The Importance of Being Listed

A federal court has repelled an attempt to circumvent the Morrison decision through the use of state and foreign law claims. In In re BP P.L.C. Sec. Litig., 2012 WL 432611 (Feb. 13, 2012 S.D. Tex.), the plaintiffs brought claims on behalf of U.S. investors who purchased BP common shares on the London Stock Exchange (“Ordinary Share Purchasers). The claims included federal securities fraud claims, as well as New York common law and English law claims.

The court’s analysis hinged largely on the fact that BP’s common shares are listed, but not traded, on the New York Stock Exchange (to comply with SEC requirements governing the company’s American Depositary Shares program).

(1) Federal securities fraud claims – Following a number of other recent decisions, the court held that the mere fact that BP’s common shares were listed on the NYSE did not allow the Ordinary Share Purchasers to bring a federal securities fraud claim. Moreover, the court rejected plaintiffs’ additional arguments that it should consider both the U.S. residency of the Ordinary Share Purchasers and the fact that the London Stock Exchange rules “allow trades to occur directly through third-party, U.S.-based market makers.” Accepting these arguments would reinstate the old conduct and effect tests and they could not override the key point “that the Ordinary Share Purchasers bought BP ordinary shares on the LSE, the only exchange where BP ordinary shares trade.”

(2) New York common law and English law claims – The fact that BP’s common shares were listed, but not traded, on the NYSE also helped the defendants in the court’s assessment of the state law and foreign law claims, but for an entirely different reason. Under the Securities Litigation Uniform Standards Act of 1998 (SLUSA), a plaintiff cannot bring a class action based on state law fraud claims if the case involves “covered securities.” Covered securities are defined, among other things, as securities “listed, or authorized for listing, on the New York Stock Exchange.” There is no requirement that the securities also be traded on the NYSE and the court declined the plaintiffs’ invitation to read one into the statute. The court therefore held that the New York common law claims involved covered securities and were precluded by SLUSA. Plaintiffs also argued that the court had jurisdiction over the English law claims based on diversity jurisdiction under the Class Action Fairness Act (CAFA). CAFA, however, excludes claims based on “covered securities” and uses the same definition of that term as SLUSA. Accordingly, the court found that it did not have original jurisdiction over the English law claims.

Holding: Dismissed claims of Ordinary Share Purchasers (but other claims in the case were allowed to proceed).

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