Compliance

BP Deepwater Stock Drop Suit Gets DOL and SEC Consideration

The complicated litigation Whitley v. BP PLC  is just the latest stock drop case to be impacted by the big-ticket Supreme Court decision in Dudenhoeffer v. Fifth Third Bancorp—this one earning “friend of the court briefs” from both DOL and SEC.

By John Manganaro editors@strategic-i.com | March 29, 2016
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The DOL and SEC both filed amicus briefs in the long-running case Whitley v BP PLC, an ERISA stock drop lawsuit revived in 2014 in the wake of the U.S. Supreme Court decision in Dudenhoeffer v. Fifth Third Bancorp.

Since being revived “post-Fifth Third,” the case has been subject to multiple district and appeals court rulings. While BP won dismissal of several claims that alleged some of its corporate entities failed to monitor fiduciaries who oversaw company stock investments in its retirement plans, other elements of the case have moved forward. In particular, the 5th U.S. Circuit Court of Appeals is now considering several challenging questions about whether insiders and managers at the BP company had a duty to act (and if so, how) on non-public information in managing BP stock investments owned by employees and subject to fiduciary oversight under the Employee Retirement Income Security Act (ERISA).

The real-world events driving the stock-drop challenge are tied to the Deepwater Horizon drilling disaster in the Gulf of Mexico, which killed nearly a dozen people in 2010 and resulted in the spilling of incredible volumes of oil into the ocean. Importantly, the spill lasted for some 90 days, leading to prolonged drops in BP’s stock price and other hurdles for the company. Information also slowly came to light, according to plaintiffs, who are participants in various BP retirement plans, that the dangerous conditions making such a spill possible persisted long before the actual disaster event and were consistently and willfully covered up by BP executives.

From an ERISA perspective there was long a “presumption of prudence” around publicly traded employer stock (established under Moench v. Robertson), such that retirement plan fiduciaries would not be expected to trade away their own employer’s stock, even during periods of substantial or prolonged drops in the market value. But this presumption was recently overturned by the Supreme Court in Dudenhoeffer v. Fifth Third Bancorp, leading the lower courts to have to redefine what plausible factual allegations are required to meet the new “more harm than good to the fund” pleading standards created by Fifth Third.

The questions at hand are weighty enough that both the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) have filed briefs expressing their legal staffs’ opinions.

NEXT: Digging into the issues at hand