The Economy Hub
8:00 AM EST, February 23, 2014
It would be perfectly proper for BP, the giant British oil company, to feel a sense of corporate remorse.
After all, the firm was responsible for the 2010 Gulf of Mexico oil spill disaster, the Deepwater Horizon oil rig explosion and well blowout that took 11 lives and created "immense environmental damage" in and around the gulf. (Those words were uttered by a Department of Justice official just over a year ago, when BP pleaded guilty to a dozen felony charges and agreed to pay $4 billion in penalties and fines.)
"Buyer's remorse," however? That's a different story.
But it's what BP is displaying these days toward a class-action settlement it reached in 2012, covering individuals and businesses that claimed economic losses from the oil spill — hotels and restaurants, seafood businesses, property owners and many others. The settlement aimed to streamline the claims process, so these victims wouldn't each have to bring their cases before a judge and jury. The company "wanted to do the right thing," it says.
But in recent months BP has mounted a frontal assault on the settlement. The firm has placed full page ads in major newspapers, ridiculing supposedly fraudulent claims blithely paid by the settlement administrator, Louisiana lawyer Patrick Juneau — including $8 million to "celebrity chef" Emeril Lagasse.
Last week BP turned up the heat by sponsoring the daily Playbook web page and email blast aimed at Washington opinion makers, among many other people, by the Politico news website. Each day's Playbook message from BP pinpoints a different, ostensibly absurd case with the tag line, "Would you pay these claims?" Sample: a $173,000 award to an "adult escort service." (What, an escort service can't be harmed by a fall-off in tourism?)
But that's just the PR side of things. The company also has mounted an intensive legal attack on Juneau in federal court in Louisiana. It has obtained a restraining order preventing further payments for the moment and is seeking a permanent injunction so that the policies governing the settlement awards can be recrafted.
BP is going down this path at a time when one would expect it to display maximum agreeability and contrition. The company is negotiating with federal agencies to end its more than year-old exclusion from new government contracts, dating back to its guilty plea. A lawsuit by the federal government and several states, seeking billions of dollars in damages, is before the same federal judge overseeing the class-action settlement. Reports are still emerging of the toxic effects of the spilled oil on the ecosystem; the latest being a just-released finding by Stanford researchers that the crude is bad for the cardiac health of tuna. (BP asserts that the lab study bears no relation to the "real-world conditions" experienced by fish in the gulf.)
Plaintiffs' attorneys say that what's happened is that BP has belatedly awakened to the fact that its obligations to businesses and individuals may come to billions of dollars more than it anticipated. The settlement, indeed, is uncapped — the money keeps getting paid out as long as claims roll in and BP has the cash.
"They figured out that they underestimated what the settlement is going to cost," speculates Stephen J. Herman, a lead plaintiffs' attorney. "Now it's costing them too much money, and they're trying to find ways to not pay it."
BP says it's just trying to keep the payouts fair. A company spokesman, Geoff Morrell, said in an emailed statement that "the company's commitment to the Gulf is being twisted and exploited" by awards that violate "the intent of the parties, and the law."
Does BP have a point? Let's take a look.
The settlement agreement says that most claimants have to show that their economic losses were caused by the oil spill, which began April 20, 2010, with a series of explosions at the Deepwater Horizon rig. The well wasn't permanently capped until mid-September. By then millions of gallons of oil had spilled into the gulf.
The agreement also says that for many of those claimants, all they need to do to prove that their economic losses were caused by the spill is to show that they operated a business within the geographic zone of the gulf and experienced a certain pattern of income — chiefly a "V-shaped" pattern reflecting a sharp reduction after the blowout, followed by a recovery in income after the incident. (Other patterns can be used, but that's the main one.)
That's the interpretation of the settlement rules favored by the plaintiffs. BP, however, maintains that claimants first have to prove they had spill-related losses, and only then can they apply the V-shaped test. The problem with BP's position is that it seems to have changed — for months after the settlement was reached the company seemed to agree that passing the V-test was tantamount to proof of "causation." But late last year it changed its tune.
At least that's how U.S. District Judge Carl Barbier of New Orleans, who is supervising the case, sees it; he tossed out BP's challenge to the settlement in December, ruling in effect that it's too late for BP to reinterpret the deal terms now. A three-judge panel of the U.S. 5th Circuit Court of Appeals backed up Barbier last month.
Barbier observed that BP had acknowledged — repeatedly — that the streamlined approach meant that some undeserving businesses would cash in. He quoted a BP lawyer as stating, in writing, that "such 'false positives' are ... inevitable" when an objective test is applied rather than examining every case individually. But that was the price, BP acknowledged, of compromise.
BP says its position hasn't changed but has been misread — it always expected claimants to first show they were damaged by the spill and only then to pass the revenue test. But the problem there is that it has never said how thousands of businesses are supposed to prove that their losses were the result of the spill, if not through the revenue tests. That's especially true given that the economy of the region is so heavily influenced by the health of the Gulf of Mexico that it's hard to think of a manifestation of the oil spill that can't best be expressed in dollars and cents. Should a hotel submit affidavits from customers attesting that they canceled their reservations because the thought of oil-slicked beaches made them nauseous? Or charter boat owners photos of the oily sheen on their hulls?
If all would-be claimants must show some subjective proof that the Deepwater Horizon lurked behind their loss, says Elizabeth Cabraser, another member of the plaintiffs' legal team, these cases will "run to the end of time."
In any event, if BP really thinks that money is being handed out to undeserving recipients, it doesn't need to upend the entire claims process. A court-supervised appeals system exists for claims, and BP has taken advantage of it vigorously, appealing more than 3,900 awards.
Nor is the settlement a slam-dunk path to wealth for business owners in the gulf region. As of last week, more than 270,000 claims had been filed with Juneau, but only 63,436 have been approved so far, for a total of almost $5 billion. Juneau so far has denied 52,683. Tens of thousands more have been closed, withdrawn or remain incomplete.
That's one reason that BP's attack on the settlement process, especially its advertising campaign, is perplexing. It's unclear who the audience for the ad campaign is intended to be. The only people who can rewrite or reinterpret the settlement agreement are judges, and they're not likely to be swayed by the vague ridicule of individual claims. (At least, one hopes not.) If BP is aiming to gin up sympathy among residents or politicians in the gulf states, it's probably wasting its money. And it's hard to imagine that anyone in Congress, which is a big audience for the Politico Playbook, would consider stepping into this mess.
BP's claim is that "over half a billion dollars" has already been paid to "undeserving" claimants like Lagasse, but that figure looks squishy. The figure appears to be based on a sample of supposedly improper claims it filed in federal court in November. But plaintiffs' lawyers have already challenged the company's description of many of those cases as incomplete or misleading.
The oil company denies that it's trying to back out of the class-action settlement because of its cost, and maintains that it has "honored its commitment" to the Gulf Coast's recovery. But its publicity and legal campaign ultimately raises the question of how much of a commitment is enough.
The Deepwater Horizon spill is one of the worst environmental disasters in U.S. history, if not the very worst. Any way you cut it, the event will rewrite standards of corporate responsibility. The more BP splits hairs about how residents and businesses around the gulf can prove their losses, the more it might find itself in deeper water than it expected.
Michael Hiltzik's column appears Sundays and Wednesdays. Read his blog, the Economy Hub, at latimes.com/business/hiltzik, reach him at firstname.lastname@example.org, check out facebook.com/hiltzik and follow @hiltzikm on Twitter.
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