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BP Business Economic Loss Claim Appeal 2017-1225: “Medical Payroll” for Staffing Agency is Fixed, Not Variable

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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 is a staffing agency located in Shreveport, Louisiana. The Settlement Program awarded the Claimant $57,806.30, pre-RTP. Claimant appeals arguing that the “Medical Payroll” expense should be classified as payroll rather than a Variable expense. Claimant utilizes salaried employees to provide its services. Claimant points out
that its P&Ls included an account titled “Medical Payroll” that contained salaries paid to Claimant’s employees and for whom Claimant issued W-2s and paid payroll taxes on these salaries. Claimant’s tax returns confirm that the Medical Payroll account contains salaries on which Claimant paid payroll taxes.
Exhibit 4C to the Settlement Agreement mandates that “Medical Payroll” be utilized in the payroll analysis. Claimant argues that rather than following the analysis mandated by Exhibit 4C, the Reviewer reclassified “Medical Payroll” as COGS-Variable, an account listed in the Variable Costs schedule on Attachment A to Exhibit 4C. Claimant argues that the Reviewer cited no authority for this reclassification and Claimant is not aware of any. Claimant points out that Attachment A specifically states as follows: “Payroll expenses (including Salaries and Wages, Employee Benefits, Overtime Wages, and, where applicable, 401K Payments, but excluding Owner/Officer Compensation) will be allocated between fixed and variable components based upon the agreed-upon payroll methodology.” Accordingly,  says Claimant, Attachment A reiterates that the “agreed-upon payroll methodology” set forth in detail in Exhibit 4C is mandatory—and that the Administrator must include “Salaries and Wages” in the “Payroll expenses” methodology.
Here, according to Claimant, the Reviewer simply disregarded the mandatory language in Exhibit 4C and Attachment A of the Settlement Agreement and reclassified “Medical Payroll” as COGS-Variable because, according to the Reviewer, “‘Medical Payroll’ directly relates to the Claimant’s revenue generating activities.” But, says Claimant, this reasoning would also apply to any service oriented business and, in any event, is irrelevant according to the methodology mandated by the Settlement Agreement. Thus, contends Claimant, the Agreement makes clear that all payroll (excluding Owner Officer compensation) must be included when performing the “agreed-upon payroll methodology.”
BP argues that as a medical staffing agency, Claimant’s medical payroll expenses directly relate to the level of Claimant’s business activity and should be treated as a
variable expense, again citing Morton M. Goldberg Auction Galleries, Inc. v. Canco, Inc., 650 So. 2d 801, 803 (La. Ct. App. 1995) for the proposition that under the Business Economic Loss framework, Variable expenses are “those that change in relation to the level of sales by a business.” Fixed expenses, on the other hand, “‘are
those costs that the business must expend regardless of the sales level. For example, something like rent.’” Id.  The Settlement Agreement adopts this same approach and classifies expenses as Fixed or Variable according to Exhibit 4D. These expenses were directly related to staff that Claimant provided to clients in order to generate
revenue. Moreover, this expense line item does not include the type of staff salaries that are recognized as “Payroll” by the Settlement Agreement.
Claimant recognizes the payroll for administrative staff separately on its Profit and Loss Statements, and the Settlement Program classified the administrative staff account as “Payroll.”  Thus, according to BP, the Settlement Program properly exercised its discretion in determining that Claimant’s expenses related to hiring medical staff to generate revenue and thus classifying this account as a Variable expense. Claimant responds by asserting that BP studiously avoids addressing the Settlement Agreement’s mandatory language regarding the treatment of “payroll expenses” in Exhibit 4C and Exhibit 4D, Attachment A. Instead, BP relies upon a single case from the Louisiana Court of Appeals to advance its argument that the Administrator should have the discretion to classify an account that indisputably contains “payroll” for Claimant’s salaried W-2 employees as 100% Variable.
Had the parties to the Settlement Agreement wanted to provide the Administrator with such discretion they would have said so, says Claimant. Accordingly, Claimant requests that the Appeals Panel direct the Reviewer to treat “Medical Payroll” as payroll and utilize it in conducting the payroll allocation methodology mandated by the Settlement Agreement. Doing so results in pre-RTP compensation of $200,540.00, and Claimant requests that it be awarded this amount. BP does not contest this amount under Claimant’s calculations.
This panelist finds that the Claimant has the better argument, and therefore, the Claiamnt’s Final Proposal is adopted.

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