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Fifth Circuit Ruling Favors BP on Macondo Claims

A federal appeals court in New Orleans on Wednesday ordered that some payments required to be paid by BP plc be halted to Gulf Coast businesses claiming they were impacted by the Macondo well blowout.

The U.S. Court of Appeals for the Fifth Circuit ordered U.S. District Judge Carl Barbier to craft a "narrowly worded injection" to reject some damage payouts while questions raised by BP are considered (In Re: Deepwater Horizon, No. 13-30315).

The three-judge circuit court ordered Barbier to "expeditiously craft" an injunction that stays payments to people who did not suffer "actual injury traceable to loss from the Deepwater Horizon accident" until the matter is "fully heard and decided through the judicial process." Barbier earlier had rejected a proposal by BP to temporarily halt claims payments until an investigation had been conducted (seeNGISept. 16July 8).

When Barbier denied the motion BP appealed the decision and sued claims administrator Patrick Juneau, who was appointed by the court.

The Macondo litigation "is one of the largest and most novel class actions in American history," Circuit Judge Edith Brown Clement wrote for the court. "As such, significant legal questions are involved that will affect the course of class action law in this country going forward, and the class action as a suitable vehicle for the resolution of conflict for businesses and litigants." Clement hinted that the case could make its way before the U.S. Supreme Court.

Clement ruled in favor of BP on three key points. In Part 1 of the opinion, Clement found that the district court had to reconsider whether the settlement required that compensation payments be based on accrual rather than cash accounting.

In Part 2 of her opinion, Clement held that the $7.8 billion settlement agreement between BP and the Plaintiffs Steering Committee (PSC) in 2012 excluded "fictitious claims" with no possible validity whatever the terms of the agreement might appear to say (see NGIJan. 7). Part 3's opinion found the district court should have granted BP an injunction while the legal issues were resolved.

The ruling temporarily slows the pace of millions in payments that BP has been making under a class action settlement reached with the PSC to address damages from the April 2010 blowout.

When the original settlement was approved in 2012, BP estimated it would have to pay about $7.8 billion in claims. However, executives said they no longer could estimate the payout costs because of fraud and improperly calculated claims, which the producer has said are too large or improper.

BP on Thursday said it was pleased with the ruling, which sets aside Juneau's interpretation of the "business economic framework" in the settlement agreement reached with the PSC. The "ruling affirms what BP has been saying since the beginning: claimants should not be paid for fictitious or wholly nonexistent losses," said a spokesman. "We are gratified that the systematic payment of such claims by the claims administrator must now come to an end."

Separately, BP's legal team was in New Orleans last week before Barbier, who opened the second phase of a three-part civil trial to determine how much the oil producer should be penalized for violating the U.S. Clean Water Act in conjunction with the well blowout. BP completed its case before the court on Thursday.

The first phase of the multi-district litigation (2179), which centered on BP's actions and those of its contractors before and after the accident was completed in April (see NGIMay 6). The second phase is to determine how much oil was spilled into the Gulf of Mexico. BP has estimated that the well leaked about 2.45 million bbl of oil over 87 days, while the U.S. government claims it was closer to 4.2 million bbl. 

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