NEW ORLEANS – Adam Hoeflich can’t predict if the U.S. Court of Appeals for the Fifth Circuit will side with BP in its dispute with plaintiffs over the settlement in the Deepwater Horizon oil spill multidistrict litigation.
However, Hoeflich, a partner in the Chicago office of Bartlit, Beck, Herman, Palenchar & Scott, who represents U.S. and international companies in mass torts, purported class actions and other complex commercial matters, can predict what will happen if the appeals court rules against the oil company.
He contends that if the Fifth Circuit doesn’t step in and stop payouts to uninjured plaintiffs, it will deter companies from entering into claims-made settlements. In the future, they will fight harder to avoid compensating plaintiffs at the outset of cases. And if they do decide to settle, they will demand a cap on payments.
“If the systemic goal is to convince companies to pay compensation and resolve matters early, then you hope and expect the court will step in if there are hundreds of millions of claims, if not more, being paid out to people who aren’t injured,” Hoeflich said.
In December 2012, U.S. District Judge Carl Barbier of the U.S. District Court for the Eastern District of Louisiana approved the settlement, which seeks to resolve claims from individuals and businesses who suffered economic injuries after an explosion on a BP-operated oil rig dumped millions of barrels of oil into the Gulf of Mexico. The 2010 accident also killed 11 workers.
In April, BP filed an appeal before the Fifth Circuit, alleging that claims administrator Patrick Juneau was misinterpreting the settlement and mishandling the costly business economic loss claims. BP had asked Barbier to issue a preliminary injunction against the claims administrator, but the district judge denied the request.
BP originally estimated it would pay around $7.8 billion to resolve business economic loss claims. The company now argues that since there is no limit on the amount of the total settlement, and since Juneau has compensated plaintiffs for losses unrelated to the oil spill, it faces drastically higher settlement costs.
Edward Sherman, a professor at Tulane University Law School in New Orleans, who teaches complex litigation, has followed the entire case, including the July 8 arguments between BP lawyer Ted Olson and plaintiffs’ lawyer Samuel Issacharoff before the Fifth Circuit.
He contends that BP faces an uphill battle in its appeal. As the appellant, the company bears the burden of proving that Barbier’s previous ruling over the settlement was an error.
“The Fifth Circuit has a good deal of confidence in Judge Barbier,” Sherman said. “He’s taken this very complex piece of litigation through a couple of years, and he’s been upheld on many of the issues. He wrote a good opinion as to why he was upholding Special Master Pat Juneau’s approach to the claims process.”
In Sherman’s opinion, Judge James Dennis appeared critical of BP. He said it was harder to determine how the other two judges on the three-judge panel felt during the arguments.
Sherman declined to predict how the Fifth Circuit will rule in the appeal. However, he contends that since BP objects to the handling of plaintiffs’ claims, a win for the company would result in the revision of settlement criteria and a decrease in their estimated payouts.
Hoeflich, who has also been following the Deepwater Horizon oil spill MDL, agrees that it’s difficult to determine from oral arguments how judges will decide a case.
“The Fifth Circuit is a very careful circuit comprised of excellent federal judges,” he said. “Whether they will come out on this one in the same way I would, that I can’t tell you.”
He explains that more significantly, the entire settlement process could change as a result of this appeal. As an example, he points to the unanticipated outcome of the fen-phen diet drug settlements from the late ’90s. The drug companies initially agreed to pay $3.75 billion in compensation to plaintiffs who used the drugs before they were linked to heart valve disease. However, their settlement costs eventually reached more than $20 billion.
“No one was willing to do what the diet drug defendants had done,” Hoeflich said. “That led to different systems.”
“If you’re the next defendant coming along, you’re not going to bet your career telling your company to step up to the plate and pay money that early,” he added. “You’re going to want some sort of a cap system so you limit your exposure.”
Sherman expects the Fifth Circuit to issue its opinion soon, especially since the judges seem to recognize the importance of determining whether the claims process can move forward.
He also suggests that in the long run, the BP appeal over the settlement agreement “is actually a fairly small item.” He said Juneau’s office has so far paid out less than $2 billion in business economic loss claims. That figure may seem insignificant after the district court turns to the second phase of the trial in September.
“At stake there are the government civil penalties that will go to pay for Gulf Coast restoration,” Sherman said. “They could be as high as $20 billion. This is an important matter, the claims process, but it’s not as large as what really is ahead for BP.”
BP is also awaiting a decision in the first phase of its trial, which will determine whether the oil giant and other companies acted with willful or wanton misconduct or reckless indifference.
Hoeflich points out that many companies are not only watching the BP appeal, but the entire Deepwater Horizon oil spill MDL, to see how they should handle their own litigation in the future.