Damage Models Create Individualized Issues For Pre-Explosion Subclass Of BP Shareholders, But Present No Impediment For Post-Explosion Subclass
The Southern District of Texas recently denied certification of a subclass of BP shareholders who purchased shares prior to the Deepwater Horizon explosion and alleged that misstatements regarding safety improvements caused them to buy BP shares at inflated prices. The court, however, certified a subclass of shareholders who purchased shares after the disaster and alleged that BP’s misstatements regarding the scope of the damage from the explosion and oil spill improperly inflated share-prices. In particular, the plaintiffs alleged that BP’s false statements regarding implementation of certain safety protocols lulled the pre-explosion subclass into believing that BP was better able to prevent and respond to catastrophes than it actually was, and that BP’s alleged fraud “deprived [them] of the opportunity to avoid the increased risk by divesting prior to the explosion.” For the post-explosion subclass, the plaintiffs alleged that, due to BP’s misstatements regarding the rate of the oil spill, share prices did not decline as they should have, and that plaintiffs were therefore injured by paying more for BP’s shares than they would have absent the alleged fraud.
The court began its order by noting that it “must determine whether Plaintiffs’ proposed damages methodologies . . . can be deployed on a classwide basis such that common issues will predominate over individualized ones.” In addressing the proposed pre-explosion subclass, the court found, among other things, that the plaintiffs had failed to satisfy Rule 23(b)(3)’s predominance requirement because their damage theory necessitated individualized inquiries into whether and at what point class members would have chosen to divest themselves of their BP shares. The court explained that certifying a class asserting such a damage theory would be “patently inappropriate,” and, citing the Supreme Court’s decision in Comcast Corporation v. Brehend, explained that “[t]his is exactly the kind of elision of classwide and individualized questions that can and should be avoided by closely examining Plaintiffs’ proposed damages methodology.”
The court found no such issue with the plaintiffs’ “constant dollar” damage methodology for the post-explosion subclass. The court noted that, under the post-explosion subclass’s damage theory, the harm at issue was “the artificial delay in the stock price falling, rather than the creation of artificial inflation.” The court ruled that theory sufficient to satisfy Rule 23(b)(3)’s predominance requirement because it could “be deployed on a classwide basis.”
In re: BP p.l.c. Sec. Litig., No. 10-md-2185, slip op. (S.D. Tex. May 20, 2014).