BP Plc (BP/), with billions of dollars at stake, seeks to lower payments from its partial Gulf of Mexico oil spill settlement by persuading a federal appeals court to order stricter standards for evaluating claims.
The administrator, Patrick Juneau, is approving millions of dollars in “fictitious” payments for business losses based on what BP believes is a flawed interpretation of the agreement reached with victims’ lawyers in 2012, according to BP.
“Stop the hemorrhaging of cash,” Theodore Olson, a BP lawyer, told a three-judge panel of the U.S. Court of Appeals today in New Orleans, urging the judges to reverse a lower-court ruling and rein in Juneau. “Irreparable injuries are taking place, and monies are being dispensed to parties from whom it will unlikely be recoverable.”
The company already has been forced to add hundreds of millions of dollars to the estimated $7.8 billion cost of the settlement and may have to pay billions more than expected, BP said in court papers.
An attorney for the plaintiffs, Samuel Issacharoff, told the panel today that London-based BP was aware as early as April 2012 of the method that would be used and the likely results.
Both sides conducted tests of the business economic loss framework in the settlement in June 2012 and “the parties came up with virtually the same results,” he said.
BP underestimated the price tag, Issacharoff told the judges. “They costed it out in a way we thought was erroneous from the very beginning.”
U.S. Circuit Judge Edith Brown Clement asked Olson about the arguments that BP knew about problems with the payout formula and didn’t object until after a November fairness hearing seeking approval of the settlement.
“There is no evidence and no reason why BP would allow this to go on, the hemorrhaging of billions of dollars,” Olson replied.
Clement asked Issacharoff, the lawyer for the plaintiffs, to address BP’s contention that the current formula for oil spill damage awards will now result in “people coming out of the woodwork” to file claims.
“BP wanted peace,” Issacharoff said. The company realized there would be questionable claims among the hundreds of thousands of requests for damages when they agreed to the settlement, he said.
“BP understood -- to its credit -- they destroyed the business environment of the Gulf,” Issacharoff said. The company agreed to a class-action settlement “because they wanted global peace,” he said.
Juneau informed BP in September 2012 that the claims included so-called false positives, or damages that weren’t necessarily connected to the spill, Juneau attorney Richard Stanley said at today’s hearing.
BP responded at the time that “false positives” were expected, Stanley said. BP is now calling the claims “false and fictitious,” he said.
The panel didn’t indicate when it will rule.
Peter Hutton, an analyst at RBC Capital Markets in London, said the company “feels aggrieved, and this is their last shot.”
“If they can’t get what they see as due process, it will have implications for their confidence doing business in the States,” Hutton said before today’s oral arguments.
U.S. District Judge Carl Barbier in New Orleans in March ruled that Juneau is interpreting the contract properly. He dismissed BP’s lawsuit against Juneau in April and rejected a request for an injunction barring certain payments while the company appealed.
An adverse appeals court ruling would have financial implications, Hutton said. If BP has to pay billions more than expected, “it would take up much of their contingency funds and leave them little to spare,” he said in an interview.
“Not only is the claims administrator’s misinterpretation contrary to the plain language of the settlement agreement and the intent of the parties, but it has ignited a feeding frenzy among trial lawyers attempting to secure money for themselves and their clients that neither deserves,” Geoff Morrell, a BP spokesman, said in a statement before today’s hearing.
BP’s original estimate of a $7.8 billion price tag was too low and Juneau isn’t misinterpreting the contract, according to the lawyers suing over the spill.
“The settlement agreement states in explicit, painstaking detail -- and was confirmed multiple times by BP -- that if a claimant has a loss as defined by the agreement’s objective formulas, that loss was caused by the spill,” co-lead attorneys Stephen Herman and James Roy said in an e-mailed statement. “The notion that BP is somehow trying to portray itself as a victim is preposterous.”
The blowout of BP’s deep-water Macondo well off the coast of Louisiana in April 2010 killed 11 people and sent more than 4 million barrels of oil spewing into the Gulf of Mexico. The accident sparked hundreds of lawsuits against BP (BP/), as well as Transocean Ltd. (RIG), owner of the Deepwater Horizon drilling rig that burned and sank, and Halliburton Co. (HAL), which provided cement services for the well.
BP reached a settlement with most private plaintiffs in March 2012, just before a trial on liability for the incident was to begin.
The settlement resolved economic loss claims for multiple classes of businesses and property owners for all of Louisiana, Alabama and Mississippi and parts of Texas and Florida. It excluded claims of financial institutions, casinos, private plaintiffs in parts of Florida and Texas, and residents and businesses claiming harm from the Obama administration’s moratorium on deep-water drilling prompted by the spill. Barbier gave final approval to the settlement in December.
Barbier conducted a two-month nonjury trial this year beginning in February on fault and whether BP or its subcontractors acted with gross negligence. A second trial phase is set for September to determine the size of the spill and evaluate efforts to contain it.
BP contends in court papers that Juneau’s interpretation of the settlement has resulted in the company paying “baseless awards” that weren’t contemplated in the agreement, according to a May 3 appellate filing.
BP is protesting Barbier’s decision that allows businesses to submit claims for losses based on their own accounting, without requiring matching of revenue with expenses. This has led to awards for claims unrelated to injuries sustained, such as a $21 million payout to a rice mill 40 miles from the coast whose revenue rose the year of the spill, BP contends.
Under the settlement, the payments for claims are based on a numerical formula, primarily depending on distance from the spill, using sample periods before and after the event. Businesses that claim losses don’t have to prove direct impact or a link to it.
They are assumed to have suffered because of the spill’s regional economic effects, according to court filings.
“This is a straightforward question of contract interpretation,” Olson, of Gibson Dunn & Crutcher LLP (1128L), told the appellate judges today.
Olson, who was U.S. Solicitor General under President George W. Bush, began to describe a formula for calculating payouts for claims of business lost to the oil spill when U.S. Circuit Judge James L. Dennis interrupted him.
“Aren’t you just taking individual words out of the settlement and constructing them in a scheme that you would like?” Dennis asked the BP lawyer. The judge said BP had “several chances” to dispute the payout formula used by Juneau and didn’t object until December 2012. “How can we go beyond the four corners of the agreement?”
U.S. Circuit Judge Leslie A. Southwick expressed reservations about BP’s alleged failure to object to the controversial formula in an October 2012 conference call between the parties.
“One of the things that concerns me is this Oct. 2 conference call and your client had numerous chances” to object but didn’t protest the formula, she said.
“I submit my client had no idea what was going on,” Olson said, referring to the formula resulting in expensive payouts to allegedly bogus claims. BP wouldn’t have agreed to such a scheme, he said.
The appeal is BP Exploration & Production Inc. v. Deepwater Horizon Court-Supervised Settlement Program and Patrick Juneau in his official capacity, 13-30315, U.S. Court of Appeals for the Fifth Circuit (New Orleans). The lower court case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 10-md-02179, U.S. District Court, Eastern District of Louisiana (New Orleans).
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