By July 8, 2013 0 Comments Read More →

BP to Ask Court to Reject Costly View of Oil Spill Deal

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BP Plc (BP/) has billions of dollars in the balance as it asks a U.S. appeals court to reject a claims administrator’s interpretation of the company’s partial settlement over the 2010 Gulf of Mexico oil spill.

The company contends 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. These interpretations have already prompted the company to add hundreds of millions of dollars to the estimated $7.8 billion cost of the settlement and may force it to pay billions of dollars more than expected, BP said in court papers.

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. Photographer: Derick E. Hingle/Bloomberg

A three-judge panel of the U.S. Court of Appeals in New Orleans is scheduled today to hear BP’s arguments seeking to reverse a lower-court ruling and rein in Juneau.

“BP feels aggrieved and this is their last shot,” said Peter Hutton, an analyst at RBC Capital Markets inLondon. “If they can’t get what they see as due process, it will have implications for their confidence doing business in the States.”

U.S. District Judge Carl Barbier in New Orleans in March ruled that Juneau is interpreting the contract properly. In April he dismissed BP’s lawsuit against Juneau and rejected a request for an injunction barring certain payments while the company appealed his March order.

Contingency Funds

An adverse ruling by the appeals court 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.

“We are asking the Fifth Circuit to follow established legal principles of contract law and interpret the agreement as written and intended: paying only those claimants who suffered actual losses,” Geoff Morrell, a BP spokesman, said in a statement before today’s hearing, referring to the appeals court.

“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,” Morrell said.

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.

‘Buyers’ Remorse’

“Simply put, BP has buyers’ remorse because it guessed wrong on the cost of a deal, which it — for nearly two years — negotiated, co-authored, agreed to and sought court approval of,” co-lead attorneys Stephen Herman and James Roy said in an e-mailed statement.

“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,” they said. “The notion that BP is somehow trying to portray itself as a victim is preposterous.”

Nick Gagliano, spokesman for the Deepwater Horizon Claims Administration, didn’t immediately respond to a phone or e-mail message seeking comment on behalf of Patrick Juneau.

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, as well asTransocean Ltd. (RIG), owner of the Deepwater Horizon drilling rig that burned and sank, and Halliburton Co. (HAL), which provided cement services for the well.

2012 Settlement

BP reached a settlement with most private party plaintiffs in March 2012, postponing a trial on liability for the incident that was about 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 ofTexas 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.

‘Baseless Awards’

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 revenues 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 general economic effects across the region, according to court filings.

Warning Letters

BP has sent letters to plaintiffs’ lawyers warning them, that if the appeals court rules in its favor, it expects the claims administrator to seek “to recover all excessive claims payments” made by the program. The company “reserves whatever rights it may have to pursue any legal method to recover such overpayments,” according to a letter sent last month.

The BP settlement was a compromise, with plaintiffs giving up the right to sue over losses for future years as well as the chance to seek punitive damages, said attorney Joe Rice, a lead negotiator for the victims. BP should have been aware that the price tag was higher than its estimate, he said.

“I personally told BP they were making a mistake putting out the $7.8 billion figure,” he said. “There was no basis for it.” Rice has sent out letters to clients advising that “it is very unlikely” that either Juneau or the court “would seek or compel a claimant to return funds” already paid.

BP faces long odds in winning its appeal, said Anthony Sabino, a law professor at St. John’s University in New York who specializes in complex litigation. The appeals court can review the contract “de novo,” or with fresh eyes, rather than giving deference to Barbier’s decision, Sabino said.

Review Undercut

This de novo review “is undercut by the fact that the settlement must be read in accordance with its plain meaning,” he said in an e-mail. “The settlement says what it says. Can you reasonably expect the 5th to give it a strange and new reading far different from what Barbier has already said?” he asked.

“BP wants the Fifth Circuit to amend a settlement it willingly signed,” Sabino said. “That did not fly with Judge Barbier, and it’s unlikely to fly with the Fifth Circuit.”

 

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