In Re: BP, P.L.C. Securities
800 F.3d 674
| 5th Cir. | 2015Background
- The suit: BP shareholders sued BP and two former executives under §10(b)/Rule 10b-5 over (1) pre-spill statements about safety systems and contingency plans and (2) post-spill statements underestimating the Deepwater Horizon spill flow rate.
- Two subclasses proposed: Pre-Spill (purchases before April 20, 2010) based on a "materialization-of-the-risk" damages theory; Post-Spill (purchases after the spill began) based on a stock-price "inflation" / out-of-pocket/event-study methodology.
- The district court certified the Post-Spill class, finding the plaintiffs’ damages model consistent with liability under Comcast, but denied certification of the Pre-Spill class for failure to show classwide damages under Comcast.
- Both sides appealed the class-certification rulings under Fed. R. Civ. P. 23(f); Fifth Circuit reviewed for abuse of discretion and affirmed.
- Central legal tension: how Comcast’s requirement that a damages model measure only damages attributable to the theory of liability interacts with Halliburton/Amgen holdings limiting what must be proved at class-certification (i.e., no full proof of loss causation/other merits elements).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Post-Spill class may be certified with Coffman’s event-study/out-of-pocket model | Coffman’s corrective-disclosure event-study measures classwide price inflation tied to defendants’ post-spill flow-rate misstatements; model can be adjusted to exclude noncorrective events | Model is speculative, mislabels some corrective events, and improperly includes disclosures not tied to the alleged misstatements; Comcast requires excluding such flaws now | Affirmed certification. Court held Coffman’s model is facially consistent with liability, Amgen/Halliburton allow most merits/loss-causation proof to await later stages, and the model can be refined to exclude non-corrective events. |
| Whether Pre-Spill class may be certified on a materialization-of-risk theory | Materialization-of-risk permits recovery of the full decline when the risk (allegedly understated) materialized; fraud-on-the-market presumption supports classwide reliance | Model cannot distinguish class members who would have bought even knowing true risk from those who would not; thus damages cannot be measured classwide under Comcast | Affirmed denial. Court held the theory requires individualized inquiries into whether each plaintiff would have transacted absent the misstatements, so damages are not susceptible to classwide measurement. |
| Whether district court erred by declining to resolve purported model flaws (link between corrective events and misstatements) at certification | Plaintiffs: need only show a damages model consistent with liability; detailed loss-causation proof may await later | BP: Comcast requires the court to exclude models that identify damages not attributable to the liability theory at certification | Court sided with plaintiffs: Comcast demands a model consistent with liability but Amgen/Halliburton limit district courts from resolving loss-causation/merits disputes at certification; here the model’s fit is a common question and can be addressed later. |
| Whether district court abused discretion by denying leave to renew class-certification motion with a new damages theory | Plaintiffs sought another opportunity to present a different model | Defendants opposed additional bites; district court rejected a third attempt after detailed prior rulings | Affirmed. Court likely lacked Rule 23(f) jurisdiction over denial of leave and, in any event, district court did not abuse its discretion. |
Key Cases Cited
- Comcast Corp. v. Behrend, 569 U.S. 27 (2013) (damages model at certification must measure only damages attributable to the plaintiff's theory of liability)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (fraud-on-the-market presumption of reliance for public securities markets)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005) (loss causation limits recoverable economic losses to those caused by the misrepresentation)
- Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton I), 131 S. Ct. 2179 (2011) (loss causation need not be proved at class certification)
- Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II), 134 S. Ct. 2398 (2014) (clarifies fraud-on-the-market prerequisites for presumption of reliance)
- Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S. Ct. 1184 (2013) (plaintiff need not prove merits elements at certification if common questions are susceptible to classwide proof)
- In re Deepwater Horizon, 739 F.3d 790 (5th Cir. 2014) (Fifth Circuit discussion of Comcast’s applicability in class settlements and related Deepwater Horizon litigation)
- FindWhat Investor Group v. FindWhat.com, 658 F.3d 1282 (11th Cir. 2011) (explains event-study methodology for measuring corrective-disclosure effects on stock price)