Court rejects BP claim that Gulf oil spill settlement is unfair

A federal appeals court in New Orleans rejected the argument by British oil giant BP that it should not have to pay claims related to the 2010 Gulf of Mexico oil spill if claimants cannot prove the economic losses to their businesses were directly the result of the disaster.

The 2-to-1 ruling by a three-judge panel of the US Fifth Circuit Court of Appeals Monday upholds a December ruling that forces BP to authorize the payments under the multibillion dollar settlement made early last year.

The company says that the terms of that settlement will create a flood of fictitious claims, but Judge Leslie Southwick, writing for the majority, said that while the terms “are not as protective of BP’s present concerns as might have been achievable … they are the protections that were accepted by the parties and approved by the district court.”

Judge Southwick added: “There is nothing fundamentally unreasonable about what BP accepted but now wishes it had not.”

Attorneys representing claimants cheered the decision Monday, saying in a statement that the ruling “makes clear BP can’t rewrite the deal it agreed to.”

BP is likely to appeal. In a statement released Tuesday, the company said the court decision “will improperly allow for the payment of losses with no connection to the spill” and therefore “the settlement cannot be upheld under the law.”

The panel’s dissenting voice, Judge Edith Brown Clement, wrote that “causation was a critical part” of the original settlement and that Monday’s ruling will lead to “absurd results.”

At issue is the interpretation of causation related to claims. The court-appointed claims administrator, Patrick Juneau, argued that the complexity of the case, which involves hundreds of thousands of claimants whose damages vary wildly, calls for a broad interpretation of causation. Claimants have to sign legal documents that their applications are truthful.

BP says unscrupulous attorneys for claimants are gaming the process. Moreover, it says accounting practices endorsed by Mr. Juneau are unfairly distorting claim damages. The company took its case to the public in recent weeks via a website and full-page ads in The Washington Post and New York Times that ridiculed the process.

BP has billions of dollars at stake. A three-phase civil trial related to BP’s role in the April 2010 oil rig explosion off the Louisiana coast that killed 11 people and discharged 200 million gallons of oil is ongoing, and is expected to result in billions of dollars in fines for the company.

The first phase of the trial ended last April and largely involved the decisions leading up to the blowout. The second phase ended in October and examined decisions by BP and others in mitigating the oil flow. The trial will determine how much BP and its partners must pay for violating the federal Clean Water Act, the Oil Pollution Act of 1990, and various other federal laws. The maximum fine could be $18 billion.

In light of that possible bill, BP is adamant in saying it will not pay fraudulent damage claims. Last year, it said the estimated cost of settlements with individuals and businesses rose from $7.8 billion to more than $9 billion, suggesting the difference likely represents fraudulent claims.

The company says it has already set aside $42.7 billion in cleanup and legal costs related to the spill, but that does not include settlement money that has “yet to be received, processed and paid.”

Last year, BP said it enjoyed the “most successful year for exploration drilling for almost a decade,” earning $23.5 billion after taxes, more than double what it earned in 2012.

To date, according to Juneau’s office, about 42,300 claims have been paid, totaling $3.8 billion, since July 2012.

Last year, as part of federal criminal proceedings, BP pleaded guilty to 11 felony counts of misconduct and negligence related to the 11 deaths, as well as one misdemeanor count under the Clean Water Act and one misdemeanor count under the Migratory Bird Treaty Act. It also pleaded guilty to one felony count of obstruction of Congress, related to incorrect flow rate estimates given to members of Congress in the first 14 days of the disaster.

The company agreed to a $4 billion fine, the largest corporate criminal penalty in US history.