BP Oil-Spill Settlement Approval Upheld by Appeals Court

BP Plc (BP/)’s $9.2 billion partial settlement over the 2010 Gulf of Mexico oil spill was upheld by an appeals court over the company’s protest that the deal wasn’t valid unless a claims-payment dispute was resolved in its favor.

The U.S. Court of Appeals in New Orleans yesterday also upheld a lower-court judge’s certification of the settling plaintiffs as a class and rejected arguments that the agreement couldn’t be approved because it inconsistently compensated victims with the same types of economic injuries.

BP originally supported class certification along with its settlement before arguing the agreement could be “salvaged” only if properly construed and implemented, the appeals court said. The plaintiffs meet the requirement for a class and certification can’t be blocked by the dispute over individual payments, which is being considered by a separate appellate panel, the court said.

“We cannot therefore conceive of why or how a formula for making voluntary payments under a settlement agreement could threaten the predominance of common questions over individual questions in litigation,” U.S. Circuit Judge W. Eugene Davis said in a 2-1 ruling. “Indeed the reason that BP has identified no authority for this proposition is that it is nonsensical.”

Blowout, Lawsuits

The decision allows the settlement to go forward, without requiring the two sides to negotiate a new agreement. It also may force BP to pay claims it contends are invalid if it loses the separate appeal to bar payments where losses can’t be linked directly to the spill.

The April 2010 Macondo well blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. The sinking of Transocean Ltd. (RIG)’s Deepwater Horizon drilling rig and the spill led to hundreds of lawsuits against BP and its partners and contractors.

U.S. Circuit Judge Emilio Garza disagreed with the court’s majority, saying he didn’t think BP’s accord was a proper class settlement because some members don’t have legally recognizable claims for actual spill damages.

BP's Options

“There must be a causal connection between the injury and the conduct complained of,” Garza said, citing a 1992 U.S. Supreme Court decision. Unless all class members are required to show their losses were actually caused by the spill, BP’s settlement is being used to “impermissibly extend the judicial power of the United States into administering a private handout program,” he wrote.

The London-based company is assessing its legal options and the further implications of the ruling, said Geoff Morrell, a BP spokesman.

“BP will continue to press its position on the proper interpretation of the settlement agreement’s provisions requiring a causal nexus between a claimant’s injury and the spill,” Morrell said in an e-mailed statement.

`Enormous Victory'

The company said in a Jan. 8 filing on the separate appeal on the claims interpretation that “the district court has allowed more than half a billions dollars in wrongfully paid awards to those lacking a causal nexus to the spill.” While payments for such claims are temporarily blocked by court order until the dispute is resolved, additional claims lacking direct ties to the spill are being filed weekly, BP said.

The “ruling is an enormous victory for the Gulf and an important step forward in ensuring that every eligible claimant is fully compensated according to the objective, transparent formulas spelled out in the settlement agreement that BP co-authored and agreed to,” Steve Herman and Jim Roy, the lead plaintiffs’ attorneys, said in an e-mailed statement.

The company settled with most private plaintiffs in March 2012, just before a non-jury trial was to begin on liability for the incident and on whether BP or its contractors, Halliburton Co. (HAL) and Transocean, acted with gross negligence.

Other Defendants

Last year, U.S. District Judge Carl Barbier conducted that trial in New Orleans for claims against BP that weren’t covered by the settlement and claims against other defendants. A second phase of the trial, over the size of the spill and efforts to contain it, ended in October and will be used to determine the amount of any damages. Barbier hasn’t made decisions on either phase.

The accord resolved economic-loss claims for multiple classes of businesses and property owners in Louisiana, Alabama and Mississippi and in parts of Texas 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 deep-water drilling moratorium prompted by the spill. It also didn’t cover claims by governments.

Cost Increases

BP initially valued the economic-loss settlement at $7.8 billion. It later revised that estimate to $9.2 billion, according to an Oct. 29 company regulatory filing.

Barbier gave final approval to the settlement in December 2012, certifying the case as a class action, or group lawsuit. Multiple groups of plaintiffs subsequently appealed, contending it couldn’t be a class action because all victims weren’t treated the same.

Brent Coon, a Texas lawyer representing more than 12,000 individual spill victims who objected to the accord, said he plans to ask a larger group of the appeals court’s judges to review the order upholding approval of BP’s deal. The court may choose to combine BP’s two settlement-related appeals, he said.

Fair Deal

“The other panel sent the agreement back to Barbier with the instruction that causation parameters must be clearly defined in the settlement agreement, and now this panel says you don’t have to do that,” Coon said in a telephone interview. “Something is going to have to come out to split the baby and decide who is right.”

BP’s appeal will “very likely” wind up before the U.S. Supreme Court, as it’s the “kind of case where the lower courts can’t even agree amongst themselves,” Coon said.

Lawyers for the Plaintiffs’ Steering Committee, who negotiated the agreement, said the accord was fair and complied with legal standards. The class as certified meets the requirement of commonality, Samuel Issacharoff, a lawyer for the committee, told the appellate court at a Nov. 4 hearing.

The claimants in the Deepwater Horizon case, “hundreds of thousands of them,” all have at least one thing in common, he said. “They all suffered as the result of the oil spill.”

BP, which supported the settlement when it was approved by Barbier, contended the class couldn’t be certified without a reinterpretation of which claims would be paid.

‘Irreconcilable Conflict’

The interpretation by claims administrator Patrick Juneau “creates an irreconcilable conflict among members of the class, which now includes both injured claimants seeking recovery for actual losses and uninjured businesses seeking utterly unjustifiable windfalls,” BP told the appeals court in August.

BP appealed Barbier’s affirmation of Juneau’s interpretation and a separate panel of the appeals court ordered a review in October. The judges told Barbier to stop some payments under the settlement until he can sort out who has legitimate claims.

BP filed a renewed request last month to stop certain payments after Barbier said the settlement didn’t require claimants to show their damages were directly tied to the spill. That appellate panel granted expedited review to BP last week.

No Injury

“Although BP made no objection to the district court’s order certifying the class and approving the settlement agreement, BP asks this court to find an intraclass conflict of interest because the claimants allegedly include persons and entities that have suffered no injury,” Davis said in yesterday’s ruling. “In support of this allegation, BP presents us with a series of economists’ declarations that had not been provided to the district court when the class was certified.”

The appeals court’s “previous decisions prevent us from considering this evidence for the first time on appeal,” he said.

The case is In re Deepwater Horizon-Appeals of the Economic and Property Damage Class Action Settlement, 13-30095, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

The lower-court case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 10-md-02179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporters on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net; Laurel Calkins in Houston at lcalkins@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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