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9th Circuit Court of Appeals reinstates shareholders' lawsuit against BP after Alaska spills

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ANCHORAGE, Alaska - A federal appeals court on Thursday reinstated a shareholders lawsuit filed against BP Alaska in the wake of two oil spills in 2006 on the North Slope that exposed problems with the company's pipeline maintenance program.

A three-judge panel of the 9th U.S. Circuit Court of Appeals reversed the U.S. District Court of Western Washington on several claims.

Shareholders sued BP in 2008, claiming management made misleading statements about the conditions of the company's pipelines, and its maintenance and leak detection program after the first spill of 200,000 gallons onto the North Slope tundra two years earlier. The lawsuit claims BP made the statements knowingly or with deliberate recklessness.

The shareholders claim BP's share price fell 4 per cent after the second spill five months later and the subsequent field shutdown for maintenance.

The Associated Press left messages seeking comment for attorneys on both sides of the case.

BP spokeswoman Dawn Patience said in an emailed statement that the company had not had an opportunity to study the decision, so "it would not be appropriate to comment."

BP Exploration Alaska Inc. was fined $20 million in 2007 after pleading guilty to a federal environmental crime for failing to prevent the crude spill, the largest ever at Prudhoe Bay.

The problems became known after the March 2006 spill prompted the FBI and the Environmental Protection Agency to open an investigation into maintenance practices at the 30-year-old field.

They found that thick sludge caked along the bottom of the leaky pipe was protecting colonies of bacteria that produce a corrosive acid. The acid had eaten an almond-sized hole in the steel over the course of several years, and that's where the spill occurred.

The presence of sludge helped the government prove that BP had neglected to run cleaning and inspection devices called "pigs" through the pipeline.

The spill went undetected for several days, despite repeated warnings from a leak detection alarm.

A second pipeline started leaking in August 2006 for the same reason, prompting BP to halve production at Prudhoe Bay to 200,000 gallons a day for several weeks.

The appeals court said shareholders adequately argued about the falsity of some statements BP made following the spills and one statement in a company report.

The court took particular issue with statements made in the aftermath of the spills by Maureen L. Johnson, a BP Alaska senior vice-president who took the lead in speaking to the media, including assurances she made that the corrosion rate was low and manageable.

The court said the revelation that BP ignored red flags would be detrimental to both BP and Johnson.

"In common parlance, if anyone knew of the flawed monitoring program and the likelihood of failures in the pipeline system, Dr. Johnson did," the court wrote.

Attempts to locate Johnson on Thursday were not successful. Patience did not answer if Johnson was still an employee of BP, only saying she didn't know Johnson's status. A switchboard operator at BP Alaska's headquarters in Anchorage could not find a Maureen Johnson on a staff list.

Following the spill, BP spent $500 million on a 16-mile transit pipeline to replace the corroded line.

"Since 2006 BP has made measurable improvements to safety and reliability on the North Slope. We have significantly increased spending on corrosion monitoring and prevention, such as in-line smart pig inspections. Annually, BP does more than 100,000 pipeline inspections for corrosion under insulation on the North Slope," Patience said.

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