BP Retirees May Have Case for Lost Plan Value
(CN) - BP's failure to divest stock from its employee retirement plans as share prices dropped after the 2010 oil spill may leave the oil giant liable, the 5th Circuit ruled.
The April 20, 2010, explosion of the Deepwater Horizon drilling rig triggered the worst offshore oil spill in U.S. history.
As BP struggled for months to cap its well, the Macondo Prospect, its share price plummeted from $59.52 to a low of $27.02 on June 25, 2010.
The United Kingdom company's U.S. subsidiary, BP North America Inc., maintains four employee investment and savings plans, commonly known as 401(k) plans, with one-third of each plan made up of BP shares.
By June 14, 2010, the oil spill had wiped out an estimated $1.155 billion in the company stock holdings of BP's 401(k) participants, the newspaper Pensions & Investments reported.
Plan participants filed a class action against BP, its directors and State Street Bank and Trust Co., the trustee of BP's 401(k) plans, the day before its share price bottomed out.
They sought relief under the Employee Retirement Income and Security Act (ERISA), arguing that as plan managers the defendants knew BP shares were not a good investment.
Further, the 401(k) holders claimed the plan managers should have divested their BP shares "when maintaining such an investment became imprudent," the lawsuit said.
BP and its co-defendants moved to dismiss, alleging that 5th Circuit precedent entitled the plan managers to a "presumption of prudence" in their decision to keep their employee savings plans heavily invested in BP stock.
Siding with BP, U.S. District Judge Keith Ellison in Houston found that the employees' arguments could not overcome the presumption.
Shortly after the parties made their cases before the appellate court in New Orleans, the U.S. Supreme Court touched on this very issue in the case Fifth Bancorp v. Dudenhoeffer.
Throwing out the "presumption of prudence" in a unanimous June 15 opinion, the high court held that fiduciaries managing a plan invested in company stock "are subject to the same duty of prudence that applies to ERISA fiduciaries in general, except that they need not diversify the fund's assets."
In light of this precedent, the 5th Circuit issued an unpublished opinion vacating Ellison's dismissal of the case and remanding it to him on Monday.
BP vice president Geoff Morrell noted in a statement that the company "intends to renew its motion to dismiss in the District Court" because BP does not believe the plaintiffs satisfy the "new standards" set forth by the Supreme Court.