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BP Business Economic Loss Claim Appeal 2016-311: Revenue reallocation permitted at the discretion of the vendor


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 Claims Administrator’s determination that it is not entitled to an award on this BEL claim. Claimant is a book store in Gulf Shores, Alabama (Zone D). The Administrator originally issued an Eligibility Notice in 2013 but the claim was stayed while the matching issue was decided by the Fifth Circuit. After the implementation of Policy 495, the Claimant’s P&Ls were reanalyzed under that procedure. In the process, the program accountant identified mismatches of revenue and adjustments were made to the financials. The restated P&Ls then triggered five of the seven criteria of Policy 495 and the AVM methodology was applied. The result of all of this was a negative amount resulting in an award of $0. On appeal, Claimant argues that the Administrator misapplied Policy 495.

Claimant raises two specific arguments in support of its appeal. First, Claimant asserts that the program accountant exceeded his discretion in adjusting the financials because only accounting errors may properly be corrected as a first step under Policy 495. Beyond that, Claimant urges that the accountant erred in utilizing the AVM methodology rather than proceeding under the standard BEL formula. In response, BP argues that the provisions of Policy 495 not only permit but require that the financials be adjusted for errors and/or any mismatch of revenue and expenses that can be explained by appropriate documentation. BP also points out that once the financials triggered the Policy 495 criteria, application of the AVM is required. [Editor’s Note: But see Why Policy 495’s seven volatility screens are not conclusive of insufficient matching]

As noted by other appeal panelists, decisions have varied as to whether adjustments for identified mismatches of revenue and/or expenses are consistent with the provisions of Policy 495. Some panels have limited such first step adjustments to errors while others have upheld the reallocation of revenues or expenses based on the program accountant’s exercise of professional judgment. This issue has now been resolved by the District Court in a series of Discretionary Review decisions issued on February 25, 2016. In those decisions, the Court specifically upheld the adjustment or reallocation of revenue or expenses by the accountant prior to application of the seven criteria in Policy 495. Because those decisions are binding on this panelist, the program accountant’s exercise of similar discretion in this claim must be upheld.

Claimant also argues that the application of the AVM was an abuse of the accountant’s discretion and professional judgment. However, once multiple criteria were triggered, the accountant was required to utilize the AVM methodology to restate the financials. Stated another way, it would have been an abuse of the accountant’s professional judgment not to proceed with the AVM under these circumstances. [Editor’s Note: But see Why Policy 495’s seven volatility screens are not conclusive of insufficient matching]

It should be noted that this is not a case in which the restatement of Claimant’s P&Ls resulted in a failure to meet the causation requirements of the Settlement Agreement. Instead, adherence to Policy 495 resulted in a negative award. But Policy 495 focuses on the process rather than the result. That process was properly followed by the program accountant in this case.

Finally, Claimant argues that, having issued an Eligibility Notice in 2013, the Settlement Program lacked authority to revisit the claim after implementation of Policy 495. This procedural argument lacks merit as the District Court issued a narrowly tailored injunction that required the program to proceed in the fashion that it did. This assignment of error is without merit.

For the foregoing reasons, the Claims Administrator’ determination of this claim was correct.

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