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BP Business Economic Loss Claim Appeal 2017-1470:Revenue From Out of Zone Projects Not Excluded;Proper Adjustments Made to COGS

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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 construction company with a single Facility located in Zone D who was awarded over $2 million pre-RPT.
BP appeals Claimant’s BEL on two grounds. First, BP argues that the Program erroneously included Claimant’s out-of-zone revenue in its calculations. Second, BP contends that the Program made an error in the treatment of a negative COGS entry.
Out-of-Zone Revenue
BP’s first issue involves the Program’s treatment of Claimant’s so-called out-of-zone revenue. BP’s argument is set forth in its Initial Proposal memorandum:
The Settlement Program also failed to evaluate revenue and expenses related to projects that Claimant worked on
outside of the Gulf Coast Areas. The Settlement Agreement compensates Business Economic Loss (“BEL”) claimants for
“Economic Damage,” defined as “loss of profits, income and/or earnings arising in the Gulf Coast Areas
or Specified Gulf Waters…”
Settlement Agreement § 38.57 (emphasis added); see also §§ 5.3 & 5.3.2 (defining claims for “Business Economic Loss” in terms of “Economic Damage Compensation”); Exhibit 22 (providing a map defining the boundaries of the Gulf Coast Areas).
Consistent with this limitation that compensable damages are for loss of profits “arising in” a specified geographic area, business claimants asserting Economic Damages are members of the Settlement Class only insofar as they either (1) “sold products in the Gulf Coast Areas or Specified Gulf Waters” (either directly to end users, or to
another business one step removed from end users), or (2) “are service businesses with one or more full-time employees … who performed their full-time services while
physically present in the Gulf Coast Areas or Specified Gulf Waters…” Settlement Agreement §§ 1.2.1 & 1.2.2 (emphasis added).
Publicly available information indicates that Claimant worked on numerous projects that were not in the Gulf Coast Areas. The income and profits from these and any other out-of-zone projects quite simply did not “arise in” the Gulf Coast Areas. As such, the purported loss of profits associated with these and any other out-of-zone projects cannot form the basis of an award.
BP does not argue that Claimant maintains out-of-zone Facilities. If that were the case, revenues from those Facilities would be excluded. Rather, BP argues that revenue from work performed out-of-zone cannot be used in calculating losses “arising in the Gulf Coast Areas.”  BP offers no Court decisions or Appeal Panel decisions in support of this position.
Claimant suggests, and this Panel agrees, that the viability of BP’s position hinges on the interpretation of Section 38.57’s use of “arising in the Gulf Coast Areas.” Notably, this phrase is not specifically defined in the Settlement Agreement.
Section 38.57 defines Economic Damage as follows: Economic Damage shall mean loss of profits, income and/or earnings arising in the Gulf Coast Areas or Specified Gulf
Waters allegedly arising out of, due to, resulting from, or relating in any way to, directly or indirectly, the Deepwater Horizon Incident; provided, however, that Economic Damage does not include (1) loss of profits or earnings, or damages for injury relating to real property or personal property that constitutes any part of the Seafood Compensation Program, Coastal Real Property Damage, Real Property Sales Damage, Wetlands  Real Property Damage, Vessel Physical Damage, or (2) VoO Charter Payment, or (3) damages for loss of Subsistence use of natural resources, which constitutes Subsistence Damage.
Claimant argues that if the parties had intended to exclude out-of-zone projects from the calculation of Economic Damages, revenue from these projects could have been included in the above list of exclusions. Further, Claimant points out that nowhere in the Settlement Agreement’s numerous references to revenues and expenses is there a distinction made between those revenues and expenses generated or incurred from work performed outside the Gulf Coast Area.
BP’s position is an interesting one. The “arising in the Gulf Coast Areas” language was certainly intended to limit claims to those businesses who were doing business in the Gulf Coast Area at the time of the Spill. And the Multi-Facility Business framework clearly excludes revenue attributable to out-of-zone Facilities (as defined by the Settlement Agreement). However, nothing in the Settlement Agreement appears to specifically exclude revenue that came from out-of-zone projects. Equally notable, the Settlement Program has consistently included out-of-zone revenue in its calculations, provided that the revenue was not attributable to an out-of-zone Facility.
BP’s objection to this approach has only recently been raised on appeal. Previous appeals by BP have focused on whether a claimant maintained out-of-zone Facilities, not whether the revenue from these out-of-zone projects should be included in the Program’s calculations. Absent specific language in the Settlement Agreement which excludes out-of-zone revenue that is unrelated to an out-of-zone Facility, and further in light of decisions rendered on this issue by other Appeal Panels, this Panel
declines to adopt BP’s position.
Treatment of COGS
BP contends that the Program “double counted” Claimant’s “Applied Labor Burden” for 2008 and 2011, which underestimated Claimant’s COGS for those years. With assistance from Claimant, this Panel reviewed the record in order to evaluate BP’s contention. Based on that review, including the accountant reviewer’s calculation notes, this Panel concludes that the Program correctly removed “Applied Labor Burden” from COGS for 2008 and 2011.
Conclusion
In light of the above, and following a de novo review of the record, this three-member Panel unanimously adopts Claimant’s Final Proposal.

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