Back in November I highlighted a nifty little argument Cohen Milstein Sellers & Toll was advancing on behalf of holders of ordinary shares of BP. BP is, of course, a British company, which means that under Morrison v. National Australia Bank, common shareholders can't bring federal securities claims. Cohen Milstein argued they could sue for fraud under the Exchange Act of 1934 because the London Stock Exchange allows trades to be made directly through U.S.-based market makers, but everyone knew that argument wasn't likely to fly. Nor was there good precedent for Cohen Milstein's assertion that BP ordinary share owners could sue in the United States for claims under British securities law. The Los Angeles federal judge presiding over the Toyota shareholder litigation had already dismissed parallel claims, based on Japanese law, by Toyota common shareholders.

But I liked Cohen Milstein's twisty reasoning for why BP's fraud allegations under New York state common law should proceed. I know: You're shaking your head and saying Securities Litigation Uniform Standards Act. SLUSA was passed in 1998 to cut off state-court class actions by shareholder lawyers trying to avoid the strictures of federal-court securities litigation reform. The law holds that state-court securities class action claims are pre-empted by federal securities laws.

There's a small chink in SLUSA, though. The law applies only to certain "covered" securities. Cohen Milstein argued that because BP common shares are not traded on a U.S. exchange, they don't fall under the law's definition of covered securities. Shareholders shouldn't be doubly penalized, the firm told U.S. District Judge Keith Ellison of Houston federal court at a hearing in November. BP can't assert on the one hand that U.S. courts don't have jurisdiction over foreign-traded shares, the argument went, and insist on the other hand that federal jurisdiction precludes state-law claims. "Defendants cannot have it both ways," the shareholders said in their brief.

The judge, however, said the shareholders were the ones trying to have it both ways. In a 129-page opinion issued Monday afternoon, Ellison said BP common shares are, in fact, covered securities for SLUSA purposes. (Don't worry: Ellison's Morrison analysis is confined to the last 20 pages of the ruling.) The judge threw one of Cohen Milstein's own arguments back at the shareholders' firm, noting that the plaintiffs asserted Morrison shouldn't bar their federal fraud claims because BP shares are "listed" on the New York Stock Exchange via American Depository Receipts. (Ellison, like every other federal judge to have weighed that argument, rejected it.) But SLUSA explicitly says listed shares are covered securities, Ellison said. He made short work of Cohen Milstein's attempt to distinguish between "listed" and "traded" shares. Ellison said there's no such difference under SLUSA's plain language.

Ellison left alive some claims by holders of BP ADRs, but the ADR float is only about 20 percent of the company's market cap.

BP counsel Richard Pepperman of Sullivan & Cromwell declined comment. So did shareholder counsel Steven Toll of Cohen Milstein.

(Reporting by Alison Frankel)

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