Nation & World

BP, claiming fraud, wants to stop oil-spill payments

The Deepwater Horizon settlement agreement is in turmoil, with BP attempting to stop the payments and saying money shouldn’t have gone to an adult escort service, a global nuclear consultant and others that haven’t proved the monster 2010 oil spill in the Gulf of Mexico cost them business.

BP is waging an aggressive campaign in the courts and the news media against the settlement it signed two years ago. The company agreed to the settlement under pressure as claims mounted from the oil rig explosion that killed 11 workers, led to the biggest environmental disaster in U.S. history and did major economic damage to businesses in the region.

When it signed the settlement, BP expected a cost of about $7.8 billion. But it soon became clear that payouts would swell. Now BP is in court arguing that the claims administrator and the judge overseeing the settlement are misinterpreting the terms of the deal. The company is trying to convince a federal appeals court to block payments to companies that can’t prove the spill caused their losses.

“BP has been ordered to pay hundreds of millions of dollars – soon likely to be billions – of fictitious and inflated losses,” the company argues.

Blaine LeCesne, a law professor at Loyola University in New Orleans who’s followed the case closely, said BP was trying to back out of the settlement terms it had signed.

“It’s a mess. It’s a total mess.” LeCesne said .

The class action settlement, which BP reached with private plaintiff’s lawyers, never said that companies must prove the spill directly caused their losses, LeCesne said.

That’s because the only way to prove such a thing is through a trial, he said. And going through trials in tens of thousands of cases would be long and expensive. Instead, he said, BP and the plaintiffs agreed to a formula where, if a business met the criteria, its loss was presumed to be a result of the 2010 spill.

The formula takes into account the business’s distance from the Gulf and compares revenue for certain months before and after the spill. Businesses in Louisiana, Mississippi, Alabama and some counties on the west coast of Florida and in southeastern Texas are eligible to apply under the formula. The names of the businesses and the amounts they received are confidential, but some details have become public as a result of the battle between BP and the claims administrator.

Lawyers saw a shining opportunity in the broadness of the settlement terms. A Tampa, Fla., law firm declares to potential clients that “Your business may be eligible for compensation even without a loss related to the spill.”

“A Tampa dentist or Dade City print shop with a dip in 2010 revenue may qualify even if the dip had nothing to do with the BP oil spill,” the firm trumpets.

A Tallahassee, Fla., law firm solicited potential clients with an advertisement that said, “Your losses don’t have to be directly traceable to the oil spill.”

BP is taking out full-page advertisements in The New York Times, The Washington Post and The Wall Street Journal, alleging that more than $500 million has been paid in undeserving claims, some to businesses far from the Gulf and others with no real losses. BP is targeting claimants who range from celebrity chef Emeril Lagasse to a Florida RV park owner.

One advertisement complains that an adult escort service received $173,000 with a claim based on sloppy tax returns.

“The IRS wouldn’t accept this claim,” BP said in the ad. “But the Gulf Settlement Program did.”

BP is attacking the office set up to approve the claims, even suggesting in an ad that two senior officials there resigned after entertaining subordinates at a New Orleans strip club that had received settlement money, a claim denied by the officials who left.

Former FBI head Louis Freeh, whom a judge appointed to investigate alleged misconduct in the claims office, has found that top staffers engaged in unethical conduct, although he didn’t implicate the claims administrator, Patrick Juneau.

The New Orleans judge who oversees the claims process, U.S. District Judge Carl Barbier, is defending the payouts. The judge ruled on Christmas Eve against BP’s argument that businesses should have to show the spill caused their losses, writing that “would bring the claims administration process to a virtual standstill.” BP is asking an appeals court to overrule him.

BP said it wasn’t trying to back out of a deal, just to make sure it wasn’t bilked by fraudulent claims. BP said in a statement that this “was not the settlement the company agreed to. BP agreed to a settlement that would pay legitimate claims for real financial losses due to the spill, not fictitious losses based on cash receipts that do not reflect economic reality.”

Edward Sherman, a law professor at Tulane University in New Orleans who’s tracking the case, said in an interview that BP didn’t anticipate how far the settlement would go, with businesses claiming millions of dollars in losses without tracing them to the spill.

“I think it’s in part that BP didn’t fully realize how this could run up the bill until the claims started being paid,” he said. “In some ways, it may be that BP has just had regrets that they entered into this agreement.”