Ralph Whitley v. BP, P.L.C.
838 F.3d 523
| 5th Cir. | 2016Background
- BP maintained ERISA-regulated retirement Plans that included an ESOP-like BP Stock Fund primarily invested in BP stock.
- After the Deepwater Horizon explosion and oil spill in April 2010, BP’s stock price fell sharply and Plan participants sued for losses to the BP Stock Fund.
- Plaintiffs alleged fiduciaries had inside knowledge of undisclosed safety breaches and therefore breached duties of prudence, loyalty, monitoring, and disclosure.
- District court originally dismissed under a Fifth Circuit presumption of prudence (Moench/Kirschbaum), but the Supreme Court’s decision in Fifth Third (Dudenhoeffer) eliminated that presumption and required a different pleading standard.
- On remand plaintiffs amended to allege defendants had inside information and proposed two alternative fiduciary actions: (1) freeze/limit/restrict BP stock purchases and (2) disclose unfavorable information to the public.
- The district court permitted amendment as plausible under Fifth Third and certified for interlocutory appeal; the Fifth Circuit reviewed the amended complaint de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs plausibly alleged insider-based imprudence under Fifth Third | Plaintiffs alleged fiduciaries had nonpublic knowledge that BP was overvalued and thus breached prudence | Defendants argued the complaint lacks factual detail showing a permissible alternative that a prudent fiduciary could not have reasonably rejected | Court held plaintiffs did not plausibly plead alternatives meeting Fifth Third/Amgen standard and reversed district court |
| Whether proposed alternatives were consistent with securities laws | Plaintiffs asserted their proposed actions could be taken without violating securities laws | Defendants contended plaintiffs offered only conclusory assertions without facts showing legal feasibility | Court found plaintiffs’ conclusory assertions insufficient |
| Whether plaintiffs pleaded that alternatives ‘would not be more likely to harm than help’ the fund | Plaintiffs alleged generally that alternatives would not be more likely to harm than help | Defendants argued plaintiffs failed to allege facts showing a prudent fiduciary could not have concluded the alternatives would do more harm than good | Court held plaintiffs failed to show for each alternative that no prudent fiduciary could conclude it would do more harm than good |
| Whether district court misapplied Fifth Third by adopting a weaker standard | Plaintiffs relied on district court’s view that the question could not be resolved on pleadings | Defendants urged strict reading of Fifth Third and Amgen requiring factual allegations that the alternative could not plausibly be deemed more harmful | Court agreed district court misread Fifth Third and Amgen and corrected the legal standard |
Key Cases Cited
- Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014) (ESOP plaintiffs must plausibly allege an alternative action a prudent fiduciary would not view as more likely to harm than help)
- Amgen Inc. v. Harris, 136 S. Ct. 758 (2016) (plaintiff must plead facts showing a prudent fiduciary could not have concluded the alternative would do more harm than good)
- Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243 (5th Cir. 2008) (adopted Moench presumption of prudence for ESOPs)
- Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995) (recognized a presumption of prudence for ESOP fiduciaries)
- Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56 (2d Cir. 2016) (affirmed dismissal where complaint failed to plead facts showing alternatives wouldn’t be more likely to harm than help)