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BP Business Economic Loss Claim Appeal 2015-1611: Arms Length Transactions as Revenue (decision overruled)


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.

This is a BP appeal of a Business Economic Loss award to a trucking company located in Wiggins, Mississippi (Zone D). Analysis of Claimant’s records in keeping with the requirements of CAO Policy 495 identified several matching issues which were corrected by application of the Annual Variable Margin Methodology. The Claims Administrator entered an award in the amount of $32,175.10 pre-RTP. BP appealed.

In the Comments section of its Appeal Notice, BP identified the following errors:

(1) Failure to properly address related party issues;

(2) Failure to properly address revenues and expenses associated with Claimant’s purchase of a second truck in August, 2009 and hiring of a second driver; and

(3) Improper treatment of payments to Claimant’s son in 2010.

BP’s subsequently filed appellate briefs make no mention of error assignments (2) and (3). Consequently, they are deemed abandoned.

In its Initial Proposal memorandum, BP asserts that the vast majority of Claimant’s income during the years 2009 and 2010 was received from [XXXXX]. Given the similarity of Claimant’s name with that of its primary customer, argues BP, there is a “high likelihood” that the two companies are, in fact, related parties. Notwithstanding this strong indication of related-party transactions, the Claims Administrator did not evaluate the income at issue to determine whether it should be excluded pursuant to CAO Approved Policy 328. That policy, of course, instructs that related-party transactions which are not arms length transactions shall not typically be treated as “revenue” for purposes of the various calculations to be performed with regard to BEL claims. Since the Claims Administrator failed to conduct a related party inquiry, BP submits that the claim should be remanded to the Claims Administrator with instructions to do so. Alternatively, BP submits zero dollar Initial and Final Proposal amounts.

In his Final Proposal memorandum, Claimant’s counsel reports that Claimant herein, and [XXXXX] are completely separate entities. Claimant is an LLC owned by [XXXXX] and his wife, who reside at [XXXXX]. [XXXXX] is a separate corporate entity whose office address is [XXXXX]. Its sole shareholder is is the father of [XXXXX]. Copies of tax returns and records from the Mississippi Secretary of State confirm that the two entities are indeed separate. They also confirm that neither has any ownership interest in the other’s business enterprise.

BP promptly filed a Supplemental Memorandum to which Claimant’s counsel objected and responded. The essence of BP’s position is that Claimant has conceded that [XXXXX] is the son of [XXXXX], that the owners of both companies are “literally related family members” and that, since the claims analyst was unaware of that relationship, which Claimant has only now “disclosed”, the claim should be remanded with instructions to investigate the transactions between the two entities.

In rebuttal, Claimant’s counsel asserts that the transactions between [XXXXX] and [XXXXX] were conducted at arms length and were not the consequence of a sweetheart or special deal. In support of that position, counsel attached three statements (which he erroneously characterizes as “invoices”) issued by [XXXXX] during the month of November, 2009. One was issued to [XXXXX], one to [XXXXX], and the third to Claimant. They appear to document loads transported by those entities in respect of the [XXXXX] account. All appear to confirm the same rate of compensation. The net effect of these, argues counsel, is to demonstrate that Claimant was paid by [XXXXX] at the same rate for its services as were other trucking companies.

After careful review of this entire record, this panelist has concluded that the Claims Administrator’s determination should be upheld. While the analyst apparently was unaware of the familial relationship between the owners of the two entities, and did not conduct a Policy 328 investigation to determine whether there existed any related party transactions that were not conducted at arms length, it is abundantly clear from the documentation submitted by Claimant that the entities were entirely separate and shared no common ownership. The cited, handwritten statements do not bear the name of the logging company but they do evidence loads transported for it which were to be compensated on the same terms. For a moment, this panelist contemplated the notion of remanding this issue to the Claims Administrator with instructions to further verify them. Upon further reflection, and considering the fact that the statements are submitted by Claimant and his able attorney to the Settlement Program under penalty of perjury, the remand notion was discarded as unnecessary.

For the foregoing reasons, this BP appeal is denied. Claimant’s Final Proposal is therefore selected.

[Editor’s Note: This appeal panel decision was reversed by Judge Barbier under Discretionary Review.]

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