On Oct. 2, BP won what I described as a hollow victory in the Appellate Court. The main issue that BP "won" was a temporary halt of claims payments for business economic losses for those claims where there was a question of the accounting method used. Usually it is what the court described as "typically, only very small and fledgling businesses keep their primary financial records in accordance with cash accounting principles" while the vast majority of claimants would continue to get paid, especially larger claimants (and larger pay outs) that use the more standard accrual-based accounting.
Immediately after Oct. 2, BP was popping champagne and the media was going nuts, claiming it will save BP billions of dollars and portraying some massive victory for BP. I characterized this as ludicrous. On Friday Oct. 18, Federal Judge Carl Barbier executed his first order since the Oct. 2 legal "victory" for BP in the appellate court. In a bizarre twist, not only is BP challenging the interpretation of its own settlement, but now BP is challenging the interpretation Barbier concluded of the Appellate Court's order. Barbier came to the same conclusion I did, but BP disagrees. Seems the Appellate Court's order was rather straight-forward and Barbier explained it well.
The order was for the administrator to open up the spigot again for any claims where accounting issues were not a problem. This means the vast majority, if not all, of the accrual-accounting claims would begin to be processed and paid again, immune to the temporary halt. Contrary to false reports by the media, proving direct losses from the oil spill was not at issue nor in a ruling. Barbier stated:
The issue of how causation is determined was not before the Fifth Circuit in the recent BEL appeal.
In the Fifth Circuit opinion, as to causation, Judge Clement states: BP did agree that alternative causes of losses were irrelevant if the financial figures supported that a loss occurred.
Judge Southwick also recognizes that causation was agreed to by the parties: If a BEL claimant could prove an economic loss, properly measured, that proof substituted for evidence of causation.
In other words, it's largely business as usual for BP paying out. The formulas in the settlement determine a claim with no actual proof necessary outside of business economic losses. Of course, that's the whole point of a class action settlement in the first place is to eliminate the burden and legal time and expense of presenting hard, individual evidence. The order continued:
The agreement simplified the claims process by making proof of loss a substitute for proof of factual causation.
Barbier did rule that some, but not all, cash-accounting claims would have a temporary halt, but only those that had a potential issue in terms of matching or how much the cash-accounting treatment differed if the same claim was filed under accrual-based accounting. In other words the "typically small and fledging businesses" would again be the only ones affected and even only a portion of those. Worst part for BP is the one who will decide which cases fit that description is the settlement administrator, Patrick Juneau, who isn't exactly on BP's Xmas card list this year. The two parties have been at war for months. That makes the referee for deciding this the very person who is BP's arch enemy.
BP needs to put re-cork the champagne and put it back on ice. The truly bad part that nobody is talking about is that the cash-based accounting claims of these small businesses are most likely to be the ones who have the sloppiest paperwork and were causing the most backlog in the system. Having these smaller, time-consuming claims put on hold allows Juneau more time to process more and larger cases, opening up the money drain to BP and the spigot to claimants. Watch the daily statistics website. Shareholders should take note if the weekly claims paid out that had been average $100 million per week starts escalating as I believe they will.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.