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BP's Bad Bargain Deepwater Settlement Stands, For Now

By William Peacock, Esq. on May 22, 2014 | Last updated on March 21, 2019

Deepwater Horizon. Lots of oil. Lots of damage to businesses, homes, and nature. Lots of litigation and payouts.

In 2012, British Petroleum (BP) agreed to a settlement that, instead of requiring direct proof of damages, would set damages according to a formula that incorporated geographic distance from the spill, type of business, and other factors. The formula has led to some absurd results, like profitable businesses that were undamaged getting millions of dollars, or businesses that were already dead at the time of the oil spill getting payouts.

Too bad, it seems. Back in March, a Fifth Circuit panel held that the fairly negotiated arms-length agreement, while not working out well for BP, should stand. This week's en banc denial leaves that opinion in place, unless, of course, the Supreme Court intervenes.

A Parade of Horrible Liars

Why is BP feeling pangs of regret? It only takes some luck from the formula, and a business owner willing to attest, under penalty of perjury, that his business was damaged by the Deepwater Horizon disaster, to get a payday. This has led to a lot, shall we say, questionable claims, such as:

  • a $21 million payout to a rice mill 40 miles inland, which actually had increased revenue the year of the spill.
  • an RV park that was foreclosed upon pre-spill, cited by Judge Edith Clement in her dissent from the denial of en banc rehearing.
  • a wireless phone store that burned down, also cited by Judge Clement.

Though BP had some luck in getting calculations for awards adjusted, after Fifth Circuit ordered the district court to double-check the claims administrator's math, but since then, both courts have ruled in favor of the class, and the agreement.

Judge Clement's Dissent

Should the burden of a bad bargain fall on a company, even when allegedly false and fraudulent claims are being filed? Judge Clement, and four other judges were willing to rehear the case. Two judges joined her dissent.

"[T]he class of people who will recover from this settlement continues to include significant numbers of people whose losses, if any, were not caused by BP," Judge Clement wrote. "Left intact, our holdings funnel BP's cash into the pockets of undeserving non-victims."

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