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BP Business Economic Loss Claim Appeal 2016-27: Cotton gin AVM, not agriculture


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, owns and operates a cotton gin located in St. Joseph, Louisiana. The Settlement Program calculated an award in this claim of $179,621.74, pre-RTP. BP appeals, claiming the Settlement Program used an incorrect matching methodology, applying the Annual Variable Margin Methodology (“AVMM”) despite the fact that Claimant’s business, its revenue and expense patterns, and its NAICS Code “consistently and overwhelmingly” indicate that Claimant is an agriculture business for which Policy 495’s Agriculture Methodology (“AM”) was intended to be used.

The Settlement Program reviewed Claimant’s federal tax returns, Business Economic Loss Claim Form, and business activities. Following that review, the Settlement Program applied NAICS Code 115111, the code for “Cotton Ginning.” Pursuant to Policy 495, businesses characterized by this NAICS Code are generally subject to AM if they are found to be mismatched, as this claim was, as Claimant triggered five of the seven Policy 495 criteria for mismatched claims. BP asserts error, as “despite identifying the correct NAICS Code, the Settlement Program did not apply AM as Policy 495 requires, and erroneously applied AVMM instead.”

The Claims Administrator’s rationale for use of the AVMM methodology, and not the AM methodology, is reflected in the following, as set forth in the Accountant Compensation Calculation Schedule, at 4, note 18: “This claim was classified under an Agriculture NAICS code per Appendix A of Policy 495. The business description indicates the Claimant is in the cotton ginning business and supports the general agriculture industry; however, the Claimant’s revenues are not dependent on the harvest and sale of particular crop(s). The entity does not grow crops, but rather is a cotton gin – Ginning activity begins once cotton crops are harvested in early fall through late October and into November, weather permitting. The Claimant does not have a crop season over which revenues can be allocated. In addition, Variable Margin fluctuates significantly throughout the financial data; therefore, the AVM methodology has been applied.”

BP argues that it is unclear how to reconcile the Settlement Program’s observation that Claimant is in the cotton ginning business with its “incorrect statement” that Claimant “supports the general agriculture industry” or how is it clear how Claimant could be “in the cotton ginning business” and yet generate revenues that “are not dependent on the harvest and sale of particular crop(s).” Boiled down, BP’s assertion is that Claimant’s revenue from ginning is tied to the harvesting of cotton crops, which contradicts the Settlement Program’s conclusion that “Claimant does not have a crop season over which revenues can be allocated.”

Policy 495 states, “This document summarizes NAICS codes that will likely fall into each methodology. However, it is important to note that a claimant with a given NAICS code will not be automatically be assigned to a given methodology by virtue of a given NAICS code if , in the judgment of the Claims Administrator’s office, there are factors that indicate that revenues and expenses would be more sufficiently matched by applying an alternative methodology. As a result, some businesses within a certain three digit NAICS Subsector may be treated under a different methodology from others within the same Subsector.” See Section II (A) of Policy 495. Claimant asserts that the gin is a “processor or manufacturer” rather than a crop grower, and therefore the AVM methodology was appropriately applied to better state revenues and expenses.

Previously published decisions of the Appellate Panel recognize the discretion granted to the Settlement Program to apply the appropriate methodology based upon the totality of the circumstances. As has been repeated held, agricultural support industries, such as is the case here, do not plant or harvest crops. The focus of the Agricultural Methodology is on the plantings, growing and harvesting of crops. Attachment D of Policy 495 repeatedly refers to “crops,” “crop season,” “bulk purchases,” “harvesting,” and “crop types.” With the exception of “crop season,” none of these terms apply to the operation of a cotton gin. It was within the accounting vendor’s discretion to apply the AVM methodology in this instance, and that decision is supported by the context and totality of the circumstances. Hence, the Claims Administrator’s decision is affirmed, and Claimant’s Final Proposal, consistent therewith, is hereby selected.

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