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BP Business Economic Loss Claim Appeal 2016-8: Accrual P&Ls not required (decision overruled)


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, a limited partnership operating a shopping center in St. Petersburg, Florida, appeals a BEL award of $404,881.00 pre-RTP on a sole basis. In one of the most well argued and comprehensive briefs this panelist has encountered, Claimant’s counsel asserts that the Program vendors exceeded their discretion by requiring them to convert their cash-basis P &Ls into accrual ones, and that this forced conversion had a major effect in the computation of their ultimate award under the AVM methodology of Policy 495.

Claimant freely admits that the AVM methodology was properly chosen. It asserts that at all relevant times its P&Ls were kept contemporaneously on a cash basis, and that such a methodology is customary in its own industry. It asserts that the vendors, on the basis of a discrepancy between its tax returns and its P&Ls, required Claimant, over its strong objection, to resubmit its financials using an accrual basis. It then used these financials rather than the cash basis ones to compute the award. Claimant cites a multitude of prior panel decisions that have held that as a general rule, under Policy 495 the Program accountants are not allowed as a “first step” to correct financials unless certain errors are present on their face. Although said policy does grant some discretion to the accountants to make non-error-based corrections in the interest of a realistic assessment of economic loss, this panelist believes that said discretion was exceeded in the present case. Claimant had long utilized a cash accounting basis in the routine operation of its business.

BP does not dispute the assertion that such an accounting basis is standard in Claimant’s particular industry. To require Claimant, as in this case, to resubmit its P&Ls on an accrual basis is, in the opinion of this panelist, unfaithful to both the letter and the spirit of Policy 495 and the judicial decisions that were its foundation. As noted by Claimant, the AVM methodology allows the redistribution of expenses, but generally not of revenues, which was at the center of the vendors’ request for resubmission of the P&Ls on an accrual basis. To argue as BP does that Policy 464, even if binding upon this panel, gives the vendor no discretion but to use accrual-based P&Ls when faced with both cash and accrual based ones, in the present case ignores the fact that it was the Program that essentially forced Claimant, over objection, to resubmit its financials on an accrual basis. As another panelist has observed in another setting, BP’s reliance on Policy 464 in the present setting is akin to the case of the young man who shoots his father, then seeks mercy before the court because he is an orphan.

Although this panelist is well aware of certain isolated prior decisions that have sanctioned the vendors’ moving rental revenue into months they were earned, it finds that the present case, in the extreme manner in which Claimant’s financials were modified under repeated protest and in violation of purported industry customs as a first step, exceeded the vendors’ allotted discretion under Policy 495 and undermined the Agreement’s philosophy under Section 4.3.8 and other similar provisions to evaluate claims to derive “the greatest economic damage compensation” to a claimant. Claimant attaches to its lengthy brief a detailed recomputation of the award using the AVM methodology were the cash basis P&Ls utilized. That computation resulted in a revised pre-RTP award of $993,419.00, which is the amount of Claimant’s final proposal. BP chose not to contest that recomputation in the alternative, and simply sought the affirmation of the appealed from award. As a result, this panelist, under the specific aggravated facts of this case, believes that Policy 495 was not complied with and chooses Claimant’s final proposal as the appropriate award.

[Editor’s Note: This appeal panel decision was reversed by Judge Barbier under Discretionary Review on the grounds that the Claimant voluntarily provided accrual P&Ls for review.]

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