US appellate court hears arguments over BP attempt to stem Macondo payouts

New Orleans (Platts)--8 Jul 2013 108 pm EDT/1708 GMT

A US federal appellate court panel Monday appeared skeptical that BP is suffering an unfair process to settle billions of dollars in claims stemming from the 2010 Gulf of Mexico oil spill.

In a one-hour session, a three-judge panel of the 5th US Circuit Court of Appeals in New Orleans heard BP's legal arguments seeking to reverse a lower-court ruling over its spill payouts, which it believes are spiraling out of control.

All three judges were quick to question whether BP is actually a victim or just regretting its decision to agree to the settlement. Judge James Dennis suggested BP knew what it was getting into -- a settlement deal that allowed the company to avoid a huge numbers of lawsuits.

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"The purpose of the agreement was to make a deal," Dennis said.

BP contends that thousands of businesses have received hundreds of millions of dollars because a federal district court judge and a court-approved claims administrator have misinterpreted the court settlement that set up the claims process.

In the arguments before the appellate court, the company was appealing the district judge's rejection of its complaint.

At the heart of the legal dispute is the absence of a requirement for businesses to prove their losses were caused by the disaster and, ultimately, that BP did not put a cap on its potential settlement payouts.

BP's opponents claim the company agreed to and doubled-checked the details of the agreement for weeks before its lawyers signed off on the final deal. As a result, they say, the company is now reneging on its commitments.

BP contends that the administrator of the payouts, Patrick Juneau, is misinterpreting the spirit of the settlement, resulting in unfair payouts to groundless claims.

The appeals panel did not say when it would rule on BP's appeal. ESCALATING CLAIMS

In April 2012, BP agreed to a settlement with a class of injured entities and persons in order to avoid the thousands of potential lawsuits stemming from the spill resulting from the blowout of its Macondo exploration well in April 2010.

By the end of 2012, BP began to raise concerns that the court-appointed claims administrator was not following the terms of the settlement, but instead was awarding claims based on a misreading of the terms.

"These baseless awards were never contemplated by the agreement, and instead rest on a mechanistic computation applying flawed and uncorrected data that do not correspond to when revenue was earned or expenses incurred," BP told the appeals court.

"Such awards do not compensate for lost profits, but instead unjustly and arbitrarily enrich numerous claimants who have suffered no harm, and provide windfall compensation to other claimants far above any harm that they actually suffered."

BP initially told investors that it believed claims under the settlement would not exceed $7.8 billion. This was soon raised to $8.2 billion as claims escalated sharply and, in April, BP warned that the cost of its court settlement may be "significantly higher".

At the hearing, BP lawyer Ted Olson said the claims administrator is misinterpreting that settlement, and allowing businesses along the Gulf to milk the company of millions of dollars.

"There's no way BP would have let this go on -- the hemorrhaging of billions of dollars," Olson said.

As of June 10, the claims administrator had offered $3.5 billion on 44,236 eligible claims and paid out over $2.44 billion on 35,391 claims, according to the latest claim status report.

--Douglas Simpson,  
--Robert Perkins,  
--Gary Gentile,  
--Edited by Katharine Fraser,

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