The Fifth Circuit Has Finally Ruled. But, What Does It All Mean?
If you are like most people, you have probably been bombarded daily with BP’s new $200 million dollar Ad campaign about “fraudulent claims”. You have endured numerous news articles about the settlement and the big appeal before the United States Fifth Circuit Court of Appeal. And, if you are like most people, you saw that there was a decision handed down, but do not know what it was for, what it said or what it meant. Take comfort in the fact that you are not alone.
What was the appeal about? Let’s start with why there was an appeal in the first place. On December 5, 2012, BP requested that the Claims Administrator convene a Claims Administration Panel to consider “the issue of the assignment of revenue to the proper months for purposes of the BEL causation framework and the proper matching of revenue and corresponding expenses for purposes of the BEL compensation framework” (i.e. how do we calculate a loss for businesses and what is needed to show that a business’s losses were due to the oil spill). The Claims Administrator did not agree with BP’s interpretation, nor did he believe he was authorized to subject certain types of claims to additional scrutiny and analysis as BP had proposed.
After failing to reach an agreement with the Claims Administrator, BP filed suit against the Claims Administrator in the District Court. BP argued that the Claims Administrator’s interpretation of the Settlement’s terms was incorrect. According to BP, “revenue” and “expenses” are generally accepted terms among economists and accountants and that they do not permit the Administrator to calculate a business claimant’s Variable Profit based only on cash receipts or cash disbursements. Instead, a claimant’s expenses should be “matched” to corresponding revenue. BP also argued that claims should be calculated using months when businesses are conducting the similar types of activity, not the same months.
So, essentially the dispute is over how and what accounting principals are going to be used to calculate the losses suffered by business owners in the Gulf Coast. Undoubtedly, the arguments are technical and confusing; but, at its core is, something much more accessible to the average reader: BP wanted the court to grant an injunction, prohibiting the Claims Administrator from paying on business claims. Judge Barbier denied BP’s request for injunctive relief and reiterated his ruling that the settlement does not require revenue and expenses to be “matched” nor does it require an inquiry into when revenue was earned. BP appealed to the Fifth Circuit Court of Appeal.
How did the 5th Circuit Rule? The 5th Circuit reversed Judge Barbier’s Order denying the preliminary injunction. The Court handed down a 2-1 opinion with Judge Clement writing the opinion, Judge Southwick consenting with reasons and Judge Denise dissenting. This is important because portions of Judge Clement’s decision appear to dicta (non-binding discourse). Therefore, in light of Southwick’s consent and reasons, Judge Barbier looked to Southwick’s reasoning as controlling.
The 5th Circuit remanded the case back to Judge Barbier on October 2, 2013, instructing Barbier to hold a hearing on the injunction and to fashion a “narrowly tailored” injunction.
In response, on October 3, 2013, the Judge Barbier ordered an immediate, temporary suspension of “any final determination notices or any payments with respect to those BEL claims in which the Claims Administrator determines that the matching of revenues and expenses is an issue.” Essentially, Judge Barbier stopped the Claims Administrator from processing and paying any business claim in certain industries (e.g. contractors, law offices, doctor’s offices, farmers, etc.) until they could hold a hearing and make a determination on how to handle the claims in accordance with the 5th Circuit’s ruling.
The Narrowly Tailored Injunction: Since that October 3rd Order Judge Barbier instructed both BP and the Plaintiff’s Steering Committee (“PSC”) to propose a plan for the “narrowly tailored injunction”. Not surprisingly, BP wanted to stay all business claims and rewrite how those claims were to be calculated. Judge Barbier rejected that proposal because it was overly broad. The PSC only wanted a limited stay of certain types of claim. Judge Barbier felt that that was too narrow. After two rounds of proposals where neither BP nor the PSC could provide a reasonable solution, Judge Barbier issued his latest Order.
Because neither party could agree, on October 18, 2013, Judge Barbier ordered the Claims Administrator to provide the Court with a declaration explaining how his office plans to determine if the claim is supported by the appropriate accounting practices. Judge Barbier also ruled that all other claims that were previously stayed on October 2nd were to be processed and paid. Finally, he made sure to state that this Order only applied to those certain business claims identified as not properly matched accrual based records. The Claims Administrator has until Friday, October 25, 2013, for his proposal.
Since no one knows how this will play out, we have no choice but to wait for the Claims Administrator’s input. Stay tuned until October 25th for more details…
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