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BP Business Economic Loss Claim Appeal 2015-806: Condominium beach resort excluded as real estate developer

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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 appeals the denial of its Claim.

The issue is whether or not the Settlement Program properly excluded Claimant as a Real Estate Developer.

Claimant developed a condominium beach resort complex in Panama City. In 2005, Claimant leased the development to a third party who operates and manages the resort. The lease was renewed in 2010. The third party pays Claimant 10% of the resort’s gross rental revenues.

Section 2.2 of the Settlement Agreement is entitled “Excluded Individuals or Entities.” Section 2.2.4 states that “[t]he following exclusions are based on the substantive nature of the business, not the legal or juridical form of that business.”

One of those “following exclusions” is Real Estate Developers. Section 2.2.4.7 defines that term as including “any Natural Person or Entity that develops commercial, residential or industrial properties. This includes, but is not limited to, any Entity developing an entire subdivision . . . of Real Property, including condominiums . . .”

The Settlement Agreement sets forth in Exhibit 18 criteria for determining whether a Claimant is an excluded Real Estate Developer:

“For . . . Real Estate Developers . . . , the applicability of the exclusion will be determined by the Claims Administrator based on his review of (a) the Claimant’s 2010 tax return, (b) 2010 business permits or license(s), and/or (c) other evidence of the relevant business’s . . . activities . . .”

Problematically, the Settlement Agreement offers no specific criteria on how to determine if an Entity fits within the Real Estate Developer exclusion. In response to this absence of criteria, the Claims Administrator published a number of policies, culminating with the publication of Policy 468.

Part II of Policy 468 sets forth five criteria to be used in determining whether or not a Claimant meets the definition of a Real Estate Developer.

Part II also comments on the standard of review when applying the five criteria:

“The Claims Administrator will examine any of the following information available on the Entity to determine whether it was more likely than not that the Entity was sufficiently engaged in Real Estate Development Activity during 2010 such that it may reasonably be characterized as a Real Estate Developer.” (emphasis added)

Part I of Policy 468 also comments on the overall standard of review:

“In contrast to its treatment of excluded Defense Contractors, the Settlement Agreement provides no revenue threshold applicable to determining who is or is not a Real Estate Developer: rather, the Settlement Agreement takes a more subjective approach and leaves that determination to the sound discretion of the Claims Administrator.” (emphasis added)

A fair reading of Policy 468 suggests that there is no objective formula or bright line test for determining whether or not an Entity was a Real Estate Developer in 2010.

That said, the five criteria set forth in Part II of Policy 468 do provide a useful framework for characterizing the Claimant’s business.

1. Business Designation on Tax Returns

Claimant’s 2010 return lists its NAICS code as 531190 – Lessors of Other Real Estate Property. A review of the NAICS codes shows that this code does not really describe Claimant’s business. Hence, the Settlement Program assigned NAICS code 721199 – All Other Traveler Accommodation. [This Panelist questions why a code connected with real estate development was not selected in light of the Settlement Program’s conclusion that the Claimant engaged in Real Estate Development activities.]

Claimant lists as its principal business activity and principal product or service “Development And Condos & Hotels.” BP argues that “Development” speaks for itself. Claimant contends via affidavit from it CPA that this description was left over from pre-2005 when Claimant was in fact engaging in real estate development.

2. Permits and/or Licenses

Claimant held a real estate license in 2010. Claimant points out that the license was obtained prior to 2005 and that the license automatically renews. BP argues that Claimant maintained its license because Claimant was still engaging in real estate activities – e.g., the sale of a condo in April 2010.

3. Revenue

Since 2005, all of Claimant’s revenue has been derived from its lease arrangement with the third party, with the exception of the sale of one condo in 2010. BP argues that the sale of that one condo is evidence that Claimant continued to act as a developer in 2010.

4. Expenses

Claimant contends that it did not incur any expenses in 2010 associated with Real Estate Development. BP disputes this, but offers no specific examples.

5. Other Available Information

This final criteria looks at “[a]ny materials in the claim file, the Entity’s promotional materials, website and other statements that the Entity was engaged in Real Estate Development Activity in 2010.” There do not appear to be any materials or statements from these sources that suggest that Claimant was a Real Estate Developer in 2010.

Based on a review of the above criteria, this Panelist would be inclined to find that Claimant was not sufficiently engaged in Real Estate Development Activity in 2010. However, BP makes a persuasive argument to the contrary based largely on other language in Policy 468.

Policy 468, Part II (C) (5) states that “Real Estate Development Activity includes any activities involved in the making of any material change in the use of buildings or land, including the renovation and re-lease of existing buildings, the purchase of raw land for development, the sale of improved land or parcels to others and the planning, design, arranging of financing, zoning approvals, construction, marketing, sale or lease of such projects.” (emphasis added) Claimant leased the resort to the third party in 2005. BP argues that because the lease was still in effect in 2010 constitutes 2010 Real Estate Development Activity sufficient to disqualify Claimant.

BP’s stronger argument is its reliance on Policy 468, Part II (D), which addresses those claimants who had been engaged in Real Estate Development Activity but ceased such activity prior to 2010. Subpart (2) states that [a]n Entity that in 2010 sold . . . any real property developed by the Entity has not ceased all Real Estate Development activity and shall be an Excluded Real Estate Developer, regardless of the date the project was completed.” (emphasis added) BP argues that Claimant’s sale of one condo in April 2010 is evidence that Claimant had not ceased all Real Estate Development Activity.

This Panelist finds that Policy Part II (D) is somewhat inconsistent with other sections of Policy 468. The “Introduction” section sets forth “a more subjective approach.” The “Criteria for Analysis” section uses “more likely” and “reasonably.” Yet, the “Cessation of Real Estate Development” section seems to deal in absolutes (e.g., selling only one property years after a development was completed would appear to disqualify a claimant).

This is a close decision. Both parties make persuasive arguments. On balance, Panelist finds that although Claimant may have engaged in some Real Estate Development Activity in 2010 – specifically, selling one condo and maintaining a real estate development license – Claimant’s primary business in 2010 was not Real Estate Development.

Accordingly, the denial is overturned.

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