Professional Documents
Culture Documents
_____________________________
RAYMOND D. VALLERGA, § IN THE DISTRICT COURT OF
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, § HARRIS COUNTY, TEXAS
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, §
§ _____ JUDICIAL DISTRICT
Nominal Defendants. §
company with the worst safety record of any oil company in America. In just the last few
years, BP has paid $485 million in fines to the U.S. Government as well as has paid
settlements to the U.S. Government for environmental crimes and willful neglect of
worker safety rules and has paid penalties for manipulating energy markets. However,
that figure pales in comparison to the $20 billion fund set aside to pay victims of the now
drilling unit in the Gulf of Mexico operated by BP known as the Deepwater Horizon. This
5. Although the Company initially stated that only 1,000 barrels of oil were
leaking per day, a BP executive later “conceded” the ruptured oil well could conceivably
leak as much as 60,000 barrels of oil per day into the Gulf, 10 times the estimates of the
current flow. However, even this “concession” was misleading. An internal company
memorandum circulated at the same time said that the worst case scenario was 100,000
in cleanup and remediation. This large figure grossly underestimates the total outlays BP
will need to make for this disaster, which will cost BP many billions of dollars—a disaster
that could have been avoided had BP employed several rudimentary safety devices to help
it stem the flow of oil. As of the day of this filing, BP said its costs of responding to the
spill had reached $2 billion. Regardless of the out-of-pocket costs, the long-term damage
assets, subjecting BP to billions in liability, and from the breach of defendants’ fiduciary
duties. The Deepwater Horizon explosion, among the worst pollution and environmental
disasters to ever occur in the Western Hemisphere, is the latest example of BP and its
Board flaunting the laws of the United States concerning environmental regulation and
protection, worker and workplace safety and fair and honest trade practices. This reckless
conduct continues to cause BP substantial damage. Now BP is faced with billions in costly
lawsuits, fines, penalties, resources responding to civil and criminal investigations and
restrictions imposed by regulators, and lost revenues and profits due to operational
shutdowns or curtailments. This is not even to mention the serious harm to BP’s business
reputation and goodwill, due to the adverse publicity resulting from the oil spill.
operations. BP even braded itself as “Beyond Petroleum.” But the facts concerning BP’s
commitment to safety and to the environment are far different than BP represents. BP has
aging production and refining facilities. The Company’s reserves are declining.
encouraged and permitted BP’s managers to resort to imprudent, improper and even illegal
activities to cut costs, boost revenues and temporarily boost BP’s reported results from
operations.
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
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
• 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
VERIFIED SHAREHOLDER DERIVATIVE PETITION Page - 5 -
Enhanced Enforcement Program because of BP’s repeated safety
failures and violations.
11. Without question, BP has become one of the U.S.’s largest polluters and
of oil and propane products. BP’s conduct was undertaken to enrich Defendants by
boosting short-term profits and by paying themselves grossly excessive compensation and
benefits, with knowing or reckless disregard their actions hurt BP in the longer term.
12. At the time this action was filed on June 25, 2010, demand on BP’s
directors to bring this lawsuit or vigorously pursue it would have been a futile and useless
act. To file suit, BP’s Board would have had to sue themselves and people they hired and
supervised. But such action by BP’s Board would not only expose the Individual
Defendants’ own incompetent and illegal behavior, but also expose them to enormous
uninsured liabilities. For the facts to be uncovered and proved, and the harm to BP
remedied, with future harm ameliorated or prevented, this action must be pursued by the
Plaintiffs derivatively on behalf of and for the benefit of BP. This action is brought in
good faith for the benefit of BP and it is respectfully requested this Court permit this
action to proceed.
P ARTIES
13. Plaintiff Raymond Vallerga is, and was at the time of the commission of
the wrongful acts complained of herein, a BP stockholder. Plaintiff brought this action
derivatively in the right of and for the benefit of BP. He will fairly and adequately
represent the interests of BP and its shareholders in enforcing the rights of BP.
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
• 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.
77079.
registered agent is located at 350 N. St. Paul Street, Ste. 2900, Dallas, TX 75201.
Corporation and Standard Oil Company), is an Indiana corporation with its principal place
America, Inc. Its registered agent for service is located at Prentice Hall Corp System, 211
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
September 2009 and is a citizen of the United Kingdom. He may be served with process at
20. Defendant Iain C. Conn (“Conn”) has been an Executive Director of BP’s
Board since 2004. In 2000 Conn became the Group Vice President of BP’s refining and
marketing business. From 2002 to 2004, Conn served as BP’s Chief Executive of
Conn is a citizen of the United Kingdom. He may be served with process at 501 Westlake
Company since February 2010. In addition, Defendant Anderson serves on BP’s Safety,
Ethics and Environment Assurance Committee. Anderson is a citizen of the state of Texas.
He may be served with process at 501 Westlake Park Boulevard, Houston, TX 77079.
President of BP America, Inc. since February 2009. McKay is a citizen of the state of
Texas. Mr. McKay resides at 11715 Empress Oaks Ct, Houston, TX 77082. He may be
23. Defendant Andy Inglis (“Inglis”) has served as BP’s Chief Executive of
Exploration and Production and as Executive Director since 2007. Prior to serving as
Chief Executive of BP’s Exploration and Production Group, defendant Inglis was
responsible for leading BP’s activities in the deepwater Gulf of Mexico. Inglis is a citizen
24. Defendant Byron E. Grote (“Grote”) has served as BP’s Chief Financial
Officer since 2002. Prior to serving as CFO of BP, defendant Grote served as an Executive
Executive Director of the Company since 2000. Grote is a citizen of the United Kingdom.
He may be served with process at 501 Westlake Park Boulevard, Houston, TX 77079.
President and Executive Director with BP since April 2009. Dudley is a citizen of the
United Kingdom. He may be served with process at 501 Westlake Park Boulevard,
Houston, TX 77079.
26. Defendant Sir William M. Castell (“Castell”) has served as a director of the
Company since July 2006. In addition, Defendant Castell serves as Chairman of BP’s
Safety, Ethics and Environment Assurance Committee. Castell is a citizen of the United
Kingdom. He may be served with process at 501 Westlake Park Boulevard, Houston, TX
77079.
27. Defendant Ian Davis (“Davis”) has been a BP Director since April 2010,
and he sits on the chairman’s remuneration and audit committees. Davis is a citizen of the
United Kingdom. He may be served with process at 501 Westlake Park Boulevard,
Houston, TX 77079.
Company since June 2007. In addition, Defendant Carroll serves on BP’s Safety, Ethics
and Environment Assurance Committee. Carroll is a citizen of the United Kingdom. She
may be served with process at 501 Westlake Park Boulevard, Houston, TX 77079.
Company since February 2008. In addition, Defendant David serves on BP’s Audit and
31. Defendant Douglas Flint (“Flint”) has served as a director of the Company
since January 2005. In addition, Defendant Flint serves on BP’s Audit Committee. Flint is
a citizen of the United Kingdom. He may be served with process at 501 Westlake Park
Company since November 2001. In addition, Defendant Julius serves as Chairman of BP’s
Castell, Anderson, Burgmans, Carroll, David, Davis, Flint, and Julius are collectively
business in Texas and has a primary place of business located at 501 Westlake Park
Boulevard, Houston, TX 77079. The Company claims that the Westlake campus is the US
Headquarters of BP and “home to the largest concentration of BP people and assets in the
world.” Additionally, several members of the Board of Directors live in and are citizens
of Harris County. CEO Anthony Hayward operated out of the Houston headquarters
when the Company made misstatements about its ability to contain the spill.
35. This Court has jurisdiction over this Petition pursuant to the Texas Civil
Practice & Remedies Code § 15.002(a) because certain of the defendants reside in Harris
County and a substantial part of the events or omissions giving rise to the breaches of
36. This Court has subject matter jurisdiction over this matter because the
DEFENDANTS’ DUTIES
because of their ability to control the business and corporate affairs of BP, Defendants
owed BP and its shareholders fiduciary obligations of good faith, loyalty, and candor, and
were and are required to use their utmost ability to control and manage BP in a fair, just,
honest, and equitable manner. Defendants were and are required to act in furtherance of
the best interests of BP and its shareholders so as to benefit all shareholders equally and
not in furtherance of their personal interest or benefit. Each director and officer of the
Company owes to BP and its shareholders the fiduciary duty to exercise good faith and
preservation of its property and assets, and the highest obligations of fair dealing.
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-
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
45. In addition, the BP Defendants had duties under section 172 of the British
(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
(c) the need to foster the company’s business relationships with suppliers,
(d) the impact of the company’s operations on the community and the
environment,
(e) the desirability of the company maintaining a reputation for high standards of
SUBSTANTIVE ALLEGATIONS
40. Despite BP’s public pronouncements and purported risk management and
safety efforts, BP’s safety and pollution record have, time and again, imperiled the
41. BP’s empty promises concerning its focus on safety and on the
42. The oil rig disaster is but the latest in a series of troubling safety and energy
failures at BP. To prevent the current disaster, BP could have installed a well-known
backup safety mechanism, a remote switch to stop the flow of oil. Although not mandated
under U.S. law, the practice in the industry favors its use. In many other parts of the world
43. Prior to the Deepwater Horizon explosion, BP has had a history of similar
disasters that could have been avoided if BP had followed prudent safety regulations.
Safety and Hazard Investigation Board revealed BP ignored its own safety protocols. After
BP pled guilty to federal charges, the Company was fined upwards of $50 million for
45. Despite the hefty fine, BP refused to put safety before cutting costs. In
March 2006, a hole in BP’s Prudhoe Bay pipeline leaked more than 200,000 gallons of oil
into Alaska’s North Slope. Internal corrosion in BP’s pipeline went undetected until it
formed a gaping hole. It should be noted the Prudhoe Bay spill occurred four years after
46. BP’s own internal investigation revealed the use of a “smart pig”—an
pipelines. After a congressional committee found BP had failed to seize opportunities that
would have prevented the leak, the Company paid about $20 million in fines for the
47. In recent years, near-explosions at BP’s gas and oil pipelines on Alaska’s
North Slope have occurred due to incomplete maintenance and faulty equipment. In 2009,
three BP gas and oil pipelines on Alaska’s North Slope ruptured or clogged, significantly
48. On October 10, 2009, a staging valve failed to operate at a large BP gas
compressor plant, causing the buildup of gas. The risk of a devastating explosion was
enhanced because backup equipment intended to burn off the collection of gas and
of civil and environmental engineering who has worked for BP on Alaska’s North Slope,
50. On January 15, 2009, a cleaning pig—a bullet shaped device that runs
diagnostics inside the pipeline—got stuck and let large amounts of gas leak into a pump
station. On November 29, 2009, an 18-inch pipe carrying a mixture of oil, natural gas, and
51. In the past year, BP has paid nearly $2 million in fines for failing to operate
monitor pleaded the Fifth concerning the Prudhoe Bay disaster. BP’s top executives told
the U.S. BP had stumbled by failing to prevent a major pipeline from becoming crippled
by corrosion.
Bob Malone told members of a House panel. “They have fallen short of what the
American people expect of BP and they have fallen short of what we expect of ourselves.”
54. Foreshadowing the current Gulf spill, years ago BP was criticized for
advertising as environmentally friendly while failing to prevent damaging oil spills. “If the
company spent as much on maintenance as it does on advertising and lobbying for tax
cuts, none of us would have to be here today,” said Schakowsky. Focusing on BP’s slogan
Company has a significant history of safety violations, the article stated in pertinent part:
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.
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
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.
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.
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.
The report said that the manager in charge of corrosion safety in Alaska at
the time, Richard Woollam, had "an aggressive management style" and
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.
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
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.
“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-
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.
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
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.
Abbott supervised a staff of six charged with doing internal audits and
making sure the rig machinery was built to specifications and had the
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.
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 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.
"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."
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.
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.
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.
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
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
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.
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
61. As troubling, BP lacked a “blowout scenario” plan to deal with the disaster.
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.
“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.
* * *
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
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
of cement used.
known about potential problems on the Deepwater Horizon for months prior to the
accident. The survivor informed 60 Minutes that BP had initially estimated work to take
21 days (3 weeks). However, as the time for setting up the latest well extended to 6
weeks, BP managers became agitated and ordered workers to speed up the schedule. An
earlier problem with the well that later exploded had cost BP $25 million. BP managers
told this to the workers on the oil rig in order to pressure them to speed up work in order
to make up that loss. The Deepwater Horizon survivor told 60 Minutes that BP was always
pressuring them to do their work quickly but when the timeline for the Deepwater Horizon
well extended into 6 weeks and with the loss of $25 million in an earlier incident, BP
managers ordered the drillers to speed up the rate of penetration. In other words, BP told
66. Approximately four to five weeks prior to the Deepwater Horizon incident,
chunks of the annular on the blowout preventer had broken off and floated to the surface.
The annular is a critical part of the blowout preventer used to ensure that explosive gas
does not escape to the surface. BP also knew in the weeks and months prior to the incident
that the battery on the blowout preventer was weak and one of the control pods on the
blowout preventer was broken. According to engineering expert Robert Bea, he described
67. While this information was known to BP in the weeks and months leading
shareholders that it would be able to deliver strong growth in the company in a safe and
"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."
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.
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
the Deepwater Horizon and the government's expert tasked with investigating the
These orders were issued by senior BP managers. BP knew that it was operating in a
dangerous formation in which extra safety precautions were required, not less.
Immediately before the disaster, BP ordered that the drillers begin extracting the mud
from the well before all of the concrete plugs were put into place. This would speed up the
process but meant that pressure in the well would be highly unstable. According to Robert
Bea, if the mud had been left in place, the Deepwater Horizon accident would likely not
have occurred.
procedure be performed that jeopardized the workers on the Deepwater Horizon, the
public and the environment. This directive was given by BP in order to save money. The
73. Not only did the blowout preventer on the Deepwater Horizon fail to stop
the flow immediately after the explosion on the evening of April 20th, but repeated
attempts to engage the blowout preventer in the days and weeks that followed have been
similarly abortive. Worse, BP failed to install at least two pieces of back-up safety
equipment that would have stopped the leak even without the blowout preventer.
control shut-off valve, costing only $500,000. Indeed, such acoustic switches are
mandated in countries like Brazil and Norway and are employed by companies such as
Royal Dutch Shell and Total SA, but have not been legally required in the U.S. due to the
placed about 200 feet under the sea floor. BP ignored these precautions despite being well
informed by deep-sea operators of the increased risk of a failure f the blowout preventer, a
76. A 2004 study by federal regulators showed that blowout preventers may
not function in deepwater drilling environments because of the increased force needed to
pinch and cut the stronger pipes when drilling at such great depths. Only three of 14 rigs
studied had blowout preventers able to squeeze off and cut the pipe at the water pressures
present at the equipment's maximum depth. "This grim snapshot illustrates the lack of
preparedness in the industry to shear and seal a well with the last line of defense against a
blowout," the study said. By contrast, the replacement cost of the Deepwater Horizon is
$560 million. BP has so far incurred $350 million in costs because of the incident and is
incurring at least an additional $6 million per day trying to contain the spill. The total
77. Over ten years ago, the federal Minerals Management Service (“MMS”)
sent out an industry-wide safety alert ordering companies drilling in deep water in the
outer continental shelf to have effective backup systems. The March 2000 notice stated:
component of a deepwater drilling system, and therefore expects OCS operators to have
78. MMS, however, left it up to the individual companies to decide what kind
of backup system to use. BP chose the cheapest method, electing not have a back-up
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
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.
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 ....
Smaller emissions of gas also slowed work at the Rig on other occasions
too.
Halliburton to employ a risky technique of mixing nitrogen gas into the cement to create a
workers were motivated to finish early in order to earn bonuses for finishing the job ahead
of schedule.
81. The New York Times has also reported that: "At least one worker who was
on the oil rig at the time of the explosion on April 20, and who handled company records
for BP, said the rig had been drilling deeper than 22,000 feet, even though the company's
82. An MMS study noted that blowouts during cementing work were
continuing with alarming regularity, particularly in the Gulf of Mexico. Cementing was a
factor in 18 of 39 well blowouts in the Gulf of Mexico between 1992 and 2006.
83. BP was aware of an August 2009 blowout in the Timor Sea off the coast of
Australia, which was found to have been caused by careless cementing work. During that
incident, which bears a strong resemblance to the Deepwater Horizon disaster, oil leaked
from the site for ten weeks, spreading damage over 200 miles from the well site.
84. Plaintiff brings this action derivatively in the right of and for the benefit of
85. Plaintiff is, and at all relevant times was, a BP common stockholder.
86. Plaintiff will adequately and fairly represent the interests of BP and its
Castell, Lamar McKay, Paul Anderson, Andy Inglis, Antony Burgmans, Iain Conn, Byron
E. Grote, Robert Dudley, Cynthia B. Carroll, George David, Douglas Flint, and Deanne S.
Julius. Plaintiffs have not made any demand on the Board to institute this action because
such demand would be a futile, wasteful and useless act, for the following reasons.
committee, SEEAC, reports directly to the Board of Directors. The Audit Committee also
active members of BP’s Safety, Ethics and Environment Assurance Committee (SEEAC).
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.
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:
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.
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
whether BP p.l.c. should assert these claims against themselves and the rest of BP’s
that the governance of BP is best achieved by the delegation of its authority for the
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:
* * *
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:
97. During the Relevant Period, all the Director Defendants failed miserably in
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
containment system, wasting precious time to build the dome only after the disaster had
occurred, oil threatened all the Gulf states, and the financial and goodwill damage had
already imperiled BP. These multiple, repeated failures simply contradict the Director
98. All Director Defendants are interested because they likely face substantial
liability for their systemic failure to properly exercise their fiduciary duties as members of
BP’s Board and committees. This inference is strongly supported by the Director
Defendants’ failure to design and implement adequate safety protocols and controls
throughout the Relevant Period, and the Director Defendants’ failures led to the disaster.
99. Their duties specifically included reviewing the scope, adequacy, and
effectiveness of BP’s safety and risk management controls. Yet all the Director
Defendants breached their fiduciary duties of due care, loyalty, and good faith to the
Company and its stockholders because of the failures detailed herein. Notably, the
Deepwater Horizon failure comes on the heels of the other major safety and environmental
disasters at BP’s Prudhoe Bay and Texas facilities, as well as the consent decrees and
100. In light of these facts, there is no doubt BP’s Board of Directors simply
cannot disinterestedly determine whether BP p.l.c. should assert these claims against the
Board, i.e. the Board cannot in good faith determine whether it should sue itself. All
compliance with their fiduciary obligations and to sue themselves or their fellow directors
and allies in the top ranks of the Company for the violations of law complained of herein.
implement adequate safety and environmental protocols and controls, these failures render
circumstances, Louisiana law does not require a stockholder to make a pre-suit demand on
102. Director Defendant Flint chairs BP’s Audit Committee, and Director
Defendants David and Davis sit on the Audit Committee. The Audit committee is
supposed to “review” the effectiveness of BP’s “internal control and risk management.”
BP’s Audit Committee also is charged with “monitoring and obtaining assurance the
appropriately addressed.” And BP’s audit committee is supposed to monitor and review
103. For the reasons alleged above and herein, Director Defendants Flint, David
and Davis failed in their duties as Audit Committee members. These Director Defendants
cannot disinterestedly determine whether BP p.l.c. should file suit against the Board for
breach of fiduciary duty and waste of corporate assets, as they are personally implicated
by their repeated failures to properly carry out the audit function. These directors lack
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
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
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
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.
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
* * *
“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.”
* * *
* * *
* * *
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
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
day.
113. 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
further evaluation for potential civil violations or criminal activity shall be referred in
115. As with BP’s other safety and environmental disasters just a couple years
ago, BP once again faces likely civil penalties, and possible criminal sanctions, for the
Gulf of Mexico disaster. According to the joint investigative release, the Department of
Homeland Security and the Minerals Management Service “will co-chair the Joint
Investigation. The Joint Investigation team will investigate thoroughly the matter hereby
seq. . . .”
whether BP p.l.c. should file suit against themselves for these myriad breaches of
fiduciary duty, abuses of control, and wasting of corporate assets. BP management already
executives face additional confirmed joint investigations by the U.S. government, with
likely civil action and the serious potential for criminal investigation and charges.
failures to properly carry out safety, risk management, and audit functions, all of which is
deaths arising from BP’s systemic safety failures, and myriad civil and criminal penalties
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
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 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;
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
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
125. As a result of this waste of corporate assets, Defendants are liable to BP.
COUNT TWO
Gross Mismanagement
(against all defendants)
127. Plaintiffs incorporate by reference ¶¶1-124as though fully set forth and
alleged herein.
manage and control the operations, business and internal financial accounting and
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
VERIFIED SHAREHOLDER DERIVATIVE PETITION Page - 50 -
by law. By committing the misconduct alleged herein, Defendants breached their duties of
due care, diligence and candor in the management and administration of BP’s affairs and
130. During the course of the discharge of their duties, Defendants knew or
recklessly disregarded the unreasonable risks and losses associated with their misconduct,
yet Defendants caused BP to engage in the scheme complained of herein which they knew
had an unreasonable risk of damage to BP, thus breaching their duties to the Company. As
COUNT THREE
Waste of Corporate Assets
(against all defendants)
131. Plaintiffs incorporate by reference ¶¶ 1-128 as though fully set forth and
alleged herein.
132. Plaintiffs incorporate by reference and reallege each and every allegation
consider the interests of the Company and its public shareholders, Defendants have caused
BP to incur, and BP will continue to incur, billions upon billions of dollars of costs,
expenses, and legal liability, including cleanup, remediation, fines, penalties, and civil,
criminal and other suits arising from this disaster, all of which stems from the Director
134. As a result of this waste of corporate assets, Defendants are liable to BP.
FOR THESE REASONS, Plaintiffs, on BP’s behalf, prays for judgment against
B. declaring BP’s directors violated and aided and abetted in the breach of
their fiduciary duties to the Company and its shareholders;
F. granting such other and further relief as the Court deems just and proper.