VERIFIED SHAREHOLDER DERIVATIVE PETITION Page - 1 - Cause No. _____________________________ RAYMOND D. VALLERGA, Derivatively on Behalf of BP p.l.c., Plaintiff, v. ANTHONY B. HAYWARD, CARL- HENRIC SVANBERG, IAIN CONN, PAUL ANDERSON, LAMAR MCKAY, SIR WILLIAM M. CASTELL, ANDY INGLIS, ANTONY BURGMANS, BYRON E. GROTE, ROBERT DUDLEY, CYNTHIA B. CARROLL, GEORGE DAVID, IAN DAVIS, DOUGLAS FLINT, DEANNE S. JULIUS, Defendants, -and- BP p.l.c., an English Corporation, BP America, Inc., a Delaware Corporation, Nominal Defendants. § § § § § § § § § § § § § § § § § § § § § § § § IN THE DISTRICT COURT OF HARRIS COUNTY, TEXAS _____ JUDICIAL DISTRICT LEVEL THREE DISCOVERY CONTROL PLAN VERIFIED SHAREHOLDER DERIVATIVE PETITION 1. Due to the complexity of this case, discovery will be conducted under a Level 3 discovery control plan, pursuant to Rule 190.1 of the Texas Rules of Civil Procedure. SUMMARY OF THE ACTION 2. Because of the substantial damage to BP P.L.C. caused by the Defendants’ repeated violations of law, including breaches of fiduciary duty, abuse of control, gross mismanagement and waste of corporate assets, Plaintiff files this shareholder derivative action on behalf of BP p.l.c. and BP America, Inc. (“BP” or the “Company”) against certain officers and directors of the Company.
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RAYMOND D. VALLERGA, Derivatively on Behalf of BP p.l.c., Plaintiff, v. ANTHONY B. HAYWARD, CARL-HENRIC SVANBERG, IAIN CONN, PAUL ANDERSON, LAMAR MCKAY, SIR WILLIAM M. CASTELL, ANDY INGLIS, ANTONY BURGMANS, BYRON E. GROTE, ROBERT DUDLEY, CYNTHIA B. CARROLL, GEORGE DAVID, IAN DAVIS, DOUGLAS FLINT, DEANNE S. JULIUS, Defendants, -and- BP p.l.c., an English Corporation, BP America, Inc., a Delaware Corporation, Nominal Defendants.
§ § § § § § § § § § § § § § § § § § § § § § § §
IN THE DISTRICT COURT OF
HARRIS COUNTY, TEXAS
_____ JUDICIAL DISTRICT
LEVEL THREE DISCOVERY CONTROL PLAN
VERIFIED SHAREHOLDER DERIVATIVE PETITION
1. Due to the complexity of this case, discovery will be conducted under a
Level 3 discovery control plan, pursuant to Rule 190.1 of the Texas Rules of Civil
Procedure.
SUMMARY OF THE ACTION
2. Because of the substantial damage to BP P.L.C. caused by the Defendants’
repeated violations of law, including breaches of fiduciary duty, abuse of control, gross
mismanagement and waste of corporate assets, Plaintiff files this shareholder derivative
action on behalf of BP p.l.c. and BP America, Inc. (“BP” or the “Company”) against
9. These improper activities include refusing to make, or curtailing, necessary
plant and equipment maintenance, skimping on required inspections, and reducing
maintenance and renewal expenditures for its refineries and pipelines—including those in
Louisiana and the Deepwater Horizon offshore rig. BP’s actions had the desired effect of
cutting BP’s costs while increasing revenues and profitability.
10. Defendants have repeatedly shown that they lack the oversight to correct or
remedy the dangerous conditions created by BP. Despite numerous warnings and “red
flags” concerning BP’s improper and even illegal safety and pollution conduct,
Defendants refused to stop the conduct or adopt adequate policies. The damaging
consequences of Defendants’ misconduct have manifested repeatedly in recent years:
• The April 20, 2010 explosion on the Deepwater Horizon rig—and resultant enormous oil spill in the Gulf of Mexico—is only the latest in a series of catastrophic failures arising from BP’s energy business in the United States. It has recently been reported BP was warned the rig failed a key pressure test hours before it exploded. But, as has always been the case with BP, defendants put profit before safety by refusing to shut down the Deepwater Horizon when it learned of the problems, and now eleven workers are dead and the consequences to BP and the United States are catastrophic.
• The Department of Homeland Security and the Department of the
Interior have launched a joint investigation “into the marine casualty, explosion, fire, pollution and sinking of mobile offshore drilling unit Deepwater Horizon, with loss of life in the Gulf of Mexico 21-22 April 2010.” According to their joint investigative release, “any information warranting further evaluation for potential civil violations or criminal activity shall be referred in accordance with applicable procedures.” Hence BP once again faces likely civil penalties, and possible criminal sanctions, for the Gulf of Mexico disaster.
• BP has suffered major operating problems at its Alaska Prudhoe
Bay oil field, including an enormous crude oil leak in March 2006 due to defective pipeline maintenance, curtailed inspection programs and inadequate worker training procedures, and emergency response plans and procedures. This has resulted in
numerous fines and penalties; an unusually high number of employee injuries; a significant curtailment of field production; civil and criminal investigations and prosecutions; governmental directives forcing increased pipeline inspection and maintenance activities; and public relations problems, all of which continue to harm BP.
• BP suffered unusually and unacceptably large numbers of accidents
and worker injuries at BP’s Texas City, Texas refinery, culminating in a huge 2005 explosion. Causing 15 deaths and 170 injuries, the explosion shut down the plant. The explosion resulted from BP’s failure to properly maintain the plant and the use of outmoded and ill-maintained equipment. Lawsuits and governmental investigations and prosecutions ensued, resulting in BP pleading guilty to both a felony and, due to the Company’s egregious and willful safety violations, the largest U.S. Occupational Safety and Health Administration (“OSHA”) fine in U.S. history. This was exacerbated by revelations that similar failures and operating deficiencies plague other BP refineries in the U.S.
• BP has been targeted by widespread government accusations of and
investigations into illegal price manipulation and fixing in the propane market. A BP employee pleaded guilty. In addition, the crude oil over-the-counter market and the market for unleaded gasoline still burden BP with investigations and substantial costs, which expose BP to criminal indictment and fines and penalties.
• On October 25, 2007, BP issued a press release entitled “BP
America announces resolution of Texas City, Louisiana, propane trading, law enforcement investigations.” BP admitted it was grossly negligent in failing to mitigate hundreds of millions of dollars in damages, fines and penalties, remedial costs, misdemeanor and felony convictions, and had badly damaged BP’s corporate image and reputation. Not surprisingly, during recent years BP’s ordinary shares have significantly underperformed the stock of its peers in the oil and gas industry.
• As of September 30, 2006, BP had taken over $1 billion in charges
related to settling personal injury lawsuits and related litigation concerning the Texas explosion. Also, BP pleaded guilty on October 25, 2007, to a felony criminal violation of the Clean Air Act and paid a $50 million fine, the largest criminal fine ever under that Act.
• Also, on April 24, 2006, OSHA issued two new OSHA citations to
the BP Products’ Toledo, Ohio refinery, fined BP, and put it in the
14. Nominal defendant BP is a public limited company registered in England
and Wales. BP was created in 1998 following the merger of Amoco Corporation and the
British Petroleum Company. BP has its main headquarters in London. However, its
American Headquarters is in Houston, where the company employs more people and has
more assets than any other place in the world. According to its 2009 report to
shareholders, over 40% of BP’s fixed assets are in the United States. BP markets
petroleum products in the United States and this County. Nominal defendant BP is one
of the largest non-U.S. based companies listed on the New York Stock Exchange. BP is
the largest oil and gas producer in the U.S., and the third largest oil company in the world.
BP’s shares have lost half their value since the leak began. The Company operates
approximately 10,000 miles of pipelines, making it the second largest liquids pipeline
company in the U.S. BP is also the second largest refiner in the U.S., the second largest
fuels marketer and the second largest gasoline marketer, employing tens of thousands of
persons in the United States. Since the rig explosion, over $90 billion in shareholder value
has been eviscerated in BP stock.
15. BP also has noted in the past:
• Approximately 40% of BP’s worldwide shareholders reside in the U.S.
• BP has approximately 29,000 employees in the U.S., has $48 billion in fixed assets in the U.S., and sells more than 15 billion gallons of gasoline in the U.S. every year.
• BP says, “Today, BP is the number one producer of oil and gas offshore in the deepwater Gulf of Mexico. Equally important are our onshore gas operations, which have enabled the company to become one of the largest gas producers in the U.S.”
• BP operates around 10,000 miles of pipelines, making BP the second-largest liquids pipeline company in the United States.
• BP produces more crude oil in the U.S. than in any other
country.
• BP produces more natural gas in the U.S. than in any other country.
• BP’s capital expenditures in the U.S. are larger than in any other country and BP has more operating capital employed in the U.S. than in any other country.
It may be served with process at 501 Westlake Park Boulevard, Houston, TX
77079.
16. Nominal Defendant BP America, Inc., is a Delaware corporation registered
to do business in the State of Texas. It is a subsidiary of BP, p.l.c. BP America’s
registered agent is located at 350 N. St. Paul Street, Ste. 2900, Dallas, TX 75201.
17. Nominal Defendant BP Corporation North America (formerly BP Amoco
Corporation and Standard Oil Company), is an Indiana corporation with its principal place
of business in Houston, Texas. BP Corporation North America, Inc. is a subsidiary of BP
America, Inc. Its registered agent for service is located at Prentice Hall Corp System, 211
E. 7th Street, Ste. 620, Austin, TX 78701.
18. Defendant Anthony B. Hayward (“Hayward”) has served as BP’s Group
Chief Executive since 2007. Defendant Hayward has served as an Executive Director of
BP since 2003. Prior to serving as Group Chief Executive of BP, defendant Hayward has
held a series of roles in exploration and production with BP, including Chief Executive
Officer of Exploration and Production. Hayward, a U.K. citizen, received £2.5 million in
2008 and £3.15 million in 2009. He may be served with process at 501 Westlake Park
diligence in the administration of the affairs of the Company and in the use and
preservation of its property and assets, and the highest obligations of fair dealing.
38. Defendants, because of their positions of control and authority as directors
and officers of BP, were able to and did, directly and/or indirectly, exercise control over
the wrongful acts complained of herein. Because of their advisory, executive, managerial,
and directorial positions with BP, each of the Defendants had knowledge of material non-
public information regarding the Company.
39. To discharge their duties, the officers and directors of BP were required to
exercise reasonable and prudent supervision over the management, policies, practices and
controls of the Company. By virtue of such duties, the officers and directors of BP were
required to, among other things:
a) exercise good faith to ensure BP’s affairs were conducted in an efficient, business-like manner so as to make it possible to provide the highest quality performance of their business;
b) exercise good faith to ensure BP operated in a diligent, honest and prudent manner and complied with all applicable federal and state laws, rules, regulations and requirements, and all contractual obligations, including acting only within the scope of its legal authority; and
c) when put on notice of problems with BP’s business practices and operations, exercise good faith in taking appropriate action to correct the misconduct and prevent its recurrence.
45. In addition, the BP Defendants had duties under section 172 of the British
Companies Act of 2006 as follows:
(1) A director of a company must act in the way he considers, in good faith, would be
most likely to promote the success of the company for the benefit of its members as a
whole, and in doing so have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term,
of “Beyond Petroleum,” at the time Rep. Ed Markey, D-Mass., said, “BP stands for a
company with bloated profits that failed to fix bad pipelines.”
BPs Long History of Safety Violations and Conducting Internal Investigations in Bad Faith 55. According to a Washington Post article co-published with ProPublica, the
Company has a significant history of safety violations, the article stated in pertinent part:
A series of internal investigations over the past decade warned senior BP managers that the company repeatedly disregarded safety and environmental rules and risked a serious accident if it did not change its ways.
The confidential inquiries, which have not previously been made public, focused on a rash of problems at BP's Alaska oil-drilling unit that undermined the company’s publicly proclaimed commitment to safe operations. They described instances in which management flouted safety by neglecting aging equipment, pressured or harassed employees not to report problems, and cut short or delayed inspections in order to reduce production costs. Executives were not held accountable for the failures, and some were promoted despite them.
Similar themes about BP operations elsewhere were sounded in interviews with former employees, in lawsuits and little-noticed state inquiries, and in e-mails obtained by ProPublica. Taken together, these documents portray a company that systemically ignored its own safety policies across its North American operations - from Alaska to the Gulf of Mexico to California and Texas.
Tony Hayward, BP's CEO, has committed himself to reform since taking the top job in 2007. Top BP officials would not comment for this story, but spokesman Tony Odone said that in March an independent expert reported that BP has made "significant progress" toward meeting goals set in 2007 in response to a deadly Texas refinery explosion. Odone said the notion that BP has ongoing problems addressing worker concerns is "essentially groundless."
Because of its string of accidents before the recent blowout in the Gulf, BP already faced a possible ban on its federal contracting and on new U.S. drilling leases several senior former Environmental Protection Agency debarment officials told ProPublica. That inquiry has taken on new significance in light of the Gulf accident. One key question the EPA will consider is whether the company's leadership can be trusted and whether
The reports detailing BP's Alaska investigations -- conducted by outside lawyers and an internal BP committee in 2001, 2004 and 2007 -- were provided to ProPublica by a person close to BP who believes the company has not yet done enough to eradicate its shortcomings.
A 2001 report noted that BP had neglected key equipment needed for emergency shutdown, including safety shutoff valves and gas and fire detectors similar to those that could have helped prevent the fire and explosion on the Deepwater Horizon rig in the Gulf.
A 2004 inquiry found a pattern of intimidating workers who raised safety or environmental concerns. It said managers were shaving maintenance costs with the practice of "run to failure," under which aging equipment was used as long as possible. Accidents resulted, including the 200,000-gallon Prudhoe Bay pipeline spill in 2006, the largest ever spill on Alaska's North Slope.
During the same period, similar problems surfaced at BP facilities in California and Texas.
In 2002, California officials discovered that BP had falsified inspections of fuel tanks at a Los Angeles-area refinery and that more than 80 percent of the facilities didn't meet requirements to maintain storage tanks without leaks or damage. Inspectors were forced to get a warrant before BP allowed them to check the tanks. The company eventually settled a civil lawsuit brought by the South Coast Air Quality Management District for more than $100 million.
In 2005, an emergency warning system failed before a Texas City refinery exploded in a ball of fire. BP's investigation of that deadly accident -- conducted by a committee of independent experts -- found that "significant process safety issues exist at all five U.S. refineries, not just Texas City." It said "instances of a lack of operating discipline, toleration of serious deviations from safe operating practices, and apparent complacency toward serious process safety risk existed at each refinery." BP spokesman Odone said that after the accident the company adopted a six-point plan to update its safety systems worldwide. But last year the Occupational Safety and Health Administration fined BP $87 million for failing to make safety upgrades at that same Texas plant.
It is difficult to compare safety records among companies in industries like oil exploration. Some companies drill in harsher environments. And bad luck can play a role. But independent experts say the pervasiveness of BP's problems, in multiple locales and different types of facilities, is striking.
“They are a recurring environmental criminal and they do not follow U.S. health safety and environmental policy,” said Jeanne Pascal, a former EPA debarment attorney who led the investigations into BP. “At what point are we going to say we are not going to do business with you any more, bye? None of the other supermajors have an environmental criminal record like they do.”
Response efforts get underway as more than 200,000 gallons of oil spill out of a corroded hole in the Prudhoe Bay pipeline into the snow in March 2006. (BPXA) Since the late 1960s, BP has pulled oil from underneath Alaska, usually without problems. But when the company pleaded guilty to a felony conviction in 1999 for illegal dumping at an offshore drilling field there it drew fresh scrutiny to its operations and set off a cascading cycle of attempted -- and seemingly failed -- reforms that continued over the next decade.
To avoid having its Alaska division debarred -- the official term for a cancellation of contracts with the federal government -- BP agreed to a five-year probationary plan with the EPA. The company would reorganize its environmental management, establish protections for employees who speak out about safety issues, and reform its approach to risk and regulatory compliance. The company pledged to improve its conduct and reform its safety and maintenance programs.
Less than a year later, employees complained to an independent arbitrator that BP was letting equipment and critical safety systems languish at its Greater Prudhoe Bay drilling field. BP, in the spirit of reform, hired a panel of independent experts to examine the allegations.
The panel identified systemic problems in maintenance and inspection programs -- the operations that keep the drilling in Prudhoe Bay running safely -- and warned BP that it faced a "fundamental culture of mistrust" by its workers, in part because senior management lacked a structure of accountability.
"There is a disconnect between GPB (Great Prudhoe Bay) management's stated commitment to safety and the perception of that commitment," the experts said in their 2001 operational integrity report. "Correcting these underlying causes is essential ... for ensuring long term operational efficiency and mechanical integrity. Without a concerted effort to address these basic issues, any other action will provide only temporary relief."
According to the report, "unacceptable" maintenance backlogs ballooned as BP tried to sustain profits in the aging North Slope even though production
was declining. The consultants concluded that BP had neglected to clean and check pressure valves, emergency shutoff valves, automatic emergency shutdown mechanisms and gas and fire safety detection devices essential to preventing a major explosion. It warned management of the need to update those systems, which "have a potential immediate safety impact or that pose an environmental threat."
It also warned that emergency shutdown systems would need to be operated manually, that there may not be enough staff to do so, and said that even if closed, the isolation valves were known to leak.
"Workers believe internal leak-through of isolation valves is a significant problem and under certain circumstances may pose a potential hazard to workers and equipment," the report stated.
In May 2002 -- less than seven months later -- Alaska state regulators underscored the panel's critical findings in a tersely worded order warning BP that it had failed to maintain its pipelines. Alaska struggled for two years to make BP comply with state laws and clear the pipeline of sedimentation that could interfere with leak detection systems.
Soon after, BP hired another team of outside investigators to check complaints made by workers on the North Slope. The resulting 2004 study by the law firm Vinson & Elkins warned that pipeline corrosion endangered operations on the Slope.
"Due to corrosive conditions present at the Greater Prudhoe Bay oilfield and the age of the field, corrosion control is and has been a major issue for BPXA," the study said.
It also offered a harsh assessment of BP's management of health, safety and environment concerns raised by employees. According to the report, workers accused BP of allowing "pencil whipping," or falsifying inspection data. The report quoted an employee who said BP workers felt pressure to skip key diagnostics, including pressure testing, cleaning of pipelines and checking for corrosion, in order to cut costs.
"To reduce staff workload it was suggested by BPXA management not to rebuild the pulling equipment as often ... and possibly not pressure test the equipment," BP employee Marc Kovac wrote in a safety complaint filed with the company. "This obviously would increase the potential for equipment failure resulting in equipment damage, environmental spills and injury to workers."
The report said that the manager in charge of corrosion safety in Alaska at the time, Richard Woollam, had "an aggressive management style" and
subverted inspectors' tendency to report problems on the pipeline.
"Pressure on contractor management to hit performance metrics (e.g. fewer OSHA recordables) creates an environment where fear of retaliation and intimidation did occur."
Woollam was soon transferred, but the damage was done.
Two years later, in March 2006, disaster struck. More than 200,000 gallons of oil spilled out of a corroded hole in the Prudhoe Bay pipeline into the snow, the largest spill ever on the North Slope. Inspectors found that the steel pipe -- the inside of which hadn't been inspected in years -- had been corroded to dangerously thin levels along nearly 12 miles of pipeline. It was exactly the kind of situation BP's auditors and Alaska officials had feared.
When Congress held hearings into the cause of the spill later that year, Woollam pleaded the Fifth Amendment. He now works in BP's Houston headquarters. Reached at his home in Texas this week, Woollam referred questions to the BP press office, which declined to comment on the matter.
In August 2006, just five months after the spill at Prudhoe Bay, a pipeline safety technician for a BP contractor in Alaska discovered a two-inch snaggle-toothed crack in the steel skin of an oil transit line. Nearby, contractors were grinding down metal welds, sending a fan of sparks shooting across the work site. The technician, Stuart Sneed, feared the sparks could ignite stray gases, or the work could make the crack worse, so he ordered the contractors to stop working.
“Any inspector knows a crack in a service pipe is to be considered dangerous and treated with serious attention,” Sneed told ProPublica. “The crack could have created a hellacious leaker with people grinding on it.”
Sneed believed that the Prudhoe Bay disaster had made BP management more amenable to listening to workers concerns about potential safety problems. The company had replaced its chief executive for North America with Robert Malone and had ordered him to make fundamental changes. Malone quickly focused on reforming the company's culture in Alaska.
But instead of receiving compliments for his prudence, Sneed -- who had also complained that week that pipeline inspectors were faking their reports -- was scolded by his supervisor for stopping the work. According to a report from BP's internal employer arbitrators, Sneed's supervisor, who hadn't inspected the crack himself, said he believed it was superficial.
The next day, according to multiple witness accounts and the report, that
supervisor singled out Sneed and harassed him at a morning staff briefing. Within a couple of hours, the supervisor sent emails to colleagues soliciting complaints or safety concerns that would justify Sneed's firing. Two weeks later, after a trumped up safety infraction, he was gone.
During the investigation BP inspectors substantiated Sneed's concerns about the cracked pipe. The arbiter also investigated Sneed's account of what happened when he reported the problem. Not only did the report confirm his account, but it determined that he was among the best at his job.
The investigators interviewed dozens of workers and according to most of them Sneed "was likely to be the most careful technician on the Slope with respect to safety and quality of his inspections. If there was corrosion in existence... he would find it," said the report, which was authored by Washington, D.C., attorney Billie Garde and environmental investigator Paul Flaherty and delivered to BP executives in late 2006.
So why would BP want to get rid of one of its most effective inspectors? The report echoed BP's internal investigations from 2001 and 2004, finding, once again, that BP pressured its contractors and employees in order to save money.
"Many of the people interviewed indicate that they felt pressured for production ahead of safety and quality," the report stated.
Contractors received incentives to list large numbers of completed inspections, the report found, something Sneed said routinely led workers to falsify their reports. Contractors also received a 25 percent bonus tied to BP's production numbers. With fewer delays, more oil would be pumped, and more cash would flow to companies executing the work under BP supervision.
The message to workers was clear.
“They say it's your duty to come forward,” said Sneed of BP's corporate policies and public statements, “but then when you do come forward, they screw you. They'll destroy your life.”
“No one up there is ever going to say anything if there is something they see is unsafe,” he added. “They are not going to say a word.”
The following year saw another shakeup at BP. The company had already replaced its chief executive of Alaskan operations with Doug Suttles -- the man now in charge of offshore operations and cleanup of the disaster in the Gulf. In May 2007 it also named a new global CEO, Tony Hayward, a 25-
But worker harassment claims continued to be made in Alaska and elsewhere, and more problems with the Alaska pipeline systems also emerged.
In September 2008, a section of a high pressure gas line on the Slope blew apart. A 28-foot-long section of steel -- the length of three pickup trucks -- flew nearly 1,000 feet through the air before landing on the Alaskan tundra. Sneed had raised concerns about the integrity of segments of the high-pressure gas line system before he left the company. If the release had caught a spark the explosion could have been catastrophic, said Robert Bea, a University of California Berkeley engineering professor who has worked for BP on the North Slope.
Three more accidents rocked the same system of pipelines and gas compressor stations in 2009, including a near explosion that could have destroyed the entire facility. According to a letter that members of Congress sent to BP executives, obtained by ProPublica, the near miss was the result of malfunctioning safety and backup equipment.
BP spokesman Tony Odone said BP is continuing to roll out a company-wide operating management system that helps track and implement maintenance. He said the company reduced corrosion and erosion-related leaks in Alaska by 42 percent between 2006 and 2009.
As BP battled through the decade to avoid accidents in Alaska, another facility operating under a different business unit, BP West Coast Products, was having similar problems.
For years the BP subsidiary that refined and stored crude oil was allowed to inspect its own facilities for compliance with emission laws under the South Coast Air Quality Management District, the agency that regulates air quality in Los Angeles. The thinking was that companies had the technical knowledge and that self-inspection was cheaper and more efficient.
But in 2002, eight years after the program began, inspectors with the management district thought BP's inspection results looked too good to be true. Between 1999 and 2002, BP's Carson Refinery had nearly perfect compliance, reporting no tank problems and making virtually no repairs. The district began to suspect that BP was falsifying its inspection reports and fabricating its compliance with the law.
The management district sent its own inspectors to investigate, but when they tried to enter BP's plant, the company turned them away. According to Joseph Panasiti, a lawyer for the management district, the agency had to get
a search warrant to conduct inspections required by state law.
When the regulators did finally get in, they found equipment in a disturbing state of disrepair. According to a lawsuit the management district later filed against the company, inspectors discovered that some tanker seals had tears that were nearly two feet long. Tank roofs had gaps and pervasive leaks, and there were enough major defects to lead to thousands of violations.
“They had been sending us reports that showed 99 percent compliance, and we found about 80 percent noncompliance,” Panasiti told ProPublica. “It was clear that no matter what was said, production was put ahead of any kind of environmental compliance.”
Panasiti sued BP for $319 million, alleging, among other things, that emissions from the refinery forced nearby schools to be evacuated on two separate occasions. After 24 months of litigation, BP settled out of court, agreeing to pay more than $100 million without admitting guilt. Colin Reid, the plant's operations manager during the prosecution, was later promoted to a vice president position at a BP office in the United Kingdom. Reid recently left BP; he did not respond to requests for comment.
Allegations that BP or its contractors falsified safety and inspection reports are a recurring theme. Similar allegations were attributed to workers in BP's 2001 and 2004 internal reports on Alaska, but the internal auditors stopped short of confirming that fraud had occurred. The 2004 Vinson & Elkins report, titled "Report for BPXA Concerning Allegations of Workplace Harassment From Raising HSE Issues and Corrosion Data Falsification," says investigators did not thoroughly examine those allegations and couldn't conclude whether fraud had occurred. But the report extensively quoted workers who described how it was done.
As recently as 2006 a North Slope worker told a BP investigator that he suspected tests had been faked after an inspection team produced 2,500 completed reports from a weekend's work in remote territory. In 2007 another North Slope safety engineer brought in to examine a pipeline system quickly identified a pattern of problems in an area that had received clear inspection reports for the previous five years.
In August 2008, Kenneth Abbott accepted a job with a BP contractor as a project control leader on the Atlantis, a monstrous deepwater drilling rig in the Gulf of Mexico that is significantly larger than the Deepwater Horizon rig that sank in April. The Atlantis is capable of producing more than eight million gallons of oil a day from the ocean floor.
Abbott supervised a staff of six charged with doing internal audits and making sure the rig machinery was built to specifications and had the
documents and instructions necessary to operate safely. It was an important job on one of the world's most advanced drilling platforms.
Yet it quickly turned sour. In a debriefing with the person who last held the post, Abbott was told that BP did not have final design drawings ready to deliver to the crews that would operate the Atlantis in the Gulf, Abbott said in an interview with ProPublica.
Final design drawings, called "as-built" drawings, are considered an essential safety component. They prove that a piece of equipment -- say a shutoff valve or an engine winch -- was built the way it was supposed to be. Those drawings are thus the final checks to make sure the equipment operates properly. They also serve as instruction manuals for emergencies. If there is a fire on deck or a blowout, for example, operators under extreme stress and danger can use the design drawings to find the hidden kill lever that can shut an engine down before it explodes.
Abbott told ProPublica that as-built documents had been issued for only 274 of more than 7,100 pieces of equipment, the equivalent of constructing a house without having an architect or engineer sign off on the blueprint.
In May, Abbott filed a lawsuit against the Minerals and Management Service in federal court in Texas aiming to force the regulatory agency to stop Atlantis operations until BP could prove the documents are in place. He is not seeking monetary damages or compensation.
In the court filings, he said that some of the most critical spill-protection infrastructure, including the wellhead documents, hadn't been approved. None of the sub-sea risers -- the pipelines and hoses that serve as a conduit for moving materials from the bottom of the ocean to the facility -- had been "issued for design." And the manifolds that combine multiple pipeline flows into a single line at the sea floor hadn't been reviewed for final use.
Abbott -- an engineer with 30 years of experience completing design documents for companies like Shell and General Electric -- said the completion of "as-built" documents is standard for the industry. Machinery is designed, approved for manufacturing, checked to make sure it was built properly, and then approved for final use. If BP didn't provide the documentation to its workers in the field, it would be a stark exception.
Yet to Abbott's surprise BP's engineers resisted completing the process.
"I just hit a lot of resistance form the lead engineers," Abbott told ProPublica. "They got really angry with me. They wanted to shortcut the system and not do the reviews, because they cut short the man hours."
Abbott estimates BP saved $2 million to $3 million by streamlining the process.
"There seemed to be a big emphasis to push the contractors to get things done and that was always at the forefront of the operation," Abbott said. "I felt there had to be balance. You had to have safety because peoples' life depended on it. My management didn't see it that way."
Abbot's complaint wasn't the first time the company had been warned about not maintaining as-built drawings. According to BP's internal 2001 operational integrity report conducted in Alaska, as-built documentation wasn't being maintained at the company's Prudhoe Bay operations either.
It was among the issues BP executives were encouraged to fix after the audit of their operations there nearly a decade ago.
BP declined to discuss Abbott's allegations, telling ProPublica it does not comment on pending legal matters. In a previous statement made to federal investigators, BP said the drawings were updated and in place before the Atlantis began operating. The Minerals and Management Service is reportedly investigating Abbott's claims and Congress has also launched an inquiry that is still in progress.
A BP ombudsman letter written by Billie Garde and obtained by ProPublica confirmed Abbott's allegation that the company had violated its own safety and management protocol by not completing as-built documentation. The ombudsman's office has not yet investigated Abbott's claims about the specific pieces of equipment that lacked documentation because Abbott didn't make that information available until he filed the lawsuit last month.
Shortly after he raised his complaints to BP management, Abbott lost his contract to work with BP.
The U.S. Coast Guard responds to the Deepwater Horizon disaster after it exploded on April 20, 2010. (Deepwater Horizon Response) Among the most important pieces of safety equipment that BP was criticized for not having in place in Alaska, according to its own 2001 operational integrity report, were gas and fire detection sensors and the emergency shutoff valves that they are supposed to trigger.
When gas leaks from a pipeline break or a blowout near a running engine, it's a lot like stomping on the accelerator of a car: The engine will suck up the fuel vapors and scream out of control. Gas sensors are critical to preventing an explosion, because they can shut down a rig engine before that happens.
Now investigators are learning that similar sensors -- and the shutoff systems that would have been connected to them -- were not operating in the engine room of the Deepwater Horizon rig that exploded in the Gulf of Mexico.
In sworn testimony before a Deepwater Horizon Joint Investigation panel in New Orleans last month, Deepwater mechanic Douglas Brown said that the backstop mechanism that should have prevented the engines from running wild apparently failed -- and so did the air intake valves that were supposed to close if gas enters the engine room. The influx of gas from the well gave the engines "a more volatile form of burning mixture," he said, and caused them to rev out of control. Another system was supposed to kick in and shut the engines down, but that system also failed. He said the engine room wasn't equipped with a gas alarm system that could have shut off the power.
Minutes later, the Deepwater Horizon rig exploded in a ball of fire, killing 11 workers before sinking to the seafloor, where it left a gaping well pipe that continues to gush oil and gas into the Gulf.
The Gulf Spill: Apocalyptic Failure
56. On April 20, 2010, an enormous blast on the Deepwater Horizon oil
drilling platform killed 11 people. The Deepwater Horizon rig burned for more than a day
after the massive explosion.
57. Since that time, a staggering 200,000 gallons of oil per day have been
pouring into the Gulf of Mexico from the oil wells BP was drilling on the Deepwater
Horizon.
58. The oil is now reaching the shores of other Gulf of Mexico states, has
closed down fisheries, and is one of the greatest manmade threats ever to endanger the
fragile Gulf ecosystem.
59. The enormity of the disaster cannot be overstated. Most troubling, the
disaster may have been avoided if BP had implemented rudimentary safety features-- such
as a remote “shutoff” valve—that are standard on other ocean water drilling platforms.
60. As reported by an April 28, 2010 Wall Street Journal article, an “acoustic
switch” would have allowed BP to “trigger an underwater valve that shuts down the well
even if the oil rig itself is damaged or evacuated.” Notably, an acoustic trigger costs
around $500,000, an amount BP was unwilling to spend. The Deepwater Horizon cost
about $560 million to replace. And the containment, recovery, and environmental impact
mitigation will cost BP billions of dollars.
61. As troubling, BP lacked a “blowout scenario” plan to deal with the disaster.
As reported by the Associated Press:
A rule change two years ago by the federal agency that regulates offshore oil rigs allowed BP to avoid filing a plan specifically for handling a major spill from an uncontrolled blowout at its Deepwater Horizon project—exactly the kind of disaster now unfolding in the Gulf of Mexico. Oil rig operators generally are required to submit a detailed "blowout scenario." But the federal Minerals Management Service issued a notice in 2008 that exempted some drilling projects in the Gulf under certain conditions. BP met those conditions, according to MMS, and as a result, the oil company had no plan written specifically for the Deepwater Horizon project, an Associated Press review of government and industry documents found. In a series of interviews, BP spokesman William Salvin insisted the company was nevertheless prepared to handle a blowout at that project because it had a detailed, 582-page regional plan for dealing with a catastrophic spill anywhere in the central Gulf. “We have a plan that has sufficient detail in it to deal with a blowout," Salvin said. Still, the lack of a specific plan for the Deepwater Horizon project raises questions about whether the company could have been better prepared to deal with the oil leak, which is still spewing out of control at a rate estimated at more than 200,000 gallons a day. MMS, which is part of the Interior Department, has long been criticized as too cozy with the industry it regulates.
Robert Wiygul, an Ocean Springs, Miss., environmental lawyer, said the lack of a blowout scenario “is kind of an outrageous omission, because you're drilling in extremely deep waters, where by definition you're looking for very large reservoirs to justify the cost.”
* * * In its 2009 exploration plan, BP strongly discounted the possibility of a catastrophic accident . . .
Defendants Concealed repeated Warnings Associated With Its Drilling Operations 1. The Deepwater Horizon Operations
62. BP's reckless inattention to safety and maintenance issues culminated in the
Deepwater Horizon disaster. Like the Texas City disaster and others, BP had ample
warning of problems and ignored them.
63. The risks of offshore drilling were well known to BP, and are especially
high in the Gulf, where floating rigs are used, unlike the permanent rigs used in other
areas such as the North Sea. Permanent rigs are anchored to the ocean floor and cannot
sink, while floating rigs are far more precarious and subject to serious accidents.
64. At the time of the disaster, the Deepwater Horizon was not producing any
oil. The Deepwater Horizon had drilled a well in the sea floor and was in one of the last
phases of the exploratory operation prior to turning the well into a production well. In this
final phase, Halliburton workers on the Deepwater Horizon, under the supervision and
control of BP's employees, were attempting to create a cement seal to plug off the
wellhead. BP's employees under the supervision and control of one or more of the BP
Defendants had authority over the Halliburton workers to determine the type and amount
reliable manner. For example, at a March 22, 2010 Howard Weil Conference in New
Orleans, Defendant Hayward stated that:
"We are currently planning to make final investment decisions for 24 new major projects in the next two years. Each project has been highgraded through our project selection and progression process. They are concentrated in the Gulf of Mexico, the North Sea, Azerbaijan and Angola - high-margin production areas that improve the portfolio and enable profitable growth."
"Safety and operational integrity underpins everything we do, and we are now in the final phase of rolling out our operating management system that provides a single, consistent framework for our operations, covering all areas from personal and process safety to environmental performance. And I am pleased to say that in 2009 we saw continuing improvement in all aspects."
68. On March 25, 2009, Defendant McKay stated:
"You are investing in your future." "There's no better example of what technology can do than the deep waters of the Gulf of Mexico." "By the way, let me add that managing costs down does not mean BP will be skimping when it comes to ensuring our operations remain safe, reliable and compliant in the years ahead. "Safety will continue to have first call on the company resources." 69. BP's atrocious approach to safety was never disclosed to the public or BPs
shareholders, a fact that would have been material to them and the market.
70. Cementing a wellhead, particularly in deep water, is delicate work that,
under normal circumstances, carries the risk of a blowout or an uncontrolled release of oil
and/or natural gas from the well. Indeed, BP knew that the work being performed at the
Deepwater Horizon was especially risky. In 2007, MMS raised concerns about oil rig
blowouts associated with the exact type of cementing work the Deepwater Horizon was
doing when it exploded.
71. According to a 60 Minutes report, based on interviews with a survivor of
the Deepwater Horizon and the government's expert tasked with investigating the
79. BP's direction of the completion operations of the well, in particular the
installation of the final cement casing at the wellhead prior to the conclusion of the
exploratory phase of the well, was carried out by Halliburton and BP with extreme
recklessness. As the New York Times reported on May 3, 2010:
More than a half-dozen workers who were on the rig at the time of the explosion told the lawyers that the rig operator had seemed to be rushing to finish and detach from the well - a possible factor that could have contributed to the explosion. The explosion that sank the drilling rig came less than a day after workers finished pumping concrete into the well, a step toward closing it off temporarily. BP planned to return to the well later to set up a permanent rig and start producing oil. Encasing a well in concrete is one of the most critical aspects of oil drilling, and presents many risks. The concrete involved is highly specialized. It needs to be blended and stirred properly. It also must be pumped down into the well so that it comes out the bottom and oozes back up around the well casing, forming a tight seal. The concrete work apparently did not achieve a complete seal., and natural gas started seeping into the well in the late stages, the lawyers said. But idling a rig to address such a problem can cost huge sums...[L]awyers said that supervisors either missed or ignored the signals and proceeded with the job. When workers released the last valves that were holding back the natural gas that had built up inside the well, the gas shot up the pipe and sprayed into the drilling rig, igniting the fireball that caused the deaths of 11 workers, injured others and sank the rig .... Employees working on the Deepwater Horizon experienced recurring problems with pockets of highly flammable natural gas forcing its way up the drilling pipes. Prior to the Deepwater Horizon incident, BP did not view these incidents as problematic, but instead stated that the gas was likely to only create a "negligible" risk. The government, however, cautioned the company that gas buildup was a genuine concern and that BP should take note and "exercise caution." In the weeks leading up to the Deepwater Horizon incident, so much natural gas rose to the surface that an emergency announcement called for a stop to all "hot work," meaning any welding, cooking or any other use of fire or igniters. Smaller emissions of gas also slowed work at the Rig on other occasions too.
89. Director Defendants Anderson, Burgmans, Carroll, Castell and Davis are
active members of BP’s Safety, Ethics and Environment Assurance Committee (SEEAC).
Defendant Castell serves as Chairman of the committee. The SEEAC is a board-level
committee that reports directly to the full Board of Directors, as BP’s own flowchart
confirms. Employees of BP’s internal Safety and Operations function report directly to the
SEEAC.
90. In a 2009 SEEAC report, BP describes the SEEAC’s primary responsibility
as follows:
The role of the SEEAC requires us to look at the processes adopted by the executive management to identify and mitigate significant non-financial risks and receive assurance that they are appropriate in design and effective in implementation. Following the tragic incident at the Texas City refinery in 2005 the committee has observed a number of key developments, including: the establishment of a safety & operations (S&O) function with the highest caliber of staff; development of a groupwide operating management system (OMS) which is being progressively adopted by all operating sites; the establishment of training programmes in conjunction with MIT that are teaching project management and operational excellence; the dissemination of standard engineering practices throughout the group; and the formation of a highly experienced S&O audit team formed to assess the safety and efficiency of operations and recommend improvements. Throughout this time the group chief executive has made safety the number one priority. The committee’s focus in S&O will now be to monitor how these advances are interpreted into the culture of day-to-day operations. As in all years the committee has not focused solely on S&O. Our main tasks include:
• monitoring and obtaining assurance that the management or mitigation of significant BP risks of a non-financial nature is appropriately addressed.
• reviewing material to be placed before shareholders which address
BP’s environmental, safety and ethical performance and making recommendations to the board about their adoption and publication.
• reviewing BP’s internal control systems as they relate to non-financial risk.
• reviewing reports on the group’s compliance with its code of
conduct and on the employee concerns programme (OpenTalk) as it relates to non-financial issues.
The full list of the tasks and requirements of the SEEAC are set out in BP’s board governance principles. The committee reviews its tasks and processes on a regular basis and seeks to learn from the challenges and issues of the previous year when setting its future agenda. Following the committee evaluation in 2009, which was an integral part of the external evaluation undertaken by the board, it was concluded that the SEEAC’s tasks and requirements remained appropriate. 91. The SEEAC Committee defendants, Anderson, Burgmans, Carroll, Davis,
and Chairman Castell, are personally implicated in BP’s disastrous safety performance.
These defendants are responsible for BP’s safety and environmental law compliance.
They also are responsible for mitigating the safety and environmental risks BP faces.
92. These directors have failed in their duties to BP. Because these defendants
are personally implicated, they cannot independently and disinterestedly determine
whether BP p.l.c. should assert these claims against themselves and the rest of BP’s
board. These directors lack independence, rendering them incapable of impartially
considering a demand to commence and vigorously prosecute this action.
Governance: BP Board’s Responsibilities For “Monitoring” and “Risk Management”
93. Pursuant to the BP Board of Governance Principles, BP’s Board “believes
that the governance of BP is best achieved by the delegation of its authority for the
executive management of BP to the Group Chief Executive (GCE) subject to defined
Monitoring The Board will satisfy itself that: the material risks to BP are identified and understood and that systems of risk management, compliance and control are in place to mitigate such risks; . . .
95. BP’s Board also has a “General Limitations” clause, which says in part:
General Limitations The GCE will not engage in or cause or permit any practice, activity or decision to be taken: without having regard to: the health, safety and environmental consequences . . .
96. Concerning risk management—which BP utterly failed to do in the instant
case—BP has defined reporting functions and procedures.
BP’s Risk and Internal Control The GCE will not cause or permit BP to operate without a comprehensive system of controls and internal audit to identify and manage the risks that are material to BP, to protect BP’s assets and to monitor the application of BP’s resources in a manner which meets the standards of external auditors.
* * *
The GCE will report to the Board at each meeting and advise the Board (or the relevant Board Committee) in a timely manner of all material matters currently or prospectively affecting BP and its performance including, among others:
a) any potential strategically or politically significant development prospects;
b) progress on the development and implementation of the Strategy and the Plan;
c) BP’s business and financial performance including any materially under-performing business activities and proposals to remedy the situation;
d) any action or project that represents a material deviation from the Strategy or the Plan;
e) any action or project (otherwise than permitted by the Strategy or the Plan) that takes BP into a new country;
f) any action or project (otherwise than permitted by the Plan) that will involve capital investment or revenue commitments exceeding the amounts determined by the Board from time to time;
g) any failure to observe the Executive Limitations;
h) the identification of the material risks to BP and an assessment of the effectiveness of the controls in place to assess and manage such risks;
i) any material political, economic or other developments in the markets where BP operates;
j) any material developments or issues concerning the skills and capability of the BP business;
k) all material matters currently or prospectively affecting the shareholders and the markets in which the shareholders’ interests are traded;
l) anything which may have a material adverse impact on BP’s reputation; and
m) the outcome of any agreed actions or significant developments relating to any material agenda items considered at previous Board meetings.
97. During the Relevant Period, all the Director Defendants failed miserably in
their responsibilities for “monitoring” and “risk management” as delineated at BP p.l.c. As
previously alleged, BP’s Board and SEEAC committee failed to have a blowout
prevention and response plan for the Deepwater Horizon platform. Worse, BP’s Board and
committees failed to purchase and install a remote acoustic blowout shutoff device that—
for a mere fraction of the costs BP now faces—could have stopped the flow of oil. And,
BP failed to have a containment dome at the ready in case a deepwater well blowout
104. By the Board’s own admission per BP’s most recent filings, Director
Defendants Hayward, Inglis, Grote, Conn, and Dudley are executive officers, or “inside
directors,” of BP. Their salaries, future and livelihood are entirely dependant on BP.
105. The money awarded to these inside directors is set by the Remuneration
Committee. According to the committee,
The remuneration committee sets the measures and targets for the annual bonus element of variable pay at the beginning of the year, based on the strategy and annual plan accepted by the board. The strategy is built around safety, people and performance. The measures included key safety measures (15% of bonus), staff numbers and survey results to reflect the people priorities (15%) and a set of financial and operational targets to measure performance (70%). 106. BP’s inside directors are very handsomely rewarded, earning tens of
millions of dollars in salary and bonus in 2009 alone. According to BP’s public
107. Notably, “safety” comprises 15% of the inside directors’ salary and bonus,
and meeting financial objectives comprises 70%. The Deepwater Horizon disaster is
guaranteed to seriously affect the compensation awarded these inside directors. Plainly,
these inside directors cannot disinterestedly determine whether to sue themselves for the
Gulf disaster. These inside directors lack independence, rendering them incapable of
impartially considering a demand to commence and vigorously prosecute this action.
108. BP’s Remuneration Committee is chaired by Director Defendant DeAnne
S. Julius, and Director Defendants Burgmans, David and Davis currently service on the
Committee. (Director Defendant Davis served on the Remuneration Committee until April
2009.) Notably, Director Defendants David and Davis also sit on BP’s Audit Committee.
And Director Defendant Bergmans sits on BP’s Safety, Ethics and Environment
Assurance Committee.
BP Currently Is On Probation For Safety and Environmental Disasters In the United States, and Faces Deferred Prosecution For Fraud, Confirming Demand Upon BP’s Board Is Futile
109. Further evidencing the BP Board’s inability to disinterestedly consider a
shareholder demand, BP faces significant liability—and even criminal prosecution—for
its numerous safety and environmental failings, as alleged above and herein.
110. These facts are confirmed by the written record. On October 25, 2007, the
United State Department of Justice announced:
BRITISH PETROLEUM TO PAY MORE THAN $370 MILLION IN ENVIRONMENTAL CRIMES, FRAUD CASES
Charges Result from 2005 Texas Refinery Explosion,
Alaska Pipeline Leaks and Attempt to Manipulate Markets WASHINGTON—British Petroleum and several of its subsidiaries have agreed to pay approximately $373 million in fines and restitution for
environmental violations stemming from a fatal explosion at a Texas refinery in March 2005, leaks of crude oil from pipelines in Alaska, and fraud for conspiring to corner the market and manipulate the price of propane carried through Texas pipelines, the Department of Justice announced today. The total payments agreed to by BP include: - $50 million in criminal fines to be paid as part of an agreement to plead guilty in the Southern District of Texas to a one-count felony violation of the Clean Air Act. The agreement resulted from the prosecution of BP by the Department of Justice for a catastrophic explosion that occurred at the BP Texas City refinery on March 23, 2005, that killed 15 contract employees and injured more than 170 others; - $12 million in criminal fines, $4 million in payments to the National Fish and Wildlife Foundation, and $4 million in criminal restitution to the state of Alaska, as part of an agreement to plead guilty by British Petroleum Exploration (Alaska), Inc. (BPXA) to a violation of the Clean Water Act to resolve criminal liability relating to pipeline leaks of crude oil onto the tundra as well as a frozen lake in Alaska; - A criminal penalty of $100 million, a payment of $25 million to the U.S. Postal Inspection Consumer Fraud Fund, and restitution of approximately $53 million, plus a civil penalty of $125 million to the Commodity Futures Trading Commission, as part of an agreement to defer the prosecution of a one-count criminal information filed in the Northern District of Illinois charging BP America Inc. with conspiring to violate the Commodity Exchange Act and to commit mail fraud and wire fraud. In addition, a 20-count indictment returned by a federal grand jury in Chicago today charges four former employees of a subsidiary of BP America, Inc. with conspiring to manipulate and corner the TET propane market in February 2004, and to sell TET propane at an artificially inflated index price in violation of federal mail and wire fraud statutes, along with substantive violations of the Commodity Exchange Act and wire fraud.
* * * “The Texas and Alaska cases illustrate the twin pillars of environmental enforcement: first, protecting human life and health and, second, protecting our natural resources,” said Acting Assistant Attorney General Ronald J. Tenpas of the Environment and Natural Resources Division. “BP cut corners with disastrous consequences for both and is being held to account.”
* * * “This case demonstrates that criminals aren’t just found on unsafe streets . . . they could be in corporate board rooms or on trading desks as well,” said Kenneth R. Jones, Deputy Chief Postal Inspector, U.S. Postal Inspection Service. “This prosecution and settlement agreement underscores the Postal Inspection Service’s steadfast commitment to aggressively investigate corporations and their employees who undermine the integrity of American businesses, and ultimately, the American consumer.”
* * * Texas City Oil Refinery Explosion BP Products North America Inc., today agreed to plead guilty to a felony violation of the Clean Air Act for its conduct that resulted in the fatal explosion on March 23, 2005 at their Texas City Refinery. As part of the guilty plea BP has agreed to pay a $50 million criminal fine, the largest ever assessed under the Clean Air Act, and serve three years of probation. The catastrophic explosion, which resulted in the death of 15 contract workers and injuries of over 170 others, was the result of hydrocarbon liquid and vapor being released from a “blowdown stack” and igniting during the startup of a unit that is used to increase octane content in unleaded gasoline. The unit had been shut down for nearly a month for maintenance and repairs. BP admitted that from 1999 up until the morning of March 23, 2005, several procedures required by the Clean Air Act for ensuring the mechanical integrity and a safe startup had either not been established or were being ignored.
* * * Clean Water Act Violations in Alaska British Petroleum Exploration (Alaska ), Inc., (BPXA) today agreed to plead guilty to a violation of the Clean Water Act to resolve its criminal liability relating to pipeline leaks of crude oil onto the tundra as well as a frozen lake in Alaska. As part of the guilty plea BPXA has agreed to pay a $12 million criminal fine, $4 million in community service payments to the National Fish and Wildlife Foundation (NFWF) for the purpose of conducting research and activities in support of the arctic environment in the state of Alaska on the North Slope, and $4 million in criminal restitution to the state of Alaska, and serve a three years of probation.
Fraud, Market Manipulation Agreement and Charges A criminal information was filed in the Northern District of Illinois today charging BP America Inc. with one count of conspiring to violate the Commodity Exchange Act, mail fraud, and wire fraud. Under the terms of a deferred prosecution agreement, the government has agreed not to prosecute BP for a period of three years for conduct charged in the information if the company fully complies with the terms of the agreement. Those terms include a requirement that BP America and named subsidiaries cooperate with an independent monitor who will be appointed for a three-year period, and with Department of Justice investigations into the propane manipulation schemes. TET propane, or propane transported in the Texas Eastern Products Pipeline Company pipeline system, was the primary means by which propane was delivered from the Gulf Coast to the Northeast and Midwest. According to the criminal information, in February 2004, traders working for a BP America Inc. subsidiary used the financial resources of BP to purchase more than the available supply of TET propane. BP then sold a portion of their supply to other market participants at an artificially inflated price. It is estimated that the loss to other market participants exceeded $53 million dollars – the amount that BP has agreed to pay in restitution, along with a criminal penalty of $100 million, and a $25 million payment to the U.S. Postal Inspection Service Consumer Fraud Fund, plus a civil penalty in the amount of $125 million to the Commodity Futures Trading Commission. 111. Hence, as of the date of filing, BP remains on probation, and faces the
threat of criminal prosecution for safety, environmental, and fraud violations committed
by BP in the United States. These allegations precede the latest information that BP knew
the Deepwater Horizon rig was failing even before the oil rig exploded, yet BP failed to
shut the rig down.
112. These facts confirm a deeply troubling and disturbing pattern of corporate
malfeasance and criminality that reaches BP’s apex. Even with BP’s probation, deferred
prosecution, and empty promises to improve safety, risk management and environmental
impact of its operations, widespread malfeasance and wrongdoing continues at BP to this
confirmed by the latest disaster, the troubling safety and environmental history of BP, the
deaths arising from BP’s systemic safety failures, and myriad civil and criminal penalties
arising therein. The Director Defendants’ lack of independence cannot be seriously
questioned\, rendering them incapable of impartially considering a demand to commence
and vigorously prosecute this action.
COUNT ONE
Breach of Fiduciary Duty
(against all defendants)
118. Plaintiffs incorporate by reference ¶¶1-115 as though fully set forth and
alleged herein.
119. Defendants are fiduciaries of BP and of all of its public shareholders and
owe to them the duty to conduct the business of the Company loyally, faithfully, carefully,
diligently and prudently. This cause of action is asserted based upon the defendants’ acts
in violation of applicable law, which acts constitute a breach of fiduciary duty.
120. Defendants, in their roles as executives or directors of the Company,
participated in the acts of mismanagement alleged herein and acted in gross disregard of
the facts or failed to exercise due care to prevent the unlawful conduct.
121. Defendants are responsible for the gross mismanagement of BP, for
abdicating their corporate responsibilities and mismanaging the Company in at least the
following ways:
they caused BP to violate applicable law, disregarding their duties as fiduciaries; they have caused BP to violate core worker safety and environmental laws and exposed the Company and its shareholders to criminal liability and unnecessary costs, fines, penalties and tort liability;
they exposed the Company and its shareholders billions upon billions of dollars in fines, penalties and compensatory damage awards for violations of U.S. and Louisiana state environmental laws; and they subjected BP to adverse publicity and loss of goodwill, greatly increased its costs to raise capital, and impaired its earnings. 122. These issues have also put the company in the crosshairs of American
legislators.
123. Plaintiffs incorporate by reference and reallege each and every allegation
contained above, as though fully set forth herein.
124. As a result of the misconduct described above, and by failing to properly
consider the interests of the Company and its public shareholders, Defendants have caused
BP to incur (and BP may continue to incur) significant legal liability and legal costs to
defend itself as a result of Defendants’ unlawful actions.
125. As a result of this waste of corporate assets, Defendants are liable to BP.
126. Plaintiffs, on BP’s behalf, have no adequate remedy at law.
COUNT TWO
Gross Mismanagement
(against all defendants)
127. Plaintiffs incorporate by reference ¶¶1-124as though fully set forth and
alleged herein.
128. Defendants had a duty to BP and its shareholders to prudently supervise,
manage and control the operations, business and internal financial accounting and
disclosure controls of BP.
129. Defendants, by their actions and by engaging in the wrongdoing described
herein, abandoned and abdicated their responsibilities and duties with regard to prudently
managing the businesses of BP in a manner consistent with the duties imposed upon them
136. Plaintiff incorporates by reference and realleges each and every allegation
contained above, as though fully set forth herein.
PRAYER FOR RELIEF
FOR THESE REASONS, Plaintiffs, on BP’s behalf, prays for judgment against
the Director Defendants as follows:
A. against Defendants and in favor of nominal defendant BP for the amount of damages sustained by the Company as a result of the Defendants’ breaches of fiduciary duties;
B. declaring BP’s directors violated and aided and abetted in the breach of their fiduciary duties to the Company and its shareholders;
C. removing and replacing BP’s directors, instituting a new election of directors and appointing a receiver for the management of the Company until a new election of directors is called and determined;
D. ordering appropriate equitable relief to remedy Defendants’ misconduct;
E. awarding to Plaintiffs the costs and disbursements of the action, including reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses; and
F. granting such other and further relief as the Court deems just and proper.
DEMAND FOR JURY TRIAL
Plaintiff demands trial by jury on all issues so triable.
Texas Bar No. 24012323 [email protected] Hamilton Lindley Texas Bar No. 24044838 [email protected] GOLDFARB BRANHAM LLP Saint Ann Court 2501 N. Harwood Street, Suite 1801 Dallas, TX 75201 Phone: 214.583.2333 Fax: 214.583.2234