Claims Fund Offers Shield From SuitsRichard Squire in The Wall Street Journal, June 18, 2010
By DIONNE SEARCEY And NEIL KING JR.
BP's decision to establish a $20 billion fund for oil-damage claims could help the company blunt protracted legal battles and earn a measure of goodwill with U.S. prosecutors, according to legal experts.
Under the agreement with the Obama administration, BP said it would pay $5 billion a year over the next four years into an escrow account to be administered by government-appointed administrator, Kenneth Feinberg. Mr. Feinberg would handle all claims for damages by individuals and businesses hurt as a result of the oil-spill disaster. Appeals would go to a three-judge panel.
The arrangement initially appeared to be a capitulation to the White House. But setting a figure has the benefit of establishing estimated boundaries for the avalanche of claims the company now faces from individuals, municipalities, states and the federal government. BP also is under criminal investigation and faces huge penalties and fines.
The proposed fund, which far exceeds the $75 million liability limit set under the 1990 federal Oil Pollution Act, may be attractive to fishermen, oystermen and others who have filed more than 200 suits claiming that the oil giant hurt them financially, legal experts said.
That is because payouts from the escrow fund likely would be made far more quickly than those awarded after a lengthy court battle. Litigation stemming from the Exxon Valdez spill in 1989 took two decades to be sorted out—so long that many claimants had died before checks were cut.
Legal experts said that the fund was without parallel in past liability or tort cases, largely because it comes as part of an agreement with the government and before any actual litigation in court. Past corporate funds to pay claimants have stemmed from a court judgments, as was the case with Exxon Valdez and the Union Carbide disaster in Bhopal, India, in 1984.
BP's agreement to set up the fund is another in a series of signs that it has no intention of waging an aggressive legal battle, said Richard Squire, a law professor at Fordham University. "BP has always tried to have a good public image," Mr. Squire said. "But to me they're signaling that they don't think they have a very good legal case."
Some of the plaintiffs may now end up dropping their suits—or never file suit in the first place—and tap the fund, which would save them from paying big attorneys fees. "They're going to have to think about this," said Richard Nagareda, a law professor at Vanderbilt University. "The fund promises a much faster payout."
If claimants do start dropping suits, BP may be spared potentially astronomic punitive-damage awards before juries in Gulf states who may be hostile to it.
Even plaintiffs' attorneys who make a living pursuing mass torts such as the BP spill—and who had been expecting multimillion dollar payouts in fees—may urge clients to pursue claims through the fund rather than endure years of litigation, legal experts said.
Louisiana plaintiffs' attorney Daniel Becnel said he was advising his dozens of clients to turn to the escrow fund once it's up and running. "That'll be much quicker, and you'll get a bigger chunk of money," he said.
By putting money into the fund over several years, BP could also limit punitive-damage awards by arguing that paying a large award would interfere with its ability to fund the escrow account, say legal experts. "This was a lightening strike on BP's part to try to create order out of a forest fire of chaos," said Jeffrey Smith, an environmental lawyer at Cravath, Swaine & Moore.
BP's public statements Wednesday indicated it intended to allow suits if claimants were unhappy with their awards. It is possible once the parameters of the fund are hammered out, BP could insist that anyone who receives payout from the fund waive their right to sue, legal experts said. This was the case with the fund that sought to compensate victims of the terrorist attacks of Sept. 11, 2001.
BP would not be able to avoid all private legal action against it. For instance, Mr. Becnel said the fund would not cover suits from citizens who make environmental claims against BP for damaging shorelines and waterways.
On Thursday, Mr. Becnel filed an amended environmental suit against BP and other companies tied to the spill listing dozens of environmental laws he contends the firm broke, including the National Environmental Policy Act, the Clean Water Act and the Best Conventional Pollutants Control Technology, all of which prohibit oil spillage.
Both BP and White House officials said the continuing Justice Department investigation never came up during negotiations over the escrow account. "There was absolutely no conversation on that subject," said one BP adviser familiar with the meetings.
But such gestures by companies have won them some forgiveness in the past. In cases where companies have violated the Foreign Corrupt Practices Act, for instance, prosecutors have cited such cooperation in the hopes of lighter penalties.
Signs of the oil giant's other legal strategies emerged in recent court documents and congressional hearings.
In its court filings seeking that the civil litigation be transferred to Houston where BP's U.S. corporate offices are headquartered, BP takes pains to point out that its plans for drilling at the well site were approved by the regulator.
In its own filing, Transocean, the oil rig owner, pointed out that as a contractor, it was working at BP's instruction. It also says physical evidence may have been lost or altered, many documents on the rig sank with the vessel and that survivors "may or may not have clear recollections" of key facts.