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BP Can’t Stop Paying Seafood Workers Under Oil-Spill Deal

Feb. 26 (Bloomberg) -- BP Plc lost a bid to have a judge suspend about $1.3 billion in payments to seafood-industry workers who are part of the 2010 Gulf of Mexico oil spill settlement because of alleged improprieties by a lawyer involved in the accord.

U.S. District Judge Carl Barbier in New Orleans today rejected BP’s arguments that fraud allegations against Mikal Watts over his claims to represent more than 40,000 deckhands eligible to receive settlement monies should prompt a suspension of all payments.

BP sued Watts, an attorney with offices in San Antonio and Corpus Christi, Texas, over claims he lied about how many seafood workers were his clients. The company argued the alleged fraud tainted that portion of the $9.2 billion settlement of most private-party claims over the spill.

“I don’t want to hold up everyone else -- an entire program -- until we sort out your case against Mr. Watts,” the judge said today.

BP settled with most private plaintiffs in March 2012, just before a trial on liability for the disaster. BP initially valued the economic-loss accord at $7.8 billion. In a regulatory filing last year, it increased that amount to $9.2 billion. As part of the settlement, the London-based company set aside $2.3 billion for fishing interests harmed by the spill.

Fraud Probe

Today’s ruling comes as federal prosecutors investigate whether Watts fraudulently claimed to represent clients seeking payment under the settlement. A lawyer for Watts said last month there was a “ real, appreciable” chance the attorney would be indicted over the allegations.

“We don’t have a comment at this time,” about whether Watts faces indictment, Sheila Wilbanks, a spokeswoman for the U.S. Attorney’s Office in Jackson, Mississippi, said in a phone interview today. She added that the probe of Watts’s client list was continuing.

Geoff Morrell, a BP spokesman, said the company still maintains that Watts’s actions tainted the negotiations of the portion of the spill settlement covering seafood-industry workers.

‘False Representations’

“It is BP’s position that false representations by plaintiffs’ lawyer Mikal Watts to the court and to BP concerning his client list improperly increased the perceived value of potential seafood claims during settlement negotiations and resulted in an inflated $2.3 billion fund,” Morrell said in an e-mailed statement.

The April 2010 blowout of BP’s deep-water Macondo well off the coast of Louisiana killed 11 people and sent millions of barrels of oil into the Gulf of Mexico.

The worst offshore spill in U.S. history, it sparked thousands of suits 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 also pleaded guilty in January 2013 to 11 counts of felony seaman’s manslaughter, two pollution violations and one count of lying to Congress in connection with the Macondo well blowout and the firm’s response to the disaster.

The company agreed to pay $4.25 billion in related criminal and civil penalties and faces as much as $17 billion in potential fines in connection with alleged violations of the U.S. Clean Water Act.

Seafood Compensation

As part of the settlement of civil claims, BP set aside $2.3 billion for the seafood compensation program, aimed at commercial fishermen and other seafood workers directly affected by the spill.

About $1 billion of the funds earmarked for that program were distributed in a first round of payments designed to cover the industry’s actual losses from the spill, according to court filings. The remainder of the fund was to be distributed during the first quarter of this year to compensate for projected future losses, according to lawyers for the fishermen.

Lawyers for spill victims said BP’s request to shut off the seafood payments would have penalized claimants who had nothing to do with the flap over Watts’s clients.

“They want to hold back $1.2 billion from people who are innocent,” Jim Irwin, a lawyer for spill victims, said at the hearing.

BP Duped?

Kevin Downey, one of BP’s lawyers, countered that a group of plaintiffs’ lawyers overseeing settlement claims in the seafood portion of the deal at one point estimated Watts’s cases as being worth more than $1 billion. That raised questions about whether BP was duped into agreeing to pay more than it should have, Downey said.

“BP has overwhelmingly demonstrated Mr. Watts has committed a fraud,” the company’s lawyer said.

Barbier said at the end of today’s hearing that a suspension of payments under the seafood component of the settlement was unnecessary because the second round of payments is months away.

At today’s hearing, the judge also ordered BP not to pursue its fraud suit against Watts until the criminal investigation is finished.

The cases are BP Exploration & Production Inc. v. Watts, 13-cv-06674 and In Re: Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

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

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