In BP's Oil-Spill Saga, a Court Triumph It Might Regret

A controlled burn near the source of the BP Deepwater Horizon oil spill in the Gulf of Mexico on July 15, 2010 Photograph by Derick E. Hingle/Bloomberg

In the sprawling litigation over the 2010 Gulf of Mexico oil spill, BP won a potentially important round in the federal appeals court in New Orleans. Now we’ll see whether the British oil giant’s victory pays off in the federal trial court—and it just might backfire.
The U.S. Court of Appeals for the Fifth Circuit in New Orleans yesterday blocked certain spill-settlement payments for private business claims that BP had alleged were exaggerated or “fictitious.” The ruling amounted to a rebuke of U.S. District Judge Carl Barbier, who had appointed and vigorously defended the claims administrator. Billions of dollars are ultimately at stake.
Ordering Barbier to reconsider the situation, the Fifth Circuit issued an implicit warning to the trial judge. “The district court 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 appeals court said. “If the administrator is interpreting the settlement to include such claimants, the settlement is unlawful.”
BP applauded the ruling: “Claimants should not be paid for fictitious or wholly nonexistent losses,” spokesman Geoff Morrell wrote in an e-mail. “We are gratified that the systemic payment of such claims by the claims administrator must now come to an end.”
As Bloomberg Businessweek has reported—for example, in this cover story—the business claims settlement had generated a feeding frenzy in the gulf region, with plaintiffs’ lawyers openly soliciting clients whether or not they could link their supposed losses to the devastating 2010 spill. Moreover, a court-appointed investigator found evidence of out-and-out corruption by some senior employees of the claims-payment operation. Still, Judge Barbier insisted that BP continue to pay contested claims. The Fifth Circuit’s action forces Barbier to reconsider, this time knowing that the appeals court is skeptical of what has transpired.
Here’s how this interim win could blow up on BP: The Fifth Circuit’s second-guessing, done at BP’s behest, constitutes a public embarrassment for Barbier. Yet he has pending before him far more than the contested business claims. Barbier is also presiding over a complicated trial in which the federal government is seeking $17 billion or more in Clean Water Act penalties from BP. In other words, Barbier is just about the last judge on earth that BP should want to anger at this juncture.
BP’s attorneys are very much aware of the risk. Their client thinks the gamble is worth taking. In a sense, BP, even as it has complained in the past about Barbier’s judgment, is implicitly expressing confidence in his ability to set aside any irritation he might feel over the Fifth Circuit ruling and treat the company fairly in the pending Clean Water Act trial.

So far, BP has paid out some $26 billion in cleanup costs and claims related to the spill and rig explosion, which killed 11 men and sullied much of the gulf region. In regulatory filings, BP has acknowledged that it expects to have to pay billions more via settlements and, possibly, court judgments. The question is how much more—and Judge Barbier is going to have a lot of influence over how that question gets answered. 

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