File BP Oil Pollution Act Claims First

Over 100 putative class action lawsuits have already been filed addressing the damage to various groups from the BP Deepwater Horizon disaster. As we have already noted, we don’t believe that those quickly-filed class actions are the best way to obtain a relatively speedy and fair recovery. The best course of action is to pursue a claim with BP before, and potentially in addition to, filing a lawsuit. In our view, the early wave of class action suits are primarily designed to secure the best position for the class action lawyers, rather than for their clients. And we don’t think those early lawsuits will even put the attorneys in the “pole positions” they’re hoping for.

We agree with the opinion of attorneys like Maxwell Kennerly that the race to the courthouse being run by numerous law firms in Gulf Coast cities is motivated by the perception that the first law firm to file an action will have an advantage in the selection of class counsel. Kennerly has explained that the old first to file rule, which gave a distinct advantage in the class counsel selection process to the attorneys who filed the first claim, has been replaced by a process which focuses the court on the attorney best suited to the task regardless of when his or her client’s case was filed.

But we disagree with Kennerly and others who are discouraging clients from participating in the BP claims process. According to Kennerly:

If you’re looking for a couple quick bucks out of BP, call 1-800-440-0858

If you’re looking to fight for full, adequate and just compensation, drop me a line

The Many Ways to Sue BP, Halliburton, Transocean and Cameron For Polluting the Gulf Coast with Oil,” http://www.litigationandtrial.com (posted May 6, 2010 by Maxwell Kennerly).

In our view, the BP claims process is not an alternative that precludes litigation. Rather, the Oil Pollution Act treats a BP claim as a prerequisite to a lawsuit and allows plaintiffs who are not satisfied with the results of their claim to join or start a lawsuit later.

Section 2713 of the Oil Pollution Act, the only federal statute governing liability for oil pollution, provides:

Except as provided in Subsection (b) of this section, all claims for removal costs or damages shall be presented first to the responsible party or guarantor of the source designated under section 2714(a) of this title.

33 U.S.C. § 2713(a). Section 2714(a) explains:

When the President receives information of an incident, the President shall, where possible and appropriate, designate the source or sources of the discharge or threat. If a designated source is a vessel or a facility, the President shall immediately notify the responsible party and the guarantor, if known, of that designation.

33 U.S.C. § 2714 (a), Section 2714(b)(1) provides:

If a responsible party or guarantor fails to inform the President within 5 days after notification of a designation under subsection (a) of this section, of the party’s or the guarantor’s denial of the designation, such party or guarantor shall advertise the designation and the procedures by which claims may be presented, in accordance with the regulations promulgated by the President. Advertising under the preceding sentence shall begin no later than 15 days after the date of the designation made under subsection (a) of this section. If advertisement is not otherwise made in accordance with this subsection, the President shall promptly and at the expense of the responsible party or the guarantor involved, advertise the designation and the procedures by which claims may be presented to the responsible party or guarantor. Advertisement under this subsection shall continue for a period of no less than 30 days.

33 U.S.C. § 2714(b)(2).

It appears that the President received information relative to an incident as contemplated by Section 2714(a) on or about April 20, 2010, the day of the explosion aboard the Deepwater Horizon, the drilling rig owned by Transocean and leased to BP. The President designated the source or sources of the discharge and notified the responsible party, BP, on or about April 28, 2010.

Within five days, BP was required to deny the designation or advertise the designation and the procedures by which claims may be presented. BP did not deny the designation. It began advertising the designation immediately began advertising claims procedures on or about May 1, 2010.

This process is designed to provide a procedure that allows claimants to present their claims and the responsible party in this case, BP, to acknowledge its liability and pay those claims. If it is not possible to identify the responsible party or if the responsible party denies the designation, the government is required to pay the claims.

Under Section 2714(c):

If, (1) the responsible party and the guarantor both deny a designation within 5 days after receiving notification of a designation under subsection (a) of this section,

(2) the source of the discharge or threat was a public vessel, or

(3) the President is unable to designate the source or sources of the discharge or threat under subsection (a) of this section,

the President shall advertise or otherwise notify potential claimants of the procedures by which claims may be presented to the Fund.

33 U.S.C. § 2714(c).

This process allows those harmed by the BP Oil Spill to submit their claims, including interim claims for less than the full amount of damages, first to BP and its guarantor, typically an insurance company, and if necessary, to the Fund known as the Oil Spill Liability Trust Fund (OSLTF).

Once a claim is filed as required by the OPA, a claimant can obtain a low interest loan from the government to manage expenses, for five years or until the claim is resolved. These loans will be a lifeline to individuals and businesses without access to large sums of cash to assure survival until their claims have been paid in full. See U.S.C. § 2713(f).

Section 2713(d) provides:

If a claim is presented in accordance with this section, including a claim for interim, short‑term damages representing less than the full amount of damages to which the claimant ultimately may be entitled, and full and adequate compensation is unavailable, a claim for the uncompensated damages and removal costs may be presented to the Fund.

33 U.S.C. § 2713(d).

This provides for a potentially productive exchange between the claimant, the responsible party and the government (the Fund). The claimant can present the claim for interim damages, for example, income lost during the 2010 fishing season. BP can try to settle that piece of the claim. If that piece of the claim is settled by BP, that settlement will not determine future claims for the 2011 fishing season or other damages. This makes the claims process different from the process typically confronted by claimants in formal litigation where a settlement generally relates to the entire claim and is followed by the dismissal of the lawsuit and an exchange of releases barring further claims related to the issues addressed in the lawsuit. If BP refuses to settle the claim, the claimant can take its claim to the Fund although it is also free to pursue a private action in court without seeking payment from the government (the OSLTF Fund managed by the Coast Guard). But if BP denies the claim, or some portion of the claim, the Fund can pay the claim and seek reimbursement from BP.

Section 2715(c) explains:

At the request of the Secretary, the Attorney General shall commence an action on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to this chapter, and all costs incurred by the Fund by reason of the claim, including interest, (including prejudgment interest), administrative and adjudicative costs, and attorney’s fees. Such an action may be commenced against any responsible party or (subject to section 2716 of this title) guarantor, or against any other person who is liable, pursuant to any law, to the compensated claimant or to the fund, for the cost or damages for which the compensation was paid. Such an action shall be commenced against the responsible foreign government or other responsible party to recover any removal costs or damage paid from the Fund as the result of the discharge, or substantial threat of discharge, of oil from a foreign offshore unit.

33 U.S.C. § 2715.

The government can influence the types of claims BP pays by paying those legitimate claims that BP fails to pay out of the Fund and seeking recovery from BP (plus attorney’s fees) in an action by the Attorney General.

There are risks to following the claims process. BP will be able to simply pay the most compelling claims leaving the less compelling claims for pursuit in the courts. This may undercut the ability of plaintiffs to obtain a significant punitive damage award against BP.

The ability to present interim claims, that represent less than the full claim, allows the parties to resolve the most significant claims and leave the more complex to the courts. This is not the way claims are typically managed in an individual action or a class action. Usually a settlement resolves all of the liability associated with a matter and leads to the exchange of releases precluding further court action.

The claims process envisioned under the OPA appears to manage the more difficult problems in the individual or class action matter. It attempts to provide claimants with an opportunity to settle a portion of the claim without resolving the entire claim. It also provides a claimant with at least two avenues to seek payment of each piece of its claim, first against the designated responsible party and then against the Fund. This can all occur outside the formal litigation process. While the claimant is awaiting resolution of its claim, it can obtain a loan from the Fund.

By encouraging interim claims and settlements, influenced if not monitored by the government and providing claimants with low interest loans, the OPA also attempts to manage a third weakness in the individual and class action lawsuit process which is attorney’s fees.

Under the circumstances of this case, where claimants have significant damages and the responsible party has indicated it intends to take responsibility for the damage, attorneys can be hired at their hourly rate or on the basis of a reduced contingency fee in the event the claim does not lead to formal litigation. If it is possible to reduce the amount of compensation that must be devoted to litigation, that would be a significant accomplishment. And, if the Attorney General became the attorney for those claimants who are not fairly compensated by BP on their claims that too would be a great accomplishment as it would require BP to pay the claimant’s attorney’s fees without reducing the amount paid to the claimants. Under these circumstances the Attorney General may be characterized as a well financed and capable class counsel.

Mr. Maxwell has described class counsel costs in cases of this size reaching $500 million.

The firms that have already commenced formal litigation by filing complaints appear to be proceeding outside the Oil Pollution Act processes.

Section 2713(b)(2) provides that:

No claim of a person against the Fund may be approved or certified during the pendency of any action by the person in court to recover costs which are the subject of the claim.

33 U.S.C. § 2713(b)(2). Section 2713 (c) is titled Election:

If a claim is presented in accordance with subsection (a) of this section and -

(1) each person to whom the claim is presented denies all liability for the claim, or

(2) the claim is not settled by any person by payment within 90 days after the date upon which (A) the claim was presented, or (B) advertising was begun pursuant to section 2714(b) of this title, whichever is later,

the claimant may elect to commence an action in court against the responsible party or guarantor or to present the claim to the Fund.

33 U.S.C. § 2713 (c).

So whether “you’re looking to fight for full, adequate and just compensation” or you want “a couple quick bucks out of BP” the first thing to do is file a thorough and properly supported claim with BP.