The oil giant BP has recently done a very good job of casting itself as the victim of greedy plaintiffs lawyers looking to get rich by submitting unwarranted claims for businesses that weren’t actually harmed by the Deepwater Horizon oil spill. Did you see the company’s full-page advertisements to that effect in The Wall Street Journal and The New York Times? Or maybe you read smart pieces by Paul Barrett of BloombergBusinessweek (“How BP Got Screwed on Gulf Oil Spill Claims”) or Joe Nocera of the Times (“Justice, Louisiana Style”), who both pointed out that the court-appointed lawyer serving as the administrator of BP’s multibillion-dollar class action settlement is himself a onetime plaintiffs lawyer – as is the New Orleans federal judge overseeing the deal. (Lawyers representing BP claimants, I should note, dispute just about everything BP says about the judge and the administrator.)
Nocera made the rhetorical point that lots of people don’t particularly mind that a multinational oil company responsible for a perceived environmental tragedy might have to fork over some extra billions. According to Nocera, we should nevertheless be troubled by BP’s “fleecing,” if for no other reason than the disincentive BP’s experience offers to future defendants facing an onslaught of claims. Nocera credits BP with behaving honorably after the oil spill, setting up an out-of-court claims facility to get more than $6 billion quickly into the hands of injured property owners and businesses. “Yet its efforts to do right by the Gulf region have only emboldened those who view it as a cash machine,” Nocera said. “The next time a big company has an industrial accident, its board of directors is likely to question whether it really makes sense to ‘do the right thing’ the way BP has tried to.”
BP’s rock-star appellate lawyer, Theodore Olson of Gibson, Dunn & Crutcher, made a similar argument in a brief to the 5th Circuit Court of Appeals, which heard BP’s arguments for mercy earlier this week. BP went to the appeals court after U.S. District Judge Carl Barbier approved the class action administrator’s interpretation of how business economic losses should be calculated under the settlement. In the oil company’s view, Barbier and the administrator, Patrick Juneau, have essentially rewritten settlement terms to invite claims by businesses that suffered no losses attributable to the oil spill. The BP deal “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,” Gibson Dunn wrote. “Instead, it is poised to become an indelible black mark on the American justice system.
The 5th Circuit, based on the account of a Reuters reporter who attended this week’s hearing, seems reluctant to ride to BP’s rescue. If the appeals court declines to act, class action detractors will have an even more potent argument that corporate defendants are at the mercy of trial lawyers. To expand on Nocera’s point, the next big company contemplating a mass tort settlement will be even less likely to make a deal if it knows it won’t be bailed out by appellate judges.
With that hypothesis in mind, I thought it would be worth taking a quick look at why BP entered its class action settlement with oil spill claimants (and, of course, their lawyers), what BP got and gave up in the deal, where BP and the settlement administrator parted ways, and, most importantly, what the lesson of this settlement is for future defendants. From my read, the takeaway for the next mass tort defendant should not be “Don’t Settle.” Instead, it should be “Make ‘Em Prove It.”