A spate of U.S. pension funds, including Bank of America’s private pension plan and funds for public workers in Maryland, Louisiana and Texas, filed suits Friday accusing BP of defrauding investors in its statements about the Deepwater Horizon oil spill in April 2010. Piling on just ahead of the statute of limitations, several foreign institutions, such as Norges Bank and Deka Investment, also brought cases Friday against BP. In all, the oil company is now facing individual securities suits by at least 20 institutional investors, all of which claim that their investment managers relied on the company’s supposed misrepresentations when they decided to buy BP shares.
That’s a big headache for BP, of course, but it’s also worrisome for other foreign-based companies with significant operations in the United States. Since 2010, those businesses have been virtually immune from securities fraud claims in U.S. courts, thanks to the U.S. Supreme Court’s ruling in Morrison v. National Australia Bank.
In Morrison, the Supreme Court held that American securities laws don’t apply outside of our borders. Trial courts have interpreted the decision to mean that companies listed on foreign exchanges can’t be sued for fraud under the Exchange Act of 1934. (There’s one loophole: Federal-law claims by investors who traded American Depository Shares are viable despite Morrison, but those suits can only recover losses in a defendant’s U.S. float.)
Shareholder lawyers have tried all kinds of creative ways to re-animate securities litigation against companies listed on non-U.S. exchanges — including suits brought under state fraud laws rather than federal law — but to little avail. Whether holders of common shares tried to sue as a class or as individuals, Morrison was a cloak of invincibility for foreign-listed companies.
Last year, in litigation against BP, a handful of public pension funds poked a tiny hole in that cloak. In 2012, BP won the dismissal, on Morrison grounds, of a U.S. class action by holders of its common shares. But the pension funds’ lawyers at Kessler Topaz Meltzer & Check and Pomerantz filed separate suits, outside of the class action, that attempted to get around Morrison by claiming BP had committed fraud under state and common law. BP’s lawyers at Sullivan & Cromwell devised a very shrewd constitutional defense, arguing that under the Commerce Clause, state laws may not confer rights beyond those granted under federal law. Nevertheless, U.S. District Judge Keith Ellison of Houston, who is presiding over all of the BP securities cases, ruled in October that the funds could proceed with their cases.