Judges skeptical of BP argument in fight over oil spill claims

NEW ORLEANS — BP’s argument that businesses are getting an unfair windfall from its class-action Gulf oil spill settlement was met with skepticism Monday by a federal appeals court panel.

The three judges on the panel — Edith Brown Clement, James L. Dennis and Leslie H. Southwick — quizzed BP lawyer Ted Olson during a hearing at the 5th U.S. Circuit Court of Appeals in New Orleans about emails and letters the company sent before and after the deal was consummated that suggest BP knew exactly what it was getting into.

The judges also questioned whether they even have jurisdiction to hear BP’s appeal, and they seemed baffled as to how BP could agree to compensate people who weren’t harmed by the disaster.

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Attorneys for the spill claimants argue that BP’s only recourse to challenge the way claims are being handled is to appeal to the claims administrator and the court overseeing the deal. In both cases they have done that, and they have lost.

But Olson said the appeals court must intervene to stop the bleeding. Billions of dollars are at stake.

“Justice will not be done otherwise,” Olson told the panel.

The judges had concerns with the argument.

“It seems to me something you gave up,” Dennis told Olson. “The agreement defines what is a lost profit in a particular way and you had a chance not to agree to that. How can we go beyond the four corners of the agreement?”

Clement was more pointed on the question of causation.

“How could they agree to compensate people not affected by the spill?” she asked.

Olson said the settlement reached in March 2012 was a compromise. He also said that BP was not making the issue of causation a part of its argument before the appeals court, even though in its public statements, including newspaper ads, it has made that a central part of its argument.

Clement responded, “You need to brief it sooner or later.”

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Samuel Issacharoff, a New York University law professor who specializes in complex litigation, told the appeals panel on behalf of the settlement class that BP’s motivation in agreeing to such generous terms was to get certainty over its spill costs.

“BP wanted peace,” Issacharoff said.

And when it botched its estimates it turned to the court for relief, he said.

Judge Dennis seemed to agree.

“It could be that BP misperceived how big this would be,” Dennis said. “BP agreed to this way of measuring losses.”

The court is expected to make its decision relatively quickly, though it could still take weeks or months. BP could appeal to the U.S. Supreme Court if it loses.

At issue is BP’s assertion 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.

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.

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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.

BP originally estimated that the deal agreed to in March 2012 would cost the company $7.8 billion. It now says it could cost billions of extra dollars, though it can no longer reliably estimate the total cost because of the dispute.

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.

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