NEW ORLEANS – A federal appeals court today heard arguments involving the administration of claims processing to individuals and businesses negatively affected by the 2010 Gulf of Mexico oil spill.
The expedited appeal was taken up in the U.S. Court of Appeals for the Fifth Circuit just a little over three months after defendant BP filed it on April 5.
At issue are claims by BP that the settlement process it agreed to in May 2012, which pays out settlements to businesses and individuals affected by the explosion of the BP-owned Deepwater Horizon oil rig, has been perverted to provide settlements over and above what those affected deserve in addition to being applied to businesses that were not affected by the spill.
BP originally estimated the settlement to be worth $7.8 billion to the plaintiffs, but the claims process has no cap and is expected to grow substantially if the current process is left in place.
Theodore Olson, a partner with Washington, D.C.-based Gibson, Dunn & Crutcher, represented BP at today's hearing.
Olson argued that BP had a right to appeal the settlement process despite orders not to by U.S. District Judge Carl Barbier who is overseeing the larger case on the oil spill in the U.S. District Court for the Eastern District of Louisiana. Barbier previously refused BP’s motion to put an emergency stop on the claims process until the issue could be straightened out.
“The district court has made it very clear that he does not want to hear any more arguments with respect to these issues," Olson said.
"We had no choice. We sought relief with this court in every means available to us to stop the hemorrhaging of cash, which is otherwise not going to be recoverable, potentially at least."
Olson claimed the interpretation of the settlement claims process was changed after its inception without BP’s knowledge.
“There was no evidence that my clients knew what was going on with respect to this event," he said. "In fact, this was an interpretation of the settlement agreement that was not shared with my clients at the time it was made for some reason. Then we found out about it."
The interpretation BP alleges the claims administrator approved did not take into account inflated income due to variable profits where businesses experience a greatly increased amount of business in a short amount of time.
Olson claims that the calculations allowing the increased income to be taken into account artificially inflated payments.
“There is no question about what the purpose was, to calculate that amount of profits lost during a claim period versus a benchmark period and the calculation between the difference between a comparable period,” he said.
Instead, Olson said claimants were allowed to report income over a shortened period of time that would result in a larger payout.
Samuel Issacharoff, a New York University School of Law professor, served as counsel for the class action plaintiffs at today's hearing.
In addition to defending the payment process, he also defended the inclusion of businesses that may not have been directly impacted by the oil spill.
“BP understood, to their credit, that they had destroyed the business environment of the Gulf," Issacharoff said. "It wasn’t just the toxic spill in the Gulf but it was the business environment throughout this region. So they decided they wanted all these claims off the table."
Judge Edith Brown Clement asked Issacharoff if the plaintiff class knew that businesses not directly impacted would be allowed into the settlement.
“Did you anticipate this feeding frenzy where people would come out of the woodwork not being able to prove oil spill related claims and that they would be approved?” she said. “I have a hard time understanding why that would be contemplated as part of the settlement why a person with no legal claim would get in line for a legal recovery.”
Issacharoff used an example he attributed to Halliburton, a co-defendant in the U.S. District Court case who declined to participate in the claims process, on Benton County, Miss. as why BP should have known they were going to make payments to businesses that may have not been directly affected by the oil spill.
“Benton County has no tourism industry, no seafood industry that I am aware of and says if you map this settlement on too, Benton County would qualify even though it is far from the Gulf, even though it is on the Tennessee border," he said. "And BP said ‘that is the settlement we want.'"
Clement said it did not matter if BP agreed to the claims process if its interpretation was flawed.
“It doesn’t make it legally correct," she said. "It doesn’t make it legally viable under the class action rules."
Attorney Rick Stanley represented claims administrator Patrick Juneau in court.
Juneau previously claimed he should be immune from the appeals process and that the case should not be heard by the court.
Stanley said that BP’s claims of excessive payments did not begin until Dec. 5, 2012 and that before that time they agreed with the payments.
“At the fairness hearing on November, BP told the district court that the settlement program was ‘working as anticipated’ and that Mr. Juneau should be allowed to ‘continue his excellent work,’” he said.
Stanley said although Juneau believes nothing had changed since the inception of the program that his office questioned the agreement in allowing businesses to use income over a short period of time for their claims rather than over a longer time period.
“If you use such a short time period, especially with the cash basis taxpayer, you were inevitably going to get that," he said. "In fact, what the accountants suggested was just use the variable profit margin instead of the expenses and revenues because I think they foresaw what would happen."
However, Stanley said it was not Juneau’s job to question the agreement, but only to follow court orders.
“Our position is that we will do whatever the courts tell us to do," he said. "We did not negotiate this deal we have no stake in the deal other than execute it as efficiently as possible."
At the end of the hearing Olson reiterated the importance of the appeal to the court.
“What this has come down to from our opponents is that jurisdictionally you can’t do anything about this situation,” he said.
“Your clients have been subject to a final interpretation that the district court has decided is unreviewable that is costing immense amounts of money, irreparable injury and you cannot do anything about it. That is inconsistent with what this court has decided again and again.”