Opinion

Alison Frankel

BP plays Twister in latest Deepwater Horizon appellate brief

By Alison Frankel
September 3, 2013

Last year, when BP agreed to a historic multibillion-dollar class action settlement with people and businesses harmed by the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, the company pledged to defend the deal against objections and appeals. As is customary, lawyers for the claimants actually filed the motion to certify the settlement class, but BP told the court it fully supported the settlement agreement. The company and class counsel submitted joint expert declarations attesting to the fairness of the proposed deal, including a jointly filed report by Columbia Law School professor John Coffee, who said that although he’s skeptical of broad mass tort class actions, the agreement in this case did such a good job of defining class membership that the settlement class should be certified. When U.S. District Judge Carl Barbier of New Orleans certified the settlement class in December 2012, the case seemed to be on a typical track for a mass tort, with both sides benefiting from use of the class action vehicle. Defendants settle these cases because they want the certainty that comes from a classwide release of claims. They can’t get classwide releases without class certification.

But on Friday, BP swerved drastically off-course, filing a startling brief at the 5th Circuit Court of Appeals in a case first brought by objectors to the class action settlement. Unless the 5th Circuit undoes the trial court’s interpretation of settlement terms, BP now argues, class certification cannot stand. The oil company contends that the class is fatally flawed under both the rules for federal class actions and the U.S. Supreme Court’s 2013 holding in Comcast v. Behrend because the claims administrator’s supposedly erroneous reading of deal terms has permitted improper claims by uninjured businesses alongside legitimate claims by injured class members. “Federal class action rules,” the company said in an email statement, “do not permit class action settlements where such conflicts exist.”

BP, in other words, is doing something apparently unprecedented in class action history: siding with objectors in an attempt to scotch its own deal. That’s a contorted position, one that New York University law professor Samuel Issacharoff – who, admittedly, represents class counsel in a BP appeal at the 5th Circuit – said BP may not even have the right to assert because the company didn’t object to class certification at the trial court level and didn’t appeal Judge Barbier’s class certification ruling. BP’s brief is all the more head-scratching because, according to class counsel, even if BP and the objectors succeed in overturning class certification, the settlement agreement requires the oil company to still pay claims already in the pipeline.

Friday’s brief is BP’s latest maneuver in its very public campaign to rein in claims under the business and economic loss provisions of the settlement. In newspaper advertisements and in its own appeal at the 5th Circuit, the company claims that because of a misreading of the accounting terms “revenue” and “expenses” by claims administrator Patrick Juneau – and because of Judge Barbier’s endorsement of that misconstruction – it is facing billions of dollars in claims by undeserving businesses, including businesses that may not have suffered any economic harm from the Deepwater Horizon spill. BP has told the 5th Circuit about plaintiffs firms and moonlighting accountants openly prowling for clients whose supposed losses are strictly an artifact of contract misinterpretation, citing examples of uninjured businesses that were nevertheless approved for multimillion-dollar recoveries. BP and class counsel argued BP’s appeal of Barbier’s ruling on the terms of the settlement before the 5th Circuit in July.

BP implied in last week’s filing – which came in a separate appeal by class members who objected to Barbier’s certification ruling – that if the 5th Circuit curtails these supposedly unwarranted economic loss claims by overturning Judge Barbier’s approval of Juneau’s interpretation of deal terms, the company’s class certification concerns will evaporate. But if the 5th Circuit upholds Barbier in BP’s appeal, the brief said, “then the settlement would be rendered wholly unfair, irrational, and constitutionally suspect.”

The core problem, according to BP’s brief in the objectors’ case, is that the settlement agreement defines class members as those injured by the oil spill but the claims process has allowed recovery for businesses with no injury. That divergence dooms class certification, wrote BP’s lawyers at Gibson, Dunn & Crutcher and Kirkland & Ellis. “It destroys commonality and typicality because the class members no longer share the same theory of injury,” the brief said. “It precludes any finding of predominance and superiority, because an approach that awards fictitious and inflated losses is not a reasonable classwide method for assessing damages. It makes the (economic loss) settlement provisions fatally inequitable, because similarly situated claimants receive dramatically different treatment based on irrelevant factors. It renders the class definition arbitrary and irrational, as class membership now turns in large measure on how a particular claimant maintained its books. And it renders the class notice misleading and impermissible, because the notice nowhere disclosed that uninjured claimants could become members of the class depending on the fortuity of their choice of bookkeeping methods.” (I know, it’s a very long quote. But it’s also a tidy summary of a much longer brief.)

BP concedes that when Judge Barbier was considering class counsel’s motion for class certification, the company not only didn’t object but told the judge that the proposed settlement class satisfied the requirements for certification. The brief said, however, that because of Barbier’s misreading of settlement terms, “the landscape has now significantly changed,” so the class certification it tacitly supported was for a class that no longer exists in reality.

But BP’s going to have to convince the 5th Circuit that it has preserved the right to present such an argument on appeal, said Issacharoff, the NYU prof who represents class counsel at the 5th Circuit. Objectors to the settlement certainly have standing to contest class certification; they challenged it below and filed the 5th Circuit appeal in which BP submitted its brief. But BP is a different story, according to class counsel James Roy of Domengeaux Wright Roy & Edwards. “BP did not file an objection to class certification and did not appeal the issue. How do they have standing?” Roy said. (I asked that specific question of a BP representative but she did not answer it.)

Moreover, according to Roy and class counsel Stephen Herman of Herman, Herman & Katz (in an interview with Bloomberg), the settlement agreement requires BP to continue paying claimants, even if it ultimately succeeds in scuttling the class action. “It’s difficult to understand what the motive of BP can possibly be in trying to destroy a class certification it helped to create,” Roy told me. “Under Section 21.3 of the economic settlement agreement, BP is still obligated to pay all claims pending or filed in the economic settlement program, even if the court of appeals or the Supreme Court reverses the class certification finding.”

I asked BP’s representative for the company’s view of its duty to pay claims already in the pipeline regardless of certification of the settlement class, but didn’t receive a direct answer. BP said instead in an email: “If the settlement agreement is properly interpreted, the agreement should be deemed fair and adequate. If, however, the claims administrator’s erroneous interpretation of the agreement’s business economic loss framework were to be affirmed, then BP believes that, unfortunately, the district court’s certification of the settlement class and approval of the settlement that once promised to be a historic compromise could not be sustained and would have to be reversed.”

So it sounds as though overturning class certification could be the first step for the oil company en route to undoing other parts of the settlement as well. Can BP do that? Only the 5th Circuit – or perhaps the Supreme Court – knows the answer. As I said, its newfangled opposition to class certification seems to be without precedent, so anything that follows from it would be groundbreaking as well.

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