MARSHA J. PECHMAN, Chief District Judge.
THIS MATTER comes before the Court on Plaintiffs Claude Reese et al.'s Motion to File a Third Amended Consolidated Class Action Complaint and to Substitute Lead Plaintiffs. (Dkt. No. 217.) Having reviewed the Motion, Defendants' Response (Dkt. No. 222), and Plaintiff's Reply (Dkt. No. 224), the Court hereby GRANTS the Motion to Amend in part and REOPENS a modified lead plaintiff selection process as described below.
This case comes before the Court on remand from the Ninth Circuit, which affirmed in part and reversed in part this Court's dismissal (
The statements and events at issue in this case took place largely in 2006, the year of two major oil leaks from BP pipelines in Prudhoe Bay, Alaska. The Ninth Circuit reinstated Plaintiffs' claims with respect to the following statements, largely on the basis that plaintiffs had adequately pled scienter:
The Ninth Circuit also affirmed this Court's dismissal of claims relating to statements by BP CEO John Browne regarding "world class corrosion monitoring and leak detection systems." (
Plaintiffs now move to amend the complaint a second time by dropping claims whose dismissal was affirmed by the Ninth Circuit or which were abandoned on appeal, reinstating claims based on § 20(a) controlling person liability for primary violations by BP that the Ninth Circuit found actionable, and substituting lead plaintiffs for those who lost standing based on either this Court's original order or the Ninth Circuit opinion. (
Defendants oppose the motion on the grounds that Plaintiffs abandoned their § 20(a) claim against Mr. Browne by not addressing it on appeal (or, in the alternative, that "amendment" to preserve him as a defendant would be futile) and that Plaintiffs may not substitute lead plaintiffs because the current Lead Plaintiffs have lacked standing for 28 months and that allowing a substitution of lead plaintiffs would permit Plaintiffs' counsel to evade the Private Securities Litigation Reform Act ("PSLRA") lead plaintiff selection process.
In deciding a motion to amend that falls after the first amendment as a matter of course but in accordance with the Court's scheduling order, the Court considers a number of factors, including undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to opposing parties, harm to the movant if leave is not granted, and futility of the amendment.
Section 20(a) controlling person liability requires a plaintiff to prove that the defendant exercised actual power or control over a primary violator of federal securities law.
The Court agrees with Plaintiffs that they did not abandon their § 20(a) claims regarding the Annual Report by only making passing reference to § 20(a) during the briefing on appeal. Because this Court's dismissal of the § 20(a) claims was based entirely on the conclusion that primary securities violations were not adequately pled, there was no need for Plaintiffs to argue the § 20(a) claims should be reinstated separately from their arguments regarding the critical missing element of those claims: a predicate securities violation. The § 20(a) claim against survives not with respect to the statement by Mr. Browne that has been dismissed, but (at minimum) with respect to statement attributed to "management" generally in the Annual Report.
Defendants argue in the alternative that the § 20(a) claims against Mr. Browne are futile because the proposed Third Amended Complaint does not state facts sufficient to render plausible the allegation that Mr. Browne controlled BP or BPXA through significant day-to-day involvement in the operations of those companies. (Dkt. No. 222 at 11.) However, as Plaintiffs note, the Ninth Circuit cases cited by Defendant concern the sufficiency of evidence at summary judgment, not the pleadings stage, and as this Court has held, "Whether a defendant is a control person is an intensely factual question, and a plaintiff will survive a motion to dismiss on allegations that individual defendants, by virtue of their executive and managerial positions, could and did control and influence the company."
This Court's initial Order dismissed the claims of most of the original Lead Plaintiffs in this suit—institutional investors who (with one exception) invested solely in BP ordinary shares traded on foreign exchanges—based on the then-recent Supreme Court decision in
Plaintiffs now move to substitute Lead Plaintiffs to remedy these standing problems, seeking to elevate Mr. Reese and add the Employees' Retirement System of the State of Rhode Island ("ERSRI") as substitute Lead Plaintiffs.
Defendants argue the 28-month delay between Plaintiffs' Ninth Circuit opening brief in August 2012 and the date of their Motion to Amend militates in favor of denying the request to substitute Lead Plaintiffs. (
Defendants argue in the alternative that the Court should reopen the PRSLA selection process pursuant to 15 U.S.C. § 78u-4(a)(3). (Dkt. No. 222 at 15.) Defendants are correct that courts generally require at least a modified renewed PRSLA selection process upon withdrawal of a lead plaintiff—even a case cited by Plaintiffs permitted applicants to move for appointment as lead plaintiff during a 60-day window following the prior lead plaintiff's withdrawal.
The Court GRANTS the Motion to Amend insofar as it retains Mr. Browne as a defendant and in other respects not challenged by Defendants except it DENIES the Motion insofar as it proposes to substitute Lead Plaintiffs without an opportunity for outside applicants to move for appointment. The Court hereby OPENS a modified PSRLA selection process and will consider motions from putative class members for appointment as Lead Plaintiff in the 60day window following this Order.
The clerk is ordered to provide copies of this order to all counsel.