In re BHP Billiton Ltd. Securities Litigation
276 F. Supp. 3d 65
S.D.N.Y.2017Background
- Plaintiffs (class of ADR purchasers) sued BHP Billiton Ltd. and BHP Billiton plc (together, "BHP") and certain officers under Sections 10(b) and 20(a) and Rule 10b-5 for alleged securities fraud related to the November 5, 2015 collapse of the Fundão tailings dam at Samarco (a 50/50 joint venture of BHP and Vale).
- The collapse killed 19 people, caused massive environmental damage, and materially depressed BHP ADR prices; plaintiffs allege prior warnings and structural defects at Fundão dating back to 2009 that BHP (via Samarco board representatives) knew about or ignored.
- Plaintiffs allege actionable misstatements and omissions in BHP public statements about (a) commitment to safety and adequacy of risk management, (b) compliance with laws, (c) Samarco production projections, (d) toxicity of the mudflow post-collapse, and (e) BHP’s progressive dividend policy; they also invoke Item 303 obligations.
- The FAC relies on Samarco board minutes, consultant reports (e.g., Prístino, Pimenta de Ávila), media reports, Brazilian investigatory findings, and post-collapse testing (including UN reports) to allege falsity and scienter.
- The court evaluated falsity/materiality, PSLRA/Rule 9(b) particularity, Item 303/503 obligations, and scienter (corporate and individual), and granted the motion to dismiss in part and denied it in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether safety-related statements and omissions were materially false/misleading | BHP repeatedly represented a strong commitment to safety while knowing of Fundão’s design defects, monitoring failures, and deficient EAP; omissions rendered statements misleading | Statements were general puffery or accurate warnings; risks were known to market; cautionary language and distinctions between BHP and Samarco insulated defendants | Court: Some safety-related statements (specified FAC ¶¶) were sufficiently specific and material; omissions about Fundão risks also actionable. Other general/aspirational safety statements dismissed. |
| Whether statements about Samarco production and forward-looking operational claims were actionable | Plaintiffs: reporting record production while concealing structural risks made those statements misleading | Defendants: historical production facts cannot be falsified; forward-looking claims protected by PSLRA safe-harbor and accompanied by meaningful cautionary language | Court: Historical production statements dismissed; forward-looking statements protected by safe harbor — claims dismissed. |
| Whether post-collapse statements about tailings toxicity (Mackenzie) were false and pled with scienter | Plaintiffs: post-collapse statements described tailings as "reasonably inert"; later tests (UN, others) showed toxic heavy metals, contradicting Mackenzie | Defendants: Tests do not prove toxins were in tailings (could be pre-existing in river); plaintiffs fail to allege Mackenzie had contrary information when he spoke | Court: Falsity adequately alleged for pleading purposes, but plaintiffs failed to plead Mackenzie’s scienter with particularity — claims as to composition statements dismissed for lack of scienter. |
| Whether Item 303 (MD&A) and Item 503 duties required affirmative disclosure of Fundão risks | Plaintiffs: known trends/uncertainties about the dam and EAP required disclosure under Item 303 and Item 503 risk-factor rules | Defendants: risks were not "reasonably likely" to have a material effect on BHP; Item 503 applies to offering documents, not Forms 20-F | Court: Item 303 claim dismissed (plaintiffs did not plausibly allege a risk both known and reasonably likely to have a material effect on BHP); Item 503 inapplicable/claims dismissed. |
Key Cases Cited
- ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir.) (pleading standard on motion to dismiss applied to securities fraud complaints)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (Supreme Court) (plausibility pleading standard)
- Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (Supreme Court) (elements of a Rule 10b-5 claim)
- Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 568 U.S. 455 (Supreme Court) (PSLRA pleading requirements context)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (Supreme Court) (standard for evaluating competing inferences of scienter)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir.) (particularity requirement for fraud and scienter in securities cases)
- ECA & Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir.) (puffery and materiality in securities statements)
- City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir.) (specificity requirement for material misstatements vs. puffery)
- Stratte-McClure v. Morgan Stanley, 776 F.3d 94 (2d Cir.) (Item 303 and duty to disclose specific material exposure despite generic cautionary language)