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BP Business Economic Loss Claim Appeal 2016-2028: Legal, Architectural and Engineering Expenses Not Indicative of Start-Up Operations


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, a Zone D restaurant in Scottsboro, Al, appeals its conversion by the Program from a BEL to a Start-up BEL claim and its threefold denial of an award, the Program finding that its operating history did not commence before April 20, 2010.

In its support, Claimant asserts that in contrast to the Program’s findings, the restaurant has been operated by since 1976. It adds that its only change was adding his son to the business, “which created a change in the structure of the family-owned business.” Specifically, Claimant and his son formed an LLC on Dec. 22, 2009, and planned for the relocation of the restaurant, with a projected opening of November, 2010. In early 2010, land was purchased and engineering and architectural drawings were obtained and paid for, in addition to governmental permits. The grand opening of the restaurant at its new location was delayed, asserts Claimant, by the occurrence of the Spill, which affected availability of seafood, slowed traffic of Gulf-bound customers, and increased local fuel prices.  Claimant seeks the reconversion of its claim to one for a BEL award, and the computation of same using a benchmark that precedes its formation in December of 2009 as an LLC.

This panelist is well aware of decisions by the District Court drawing a clear line in the status of a business entity if there is a legal reformation of its status, despite a near identity of customer bases or equity owners. Herein, Claimant’s own admission that “changed the structure” of the business when he added his 2016-2028 son as an equity owner and the entity became an LLC is fatal to Claimant’s contention that it has been in operation since 1976.

When the LLC was was formed in December of 2009, using a new EIN and resulting in the ceasing of operations of the former restaurant, the former entity owned by

ceased to have relevance to the present claim as the terms of the Settlement Agreement have been authoritatively construed. Thus, the conversion of the BEL claim to a Start-up BEL claim was appropriate, as required by Exhibit 7 and Policy 381v3 for entities that began operating after October 20, 2008.

Since eligibility as to those entities is limited to those which commenced operation before April 20, 2010, this panelist requested a Summary of Review seeking the factors used by the Program in applying the “totality of circumstances” test of Policy 362v2 in finding that Claimant’s commencement of operations had not occurred before that date. In due course, the Program responded by noting that Claimant reported no revenue until October of 2011, consistent with the restaurant’s opening in September of 2011.

Concerning pre-opening expenses of relevance to this inquiry, the Program found capital expenditures of approximately $215,000 for the purchase of raw land and expenditures of $2100 in engineering and architectural fees between December, 2009 and the occurrence of the Spill. It determined that these expenditures were not “of the nature indicative of the actual start-up business operations.” Policy 362v2, as previously approved and construed by this panel, requires the expenditure of

“substantial” costs that are indicative of the “actual” start-up of business operations. Prior decisions by the District Court indicate that even if the above costs are substantial in nature, costs that are “largely legal, architectural and engineering expenses” are not truly indicative of actual start-up operations.Prior decisions of this panel have largely affirmed this view.

In summary, this panelist on de novo review finds that the designation of the entity as a Start-up business was appropriate, and further that the Program was correct in its denial of the Start-up BEL claim on a finding that few if any costs were expended prior to the Spill that were truly indicative of actual start-up business expenses. Such a finding justified the Program’s finding that Claimant had not commenced operations before April 20, 2010, a finding that was fatal to Claimant’s Start-up BEL claim.

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