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BP Business Economic Loss Claim Appeal 2017-148:Claimant’s Costs of Goods Sold Properly Allocated to One and Not Both of its Businesses

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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


BP appeals the BEL award to Claimant XXX, which operates in Valparaiso, Florida, the seafood market that is the subject of this appeal. Claimant also operates a commercial shrimping business, for which it filed a Seafood Compensation claim, and was compensated.
During the claims process, exchanges between Claimant and the Settlement Program (“the SP”) led to Claimant preparing and submitting separate monthly P&Ls for the two business operations. In that regard, Claimant allocated all cost of goods sold (“COGS”) to the fish market. Its explanation for that allocation was that those COGS represented the amounts it paid to obtain sufficient shrimp over-and-above the quantities its own shrimp boat could produce, and all fish offered at the market, by purchasing the same from third-party vendors. That produced relationships between the revenue reported for the market and the COGS allocated to it that seemed to BP, and to this panelist, contrary to economic reality, translating to extreme negative variable profit margins.  Claimant’s further explanation to the SP was that it had begun the market as a secondary venture in 2007 in a very competitive seafood market and intentionally sold the seafood in its market to its customers at a greatly discounted price in an effort to attract market share for the future, hoping eventually to establish that venture as it primary business.
In order to delve deeper into the situation, the panelist requested a Summary of Review from the SP. In due course the SP reported as follows:
Claimant notes: “purchases shrimp from another wholesale market (at a higher price) when the boat cannot catch shrimp and also purchases fish for the market.” The Claimant provides a “Transaction Detail by Account” and “Seafood Purchases” schedule for 2009 Costs of Goods Sold. DWH Accountant noted that all purchases per the “Seafood Purchases” schedule was from third party vendors. Additionally, it was noted that both schedules tied to Costs of Goods Sold as reported on the Claimant’s Non-Shrimp Profit and Loss Statements and Tax Return.
The above corroborates the Claimant’s explanation on Appeal “The division of the revenue and expenses between Shrimp and Non-Shrimp activities was done correctly in allocating no CoGS to the Shrimp activities. The CoGS reported on the P&Ls and tax returns were only the purchase of other seafood for resale; no shrimping costs were included. All the CoGS are expenses for the purchase of seafood inventory (not costs of commercial shrimping).”
The panelist confirms, by further examination of the separate financials for the shrimping operation and the fish market for 2007-2011 contained in YYYY that seemingly all operating expenses for the shrimping operation are reported as various line-item expenses on its P&Ls, (i.e., various utilities, supplies, equipment repairs, boat repairs, fuel expense, insurance, depreciation, etc.). An allocation percentage based on the relationship of shrimping revenues to fish market revenues was used to back out expenses related to shrimping that could not be specifically identified as relating exclusively to one or the other of the two business operations. The SOR reveals that the SP has looked into all of this and determined that the allocating of the reported COGS exclusively to the fish market ties in to the seafood purchases from third parties documented in the record.
In the end, given the analysis set out in the Summary of Review and the panelist’s independent examination of the underlying financials in light of it, the panelist concludes that the SP did not err in its determinations. In its Final Proposal, BP requests a remand, which request is denied. It also suggests that the panelist might consider submitting a request for a Summary of Review, which the panelist has done.
BP alternatively submits a Final Proposal of $0. Under the Baseball Process which controls the panelist’s options, Claimant’s Final Proposal in the amount awarded by the SP pre-RTP, to-wit: $73,902.42 (with a prior payment offset due of $42,625.32) is selected. Appeal denied.

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