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BP Business Economic Loss Claim Appeal 2016-1347:No “Bright Line” Whether Pre-Spill Expenses Sufficient for Business Start-Up Claim

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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

The Settlement Program (“the SP”) denied the Start-Up BEL Claim of Claimant on the basis that its “operating history” commenced on or after April 20, 2010.
Claimant was incorporated as an Alabama Limited Liability Company in November, 2009. Based in Gulf Shores, Alabama, its business plan was to host an event entitled
This event would feature an auction of classic cars to generate revenue. Additional revenues would be generated from owners of other classic cars paying to display their vehicles at designated sites, generated from owners of classic cars paying to participate in a cruise/drive to ten host locations and advertising revenue. In furtherance of that plan, it entered into a contract with on March 3, 2010 to lease the facilities of paying $9,000.00 as a deposit against a lease rate of $12,400.00. (Although
states in its Opening Memorandum that “a copy of this lease has been previously uploaded to the portal,” the panelist has been unable to locate it among the
documents in the record on appeal, and has confirmed with the Claims Administrator’s Office that it likewise finds no copy of the lease in that record. Nonetheless, for the purposes of this analysis, the panelist will assume description of the lease is accurate.)
Claimant also paid $1,100.00 in consulting fees to on April 17, 2010 to design a website and provide various advertising and marketing services and materials.
Additionally, in November of 2009, it asserts in its Opening Memorandum, it established a business banking account; received an employer identification number from the IRS; contracted with to advertise the event; and contracted with to administer the vehicle auction. Post-Spill, during the remainder of 2010, it made additional payments to totaling $7,240.00, paid an accountant $190.00 and paid the Alabama Department of Revenue $312.79. Clearly, was moving forward with its business plan, but the issue is, had it done and spent enough to establish an “operating history” of the sort required for a start-up business by Exhibit 7 to the Settlement Agreement?
Policy 362 v. 2 provides that the SP’s analysis of whether a business was doing business or was in operation will be based on the totality of circumstances involving the Claimant’s business…”, with the analysis to focus on when the business began to: “a) sell products in the Gulf Coast Areas or Specified Gulf Waters, . . .c)perform its full time services. . . ,e)incur substantial costs or expenses of a nature indicative of the actual start-up of business operations.”
Claimant did not generate any revenue until September 2011, almost a year and a half after the April 20, 2010 Spill. Claimant argues on appeal that, under the totality
of circumstances standard, its Pre-Spill expenses and engagements satisfy the requirements of Policy 362 v.2.
There is no bright line test a panelist can apply to determine when a claimant has incurred “substantial costs or expenses of a nature indicative of the actual start-up
of business operations.”(Emphasis supplied.) In advance of “actual start-up” of business operations, there can be the concept stage, the planning stage, the preparatory
stage and the gearing up or ramping up stage. Just when activity and incurring of expense have reached the “critical mass” of actual start-up of business operations is usually a judgment call and often a close one.
The District Court issued the following binding analysis and pronouncement on June 1, 2016, in Discretionary Review Decision Number 16-4033:
Claimant is a lounge that opened for business in October 2010. Claimant cites certain expenses that it incurred prior to the Oil Spill as evidence that it began doing business or operating prior to the Oil Spill (April 20, 2010) as required by Policy 362 v.2. But those expenses are largely legal, architectural and engineering expenses that do not indicate the actual startup of business operations under a “totality of the circumstances” analysis as per Claims Administrator Policy 362 v.2. Consequently, the Court reinstated the SP’s denial of the claim for lack of a pre-Spill operating history, reversing the Appeal Panel decision which had found the pre-Spill expenses to
be sufficient to establish that history.
Applying to the present appeal, the standard set by that decision to the best of this panelist’s ability to discern it, pre-Spill expenses are essentially of the same type the
District Court held to be not indicative of the actual start-up of business operations. The panelist also takes into consideration the long gap intime between the November 2009 events relies on in part, and the March/April 2010 expenses it also relies on; and the large gap in time between the Spill and the first reporting of any
revenue. The decision of the SP that had not established a pre-Spill operating history is not shown to be erroneous, and it is upheld.
Appeal denied.

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