Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681

BPXA discovered a large oil leak in August 2006 and shut down pipelines in Prudhoe Bay after a March 2006 spill; BPXA pled guilty in 2007 to a Clean Water Act violation related to the spills.
The leaks and shutdowns were attributed to internal corrosion from bacterial activity caused by sediment and low-flow conditions in Prudhoe Bay pipelines.
The plaintiff, Reese, sued BP p.l.c. and BP subsidiaries and officers under Sections 10(b), 18, and 20(a) of the Exchange Act, alleging misrepresentations and omissions that allegedly inflated BP stock price.
The Trust (BP Prudhoe Bay Royalty Trust) repeatedly filed its SEC reports attaching the ORC Agreement and the Trust Agreement, with BPXA and Standard Oil having a role in those disclosures.
The ORC Agreement promised BPXA to operate Prudhoe Bay as a prudent operator, a forward-looking obligation read with the Trust’s SEC filings; Reese contends these filings misrepresented BPXA’s compliance.
The district court granted in part and denied in part BPXA’s Rule 12(b)(6) motion; it certified two issues for interlocutory appeal, which the Ninth Circuit granted and then addressed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a contract filed with the SEC can ground securities fraud against a nonparty.	Reese argues the Trust’s filings make BPXA’s contractual promise an actionable misrepresentation.	BPXA argues a forward-looking contract promise is not a misrepresentation of current fact.	Contract breach not an actionable misrepresentation.
Whether a party’s admission of criminal negligence can establish scienter for §10(b) respondents.	Reese relies on BPXA’s guilty-plea admissions as evidence of scienter.	Defendant contends such admissions do not reliably prove scienter for securities fraud.	Scienter issue not reached; discussion limited to contract-grounded misrepresentation.

Brody v. Transitional Hosps. Corp., 280 F.3d 997 (9th Cir. 2002) (statement misleading if it creates impression of a state of affairs materially different from reality; scienter pleading standards)
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (inference of scienter must be cogent and at least as compelling as any nonfraudulent inference)
In re Wells Fargo Sec. Litig., 12 F.3d 922 (9th Cir. 1993) (omission actionable when necessary facts are omitted to prevent misleading)
MobileMedia Sec. Litig., 28 F. Supp. 2d 901 (D.N.J. 1998) (contract terms in SEC filings can be misrepresentations if they state current compliance)
MobileMedia Sec. Litig., 28 F. Supp. 2d 901 (D.N.J. 1998) (distinguishes forward-looking promises from present assertions)
Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011) (maker of a statement is the entity with control over content; primary liability limits)
In re Silicon Graphics Sec. Litig., 183 F.3d 970 (9th Cir. 1999) (plausibility and scienter pleading standards; Rule 9(b) applicability)
Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) (required pleading of a material misrepresentation, scienter, and causation)
Foster v. Wilson, 504 F.3d 1046 (9th Cir. 2007) (breach of contract generally not securities fraud unless misrepresentation of present fact)