BP Settlement in the Supreme Court’s Hands

On May 19, 2014, the United States Court of Appeals for the Fifth Circuit issued a series of rehearing denials in In re: Deepwater Horizon, the multi-district litigation that arose from the 2010 explosion and massive oil spill at BP’s Macondo lease in the Gulf of Mexico. The Fifth Circuit’s opinions specifically regard the class Settlement Agreement between the BP defendants and the class of plaintiffs presenting business economic loss (“BEL”) claims. A January 2014 panel opinion by the Fifth Circuit upheld the district court’s approval of the class definition and the class settlement, while a panel opinion in March 2014 affirmed the district court’s upholding of the Claims Administrator’s interpretation of the Settlement Agreement. The Court’s May 19 rehearing denials of both appeals has paved the way for the recommencing of the processing of BEL claims, as well as for a potential U.S. Supreme Court showdown on the issue of proof-of-causation requirements for BEL claimants.

In denying panel rehearing of the March opinion, Judge Leslie Southwick emphasized that the parties had all signed on to the Settlement Agreement, as well as to the Settlement Claims Administrator’s policy statement interpreting that agreement, which set forth an agreed-upon methodology to set objective indicia of business loss causation, primarily based on geographic proximity to the Gulf. Judge Southwick noted that “an additional duty on the Claims Administrator … to ensure that every claim contains a direct causal nexus to BP’s conduct,” separate from proof of causation under the geographic indicia agreed to by the parties, “does not arise under the agreed terms of Exhibit 4B [to the Settlement Agreement], and it does not arise under constitutional or other requirements for a class action.” While the dissent from the denial of rehearing focused on the Claims Administrator’s Policy Statement that “[t]he Claims Administrator will thus compensate eligible [BEL] and Individual Economic Loss claimants for all losses payable under the terms of the Economic Loss frameworks in the Settlement Agreement, without regard to whether such losses resulted or may have resulted from a cause other than the Deepwater Horizon oil spill,” Judge Southwick looked to the full context of that statement, particularly the conclusion of the Policy Statement sentence: “provided such claimants have satisfied the specific causation requirements set out in the Settlement Agreement.

Because the majority of the panel and of the en banc court found that the parties had agreed to the type of proof needed for causation, and that the Claims Administrator was adhering to that agreed-to proof, the class settlement terms and process did not violate Article III, Rule of Civil Procedure 23, or the Rules Enabling Act. Judge Southwick wrote,

To summarize, causation is established by certain factors set out in Exhibit 4B that the parties agreed were a sufficient indirect way to satisfy the goal of connecting a claim to BP’s conduct in the Gulf. The parties did not reject the need to establish causation. Instead, they agreed to a means for doing so that sufficiently satisfied each party’s litigation interests. The Policy Statement itself explains that its treatment of possible alternative causes was “a correct statement of their intent and the terms of the Settlement Agreement.” Exhibit 4B can be analogized to a stipulation at trial. If parties stipulate to an element of a claim, no proof at trial will be needed. Here, they stipulated to the form of proof that would demonstrate causation.

The denial of panel rehearing of the March 2014 opinion was authored by Judge Southwick and joined by Judge James L. Dennis. Judge Edith Brown Clement had dissented from the original panel opinion, and authored the dissent from the denial of en banc rehearing. Eight active judges voted against en banc rehearing (Chief Judge Stewart and Judges Davis, Dennis, Prado, Southwick, Haynes, Graves, and Higginson), while five of the active judges voted to rehear the matter (Judges Jolly, Jones, Clement, Owen, and Elrod).

On May 27, the Fifth Circuit denied BP’s motion to stay the mandate pending an application for writ of certiorari to the U.S. Supreme Court. On May 28, BP applied to Justice Antonin Scalia, as the Supreme Court Justice assigned to the Fifth Circuit, for a recall and stay of the mandate. Absent the granting of such a stay, the district court has ordered that the Claims Administrator may resume processing claims under the BEL settlement.