The sideshow of BP’s (NYSE:BP) civil trial in the district court in New Orleans has shown the company’s efforts to convince Judge Carl Barbier to tighten the standards by which the court-appointed administrator Patrick Juneau evaluates compensation claims made by the individuals and business harmed by the 2010 Gulf of Mexico oil spill.
In May 2012, BP and the lawyers for the individuals and businesses harmed by the Deepwater Horizon disaster reached an accord to settled the class action lawsuit. Instead of the $20-billion fund created by BP, the agreement called for the court to administer the compensation payments to those Gulf Coast residents who endured the months-long oil leak that befouled beaches, killing wildlife, and disrupting the economies of their states. At that time, the company — which had already paid more than $6 billion from the original fund to about 200,000 individuals and businesses — estimated that payouts related to plaintiffs’ claims would cost just $7.8 billion.
By July, the company’s estimate rose to $9.6 billion. In its second-quarter results, the oil producer revealed that restitution-related costs grew by $1.4 billion, leaving the $20 billion fund set up to compensate oil spill victims close to exhausted. Just $300 million remains. The company has said any future restitution payments would be deducted straight from earnings, according to Reuters.
In an interview with Bloomberg Businessweek, BP Chief Executive Officer Robert Dudley noted that the results of the settlement have been strange. But finally the company has won a measure of legal reprieve. In a 2-1 decision on Wednesday, the 5th U.S. Circuit Court of Appeals in New Orleans directed Barbier — who had approved of Juneau’s evaluation methods back in March — to reexamine the administrator’s payout formula.
The court also told the judge to halt payments on claims that do not meet stricter standards. BP’s assertion that the payout formula had been unduly generous was supported by Circuit Judge Edith Brown Clement, who explained her decision by writing in her ruling that “there is no need to secure peace with those with whom one is not at war.”
“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,” she added, according to Reuters. “If the administrator is interpreting the settlement to include such claimants, the settlement is unlawful.” The appeals court also said that Barbier should issue a narrower injunction that would limit financial recoveries to those claimants who had suffered an “actual injury” from the spill so that BP and its shareholders would not be punished by “hundreds of millions of dollars of unrecoverable awards.”
When the restitution payments started to overshoot its original estimate by billions, BP began to contest the manner in which restitution payments were awarded. That decision marked a change in the company’s strategy. Until earlier this year, BP attempted to cooperate with the mountain of litigation that government agencies, private individuals, and businesses dumped on its docket.
But in February, that changed. The company stopped pursuing a settlement for the federal government’s civil charges and the trial began in a New Orleans district court. Several months later, when the restitution payments started to overshoot its original estimate, BP began to contest the manner in which restitution payments were awarded, arguing that court-appointed fund administrator Patrick Juneau has compensated “fictitious and inflated losses.”
On Wednesday, Juneau issued the public statistics for the Deepwater Horizon economic and property damages settlement, which showed that $3.69 billion has been paid out to claimants. As BP spokesman Geoff Morrell told Reuters, the court’s ruling reaffirms what the company has been arguing for months: claimants should not be paid for fictitious or non-existent losses. “BP is extremely pleased with today’s ruling, setting aside the claims administrator’s interpretation of the business economic loss framework in the settlement agreement BP reached with the Plaintiffs’ Steering Committee last year,” Morrell said.
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