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Analysis: BP's U.S. Gulf oil spill settlement challenges may backfire

Fire boat response crews battle the blazing remnants of the offshore oil rig Deepwater Horizon, off Louisiana, in this April 21, 2010 file h
Fire boat response crews battle the blazing remnants of the offshore oil rig Deepwater Horizon, off Louisiana, in this April 21, 2010 file h

By Mica Rosenberg

(Reuters) - A year after agreeing to a multi-billion dollar settlement with victims of the 2010 Gulf oil spill, BP is aggressively challenging terms of the deal in a legal strategy that could backfire with the judge who will rule on the company's potentially hefty federal fines.

The British oil giant has pushed for multiple reviews by the 5th Circuit Court of Appeals, complaining the claims system approved by the U.S. District Judge Carl Barbier is overpaying for damages from the country's worst offshore disaster.

BP's challenges directly question decisions by Barbier, who presided over the settlement and then himself approved claim terms. Barbier is also handling a separate government case against BP and has wide latitude to assess fines for violations of the Clean Water Act.

BP expects the settlement with Gulf residents to cost about $9.6 billion, well above the $7.8 billion it initially estimated.

Altogether the oil producer has provisioned some $42 billion to pay for cleanup and other costs since the explosion of the Deepwater Horizon rig, which killed 11 workers in 2010 and spewed millions of barrels of oil into the Gulf of Mexico.

Federal penalties could add to that bill. Maximum fines might top $17 billion, while BP has only set aside about $3.5 billion for them.

"They are alienating in a very profound way the very judge that is going to determine their liability," said Blaine LeCesne, a law professor at Loyola University in New Orleans. "I'm not sure that's a wise decision."

Barbier has called BP's efforts to try and contradict many of his rulings with appeals to the 5th Circuit "deeply disappointing" and has said BP is trying to "rewrite or disregard the unambiguous terms of the Settlement Agreement."

While the company has won some important victories at the appeals court, a ruling on Friday upheld the foundation of the settlement deal.

BP is continuing its fight.

"The litigation seeking to rectify the misinterpretations of the settlement that have led to inflated, exaggerated or wholly fictitious claims ... will continue unabated," BP spokesman Geoff Morrell said.

BP had no comment when asked if clashes with Barbier could prove risky.

BACK AND FORTH

The 1,000-page settlement deal, approved by Barbier in 2012, was negotiated by BP and a committee of plaintiffs lawyers to avoid individual lawsuits by compensating a wide class of businesses and individuals in one swoop.

The administrator of the deal, Louisiana lawyer Patrick Juneau, has so far paid $3.8 billion to more than 40,000 claimants along the Gulf coast, according to the settlement program's website.

BP disputes how Juneau is calculating payments, successfully arguing in one 5th Circuit case that he was applying incorrect accounting standards to determine business losses.

On Friday, though, BP was on the losing side of a second case in the same appeals court where the company had voiced support for a group of plaintiffs who wanted the settlement thrown out.

BP now wants the appeals court to permanently halt all payments to people who cannot prove their losses were directly caused by the spill.

The company says it should only pay for what it agreed to when the settlement was signed. But Judge Barbier says BP is contradicting its own earlier positions when it originally drafted the settlement terms.

"The question of interpretation only arises in this case because of an ambiguity," said Joseph Lavitt, a professor at the University of California, Berkeley School of Law.

FRAUD CLAIMS

A volley of appeals is not necessarily uncommon in a long, complicated case like this one, said Edward Sherman from Tulane University Law School.

"One would hope that a judge would not take offence to the fact that he has been appealed up on numerous issues, judges are pretty familiar with that kind of thing," Sherman said. "There is a certain risk involved in it but BP obviously thinks that they have an important issue."

The settlement process has certainly had flaws.

An investigation - ordered by Barbier and carried out by former FBI Director Louis Freeh - found some of Juneau's employees engaged in "improper" conduct, like taking "referral fees" to pass claims to other lawyers.

In December, BP filed a lawsuit in federal court to halt some of the $2.3 billion it set aside for a deal to compensate commercial seafood industry alleging that some fishermen clients of lawyer Mikal Watts did not exist.

And this month, BP ran full-page newspaper ads in The New York Times and The Washington Post saying top officials working for the claims administrator frequented a strip club that received a $550,000 damage award.

It did not name the officials and stopped short of accusing them of corruption. Juneau said two officials quit their posts to pursue "other business opportunities."

Some plaintiffs' lawyers say BP has focused too much on picking apart the settlement, instead of on the bigger battle.

Under the Clean Water Act, negligence can be punished with a maximum fine of $1,100 for each barrel of oil spilled. A verdict of gross negligence would carry a potential fine of up to $4,300 per barrel.

U.S. officials and BP dispute how much oil was spilled overall but if the court uses the government estimate minus the oil that was recovered - or 4.09 million barrels - the price of a gross negligence finding could run to $17.6 billion.

Barbier has broad discretion to assign penalties that could be handed down this year after an ongoing trial.

"Remember, this is the same judge who is overseeing the Clean Water Act claims," said Thomas Young, a Florida-based plaintiffs' lawyer who represents hundreds of clients claiming damages from the BP spill. "The real question here is: "Why is BP poking the hornet's nest?"

(Reporting by Mica Rosenberg in New York; Editing by Terry Wade, Peter Henderson and Marguerita Choy)

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