On November 4, 2016, Judge Keith Ellison of the United States District Court for the Southern District of Texas granted preliminary approval of a $175 million settlement in the federal securities class action In re: BP p.l.c. Securities Litigation between BP and Lead Plaintiffs for the “post-explosion” class. While the settlement is still subject to final approval, it resolves allegations that BP misrepresented the seriousness of the Deepwater Horizon explosion and its aftermath—covering investors who purchased BP shares between the date of the first alleged misrepresentation about the amount of oil being released as a result of the explosion (April 26, 2010) and the date on which it was revealed that BP initially misrepresented the spill’s severity (May 28, 2010). In granting preliminary approval of the settlement, Judge Ellison also: (1) rejected 135 institutional investors’ request for exemption from opt-out procedures; and (2) allowed some plaintiffs who timely requested exclusion from the class to withdraw their requests and opt back into the settlement.

In September 2016, 135 institutional investors (the “First Investor Group” or “FIG”) requested that the Court allow their exclusion from the class solely based on their filing of separate lawsuits against BP—as opposed to following standard opt-out procedures. The opt-out deadline was February 6, 2016. The FIG did not file opt-out requests as required by the settlement notice. The First Investor Group argued that its members may be included in the class—even though they had filed separate actions. They feared they would be subject to the release contained in class settlement and thereby lose the ability to pursue any and all claims against BP, including those claims stemming from alleged misstatements allegedly made outside of the settlement class period. However, in opposing the motion, BP and the class plaintiffs argued that the FIG should not be allowed a late opportunity to opt-out and that the FIG had read the release too broadly. The Court agreed with BP and the class plaintiffs. The Court reasoned that the effect of any member of the FIG being included in the settlement “would be far more limited in nature” because the release of claims in the settlement only covered claims based on misstatements made shortly after the explosion. Thus, members of the FIG remained able to bring claims based on alleged misstatements allegedly made prior to the explosion.

A second investor group (the “SIG”) requested that some plaintiffs be allowed back into the class. These plaintiffs had properly filed requests for exclusion prior to February 6, 2016 in accordance with the Notice of Pendency of Class Action, and filed their own individual actions. In their October 3, 2016 letter to the Court, the SIG argued that since the subsequent settlement notice allowed class action plaintiffs who failed to request exclusion by February 6, 2016 another opportunity to opt out, the members of the SIG who timely requested exclusion should be afforded an opportunity to opt back into the class. This approach would allow separate plaintiffs to take a wait-and-see approach and then make their decision based on key developments that occurred since February 6, 2016, such as the Court’s decision regarding cross-motions for summary judgment. After noting that neither BP nor the Lead Plaintiffs opposed the request, and that the addition of the SIG would likely not alter the settlement agreement, Judge Ellison ultimately agreed with the SIG.

This decision is important for institutional investors, class counsel, and defendants settling class actions. For institutional investors, this decision supports the proposition that individual plaintiffs who timely requested exclusion can now file separate actions to preserve their repose rights, and then opt back into any favorable class settlement. It will likely complicate class counsel’s process of issuing its notices of settlement, which typically set forth the amount recovered per share. Without knowing whether individual action plaintiffs (“IAPs”) will opt back into a settlement, such numbers will be nearly impossible to calculate. On the other hand, this decision adds an element of unpredictability to negotiations that may benefit settling defendants—class counsel could now agree to a settlement assuming that IAPs are not included, only to have IAPs opt back into the settlement. In the end, a settling defendant may actually resolve more claims than it originally expected while still only paying its agreed upon settlement amount.

Ironically, the IAPs presumably filed separate actions so that they could recover a greater amount than they would have had they remained in the class. However, those that opted back into the class essentially abandoned their arguably strongest claims (those claims based on the post-spill allegations). They chose instead to participate in the class settlement (and perhaps dilute the class recovery of those who did not file individual actions).