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BP's changing stance on claims payments puzzles experts

Some think company taken aback by number and size of settlements

BY RICHARD THOMPSON [email protected] January 06, 2014

Over the last 18 months, tens of thousands of Gulf Coast businesses and residents have collected nearly half the $7.8 billion BP estimated it would end up paying when a sweeping settlement of private claims resulting from the 2010 Deepwater Horizon oil spill was put together in early 2012.

The class-action settlement, preliminarily approved by U.S. District Judge Carl Barbier in May 2012, sought to avoid piecemeal litigation by resolving hundreds of thousands of claims for economic damages from what is generally considered the worst environmental disaster in U.S. history. Six months later, BP and the Plaintiffs' Steering Committee, the group of lawyers that reached the deal, held hands to heap praise on the settlement during a fairness hearing, urging Barbier to sign off on it.

But as checks continue to fly out the door, BP has changed tack. In a saga playing out in the courts and in full-page ads in national newspapers, the oil giant is denouncing the settlement it once lauded, calling it a boondoggle and a money grab.

In March, BP sought an injunction from Barbier, contending that program administrators were misinterpreting the settlement - in particular, the formula for claimants to match revenue with expenses in showing post-spill losses. Barbier denied that request, ruling the following month that BP had already acknowledged that "class settlement payments do not always perfectly match economic losses in every instance."

Months later, BP's lawyers went to the 5th U.S. Circuit Court of Appeals, complaining to a three-judge panel in July that the settlement program was paying out "fictitious, exaggerated and excessive awards." The court in October directed Barbier to review some aspects of the complex formula used for calculating settlements, and develop a "narrowly tailored injunction that allows the time necessary for deliberate reconsideration of these significant issues."

More recently still, BP has been taking its case to the public, seeking to portray the company as the victim of greedy opportunists after easy money.

In a Dec. 23 advertisement in the New York Times, Wall Street Journal and Washington Post, BP took aim at the "mounting problems with the administration of the Gulf settlement." The ad claimed "half the management" at the settlement program's claims facility, run by Lafayette lawyer Patrick Juneau, had resigned or faced termination since the effort got under way.

Without naming them, the ad said that two key administrators at the program recently left amid reports they went to a strip club that had received $550,000 from the claims facility. The facility's former chief operating officer, Kurt Fisher, has disputed those claims, saying he and former CEO David Odom left to pursue "other opportunities."

BP used another ad last month to take a thinly veiled swipe at local celebrity chief Emeril Lagasse, noting that Juneau's office awarded more than $8 million to an unnamed chef who operates restaurants across the country, "most of which are located outside of the Gulf." BP claimed the reason for the loss was that Lagasse's company began paying licensing fees that year.

Lagasse's company later released a statement saying it had filed an oil spill claim "in accordance with the settlement agreement that was set forth by BP and administered by the federal court in New Orleans."
Motives debated

It's not clear what is driving BP's new strategy. Some theorize that BP has been surprised by the number and size of claims. The company initially estimated the deal could cost it $7.8 billion. That estimate later rose to $8.5 billion, and BP has since said in regulatory filings that "no reliable estimate can be made of any business economic loss claims."

"There's no doubt about it: There's some resourceful businesses in the Gulf area and some resourceful lawyers that have taken advantage of the fact that the traditional requirement of showing causation is not relevant," said David Logan, dean of the law school at Roger Williams University in Rhode Island. "You just show up with your losses and put it down on the table, and then it's BP's job to pay for it."

Still, the amount paid out so far, $3.8 billion, is not quite half of what BP originally estimated the settlement would cost.

Many legal observers have been somewhat surprised by the oil company's aggressive strategy, noting that in quarreling with the court's interpretation of the settlement, BP is taking on a federal judge who has yet to rule on the first two phases of the sprawling civil litigation against the company and its partners to determine liability in the Deepwater Horizon disaster.

That litigation is expected to cost BP more than the private claims.

"BP clearly has alienated the federal district court judge who not only is presiding over the settlement, but also will decide how much it has to pay in Clean Water Act penalties," said David Uhlmann, a University of Michigan law professor and former chief of the Justice Department's environmental crimes section.

It's also not clear what BP stands to gain by taking its case to the public, as most of the key decisions affecting it will be made by appointed federal judges. Some speculate that by trying to shame specific plaintiffs, BP hopes to discourage others from filing claims, or perhaps that the company hopes that changing the narrative will cause some members of the federal bench to look on it more sympathetically.
Unprecedented approach

Logan said he couldn't recall a company using "actual newspaper ads to change the dynamic of civil litigation."

"There's nothing analogous to this in our history, and so what BP has found itself having to do is sort of make it up as it goes along," Logan said. "They decided apparently a few months ago that in addition to opening up a front on the U.S. 5th Circuit Court of Appeals, they wanted to open up a front on public opinion."

Geoff Morrell, a BP spokesman, defended the ad blitz, saying in a statement that the campaign is "intended to keep the public informed about the serious concerns we've been raising for months now about the way in which the settlement agreement is being implemented."

"We hope that in focusing our stakeholders' attention on the more than half-a-billion dollars in awards made by the claims program for alleged losses with no apparent relation to the spill, they will understand why the litigation over the settlement continues and the extent to which the company's commitment to the Gulf is being twisted and exploited," Morrell said.

Logan, the law dean, said it would be a neat trick for BP to wrap itself in the mantle of populist outrage over a deal that it helped broker. He speculated that the company had buyer's remorse.

"It does seem surprising, given what must be the aggregation of talent that BP had going into this settlement negotiation, they didn't get a better deal out of it," he said. "But every settlement is a bit of a gamble, and it's a compromise, and I'm sure that they'd like a mulligan. I'm sure that they'd like to take this one over."

Uhlmann thinks BP has some legitimate gripes - and also might have agreed to a lousy deal. He thinks the company's recent offensive is "a mix of buyer's remorse and legitimate concerns."

"It's hard to believe that they ever entered a deal that was so open-ended, on the amount they might be required to pay," Uhlmann said. "On the other hand, it seems beyond dispute that there have been abuses in the settlement process, and a number of claims paid that are highly questionable."

Causation questions

In court filings, Barbier and plaintiffs' attorneys have acknowledged that settlement claims could, at times, result in unharmed plaintiffs getting money. But both have said BP knew as much when it agreed to the deal, and that the idea was not to have to litigate each case individually.

"While BP has apparently publicly reported that it views the value of the economic settlement at around $7.8 billion, the truth of the matter, Your Honor, is that if it ends up paying $20, $25, $30 billion, BP has agreed to do that," Jim Roy, co-lead counsel of the plaintiffs' committee, told the judge in November 2012.

Richard Godfrey, an attorney for BP, agreed, and underscored that the company wasn't going to make claimants prove they were damaged by the spill.

"We're presuming causation for whole sections of the settlement class depending on where you reside and the nature of your business," he told the judge.

In a statement Friday, Juneau said his job was "simply to implement the over-1,000-page settlement that was created, negotiated and written by BP and the Plaintiff Class Counsel."

"As I have consistently stated said since Day 1, neither the court nor I created this settlement agreement," Juneau said. "We review and process claims based on the documentation provided by the claimant and as required by the settlement agreement."

The settlement calls for treating all claimants who live in a certain area along the Gulf of Mexico the same way if they can show a loss of income after the disaster, regardless of the reason for that loss.

But last month, a three-judge panel of the 5th Circuit ruled that Barbier should have considered BP's argument - filed in court papers since the deal was approved - that businesses should not be compensated unless they can show the oil spill caused their losses.

In response, Barbier said the settlement was not intended to undertake a "claim-by-claim analysis" and contended that BP's position on causation was "not only clearly inconsistent with its previous position" but that it also "directly contradicts what it has told" the court regarding causation.

Louisiana second in claims

Since it opened in June 2012, the claims administrator's office has received more than 243,000 claim forms, according to court documents. By Dec. 10, Juneau's office had issued more than 61,000 eligibility notices, with payment offers totaling almost $5 billion. More than 53,500 claims had been paid by then, totaling more than $3.8 billion.

Louisiana residents accounted for 26 percent of the overall damage claims, second to Florida.

The $3.8 billion paid out is on top of $400 million in claims that were in the pipeline when Juneau took over from Kenneth Feinberg's Gulf Coast Claims Facility, which paid out $6.1 billion to more than 221,000 claimants.

Juneau's office has not been without controversy - and more could be on the way.

Last year, Barbier named Louis Freeh, a former FBI director, to investigate the program's operations after a lawyer on Juneau's staff, Lionel Sutton III, resigned amid allegations that he got money from a claim he referred to a law firm before joining the claims center.

In September, Freeh issued a report that found key executives and senior lawyers in Juneau's office engaged in improper, unethical and possibly criminal behavior, though it absolved Juneau of having a part in it.

Freeh's report did not find that Sutton or his wife, Christine Reitano, an attorney in Juneau's office, manipulated the value of claims during their time at the settlement program. But the report found that Reitano was involved in referring the questioned claim and other potential oil spill claims to the Jon Andry law firm, and that the two lawyers would split any subsequent attorney fees.

Reitano, in a Dec. 16 court filing, denied those allegations and blasted the report's alleged bias. "Mr. Freeh made no effort at objectivity and his report was obviously result-driven," she wrote. "His investigation methods are unexplained and incomplete."

Freeh has been asked by Barbier to conduct a deeper investigation. He is expected to issue a second report soon.

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