BP wants a federal appeals court to do what it its own bean counters couldn’t: restore predictability to how much a class-action settlement the company reached with victims of the Gulf of Mexico oil spill will cost.
The March 2012 deal didn’t require businesses to prove their losses were caused by the disaster; it allowed them to be hundreds of miles from the coast and still be eligible; and it didn’t set a cap on what BP ultimately might have to pay.
Now the British oil giant says the open-ended set-up has spiraled into a “feeding frenzy” aided by an administrator appointed to distribute the settlement and a judge who is overseeing the process.
In arguments Monday, BP will ask an appeals court, in effect, to rein in the administrator and help BP keep its word to investors that the deal would cost $7.8 billion.
“When they suggested they were going to put out that number originally, we strongly urged them not to do it,” said Joe Rice, an attorney for plaintiffs who helped negotiate the settlement with BP. “We told them we thought they were grossly underestimating the value of the process.”
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At issue before the 5th U.S. Circuit Court of Appeals is how claims being filed by businesses for economic losses are being processed and paid.
As of mid-June, the claims administrator had offered $3.53 billion on 44,236 eligible claims, a per-claim average of nearly $80,000. Eligible business economic loss claims offered for payment carried an average award of $246,000.
The settlement program so far has received more than 175,000 claim forms, 7 percent of which were filed by businesses, individuals, seafood workers, property owners and vessel operators outside the five Gulf Coast states.
Just how big could the liability get? Rice said that based on the plaintiffs’ interpretation of the agreement there could be as many as 1.4 million businesses in the eligible geographic area defined in the complex settlement.
BP says it’s giving much more than it bargained for.
Its lawyer, Ted Olson, a former U.S. solicitor general, will tell a three-judge panel of the appeals court during oral arguments that claims administrator Patrick Juneau is misinterpreting key terms of the deal, resulting in huge sums of BP money going to businesses that didn’t suffer losses. The company wants the appeals court to force Juneau to change his interpretation.
“Whatever you think about BP, we can all agree that it’s wrong for anyone to take money they don’t deserve,” BP said in a recent newspaper ad — part of an aggressive campaign complaining that claimants who weren’t harmed by the spill are receiving settlement money.
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A key to the dispute is how to calculate profits and losses before and after the spill, an element in quantifying damages.
The settlement calls for comparison of “corresponding periods.” The administrator has accepted claims that count revenue in months when businesses receive cash and expenses in months when they spend it.
BP argues that the words ”corresponding periods” call for an analysis in which specific expenses are matched to revenue generated from those expenses. That could spread cash received or spent in one month over several months or different months depending on terms of sales and vendor contracts, and in turn the business might not show any loss at all.
In friend-of-the-court filings on BP’s behalf, accounting experts support BP’s position that the administrator’s calculations don’t follow generally accepted principles. Also, legal experts for the company say, basic contract law is on BP’s side.
BP spokesman Geoff Morrell said it was Juneau’s interpretation — not the wording of the deal — that “ignited a feeding frenzy among trial lawyers attempting to secure money for themselves and their clients that neither deserves.”
BP’s opponents contend, however, that the plain language of the agreement does not provide for the specific analysis for which BP is arguing, and that emails and letters company lawyers sent before and after the deal was consummated are inconsistent with its current argument.
“They waited and supported the settlement, appeared before the judge, said the agreement means what it says, let the settlement get approved, then immediately started attacking it,” said Steve Herman, one of the lead plaintiffs’ attorneys.
U.S. District Judge Carl Barbier of New Orleans, who is overseeing the settlement, has ruled Juneau is applying the terms of the deal correctly.
And Samuel Issacharoff, a New York University law professor who specializes in complex litigation, is sure to note in his oral argument on behalf of the spill claimants that they have accounting experts of their own who back up their position.
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The court is expected to make its decision relatively quickly, though it could still take weeks or months, which would mean hundreds of millions of dollars more being paid to businesses that file economic loss claims. BP could appeal to the U.S. Supreme Court if it loses.
As the appeal has moved forward, Barbier has been dealing with other complaints involving the claims administrator.
Last week, he appointed former FBI Director Louis Freeh to investigate whether there have been ethical violations or other misconduct by Juneau’s staff. A staff attorney working for Juneau in connection with the settlement program recently resigned over allegations of impropriety.
The company, meanwhile, has warned claimants it will come to get its money back if it wins the appeal. Plaintiffs’ attorneys doubt BP can make good on the threat.
In public statements including newspaper advertisements, BP has put forth the notion that businesses not harmed by the spill are getting compensation.
But that appears to be aimed more at watchful investors than the court, because the question before the appeals panel involves accounting for damages and has little if anything to do with what caused them.
And the company had a powerful incentive to agree to such generous terms: It gets a release from all settlement claimants that bars them from ever suing the company over the disaster. It’s unclear if claimants could challenge those releases if BP wins the appeal.
BP, which says because of the dispute it no longer can estimate reliably how much the settlement will cost, has a lot riding on the accuracy of its original estimate that the settlement would cost it $7.8 billion.
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A $20 billion trust fund it agreed to set up after the April 20, 2010, spill off Louisiana is nearly all spoken for, based on BP’s most recent tabulation.
While BP took an accounting charge for the fund back in 2010, the fund doesn’t have a ceiling. BP is paying the settlement from the fund and would suffer a fresh hit to earnings if the fund is exceeded.
Shareholders are anxious for resolution.
“It could mean hundreds of millions of dollars, if not billions, of additional costs to BP,” said Oppenheimer & Co. analyst Fadel Gheit.
On June 5, 2014, the Chemical Safety Board releases a two-volume report shedding new light on the cause of the Gulf oil spill. Agency investigators say the blowout preventer failed when a long drill pipe running from the rig down into the ocean floor buckled under high pressure coming up from the oil reservoir. In addition, the agency found U.S. regulations governing offshore safety -- even new rules set after the 2010 oil spill -- do not address many key safety devices.
Jacquelyn Martin / Associated Press
On May 21, 2014, BP announces that it will take the courtroom fight over its multibillion-dollar oil spill settlement to the Supreme Court. The London-based oil company argued that it has paid potentially hundreds of millions of dollars to claimants who were not affected by the 2010 Gulf of Mexico oil spill, violating its interpretation of the $9.2 billion settlement it reached with plaintiffs’ attorneys in 2012.
[Photo: People walk on the steps of the U.S. Supreme Court in Washington.]
On May 20, 2014, a federal judge rules that some BP investors can form a class to sue the company over allegations it misled shareholders on how much oil spilled into the Gulf of Mexico in 2010. The ruling followed the investors’ second bid to gain class certification needed for a securities lawsuit over allegations BP executives played down the amount of oil spewing from its blown-out Macondo well in early days of the 87-day disaster.
Seth Perlman / Associated Press
On April 21, 2014, a federal court sets Jan. 20, 2015 as the first day of the penalty phase of BP’s civil trial over the 2010 Gulf of Mexico oil spill. The penalty phase, during which U.S. District Judge Carl Barbier will listen to testimony from BP and government attorneys over the British oil company’s liabilities in the spill, will end around Feb. 5 next year, the court said.
Dave Martin / AP
On April 17, 2014, the Coast Guard cries foul over BP’s claim that active cleanup efforts to remove oil along the Gulf Coast shorelines have ended, saying the process is “far from over.”
[Photo: Mickal Vogt of Covington, La., uses a stick to place tar balls in a jar that washed up on the shore in Orange Beach, Ala., Saturday, June 12, 2010. ]
Tech. Sgt. Adrian Cadiz / AP
On April 15, 2014 -- nearly four years after the Gulf oil spill -- BP declares an end to cleanup operations that cost the company $14 billion and once covered 778 miles of shoreline on the Gulf Coast. The Coast Guard had finished its last patrols of the three remaining miles of beach that had been soaked in oil after a blowout at BP’s Macondo well blew out.
[Photo: In May 2010, ships move an oil boom into place near Cat Island off the Gulf Coast of Mississippi as part of Deepwater Horizon oil spill response.]
In March 2014, BP reaches a deal with the U.S. Environmental Protection Agency to end its 16-month suspension on doing business with the government. The deal allowed BP to bid on new drilling rights in the Gulf of Mexico for the first time in nearly two years.
[Photo: BP repairs its Mad Dog rig in the Gulf of Mexico in 2012.]
Jonathan Bachman / Associated Press
Kurt Mix, center, arrives at the Hale Boggs Federal Building in New Orleans. The former BP drilling engineer was convicted Dec. 18, 2013 of one charge that he deleted text messages from his cellphone to obstruct a federal investigation of the company’s massive 2010 oil spill in the Gulf of Mexico.
Gerald Herbert / Associated Press
Former FBI Director Louis Freeh leaves Federal Court after meeting with U.S. District Judge Carl Barbier, who appointed Freeh to investigate alleged misconduct by a lawyer who helped run BP's multibillion-dollar settlement fund for the Gulf oil spill. Freeh recommended Friday, Sept. 6, 2013, that the Justice Department investigate whether several lawyers plotted to corrupt the settlement program designed to compensate victims of BP's 2010 Gulf oil spill.
Gerald Herbert / Associated Press
Steve Newman, president and CEO of Swiss-based Trancocean Ltd., leaves Federal Court after testifying in New Orleans, Tuesday, March 19, 2013. Transocean was the owner of the rig Deepwater Horizon, which was being operated under contract to BP when BP's Macondo well blew out on April 20, 2010, setting into motion events that led to the nation's worst offshore oil spill. The Deepwater Horizon sank two days after the blow out.
Gerald Herbert / Associated Press
Lamar McKay, former president of BP America and current chief executive of BP's Upstream unit, leaves Federal Court after testifying in New Orleans, Monday, Feb. 25, 2013. McKay, who was president of BP America at the time of the Deepwater Horizon disaster, became the first BP executive to testify at the federal trial intended to identify the causes of BP's Macondo well blowout and assign percentages of blame to the companies involved.
Contributed Photo / Contributed Photo
A report by the National Wildlife Federation finds that the 3-year-old BP spill is still having a serious negative effect on the ecology of the Gulf of Mexico and its wildlife populations. Pictured: Smoke billows over a controlled oil fire off the coast of Venice, La., on May 5, 2010.
Sean Gardner/Getty Images
An activist holds a sign during a protest in front of the Hale Boggs Federal Building on the first day of the civil trial over the 2010 Gulf of Mexico oil rig spill on February 25, 2013 in New Orleans, Louisiana. Eleven men were killed during the accident and over 4 million barrels of oil spilled into the Gulf of Mexico in 2010.
Sean Gardner/Getty Images
Activists holds signs during a protest in front of the Hale Boggs Federal Building on the first day of the civil trial against BP in the 2010 Gulf of Mexico oil spill on Monday, Feb. 25, 2013.
Robert Kaluza, a BP well site leader from the Deepwater Horizon oil rig explosion, talks with his attorneys Shaun Clarke, left, and David Gerger, right, as they enter Federal Court before he is arraigned on manslaughter charges in New Orleans on Wednesday, Nov. 28, 2012.
Robert Kaluza, a BP well site leader from the Deepwater Horizon oil rig explosion, enters Federal Court before he is arraigned on manslaughter charges in New Orleans on Wednesday, Nov. 28, 2012.
David J. Phillip/AP
BP Senior Vice President Kent Wells rubs his eyes while testifying during the Deepwater Horizon joint investigation hearings Aug. 26, 2010. The hearings were held by the U.S. Coast Guard and the Interior Department's Bureau of Ocean Management, Regulation and Enforcement in Houston .
Demonstrators hold up signs on Capitol Hill in Washington on Monday, May 17, 2010, as BP America Chairman and President Lamar McKay, right, waits his turn to testify before the Senate Homeland Security and Governmental Affairs Committee hearing to assess the nation's response to BP PLC's Deepwater Horizon oil spill.
AP Photo/Haraz N. Ghanbari
A Capitol Hill police officer arrests Diane Wilson on Capitol Hill in Washington on June 17, 2010. BP CEO Tony Hayward was testifying before the Energy and Environment subcommittee on Oversight and Investigations hearing on the role of BP in the Deepwater Horizon explosion and oil spill.
Smiley N. Pool / Houston Chronicle
A protester's sign lies outside a meeting where residents were able to get face-to-face time with BP and government officials at one of a series of open houses in New Orleans on June 23, 2010.
John Moore/Getty Images
The letters BP, inscribed in sand and oil by a Greenpeace activist, are shown on a beach at the mouth of the Mississippi River on May 17, 2010 near Venice, La.
James Nielsen / Houston Chronicle
Melanie Driscoll, director of Bird Conservation for the Louisiana Coastal Initiative, holds up oil residue on April 8, 2011. The Louisiana Department of Wildlife & Fisheries gave a press tour to show the effects of the Deepwater Horizon oil spill in Port Sulphur, La.
Smiley N. Pool / Houston Chronicle
A cleanup worker, wearing a protective coverall and carrying a small scoop, punctuates an otherwise typical holiday beach scene as patrols the beach looking for tar balls on Independence Day 2010.Tourist business along the Gulf Coast all reported feeling the sting of lost income from a noticeable dip in tourism the summer following the Deepwater Horizon spill.
A member of Louisiana Gov. Bobby Jindal's staff reaches into thick oil on the surface of the northern regions of Barataria Bay in Plaquemines Parish, La. on June 15, 2010.
Crude oil from the Deepwater Horizon oil spill washes ashore in Orange Beach, Ala. on June 12, 2010. Large amounts of the oil battered the Alabama coast, leaving deposits of the slick mess some 4 inches to 6 inches thick on some parts of the beach.
Win McNamee/Getty Images
A brown pelican stained with oil takes flight while a bird rescue team tries to capture it for cleaning on June 5, 2010 in Grand Isle, Louisiana.
Patches of oil from the Deepwater Horizon spill are seen underwater in the Gulf of Mexico, south of Venice, La., on Monday, June 7, 2010.
Smiley N. Pool / Houston Chronicle
A boat is surrounded by oil near the site of the Deepwater Horizon explosion and oil spill on Tuesday, June 15, 2010.
A shrimp boat is used to collect oil with booms in the waters of Chandeleur Sound, La.
People gather near crosses for the 11 workers who died in the Deepwater Horizon oil rig explosion, during a vigil to mark the first anniversary of the BP oil spill on a beach in Grand Isle, La.. The large cross in the center is for the Gulf of Mexico.
Oil floats in the waters of Chandeleur Sound, La. two weeks after the explosion of the Deepwater Horizon oil rig in the Gulf of Mexico.
Oil from the Deepwater Horizon spill floats on the water as the sky is reflected in sheen on Barataria Bay, off the coast of Louisiana on June, 7, 2010.
The Deepwater Horizon oil rig burns in the Gulf of Mexico on April 21, 2010, more than 50 miles southeast of Venice on Louisiana's tip.
U.S. Coast Guard
Fire boat response crews battle the blazing remnants of the off shore oil rig Deepwater Horizon on April 21, 2010. The blowout in the Gulf of Mexico killed 11 people and sent 4.9 million barrels of oil gushing from the sea floor into the Gulf.