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The Irony and Agony of the BP Oil Spill Economic Class Settlement

February 3, 2014, 9:47 am

JURIST Guest Columnist Brent Coon of Brent Coon & Associates weighs in on the BP Oil Spill Settlement...

Nowhere in the annals of American jurisprudence have we seen the courts and litigants make a mess of things as we have—and likely will continue to—in the infamous BP oil spill class settlement.

First, it is important to note that this is one of two separate class settlements that have emanated so far from the federal Multi-district Litigation (MDL) 2179 consolidated proceedings in New Orleans. Both were approved (PDF) by the trial court in December 2012. The most controversial settlement, and by far the most ambitious, is the Economic and Property Damage (E&P) class. The other settlement, the Personal Injury (PI) class—primarily a measure of solace for individuals exposed to oil and chemicals utilized in the cleanup—has faced some appellate activity, but is likely to be implemented soon since no appeals remain. It too has a number of controversial features which will likely draw more attention if and when the settlement becomes activated. As to the E&P settlement, the rarefied air of a multi-billion dollar partial class settlement for the high profile Deepwater Horizon incident has invited immense controversy for many reasons.

First, it has been subjected to appellate scrutiny from not just one, but two different panels of the US Court of Appeals for the Fifth Circuit. Interestingly, both panels handed down split decisions and generally do not appear to concur on the common substantive issues. Each is still engaged in further potential reflection at this time due to requests for en banc consideration and reconsideration of other details floating back to appellate courts from lower court rulings. Where these reviews will end and what, if anything, the US Supreme Court may say afterwards invites a great deal of supposition.

Second, the E&P settlement was originally supported by both the defendant, BP, as well as class counsel, and yet is now being vigorously opposed by BP. That BP has taken to the streets with a massive public relations campaign only accentuates the interest in current happenings.

Due to unusual circumstances (the class saw claims reviewed and paid during the trial court consideration process), as well as any appeals, parties have been able to see how the settlement actually performs in the interim—a rarity. Now, BP is crying foul over a number of key "interpretative issues" in analyzing claim values, a process which is the function of the manager of the settlement, Pat Juneau, who wears the dubious official title these days of "Claims Administrator." Central to its arguments are complaints that claims are being interpreted in a manner too loose on accounting methodology for ascertaining losses, as well as sufficiency of proof that such loses were due to the spill.

Compounding these problematic issues are the contentions by numerous claimants that (1) the opt out process was too onerous, (2) the class doesn't fit Rule 23 requirements for proper certification under the Federal Rules of Civil Procedure, and (3) there was inadequate vetting of class counsel roles with regard to qualifications and potential conflicts of interest.

Making this all the more simultaneously entertaining and disturbing is BP's decision as a party to the settlement to not only change its mind on supporting it through the appeals, but to actually initiate a massive multi-million dollar advertising campaign maligning the very settlement its attorneys spent a year formulating. Adding flavor to the carnival atmosphere, allegations of fraud and coercion at every level of the process are now running rampant—so much so that the trial court felt it incumbent to invite Louis Freeh's auditing and investigation company (PDF) into the fray. BP points fingers at insider trading amongst members of the class administrator's team and ad hoc examples of cases approved for payment that it maintains are fraudulent (not fraud as a layperson would appreciate, but fraud in that a claimant submitted a case which fit the definitions and methodology within the class but should curiously be denied as insufficiently tied to the oil spill). While it is very clear from the trial court record and the agreement itself that this was an intended consequence of the deal, when more and more claims of more and more value began hitting the Claims Administrator's desk, BP found itself in the unenviable position of trying to renege on its own deal, one that it agreed to pay a whopping $600 million to class counsel the before just for securing it. Undoubtedly there is also some rub from the fact that the Claims Administrator's operational costs alone are running another $500 million per year just to run the program.

Compounding this turn of events, BP has been boxed into other tough decisions. Although these tactics may put at least a temporary finger in the claims payment dike, they undoubtedly further frustrate the trial court, which still handles oversight of enormous potential liabilities pending in the MDL court while innumerable still unresolved cases remain pending in other categories of claims.

Not to be satisfied with this level of public and judicial bemoaning, on top of targeting legally valid claims to harpoon in full page advertisements within the New York Times and other high distribution outlets, BP has additionally pointed to members of the plaintiff's legal team as a source of further fraud at BP's expense. Never mind that, at the time of the spill, BP was still serving a term of probation with federal authorities for fifteen counts of felony manslaughter stemming from the 2005 explosion at its Texas City Refinery. Never mind that BP had been caught misleading Congress over the amount of oil spewing from the ill-fated Deepwater Horizon rig and its complicity in corner-cutting safety precautions resulting in eleven more fatalities the same day that it was passing out safety awards.

So what does one make of this? Granted, BP needs closure to this debacle. The potential bloodletting of capital from this disaster and subsequent mismanagement stands to pour out similar to the rig blowout itself. Every day of delays in the appeal process extends deadlines for remaining claimants to remit claims. A decision by a serial felon in a disliked and distrusted industry to play the victim's role is a risky proposition. Making a 180 degree turn on its own agreement while many other issues remain pending with the trial court amounts to throwing caution to the wind, to say the least.

Granted, a conservative appellate court system, including the conservative Supreme Court, looms large. Justice Antonin Scalia may well desire to review the entire affair with a court that has already revisited Rule 23 several times recently, and against the backdrop of Comcast and Walmart, could certainly scrutinize many facets of this settlement, as well as other putative settlements that may still remain on the trial court's drawing board. Does BP think that advertisements of protestation in New York and Washington will have a positive impact down the road? Maybe so. It does vaguely smell of the story line in John Grisham's novel, The Pelican Brief, also based on litigation arising out of Louisiana. Make plans now for issues years down the road. International oil companies don't become $500 billion per year enterprises without at least trying to plan in advance.

Clearly, what we do face now is a problem that Congress thought it fixed in 1990 through passage of the Oil Pollution Act. Recognizing the woes of protracted litigation in the Exxon Valdez spill, Congress passed legislation designed to make the process simple and swift. The negligence issues were circumvented with a strict liability standard and claims were allowed to proceed through a claims process outside of litigation. BP initiated such a process early in this matter with the creation of the Gulf Coast Claims Facility. Yet, after only a year of operations, it was shut down, essentially overnight, and substituted with the present "deal," one that BP surely believed was a good idea at the time. Capture as many claims as possible in a process that kept it away from potential jury trials—a process actually endorsed by the trial lawyers involved following an agreement to pay them $600 million for their efforts. Now BP faces buyer's remorse. Maybe its strategies of public appeals and sympathy will salvage its brand name. Maybe the delays will at least slow the train of new claims entering the process. Maybe the money spigot will be tightened, letting BP delay the inevitable and temporarily shore up its stock values and bond ratings. Maybe it will simply provide time for the present managers to line up another round of golden parachutes.

So while BP has effectively shut down any payments in the class, what is happening to the thousands and thousands of claims excluded from those settlements by election or intent? Nothing. BP is supposed to independently review and negotiate those cases and has instead chosen to put them on the back burner. With the trial court struggling to keep order due to the constant jockeying, most resolution matters are at an impasse. Even recent efforts by Louisiana's Attorney General to transfer the pending claims to another court for expediting were denied. If BP's ultimate goal was to stall as long as possible and as often as possible, then maybe it isn't as dumb as one might believe.

Brent Coon is the founder of Brent Coon & Associates. He has recovered in excess of a billion dollars for victims of catastrophic injury, occupational disease, pharmaceutical harm and environmental pollution. He is well known as a legal expert in the petrochemical industry.

Suggested citation: Brent Coon, The Irony and Agony of the BP Oil Spill Economic Class Settlement, JURIST - Sidebar, Feb. 1, 2014, http://jurist.org/sidebar/2014/02/brent-coon-bp-settlement.php.

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The Irony and Agony of the BP Oil Spill Economic Class Settlement

February 3, 2014, 9:47 am

JURIST Guest Columnist Brent Coon of Brent Coon & Associates weighs in on the BP Oil Spill Settlement...

Nowhere in the annals of American jurisprudence have we seen the courts and litigants make a mess of things as we have—and likely will continue to—in the infamous BP oil spill class settlement.

First, it is important to note that this is one of two separate class settlements that have emanated so far from the federal Multi-district Litigation (MDL) 2179 consolidated proceedings in New Orleans. Both were approved (PDF) by the trial court in December 2012. The most controversial settlement, and by far the most ambitious, is the Economic and Property Damage (E&P) class. The other settlement, the Personal Injury (PI) class—primarily a measure of solace for individuals exposed to oil and chemicals utilized in the cleanup—has faced some appellate activity, but is likely to be implemented soon since no appeals remain. It too has a number of controversial features which will likely draw more attention if and when the settlement becomes activated. As to the E&P settlement, the rarefied air of a multi-billion dollar partial class settlement for the high profile Deepwater Horizon incident has invited immense controversy for many reasons.

First, it has been subjected to appellate scrutiny from not just one, but two different panels of the US Court of Appeals for the Fifth Circuit. Interestingly, both panels handed down split decisions and generally do not appear to concur on the common substantive issues. Each is still engaged in further potential reflection at this time due to requests for en banc consideration and reconsideration of other details floating back to appellate courts from lower court rulings. Where these reviews will end and what, if anything, the US Supreme Court may say afterwards invites a great deal of supposition.

Second, the E&P settlement was originally supported by both the defendant, BP, as well as class counsel, and yet is now being vigorously opposed by BP. That BP has taken to the streets with a massive public relations campaign only accentuates the interest in current happenings.

Due to unusual circumstances (the class saw claims reviewed and paid during the trial court consideration process), as well as any appeals, parties have been able to see how the settlement actually performs in the interim—a rarity. Now, BP is crying foul over a number of key "interpretative issues" in analyzing claim values, a process which is the function of the manager of the settlement, Pat Juneau, who wears the dubious official title these days of "Claims Administrator." Central to its arguments are complaints that claims are being interpreted in a manner too loose on accounting methodology for ascertaining losses, as well as sufficiency of proof that such loses were due to the spill.

Compounding these problematic issues are the contentions by numerous claimants that (1) the opt out process was too onerous, (2) the class doesn't fit Rule 23 requirements for proper certification under the Federal Rules of Civil Procedure, and (3) there was inadequate vetting of class counsel roles with regard to qualifications and potential conflicts of interest.

Making this all the more simultaneously entertaining and disturbing is BP's decision as a party to the settlement to not only change its mind on supporting it through the appeals, but to actually initiate a massive multi-million dollar advertising campaign maligning the very settlement its attorneys spent a year formulating. Adding flavor to the carnival atmosphere, allegations of fraud and coercion at every level of the process are now running rampant—so much so that the trial court felt it incumbent to invite Louis Freeh's auditing and investigation company (PDF) into the fray. BP points fingers at insider trading amongst members of the class administrator's team and ad hoc examples of cases approved for payment that it maintains are fraudulent (not fraud as a layperson would appreciate, but fraud in that a claimant submitted a case which fit the definitions and methodology within the class but should curiously be denied as insufficiently tied to the oil spill). While it is very clear from the trial court record and the agreement itself that this was an intended consequence of the deal, when more and more claims of more and more value began hitting the Claims Administrator's desk, BP found itself in the unenviable position of trying to renege on its own deal, one that it agreed to pay a whopping $600 million to class counsel the before just for securing it. Undoubtedly there is also some rub from the fact that the Claims Administrator's operational costs alone are running another $500 million per year just to run the program.

Compounding this turn of events, BP has been boxed into other tough decisions. Although these tactics may put at least a temporary finger in the claims payment dike, they undoubtedly further frustrate the trial court, which still handles oversight of enormous potential liabilities pending in the MDL court while innumerable still unresolved cases remain pending in other categories of claims.

Not to be satisfied with this level of public and judicial bemoaning, on top of targeting legally valid claims to harpoon in full page advertisements within the New York Times and other high distribution outlets, BP has additionally pointed to members of the plaintiff's legal team as a source of further fraud at BP's expense. Never mind that, at the time of the spill, BP was still serving a term of probation with federal authorities for fifteen counts of felony manslaughter stemming from the 2005 explosion at its Texas City Refinery. Never mind that BP had been caught misleading Congress over the amount of oil spewing from the ill-fated Deepwater Horizon rig and its complicity in corner-cutting safety precautions resulting in eleven more fatalities the same day that it was passing out safety awards.

So what does one make of this? Granted, BP needs closure to this debacle. The potential bloodletting of capital from this disaster and subsequent mismanagement stands to pour out similar to the rig blowout itself. Every day of delays in the appeal process extends deadlines for remaining claimants to remit claims. A decision by a serial felon in a disliked and distrusted industry to play the victim's role is a risky proposition. Making a 180 degree turn on its own agreement while many other issues remain pending with the trial court amounts to throwing caution to the wind, to say the least.

Granted, a conservative appellate court system, including the conservative Supreme Court, looms large. Justice Antonin Scalia may well desire to review the entire affair with a court that has already revisited Rule 23 several times recently, and against the backdrop of Comcast and Walmart, could certainly scrutinize many facets of this settlement, as well as other putative settlements that may still remain on the trial court's drawing board. Does BP think that advertisements of protestation in New York and Washington will have a positive impact down the road? Maybe so. It does vaguely smell of the story line in John Grisham's novel, The Pelican Brief, also based on litigation arising out of Louisiana. Make plans now for issues years down the road. International oil companies don't become $500 billion per year enterprises without at least trying to plan in advance.

Clearly, what we do face now is a problem that Congress thought it fixed in 1990 through passage of the Oil Pollution Act. Recognizing the woes of protracted litigation in the Exxon Valdez spill, Congress passed legislation designed to make the process simple and swift. The negligence issues were circumvented with a strict liability standard and claims were allowed to proceed through a claims process outside of litigation. BP initiated such a process early in this matter with the creation of the Gulf Coast Claims Facility. Yet, after only a year of operations, it was shut down, essentially overnight, and substituted with the present "deal," one that BP surely believed was a good idea at the time. Capture as many claims as possible in a process that kept it away from potential jury trials—a process actually endorsed by the trial lawyers involved following an agreement to pay them $600 million for their efforts. Now BP faces buyer's remorse. Maybe its strategies of public appeals and sympathy will salvage its brand name. Maybe the delays will at least slow the train of new claims entering the process. Maybe the money spigot will be tightened, letting BP delay the inevitable and temporarily shore up its stock values and bond ratings. Maybe it will simply provide time for the present managers to line up another round of golden parachutes.

So while BP has effectively shut down any payments in the class, what is happening to the thousands and thousands of claims excluded from those settlements by election or intent? Nothing. BP is supposed to independently review and negotiate those cases and has instead chosen to put them on the back burner. With the trial court struggling to keep order due to the constant jockeying, most resolution matters are at an impasse. Even recent efforts by Louisiana's Attorney General to transfer the pending claims to another court for expediting were denied. If BP's ultimate goal was to stall as long as possible and as often as possible, then maybe it isn't as dumb as one might believe.

Brent Coon is the founder of Brent Coon & Associates. He has recovered in excess of a billion dollars for victims of catastrophic injury, occupational disease, pharmaceutical harm and environmental pollution. He is well known as a legal expert in the petrochemical industry.

Suggested citation: Brent Coon, The Irony and Agony of the BP Oil Spill Economic Class Settlement, JURIST - Sidebar, Feb. 1, 2014, http://jurist.org/sidebar/2014/02/brent-coon-bp-settlement.php.


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