The BP oil spill victims compensation fund, which was administered by Kenneth R. Feinberg, proves that a claims program like the GCCF does not provide a much-needed alternative to conventional mass tort litigation. On May 26, 2015, Plaintiffs Selmer M. Salvesen, Pinellas Marine Salvage, Inc., John Mavrogiannis, and Andrew J. Ditch filed their Motion to Nullify Every GCCF Release and Covenant Not to Sue.
The following is an excerpt from the memorandum of law which the plaintiffs filed in support of their Motion to Nullify.
BP’s Strategy
1. Establishment of the Pseudo Fund
The BP oil spill victims compensation fund is not a “fund.” It is in fact only a set-aside or promised commitment of assets by BP in an amount that on its face appears to be sufficient to settle claims arising from the spill. BP committed twenty billion dollars in assets to “pay all legitimate claims” - a meaningless statement since the company, designated as a “Responsible Party” under the OPA, is legally obligated to pay all legitimate claims. BP agreed to transfer funds at the anticipated rate of five billion dollars per year to bank accounts owned by BP and make announcements on what had been paid, but there was no “fund” if what one means by a fund is an entity with meaningful juridical independence, such as a trust fund. Here the obligations remain BP’s and any funds that remain at the close will revert to BP. In reality, the BP oil spill victims compensation fund is a “Liability Cap” which BP unilaterally established.
2. Selection of the Perfect Fund Administrator
Having determined the maximum amount that it would be willing to compensate claimants for damages resulting from the oil spill, BP’s next step was to select a politically well-connected person who would be willing to say and do whatever was necessary to administer the fund (“enforce the liability cap”). BP selected Kenneth R. Feinberg. Kenneth R. Feinberg’s law firm Feinberg Rozen, LLP bills itself as specialists in “comprehensive negotiations strategy,” a firm which has “redefined the practice of law,” lawyers “preeminent” in “preventing years of protracted, costly and uncertain litigation.”
Feinberg’s Strategy
The agreement entered into between BP and Feinberg Rozen, LLP on June 15, 2010 clearly states, “Feinberg Rozen shall follow OPA as it operates and administers the GCCF.” “Feinberg Rozen’s determinations with respect to OPA Claims will be guided by OPA.” “The GCCF (and the protocols under which it operates) are structured to be compliant with OPA.” “The GCCF claims process is structured to comply with OPA and apply the standards of OPA.”
This Honorable Court has also noted that “…the Gulf Coast Claims Facility (“GCCF”), spearheaded by Mr. Feinberg and his law firm, would replace the original BP claims process and perform BP’s obligations under OPA with respect to private economic loss claims.”
“[This] Court has the responsibility to ensure that the mandates of OPA are implemented.”
On August 23, 2010, Feinberg Rozen, LLP, doing business as GCCF, replaced the claims process which BP had established to fulfill its obligations as a Responsible Party pursuant to OPA.
1. Feinberg’s Use of Coercion and Fraudulent Inducement Was in Violation of OPA.
Feinberg, in clear violation of OPA, used the fear of costly and protracted litigation to coerce victims of the BP oil spill to accept grossly inadequate settlements from GCCF. During town hall meetings organized to promote GCCF, Feinberg repeatedly told victims of the BP oil spill:
• “The litigation route in court will mean uncertainty, years of delay and a big cut for the lawyers.”
• “I am determined to come up with a system that will be more generous, more beneficial, than if you go and file a lawsuit.”
• “It is not in your interest to tie up you and the courts in years of uncertain protracted litigation when there is an alternative that has been created.”
• “I take the position, if I don’t find you eligible, no court will find you eligible.” Feinberg, in clear violation of OPA, repeatedly made the following false statement of material fact to induce victims of the BP oil spill to accept grossly inadequate settlements from GCCF:
• “The Gulf of Mexico will recover from the BP oil spill by the end of 2012.”
• “Experts have determined that most of the oil would have dispersed and the economy picked up by the end of 2012.”
• “There will be a 30% recovery in 2011.” “Gulf of Mexico 'to recover from BP spill by end 2012',” BBC News, February 3, 2011, available at http://www.bbc.com/news/world-europe-12352051 (last visited May 20, 2015).
2. Feinberg’s Payment Methodology Was in Violation of OPA.
During GCCF Phase I, which operated from August 23, 2010 through November 23, 2010, GCCF accepted Emergency Advance Payment (“EAP”) claims. Over 475,000 EAP claims were filed with GCCF by BP oil spill victims from August 23, 2010 through November 23, 2010. GCCF paid in excess of $2.5 billion to more than 169,000 Phase I claimants. In sum, the average total amount paid per EAP claimant by GCCF was a paltry $14,793.00.
A claimant who received an EAP during Phase I was not required to execute a “Release and Covenant Not to Sue” BP or any other party.
During GCCF Phase II, known as the “Interim Payment/Final Payment” claims process, GCCF received the following three types of claims: Quick Payment Final Claim, Interim Payment Claim, and Full Review Final Payment Claim.
Under the “Quick Payment Final Claim,” a claimant who had received a prior EAP or Interim Payment from GCCF could receive, without further documentation of losses caused by the BP oil spill, a one-time final payment of $5,000 for individuals and $25,000 for businesses. Claimants seeking a Quick Payment were required to submit with their claim form a “Release and Covenant Not to Sue.”
Feinberg cannot justify limiting payments under the “Quick Payment Final Claim” program to just $5,000 for individuals and $25,000 for businesses. There is no evidence that these amounts even remotely represent adequate consideration to compensate claimants for the damages that claimants did or will suffer as a result of the BP oil spill.
Under the “Interim Payment Claim,” a claimant allegedly could elect to receive compensation for documented past losses or damages caused by the BP oil spill for which the claimant previously had not been compensated. A claimant seeking an Interim Payment was not required to sign a “Release and Covenant Not to Sue.”
A claimant was permitted to file only one Interim Payment Claim per quarter. Under the “Full Review Final Payment Claim,” a claimant could receive payment for all documented past damages and estimated future damages resulting from the BP oil spill. Claimants wishing to accept a Final Payment were required to sign and submit a “Release and Covenant Not to Sue.” Any Full Review Final Payment awarded to a claimant was decreased by the amount of any previous payments received. Claim forms for Phase II became available to the public on December 18, 2010. The assessment of claimant eligibility and calculation of losses for those claims did not begin until February 18, 2011.
In violation of OPA, Feinberg‘s approach to determining claimant eligibility was driven by two factors: (1) loss location; and (2) claimant business type. BDO Consulting, BDO USA, Independent Evaluation of the Gulf Coast Claims Facility: Report of Findings and Observations to the U.S. Department of Justice, at 63 (June 5, 2012), available HERE (last visited May 20, 2015).
The Ultimate Objective
Kenneth R. Feinberg employed two strategies to limit BP’s liability:
(a) a “Delay, Deny, Defend” strategy against legitimate oil spill victims. This strategy, commonly used by unscrupulous insurance companies, is as follows: “Delay payment, starve claimant, and then offer the economically and emotionally-stressed claimant a miniscule percent of all damages to which the claimant is entitled. If the financially ruined claimant rejects the settlement offer, he or she may sue;” and
(b) an “Expedited Emergency Advance Payment (“EAP”) Denial” strategy. This strategy is as follows: “Fail to verify, investigate, and appraise the amount of loss claimed by the claimant in the EAP claim and deny the EAP claim without ever requesting supporting documentation from the claimant.”
The ultimate objective of Feinberg’s “Delay, Deny, Defend” strategy and “Expedited EAP Denial” strategy was to limit BP’s liability by obtaining a signed “Release and Covenant Not to Sue” from as many BP oil spill victims as possible.
The “Release and Covenant Not to Sue” requirement, which was the idea of Kenneth R. Feinberg, forces economically and emotionally-stressed victims of the BP oil spill to sign a “Release and Covenant Not to Sue” in order to receive a miniscule payment amount for all damages, including future damages, they incur as a result of the BP oil spill. Feinberg’s “Release and Covenant Not to Sue” requirement violates OPA, State contract law, and is contrary to public policy.
The “Delay, Deny, Defend” strategy and “Expedited EAP Denial” strategy, although unconscionable, have proven to be very effective for Feinberg and BP.
The GCCF Status Report
The GCCF status report data indicates that a total of 574,379 unique claimants filed claims with the GCCF during the period from approximately August 23, 2010 to March 7, 2012.
The GCCF paid only 221,358 of these claimants. In sum, the GCCF denied payment to approximately 61.46% of the claimants who filed claims; the average total amount paid per claimant was a paltry $27,466.47.
The status report data further indicates that the GCCF paid a total of 230,370 claimants who filed claims with the GCCF during the “Phase II” period. Of these, 195,109 were either Quick Pay or Full Review Final payments; only 35,261 were Interim payments. In sum, the GCCF forced 84.68% of the claimants to sign a “Release and Covenant Not to Sue” in which the claimant agreed not to sue BP and all other potentially liable parties; only 15.31% of the claimants were not required to sign a “Release and Covenant Not to Sue” in order to be paid.
Feinberg’s “Release and Covenant Not to Sue” excluded approximately 200,000 BP oil spill victims from the MDL 2179 Economic and Property Damages Class Settlement Agreement.
As noted supra, Congress never intended that a claimant’s recovery of damages under OPA be limited by geographic bounds, pertain solely to certain business activities, or require a heightened and vague proof of causation between his or her damages and the oil spill incident.
Moreover, OPA clearly prohibits Responsible Parties from engaging in a “Delay, Deny, Defend” strategy wherein the victims of an oil spill are starved and ultimately forced to sign a “Release and Covenant Not to Sue” in order to receive an inadequate, miniscule payment amount for the damages, including future damages, they incur as a result of the oil spill.
A copy of the entire Memorandum of Law is available HERE.
BP, GM, DuPont, and Volkswagen retained Ken Feinberg to limit their liability. Feinberg accomplished this at the expense of their victims. For a better understanding of Kenneth R. Feinberg and why a Ken Feinberg administered claims program does not provide a much-needed alternative to conventional mass tort litigation, visit #MDL2179 on Twitter.