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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

 

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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

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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:

BP Oil Spill: Is the MDL 2179 Trial Plan Unconstitutional?

Posted in BP, Cameron, Fifth Circuit, Judge Barbier, MDL 2179, OCSLA, OPA, OSLTF, responsible party, Seventh Amendment by renergie on January 3, 2012

BP Oil Spill: Is the MDL 2179 Trial Plan Unconstitutional?

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

Tampa, FL (January 3, 2012) – On October 18, 2011, Cameron International Corporation (“Cameron”) filed a Petition for Writ of Mandamus in the United States Court of Appeals for the Fifth Circuit.

INTRODUCTION

Cameron believes there are two controversial facets of the trial plan proposed by Judge Carl Barbier for trial in the Gulf oil spill litigation:

1. Bench Trial vs. Trial by Jury

Judge Barbier proposes to dispense with trial by jury and instead to conduct a bench trial applying general maritime law. But the claims against Cameron are all governed by the Outer Continental Shelf Lands Act (“OCSLA”), 43 U.S.C. § 1331 et seq., which borrows the law of the adjacent state as surrogate federal law. Cameron is entitled under the Seventh Amendment to have those statutory tort claims for money damages tried before a jury.

2. “Allocation of Fault Issues” Without Reference to the Claim of Any Individual Plaintiff and in a Manner Contrary to the Federal Rules and the Oil Pollution Act of 1990 (“OPA”)

This bench trial will adjudicate “allocation of fault issues” without determining whether there is underlying liability to any individual plaintiff and, indeed, will proceed without the participation of any identified private plaintiff. That proposal is incompatible with the federal rules, the Fifth Circuit Court’s precedent, and the comprehensive scheme mandated by Congress in OPA, 33 U.S.C. § 2701 et seq.

CAMERON’S ARGUMENT

OCSLA

Cameron argues that the first false premise is that general maritime law, not OCSLA, governs the whole case. For some, the oil spill might be associated with images of the Deepwater Horizon on the surface of the ocean, rather than an oil well 5000 feet below the surface. But unlike other high-profile cases involving vessels (such as the Exxon Valdez), this litigation is not about an oil spill from a vessel; it is about a blowout and spill from an oil well erected on the seabed.

OCSLA extends federal sovereignty “to the subsoil and seabed of the outer Continental Shelf and to all artificial islands, and all installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing or producing resources therefrom, .. .to the same extent as if the outer Continental Shelf were an area of exclusive Federal jurisdiction located within a state.” 43 U.S.C. § 1333(a)(1).

Recognition of OCSLA jurisdiction is decisive for the choice-of-law inquiry, because OCSLA acts “to define a body of law applicable” to activities on the outer continental shelf. Rodrigue v. Aetna Cas. & Surety Co., 395 U.S. 352, 356 (1969). To do so, it mandates “adoption of state law as surrogate federal law.” OCSLA establishes the preemptive reach of federal law, 43 U.S.C. § 1333(a)(1), then fills any gaps in federal law by borrowing the law “of each adjacent State.” 43 U.S.C. § 1333(a)(2)(A).

The PLT Test

In Union Texas Petroleum Corp. v. PLT Engineering, Inc., 895 F.2d 1043 (5th Cir. 1990), the Fifth Circuit set forth a three-part choice-of-law test for OCSLA:

(1) The controversy must arise on a situs covered by OCSLA (i.e. the subsoil, seabed, or artificial structures permanently or temporarily attached thereto).

(2) Federal maritime law must not apply of its own force.

(3) The state law must not be inconsistent with Federal law.

As in PLT, all of these conditions are met in the MDL 2179 case.

1. The situs test is satisfied.

This controversy arose on an OCSLA situs. The Fifth Circuit recently noted that the situs requirement is satisfied if the events took place on “a fixed platform or other structure attached to the seabed.” Grand Isle Shipyard, Inc. v. Seacor Marine, L.L.C., 589 F.3d 778, 784 (5th Cir. 2009) (en banc) (emphasis added). Thus, the district court correctly acknowledged that “the PLT test incorporates into § 1333(a)(2)(A) the locations referenced in § 1333(a)(1), specifically `temporarily attached’ structures.”

2. Maritime law does not apply of its own force.

Maritime law does not “apply of its own force.” PLT, 895 F.2d at 1047. Two separate lines of reasoning compel this conclusion.

In the first place, the Supreme Court has held consistently that drilling activities in water are not subject to maritime law. Over 100 years ago, the Court “specifically held that drilling platforms are not within admiralty jurisdiction.” Rodrigue v. Aetna Cas. & Surety Co., 395 U.S. 352, 360 (1969) (citing Phoenix Constr. Co. v. The Steamer Poughkeepsie, 212 U.S. 558 (1908)).

This long-standing principle forecloses any competition between OCSLA and general maritime law. As the Court held in Rodrigue, when enacting OCSLA “Congress assumed that the admiralty law would not apply unless Congress made it apply, and then Congress decided not to make it apply.” The Court rested this conclusion on its “careful scrutiny” of OCSLA’s legislative history, which revealed that Congress had considered at length what body of law should govern the facilities identified in the statute; Congress understood that those exploration and production facilities “were not themselves to be considered within maritime jurisdiction” and therefore had “deliberately eschewed the application of admiralty principles.” Instead, Congress selected the law of the adjacent state.

Twice since Rodrigue, the Court has reiterated “the operative assumption underlying the statute: that admiralty jurisdiction generally should not be extended to accidents in areas covered by OCSLA.” Offshore Logistics, Inc. v. Tallentire, 477 U.S. 207, 218 (1985); see Chevron Oil Co. v. Huson, 404 U.S. 97, 101 (1971) (“comprehensive admiralty law remedies [do not] apply under § 1333(a)(1)”). Thus, general maritime law does not apply “of its own force” to the federal enclave defined by OCSLA. If OCSLA applies, then general maritime law does not.

In any event, maritime law does not apply “of its own force” to this case for a second reason: Mineral production activities on the outer continental shelf are not “traditional maritime activities,” and as such are not subject to maritime law. At one time, this Court had suggested that offshore drilling is maritime commerce, but the Supreme Court decisively held otherwise in Herb’s Welding, v. Gray, 470 U.S. 414 (1985). In that case, the Court reiterated that “drilling platforms [are] not even suggestive of traditional maritime affairs” and stated explicitly that “exploration and development of the Continental Shelf are not themselves maritime commerce.

In PLT, therefore, this Court recognized that maritime law applies only if “the subject matter of the controversy bears significant relationship to traditional maritime activities.”

By the standard of PLT, general maritime law is inapplicable to the claims related to Cameron’s BOP, which is the subject of oil and gas exploration and production when attached to an exploration well.

This conclusion is best illustrated by Texaco Exploration & Production, Inc. v. AmClyde Engineered Production Co., 448 F.3d 760 (5th Cir. 2006), a case involving an accident during construction of a tower for an offshore drilling rig. Because the accident occurred on a vessel that was not itself attached to the seabed, the parties assumed that maritime law governed. But this Court did “not rely upon the parties’ bare conclusion that substantive maritime law applies.” Instead, it held that activities “connected with the development of the Outer Continental Shelf and an installation for the production of resources there … are insufficiently connected to traditional maritime activity to support the application of admiralty law.” Of special import here, the Court held that even the involvement of a vessel “in the accident and other elements of maritime activity that precede or surround the compliant tower’s construction on the Shelf are insufficient to support either admiralty jurisdiction or the application of substantive maritime law.” That holding fits this case like a glove. Maritime law does not apply “of its own force” to the claims against Cameron.

3. State law is not inconsistent with federal law.

With respect to the third prong of the test, Louisiana is the “adjacent State” within the meaning of § 1333(a)(2)(A), and neither the district court nor any party has suggested that the applicable substantive Louisiana tort law is inconsistent with federal law. The third prong of the PLT test is satisfied.

The District Court’s Effort to Evade OCSLA Is Unsound

The district court apparently determined that general maritime law applies “of its own force” to the claims against Cameron under the second prong of the PLT test. The court reasoned that (i) the discharge of oil emanated from the Deepwater Horizon; (ii) the fact that the Deepwater Horizon was a “vessel” was independently sufficient to invoke admiralty jurisdiction; and (iii) admiralty jurisdiction supports the application of maritime law. Id. at 4-8. There are many flaws in this chain of logic, but the fundamental error rests in the district court’s assumption that the Deepwater Horizon’s status as a “vessel” is legally dispositive of any significant issue in this case.

First, as a matter of law, this Court has held explicitly that “vessel” status is not dispositive of either the OCSLA situs or maritime activity issues. Demette v. Falcon Drilling Co., 280 F.3d 492, 497-98 (5th Cir. 2002) (OCSLA situs not controlled by vessel status); AmClyde, 448 F.3d at 775 (involvement of vessel does not make petroleum exploration a traditional maritime activity). The district court relied on Demette and suggested that this Court “rejected the very same argument that Cameron makes in this case,” but that is precisely backwards. Actually, this Court acknowledged vessel status yet it still proceeded to hold that the situs requirement was satisfied – following the same statutory construction that Cameron has advocated in this case. See Demette, 280 F.3d at 497-98.

Second, as a matter of indisputable fact, Cameron’s BOP was affixed to the wellhead on the seafloor and was being used for mineral resource development. The claims against Cameron all revolve around that BOP erected on the seabed. Therefore, with respect to the claims against Cameron, this is a classic case for OCSLA jurisdiction.

The district court dismissed this point summarily, noting that the BOP was “part of the vessel’s gear or appurtenances” and declaring that “[m]aritime law ordinarily treats an `appurtenance’ attached to a vessel in navigable waters as part of the vessel itself”‘ (citing Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 535 (1995)). But Grubart was not even an OCSLA case; it involved the Admiralty Extension Act, and it simply reaffirmed the principle that an injury caused by an appurtenance attached to a vessel (there, a crane) is caused “by a vessel” within the meaning of that Act. Grubart, 513 U.S. at 535. That rationale is irrelevant here, because the fact that the BOP was attached to the vessel does not alter the fact that it was a “fixed structure” and “attached to the seabed” within the meaning of OCSLA.

Indeed, this fact also exposes the district court’s error as to the drilling rig. The district court’s discussion of “vessel status” is founded on the premise that the oil spill emanated from the drilling unit instead of the well, but that is not the case. This is not a case like the Exxon Valdez litigation, where oil was spilling out of a grounded tanker; here, the oil was gushing out of a well and well equipment affixed to the seabed. Under these circumstances, vessel status is wholly irrelevant.

Furthermore, that the drilling unit was a “vessel” does not, standing alone, have any jurisdictional or choice-of-law significance. A basic requirement of admiralty jurisdiction is “that the wrong have a significant connection with traditional maritime activity.” Foremost Ins. Co. v. Richardson, 457 U.S. 668, 674 (1982). Grubart itself reiterated that admiralty jurisdiction may be invoked only “if the general character of the activity giving rise to the incident shows a substantial relationship to traditional maritime activity.” Grubart, 513 U.S. at 534; see also Sisson v. Ruby, 497 U.S. 358, 364 (1990) (same).

At the time of the Macondo well blowout, the Deepwater Horizon “was stationary and physically attached to the seabed by means of 5,000 feet of drill pipe.” It was engaged in well completion, not maritime navigation. Well completion is not a traditional maritime activity and thus does not satisfy the essential requirement for admiralty jurisdiction. That conclusion is supported and affirmed by a line of Supreme Court and Fifth Circuit cases. Even with its fixation on the Deepwater Horizon, therefore, the district court reached the wrong conclusion. The claims against Cameron are governed entirely by OCSLA, so there is no room for the district court’s sweeping conclusion that “‘the case is to be governed by maritime law.”‘

The district court sidestepped all these authorities by quoting, out of context, this Court’s observation 25 years ago that “‘oil and gas drilling on navigable waters aboard a vessel is recognized to be maritime commerce.”‘ (quoting Theriot v. Bay Drilling Corp., 783 F.2d 527, 538-39 (5th Cir. 1986)). That misreads Theriot, which was carefully written to avoid being misunderstood. In the cited passage, Theriot distinguished a Supreme Court case on the basis that “the Court’s holding must be read in the context of the opinion.” The district court should have heeded that same advice.

Before finalizing plans for the bench trial, the district court ruled on motions to dismiss the private oil pollution claims. Those motions raised choice-of-law issues that impact the right to a jury trial. Although the court had “already held in this MDL that it has OCSLA jurisdiction,” it declined to follow OCSLA’s choice-of-law provisions. Instead, the court chose to apply general maritime law to Cameron.

Application of OCSLA rather than general maritime law is crucial because it forecloses the MDL 2179 court’s effort to try all the liability questions in a bench trial. The district court’s trial plan is founded on the tradition that maritime claims are tried to the bench. But money damage claims governed by Louisiana law as borrowed federal law trigger the right to a jury under the Seventh Amendment. Thus, the trial plan violates the Seventh Amendment, and it is settled that mandamus will lie to correct this constitutional error.

OPA

Unlike the personal injury and wrongful death actions, the cases alleging economic loss due to the oil spill are governed by OPA. Moreover, all actions were consolidated solely for “pretrial proceedings” before the Hon. Carl Barbier. see 28 U.S.C. § 1407(a) (MDL consolidation only for “pretrial proceedings”).

The MDL 2179 court did rule that OPA displaces general maritime law for the oil pollution claims, but only as to procedure. The MDL 2179 court correctly noted that “OPA clearly requires that OPA claimants must first `present’ their OPA claim to the Responsible Party before filing suit.” But the court decided that 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 resolve whether any one of them had satisfied the statutory requirement of presentment. It explained that “[n]o matter how many of the individual B1 claims might be dismissed without prejudice” for lack of presentment, “the trial scheduled in February would still go forward with essentially the same evidence.”

The vast majority of the claims (both numerically and financially) arise under OPA, but with respect to the choice-of-law question it is only necessary to know that Cameron is not a statutorily defined “responsible party” made liable under OPA. See 33 U.S.C. §§ 2701(32), 2702(a). Instead, OPA subjects Cameron only to claims brought by responsible parties in subrogation or for contribution, and those claims are governed not by OPA but by “other law.” 33 U.S.C. §§ 2715(a), 2709. Here, that “other law” is dictated by OCSLA. Consequently, borrowing adjacent state law is not “inconsistent with federal law;” it is called for by OPA.

The Trial Plan

Pursuant to the court’s trial plan, which “applies to all cases,” the trial will address “bases of liability,” not actual liability to any individual claimant. This novel approach to an aggregate trial of “allocation of fault issues” will entail a staged investigation that focuses on the chronology of events, rather than the claims of particular litigants:

Phase I “will address issues arising out of the well blowout and spill “initiation” as of April 22, 2010;

Phase II “will address Source Control and Quantification of Discharge issues” from April 22, 2010 and thereafter; and

Phase III “will address issues” pertaining to the efforts to contain the spill.

The MDL 2179 court’s trial plan, when read together with its previous orders, provides for a bench trial to address issues related to allocation of fault among all defendants in this litigation (who are alleged to have caused, in any way, the deaths, injuries, property damages, or economic losses resulting from the explosion of the Deepwater Horizon and the spill from the Macondo well) based on the false premise that general maritime law governs this case. This judicial determination is to be made apart from any finding of an actual injury suffered by any plaintiff. In short, this “trial” of liability for monetary damages will not include a plaintiff, nor will it include a jury. It is squarely contrary to the federal rules and/or federal statutes and the Constitution in each respect.

Cameron manufactured and sold equipment that was later affixed to the wellhead on the seafloor on the outer continental shelf; the claims against it have nothing to do with general maritime law. Instead, the claims against Cameron arise under and are subject to OCSLA. That conclusion is dictated by controlling decisions of the Supreme Court and the Fifth Circuit’s own precedent. OCSLA, in turn, adopts the law of the adjacent state (here, Louisiana) as surrogate federal law. In short, all the injury, death, property damage, and economic loss claims against Cameron are governed by OCSLA, and thus by the substantive standards of Louisiana tort law.

The trial plan suffers from a second set of serious procedural flaws, which also have constitutional implications.

First, in divorcing the claims of individual plaintiffs from the questions of “liability” and “allocation of fault,” this plan departs from the most cherished traditions of the Anglo-American adversarial system, which are embodied in the Federal Rules of Civil Procedure and the Rules Enabling Act. It is impossible to adjudicate “allocation of fault” in a vacuum without adjudicating the underlying claim of an individual plaintiff. The Fifth Circuit’s Fibreboard and Castano decisions, and the Rhone-Poulenc decision from the Seventh Circuit, forbid “innovations” that exceed the rules and alter substantive rights. Indeed, this trial plan goes so far afield that it crosses the boundaries of Article III.

Second, this plan radically departs from OPA’s carefully structured and comprehensive remedial scheme. As a condition precedent to suit, OPA requires presentment to a designated “responsible party” of all claims for response costs and economic losses caused by the discharge of oil in navigable waters. If the responsible party settles the claim, it may seek recovery from third parties like Cameron as subrogee of the paid claim. If it cannot settle a claim and is then sued, it may then seek contribution from third parties like Cameron. But the trial plan inverts the Congressional order, dispensing with presentment entirely, deferring compensation of verifiable claims, and forcing Cameron’s potential liability to be determined in the abstract and in the first instance.

The District Court Cannot Try All the Plaintiffs’ Claims Without Violating Rule 23, Lloyd’s Leasing, and Lexecon

The order of proceedings envisioned by the trial plan is extremely curious. To begin the trial, “the Claimants, through the Plaintiffs’ Steering Committee” (along with counsel for the governmental parties) will offer “evidence in support of those parties’ claims against all defendants” in the aggregate. Later, defendants will present “evidence in support of their defenses to plaintiffs’ claims” in the aggregate. Yet the trial plan does not actually propose to adjudicate those claims in the aggregate. The district court has structured the trial in this way because it cannot actually try all of the claimants’ claims in this limitation action, for three reasons.

First, the only device that would permit a trial of all the claimants’ claims in the aggregate would be a class action under Rule 23, but the district court has stayed all class action proceedings and has not appointed a class representative. As such, trying all plaintiffs’ claims in the aggregate would be a blatant violation of Rule 23 by permitting a class-wide adjudication without establishing the mandatory prerequisites for a class action.

Second, the court could not have certified a class in the limitation action even if it had wanted to do so, because it would contravene this Court’s holding in Lloyds Leasing Ltd. v. Bates, 902 F.2d 368 (5th Cir. 1990), that class actions are not permitted in limitation proceedings.

The Supreme Court has explained that a core purpose of the limitation action under Admiralty Rule F is to “marshal[] claims,” which can then be adjudicated. Lewis v. Lewis & Clark Marine, Inc., 531 U.S. 438, 448 (2001). In that context, the Fifth Circuit has held that “the entire thrust of Supplemental Rule F is that each claimant must appear individually.” In re Lloyd’s Leasing, 902 F.2d 368, 370 (5th Cir. 1990). Each claim must be prosecuted “individually” and liability must be resolved on the basis of individual claims.

Third, trying all the plaintiffs’ claims in the aggregate would violate the rule of Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998), which holds that an MDL judge may not try the actions transferred from other judicial districts under 28 U.S.C. § 1407. When the JPML transfers a matter to a 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 JPML 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.

In this case the JPML has transferred over 300 cases filed in other districts. Those actions, which include the claims of thousands of plaintiffs, were transferred to Judge Barbier for “coordinated or consolidated pretrial proceedings.” Because Judge Barbier cannot try the cases transferred for “pretrial proceedings,” he could not try all of the plaintiffs’ claims in the aggregate in this proceeding. Nor can the rule of Lexecon be circumvented by the device of permitting claimants to file “short-form joinders” injecting themselves into the limitation action on the theory that it was transferred to the district court under 28 U.S.C. § 1404 for trial. That would make a mockery of Lexecon.

The district judge, a seasoned and able jurist, recognized that he was not free to fashion a trial plan that is flawed in these fundamental respects. For that reason, the trial plan does not seek to adjudicate all the plaintiffs’ claims in the aggregate. Instead, it plans a trial of “issues” related to “allocation of fault” in the abstract. Unable to try all the plaintiffs’ claims, the judge has chosen to try none of them. This proposal is still defective, as a trial of “issues” would try parts of actions that under Lexecon the MDL judge must not try and would amount to a class action in a limitations proceeding contrary to Rule 23 and Lloyd’s Leasing. Indeed, such a trial would resemble an unsanctioned class action in almost everything but name. But even on its own terms, this plan exceeds the boundaries of the federal rules and contravenes the prior decisions of the Fifth Circuit.

The District Court’s Plan to Try “Issues” Without Trying Any Plaintiffs’ Claims Violates Rule 42, Fibreboard, and Article III

The district court evidently grounded its decision to order a trial of “issues” in Rule 42. But that trial plan cannot be sustained under the Fifth Circuit’s precedent. The Fifth Circuit recognizes that “separation of issues is not the usual course that should be followed.” Castano v. American Tobacco Co., 84 F.3d 734, 750 (5th Cir. 1996) (quoting Alabama v. Blue Bird Body Co., 573 F.2d 309, 318 (5th Cir. 1978)). When a district court proposes to depart from the usual practice, “the issue to be tried must be so distinct and separable from the others that a trial of it alone may be had without injustice.”

Here, the “allocation of fault issues” that the district court intends to try are not “distinct and separable” from the underlying claims of individual plaintiffs. Just the opposite. It is impossible to decide “allocation of fault” in the abstract; these questions cannot be decided without addressing liability, proximate cause, and comparative fault with reference to the claims of an individual plaintiff. Castano rejected a trial plan “to divide core liability from other issues such as comparative negligence,” Castano, 84 F.3d at 749, and this plan suffers from the same flaw. Rule 42(b) does not permit a separate trial on those issues in a vacuum, and the effort to use it in this way violates the Rules Enabling Act: “Such rules shall not abridge, enlarge or modify any substantive right.” 28 U.S.C. § 2072.

In a series of decisions, the Fifth Circuit (and others) has emphasized that courts cannot order separate trials of “issues” that aggregate individualized questions, such as causation, simply because it would be “convenient” or “efficient.” E.g., Castano, 84 F.3d at 751; In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1302-04 (7th Cir. 1995); In re Fibreboard Corp., 893 F.2d 706, 709-12 (5th Cir. 1990). Fibreboard was a seminal case, rejecting a trial plan that proposed to try the claims of 41 representative plaintiffs as a means to secure percentage findings that would then be extrapolated to an entire class of plaintiffs. By this device, the claims of the plaintiffs were to be aggregated and “the claim of a unit of 2,990 persons will be presented.” This procedure would mean the defendants “are exposed to liability not only in 41 cases actually tried with success to the jury, but in 2,990 additional cases whose claims are indexed to those tried.” “[E]ach plaintiff will be present in a theoretical, if not practical, sense.”

The Fifth Circuit held that such an aggregate trial plan “cannot focus upon such issues as individual causation,” and as a result, it would not permit a trial of individual claims. “This is the inevitable consequence of treating discrete claims as fungible claims.” Such a plan could proceed “only by lifting the description of the claims to a level of generality that tears them from their substantively required moorings to actual causation and discrete injury.” This, the Court held, was “alteration of substantive principle.”

The innovative plan proposed by the district court violates these principles. By planning a “trial” of all defendants’ “bases of liability” and “allocation of fault” in the abstract, without reference to any individual plaintiff’s claim, this trial plan goes even further than the one rejected by Fibreboard. In the name of efficiency, it alters Cameron’s substantive rights in precisely the way the Fifth Circuit has forbidden. “There is a point … where cumulative changes in procedure work a change in the very character of a trial.” Id. at 711. This plan has crossed that line.

This conclusion is inescapable regardless of the controlling substantive law. The claims against Cameron all turn on allegations that its product was defective, and Cameron cannot be liable on such a claim without proof that an alleged defect proximately caused some plaintiffs injury. Under Louisiana law, borrowed as surrogate federal law under OCSLA, Cameron could be “liable to a claimant” only “for damage proximately caused by” its product. LA. REV. STAT. 9:2800.54.A. Likewise, even if the district court were correct that general maritime law governs, “there is properly no application of comparative fault where there is an absence of proximate causation.” Exxon Co. v. Sofec, Inc., 517 U.S. 830, 838 (1996). Thus, the causation inquiry cannot proceed without reference to some plaintiff’s claim. See United States v. Atlantic Research Corp., 127 S. Ct. 2331, 2337-38 (2007) (statutory claims for contribution, like the cross-claims here, require a finding that the parties are “responsible for the same tort”).

Furthermore, no liability can be imposed on Cameron under Louisiana or maritime product liability law, and therefore no fault can be allocated to Cameron, unless a plaintiff satisfies the “economic loss” rule by proving an injury to either person or property. See Wiltz v. Bayer Cropscience, Inc., 645 F.3d 690, 695-703 (5th Cir. 2011) (Louisiana law); East River SS Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 867-75 (1986) (maritime law).

In short, regardless of the choice-of-law ruling, the notion that a court can adjudicate “allocation of fault issues” in a vacuum, divorced from the claims of any individual plaintiff, alters Cameron’s substantive rights in violation of Rule 42 and the Castano and Fibreboard decisions. This plan is a violation of due process. See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2560-61 (2011).

At bottom, the trial plan goes so far in seeking to adjudicate abstract issues without reference to any individual claim that it violates Article III. A plaintiff with standing to sue is the “irreducible constitutional minimum” under Article III. Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 102-03 (1998). Individual standing is “the core of Article III’s case-or-controversy requirement,” Id. at 104, and it “must be supported adequately by the evidence adduced at trial.”‘ LuJan v. Defenders of Wildlife, 504 U.S. 555, 561 ( 1992) . Because this trial plan would adjudicate “issues” in the abstract, not the claims of individual claimants who seek redress for identifiable injuries, it violates Article III.

The Trial Plan Does Not Accord With the Congressionally Mandated Remedial Scheme Prescribed by OPA

It should not escape notice that the district court’s effort to achieve a global “allocation of fault” is not only irreconcilable with the ordinary rules of procedure, but also with the specific scheme fashioned by Congress for oil pollution claims – by far the most numerous and financially significant claims in this litigation.

OPA establishes a comprehensive remedial scheme governing claims arising from the discharge of oil into navigable waters. The OPA scheme focuses on statutorily designated “responsible parties.” 33 U.S.C. § 2701(32). In this case, the designated “responsible parties” are the vessel owner or operator (Transocean) and the Macondo well lessees (BP, Anadarko, and MOEX). Cameron is not a statutorily designated “responsible party.”

OPA makes the responsible parties strictly liable for specific categories of removal costs and damages “[n]otwithstanding any other provision or rule of law.” 33 U.S.C. § 2702(a); § 2702(b) (specifying the recoverable costs and damages). It sets forth a streamlined process to facilitate prompt payment of verifiable claims. First, as a means of expediting payment and minimizing litigation, OPA imposes a presentment requirement: “[A]11 claims for removal costs or damages shall be presented first to the responsible party.” 33 U.S.C. § 2713(a). Only if a claim is not paid within 90 days may “the claimant … elect to commence an action in court against the responsible party ….” Id. § 2713(c).

OPA does not authorize claimants to sue third persons like Cameron who are not statutorily designated responsible parties. Instead, the statute interposes the responsible parties between claimants and third persons. Once a responsible party “pays compensation pursuant to this chapter to any claimant for removal costs or damages,” the responsible party becomes “subrogated to all rights, claims, and causes of action that the claimant has under any other law.” 33 U.S.C. § 2715(a); see also Id. § 2702(d)(1)(B). Alternatively, a responsible party may bring an “action for contribution against any other person who is liable or potentially liable under this Act or another law.” Id. § 2709.

In short, OPA prescribes a streamlined procedure providing for payment of damages first, litigation of liability later. Responsible parties must promptly compensate all claimants who present verifiable claims; ultimate financial liability is then resolved in separate litigation to which the claimants are not even parties. The legislative history makes this two-stage process explicit: “Whenever possible, the burden is to be on the discharger to first bear the costs of removal and provide compensation for any damages. . . . [L]itigation or lengthy adjudicatory proceedings over liability, defenses, or the propriety of claims should be reserved for subrogation actions ….” S. Rep. 101-94, 101″ Cong., 0 Sess. 1989, 1990 U.S. Code Cong. & Admin. News 722, 732.

First, failure to enforce the presentment requirement delays indefinitely the verification and satisfaction of claims advanced by individual plaintiffs (if any) who have presented claims and been denied compensation by a responsible party; under the proposed trial plan those plaintiffs now will be lumped together with the “large numbers of … plaintiffs who have completely bypassed the OPA claim presentation requirement,” and will sit back to await the outcome of what Congress presciently called “lengthy adjudicatory proceedings over liability.” This is precisely contrary to the prompt payment of compensation that lies at the heart of the OPA remedial scheme.

Second, by proceeding directly to matters of liability instead of resolving the claims of individual plaintiffs, the trial plan invites the PSC to participate in a potentially riotous free-for-all over fault on behalf of an undifferentiated mass of unidentified plaintiffs. The PSC will play this role even though (a) those plaintiffs have not been demonstrated to have satisfied OPA’s prerequisite for bringing suit, (b) those plaintiffs do not need to prove fault to secure compensation under OPA, and (c) those plaintiffs have no statutory right to sue third persons like Cameron who are not statutorily designated responsible parties.

The district court may have believed that its multiple departures from the OPA remedial scheme were justified under the Limitation Act, but that is not so. The Limitation Act’s procedures for marshaling claims and allocating fault cannot be used to circumvent the orderly OPA scheme. As the First Circuit correctly held, “claims arising under the OPA (for pollution removal costs and damages) are not subject to the substantive or procedural law of the Limitation Act or to the concursus of claims [allowed by the Limitation Act].” In re Metlife Capital Corp.,132 F.3 d 818, 819 (1st Cir. 1997). “OPA repealed the Limitation Act with respect to removal costs and damages claims against responsible parties.” Id. at 821. Congress stated that OPA “completely supersedes”‘ the Limitation Act. M. at 822 (quoting legislative history). Thus, after careful evaluation, the First Circuit held “the OPA’s scheme is in irreconcilable conflict with the Limitation Act.”

The plaintiffs’ OPA claims should be adjudicated in the manner deliberately chosen by Congress, i.e., only plaintiffs satisfying the presentment requirement may have their day in court; plaintiffs who do satisfy the presentment requirement are entitled to compensation for all verified claims without awaiting litigation over fault or ultimate financial responsibility, but those plaintiffs may not proceed against third persons who are not statutorily designated responsible parties. Instead, the district court has inverted the congressional order by confusing Transocean’s limitation action with the OPA claims that this case is mainly about. This has become a case of the caboose driving the train, and it needs to be put back on the tracks.

When viewed as a whole, the proceeding envisioned by the MDL 2179 court’s plan is not a “trial” as it is known in Anglo-American law. Its three phases are reminiscent of the procedures followed by European courts in which the judges are active prosecutors in search of justice while the litigants are virtually bystanders. But this procedure is a novelty in American law. It should not be allowed.

THE FIFTH CIRCUIT ORDER

The United States Court of Appeals for the Fifth Circuit chose not to address the issues raised in Cameron’s Petition for Writ of Mandamus. On December 26, 2011, the three-judge panel (Judges Higginbotham, Davis, and Elrod) issued the following three-sentence Order:

“The application for mandamus is denied. The district court did not clearly err in concluding that the limitation proceeding is within the court’s admiralty jurisdiction. The remaining issues fail the demands for mandamus review.”

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

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

By Brian J. Donovan

December 30, 2010

The Gulf Coast Claims Facility (GCCF) was meant to replace the inefficient claims process which BP had established to fulfill its obligations as a responsible party pursuant to the Oil Pollution Act of 1990 (OPA). BP and the Obama administration agreed to appoint Kenneth Feinberg, a Washington lawyer and Democratic Party supporter who administered the claims process for victims of 9/11, to run the allegedly independent GCCF. Unfortunately, in lieu of ensuring that BP oil spill victims are made whole, the primary goal of GCCF and Feinberg is the limitation of BP’s liability via the systematic postponement, reduction and denial of claims against BP.

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

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

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

THE OBAMA ADMINISTRATION

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

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

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

The failure of President Obama to partially federalize the BP oil spill incident, allowed BP to:
(a) use an excessive and unprecedented amount of dispersant both on the surface and underwater. This toxic “out-of-sight, out-of-mind” strategy resulted in tiny dispersed droplets of oil sinking or remaining suspended in deep water rather than floating to the surface and collecting in a continuous slick. Rather than being collected, the dispersed oil is now on the seabed, where it is toxic food for microscopic organisms at the bottom of the food chain and will eventually wind up in shellfish and other organisms; and
(b) prohibit independent measurement of the amount of oil being released into the Gulf of Mexico by unbiased third party scientists and engineers. BP, with the full support of the federal government, knowingly and systematically underestimated the size of the gusher to limit the financial impact on the company. Under the Clean Water Act (CWA), BP faces fines of up to $4,300 for each barrel spilled. Furthermore, pursuant to Section 2702 of OPA 90, BP should be required to pay royalties (18.75%) owed to the federal government for the oil gushing from the well.

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

BP created the Deepwater Horizon Oil Spill Trust on August 6, 2010. The Trust Agreement provides, “To secure the payment and performance of its obligations to make the contributions to the Trust hereunder, BP hereby agrees to grant, convey, and/or assign to the Trust first priority perfected security interests in production payments pertaining to BP’s U.S. oil and natural gas production.”

The fact that future production payments pertaining to BP’s U.S. oil and natural gas production, rather than hard U.S. assets, are being used as collateral by BP guarantees BP’s continued long-term operation in the offshore Gulf of Mexico E&P sector. Ironically, the federal government has acquired a vested interest in ensuring the financial well-being of BP.

Given that BP’s financial health and its ability to meet its obligations under GCCF are now tied together, CWA fines and OPA royalty payments for each barrel of oil spilled will most likely be kept to a minimum.

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

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

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

Under OPA, claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a) In the event that a claim for damages is either denied or not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to OSLTF. 33 U.S.C. § 2713(c)

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

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

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

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

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

CONGRESS

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

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

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

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

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

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

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

THE PLAINTIFFS’ BAR

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

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

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

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

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

II. Given that the damages suffered by the vast majority of individual potential plaintiffs as a result of the BP oil spill of April, 2010 are potentially so great, it should be economically feasible for many individual plaintiffs to file individual lawsuits. Here, class treatment would not be necessary to permit effective litigation of the claim. An individual lawsuit will: (a) ensure the plaintiff that the plaintiff’s attorney has his or her best interests in mind; (b) protect the plaintiff’s due process rights; (c) ensure that the plaintiff is not a victim of a so-called “faux” class action case, i.e., a case in which individual class members receive little or no compensation and only plaintiffs‘ counsel stand to benefit from class certification; (d) give the plaintiff control over the prosecution of the case; (e) allow the plaintiff to present evidence of exposure, injury, and damages relating to his or her particular claim; and (f) allow the plaintiff to make the decision on whether or when to settle.

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

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

CONCLUSION

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

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

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

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

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

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

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

UPDATE

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

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BP Oil Spill: Failure to Act by the Obama Administration and Congress Threatens the Financial Viability of the Oil Spill Liability Trust Fund (OSLTF)

Posted in Feinberg, GCCF, Napolitano, Obama, oil spill, OPA, OSLTF by renergie on December 6, 2010

BP Oil Spill: Failure to Act by the Obama Administration and Congress Threatens the Financial Viability

of the Oil Spill Liability Trust Fund (OSLTF)
_______________________________

Oil Spill Victims are Left with an Uncertain Future

By Brian J. Donovan

December 6, 2010

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

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 who are not fully compensated by the responsible party.

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. Although not allowed to be taken into consideration by the NPFC, $1 billion today does not have the same value as it did in 1990, when OPA was enacted. If the $1 billion amount had been adjusted for inflation, it would be approximately $1.6 billion in today’s dollars. Coincidentally, on September 30, 2010, the unaudited OSLTF balance was approximately $1.69 billion.

To date, NPFC has billed the responsible party for the BP oil spill $581 million for response activities performed by nine federal government agencies and various state government agencies. As of October 12, 2010, BP has paid NPFC $518.4 million.

Victims of the BP oil spill are at risk as a result of the 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. The OSLTF will very likely reach the $1 billion per incident cap on total expenditures in the near future.

The advantage of defining an expenditure, under the 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 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 oil spill claimants, it is replenished, by virtue of subrogation, by reimbursements made to the 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.

On November 27, 2010, The Donovan Law Group sent a letter to the Honorable Janet Napolitano, Secretary of the Department of Homeland Security, explaining the need to  properly define the term “expenditure” under the OSLTF.

The full text of the letter follows. Links have been added for clarification.

November 27, 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 – The Need to Properly Define “Expenditure”
Under the Oil Spill Liability Trust Fund (OSLTF)

Dear Secretary Napolitano:

I am writing in regard to the need to properly define the term “expenditure” under the 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 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 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.

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.

BP and Oxford Economics estimate the total cost to clean up this unprecedented spill to be in the tens of billions of dollars. On November 2, 2010, BP raised its estimated cost of cleaning up the Macondo oil spill incident to $40 billion. Other independent third party estimates range between $60 billion and $90 billion.

Secretary Janet Napolitano
November 27, 2010
Page 2

How will victims of this unprecedented oil spill be fully compensated for their losses? Theoretically, there are three potential avenues of compensation which victims of this oil spill may pursue to be made whole: (a) the Gulf Coast Claims Facility (GCCF); (b) litigation; and (c) the Oil Spill Liability Trust Fund (OSLTF).

GULF COAST CLAIMS FACILITY (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, as explained in my letter, dated October 18, 2010 and received by your office on October 25, 2010, 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.

LITIGATION

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.

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.

Secretary Janet Napolitano
November 27, 2010
Page 3

OIL SPILL LIABILITY TRUST FUND (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. On September 30, 2010, the unaudited OSLTF balance was approximately $1.69 billion.

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?

Secretary Janet Napolitano
November 27, 2010
Page 4

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.

 

Proposed Retroactive OPA Legislation
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, bills have been introduced to amend OPA to increase the liability limit of the responsible party and the 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 the 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.

Secretary Janet Napolitano
November 27, 2010
Page 5

CONCLUSION

The advantage of defining an expenditure, under the 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 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 oil spill claimants, it is replenished, by virtue of subrogation, by reimbursements made to the 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.

Thank you for your prompt attention to this issue. 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 Daniel K. Inouye
The Honorable James L. Oberstar           The Honorable Barbara Boxer
The Honorable Elijah E. Cummings         The Honorable Joseph I. Lieberman
The Honorable Corrine Brown                  The Honorable Troy King
The Honorable Anh “Joseph” Cao            The Honorable David R. Obey
The Honorable John Conyers, Jr.             The Honorable Henry A. Waxman
The Honorable John L. Mica                     The Honorable Bennie G. Thompson
The Honorable Jeff Bingaman                  The Honorable Nick J. Rahall, II
The Honorable Bill Nelson                          The Honorable Charles W. Boustany, Jr.
The Honorable Bobby Jindal                     The Honorable Eric H. Holder, Jr.

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