BP Decides to Drop Bid to Oust Oil Spill Settlement Administrator

BP has abruptly switched legal strategies—again—in the multibillion-dollar liability fight stemming from the April 2010 Gulf of Mexico oil spill. The company dropped a campaign to oust a settlement administrator it had accused of tolerating waste and fraud. The move seeks, in part, to mollify a federal judge in New Orleans who could sock BP with an enormous judgment in an environmental suit filed by the U.S. government.

As the five-year anniversary of the mammoth spill approaches, BP is looking to contain the already-considerable damage to its balance sheet and reputation. Beginning shortly after the disaster, which killed 11 offshore-rig workers and spewed millions of barrels of crude into the gulf, BP set aside billions for cleanup and damage claims and started making payouts. The company’s attempts to avoid protracted litigation failed, however, as certain Louisiana officials and plaintiffs’ lawyers pressed for compensation levels BP refused to meet. So far, the company has paid out more than $28 billion, but legal hostilities continue on several fronts. The eventual financial hit could easily reach $50 billion.

On one front, BP sought to remove a court-appointed administrator overseeing a settlement of certain private business and economic claims. The company accused the official, Patrick Juneau, of running a lax operation that accommodated fanciful claims unrelated to the 2010 spill. BP also alleged that Juneau tolerated rampant fraud.

Juneau denied wrongdoing. Plaintiffs’ lawyers doing business with his settlement organization said BP was trying to wriggle out of a pact that turned out to be more expensive than the company anticipated.

BP had modest success in the courts getting Juneau to modify his methods for determining damage amounts. But the company failed to persuade the U.S. Supreme Court to intervene and dramatically curtail payouts. Today, BP made a court filing in New Orleans saying it would rescind its demand for Juneau’s removal.

“This marks the beginning of a new and more productive relationship between BP and the [Juneau] claims program,” John Mingé, chairman and president of BP America, said in a prepared statement. “We appreciate the work that has been done to develop and implement improved processes to, among other things, detect and prevent the payment of fraudulent claims. We share with Mr. Juneau and the claims facility the goal of compensating the people and businesses of the gulf under the terms of the settlement agreement.”

BP originally estimated the settlement at $7.8 billion. The company now concedes that the price tag could reach $9.9 billion. The Juneau operation has already paid out $4.9 billion.

One way of understanding BP’s move today is that, having beaten up on Juneau, the company believes it has done as much as it can to slow settlement payments. BP’s motive for burying the hatchet with a prominent Louisiana lawyer who pushed back hard against the attempt to oust him might also include a desire to mollify the judge who appointed the settlement administrator, Carl Barbier of the U.S. district court in New Orleans.

Judge Barbier has overseen the bulk of the litigation and settlements related to the 2010 spill. When BP attacked Juneau, the judge stood behind his appointee and fellow prominent member of the Louisiana bar. Now, Barbier is presiding over a separate civil trial in which the U.S. Justice Department is seeking in excess of $13 billion of additional damages from BP under the Clean Water Act. Making peace with Juneau looks like an attempt to mend relations with a jurist who has tremendous discretion to determine the penalty BP will pay for its negligence five years ago.