BP Loses Appeal to Undo Spill Settlement

, The Litigation Daily

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BP's strategy of trying to convince the U.S. Court of Appeals for the Fifth Circuit to rescue it from its own settlement of Deepwater Horizon claims has run into trouble.

Late Friday the Fifth Circuit refused to unravel the class action settlement that British Petroleum Exploration & Production Inc. signed in December 2012 to resolve thousands of business loss claims filed in the wake of the oil disaster. In a 2-1 ruling, the court rejected the arguments of BP's lawyer, Theodore Olson of Gibson, Dunn & Crutcher, that the class was improperly certified because it includes claimants whose losses weren't caused by the oil spill.

Over the past year, BP has insisted that it never intended to pay claims of businesses whose losses weren't caused by the 2010 spill. In the alternative, it has argued that even if it did originally agree to pay those claims, the settlement must still be voided because it would violate the Constitution to include such claims. New Orleans U.S. District Judge Carl Barbier has repeatedly rejected those arguments and refused to upend the settlement. He found that BP agreed to allow all claims to be processed using an objective, mathematical formula, and was well aware that this could result in the payment of some claims that weren't caused by the oil spill.

The settlement doesn't include a cap that would limit BP's liability for these business claims. It initially estimated it would pay $7.8 billion under this deal, but in a recent filing, it has increased that figure to $9.2 billion.

While Kirkland & Ellis negotiated the settlement, the company brought in Gibson Dunn's Olson for its appeals. In its ruling Friday, the Fifth Circuit majority at times chastised BP for raising "nonsensical" arguments and engaging in a "significant distortion" of a recent U.S. Supreme Court ruling.

The majority stressed at the start of its ruling that BP never objected in October 2012 when the claims administrator issued a policy statement explaining that he would apply the agreed-upon formula "without regard to whether such losses resulted or may have resulted from a cause other than the Deepwater Horizon oil spill." (Under the formula, businesses in certain locations can qualify for an award if they show that their profits fell and then rebounded by a given amount after the spill.)

The Fifth Circuit held that a settlement that paid some claims not caused by the spill wasn't barred by recent Supreme Court rulings such as Dukes v. Wal-Mart and Comcast v. Behrends. "Class certification is not precluded simply because a class may include persons who have not been injured by the defendant's conduct," the court wrote. Each class member doesn't have to submit evidence of standing as long as it can allege standing, the court stated. The ruling was written by Judge W. Eugene Davis and joined by Judge James Dennis.

The Fifth Circuit also dispensed with BP's argument that the settlement must be undone because it's not fair and reasonable, as required by the law. The court pointed out that this provision is intended to protect class members, not the defendant. "No case cited by BP … suggests that a district court must also safeguard the interests of the defendant, which in most settlements can protect its own interests at the negotiating table," the court wrote.

In a dissent, Judge Emilio Garza wrote that without an actual causation requirement as part of the settlement, the government is impermissibly "administering a private handout program."

BP has an appeal pending before a different Fifth Circuit panel that has been asked to review Barbier's interpretation of the settlement agreement. The company did win an appeal from that panel in October, with the court instructing Barbier to hold off paying claims not supported by accounting methods relating to the matching of revenue with expenses.

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