Since the U.S. Supreme Court issued its opinion in Morrison v. National Australia Bank, would-be claimants who purchased shares of a non-U.S. company outside the U.S. have struggled to find a way to pursue their claims in U.S. courts. Among other things, these claimants have tried to avoid Morrison’s federal securities claim-preclusive effect by filing common law claims against the non-U.S. company in U.S. courts. These efforts have largely proven unsuccessful, as courts have dismissed these claims on forum non conveniens grounds, on the theory that the non-U.S. company’s home court represent a more appropriate forum for the claims.
However, as a result of a recent ruling in one of the many lawsuits arising out of the BP Deepwater Horizon oil spill, at least some of the claims of investor claimants who purchased their BP shares on a non-U.S. exchange will be going forward in a U.S. court. Even though the court ruled that English law governed the claimants’ common law and statutory claims, the court found that it could not conclude that an English court is a more appropriate forum for the claims. A copy of Southern District of Texas Judge Keith Ellison’s September 30, 2013 97-page ruling granting in part and denying in part defendants’ motions to dismiss can be found here.
Judge Ellison’s conclusions reflect considerations that may be unique to the circumstances surrounding the Deepwater Horizon oil spill. Nevertheless, the case does represent a significant instance where claimants whose U.S. securities laws claims would be precluded by Morrison have found a way to be able to pursue claims on an alternative theory in U.S. courts.
Following the April 20, 2010 Deepwater Horizon oil spill, BP shareholders filed a number of lawsuits against the company and its officials seeking to recover for their financial losses. Among these lawsuits was a securities class action lawsuit filed under U.S. securities laws. Many of the allegations in the securities class action lawsuit survived the motion to dismiss; however, as discussed here, in February 2012, Southern District of Texas Keith Ellison, in reliance on the U.S. Supreme Court’s decisions in Morrison, granted the defendants’ motion to dismiss the claims of putative class members who had purchased BP common shares on the London Stock Exchange (LSE). Many of the claims of putative class members who purchased BP ADSs on the New York Stock Exchange survived the dismissal motion.
Judge Ellison’s September 30, 2013 decision related to a separate, individual action that had been brought by three U.S. public pension funds, the Alameda County Employees’ Retirement Association; the Employees’ Retirement System of the City of Providence; and State-Boston Retirement System. The plaintiffs’ separate action was filed against BP and several of its related entities as well as against seven current or former BP executives. The plaintiffs alleged that prior to the spill that the defendants had made material misrepresentations relating to BP’s safety efforts and preparedness, and after the spill with respect to the amount of oil that was leaking from the damaged well.
Only Alameda and State-Boston had purchased BP ADSs on the NYSE, and those two plaintiffs asserted claims against the defendants under the federal securities laws. Alameda and State-Boston also bought BP common shares on the LSE. Providence had only purchased common shares on the LSE.
In addition to Alameda’s and State-Boston’s claims under the federal securities laws, the plaintiffs also asserted common law fraud, common law aiding and abetting fraud claims, and negligent misrepresentation claims against the defendants. Each of the three plaintiffs also asserted state statutory claims, under various Texas, California and Massachusetts statutory provisions.
The defendants moved to dismiss arguing among other things that Alameda’s and State-Boston’s federal securities law claims allegations were insufficient to state a claim; that English law applies to the plaintiffs’ common law and state statutory claims; that English law did not permit many of the plaintiffs’ common law and state statutory claims; and that even with respect to the plaintiffs’ claims that are recognized by English law, that the plaintiffs’ allegations were insufficient to state a viable claim. The defendants also argued in the alternative that if the Court were to conclude that the plaintiffs stated viable claims under English law, that the court should dismiss the claims under the doctrine of forum non conveniens.
The September 30, 2013 Opinion
In his September 30, 2013 opinion, Judge Ellison granted in part and denied in part the defendants’ motion to dismiss. Among other thing, Judge Ellison granted in part and denied in part the defendants’ motion to dismiss Alameda’s and State-Boston’s claims under the federal securities laws. In this post, I do not examine Judge Ellison’s rulings concerning the federal securities laws claims.
In considering the defendants’ motion to dismiss the plaintiffs’ common law and state statutory claims, Judge Ellison first had to address the question of which jurisdiction’s laws governed the claims and the dismissal motion. Applying Texas choice of law principles and using the standards enunciated in the Restatement (Second) of Conflict’s of laws, Judge Ellison determined that the laws of England have the “most substantial relationship” to the plaintiffs’ claims.
Judge Ellison then undertook to “map” plaintiffs’ claims to English law. He first determined that English law does not recognize claims for aiding and abetting common-law fraud, statutory fraud or statutory unfair and deceptive trade practices, and he therefore granted the defendants’ motion to dismiss these claims.
The defendants acknowledged that three English law claims “map” onto the plaintiffs’ theories of liability under state law. The first of these, relating to the plaintiffs’ state statutory claims, map to statutory securities fraud under the Financial Services and Markets Act of 2000 (“FSMA”). The plaintiffs’ claims for common law fraud map to the English action for “deceit.” The plaintiffs’ claims for common law negligent misrepresentation map to the English action for “negligent misstatement.” However, the defendants argued that while the plaintiffs’ state statutory claims and common law claims correspond to claims under English law, the plaintiffs’ allegations were nevertheless insufficient to state a claim.
In a painstakingly detailed analysis, Judge Ellison concluded that the plaintiffs’ allegations were at least in part sufficient to state a claim under the corresponding English law legal theories.
The defendants argued that the court should nevertheless dismiss the plaintiffs’ claims under the doctrine of forum non conveniens. The defendants argued that England is an available and adequate alternative forum for these claims and that private and public interest factors favored dismissal in preference to the English forum. The defendants argued that most of the alleged misstatements originated in England, that the non-party witnesses are predominantly in England, that English courts would be more familiar with English law, and that it would be difficult for a U.S. court to construe and apply the FSMA, which has not been widely interpreted by English courts.
Judge Ellison concluded that “the Court does not find that Defendants have surmounted the high bar for disturbing Plaintiffs; choice of forum.” He fount that “the private and public interest factors, viewed in toto, do not indicate that this Court is an inconvenient forum for Plaintiffs’ English law claims.” He noted that “it would be inefficient to send these claims to England, when nearly the same issues will be adjudicated here in the Class Action and in the individual action asserting Exchange Act claims.” In that regard, he noted in particular that Alameda and State-Boston’s U.S. securities laws claims would remain and be litigated in his court.
He also found that the one public interest factor that favored dismissal – the need to apply foreign law to some of the plaintiffs’ claims – “cannot be determinative.” He noted that “the Court is certainly capable of applying English law, which shares so many strong similarities with U.S. law due to a common heritage.”
Finally, he noted that the other public interest factors “weigh in favor” of keeping the plaintiffs’ claims in the U.S. court, observing that “the nature of the controversy is unquestionably local.” The oil spill that prompted the claims “occurred only 50 miles off the cost of Louisiana” and “the majority of the misrepresentations alleged by Plaintiffs touch the adequacy of, and the attention paid to, the safety of BP’s U.S. operations.” Because neither the private interest factors nor the public interest factors weigh strongly in favor of dismissal, Judge Ellison declined to “upend Plaintiffs’ choice of forum.”
Over the course of Judge Ellison’s lengthy and detailed opinion, he dismissed a significant number of the plaintiffs’ claims. He also determined that English law governs that plaintiffs’ common law and state statutory claims, and that there is no English counterpart for many of the common law claims the plaintiffs sought to assert, resulting in dismissal of a number of claims. Nevertheless, he found that the plaintiffs’ allegations were sufficient for those claims for which there are English counterparts. Most importantly, he found that the remaining viable claims could remain pending in a U.S. court and did not have to be dismissed in favor of an English court.
Thus, while significant parts of the plaintiffs claims were dismissed, the plaintiffs still succeeded in keeping at least some of their claims alive and pending in a U.S. court. This is significant in and of itself, of course, but it is also noteworthy because it represents a substantial instance where a set of claimants whose U.S. securities laws claims would be precluded under Morrison because they purchased their shares in a non-U.S. company on a foreign exchange nevertheless were able to subject the non-U.S. company to a claim in U.S. courts. In other words, Judge Ellison’s ruling represents the rare instance when prospective claimants have managed to side-step the implications of Morrison in order to subject a non-U.S. company to claims in a U.S. court.
Since the U.S. Supreme Court’s Morrison decision, other claimants have tried to circumvent Morrison and subject a non-U.S. company to claims in a U.S. court by asserting claims of common law fraud. By and large, those efforts have not been successful.
For example, as discussed here, in December 2012, New York’s appellate court rejected the efforts by short-seller claimants to assert common law claims in New York state court against Porsche and certain of its directors and officers. The claimants’ federal securities law claims had already been dismissed on the basis of Morrison, because the claimants had purchased their securities outside of the U.S. The New York appellate court found that the claimants’ common law claims, which the claimants had filed in state court after their federal securities laws claims had been dismissed, should be dismissed on the ground of forum non conveniens.
The plaintiffs’ success here in avoiding a dismissal on the ground of forum non conveniens is all the more noteworthy because in the separate BP Deepwater Horison shareholders’ derivate lawsuit, Judge Ellison had granted the defendants’ motion to dismiss on forum non conveniens grounds. As discussed here, in September 2011, Judge Ellison found that the balance of factors weighed in favor of the dismissal of the suit in preference for an English forum, as the derivative suit would involve considerations of the proper conduct under English law of the affairs of the board of an English company. Judge Ellison found that considerations of the internal affairs doctrine militated in favor of dismissal. As discussed here, in January 2013, the Fifth Circuit affirmed the dismissal of the BP Deepwater Horizon shareholders’ derivative lawsuit.
But while this case may represent an important instance in which prospective claimants have been able to side-step Morrison and assert claims in U.S. court against a non-U.S. company, there are several reasons why this case may or may not present a playbook for other claimants who are otherwise precluded from U.S. courts by Morrison to try to establish common law or state statutory claims against a non-U.S. company.
First, there are several distinct factors that clearly weighed heavily in Judge Ellison’s analysis that are unlikely to be present in other cases. Among other things, Judge Ellison considered the pendency of many other claims in the court relevant, noting that considerations of judicial efficiency weighed in favor of keeping the case in the same court where so many of the same factual issues would be determined. He also was clearly influenced by the fact that the Deepwater Horizon oil spill had taken place nearby and so many of the statements at issue related to events or operations in the U.S.
Another thing that could be important about Judge Ellison’s opinion is that it is lower court ruling. Although the defendants will not be able to get appellate consideration of Judge Ellison’s ruling unless they are willing to ride this lawsuit all the way through its procedural conclusion in the district court (barring the possibility of an interlocutory appeal), the possibility that an appellate court might take a different view has to be kept in mind. In that regard, it is worth noting that in the Porsche case mentioned above, the state trial court judge had declined to dismiss the case on forum non conveniens grounds; it was only on appeal that the court determined that the case should be dismissed.
But while there are considerations that clearly make Judge Ellison’s determination something less than a pattern of general applicability, it nonetheless represents a noteworthy instance where claimants whose federal securities law claims were barred under Morrison were still able to assert claims in a U.S. court against a non-U.S. company. It presents an occasion in which claimants may have succeeded in side-stepping Morrison in order to assert claims in a U.S. court against a non-U.S. company and is important for that reason.
Special thanks to a loyal reader for sending me a copy of Judge Ellison’s decision.
UPDATE: Alison Frankel has an excellent October 15, 2013 post about this decision on her On The Case blog, here.