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BP Contests Walmart’s Economic Loss Claims

BP Contests Walmart’s Economic Loss Claims March 11, 2020

By Raymundo Ribota


The effects of the explosion from the Deepwater Horizon in the Gulf of Mexico on April 20, 2010 are still present today. The explosion killed 11 people and leaked 3.19 million barrels of oil into the Gulf of Mexico on the ocean floor 42 miles off the coast of Louisiana. It is likely that much of the oil spilled is still present in the Gulf today. As a result of the explosion and spill, a settlement agreement was made between BP and class action representatives that claimed damages from the disaster. The agreement included provisions for business economic-loss (BEL) claims for those companies that incurred damages resulting from the explosion and spill.

BP challenged (BEL) awards made to Wal-Mart stores, East, L.P. Its challenge was based on Walmart changing its accounting system one month after the explosion on the Deepwater Horizon. The accounting change affected the amount of Walmart’s BEL claims, which are based upon the difference between expenses before and after the disaster. BP contended that the change resulted in “artificially inflated award amounts.”

In June 2015, Walmart submitted BEL claims for each of its nine stores located along the Gulf Coast. BP questioned the validity of five of the claims. The United States Court of Appeals consolidated these claims in an appeal filed by BP. To facilitate reconciliation of the differences between the accounting systems, Walmart submitted supplemental documentation to the Claims Administrator for the claims in April 2017. After reviewing Walmart’s claims with PWC accountants, the Claims Administrator issued awards to Walmart in 2018 of over $17.4 million.

BP Appeal

BP appealed the Court Supervised Settlement Program (“CSSP”) awards. It argued the change in Walmart’s accounting system “made its profit and loss data for the pre-May 2010 period inconsistent with the subsequent period.” BP argued to the Appeal Panels that Walmart artificially inflated its awards by changing its accounting system. The change in accounting systems caused the pre-disaster period to appear more profitable compared to the later period following the Deepwater Horizon disaster.

U.S. Court of Appeals Decision

The U.S. Court of Appeals was tasked with determining whether it should reverse the district court’s decision not to review a final award under the CSSP settlement program. The Court applied the abuse-of-discretion standard to the district court’s refusal to review the final award. In applying the standard, the Appeals Court considered whether the final award “actually contradicted or misapplied the Settlement Agreement or had the clear potential to contradict or misapply the Settlement agreement.”

The Appeals Court noted the district court would not abuse its discretion if it denied a request for review that “involves no pressing question of how the Settlement Agreement should be interpreted and implemented,” but instead raised questions as to whether the discretionary administrative decision is correct or not.

Misapplication of Settlement Agreement

BP argued that the case BP Expl. & Prod., Inc. v. Claimant ID 100094497, 910 F.3d 797 (5th Cir. 2018) demonstrated that a claimant that changes its accounting system during the relevant time period, as Walmart did, must provide information on how each expense was categorized before and after the change. Walmart responded by providing supplemental information to the Claims Administrator, which the court concluded was necessary for the change in its accounting system to be factored into the calculations. The court also noted that the Claim Administrator’s calculation notes indicate the accounting systems were reconciled. The U.S. Court of Appeals held BP did not show that the Claims Administrator or any Appeal Panel misapplied the Settlement Agreement, nor was there potential for any contradiction or misapplication.

BP’s Request for Walmart Expenses

BP argued that Walmart needed to provide additional information describing how each expense in Walmart’s pre-May 2010 accounting systems was classified in its post-May 2010 system. The U.S. Court of Appeals held it was “unconvinced by BP’S pleas for more information.” It stated it was presiding over an exercise of judgment by the district court, Appeal Panels and Claims Administrator whether there was enough evidence under the Settlement Agreement to make an award. The Court of Appeals found that BP’s challenge to the Appeal Panels’ decisions raised issues regarding the “correctness of a discretionary administrative decision in the facts of a single claimant’s case.” The U.S. Court of Appeals concluded that the district court’s denial of a request for discretionary review was not an abuse of discretion.

Conclusion

The U.S. Court of Appeals held that the district court’s denial of a request for discretionary review was not an abuse of discretion. This case demonstrates the lengthy amount of time it takes for legal issues to be resolved following a disaster. The events of the Deepwater Horizon disaster occurred nearly ten years ago, and the question of Walmart’s economic loss claims were not resolved until January 14, 2020. Environmental restoration will take even longer. If your company has sustained a casualty loss resulting from a disaster, or if you would like more information on this case, please contact Whitcomb Selinsky PC at 303-534-1958.

Tags: commercial litigation

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