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BP Business Economic Loss Claim Appeal 2016-1388: “Totality of Circumstances” Analysis Shows CA Erred in Converting Start-Up Claim to Regular BEL 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.

Claimant operates a rental hall facility in New Orleans, Louisiana. The Claimant filed a Start-Up BEL claim. The Claims Administrator (CA) converted it to a regular BEL claim and determined that Claimant was entitled to a Compensation Amount (pre-RTP) of ($18,129.76). Claimant appeals this negative award challenging the  conversion from a Start-Up BEL to a regular BEL.

The Settlement Agreement evaluates Claimants with at least 18 months of operating history prior to the spill date (April 20, 2010) under the BEL framework. Claimants with less than 18 months of operating history prior to the spill are evaluated under the Start-Up BEL framework. October 20, 2008 is the determinative date for a Start-Up BEL claimant (see Policy381v.3).
Policy 362v.2: Business Economic Loss Claims Operating History of and Definition of Start-Up Businesses provides:
“For purposes of inclusion in the Start-Up BEL framework, the
Claims Administrator will determine a Claimant’s operating history
based on when the Claimant began doing business or operating in
the Gulf Coast Areas or Specified Gulf Waters. Consistent with
Section 1.2 of the Settlement Agreement, the Claims
Administrator’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 and will include a
focus on when the business began to a) sell products in the Gulf
Coast Areas or Specified Gulf Waters, b) regularly purchase
Seafood harvested from Specified Gulf Waters in order to produce
goods for resale, c) perform its full time services while physically
present in the Gulf Coast Areas or Specified Gulf Waters, d) own,
operate or lease a vessel that was Home Ported or landed
seafood in the Gulf Coast Areas, or e) incur substantial costs or
expenses of a nature indicative of the actual start-up of business
operations. Only Claimants that can establish an operating
history, in accordance with this analysis, that commenced before
April 20, 2010 will be eligible for compensation under the Start-Up
BEL framework. For Multi-Facility Business Claimants that elect
to file separately for each individual Facility, the Claims
Administrator will perform this analysis on each Facility included in
the Multi-Facility Business.”
The CA’s reasons for denying Claimant a Start-Up BEL designation are found in the Accountant Compensation Calculation Notes at 19:
“We have reviewed the Re-Review regarding the compensation of
the claim under the Start-Up framework. No changes have been
made to the previous calculation as the specific requirements of
Compensation for Start-UP Business Claims per Exhibit 7 of the
Settlement Agreement were not satisfied. The Claimant incurs
Advertising and Rent expenses beginning in August 2008,
indicating the start-up of operations. Further, the Claimant
provided the contract for the opening event held at the facility
Although the contract states an event date of October 24-26, 2008, the time
stamp on the contract is August 22, 2008, indicating that the Claimant was actively
engaged in booking and preparing for event beginning in August
2008 and therefore was in operation prior to October 20, 2008.
As such, this claim is processed under the BEL framework and no
changes have been made to the previous compensation
calculation.”
The record does reflect that Claimant incurred rent expenses and marketing expenses in August 2008 and marketing expenses in September 2008. The record further reflects that Claimant entered a contract on August 22, 2008 to host its first event on October 24-26, 2008.The record further demonstrates that Claimant recorded no revenue until the October event and recorded no Cost of Goods Sold expenses or payroll expenses prior to that event.
The “totality of circumstances” standard set forth in Policy 362v.2 include when the Claimant began to “sell products”, “perform its full time services” and “incur substantial expenses of a nature indicative of the actual start-up of business operations”. The U.S. District Court in a Discretionary Review decision in Claim ID
stated: “In the absence of revenue, the extent and the nature of the expenses incurred are determinative of whether a business was yet in operation.”
In another claim, the District Court found that payment of an architectural fee for the design of a restaurant was insufficient to show commencement of operations. In the Discretionary Review decision in that claim, when discussing expenses, the District Court found that legal, architectural and engineering expenses do not indicate the actual start-up of business operations under a “totality of the circumstances” analysis. Those two Discretionary Review decisions by the District Court involved whether or not a business was operating “prior to the April 20, 2010 spill. To this panelist, the analysis of whether or not a business was “operating”prior to October 20, 2008 would be the same.
Claimant makes the following argument in its Final Proposal Memorandum:
“The issue here is whether this Claimant, which only began
generating revenues within 18 months before the spill, qualifies as
a Start-Up instead of a regular BEL Claimant. The question for
this Panel really is: what was the intent of the Start-Up BEL
Methodology contained in Exhibit 7 of the Settlement Agreement?
The problem with the regular BEL Methodology is that it breaks
down when attempts are made to apply it to a business with
limited operating history prior to the spill. Since the pre-spill
Benchmark periods are not fully available to a Claimant with
limited pre-spill operating history (and that activity is skewed as a
“benchmark” because of the operational inconsistency in start-up
operations). The parties agreed to an alternate Methodology for
these start-up businesses.
In this case, the Claimant properly recorded its first revenues less than 18 months prior to the spill. BP does not dispute this fact. Application of the regular BEL Methodology, as applied to this Zone A Tourism business operating a rental hall in downtown New Orleans, fails in exactly the way anticipated by the parties in agreeing to the Start-Up Methodology. BP now argues that the rent and advertising expenses incurred by this Claimant in August of 2008 constitute “operating history” presumably sufficient to provide for accurate calculation under the regular BEL Methodology. Since there is no revenue until October of 2008(less than 18 months prior to the spill) application of the regular BEL Methodology fails for the reasons that the Start-Up Methodology was implemented.
Proper application of the terms of Exhibit 7 of the Settlement Agreement and Claims Administrator Policies 109, 362v2 and 381v3 (as well as Section4.3.8 of the Settlement Agreement tasking the Claims Administrator with processing the “information in the completed Claim Form and all supporting documentation under the terms in the Economic Damage Claim Process to produce the greatest ECONOMIC DAMAGE COMPENSATION AMOUNT that such information and supporting documentation allows under the terms of the ECONOMIC DAMAGE CLAIM FRAMEWORK) shows that this claim should have been processed as a Start-Up claim”.
This panelist realizes that the “totality of the circumstances” analysis is dependent upon the individual facts and circumstances involved in each individual claim. Here, on one side of the scale rest the August 2008 rental expense and the marketing expense. On the other side of the scale is the lack of any revenue or COGS expenses or payroll expenses or actual use of the rental hall until after October 20, 2008. Reviewing the “totality of the circumstances”, this panelist finds that the CA erred in converting this claim from a Start-Up BEL claim to a regular BEL claim. Accordingly, this claim is remanded to the CA to process this claim as a Start-Up BEL claim.

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