How MDLs Have Morphed U.S. Federal Courts into Merely Administrative Agencies

Approximately 47% of the civil cases pending in the nation’s federal courts are consolidated in multidistrict litigations (MDLs).

A recently filed lawsuit against the lead counsel in the BP oil well blowout MDL demonstrates how MDLs have morphed U.S. federal courts into merely administrative agencies.

This lawsuit is brought against Defendant Stephen J. Herman under the following causes of action: (a) Gross Negligence; (b) Negligence; (c) Negligence Per Se; (d) Fraud; (e) Fraudulent Inducement; (f) Promissory Estoppel; (g) Unjust Enrichment; (h) Breach of Fiduciary Duty; (i) Fraudulent Concealment; (j) Constructive Fraud; (k) Breach of Fiduciary Duty of Loyalty (Breach of the Aggregate Settlement Rule); and (l) Fraudulent Concealment (MDL 2179 Is Unconstitutional).

The following are the headers in the 130-page complaint.

NATURE OF ACTION

JURISDICTION AND VENUE

PARTIES

BACKGROUND FACTS

   I. Defendant Herman’s 8-Step Plan to Limit BP’s Liability

   and Maximize His Compensation

   A. Step No. 1: Capture Market Share

   B. Step No. 2: The JPML Transfer Order

   C. Step No. 3: Establishment of Feinberg’s Victims’ Compensation Fund

   D. Step. No. 4: Appointment of “Cooperative” Attorneys to the PSC

   E. Step No. 5: Circumvention of OPA, a Strict Liability Statute

   F. Step No. 6: Approval of the Settlement Class Action

   G. Step No. 7: The Post-Settlement Mop-Up Procedures

   H. Step No. 8: Clawback

   II. Defendant Herman Breached His Fiduciary  and Ethical Duties to Plaintiff

   A. “Come Into the Fold,” Pay Us, and Keep Quiet

   B. Defendant Herman Refused to Answer Plaintiff’s Questions

   C. Defendant Herman Violated the Aggregate Settlement Rule

   D. Defendant Herman Colluded with the Members of the MDL 2179 PSC  and BP

   E. Defendant Herman Did Not Hold BP Accountable

   F. Defendant Herman Refuses to Be Fully Transparent and Defendant  Herman Refuses to Be Held Accountable

   G. Why It Is Difficult to Hold Defendant Herman and Self-Dealing PSC Attorneys Accountable

   III. Defendant Herman Intentionally and Systematically Misled Plaintiff, Plaintiff’s Clients, and All Others Similarly Situated

   A. The Agreement-in-Principle

   B. The Highly Compensated “Thought Leaders”

   IV. Defendant Herman Oversees and Steers a Multidistrict Litigation Which is Unconstitutional

   A. Where’s the Case or Controversy in MDL 2179?

   B. Where’s the Due Process in MDL 2179?

   C. Opt-Out vs. Opt-In

   V. Defendant Herman Excessively Compensated Himself and Members of the MDL 2179 PSC by “Quadruple Dipping”

   A. Compensation Paid to Kenneth R. Feinberg by BP

   B. Compensation Paid to BP Oil Well Blowout Victims by Kenneth R. Feinberg (GCCF Program Statistics)

   C. The Deepwater Horizon Claims Center (DHCC Program Statistics)

   D. Compensation Paid to Defendant Herman and MDL 2179 PSC Attorneys

   (1) Common Benefit Fees

   (2) Contingent Fees

   (3) Co-counsel Fees

   (4) Hold-Backs

   E. Calculation of Compensation Paid to Defendant Herman and MDL 2179 PSC Attorneys

   F. Calculation of Compensation Paid to 103 Non-PSC Attorneys

   G.How the Court Allocated the US$720.15 million to Common Benefit  Attorneys

COUNT I: GROSS NEGLIGENCE

COUNT II: NEGLIGENCE

COUNT III: NEGLIGENCE PER SE

COUNT IV: FRAUD

COUNT V: FRAUDULENT INDUCEMENT

COUNT VI: PROMISSORY ESTOPPEL

COUNT VII: UNJUST ENRICHMENT

COUNT VIII: BREACH OF FIDUCIARY DUTY

COUNT IX: FRAUDULENT CONCEALMENT

COUNT X: CONSTRUCTIVE FRAUD

COUNT XI: BREACH OF FIDUCIARY DUTY OF LOYALTY (BREACH OF THE AGGREGATE SETTLEMENT RULE)

COUNT XII: FRAUDULENT CONCEALMENT (MDL 2179 IS UNCONSTITUTIONAL)

The collusive nature of MDLs has devolved to the point where: (a) justice is replaced by judicial efficiency, (b) federal judges sanction fund approaches and settlement class actions which limit the liability of defendants, and (c) a relatively small group of self-interested “cooperative” attorneys are permitted to be grossly over-compensated for merely acting as dealmakers.

As the lawsuit against Defendant Herman moves forward, many articles will be written by investigative reporters and other interested parties. Most of these articles will be the result of honest and unbiased reporting. Unfortunately, as BP has demonstrated since 2010, some of the articles will be written in a biased manner in order to protect the interests of BP and other parties involved in the BP oil well blowout MDL.

Before you read any article, I advise you to first read the complaint. Yes, the complaint is 130 pages in length but it is double-spaced and written in plain English. The above headers are analogous to the chapters in a novel’s table of contents.

A copy of the complaint is available here.

BP Oil Spill: Macondo Well Could Have Been Shut in Within 24 Days!

BP Oil Spill: Plaintiffs’ Phase Two Post-Trial Brief

_________________________

Had BP Prepared for a Deepwater Blowout, With a Capping Stack Available on April 20, 2010,

the Well Could Have Likely Been Shut in Within 24 Days or Less

Tampa, FL (December 22, 2013) – Phase Two was divided into two segments: the Source Control segment and the Quantification segment. The Source Control segment was tried as a bench trial before the MDL 2179 Court beginning on September 30, 2013, and concluding on October 3, 2013. The Quantification segment was tried as a bench trial before the MDL 2179 Court beginning on October 7, 2013, and concluding on October 17, 2013.

On December 20, 2013, Plaintiffs submitted their Post-Trial Brief to address specific legal and factual issues raised by the Court and by the Parties based on the evidence admitted during the Phase One and Phase Two Limitation and Liability Trial. The following are excerpts from this brief.

Plaintiffs contend, “It was established at trial that BP consciously disregarded the need to prepare for an uncontrolled deepwater blowout and willfully extended the capping of the Macondo Well by intentionally concealing material information and affirmatively misleading the U.S. Government and others regarding the volume of hydrocarbons escaping from the well after the blowout.”

The question is whether BP’s overall conduct – as evidenced by not only the Phase Two issues of post-spill lying to the Government and pre-spill lack of preparedness, but also the Phase One issues of fast and reckless drilling, establishing and maintaining a dysfunctional leadership team, proceeding with the cement job without reliable test results, proceeding with the displacement despite a failed negative pressure test, refusing to correct known and persistent maintenance failures, and recklessly selecting, configuring, and refusing to upgrade the BOP – demonstrates a willful, wanton and reckless disregard for the environment, the property rights of others, and/or public health and safety.

With respect to the Phase Two evidence in particular, BP did not dispute the fact that BP did absolutely nothing in advance of the Macondo incident on April 20, 2010 to develop source control plans and equipment in preparation for a possible deepwater blowout. BP simply attempts to muster, in its defense, an argument that the Government allegedly “approved” of its lack of preparation and that others in the industry allegedly failed to do the same.

Based on the law and on the evidence submitted in the Phase One and Phase Two Trial, BP’s corporate conduct associated with the Macondo Well explosion, fire, blowout and resulting spill was willful, wanton and reckless, and was a direct result of BP corporate policies and/or with the knowledge, approval and/or ratification of BP officers with policymaking authority.

A Finding of Willful, Wanton or Reckless Conduct Should Be Made on the Series and Accumulation of Acts and Omissions Established by the Evidence Admitted in the Phase One and Phase Two Trial

As set forth in Plaintiffs’ Phase One Post-Trial submissions, an accumulation or series of negligent acts or omissions are properly viewed together in order to determine whether the defendant has acted out of gross negligence, willful misconduct, or a wanton or reckless disregard.

Hence, the burden is not on Plaintiffs to show that BP’s pre-spill planning, in and of itself, rises to the level of wanton, willful or reckless conduct. Nor are the plaintiffs required to show that BP’s post-spill intentional misconduct, in and of itself, caused or contributed to the uncontrolled flowing of the well for 87 days.

Rather, it is only Plaintiffs’ burden to show that BP’s (i) pre-spill failure to plan, combined with BP’s (ii) post-spill intentional misrepresentations and concealment – combined with BP’s (iii) fast and reckless drilling, with little or no regard for the safe kick margin, despite multiple kicks, and in violation of the MMS Regulations requiring a safe drilling margin; (iv) creating, maintaining and largely ignoring a dangerously dysfunctional leadership team, which embraced the corporate culture of cutting costs and maximizing profits; (v) proceeding with the cement job without a set of reliable test results confirming the slurry’s stability; (vi) proceeding with the displacement despite a failed negative pressure test; (vii) selecting, configuring, sequencing, modifying, and refusing to upgrade the safety critical BOP, which was not sufficient or appropriate for the Macondo well; and (viii) knowingly refusing to correct the persistent maintenance failures of safety critical equipment on the Deepwater Horizon – evidences a willful and reckless disregard for the environment, the property rights of others, and/or public health and safety.

The Phase Two evidence, in this respect, cannot be untethered from the Phase One evidence, in making the overall determination of BP’s state of mind with respect to the damages and effects of the Macondo disaster.

Nevertheless, the Phase Two evidence, standing alone, establishes that BP was wanton and reckless in both its pre-spill lack of planning and in its post-spill lying to the Government and others regarding the flow rate and source control.

It is Undisputed that BP Willfully and Recklessly Refused to Prepare for an Uncontrolled Deepwater Blowout, the Largest Known Risk in the Gulf

There is no question that it was foreseeable to BP that a deepwater well in the Gulf of Mexico could experience a blowout. Indeed, BP Management had identified the risk of a deepwater blowout as one of the highest risks worldwide, and the number one risk in the Gulf of Mexico. And both BP and the industry generally knew, beginning in 1991, that it was necessary to engage in deepwater source control planning and to develop deepwater source control capping equipment and techniques. Yet, BP Management admittedly spent no time or money preparing for a deepwater source control effort.  BP Management did not direct or provide for any training in deepwater source control. Nor did BP Management develop or acquire any capping equipment. It is clear, in sum, that BP’s pre-spill preparation was nothing more than a plan to make a plan.

Both Legally and Factually, BP Has Failed to Establish a Defense Predicated on an Alleged “Industry Standard”

Mere compliance with industry standards does not preclude a finding of gross or egregious conduct.   In this particular case, the entire industry recognized the need to develop capping stack equipment as far back as 1991. Indeed, an industry study predicted and diagramed at that time an uncontrolled blowout strikingly similar to what would occur at Macondo almost twenty years later. To the extent that companies other than BP may have also failed to adequately prepare for a deepwater blowout, this reveals nothing more than laxness, inefficiency, and inattention to innovation by other companies. Yet BP, a self-proclaimed “leader” in the industry, refused to invest a single penny into developing or acquiring the necessary equipment for post-spill source control.

As a factual matter, BP came far from proving that there was an “industry standard” to develop no pre-spill capping stack or other source control plans, equipment or technology. See, e.g., Maxey v. Freightliner Corp., 665 F.2d 1367, 1376 (5th Cir. 1982) (when considering whether a defendant has complied with an industry standard, “a district court must limit its consideration to evidence actually presented at trial”). Indeed, as noted, the industry was recognizing the need for such devices since 1991.

BP Knew For More Than Two Decades That Capping Devices Are The Best Available Technology For Controlling Deepwater Blowouts

Well capping techniques have been applied both on land and offshore locations and have historically proven successful in regaining well control in shorter durations and are preferred over the more time-consuming alternative of drilling a relief well. Capping devices have existed and been used in the industry for decades. Capping device technology is feasible, well proven and not novel. Indeed, the Macondo Capping Stack was assembled using current technology and “off-the-shelf” equipment.

Within a few days of April 20, 2010, representatives from BP, Transocean, Cameron and Wild Well Control, met at BP’s offices to discuss capping solutions. On April 27, 2010, Wild Well Control provided BP with a project memo that raised “Well Capping” and “Installation of Capping Stack on existing BOP” as options that should be considered. The memo also included a summary of procedures for installation of a capping stack onto the existing BOP.

Moreover, in response to U.S. Secretary of the Interior Ken Salazar’s request for ideas from the industry after the Macondo event, Apache Corporation responded on April 30, 2010, “[i]f the LMRP can be removed from the BOP, conventional wisdom would suggest that another subsea BOP could be placed on top of the Horizon’s BOP in order to close the well in.”

There was evidence presented at trial that capping stack devices had, in fact, been developed, deployed and utilized by others in the industry, using existing technology. The evidence showed that Cameron’s own BOPs had been used as capping stack solutions as early as the 1980s, and were actually used to kill wells in Kuwait. BP itself, in 2001, adopted well capping devices in Alaska as the best available technology. Indeed, BP concluded and certified that a well capping solution could mitigate the overall duration and extent of an uncontrolled blowout by 50%.

With respect to deepwater operations, the evidence established that at least two capping-type solutions had been previously utilized in deep water: (1) a blowout in Malaysia in 1988, and (2) the JIM CUNNINGHAM incident in the eastern Mediterranean in 2004, where a BOP-on-BOP technique was used. There was also evidence that Shell and Senta Drilling had capping devices available for a deepwater project off the coast of Brazil. And BP itself recognized the potential use of capping stacks in deepwater environments, identifying them as a “Level 3: Phase 2” solution in the January 2010 Gulf of Mexico Deepwater SPU Well Control response guide.

BP Violated Regulatory Standards

As set forth in Plaintiffs’ Phase One Post-Trial submissions, a defendant’s compliance with regulatory standards does not preclude a finding of gross or egregious conduct. Moreover, in Phase Two as in Phase One: (a) The Government relied largely on information that was provided (or not provided) by BP; (b)The MMS and Coast Guard officials were frequently overtaxed, understaffed, and of limited training; (c) There were several instances where BP’s conduct (or failure to act) went beyond the scope of what was ostensibly permitted under the specific regulation, application, or approval in question; (d) There were several instances where BP provided insufficient, inaccurate or misleading information to the Government; and (e) BP clearly violated MMS regulations.

Specifically, it was clear that the Oil Spill Response Plan (OSRP) ostensibly approved by the Government was directed toward efforts to try to contain and collect the oil once it reached the surface. The Oil Spill Response Plan was not intended to be a source control plan, and the regulations concerning the plan requirements expressly state: “Nothing in this part relieves you from taking all appropriate actions necessary to immediately abate the source of a spill.” As a factual matter, moreover, the evidence is clear that the Government expected BP to be able to abate the source of an oil spill as soon as possible. “The federal government has neither the skilled personnel nor the appropriate equipment to respond independently to an oil blowout in deepwater and must rely wholly on the responsible party.”

The Phase Two evidence further establishes that the Federal Government was relying on BP to provide the Government with source control information. In addition to lying to the Government with respect to the flow rate (to which BP pleaded guilty), BP also failed to comply with its pre-spill representation to the MMS regarding the training of its employees in source control response.

Far from establishing some type of a defense based on the alleged “approval” of its OSRP by the Government, BP clearly violated the regulatory requirements to: (i) take necessary precautions to keep the well under control at all times, 30 C.F.R. ¶250.401; (ii) immediately abate the source of a spill, 30 C.F.R. ¶254.5(c); and (iii) use the Best Available and Safest Technology (BAST), 30 C.F.R. ¶¶250.105, 107 and 401(a). At the end of the day, BP certified to the Federal Government in its Initial Exploration Plan for the Macondo well that it was capable of responding at the source to a worst-case discharge of up to 162,000 barrels of oil per day. BP was clearly not in compliance with respect to that regulatory certification.

Advance Preparation Would Have Unquestionably Allowed BP to Mitigate the Length and Extent of the Spill, Irrespective of the Particular Circumstances Surrounding a Blowout

Aside from the fact that a similar post-spill situation was specifically predicted by the Drilling Engineers Association in 1991, the evidence is clear that efforts prior to the spill would have reduced the duration and extent of the post-blowout event. BP representatives admitted that “it’s much better to have a plan in place” than to “create a plan … in the middle of a crisis.” Former CEO Tony Hayward and the leaders of the post-spill source control effort, Charles Holt and James Dupree, all admitted that BP did not have the equipment it needed in place, and were essentially creating plans on how to kill the well as they went along. It is because BP “didn’t have the equipment to attack a Macondo-type event” that “we had to engineer so many things simultaneously on the fly.”

Cameron personnel similarly confirmed that the lack of pre-spill planning resulted in “paralysis by analysis,” “running this show like a game of Scrabble,” having “no clue what to do next,” and “running around like chickens with their heads cut off.”

In sum, the evidence establishes that, had BP prepared for a deepwater blowout, with a capping stack available on April 20, 2010, the well could have likely been shut in within 24 days or less.

BP’s Intentional Misrepresentations and Omissions Combined with Multiple Other Causative Factors – including BP’s Own Reckless Failure to Prepare for a Blowout and Post-Spill Miscalculations and Mistakes – to Extend the Duration and Expanse of the Spill

The General Maritime Law clearly recognizes that multiple causative factors can combine and contribute to a harmful series of results. And, as set forth in Plaintiffs’ Phase One Post-Trial submissions, an accumulation or series of negligent acts or omissions are properly viewed together in order to determine whether the defendant has acted out of gross negligence, willful misconduct, or a wanton or reckless disregard.

Plaintiffs allege that BP’s intentional misconduct in concealing material facts, overtly misstating facts it knew were not true, and otherwise misleading the Government, together with other factors, including BP’s own pre-spill failure to prepare for an uncontrolled blowout, as well as BP’s (and/or perhaps the Government’s) post-spill misjudgments and miscalculations, all conspired to significantly delay the capping of the well.

BP’s Willful Misconduct in Lying to the U.S. Government (and Others) After the Spill is Relevant to the Overall Question of BP’s State of Mind, Even If It Were Found Not to be a Direct Cause of Any Delay

The Phase Two evidence establishes that BP’s willful misconduct in lying to the Government after the spill extended the blowout by a number of weeks. Yet, even assuming arguendo that there were no causal relationship between BP’s lies and the length or extent of the spill, (which is denied), such intentional misconduct would nevertheless be relevant to the ultimate question of whether BP acted with a willful, wanton or reckless disregard. See, e.g., Clements v. Steele, 792 F.2d 515, 516-517 (5th Cir. 1986) (“the ‘mental attitude of the defendant’ is what turns ordinary negligence into gross negligence” and can be inferred from the totality of the circumstances).

BP Oil Spill: An Open Letter to the MDL 2179 Plaintiffs’ Steering Committee (“PSC”)

December 21, 2012

VIA Email

Mr. Stephen J. Herman
Plaintiffs’ Liaison Counsel
Herman, Herman, Katz & Cotlar, LLP
820 O’Keefe Avenue
New Orleans, LA 70113

Re: An Open Letter to the MDL 2179 Plaintiffs’ Steering Committee (“PSC”)

Dear Steve,

I am writing this open letter on behalf of my clients and all similarly-situated BP oil spill and Gulf Coast Claims Facility (“GCCF”) victims.

Background

On August 10, 2010, the United States Judicial Panel on Multidistrict Litigation (“JPML”) issued its Transfer Order (Rec. Doc. 1) wherein it clearly states:

“IT IS THEREFORE ORDERED that, pursuant to 28 U.S.C. § 1407, the actions listed on Schedule A and pending outside the Eastern District of Louisiana are transferred to the Eastern District of Louisiana and, with the consent of that court, assigned to the Honorable Carl J. Barbier for coordinated or consolidated pretrial proceedings with the actions pending in that district and listed on Schedule A.” (Emphasis added)

In order to efficiently manage MDL 2179, Judge Barbier consolidated and organized the various types of claims into several “pleading bundles” for the purpose of the filing of complaints, answers and any Rule 12 motions. The “B1” pleading bundle includes all claims for private or non-governmental economic loss and property damages.

On December 15, 2010, the PSC filed a “B1” Master Complaint.

On January 12, 2011, the MDL 2179 Court issued PTO No. 25, in order to clarify “the scope and effect” of the “B1” 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.”

In sum, my clients were forced to be represented by the PSC. Accordingly, since you have stepped into my shoes, I, and all similarly-situated attorneys representing BP oil spill and GCCF victims, hold the PSC strictly accountable to zealously advocate on behalf of all MDL 2179 Plaintiffs.

I look forward to receiving the PSC’s answers to the following 10 questions.

QUESTION NO. 1

Why did the PSC designate the “B1” Master Complaint as an admiralty or maritime case, and request a non-jury trial pursuant to Rule 9(h), rather than properly allege claims under the Oil Pollution Act of 1990 (“OPA”), a strict liability statute, and the Outer Continental Shelf Lands Act (“OCSLA”)?

On February 9, 2011, the PSC filed a First Amended Master Complaint. Rather than allege claims under the OPA (which governs the MDL 2179 cases alleging economic loss due to the BP oil spill) and the Outer Continental Shelf Lands Act (“OCSLA”) (which governs the MDL 2179 personal injury and wrongful death actions and borrows the law of the adjacent state as surrogate federal law), the PSC made the unfathomable decision to allege claims under admiralty law. In the “B1” First Amended Master Complaint, the PSC clearly states, “The claims presented herein are admiralty or maritime claims within the meaning of Rule 9(h) of the Federal Rules of Civil Procedure. Plaintiffs hereby designate this case as an admiralty or maritime case, and request a non-jury trial, pursuant to Rule 9(h).”

QUESTION NO. 2

Why has the PSC failed to inform Judge Barbier that the honorable MDL 2179 Court has overreached its authority?

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

Justice Souter, in delivering the opinion of the Court in Lexecon, explained 28 U. S. C. §1407(a) authorizes the Judicial Panel on Multidistrict Litigation (the “Panel”) to transfer civil actions with common issues of fact “to any district for coordinated or consolidated pretrial proceedings,” but imposes a duty on the Panel to remand any such action to the original district “at or before the conclusion of such pretrial proceedings.”

QUESTION NO. 3

Why has the PSC failed to inform Judge Barbier that the E&PD class settlement violates the Oil Pollution Act of 1990 (“OPA”)?

In violation of the OPA and contrary to the intent of Congress, the E&PD class settlement defines “Class Members” by geographic bounds and certain business activities while requiring proof of a heightened, vague standard of causation.

QUESTION NO. 4

Why has the PSC failed to inform Judge Barbier that the honorable MDL 2179 Court has illegally excluded approximately 200,000 BP oil spill victims from the E&PD class settlement thereby greatly decreasing the bargaining power of the remaining class members?

GCCF’s “Release and Covenant Not to Sue” violates the OPA:

(a) by requiring the release of future damages as requirement for receiving a payment from the GCCF claims process, in contravention of 33 U.S.C. § 2705(a) and 33 U.S.C. §§ 2715(b)(1) and (2); and

(b) by allowing Feinberg, et al. to intentionally fail to provide a process for presenting, processing and paying interim, short-term damages, in contravention of 33 U.S.C. § 2705(a) and 33 U.S.C. §§ 2715(b)(1) and (2).

The text and the legislative history of the OPA statute are clear. OPA expressly prohibits Responsible Parties from engaging in a “Delay, Deny, Defend” strategy wherein the victims of an oil spill are starved and ultimately forced to sign a release and covenant not to sue in order to receive a miniscule payment amount for all damages, including future damages, they incur as a result of the oil spill.

Furthermore, GCCF’s “Release and Covenant Not to Sue” violates State contract law because it:

(a) was obtained through the use of economic duress;

(b) was obtained without free consent (Claimants did not consent to the release by choice, because the only option for receiving payment required Claimants to sign a release, the terms of which they had no opportunity to negotiate.);

(c) was obtained through fraud;

(d) requires Claimants to discharge, waive and release future claims (including those resulting from gross negligence) for costs and damages (including punitive damages) that are unknown and have not yet arisen;

(e) was obtained in exchange for inadequate consideration; and

(f) has as its objective the circumvention of the OPA.

Accordingly, GCCF’s “Release and Covenant Not to Sue” is void ab initio.

In sum, GCCF’s “Release and Covenant Not to Sue” and the class settlement’s “Release and Covenant Not to Sue” violate federal law, State contract law, and are contrary to public policy. Illegally excluding approximately 200,000 Claimants from the E&PD class settlement also greatly decreases the bargaining power of the “Class Members” and results in an increased loss of faith in the federal judicial system.

As Judge Barbier aptly stated in his Order of August 26, 2011, “The long term effects [of the BP oil spill] on the environment and fisheries may not be known for many years.”(p. 31, Rec. Doc. 3830).

Requiring BP oil spill victims, PSC’s clients, to prematurely waive their right to sue in exchange for a miniscule single final settlement payment is unconscionable.

QUESTION NO. 5

Why has the PSC failed to inform Judge Barbier that the E&PD class settlement is not “fair, reasonable, and adequate” and has not been entered into without collusion between the parties?

For the following reasons, the E&PD class settlement is not “fair, adequate, and reasonable” (at least not for the “Class Members”) and has not been entered into without collusion between the parties:

(a) Prior to the class action settlements, the Deepwater Horizon Oil Spill Trust had a balance of approximately $13.8 billion from which BP oil spill victims believed they would be compensated by the GCCF for all “legitimate” claims.

(b) After the class action settlements, the proposed “Settlement Trust” has only a balance of $7.8 billion from which BP oil spill victims are being told they will be compensated by the DHCC “so long as they execute an individual release.”

(c) As noted above, under the class action settlements, BP will receive a refund of approximately $6 billion; the PSC and other counsel allegedly performing common benefit work will receive $600 million.

(d) The E&PD class action settlement doesn’t actually provide for funds to be distributed to Class Members; it merely gives BP oil spill victims the right to submit, yet again, a claim for economic and property damages. The PSC and BP oil spill victims have to ask, “Where’s the settlement?”

(e) “……within 15 days after the end of each calendar quarter, the BP Parties shall irrevocably pay into the Common Benefit Fee and Costs Fund an amount equal to 6 % (six percent) of the aggregate Settlement Payments paid under the Economic Agreement in respect of Claimants that have executed an Individual Release.” In sum, the PSC and other counsel allegedly performing common benefit work are financially motivated to have as many Claimants execute an Individual Release as expeditiously as possible regardless of whether the negotiated settlements reflect the true value of the claims.

QUESTION NO. 6

Why has the PSC failed to inform Judge Barbier that a class action may not be brought in a limitation proceeding?

The MDL 2179 Court may not certify a class in the limitation action because it would contravene the Fifth Circuit’s holding in Lloyds Leasing Ltd. v. Bates, 902 F.2d 368 (5th Cir. 1990). In Lloyds Leasing, the Fifth Circuit squarely held that a class action may not be brought in a limitation proceeding. Id. at 370. In affirming the district court’s denial of class certification, the Fifth Circuit reasoned as follows: First, the class action interferes with the concursus contemplated by the limitation of liability proceeding. . . . Second, the notice requirements of the limitation proceeding are more restrictive than the notice requirements of the class action. . . . Third, the entire thrust of Supplemental Rule F is that each claimant must appear individually and this is obviously inconsistent with the class action. Staring, Limitation Practice and Procedure, 53 Tul.L.Rev. 1134, 1150 (1979). In sum, “[t]he two rules are incompatible, and class representation in the sense of Rule 23 should therefore not be allowed in limitation proceedings.” Id.

Following Lloyd’s Leasing, courts in this district have routinely stricken class action allegations when they are filed within a limitation proceeding or dismissed class action complaints when they are filed after a limitation proceeding has been instituted. See, e.g., In re: Ingram Barge Co., No. 05-4419, 2006 U.S. Dist. LEXIS 79403, 2006 WL 5377855, at *1 (E.D. La. Oct. 19, 2006) (striking class allegations pursuant to Lloyd’s Leasing); In re: River City Towing Servs., Inc., 204 F.R.D. 94, 97 (E.D. La. 2001) (same); Humphreys v. Antillen, N.V., Nos. 93-3799, 93-3714, 1994 WL 682811, at *3 (E.D. La. Jan. 31, 1994) (dismissing class action complaint filed after limitation proceeding). The limitation proceedings need not be resolved and limitation of liability upheld in order to dismiss class action allegations. For example, Judge Berrigan in Ingram Barge and Judge Feldman in Humphreys struck or dismissed class action allegations before deciding the limitation issue. See Gabarick v. Laurin Mar. (America), Inc., 2009 U.S. Dist. LEXIS 27180.

QUESTION NO. 7

Why has the PSC allowed the MDL 2179 Court to decline to permit formal discovery on Feinberg, et al?

On June 15, 2011, Plaintiff Salvesen, one of my clients, filed his action against Defendants Kenneth R. Feinberg, Feinberg Rozen, LLP, GCCF, and William G. Green, Jr. in the Circuit Court of the Twentieth Judicial Circuit in and for Lee County, Florida asserting claims for gross negligence, negligence, negligence per se, fraud, fraudulent inducement, promissory estoppel, and unjust enrichment under Florida state law. The case was subsequently transferred by the JPML to the MDL 2179 Court on October 6, 2011. See Salvesen v. Feinberg, et al., 2:11-cv-02533.

Once the Salvesen case was transferred to the MDL 2179 Court, not only was the case automatically stayed, but the Salvesen claims, as explained supra, were inexplicably deemed “amended, restated, and superseded” by the allegations and claims of the Master Complaint in Pleading Bundle B1 (See Pre-Trial Order No. 25, Para. 5, Jan. 12, 2011).

It is important to note that Kenneth R. Feinberg and Feinberg Rozen, LLP, d/b/a Gulf Coast Claims Facility, are not named Defendants in any Master Complaint or Class Action Complaint in MDL 2179.

On August 29, 2011, I emailed a letter to James Parkerson Roy wherein I informed Mr. Roy that the Pinellas Marine Salvage, Inc., et al. v. Kenneth R. Feinberg, et al. case had been transferred to MDL 2179. The letter, in pertinent part, stated “I would like to commence discovery as soon as possible. Since this action does not involve common questions of fact with actions previously transferred to MDL No. 2179, please advise as to how we may most expeditiously initiate and coordinate discovery……I look forward to working with you on this case.”

On September 5, 2011, I received an email from you wherein you stated, “please be advised that the Court has, thus far, declined to permit formal discovery on Feinberg or the GCCF.”

Judge Barbier writes, “…the PSC has actively lobbied and argued for increased supervision and monitoring of the GCCF and Kenneth Feinberg/Feinberg Rozen, LLP. These efforts have met with at least partial success. For instance, on February 2, 2011 the Court granted the PSC’s motion (in part) and ordered the GCCF and BP to:

(1) Refrain from contacting directly any claimant that they know or reasonably should know is represented by counsel, whether or not said claimant has filed a lawsuit or formal claim.

(2) Refrain from referring to the GCCF, Ken Feinberg, or Feinberg Rozen, LLP (or their representatives), as “neutral” or completely “independent” from BP. It should be clearly disclosed in all communications, whether written or oral, that said parties are acting for and on behalf of BP in fulfilling its statutory obligations as the “responsible party” under the Oil Pollution Act of 1990.

(3) Begin any communication with a putative class member with the statement that the individual has a right to consult with an attorney of his/her own choosing prior to accepting any settlement or signing a release of legal rights.

(4) Refrain from giving or purporting to give legal advice to unrepresented claimants, including advising that claimants should not hire a lawyer.

(5) Fully disclose to claimants their options under OPA if they do not accept a final payment, including filing a claim in the pending MDL 2179 litigation.

(6) Advise claimants that the “pro bono” attorneys and “community representatives” retained to assist GCCF claimants are being compensated directly or indirectly by BP.” (Rec. Doc. 1098 at 14).

Judge Barbier further writes, “The PSC has advocated for a full and transparent audit of the GCCF and its claims handling practices, and together with the U.S. Department of Justice, has persuaded Mr. Feinberg to agree to such an audit which is now in progress. The PSC has advocated, again with some success, for the GCCF to employ a more liberal causation standard in evaluating claims and has advanced similar causation arguments in this MDL proceeding.” See Order of Aug. 26, 2011, Rec. Doc. 3830 at 32-33. (pp. 4-5, Rec. Doc. 5022).

Again, and please correct me if I am wrong, the PSC represents all plaintiffs in MDL 2179. These plaintiffs deserve more than the PSC merely: (a) “lobbying” for increased supervision and monitoring of Feinberg, et al.; (b) trying to “persuade” Mr. Feinberg to agree to an audit; and (c) “advocating,” again with some success, for the GCCF to employ a more liberal causation standard in evaluating claims.

The JPML believes, “Centralization may also facilitate closer coordination with Kenneth Feinberg’s administration of the BP compensation fund.” However, formal discovery on Feinberg and the GCCF, and the associated pressure of a trial, are required in order exert pressure on the parties to negotiate a settlement which reflects the true value of the claims and not one which focuses on minimizing the liability of the defendants. Certainly, as has occurred in MDL 2179, without formal discovery on Feinberg and the GCCF, certain claims by private individuals and businesses for economic loss resulting from the operation of the GCCF may never be properly resolved.

QUESTION NO. 8

Why does the PSC allow its BP oil spill victim clients to receive grossly inadequate compensation?

The Gulf Coast Claims Facility (“GCCF”)

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. See “Gulf Coast Claims Facility Overall Program Statistics” (Status Report, Mar. 7, 2012, p. 1).

The Deepwater Horizon Claims Center (“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.

The DHCC Data

The DHCC data indicates that a total of 36,468 claimants filed Individual and Business claims with the DHCC during the period from approximately June 4, 2012 to October 5, 2012. The DHCC paid only 71 of these claimants. In sum, the DHCC paid only 0.19% of the claimants who filed claims. Of the 19,338 Individual Economic Loss claims submitted, 79 claimants have received payment offers totaling $860,968, resulting in 6 payments totaling $38,173. This equates to an average payment of only $6,362.17 per Individual Economic Loss Claimant! (DHCC Status Report, Oct. 5, 2012).

The DHCC data, dated October 26, 2012, indicates that a total of 41,235 claimants have filed the above types of claims with the DHCC. The DHCC paid only 407 of these claimants. In sum, the DHCC paid only 0.99% of the claimants who filed claims. Of the 21,058 Individual Economic Loss claims submitted, 204 claimants have received payment offers totaling $2,190,404, resulting in 43 payments totaling $599,428. This equates to an average payment of only $13,940.19 per Individual Economic Loss Claimant!

The DHCC data, dated November 16, 2012, indicates that a total of 46,159 claimants have filed the above types of claims with the DHCC. The DHCC paid only 996 of these claimants. In sum, the DHCC paid only 2.16% of the claimants who filed claims. Of the 22,571 Individual Economic Loss claims submitted, 354 claimants have received payment offers totaling $3,893,028, resulting in 143 payments totaling $1,777,080. This equates to an average payment of only $12,427.13 per Individual Economic Loss Claimant!

“I think it’s a tribute to the GCCF that all the people we used have been retained [by the DHCC],” Feinberg said. “I take great satisfaction in that fact.” David Hammer, Louisiana lawyer set to take Kenneth Feinberg’s role in BP oil spill claims process, The Times-Picayune (March 9, 2012).

My clients and all similarly-situated BP oil spill and GCCF victims do not share Feinberg’s great satisfaction.

QUESTION NO. 9

Why does the PSC allow for the E&PD class settlement to provide for a refund of approximately $6 billion to BP while granting excessive compensation to the PSC and other counsel allegedly performing “common benefit” work?

(a) The Refund

Deepwater Horizon Oil Spill Trust                                                                             $20  Billion

(Amount set aside by BP to allegedly pay economic

damage claims to individuals and businesses affected

by the Deepwater Horizon oil spill.)

Approximate Amount Paid to Claimants by GCCF                                                 $ 6.2 Billion

Cost of the Proposed Settlement                                                                                 $ 7.8 Billion

Amount to be Refunded to BP                                                                         $6.0 Billion

(b) The Excessive Compensation

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;

N.B. – Plaintiffs’ Counsel received a Final Payment Offer from GCCF on behalf of Plaintiff Pinellas Marine Salvage, Inc. This offer, dated June 3, 2012 and postmarked June 8, 2012, was received by Plaintiffs’ Counsel on June 11, 2012. This offer, along with probably hundreds of other offers made to Claimants by GCCF, is dated one day before Claimants are no longer required to pay six percent (6%) of the gross monetary settlement they receive to the MDL 2179 common benefit fund. Plaintiffs respectfully point out to the Court that June 3, 2012 was a Sunday. These offers were dated June 3rd in order to ensure that the PSC received the maximum amount of payment from the 6% hold-back provision.

(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. In order to be awarded a common benefit fee of $600 million, the MDL 2179 Court would have to believe that the PSC attorneys worked two million hours;

(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.”); 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…”

The Court has been fully briefed in regard to the excessive compensation being paid to the PSC and other counsel performing common benefit work in MDL 2179. (Rec. Doc. 6831-1)

QUESTION NO. 10

Given the above-referenced was not merely the result of poor legal strategy, do you believe the MDL 2179 PSC’s actions constitute legal malpractice?

Since April 8, 2012, our firm has filed: (a) a Motion to Vacate Order and Reasons [As to Motions to Dismiss the B1 Master Complaint]; (b) three Motions to Vacate Preliminary Approval Order [As to the Proposed Economic and Property Damages Class Action Settlement]; and (c) a Motion to Nullify Each and Every Gulf Coast Claims Facility (“GCCF”) “Release and Covenant Not to Sue.”

In contrast, as noted supra, the PSC appears to be more interested in maximizing its compensation and ensuring significant economy and efficiency in the judicial administration of the MDL 2179 Court rather than in obtaining justice for the MDL 2179 plaintiffs.

If you have any questions, please do not hesitate to contact me at 352-328-7469 or via e-mail at BrianJDonovan@verizon.net. I would be happy to provide the PSC with any and all supporting documentation.

Very truly yours,

/s/ Brian J. Donovan

Brian J. Donovan

cc:        James Parkerson Roy (jimr@wrightroy.com), Brian H. Barr (bbarr@levinlaw.com), Scott Summy (ssummy@baronbudd.com)

Click here to download a copy of this letter.

BP Oil Spill: Plaintiffs Oppose Class Action Lawsuits in MDL 2179

BP Oil Spill: Plaintiffs Oppose Class Action Lawsuits in MDL 2179

________________________________

Plaintiffs Are Entitled to Receive the True Value of Their Claims

Tampa, FL (December 5, 2011) – Plaintiffs in Pinellas Marine Salvage, Inc., et al. v. Kenneth R. Feinberg, et al. and Salvesen v. Kenneth R. Feinberg, et al. have each filed a motion in opposition to class certification of any action in MDL 2179. The motions were filed in the United States District Court for the Eastern District of Louisiana for the following three reasons:

I. Defendants Feinberg, et al. Have No Incentive to Settle Claims  

Defendants Feinberg, et al. have established a claims process with the primary function of convincing claimants that the only compensation available is a minimal set amount that comes with a full release attached. The MDL 2179 Plaintiffs’ Steering Committee states, “The delay in responding to interim claims, the near-complete failure to pay interim claims, and the skewed final payment calculation delivers the message to over 112,000 putative class members: the only way to ever get any more compensation is to take the quick payment amount and sign a release.”

On August 26, 2011, in the Court’s Order and Reasons [As to Motions to Dismiss the B1 Master Complaint], Judge Barbier found,

“…. 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.”

In the same Order, the MDL 2179 Court also found,

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

II. Plaintiffs Are Entitled to Receive the True Value of Their Claims

The true value of a claim submitted to the Gulf Coast Claims Facility (“GCCF”) for lost earnings or profits is approximately the amount equal to the average monthly loss in earnings or profits for the period from May 1, 2010 through April 30, 2011 multiplied by fifty (50) months. In other words, if the average monthly loss in earnings or profits for the period from May 1, 2010 through April 30, 2011 is $5,000.00, the true value of the claim submitted to GCCF is calculated as follows:

True Value of Claim = ($5,000/month)(50 months) = $250,000.00

The Fifth Circuit has noted, “In addition to skewing trial outcomes, class certification creates insurmountable pressure on defendants to settle, whereas individual trials would not. The risk of facing an all-or-nothing verdict presents too high a risk, even when the probability of an adverse judgment is low. These settlements have been referred to as judicial blackmail.” Castano v. Am. Tobacco Co., 84 F.3d 734, 746 (5th Cir. 1996) (citations and footnote omitted). This generalization is not applicable to class certification in MDL 2179. Here, the class certification would be in a mass tort context within the context of a multidistrict litigation. Given that “all individual petitions or complaints that fall within Pleading Bundles B1, B3, D1, or D2, whether pre-existing or filed hereafter, are stayed until further order of the Court” (Pretrial Order No. 25, Para. 8), certification of pending class actions would most probably not be decided until the conclusion of the limitation and liability trial which does not commence until February, 2012. “It was reported that one attorney has approximately 23,000 claimants and inquiry was made as to whether the attorney may produce the information in the form in which it is maintained rather than complete individual PPFs.” (Rec. Doc. 642 at Page 2). As of November 16, 2011, there are 523 actions, which encompass approximately 130,000 total individual claims, pending in MDL 2179. In other words, tens of thousands of potential class members are in legal limbo. This hardly “creates insurmountable pressure on defendants to settle.”

In the context of one of the largest mass tort cases in United States history, the damages suffered by the vast majority of individual potential plaintiffs as a result of the BP oil spill of April, 2010, and the subsequent “Delay, Deny, Defend” strategy of Feinberg, et al., are potentially so great that class treatment would not be necessary to permit effective litigation of the claims. Here, when the amount of damages suffered by the individual is so great, the filing of an individual lawsuit should be economically feasible and would be in the best interests of the plaintiffs.

The associated cost, consumption of time, and ongoing negative publicity of numerous trials, rather than a few class action lawsuits, are required in order exert the proper amount of pressure on Feinberg, et al. to negotiate a settlement which reflects the true value of the claim and not one which focuses on minimizing the liability of Feinberg Rozen, LLP, Feinberg/GCCF, and the responsible parties.

III. MDL 2179 Plaintiffs Are Not Able to Prove That Class Certification is Appropriate Under Federal Rule of Civil Procedure 23

MDL 2179 Plaintiffs in proposed class actions are not able to meet their heavy burden of proving that class certification is appropriate under Federal Rule of Civil Procedure 23 for the reasons which are thoroughly discussed in the memorandum of law which is filed with the motion.

BACKGROUND

Pinellas Marine Salvage, Inc., et al. v. Kenneth R. Feinberg, et al. and Salvesen v. Feinberg, et al. are the only two cases of their kind filed in any court in the country. Each complaint alleges, in part, that Defendants Kenneth R. Feinberg, Feinberg Rozen, LLP, GCCF, and (in Salvesen) William G. Green, Jr. misled Plaintiffs by employing a “Delay, Deny, Defend” strategy against them. This strategy, commonly used by unscrupulous insurance companies, is as follows: “Delay payment, starve claimant, and then offer the economically and emotionally-stressed claimant a miniscule percent of all damages to which the claimant is entitled. If the financially ruined claimant rejects the settlement offer, he or she may sue.” Each action, originally filed in Florida state court, is brought by Plaintiff under the following seven causes of action: (a) Gross Negligence; (b) Negligence; (c) Negligence Per Se; (d) Fraud; (e) Fraudulent Inducement; (f) Promissory Estoppel; and (g) Unjust Enrichment.

The MDL Panel ordered each action transferred to MDL No. 2179 on the erroneous grounds that “[These] action[s], similar to other actions already in the MDL, arise from alleged injury to plaintiffs’ business resulting from the oil spill.”

The clarity of the analysis of the scope of OCSLA by Judge Carlton W. Reeves in State of Mississippi v. Gulf Coast Claims Facility, et al., C.A. No. 3:11-00509 (S.D. Miss. 2011) is both refreshing and instructive. On July 12, 2011, Attorney General Jim Hood (“Hood”) filed suit on behalf of the State of Mississippi against the GCCF and Kenneth Feinberg in Hinds County Chancery Court. On August 11, 2011, the GCCF removed the case to the United States District Court for the Southern District of Mississippi (“MSSD”) claiming that original jurisdiction lies with the MSSD by virtue of the OCSLA. Hood moved to remand the case to state court on September 12, 2011. On November 15, 2011, Judge Reeves granted Hood’s motion to remand.

Judge Reeves found, “GCCF’s argument that Hood has unwittingly stated a claim under OCSLA is likewise not compelling. According to OCSLA, federal courts enjoy subject-matter jurisdiction ‘of cases and controversies arising out of, or in connection with (A) any operation conducted on the outer Continental Shelf which involves exploration, development, or production of the minerals, of the subsoil and seabed of the outer Continental Shelf . . . .’ The Fifth Circuit has written that it “applies a broad ‘but-for’ test to determine whether a cause of action arises under OCSLA.” Hufnagel v. Omega Serv. Indust., Inc., 182 F.3d 340, 350 (5th Cir. 1999). “And in GCCF’s view, because it would not exist but for the Deepwater Horizon’s explosion, this case (and, presumably, any other case to which it could ever be a party) necessarily implicates OCSLA.” State of Mississippi v. Gulf Coast Claims Facility, et al., C.A. No. 3:11-00509 (S.D. Miss. 2011), Order of Remand at Page 10.

“GCCF is correct that the Fifth Circuit views ‘the jurisdictional grant contained in U.S.C. § 1349(b)(1) as very broad.’ But to view OCSLA’s scope so far-reaching as does GCCF would render GCCF’s every potentially actionable decision a federal case, be it related to the claims process at hand or a GCCF employee’s car wreck en route to the office.” (Emphasis added)

Neither OCSLA’s plain language nor the Fifth Circuit’s decisions interpreting it contain any indication that matters so far removed as these – occurring not on the outer Continental Shelf but doing business in Dublin, Ohio, and aimed not at the “exploration, development, or product of . . . minerals” but rather at “developing and publishing standards for recoverable claims” related to the Deepwater Horizon spill – fall within the purview of Section 1349(b)(1), which addresses “any operation conducted on the outer Continental Shelf . . . .” Plainly, although GCCF’s activities amount [to] an operation, that operation is not conducted “on the outer Continental Shelf.” Therefore, OCSLA does not apply and is not a proper basis for federal jurisdiction. (Emphasis added)

CONCLUSION

Plaintiffs continue to suffer damages from three separate sources:

(a) once from the oil spill, the environmental and economic damages of which have devastated their way of life;

(b) again by being left in financial ruin as a direct result of Feinberg’s “Delay, Deny, Defend” strategy; 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 litigation.

If motions for class certification pursuant to Federal Rule of Civil Procedure 23 are granted in MDL 2179, Defendants Feinberg, et al. will continue to have no incentive to settle claims and Plaintiffs will never receive the true value of their claims.

State of Mississippi v. Gulf Coast Claims Facility and Kenneth Feinberg: Case Is Remanded to State Court

State of Mississippi v. Gulf Coast Claims Facility and Kenneth Feinberg:
Case Is Remanded to State Court
___________________________

Hood’s Petition Did Not Initiate a Civil Action and GCCF’s Removal to Federal Court
Was Improper
___________________________

OCSLA Does Not Apply and Is Not a Proper Basis for Federal Jurisdiction

Tampa, FL (November 16, 2011) – On November 15, 2011, the United States District Court for the Southern District of Mississippi remanded the suit filed on July 12, 2011 by Attorney General Hood on behalf of the State of Mississippi against the Gulf Coast Claims Facility and Kenneth Feinberg (hereinafter collectively “GCCF”) in Hinds County Chancery Court. Hood had filed the suit in an effort to compel GCCF’s compliance with the subpoena duces tecum he had issued in February 2011 on the GCCF pursuant to the authority vested in him by the Mississippi Consumer Protection Act.

In his Motion to Remand, Hood argued that GCCF’s refusal to comply with his subpoena leaves him “unable to determine whether GCCF has been or is in violation of the Consumer Protection Act.” Hood also sought costs and attorneys’ fees associated with bringing the Petition.

Notably, in his Petition to the Hinds County Chancery Court, Hood claimed explicitly that he “brought this action solely under state law and not under federal law; and was not asserting therein any claims arising under federal law,” and he “specifically and expressly denied and disclaimed asserting any such federal claims in the Petition.”

On August 11, 2011, GCCF removed the case to federal court pursuant to Title 28, Sections 1441 and 1446 of the United States Code. Specifically, GCCF claimed that original jurisdiction lies with the federal court by virtue of the Outer Continental Shelf Lands Act (“OCSLA”). Hood moved to remand the case to state court on September 12, 2011, but not before GCCF moved on August 30, 2011, for a stay pending a decision by the Judicial Panel on Multidistrict Litigation regarding whether to transfer this case.

Motion to Stay
As an initial matter, the Southern District of Mississippi Court declined to grant GCCF’s motion for a stay despite the fact that this case was the subject of a MDL conditional transfer order. Until a transfer to multidistrict litigation has become final, a district court’s jurisdiction over pretrial matters is in no way impeded. And when a litigant improperly removes a case, the limited jurisdiction of federal courts is impermissibly invoked, resulting in an undue delay of a state court’s rightful duty to address a case’s merits.

Motion to Remand
Hood offers several arguments in favor of a remand to state court, but the most compelling is his first: that the Petition filed by Hood in Hinds County Chancery Court does not amount to a “civil action,” as that term is used in the federal removal statute, and therefore that GCCF is not entitled to bring the case to federal court.

Generally speaking, when a plaintiff is permitted to bring his case in either state or federal court but chooses the former, the defendant may opt to have a federal court hear the case instead. This principle is contained in Title 28, Section 1441 of the United States Code, which provides that except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.

Clearly, Section 1441 permits removal only of “any civil action,” and in Hood’s view, the matter at hand is not such a creature. Hood argued that the subpoena at the center of his Petition “is a pre-litigation investigative tool, and its enforcement in chancery court is not a ‘civil action’ ……”

In 1998, Chief Judge Butler of the Southern District of Alabama held that a petition filed pursuant to Rule 27 of the Alabama Rules of Civil Procedure, which “permits a party to . . . obtain discovery before an action is commenced,” was not itself a civil action. That Court observed that Alabama’s Rule 27 “provides a limited means by which potential plaintiffs (and their attorneys) . . . can examine evidence before actually deciding whether they have a reasonable basis for filing an action.” Such a petition, in that Court’s view, “is a request for discovery, nothing more.”

Hood’s Petition did not seek to prosecute a claim or other cause of action; it merely sought an order requiring production of evidence that may ultimately be used in the prosecution of a claim. As such, it does not amount to a civil action.

In 1994, the Fifth Circuit rejected a plaintiff’s argument that the 30-day removal period began running at the filing of a bill of discovery rather than at the filing of the complaint because the latter was “the first document stating a claim . . . .” The removal statute permits a defendant to invoke the federal courts’ jurisdiction only “after receipt by the defendant . . . of a copy of the initial pleading setting forth the claim for relief . . . .” Therefore, in the Fifth Circuit’s apparent view, removal cannot occur until a complaint has been filed.

According to Rule 3 of the Federal Rules, “[a] civil action is commenced by filing a complaint with the court.” Whatever can be said of the filing by which Hood instituted this matter, it cannot be properly characterized as a complaint; it raises no claim and seeks no damages.

The threshold question before the Southern District of Mississippi Court was whether the matter has yet developed into a full-fledged “civil action.” The Court held, “Precedent commands the conclusion that it has not.”

OCSLA
Judge Reeves also found GCCF’s argument that Hood has unwittingly stated a claim under OCSLA was likewise not compelling. According to OCSLA, federal courts enjoy subject-matter jurisdiction “of cases and controversies arising out of, or in connection with (A) any operation conducted on the outer Continental Shelf which involves exploration, development, or production of the minerals, of the subsoil and seabed of the outer Continental Shelf . . . .” The Fifth Circuit has written that it “applies a broad ‘but-for’ test to determine whether a cause of action arises under OCSLA.” And in GCCF’s view, because it would not exist but for the Deepwater Horizon’s explosion, this case (and, presumably, any other case to which it could ever be a party) necessarily implicates OCSLA.

The analysis of the scope of OCSLA by Judge Reeves is instructive. GCCF is correct that the Fifth Circuit views “the jurisdictional grant contained in U.S.C. § 1349(b)(1) as very broad.” But to view OCSLA’s scope so far-reaching as does GCCF would render GCCF’s every potentially actionable decision a federal case, be it related to the claims process at hand or a GCCF employee’s car wreck en route to the office.

Neither OCSLA’s plain language nor the Fifth Circuit’s decisions interpreting it contain any indication that matters so far removed as these – occurring not on the outer Continental Shelf but doing business in Dublin, Ohio, and aimed not at the “exploration, development, or product of . . . minerals” but rather at “developing and publishing standards for recoverable claims” related to the Deepwater Horizon spill – fall within the purview of Section 1349(b)(1), which addresses “any operation conducted on the outer Continental Shelf . . . .” Plainly, although GCCF’s activities amount [to] an operation, that operation is not conducted “on the outer Continental Shelf.” Therefore, OCSLA does not apply and is not a proper basis for federal jurisdiction.

Pinellas Marine Salvage, Inc., et al. v. Kenneth R. Feinberg, et al. and Selmer M. Salvesen v. Kenneth R. Feinberg, et al.
These are the only two cases of their kind filed in any court in the country. In each case, the complaint alleges, in part, that Defendants Kenneth R. Feinberg, Feinberg Rozen, LLP, and GCCF misled Plaintiffs by employing a “Delay, Deny, Defend” strategy against them. This strategy, commonly used by unscrupulous insurance companies, is as follows: “Delay payment, starve claimant, and then offer the economically and emotionally-stressed claimant a miniscule percent of all damages to which the claimant is entitled. If the financially ruined claimant rejects the settlement offer, he or she may sue.”

The Pinellas and Salvesen plaintiffs do not assert any claims under OCSLA or OPA and rely solely on state law. Plaintiffs’ allegation that Defendants are in violation of OPA is merely evidence of, at the very least, Defendants’ negligence.

Plaintiffs in Pinellas and Salvesen allege:
(a) BP is responsible for the oil spill incident; and
(b) Feinberg, et al. (independent contractors), via employment of their “Delay, Deny, Defend” strategy, are responsible for not compensating and thereby financially ruining the Pinellas and Salvesen plaintiffs and over 100,000 other victims.

Neither the Pinellas nor the Salvesen case has been dismissed by the MDL 2179 Court. Plaintiffs in both cases look forward to eventually having their cases remanded to Florida state court where they will also be able to hold Defendants accountable.

___________________________________

BP Oil Spill Litigation Quote of the Year:

“GCCF is correct that the Fifth Circuit views ‘the jurisdictional grant contained in 43 U.S.C. § 1349(b)(1) as very broad.’  But to view the Outer Continental Shelf Lands Act’s (“OCSLA’s”) scope so far-reaching as does GCCF would render GCCF’s every potentially actionable decision a federal case, be it related to the claims process at hand or a GCCF employee’s car wreck en route to the office.”

Hon. Carlton W. Reeves
United States District Court Judge
Southern District of Mississippi

Florida Plaintiffs Vow to Hold Kenneth R. Feinberg, Feinberg Rozen, LLP, and GCCF Accountable for “Delay, Deny, Defend” Strategy

Florida Plaintiffs Vow to Hold Kenneth R. Feinberg, Feinberg Rozen, LLP,
and GCCF Accountable for “Delay, Deny, Defend” Strategy
____________________________

Plaintiffs Refile Motions to Remand With MDL 2179 Court

Tampa, FL (November 10, 2011) – Pinellas Marine Salvage, Inc., et al. v. Kenneth R. Feinberg, et al. and  Salvesen v. Kenneth R. Feinberg, et al. were originally filed in Florida state court. Since the Judicial Panel on Multidistrict Litigation (“JPML”) has no power over cases pending in state courts, Defendants removed each case to federal court (“Middle District of Florida Court”). Defendants removed each case to federal court solely for the purpose of being able to subsequently file a “tag-along” notice with the JPML for the hopeful transfer of the cases to MDL 2179 in the United States District Court for the Eastern District of Louisiana. A Motion to Remand to State Court was filed by Plaintiffs in each case. Each case was transferred to MDL 2179 by the JPML before the Middle District of Florida Court determined the threshold jurisdictional issue: whether removal from state court was proper.

Earlier today, Plaintiffs’ counsel refiled the Pinellas and Salvesen motions to remand with the MDL 2179 Court.

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.”

“B1” Master Complaint
In the “B1” Master Complaint, the Plaintiffs’ Steering Committee (“PSC”) alleged claims under general maritime law, the Oil Pollution Act of 1990 (“OPA”), 33 U.S.C. § 2701, et seq., and various state laws. 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.

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.).

Pinellas, et al. v. Feinberg, et al. and Salvesen v. Feinberg, et al.
Pinellas Marine Salvage, Inc., et al. v. Kenneth R. Feinberg, et al. and Selmer M. Salvesen v. Kenneth R. Feinberg, et al. are the only two cases of their kind filed in any court in the country. In each case, the complaint alleges, in part, that Defendants Kenneth R. Feinberg, Feinberg Rozen, LLP, and Gulf Coast Claims Facility (“GCCF”) misled Plaintiffs by employing a “Delay, Deny, Defend” strategy against them. This strategy, commonly used by unscrupulous insurance companies, is as follows: “Delay payment, starve claimant, and then offer the economically and emotionally-stressed claimant a miniscule percent of all damages to which the claimant is entitled. If the financially ruined claimant rejects the settlement offer, he or she may sue.”

Both cases, originally filed in Florida state court, are brought by Plaintiffs under the following seven identical causes of action: (a) Gross Negligence; (b) Negligence; (c) Negligence Per Se; (d) Fraud; (e) Fraudulent Inducement; (f) Promissory Estoppel; and (g) Unjust Enrichment. Defendants in both cases are the same, with the exception that William G. Green, Jr. (“Overseer” of all seafood claims for Defendant GCCF in the State of Florida and “Liaison” to GCCF who is in charge of implementing Defendants’ “Delay, Deny, Defend” strategy) has also been named as a defendant in the Salvesen case.

Plaintiffs do not assert any claims under OPA and rely solely on state law. Plaintiffs’ allegation that Defendants are in violation of OPA is merely evidence of, at the very least, Defendants’ negligence.

BP is responsible for the oil spill incident. Feinberg, et al. (independent contractors), via employment of their “Delay, Deny, Defend” strategy, are responsible for not compensating and thereby financially ruining the Pinellas and Salvesen plaintiffs and over 100,000 other victims.

The Pinellas and Salvesen plaintiffs, and all victims of the BP oil spill, continue to suffer damages from three separate sources: (a) once from the oil spill, the environmental and economic damages of which have devastated their way of life; (b) again by being left in financial ruin as a direct result of Defendants’ tortious acts; 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 litigation.

The passage of time is the defendant’s best friend. Memories fade, witnesses are more difficult to locate, and plaintiffs lose the desire to continue to fight and either “move on” or settle for less. By declining to permit formal discovery on Kenneth R. Feinberg and the GCCF, the MDL 2179 Court is ensuring that the defendants will not be held accountable and, more importantly, the claimants-turned-plaintiffs will not be fully compensated for damages.

Discovery on Feinberg/GCCF and the associated pressure of a trial are required in order exert pressure on the parties to negotiate a settlement which reflects the true value of the claims and not one which focuses on minimizing the liability of Feinberg Rozen, LLP, Feinberg/GCCF, and the responsible parties.

Neither the Pinellas nor the Salvesen case has been dismissed by the MDL 2179 Court. Plaintiffs in both cases look forward to eventually having their cases remanded to Florida state court where they will be able to hold Defendants accountable.

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

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.