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BP Business Economic Loss Claim Appeal 2016-209: Successor entity entitled to existing BEL treatment, not startup


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 a commercial rental property located in Sarasota, Florida (Zone A). It filed a Business Economic Loss claim with the Settlement Program. Following initial review, the Claims Administrator reclassified the claim to that of a Start-Up Business Economic Loss. It then issued a Denial Notice stating that Claimant’s operating history commenced on or after April 20, 2010 and thus was ineligible to receive compensation under the terms of the Settlement Agreement and CAO Approved Policy 362. Claimant’s Requests for Re-Review and Reconsideration were denied for the same reason.

On appeal, Claimant argues that its operating history began in 2002 when its property was purchased by [XXXXX]. [XXXXX] owned a number of properties in the Sarasota area which it rented. At some point, its legal counsel became concerned about potential liability issues and recommended placing each of the properties, including that of this Claimant, in separate Florida limited liability companies. In keeping with that advice, this Claimant entity was formed and [XXXXX] executed a Warranty Deed conveying, for no consideration, the property in question to it. That deed was recorded with the clerk of the Circuit Court of Sarasota County on March 11, 2010. According to Claimant, there was no change in the operations or in the pass through owners. Illustrative of the continuity of the operating history is the following:

(1) The pass through owners of the grantor entity and the grantee entity were the same;

(2) The manager-member of both entities is ultimately the same person;

(3) This was a tax-free transaction with no gain or loss recognized on the transfer;

(4) For convenience, the tax return was split mid-year ([XXXXX] tax return ended on June 30, 2010 and that of [XXXXX] began on July 1, 2010); and

(5) Contemporaneous monthly profit and loss statements for the entire claim period (2007 through 2011) were submitted with the claim. Both sets of statements were prepared by the same bookkeeper using the same accounting software and same reporting procedures.

Claimant submits that the June 30/July 1, 2010 cut over date for tax purposes was “just a simplification for the tax returns; that the real transfer of benefits and liabilities of the business occurred upon execution of the Warranty Deed recorded on March 11, 2010. For this reason, it contends the mid-year change of reporting entity was a non-event in the operating history of the Claimant. For that reason, the full operating history, beginning on January 1, 2007, should be used for calculation of its claim.

Claimant cites, in support of its position, the analysis contained in former CAO Approved Policy 354 which pertained to the evaluation of Claimants with changes in business ownership. That policy, along with certain others concerned with similar issues, was subsequently withdrawn. According to the Claims Administrator, it was determined that formal policies on those topics were no longer necessary and, in the event they became an issue in the course of processing claims, the Settlement Program would process them “in accordance with the Settlement Agreement as interpreted by the Claims Administrator.”

Claimant points to the following statements contained in that policy:

(c) Change in Business Structure, No Change in Operations: If the TIN of a business entity changes because the nature of the entity changes (e.g., a sole proprietor changes to a partnership) but there is no change in the business’ operations, then the Claims Administrator will typically use both TINs in the analysis of the claim.

Example: A footwear/apparel retailer located in Gulf Shores was wholly owned by one individual up until May 2009 and subsequently changed to a partnership of four owners. There was no change in the business’ operations other than a mere change in business structure. The financials from both TINs would be included in the analysis of the General BEL claim.

See Policy 354 Memorandum dated March 20, 2013 from the Claims Administrator to Class Counsel and BP, at page 3.

BP’s response is simple: Claimant admits, on its Registration form, that its date of incorporation is July 1, 2010 and also reports, on its IRS Form 1065, that as the date its business started. On that date, says BP, transferred a number of its properties, including the one owned by Claimant, to individual LLCs. It acknowledges that the owners of the new LLCs, including Claimant, were the same as the owners of [XXXXX].

It further contends [XXXXX] filed a claim with the Settlement Program and included the property at issue here. Significantly, however, it also acknowledges that [XXXXX] did not make a claim for the property. It simply asserts that, at the time of the Spill, the property was owned by [XXXXX]. It contends that Claimant should have claimed the property in that claim. Since it failed to do so, denial was appropriate.

The issue is whether this Claimant’s operating history commenced before April 20, 2010. As above noted, it seeks to rely upon acquisition and subsequent operation of its property by beginning in 2002. The evidence it has presented on that point is persuasive indeed. However, equally persuasive and perhaps more important, the referenced Warranty Deed confirms that it was formed and acquired title to the property well in advance of the Spill. The record evidence supports a finding that it operated it continuously, thereafter.

Thus, the decision of the Claims Administrator to reclassify Claimant’s original BEL claim to that of a Start-Up BEL claim is questionable indeed. Regardless, this panelist has concluded it had an operating history commencing well in advance of April 20, 2010 and its claim should not have been denied.

For the foregoing reasons, this Claimant appeal is sustained and its claim is therefore remanded to the Claims Administrator for further processing in keeping with this opinion.

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