An excellent piece appeared in The Litigation Daily last month that explained how BP has been pulling out all stops in an effort to get out of an agreement that it not only agreed to, but actually helped draft. BP’s lawyers actively promoted the agreement to Judge Carl Barbier for approval. The article by Susan Beck is set out below.
Fifth Circuit To BP On Oil Spill Deal: Live With It
If you still read print newspapers, then you’ve probably seen those full-page BP plc ads in which the company blasts the Deepwater Horizon claims settlement process. BP has condemned this court-supervised process by claiming that it repeatedly allowed bogus awards for losses not caused by the 2010 Deepwater spill in the Gulf of Mexico. In design and substance, the ads are perfectly executed to provoke outrage against plaintiffs and their lawyers and garner sympathy for the oil giant. In a word, they’re masterful.
But BP may have forgotten that a media campaign isn’t a legal strategy. On Monday, the company stumbled with an embarrassing loss before the U.S. Court of Appeals for the Fifth Circuit, as my colleague Amanda Bronstad at The National Law Journal reported. In a 2-1 ruling, the court told BP that it has no one to blame but itself for the claims process that it rails against: You may not like how this settlement has worked out for you, the court told BP, but you’re stuck with the agreement you signed.
The reason this is such bad news for BP is because, in an unusual move, it agreed not to cap its liability when it negotiated the settlement in 2012. It’s obligated to pay all valid claims, no matter how large that total may ultimately be. At the time of the settlement, BP estimated it would pay $7.8 billion; last year it raised that estimate to $9.2 billion.
The case is complicated, but in a nutshell the Fifth Circuit was asked to interpret the settlement agreement’s causation requirements. BP argued that businesses are only entitled to a payout if they can show that their losses were actually caused by the spill. The plaintiffs countered that the two sides had painstakingly developed a series of formulas intended to be used as a substitute for proof of actual causation. If a plaintiff passes these formulaic tests (which look at a business’ drop in revenue after the spill), they can qualify for an award. These tests, the plaintiffs pointed out, were intended to simplify and streamline the processing of more than a quarter of a million claims. (For a more lengthy analysis of the BP case, you can read my feature article in the current issue of The American Lawyer.)
Siding with the plaintiffs on Monday, the Fifth Circuit majority didn’t even find it a close call. The two judges neatly shot down BP’s arguments and held that the settlement clearly doesn’t require proof of actual causation, dissolving an injunction that had stopped the payment of claims. “The settlement agreement contained many compromises,” the court wrote. “There is nothing fundamentally unreasonable about what BP accepted but now wishes it had not.” BP said it disagrees with the ruling and is considering its appellate options.
The Fifth Circuit’s decision is vindication for U.S. District Judge Carl Barbier in New Orleans, who vigorously rejected BP’s arguments on the settlement’s causation requirements. In some of the harshest language that I’ve seen a federal judge direct at a major company and its lawyers, Barbier came close to accusing BP and its counsel of lying to the courts. In a ruling last November, the judge accused them of making a “startling reversal” of position on the settlement’s causation requirements and of contradicting their earlier stance before the court. He called their actions “deeply disappointing.”
It’s worth noting that while Kirkland & Ellis took the lead for BP in negotiating the settlement, Gibson, Dunn & Crutcher has steered the case since last spring. Gibson Dunn—which today won a big victory for client Chevron Corp. in the Ecuadorean pollution case—has developed a reputation for using tough tactics to discredit its clients’ adversaries. To its credit, Gibson Dunn did win an earlier Fifth Circuit appeal for BP on the accounting method used to process claims. But on the causation issue, the firm’s efforts have so far landed with a thud—and have risked alienating Barbier. That’s a big risk because Barbier is also overseeing civil lawsuits brought by the federal government and several Gulf Coast states against BP, where the company’s liability could reach $17 billion.
There are many fascinating developments to watch in this case, including whether BP will face any consequences for its “startling reversal” of position before the courts. I also wonder if BP will one day decide to point the finger at Kirkland, regardless of whether that’s fair. When I asked the company on Tuesday if it believes Kirkland sufficiently protected BP’s interests when it drafted the settlement agreement, the company responded with a press release that did not address the question.
The ruling by the 5th Circuit was a devastating blow for BP, but it was a result the giant oil company’s lawyers had to know was coming. In another significant ruling, Judge Carl Barbier last month denied BP’s bid for additional oversight of the claims center overseeing the economic loss settlement. BP’s request to adopt several recommendations that it had claimed would serve as a “necessary starting point” to ensure the integrity of the court-supervised settlement program and establish procedures to better assess claims was rejected.
Source: The Litigation Daily. Summary Judgment is American Lawyer senior writer Susan Beck’s regular opinion column for the Litigation Daily.
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