BP Oil Spill Payouts Slowed for Review of Tenuous Claims - In House
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BP Oil Spill Payouts Slowed for Review of Tenuous Claims

It's hard to feel bad for a multi-billion dollar oil titan whose Deepwater Horizon mishap caused immeasurable damage to the Gulf Coast, its ecological system, and the thousands of businesses that operate in the area, but let's give credit where credit is due: they are paying billions for their mistake.

The problem is, they may be paying too much. The Fifth Circuit Court of Appeals just ordered the district court to issue an injunction to halt payouts in certain cases, after BP complained of tenuous claims being upheld by the claims administrator and the court's loose interpretation of the settlement agreement. In one claim cited by Bloomberg, there was a $21 million payout to a rice mill 40 miles inland, which actually had increased revenue the year of the spill.

"Fictitious or Wholly Non-Existent Losses"

"Today's ruling affirms what BP has been saying since the beginning: claimants should not be paid for fictitious or wholly non-existent losses," Geoff Morrell, a BP spokesman, told Bloomberg.

That's the short version of the Fifth Circuit's 2-1 opinion, which reversed District Court Judge Carl Barbier in part, and affirmed the dismissal of a lawsuit against the claims administrator, attorney Patrick Juneau. The dissent would have deferred to the lower court's judgment.

The legal dustup came after Juneau, relying on the lower court's expansive interpretation of the settlement agreement, approved some claims that BP argues wouldn't be provable in court due to a lack of direct causation, and which relied on companies' own internal accounting. The Fifth Circuit's majority called Juneau's math "completely disconnected from any reasonable understanding of calculation of damages."

Effect on Payouts

The majority's holding, stating, "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," provides a template for the lower court.

Though the Fifth Circuit merely ordered Judge Barbier to issue a narrow temporary injunction and to review the claims criteria, based on the Fifth Circuit's language, it's almost certain that future claims will have to prove harm directly caused by the BP oil spill.

That's good news for BP, as it limits their exposure, but it raises the bar for potential claimants who may have proof-of-causation issues, such as one might see with a new business with no revenue history.

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