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BP Business Economic Loss Claim Appeal 2016-342: Vendors do not violate Policy 495 when they exercise their discretion in addressing a mismatch of revenue and expenses that can be explained and supported by documentation


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 is an appeal of the denial of a BEL claim by a commercial landlord in Birmingham, Alabama. The Claimant’s cash basis P&Ls would have satisfied the V-Shaped Revenue causation test. However, the program accountant moved some of the rental revenue from the months in which it was received to the months for which it was due. As a result, Claimant was unable to satisfy the objective causation requirements of Exhibit 4B.

On appeal, Claimant challenges the reallocation of the rental revenue as being contrary to Policy 495 and applicable Fifth Circuit decisions. The Calculation Notes summarize the reviewing accountant’s analysis:

“Claimant provided supporting documentation in the form of general ledgers to confirm revenues on the profit and loss statement for 2007-2011. Accounting Review noticed several rental payments were paid in a prior month or after the revenues were earned. The ledgers also confirmed a series of payments were lumped together in a month; therefore, adjustments were made to correctly post the rental payments to the appropriate months.”

Claimant argues that the cash basis financials were sufficiently matched and that there was no basis for the accountant to move the rental revenue. BP responds that Policy 495 expressly permits such adjustments: “…it may be appropriate to make adjustments to the Claimant’s financials as to the timing of the recognition of either revenues or expenses or both.” Both parties cite appeal panel decisions supporting their respective arguments.

Appeal panels have struggled with the issue of reallocating revenue and expenses prior to application of the matching tests of Policy 495. Some have held that the accounting vendor is prohibited from reallocating revenue and others have recognized the accountants’ discretion in determining whether to do so. The variations in these decisions reflected differing interpretations of the requirements of Policy 495.

The District Court has now resolved this conflict in a series of Discretionary Review decisions released on September 24, 2015. In Claim ID the District Court determined that “the Accounting Vendors reasonably exercised their discretion in addressing a mismatch of revenue and expenses in the Claimant’s P&Ls even in the absence of an actual accounting error.” In support, the Court cited page 7 of Policy 495: “contemporaneous P&Ls submitted by the Claimant will be restated if in analyzing and processing a claim, the CSSP Accounting Vendors identify either an error (as previously defined) or a mismatch of revenue and variable expenses which can be explained and supported by appropriate documentation.” In Claim ID the Court approved action by the program accountant in moving revenue to correct what was viewed as an obvious mismatch, before any of the methodologies were utilized. “The Court views this as the correct approach…”

From these decisions, this panelist now regards the issue raised by Claimant to be settled. That is, the program accountants do not violate Policy 495 when they exercise their discretion in addressing a mismatch of revenue and expenses that can be explained and supported by documentation. This rule may be applied in the absence of an accounting error and prior to application of the Policy 495 methodologies.

For the foregoing reasons, the program accountant did not exceed his discretion in moving Claimant’s rental revenue to the months in which it was owed. The fact that this exercise of professional judgment resulted in the Claimant’s inability to satisfy the V-shaped revenue test is unfortunate, but of no consequence. Accordingly, the appeal is denied.

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