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Alexandra Lahav
Alexandra Lahav
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Professor Lahav: The ideas that underly BP’s cert petition don’t make sense

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The papers in the Deepwater Horizon Settlement cert petition are mostly in. The case is BP Exploration & Production Inc. v. Lake Eugenie Land & Development, Inc. — you can find the documents on SCOTUSBLOG.

BP’s basic argument is that the settlement approved by Judge Barbier in the mass tort class action against it was ultra vires because it contemplated giving money to people who were, according to BP, not injured. The plaintiffs respond that BP is just trying to overturn a settlement it championed through the backdoor now that its unhappy with the deal.

One of the most interesting briefs filed in this dispute is from Kenneth Feinberg, who oversaw both the 9/11 Victims Compensation Fund and the Gulf Coast Claims Facility. The latter was the entity that settled claims arising out of the Deepwater Horizon oil spill immediately after it happened.

Feinberg is a world class mediator and one of the most prominent figures in the mass tort world. The class action settlement that BP is now disputing is the successor to the Gulf Coast Claims Facility, which he headed. What the class action did that the Gulf Coast Claims Facility could not do is give BP global peace. In other words, all civil claims against BP arising out of the oil spill are precluded by that class action settlement.

Feinberg’s brief asks the Supreme Court to grant cert. The argument is basically the following: claim facilities like the ones he ran apply a causation requirement that parallels that of the tort system. But, he argues, the settlement agreed to by BP does not include as strong a causation requirement, and this threatens the possibility of future compensation funds to solve mass torts. The brief explains:

..the Fifth Circuit’s decisions in this case affecting the causation standard, if permitted to stand, threaten to make these sorely needed alternatives to mass tort litigation unlikely to be replicated. Future funds would either adopt the Fifth Circuit’s new standard, thereby threatening to overwhelm the claims process with spurious claims, or continue to require causation, thereby channeling claimants toward litigation where the burden of proof is lower. (Feinberg petition at 6).

This argument seems to me to be just wrong. The settlement imposed a looser causation requirement than tort law requires. But that causation requirement was agreed to in order for claimants collect under the settlement; it is not the causation requirement of the substantive law. In the future, if a defendant preferred to create a settlement fund of the Feinberg-ian variety, they could do so and rest “easy” that the causation requirement of the substantive law remains as it always was. (Whether the requirement of specific causation is the best requirement from a normative point of view in mass tort litigation I leave to another day).

There is no risk that this settlement will affect future litigation because it is a settlement – the defendant participated in crafting and agreed to the causation requirement applied in the claims facility created by the settlement. One might say it is a form of private lawmaking only applicable to these parties. If a future mass tort defendant doesn’t like this type of loosened causation requirement, they don’t have to agree to it. In fact, they are free to say “we’ll litigate every case” as Merck did for five years in the Vioxx mass tort and then in each and every case the standard causation requirement of the tort law in the relevant jurisdiction will apply.

And what of the argument championed by BP that the settlement pays people who were not injured in fact? Welcome to the world of settlements, Dorothy. What happens in a settlement is this: each party has a sense of what the case is “worth” – that is, the likely result at trial. They discount that amount by the risk of loss. Then they subtract from that discounted amount their transactions costs (the costs of litigation). If the resulting number is close for both parties, they settle. See Steven Shavell, Foundations of the Economic Analysis of Law, 401-407 (2004). If they settle, they don’t litigate. When they don’t litigate, there is no trial.

A settlement means that the plaintiff never has to prove causation, or any other element of her cause of action. If the BP settlement violates Article III because plaintiffs didn’t prove their legal entitlements, then every settlement violates Article III. The reason is that in no settlement does plaintiff ever prove that they are entitled to compensation because the very purpose of the settlement is to avoid trial. A plaintiff’s entitlement at settlement is always uncertain. If settlements in general are constitutional, then so is this one.

A class action settlement is different than an ordinary settlement because it requires judicial approval. But does that judicial approval require that plaintiff establish injury? Here is the requirement for judicial approval of class action settlements: “If the settlement would bind class members,” then the court needs to determine at a fairness hearing that the settlement is “fair, reasonable and adequate.” Fed. R. Civ. P. 23(e)(2). The reason that a fairness hearing is only required “if the settlement would bind class members” is that the purpose of the hearing and approval process is to protect absent class members who are to be bound, but are not before the court to state their objections. This requirement is not meant to protect defendants, who are certainly well able to defend their interests and state their objections before the court.

And what was the benefit to BP? Why would BP enter into such a settlement? They wanted global peace. Only a class action settlement can provide that. They were willing to pay a high price for global peace at the time. Now things are different for BP, time has passed and it is in a better position than it was when it made this agreement, but that doesn’t make the agreement unconstitutional or violative of the class action rule.

I hope the Supreme Court does not grant certiorari because the Fifth Circuit correctly rejected these claims. The ideas that underly the BP cert petition don’t make sense in a litigation system that permits settlement. And they don’t make sense under modern jurisprudential understanding of what a right is. People can sue when they think they have a right that has been violated. If the lawsuit goes to trial, then plaintiff will have to meet their burden of proving that they in fact (1) have a right and (2) it was violated. (Actually, they will likely have to show that they have a colorable case long before then). At the beginning of the litigation these things are uncertain. Uncertainty is the space in which settlements happen.

About the author: Alexandra Lahav is the Joel Barlow Professor of Law at the University of Connecticut School of Law. Professor Lahav received her B.A. in history from Brown University and graduated magna cum laude from Harvard Law School. She is an expert on civil procedure and complex litigation. Her research primarily focuses on procedural justice and the limits of due process in class actions and aggregate litigation. Her work has been cited in Federal District Court opinions, academic articles and treatises and she regularly presents to academics and practitioners. She is an editor of the Law Professor Blog Network’s Mass Tort Litigation Blog.

6 Comments

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  1. up arrow

    […] there is nothing in BP’s Petition for a Writ of Certiorari with the Supreme Court that should interest the …. There are no compelling reasons to hear this case, despite BP’s theatrical protestations to the […]

  2. up arrow

    […] Legal Examiner edition back in April 2014. While at the time the 5th Circuit was considering BP’s nonsensical arguments, that Court subsequently came to the reasoned conclusion that, “There is nothing […]

  3. Joe says:
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    Doesn’t the OPA create one of the bases for economic recovery without direct causation that was at the heart of the negotiations of this settlement? Thus, not only the standards of class actions generally, which is to avoid protracted litigation, and settlements, where parties contract to resolve without admission of fault or (if agreed to) proving of causation, but also the OPA, come together to provide for exactly what the parties agreed to.

    I still find it so bizarre that a global giant like BP can claim mistake or error in the settlement given the legion of legal and financial reps it had involved in the process.

  4. Ron says:
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    “And what was the benefit to BP? Why would BP enter into such a settlement? They wanted global peace. Only a class action settlement can provide that.”

    Close, but not quite. BP never expected “global” Macondo litigation peace from the 2012 class settlement it negotiated, because the settlement class did not include all Macondo plaintiffs who were suing BP. But it did seek closure with the settling class, plus some valuable strategic benefits that would help it in its 2013 trial against non-settling entities like the DOJ, the 5 gulf states, opt-out plaintiffs, etc.

    http://batonrouge.legalexaminer.com/toxic-substances/bp-settlement-maybe-this-guy-should-get-his-own-column/

  5. John says:
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    In two years Feinberg “settled” (many claim duress) more than 200,000 claims paying out over $6 billion dollars. Less than 250 business claims over $500,000 were paid. Feinberg in personal conversation told this Claimant that he (Feinberg) did not believe his claim program was the right venue for solving business claims explaining the obvious dearth of business settlements. Feinberg had the first opportunity and responsibility to settle all BP claims, failed, and now wants to terminate his successor’s effort. Feinberg’s audacious actions continues the pattern of blind obedience to his BP master and should be considered for what it is – a commercial shilling by a paid BP agent.

  6. Ron says:
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    Amen. No problem with Feinberg’s premise that settlements should be encouraged as a matter of public policy. But his argument is that the BEL settlement as it’s currently being interpreted and enforced (i.e., without any “causation” requirement beyond the negotiated “V” formula) will have a chilling effect on future class action settlements.

    Really? Isn’t the lesson for parties to future class action settlements that to avoid a repeat of BP’s problem they should negotiate some sort of causation determination process into their deals (as opposed to simply waiving causation, or substituting an economic formula for causation, as happened in BP’s deal)? Why does Feinberg assume that any defendant’s proposal for a reasonable causation-determination process would be a deal-breaker for future class-plaintiffs?

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