What BP doesn’t want you to know about its oil spill claims appeal

May 29, 2014

Poor besieged BP. As you know if you’ve seen the full-page newspaper ads BP has been running for the last year, or watched a 60 Minutes report earlier this month, BP — the company whose well spewed millions of gallons of oil into the Gulf of Mexico in the 2010 disaster that killed 11 workers on the Deepwater Horizon rig — considers itself a victim, too. As BP tells it, the company has been martyred over and over again: by trickster trial lawyers who forced it into an open-ended class action settlement; by the administrator of the settlement, Patrick Juneau, who misinterpreted the terms of the deal in a way that permitted claims by people who weren’t even harmed by the oil spill; by U.S. District Judge Carl Barbier of New Orleans, who threw in with the plaintiffs lawyers and approved Juneau’s interpretation; and, most recently, by the 5th U.S. Circuit Court of Appeals, which just refused BP’s last plea for mercy.

Now the company’s only hope for salvation from billions of dollars in supposedly unwarranted claims lies with the U.S. Supreme Court, which BP petitioned on Wednesday to halt all payments to businesses harmed in the spill while it pursues its final appeals. BP wants all of us to know, however, that “this legal fight has not in any way changed our commitment to the Gulf,” as it said in its latest ad in The New York Times, which ran Thursday.

Here is what BP isn’t so eager to publicize: New rules promulgated by settlement administrator Juneau and approved by Judge Barbier will effectively block the very claims BP was so worried about when it launched its campaign against its own settlement a year ago. According to Joseph Rice of Motley Rice, a member of the plaintiffs steering committee in the BP class action and one of the lead negotiators of the original deal, the new policies will decimate payouts to construction, education, professional services and agriculture businesses — four industries BP initially targeted for filing unwarranted claims. In addition, Rice said, the new rules — which Barbier on Wednesday ordered the claims administrator to apply retroactively to all claims that haven’t yet been paid — will drastically reduce BP’s remaining liability.

“If the policy is implemented as it is written, BP will have successfully rewritten the settlement agreement to save itself several billion dollars,” Rice told me. “With this policy, they got everything they were asking for in the beginning.”

Rice and his colleagues are trying to overturn the new claims administration policy, even though Judge Barbier has already approved it. This week they filed a motion to amend it, arguing that the new rules are inconsistent with the 5th Circuit’s approval of the original settlement. According to the plaintiffs’ brief, the new policy impermissibly changes the framework of the deal, and that’s not what the appeals court told Barbier and Juneau to do when it directed them to reconsider certain terms of the settlement last October.

I should say here that a BP spokesperson declined to comment in response to my email detailing Rice’s assertions about the impact of the new claims policies. In its New York Times ad on Thursday, the company said that it had succeeded in fixing “a misinterpretation of accounting rules that allowed for the payment of fictitious or artificially inflated losses” — an acknowledgment of the new policy. But BP continues to insist in the ad that it “cannot sit idly by” and permit payments to uninjured claimants. “It’s not what we agreed to do when we signed the settlement agreement,” BP said.

That is at best a debatable point, considering evidence in the 5th Circuit record that BP understood and accepted the risk that the settlement’s low bar for causation would permit claims by uninjured plaintiffs. As the 5th Circuit said in its final rejection of BP’s appeal, the company was willing to compromise to buy peace. What’s amazing about its continued campaign against the settlement is that BP has already managed to get Juneau and Barbier to reinterpret the settlement to give BP a much better deal than the one it originally agreed to — and that’s still not good enough for the oil company!

You’re probably wondering exactly how the new policy affects claims. I’m only going to offer a broad-strokes explanation; if you want more, read Juneau’s 88 pages of accounting jargonry. The policy attempts to smooth out the impact of variable and occasional expenses, such as insurance payments, that can skew monthly accounting. In the original settlement, alleged victims could base claims on any three-month post-spill time frame they chose — including a stretch that included once-a-year expenses that could inflate loss claims. The new policy allocates those occasional expenses across the year, weighting the allocation to reflect monthly variation in the business’s revenue.

It also establishes additional hurdles for farms, law firms, construction outfits and other businesses that use cash-based accounting. The new regulations require these businesses to rejigger their accounting so that their revenues are balanced against the expenses they incurred to generate the receipts. A contingency-fee law firm, for instance, would have to submit a claim that allocated the fee it received proportionally across the years it litigated the case. Farmers would have to submit claims based on expenses and revenues for particular plantings and harvests, not based on year-by-year accounting.

Plaintiffs lawyer Rice said that hundreds of claimants simply won’t be able to revise their accounting to satisfy the new rules or else don’t have the documentation to meet the new standard for businesses that use a cash in/cash out accounting model. And the new policy on allocating one-time expenses will cost claimants at least a billion dollars, according to Rice. Both policies, he said, rewrite the terms of the original deal. “Juneau has eliminated the right of a significant number of businesses to participate in the settlement,” he told me.

It’s possible that the next wrinkle in this litigation will be a plaintiffs’ appeal to the 5th Circuit on the new policy (assuming that Judge Barbier declines to amend it) even as BP argues that the Supreme Court should chuck the settlement altogether.

What a mess for the real victims of the Deepwater Horizon spill. And I think you can deduce that I don’t include BP in that group.

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