No. 15-20282 _________________________________

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

______________________________________

RALPH WHITLEY, et al.,

Plaintiff-Appellees,

v.

BP, P.L.C., et al.,

Defendant-Appellants.

______________________________________________

On Appeal from the United States District Court

For the Southern District of Texas, Houston Division

No. 4:10-CV-4214

_____________________________________________________

BRIEF OF THE SECRETARY OF LABOR AS AMICUS CURIAE 

IN SUPPORT OF PLAINTIFF-APPELLEES

_____________________________________________________

M. PATRICIA SMITH

Solicitor of Labor

G. WILLIAM SCOTT

Associate Solicitor for 

Plan Benefits Security

THOMAS TSO

Counsel for Appellate & 

Special Litigation

EIRIK CHEVERUD

Trial Attorney

U.S. Department of Labor

Office of the Solicitor

P.O. Box 1914

Washington, DC 20001

(202) 693-5516

cheverud.eirik.j@dol.goV

Attorneys, U.S. Department of Labor
TABLE OF CONTENTS

TABLE OF AUTHORITIES .................................................................................... ii

STATEMENT OF THE ISSUE................................................................................. 1 

STATEMENT OF INTEREST.................................................................................. 1 

STATEMENT OF THE CASE.................................................................................. 2 

A. Amended Complaint Allegations.................................................................. 3 

B. Procedural History.......................................................................................... 6 

SUMMARY OF THE ARGUMENT ........................................................................ 9 

ARGUMENT...........................................................................................................11

A. Background ..................................................................................................11

B. The Plan Fiduciaries Could Have Taken Alternative Actions That 

 Are Consistent with the Securities Laws to Protect the Plan ......................14

C. The Fiduciaries in the Circumstances Alleged Here Could Not Have

 Concluded That Making or Prompting Others to Make Corrective

 Disclosures Would Have Caused More Harm Than Good to the Plan .......20

CONCLUSION.......................................................................................................25

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE
ii

TABLE OF AUTHORITIES

Federal Cases:

Ashcroft v. Iqbal,

556 U.S. 662 (2009) ..............................................................................................8

Bell Atlantic Corp. v. Twombly,

550 U.S. 544 (2007) ..............................................................................................8

Bussian v. RJR Nabisco, Inc.,

223 F.3d 286 (5th Cir. 2000)...............................................................................14

Dura Pharms., Inc. v. Broudo,

544 U.S. 336 (2005) ............................................................................................18

Fifth Third Bancorp v. Dudenhoeffer,

134 S. Ct. 2459 (2014) ....................................................................... .........passim

FindWhat Investor Grp. v. FindWhat.com,

658 F.3d 1282 (11th Cir. 2011)...........................................................................24

Harzewski v. Guidant Corp.,

489 F.3d 799 (7th Cir. 2007)........................................................................ 19, 20

Hillson Partners, Ltd. v. Adage, Inc.,

42 F.3d 204 (4th Cir. 1994).................................................................................18

In re BP p.l.c. Sec. Litig., 

843 F. Supp. 2d 712 (S.D. Tex. 2012)..................................................................15

In re BP p.l.c. Sec. Litig,

866 F. Supp. 2d 709 (S.D. Tex. 2012)...................................................................6

In re BP p.l.c. Sec. Litig., 

922 F. Supp. 2d 600 (S.D. Tex. 2013)..................................................................21
iii

Federal Cases-(continued):

In re BP p.l.c.Sec. Litig., No. 4:10-MD-4214,

(S.D. Tex. Jan. 15, 2015) (mem. order)............................................ 5, 7, 8, 20 n.4

In re BP p.l.c. Sec. Litig., No. 4:10-MD-2185,

2015 WL 6674576 (S.D. Tex. Oct. 30, 2015)...................................... 8 n.2, 9 n.2

Kujanek v. Hous. Poly Bag I, Ltd.,

658 F.3d 483 (5th Cir. 2011)...............................................................................12

Lawson v. FMR LLC,

134 S. Ct. 1158 (2014) ................................................................................. 20 n.4

Martin v. Feilen,

965 F.2d 660 (8th Cir. 1992)...............................................................................12

NLRB v. Amax Coal Co.,

453 U.S. 322 (1981) ..................................................................................... 12, 19

Ray v. Citigroup Glob. Mrkts., Inc., 

482 F.3d 991 (7th Cir. 2007)................................................................................18

Schaaf v. Residential Funding Corp.,

517 F.3d 544 (8th Cir. 2008)...............................................................................18

Tibble v. Edison Int'l.

135 S. Ct. 1823 (2015) ................................................................................. 12, 18

Whitley v. BP, P.L.C., 

575 F. App'x 341 (5th Cir. 2014) ...........................................................................6

Federal Statutes:

Crimes and Criminal Procedure:

18 U.S.C. § 1514A(a)(1) ......................................................................................20

Internal Revenue Code:

26 U.S.C. § 401(a)(1) .............................................................................................3
iv

Federal Statues-(continued):

26 U.S.C. § 401(k)..................................................................................................3

26 U.S.C. § 401(k)(2)(B)........................................................................................2

Employee Retirement Income Security Act of 1974,

as amended, 29 U.S.C. 1001 et seq:

Section 101(i), 29 U.S.C. § 1021(i)......................................................................17

Section 101(i)(2)(A), 29 U.S.C. § 1021(i)(2)(A).................................................17

Section 101(i)(2)(C)(i), 29 U.S.C. § 1021(i)2)(C)(i) ...........................................17

Section 101(i)(7)(A), 29 U.S.C. § 1021(i)(7)(A).................................................17

Section 101(i)(7)(B)(i), 29 U.S.C. § 1021(i)(7)(B)(i)..........................................17

Section 404(a), 29 U.S.C. § 1104(a) ....................................................................11

Section 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A)......................................... 12, 17

Section 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B) ......................................... 12, 17

Section 405(a)(3), 29 U.S.C. § 1105(a)(3)...........................................................15

Section 407(d)(6), 29 U.S.C. § 1107(d)(6) ............................................................3

Miscellaneous: 

17 C.F.R. § 240.13a-15..................................................................................... 15, 17

29 C.F.R. § 2520.101-3(a) ................................................................................ 15, 17

29 C.F.R. § 2520.101-3(b)(2)(ii)(A)................................................................. 17 n.3

29 C.F.R. § 2520.101-3(b)(2)(ii)(B)................................................................. 18 n.3

29 C.F.R. § 2520.101-3(e) .......................................................................................17
v

Miscellaneous-(continued):

29 C.F.R. § 2550.407d-6............................................................................................3

Final Rule Relating to Notice of Blackout Periods to Participants and 

Beneficiaries, 68 Fed. Reg. 3716 (Jan. 24, 2003) ......................................... 17 n.3

William Shakespeare, Merchant of Venice, act 2, sc. 2. .........................................24

Brief for Sec. and Exch. Comm'n as Amicus Curiae Supporting Appellees, 

Whitley v. BP, p.l.c., No. 15-20282 (5th Cir.)........................................ 16, 17, 19

Brief of the United States as Amicus Curiae Supporting Respondents, 

Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014) (No. 12-751), 

http://1.usa.gov/RcfnAm ........................................................................... 1, 14, 19
STATEMENT OF THE ISSUE

What plausible factual allegations are required to meet the "more harm than 

good to the fund" pleading standard articulated by the U.S. Supreme Court in Fifth 

Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2472–73 (2014)? 

STATEMENT OF INTEREST

As the head of the federal agency with primary responsibility for enforcing 

and interpreting Title I of the Employee Retirement Income Security Act of 1974 

(ERISA), the Secretary of Labor (Secretary) has a strong interest in ensuring that 

courts correctly interpret ERISA. The government participated as amicus curiae in 

Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), a case involving the 

pleading standards required to state a fiduciary-breach claim against ERISA

fiduciaries of pension plans that invest in public-employer stock. Brief of the 

United States as Amicus Curiae Supporting Respondents, Fifth Third Bancorp v. 

Dudenhoeffer, 134 S. Ct. 2459 (2014) (No. 12-751), http://1.usa.gov/1RcfnAm

[hereinafter U.S. Brief]. The Secretary has an interest in Fifth Third's application 

to public-employer-stock investments in retirement plans. The Secretary 

coordinated with the SEC in this briefing. 
2 

STATEMENT OF THE CASE

Defendant BP p.l.c. (BP) is a multinational oil and gas company. Pls.' 

Consolidated Am. Compl. ¶ 93, ECF No. 152-1 [hereinafter, "Pls.' Compl."].0F

1 It 

operates in the United States through its subsidiaries, including BP Corporation 

North America, Inc. (BPNA). Id. at ¶¶ 41–43, 94. BPNA sponsors four individual 

account pension plans (cumulatively, the "Plans"). Id. at ¶ 92. 

Each plan offers the BP Stock Fund (Fund), an employee stock ownership 

plan (ESOP), as an investment option for Plan participants' individual accounts. 

The Fund invests primarily in BP American Depository Shares (BP ADSs). See

Dkt. 92-4 at 2. BP ADSs are "traded on the New York and Toronto Stock 

Exchanges." See id. When participants direct Plan fiduciaries to buy or sell their 

Fund interests, the Fund may buy or sell BP ADSs on the open market to 

accommodate participant transactions. Id.; Dkt. 93-2 at 25; cf. Dkt. 93-2 at 7 

("requests to acquire or redeem units of participation in the [Fund] shall be effected 

on a daily basis"), 65 (daily "trading estimates" of BP stock). In addition to 

purchases, participants may also sell employer stock or interests in the Fund due to 

participants' death, retirement, resignation, and/or termination, see, e.g., 26 U.S.C. 

§ 401(k)(2)(B), or sell their Fund investments in their accounts in exchange for 

 

1 At this procedural posture, we will assume the truth of the facts as pleaded for the 

purposes of this brief.
3

other Plan investments, see, e.g., Dkt. 184-4 § 6.2(b), (c). The Fund's fiduciary can 

thus effect concurrent purchases and sales for the Plans' operation. See generally

29 U.S.C. § 1107(d)(6); 29 C.F.R. § 2550.407d-6; 26 U.S.C. § 401(a)(1), (k). 

A. Amended Complaint Allegations

Since 2002, BP has been held responsible for numerous industrial accidents. 

Pls.' Compl. at ¶¶ 162, 164–168. For example, in 2005, an explosion at BP's Texas 

City Refinery caused 15 deaths and 180 injuries. Id. at ¶ 169. The incident caused 

$1.5 billion in company losses. Id. Afterwards, the U.S. Chemical Safety Board 

concluded that BP's safety failures were systemic in nature. Id. at ¶¶ 170–173. In 

response, BP commissioned a review panel chaired by former Secretary of State 

James Baker to study the problem and recommend solutions. Id. at ¶¶ 185–186. 

This panel issued a report (Baker Report) in January 2007 with recommendations 

concerning three areas: (a) corporate safety culture; (b) process safety management 

systems; and (c) performance evaluation, corrective action, and corporate 

oversight. Id. at ¶¶ 186–188. BP stated publicly that it was implementing the 

recommendations, id. at ¶¶ 198, 276–285, but corporate insiders knew such was 

not true, id. at ¶¶ 287, 292. BP had also established an operating management 

system (OMS) in 2006 to reduce the risk of accidents. Id. at ¶ 267. In public 

statements, BP touted its implementation of the OMS at all BP facilities; however,
4

it failed to disclose that it had not implemented the system at contractor-owned 

sites operated by BP. Id. at ¶ 268.

On April 20, 2010, an explosion occurred on a BP-operated, contractorowned oil platform known as Deepwater Horizon. Id. at ¶ 157. The explosion 

caused the attached well to spill oil into the Gulf of Mexico. BP did not stop the 

spill for 87 days. Id. at ¶ 228. An estimated 4.9 million barrels of oil leaked into 

the Gulf. Id. After the explosion, BP repeatedly provided public estimates as to 

how much oil continued to spill. Id. at ¶¶ 217–228. Those estimates were, 

however, much lower than the company's internal estimates and independent 

estimates of the spill's magnitude. Id. Accounts from Deepwater Horizon

personnel and others showed that prior to the explosion, BP knew of serious safety 

concerns at Deepwater Horizon but failed to implement the safety procedures it 

had publicly promised. Id. at ¶¶ 191–195. On the date of the explosion, the price 

of BP ADSs closed at $60.48. Id. at ¶ 215. By May 29, 2010, the price had fallen

to $42.95. Id. After the New York Times published an article the next day 

showing BP knew about Deepwater Horizon's safety issues months in advance of 

the explosion, the price fell again, closing on June 1, 2010, at $36.52. Id. ¶ 216.

Between January 16, 2007, and June 24, 2010 (the class period), plaintiffs

invested in the Fund. Id. at ¶ 17. As relevant, plaintiffs assert that three individual 

defendants and corporate defendant BPNA (all allegedly ERISA fiduciaries) acted 
5

imprudently by offering the Fund as an investment option despite knowing it was 

artificially inflated (1) before the explosion, by BP's misrepresentations regarding 

its safety improvements and the risk of future accidents, and (2) after the 

explosion, by BP's misrepresentations concerning the oil spill's magnitude. Id. at 

¶¶ 22, 217–228, 262–309, 317–318, 337, 360–361.

Specifically, plaintiffs allege that BP Group Chief Executive Anthony 

Hayward had insider knowledge of BP's extensive accident record and knew that 

contractor-owned facilities like Deepwater Horizon lacked the new OMS. Id. at 

210, 262–309, 362. Further, Hayward made misleading public statements 

regarding BP's implementation of safety reforms following the Baker Report. Id. 

BP America Inc. Chairman and President Lamar McKay – who served as BPNA's 

President since 2009 – was responsible for implementing the Baker Report's 

recommendations and knew contractor-owned facilities like Deepwater Horizon

lacked the new OMS. Id. at ¶¶ 6, 46–47, 209, 362. Neil Shaw was BP's Senior 

Vice President in charge of the Gulf of Mexico division from 2007–2009. Id. at 

¶¶ 83–84. He also knew that contractor-owned facilities lacked the new OMS. Id.

at ¶¶ 209, 307, 362. McKay and Shaw both knew Hayward had publicly misstated 

BP's efforts to improve safety at its contractor facilities. Id. at ¶ 192; see also In re 

BP p.l.c. Sec. Litig., No. 4:10-cv-4214, slip op. at 20–21 (S.D. Tex. Jan. 15, 2015) 

(mem. order). The proposed amended complaint catalogues the defendants' insider 
6

knowledge concerning the deficient safety reforms prior to the Deepwater Horizon

explosion; the complaint also alleges the individual defendants should have known

the actual magnitude of the oil spill caused by the explosion. Pls.' Compl. at 

¶¶ 189–318, 362.

B. Procedural History

Plaintiffs filed a consolidated complaint in 2011, and defendants moved to 

dismiss. In March 2012, the district court granted defendants' motion, reasoning 

that plaintiffs had not alleged sufficient facts to overcome the "presumption of 

prudence" then applicable to the Plans' investment in BP stock. In re BP p.l.c. Sec. 

Litig, 866 F. Supp. 2d 709, 727–29 (S.D. Tex. 2012). Plaintiffs appealed. 

The Supreme Court then issued its decision in Fifth Third, holding that no 

presumption of prudence applies. 134 S. Ct. at 2470–71. The Court further 

explained that to state a claim under ERISA based on a fiduciary's failure to act on 

nonpublic information with regard to employer stock, plaintiffs "must plausibly 

allege an alternative action . . . the defendant could have taken that would have 

been" consistent with the securities laws and their objectives, and that "a prudent 

fiduciary in the defendant's position could not have concluded that [these actions] 

would do more harm than good to the fund." Id. at 2473 (emphases added). In 

light of Fifth Third, this Court vacated the district court's decision and remanded 

for further proceedings. Whitley v. BP, P.L.C, 575 F. App'x 341 (5th Cir. 2014). 
7

On September 19, 2014, plaintiffs moved to file an amended complaint. 

Defendants opposed the motion, arguing that plaintiffs' proposed amendments 

were futile because plaintiffs did not plausibly allege an alternative action that 

would have done more good than harm. 

Because the standard of review for futility is identical to that of a motion to 

dismiss, the district court considered whether plaintiffs' proposed amended 

complaint "states at least one valid claim when viewed in the light most favorable 

to Plaintiffs" under a "plausibility" standard. In re BP p.l.c. Sec. Litig., No. 4:10-

cv-4214, slip op. at 5 (S.D. Tex. Jan. 15, 2015) (mem. order). Applying this 

standard, the district court granted plaintiffs' motion to amend as to most of their 

claims involving the artificial inflation of the Fund. Id. at 30. 

The district court first examined the alternative actions plaintiffs alleged 

defendants could have taken to protect the Plans, id. at 24–25 & n.14, and 

concluded that, among the proposed options, only freezing the stock fund and 

disclosure presented plausible alternative actions "consistent with the securities 

laws and ERISA." Id. at 27. 

The court then turned to whether those two actions would have done "more 

harm than good" to the Plans. Plaintiffs argued that they need only "plausibly 

allege that a prudent fiduciary in the same circumstances would have viewed the 

proposed alternative as more likely to help the Fund than harm it." Id. at 28. 
8 

Defendants argued plaintiffs instead needed to plausibly allege a prudent fiduciary 

could not have concluded that any proposed alternative would have done more 

harm than good to the Plans. Id. at 27. The court found both formulations

unhelpful, relying instead on the plausibility pleading standards of Bell Atlantic 

Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 

(2009). Because the court could not "determine . . . that no prudent fiduciary 

would have concluded that removing the BP Stock Fund as an investment option, 

or fully disclosing the state and scope of BP's safety reforms, would do more good 

than harm," it held that plaintiffs plausibly alleged claims against BPNA, Hayward, 

McKay, and Shaw. In re BP, slip op. at 30. 

On January 30, 2015, defendants requested that the court certify the 

following question for interlocutory appeal: "What plausible factual allegations 

are required to meet the 'more harm than good to the fund' pleading standard 

articulated by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, 134 S. 

Ct. 2459, 2472–73 (2014)?" The district court granted defendants' request, and this 

Court granted defendants leave to appeal the question the district court had 

certified.1F

2

 

2

 On October 30, 2015, the district court granted defendants' motion to partially 

dismiss plaintiffs' amended complaint, resulting in the non-final dismissal of all 

ERISA claims against Hayward and BPNA based on the subsequent argument that 

they are not fiduciaries. In re BP Sec. Litig., No. 4:10-MD-2185, 2015 WL 
9

Although the certified question addresses the "more harm than good" portion 

of Fifth Third's ruling, the question necessarily turns on the antecedent question of 

what alternative actions an ESOP fiduciary could have taken in this case consistent 

with the securities laws. The availability and scope of these alternative actions 

were disputed, and the parties continue to focus their briefing on first determining 

which actions are consistent with the securities laws and ERISA before applying 

the "more harm than good" standard. The Secretary will address both issues. 

SUMMARY OF THE ARGUMENT

Plaintiffs’ complaint satisfies the standard established in Fifth Third. 

Plaintiffs allege that fiduciaries of the Plan knew a BP insider had made publicly 

misleading statements – in violation of the securities laws – that inflated the value 

of the stock and concealed ongoing serious safety threats. In that circumstance, 

ERISA's duty of prudence required fiduciaries to protect plan participants and 

beneficiaries by taking corrective action to prevent the Plans' ESOP from 

continuing to purchase illegally overvalued company stock. Plaintiffs have

plausibly alleged at least two actions – freezing the stock fund and, if necessary, 

making a public disclosure – that the defendant-fiduciaries could have taken 

 

6674576, at *3–5, *7–8 (S.D. Tex. Oct. 30, 2015). This ruling is not final. When 

this Court accepted defendants' appeal, both Hayward and BPNA were parties to 

this action and assumed to be fiduciaries. The Secretary's brief analyzes only the 

issues raised in the interlocutory decision certified for appeal and will assume 

Hayward and BPNA are both fiduciaries as alleged. 
10

consistent with the securities laws and that a prudent fiduciary could not have 

concluded would do more harm than good given the ongoing fraud. 

1. Neither freezing stock purchases nor public disclosure would violate 

the securities laws, as the SEC explains in detail in a separate brief. Under the 

securities laws, the issuer or its designees, or those that made the misstatements, 

can make a corrective disclosure that will sufficiently dissipate the artificial 

inflation. Here, the CEO of BP, who is one of the defendants, is alleged to have 

made the misstatements. The CEO could have, and indeed should have (under the 

facts alleged), made corrective securities-law disclosures. Other defendants could 

have attempted to induce the CEO as their co-fiduciary or the issuer to make such 

disclosures, or taken other steps, such as contacting the SEC, to protect plan 

participants (and the public at large) from making further purchases at inflated 

prices. 

If the corrective action was not taken, the defendant-fiduciaries could have 

stopped purchasing and selling employer stock at the inflated price until corrective 

disclosures were made. Refraining from purchasing employer stock, even if based 

on inside information, does not violate the securities laws for corporate fiduciaries 

with inside knowledge of misstatements, so long as the fiduciary concurrently 

refrains from selling that stock for the Plans. Suspending trading would have 

triggered the requirement that the issuer file a Form 8-K with the SEC, which 
11

would disclose the suspension and the reasons for it to the public. If all else fails, 

the plan fiduciaries could make a public disclosure of the fraud themselves.

2. In the particular circumstances of this case, those two courses of 

action would have satisfied the second requirement of Fifth Third: that a prudent 

fiduciary could not have concluded the actions would do more harm than good to 

the Plans' ESOP. Where a known, ongoing fraud exists – and therefore a 

corrective disclosure is separately required by the securities laws – the fiduciary's

overarching objective presumptively must be to stop the fraud and prevent the Plan 

from continuing to purchase overvalued stock while the fraud continues. That 

conclusion is fortified in this case by the plaintiffs’ specific allegations that earlier 

disclosure of the safety problems at BP would have caused far less harm to the 

Plans than continuing to conceal the fraud. In the circumstances here, putting an 

immediate end to the fraud advances the objectives of both ERISA and the 

securities laws. 

ARGUMENT

A. Background

ERISA imposes a duty of prudence on all plan fiduciaries. See 29 U.S.C. 

§ 1104(a). The statute provides that a fiduciary must "discharge his duties with 

respect to a plan solely in the interest of [its] participants and beneficiaries," and 

"with the care, skill, prudence, and diligence under the circumstances then 
12

prevailing that a prudent man acting in a like capacity and familiar with such 

matters would use in the conduct of an enterprise of a like character and with like 

aims." 29 U.S.C. § 1104(a)(1)(A), (B). Both duties require fiduciaries to take 

protective action when they know or should know harm will come to the plan or its 

participants if they do nothing. See, e.g., NLRB v. Amax Coal Co., 453 U.S. 322, 

331–34 (1981); see also Tibble v. Edison Int'l, 135 S. Ct. 1823, 1828 (2015); 

Kujanek v. Hous. Poly Bag I, Ltd., 658 F.3d 483, 488 (5th Cir. 2011).

In the typical case, overpaying for an asset is not prudent or in the interests 

of plan participants or beneficiaries. E.g., Martin v. Feilen, 965 F.2d 660, 671 (8th 

Cir. 1992). For that reason, where a publicly traded stock is overvalued because 

the market is not yet aware of inside information, it ordinarily would be imprudent 

for the plan to purchase the asset. But Fifth Third teaches that a fiduciary is not 

invariably required to take action based on inside information indicating a stock is 

overvalued. The Supreme Court therefore articulated two elements necessary to 

"state a claim for breach of the [ERISA] duty of prudence on the basis of inside 

information." 134 S. Ct. at 2472. 

First, a plaintiff must "plausibly allege an alternative action that the 

defendant could have taken that would have been consistent with the securities 

laws." Id. The Court identified two possible "alternative actions": "refraining 

from future stock purchases (including by removing the Plan's ESOP option 
13

altogether); or . . . publicly disclosing the inside information so that the market 

would correct the stock price downward, with the result that the ESOP could 

continue to buy Fifth Third stock without paying an inflated price for it." Id. The 

Court did not limit the universe of possible fiduciary actions to these two 

alternatives. The Court advised that "courts should consider the extent to which an 

ERISA-based obligation either to refrain on the basis of inside information from 

making a planned trade or to disclose inside information to the public could 

conflict with the complex insider trading and corporate disclosure requirements 

imposed by the federal securities laws or with the objectives of those laws." Id. at 

2473. 

Second, a plaintiff must plausibly allege that "a prudent fiduciary in the 

defendant's position could not have concluded that [these actions] would do more 

harm than good to the fund.” Fifth Third, 134 S. Ct. at 2473. A corrective action 

might do more harm than good if, for example, it "caus[ed] a drop in the stock 

price and a concomitant drop in the value of the stock already held by the fund"

that is not offset by benefits to the plan – i.e., preventing the plan from continuing 

to purchase overvalued stock. Id.

In this case, plaintiffs’ specific, plausible allegations—which rely critically 

on an ongoing, undisclosed fraud that not only inflated BP's stock but also violated 

the securities laws—satisfy both of those requirements. This brief does not address 
14

how ERISA may apply to circumstances that do not involve an undisclosed fraud 

that is artificially inflating the price of employer stock. 

B. The Plan Fiduciaries Could Have Taken Alternative Actions that 

Are Consistent with the Securities Laws to Protect the Plan

Taking the allegations in the complaint as true, the Plan fiduciaries could 

have taken actions to protect Plan assets that were consistent with the securities 

laws. The complaint in this case therefore meets the first Fifth Third requirement.

At the threshold, the duty of prudence requires fiduciaries who learn of 

negative undisclosed information about the company, or who learn that 

information the company has disclosed is inaccurate or misleading, to investigate 

the possibility that these misleading or incomplete disclosures violate the securities 

laws and then decide whether corrective action is warranted. E.g., Bussian v. RJR 

Nabisco, Inc., 223 F.3d 286, 299 (5th Cir. 2000). The level of investigation 

required depends on the facts and circumstances of the case and whether there is a 

reasonable basis to believe that a securities-law violation exists. Id.; see also U.S. 

Brief at 29. Such an investigation could include bringing the facts and 

circumstances of which the fiduciaries are aware to the attention of responsible 

corporate officials, who could then undertake a further investigation. If a

fiduciary's investigation and/or further investigation by corporate officials reveals 

that there is a reasonable basis to conclude a securities fraud exists, such as through 
15

misleading or incomplete public disclosures, the fiduciary can take actions that 

comply with the securities laws.

Urging Insiders to Make Corrective Disclosures. As an initial step, the 

fiduciary can urge the issuer to correct any securities-law violations. Indeed, 

certain fiduciaries themselves may have an independent securities-law duty to 

disclose any improperly withheld material nonpublic information. For example, in 

this case, the district court has already determined in a parallel securities-law 

action that plaintiffs plausibly alleged Hayward violated his disclosure duties under 

the securities laws. In re BP p.l.c. Sec. Litig., 843 F. Supp. 2d 712, 782–84 (S.D. 

Tex. 2012). For any fiduciary with disclosure duties under the securities laws, her 

corresponding ERISA obligation to issue a corrective disclosure to eliminate the 

fraud is clear. 

Other fiduciaries who have knowledge of an undisclosed fraud but do not 

have a disclosure duty under the securities laws can, consistently with the 

securities laws, urge those obligated to make corporate disclosures under the 

securities laws to do so. Thus, if the other defendant-fiduciaries in this case 

believed that a co-fiduciary or any other corporate actor, such as Hayward, violated 

his duty to disclose under the securities laws or ERISA, they lawfully could have 

insisted that such persons make corrective disclosures. See 29 U.S.C. 

§ 1105(a)(3); see also 17 C.F.R. § 240.13a-15 (requiring management to certify 
16

that "controls and other procedures of an issuer . . . are designed to ensure that 

information required to be disclosed by the issuer . . . is recorded, processed, 

summarized and reported").

Blackout. An ERISA fiduciary can direct a suspension of all trading of 

employer stock by the plan until indications of fraud are resolved through an 

investigation or otherwise, or a corrective disclosure is issued. Such a “blackout”

is a well-accepted tool that fiduciaries can use to protect the plan and its 

participants from overpaying for employer stock, so long as the fiduciary at least 

has a reasonable basis to believe that a fraud exists and the corporation refuses to 

conduct an investigation—or, if the fiduciary concludes a fraud has occurred, to 

correct the fraud. See Brief for the Securities and Exchange Commission as 

Amicus Curiae Supporting Appellees, Whitely v. BP, p.l.c., No. 15-20282 (5th 

Cir.), at 5–6 [hereinafter SEC Brief]. Although a fiduciary may not, consistent 

with the securities laws, buy or sell stock on the basis of inside information, a 

fiduciary does not violate the securities laws by declining to purchase more 

employer stock at an inflated price so long as that fiduciary suspends all trading, 

not just purchases, when he or she learns of an undisclosed fraud. See SEC Brief

at 11–18. 

Pursuant to the securities laws, instituting such a blackout requires the issuer 

to explain why the suspension of trading by the plan has occurred, thereby alerting 
17

the market to ongoing artificial inflation. See SEC Brief at 17–18. Congress 

formalized a mechanism under ERISA to institute an immediate "blackout" – i.e., a 

suspension of all purchases and sales – in 29 U.S.C. § 1021(i). See 29 U.S.C. 

§§ 1021(i)(2)(A), (2)(C)(i), (7)(A), (7)(B)(i); 29 C.F.R. § 2520.101-3(a); 29 C.F.R. 

§ 2520.101-3(e) (model notice for blackouts that informs participants when they 

will "not be able to direct the sale of . . . stocks from your account" during the 

suspension). Normally, a fiduciary must provide 30-days' notice of a blackout; 

however, under 29 U.S.C. § 1021(i)(2)(C)(i) and (7)(B)(i), fiduciaries may adopt a 

trading suspension without providing 30-days' notice (1) to avoid violating ERISA 

sections 404(a)(1)(A) and (B), or (2) when the suspension "occurs by reason of the 

application of the securities laws." An immediate blackout or suspension, 

however, will require the issuer to provide public notice soon after the blackout or 

suspension through filing of a Form 8-K. See SEC Brief at 17–18. Once the issuer 

provides notice of the reason for a suspension to all investors, the ERISA fiduciary 

can also immediately notify plan participants or the public about those disclosed 

reasons through a notice or by other means.2F

3

 

 

3

 See 29 C.F.R. § 2520.101-3(b)(2)(ii)(A); Final Rule Relating to Notice of 

Blackout Periods to Participants and Beneficiaries, 68 Fed. Reg. 3716, 3718–19 

(Jan. 24, 2003) (29 C.F.R. § 2520.101-3(b)(2)(ii)(A) would apply when, for 

example, the "ABC company has announced that it is filing Chapter 11 

bankruptcy" and the "plan fiduciary and administrator, determines that, given this 

event, it would be prudent to temporarily suspend investments in the ABC 
18

Although the blackout's length will vary depending on the circumstances of 

each case, it must stay in place until indications of possible fraud are dispelled by 

investigation or otherwise, a corrective disclosure is issued, the employer stock's 

artificial inflation dissipates, or the fraud no longer causes harm to the plan. This 

can occur when, for instance, the loss caused by a misrepresentation has become 

too attenuated to impact new stock purchases. See Dura Pharms., Inc. v. Broudo, 

544 U.S. 336, 342–43 (2005); Schaaf v. Residential Funding Corp., 517 F.3d 544, 

550 (8th Cir. 2008); Ray v. Citigroup Glob. Mrkts., Inc., 482 F.3d 991, 995–96 

(7th Cir. 2007). Alternatively, the information itself could be superseded or 

become stale, thus becoming immaterial given the company's changing 

circumstances. E.g., Hillson Partners, Ltd. v. Adage, Inc., 42 F.3d 204, 219 (4th 

Cir. 1994). But normally, the artificial inflation ends when the company issues a 

proper disclosure. In concert with a blackout, fiduciaries may also choose, under 

the appropriate circumstances, to remove the employer stock fund as an investment 

option entirely, or to remove the sponsor's match in employer stock, assuming the 

plan provides for such a match. See, e.g., Tibble, 135 S. Ct. at 1828–29. 

Public Disclosure by the Fiduciary. Finally, if the blackout and further 

action by the corporation do not resolve the situation, an ERISA fiduciary may 

 

company stock, effective immediately."); see also 29 C.F.R. § 2520.101-

3(b)(2)(ii)(B). 
19

himself or herself publicly disclose the corrective information, even if that 

fiduciary has no independent obligation under the securities laws to do so (for 

example, because he or she did not make, and was not responsible for, the 

misstatements or omissions). That action would not violate any federal securities 

laws. See SEC Brief at 5. Even if such a disclosure is not sufficient under the 

securities laws to permit the plan fiduciary to sell the stock, see id. at 8–10 

(discussing requirements), it would likely still prompt a corrective disclosure from 

the proper corporate actors, which would stop the fraud and prevent the plan from 

purchasing stock at an artificially inflated price. Such disclosure, however, should 

be a last resort that is undertaken only when a fiduciary is firmly convinced that a 

fraud has resulted in an inflated price. As the SEC explains in its brief, if the 

fiduciary’s disclosure is incomplete or inaccurate in material respects, the fiduciary 

itself could potentially be subject to liability under the securities laws. See SEC 

Brief at 8.

It is not anomalous that an ERISA fiduciary who is also a corporate insider 

may have broader obligations to disclose inside information in the face of an 

ongoing fraud than what the securities laws alone require. That is merely the 

"consequence of the corporation's own decision to establish an ESOP and to install 

its own officers as plan fiduciaries." U.S. Brief at 30; see, e.g., Amax Coal, 453 

U.S. at 333–34; see also U.S. Brief at 30; see also Harzewski v. Guidant Corp., 489 
20

F.3d 799, 805 (7th Cir. 2007). Given the high level of care under which ERISA 

fiduciaries must operate, prudent fiduciaries may be required to disclose material 

nonpublic information if they have a reasonable basis to conclude that the issuer 

has misrepresented material information in violation of the securities laws and if 

other corrective measures are unavailable or have failed.3F

4

* * * 

The foregoing corrective actions are consistent with the securities laws and 

would discharge an ERISA fiduciary’s duty to protect the plan from purchasing 

artificially inflated stock. In the complaint in this case, plaintiffs have alleged that 

plan fiduciaries could have either frozen further purchases or disclosed the fraud. 

The complaint therefore satisfies the first requirement of Fifth Third. 

C. The Fiduciaries in the Circumstances Alleged Here Could Not Have 

Concluded That Making or Prompting Others to Make Corrective 

Disclosures Would Have Caused More Harm Than Good to the Plan 

 

4

 There are also other actions that fiduciaries who have found a reasonable basis to 

conclude a fraud exists may lawfully take to compel a corrective disclosure. For 

example, one option could be for a plan fiduciary, representing the plan as an 

investor in company stock, to question the corporate insiders when they participate 

in investor conference calls. Another option for plan fiduciaries who learn of a 

possible ongoing fraud is to alert the SEC or the Department of Labor to the 

potential violations. The district court erroneously described the regulatory 

response to a whistleblower as a "purely cosmetic" effort. In re BP, slip op. at 25 

n.14. That characterization is inaccurate, as evidenced by Congress's creation of 

whistleblower programs in the securities contexts. See Lawson v. FMR LLC, 134 

S. Ct. 1158, 1169 (2014); 18 U.S.C. § 1514A(a)(1). 
21

The second requirement for a claim that an ESOP fiduciary should have 

acted on inside information that a stock was overvalued is that "a prudent fiduciary 

in the defendant's position could not have concluded that [these actions] would do 

more harm than good to the fund.” Fifth Third, 134 S. Ct. at 2473. The complaint 

here meets that requirement as well. 

The plaintiffs in this case have pleaded that, given that the ongoing fraud 

would have come to light eventually, a freeze on stock purchases or corrective 

disclosures "were available to Defendants and . . . would not have been more likely 

to harm the BP Stock Fund than to help it." Pls.' Compl. at ¶ 339. Consistent with 

this brief, plaintiffs also state these actions would have been taken only after 

proper prudent investigation into the fraud. E.g., id. at ¶¶ 20, 339, 350. Those 

allegations are plausible in light of the facts set forth in the complaint. 

The complaint alleges an ongoing fraud arising out of Hayward’s material 

misstatements. The complaint plausibly alleges Hayward made many of the 

misleading public statements both before and after the Deepwater Horizon

accident; indeed, parallel securities-law claims against Hayward survived a motion 

to dismiss. See In re BP p.l.c. Sec. Litig., 922 F. Supp. 2d 600, 640 (S.D. Tex. 

2013). The complaint is unclear whether McKay and Shaw were also required to 

publicly disclose information based on the securities laws, and there are no parallel 

securities-law claims against them. But McKay was BP America Inc. Chairman, 
22

as well as BPNA's President, and he was in charge of implementing the Baker 

Report – a project that never came to fruition. Pls.' Compl. at ¶¶ 188, 283, 376. As 

BP's Senior Vice President, Shaw oversaw BP operations in the Gulf of Mexico 

and knew based on inside information that contractor-owned oil rigs in that region 

had not implemented OMS. Id. at ¶¶ 6, 307. Both knew that Hayward had 

publicly misrepresented the level of safety reform, but neither did anything to stop 

the fraud those misstatements and omissions caused – despite having personal and 

intimate knowledge as to BP's true state of safety reform. Id. at ¶¶ 192, 209, 271–

272, 362. These defendants allegedly knew that BP was claiming to have fully 

implemented its promised safety reforms, and they also knew such claims were 

false.

Given the ongoing fraud that Hayward was required to disclose under the 

securities laws, the plaintiffs have plausibly alleged that a prudent fiduciary could 

not have concluded that taking the sort of corrective action described above would 

have caused more harm than good to Plan assets. A reasonable fiduciary would 

have operated under the assumption that, because corporate insiders had an 

independent securities-law duty to correct Hayward’s misstatements, the fraud 

would eventually come to light. In other words, it would have been unreasonable 

and imprudent for a fiduciary to continue purchasing BP stock on the assumption 

that BP’s serious, safety-related fraud from the failure to fully implement the 
23

significant safety measures, and the attendant risks to the company, would never be 

uncovered. And because of that, although a corrective public disclosure likely 

would have decreased the value of stock already held by the Plan, a reasonable 

fiduciary would have understood that such a drop in value would have eventually 

occurred anyway once the fraud was revealed, potentially through a safety disaster, 

and thus would have acted to stop any further harm to the Plan by refusing to 

purchase more BP stock until the fraud was disclosed. Where insiders are 

concealing a fraud in violation of the securities laws, the failure to bring the fraud 

to light does not prevent the ultimate loss in value to the plan, but merely ensures 

that, in the interim before the market learns the truth, the Plans will buy still more

stock at inflated prices, causing further harm. 

Moreover, the plaintiffs plausibly allege that "[a] less significant stock price 

drop would have occurred upon an earlier disclosure of the material information 

concerning BP's process safety and disaster recovery issues." Pls.' Compl. at 

¶ 339. Rather than waiting for the fraud to become known through other means, 

such as here through the realization of the increased safety risk through a disaster 

like Deepwater Horizon, "[e]arly and candid disclosures would have caused the 

stock to drop less because, among other things, disclosure would have mitigated 

reputational damage to the Company, minimized the risk of nondisclosure claims 

arising from the Deepwater Horizon explosion, and lessened the risk of defending 
24

against governmental investigations and paying the associated penalties." Id.

(citation omitted). It is thus especially plausible on the specific facts of this case 

here that a reasonable fiduciary would have known that if BP had timely disclosed 

the true nature of its safety programs, as the securities laws required, the losses to 

investors could have been mitigated, thus causing less ultimate harm to the Plan.

Cf. FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282, 1310–17 (11th Cir. 

2011) (discussing corrective disclosures generally); William Shakespeare, 

Merchant of Venice, act 2, sc. 2 ("truth will out"). That conclusion is fortified by

the BP's long history of costly accidents, its chronic safety problems, and its

repeated emphasis on the importance of safety to its business. E.g., Pls.' Compl. at 

¶¶ 157–184, 268–273, 280, 284–286, 348.

Under the specific circumstances alleged here, in order to prevent the 

alleged greater harm caused by delayed disclosure, plan fiduciaries must make 

inquiries; make public corrective disclosures if they are responsible for the fraud; 

then demand compliance with the securities laws; use a blackout; and, if all else 

fails, disclose to the public, so that the plan no longer buys at an inflated price. No 

reasonable fiduciary could have concluded that refraining from purchasing stock 

that was inflated due to the fraudulent concealment of safety problems would have 

caused more harm than good to plan participants.
25

CONCLUSION

For the foregoing reasons, the Secretary respectfully requests that this Court 

affirm the district court's decision.

Respectfully Submitted,

M. PATRICIA SMITH

Solicitor of Labor 

G. WILLIAM SCOTT

Associate Solicitor for

Plan Benefits Security

THOMAS TSO

Counsel for Appellate and Special 

Litigation 

s/Eirik Cheverud

EIRIK CHEVERUD

Trial Attorney 

U.S. Department of Labor 

Room N-4611 

200 Constitution Ave., N.W. 

Washington, DC 20210

(202) 693-5516

cheverud.eirik.j@dol.gov
CERTIFICATE OF COMPLIANCE WITH

FEDERAL RULES 29 & 32 and FIFTH CIRCUIT R. 28.1 & 32.2

1. This brief complies with the type-volume limitation of Fed. R. App. P. 

29(d) and 32(a)(7)(B), and Fifth Cir. R. 29.2 and 32.2, because: this brief contains 

5,870 words, excluding the parts of the brief exempted by Fed. R. App. P. 

32(a)(7)(B).

2. This brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because: this 

brief has been prepared in a proportionally spaced typeface using Microsoft Word 

2010 in 14-point, Times New Roman font.

s/Eirik Cheverud

EIRIK CHEVERUD

Trial Attorney

Dated: March 11, 2016
CERTIFICATE OF SERVICE

I hereby certify that on this 11th day of March, 2016, I electronically filed 

the Brief for the Amicus Curiae, Thomas E. Perez, Secretary of Labor, with the 

Clerk of the Court using the CM/ECF system, which will send notification of such 

filing to all registered counsel of record.

s/Eirik Cheverud

EIRIK CHEVERUD