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Ludlow v. BP, P.L.C.

ELR Citation: 45 ELR 20165
Nos. 14-20420, (5th Cir., 09/08/2015)

The Fifth Circuit affirmed a lower court decision that investors who bought BP stock soon after the 2010 Deepwater Horizon oil spill may file a class action against the oil company for alleged misrepresentations regarding the oil flow rate after the spill, but that investors who purchased stock before the spill may not file a class action for alleged misrepresentations concerning the company's pre-spill safety procedures. The investors alleged that the company violated §10(b) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5, both concerning securities fraud, by making the misrepresentations. The post-spill investors calculated the damages as the difference between the inflated price at which the investors bought their stock, supported by BP's alleged misrepresentations about the magnitude of the spill, and the theoretical price that the stock would have traded for had the relevant information been properly disclosed. Because this model of damages is consistent with their liability case and capable of measurement across the class, the lower court correctly certified the post-spill investors class. The lower court, however, refused to certify the class of pre-spill investors, and the appellate court affirmed. The pre-spill investors alleged that when they purchased the stock, they were "defrauded into taking a greater risk than disclosed" due to the company's misrepresentations on safety procedures and therefore should recover the bulk of the fall in stock prices following the spill. But this "materialization of the risk" theory is not capable of class-wide determination. That theory depends on a determination that each investor would not have bought stock at all were it not for the alleged misrepresentations—a determination requiring individualized inquiry.