Photo: Illustration by Jon Fletcher
Cashing in at BP's expense
Are businesses in Florida taking money they don't deserve from an oil spill settlement program, or did BP just rush into an agreement it now regrets?
After the 2010 Deepwater Horizon catastrophe devastated the Gulf and Florida tourism with the nation's worst oil spill disaster, a Florida custom home builder filed a claim through a program set up by petroleum giant BP to compensate companies for lost business. The program's independent, courtsupervised administrator awarded the unidentified builder $274,945. The problem with the award, BP said in a court proceeding, is that the builder's "loss was not a result of the spill but appears to be a result of the fact that claimant was not actually in business. " The builder had no active contractor's license and had only booked five months of revenue in four years, BP says.
As BP battles in the courts of law and public opinion against how the spill compensation program plays out, it has drawn 13 examples from Florida of what it says are more than 1,000 businesses taking money they don't deserve. It cites, for example, an unidentified Florida dental office that saw revenue fall, but only because one of its dentists left before the spill even happened. The office got $237,000 of BP's money from the claims program ["One Claim, Different Perspectives," page 138].
Or take the Florida retailer that also owned an RV park. Two weeks before the spill, the RV park's creditors foreclosed. Basing an award on the lost revenue from the RV park, the program awarded the claimant $704,000, BP says. "Outrageous," the oil company says in court and in newspaper ads criticizing in particular the RV park claim. "We set out to do the right thing. We reached a generous settlement agreement. We've abided by it. The plaintiffs' lawyers worked hard to twist it to allow for windfalls for their clients and their own law firms and for big fees for themselves," BP said in a November ad in the Wall Street Journal.
BP created the compensation program in 2012 to settle a class-action suit over financial losses caused by the spill. For the oil company, the settlement promised closure, eliminating the prospect of spending decades and millions of dollars defending against a host of individual claimants. Facing pressure on multiple legal and regulatory fronts, BP expected that the agreement, one of the largest in history, also would allow it to avoid liability and damage awards that might vary wildly from court to court. The settlement covered five states and business economic losses. There would be no punitive damages.
BP soon discovered the settlement had an unfortunate parallel to the Deepwater Horizon spill. But this time, the flow it couldn't cap involved its money. The company had told investors that loss claims likely would reach no more than $7. 8 billion. Later, BP upped its estimate to $9. 2 billion. BP now says it's "likely to be significantly higher. " BP is down to the final $700 million of the $20-billion compensation trust fund it established after the spill.
BP's problems owe to the way the settlement was drawn. First, BP agreed to no cap on total damages. Jason Gonzalez, a Tallahassee partner with Shutts & Bowen, says he tells clients that when negotiating, "you should go in with a bottom line and come out with a bottom line. "
BP traded a speedy resolution for certainty. Now, "we're four years out and there's no end in sight," says Gonzalez, who has represented other companies after catastrophic accidents, including serving as Florida counsel for Transocean, which owned the Deepwater Horizon rig BP was leasing.
The other critical problem for BP was deciding who qualified for an award. Arguing caseby- case on which businesses had been damaged and by how much posed a litigation nightmare. So the two sides divided the region — in Florida, 30 counties — into four zones with different standards in each.
The easiest standard to meet for damages is for waterfront tourism and seafood businesses. Farther inland, however, businesses have to show only that their financial results meet a detailed formula established in the settlement.
If a business, for example, shows its finances fit a V-shaped pattern of falling performance after the spill followed by recovery, it qualifies for damages without having to prove that its losses had anything to do with the spill at all. Pass the finances test and you've proved BP was the cause. "I call it getting your ticket to the dance," says Kirk Pinkerton's William Robertson, a Sarasota attorney for claimants.
Lots of Florida businesses got tickets. Lawyers and accountants aggressively solicited claimants, posting FAQs on their websites to overcome scruples from business owners who questioned whether the spill had caused them financial losses. The answer: As long as your numbers pass the test, BP is presumed to have caused the loss and nothing further need be proved.
BP, however, complained that plaintiffs lawyers, the federal court and claims administrator Patrick Juneau, a Louisiana attorney, have misinterpreted the settlement. Claimant attorneys were urging uninjured businesses to file if the numbers worked, the company complained.
A legal windfall
BP compiled a report that showed the industries most directly impacted by the spill — seafood and tourism-related companies such as hotels, bars and property rental firms — were accounting for only 21% of the money awarded. A BP economist's report found that, based on the share of award money given to businesses nearest the water, the industry most affected by the spill was the legal profession, which edged out bars and restaurants. Law firms also were profiting on claims work, typically handled for a 25% contingency fee.
BP says Juneau's program is supposed to act as a gatekeeper, determining first whether a business has been impacted by the spill before applying the formula. But to BP's chagrin, it has acknowledged a few times in court that the formula in the settlement opened the way for awards to claimants that hadn't been damaged by the spill.
In a hypothetical cited repeatedly by judges, Juneau asked the parties how they'd view the case of a three-accountant firm if one accountant went on medical leave just after the spill occurred. The firm's financial trajectory would match the formula spelled out in the agreement even though its financial downturn had nothing to do with the spill. BP said the firm should be paid.
"You always have to assume people without a valid claim will try to be included" in a settlement class, says attorney Mark Antonelli, who isn't involved in the BP case. A partner with Gaebe, Mullen, Antonelli & DiMatteo in Coral Gables and a past president of the Florida Defense Lawyers Association, he says keeping such claimants out is difficult.
"I think it's an appropriate goal, but I'm not sure you can eliminate every single person who doesn't deserve to be in the group. You try to do your best to minimize that and you work toward the common good," he says.
BP found some sympathetic ears on the bench. For five months, the 5th U. S. Circuit Court of Appeals in New Orleans halted Juneau from cutting new checks while it reviewed the settlement. "There's a lot of frustrated people," says Frank Petosa, a Fort Lauderdale partner who coordinates the oil spill litigation group at Orlando-based Morgan & Morgan, which represents 1,000 claimants.
In March, a 5th Circuit panel in a 2-1 decision turned BP down and lifted the hold on the payments. The panel said language in the standard claim form indicated it was for use by those claiming damage from the spill and required claimants to sign that everything in the form was true. Therefore, the panel ruled, claimants are attesting the spill caused injury and didn't have to provide evidence beyond the financial test.
"There is nothing fundamentally unreasonable about what BP accepted but now wishes it had not," Judge Leslie Southwick wrote. BP has filed its appeal to the 5th Circuit for a full hearing of that court. Efforts to obtain an interview with a BP representative weren't successful.
Rebutting the claims
As for the claims BP has cited in court and in newspaper ads, confidentiality rules in the settlement make discovering most of the businesses' identities difficult. Neither side would provide names to Florida Trend.
In a court filing, however, plaintiffs' lawyers offered rebuttal assertions to four of the Florida cases. The home builder that BP said appeared not to be in business actually had a valid business license, presented corporate tax returns and gave "a legitimate explanation of some of the nuances with its financial statements," according to the plaintiff court filing.
The dental office from which one dentist left? The lawyers said that the office actually made its claim based on an apples-to-apples comparison of the finances that excluded the missing dentist.
BP, claimant lawyers say, has "buyer's remorse" over the deal it cut. "They flat underestimated how many people would make claims and how many people were hurt," says Winter Park claimant attorney Hank Didier, founder of Economic Recovery Group.
The company isn't getting much sympathy on Florida's coast. Escambia County Commissioner Grover Robinson IV says his constituents don't believe BP should have to pay illegitimate claims. But, he says, a far greater number of people were harmed but never were compensated and don't qualify for the settlement.
"We hate the fact there are people who take advantage of it that way. We have this same thing in Florida every time we have a hurricane," Robinson says. But, "as far as sympathy" for BP? "No. "
BP discovered that it couldn't stem the flow of money it set aside for claimants.
One Claim, Different Perspectives
A dental office in Florida received $237,000 from the claims program set up by BP.
BP's View . . .
Unfair. Revenue at the dental practice declined because one of its dentists left — before the spill.
Claimant's View . . .
The office made its claim based on finances that excluded the missing dentist. The practice's losses ft the pattern spelled out in the BP settlement.
After the Deluge
The flood of claims recedes.
Lawyers, accountants and specialty frms foresaw a windfall in contingency fees for spill claims following a 2012 class-action settlement over the Deepwater Horizon catastrophe. They flled the direct mail channel, scoured their lists of existing clients and drummed up new ones. They promised businesses free consultations and payment only on recovery, on a 25% contingency fee.
The deluge is over. "We're down to fling just a few a week," says attorney Ian Holmes of Holmes Kurnik in Naples, which represents claimants with an aggregate $200 million in claims.
Lawyer Hank Didier's Economic Recovery Group in Winter Park, created for spill claims work, peaked at 13 lawyers and a total of 50 staff, Didier says. Now, it's down to six lawyers and fewer than 20 total staff.
There's still time to file a claim, he says. The deadline is six months after all appeals are exhausted, a date that hasn't been set.
Some people are drawn to disasters.
Married Broward couple Joseph Harvey and Anja Karin Kannell have a talent for disaster. Hurricanes Gustav and Ike in Louisiana in 2008? They fled for relief aid. The Valentine's Day 2011 storm that fooded Minot, N. D. ? The couple claimed injury. The spring 2011 storms and tornados in Mississippi? Ditto. Tropical Storm Irene that August in New York? Oh, how they suffered. The 2010 Deepwater Horizon oil spill? Damaged again.
Deepwater Horizon proved their biggest misfortune because it proved their undoing. Like fies to honey, Harvey and Kannell made a living, prosecutors say, as "storm crows" capitalizing on public and private aid for the victims of disasters. Using assumed identities of 34 Florida people, the Lighthouse Point couple fled for more than $1 million in claims against the trust fund BP set up after the spill.
Kannell called the BP claims paying entity nearly 150 times and harangued employees for failing to pay.
From a Katrina claim in their first married year until their arrests, they won more than $745,000 in payouts, the government says. The money went to purchase Bentley, Mercedes and BMW cars, yachts and to rent a waterfront home costing $15,000 a month where they lived with their young daughter.
"All by a pair of serial fraudsters whose records show no legitimate income over at least the past five years," prosecutors wrote.
A jury found them guilty in 2012 on fraud charges in the Deepwater Horizon fund and in disaster relief claims from all those hurricanes and storms. A judge found they used 600 stolen identities or aboutto- be-stolen identities to submit hundreds of fraudulent claims. They aimed to get $2. 5 million. Instead, they each got 13 years.
Oil company BP's public fight over disputed business loss claims has obscured the cases of criminal fraud stemming from the spill. Most Florida cases have come out of southeast Florida and the Panhandle.
In Miami-Dade, Jean Mari Lindor put in for $37,000 in personal and business claims for lost hours and income from work in the Keys. Authorities also say he put in 430 false claims for people supposedly employed at hotels, restaurants and clubs in the Keys. The claims totaled $14 million, of which $1. 2 million actually was paid out. He earned 24 years in prison.
A few employees of a Hooters in Pensacola Beach saw an opportunity to cash in. General manager Charles C. Martin and assistant manager Marquis R. Seals provided false documentation to boost the claims for employees Joseph B. Doyon and Bernard Cook, prosecutors say. Another man, Tremayne C. Jamison, claimed that a non-existent contract with the Hooters store was canceled because of the spill. Martin got two years. Seals received nine months, Doyon and Cook each earned a year and Jamison got six months. In total, they were ordered to pay $85,000 in restitution.
The U. S. Justice Department says federal prosecutors have brought charges against more than 200 people in BP fraud-related cases with at least 37 of them in Florida.
Insider Patrina Lott worked as a temporary contract employee at a call center in Jacksonville set up for the Gulf Coast Claims Facility, an entity set up by BP in the first years after the spill to pay people victimized by the spill. She allegedly victimized BP by steering claim money to bank accounts she could access. She was put on probation for five years for a single count of wire fraud and ordered to make $36,945 in restitution.
Eliu Gonzalez, Costa Rica and formerly Florida City, claimed $110,616 in lost income from commercial fishing. He was sentenced to a year and a day in prison. Gonzalez also provided false papers to "purported crewmen" working for him so they could make false claims. One got $24,000.
Arturo L. Molina, Fort Walton Beach, got paid $13,900 for fictitious lost wages from a construction company. Molina got six months and $13,900 in restitution.
Henry Clyde Barnes and Nadine Barnes of Tallahassee fled for lost earnings from a property management company that didn't exist. Henry Barnes got three years' probation. Nadine got three years' probation.
Robert Thayer, Jennifer J. Lee, Gabriel Sawyer, all of northwest Florida. Thayer claimed lost wages from Destin West Resort when he had been fired as a pool cleaner for misconduct; Lee forged a letter about lost earnings from a hardware store; Sawyer forged a letter claiming lost wages but had in fact quit her job. Sawyer got a year in prison. Lee got a year and a day. Thayer got two years' probation and three months of house arrest.
Lost income: David Bacon got 21 months and $16,000 in restitution; Donald Sargent got 33 months and $77,215 in restitution. Cleon Major got 110 months and $306,228 in restitution. Major had his own claim and fled false claims for Bacon, Sargent and nine others. All from Key West.
Daniel Marlow, Panama City, claimed lost wages from Sharky's Beach Restaurant when he no longer worked there. Marlow got 21 months and $13,000 restitution.
Jakima T. McCorvey, Pensacola, claimed lost wages from work as a Howard Johnson hotel housekeeper but didn't work there. McCorvey got three years' probation and $1,000 in restitution. April McKinney, Pensacola, misrepresented income from a cleaning business. She got a year and a day and $65,200 in restitution.