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BP Business Economic Loss Claim Appeal 2015-1330: Fixed v. variable re hotel’s “franchise fee” and “laundry”


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.

Claimant operates a resort in Key West, Florida and filed this BEL Claim. The Claims Administrator (CA) awarded Claimant the sum of $318,456.28 (pre – 2.50 RTP). BP appeals.

BP appeals on two issues. First, BP asserts that the CA misclassified Claimant’s “Franchise Other” expense as fixed rather than variable. Second, BP asserts the CA misclassified Claimant’s “Laundry and Dry Cleaning” and “Guest Laundry and Dry Cleaning” as fixed rather than variable.

Issue One – Franchise Other

Exhibit 4D of the Settlement Agreement lists Franchise Fees as either fixed or variable. Accordingly, the CA must look at the nature of the expense and determine how to categorize same.

Claimant’s P&L’s include entries for Franchise Fees such as Franchise Reservation Expense, Franchise Fees Rooms, Franchise Fees Marketing and Franchise Other. Claimant is a property operated under the umbrella.

The record reflects that the CA queried Claimant about all four of these Franchise Expenses. Claimant responded with descriptions of Franchise Reservations Expense, Franchise Fees Rooms and Franchise Fees Marketing. The CA then determined all three were variable expenses. Claimant provided no explanation regarding Franchise Other expenses to the CA, despite subsequent inquiries. It should be noted that Claimant’s professional accountant classified Franchise Other as a variable expense.

After review of the record in this matter, this Panelist concludes that the CA erred in classifying Franchise Other as a fixed expense. If the expense is properly classified as a variable expense, the award is reduced by $30,680.00 (pre – RTP).

Issue Two – Laundry and Dry Cleaning

BP asserts that Claimant’s Laundry and Dry Cleaning expenses refer to the costs of providing services to Claimant’s customers. These expenses capture the cost of cleaning sheets and towels (“Rooms Department”), cleaning table cloths and napkins (“Food Department”), and providing dry cleaning/laundry services for a fee to guests (“Special Concessions”). BP asserts that these expenses vary according to occupancy.

Claimant attempts to categorize these costs as Cleaning and Housekeeping costs which, under Exhibit 4D are fixed.

In fact, the Laundry and Dry Cleaning costs are best described here as Cost of Goods Sold – variable. That proper classification reduces the award by $10,124.00 (pre – RTP).

In the reasons set forth above, BP’s Final Proposal is the correct result.

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