Thursday, June 30, 2011

Reese v. BP Exploration (Alaska) Inc.

Jun 29: In the U.S. Court of Appeals, Ninth Circuit, Case No. 10-35128. Appeal from the United States District Court for the Western District of Washington. BP Exploration (Alaska) Inc. (BPXA) appeals the district court's order granting in part and denying in part BPXA's motion to dismiss a securities fraud action filed against it by Claude A. Reese (Reese) on behalf of a class of purchasers of BP p.l.c. shares. On an interlocutory appeal, which was accepted by the Ninth Circuit, BPXA asserts that Reese's surviving claims do not state a claim, warranting dismissal under Federal Rule of Civil Procedure 12(b)(6), because Reese has pled neither an actionable misrepresentation made by or attributable to BPXA nor sufficient evidence of scienter [intent or knowledge of wrongdoing]. Reese, in turn, urges the Appeals Court to affirm the district court on the issues certified for interlocutory appeal and reverse part of the district court's order granting partial dismissal of his claims, or, alternatively, that the Appeals Court vacate the order granting interlocutory appeal.
    The Appeals Court ruled, "We hold that BPXA's breach of a contractual promise of specific future conduct, even though the contract is filed in conjunction with U.S. Securities and Exchange Commission (SEC) reporting requirements, was not a sufficient foundation for a securities fraud action. We decline Reese's invitation to review other issues that were not certified for interlocutory appeal. In light of our conclusion that breached contractual obligations do not constitute misrepresentations by BPXA that are actionable under the securities laws, we need not reach the issue of scienter."
    The Appeals Court said further, "BPXA's contractual promise to act as a prudent operator did not expressly or implicitly assert that BPXA was in full compliance with its obligations thereunder, and we do not view the public filing of the ORC Agreement as the sort of traditional fraudulent misrepresentation of fact that could induce investors mistakenly to buy securities. We hold that, in this case, the public filing of a contract containing a promise of future compliance did not, upon the contract's breach at a time after execution, provide an actionable misrepresentation for the purposes of a private damages action for securities fraud."
    Access the complete opinion (click here). [*Haz, *Water, *CA9]

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