American Bar Association
Media Alerts
Media Alerts - In re Deepwater Horizon - Fifth Circuit
Decrease font size
Increase font size
October 3, 2013
  In re Deepwater Horizon - Fifth Circuit
Headline: Troubled by the Administration of the Deepwater Horizon Settlement Agreement, the Fifth Circuit Orders a Halt to Some Payouts.

Area of Law: Settlement; Environmental.

Issue Presented: Whether the Deepwater Horizon settlement administrator erred by calculating some claimants' economic losses without matching revenues with associated expenses.

Brief Summary: This case involves a dispute over settlement payments to businesses claiming economic injury from the 2010 Deepwater Horizon disaster. BP raised concerns about the administration of the settlement agreement, claiming that the settlement's Administrator was calculating compensation on a cash basis, rather than by requiring the matching of expenses and revenues. The parties and the Administrator could not come to an agreement over how to handle the claims, and they referred their dispute to the U.S. District Court for the Eastern District of Louisiana, which had retained jurisdiction to resolve disputes over the claims process. The district court affirmed the Administrator's approach, holding that revenues and expenses need not be matched. BP then filed a breach of contract claim against the Administrator and a motion for a preliminary injunction to enjoin the Administrator from implementing the settlement in accordance with its announced approach. The Administrator filed a motion to dismiss BP's claim. The district court granted the Administrator's motion. BP appealed to the U.S. Court of Appeals for the Fifth Circuit. The Fifth Circuit was troubled by several features of the district court's interpretation of the agreement and found the agreement ambiguous on some points the district court had interpreted in the claimants' favor. The court of appeals remanded the case to the district court to develop a more complete factual record regarding the meaning of the settlement agreement. The court also reversed the denial of the preliminary injunction, requiring the district court to halt payments during the proceedings on remand.

Extended Summary: This case involves a claims settlement dispute arising from the 2010 Deepwater Horizon disaster. BP established and funded its own claims process to begin paying out claims immediately instead of at the conclusion of litigation. In February 2011, BP began negotiating a class settlement and in March 2012, the U.S. District Court for the Eastern District of Louisiana granted the parties' request to implement a process to transfer claims to a court-supervised program. Both parties filed notice of their proposed settlement and the district court directed the settlement's Administrator to begin processing claims in June 2012. BP raised concerns about the claimants' accounting methods and believed that those methods could cause erroneous variable profit calculations. Specifically, BP requested the Administrator to consider the issue of "assignment of revenue to the proper months" and the "proper matching of revenue and corresponding expenses." BP believed that the Administrator was calculating some claimants' compensation based only on cash receipts and cash disbursements. BP contended that a claimant's expenses must be "matched" to corresponding revenue; i.e., even if a business operated on a cash-basis system, the revenues and expenses related to a certain transaction should be matched in order to correspond to economic reality. The Administrator issued a policy announcement stating that he would "typically consider both revenues and expenses in the periods in which those ....were recorded at the time," and would "not typically re-allocate such revenues and expenses to different periods." BP alleged that the Administrator misinterpreted the terms of the settlement.

The parties and the Administrator could not come to an agreement, and the dispute went to the district court. The district court affirmed the Administrator's policy announcement, holding that revenues and expenses need not be matched. BP filed a motion to reconsider, which the court denied. BP then filed a breach of contract claim against the Administrator and an emergency motion for a preliminary injunction to enjoin the Administrator from implementing the settlement in accordance with its policy announcement. The Administrator filed a motion to dismiss BP's claim on the basis of failure to state a claim. The district court granted the Administrator's motion, stating that the Administrator could not breach the settlement by interpreting it in compliance with the district court's order. BP appealed the district court's order affirming the Administrator's interpretation of the settlement, its order granting the Administrator's motion to dismiss, and its order denying the preliminary injunction.

On appeal, the U.S. Court of Appeals for the Fifth Circuit found that the settlement agreement was ambiguous in certain respects. Based on the available record, it could not determine with an adequate level of certainty whether a principle for matching expenses and revenues should apply to all claims, and it remanded the case to the district court to develop a more complete factual record regarding the meaning of the settlement agreement. Although the Fifth Circuit did not definitively construe the settlement agreement at this time, it raised a number of serious concerns that it required the district court to consider on remand. In a portion of the opinion that did not gain the adherence of the other panelists, Judge Clement additionally expressed concerns that the district court's interpretation may call into doubt the settlement's validity by allowing payouts to some claimants who were not injured at all. The Fifth Circuit reversed the denial of the preliminary injunction on the grounds that the issue involves a serious legal question and the balance of the equities heavily favors a halt to contested payouts while the district court proceeds on remand.

For the full opinion, please see: http://www.ca5.uscourts.gov/op...ub/13/13-30315-CV0.pdf.

Panel: Circuit Judges Dennis, Clement, and Southwick

Argument Date: 7/8/2013

Date of Issued Opinion: 10/2/2013

Docket Number: No. 13-30315

Decided: Affirmed in part, reversed in part, and remanded

Case Alert Author: Barira Munshi

Counsel: Stephen Jay Herman, Herman, Herman & Katz, for Plaintiffs - Appellees Lake Eugenie & Land Development, Inc., Bon Secour Fisheries, Inc., Fort Morgan Realty, Inc., LFBP 1, L.L.C., Panama City Beach Dolphin Tours & More, L.L.C., Zekes Charter Fleet, L.L.C., William Sellers, Kathleen Irwin, Ronald Lundy, Corliss Gallo, John Tesvich, Michael Guidry, Henry Hutto, Brad Friloux, and Jerry J. Kee; Theodore B. Olson, Gibson, Dunn & Crutcher, for Defendant-Appellant BP Exploration & Production, Inc., BP America Production Company, and BP Pipe Line Company.

Author of Opinion: Judge Clement (Southwick, concurring; Dennis, concurring in part and dissenting in part)

Case Alert Circuit Supervisor: Aaron-Andrew P. Bruhl

Edited: 10/07/2013 at 04:35 PM by Media Alerts Moderator

    Posted By: Aaron Bruhl @ 10/03/2013 09:57 PM     5th Circuit  

FuseTalk Enterprise Edition - © 1999-2018 FuseTalk Inc. All rights reserved.

Discussion Board Usage Agreement

Back to Top