NEW ORLEANS – A federal appeals court’s intervention in the BP oil spill claims settlement has brought payments for any and all business losses to a screeching halt.
After paying 5,000 businesses more than $1.3 billion from April to September, court-appointed settlement claims administrator Patrick Juneau has paid just four business loss claims in the two months since the U.S. 5th Circuit Court of Appeals weighed in.
And now, with a second surprising ruling this week, a three-judge panel of the 5th Circuit has given BP even more than it asked for by demanding that District Judge Carl Barbier block any further payments to businesses whose “injuries are not traceable to the spill.”
The 5th Circuit also ordered Barbier to make sure losses that are due to the spill keep getting paid, but that’s proven impossible so far.
“You have no claims being paid,” said Loyola Law Professor Blaine LeCesne, who has been following the case closely. “Which is also part of their strategy: to shut the whole damn thing down. That's why they're appealing every award. Even awards that are beyond reproach.”
BP wanted legal peace when it signed the massive oil spill claims settlement in spring 2012. That’s why, when Juneau’s office presented BP with scenarios under which claimants might be paid for losses that had nothing to do with the spill, the oil giant agreed.
On September 25, 2012, Juneau’s office laid out hypothetical claims in which losses stemming from other factors would be presumed to have been caused by the spill.
BP’s managing attorney, Mark Holstein, responded that such “false positives” are “inevitable.” Two weeks later, Juneau issued his payment policies under the settlement and again warned BP that he would perform “no analysis of alternative causes of economic losses.” BP said that was fine, and a month later, urged U.S. District Judge Carl Barbier to approve the settlement.
But after the bills started rolling in, BP changed its tune. Its CEO, Bob Dudley, said Juneau had “hijacked” the settlement and was paying for “fictitious losses.” BP hired the highest-priced appellate lawyer in U.S. history, former Solicitor General Ted Olson, to take its complaints to the U.S. 5th Circuit Court of Appeals.
And on Oct. 2, a three-judge panel voted 2-1 to order some types of business claims recalculated.
And then, Circuit Judge Edith Clement took it a step further than even BP had originally wanted. She said the real problem was far bigger than just certain types of variable-profit business claims. She didn't like that two BP lawyers had expressly agreed to pay even some businesses whose losses stemmed from something other than the spill.
“It's totally unrelated to the oil spill, but yet the BP lawyers, two of them in fact, said that that would be recoverable, that that would be presumed. How can that logically be correct?” Clement asked Olson in July.
Even Olson argued with Clement that it was part of the compromise of any settlement.
But BP certainly didn’t mind when Clement and fellow appellate Judge Leslie Southwick ruled again this week, ordering Barbier to expand the block on business claims payments so that it considers the true cause of a claimant’s losses.
“If properly implemented by the District Court, the 5th Circuit’s order will help return the settlement to its original, intended and lawful function -- the compensation of claimants who sustained actual losses that are traceable to the Deepwater Horizon accident,” BP spokesman Geoff Morrell said in a statement. “The 5th Circuit has provided further support for BP’s position that continued violation of the settlement agreement’s clear terms creates serious constitutional and other legal problems that threaten to invalidate the entire settlement unless corrected.”
BP now claims that Juneau paid $76 million for claims that "clearly" had nothing to do with the spill and another $546 million for claims that a "reasonable person" could see did not come from the spill.
The idea that the whole settlement could be at risk is scary for businesses like Harahan-based Digital Designers, which had its claim approved in July but still hasn’t been paid.
The company supplies low-voltage wiring and video systems for hotels and port facilities all along the coast. Its owners believe it's already being shortchanged by $500,000 because of another compromise in the settlement that calculates a business’ loss based on its physical location.
Digital Designers’ home office may be in Harahan, but almost all of its work takes place in zones that qualify for greater compensation, said co-owner Nat Krasnoff.
“It's almost comical; BP goes into court and says, ‘Hey, people are getting paid who shouldn't be getting paid,’ and we're a prime example of a company that's going to receive approximately one-third of what we know we lost,” Krasnoff said.
“BP isn't going to mention that in court, I'm sure,” he added sarcastically.
Krasnoff isn’t sure why he and his partners have been waiting more than 140 days for payment, even though their claim was fully adjudicated through the appeals process and doesn’t seem to have any of the accounting problems BP has complained about.
But he has a good idea.
“I personally think that Mr. Juneau and the settlement group got somewhat frightened by all the pressure being put on through the courts,” he said.
When the first appeals court ruling came down in October, Juneau promised us he would plow forward and pay claims as the court directed.
“We’re on the right course here,” Juneau said. “But because of the complexity and detail of this agreement, which I did not write, it creates problems. And, you know, what's the old word, 'You can't stand the heat get out of the kitchen'? Well, I'm here to cook the meal and eat it and finish it.”
But so far, he hasn’t been able to deliver on that. More than 7,600 business claims were filed last month, but Juneau’s office only sent out only six eligibility notices and offered those firms a total of just $327,000.
By contrast, when 4,300 claims were filed in November 2012, Juneau told more than 1,000 businesses that month that they were eligible for $226 million.
Juneau wouldn’t go on camera to address Digital Designers’ situation or the virtual shutdown of all business claims payments, but his office confirmed that the 5th Circuit rulings have made paying any business claims nearly impossible and that Digital Designers is one of the claims caught up in that.
It appears that if Clement has her way, business claimants could have to prove one-by-one that the spill caused their losses, precisely the kind of time-consuming analysis that – as Olson pointed out – a settlement agreement was supposed to avoid. And that also makes Krasnoff and others nervous that BP will even try to claw back awards that have already been approved.
“They signed an agreement. They want to back out of the agreement,” he said. “The 5th Circuit Court right now is playing ball with everybody's future in businesses like ours. It's not a happy day.”