873 (5th Cir. 2000); see also Landavazo v. Toro Co., 301 Fed.Appx. 333, 337 (5th Cir. 2008) (affirming denial of leave to amend after determining that “[a] review of the amended complaint leaves the reader speculating as to what conduct, even if taken as true, occurred that would give rise to a right to relief”).

         A complaint fails to state a claim if it does not “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.' ” Ashcroft v. Iqbal, 556 U.S. 662, 678, (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The plausibility standard is not akin to a “probability requirement, ” but asks for more than a sheer possibility that a defendant has acted unlawfully. Id. A pleading need not contain detailed factual allegations, but must set forth more than “labels and conclusions [or] a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555 (citation omitted).

         Ultimately, the Court must decide whether Plaintiffs' proposed amended pleading states at least one valid claim when viewed in the light most favorable to Plaintiffs. In making this determination, the Court will accept the complaint's well-pleaded facts as true, but will not imbue legal conclusions with the same assumption of truth. Iqbal, 556 U.S. at 678 (citation omitted). Nor will the Court “ ‘strain to find inferences favorable to the plaintiffs' ” or “accept ‘conclusory allegations [or] unwarranted deductions.' ” R2 Investments LDC v. Phillips, 401 F.3d 638, 642 (5th Cir. 2005) (quoting Southland Secs. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 361 (5th Cir. 2004)). The Court will confine its analysis to the contents of the TAC; documents provided by the parties will be disregarded, unless they are referenced in the TAC and are central to Plaintiffs' claims. See Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000).

         III. ANALYSIS

         The only issue raised in the briefing is whether the TAC satisfies the standard for pleading an ERISA stock drop claim against Defendants McKay, Dupree, or Shaw. The Supreme Court first elucidated the relevant standard two years ago in Fifth Third Bancorp v. Dudenhoeffer: “To state a claim for breach of the duty of prudence on the basis of inside information, 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.”[6]134 S.Ct. 2459, 2472 (2014). But lower courts found the latter half of the standard challenging to apply. See, e.g., In re BP p.l.c. Sec. Litig., 2015 WL 1781727, at *17 (S.D. Tex. Mar. 4, 2015), rev'd and remanded sub nom. Whitley v. BP, P.L.C., 838 F.3d 523 (5th Cir. 2016); see also Harris v. Amgen, Inc., 788 F.3d 916, 925 (9th Cir. 2015), cert. granted, judgment rev'd, 136 S.Ct. 758 (2016). If rigidly construed, Dudenhoeffer would place a burden on plaintiffs that is not often seen at the pleading stage. See In re BP p.l.c. Sec. Litig., 2015 WL 1781727, at *17 (“The weighing of harm versus good is inherently fact-specific and subject to expert analysis, ” and this is especially true in the securities context.).

         The Supreme Court soon returned to the issue in Amgen, Inc. v. Harris to provide additional guidance, 136 S.Ct. 758 (2016), and the Fifth Circuit subsequently provided guidance of its own on Defendant's appeal of this Court's ruling. Whitley v. BP, P.L.C., 838 F.3d 523 (5th Cir. 2016). In short, the courts confirmed that Dudenhoeffer imposes precisely this type of “significant burden” at the pleading stage. Whitley, 838 F.3d at 529. Plaintiffs must allege “an alternative course of action so clearly beneficial that a prudent fiduciary could not conclude that [the action] would be more likely to harm the fund than to help it” and “offer facts that would support such an allegation.” Id. (second emphasis in original). In other words, a plaintiff must do more than show that the proposed alternative could have resulted in a net benefit to the fund; he must “plausibly allege that no prudent fiduciary could have” reached the opposite conclusion (i.e., that the proposed alternative would cause more harm than good). See Id. (“the district court recognized that if defendants have correctly read Dudenhoeffer to require ‘plaintiffs to plausibly allege that no prudent fiduciary ...


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