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.
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.