The Donovan Law Group

The Gulf Coast Claims Facility Limits BP’s Liability and Guarantees the Oil Company’s Continued Operation in the Gulf of Mexico

The Gulf Coast Claims Facility Limits BP’s Liability
and
Guarantees the Oil Company’s Continued Operation in the Gulf of Mexico

________________________

The Obama Administration Has Acquired a Vested Interest in
Ensuring the Financial Well-Being of BP

By Brian J. Donovan

August 23, 2010

INTRODUCTION

On June 16, 2010, President Obama announced that BP has agreed to set aside $20 billion to pay economic damage claims to individuals and businesses affected by the Deepwater Horizon incident.

President Obama stated, “This $20 billion will provide substantial assurance that the claims people and businesses have will be honored. It’s also important to emphasize this is not a cap.  The people of the Gulf have my commitment that BP will meet its obligations to them. BP has publicly pledged to make good on the claims that it owes to the people in the Gulf, and so the agreement we reached sets up a financial and legal framework to do it.

Another important element is that this $20 billion fund will not be controlled by either BP or by the government. It will be put in a escrow account, administered by an impartial, independent third party. So if you or your business has suffered an economic loss as a result of this spill, you’ll be eligible to file a claim for part of this $20 billion. This fund does not supersede either individuals’ rights or states’ rights to present claims in court. BP will also continue to be liable for the environmental disaster it has caused, and we’re going to continue to work to make sure that they address it.”

BP and the Obama administration agreed to appoint Kenneth Feinberg, a Washington lawyer and Democratic Party supporter who administered the claims process for victims of 9/11, to run the independent claims process known as the Gulf Coast Claims Facility (GCCF).

As of August 19, 2010, approximately four months after the date of the Deepwater Horizon incident, BP had made 153,650 payments to claimants for a total amount of $389 million. This equates to an average of only $2,532 per payment!

Effective August 23, 2010, GCCF will be the only authorized organization managing individual and business claims related to the Deepwater Horizon incident. GCCF is intended to replace BP’s claims facility for individuals and businesses. Feinberg alleges GCCF is structured to be compliant with the Oil Pollution Act of 1990 (OPA).

This article briefly addresses: (a) how GCCF limits BP’s liability via the systematic postponement, reduction or denial of claims against BP; (b) how GCCF guarantees BP’s continued long-term operation in the offshore Gulf of Mexico E&P sector; and (c) why GCCF is not necessary to ensure that victims of the BP oil spill are fully compensated for incurred damages.

HOW GCCF LIMITS BP’S LIABILITY VIA THE SYSTEMATIC POSTPONEMENT,
REDUCTION OR DENIAL OF CLAIMS AGAINST BP

GCCF was meant to replace the inefficient claims process which BP had established to fulfill its obligations as a responsible party pursuant to OPA. Unfortunately, in lieu of making oil spill victims whole, GCCF’s primary goal appears to be the limitation of BP’s liability via the systematic postponement,  reduction or denial of claims against BP.

GCCF will limit BP’s liability via circumventing OPA as follows:

Proximate Causation
The GCCF Protocol states, “The GCCF will only pay for harm or damage that is proximately caused by the Spill. The GCCF will take into account, among other things, geographic proximity, nature of industry, and dependence upon injured natural resources.”

GCCF’s requirement that a claimant has the increased burden of proving “proximate causation” between his or her damages and the Deepwater Horizon incident is a clear violation of OPA. Furthermore, paying for damages based on geographic proximity and nature of industry is also a clear violation of OPA.

OPA is a strict liability statute. In order to recover damages, a claimant merely needs to show that his or her damages “resulted from” the oil spill. OPA states, “The responsible party for a vessel or a facility from which oil is discharged, or which poses the substantial threat of a discharge of oil, into or upon the navigable waters or adjoining shorelines or the exclusive economic zone is liable for the removal costs and damages that result from such incident.”
See 33 U.S.C. § 2702(a)

Single Emergency Advance Payment
The GCCF Protocol provides, “Emergency Advance Payment applications may be submitted during the period August 23 ‐ November 23, 2010. After that date, applications for Emergency Advance Payments will no longer be accepted.”

A single six-month emergency advance payment for lost income is in violation of OPA. Moreover, the lack of a procedure for the payment or settlement of claims for interim, short-term damages beyond 90 days, as required by 33 U.S.C. § 2705, is also in violation of OPA.

The OPA specifically provides for interim partial payments. “The responsible party shall establish a procedure for the payment or settlement of claims for interim, short-term damages. Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a).  The fact that a single payment does not preclude recovery by the claimant for future damages demonstrates that the legislative intent of Congress was for the responsible party to pay a series of partial claims in order to ensure that victims of the oil spill are fully compensated. Each of these partial claims would be paid after the date on which the claimant discovers damages resulting from the oil spill.

Single Final Settlement
A single final settlement payment is in violation of OPA.

OPA provides:
(a) “Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a); and
(b) Any person, including the Oil Spill Liability Trust Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. Moreover, payment of such a claim shall not foreclose a claimant’s right to recovery of all damages to which the claimant otherwise is entitled under OPA or under any other law. See 33 U.S.C. § 2715(b)(2)

Period of Limitations
A limitation that no claim may be submitted to the GCCF “more than three years after the date the Protocol becomes operative,” is in violation of OPA.

Under OPA, an action for damages shall be barred unless the action is brought within 3 years after the date on which the loss and the connection of the loss with the discharge in question are reasonably discoverable with the exercise of due care. See 33 U.S.C. § 2717(f)(1)(A)

The damages suffered by victims of the BP oil gusher will be enormous and on-going. The livelihoods of all persons whose businesses rely on the natural resources of the Gulf Coast are at risk. Commercial fishermen, oyster harvesters, shrimpers, and  businesses involved, directly or indirectly, in processing and packaging for the seafood industry will experience the end of a way of life that, in many cases, has been passed down from one generation to the next.

It is too early to calculate the economic damages for many potential claimants. GCCF’s “take it or leave it” final settlement requires a financially stressed victim to file a claim before the individual or business knows, and is able to corroborate, the full extent of the damages incurred as a result of the oil spill.

More importantly, how can a person predict the long-term health effects of his or her exposure to the oil? The benzene in spilled oil can cause leukemia and lymphoma which may not be diagnosed for several years after the date the GCCF Protocol becomes operative.

Claims Procedure
Under OPA, claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a). The term “claim” means “a request, made in writing for a sum certain, for compensation for damages or removal costs resulting from an oil spill incident.” 33 U.S.C. § 2701(3). In the event that a claim for damages is not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to the Oil Spill Liability Trust Fund.

The GCCF Protocol is ambiguous as to when the 90-day OPA clock for payment starts. The GCCF Protocol states, “Whether or not a claim has been presented shall be governed by OPA and applicable law.” Moreover, GCCF requires that every claimant who has a pending claim with BP will have to refile his or her claim on an 18-page claims form. Does this refiling restart the 90-day clock? What if a claimant fails to refile his or her claim? GCCF is meant to facilitate settlement. It is not meant to confuse claimants or incite litigation as a result of an intentionally misleading claims procedure.

Waiver of Right to Sue
GCCF’s requirement that the claimant sign a general release of all rights the claimant may have against BP in order to receive the final settlement is in violation of OPA.

OPA provides:
(a) “Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a); and
(b) Any person, including the Oil Spill Liability Trust Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. Moreover, payment of such a claim shall not foreclose a claimant’s right to recovery of all damages to which the claimant otherwise is entitled under OPA or under any other law. See 33 U.S.C. § 2715(b)(2).

Partial payments, including a partial “final settlement” payment, do not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim. If the claimant must sign a general release of all rights the claimant may have against BP in order to receive this partial “final settlement” payment, this required GCCF waiver of the right to sue by the claimant is in violation of OPA.

HOW GCCF GUARANTEES BP’S CONTINUED LONG-TERM OPERATION
IN THE OFFSHORE GULF OF MEXICO E&P SECTOR

On June 16, 2010, President Obama announced that BP has agreed to set aside $20 billion to pay economic damage claims to individuals and businesses affected by the Deepwater Horizon incident. The White House press release stated, “BP will provide assurance for these commitments by setting aside $20 billion in U.S. assets.”

BP created the Deepwater Horizon Oil Spill Trust on August 6, 2010. The Trust Agreement states that BP “has unknown potential liabilities under federal, state and local law for damages arising from or related to the oil spill caused by the explosion at the Deepwater Horizon oil rig in the Gulf of Mexico (the “Oil Spill”), including claims under the Oil Pollution Act, natural resource damages and related costs (including assessment costs), state and local government response costs and certain other claims for damages.”

The Trust Agreement further provides, “To secure the payment and performance of its obligations to make the contributions to the Trust hereunder, BP hereby agrees to grant, convey, and/or assign to the Trust first priority perfected security interests in production payments pertaining to BP’s U.S. oil and natural gas production (“Production Payments”) (which Production Payments shall be issued and held in a newly formed limited liability company subsidiary of BP that shall have no business or operations other than holding such Production Payments).”

BP will not set aside $20 billion in U.S. assets as collateral. The collateral to secure BP’s performance of its obligations to pay damages related to the Deepwater Horizon oil spill will be in the form of future production payments pertaining to BP’s U.S. oil and natural gas production. In essence, the Obama administration has chosen to be BP’s joint venture partner by allowing future drilling revenues to be used as collateral for the GCCF escrow account!

Adding insult to injury, on July 27, 2010, BP revealed that it is taking a charge of $32.2 billion (and thereby claiming a $9.9 billion tax credit) to reflect the impact of the Gulf of Mexico oil spill, including costs to date of $2.9 billion for the response and a charge of $29.3 billion for future costs, including the funding of the $20 billion escrow fund.

Under the Clean Water Act (CWA), BP faces fines of up to $4,300 for each barrel spilled. Furthermore, pursuant to Section 2702 of OPA, BP would be required to pay royalties (18.75%) owed to the federal government for the oil that gushed from the well. BP’s liability, based upon estimates for oil containment, collection and clean-up, GCCF, and penalties and fines should total between $66.3 billion and $90.2 billion. Given that BP’s financial health and its ability to meet its obligations under GCCF are now tied together, CWA fines and OPA royalty payments for each barrel of oil spilled will most likely be kept to a minimum. Ironically, the federal government has acquired a vested interest in ensuring the financial well-being of BP.

WHY GCCF IS NOT NECESSARY TO ENSURE THAT VICTIMS OF THE BP OIL SPILL
ARE FULLY COMPENSATED FOR INCURRED DAMAGES

Limitations on Liability for Damages under OPA
Pursuant to OPA, for an offshore facility the total of the liability of a responsible party and any removal costs incurred by, or on behalf of, the responsible party, with respect to each incident shall not exceed the total of all removal costs plus $75,000,000. 33 U.S.C. § 2704

However, this limit on liability “does not apply if the incident was proximately caused by gross negligence, willful misconduct of, or the violation of an applicable federal safety, construction, or operating regulation by, the responsible party, an agent or employee of the responsible party, or a person acting pursuant to a contractual relationship with the responsible party.” 33 U.S.C. §§ 2704(c)(1)(A) and (B)

Given BP’s documented violation of federal safety regulations aboard the Deepwater Horizon, e.g., using an improper cementing technique to seal the well, failing to adequately test and maintain blowout prevention equipment and drilling deeper than BP’s federal permit allowed, there will be no limitation on BP’s liability.

Presentation and the Oil Spill Liability Trust Fund
Under OPA, claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a). In the event that a claim for damages is not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to the Oil Spill Liability Trust Fund (the “Fund”). 33 U.S.C. § 2713(c)

The Fund is a federally administered trust fund that may be used to pay costs related to federal and state oil spill removal activities; costs incurred by federal, state, and Indian tribe trustees for natural resource damage assessments; and unpaid damages claims. 33 U.S.C. § 2712

The Fund is financed by a per-barrel tax on crude oil received at United States refineries, and on petroleum products imported into the U.S. for consumption. The maximum amount of money that may be withdrawn from the Fund is $1 billion per incident. 26 U.S.C. § 9509(c)(2)(A)

United States Attorney General
Currently, the Fund may not receive advances from the United States Treasury, as its authority to borrow expired December 31, 1994. The United States Attorney General, however, may commence an action on behalf of the Fund, against a responsible party, to recover any money paid by the Fund to any claimant pursuant to OPA. 33 U.S.C. § 2715(c)

Loan Program
Moreover, pursuant to OPA, the President shall establish a loan program under the Oil Spill Liability Trust Fund to provide interim assistance to fishermen and aquaculture producer claimants during the claims procedure. A loan may be made only to a fisherman or aquaculture producer that: (a) has incurred damages for which claims are authorized under OPA; (b) has made a claim pursuant to OPA that is pending; and (c) has not received an interim payment for the amount of the claim, or part thereof, that is pending. 33 U.S.C. § 2713(f)

No Need for GCCF
There is no need for GCCF. A victim may merely present a claim for damages to BP and wait 90 days. If BP does not pay the claim, the victim may present the claim to the Fund. The Fund could either pay the victim or provide a temporary loan to the victim and then the U.S. Attorney General may commence an action on behalf of the Fund against BP and collect the amount from BP. “Any person, including the Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law.” 33 U.S.C. § 2715

The Litigation Option
Proponents of the BP claims process and GCCF routinely ask, “But the GCCF does not prohibit victims from rejecting the lump-sum payment in the hopes of attaining a larger settlement through litigation, correct?”

This is true if the victims have not already starved to death. The BP claims process has been a delaying tactic. Some claimants have already been waiting for over 90 days because BP has placed their claims on hold. It is doubtful GCCF will be any different after Feinberg takes over claims management on August 23rd. The purpose of GCCF is to limit BP’s liability, not to fully compensate victims as expeditiously as possible.

Granted, litigation would be time consuming. However, the lawsuits would force BP to spend a great deal of management’s time (during the discovery process) and money (legal fees). The suits would most likely be settled out of court but the difference would be that the victims would have more control of the process. With GCCF, victims are basically relegated to wasting precious time begging and pleading for compensation from Feinberg.

CONCLUSION

It was not the legislative intent of Congress for OPA to limit an oil spill victim’s right to seek full compensation from the responsible party. Unfortunately, GCCF, with the complete political and financial support of the Obama administration but without any legal authority for doing so, circumvents many of the rights provided to oil spill victims under OPA. The fact that future production payments pertaining to BP’s U.S. oil and natural gas production, rather than hard U.S. assets, are being used as collateral by BP guarantees BP’s continued long-term operation in the offshore Gulf of Mexico E&P sector. Ironically, the federal government has acquired a vested interest in ensuring the financial well-being of BP.

Fortunately, there is no need for GCCF. A victim may merely present a claim for damages to BP and wait 90 days. If BP does not pay the claim, the victim may present the claim to the Fund. The Fund could either pay the victim the amount owed or provide a temporary loan to the victim and then the U.S. Attorney General may commence an action on behalf of the Fund against BP and collect the amount from BP. “Any person, including the Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law.” 33 U.S.C. § 2715

Each individual claimant/potential plaintiff who has suffered damages as a result of the BP oil spill of April, 2010 should immediately seek competent legal counsel to directly represent his or her interests. Most attorneys should be willing to represent claimants on a contingent fee basis. A contingent fee of seven to ten percent would be money well spent. Given that the damages suffered by the vast majority of individual potential plaintiffs as a result of the BP oil spill of April, 2010 are potentially so great and will be on-going, class treatment may not be necessary to permit effective litigation of the claim. Here, where the amount of damages suffered by the individual is so great, the filing of an individual lawsuit should be economically feasible and may be in the best interests of the plaintiff. This decision should be made by the potential plaintiff only after a thorough consultation with his or her legal counsel.

APPENDICES

References
Adams, Mike, “First Amendment suspended in the Gulf of Mexico as spill cover-up goes Orwellian,” NaturalNews (July 3, 2010), available at: http://www.naturalnews.com/029130_Gulf_of_Mexico_censorship.html

Bhattacharyya, S., P.L. Klerks, and J.A. Nyman. 2003. Toxicity to freshwater organisms from oils and oil spill chemical treatments in laboratory microcosms. Environmental Pollution 122:205-215.

Chokkavelu, Anand, “The BP Stat That Will Shock You,” Motley Fool (July 9, 2010), available at: http://www.msnbc.msn.com/id/38165954/ns/business-motley_fool/

Clean Water Act

Coleman, Leigh and Younglai, Rachelle, “Spill puts Obama’s oil fund chief on hostile turf,” Reuters (July 27, 2010)

EPA: http://www.epa.gov/oem/content/lawsregs/opaover.htm

Fed. R. Civ. Proc. 23(h), Federal Rules of Civil Procedure

Fisher, Daniel and Hawkins, Asher, “BP’s Legal Blowout,” Forbes.com (July 14, 2010)

Greenwald, Glenn, “The BP/Government police state,” Salon (July 5, 2010), available at: http://www.salon.com/news/opinion/glenn_greenwald/2010/07/05/bp/index.html

Hals, Tom, “Analysis: BP investors face tough road in court fights,” Reuters (July 16, 2010)

Hudson, Kris and Baskin, Brian, “Fears Mount That Fund Won’t Cover All Damages,” The Wall Street Journal (July 15, 2010)

Kindy, Kimberly, “Recovery effort falls vastly short of BP’s promises,” Washington Post (July 6, 2010), available at:
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/05/AR2010070502937.html

Kirby, Brendan, “BP, federal government remain silent on when company will fund Gulf oil spill account,” Press-Register (July 26, 2010)

Lustgarten, Abrahm, “Chemicals Meant To Break Up BP Oil Spill Present New Environmental Concerns,” ProPublica (April 30, 2010), available at: http://www.propublica.org/article/bp-gulf-oil-spill-dispersants-0430

MMS: http://www.mms.gov/

Murtaugh, Dan, “Attorney General Eric Holder says he’ll try to address oil spill claims concerns,” Press-Register (July 15, 2010)

Murtaugh, Dan, “Feinberg says BP hasn’t put money in escrow account yet,” Press-Register (July 24, 2010)

National Contingency Plan

NOAA: http://www.noaa.gov/

Oil Pollution Act of 1990

Peters, Jeremy W., “Efforts to Limit the Flow of Spill News,” The New York Times (June 9, 2010)

Philips, Matthew, “BP’s Photo Blockade of the Gulf Oil Spill,” Newsweek (May 26, 2010), available at: http://www.newsweek.com/2010/05/26/the-missing-oil-spill-photos.html

Schoof, Renee and Bolstad, Erika, “BP well may be spewing 100,000 barrels a day, scientist says,” McClatchy Newspapers (June 7, 2010), available at: http://www.mcclatchydc.com/2010/06/07/95467/bp-well-may-be-spewing.html

Schoof, Renee, “Scientists propose big experiment to study Gulf oil spill,” McClatchy Newspapers (July 11, 20100, available at:
http://www.miamiherald.com/2010/07/11/1725271/scientists-propose-big-experiment.html

Schwartz, John, “More Delicate Diplomacy for the Overseer of the Compensation Fund,” The New York Times (July 16, 2010)

Stier, Byron G., “Ken Feinberg Compensation for Administering BP Fund – A Problem and Possible Solution,” available at: http://lawprofessors.typepad.com/mass_tort_litigation/2010/07/ken-feinberg-compensation-for-administering-bp-fund-a-problem-and-possible-solution.html

USA Today: http://content.usatoday.com/communities/greenhouse/post/2010/05/how-responsible-is-us-government-for-gulf-oil-spill/

USCG: http://www.uscg.mil/

Walsh, Bryan, “The Oil Spill and the Perils of Losing Trust,” Time (July 7, 2010), available at: http://ecocentric.blogs.time.com/2010/07/07/the-oil-spill-and-the-perils-of-losing-trust/

 

Further Reading
Is The Gulf Coast Claims Facility in Violation of The Oil Pollution Act of 1990?

Is the BP Oil Spill Victim Compensation Fund Legitimate?

Will Victims of the BP Oil Gusher Also Be Victims of Class Action Lawsuits and the BP Oil Spill Victim Compensation Fund?

BP’s Strategy to Limit Liability in Regard to Its Gulf Oil Gusher

Why BP Does Not Want an Accurate Measurement of the Gulf Oil Spill

The Oil Pollution Act Provides for the Federalization of the BP Oil Spill

BP is Not the Only Responsible Party

BP Oil Spill of April, 2010: Why Class Action Lawsuits May Not be in the Best Interests of Potential Plaintiffs

 

About the Author
Brian J. Donovan is an attorney and marine engineer with thirty-five years of international business experience.

Mr. Donovan, a member of The Florida Bar, The U.S. District Court, Middle District of Florida and The United States Court of Appeals for the Eleventh Circuit, holds a J.D. from Syracuse University College of Law (where he was recipient of the “Global Law & Practice Award” as the outstanding graduate in the areas of International Law and International Business Law) and a B.S., with honors, in Marine/Mechanical and Nuclear Engineering from the United States Merchant Marine Academy.

Mr. Donovan, with deep family roots in southern Louisiana, has first-hand knowledge of the catastrophic devastation of the Louisiana Gulf Coast caused by hurricanes Katrina and Rita. He fully appreciates that the damage caused by Katrina and Rita may pale in comparison to the massive and potentially unprecedented environmental and economic impact of the BP oil gusher of April, 2010.

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