The Inconvenient Case of Forum Non Conveniens
POMERANTZ MONITOR | SEPTEMBER OCTOBER 2022
On April 20, 2010, the explosion and subsequent sinking of the oil drilling rig, Deepwater Horizon, resulted in the death of 11 workers and approximately five million gallons of oil pouring into the Gulf of Mexico – now commonly known as the worst accidental oil spill in U.S. history. This industrial disaster had devastating ramifications for both the oceanic environment and the investors in BP plc (“BP”), a majority owner of the sunken oil well. In the wake of the spill, and in rapid succession, the price of BP’s ordinary shares, as well as its American Depository Shares (“ADS”) plunged a shocking 50%. These drastic decreases in share price were the result of revelations coming to market; revelations that disclosed the truth behind BP’s misleading statements regarding its commitment to safety and its ability to effectively deal with large oil spills.
The BP litigation took to task the 2010 U.S. Supreme Court ruling in Morrison v. Nat’l Australia Bank Ltd., which shook the international investment community by prohibiting the use of U.S. federal securities laws to recover losses from investments in foreign-traded securities. Consequentially, the Supreme Court’s holding in Morrison left investors who trade on foreign exchanges, outside the purview of American borders, with no rights or recourse to recover their losses under U.S. law. Pomerantz was the chief architect in successfully overcoming the Morrison hurdles and securing the rights of defrauded investors, both foreign and domestic.
Pomerantz’s BP litigation is the first instance in which the hurdles presented by Morrison were successfully navigated. Absent the cutting-edge precedent established in this litigation, BP investors would have been limited to pursuing U.S. federal securities law claims in U.S. courts to recover loss[1]es in BP’s ADS, as Morrison barred the use of those same laws to recover losses from BP’s ordinary shares traded on the London Stock Exchange. Throughout the litigation, BP attempted to rely on Morrison as a mechanism to have the cases dismissed. If the court agreed that such dismissal was warranted, it would have enabled BP to litigate the claims in England, where courts apply rules that harshly disfavor investor rights when compared to U.S. courts.
In 2013, Pomerantz survived BP’s first motion to dismiss. The court, located in the Southern District of Texas, was persuaded by Pomerantz to apply English common law and held that the investors, who were U.S.-based pension funds, had sufficient ties to the United States that warranted adjudication of the litigation domestically, rather than in a U.K. courtroom. Here, the Texas Court rejected BP’s arguments that the Dormant Commerce Clause of the U.S. Constitution and the forum non conveniens doctrine warranted dismissal in deference to U.K. courts. Forum non conveniens is an equitable doctrine that permits courts to decline jurisdiction if the moving party establishes that the convenience of the parties and the interests of justice would be better facilitated in another forum. The court’s analysis on a motion to dismiss for forum non conveniens proceeds in two stages. First, the court must decide whether an alternative forum is adequate and available. If the court concludes that such a forum exists, the court must weigh the private interests of the litigants and the public interest in having the case heard in each forum.
Here, Pomerantz was able to overcome BP’s arguments that the Texas court was an inconvenient forum and that the case should be litigated in England, which would have required the case’s dismissal. BP argued for the court to dismiss our domestic investors’ claims under the doctrine of forum non conveniens. In doing so, BP asserted that England was an adequate alternative forum and that both the private and public interest factors favored dismissal. When successfully disputing these assertions, Pomerantz contended that an English court would be an inadequate alternative because it would be unable to adjudicate all of the domestic investors’ claims. Moreover, Pomerantz established that the private interest factors did not weigh in favor of dismissal. Notably, the court was capable of applying English law, which shares strong similarities to the U.S. legal system due to a common heritage. The court also agreed with Pomerantz that the public interest factors weighed in favor of retaining the domestic investors’ English law claims in U.S. court. Most importantly, the court agreed that the controversy at issue – the worst accidental oil spill in U.S. history – was unquestionably a local interest to Texas courts. The oil spill prompting this litigation occurred only 50 miles off the coast of Louisiana, a state, like the presiding Texas court, with federal district courts under the jurisdiction of the U.S. Court of Appeals for the Fifth Circuit. The Texas court’s application of English common law nullified the barriers presented by the Morrison holding. In surviving BP’s first motion to dismiss, Pomerantz provided U.S. institutional investors the unique ability to pursue not only the U.S. traded ADS losses, but the opportunity to pursue damages for their BP ordinary shares trading on a foreign exchange.
In 2014, Pomerantz overcame BP’s second motion to dismiss, this time securing the same rights for foreign institutional investors by again defeating BP’s forum non conveniens argument. Defendants argued that the foreign investors’ claims should be dismissed in favor of adjudication in U.K. courts. The structure of the English legal system provides restrictions on contingent fee litigation and imposes a loser-pays regime on legal fees. The application of such a regime would have threatened the viability of our foreign clients’ cases to proceed, if at all, due to the significant risks and costs contingent litigation imposes on plaintiffs. Pomerantz, however, successfully secured the litigation’s position in U.S. court, trumping BP’s arguments that the claims of the foreign investors had a stronger nexus to England.
Pomerantz prevailed on the court’s forum non conveniens analysis, which determined that England was not a more convenient venue for the foreign investors asserting claims against both foreign and American defendants. First, the court determined that England was an available and adequate venue for the foreign investors’ claims, presenting significant obstacles that Pomerantz successfully overcame. Second, the court determined how much deference to accord the foreign plaintiffs’ choice of forum. Although there was a multitude of precedent standing for the notion that a foreign plaintiff’s choice of forum is entitled to less deference when compared to a domestic plaintiff’s choice, Pomerantz was able to establish a legitimate connection between the foreign investors’ English common law claims and this multi-district litigation. Establishing the connection allowed our foreign investors to receive the same deference previously afforded to the domestic investors in the first motion to dismiss. Finally, the court determined that our foreign investors’ claims would not be dismissed and adjudicated in U.K. court. Here, the court weighed the substantial deference accorded to the investors’ choice of forum against the private and public interest factors when determining transfer did not heavily weigh in favor of dismissal. Pomerantz successfully persuaded the court to decline BP’s forum non conveniens arguments, survived the motion to dismiss, and enabled the foreign investors to pursue their English common law fraud claims in U.S. court, where investor rights were advantageous. The decisions secured by Pomerantz in BP broke new ground, enabling the very first time, post-Morrison, that U.S. and foreign investors, pursuing foreign claims seeking recovery for losses in a foreign company’s foreign-traded securities, did so in a U.S. court.
Pomerantz crafted and successfully applied novel legal theories that opened the gates for investors who trade on foreign exchanges – effectively setting a new precedent to be used by defrauded investors in the years to come.