June 27, 2014 6:41 pm

BP fights for spill compensation repayment

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Smoke rises from controlled oil burns of oil on the surface of the water as the Development Driller II, left, and Discoverer Enterprise work at the site of the BP Plc Deepwater Horizon oil spill in the Gulf of Mexico off the coast of Louisiana, U.S., on Saturday, June 19, 2010. The BP Plc oil spill, which began when the leased Transocean Deepwater Horizon oil rig exploded on April 20, is gushing as much as 60,000 barrels of oil a day into the Gulf of Mexico, the government said©Bloomberg

BP has launched legal action against “a vast number” of businesses that it claims were wrongly awarded hundreds of millions of dollars in compensation for its 2010 oil spill in the Gulf of Mexico.

In a filing to the US District Court in New Orleans, BP called on the judge to issue an order compelling some of the businesses that received compensation to repay it, with interest, on the grounds that they were “unjustly enriched”.

It has also sought an injunction ordering any of the recipients that may be affected not to spend or distribute the money until it is determined whether they received “excess payments”.

Lawyers representing claimants accused the company of attempting to “back out of the commitment it made to the gulf”.

BP says “a vast number of claimants” received excess compensation, and some “received entirely unwarranted awards”. Its proposed order would also compel lawyers who represented those businesses to “return their share of the improperly calculated awards”.

The move represents a further escalation of the conflict over the interpretation of a settlement that BP and plaintiffs’ lawyers first agreed in 2012. It sets the stage for more legal battles as businesses that received money resist being forced to repay it.

BP’s case is based on a decision from the district court last December, upholding part of the oil company’s argument that the settlement was being misinterpreted.

Until then, Patrick Juneau, the court-appointed claims administrator, had been allowing businesses great freedom in how they presented their revenues and expenses, in order to calculate the profits that they said were adversely affected by the spill.

But the court ordered him to change that policy, insisting that in future companies should show revenues that were “matched” with their corresponding costs when calculating profits.

BP argues that because Mr Juneau’s new policy, approved in May, matches costs and revenues in that way, it will lead to “dramatically different calculations of lost profits compared with the calculations that led to these overpayments”.

Its filing cites four “representative” examples of businesses that it says were awarded $27.7m in excess compensation under the old policy.

One is a company selling animal skins that bought inventory between January and March of 2009 and sold it later in the year. By looking only at the later months, it was able to show “inflated” profits for that year, according to BP, making the impact of the spill seem worse. As a result, it was overpaid $14m, BP says.

To ensure equal treatment of claimants under the old and new policies, BP says, businesses that received “inflated payments” should be forced to repay them.

The company said in a statement: “Letting these erroneous awards stand uncorrected would violate basic principles of fairness and equity.”

The co-chairmen of the committee of plaintiffs’ lawyers said in a statement that BP had told the Supreme Court it would have “no practical way of recovering the money it paid”.

The plaintiffs’ lawyers added that BP had co-authored and agreed to the settlement, and quoted the release signed by claimants, which said that even if there were more legal proceedings, “none of those uncertain future events will affect you”.

BP replied that “the language of the release sent by the [court supervised settlement programme] in no way impairs BP’s legal right to restitution”.

While the ruling on matching revenue and costs went in BP’s favour, other arguments made by the company to limit its compensation payouts have been rejected by the Fifth Circuit appeal court. The company has asked the Supreme Court to take up its case.

Even if BP succeeds in recovering much of the excess compensation that it is seeking with its latest action, the cost of the settlement is still on course to be significantly higher than the $7.8bn that it originally estimated.

BP said it had “attempted to avoid the necessity of recovering overpayments” by seeking injunctions to halt compensation payments. However, it said that “claimants’ lawyers vigorously opposed BP’s efforts”. It argued that this move exposed claimants to the risk that some or all of the money they received would have to be paid back.

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