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BP Business Economic Loss Claim Appeal 2016-1971: “Incidental Relationship” To Oil and Gas Industry Insufficient for Exclusion

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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 is a Norco, LA company that BP characterizes as ***. The Settlement Program awarded Claimant $931,765.97 pre-RTP. BP asserts on appeal that the Settlement Program failed to determine whether Claimant is an excluded business, arguing that Claimant should be classified as NAICS Code 237120-“Oil and Gas Pipeline and Related Structures Construction”, which would classify Claimant a business in the Oil and Gas Industry and thus excluded from the Settlement Class. In addition, as Claimant has a facility in Alberta, Canada, BP argues the Settlement Program failed to investigate whether Claimant’s financial data included revenue and expenses from this out-of-zone facility. Finally, BP maintains the Settlement Program misclassified Claimant’s “Equipment Rental” expenses as variable when the expenses should have been classified as fixed expenses.
BP, quoting from selected entries from Claimant’s website, quotes language indicating Claimant provides specialized above ground storage tank maintenance and repair
services, and “To round out its position, BP cites Claimant’s financial data to confirm that many of Claimant’s customers are oil and gas companies. BP’s conclusion rests on the proposition that the Settlement Program did not undertake an analysis of whether Claimant falls within the definition of “Oil and Gas Industry” set forth in Section 2.2.4.5 of the Settlement Agreement, and without such an analysis, the Settlement Program cannot determine whether Claimant is a class member.
Claimant maintains it is a construction company specializing in concrete foundations and storage tank moving and maintenance. Based upon the record evidence, the Settlement Program assigned Claimant NAICS Code 238110–“Poured Concrete Foundation and Structure Contractors.”
CA Policy 480 v.2 was established in order to determine the appropriate NAICS codes to assign to claimants. Under this Policy, the Claims Administrator looks at the Claimant Entity’s 2010 tax return and 2010 business permits, a long with all other evidence of business activities of the Entity to assign the code that “most accurately
describes the Entity’s primary business activities, which are the activities in which the Entity was primarily engaged during the operative Benchmark, Compensation,
and Class Periods.”
In this case, Claimant listed NAICS code 238100 on its 2010 tax return, which was deemed to be an invalid 2007 NAICS code. The Claims Administrator, exercising its discretion as set out in Policy 480 v.2, assigned NAICS code 238110, finding that Claimant’s primary business was pouring and finishing concrete foundations and structural elements, as well as performing grout and shotcrete work, which may include new work, additions, alterations, maintenance, and repairs. The Claims Administrator made this determination after exercising due diligence and reviewing Claimant’s submissions and other record evidence, including Claimant’s work activities, website, profit and loss statements, and tax returns.
A recent District Court decision, Claim ID #1946XX, filed 10/12/2016, is instructive. The Court, reversing an en banc Appeal Panel decision concerning the oil and gas industry exclusion, held that, “The Claims Administrator shall determine the appropriate NAICS code for a Business Entity based on his review of (a) the NAICS code shown on a Business Entity claimant’s 2010 tax return, (b)2010 business permits or license(s), and/or (c) other evidence of the business’s activities necessary for the Claims Administrator to determine the appropriate NAICS code. Exhibit 17 then provides an exhaustive list of NAICS codes for those entities that are excluded from the class under Section 2.2.4.5. Those NAICS codes state that a particular code applies if the entity is “primarily engaged” in the activity described by that code. Thus, whether or not (the Claimant) is excluded from the Settlement turns on what NAICS code best describes the primary nature of (the Claimant’s) business.
In that case the Court acknowledged in the opinion, there were substantial ties between the claimant entity and the oil and gas industry. Nevertheless, more that 60% of the entity’s income was associated with non-oil and gas activity; accordingly, the connection was not its primary activity, and the exclusion was held not to apply.
Thus, BP’s argument that since Claimant “handles the foundations, lifting, and moving of storage tanks, and that many of its clients and customers are Oil and Gas Companies, it must be considered an Oil and Gas Industry business,” is insufficient. Aside from the District Court case referenced immediately above, other Appeal Panels have found that claimants who were only tangentially related to the oil and gas industry should not be reclassified with an Oil and Gas NAICS code. The totality of the evidence in this record supports the Settlement Program’s conclusion that any relation to the Oil and Gas Industry was incidental, and not primary, as required in order to be excluded.
As an additional issue, BP alleges Claimant has an out-of-zone facility located in Alberta, Canada. BP argues there is no indication in the record that the Settlement Program was aware of Claimant’s Canadian facility, or investigated whether Claimant’s financial data included revenue and expenses related to this facility. However, BP cannot point to any record evidence that such financial comingling actually occurred. Claimant maintains, and filed an affidavit that credibly demonstrates, that the Canadian facility maintained separate financial records and filed a Canadian tax return. Moreover, the record does refer to the existence of the second facility, and nothing supports the notion the Settlement Program was unaware of its existence.
Lastly, BP argues that although Equipment Rental expenses are often properly classified as variable expenses, the facts in this claim show that Claimant’s Equipment Rental expenses are not in fact variable. This, at best, would represent a relatively minor adjustment in the calculation of the award. Given the “baseball arbitration” nature of this proceeding, the point is moot.
BP’s appeal on the exclusion issue is denied, and Claimant’s Final Proposal,consistent with the Award, is hereby selected.

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