BP Plc drew tough questions on Monday from U.S. appeals court judges hearing a complaint by the oil company objecting to the payment of certain claims for damages related to the Gulf of Mexico spill, casting doubt on BP’s effort to curb the payouts.
BP has said repeatedly this year that the terms of a settlement reached with a class action set of claimants in 2012 are being misinterpreted by Patrick Juneau, the claims administrator, allowing unaffected businesses to receive money.
Members of a three-judge panel for the U.S. Fifth Circuit Court of Appeals in New Orleans, however, seemed skeptical from the start of the 45-minute hearing that BP was within its legal rights to change how claims are being paid, given that it agreed to the terms.
Judge James Dennis peppered BP’s lawyer, Theodore Olson, with questions about why the company believed the appellate court had jurisdiction over interpretation of the settlement.
“Irreparable injuries are taking place,” Olson answered. “It is costing literally billions of dollars … and the (lower) district court has made it very clear it does not want to hear any more arguments with respect to these issues.”
The number of claims filed with the spill compensation fund has risen by 18 percent over the last six weeks to a total of 195,403, according to the claims website. Payouts began almost a year ago and the fund will accept claims until next April.
The increase followed a period in which lawyers encouraged businesses and individuals to make claims for the 2010 disaster, which killed 11 men in a rig explosion.
BP’s appeal seeks to stop so-called business economic loss payouts while an independent inquiry is launched.
After hearing Olson give BP’s interpretation of terms of the settlement, Dennis broke in to ask how the appeals court could change an agreement that all the parties signed months earlier.
“The agreement defines what is a lost profit in a particular way, and you have had a chance to not agree with that – several chances,” Dennis said. “How can we go beyond the four corners of the agreement?”
Olson said BP was not asking the court to go beyond the agreement but to weigh in on the interpretation of the terms.
Speaking on behalf of the plaintiffs, Samuel Issacharoff argued that it was difficult to see how the appeals court had jurisdiction since some of BP’s objections had not gone through the internal claims appeal process stipulated in the agreement.
Judge Edith Brown Clement asked Issacharoff about BP complaints of a “feeding frenzy” among claimants, including some located far from the coast, and he said that the company had agreed to a “massive” claims eligibility area, “apparently because BP wanted peace.”
“BP understood, to its credit, that it had destroyed the business environment of the Gulf,” he added.
Judge Dennis, addressing Olson again after the other lawyers had spoken, said parties could not come in and change an agreement once it has been made.
The judges gave no indication of when they would rule on the matter. BP declined to comment on the hearing.
James Roy, co-lead counsel for the plaintiffs steering committee, said after the hearing that he was satisfied with the proceedings, adding that it was clear “all three judges thoroughly familiarized themselves with the record.”
Much of BP’s argument against the way Juneau is making the payouts hinges on an interpretation of accountancy terms.
Under the settlement, eligibility for business economic loss claims is based on showing a lower revenue, higher expense, or both, during and/or after the oil spill, compared with other periods.
BP’s appeal takes issue with how Juneau has been calculating losses for claimants who do show their revenue and/or expenses were affected by the spill.
BP has a provision of $42.2 billion in its accounts set aside for clean-up costs, fines and compensation, so the subject of the appeal may end up a relatively small part of its final bill. Other developments – such as being found grossly negligent by the judge in the main trial, Carl Barbier, instead of simply negligent as BP argues – could raise its liability by much more.
However, the nature of the payments – many, small and individual – means that unlike other future costs, recovering them through further litigation would be next to impossible, as BP has argued in making its case of “irreparable” harm.
In April, BP added $500 million to its best guess of compensation payouts under the settlement, based on what it knows so far, for a total $8.2 billion of business economic loss and other compensation claims.
BP has $1.7 billion left in the $20 billion pot it set aside for paying these and other costs. After that is gone, BP has said it will take future compensation money straight from its net profit – which could mean a charge as early as next year if payments continue at the same rate until then.