Reese v. Malone, No. 12-35260 (9th Cir. 2014)
Annotate this CaseBP shareholders filed a class action alleging that the company knowingly, or with deliberate recklessness, made false and misleading statements about the condition of the Alaskan pipelines and BP's pipeline maintenance and leak detection practices prior to and in the wake of the first oil spill. On appeal, plaintiffs challenged the district court's partial dismissal of their complaint under federal securities laws. The court concluded that plaintiffs have adequately pled falsity and materiality, as well as scienter for statements regarding the corrosion rate; plaintiffs have adequately pled falsity and materiality, as well as scienter for statements distinguishing the WOA and EOA lines; plaintiffs did not sufficiently allege scienter for statements regarding BP's "World Class" leak detection system and corrosion monitoring program; plaintiffs adequately pled falsity and scienter for an annual report statement regarding compliance with environmental laws and regulations; and when the court considered the allegations holistically and accepted them to be true, the inference that BP was, at the very least, deliberately reckless as to the false or misleading nature of their public statements was at least as compelling as any opposing inference. Accordingly, the court reversed in part and affirmed in part.
Court Description: Securities Fraud. The panel affirmed in part and reversed in part the district court’s dismissal of a complaint under §§ 10(b), 18(a), and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 by BP shareholders alleging that the company knowingly, or with deliberate recklessness, made false and misleading statements about the condition of Alaskan pipelines and the company’s pipeline maintenance and leak detection practices prior to and in the wake of an oil spill. The panel held that the plaintiffs adequately pled the falsity and materiality of a statement about corrosion rate; they also adequately pled scienter as to this statement. The panel held that the plaintiffs adequately pled the falsity and materiality of two statements distinguishing pipelines; they also alleged with particularity facts giving rise to a strong inference of scienter. The panel held that the plaintiffs did not sufficiently allege scienter with respect to a statement regarding BP’s “world class corrosion monitoring and leak detection systems.” With respect to an annual report statement regarding compliance with environmental laws and regulations, the plaintiffs adequately pled both falsity and scienter. The panel concluded that, under a holistic analysis, the plaintiffs’ allegations of scienter combined to create a strong inference of BP’s deliberate recklessness as to the false or misleading nature of its public statements.
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