When BP repeatedly mishandled or ignored leaks in its Alaskan oil pipeline, in one instance causing a 200,000 gallon spill on tundra in 2006, it forced temporary closure of the pipeline and that prompted a drop in stock price.
Shareholders sued in 2008 over a drop in stock price in the aftermath, but the trial judge in Seattle dismissed saying this looked more like mismanagement than securities fraud.
On Thursday, the 9th U.S. Circuit Court of Appeals reinstated the securities fraud class action that accused BP of lying about the sorry state of some of its Alaskan pipelines.
“While we agree that BP’s actions exemplify corporate mismanagement, the pleadings also charge that BP is a company that has publicly shirked responsibility for its role in causing the Prudhoe Bay spills at every step of the way,” wrote U.S. District Judge Raymond Dearie, visiting from the Eastern District of New York.
The 2006, five-day oil leak of 200,000 gallons of oil on the North Slope at Prudhoe Bay was the first public indication of a problem. Despite BP statements that it was an anomaly, a second leak was discovered five months later on a different corroded BP oil transit line in the region. BP temporarily shut down regional operations.
BP is the largest oil and gas producer in the U.S., and you may recall, its Deepwater Horizon oil platform in the Gulf of Mexico resuled in the largest accidental marine oil spill in history in 2010, with an estimated 4.9 million barrels discharged.
The class action was filed by BP shareholders alleging the company was reckless and made false and misleading statements about the condition of the pipeline.
The complaint alleged BP had plenty of notice of potential corrosion and monitoring problems but ignored them.
In reinstating the shareholder suit, the circuit said, “To some extent, corporate mismanagement would be a plausible explanation for how misinformation travels to the corporate suite. But in this case, facts alleged in the complaint support the conclusion that BP had been aware of corrosive conditions for over a decade, and yet chose not to address them.”
The inference, considering the allegations as a whole, is that “BP was, at the very least, deliberately reckless as to the false or misleading nature of their public statements,” Dearie wrote.
Judges Sidney Thomas and Jacqueline Nguyen joined him in the opinion.
Case: Reese v. Malone, No.12-35260