In re BP p.l.c. Securities Litigation—June 2016 Ruling

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U.S. District Court Judge Keith P. Ellison ruled on pending motions for summary judgment, granting numerous elements of the defendants’ motion and denying the plaintiffs’ motion in its entirety.

Retained by Sullivan & Cromwell

Judge Keith P. Ellison of the U.S. District Court for the Southern District of Texas ruled on pending motions for summary judgment in In re BP p.l.c. Securities Litigation, granting numerous elements of the defendants’ motion and denying the plaintiffs’ motion in its entirety. The case arose from plaintiffs’ allegations that BP misled investors about its safety procedures and ability to respond to and contain an oil spill following the Deepwater Horizon explosion in April 2010.

This allegedly resulted in declines of BP’s ADS price corresponding to a $91 billion market capitalization loss (associated with share price declines of approximately $26 on corrective event days). The plaintiffs also alleged that BP and its executives misled investors about the amount of oil flowing from the well after the explosion.

Ruling

Following merits discovery, Judge Ellison analyzed issues related to the economic evidence required to establish loss causation and the appropriate calculation of damages, including under a materialization-of-the-risk theory. Granting numerous elements of the defendants’ motion for summary judgment, the judge excluded the majority of alleged corrective event days based on the plaintiffs’ failure to provide evidence of loss causation; he also found that plaintiffs failed to present a satisfactory calculation of damages for those days. On a number of these findings, the judge’s reasoning followed the expert analysis of Professor Christopher James of the University of Florida, whose work Cornerstone Research supported in this matter.

On a number of his findings, the judge’s reasoning followed the expert analysis of Professor Christopher James.

The cumulative price decline on the remaining corrective event days totaled approximately $7 of the $22 of declines originally alleged by the plaintiffs for the sub-class remaining in the case after class certification. In addition, BP’s former CEO was granted summary judgment for the entire claim against him. Judge Ellison denied the plaintiffs’ motion for summary judgment in its entirety.

Applying Comcast in a Securities Matter

Inquiry on the merits of this case proceeded in the wake of two previous rulings on class certification. In the first ruling, Judge Ellison declined to certify the class, citing the U.S. Supreme Court decision in Comcast v. Behrend. After giving plaintiffs a “second bite at the apple,” the judge ruled again on class certification, declining to certify the much larger of the two proposed sub-classes and expressing concern whether the findings and methodologies of the plaintiffs’ experts would be sufficient at the merits phase of the case. In both of these rulings, the judge cited the expert findings of Professor René Stulz of the Ohio State University, whose work we supported in this matter.

Both sides appealed the second ruling. The Fifth Circuit Court of Appeals strongly affirmed Judge Ellison’s class certification ruling, agreeing that a Comcast inquiry into damages is appropriate at the class certification stage in securities litigation.

Settlement

Shortly after the summary judgment ruling became public, the parties announced a tentative settlement of all claims in this matter.

Case Experts

Christopher M. James

William H. Dial/SunBank Eminent Scholar in Finance and Economics,
Warrington College of Business Administration,
University of Florida;
Senior Advisor, Cornerstone Research

René M. Stulz

Everett D. Reese Chair of Banking and Monetary Economics,
Director, Dice Center for Research in Financial Economics,
Fisher College of Business,
The Ohio State University