U.S. Fifth Circuit Affirms Securities Fraud Class Against BP for Post-Spill Misrepresentations

In What's New in Class Action Law?, What's New in the BP Oil Spill Litigation, What's New in the Courts by gravierhouseLeave a Comment

“[T]he plaintiffs’ theory of liability is that BP misrepresented the Spill’s flow rate. The theory of damages is that the stock price was inflated as a result of BP’s misrepresentations, as revealed by six corrective events. Some of those events are unequivocally connected to the alleged misrepresentations, i.e., a Coast Guard statement several days after the spill reporting that the spill rate estimate was five-fold higher than first anticipated,53 and some are more removed, e.g., BP announcing that its directors were meeting to discuss alternatives to paying a dividend. The district court refused to consider excluding certain corrective events from the plaintiffs’ damages model at the certification stage. Our question is: in doing so, was it following Amgen’s mandate not to require proof of class-wide elements, or was it violating Comcast’s direction that it must determine the mesh of liability and damage theory?  While the counter argument does not lack purchase, we conclude that the district court acted appropriately. As a conceptual matter, the theory of liability is consistent with the theory of damages: the liability stems from BP’s flow-rate misstatements, and the loss forming the basis for Plaintiffs’ damages model comes from the inflated stock price caused by those misstatements. This situation, then, is not like Comcast, where the plaintiffs’ theory of damages was based on four district alleged antitrust distortions, but the theory of liability was based on only one of them.  There, it was undisputed that the plaintiffs’ ‘methodology . . . identifies damages that are not the result of that wrong.’  Under that model, some plaintiffs sought to recover under a theory of damages that corresponded to a theory of liability no longer in the case. This case is different. Here, the dispute is whether the specific corrective events Coffman identified as a measure if stock price inflation are adequately tied to the alleged misstatements. Each plaintiff’s theory of damages remains tied to a theory of liability common to all plaintiffs, satisfying the Amgen standard of commonality.  Addressing the corrective events question at the class certification stage raises two problems. First, it is in tension with Halliburton I’s holding that no proof of loss causation is required at the class certification stage.  Recall, loss causation is ‘a causal connection between the material misrepresentation and the loss;’ it measures the loss caused by the misstatement. We recognize that other circuits have held that loss causation and damages are not entirely congruent. They have said that loss causation requires plaintiffs to prove that the misstatement was only ‘a substantial cause of the plaintiff’s loss,’ but that to prove damages, plaintiffs must ‘isolate and remove’ other contributing forces to the decline in value. This makes sense. Plaintiffs must prove that the portion of the price fall that they seek in damages is directly attributable to the misrepresentation, so that they do not recover a windfall. But they do not need to prove it at the certification stage. Halliburton I holds that we do not yet require plaintiffs to prove that the defendant’s misrepresentation was a ‘substantial cause’ of loss at this stage; it would not make sense to now require them show that the same misrepresentation was the ‘sole’ cause of that very loss.  Second, in Amgen, the Court made clear that questions ‘common to the class’ need not be proved at the class certification stage, so long as they are capable of common resolution.  Here, the question of whether certain corrective disclosures are linked to the alleged misrepresentations in question is undeniably common to the class, and is ‘susceptible of a class-wide answer.’ So is the measure of damages which is dependent on the answer to that question, without reference to any individual class members.” Lodlow v. BP p.l.c., No.14-20420 (5th Cir. Sept. 8, 2015).

Leave a Comment