As part of our beat here at The D&O Diary, we regularly monitor new lawsuit filings and try to identify trends and patterns. Over the years, we have noted and commented on this blog about many of the trends and patterns we have identified. More than once we have noted the incidence of director and officer liability litigation arising out of environmental issues. We have also noted that D&O litigation often follows after the announcement of FCPA investigations. As discussed below, there has been a flurry of recent filings involving environmental issues. I have also noted below an interesting variant on the FCPA follow-on civil lawsuit pattern.
Environmentally-Related Lawsuit Filings
With respect to the cases arising out of environmental issues, the first of the recent cases arises out of the mining dam disaster last year in Brazil. On February 24, 2016, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against BHP Billiton Limited, BHP Billiton PLC, and certain of its directors and officers. BHP was a 50% owner of Samarco, a company based in Brazil. The other 50% of Samarco is owned by Vale, S.A. In November 2015, a dam burst at the Samarco mining site, which released tens of millions of cubic tons of water, resulted in at least 13 deaths and many more injuries, and has been called the worst environmental disaster in Brazil’s history.
According to the plaintiff’s lawyers’ February 24, 2016 press release (here), the complaint (which can be found here), alleges that the BHP defendants “knew or recklessly disregarded the precarious condition of mining operations and facilities at the Samarco mine … yet made materially false and misleading statements concerning the Company’s commitment to safety and the implementation of safety and monitoring protocols at the mine sites.”
The new lawsuit against BHP is not the first securities class action lawsuit to arise out of the Sarmarco mine disaster. As discussed here, on December 7, 2015, a plaintiff shareholder filed a securities class action lawsuit against the Brazilian company, Vale, S.A., the other co-owner of the Samarco mine, and certain of its directors and officers, also in the Southern District of New York.
In a separate recently filed and environmentally related securities class action lawsuit, on February 29, 2016, a shareholder plaintiff filed a securities lawsuit in the Southern District of California against Sempra Energy and two of its directors and officers. Sempra’s Southern California Gas Company (SoCalGas) segment transmits, distributes and stores natural gas in Central and Southern California. On October 23, 2015, SoCalGas discovered a natural gas leak at the company’s Aliso Canyon natural gas storage facility near the Porter Ranch neighborhood in Los Angles. Residents in the area soon began to complain of a strong gas order. Many local residents complained of headaches, nausea, and nosebleeds. The company struggled to try to plug the leak. On November 23, 2015, displaced Porter Ranch residents filed a class action damages lawsuit against SoCalGas. According to news reports, the leak was permanently capped on February 18, 2016.
According to the plaintiffs’ lawyers February 29, 2016 press release (here), the complaint (a copy of which can be found here) alleges that the defendants “made false and/or misleading statements and/or failed to disclose that: (i) SoCalGas lacked the capability to expeditiously repair gas leaks, causing a public hazard; (ii) an extended hazardous gas leak would constitute a serious threat to public health and safety; and (iii) as a result of the foregoing, Defendants’ public statements were materially false and misleading.”
FCPA-Related Follow-On Civil Actions
My observation about FCPA follow-on litigation has to do with a lawsuit that was recently settled, not one that was just filed. The recently settled case involves the cosmetics company, Avon, which was involved in a FCPA-related investigation involving its China operations. The company resolved the SEC and DOJ investigations in May 2014, in an agreement with the government in which the company entered a non-prosecution agreement and agreed to pay fines totaling $135 million. The FCPA investigation had previously given rise to a securities class action lawsuit (about which refer here), which in September 2015 settled for $62 million. Apparently, in addition to the securities class action lawsuit, there was another follow on civil lawsuit filed relating to the Avon FCPA investigation.
It turns out that in December 2014, participants in the Avon’s retirement plan filed an action relating to the FCPA investigation against current and former Avon executives, in which the claimants alleged that the defendants had failed to protect the plan participants’ interests, as required by ERISA. The ERISA lawsuit alleged that the enforcement actions, which had been resolved months before the ERISA suit was filed, arose because Avon failed to prevent, investigate, remediate and disclose the conduct at Avon’s Chinese subsidiary. The ERISA complaint alleged that the retirement plan fiduciaries allowed the company’s stock (including stock in the retirement plan) to trade at artificially inflated the prices. The complaint alleged that the retirement plan participants suffered hundreds of millions of dollars in retirement savings from the steady decline in stock prices when allegations of the misconduct emerged.
According to a February 29, 2016 Law 360 article (here, subscription required), the parties to the Avon ERISA lawsuit have agreed to settle the case for the company’s agreement to pay $6.25 million. Based on the parties’ memorandum in support of the joint motion for preliminary approval of the class settlement (here), it appears that the settlement is to be funded in whole or in part by insurance.
The environmentally related lawsuits discussed above come on the heels of the securities class action lawsuit filed against VW and certain of its directors and officers arising out of the company’s diesel engine vehicles’ emissions testing scandal. Clearly, environmental issues are an area of increasing focus for securities class action plaintiffs’ lawyers. As I noted in connection with the recent shareholders derivative lawsuit involving Duke Energy, environmental concerns can also lead to mismanagement claims based on alleged breaches of fiduciary duties. It is clear the problems confronting companies involved in environmental incidents increasingly are going to include the possibility of corporate or securities litigation.
Interestingly, BHP, Vale, and VW are all based outside of the United States. So there is a definite sense in which these lawsuits represent yet another recent filing trend – that is, the heightened incidence of U.S. securities class action lawsuits against non-U.S. companies. As I noted in my year-end review of 2015 securities class action lawsuit filings, there were 34 securities class action lawsuits filed last year against non-U.S. companies, representing 18% of all securities suit filings for the year. This trend for foreign companies to become involved in U.S. securities litigation has continued so far this year, with eight of the 40 lawsuits (20%) filed year to date involving non-U.S. companies.
The FCPA-related ERISA case is interesting not just because it represents another example of civil litigation following on in the wake of an FCPA investigation. It also represents something of a novelty given the kind of lawsuit involved. I have seen numerous securities class action lawsuits and shareholders derivative lawsuits filed against companies involved in FCPA investigation, but the Avon case discussed above represents the first instance I have seen in which a company dealing with an FCPA investigation has been hit with an ERISA action. The case suggests that the concept of the FCPA follow-on civil suit will have to be expanded to include the possibility of an ERISA lawsuit filed on behalf of retirement plan participants of the company involved in the investigation.