Claude A. Reese v. John Browne and Robert A. Malone (BP p.l.c.- Prudhoe Bay)

Updated: January 12, 2017
Status: Ongoing Case
In March 2006, oil pipelines operated by BP p.l.c. (BP) in Prudhoe Bay, Alaska spilled more than 200,000 gallons of crude oil onto the Alaskan tundra. The massive oil spill caused a public outcry and subjected BP to multiple state and federal investigations.

On August 7, 2006, BP announced the shutdown of all 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, the price of BP American Depository Receipts (ADR) 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.

In October 2007, a BP subsidiary pled guilty to a criminal violation of the Clean Air Act in relation with the 2006 Prudhoe Bay oil spills. The company 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. BP also paid a fine of $20 million and was subject to a three-year probationary period.

On May 12, 2008, Labaton Sucharow filed a securities class action complaint against BP p.l.c. (BP) on behalf of lead plaintiffs and all persons who purchased or acquired BP ADRs during the period of March 15 and August 4, 2006, inclusive. The complaint alleges that, after the March 2006 oil spill, BP misrepresented the state of the Prudhoe Bay oil pipelines. Lead plaintiffs claim that BP falsely reassured the public with respect to the condition of those pipelines when, in fact, BP had already received repeated warnings from multiple sources 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 failed for more than 14 years to inspect the inside of the pipelines that failed in August 2006 with an in-line inspection tool that would have precisely identified the level and location of corrosion in those pipelines.

Lead plaintiffs filed an amended consolidated complaint on April 3, 2009 after the Department of Justice and the State of Alaska each filed a civil complaint against a BP subsidiary based on the Prudhoe Bay oil spills, bolstering the above allegations with facts set forth in the government complaints, as well as information garnered from internal documents produced by the subsidiary.

On March 15, 2012, Judge Marsha J. Pechman in the U.S. District Court for the Western District of Washington dismissed the complaint. Lead plaintiffs appealed to the Ninth Circuit, which ruled on February 13, 2014 that the complaint adequately alleged scienter and falsity with respect to all but one of their claims, thus reversing the district court's ruling in significant part. The case therefore continued before the district court where the allegations were to "be tested on the merits."

On December 23, 2014, proposed lead plaintiffs the Employees’ Retirement System of the State of Rhode Island (ERSRI) and Claude A Reese (Reese) filed a motion to amend the complaint and substitute themselves as the lead plaintiffs in the action. Proposed lead plaintiffs also filed a pending motion for class certification on March 5, 2015. On April 3, 2015, Judge Pechman issued an order granting in significant part proposed lead plaintiffs’ motion to amend. Per the April 3, 2015 order, ERSRI and Reese filed a motion for appointment as lead plaintiffs on June 2, 2015, which the court granted on July 10, 2015.

On July 20, 2015, lead plaintiffs filed the third amended complaint. The defendants moved to dismiss the third amended complaint on August 3, 2015. On December 7, 2015, the court dismissed the case with prejudice. Lead plaintiffs filed their notice of appeal on January 5, 2016, and on August 31, 2016, Lead Plaintiffs filed their opening appellate brief. Defendants filed their answering brief on September 30, 2016, and Lead Plaintiffs filed their reply brief on October 14, 2016. A date for oral argument on the appeal has not yet been set.

The case is Claude A. Reese v. John Browne and Robert A. Malone, No. 08-cv-1008 (W.D. Wash.). The defendants include BP, a BP subsidiary, and individual defendants.