Here’s a law-school exam question:
A court-supervised multibillion-dollar pollution settlement leads to serious allegations of corruption. A federal judge appoints a former FBI director as “special master” to investigate. But the judge orders the defendant company to continue paying claims while the investigation is under way. Discuss.
It’s not a hypothetical. U.S. District Judge Carl Barbier of New Orleans today ordered BP (BP) to continue paying claims related to the 2010 Gulf of Mexico oil spill—the recent pace of payouts has been tens of millions of dollars a week—even though the judge has brought in ex-FBI chief Louis Freeh to probe whether the claims process is infected by fraud. Barbier rejected a BP motion suggesting a temporary suspension of payments while Freeh, who is also a former federal judge, gets to the bottom of whether officials with the spill-claims facility took kickbacks. BP has alleged that the facility has paid “fictitious” claims. Two officials with the facility have been fired in recent weeks as a result of the controversy.
Barbier acknowledged during a court hearing that improprieties may have occurred. According to the Wall Street Journal, he said that protections built into the claims-review system would make it difficult for individuals to distort payouts. “We would have to imagine some grand conspiracy over there involving dozens of people,” Barbier said.
“BP is disappointed in the District Court’s ruling,” company spokesman Geoff Morrell said via e-mail. “We continue to believe that a temporary pause of all claims payments is prudent and necessary during Judge Freeh’s investigation into allegations of corruption within the claims program. There is a material risk that payments going out the door have been and continue to be tainted by possibly fraudulent or corrupt activity, and BP should not be forced to bear the risks of improper payments pending the outcome of Judge Freeh’s investigation.”
BP has already paid out a total of about $30 billion for oil cleanup, private damages claims, and penalties related to a criminal plea bargain with the federal government. The April 2010 blowout of the deepwater Macondo well killed 11 men and led to the release of what the government has estimated at more than 4 million barrels of crude—a disaster of historic proportions that sullied beaches and closed businesses throughout the region.
Some observers who cheered Barbier’s ruling said the British-based oil giant should have to pay much more. “BP’s attempt to delay payments is an affront to the people of the Gulf, and represents one more broken promise from the company responsible for the greatest oil disaster the area has ever seen,” Stephen Teague of the Mississippi Center for Justice said via e-mail. “More than three years after the explosion, thousands of people are still struggling to put their lives back together; these are hardworking people whose livelihoods were sent into a tailspin in the wake of the disaster. BP has spent millions of dollars on a PR campaign claiming it is committed to fully restoring Gulf communities, but is now investing millions more trying to convince the public and the courts it can’t pay hardworking Coastal residents restitution they are owed to get back on their feet.” Teague works on spill-recovery claims as part of the regional Gulf Justice Consortium.
In a recent Bloomberg Businessweek cover story, I reported on how the Gulf claims process had devolved into a frenzied money grab driven by plaintiffs’ lawyers. Shortly after that article ran, Judge Barbier appointed Freeh, who specializes in internal investigations of institutional scandal. I then predicted:
Freeh, no slouch in the forensic-detecting department, will discover what Pentagon planners call a target-rich environment. Consider one plaintiffs’-lawyer solicitation letter I excerpted in the magazine piece: “The craziest thing about the settlement,” the attorney in question wrote to potential clients, “is that you can be compensated for losses that are UNRELATED to the spill.” (Emphasis in the original.)
Barbier’s decision to allow the claims process to continue simultaneously with the Freeh investigation only underscores the strangeness of the situation and invites speculation that BP is experiencing Cajun-spiced hometown justice.