Shareholders knew risks of oil and gas business, BP argues in shareholders class action

Steve Korris May 10, 2011, 1:57am


HOUSTON– BP shareholders knew they invested in risky business, company directors argue in a bid to stop a class action over losses from the Deepwater Horizon explosion.

"As BP had explained to the market, liabilities resulting from accidents are regrettable risks of running its oil and gas business," Thomas Taylor, of Andrews Kurth in Houston, wrote on May 6.

He asked U.S. District Judge Keith Ellison to dismiss an action that pension funds propose to pursue for buyers of BP's American depository shares.

The pension funds seek damages under the Securities Exchange Act of 1934, claiming the directors misrepresented their commitment to safety starting in 2005.

Their complaint recited a litany of BP explosions and other accidents, and Taylor answered that it showed the extent of public knowledge about drilling hazards.

"Plaintiffs allege that BP concealed undisclosed risks of a catastrophic system failure," he wrote.

"But the market already knew that BP's business was subject to catastrophic risks," he wrote.

He wrote that BP disclosed in annual reports to the Securities Exchange Commission that loss of containment of hydrocarbons could result from safety failures.

He described BP's statements on safety as "commonplace expressions of corporate optimism, not securities fraud."

"In part because the statements are so vague, plaintiffs do not adequately allege that they were false," he wrote.

"Statements that BP is a leader in deep water drilling are fully consistent with deep water drilling being a risky endeavor," he wrote.

Taylor moved on the same date to dismiss a suit the pension funds filed for ordinary shareholders, arguing it belongs in the United Kingdom.

"The majority of BP's ordinary shareholders are citizens of the U.K. or another foreign country," he wrote.

"The proposed English law class in this case likely would include hundreds of thousands of members," he wrote.

He cautioned Ellison against deciding securities claims under an entirely different code.

He wrote that thereare no reported cases under the financial disclosure statute for U.K. companies as amended in 2006.

He declared it doubtful that Ellison could bind class members outside the United States.

"Moreover, even for class members present in the United States, the question of whether U.K. courts would recognize a class wide judgment as binding on them is unsettled," he wrote.

He found no danger that England would deprive plaintiffs of any remedy or treat them unfairly.

He wrote that three of ten defendants live in the United States.

Taylor also moved to dismiss a claim from a splinter group, the Ludlow plaintiffs, proposing a class action over statements about safety in the Gulf of Mexico in the year before the explosion.

The group seeks damages for holders of ordinary and American depository shares.

Taylor wrote that they allege mismanagement, not fraud.

"Vague and optimistic statements concerning topics such as safety and deep water drilling lack a standard against which a reasonable investor would expect them to be pegged, and thus are immaterial to an investment decision," he wrote.

"Lengthy descriptions of past and present safety and drilling related matters, that plaintiffs do not adequately allege are false, also cannot give rise to a securities claim," he wrote.

"Moreover, the information allegedly omitted from the challenged statements – industry wide risks, personnel matters and very specific safety and maintenance problems – appear material only in the wake of the Deepwater Horizon oil spill," he wrote.

Daryl Libow, Amanda Davidoff, Richard Pepperman, Marc De Leeuw, and Matthew Peller, all of Sullivan and Cromwell, also worked on the motion.

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