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BP Business Economic Loss Claim Appeal 2017-1388: Physicians’ Group Income Not “Passive” But “Earned”

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 physician’s office located in Jackson, Mississippi. The Settlement Program denied this claim on grounds Claimant did not satisfy the requirements of Exhibit 4B. On appeal, Claimant asserts that the Settlement Program improperly excluded certain income Claimant received from a Medical Clinic Claimant shares with five other doctors from which they conduct their respective medical practices.
According to the Clinic’s operating agreement, Claimant (and the other doctors) receive a salary based on medical services they respectively provide. All revenue is initially collected by the Clinic. Excess earnings over salaries are distributed monthly to the members as generated and earned by each, respectively. The Claims Administrator declined to recognize the Clinic’s monthly distribution of earnings for medical services over salary to Claimant, as it did not “occur in the ordinary course of Claimant’s business”as defined in Policy 328 v. 2.
Policy 3218 v. 2 provides as follows:
The Claims Administrator interprets the Settlement Agreement such that the following items shall not
typically be treated as “revenue” for purposes of thevarious calculations to be performed under the terms
of the SettlementAgreement with regard to entities asserting BEL claims: (a) insurance proceeds,
(b)interest income, (c) gains or losses from sales of assets, (d) reimbursed expenses,(e) capital assessments,
(f) intercompany sales, (g) related party transactions thatare not arm’s length transactions, and (h) grants for
“for-profit” entities.
The foregoing is not an exhaustive list. The Claims Administrator in his discretion may require that the claimant provide further explanation and/or additional
documentation underlying the monthly revenue and related expense amounts in question. In arriving at this conclusion, the Claims Administrator has in part relied
upon the fact that these items are not typically earned as revenue under the normal course of operations in an arm’s length transaction.
BP argues Policy 328 v.2 directs the Settlement Program to exclude from the calculation of revenue income streams “not typically earned as revenue under the normal course of operations,” including “related party transactions that are not arm’s length transactions,” citing Policy 328. BP maintains the Settlement Program properly excluded the monthly revenue distributions from the because “such revenue was not derived from Claimant’s operational activity, but instead was Pass-Through income from Claimant’s ownership interest.
In  a review of this record, including Claimant’s financials, tax returns and the Operating Agreement, demonstrates that we are dealing with a group professional practice, with all earnings being distributed to the working doctors as individually earned, through the in the form of a basic salary plus monthly distributions of accumulated earnings as they are deposited. This is revenue earned “under the normal course of operations” in an arm’s length transaction, and not one of the passive income categories as described in Policy 328 v. 2. All of these earnings- salary plus monthly distribution of accumulated earnings from services- should have been aggregated and included in the Exhibit 4B causation analysis.
Accordingly, the Denial herein is overturned, and the case remanded for reassessment in accordance with these findings.

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