Judge’s say on spill deal likely not final say

There’s little doubt a federal judge will give final approval following a hearing this week to a multibillion-dollar settlement between BP and victims of the 2010 Gulf of Mexico oil spill. The bigger question is whether the deal survives on appeal.

Class-action settlements in admiralty cases are relatively uncommon, and even more rare is to have one that involves so many types of claims and losses, legal experts say.

The 5th U.S. Circuit Court of Appeals and, ultimately, the U.S. Supreme Court could be asked to weigh in. That means U.S. District Judge Carl Barbier’s expected signature sometime after Thursday’s hearing in New Orleans on the fairness of the settlement is unlikely to be the last word.

“It’s pretty clear it’s not going to be a done deal,” said Martin Davies, a Tulane University law professor who specializes in maritime issues.

As of a week ago, the court had received objections on behalf of about 14,000 claimants. Objectors include fishermen, property owners, several Gulf states, the U.S. government and Halliburton, the cement contractor on BP’s Macondo well. Any one of them could appeal or file papers supporting an appeal if Barbier approves the deal, as is considered likely since he gave it tentative approval.

The settlement, which BP worked out with a steering committee of lawyers representing plaintiffs, would cover thousands of residents and businesses with economic or health claims. Barbier isn’t expected to rule at the hearing, but legal experts believe a decision will come fairly quickly. Eight lawyers have been designated to speak for objectors, and they will only have five or 10 minutes each.

Another wild card: BP can back out of the deal any time before the hearing.

While legal experts see that as unlikely, a clause in the settlement allows the British oil giant to walk away from the agreement if too many people opt out. BP has never publicly divulged its limit, filing the number under seal with the court.

In the run-up to last Thursday’s deadline for plaintiffs to make a decision, lawyers for thousands of victims said their clients planned to opt out. It could take days to validate that. To be valid, opt-outs must be signed individually, and not offered as part of a group.

“It does cast some doubt on the settlement that Judge Barbier is considering,” Davies said. “If that many people think they don’t want to be a part of it, I think that would raise questions about whether it’s a good settlement.”

Those concerns could provide more fodder for an appeal. BP is looking ahead to that possibility, filing papers with the court recently containing analyses by legal scholars about the viability of the deal on appeal.

One of the scholars, Columbia law school professor John C. Coffee Jr., said in court papers on behalf of BP that differences among claims don’t imply conflict, and he asserted that such class settlements can still stand if the claims “arise from a single course of conduct” by the defendant.

Merits of settlement

The settlement itself contemplates appeals. A nugget deep in the document says that if a higher court voids the deal, the court-supervised claims center that already is processing and paying claims will continue its work. A similar claims facility was operating before the settlement was reached.

The current claims administrator, Patrick Juneau, said he is comfortable with the merits of the settlement as he reads it.

“And I don’t think I am an unrealistic person,” Juneau said.

Meeting obligations

BP argues the proposed settlement more than meets its obligations in calculating current and future economic damage compensation.

But many individuals and businesses alleging damages from the spill haven’t received offers from the claims center, which made it difficult for them to decide whether to opt out and pursue lawsuits on their own, said Tony Buzbee, a Houston lawyer who represents 12,000 claimants. Those who didn’t opt out by Thursday are bound to the provisions
of the settlement.

“It’s very difficult to advise your client to participate in a settlement when you don’t know what their individual offer is,” Buzbee said.

If the deal were to fall apart for any reason, it could be a public relations and financial disaster for BP. More than two years after the deadly Macondo well blowout off Louisiana and worst offshore oil spill in
U.S. history, BP is looking to resolve remaining claims and expected fines and penalties as quickly and with as little further financial exposure as possible.

It already has spent or committed tens of billions of dollars on cleanup costs and compensating victims, and estimates it will pay $7.8 billion under the settlement, although the agreement contains no cap.

Against that backdrop, legal experts said they would be surprised if BP backed out of the settlement now, no matter how many plaintiffs have opted out. Plaintiffs or potential plaintiffs who didn’t opt out by the deadline were automatically opted in, giving BP a finite number of claims outside the agreement that it will have to deal with in the future.

“It provides financial certainty at a time when the company is anxious to move beyond the Gulf oil spill,” said David Uhlmann, a University of Michigan law professor. “It’s clearly in BP’s interest to do everything it can to resolve all claims.”

BP still has the U.S. government to deal with. It said in its recent third-quarter earnings report that there is “significant uncertainty” that it will be able to reach a deal with the Justice Department over fines and penalties.

“Fighting this in court and going all the way, that always carries a lot of risk,” said Eric Schaeffer, who led the Environmental Protection Agency’s civil enforcement office from 1997 to 2002.

That could happen, of course, if Barbier approves the deal and it is appealed.

Edward Sherman, a Tulane University law professor, said the 5th Circuit has been skeptical that a group of plaintiffs can be certified as a class if significant differences exist among the claims by individual class members.

“Certainly the 5th Circuit is a tougher hurdle than Judge Barbier, who has been active in encouraging a settlement in this case, and 5th Circuit precedents on class actions have been quite strict,” Sherman said.

Emily Pickrell contributed to this story.

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