Court In BP Oil Spill Litigation Denies Standing For Special Purpose Entities Created Solely For Litigation

A January 4, 2016 opinion in the Southern District of Texas by Judge Keith Ellison ( "Op.") in the In re: BP p.l.c. Securities Litigation, MDL No. 4:10-md-2185, has taken up the issue of whether plaintiffs can properly assign their claims to entities created solely for the purpose of litigating those claims. The court found that these assignments were invalid, which may give plaintiffs in other disputes pause before pursuing the same course in the future. This decision is an interesting contrast to the recent decision we covered in the In re Petrobras Securities Litigation, No. 14-cv-9662 (S.D.N.Y.) consolidated litigation, where certain opt-out plaintiffs whose assignments were challenged were allowed to proceed with their cases.

This Opinion was issued in one of the opt-out actions filed against BP stemming from the 2010 Deepwater Horizons oil spill. As in the class-actions background, the opt-out plaintiffs allege that that BP and related entities "violated Sections 10(b) and 20(a) of the Securities Exchange Act." (Op. at 1.) According to Judge Ellison, "[t]he most noteworthy factual wrinkle pertains to the identity of the Plaintiffs: BP Litigation Recovery and BPLR (the "Assignee Plaintiffs") are not actual purchasers of BP securities." (Op. at 2.) Instead, "the Assignee Plaintiffs are special purpose entities created by actual purchasers of BP American Depositary Shares (ADS) to serve as litigation vehicles for their Exchange Act claims in this action." (Op. at 2.) Aside of being assigned the right to litigate this dispute by certain purchasers of BP ADS, "[t]here is no suggestion that the Assignee Plaintiffs have, or ever will have, any function in any other litigation or non-litigation context." (Op. at 2.)

The decision by these opt-out plaintiffs to assign their claims to a new entity created solely for the purpose of litigation is especially interesting since there is already a certified class covering the period April 26, 2010 to May 28, 2010, the period in which these assignors appear to have purchased BP shares. Still, these assignors elected not to participate in the class and instead bring their own cases in this novel fashion.

Defendants moved to dismiss, challenging the validity of these assignments and, consequently, the standing of the Assignee Plaintiffs. In the January 4 opinion, the Court held that "the Assignments must be disregarded for all purposes relevant to this litigation, and dismisse[d] the Assignee Plaintiffs'...