The Donovan Law Group

BP Oil Spill Victims: Kenneth Feinberg Should Not be the Sole Focus of Anger

BP Oil Spill Victims: Kenneth Feinberg Should Not be the Sole Focus of Anger

By Brian J. Donovan

December 30, 2010

The Gulf Coast Claims Facility (GCCF) was meant to replace the inefficient claims process which BP had established to fulfill its obligations as a responsible party pursuant to the Oil Pollution Act of 1990 (OPA). 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 allegedly independent GCCF. Unfortunately, in lieu of ensuring that BP oil spill victims are made whole, the primary goal of GCCF and Feinberg is the limitation of BP’s liability via the systematic postponement, reduction and denial of claims against BP.

Feinberg has been both admired and vilified as the administrator of GCCF. An article in the January issue of the ABA Journal refers to Feinberg as a “Master of Disasters.” Conversely, on December 21, 2010, members of the plaintiffs’ bar filed a Motion in federal court asking Judge Carl J. Barbier to intervene and ensure Feinberg’s comments to GCCF claimants who may be able to sue “are neither confusing nor misleading.” The Motion also questions Feinberg’s independence from BP.

Feinberg is neither a “Master of Disasters” nor the personification of evil. “Administrator” Feinberg is merely a defense attorney zealously advocating on behalf of his client BP.

Anger can be wasted energy which overwhelms and debilitates victims. However, anger, properly channeled, can also serve to motivate victims to take action. In the case of the BP oil spill, victims should not focus their anger on Feinberg but should properly channel their anger by focusing on: (a) an administration that ignores the Oil Pollution Act of 1990 and refuses to hold BP accountable; (b) a Congress that introduces unnecessary, and potentially unconstitutional, retroactive legislation in response to the BP oil spill; and (c) a plaintiffs’ bar that values profit over justice.

THE OBAMA ADMINISTRATION

Failure of President Obama to Partially Federalize the BP Oil Spill Incident
“Under OPA, BP, the responsible party, has the primary responsibility to clean up its oil spill” had been repeated, in one form or another, so many times by President Obama that it became the truth. The truth is that President Obama, under OPA, had the primary responsibility to “ensure effective and immediate removal of a discharge, and mitigation or prevention of a substantial threat of a discharge, of oil.”

Simply stated, Section 4201 of OPA provided President Obama with three options:
(1) perform cleanup immediately (“federalize” the spill);
(2) monitor the response efforts of the spiller; or
(3) direct the spiller’s cleanup activities.

Pursuant to OPA Section 4201, and given that the BP oil spill was a “discharge posing substantial threat to public health or welfare,” President Obama should have federalized the collection of the oil that was released into the sea and the restoration of the coastal areas impacted by the oil. Both of these activities could have been done without having to federalize the operational priority of stopping the flow of oil from the well.

The failure of President Obama to partially federalize the BP oil spill incident, allowed BP to:
(a) use an excessive and unprecedented amount of dispersant both on the surface and underwater. This toxic “out-of-sight, out-of-mind” strategy resulted in tiny dispersed droplets of oil sinking or remaining suspended in deep water rather than floating to the surface and collecting in a continuous slick. Rather than being collected, the dispersed oil is now on the seabed, where it is toxic food for microscopic organisms at the bottom of the food chain and will eventually wind up in shellfish and other organisms; and
(b) prohibit independent measurement of the amount of oil being released into the Gulf of Mexico by unbiased third party scientists and engineers. BP, with the full support of the federal government, knowingly and systematically underestimated the size of the gusher to limit the financial impact on the company. 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 90, BP should be required to pay royalties (18.75%) owed to the federal government for the oil gushing from the well.

Negotiation of the Deepwater Horizon Oil Spill Trust
On June 16, 2010, President Obama announced that BP 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 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.”

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.

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.

Failure of President Obama to Block BP’s Tax Credit
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.

During negotiations with BP in regard to creating the Deepwater Horizon Oil Spill Trust, President Obama failed to even mention that BP should not claim a tax credit. As a result, BP is allowed to substantially offset the amount it is paying to meet its responsibilities for cleanup and compensating victims. In short, President Obama has permitted BP to shift these costs indirectly to U.S. taxpayers.

Failure of President Obama to Fully Utilize the Oil Spill Liability Trust Fund (OSLTF)
During town hall meetings organized to promote GCCF, Feinberg repeatedly tells victims of the BP oil spill, “the litigation route in court will mean uncertainty, years of delay and a big cut for the lawyers.” “I am determined to come up with a system that will be more generous, more beneficial, than if you go and file a lawsuit.” “It is not in your interest to tie up you and the courts in years of uncertain protracted litigation when there is an alternative that has been created,” Feinberg says. He adds, “I take the position, if I don’t find you eligible, no court will find you eligible.” Feinberg and the Obama administration intentionally fail to mention that litigation is not the only alternative to GCCF. A financially viable OSLTF is a better alternative.

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 either denied or 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 OSLTF. 33 U.S.C. § 2713(c)

Although Congress created OSLTF in 1986, Congress did not authorize its use or provide taxing authority to support it until after the Exxon Valdez incident in 1989. OPA, signed into law on August 18, 1990, provided the statutory authorization and funding necessary for OSLTF. The National Pollution Funds Center (NPFC), an administrative agency of USCG, manages OSLTF and acts as the implementing agency of OPA. Since 2003, USCG has operated in the Department of Homeland Security.

A primary purpose of OSLTF is to compensate persons for removal costs and damages resulting from an oil spill incident. In essence, OSLTF is an insurance policy, or backstop, for victims of an oil spill incident who are not fully compensated by the responsible party.

As Representative Lent explained in urging passage of OPA, “The thrust of this legislation is to eliminate, to the extent possible, the need for an injured person to seek recourse through the litigation process.” Prior to OPA, federal funding for oil spill damage recovery was difficult for private parties. To address this issue, Congress established OSLTF under section 9509 of the Internal Revenue Code of 1986 (26 U.S.C. 9509).

OSLTF is currently funded by: a per barrel tax of 8 cents on petroleum products either produced in the United States or imported from other countries, reimbursements from responsible parties for costs of removal and damages, fines and penalties paid pursuant to various statutes, and interest earned on U.S. Treasury investments. On September 30, 2010, the unaudited OSLTF balance was approximately $1.69 billion.

OSLTF: The Issue of Subrogation
Any person, including OSLTF, 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(a) Moreover, at the request of the Secretary of the Department of Homeland Security, the Attorney General shall commence an action on behalf of OSLTF  to recover any compensation paid by OSLTF to any claimant pursuant to OPA, and all costs incurred by OSLTF by reason of the claim, including interest (including prejudgment interest), administrative and adjudicative costs, and attorney’s fees. Such an action may be commenced against any responsible party or guarantor, or against any other person who is liable, pursuant to any law, to the compensated claimant or to OSLTF, for the cost or damages for which the compensation was paid. 33 U.S.C. § 2715(c)

CONGRESS

Proposed Retroactive OPA Legislation
The maximum amount which may be paid from OSLTF with respect to any single incident shall not exceed $1 billion. 26 U.S.C. § 9509(c)(2)(A) Furthermore, except in the case of payments of removal costs, a payment may be made from OSLTF only if the amount in OSLTF after such payment will not be less than $30,000,000. 26 U.S.C. § 9509(c)(2)(B)

The cost of this catastrophic BP oil spill will far exceed the current OSLTF per incident expenditure limit. In response, since the BP oil spill disaster of April, 2010, several bills have been introduced in Congress to amend OPA to increase the liability limit of the responsible party and OSLTF’s per incident expenditure limit for oil spills. For example, H.R. 4213, the American Jobs and Closing Tax Loopholes Act, passed by the House on May 28, 2010, includes provisions that would raise the per barrel tax used to fund OSLTF to 34 cents and increases the per incident expenditure limit to $5 billion, including up to $2.5 billion in natural resource damage claims.

An important question is whether this legislation can and should be applied retroactively to the BP oil spill disaster of April, 2010. The constitutional issues that may be raised from retroactive application of this legislation are based on the Ex Post Facto Clause, Substantive Due Process, the Takings Clause, the Bill of Attainder Clause, and the Impairment of Contracts Clause.

OSLTF: The Need to Properly Define “Expenditure”
This is an incident of first impression for OSLTF. The BP oil spill of April 22, 2010, a catastrophic oil spill incident, represents the first time that the viability of OSLTF has been threatened. Federal statutes and relevant regulations neither specifically address such a scenario nor provide authority for further compensation. However, OPA legislative history and statements from OPA drafters indicate that drafters intended OSLTF to cover “catastrophic spills.”

The question is if an expenditure is reimbursed, is it still an expenditure? OSLTF is established under Internal Revenue Code. 26 U.S.C § 9509 Under the Internal Revenue Code, a reimbursed expenditure is not deductible. It is not considered to be an expenditure. Therefore, under OSLTF, why should an expenditure, reimbursed by the responsible party, be defined as an expenditure?

Legislative history and the Internal Revenue Code strongly support the conclusion that, in the case of a catastrophic oil spill, the proper definition of the term “expenditure,” under OSLTF, means “an expenditure that is not reimbursed by the responsible party.”

The advantage of defining an expenditure, under OSLTF, as “an expenditure that is not reimbursed by the responsible party,” is twofold:
(a) It eliminates, without the need to pass retroactive legislation, the $1 billion cap which may be paid from the OSLTF with respect to any single incident and allows OSLTF to maintain a balance of at least $1 billion for the purpose of paying claims for damages resulting from other oil spill incidents. As the OSLTF pool of $1 billion is depleted by payments made to oil spill claimants, it is replenished, by virtue of subrogation, by reimbursements made to OSLTF by the responsible party; and
(b) It ensures that the cost of a catastrophic oil spill incident shall be borne by the responsible party, not the federal taxpayer.

THE PLAINTIFFS’ BAR

Class Action Lawsuits
On December 21, 2010, attorneys representing victims of the BP oil spill of April, 2010 filed a Motion in the United States District Court for the Eastern District of Louisiana requesting Judge Carl J. Barbier to issue an order governing ex parte communication between the BP Defendants and putative class members.

Specifically, the plaintiffs’ attorneys seek to ensure that Feinberg’s communications with putative class members are neither “confusing nor misleading.”

The Motion notes, in part, that “Feinberg has, in various ways, communicated the following messages to both represented parties and putative class members:
• Don’t seek the advice of a lawyer;
• If you litigate, it will take years;
• If you hire a lawyer, he or she will take 40% of your recovery;
• I, and the GCCF, are “independent;”
• We are making “independent” findings or determinations regarding the merits of your claims;
• I will give you more money than you will get (with another lawyer) in litigation; and
• My offer will be based upon the best available independent scientific evidence.”

This Motion filed by the plaintiffs’ attorneys is disingenuous and self-serving. If Feinberg is ordered to ensure that his communications are neither “confusing or misleading,” then the BP plaintiffs’ attorneys should also be ordered to inform their potential clients of the following:

I. A class action lawsuit, brought pursuant to Rule 23 of the Federal Rules of Civil Procedure, was never intended to address mass torts. The Supreme Court observed that, while the text of Rule 23(b)(3) does not preclude certification in cases with significant damages, the drafters “had dominantly in mind” the use of the class action to aggregate relatively small individual recoveries into a case that would be worthwhile for an attorney to litigate. Amchem Products, Inc. v. Windsor, 117 S.Ct. at 2244.

II. 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, it should be economically feasible for many individual plaintiffs to file individual lawsuits. Here, class treatment would not be necessary to permit effective litigation of the claim. An individual lawsuit will: (a) ensure the plaintiff that the plaintiff’s attorney has his or her best interests in mind; (b) protect the plaintiff’s due process rights; (c) ensure that the plaintiff is not a victim of a so-called “faux” class action case, i.e., a case in which individual class members receive little or no compensation and only plaintiffs‘ counsel stand to benefit from class certification; (d) give the plaintiff control over the prosecution of the case; (e) allow the plaintiff to present evidence of exposure, injury, and damages relating to his or her particular claim; and (f) allow the plaintiff to make the decision on whether or when to settle.

III. BP, the responsible party, is a powerful and well-funded defendant, does not lack imagination or incentive to pose innumerable legal barriers, and will aggressively assert its legal rights and otherwise use the law, the courts and the judicial system to serve its interests. BP can afford to stall, and actually benefits from delay, but its victims cannot afford to wait for years to be fully compensated for their losses.

IV. In the event that a claim for damages is either denied or not paid by GCCF within 90 days, the claimant should immediately present the claim to OSLTF prior to commencing an action in court against BP, et al.

CONCLUSION

As of the date of this article, it has been 254 days since the blowout of the BP offshore well in the Gulf of Mexico.

In lieu of ensuring that BP oil spill victims are made whole, the primary goal of GCCF and Feinberg is the limitation of BP’s liability via the systematic postponement, reduction and denial of claims against BP. Victims of the BP oil spill must understand that “Administrator” Feinberg is merely a defense attorney zealously advocating on behalf of his client BP.

Victims of the BP oil spill should not focus their anger on Feinberg but should properly channel their anger by focusing on: (a) an administration that refuses to hold BP accountable and ensure that victims of the BP oil spill are fully compensated via OSLTF; (b) a Congress that introduces unnecessary, and potentially unconstitutional, retroactive legislation in response to the BP oil spill; and (c) a plaintiffs’ bar that values profit over justice.

The question is whether victims of the BP oil spill will have to pay three times: (a) once for the massive BP oil spill, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again by being mislead by the Obama administration and undercompensated by GCCF; and (c) a third time for daring to demand justice, which will consume their time, energy and hopes for years to come if they are held hostage by protracted class action or individual lawsuits.

It is the Obama administration’s duty to guarantee the claims process established by BP provides at least the same protections and rights mandated by OPA. The Secretary of DHS is uniquely positioned, and has a duty pursuant to 33 U.S.C. § 2715(c), to ensure that victims of the BP oil spill are: (a) not victimized by BP/GCCF; (b) not forced into joining class action lawsuits by the Plaintiffs’ Bar; and (c) made whole by the OSLTF.

The primary focus of anger for BP oil spill victims should center on the fact that there is no need to be held hostage by GCCF. A victim of the BP oil spill may merely present a claim for damages to BP/GCCF and wait 90 days. If BP/GCCF does not pay the claim, the victim may present the claim to OSLTF. At that point, OSLTF may pay the victim and then the U.S. Attorney General may commence an action on behalf of OSLTF against BP and collect the amount from BP. “Any person, including OSLTF, 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, once “expenditure” is properly defined,  it eliminates, without the need to pass retroactive legislation, the $1 billion cap which may be paid from OSLTF with respect to any single incident. As the OSLTF pool of $1 billion is depleted by payments made to oil spill claimants, it is replenished, by virtue of subrogation, by reimbursements made to OSLTF by the responsible party.

Brian J. Donovan can be reached at BrianJDonovan@verizon.net.

UPDATE

Second Lawsuit Filed Against Kenneth R. Feinberg, Feinberg Rozen, LLP and Gulf Coast Claims Facility

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