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BP Business Economic Loss Claim Appeal 2016-2151: Start-Up Claims Determined By Pre-Spill Expenses, Revenues and Totality of the Circumstances (Decision Affirmed)

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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 appeals the denial of its Start Up BEL Claim. Claimant owns various rental properties. Claimant filed Start Up claims for a number of these properties. The subject of this appeal is . This property was purchased on February 19, 2010, approximately two months before the Spill.
The Settlement Program denied this Claim on the grounds that Claimant did not receive any revenue in connection with prior to the Spill, nor did it incur substantial expenses in connection with indicative of the actual start-up of operation prior to the Spill. Whether or not a business that did not receive revenue prior to the Spill still
qualifies as a Start Up has been a vexing one for this Panel – and others.
The District Court has, on several occasions, reversed Appeal Panels and reinstated the Settlement Program’s denial. In both instances, the Panel and the District Court
considered the same set of facts, but reached different conclusions as to whether or not the pre-Spill expenses in those claims were “substantial” and “indicative of the
actual start-up of operations” in light of the “totality of circumstances.”
In the instant matter, Claimant purchased ***in February 2010. Claimant already owed a number of other rental units in this gated community. All of these standalone units were purchased for the purpose of renting them out. Claimant’s records show that the first rental revenue received on XXX was for the rental period of 5/28/10-5/31/10 (Memorial Day Weekend). as to pre-Spill expenses, Claimant incurred the following: $95 for an insurance inspection, $3,930 for property insurance, $1,925 for property management fee, $76.70 in utilities, and $17,685.40 in maintenance/fix-up, for a
total of $23,712.10. The maintenance/fix-up items included the following: Repair or replacement or refurbishing of closets and kitchen cabinets, painting, replacing lights, window repair, and floor treatment. All of these maintenance/fix-up items were completed prior to the Spill.
BP argues that these pre-Spill expenses are insubstantial and/or not indicative of the actual start-up of operations. This Panel disagrees.
As noted earlier, whether or not the expenses are substantial and whether or not they are indicative of the actual start-up of operations has to be looked at in the
totality of circumstances. This Panel does not interpret the District Court decisions as establishing a bright line. Here, was rental-ready prior to the Spill. The fact that no one rented the unit prior to the Spill is not controlling. Policy 362 v.2 makes it clear that the receipt of revenue is not a requirement, provided that Claimant can show that it incurred substantial costs or expenses of a nature indicative of the actual start-up of business operations.
In the instant matter, Claimant did what one would expect a new landlord to do in order to commence operations: Property insurance was obtained, the property was painted, kitchen cabinets were updated, floors were refurbished/cleaned, a property manager was hired, and the property was put on the market (which resulted in revenue being produced approximately five weeks after the Spill). All of the activities were carried out and all of these expenses were incurred prior to the Spill. The totality of circumstances (e.g., the amount of the expenses, the type of business) leads this Panel to conclude that Claimant had started up operations prior to the Spill.
This Panel is mindful that the Program has denied all of the other claims filed by Claimant for the other units that Claimant owned in the same gated community.
This Panel is also mindful that all but one of those denials was affirmed by other Panels. That said, these claims are fact-specific. Based on the facts of this Claim, and
the applicable standard set forth in Policy 362 v.2, the denial of this Claim is overturned.
Editor’s Note:  This Appeal panel decision was AFFIRMED by Judge Barbier under Discretionary Review.

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