The BP Oil Spill Multidistrict Litigation (“MDL 2179”) Is Not Right for America

The BP Oil Spill Multidistrict Litigation (“MDL 2179”) Is Not Right for America

MDL 2179 is a “Faux” Class Settlement Wrapped in a “Faux” MDL

By

Brian J. Donovan

Tampa, FL (August 12, 2013)  – Robert Dudley, CEO of BP, recently told Bloomberg Businessweek he believes the deal BP made with the MDL 2179 plaintiffs’ steering committee to complete the process of paying legitimate victims of the oil spill is “not right for America.” Dudley stated, “… millions of dollars are going out to pay people who suffered, in many cases, no losses from the spill. And this is just not right. I don’t think it’s right for America. When you make an agreement and you don’t have the faith and the trust that agreement is going to be interpreted the way you expect, it’s not good for America.”

MDL 2179 is not right for America, but not for the reasons set forth by Dudley.

The “Faux” MDL 2179

Judicial economy is undoubtedly well-served by MDL consolidation when scores of similar cases are pending in the courts. Regrettably, for victims of the BP oil spill, MDL 2179 is a “faux” MDL – i.e., an MDL that limits the liability of the defendants, grants excessive compensation to the members of the Plaintiffs’ Steering Committee (“PSC”) and other counsel performing common benefit work, and fails to adequately compensate the plaintiffs.

MDL 2179 is a “faux” MDL primarily because of: (a) the manner in which Kenneth R. Feinberg was permitted by the United States Judicial Panel on Multidistrict Litigation (“JPML”) and the MDL 2179 Court to administer the BP compensation fund; and (b) the terms and conditions of the BP/PSC class settlement agreement.

Feinberg’s Administration of the BP Compensation Fund

On August 10, 2010, the JPML formally established MDL 2179. In its Transfer Order, the JPML states, “Centralization may also facilitate closer coordination with Kenneth Feinberg’s administration of the BP compensation fund.” The JPML made it clear, from the very beginning, that the purpose of centralization was not merely to eliminate duplicative discovery, prevent inconsistent pretrial rulings, and conserve the resources of the parties, their counsel, and the judiciary; and serve the convenience of the parties and witnesses and promote the more just and efficient conduct of the BP oil spill cases. Here, the purpose of centralization was to maximize judicial economy via the creation of a “faux” class settlement wrapped in a “faux” MDL.

On August 23, 2010, Feinberg Rozen, LLP, doing business as GCCF, replaced the claims process which BP had established to fulfill its obligations as a responsible party pursuant to the Oil Pollution Act of 1990 (“OPA”).

In violation of OPA, GCCF‘s approach to determining claimant eligibility was driven by two factors: (1) loss location; and (2) claimant business type.

GCCF employed two strategies to limit BP’s liability:

(a) an “Expedited Emergency Advance Payment (EAP) Denial” strategy. This strategy is as follows: “Fail to verify, investigate, and appraise the amount of loss claimed by the claimant in the EAP claim and deny the EAP claim without ever requesting supporting documentation from the claimant;” and

(b) a “Delay, Deny, Defend” strategy against legitimate oil spill victims. This strategy, commonly used by unscrupulous insurance companies, is as follows: “Delay payment, starve claimant, and then offer the economically and emotionally-stressed claimant a miniscule percent of all damages to which the claimant is entitled. If the financially ruined claimant rejects the settlement offer, he or she may sue.”

The ultimate objective of Feinberg’s “Expedited EAP Denial” strategy and “Delay, Deny, Defend” strategy was to limit BP’s liability by obtaining a signed “Release and Covenant Not to Sue” from as many BP oil spill victims as possible.

The “Release and Covenant Not to Sue” requirement forces economically and emotionally-stressed victims of the BP oil spill to sign a release and covenant not to sue in order to receive a miniscule payment amount for all damages, including future damages, they incur as a result of the BP oil spill. Feinberg’s “Release and Covenant Not to Sue” requirement violates OPA, State contract law, and is contrary to public policy.

The “Expedited EAP Denial” strategy and “Delay, Deny, Defend” strategy, although unconscionable, have proven to be very effective for Feinberg and BP:

(a) GCCF forced 84.68% of the claimants to sign a “Release and Covenant Not to Sue” in which the claimant agreed not to sue BP and all other potentially liable parties;

(b) Only 15.32% of the claimants were not required to sign a “Release and Covenant Not to Sue” in order to be paid;

(c) GCCF denied payment to approximately 61.46% of the claimants who filed claims;

(d) The average total amount paid per claimant by GCCF was a paltry $27,466.47; and

(e) Feinberg’s “Release and Covenant Not to Sue” excluded approximately 200,000 BP oil spill victims from the MDL 2179 Economic and Property Damages Class Settlement Agreement.

In sum, BP is responsible for the oil spill incident; Feinberg, et al. (independent contractors), via employment of their “Expedited EAP Denial” strategy and “Delay, Deny, Defend” strategy, are responsible for not compensating and thereby financially ruining BP oil spill victims.

On March 8, 2012, the MDL 2179 Court terminated Feinberg and the GCCF claims process and appointed Patrick Juneau as the claims administrator for the transition to the court supervised claims program. On May 2, 2012, Juneau was appointed as Claims Administrator to oversee the claims administration vendors, that will process the claims in accordance with the class settlement agreement. Under Juneau, the evaluation and processing of claims shall continue to be performed by Garden City Group, Inc., BrownGreer, PLC, and PricewaterhouseCoopers, LLP. Accordingly, there is little reason to believe that the percentage of claimants denied payment and the average total amount paid per claimant will change under Juneau.

Gamesmanship of the Legal System by Defendants

Theoretically, the JPML does not have power over state courts. In reality, corporations with deep pockets, and politically well-connected defendants,  are easily able to circumvent this slight inconvenience through procedural gamesmanship – i.e., the baseless removal of a case from state to federal court for the sole purpose of subsequently being able to immediately file a Notice of Tag-Along Case with the JPML for the transfer of the case to an MDL before any court has the opportunity to either rule on the jurisdiction of the action or reach the merits of Plaintiff’s claims in the action. The JPML’s facilitation of this type of procedural gamesmanship, although politically expedient and judicially efficient, is unjust and makes a mockery of the U.S. judicial system.

Refusal by the MDL 2179 Court and the PSC to Hold Feinberg Accountable

Kenneth R. Feinberg and Feinberg Rozen, LLP, D.B.A. GCCF are neither named Defendants in any master complaint in MDL 2179 nor on the list of “Released Parties” in the Economic and Property Damages Settlement Agreement.

In sum, the MDL 2179 Court concedes that it never contemplated Feinberg, et al. would be Defendants in MDL 2179. Nevertheless, the MDL 2179 Court and the PSC effectively ensure that Feinberg, et al. will not be held accountable in the near future by the following means:

(a)  All pending and future motions to remand are continued without date in MDL 2179.

Pursuant to the MDL 2179 Court’s Pretrial Order No. 15 (Rec. Doc. 676), “Pending further orders of this Court, all pending and future motions, including Motions to Remand, are continued without date unless a motion is specifically excepted from the continuance by the Court.” Furthermore, pursuant to the MDL 2179 Court’s Pretrial Order No. 25 (Rec. Doc. 983), “All individual petitions or complaints that fall within Pleading Bundles B1, B3, D1, or D2, whether pre-existing or filed hereafter, are stayed until further order of the Court.”

In sum, any lawsuit filed against Feinberg, et al., in state or federal court, will be transferred to MDL 2179 and stayed (“warehoused”) indefinitely until Judge Barbier decides to remand the case to the transferor federal court.

(b) The MDL 2179 Court has declined to permit discovery on Feinberg or the GCCF.

On September 5, 2011, Stephen J. Herman, Plaintiffs’ Liaison Counsel in MDL 2179, stated, “please be advised that the [MDL 2179] Court has, thus far, declined to permit formal discovery on Feinberg or the GCCF.”

It is important to note that formal discovery on Feinberg and the GCCF, and the associated pressure of a trial, would have been required in order to have exerted sufficient pressure on the parties to negotiate a settlement which reflected the true value of the claims and not one which focuses on minimizing the liability of the defendants. This did not occur. Without formal discovery on Feinberg and the GCCF certain claims by private individuals and businesses for economic loss resulting from the operation of the GCCF may never be properly resolved.

Generally, Courts have held the excessive delay and “marginalization of juror fact finding” (i.e., dearth of jury trials) sometimes associated with traditional MDL practice are developments that cannot be defended. Delaventura v. Columbia Acorn Trust, 417 F. Supp. 2d at 153 (D. Mass. 2006). MDL 2179 is an exception.

The MDL 2179 Court Has Overreached Its Authority.

The Supreme Court has held that a district court conducting pretrial proceedings pursuant to 28 U.S.C. §1407(a) has no authority to invoke 28 U.S.C. §1404(a) to assign a transferred case to itself for trial. Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998).

Justice Souter, in delivering the opinion of the Court in Lexecon, explained “28 U. S. C. §1407(a) authorizes the JPML to transfer civil actions with common issues of fact ‘to any district for coordinated or consolidated pretrial proceedings,’ but imposes a duty on the Panel to remand any such action to the original district ‘at or before the conclusion of such pretrial proceedings.’ ‘Each action so transferred shall be remanded by the Panel at or before the conclusion of such pretrial proceedings to the district from which it was transferred unless it shall have been previously terminated.’ 28 U.S.C. §1407(a). The issue here is whether a district court conducting such ‘pretrial proceedings’ may invoke 28 U.S.C. §1404(a) to assign a transferred case to itself for trial. We hold it has no such authority.”

Justice Souter pointed out that “the Panel’s instruction comes in terms of the mandatory ‘shall,’ which normally creates an obligation impervious to judicial discretion. Anderson v. Yungkau, 329 U. S. 482, 485 (1947). In the absence of any indication that there might be circumstances in which a transferred case would be neither ‘terminated’ nor subject to the remand obligation, then, the statutory instruction stands flatly at odds with reading the phrase ‘coordinated or consolidated pretrial proceedings’ so broadly as to reach its literal limits, allowing a transferee court’s self-assignment to trump the provision imposing the Panel’s remand duty. If we do our job of reading the statute whole, we have to give effect to this plain command, see Estate of Cowart v. Nicklos Drilling Co., 505 U. S. 469, 476 (1992), even if doing that will reverse the longstanding practice under the statute and the rule, see Metropolitan Stevedore Co. v. Rambo (1995) (“Age is no antidote to clear inconsistency with a statute.” (quoting Brown v. Gardner, 513 U. S 115, 122 (1994))).”

While the need to promote efficiency in litigation is real, “age is no antidote” to the clear promotion and facilitation of “faux” MDLs by the JPML.

The BP/PSC Class Settlement Agreement

BP and the PSC reported settlement negotiations began “in earnest” in February 2011 for two distinct class action settlements: a Medical Benefits Settlement and an Economic and Property Damages Settlement.” In sum, the PSC initiated settlement negotiations “in earnest” merely four (4) months after Judge Barbier appointed members to the PSC. Clearly, the MDL 2179 class settlement was not achieved in the full context of adversarial litigation.

Professor Martin Redish of Northwestern University School of Law argues that settlement class actions undermine the important constitutional values underlying the requirement of adversary adjudication. In such classes, the parties expressly make class certification contingent on the entry of a settlement resolving the litigation. Thus, while settlement classes may have certain attractive aspects, such as reducing litigation expenses, many of the traditional aspects of adversarial litigation are missing. As a result, according to Professor Redish, the settlement class is potentially the product of collusion among the parties: defendants who wish to rid themselves of the burden of litigation and plaintiffs‘ counsel who wish to receive immediate compensation. Redish further argues settlement class actions are flat-out unconstitutional because there is no “case or controversy,” a constitutional requirement for making a federal case out of something. Since the lawyers are all on the same side, he says, the only losers are plaintiffs who are forever barred from suing over the matter again. This is precisely what has happened in MDL 2179.

The court in Georgine v. Amchem Products, Inc., 83 F.3d 610 (3rd Cir. 1996), noted that the presentation of class action cases in the form of negotiated settlements for approval by the courts under Rule 23(c) raises a constitutional issue whether there is a justiciable case or controversy. Such cases also raise practical concerns about potential collusion and inadequate representation, as well as the ability of the court to evaluate the merits of the settlement in a non-adversarial context. Georgine, 83 F.3d at 617.

Professor Redish also points out that the opt-out mechanism under Rule 23(b)(3) should be abandoned in favor of an opt-in mechanism that requires absent class members to take some affirmative action before being swept into a class action. Redish believes that allowing due process rights to be waived simply by inaction, as under the current version of the rule, does not sufficiently protect such constitutional rights.

If a class is certified and the class representatives are unsuccessful, the absent class members’ claims will be “legally obliterated” by the result of the litigation, even though they did not actively participate in the suit. Likewise, as many have observed, a class action can reduce the input any particular plaintiff has in the conduct of the case. Where thousands are represented in a single lawsuit, it is simply impossible for them to have the same level of input regarding the prosecution of their claims. Moreover, conflicts among class members inevitably emerge, rendering the class action mechanism an imperfect means of resolving large-scale litigation.

The standard for reviewing a proposed settlement of a class action by courts is whether the proposed settlement is “fair, adequate, and reasonable” and whether it has been entered into without collusion between the parties. Cotton v. Hinton, 559 F.2d 1326, 1331 (5th Cir. 1977); see also Hanlon v. Chrysler Corp., 150 F.3d 1011, 1027 (9th Cir. 1998) (“Settlement is the offspring of compromise; the question we address is not whether the final product could be prettier, smarter or snazzier, but whether it is fair, adequate, and free from collusion.”).

There is little doubt that any class settlement agreement which: (a) excludes approximately 200,000 claimants from the settlement benefits because they had been forced to sign an unconscionable “Release and Covenant Not to Sue;” and (b) excessively compensates members of the PSC and other counsel performing common benefit work is neither “fair, adequate, and reasonable” nor “free from collusion.”

Conclusion

Dudley is correct. Individuals and businesses that did not suffer damages resulting from the BP oil spill should not be paid. It is important to note, however, that fraudulent claims represent a very small percentage of the total number of claims.

MDL 2179 is “not right for America” because:

(a) it is a “faux” MDL;

(b) it approves a “faux” class settlement agreement which is neither “fair, adequate, and reasonable” nor “free from collusion;”

(c) attorneys, with impunity, are permitted to advise BP to tell Congress, the National Incident Command, and the public that the oil spill flow rate was 5,000 barrels of oil per day when BP engineers were performing internal analyses showing that the flow rate could be up to 20 times greater;

(d) it permits members of the PSC, who are directly appointed by the transferee judge, and other counsel performing common benefit work to be excessively compensated for merely negotiating a settlement agreement;

(e) it allows BP to retain a third-party “claims administrator” to limit its liability, with impunity, via an “Expedited EAP Denial” strategy and a “Delay, Deny, Defend” strategy; and

(f) the JPML, which does not have power over state courts, promotes and facilitates the gamesmanship of the legal system by defendants, i.e., the baseless removal of a case from state to federal court for the sole purpose of subsequently being able to immediately file a Notice of Tag-Along Case with the JPML for the transfer of the case to MDL 2179. The JPML’s facilitation of this type of procedural gamesmanship, although politically expedient and judicially efficient, is unjust and makes a mockery of the U.S. judicial system.

In sum, MDL 2179 is not right for America because it:

(a) allows judicial economy to replace justice; and

(b) denies access to the courts by permitting the desires and influence of corporations with deep pockets, and politically well-connected defendants, to trump the legal rights of the individual.

N.B. – BP paid Feinberg Rozen, LLP a sum of $1.25 million per month to limit its liability (“administer the BP oil spill victims’ compensation fund”).