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BP Business Economic Loss Claim Appeal 2015-1257: NAICS not on Exhibit 19, yet still subject to moratoria review


The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms.

BP appeals the $244,855.31 BEL claim Compensation Amount award to a Harvey, Louisiana, based manufacturer. What Claimant manufactures and for whom is at the heart of this appeal. BP contends that the Settlement Program (“the SP”) failed to conduct an analysis of whether Claimant was an excluded member of the oil and gas industry, or whether, alternatively, it was ineligible for compensation because its claimed losses were “Moratoria Losses.” BP relies mainly on these facts:

1. On April 11, 2007, President and CEO [XXXXX] presented a statement to a U.S. Senate Committee examining the availability/affordability of property and casualty insurance in the Gulf Coast, describing his company as “an oil and gas equipment manufacturer that has been in business in the New Orleans area for over 25 years;”

2. May 12, 2011 GCCF Claim Form signed by [XXXXX] attested that its sources of income/types of customers at the time of the spill were “oil companies & oil field service companies,” that the nature of its business then was “Growing manufacturer and contract machine shop for oilfield components servicing oil companies and oil field service companies” and that the description of its loss and how it occurred was “Local business activity decreased[.] Moratorium limited oil companies and oil company service industries from buying from local gulf coast suppliers and businesses;” and

3. The fact that the vast majority of revenues were from manufacture of “flow control” devices, which BP contends are associated with the oil and gas industry.

What the SP investigated and evaluated in that regard is reflected in the record by the following: The “Current/Last Review” portal contains this introductory explanation:

“The Claims Administrator assigned a NAICS Code that differs from the code listed on the Business Entity’s 2010 tax return because the code on the 2010 tax return is not a valid 2007 NAICS Code. The 2010 tax return lists NAICS Code 332700, which is not a valid 2007 U.S. NAICS Code, and lists the primary business service or activity as “fabrication.” The 2010 Profit and Loss Statement for Claimant indicates that Claimant derived $3,379,044.08 of its $4,429,711.33 annual revenues from “flow control.” Claimant does not maintain a website. NAICS Code 332721 – Precision Turned Product Manufacturing is the most appropriate NAICS Code for the Business Entity because correspondence in the file indicates the entity is engaged in “widget” manufacturing. The products they produce are consistently changing and products are generally specialty parts or component parts of something else and specialty screws, bolts and tools.”

A cross referencing of an entry in the Contact Notes Report with email exchanges between Claimant’s attorney and the assigned SP analyst, reflects that the analyst asked the attorney for additional information about Claimant’s business, specifically who were its typical customers and how long it took for it to complete a typical manufacturing job, and that the two had a telephone conference on February 23, 2015, during which the attorney “confirmed . . . that the claimant is a parts manufacturer for small parts such as bolts and nuts . . . .” Two weeks later, following another telephone conference, the attorney emailed the analyst to confirm their “recent discussions” and to provide this summary:

“Claimant’s business is in essence “widget” manufacturing. As I understand it, the products they produce are consistently changing. These changes are dictated by customer request. There products are generally specialty parts or component parts of something else and specialty screws, bolts and tools. My client provided me with a good analogy for the type of work it preforms: He does not make the housing for the alternators used in its vehicles. They outsource the manufacturing of that component part to companies like [XXXXX]. The typical turn around time for on a given job is 2 to 4 weeks. Their customers vary from commercial general contractors to GE.”

For all that appears in the record, the SP was not made aware of the content of remarks to the U.S. Senate Committee.

Policy 480 v.2 lays out a comprehensive explanation of the SP’s selection of the appropriate NAICS code assignment for a claimant, including for use in determining “Exclusions” and “Moratoria Losses.” The core principle is that the appropriate NAICS code for an entity is that which most accurately describes its “primary business activities.” Based on all of the considerations discussed herein, the panelist concludes that the SP’s determination that NAICS Code 332721 – Precision Turned Product Manufacturing – was the most appropriate “fit” for the primary business of Claimant is not due to be second guessed. BP’s suggestion that “excluded” NAICS Code 333132 – “Oil and Gas Field Machinery and Equipment Manufacturing” – would be a better choice, is under cut by the explanation for that code that “This U.S. industry comprises establishments primarily engaged in (1) manufacturing oil and gas field machinery and equipment, such as oil and gas field drilling machinery and equipment; oil and gas field production machinery and equipment; and oil and gas field derricks and (2) manufacturing water well drilling machinery.” There is no evidence in the record that Claimant has ever manufactured any such machinery or equipment. Concerning the statement [XXXXX] read to the Senate Committee, he attests in his affidavit that he simply read what had been authored by [XXXXX] on whose behalf he was appearing, and it was simply his intent to speak about all five of the companies he owned and marketed under the trade name [XXXXX].

BP argues that in fact Claimant manufactures “equipment” for the oil and gas industry, not “widgets,” and that the term “widgets” doesn’t appear in the description of NAICS Code 332721. Claimant counters that it doesn’t manufacture equipment, but only a wide variety of precision parts, instruments and tools, as called for by a particular customer by submission of blueprints and specifications. Claimant asserts that many of the items it is asked to manufacture are patented by design, arbitrarily named, and/or virtually indescribable by nature, and generally are composed of screws, bolts, nuts and other custom parts, properly described as widgets. Random House Webster’s Unabridged Dictionary (Second Edition, 2001) defines “widget” as “a small mechanical device, such as a knob or switch, esp. one whose name is not known or cannot be recalled.” Claimant argues that oil and gas are not the only liquids that “flow” and that it is called upon to manufacture “a variety of widgets to ‘control’ the flow of various liquids.” Exhibited to Claimant’s Final Proposal is the affidavit of [XXXXX] in which he makes the statement “Claimant readily admits that certain of its customers are in the oil and gas industry and/or equipment manufacturers which sell equipment ultimately used in the oil and gas industry. Several other customers, however, are involved in a myriad of other industries, including aerospace, aircraft, aluminum production, bridge building, general construction, and water distribution, to name a few.”

Exhibit 17 to the Settlement Agreement, entitled “Oil & Gas Industry Exclusion,” states that business entities within the NAICS Code descriptions set forth in the exhibit, are excluded from the settlement class. If a claimant’s assigned NAICS Code appears on Exhibit 17, the claim is excluded; if that code does not appear, the claim is not excluded. The NAICS Code assigned – 332721 – is not among those listed in Exhibit 17, so is not excluded from the class.

The moratoria questions calls for a broader analysis. Section 3.3 of the Settlement Agreement excludes moratoria losses, defined by Section 38.93 as “any loss whatsoever caused by or resulting from federal regulatory action or inaction directed at offshore oil industry activity . . . .” Exhibit 19 to the Settlement Agreement lists by NAICS number various industry types subject to automatic review for potential moratoria losses (Section I of the exhibit) and various industry types subject to questions and possible review (Section II). Claimant’s assigned NAICS Code is not among any of those listed in Exhibit 19. The Section 38.93 definition of moratoria losses is sweeping, however, (“any loss whatsoever caused or resulting from . . . .”) and does not mention NAICS Codes. This panelist agrees with the conclusion reached by panelists in several prior appeals that nothing in the Settlement Agreement dictates that the list of NAICS Codes in Section 19 is an exclusive listing, and other industry types may require a moratoria review if the evidence warrants. The answers entered on GCCF Claim Form explicitly attributed the company’s losses to the moratorium. He attempts in his subsequent affidavit explain away that clear-cut picture, by stating:

“The responses which appear on the GCCF Claim Form were neither prepared by me nor an attorney, but rather were hastily prepared by one of our employees. To the best of my knowledge, when the employee-preparer formulated the responses which appear on the GCCF Claim Form, she made assumptions as to the nature of business based solely on the names of certain customers. Those assumptions were incorrect; and, in turn, so were many of the responses on the GCCF Claim Form, including, for instance, the responses to questions numbered C 8, C 9 and C 14.”

This seems a little disingenuous, given that the claim form states clearly that by his signature, he was certifying that the information entered was true and correct to the best of his knowledge and that he understood that false statements could result in severe sanctions. The female employee who says in his affidavit made incorrect assumptions was clearly who he advised the GCCF was his authorized business consultant for all aspects of the claim. (See May 9, 2011 letter from to the GCCF) She also is the person to whom has been entrusted the full authority and responsibility for filing and processing the present BEL claim and she therefore would seem to be a person deemed to be knowledgeable about the nature of the business and not just some low-level clerical employee who filled out the GCCF form by indiscriminate guesswork. Nowhere in the record is there any reference by the SP personnel involved to an awareness on their part of the GCCF Claim Form, and surely its content would have invoked some mention and follow up by someone within the SP, if known. Accordingly, the panelist concludes the SP did not know what Claimant represented to the GCCF about the moratoria being the cause of its claimed losses, and the SP therefore forewent any moratoria review.

The panelist concludes that this claim must be routed to the SP team dedicated to the evaluation of BEL claims for potential moratoria losses, and remands for that purpose. The panelist upholds the SP’s decision on the separate issue of whether Claimant is an excluded business in the Oil and Gas Industry, and the appeal is denied with respect to that ground.

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