Oct. 3 (Bloomberg) -- BP Plc persuaded an appeals court to order a re-examination of key terms of the 2010 Gulf of Mexico oil-spill settlement that the company said could have cost it billions of dollars in improper payouts.
BP said the program’s administrator, Patrick Juneau, was approving millions of dollars in “fictitious” payments to businesses for economic losses based on what BP called a flawed interpretation of the agreement reached with spill victims’ lawyers in 2012.
The U.S. Court of Appeals in New Orleans yesterday sent the dispute back to the trial judge for further consideration. The appellate panel also ordered U.S. District Judge Carl Barbier to review his interpretation of some of the accord’s terms. The appellate panel ordered Barbier to stop some payments under the settlement until he can sort out who has legitimate claims.
“This decision throws a huge monkey wrench into the settlement and it could well save BP hundreds of millions in settlement payments,” Carl Tobias, a law professor at the University of Richmond who studies and teaches about the federal judiciary, said in a phone interview. “It’s going to create a real mess.”
BP rose as much as 2 percent in London trading, the biggest intraday gain in almost three months, and closed up 1.1 percent at 437.15 pence.
“This is the best news BP has had out of the U.S. legal system in a while,” said Jason Gammel, an analyst at Macquarie Capital Europe Ltd. in London. “If payments can be stopped to those who didn’t suffer direct losses from the spill, it has to be seen as a positive for the company.”
Barbier ruled in March that Juneau was interpreting the contract properly. In April, he dismissed BP’s lawsuit against the administrator and rejected a request to bar certain payments while the company appealed his ruling. The appeals court yesterday upheld Barbier’s dismissal of BP’s suit against Juneau, while sending back his other rulings.
“Today’s ruling affirms what BP has been saying since the beginning: claimants should not be paid for fictitious or wholly non-existent losses,” Geoff Morrell, a company spokesman, said yesterday in an e-mailed statement.
The divided U.S. Fifth Circuit Court of Appeals panel ordered Barbier to reevaluate complex accounting issues underlying some settlement claims and to halt some payments until that review is complete, according to the 67-page ruling.
Judges Edith Clement and Leslie Southwick concluded the settlement should be sent back to Barbier for further review. Judge James Dennis dissented, saying the trial judge’s interpretation of the disputed terms should be upheld.
Settlement administrator Juneau’s interpretation of the accounting terms targeted by BP were “completely disconnected from any reasonable understanding of calculation of damages,” Clement and Southwick said in the majority decision.
“The Fifth Circuit just gave BP a get-out-of-jail-free card, and a ruling that says you don’t have to live by the settlement you negotiated,” said David Berg, a lawyer in Houston who has litigated environmental claims. He isn’t representing clients in the BP settlement.
Today, Barbier ordered Juneau to temporarily suspend payments on the disputed categories of business-economic loss claims until he and lawyers for both sides craft the “appropriate narrowly tailored preliminary injunction” required by the appeals court ruling. He asked lawyers to meet with him behind closed doors on Oct. 11 to discuss the case, according to court records.
BP initially valued its economic-loss settlement at $7.8 billion. The company increased its estimate to $9.6 billion in regulatory filings, citing the interpretation by the claims administrator.
“We’re pleased the vast majority of class members will continue to be paid in a timely and expeditious manner,” Steve Herman and Jim Roy, the lead lawyers for the plaintiffs’ steering committee, said in an e-mailed statement. “We look forward to working with the claims administrator and the court to determine the best way to get the affected claims processed and paid as soon as possible.”
Juneau said yesterday he’ll await the outcome of Barbier’s re-evaluation of the settlement terms before pushing ahead with payments.
“As the court-appointed claims administrator, it’s my job to implement this settlement agreement as directed by the court,” the Lafayette, Louisiana-based lawyer said in an e-mailed statement. “This is what we will do.”
The appeals court sent the case back to Barbier for “a more thorough factual record,” Joe Rice, a South Carolina-based plaintiffs’ attorney who helped negotiate the BP settlement, said in a phone interview. “We’ll have to see how Judge Barbier responds.”
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 as Transocean Ltd., owner of the Deepwater Horizon drilling rig that burned and sank, and Halliburton Co., which provided cement services for the well.
BP reached a settlement with most private plaintiffs in March 2012, just before a trial on liability for the incident was to begin.
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 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 began this week to determine the size of the spill and evaluate efforts to contain it.
BP contended in court papers that Juneau’s interpretation of the settlement resulted in the company paying “baseless awards” that weren’t contemplated in the agreement, according to a May 3 appellate filing.
BP protested Barbier’s decision to allow businesses to seek to recoup losses based on their own accounting, without requiring matching of revenue with expenses. That led to awards unrelated to injuries, such as a $21 million payout to a rice mill 40 miles from the coast, BP’s lawyers argued. They noted the mill’s revenue rose the year of the spill.
Under the accord, claims payments are based on a numerical formula, primarily depending on distance from the spill, using sample periods before and after the event. Businesses haven’t had to prove direct impact or a link to it.
They have been assumed to have suffered because of the spill’s regional economic effects, according to court filings.
“Stop the hemorrhaging of cash,” Theodore Olson, a BP lawyer, asked the appeals court at a July 8 hearing. “Irreparable injuries are taking place, and monies are being dispensed to parties from whom it will unlikely be recoverable.”
Clement said in the decision that she believed Barbier had “no authority to approve the settlement of a class that included members that had not sustained losses at all, or had sustained losses unrelated to the oil spill, as BP alleges.” The judge didn’t persuade her colleagues to join that part of the decision.
The panel’s majority concluded that Barbier must fashion a “tailored stay,” or payment halt, to avoid paying improper claims while he reviewed the disputed accounting terms.
“The interests of individuals who may be reaping windfall recoveries because of an inappropriate interpretation of the settlement agreement and those who could never have recovered in individual suits for failure to show causation are not outweighed by the potential loss to a company and its public shareholders,” the majority said.
Berg said the majority ruling may prompt Barbier to take a more restrictive view of the settlement’s terms and that could save BP millions.
The judge “will have to find a way to make it more equitable to BP and put a limit on what BP has to pay,” the lawyer said. “Victims who can prove their losses were actually related to the spill will still be compensated. But it will be harder.”
The appeal is BP Exploration & Production Inc. v. Deepwater Horizon Court-Supervised Settlement Program and Patrick Juneau in his official capacity, 13-30315, 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).
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