On April 17, 2008, U.S. District Judge R. Gary Klausner appointed The City of Edinburgh Council as Administering Authority of the Lothian Pension Fund, Bankinter Gestion de Activos, S.G.I.I.C., Frankfurt Trust Investment-Gesellschaft mbH, Frankfurter-Service Kapitalanglage-Gesellschaft mbH, and Pipefitters Local Union #537 Trust Funds as Lead Plaintiffs and approved selection of Labaton Sucharow LLP to serve as Lead Counsel in Claude A. Reese v. John Brown and Robert A. Malone, No. 2:07-cv-07-7511-RGK (RCx)(C.D. Cal), a consolidated class action asserting claims under the Securities and Exchange Act of 1934 against Defendants BP p.l.c. (“BP” or the “Company”), BP America, Inc., BP Exploration Alaska, Inc. (“BPXA”), Steven Marshall (former head of BPXA), Maureen L. Johnson (spokeswoman for BPXA), John Browne (former BP Chief Executive), and Dr. Walter E. Massey (former outside director). Lead Plaintiffs represent a Class of all purchasers of BP ordinary shares and ADRs between March 31, 2005 and August 4, 2006.

On May 12, 2008, Lead Plaintiffs filed a Consolidated Class Action Complaint. Plaintiffs allege violations of the federal securities laws against the Company arising out of the March 2, 2006 oil spill in Prudhoe Bay, Alaska and the subsequent shutdown of BP’s oil production activities on August 6, 2006 after another spill. The March 2, 2006 pipeline failure caused the spill of more than 200,000 gallons of crude oil over two acres. Plaintiffs further contend that Defendants made materially false and misleading statements and omissions since BP received repeated warnings from multiple sources and knew that its pipelines were severely corroded, repeatedly cut corrosion-inhibiting maintenance in order to reduce costs and improve profits, knew that their leak detection system was ineffective, and did not and failed for more than 14 years to inspect the inside of the pipelines with an in-line inspection tool that would have precisely identified the level and location of corrosion – a “smart pig.”

BP ordinary shares and ADRs suffered a price decline as a direct result of the nature and extent of materially false and misleading statements and omissions. By the time the market opened on August 7, 2006, BP had announced the shutdown of oil production at Prudhoe Bay due to the discovery of additional corrosion in more pipelines and an additional oil spill. As a result of this announcement, (i) BP ordinary shares fell 13.5 pence (from a closing price of 636 pence on August 4 to a closing price of 622.5 pence on August 7), or 2.1 percent on extraordinarily heavy volume of 94.5 million shares, and (ii) BP plc’s ADRs dropped $2.09 (from a closing price of $72.54 on August 4 to a closing price of $70.45 on August 7), or 2.8 percent, on volume of 6.1 million shares.

At Congressional hearings in September 2006 the Administrator from the Office of Pipeline Safety at the Department of Transportation, Vice Admiral Barrett, testified that BP’s failure to smart pig was “mystifying;” and that he had never encountered an operator at BP’s level that had-outright failed to smart pig its lines; and that BP should be held accountable for the spills and shutdown. On October 24, 2007, BP pled guilty to a criminal violation of the Clean Air Act for its conduct in relation with the 2006 Prudhoe Bay events. BP also paid a fine of $20 million and is subject to a 3-year probationary period.

The case was transferred on June 23, 2008 to Judge Marsha J. Pechman in the U.S. District Court for the Western District of Washington. After full briefing and an oral argument on the motion to dismiss, Judge Pechman sustained the allegations with respect to five of the seven Defendants: (i) BP plc, (ii) BP Exploration Alaska, Inc. (“BPXA”), (iii) John Browne (former CEO), (iv) Steven Marshall (BPXA President), and (v) Maureen Johnson (BPXA Senior Vice President). BPXA had made statements during the Class Period claiming that it complied with the Prudent Operator Standard, essentially representing that BPXA maintained and operated its oil pipelines in Alaska within the industry standard of care. The Court found that the Complaint properly alleged that these statements were false.

The remaining Defendants are also subject to liability for the false statements made by BPXA because these Defendants “controlled” BPXA, pursuant to Section 20(a) of the Exchange Act. BP owned 100% of BPXA, and the individual Defendants were executive officers of BP or BPXA who had power to control BPXA. The Court emphasized that BPXA had entered a criminal guilty plea with the United States Department of Justice in November 2007 in connection with the oil spills. In the plea agreement, BPXA admitted that it (i) knew that there had been increased corrosion in the pipelines, (ii) had not properly inspected the pipes, and (iii) had failed to direct sufficient resources to address the corrosion.

On March 31, 2009, the Department of Justice and the State of Alaska each filed a civil complaint against BPXA for the 2006 oil spills. These complaints alleged many of the same allegations included in Lead Plaintiffs’ Consolidated Complaint. Lead Plaintiffs filed an Amended Consolidated Complaint on April 3, 2009 bolstering our allegations with facts set forth in these complaints, as well as information garnered from BPXA’s internal documents.

Both Plaintiffs and Defendants filed motions on April 3, 2009 asking Judge Pechman to reconsider her rulings on the motion to dismiss, and the Defendants additionally filed a motion asking Judge Pechman to certify their appeal to the Ninth Circuit. Judge Pechman effectively denied Plaintiffs’ and Defendants’ respective motions for reconsideration. Judge Pechman upheld her holding that Defendants falsely misrepresented that they were operating the Prudhoe Bay pipelines pursuant to the Prudent Operator Standard. Judge Pechman also upheld her finding that the plea agreement adequately alleged scienter. In her order, which is not subject to the appeal, she notably and significantly strengthened the allegations of scienter, finding that instead of only one allegation of scienter, there are now five independent bases. Judge Pechman did, however, grant the Defendants’ motion for interlocutory appeal on these two discrete issues of law, and further stayed the case pending the decision by the Court of Appeals.

The Defendants filed a petition for permission to appeal to the Ninth Circuit, and Lead Plaintiffs opposed that motion. The Ninth Circuit granted Defendants’ petition for appeal on February 8, 2010 so the parties will now brief the issues before the Ninth Circuit.