NEW ORLEANS – A special investigator appointed to root out wrongdoing in the Deepwater Horizon claims program has identified nearly $8 million in fraudulent claims payments he maintains should be returned, yet the judge overseeing the historic case has yet to approve most of the clawbacks.
Ex-FBI director Louis Freeh, who was appointed by U.S. District Judge Carl Barbier two years ago to investigate fraud in the Deepwater Horizon oil spill settlement, has brought 14 separate clawback cases to court. However, while Freeh has turned up numerous cases of alleged fraud, Barbier has only ordered repayment in one occasion, even after law firms representing those accused of fraud have have routinely and voluntarily returned legal fees they received in such instances without prompting by the court.
Freeh’s office reports five other clawback cases were resolved without formal motions being filed.
Meanwhile the Plaintiffs’ Steering Committee (PSC), a group of 17 attorneys serving as class counsel representing the hundreds of thousands of claimants, has opposed Freeh’s attempts to proceed with clawback motions. In a October 2014 letter to the court, PSC member Steve Herman requested Barbier to not treat those who file fraudulent claims as criminals.
“The purpose is not to ‘catch’ people, but to validate legitimate settlement program claims,” Herman’s memo said.
Herman’s firm represented one of the more egregious instances of fraud alleged by Freeh, that of Buras fisherman Kim Champlin who received a $250,000 claim based on statements that he supported his family – including some that live over a five-hour drive away in Pensacola, Fla. – through fishing and that they consumed over 10,000 pounds of seafood each year.
While most law firms have agreed to return legal fees after clawback requests are filed with the court, others have not.
Freeh’s first clawback demand, which is the only claim Barbier’s court has ordered returned, involved Casey Thonn, a Slidell shrimper who pleaded guilty to wire fraud in criminal court after receiving a $327,000 settlement. Freeh said Thonn based his claim on false income tax documents he never filed with the IRS. Earlier this year, Barbier ordered Thonn’s attorneys, the Andry Lerner law firm of New Orleans, to return $20,182.50 to the settlement fund.
However, the Andry Lerner law firm is appealing Barbier’s clawback order, saying the judge overstepped his authority in demanding repayment.
“[I]t is the position of Andry Lerner that existing case law does not authorize the Court to enter a judgment requiring Andry Lerner to return its earned fees in the absence of an express finding that Andry Lerner participated in the asserted fraudulent act,” an opposition motion filed in court by the Andry Lerner law firm said.
Andry Lerner is also opposing Freeh on a separate clawback demand involving a different client.
Of the 14 clawback requests, at least four are aimed at clients of PSC firm Faegre Baker Daniels. The Minneapolis-based law firm jumped into the fray to represent Deepwater Horizon claimants shortly after the oil spill and has fought back against at least one clawback claim. In March, Faegre Baker Daniels partner Craig Coleman sent a letter to Freeh saying a $187,000 claim received by commercial shrimper Vernon Alfonso Jr., who is accused of submitting fraudulent tax forms and lying to investigators under oath, was an honest mistake and not fraud.
“Because Mr. Alphonso was overpaid as a result of a mistake rather than an intentional misrepresentation, we continue to believe that such a recalculation offers the appropriate resolution of this matter,” Coleman wrote.
Faegre Baker Daniels, which received $46,000 in legal fees from Alphonso’s claim, has called the court sanctions too harsh and requested the claim be recalculated using the correct income data. The firm cited a policy of not commenting on pending litigation when contacted about this story.
Similarly, in a June 6 motion, sent by Herman in lieu of comment for this story, the PSC requested Barbier give claimants accused of wrongfully inflating their damages a chance to modify their claims after the fact, rather than face a zeroed out claim and possible federal criminal fraud charges.
“To deny the class member all compensation to which he or she is entitled under the Settlement Agreement, rather than providing him with notice and a reasonable opportunity to correct, amend, supplement or otherwise explain a discrepancy in the documentation, is contrary to the nature, spirit, intent, and actual terms of the Settlement Agreement, the Seafood Compensation Program, and the Claims Administrator’s stated Policies,” the motion says.
In addition, the PSC asked Barbier to keep confidential the identities of those alleged of fraud until the court established wrongdoing.
“Following a formal judicial determination that a ‘fraud’ has, in fact, been committed, we could understand the Court potentially identifying the Claimant in its findings or other subsequent pleadings,” the motion says.
Most of the 14 fraud cases Freeh has pursued involved the manufacture of falsified IRS documents. According to Freeh’s reports, the use of false tax documents were created solely to obtain a settlement and were never actually filed with the IRS make it easier to determine if the settlement claims were fraudulent.
In some cases, Barbier’s failure to rule may have a bearing on just how much ill-gotten proceeds the settlement fund may be able to recover. For example, last week, Barbara J. Stokes, of Huntsville, Ala., who is accused of falsely representing a loan as income to fraudulently obtain a $2.1 million settlement, wrote a letter to the court saying she no longer has the money.
Another recent clawback order involves the $3.16 million payment to a Texas man, Victor Tran, who was actually serving prison time on fraud charges at the time of the oil spill. According to Freeh, Tran who was imprisoned following a 2009 conviction related to a fictional hurricane damage claim, filed Deepwater damage claims for two Port Arthur, Texas seafood processing plants were no longer even in business at the time of the oil spill.
Barbier did not respond to a request for comment.