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In re Deepwater Horizon

United States Court of Appeals, Fifth Circuit

May 22, 2017

In re: DEEPWATER HORIZON
v.
BP EXPLORATION & PRODUCTION, INCORPORATED; BP AMERICA PRODUCTION COMPANY; BP, P.L.C., Defendants-Appellees LAKE EUGENIE LAND & DEVELOPMENT, INCORPORATED; BON SECOUR FISHERIES, INCORPORATED; FORT MORGAN REALTY, INCORPORATED; LFBP 1, L.L.C., doing business as GW Fins; PANAMA CITY BEACH DOLPHIN TOURS & MORE, L.L.C.; ZEKES CHARTER FLEET, L.L.C.; WILLIAM SELLERS; KATHLEEN IRWIN; RONALD LUNDY; CORLISS GALLO; JOHN TESVICH; MICHAEL GUIDRY, on behalf of themselves and all others similarly situated; HENRY HUTTO; BRAD FRILOUX; JERRY J. KEE, Plaintiffs - Appellants

         Appeal from the United States District Court for the Eastern District of Louisiana

          Before DAVIS, CLEMENT, and COSTA, Circuit Judges.

          W. EUGENE DAVIS, Circuit Judge.

         This appeal addresses the computation of economic losses arising out of the BP oil spill and based on the BP Settlement Agreement. In an attempt to adhere to our decision in In re Deepwater Horizon ("Deepwater Horizon I"), 732 F.3d 326 (5th Cir. 2013), the district court has approved a policy adopted by the Claims Administrator known as Policy 495. Policy 495 consists of five methodologies pursuant to which the Claims Administrator is to calculate claimant compensation: one Annual Variable Margin Methodology ("AVMM") and four Industry-Specific Methodologies ("ISMs"). Class Counsel challenges all five. Because the AVMM is consistent with the text of the Settlement Agreement, but the four ISMs are not, we AFFIRM as to the AVMM, REVERSE as to the ISMs, and REMAND for proceedings consistent with this opinion.[1]

         I.

         The Settlement Agreement seeks to reimburse claimants for economic losses related to the BP oil spill. Losses that bear a temporal relationship to the spill are said to be related to the spill. Somewhat simplified, and more than somewhat condensed, the claims process works as follows: The Claims Administrator compares a claimant's financial performance prior to and after the spill. If the former is greater than the latter, BP is liable for the difference. Causation is, in all other respects, presumed.

         The Settlement Agreement grants each claimant the right to choose his or her Compensation Period, so long as it consists of three or more consecutive months between May and December 2010. The Compensation Period constitutes the post-spill period, which is then subtracted from the same pre-spill period, [2] in order to deduce the damages owed.

         We first addressed damages in the context of this litigation in Deepwater Horizon I. The question in Deepwater Horizon I was whether the Settlement Agreement requires the Claims Administrator to match all unmatched profit and loss statements. Before discussing our holding in Deepwater Horizon I, an explanation of the terms "matched" and "unmatched" is in order.

         In a matched profit and loss statement, costs follow revenue, which is registered when generated or received. The two appear as part of the same month, and provide a clear picture of net income.

         In an unmatched profit and loss statement, costs do not follow revenue. Revenue is registered when generated or received, and costs are registered at least one month earlier when incurred. Unmatched profit and loss statements can, pursuant to the Settlement Agreement, make it appear as if a claimant has suffered damages that he, in fact, did not suffer. Here's how.

         Assume that Claimant A is a used car dealer, who chose a Compensation Period of August to October 2010. Assume that during the Compensation Period, Claimant A sold two cars. Assume that both of those cars were sold in September. Assume that the sale generated a combined $50, 000 in revenue. And assume that Claimant A paid $40, 000 for those two cars in June.

         If the costs follow the revenue, i.e., if the claimant's profit and loss statements are matched, the Claims Administrator should conclude that Claimant A generated $10, 000 in profits during the Compensation Period. His profit and loss statements, from August to October 2010, should list $50, 000 in revenue and $40, 000 in costs. The fact that the costs were incurred outside of the Compensation Period in June does not matter, because the costs follow the revenue, which was both generated and received during the Compensation Period in September. Claimant A generated $10, 000 in net profits from August to October 2010.

         Now assume that Claimant A's financial performance in August to October 2009 mirrored that of August to October 2010. But assume that Claimant A submitted his 2009 profit and loss statements unmatched. If the costs do not follow the revenue, the $40, 000 that Claimant A incurred in June will not be considered, because June falls outside of the Compensation Period. Claimant A will thus appear to have generated $50, 000 in net profits from August to October 2009, and $10, 000 in net profits from August to October 2010. And after subtracting the latter from the former, Claimant A will be entitled to 40, 000 in damages related to the spill.

         In Deepwater Horizon I, we sought to determine whether the Settlement Agreement supports this result, or whether the Claims Administrator should be required to match all unmatched profit and loss statements. We noted that

In interpreting a settlement, surely some weight has to be given to what damages recoverable in civil litigation actually are. If clear words in a settlement require the use of randomly associated numbers for calculating damages, even if there is little likelihood that, after subtracting one of those numbers from the other, the remainder will in fact show ...

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