Earlier this month, BP Deepwater Horizon Claims Administrator Patrick Juneau submitted his proposed rules for implementing Judge Barbier’s Order requiring claimants’ revenues to be “matched” to expenses.
The word “match” nowhere in Settlement Agreement
Judge Barbier initially ruled against BP’s request for this so-called “matching” of expenses to revenues. However, after a controversial ruling by the 5th Circuit Court of Appeals in October, Judge Barber was asked to revisit the issue.
While the clear language of the 1,200 page Settlement Agreement fails to contain the word “match” or “matching,” and Judge Barbier concluded that neither party, BP nor counsel for the plaintiffs, ever discussed the issue, he nevertheless reversed his previous decision and found that unmatched profit and loss statements must indeed be “matched.” He then directed Claims Administrator Juneau to devise a policy and procedure to accomplish the task.
Policy 495 is overkill
Following that mandate, the Claims Administrator issued Proposed Policy 495 which purports to “match” otherwise “unmatched” profit and loss statements. The policy adds nearly 100 additional pages to the already voluminous Settlement Agreement.
Unfortunately, the complexity of the policy will likely prove unworkable in the real world, as it treats certain industries more favorably than others, seeks financial documentation not required by the controlling Settlement Agreement, expands the applicable forensic accounting time periods well beyond the years 2007 through 2011 agreed upon in the Settlement Agreement, and in some instances will be applied retroactively to determine causation, something outside the scope of the controversy involving the compensation formula.
Not surprisingly, BP fully supports the proposal, which is telling of its devastating impact, particularly on small business claims. In short, it is a real mess.
“Matching” makes Settlement Agreement unrecognizable
Class Counsel (the attorneys representing plaintiffs harmed by the spill) have appealed the proposed policy to Judge Barbier. Until resolved, no Business Economic Loss (BEL) claims are likely to be paid and the timeline for resolution is unknown.
Of very real concern for the tens of thousands of claimants who relied on the clear and unambiguous language of the Settlement Agreement and the application of the previously controlling objective claim qualification standards is how their claims will be treated under this proposed policy. Many of these claimants may have otherwise opted out of the Settlement had they known of the potential for adverse accounting treatment. Unfortunately, the opt-out date has long since passed and claimants are now stuck in a take it or leave it posture.
What’s the fix?
Proposed Policy 495 exceeds the authority of the Claims Administrator to interpret and implement the Economic & Property Damages Settlement Agreement. The Claims Administrator is to “faithfully implement and administer the Settlement, according to its terms.”
The Court, having approved the Settlement, should enforce the agreement as bargained for, and not modify any of its substantive provisions. The policy fundamentally and materially departs from the controlling Settlement Agreement, even as interpreted by the U.S. Fifth Circuit and Judge Barbier upon remand.
The Claims Administrator and the Court should:
- Limit the Matching Triggers and Policies to Cash Basis Claims, allowing Accrual Basis Claims to be submitted, processed and paid under the established methodologies
- Achieve matching, where required, through the re-allocation of Expenses only, without averaging, smoothing, re-allocating or otherwise moving Revenues that were properly recorded in accordance with an accepted Cash, Accrual, Percentage-of-Completion, or other accepted Accounting Methodology; and
- Utilize the Annual Variable Margin Methodology for all un-matched Claims, without resorting to different Construction, Agricultural, Educational or Professional Services Frameworks which were never negotiated nor agreed to, and are in many ways inconsistent with the Settlement Agreement.
In the alternative, the Claims Administrator and the Court should, at the very least:
- Limit the matching generally – and any Revenue adjustments in particular – to the specific transaction or transactions which ‘triggered’ or caused the Claim to be “un-matched”, rather than re-calculating the entire Claim; and
- Not re-visit Causation under Exhibit 4B where Contemporaneous P&Ls objectively indicate a loss caused by the Spill.