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In re BP p.l.c. Derivative Litigation

July 23, 2007

IN RE BP P.L.C. DERIVATIVE LITIGATION


The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge*fn1

THIS DOCUMENT RELATES TO: All Actions

OPINION & ORDER

BP p.l.c., BP America, Inc., BP Products North America, Inc., BP Corp. North America, BP Exploration (Alaska) Inc., sixteen members of BP's current board of directors,*fn2 nine former directors,*fn3 eight current and former directors, officers and employees of BP's subsidiaries,*fn4 and twenty "John Doe" defendants (collectively "Defendants" or "BP")*fn5 move this Court to dismiss BP shareholders' derivative actionpursuant to Fed. R. Civ. P. 12(b)(6) alleging that Plaintiffs fail to state a valid derivative claim under governing English law. Alternatively, Defendants argue, this action should be dismissed pursuant to Fed. R. Civ. P. 12(b)(2) for lack of personal jurisdiction over the movants on the ground of forum non conveniens. For the following reasons, Defendants' Motion to Dismiss is GRANTED in its entirety.

I. FACTUAL BACKGROUND

On August 14, 2006, Plaintiff Sue Pincus filed a complaint against Defendants which alleged three principal claims -- breach of fiduciary duty (Count I), waste of corporate assets (Count II), and indemnification (Count III) -- on behalf of BP in connection with the well-publicized leaks and temporary shutdown of an oil pipeline in Prudhoe Bay, Alaska, the fatal explosion at BP's Texas City oil refinery, and commodities trading activities by BP traders which have been previously found to violate company policy and state and federal law.*fn6 Plaintiff does not allege any federal causes of action.

On November 13, 2006, Plaintiffs filed a Consolidated Amended Complaint and Defendants moved to dismiss on December 13, 2006. Thereafter, the Court granted leave to file an Amended Complaint, which Plaintiffs did on January 31, 2007. On March 1, 2007, Defendants moved this Court to dismiss Plaintiffs' Second Amended Derivative Complaint.

a. Prudhoe Bay Pipeline

BP owns and operates an oil transit pipeline system serving the Prudhoe Bay, Alaska oil field.*fn7 Am. Compl. ¶ 2. Shareholder Plaintiffs allege the pipeline system has been decaying for years, Defendants have been aware of the decay, Defendants have failed to take any remedial action, and consequently, the oil transit pipeline system corroded to the extent that half of the field, which produces almost three-quarters of the entire field's output, became non-operational. Id. Plaintiffs further allege that as a result of inadequate maintenance and decay, the pipeline leaked 6,400 barrels of crude oil in March of 2006, the largest leak in the field's history. Id. Further, Plaintiffs assert that even after such an unfortunate event, Defendants still failed to take any substantial remedial action. Id. Thereafter, the pipeline leaked again on August 7, 2006, and BP was forced to shut down the pipeline system altogether. Plaintiffs allege that as a direct result of the shutdown of the pipeline, BP "faces hundreds of millions of dollars in costs to remedy the damage, lost earnings, a criminal probe by the Environmental Protection Agency, significant civil and criminal liability, regulatory scrutiny and action and the wrath of customers nationwide who are facing ever higher gasoline prices at the pump." Id. ¶ 3.

b. Texas City Refinery

The Texas City refinery is BP's largest refinery in the United States, employs 1,800 people, and refines approximately 460,000 barrels of crude oil each day. Id. ¶ 4. In March 2005, an explosion at the Texas City refinery killed 15 people and injured 180. Id. BP's Chief Executive Officer, according to Plaintiffs, described the Texas explosion as "the worst tragedy [he's] known in 38 years with the company." Id. Defendants attribute the explosion to equipment malfunctions. Id. ¶ 76-80. Several lawsuits were filed and the explosion is the subject of ongoing government investigations. Id. ¶ 6. The U.S. Chemical Safety Board concluded that the explosion could have been avoided by adherence to simple safety procedures, and that BP's management was aware of the severe safety problems well before the explosion. Id. ¶ 6. BP has since disclosed that an internal audit revealed "big lapses in management." Id. ¶ 83. As a result of the explosion, BP faces billions of dollars in costs to remedy the damages, and civil and criminal investigations by various government organizations and the families of the victims.*fn8 Id. ¶¶ 5, 82, 87.

c. Commodities Trading Activities

Plaintiffs claim that in February 2004, Defendants, with the approval of BP senior executives, attempted to buy all available propane in the market to control the market and increase the price of propane. Id. ¶¶ 92, 97. Plaintiffs also claim that BP attempted to manipulate crude-oil benchmarks which would impact billions of dollars of transactions in BP's favor. Id. ¶ 8. Further, the United States Department of Justice and the Commodity Futures Trading Commission are investigating alleged irregular trading of gasoline by BP on the New York Mercantile Exchange in 2002, and the U.S. Senate is investigating whether Defendants' decision to halt all Prudhoe Bay oil field production was an attempt to manipulate the market. Id. ¶¶ 9, 100. BP paid a $2.5 million fine in September 2003 to the New York Mercantile Exchange to resolve allegations of crude oil trading and market manipulation violations in 2001 and 2002. Id.

d. The Alaska Derivative Action

Approximately six weeks after Pincus and Gross filed the instant action in this Court, on October 2, 2006, plaintiff shareholders UNITE HERE National Retirement Fund ("Unite Here") and Jeffery Pickett ("Pickett") filed a derivative complaint in the Superior Court for the State of Alaska, Third Judicial District at Anchorage on behalf of BP and three of its U.S. subsidiaries.*fn9 Thereafter, plaintiff London Pensions Fund Authority joined the Alaska action. On October 19, 2006, plaintiffs Sandra Donnelly and Patricia Foreman filed a separate, substantially similar case in the same court. On October 24, 2006, the action filed by UNITE HERE and Pickett was removed to the United States District Court for the District of Alaska, and, thereafter, pursuant to a stipulation between the parties, remanded to the Alaska state court on December 11, 2006. On January 11, 2007, plaintiffs filed their Consolidated Amended Verified Shareholder Derivative Complaint (the "Alaska Complaint"), which named BP as a nominal defendant (the company in which they owned shares), as well as three U.S.-based subsidiaries of BP-BP America Inc. ("BP ...


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