In a major setback for the plaintiffs, a court recently refused to certify a class-action lawsuit against BP related to the Deepwater Horizon oil spill. In re BP P.L.C. Securities Litigation, No. 4:10-md-2185, 2013 U.S. Dist. LEXIS 173303 (S.D. Tex. Dec. 6, 2013). BP shareholders sued the company and two of its executives, alleging they committed securities fraud by exaggerating the company’s preparedness for a disaster. According to the plaintiffs, BP’s actual readiness became apparent only when its rig exploded in April 2010, killing eleven crewmen, spilling nearly five million barrels of oil into the Gulf of Mexico, and sending its stock price tumbling.
BP argued there was no common question that predominated the case because each plaintiff would need to prove he individually relied on the purported misstatements. In response, the plaintiffs relied on the fraud-on-the-market theory, which presumes that any public information is incorporated into a company’s stock price. The plaintiffs argued that, under the fraud-on-the-market presumption, any shareholder who bought BP’s stock when it was supposedly artificially inflated was necessarily defrauded.
Judge Ellison, however, refused to apply the fraud-on-the-market presumption because there was no evidence the alleged misstatements, made in various obscure regulatory filings, were ever publicized before the oil spill. And in one of the first applications of the Supreme Court’s ruling in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), the court recognized that “Comcast signals a significant shift in the scrutiny required for class certification.” While the court noted that the plaintiffs’ damages model might have been viable before Comcast, it could not survive the newest hurdle that plaintiffs must show not only that they can calculate damages on a class-wide basis, but also that those damages track their theories of liability. As a result, the court denied class certification, but permitted the plaintiffs to re-urge their motion in light of Comcast.
The full opinion is available here.