TEXAS APPELLATE COURT RULES THAT SHAREHOLDER DERIVATIVE SUIT AGANST TRANSOCEAN OVER DEEP WATER HORIZON SPILL MUST BE FILED IN SWITZERLAND

By TONI ELLINGTON

The derivative lawsuit filed by an investor and shareholder against Transocean, Ltd., over its alleged mishandling of the Deep Water Horizon explosion and oil spill and the aftermath must be filed in Switzerland, according to the Court of Appeals for the First District of Texas, an intermediate Texas appellate court in Houston, Texas.  The case, Margaret C. Richardson, as Trustee of the H. and M. Richardson Revocable Survivor’s Trust. v. Steven L. Newman, et al., Case No.  01-13-00757-CV, was an appeal of a decision from the 33rd Judicial District Court in Harris County, Texas, Case No. 2013-00623, in which the district court granted the defendants’ motion to dismiss for forum non conveniens.

The defendants, who are the directors of Transocean, Ltd. (“Transocean”), which is a Swiss corporation, proposed Switzerland as a more convenient forum for the lawsuit, despite the fact that the Deep Water Horizon spill occurred in the Gulf of Mexico.

Transocean was founded in 1953 as a Delaware corporation with headquarters in Houston.  The company became a Cayman Islands corporation in 1999, and then reorganized and reissued as a Swiss corporation in 2008.  The company trades on the U.S. stock exchanges.  Transocean, Ltd., is a holding company for several corporate subsidiaries around the world which manage offshore drilling fleets.  The subsidiary working in the Gulf of Mexico is Transocean, Inc., which is headquartered in Houston.

This ruling emphasizes a trend of U.S. companies to acquire foreign firms and relocate their headquarters and tax domiciles overseas.  This trend, sometimes referred to as “corporate inversion,” is controversial because it allows companies to avoid U.S. tax laws and U.S. liability.

In this case, the parties agreed that Swiss law would apply to the derivative lawsuit.  The plaintiff, Margaret Richardson, brought the lawsuit on behalf of the company and its shareholders.  Richardson argued in the appeal that Texas was “the focal point of the litigation in terms of the defendants and the evidence.”  Five of the defendant directors live in Texas, and three live in other states in the U.S.  One director lives in Canada and three live in Europe, with only one director being a resident of Switzerland.  Transocean has thousands of employees and fifteen drilling rigs in the Gulf of Mexico.

Richardson also argued that certain public interest factors, such as the impact of the Deep Water Horizon accident on the U.S. and Texas, weighed in favor of litigation in Texas.  However, the Court of Appeals reasoned that Richardson’s lawsuit was brought on behalf of Transocean and its shareholders, not on behalf of the Texans who were harmed as a result of the oil spill.

The Obama Administration is calling for Congress to pass legislation to restrict U.S. companies from participating in corporate inversions.  For more information, see John D. McKinnon, “Obama Administration Urges Immediate Action on ‘Inversions,’” The Wall Street Journal, July 15, 2014.

For more information, contact Toni Ellington at (504) 599-8500.