Schexnaydre Law Firm, LLC

BP Court of Appeal Hearing

By David Schexnaydre

The United States Court of Appeals for the Fifth Circuit convenes court at 9:00 a.m.  The Court's website advises that the courthouse opens at 8:00 a.m. and warns that one should not arrive before 8:00 a.m.  Well, apparently the excitement of this hearing was too great because when I arrived at the courthouse at 8:10 a.m., I saw probably a hundred lawyers lined up at 600 Camp Street in New Orleans, with the line extending to the end of the block.  I decided to wait it out and see what happened.  Once inside the building, we were advised that the courtroom in which the hearing was being held was already full, but that the court's staff had taken measures to open two other courtrooms to handle the overflow observers.  

The hearing began at precisely 9:00 a.m., with Theodore Olson arguing on behalf of the appellant, BP.  Before Mr. Olson could get two words out, Judge James Dennis pounced on an issue that has not been widely discussed in the media or among lawyers -- jurisdiction.  "What do we have jurisdiction of?", asked Judge Dennis.  As Mr. Olson began talking about the various orders rendered by the trial judge, and admiralty jurisdiction, and the Collateral Order Doctrine, and the Walker decision, Judge Edith Brown Clement jumped in: "Where do you have authority to appeal to this court? How do you leap frog to us?"  
But as Mr. Olson tried to address these questions, Judge Clement then jumped to an altogether different issue, and one that Mr. Olson pointed out was not even before the court:  "The real issue is causation and consideration.  Where is BP's consideration for agreeing to the settlement."  Well, this question perplexed both sides (the same question was later asked to the PSC's lawyer). Amazingly, BP and the PSC agree on one thing:  There is sufficient consideration for the Settlement Agreement in the form of a settlement of future potential claims.  
The parties simply disagree on the narrow issue of whether revenue and expenses are considered "received" when cash comes in the door versus when the work is performed that creates an obligation for a future payment, i.e, cash basis v. accrual basis.  BP says it should always be accrual.  PSC says it could be either, it just depends on how the claimant keeps their books.  Frankly, I agree with the PSC because the Settlement Agreement calls for the use of P&Ls kept in the normal course of the claimant's business.  Nowhere does it say that all cash basis claimants must convert their books to accrual basis for purposes of evaluating their BP claims.
The judges also seemed to be concerned with the timeliness of BP's objections to the way the Settlement Agreement was being interpreted.  Judge Dennis asked Mr. Olson: "You paid out over a billion dollars before you objected." Judge Clement added: "Why were 62 [computer] simulations [done by both BP and the PSC during the testing phase of the Settlement Agreement] so similar? How did you get the same results?  BP had the same data to run the models."
The third judge, Judge Leslie Southwick, asked some good questions of his own.  To Mr. Olson, he asked:  "You had previous opportunities to object on the matching revenue and expenses issue.  What evidence is there that your client knew before this that it would not be matched?"
Judge Dennis added: "The purpose of the agreement was to settle.  I don't think we can say that the promise is to comply with accounting experts."
Judge Southwick asked Mr. Olson: "Aren't you taking individual words out of the settlement and constructing what you want?  Parties have given up things to gain. You gave up lost profit by definition. You had a chance to not agree.  How do you go beyond the four corners of the agreement?"
On behalf of the Claims Administrator, Attorney Rick Stanley pointed out to the court that shortly after Pat Juneau took over the position, BP publicly stated, "The Claims Administrator is doing excellent work."  Yet, 27 days later, BP complained of "absurd results."  Mr. Stanley also pointed out to the Court that BP's own accountants advised using a longer time frame than just three months in order to smooth any spikes in revenue, but BP chose not to do so.
So, what is the likely result?  I still think Judge Barbier's rulings about how the Settlement Agreement is being interpreted will be upheld.  The one question mark is the jurisdictional issue.  Courts love to punt when they can and if this panel of the Fifth Circuit sees an opportunity to deny that it has jurisdiction to answer the questions raised, it might just do that.  I hope not.  Such a ruling would just string things out even more, at a time when those hurt by the spill needs compensation and closure.

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