BP’s settlement of charges brought by those individuals and businesses hurt by the Gulf of Mexico oil spill have never been popular. On Monday, lawyers for BP (NYSE:BP) and lawyers for victims of the company’s 2010 oil spill in the Gulf of Mexico will gather before a three-judge panel of the 5th U.S. Circuit Court of Appeals to argue whether the New Orleans District Court Judge Carl Barbier should have approved the multimillion-dollar settlement last year. Company attorneys will tell the court that the decision should be delayed until the dispute over how the claim payments are awarded is resolved, while other opponents of the deal will contend that the agreement inconsistently compensates victims with the same types of economic injuries.
Comparatively, Samuel Issacharoff — a lawyer representing the Plaintiffs’ Steering Committee, who negotiated the agreement — has maintained that the settlement complied with legal standards of a class action. The claimants, “hundreds of thousands of them,” all have at least one thing in common, he told the panel. “They all suffered as the result of the oil spill,” Issacharoff argued, as Bloomberg reported. In May 2012, BP and the lawyers for the individuals and businesses harmed by the Deepwater Horizon oil spill reached an accord to settle the class action.
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, killed wildlife, and disrupted 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. 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.”
BP’s Gulf of Mexico disaster was the worst offshore spill in U.S. history. It began on April 20, 2010 when an undersea well exploded 50 miles off the Louisiana coast, killing 11 workers and spewing millions of barrels of crude oil into the ocean. Marshes, fisheries, and beaches stretching from Louisiana to Florida were polluted, harming local tourism and fishing. The oil producer has acknowledge responsibility for the oil spill, spending more than $25 billion on cleaning up the coastline and compensating victims. That spending is just the tip of the company’s spill-bill iceberg — $42.4 billion has been spent or earmarked for spending on clean-up, compensation, fines and other costs. BP has even sold assets that generated $5 billion of cash flow a year to pay those expenses.
The biggest driver of skyrocketing spill costs is victim compensation. The sideshow of BP’s civil trial in the district court in New Orleans has been the company’s efforts to convince Judge Barbier to tighten the standards by which the court-appointed administrator Patrick Juneau evaluated compensation claims made by the individuals and business harmed by the 2010 Gulf of Mexico oil spill.
For months, the company petitioned the court to freeze payouts while the administrator’s payout formula was reexamined, but for months, Barbier denied that request. However, at the beginning of October, 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 halt payments on claims that do not meet stricter standards, and issued an injunction, preventing further compensation from being paid until the terms of the settlement were tightened. BP has accounted for claims that have been paid out or have been processed, and the appeals court could even prevent a portion of the processed claims from being paid.
However, until the process by which compensation payments are awarded is tightened, BP believes that the appellate court should not decide whether the settlement should be reversed. “It’s a fair, adequate, and reasonable settlement provided those issues are resolved,” BP lawyer Theodore Olson told the panel, as Bloomberg reported. The reason that the company believes the standards for compensation should be ironed out first is because when the settlement was inked “what BP agreed to was a process,” meaning that if that process is reinstated, the company will have no problem with the original deal. The payments changed under the claims administrator, Olson added.
As of an October 29 Securities and Exchange filing, the company’s restitution payment estimate is for $9.2 billion. The slight drop from July’s figure is thanks to the freeze the appeals court put on the payouts.
For attorney Brent Coon — who is representing thousands of plaintiffs that oppose the settlement — the issue is not false compensation, but rather unfair compensation. He told the panel that the settlement should be more fairly distributed. “It’s not just the amount of money that’s paid, it’s money that should have been paid,” he said, according to Bloomberg. In particular, the issue is that Barbier approved the settlement as a class action. Traditional, class actions are allowed when a standard of commonality among the claimants is met, but according to Coon, the case couldn’t be certified as a class action because the victims were not treated the same.
“The settlement class is not cohesive, but a large and unwieldy aggregation of several distinct groups of individuals and entities whose situations could possibly be described as similar, but whose only common characteristic, across groups, is that they happened to live or work or own property or operate somewhere in the Gulf region in 2010,” he said in a September 20 filing seen by the publication.
Barbier has asked the legal teams for both BP and the plaintiffs to submit filings that explain their position. He will report back to the appellate panel on December 2.
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