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BP Business Economic Loss Claim Appeal 2016-11: Lost profits as to cancelled contract


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 BEL claim and presents a final proposal of $ 4,171,957.00, which totals in excess of $10,400,000 post-RTP. Claimant submitted this claim pursuant to the Cancelled Contract method laid out in Exhibit 4E of the Settlement Agreement. BP took the position that claimant did not meet the applicable criteria for this framework for numerous reasons.

First, BP suggested that only parties in Zones B-C are eligible under the cancelled contract provisions. This limitation is found nowhere in the Settlement Agreement and, as claimant pointed out, it would be inappropriate to place a party in Zone A, as this one is, in a less favored status.

BP’s core argument is that Claimant has not adequately demonstrated that it suffered due to a cancelled contract on account of the Spill. The pertinent portion of the Settlement Agreement states as follows: A Canceled Contract shall be “a contract (1) which was in place as of April 20, 2010, (ii) to be performed between April 21, 2010 and December 31, 2010 (iii) which was cancelled between April 21, 2010 and December 31, 2010 (iv) which the claimant was unable to replace on the same or similar terms between April 21, 2010 and the date the claimant’s claim is filed…” See 4E B1.

In this case, claimant pointed to a contract it executed with [XXXXX] to perform infrastructure work for which was designed to be an RV Park located in Orange Beach, Alabama. The contract shows that [XXXXX] was the contractor, the subcontractor and the owner of the project. The original contract amount was for $6,743,442.00. In order to demonstrate the cancellation of this project, claimant originally submitted an August 10, 2010 letter from [XXXXX], the Project Manager for [XXXXX] that indicates it is “on behalf of the contractors that were under contract to complete the project .” The document also stated “Due to the oil spill and the lack of tourism, we are postponing the build out of our facility indefinitely. With the beaches in the state they have been in, we are not able to interest potential buyers… and therefore we do not plan to proceed at all or at least until the beaches and the tourism is back to normal.”

BP took exception with the fact that this letter was from the Manager of the Project Owner and not the party that contracted with Claimant. Additionally, BP complained that the document indicates the project was postponed which does not prove the cancellation of the pertinent contract due to the Spill. However, claimant, along with its initial proposal, also submitted a Sworn Written Statement from [XXXXX] which stated that “my business had a contract in place with the claimant’s business prior to or on April 20, 2010 which was to be performed between April 20, 2010 and December 31, 2010 and…my business canceled that contract between April 21, 2010 and December 31, 2010 as a result of the Deepwater Horizon Spill.”

The relevant provision in the settlement Agreement sets forth the following requirements: “Documentation providing contemporaneous written evidence that each Canceled Contract…was canceled as the direct result of the DWH Spill and/or a Sworn Written Statement from an individual third party affirming that each cancellation was due to or resulting from the DWH Spill.” See 4E D (1) b.

There is a finding herein that the evidence submitted by claimant is sufficient to establish proof of a cancelled contract that fits within the parameters of the Settlement Agreement. Admittedly, the contemporaneous statement is somewhat vague and is arguably not enough to prove cancellation as opposed to postponement. However, the sworn statement from the representative of the Project Owner is adequate, in conjunction with the earlier letter, where the Settlement Agreement calls only for a SWS from a third party. These documents also clearly established a link between the cancellation and the Spill.

However, BP does raise other objections as well and there are details lacking in other aspects of the claim. The Settlement Agreement calls for calculations with respect to the lost profits that would have been earned on the cancelled contract between April 21, 2010 and December 31, 2010. In keeping with the requirements of this framework, the Claims Administrator requested information on “when payments were expected to be incurred, the timing of when all phases of the contract were expected to be completed and if there were any collections from the completion of work before the contract was terminated…” See Post- Consideration Incompleteness Notice. Claimant provided only conclusory information relative to these issues and certainly not enough to allow the Settlement Program to make the calculations required under the Settlement Agreement. Moreover, there is information in the record indicating that, as of February 2011, roughly 10% of the infrastructure was completed and 11 of 111 lots at were finished. See Declaration of the Managing Member of the subsequent owner of the property. This begs the question as to whether claimant was able to perform some of the work before the contract was cancelled and this determination must be made as part of the assessment of this claim.

There is a ruling herein that claimant is eligible for compensation as a result of the cancellation of its contract with [XXXXX] to perform construction at [XXXXX]. However, this matter is remanded to allow the claimant to provide adequate information so the Claims Administrator may determine the Lost Contract Profit that Claimant would have earned between April 21, 2010 and December 31, 2010 in connection with the cancelled contract. As part of the submission, claimant must provide information regarding what portion of the work it performed and what profits were earned between April 21, 2010 and December 31, 2010 relating to subcontract to build at the [XXXXX]. Claimant must submit this information to the Claims Administrator within 15 days of the posting of this Remand. Once this data is submitted, the Claims Administrator is to perform the necessary calculations to determine what award, if any, is due to this claimant. If claimant does not submit adequate information within 15 days that allows the Claims Administrator to calculate the loss contract profit for the relevant period, this claim should be denied.

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