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BP Business Economic Loss Claim Appeal 2015-1268: Income from “Special Building Campaign” included as non-profit revenue


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.

After initiating this appeal of the BEL claim award the Settlement Program (“the SP”) accorded Claimant [XXXXX]. BP relented and, in its Final Proposal, abandoned the ground it had championed in its Initial Proposal. It now says it agrees with the $28,106.47 Compensation Amount the SP awarded. However, exercising the option available to it under the interaction of Rules 9, 14 and 17 (b) of the Rules Governing the Appeals Process, Claimant in the meantime had “cross appealed,” contending that the SP erred in excluding from consideration as revenue those monies received by which it listed in line item 023.00 – Special Building Campaign – of the “Income Accounts” section of its P&L statements. The SP gave this explanation for the exclusion, in Calculation Note 7:

“The church was destroyed in Hurricane Katrina and subsequently rebuilt. The Claimant owes indebtedness of approximately $600,000 to the , which it repays whenever it has funds available. The Claimant uses this account to track donations that can be used to repay the loan when funds are available. The funds are not restricted and can be used for other purposes such as ordinary repairs and maintenance. Accounting Review excluded this revenue pursuant to Policy 328 V2.”

That cited policy states as follows:

“The Claims Administrator interprets the Settlement Agreement such that the following items shall not typically be treated as “revenue” for purposes of the various calculations to be performed under the terms of the Settlement Agreement with regard to entities asserting BEL claims: (a) insurance proceeds, (b) interest income, (c) gains or losses from sales of assets, (d) reimbursed expenses, (e) capital assessments, (f) intercompany sales, (g) related party transactions that are not arm’s length transactions, and (h) grants for “for-profit” entities. The foregoing is not an exhaustive list. The Claims Administrator in his discretion may require that the claimant provide further explanation and/or additional documentation underlying the monthly revenue and related expense amounts in question. In arriving at this conclusion, the Claims Administrator has in part relied upon the fact that these items are not typically earned as revenue under the normal course of operations in an arm’s length transaction.” (Emphasis added)

Policy 307 v.2 provides in subsection (a):

“Income received by non-profit entities in the form of grant monies or contributions shall typically be treated as revenue for that entity for purposes of the various required calculations under the terms of the Settlement Agreement.”

The U.S. Fifth Circuit of Appeals upheld that policy in its recent decision in the “NonProfit Appeals,” In Re Deepwater Horizon, No 13-31296 c/w 13-31299, 13-31302, May 8, 2015@ page 33.

Calculation Note 7 quoted above does not explain which of the eight items “not typically treated” as revenue under Policy 328 v.2 the SP had in mind in excluding from revenue the “Income Accounts” section, line item 023.00 “Special Building Campaign” entries on P&Ls. Claimant had cogently argued, backed up by detailed submissions from its accountant, that:

“The Claims Administrator acknowledges, the claims record reflects and the attached opinion of support that these revenues are unrestricted normal ongoing operational income for this Claimant. As explained by the revenues in line item 0023.00 Special Building Campaign do not fit in any category of Policy 328v2. These are revenues typically received by in the normal course of its operations, all in arms length transactions. The source of this revenue is not insurance proceeds, interest income, result of the sale of an asset, or an intercompany sale, or from a related party, or a grant to a for-profit entity. Further these revenues are not a capital assessment as has no authority or ability to charge or require payment from anyone for any purpose much less for debt service or improvements to property. Finally, these funds are not reimbursed expenses. These donations were deposited and commingled in the general savings account with other donations received in excess of current expenses, and later to the operating account as needed to meet expenses. These donations were available for use by the Pastor in the ongoing operations of Claimant.”

BP counters that:

“The Settlement Program treated the payments to the that were passed through Claimant as fixed expenses to Claimant. See Financial Data Used By Accountants at Tab 2, Row 503 (Doc ID [XXXXX]) If the expenses are treated as fixed and thus excluded from calculation, so, too, must the corresponding reimbursements to Claimant. Doing otherwise creates the fiction that the reimbursements to Claimant are 100% profit, when in fact Claimant simply passed the collections through to the Thus, the Settlement Program recognized that this assessment was a mere pass-through and excluded the funds from the calculation of revenue pursuant to Policy 328.”

The panelist concludes that the income line item in question was due to be included as revenue for the purposes of calculation of the Compensation Amount Claimant should receive. Claimant says doing so will raise its Compensation Amount to $195,952, and submits that as its Final Proposal. As noted, BP says the treatment of payments to the [XXXXX] must be taken into consideration, but that seems to be more of an “after the fact” aspect, rather than one affecting the character of the funds when received, given their unrestricted nature. At any rate, the panelist declines independently and de novo to attempt to calculate the proper outcome resulting from inclusion to the Special Building Campaign income line item in “revenue,” particularly given that the Policy 495 criteria were triggered during the original processing and the AVM methodology applied, and neither party suggests that was unwarranted. Therefore, neither Final Proposal can be adopted. Accordingly, the panelist remands with instructions that the SP recognize the subject income as part of “revenue” and then subject the data to the AVMM.

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