Wall Street Journal
August 26, 2010
The Gulf Claims Racket
The lawyers are upset they aren't getting more of the action.
When is $20 billion in ready cash not enough? Answer: When state Attorneys General and the plaintiffs bar are vying for a bigger chunk of the BP compensation fund that is supposed to go to victims of the Gulf of Mexico oil spill.
That's the real story behind the headlines about unhappiness over Kenneth Feinberg's terms for payments under the Gulf Coast Claims Facility. As administrator, er, King Solomon of this exercise, Mr. Feinberg has to make difficult judgments as he attempts to compensate genuine victims while not rewarding freeloaders. Plaintiffs attorneys and their AG pals seem to be afraid that they'll be cut out of the action.
You know the usual suspects. There's Mississippi AG Jim Hood, aka Dickie Scruggs's former comrade in class actions, who told a Biloxi TV station that "We took Mr. Feinberg behind the woodshed for a couple of hours to express our concerns about the draft claims protocol he had circulated." When it comes to personal bluster, Mr. Hood is the Rod Blagojevich of the Gulf Coast.
Then there's Alabama AG Troy King, who called Mr. Feinberg a "corporate shill" of BP. Only in Mr. King's populist neverland could a "shill" be defined as someone paying out $20 billion of a corporation's shareholder wealth.
We can't forget Florida AG Bill McCollum, who called Mr. Feinberg's liability terms "completely unacceptable." Mr. McCollum has usually opposed trial lawyer machinations across his long political career, but until he lost the GOP primary on Tuesday he was running for Governor, and, well, you gotta do what you gotta do, as Bill Clinton once famously said of his 1996 Mediscare TV ads.
What are Mr. Feinberg's supposedly onerous terms? Well, claimants can file through November 23 and receive an immediate cash payment for up to six months of emergency relief without forfeiting any legal right to sue BP. They can take that money and hire a lawyer if they'd like. The same claimants then have three years to apply for a final loss settlement, and only if they accept that Feinberg offer would they have to give up their right to sue.
So let's see. A Gulf Coast shrimper can get immediate emergency cash, plus a larger final settlement from Mr. Feinberg in relatively short order. The money is taxable as income, but otherwise the shrimper can keep it all.
Or, instead of accepting a final settlement offer, that shrimper can hire one of Mr. Hood's plaintiffs bar friends, wait years to see how the litigation plays out, and then pay 40% of his share of any settlement to the lawyer as a contingency fee. Which process sounds fairer to the victims?
One lawyer gripe is that Mr. Feinberg wants to deduct from settlements any wages that BP paid to fishermen for helping to clean up the spill. BP hired those fishermen in part to subsidize their losses due to their inability to pursue their livelihood. In legal terms, this is known as mitigation, and any court in the U.S.-even in Alabama-would take such payments into consideration as part of a settlement.
Mr. Feinberg is also criticized for demanding documentation such as income tax returns or other proof of loss, especially since much of the Gulf economy seems to run on a cash (not to say, tax-avoiding) basis. Others complain that Mr. Feinberg has set too narrow a geographic limit-within five miles of the coast-for some business claims.
These are all judgment calls, but Mr. Feinberg has to be on the lookout for fraudulent or dodgy claims that are certain to proliferate any time a $20 billion honey pot is on the table. Is a hotel 100 miles from the coast that complains of lost business really a victim of the spill, especially when the beaches are now clean and welcoming?
BP paid some $400 million in claims before Mr. Feinberg took over, and the company is now investigating many of those as possibly phony. We're told that one man filed more than 10 claims in multiple BP offices using the same name and was paid for every one. (BP had 35 claims offices and a decentralized process for making payouts.)
No doubt the documentation and geographic demands will work to the disadvantage of some claimants, though Mr. Feinberg will also have every political incentive to make the payouts generous and widespread enough to damp down any public uproar.
The danger is that all of this loud lawyer complaining will drive some victims away from making claims through the $20 billion facility in hopes of a bigger payday if they sue. This is a risky proposition that could mean they never get a dime of compensation. There's no guarantee that the courts will be more generous than Mr. Feinberg, especially as the damage from the spill recedes and Gulf fisheries and tourism return to normal.
We would have preferred that the Gulf claims follow the regular laws of liability, but President Obama insisted on the $20 billion fund and BP agreed to an offer it couldn't refuse. The best path now is to let Mr. Feinberg get on with judging claims and getting cash to the victims as soon as possible so they can get back to making a living and the Gulf economy can revive.
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