Judge Rejects Causation Test for BP Spill Pact

, The Litigation Daily

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Not surprisingly, New Orleans U.S. District Judge Carl Barbier is standing firm in his interpretation of the settlement agreement that BP signed to resolve economic loss claims arising from the explosion of the Deepwater Horizon drilling platform. Late Tuesday, the judge issued a 25-page ruling reiterating that the class action settlement does not require claimants to prove that their losses were caused by that 2010 disaster.

And not surprisingly, BP plans to appeal, calling the settlement "unlawful" under Barbier's interpretation.

This controversy over the agreement, which the parties signed in December 2012, has been playing out for much of this year. In recent months BP has maintained that the claims administrator, Patrick Juneau, has been improperly approving claims for losses that weren't caused by the oil spill, and that any class action settlement that doesn't require proof of causation violates the Constitution.

Juneau, as well as lawyers for the plaintiffs, insist that the settlement agreement provides a framework for evaluating claims that doesn't require proof of causation. Instead, the claims administrator applies an objective mathematical formula to decide if a claimant is entitled to an award.

While the settlement provides a mechanism for resolving claims, it doesn't cap BP's liability. That means BP still doesn't know how much it will eventually pay. The company recently estimated its exposure at $9.2 billion in a public filing.

The U.S. Court of Appeals for the Fifth Circuit had remanded this case to Barbier to clarify whether, as BP contended, economic loss claims should be computed differently to better match revenue with expenses. BP also maintained that the Fifth Circuit wanted Barbier to address the causation issue again. Although Barbier said he didn't believe that issue was before him on this remand, he presented his opinion in case the Fifth Circuit wanted him to do so.

Barbier began by asserting that BP and its lawyers have switched their position on the agreement, maintaining that they agreed not to require proof of causation when they sought his approval of the settlement. Under the principle of judicial estoppel, he wrote, they can't now advance a conflicting interpretation. (Kirkland & Ellis represented BP in the settlement. Williams & Connolly is now taking the lead for BP in the district court, and Gibson, Dunn & Crutcher is lead counsel for appellate matters.)

Furthermore, Barbier wrote, it wouldn't be feasible to require each claimant to show causation. "The delays that would result from having to engage in a claim-by-claim analysis of whether each claim is 'fairly traceable' to the oil spill … are the very delays that the Settlement, indeed all class settlements, are intended to avoid," he wrote. "Requiring each claim to … show factual causation, even if only "colorable," would bring the claims administration process to a virtual standstill, depriving the Class of the bargained-for efficiency it was promised."

The judge did, however, hold that economic loss claims should be computed differently to better match revenue with expenses.

Last month, Barbier harshly criticized BP and its lawyers for their "startling reversal" of position, calling their actions "deeply disappointing."

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