Billions at stake as U.S. court set to hear BP oil spill settlement terms
In this May 24, 2010 file satellite image provided by NASA, sunlight reflects off the lingering oil slick from the Deepwater Horizon oil rig explosion off the Mississippi Delta. A high-stakes trial to assign blame and help figure out exactly how much more BP and other companies should pay for the spill began Monday, Feb. 25, 2013. (AP / NASA, File)
Michael Kunzelman, The Associated Press
Published Sunday, July 7, 2013 10:33AM EDT
NEW ORLEANS -- A federal appeals court is wading into a high-stakes dispute over the terms of a multibillion-dollar settlement of claims arising from BP's massive 2010 oil spill in the Gulf of Mexico.
A three-judge panel of the 5th U.S. Circuit Court of Appeals is scheduled to hear arguments Monday by attorneys for the London-based oil giant and for Gulf Coast businesses that say the nation's worst offshore oil spill cost them money.
BP asserts that the judge who approved the deal and a court-appointed claims administrator have misinterpreted the settlement, allowing thousands of businesses to secure hundreds of millions of dollars in payments for inflated and fictitious losses.
"The result is that thousands of claimants that suffered no losses are coming forward in ever-increasing numbers, seeking and obtaining outrageous windfalls and making a mockery of what was intended to be a fair and honest court-supervised settlement process," company attorneys wrote in their brief for the hearing.
BP says it could be forced to pay billions more in "capricious awards to uninjured claimants" if the 5th Circuit doesn't overturn rulings on the issue by U.S. District Judge Carl Barbier.
Plaintiffs' attorneys who brokered the deal last year counter that BP undervalued the settlement and underestimated how many claimants would qualify for payments under the terms they negotiated.
"Buyer's remorse does not alter the deal that was struck," they wrote.
BP's appeal doesn't apply to payouts to individuals.
The April 2010 blowout of BP's Macondo well off the Louisiana coast triggered an explosion that killed 11 workers on the Deepwater Horizon drilling rig and led to millions of gallons of oil spilling into the Gulf. Shortly after the disaster, BP agreed to create a $20 billion compensation fund that was administered at first by the Gulf Coast Claims Facility, led by attorney Kenneth Feinberg.
After the settlement was announced last year, Barbier appointed Lafayette, La.-based attorney Patrick Juneau to take over the process of evaluating and paying claims.
The settlement doesn't have a cap, but BP initially estimated that it would pay $7.8 billion to resolve claims by tens of thousands of Gulf Coast residents and businesses. Now the company says it no longer can give a reliable estimate for how much the deal will cost.
Awards to businesses are based on a comparison of their revenues and expenses before and after the spill. BP says a "policy decision" that Juneau announced in January 2013 allows businesses to manipulate those figures in a way that leads to errors in calculating their actual lost profits.
"These problems are compounded by claimants' ability to select the time period that generates the largest payment: Claimants inevitably select time periods in which distortions due to the timing of recording receipts and disbursements work together to generate higher compensation," BP lawyers wrote.
BP says Juneau's policy decision, which Barbier most recently upheld in April, resulted in a $21 million payout to a Louisiana rice mill that earned more revenue in 2010 than it did in the previous three years.
"Such 'losses' reflect nothing more than arbitrary cash-flow computations or incorrect recording of revenue and expenses -- not actual economic performance," their attorneys wrote.
Plaintiffs' attorneys say BP has never offered an alternative methodology for evaluating these claims.
"BP's position is compromised as a matter of law by its inability, even on appeal, to articulate its version of the proper methodology and to ask for specific relief," they wrote.
BP had agreed from the outset of the settlement agreement that the claims administrator should interpret the compensation frameworks to provide the greatest payouts to claimants, the plaintiffs' lawyers said.
"Contrary to BP's contention, the issue before this Court is not an abstract evaluation of purported accounting principles, but the agreement reached by the parties," they wrote.
Juneau's office has offered more than $2.2 billion in settlement payments to more than 8,600 businesses as of June 23. Through April, more than 28 per cent of the offers to businesses that exceeded $3 million were made to construction companies, while roughly 11 per cent were for law firms, according to numbers compiled by BP. The average offer for a law firm claimant is $810,000, which is more than triple the average offer for business claims, according to BP's tally.
BP warns of "dire implications far beyond this case" if the appeals court doesn't overturn Barbier's rulings.
"The Deepwater Horizon settlement could serve as a positive landmark in American jurisprudence because of its ambitious size, its innovative nature, and the speed with which it was negotiated to compensate injured parties. Instead, it is poised to become an indelible black mark on the American justice system," the company's lawyers wrote.
Washington-based attorney Theodore Olson, who served as solicitor general under President George W. Bush, is expected to present BP's case and answer questions from the judges during Monday's hearing. Olson represented Bush in the U.S. Supreme Court's review of the contested presidential election in 2000. More recently, he represented plaintiffs who sought to strike down California's voter-approved ban on same-sex marriage.
James Dennis, Edith Brown Clement and Leslie Southwick are the 5th Circuit judges assigned to the case.