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BP Business Economic Loss Claim Appeal 2016-1931:Change in Form Of Organization Does Not Merit “Start-Up” Status Under Policy 362

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 Claimant owns and leases commercial property in Sarasota, Florida (Zone C). It’s Business Economic Loss claim was reclassified to that of a Start-Up Business Economic Loss and, after consideration, was denied by the Claims Administrator because:
You submitted documents indicating that your business’ operating history
commenced on or after April 20, 2010. The Settlement Agreement and Claims
Administrator Policy 362 require that your business’ operating history commence
before April 20, 2010 to be eligible to receive compensation under the Start-Up
Business Economic Loss or Failed Start-Up Business Economic Loss
Claimant sought Re-Review, contending the Administrator mistakenly treated a July 1, 2010 change in form which it made for tax and legal liability purposes as the commencement of its operation. Instead, it argued, it was in continuous operation with the same ownership throughout the claim period (2007 to 2 011) and should be treated as an ongoing business, not a Start-Up.  More specifically, it stated:
Claimant owns a commercial rental property located at XXX. Until July 1,
2010, this rental property was owned by and reported on the tax return of ***
along with several other rental properties. On July 1st, 2010, ZZZ transferred
a number of these properties (including @@@) to individual LLCs. No gain or loss was
recognized on the transfers. The owners of the new LLCs were the same as the
owners of the property before transfer to individual LLC’s.”
The purpose of the transfers, per the claimant, was so that the properties would be independent entities for legal purposes.
Claimant’s Reconsideration Request was denied with the following analysis:
We have reviewed your Reconsideration Request based on failure to consider
relevant information. As a result of the review and, the addition of updated
information, the correct standards were originally applied and the determination
remains unchanged.
Claimant appealed, reasserting its position before the Claims Administrator. According to
The Settlement Program, in deeming this a break in operations, with distinct
claimants on either side of the break, is using a rigid position that a change in EIN
equates to a change in Claimant. This interpretation has no foundation in the
Settlement. Policy 354 would have clearly recognized that this Claimant as one
continuing business, disregarding the EIN change with no substantial change in
ownership or operations * * *. However, Policy 354 was rescinded, leaving a
void. Though rescinded, it clearly would indicate that this Claimant has a
continuous operating history and should not be a Start- Up * * *.
While the SP needs to examine the facts and circumstances to determine if a reorganization should be treated as a change in Claimants, they clearly have not done so in this case. The SP has offered no explanations or guidance to the Claimant beyond the boilerplate language on Denial Notices. While this may be the easy path for the
SP, it has been long and difficult for the Claimant.
Arguing in support of the Claims Administrator’s determination, BP cites Claimant’s formation date for the proposition that it is a separate entity with no records of renting the property prior to that date and no profit and loss statements recording any activity until then. Further, BP argues that “Claimant and its predecessor entity are not one and the same. When ownership of the property was transferred from HHH to Claimant, Claimant received a new taxpayer identification number. Claimant is a Start-Up business in the eyes of the Settlement Agreement because, until that time, it was not the owner of the subject business. “
The fundamental issue here, then, is whether Claimant was operating at the time of the Spill. Fortunately, the supervising District Court has provided guidance in a Discretionary Review Decision involving somewhat similar facts. There, as here, the Claimant was an LLC which was formed in July of 2010. It was undisputed that it did not exist or operate the subject business at the time of the Spill and its involvement with it did not occur until it bought substantially all of the assets of the corporation in September of 2010. Said the Court:
The transaction was a sale of assets, not a sale of the company’s stock. Further, it
was not merely a change in corporate organization. The transaction was something
other than a single entity merely changing its legal form of organization; it was a sale of
assets from one entity to a separate entity with a different set of owners. Under these circumstances,
the Claims Administrator was correct to deny this claim on grounds that the claimant entity
was not operating at the time of the Oil Spill.
Here, the record evidence demonstrates that the contrary is true. The underlying transaction at issue here was a mere change in legal form of organization from one which did not permit its owners to limit their individual liability to one which did. The owners of the new Claimant LLC are identical to the owners of ZZZ . Neither the ownership nor the operation of Claimant’s business changed in any way, shape or form.
For the foregoing reasons, this panelist finds, after de novo review, that the Claims Administrator erred in treating this Claimant as a Start-Up Business and denying its claim. Claimant’s appeal is sustained, the denial is overturned and the claim is remanded to the Claims Administrator for further processing in keeping with this opinion.

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