BP (NYSE:BP) has acknowledged its responsibility for the Gulf of Mexico oil spill that killed 11 men and spewed millions of barrels of crude oil into the ocean. It has spent more than $25 billion on cleaning up the marshes, fisheries, and beaches along the coast as well as 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 for those expenses.
The cost of the disaster has grown to such massive proportions that in recent months the company has taken to legal tactics to cap its financial tab. In particular, the oil producer wants to renegotiate the terms of a settlement it made last year with the individuals and business harmed by the spill, a desire BP has taken to the courts. Until approximately six months ago, 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.” Yet, Joe Rice, who negotiated that settlement on behalf of more than 100,000 compensation claimants, told Reuters that BP’s legal tactics will fail.
At the heart of BP’s argument is the company’s belief that it has made amends for the damage caused by the oil spill. On more than one occasion, BP has argued that the United States government has been overeager in punishing the oil producer for its mistakes. On more than one occasion, the company has taken its dispute public rather than work out a solution in backroom negotiations. Don’t forget the advertisements it placed in the Wall Street Journal, New York Times, and Washington Post to draw attention to what it sees as unfair oil spill compensation payments.
Judge Carl Barbier — who is presiding over the civil trial set to enter its second phase at the end of September — has so far denied BP’s attempts to pause the payouts while former Federal Bureau of Investigation Director Louis Freeh investigates allegations of misconduct by a lawyer who worked for Juneau. The company is still awaiting the outcome of a July 8 appeal hearing where BP argued that Juneau had rewritten the terms of the settlement agreement. This week, it also brought a lawsuit against the Environmental Protection Agency to lift the company’s ban on bidding for new federal contracts.
In an interview with Bloomberg Businessweek, BP Chief Executive Officer Robert Dudley noted that the results of the settlement have been strange. “The claims going through a claims facility have resulted in absurd results and millions of dollars are going out to pay people who suffered, in many cases, no losses from the spill,” he said. But Rice disagrees with the company’s stance. “We’re going back to the 1814 attack on New Orleans by the British,” he told Reuters in a telephone interview, referring to a campaign at the end of the 1812-1815 war.
“They’re attacking our entire judicial system,” he continued. “They’re attacking the judge. They’re attacking the claims administrator they helped appoint. They’re attacking the lawyers for representing people. Now they’ve filed an attack on the U.S. government demanding that they do business with them.” In his view, BP views “us as a colony that they own and can exploit.” Plus, the company has not done itself any favors by using language like “fictitious” and “absurd” when describing the compensation claims, Rice added.
“I think they’ve made a vast strategic error by fighting and shifting this whole battle to an attack on the people of the Gulf,” Rice said. “Any goodwill they built on trying to do the right thing, they have destroyed. Now more people are going to file claims and it’s going to make the whole process worse.”
In response, BP told Reuters that Rice’s words were “xenophobic,” and the company has only been “defending its rights.” The main problem, according to Rice, is that while BP has argued that the way the payments are awarded is flawed, the number of fictitious or overblown claims is so small that they have little impact on the overall cost of the settlement.
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