The Donovan Law Group

Sign the Petition: The Intended Purpose of the OSLTF Is to Fully Compensate Oil Spill Victims via Subrogation

Sign the Petition: The Intended Purpose of the OSLTF Is to Fully Compensate Oil Spill Victims via  Subrogation

DATE: March 28, 2014

PURPOSE OF THE PETITION
The purpose of this petition is to demand that Congress requires responsible parties to pay the full costs and damages resulting from an oil spill incident by defining the term “expenditure,” under the Oil Spill Liability Trust Fund (“OSLTF’), as “an expenditure that is not reimbursed by the responsible party.”

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

Any person, including the OSLTF, that pays compensation pursuant to the Oil Pollution Act of 1990 (“OPA”) to any claimant for damages [resulting from an oil spill] 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, the Attorney General shall commence an action on behalf of the OSLTF to recover any compensation paid by the OSLTF to any claimant pursuant to OPA, and all costs incurred by the 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 the OSLTF, for the cost or damages for which the compensation was paid. 33 U.S.C. § 2715(c)

OPA established an expenditure cap of $1 billion per oil spill incident. This $1 billion expenditure limit includes $500 million for natural resource damage assessments and claims.

Victims of catastrophic oil spills are at risk as a result of this cap. The cap is for total expenditures. This $1 billion expenditure limit applies even if the OSLTF is fully reimbursed by the responsible party and net expenditures are zero.

PETITION BACKGROUND
I am writing in regard to the need to properly define the term “expenditure” under the Oil Spill Liability Trust Fund (“OSLTF”). Under the OSLTF, expenditure should mean “an expenditure that is not reimbursed by the responsible party.” Defining the term in any other manner ignores the legislative intent of Congress and the Internal Revenue Code.

The BP oil spill of 2010 is instructive.

The question is whether victims of the BP oil spill of April 22, 2010 will have to pay three times: (a) once for the 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 misled and undercompensated by GCCF and DHCC; 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 individual lawsuits or class action lawsuits.

The damages suffered by victims of the BP oil spill incident of April 22, 2010 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.

How will victims of this unprecedented oil spill be fully compensated for their losses? Theoretically, there are four potential avenues of compensation for victims of this oil spill: (a) the Gulf Coast Claims Facility (“GCCF”); (b) the Deepwater Horizon Claims Center (“DHCC”); (c) litigation; and (d) the OSLTF.

GCCF
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”). 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. BP and Kenneth Feinberg, the GCCF claims administrator, allege that GCCF (and the protocols under which it operates) are structured to be compliant with OPA. However, GCCF is in violation of OPA. In lieu of ensuring that oil spill victims are made 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.

The GCCF data indicates that a total of 574,379 unique claimants filed claims with the GCCF during the period from approximately August 23, 2010 to March 7, 2012. The GCCF paid only 221,358 of these claimants. In sum, the GCCF denied payment to approximately 61.46% of the claimants who filed claims; the average total amount paid per claimant was $27,466.47.

The status report data further indicates that the GCCF paid a total of 230,370 claimants who filed claims with the GCCF during the “Phase II” period. Of these, 195,109 were either Quick Pay or Full Review Final payments; only 35,261 were Interim payments. In sum, the 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; only 15.31% of the claimants were not required to sign a release and covenant not to sue in order to be paid.

DHCC
The DHCC and the GCCF are virtually identical. Under the GCCF, the evaluation and processing of claims were performed by Garden City Group, Inc., BrownGreer, PLC, and PricewaterhouseCoopers, LLP (“PwC”). Under the DHCC, the evaluation and processing of claims shall continue to be performed by Garden City Group, Inc., BrownGreer, PLC, and PwC. Accordingly, although Patrick Juneau has replaced Ken Feinberg, there is no reason to believe that the percentage of claimants denied payment and the average total amount paid per claimant will change under the DHCC.

LITIGATION
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.

Kenneth Feinberg uses the fear of costly and protracted litigation to coerce victims of the BP oil spill to accept grossly inadequate settlements from GCCF. 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.” Mr. Feinberg intentionally fails to mention that litigation is not the only alternative to GCCF.

OSLTF
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.” See 135 Cong. Rec. H7962 (daily ed. Nov. 2, 1989) Prior to OPA, federal funding for oil spill damage recovery was difficult for private parties. To address this issue, Congress established the OSLTF under section 9509 of the Internal Revenue Code of 1986 (26 U.S.C. 9509).

The 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.

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 the OSLTF. 33 U.S.C. § 2713(c)

Expenditure
The maximum amount which may be paid from the 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 the OSLTF only if the amount in the OSLTF after such payment will not be less than $30,000,000. 26 U.S.C. § 9509(c)(2)(B)

This is an incident of first impression for the OSLTF. The BP oil spill of April 22, 2010, a catastrophic oil spill incident, represents the first time that the viability of the 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 the OSLTF to cover “catastrophic spills.” See U.S. Congress, House Committee on Merchant Marine and Fisheries, Report accompanying H.R. 1465, Oil Pollution Prevention, Removal, Liability, and Compensation Act of 1989, 1989, H.Rept. 101-242, Part 2, 101st Cong., 1st sess., p. 36

If an expenditure is reimbursed, is it still an expenditure? The 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 the 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 the OSLTF, means “an expenditure that is not reimbursed by the responsible party.”

Subrogation
Any person, including the 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, the Attorney General shall commence an action on behalf of the OSLTF to recover any compensation paid by the OSLTF to any claimant pursuant to OPA, and all costs incurred by the 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 the OSLTF, for the cost or damages for which the compensation was paid. 33 U.S.C. § 2715(c) Thus, a responsible party may ultimately pay a claim that was initially denied, or not addressed for more than 90 days, by the responsible party.

CONCLUSION
The advantage of defining an expenditure, under the OSLTF, as “an expenditure that is not reimbursed by the responsible party,” is threefold:

(a) It eliminates the $1 billion cap which may be paid from the OSLTF with respect to any single incident;

(b) It allows the 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 catastrophic oil spill claimants, it is replenished, by virtue of subrogation, by reimbursements made to the OSLTF by the responsible party; and

(c) It ensures that the costs and damages resulting from a catastrophic oil spill incident shall be borne by the responsible party, not the federal taxpayer.

Thank you for your prompt attention to this issue.

Sincerely,
[Your name]

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”).

CLICK HERE TO SIGN THE PETITION

 

Advertisements
Tagged with:

Is the BP Oil Spill Proposed Class Action Settlement Fair, Reasonable, and Adequate?

Is the BP Oil Spill Proposed Class Action Settlement Fair, Reasonable, and Adequate?

_____________________________

Plaintiff Files Motion to Vacate Preliminary Approval Order

Tampa, FL (July 4, 2012) – On April 18, 2012, the MDL 2179 Plaintiffs’ Steering Committee (“PSC”) and BP filed their Proposed Settlement. The Proposed Settlement allegedly intends to resolve certain claims by private individuals and businesses for economic loss and property damage resulting from the “Deepwater Horizon Incident.” The Proposed Settlement defines “Deepwater Horizon Incident” as the events, actions, inactions and omissions leading up to and including (i) the blowout of the MC252 Well; (ii) the explosions and fire on board the Deepwater Horizon on or about April 20, 2010; (iii) the sinking of the Deepwater Horizon on or about April 22, 2010; (iv) the release of oil, other hydrocarbons and other substances from the MC252 Well and/or the Deepwater Horizon and its appurtenances; (v) the efforts to contain the MC252 Well; (vi) Response Activities, including the VoO Program; (vii) the operation of the GCCF; and (viii) BP public statements relating to all of the foregoing.

On May 2, 2012, the MDL 2179 Court entered a Preliminary Approval Order [As to the Proposed Economic and Property Damages Class Action Settlement].

On July 2, 2012, Plaintiff Selmer M. Salvesen, a clam farmer in Florida, filed a Motion to Vacate Preliminary Approval Order [As to the Proposed Economic and Property Damages Class Action Settlement], Rec. Doc. 6418 dated May 2, 2012, with the MDL 2179 Court.

The following is an excerpt from Plaintiff Salvesen’s Motion to Vacate.

A. The Proposed Settlement Is Not Fair, Reasonable, and Adequate.

Rule 23(e) places the burden of persuasion on the movers that the proposed settlement is “fair, reasonable, and adequate.”  In re Chinese-Manufactured Drywall Prods. Liab. Litig., 2012 WL 92498, at *7 (E.D. La. Jan. 10, 2012). If the proposed settlement “discloses no reason to doubt its fairness, has no obvious deficiencies, does not improperly grant preferential treatment to class representatives or segments of the class, does not grant excessive compensation to attorneys, and appears to fall within the range of possible approval, the court should grant preliminary approval.” In re OCA, Inc. Sec. & Deriv. Litig., No. 05-2165, 2008 WL 4681369, at *11 (E.D. La. Oct. 17, 2008).

1.  The Proposed Settlement Provides Misleading Information to Class Members.

Under the Oil Pollution Act of 1990 (‘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. 33 U.S.C. § 2713(c).

“The Court is satisfied that, pursuant to the terms of the Proposed Settlement, Class Members who opt out or who possess reserved claims will be able to pursue those claims effectively outside the Class Settlement.” (p. 26, Rec. Doc. 6418). BP and the PSC have misled this Honorable Court and Class Members.

(a)  The Oil Spill Liability Trust Fund

The OPA provides the Oil Spill Liability Trust Fund (“OSLTF”) to pay for oil spill costs when the responsible party cannot or does not pay. The OSLTF, administered by the U.S. Coast Guard through its National Pollution Funds Center (“NPFC”), is primarily financed through a tax on petroleum products, and is subject to a $1 billion cap on the amount of expenditures from the OSLTF per incident. For any one oil pollution incident, the OSLTF may pay up to $1 billion. Victims of the BP oil spill are at risk as a result of this cap. The cap is for total expenditures. This $1 billion expenditure limit applies even if the OSLTF is fully reimbursed by the responsible party and net expenditures are zero. OSLTF expenditures for natural resource damage assessments and claims in connection with a single incident are limited to $500 million of that $1 billion. NPFC administers the OSLTF by disbursing funds to government agencies to reimburse them for their oil spill cleanup costs (cost reimbursements), monitoring the sources and uses of funds, adjudicating claims submitted by individuals and businesses to the OSLTF for payment (claims), and pursuing reimbursement from the responsible party for costs and damages paid from the OSLTF (billing the responsible party).

On March 9, 2012, Mr. Craig A. Bennett, Director – NPFC, provided the following OSLTF status report in regard to the Deepwater Horizon oil spill incident:

Deepwater Horizon OSLTF Costs     =          $619 million

Deepwater Horizon Pending Claims =          $410 million (for 1,659 claims received)

On March 9, 2012, total OSLTF expenditures (paid + pending claims) in regard to the Deepwater Horizon was $1.019 billion. In sum, since the OSLTF has exceeded, or will very shortly exceed, its $1 billion expenditure cap for the Deepwater Horizon oil spill incident, the OSLTF cannot pay valid individual or business claims which are not paid by BP.

(b)  The Litigation Option

OPA, a strict liability statute, governs the MDL 2179 cases alleging economic loss due to the BP oil spill. The Outer Continental Shelf Lands Act (“OCSLA”) governs the MDL 2179 personal injury and wrongful death actions and borrows the law of the adjacent state as surrogate federal law.

Judge Barbier aptly stated in his Order dated August 26, 2011, “The Court finds that the text of OPA clearly requires that OPA claimants must first “present” their OPA claim to the Responsible Party before filing suit….The text of the statute is clear. Congress intended presentment to be a mandatory condition precedent to filing suit….There are likely large numbers of B1 claimants who have completely bypassed the OPA claim presentation requirement, others who have attempted to present their claims but may not have complied with OPA, and others who have properly presented their claims but have been denied for various reasons. Claimants who have not complied with the presentment requirement are subject to dismissal without prejudice, allowing them to exhaust the presentment of their claims before returning to court. In the ordinary case, the Court would simply dismiss those claims without prejudice. However, as the Court has previously noted, this is no ordinary case….. A judge handling an MDL often must employ special procedures and case management tools in order to have the MDL operate in an orderly and efficient manner. In this massive and complex MDL, the Court is faced with a significant practical problem. It would be impractical, time-consuming, and disruptive to the orderly conduct of this MDL and the current scheduling orders if the Court or the parties were required to sort through in excess of 100,000 individual B1 claims to determine which ones should be dismissed at the current time. Moreover, such a diversion at this time would be unproductive and would not advance towards the goal of allowing the parties and the Court to be ready for the limitation and liability trial scheduled to commence in February 2012. No matter how many of the individual B1 claims might be dismissed without prejudice, the trial scheduled for February would still go forward with essentially the same evidence…..In summary on this issue, the Court finds that presentment is a mandatory condition precedent with respect to Plaintiffs’ OPA claims. The Court finds that Plaintiffs have sufficiently alleged presentment in their B1 Master Complaint, at least with respect to some of the Claimants.” (pp. 29, 30, 31, Rec. Doc. 3830) (Emphasis added).

Pursuant to the terms of the Proposed Settlement, “Regardless of whether the Agreement becomes effective, Claims with a sum certain and some documentation and/or other proof that are submitted to the Settlement Program shall be deemed to satisfy presentment and all requirements of 33 U.S.C. § 2713.” (pp. 62-63, Rec. Doc. 6276-1); “OPA Process shall mean the claims presentment procedure pursuant to the OPA, including claims that have been submitted to the BP Parties or claims that have been submitted to the GCCF as part of the OPA Process.” (p. 104, Rec. Doc. 6276-1); “Economic Class Members with expired offers from the GCCF who Opt-Out of the Economic Class shall be deemed to have satisfied the presentment requirements under the Oil Pollution Act of 1990 (“OPA”).” (p. 15, Rec. Doc. 6276-1).

BP and the PSC clearly understand that, under OPA, Congress intended presentment to be a mandatory condition precedent to filing suit. However, yet again, the parties mislead this Honorable Court and Class Members by intentionally failing to counsel those Claimants who may opt-out of the Proposed Settlement that, 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. 33 U.S.C. § 2713(c). If a Claimant files a Complaint against BP under OPA prior to first presenting his, her, or its claim to BP and then waiting 90 days, the case will be subject to dismissal and the claimant will again be left out in the cold.

BP and the PSC are obviously aware that the OSLTF is not a viable alternative for Claimants who opt-out and, for many opt-out Claimants, filing a suit against BP under OPA will be either thwarted or delayed by the OPA presentment requirement. However, the Proposed Settlement “generously” provides that, “Any Economic Class Member may revoke his, her or its Opt Out from the Economic Class and thereby receive the benefit of this Economic and Property Damage Settlement up until three (3) days prior to the Fairness Hearing; or later, if the BP Parties consent in their sole and unilateral discretion..” (p. 40, Rec. Doc. 6418).

(i)  The Statute of Limitations

The PSC further misleads Class Members by intentionally failing to counsel those Claimants who may opt-out of the Proposed Settlement that a lawsuit brought against a non-Responsible Party, e.g., a lawsuit asserting claims for gross negligence, fraud, etc. against Kenneth R. Feinberg, et al, may be barred by the statute of limitations. In federal question cases, the federal court will apply the specific statute of limitations period established by the federal statute under which the plaintiff is seeking relief. Federal courts that are hearing a controversy based on diversity of citizenship of the parties must apply the applicable state law of the forum state. In this case, the statute of limitations for a suit brought against a non-Responsible Party may be only two years.

2.  The Proposed Settlement Grants Excessive Compensation to Attorneys.

The question is whether the Proposed Settlement grants excessive compensation to the PSC and other counsel performing common benefit work in MDL 2179. This issue can be determined by a simple two-prong comparison test: First, by comparing the common benefit fees received by attorneys in MDL 2179 with the average total payment amount received by the claimants; and Second, by comparing the common benefit fees received by attorneys in MDL 2179 with the common benefit fees received by attorneys in comparable MDLs.

(a)  The Average Total Payment Amount Received From GCCF by Claimants

GCCF Overall Program Statistics (Status Report as of March 7, 2012)

Total Amount Paid                                           = $6,079,922,450.47

Total No. of Paid Claimants                           = 221,358

Average Total Amount Paid Per Claimant  = $27,466.47

The GCCF data indicates that a total of 574,379 unique claimants filed claims with the GCCF during the period from approximately August 23, 2010 to March 7, 2012. The GCCF paid only 221,358 of these Claimants. In sum, the GCCF denied payment to approximately 61.46% of the claimants who filed claims. See “Gulf Coast Claims Facility Overall Program Statistics” (Status Report, Mar. 7, 2012) (a copy is attached hereto as Exhibit A).

On March 8, 2012, this Honorable Court terminated the GCCF claims process and appointed Patrick Juneau as the Claims Administrator of the Transition Process and the proposed Court Supervised Claims Program (“CSCP”). On May 2, 2012, Patrick Juneau was appointed as Claims Administrator to oversee the Claims Administration Vendors, who will process the claims in accordance with the Proposed Settlement. Under the CSCP, the evaluation and processing of claims shall continue to be performed by Garden City Group, Inc., BrownGreer, PLC, and PricewaterhouseCoopers, LLP. Accordingly, there is no reason to believe that the percentage of claimants denied payment and the average total amount paid per claimant will change under the CSCP.

(b)  The Common Benefit Fees Received by Attorneys in Comparable MDLs

In order to determine an appropriate common benefit fee, this Court looks to comparable MDL set-aside assessments and awards of common benefit fees. E.g., In re Diet Drugs Prods. Liab. Litig., 553 F. Supp. 2d at 442, 457-58, 491-96 (E.D. Pa. 2008) (describing 9% federal and 6% state assessments later reduced to 6% and 4%, respectively; awarding less than total fund created by assessments); In re Zyprexa, 467 F. Supp. 2d at 261-63 (E.D.N.Y. Aug. 17, 2007) (1% and 3% of separate settlement amounts); In re Sulzer Hip Prosthesis & Knee Prosthesis Liab. Litig., 268 F. Supp. 2d at 907, 909, 919 n.19 (N.D. Ohio 2003) (awarding common benefit fees out of $50,000,000 fund created through assessment representing 4.8% of settlement value); In re Protegen Sling & Vesica Sys. Prods. Liab. Litig., MDL No. 1387, 2002 WL 31834446, at *1, *3 (D. Md. Apr. 12, 2002) (9% federal, 6% coordinated state assessments); In re Rezulin Prods. Liab. Litig., MDL No. 1348, 2002 WL 441342, at *1 (S.D.N.Y. Mar. 20, 2002) (6% withholding in federal cases, 4% in participating state cases); See also William B. Rubenstein, On What a “Common Benefit Fee” Is, Is Not, and Should Be, 3 Class Action Att’y Fee Dig. at 87 (2009) (collecting cases and concluding that most common benefit assessments range from 4% to 6%); 4 Alba Conte & Herbert B. Newberg, Newberg on Class Actions § 14:9 (4th ed. 2002) (“Most [MDL] courts have assessed common benefit fees at about a 4-6% level, generally 4% for a fee and 2% for costs.”); Paul D. Rheingold, Litigating Mass Tort Cases § 7:35 (2010) (“[P]ercentages awarded for common funds in recent MDLS … were in the 4-6% range.”)(citation omitted). In re Vioxx Prods. Liab. Litig., 760 F. Supp. 2d 640 (E.D. La. 2010) (“October 19, 2010 Order and Reasons”).

The Court’s analysis in the Vioxx MDL case is instructive. In re Vioxx Prods. Liab. Litig. (“MDL 1657”) involves the prescription drug Vioxx. Merck, a New Jersey corporation, researched, designed, manufactured, marketed and distributed Vioxx to relieve pain and inflammation resulting from osteoarthritis, rheumatoid arthritis, menstrual pain, and migraine headaches. On September 20, 2004, Merck withdrew it from the market after data indicated that the use of Vioxx increased the risk of cardiovascular thrombotic events such as myocardial infarction (heart attack) and ischemic stroke. Thereafter, thousands of individual suits and numerous class actions were filed against Merck in state and federal courts throughout the country.

On February 16, 2005, the Judicial Panel on Multidistrict Litigation (“JPML”) conferred MDL status on Vioxx lawsuits filed in various federal courts throughout the country and transferred all such cases to this Court to coordinate discovery and to consolidate pretrial matters pursuant to 28 U.S.C. § 1407. See In re Vioxx Prods. Liab. Litig., 360 F. Supp. 2d 1352 (J.P.M.L. 2005).

On November 9, 2007, Merck and the Negotiating Plaintiffs’ Counsel (“NPC”) formally announced that they had reached a Settlement Agreement. The private Settlement Agreement established a pre-funded program for resolving pending or tolled state and federal Vioxx claims against Merck as of the date of the settlement, involving claims of heart attack (“MI”), ischemic stroke (“IS”), and sudden cardiac death (“SCD”), for an overall amount of $4.85 billion. In Vioxx, Judge Fallon stated, “The Settlement Agreement created a $4.85 billion fund for the compensation of Vioxx claimants. The Court finds no reason to omit any portion of that settlement fund from consideration with respect to the reasonable amount of common benefit fees. Accordingly, $4.85 billion is the appropriate amount for calculation of a reasonable percentage of common benefit fees.”

The Vioxx Court awarded a common benefit fee of $315,250,000, which is equivalent to 6.5% of $4,850,000,000. In Vioxx, unlike MDL 2179, the attorneys came from states across the country. Accordingly, the Court found that an average hourly billable rate of $443.29 was reasonable.

There are two significant differences between MDL 1657 and MDL 2179:

(i)  The Time and Labor Required

The PSC and other counsel performing common benefit work in MDL 1657 documented and submitted over 560,000 hours of work during the course of the litigation. The PSC operated on many fronts, preparing pleadings and Master Class Action complaints, taking over 2,000 depositions, reviewing and compiling over 50,000,000 documents, briefing and arguing over 1,000 discovery motions, assembling a trial package, conducting bellwether trials, negotiating the global Settlement Agreement, and implementing the payout under the Agreement.

In contrast, “In the 20 months that have passed since the JPML’s centralization order, the parties [in MDL 2179] have engaged in extensive discovery and motion practice, including taking 311 depositions, producing approximately 90 million pages of documents, and exchanging more than 80 expert reports on an intense and demanding schedule……..BP and the PSC report that in February 2011 settlement negotiations began in earnest for two distinct class action settlements: a Medical Benefits Settlement and an Economic and Property Damages Settlement.” (p. 3, Rec. Doc. 6418).

In sum, the PSC and other counsel allegedly performing common benefit work in MDL 2179 only took 311 depositions and initiated settlement negotiations “in earnest” merely six (6) months after the JPML created MDL 2179.

The MDL 1657 Court conducted six Vioxx bellwether trials. During the same period that the Court was conducting six bellwether trials, approximately thirteen additional Vioxx-related cases were tried before juries in various state courts.

The MDL 2179 Court did not conduct a single bellwether trial.

(ii)  The Results Obtained

Attorneys doing common benefit work on behalf of Vioxx users in MDL 1657 achieved a favorable and meaningful global resolution. The Settlement Agreement ensured fair and comprehensive compensation to all qualified participants. In only 31 months, the parties to the Vioxx case were able to reach a global settlement and distribute $4,353,152,064 to 32,886 claimants, out of a pool of 49,893 eligible and enrolled claimants.

In contrast, attorneys doing common benefit work on behalf of BP oil spill victims in MDL 2179 did not remotely achieve “a favorable and meaningful global resolution.” The MDL 2179 Proposed Settlement does not ensure fair and comprehensive compensation to all qualified participants. This conclusion is supported by the following comparison:

Average Total Amount Paid Per Claimant in MDL 1657 =  $132,370.98

Average Total Amount Paid Per Claimant in MDL 2179 =  $  27,466.47

(c)  The Common Benefit Fees Received by Attorneys in MDL 2179

The PSC and other counsel allegedly performing common benefit work in MDL 2179 are not double-dipping; they are triple-dipping.

The known sources of compensation received by attorneys allegedly doing common benefit work on behalf of BP oil spill victims in MDL 2179 are:

(a) Six percent (6%) of the gross monetary settlements, judgments or other payments made on or after December 30, 2011 through June 3, 2012 to any other plaintiff or claimant-in-limitation. (p. 3, Rec. Doc. 5274);

(b) BP has agreed to pay any award for common benefit and/or Rule 23(h) attorneys’ fees, as determined by the Court, up to $600 million. (p. 10, Rec. Doc. 6418);

(c) Many attorneys doing common benefit work have their own clients and have also received or will also receive a fee directly from them. (N.B. – On June 15, 2012, the MDL 2179 Court ordered that “contingent fee arrangements for all attorneys representing claimants/plaintiffs that settle claims through either or both of the Settlements will be capped at 25% plus reasonable costs.”) (Rec. Doc. 6684); and

(d) Co-counsel fees received by member firms of the PSC for serving as co-counsel to non-member firms of the PSC. For example, on March 13, 2012, Counsel for Plaintiff Salvesen received an unsolicited mass email from a member firm of the PSC. The email stated, in pertinent part, “Co-Counsel Opportunity for BP Oil Spill Cases: News of the recent BP Settlement has caused many individuals and businesses along the Gulf Coast to contemplate either filing a new claim or amending a claim that has already been submitted. If you receive inquiries of this nature we would like you to consider a co-counsel relationship with our firm. Even if someone has already filed a claim it is advisable to retain legal counsel to analyze the impact of this settlement on claimants and maximize recovery. If you receive inquiries and are interested in co-counseling with us on the BP claims, please email…”

Over the years courts have employed various methods to determine the reasonableness of an award of attorneys’ fees. These methods include the “lodestar” method, which entails multiplying the reasonable hours expended on the litigation by an adjusted reasonable hourly rate, Copper Liquor, Inc. v. Adolph Coors Co., 624 F.2d 575, 583 & n.15 (5th Cir. 1980); the percentage method, in which the Court compensates attorneys who recovered some identifiable sum by awarding them a fraction of that sum; or, more recently, a combination of both methods in which a percentage is awarded and checked for reasonableness by use of the lodestar method.

(i)  The Percentage Method

As noted above, “percentages awarded for common funds in recent MDLS … were in the 4-6% range.” Given that the PSC and other counsel allegedly performing common benefit work in MDL 2179 only took 311 depositions and initiated settlement negotiations “in earnest” merely six (6) months after the JPML created MDL 2179, the appropriate percentage should be no greater than 4%.

BP has estimated the cost of the proposed settlement to be approximately $7.8 billion. (p. 156, Rec. Doc. 6266-2). A 4% award would yield $312 million for common funds.

(ii)  The Lodestar Cross-Check

The lodestar analysis is not undertaken to calculate a specific fee, but only to provide a broad cross-check on the reasonableness of the fee arrived at by the percentage method.

This Court has previously used a range of $300 to $400 per hour for members of a Plaintiffs’ Steering Committee and $100 to $200 per hour for associates to “reasonably reflect the prevailing [billable time] rates in this jurisdiction.” Turner v. Murphy Oil USA, Inc., 472 F. Supp. 2d at 868-69 (E.D. La. 2007).

Amount Awarded                      Billable Hourly Rate                      Hours Required to Have Been Expended

$312,000,000.00                             $300/hr.                                                       1,040,000 hours

$600,000,000.00                            $300/hr.                                                       2,000,000 hours

In sum, in order to be awarded a common benefit fee of $312 million, this Honorable Court would have to believe that the PSC attorneys worked more than one million hours; in order to be awarded a common benefit fee of $600 million, this Honorable Court would have to believe that the PSC attorneys worked two million hours. Both of these fee amounts, which do not include the aforementioned (a), (c), and (d) known sources of compensation, fail the reasonableness test.

GCCF Claimants Should Not be Required to Pay the Litigation Fees and Expenses Incurred by the MDL 2179 Plaintiffs’ Steering Committee

GCCF Claimants Should Not be Required to Pay the Litigation Fees and Expenses Incurred by the MDL 2179 Plaintiffs’ Steering Committee

______________________________________

BP Oil Spill Victims Should Not be Taxed on the Miniscule Monetary Settlements They Receive from GCCF

Tampa, FL (January 12, 2012) – The amended MDL 2179 court order, dated January 4, 2012, provides:

“ORDERED that Defendants, or any agent or representative acting on a Defendant’s behalf, shall withhold and deposit an amount equivalent to six percent (6%) of the gross monetary settlements, judgments or other payments made after December 30, 2011, by or on behalf of one or more Defendants to any other plaintiff, putative class member or other claimant, arising out of the Macondo / Deepwater Horizon disaster, (with the exception of settlements, judgments or other payments to the United States), into a court-supervised escrow account, in order to establish a fund from which common benefit litigation fees and expenses may be paid, if and as awarded by the Court, at an appropriate time, pursuant to procedures to be determined by future order of the Court. Specifically, this hold back requirement applies to all actions filed in or removed to federal court that have been or become a part of the MDL, whether or not a motion to remand has been filed, claimants who settle directly with the Gulf Coast Claims Facility, or state court plaintiffs represented by counsel who have participated in or had access to the discovery conducted in this MDL. Exempt from this hold back requirement are state court counsel who have or had no cases in this MDL and who have never had access to any of the discovery undertaken in the MDL.”

The Impact of the Court’s Order on Private Claimants Receiving Settlements from the GCCF

The court’s amended order of January 4, 2012 will mean private claimants receiving settlements from the GCCF will be impacted by an unjustifiable financial loss and, more importantly, by their resultant loss of faith in the judicial system.

UNJUSTIFIABLE FINANCIAL LOSS

On January 3, 2012, The Louisiana Record reported that as of December 31, 2011 the GCCF had paid $2.3 billion to about 160,000 individuals, and $3.5 billion to about 60,000 businesses. Assuming BP fully funds its $20 billion commitment to the GCCF, and the GCCF fully utilizes the $20 billion to compensate victims of the BP oil spill, the monetary impact of the court order on private claimants would be approximately $852 million.

Claims which are settled through the GCCF should not be subject to the six percent (6%) hold-back because these settlements are not the result of any common benefit work. The Plaintiffs’ Steering Committee (“PSC”) itself states that, “The only work entitled to compensation from a common benefit fund is work that has demonstrably provided a benefit to all plaintiffs, or to a defined group of plaintiffs as a whole – the common benefit work.” The PSC has not performed work that has “demonstrably provided a benefit” to claimants who resolve their claims under the OPA through negotiations with the GCCF.

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)

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 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)

“The overarching purpose of OPA’s mandatory alternative dispute resolution process is ‘to encourage settlement and avoid litigation.’” Boca Ciega Hotel, Inc. v. Bouchard Trans. Co., 51 F. 3d 235, 240 (11th Cir. 1995). Unfortunately, GCCF’s “Delay, Deny, Defend” strategy avoids settlement and encourages litigation.

BP oil spill victims who submit claims and settle them through negotiations with the GCCF are simply following the law. The PSC cannot take credit for the passing of OPA and its “presentment” requirement any more than it can take credit for creation of the GCCF itself, established as a result BP’s designation as a “Responsible Party” under OPA. Both of these factors, OPA’s statutory requirements and the creation of the GCCF, have led to the resolution of many claims and will lead to more in the future. The PSC cannot legitimately claim responsibility for either. See Opposition to PSC’s “Motion to Establish Account and Reserve for Litigation Expenses,” In re: Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico, on April 20, 2010 (10-02179), Doc. R. 4682 at p. 5.

The PSC alleges it has “exerted an enormous litigation pressure, risk, leverage and incentive for BP, through the GCCF, to try to settle its liabilities, in advance of trial.” The PSC further contends its work has “common benefit” for all plaintiffs. As explained below, this is inaccurate.

LOSS OF FAITH IN THE JUDICIAL SYSTEM

Multidistrict Litigation (“MDL”)

The Multidistrict Litigation Act passed by Congress in 1968, codified at 28 U.S.C. § 1407, states that civil actions pending in different districts and involving one or more common questions of fact may be transferred to any district for coordinated or consolidated pretrial proceedings.

The purpose of consolidation is to promote the “just and efficient” conduct of the action. See 28 U.S.C. § 1407(a); see also H.R. Rep. No. 1130, 90th Cong. 2nd Session, 1968 USCCAN 1898, 1900 (explaining that “pretrial consolidation must promote the just and efficient conduct of such actions and be for the convenience of the parties and witnesses”). Congress intended for consolidation to be ordered “only where significant economy and efficiency in judicial administration may be obtained.” See H.R. Rep. No. 1130, 1968 U.S.C.C.A.N. at 1900 (emphasis added).

In the MDL No. 2179 Transfer Order, dated August 10, 2010, the J.P.M.L. held that the Eastern District of Louisiana was an appropriate Section 1407 forum for actions which “indisputably share factual issues concerning the cause (or causes) of the Deepwater Horizon explosion/fire and the role, if any, that each defendant played in it. Centralization under Section 1407 will eliminate duplicative discovery, prevent inconsistent pretrial rulings, including rulings on class certification and other issues, and conserve the resources of the parties, their counsel, and the judiciary. In all these respects, centralization will serve the convenience of the parties and witnesses and promote the more just and efficient conduct of these cases, taken as a whole.” See In re: Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico, on April 20, 2010, 731 F. Supp. 2d 1352, 1354 (J.P.M.L. 2010).

U.S. District Judge Carl J. Barbier, who has been appointed by the J.P.M.L. to serve as the transferee judge in MDL 2179, is responsible for ensuring that significant economy and efficiency in judicial administration is obtained. Judge Barbier appointed each member of the PSC and, via the court’s amended order of January 4, 2012, established a fund of potentially $852 million from which PSC’s common benefit litigation fees and expenses may be paid.

The appointment and compensation of the PSC by Judge Barbier raises an important question for GCCF claimants and MDL 2179 plaintiffs: Does PSC’s loyalty rest with: (a) ensuring justice is obtained for the plaintiffs, or (b) ensuring significant economy and efficiency in the judicial administration of the MDL 2179 Court?

OCSLA and OPA, Not General Maritime Law, Govern MDL 2179

The Outer Continental Shelf Lands Act (“OCSLA”), 43 U.S.C. § 1331 et seq., governs those cases involving personal injury and wrongful death actions. The Oil Pollution Act of 1990 (“OPA”),  33 U.S.C. § 2701 et seq, governs those cases alleging economic loss due to the BP oil spill. See “BP Oil Spill: Is the MDL 2179 Trial Plan Unconstitutional?” available online at https://donovanlawgroup.wordpress.com/2012/01/03/bp-oil-spill-is-the-mdl-2179-trial-plan-unconstitutional/

Background

In order to efficiently manage MDL 2179, the Court consolidated and organized the various types of claims into several “pleading bundles.” The “B1” pleading bundle includes all claims for private or “non-governmental economic loss and property damages.” There are in excess of 100,000 individual claims encompassed within the “B1″ bundle.

On January 12, 2011, the MDL 2179 Court issued PTO No. 25, in order to clarify “the scope and effect” of the “B1″ bundle Master Complaint. The Court held that any individual plaintiff who is a named plaintiff in a case that falls within pleading bundle “B1″ “is deemed to be a plaintiff in the “B1″ Master Complaint.” Also, “the allegations, claims, theories of recovery and/or prayers for relief contained within the pre-existing petition or complaint are deemed to be amended, restated, and superseded by the allegations, claims, theories of recovery, and/or prayers for relief in the respective “B1″ Master Complaint(s) in which the Defendant is named.”

The “B1” Master Complaint

In the “B1” Master Complaint, the PSC alleged claims under general maritime law, various state laws, and OPA. Under general maritime law, PSC alleged claims for negligence, gross negligence, and strict liability for manufacturing and/or design defect. Under various state laws, PSC alleged claims for nuisance, trespass, and fraudulent concealment, and also alleged a claim for strict liability under the Florida Pollutant Discharge Prevention and Control Act, Fla. Stat. § 376.011, et seq. Additionally, PSC sought punitive damages under all claims and requested declaratory relief regarding any settlement provisions that purport to affect the calculation of punitive damages.

The Court’s Order and Reasons [As to Motions to Dismiss the B1 Master Complaint]

On August 26, 2011, the MDL 2179 Court granted in part Defendants’ Motions to Dismiss the “B1″ Master Complaint. The Court ruled: (a) Admiralty jurisdiction is present because the alleged tort occurred upon navigable waters of the Gulf of Mexico, disrupted maritime commerce, and the operations of the vessel bore a substantial relationship to traditional maritime activity. With admiralty jurisdiction comes the application of substantive maritime law; (b) State law, both statutory and common, is preempted by maritime law, notwithstanding OPA’s savings provisions. All claims brought under state law are dismissed; and (c) General maritime law claims that do not allege physical damage to a proprietary interest are dismissed under the Robins Dry Dock rule, unless the claim falls into the commercial fishermen exception. In re Oil Spill by the Rig Deepwater Horizon in the Gulf of Mexico, on April 20, 2010, –  F. Supp. 2d -, 2011 WL 3805746 (Aug. 26, 2011 E.D. La.).

The Rule of Lexecon

The rule of Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998) holds that an MDL judge may not try the actions transferred from other judicial districts under 28 U.S.C. § 1407. When the J.P.M.L. transfers a matter to an MDL judge, “[e]ach 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). In Lexecon, the Supreme Court read that language strictly and reversed a judgment entered after trial of a matter that the J.P.M.L. had transferred pursuant to § 1407. The Court held that “considerations of ‘finality, efficiency and economy”‘ do not justify “defiance of the congressional condition” that such an action be remanded to the transferor court for trial. Lexecon applies to MDL 2179.

Potential Reasons for the Loss of Faith in the Judicial System by GCCF Claimants

I. Private claimants receiving settlements directly from the GCCF are being forced by the MDL 2179 court to pay the litigation fees and expenses of a PSC from which the claimants will receive no benefit whatsoever. Moreover, the actions by this PSC ensure that the GCCF has no incentive to settle claims.

II. The PSC appears to be more interested in ensuring significant economy and efficiency in the judicial administration of the MDL 2179 court rather than in obtaining justice for the MDL 2179 plaintiffs. In its “B1” Master Complaint, the PSC alleged claims under general maritime law, not under OCSLA and OPA, thereby assisting the court in expeditiously being able to:

(a)  Find, “…. that nothing prohibits Defendants from settling claims for economic loss. While OPA does not specifically address the use of waivers and releases by Responsible Parties, the statute also does not clearly prohibit it. In fact, as the Court has recognized in this Order, one of the goals of OPA was to allow for speedy and efficient recovery by victims of an oil spill.”

(b)  Find, “State law, both statutory and common, is preempted by maritime law, notwithstanding OPA’s savings provisions. All claims brought under state law are dismissed.”

(c)  Find, “General maritime law claims that do not allege physical damage to a proprietary interest are dismissed under the Robins Dry Dock rule, unless the claim falls into the commercial fishermen exception.” and

(d)  Develop a trial plan that dispenses with trial by jury and instead conducts a bench trial applying general maritime law.

Judicial economy is undoubtedly well-served by MDL consolidation when scores of similar cases are pending in the courts. Nevertheless, 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). By forcing Plaintiffs in the instant case to await resolution of irrelevant discovery and factual disputes relating to completely different parties, theories of recovery and remedies, consolidation with MDL No. 2179 unreasonably delays Plaintiffs’ pursuit of their claims.

Tagged with:

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

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

Complaint Alleges Gross Negligence, Fraud, Fraudulent Inducement and Unjust Enrichment

Tampa, FL (June 21, 2011) – A second lawsuit has been filed in state court in Florida against Kenneth R. Feinberg, Feinberg Rozen, LLP and Gulf Coast Claims Facility (“GCCF”). The 38-page complaint was filed on June 15, 2011 in the Circuit Court of the Twentieth Judicial Circuit in and for Lee County, Florida by Tampa attorney Brian J. Donovan on behalf of Mr. Selmer M. Salvesen. The complaint alleges, in part, gross negligence, fraud, fraudulent inducement and unjust enrichment on the part of the defendants (Case No. 11-CA-002008).

Mr. Salvesen is the sole proprietor of a business engaged in aquaculture, specifically the growing of farm-raised hard-shell clams on sovereignty submerged land leased from the State of Florida. As a result of the actions of the defendants, Mr. Salvesen’s aquaculture business is struggling to survive.

Feinberg, acting through and as Managing Partner of Feinberg Rozen, established GCCF to independently administer and where appropriate settle and authorize the payment of certain claims asserted against BP as a result of the explosion at the Deepwater Horizon rig and consequent spillage of oil into the Gulf of Mexico.

The complaint alleges, in part, that Defendants misled Mr. Salvesen by employing a “Delay, Deny, Defend” strategy against him. 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.”

On April 22, 2011, 274 days after Mr. Salvesen presented a claim for damages to BP, GCCF finally denied his claim. This is in keeping with the “Delay, Deny, Defend” strategy alleged by Mr. Salvesen in his complaint – delay 274 days, deny compensation, then say to the claimant, “sue us.”

Mr. Salvesen is not able to sue Defendants under the Oil Pollution Act of 1990 (“OPA”) because his damages did not “result from” the oil spill and Defendants are not “responsible parties.” Defendants are independent contractors that administer, settle and authorize the payment of certain claims asserted against BP, the “responsible party.” Here, Defendants’ “Delay, Deny, Defend” strategy and associated tortious acts, not acts by BP, resulted in the financial ruin of Mr. Salvesen.

Donovan believes GCCF, without any legal authority for doing so, circumvents many of the rights provided to victims of the BP oil spill under the OPA. Under OPA, responsible parties for an oil spill are strictly liable for the payment of claims for specified damages. 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.” These damages include, but are not limited to: “Damages equal to the loss of profits or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, or natural resources, which shall be recoverable by any claimant.”

Defendants, who cannot cite to a single authority, statutory provision, or fragment of legislative history supporting their position, argue that (a) “OPA imposes no duty on responsible parties other than to establish and advertise a process for receiving claims, not that they actually settle claims;” and (b) “OPA says nothing about how a claims process should work. It simply requires that the claimant and the responsible party have a chance to consider a settlement before the claimant may sue.”

“The overarching purpose of OPA’s mandatory alternative dispute resolution process is ‘to encourage settlement and avoid litigation.'” Boca Ciega Hotel, Inc. v. Bouchard Trans. Co., 51 F. 3d 235, 240 (11th Cir. 1995).

Defendants’ “Delay, Deny, Defend” strategy avoids settlement and encourages litigation. In addition to Mr. Salvesen’s lawsuit, this strategy by GCCF has resulted in more than 130,000 BP oil spill victims being forced to become Plaintiffs in MDL 2179.

Mr. Salvesen seeks economic and compensatory damages, in amounts to be determined at trial, and punitive damages.

Tagged with: , ,

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

Tagged with: ,

BP Oil Spill Victims: Gulf Coast Claims Facility, Litigation or Oil Spill Liability Trust Fund?

BP Oil Spill Victims: Gulf Coast Claims Facility, Litigation or Oil Spill Liability Trust Fund?

By Brian J. Donovan

November 3, 2010

INTRODUCTION

During town hall meetings organized to promote the Gulf Coast Claims Facility (GCCF), Kenneth 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.” Mr. Feinberg intentionally fails to mention that litigation is not the only alternative to GCCF.

The recently released documentary film Crude Justice, produced by the Alliance for Justice (AFJ), explores the difficulties victims of the BP oil spill will face when seeking access to justice “in the face of corporate domination of the courts, statutes favoring big business, judges with ties to the oil and gas industries, and the uncertainties that accompany an incident where the long-term effects may not be known for years.” According to Nan Aron, the president of the AFJ, victims of the BP oil spill “have two basic paths toward just and fair compensation. On the one hand, a victim can take BP’s offer of short-term help for current losses and then, later, a final payment, one condition of which is that he or she forgoes the right to sue BP in the future. On the other, victims have the right to pursue their claims through the courts, which have the advantage of having rules and procedures that theoretically should level the playing field, but which have the disadvantage of being in a region well stocked with judges who are thoroughly embedded in an oil culture. The route through the courts also takes plaintiffs on a path that leads ultimately to a strongly pro-corporate Supreme Court.” Ms. Aron also fails to mention that litigation is not the only alternative to GCCF.

Contrary to what BP and AFJ would like the American public to believe, GCCF and litigation are not the only avenues of compensation open to BP oil spill victims. A financially viable Oil Spill Liability Trust Fund (the “Fund”) is a third, and probably the best, avenue.

This article briefly discusses: (a) how GCCF, without any legal authority for doing so, circumvents many of the rights provided to oil spill victims under the Oil Pollution Act of 1990 (OPA); (b) why litigation, especially class action litigation, is not in the best interests of victims of the BP oil spill; and (c) why the Fund is probably the best avenue of compensation open to BP oil spill victims.

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 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.

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.

BP and Feinberg allege that GCCF (and the protocols under which it operates) are structured to be compliant with OPA. The truth is that GCCF violates OPA, and thereby limits BP’s liability, in the following eight ways:
(a) paying only for harm or damage that is proximately caused by the BP oil spill and taking into account geographic proximity, nature of industry, and dependence upon injured natural resources;
(b) a single six-month emergency advance payment for lost income;
(c) a single final settlement payment;
(d) a limitation that no claim may be submitted to the GCCF “more than three years after the date the Protocol becomes operative;”
(e) an intentionally misleading claims procedure;
(f) failure to provide for interest on the amount paid in satisfaction of a claim;
(g) requirement that the claimant sign a general release of all rights the claimant may have against BP in order to receive the final settlement; and
(h) the intentional and systematic delay of payment of legitimate claims.

LITIGATION

Class Action Lawsuit
Teams of lawyers from across the country have descended on the Gulf Coast to file potential class action lawsuits, brought pursuant to Rule 23 of the Federal Rules of Civil Procedure, to recover damages suffered by plaintiffs and the class members as a result of the oil spill that resulted from the explosion and subsequent sinking of the Deepwater Horizon on April 22, 2010.

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.

Individual Lawsuit
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.

Victims of the BP oil spill must realize that BP p.l.c., 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.

OIL SPILL LIABILITY TRUST FUND

The intent of Congress when it enacted OPA was “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 help address this issue, Congress established the Fund. The Fund, and not BP’s GCCF or costly and protracted litigation, will ensure BP oil spill victims are made whole.

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 the Fund. 33 U.S.C. § 2713(c)

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) However, 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(a)

Moreover, at the request of the Secretary, the Attorney General shall commence an action on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to OPA, and all costs incurred by the Fund 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 the Fund, for the cost or damages for which the compensation was paid. 33 U.S.C. § 2715(c)

On October 18, 2010, in order to ensure the financial viability of the Fund, The Donovan Law Group sent a letter to the Honorable Janet Napolitano, Secretary of the Department of Homeland Security, asking the Secretary to immediately request the Attorney General, pursuant to 33 U.S.C. § 2715, to commence an action against BP on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to OPA.

CONCLUSION

As of the date of this article, it has been 197 days since the blowout of the BP offshore oil well in the Gulf of Mexico.

The question is whether victims of the BP oil spill will have to pay thrice: (a) once for the  gusher, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again by being mislead 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 federal government’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 GCCF; (b) not forced into filing unnecessary lawsuits; and (c) made whole by the Fund.
 

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.

BP Oil Spill: Letter Requests Secretary Napolitano to Take Action

BP Oil Spill: Letter Requests Secretary Napolitano to Take Action
______________________

Gulf Coast Claims Facility and Litigation Are Not the Only
Avenues of Compensation Open to BP Oil Spill Victims

By Brian J. Donovan

October 29, 2010

Contrary to what BP, and the recently released documentary film titled Crude Justice, would like the American public to believe, the Gulf Coast Claims Facility and litigation are not the only avenues of compensation open to BP oil spill victims. A financially viable Oil Spill Liability Trust Fund is a third option.

On October 18, 2010, The Donovan Law Group sent a letter to the Honorable Janet Napolitano, Secretary of the Department of Homeland Security, asking the Secretary to immediately request the Attorney General, pursuant to 33 U.S.C. § 2715, to commence an action against BP on behalf of the Oil Spill Liability Trust Fund (the “Fund”) to recover any compensation paid by the Fund to any claimant pursuant to OPA.

The full text of the letter follows.

October 18, 2010

VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED

The Honorable Janet Napolitano
Office of the Secretary
Department of Homeland Security
245 Murray Lane, SW
Washington, DC 20528

Re: BP Oil Spill and the Oil Pollution Act of 1990 (OPA)
Subrogation Rights for Payments Made for Damages, 33 U.S.C. § 2715

Dear Secretary Napolitano:

I am writing in regard to the above-referenced matter.

During town hall meetings organized to promote the Gulf Coast Claims Facility (GCCF), Kenneth 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.” Mr. Feinberg intentionally fails to mention that litigation is not the only alternative to GCCF.

The intent of Congress when it enacted OPA was “to eliminate, to the extent possible, the need for an injured person to seek recourse through the litigation process.” As explained below, I believe the Oil Spill Liability Trust Fund (the “Fund”), and not costly and protracted litigation, will ensure injured persons are fully compensated for damages which they suffered resulting from the oil spill caused by the blowout of the BP offshore oil well on April 20, 2010.

The following briefly discusses: (a) the Fund and subrogation rights under OPA; (b) how GCCF, without any legal authority for doing so, circumvents many of the rights provided to oil spill victims under OPA; and (c) why litigation, especially class action litigation, is not in the best interests of victims of the BP oil spill.

Secretary Janet Napolitano
October 18, 2010
Page 2

I. Subrogation

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 the Fund. 33 U.S.C. § 2713(c)

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)

However, 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(a)

Moreover, at the request of the Secretary, the Attorney General shall commence an action on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to OPA, and all costs incurred by the Fund 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 the Fund, for the cost or damages for which the compensation was paid. 33 U.S.C. § 2715(c)

In order to ensure the financial viability of the Fund, I ask you to immediately request the Attorney General to commence an action against BP on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to OPA.

The question is whether victims of the BP oil gusher will have to pay thrice: (a) once for the gusher, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again by being mislead 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 individual lawsuits or class action lawsuits.

II. How GCCF, Without Any Legal Authority For Doing So, Circumvents Many of the  Rights Provided to Oil Spill Victims Under OPA

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.

Secretary Janet Napolitano
October 18, 2010
Page 3

GCCF limits BP’s liability via circumventing OPA in the following ways:

A. 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)

B. 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.

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.

Secretary Janet Napolitano
October 18, 2010
Page 4

C. 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)

D. 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 three 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. 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.

Secretary Janet Napolitano
October 18, 2010
Page 5

E. Intentionally Misleading 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 Fund.

The GCCF Protocol: (a) fails to acknowledge that the filing of a claim with GCCF satisfies 33 U.S.C. § 2713(a); and (b) 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.

F. Interest on the Amount Paid
Pursuant to OPA, 33 U.S.C. § 2705(a), the responsible party or the responsible party’s guarantor is liable to a claimant for interest on the amount paid in satisfaction of a claim. The period for which interest shall be paid is the period beginning on the 30th day following the date on which the claim is presented to the responsible party or guarantor and ending on the date on which the claim is paid.

The GCCF Protocol, in violation of OPA, fails to provide for interest on the amount paid in satisfaction of a claim.

G. 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.” 33 U.S.C. § 2705(a); and (b) 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. 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. 33 U.S.C. § 2715(b)(2).

Secretary Janet Napolitano
October 18, 2010
Page 6

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.

III. Why Litigation, Especially Class Action Litigation, is Not in the Best Interests of Victims of the BP Oil Spill

BP p.l.c., 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.

For a detailed discussion of why class action litigation may not be in the best interests of BP oil spill victims, visit: https://donovanlawgroup.wordpress.com/2010/05/09/bp-oil-spill-of-april-2010-why-class-action-lawsuits-may-not-be-in-the-best-interests-of-potential-plaintiffs/

IV. Conclusion

The question is whether victims of the BP oil gusher will have to pay thrice: (a) once for the gusher, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again by being mislead 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 individual lawsuits or class action lawsuits.

Proponents of the BP claims process and GCCF routinely ask, “But 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 and GCCF have been a delaying tactic. Some claimants, including my clients, have already been waiting for over 90 days because BP, and now GCCF, have placed their claims on hold. Unfortunately, the purpose of GCCF is to limit BP’s liability, not to fully compensate victims as expeditiously as possible.

Secretary Janet Napolitano
October 18, 2010
Page 7

As of the date of this letter, it has been 181 days since the blowout of the BP offshore oil well in the Gulf of Mexico. Time is of the essence. The economic stress that victims of the BP oil spill continue to experience as a result of the disruption of their business activities caused by the BP oil spill is significant. GCCF’s tactics of: (a) delaying payment by placing claims “under review” for an indefinite period of time; (b) eventually denying claims; and (c) offering a “take it or leave it” final settlement which 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 are unacceptable.

It is the federal government’s duty to guarantee the claims process established by BP provides at least the same protections and rights mandated by OPA. As Secretary of DHS, OPA uniquely positions you to ensure that victims of the BP oil spill are: (a) made whole; (b) not victimized by GCCF; and (c) not forced into filing unnecessary lawsuits.

I ask you to immediately request the Attorney General to commence an action against BP on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to OPA.

Thank you for your prompt attention to this matter. If you have any questions, please do not hesitate to contact me at 352-328-7469 or via e-mail at BrianJDonovan@verizon.net.

Very truly yours,
Brian J. Donovan

BJD/rc

cc:   The Honorable Edward J. Markey
The Honorable Jeff Sessions
The Honorable Eric H. Holder, Jr.

Tagged with: , , ,

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.

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

BP Oil Spill of April, 2010

Why Class Action Lawsuits May Not be in the Best Interests of Potential Plaintiffs

By Brian J. Donovan

May 9, 2010

INTRODUCTION

On April 20, 2010, the Transocean semi-submersible drilling unit Deepwater Horizon explodes and catches fire, approximately 51 miles southeast of Venice, Louisiana, while finishing a well for British Petroleum (BP). On April 22, 2010, a second explosion occurs causing the Deepwater Horizon to sink. Kinks in the riser (a long pipe that connects the wellhead to the rig), created as the rig sank to the seafloor, may be all that is preventing the Deepwater Horizon well from releasing its maximum flow. Sand is an integral part of the formations that hold oil under the Gulf. This abrasive sand, carried in the oil as it shoots through the pipe at high velocity, is resulting in the ongoing erosion of the riser. Under a worst-case scenario, if the riser were to disintegrate due to this internal sandblaster-like erosion, the resulting catastrophic failure could easily release 60,000 to 160,000 barrels of oil per day. The formation that was being drilled by Deepwater Horizon when it sank is reported to have tens of millions of barrels of oil.

The media is reporting that teams of lawyers from across the country are descending on the Gulf Coast to file potential class-action lawsuits, brought pursuant to Rule 23 of the Federal Rules of Civil Procedure, to recover damages suffered by plaintiffs and the class members as a result of the oil spill that resulted from the explosion and subsequent sinking of the oil rig Deepwater Horizon on April 22, 2010.

This article discusses the origin and evolution of the class action, the benefits and concerns of a class action, and whether a class action lawsuit would be in the best interests of plaintiffs when the damages suffered by each individual plaintiff as a result of the BP oil spill of April, 2010 are potentially so great.

CLASS ACTION: ORIGIN and EVOLUTION

In simplistic terms, a class action is a procedural device that permits one or more plaintiffs to file and prosecute a lawsuit on behalf of a larger group. The larger group consists of the class members who have suffered the same wrong at the hands of the defendant but who are too numerous for the court to adequately manage the lawsuit if each class member were required to be joined as named plaintiffs.

The class action may be traced to the “bill of peace,” a proceeding that originated in England’s equity courts in the seventeenth century. The bill of peace was used when the parties to a dispute were too numerous to be easily managed and when all parties shared a common interest in the issues. It permitted the case to be tried by representative parties, with the judgment rendered binding all. This was more efficient than trying each case individually and was more consistent with equity’s goal of doing complete justice.

American courts continued to use the bill of peace. Its most eloquent spokesman was Justice Joseph Story. In his Equity Jurisprudence (1836) and his Equity Pleadings (1838), Story stated that the purpose of the bill of peace was to promote finality. Law courts could only try issues between the plaintiff and the defendant in a particular case. Equity courts possessed a “power to bring all the parties before them, … at once to proceed to the ascertainment of the general right, … and then to make a decree finally binding upon all the parties.” The bill of peace provided a way to resolve multiparty disputes quickly and effectively.

Class actions are an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only. The “usual rule” is more commonly referred to as the “necessary parties rule,” and it required that all persons materially interested, either as plaintiffs or defendants in the subject matter of the bill ought to be made parties to the suit, however numerous they may be.

The common law models of litigation that envision one plaintiff sparring with one defendant were not designed to cope with harm experienced by huge numbers of geographically dispersed people.

Equity Rule 48 and Rule 38
Originally, American courts followed the example of our British brethren, using their power in equity to avoid multiplicity of actions where numerous individuals sued a common defendant for the same legal wrong. In 1842, the Supreme Court promulgated Equity Rule 48, officially recognizing representative suits where the parties were too numerous to be conveniently brought before the court, but refused to bind absent parties to any resulting judgments.” The Supreme Court explained this new rule as follows:

Where the parties interested in the suit are numerous, their rights and liabilities are so subject to change and fluctuation by death or otherwise, that it would not be possible, without very great inconvenience, to make all of them parties, and would oftentimes prevent the prosecution of the suit to a hearing. For convenience, therefore, and to prevent a failure of justice, a court of equity permits a portion of the parties in interest to represent the entire body, and the decree binds all of them the same as if all were before the court. The legal and equitable rights and liabilities of all being before the court by representation, and especially where the subject-matter of the suit is common to all, there can be very little danger but that the interest of all will be properly protected and maintained. It was not until 1912, some 70 years later, that Equity Rule 48 was rewritten, becoming Rule 38. The new rule maintained representative actions, but additionally allowed absent parties to be bound by judgments entered thereunder.

Rule 23
In 1938, Congress promulgated the Federal Rules of Civil Procedure, finally bringing into life the class action device pursuant to the original version of Rule 23. However, it was not until 1966, that the class action mechanism gained its current shape in an innovative 1966 revision. Thus, while it has its origins in equity, a class action is now a procedural litigation device that permits a small number of plaintiffs to represent and legally bind an entire class through a single lawsuit.

Rule 23(a)
To proceed as a class action, Rule 23 requires that the district court make the following findings: (1) Numerosity – the number of class members renders it impracticable to join them in the action;
(2) Commonality – the class members’ claims share common questions of law or fact;
(3) Typicality – the claims or defenses of the proposed class representatives are typical of those for the rest of the class; and
(4) Adequacy of Representation – the proposed class representatives will fairly and adequately protect the interests of the entire class.

Rule 23(b)
Furthermore, in addition to the numerosity, commonality, typicality and adequacy of representation requirements of Rule 23(a), the district court must make at least one of the following findings:
(1) prosecuting separate actions by or against individual class members would create a risk of:
(A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or
(B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests;
(2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or
(3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.

Rule 23(c)
(1) Certification Order.
(A) At an early practicable time after a person sues or is sued as a class representative, the court must determine by order whether to certify the action as a class action.
(2) Notice.
(A) For any class certified under Rule 23(b)(1) or (b)(2), the court may direct appropriate notice to the class.
(B) For any class certified under Rule 23(b)(3), the court must direct to class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.

CLASS ACTION: BENEFITS and CONCERNS

Benefits

The benefits of a class action allegedly include: (a) the facilitation of litigation that otherwise would not be brought because the value of individual claims is so small that it is not economically feasible to bring individual lawsuits. Such negative value claims may be feasible only when grouped in a class action, where the overhead of bringing the lawsuit is shared among all class members. Some academic commentators argue even if the class members do not ultimately receive much in the way of compensation, such lawsuits can have value in deterring conduct that is harmful to society; (b) the protection of the defendant from inconsistent obligations; (c) the protection of the interests of absentees; (d) the provision of a convenient and economical means for disposing of similar lawsuits; and (e) the facilitation of the spreading of litigation costs among numerous litigants with similar claims. Moreover, the class action device saves the resources of both the courts and the parties by permitting an issue potentially affecting every class member to be litigated in an economical fashion.

Concerns for Plaintiffs

A. “Faux” Class Actions
Recognizing the potential practical pitfalls of a certification decision (if not the significant constitutional concerns), the Supreme Court has made clear that courts should undertake a rigorous analysis under Rule 23 before a class action is certified.

Moreover, Professor Martin Redish of Northwestern University School of Law argues that courts should be required to scrutinize proposed class actions to weed out so-called “faux” class action cases, i.e., cases in which individual class members receive little or no compensation and only plaintiffs‘ counsel stand to benefit from class certification.

Professor Redish criticizes such actions on the ground that they effectively represent a transformation of the substantive law under Rule 23: As a result of the class action procedure, what purports to be a substantive compensatory framework has been furtively transformed into a structure in which it is quite possible that virtually no victim receives compensation through enforcement of the underlying substantive law. While he acknowledges that such a suit may “further the public interest” if it exposes, punishes, and deters illegal corporate behavior, he suggests that an amendment to Rule 23 dictating that attorneys‘ fees be measured by reference to the value of the total number of class member claims actually filed, rather than by the total amount of settlement or potential claims, would go far toward deterring pure bounty hunter class actions.

B. Waiving Due Process Rights Simply by Inaction
Class action procedures under Rule 23 often infringe the due process right to individual autonomy by sweeping large numbers of individuals into litigation – either through mandatory class action procedures under Rule 23(b)(1) and (b)(2) or through the opt-out procedure embodied in Rule 23(b)(3) – without explicit consent. Many commentators further argue 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. 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. The opt-out procedure allows waiver through inaction under circumstances in which inaction is highly likely given that the effort it takes to affirmatively opt-out is outweighed by the marginal benefits of simply doing nothing.

C. Lack of Notice
Under Rule 23, notice is required under certain specified circumstances, including to inform absent class members that they have the ability to opt-out of a Rule 23(b)(3) class or that the court has been asked to approve a class settlement. Even beyond the required notice provisions, however, the rules authorize federal courts to require the parties to provide absent class members notice in other circumstances. Thus, for example, Rule 23(d)(1)(B) authorizes the court to require notice to protect class members and fairly conduct . . . any step in the action; the proposed extent of the judgment; or the members‘ opportunity to signify whether they consider the representation fair and adequate, to intervene and present claims or defenses, or to otherwise to come into the action.

Despite requirements regarding the notice that must be given to absent class members, there is always the possibility that many class members will not receive notice of the litigation or that such notice will be insufficient to fully inform them of their rights, thereby depriving them of any meaningful opportunity to opt-out. “You have injured people, but they’re basically comatose,” says Professor Redish. “They don’t know about the class action, they don’t care, and they are unlikely to be compensated.”

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.

D. Lack of Input by Class Members
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.

E. Settlement Class Actions
Finally, settlement class actions undermine both the formalistic dictates of Article III and the important constitutional values underlying the requirement of adversary adjudication. In such classes, the parties expressly make 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 argues these 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.

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.

Concerns for Defendants

The potential downside of the class action procedure for defendants is also significant. Certification of a class may bring pressure to settle weak or frivolous claims. Indeed, it may increase the filing of dubious claims.

In In the matter of Rhone-Poulenc Rorer, Inc., 51 F.3d 1293 (7th Cir. 1995), the court expressed strong reservations about the inappropriate pressure class certification places on defendants in a mass tort context. The court also observed that certification of a class can cause irreparable injury because if the case settles, the ruling that forced the defendant to settle will never be reviewed.

In Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir. 1996), the court observed that class certification in the mass tort context dramatically affected the stakes for defendants, magnifying and strengthening the number of unmeritorious claims and creating insurmountable pressure to settle that is not present in individual trials.

The risk associated with bringing the case to trial is increased commensurably when a class is certified. Aggregation of claims makes it more likely that a defendant will be found liable and results in significantly higher damage awards. Furthermore, the ability to defend against weak claims is reduced where weaker claims are aggregated with claims of greater merit. These dynamics can often lead to a situation where the class action is employed as a form of legalized blackmail, by which an unscrupulous group of plaintiffs‘ attorneys effectively extort money from large companies by threatening their very existence with business-crushing class awards.

Concerns for Settlements

In the settlement context, the class action device may have equally perverse effects. Settlements may be the result of collusive deals among the defendants and certain plaintiffs, designed to achieve peace for defendants while extracting fees for the plaintiffs‘ attorneys. Such agreements potentially prejudice the interests of the class as a whole or at least those of certain class members.

Professor Redish notes that the class action device, while purportedly purely procedural, often has the practical effect of making significant alterations in substantive law. One way in which class actions essentially alter substantive rules is by effectively requiring absent class members to bring claims against a defendant. Under traditional notions of substantive law, the choice as to whether to bring a claim is solely that of the plaintiff, who is “master of the complaint.” In class actions, however, if a non-opt-out class is certified under Rule 23(b)(1) or 23(b)(2), absent class members are compelled to bring their claims as part of the litigation. Likewise, even in opt-out classes certified under Rule 23(b)(3), there is an element of coercion given that inertia may lead absent class members to refrain from taking action to affirmatively opt-out of a class. As a result, what purports to be a class action, brought primarily to enforce private individuals‘ substantive rights to compensatory relief, in reality amounts to little more than private attorneys acting as bounty hunters, protecting the public interest by enforcing the public policies embodied in controlling statutes.

Professor Redish argues that these constitutional problems result from Rule 23‘s deviation from the traditional conception of aggregate litigation, which was characterized by “substantively cohesive and interconnected groups.” It was only in the context of “group-held rights” that such representative procedures traditionally were employed, and only in that context that they could have potential res judicata effect. Thus, for example, the cases in which such procedural mechanisms historically were employed tended to involve “pre-litigation groups and cases involving separate claims into a common fund.” The device was not originally envisioned as en-compassing situations in which what are essentially individual claims are bundled as a result of the litigation process.

CLASS ACTION: BP OIL SPILL OF APRIL, 2010

A discussion of potential class action lawsuits, brought pursuant to Rule 23 of the Federal Rules of Civil Procedure, to recover damages suffered by plaintiffs and the class members as a result of the oil spill that resulted from the explosion and fire aboard, and subsequent sinking of the oil rig Deepwater Horizon on April 22, 2010, should focus on two primary issues: (a) whether the district court would certify the class action; and (b) if certified, whether a class action lawsuit would be in the best interests of plaintiffs when the damages suffered by each individual plaintiff are potentially so great.

Whether the District Court Would Certify the Class Action

A. Mass Torts
After the Supreme Court‘s decisions in Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997) and Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999), it has become exceedingly difficult to certify a class in the context of a mass tort. Indeed, even before these decisions, courts had recognized that there was a national trend to deny class certification in mass tort drug or medical product liability/personal injury cases. This resistance to certification in such cases can be traced to the 1966 amendments to Rule 23. When the Rule Advisory Committee proposed its 1966 revisions to Rule 23, it wrote: “A ‘mass accident’ resulting in injuries to numerous persons is ordinarily not appropriate for a class action because of the likelihood that significant questions, not only of damages but of liability and defenses of liability, would be present, affecting the individuals in different ways. In these circumstances an action conducted nominally as a class action would degenerate in practice into multiple lawsuits separately tried.”

The individual factual and legal differences among individual claims in mass tort cases generally make it impossible to demonstrate the typicality or adequacy necessary for certification under Rule 23(a). Likewise, they make it difficult to demonstrate that a class has the requisite cohesiveness for certification under Rule 23(b)(2) or that common issues “predominate” as required under Rule 23(b). Moreover, in mass tort cases, absent class members may have a particularly acute interest in personally determining whether to file litigation in the first instance and the course the litigation takes.

Rule 23(b)(3) was not intended to address mass torts. The 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. The Court recited the 1966 Advisory Committee Note that mass tort cases are “ordinarily not appropriate” for class certification, id. at 2250, saying, “The Committee’s warning continues to call for caution when individual stakes are high and disparities among class members great.” Id. The Court did not rule out any possible certification of a class in a mass tort context, but clearly called for a return to the original concept of Rule 23(b)(3) in which mass torts were treated as presumptively uncertifiable.

The court has further held that immature torts are not appropriate for class certification. The Fifth Circuit held that prior individual adjudication of a significant number of mass tort claims are necessary to ascertain whether common or individual issues will predominate at trial. Until a sufficient number of cases have been tried individually to verdict the court simply lacks the information necessary to make an informed decision and about predominance and superiority. Castano, 84 F.3d at 749-750.

The BP oil spill of April, 2010 has the potential to become the mass tort of all mass torts cases. As noted in the introduction, under a worst-case scenario, if the riser were to disintegrate due to the internal sandblaster-like erosion, the resulting catastrophic failure could easily release 60,000 to 160,000 barrels of oil per day. The formation that was being drilled by Deepwater Horizon when it exploded and sank is reported to have tens of millions of barrels of oil.

The District Court may ultimately deny class certification because the individual factual and legal differences among individual claims of potential plaintiffs to recover damages suffered as a result of the BP oil spill of April, 2010 will make it difficult to demonstrate:
(a) the typicality necessary for certification under Rule 23(a);
(b) adequacy of representation necessary for certification under Rule 23(a);
(c) that a class has the requisite cohesiveness for certification under Rule 23(b)(2); and
(d) that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy as required under Rule 23(b).

Given that the personal injuries and environmental and economic damages suffered by each individual plaintiff as a result of the BP oil spill of April, 2010 are potentially so great, absent class members would have a particularly acute interest in personally determining whether to file litigation in the first instance and the course the litigation takes.

Moreover, since the damages claimed by each individual plaintiff in the BP oil spill case would be so great, such claims may not be certifiable under Rule 23(b)(3) because they do not meet the necessity requirement. That is, a class action would not be superior to other available methods for fairly and efficiently adjudicating the controversy.

B. Scrutiny of Class Definition
Typically, a proposed class cannot be certified unless it is adequately defined and clearly ascertainable under objective criteria. Defining the class is of critical importance because it identifies the persons: (1) entitled to relief, (2) bound by a final judgment, and (3) entitled under Rule 23(c)(2) to the best notice practicable in a Rule 23(b)(3) action. Courts have observed that an adequate class definition is crucial because the outcome of a class action suit is res judicata as to all unnamed class members. Where a plaintiff fails to present a workable class definition, the class allegations are properly stricken or dismissed as a matter of law.

The damages suffered by victims of the BP oil spill 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.

Potential plaintiffs which may have a claim for damages as a result of the BP oil spill include but are not limited to:
1. Commercial and recreational fishermen, oyster harvesters, and shrimpers;
2. Businesses involved, directly or indirectly, in processing and packaging for the fishing industry;
3. Owners, operators, crew members and shore-side employees of charter and private boats;
4. Owners, operators and employees of restaurants, marinas and docks;
5. Persons involved in the tourism industry;
6. Owners of real estate; and
7. City, county/parish and state governments.

It is precisely this sort of case in which constitutional concerns may be particularly significant. Given that it is impossible to define who exactly will be bound by a class determination, there are obvious concerns regarding due process. Absent class members will not be able to determine whether they must assert their right to opt-out of a proposed class where the class definition is vague. Accordingly, they may be held to have effectively waived any due process right not only merely through inaction, but where their objection to inclusion is rendered effectively impossible due to a vague class definition.

Whether a Class Action Lawsuit Would be in the Best Interests of Plaintiffs
When the Damages Suffered by Each Individual Plaintiff are Potentially so Great

If the court certifies an action as a class action in any lawsuit relating to the BP oil spill of April, 2010, each individual potential plaintiff should undertake a rigorous analysis to determine the amount of damages he or she suffered as a result of the BP oil spill. These damages may include, but are not limited to, real property damages, personal property damages, loss of profits and earning capacity, loss of commercial and subsistence use of natural resources, increased costs of public services, and loss of revenues. Victims of the BP oil spill may also have personal injury claims stemming from the oil spill, i.e., respiratory problems and illnesses, sinus damage, difficulty breathing, and burning of the throat and nasal passages. The extent to which victims of the BP oil spill may suffer long-term serious illnesses has yet to be determined.

Class Action Lawsuit
If the amount of damages suffered by the individual potential plaintiff is small, it may not be economically feasible for the plaintiff to file an individual lawsuit. Accordingly, a class action lawsuit may be in the best interests of this plaintiff.  The class action would aggregate the relatively small individual recoveries into a case that would be worthwhile for an attorney to litigate.

Individual Lawsuit
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.

The potential causes of action in this case would include, but not be limited to: negligence, the Oil Pollution Act (33 U.S.C. Section 2702), strict liability for abnormally dangerous activity, strict products liability for manufacturing defect, and strict liability pursuant to the applicable state statute for the prohibited discharge of pollutants.

The potential defendants in this case would include: BP Plc, BP Products North America, Inc., BP America, Inc., Transocean Ltd., Transocean Offshore Deepwater Drilling, Inc., Transocean Deepwater, Inc., Halliburton Energy Services, Inc., Cameron International Corporation f/k/a Cooper Cameron Corporation, and Hyundai Heavy Industries Co., Ltd.

CONCLUSION

Each individual 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. Many victims of the BP oil spill may not be acquainted with a lawyer. Other potential plaintiffs may hesitate to see a lawyer because they have never used a lawyer’s services before. Each state bar association has a  lawyer referral service designed to make it easy for potential plaintiffs to contact a lawyer. A victim of the BP oil spill should not hesitate to contact his or her state bar association lawyer referral service to obtain the contact information of an experienced attorney. If the amount of damages suffered by the individual potential plaintiff is small, it may not be economically feasible for the plaintiff to file an individual lawsuit. Accordingly, a class action lawsuit may be in the best interests of this plaintiff. However, 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 would not be necessary to permit effective litigation of the claim. Here, when 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
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 613, 117 S.Ct. 2231 (1997).

Califano v. Yamasaki, 442 U.S. 682, 700-701, 99 S.Ct. 2545, 2557-2558 (1979).

Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir. 1996).

Coffee, J., Class Wars: The Dilemma of the Mass Tort Class Action, 95 Colum.L.Rev. 1343, 1356-58 (1995).

Fischer, Daniel, Are Class Actions Unconstitutional?, Forbes.com (January 21, 2010).

General Telephone Co. v. Falcon, 457 U.S. 147, 155, 102 S.Ct. 2364, 2369, 72 L.Ed.2d 740 (1982).

Georgine v. Amchem Prods., Inc., 83 F.3d 610, 633 (3d Cir. 1996).

Haley v. Medtronic, Inc., 169 F.R.D. 643, 652 (C.D. Cal. 1996).

Hansberry v. Lee, 311 U.S. 32, 41, 61 S.Ct. 115, 118 (1940).

In re Agent Orange Prod. Liab. Litig., 818 F.2d 145, 164 (2d Cir. 1987).

In re Joint Eastern & Southern Dist. Asbestos Litigation, 129 B.R. 710, 803 (E.D.N.Y. 1991), judgment vacated, 982 F.2d 721 (2d Cir. 1992).

In the matter of Rhone-Poulenc Rorer, Inc., 51 F.3d 1293 (7th Cir. 1995).

Nagareda, Richard, Mass Torts in a World of Settlement 72 (2007).

Ortiz v. Fibreboard Corp., 527 U.S. 815, 832, 119 S.Ct. 2295, 2308 (1999).

Redish, Martin, Wholesale Justice: Constitutional Democracy and the Problem of the Class Action Lawsuit (Stanford University Press, 2009).

Smith v. Swormstedt, 57 U.S. 288, 303 (1853).

Smith, Douglas, The Intersection of Constitutional Law and Civil Procedure: Review of Wholesale Justice – Constitutional Democracy and the Problem of the Class Action Lawsuit
(Northwestern University Law Review Colloquy, Vol. 104, 2010).

Trangsrud, Roger, Joinder Alternatives in Mass Tort Litigation, 70 Cornell L. Rev. 779, 834 (1985).

United States Parole Comm’n v. Geraghty, 445 U.S. 388, 402-03, 100 S.Ct. 1202, 1211-12 (1980).

West v. Randall, 29 F. Cas. 718, 721 (No. 17,424) (C.C.D.R.I. 1820).
 

 

About the Author
Brian J. Donovan is an attorney and marine engineer with over thirty-four 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 spill of April, 2010.

Tagged with: ,
%d bloggers like this: