BP’s claims that a judge’s interpretation of a settlement over its 2010 oil spill in the Gulf of Mexico could force the company to pay billions of dollars for bogus or inflated claims by businesses have been revived after a court ruling last night.
A decision by a divided three-judge panel of the 5th US Circuit Court of Appeals threw out US District Judge Carl Barbier’s rulings on the dispute between BP and lawyers who brokered the multibillion-dollar settlement in 2012.
The panel sent the case back to Judge Barbier, who is currently hearing the second phase of the trial over the Deepwater Horizon disaster, with an order that he craft a “narrowly-tailored injunction that allows the time necessary for deliberate reconsideration of these significant issues”.
The April 2010 blowout of BP’s Macondo well off the Louisiana coast triggered an explosion that killed 11 workers on the rig and caused millions of gallons of oil to spill into the Gulf.
Shortly after the disaster, BP agreed to create a £12billion compensation fund that was administered at first by the Gulf Coast Claims Facility, led by lawyer Kenneth Feinberg.
The British oil major argued that Judge Barbier and Patrick Juneau, the court-appointed claims administrator, misinterpreted terms of the settlement. Opposition lawyers claimed BP had undervalued the settlement and underestimated how many claimants would qualify for payments.
In the panel’s majority opinion, Judge Edith Brown Clement said BP has consistently argued that the settlement’s complex formula for compensating businesses was intended to cover “real economic losses, not artificial losses that appear only from the timing of cash flows”.
“The interests of individuals who may be reaping windfall recoveries because of an inappropriate interpretation of the Settlement Agreement and those who could never have recovered in individual suits for failure to show causation are not outweighed by the potential loss to a company and its public shareholders of hundreds of millions of dollars of unrecoverable awards,” Judge Clement wrote.
Judge Leslie Southwick wrote a concurring opinion. Judge James Dennis wrote a partial dissent, largely disagreeing with the other two.
“Because BP has not satisfied its heavy burden of showing that a change in circumstances or law warranted the modifications it sought, the district court correctly affirmed the administrator’s decision rejecting BP’s argument and actions to modify the agreement,” Judge Dennis wrote.
Judge Clement said Judge Barbier had no authority to approve the settlement of a class that included members who sustained losses unrelated to the spill and or did not suffer any losses at all, as BP alleges. The settlement is “unlawful“ if Mr Juneau is interpreting it to include such claimants, she wrote.
“Why would BP pay to resolve claims that cannot be plead?” her opinion asks. “The myth of ’global peace’ through payment of admittedly non-spill-related claims is a legal nullity that cannot remedy this deficiency. There is no need to secure peace with those with whom one is not at war.”
Judge Clement concluded Judge Barbier should craft an injunction that ensures claims for losses directly resulting from the Deepwater Horizon disaster continue to be paid, while those that did not are not compensated “until this case is fully heard and decided through the judicial process”.
BP spokesman Geoff Morrell said the company was “extremely pleased” with the ruling. He added that it “affirms what BP has been saying since the beginning: claimants should not be paid for fictitious or wholly non-existent losses”.
“We are gratified that the systematic payment of such claims by the claims administrator must now come to an end,” Mr Morrell said in a statement.
After the settlement was announced last year, Judge Barbier appointed Mr Juneau to take over the process of evaluating and paying claims.
The settlement does not have a cap, but BP initially estimated that it would pay £4.8billion to resolve the private claims. Later, the company said it no longer could give a reliable estimate for how much the deal will cost.
Lead plaintiffs’ lawyers Steve Herman and Jim Roy said in a statement they were pleased that “the vast majority of class members will continue to be paid in a timely and expeditious manner”.
Meanwhile the trial over the Deepwater Horizon has heard that the oil firm’s manager in charge of controlling the Macondo blowout in 2010 was never trained to permanently plug a ruptured oil well.
James Dupree told the court the company was ‘starting from scratch’ as it scrambled to try and stop the Gulf of Mexico leak.
“I had no formal training in well-kill operations,” Dupree told the trial, describing the blowout as an unprecedented worst-case scenario.
“We didn’t have the equipment to attack a Macondo-type event, that’s why we had to engineer so many things on the fly.”
“We didn’t have the preparations we have today.”
Internal emails from BP shown at the trial suggest the company said publicly 5,000 barrels of oil a day were leaking into the Gulf, when it knew that the number was up to 100,000 barrels.
The trial continues.
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