(CN) – The 9th Circuit on Wednesday dismissed a securities-fraud complaint against BP Exploration related to the company’s 2007 conviction for negligently discharging oil at its Prudhoe Bay oilfield in Alaska.
This decision from the federal appeals court in Seattle unanimously reverses a federal judge’s finding that BP’s contractual filings with the U.S. Securities and Exchange Commission laid adequate foundation for securities fraud.
BP Exploration pleaded guilty in 2007 to violating the Clean Water Act after 200,000 gallons of oil poured out of a broken pipe on the North Slope oil field. The company admitted that the spill resulted from internal corrosion in its pipelines. In its plea agreement, BP said it knew about accumulated sediment had caused the corrosion, but it had neglected to fix the problem.
Claude Reese led a federal class action, claiming that BP’s negligence amounted to securities fraud, as the spill had caused the company to temporarily shut down its operations in the bay and costing investors billions of dollars.
Despite knowledge of the corrosion, BP failed to take action or notify investors, Reese argued. He also claimed that the oil company’s executives had made misleading statements about the operation, and that BP continued to mislead investors though its SEC filings.
U.S. District Judge Marsha Pechman in Seattle tossed most of Reese’s claims for failure to meet the heightened standards of the Private Securities Litigation Reform Act of 1995. But the judge said Reese could move ahead with the claim that accused BP of defrauding investors through SEC filings.
On appeal, a three-judge panel of the 9th Circuit reversed, finding that the filings were forward-looking contractual promises, the breaking of which did not amount to fraud.
“The breach of a contractual promise of future performance typically does not constitute a misrepresentation that will support an action for fraud,” Judge Ronald Gould wrote for the panel. “BPXA’s contractual promise to act as a prudent operator did not expressly or implicitly assert that BPXA was in full compliance with its obligations thereunder, and we do not view the public filing of the ORC Agreement as the sort of traditional fraudulent misrepresentation of fact that could induce investors mistakenly to buy securities. We hold that, in this case, the public filing of a contract containing a promise of future compliance did not, upon the contract’s breach at a time after execution, provide an actionable misrepresentation for the purposes of a private damages action for securities fraud.”