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Settlement of Shell reserves fraud litigation to cost over $600 million

By John Donovan

In April 2007, Shell offered to settle for $352.6 million plus $47 million in legal fees, non-U.S. shareholder claims relating to the 2004 oil reserves scandal. Shell pledged that it would make a request to the U.S. Securities and Exchange Commission to contribute towards the settlement the $120 million fine imposed on Shell by the SEC in 2004.

Relevant Dutch Court Documents

Petition to Amsterdam Court of Appeal April 2007

Proposed European Settlement April 2007

Related letter to U.S. Securities & Exchange Commission March 2007

For all of the relevant Dutch Court documents go to…

Shell hopes to settle U.S. shareholder pension fund claims for an additional $80 million plus legal costs.

Shell’s shares plummeted by more than 10 percent in a single day when the reserves scandal was first announced in January 2004.  Shell eventually cut it’s proven reserves, an oil company’s most important asset, five times, cutting them by about a third in all.

The Shell settlement offer to non-U.S. shareholders of April 2007 was a clever move designed to torpedo the expansion of the original U.S. class action into a global action also covering non-U.S. shareholders. Chief Judge John Bissell had ruled that a non-U.S. Shell shareholder, Mr Peter M. Wood (recruited after an appeal on the website could represent all non-U.S. shareholders.

Judge Joel A. Pisano took over the case after the retirement of Chief Judge Bissell and  last week overturned the ruling of Chief Judge Bissell on the all-important issue of “subject matter jurisdiction”. A deciding factor was whether any part of the fraud took place in the United States, or only in Europe.

As soon as the above Opinion of Judge Joel A. Pisano is put into a final Order, the Dutch settlement will be able to proceed for proposed approval by the Amsterdam Court of Appeals.

With this goal in mind, lawyers acting for Shell – Robertson, Freilich, Bruno & Cohen of New Jersey and Washington law firm Dewey & LeBoeuf – have been busy filing papers with the U.S. District Court for the District of New Jersey. Their activities should result in a separate appealable judgment.

Documents filed with the U.S. District Court for the District of New Jersey on 16 November 2007

Letter to U.S. Court from Shell Attorney Jeffrey Cohen

Letter to U.S. Court from Shell Attorney Ralph C. Ferrara

Proposed Order for issue by U.S. District Court Judge Joel A. Pisano

Certificate of Service filed with U.S. District Court

The lawyers acting for Peter M. Wood – Bernstein Liebhard & Lifshitz LLP – will then decide whether to mount an appeal against the judgment which, if appealed all the way to the U.S. Supreme Court, would block the $352.6 million Dutch settlement, possibly for years. The class action on behalf of U.S. Shell stockholders might also be delayed.

If, in the absence of an appeal, the Dutch settlement is achieved and Shell’s ambition to settle the remaining U.S., class action is realized, the combined cost would be around $500 million. Since Shell had already paid $90 million in 2005 to settle a lawsuit brought by Shell U.S. employee shareholders, the overall cost, including all legal fees, would be  over $600 million.

However, bearing in mind the legal hurdles which remain and the fact that Shell is desperate to put the reserves scandal behind it, an overall out of court settlement of all litigation relating to the fraud may still be the most likely outcome.

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