Wednesday, July 10, 2013

The feeding frenzy on BP oil spill

Jul 10, 2013

By Joe Nocera

YOU can actually pinpoint the moment when the oil company BP began to get hosed in Louisiana: March 2012.

By then, BP had paid out around US$6.3 billion (S$8 billion) to some 220,000 people and businesses in the Gulf Coast region for damages suffered as a result of the 2010 oil spill. The money was distributed by Mr Kenneth Feinberg, who had parcelled out the Sept 11 fund, and subsequently managed other victim compensation schemes.

But in return for the payouts, Mr Feinberg had insisted that the victims sign documents agreeing not to sue BP - a main goal for the company, which was hoping to avoid the kind of drawn-out litigation in the wake of the 1989 Exxon-Valdez spill.

He had also insisted that the claims be for real, documented harm. Mr Feinberg spent almost as much time turning down bogus claims as he did approving payments to victims.

It almost goes without saying that the Louisiana plaintiffs' bar found such a scheme offensive. No litigation, after all, meant no lawyers' fees. Plus, the idea that you could have this giant company, so ripe for the plucking... and then not pluck? So a group of lawyers - known as the Plaintiffs' Steering Committee - persuaded their clients to skip the Feinberg process and sue BP. In March last year, BP settled with those lawyers. As a condition for settling, the plaintiffs' lawyers insisted that Mr Feinberg be replaced by Mr Patrick Juneau, a good-ol'-boy plaintiffs' lawyer himself.

BP also agreed to expand the potential universe of claimants, knowing full well this would likely mean that people whose economic losses had no connection to the spill would receive "compensation". It estimated that the settlement would cost it an additional US$7.8 billion.

On Monday, however, before a federal appeals court in New Orleans, BP finally said "enough". The company had come to realise that Mr Juneau's interpretation of such concepts as "revenue" and "earnings" was, er, unique. So unique, in fact, that businesses that not only weren't affected by the BP disaster but hadn't even suffered losses were getting millions of dollars. Some had seen increased profits during the oil spill - and still got money. Lawyers started trolling for new clients, trumpeting the fact that claims didn't have to have any connection to the disaster. Suddenly, BP was facing the prospect of paying tens of billions of additional dollars to people who had no justifiable claim on the money.

When BP, which is based in London, complained to Judge Carl Barbier, who is overseeing all of the BP litigation in New Orleans, it got nowhere. Do I need to mention that Mr Barbier is himself a former Louisiana plaintiffs' lawyer? In fact, he was once the president of Louisiana Trial Lawyers Association. How cosy is that? I realise that many people don't much care that a multinational corporation responsible for a huge oil spill is being fleeced in Louisiana. But they should, for two reasons.

First, although BP's negligence was unquestionably a significant reason for the spill, its response has been the opposite of the unfeeling corporation. It waived the US$75 million liability cap that federal law allows. It has spent, so far, US$14 billion cleaning up the Gulf and a further US$11 billion settling claims of various sorts.

It has taken its medicine willingly. Yet its efforts to do right by the Gulf region have only emboldened those who view it as a cash machine.

The next time a big company has an industrial accident, its board of directors is likely to question whether it really makes sense to "do the right thing" the way BP has tried to.

Any board comparing BP's response to the Gulf oil spill with Exxon-Mobil's response to the Exxon- Valdez spill is going to come to the obvious conclusion: Exxon-Mobil's litigation-to-the-death strategy - which ultimately cost it US$4 billion rather than the potential US$40 billion liability BP is now facing - was the right one.

Is that really what Americans want as a country? There is one other point. I've written a number of columns about the importance of rule of law, especially in Russia, where it is so lacking, and where that lack is so detrimental to the Russian economy.

A real rule of law gives businesses the confidence they need to make investments. If gives both parties faith that disputes will be settled fairly. It creates certainty.

We like to talk in the United States about our belief in the rule of law, but the truth is that what is going in Louisiana today is not all that different than when a corrupt Russian official creates a fake tax liability to line his pockets at the expense of some hapless company operating in Russia.

"This is Louisiana, after all," a local plaintiffs' lawyer told Bloomberg BusinessWeek recently. "A big foreign company with deep pockets, and you're surprised there's a feeding frenzy? Come on, man."

President Vladimir Putin of Russia couldn't have put it better himself.

[As I was halfway through the article, I wondered, is the writer paid by BP? I googled Joe Nocera. He's legit. Which makes this article important.]

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