When a class action lawsuit gets settled, the deal has to prescribe how the defendant will pay the members of the injured class and who can be part of that class.
BP, the global energy company, is embroiled in a dispute over this second question – the definition of the class of businesses that can claim they were injured as a result of the Deepwater Horizon spill. Currently, a lower court is administering the settlement fund in a way that compensates hundreds of people who weren’t injured at all. This approach is simply wrong and constitutes an abuse of the legal process.
No one disputes the basic facts: The Deepwater Horizon explosion on April 20, 2010, produced deaths, injuries, and economic losses that total in in the tens of billions of dollars. The main question for the courts to resolve revolves around the decline in revenue some businesses suffered after the spill.
Soon after the disaster BP set up a fund to compensate businesses that took a financial hit, such as hotel owners or shopkeepers in Louisiana whose sales fell when vacationers decided to avoid the Gulf. Two months after the spill, Kenneth Feinberg, a respected lawyer who oversaw the compensation of 9/11 victims, was tapped to manage the Gulf settlement fund. He distributed $6.3 billion to more than 200,000 claimants in just 16 months.
The system worked well, but the plaintiffs’ bar wanted more, and a group of them called the Plaintiffs’ Steering Committee sued BP. After that suit was settled, Feinberg was replaced by a lawyer named Patrick Juneau.
Juneau made one key procedural change when administering the fund. For companies whose business was impacted by the spill, BP agreed to make up the difference in revenue between specified periods before and after the disaster. But companies whose revenues fell between the two periods for other reasons also filed claims – and the administrator ordered them to be paid.
For example, an attorney whose license was revoked in 2009 and whose business fell off accordingly received $172,000 in "damages." A marine towing business admitted that it took its tugboat, its only source of revenue, “out of service, therefore lowering revenues” in November 2010 for reasons unrelated to the spill, yet the company received $231,000 anyway.
The defense that these and dozens of other claimants have offered is that the settlement agreement itself allowed companies to be compensated even if the disaster didn’t harm them.
Even if BP agreed to such terms (and company says it did not), there’s a principle in U.S. law that is being violated: The class cannot include members whose losses were not caused by the spill.
There were two ways to fix the problems. Either the lower court could have rejected outright a settlement that allowed into the class people without a BP-caused injury, or the court could have simply excluded people who did not suffer an injury from the class.
The court did neither, and instead swept hundreds – if not thousands – of people unaffected by the disaster into the injured class.
The Fifth Circuit Court of Appeals, in a divided ruling, backed up the lower court, but there were strong dissents, most importantly by Judge Edith Brown Clement. She wrote that
“Our courts’ decisions would allow payments to ‘victims’ such as a wireless phone company store that burned down and an RV park owner that was foreclosed on before the spill…. These are certainly absurd results. And despite our colleagues’ continued efforts to shift the blame for these absurdities to BP’s lawyers, it remains the fact that we are party to this fraud.”
The long-term consequence of allowing this miscarriage of justice to stand is that it will make the next disaster much more difficult to resolve. If non-victims manage to remain in the class, then the next company with a disaster of this type and severity will be wary about entering into a settlement at all, fearing that the courts will interpret it any way they want. There’s no question that BP should be on the hook for monetary losses resulting from the explosion – and BP has never denied responsibility for billions of dollars of such losses. But no business should ever have to compensate someone it did not harm. That BP is being forced to do so is an outrage that the Supreme Court should strike down.
Ike Brannon is a senior fellow at the George W. Bush Institute in Dallas and president of Capital Policy Analytics, a consulting firm in Washington, D.C.. Joshua Wolson is a lawyer in Philadelphia, Pa., with the firm Dilworth Paxson. Neither is retained by BP.